Building a Sustainable Growth Company

Transcription

1 Building a Sustainable Growth Company August 2015

2 Safe Harbor Statement This presentation contains forward-looking information that involves risks and uncertainties, including statements about the Company s plans, objectives, expectations and intentions. Such statements include, without limitation: financial or other information based upon or otherwise incorporating judgments or estimates relating to future performance, events or expectations; the Company s strategies, positioning, resources, capabilities and expectations for future performance; and the Company's outlook and financial and other guidance. These statements are based upon assumptions made by the Company as of the date hereof and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from expectations. Risks and uncertainties that could adversely affect the Company s business and prospects, and otherwise cause actual results to differ materially from those anticipated, include, without limitation: the ability of the Company to successfully manage leadership and organizational changes, including the ability of the Company to attract, motivate and retain key employees; U.S., European and worldwide economic conditions and related uncertainties; the Company s reliance on third party reimbursement policies to support the sales and market acceptance of its products, including the possible adverse impact of government regulation and changes in the availability and amount of reimbursement and uncertainties for new products or product enhancements; uncertainties regarding healthcare reform legislation, including associated tax provisions, or budget reduction or other cost containment efforts; changes in guidelines, recommendations and studies published by various organizations that could affect the use of the Company s products; uncertainties inherent in the development of new products and the enhancement of existing products, including FDA approval and/or clearance and other regulatory risks, technical risks, cost overruns and delays; the risk that products may contain undetected errors or defects or otherwise not perform as anticipated; risks associated with strategic alliances and the ability of the Company to realize anticipated benefits of those alliances; risks associated with acquisitions, including, without limitation, the Company s ability to successfully integrate acquired businesses, the risks that the acquired businesses may not operate as effectively and efficiently as expected even if otherwise successfully integrated; the risks that acquisitions may involve unexpected costs or unexpected liabilities; the risks of conducting business internationally, including the effect of exchange rate fluctuations on those operations; manufacturing risks, including the Company s reliance on a single or limited source of supply for key components, and the need to comply with especially high standards for the manufacture of many of its products; the Company s ability to predict accurately the demand for its products, and products under development, and to develop strategies to address its markets successfully; the early stage of market development for certain of the Company s products; the Company s leverage risks, including the Company s obligation to meet payment obligations and financial covenants associated with its debt; risks related to the use and protection of intellectual property; expenses, uncertainties and potential liabilities relating to litigation, including, without limitation, commercial, intellectual property, employment and product liability litigation; technical innovations that could render products marketed or under development by the Company obsolete; competition; and the Company s ability to attract and retain qualified personnel. The risks included above are not exhaustive. Other factors that could adversely affect the company's business and prospects are described in filings made with the SEC. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements presented herein to reflect any change in expectations or any change in events, conditions or circumstances on which any such statements are based. Hologic, Aptima, Aptima Combo 2, Genius, Horizon, MyoSure, NovaSure, Panther, Selenia, The Science of Sure, ThinPrep, Tigris and associated logos, as may be used in this presentation, are trademarks and/or registered trademarks of Hologic, Inc. and/or its subsidiaries in the United States and/or other countries. Procleix is a trademark of Grifols Diagnostic Solutions Inc. 2

3 Non-GAAP Financial Measures Hologic has presented the following non-gaap financial measures in this presentation: revenues; gross margins; operating expenses; operating income; interest expense; pre-tax income; net income; EPS; and adjusted EBITDA. In this presentation, Hologic defines its non-gaap revenues to primarily include contingent revenue earned post-acquisiton in FY13 under its blood screening collaboration that was eliminated under purchase accounting. Hologic defines adjusted EBITDA as its non-gaap net income plus net interest expense, income taxes, and depreciation and amortization expense included in its non-gaap net income. Hologic defines its non-gaap gross margins, operating expenses, operating income, interest expense, pre-tax income and EPS to exclude, as applicable: (i) the amortization of intangible assets and impairment of goodwill and intangible assets; (ii) acquisition-related charges and effects, such as charges for contingent consideration, transaction costs, integration costs including retention, and credits and/or charges associated with the write-up of acquired inventory and fixed assets to fair value, and the effect of a reduction in revenue related to contingent revenue under the Company s blood screening collaboration; (iii) non-cash interest expense related to amortization of the debt discount for the equity conversion option of convertible debt securities; (iv) restructuring and divestiture charges; (v) non-cash extinguishment losses and debt transaction costs; (vi) litigation settlement charges (benefits); (vii) otherthan-temporary impairment losses on investments; and (viii) other one-time, nonrecurring, unusual or infrequent charges, expenses or gains that may not be indicative of Hologic s core business results; and to include income taxes related to such adjustments. Hologic believes the use of non-gaap revenues is useful to investors as it eliminates certain effects of purchase accounting on its recognition of revenue, as well as other unusual or non-recurring items. Hologic believes the use of non-gaap net income is useful to investors by eliminating certain of the more significant effects of its acquisitions and related activities, non-cash charges resulting from the application of GAAP to convertible debt instruments with cash settlement features, charges related to debt extinguishment losses, investment impairments, litigation settlements, and restructuring and divestiture initiatives. These non-gaap measures also reflect how Hologic manages its businesses internally. In addition to the adjustments set forth in the calculation of Hologic s non-gaap net income and EPS, its adjusted EBITDA eliminates the effects of financing, income taxes and the accounting effects of capital spending. As with the items eliminated in its calculation of non-gaap net income, these items may vary for different companies for reasons unrelated to the overall operating performance of a company s business. When analyzing Hologic s operating performance, investors should not consider these non-gaap financial measures as a substitute for net income prepared in accordance with GAAP. 3

4 Presentation Outline Overview Markets and products Financials and milestones Financial appendix 4

5 Hologic Today Diverse, innovative healthcare products focused on early detection and intervention Strong position in women s health Revenue of nearly $2.7 billion expected in FY15 Revenue composition for YTD June FY15 By Business By Geography By Type Diagnostics 45% Surgical 12% Skeletal 4% Breast Health 39% US 76% OUS 24% Capital 22% Service 16% Consumables 62% Hologic s fiscal year runs from October to September. 5

6 Investment Highlights US market leader in key franchises* HOLX >55% Others 45% HOLX ~75% Others 25% HOLX ~70% Others 30% HOLX ~75% Others 25% HOLX ~60% Others 40% #1 #1 #1 #1 #1 Improving sustainable, long-term revenue growth Multiple important product cycles underway Untapped international opportunity * All market shares are Hologic estimates for the US market on a unit basis in Procleix blood screening products are marketed globally by Hologic s partner, Grifols. 6

7 Investment Highlights (cont.) Strong profitability and cash flows Near-term, primary use to pay down debt Long-term opportunities for margin expansion Reduce interest expense and tax rate New management team leading broad, deep turnaround Focusing on better resource and capital allocation, executional excellence 7

8 Turnaround Well Underway Improved commercial execution generates consistent reported growth $700 $ % $631 $613 $626 $622 $612-3% $625 +2% $633 +1% $640 +3% $653 +7% $655 +5% $600 $500 * Total GAAP revenue growth as reported with the exception of 4Q FY14. 4Q excludes ~ $20 million one-time contribution from restructuring of Roka license. Percentage changes are versus prior year periods Q1 Q2 Q3 Q4 8

9 Turnaround Well Underway Even stronger constant currency growth +12.2% +7.7% +7.2% + 1.7% + 0.5% + 2.8% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15-3.2% * Total GAAP revenue growth as reported with the exception of 4Q FY14, which excludes ~ $20 million one-time contribution from restructuring of Roka license. Percentage changes are versus prior year periods. 9

10 Broad, Deep Improvement in Quarterly Revenue Dx Breast Surgical Skeletal Total US Q 2Q 3Q 4Q 1Q 2Q 3Q Dx Breast Surgical Skeletal Total OUS Dx Breast Surgical Skeletal Worldwide * Constant currency revenue change with the exception of 4Q FY14, which excludes ~ $20 million one-time contribution from restructuring of Roka license. Light green ovals = 0-5% growth, mixed green ovals = 5-10% growth, dark green ovals = >10% growth. Red rectangles = decline, all compared to prior year periods. 10

11 Presentation Outline Overview Markets and products Financials and milestones Financial appendix 11

12 Breast Health Overview Mammography includes sales and service of 2D digital and Genius 3D systems and ancillaries US: market upgrading to tomosynthesis OUS: opportunities to place 2D systems Hologic leads US market with ~55% share Gains from multi-faceted Genius 3D mammography marketing campaign Interventional includes breast biopsy solutions, complement to mammography systems Service represents ~40% of total Outstanding team of field engineers FY14 Revenue $945 Million Interventional 18% Other 2% Imaging 80% * Represents FY14 data 12

13 Growth Driver: Genius 3D Mammography Hologic first to US market with FDA-approved product in 2011 Four recent catalysts for faster adoption JAMA study confirmed clinical superiority of Hologic Genius technology to 2D 41% increase in invasive breast cancers 29% increase in all breast cancers 15% decrease in recall rates Favorable CMS reimbursement took effect January 1, 2015» Pathway for private insurers to follow Competitive product launches boost market conversion, illustrate our product advantages Multi-faceted Genius 3D mammography marketing campaign 13

14 Breast Tomosynthesis Opportunity More than 13,000 total digital mammography units in US Hologic installed base as of March 2015 Approximately 6,000 2D Approximately 1,800 Genius 3D Early stages of new product cycle Over time expect almost entire market to convert Less than 15% penetrated today Genius consumer marketing campaign in October 2014» 850,000+ consumer interactions Future breast tomosynthesis US market opportunity $3.5-$4 billion OUS markets represent long-term upside 14

15 Hologic Competitive Advantages Positive feedback from RSNA 71 papers and posters on breast tomosynthesis 68% increase in leads generated versus prior year Emphasized superiority of Hologic 3D tomosynthesis to 2D, competition 15

16 Diagnostic Solutions Overview Market leader in three primary segments Cervical cancer» ThinPrep liquid Pap testing» Aptima HPV Sexually transmitted diseases» Aptima molecular assays for CT, NG and trichomoniasis Blood screening: Procleix NAT assays, marketed by partner Grifols» HIV, HCV, HBV, West Nile virus in US» Plus HEV in Europe, Japan» And Parvo/HAV in plasma Two complementary, well-respected sales teams calling on OB/GYN physicians and labs FY14 Revenue $1,167 Million* Blood 19% Molecular 39% Cytology & Perinatal 42% * Total revenue for 2014 excludes ~ $20 million one-time contribution from restructuring of Roka license. Represents FY14 segment mix. 16

17 Growth Driver: Panther System Already lead in high-volume accounts with Tigris Panther offers leading-edge automation to labs of all sizes Increase molecular testing in hospitals Consolidate menu on single platform New product cycle has two elements System placements» Shipped more than 1,000 through Q3 FY15 Menu expansion and increasing assay pull-through» First viral load assay recently launched» New Fusion platform will add PCR capabilities to large installed base * In clinical diagnostics and blood screening markets. 17

18 GYN Surgical Solutions Product line focused on diagnosing, treating common gynecologic conditions Two market-leading products that treat abnormal uterine bleeding NovaSure» Global Endometrial Ablation solution offering safe, fast, customized treatment» More than 2 million uses since FDA approval MyoSure» Hysteroscopic tissue removal solution offering incisionless, fast removal of fibroids, polyps, etc. FY14 Revenue $308 Million MyoSure 28% Other 1% NovaSure 71% * Represents FY14 data. 18

19 Skeletal Health Solutions Two areas of focus Osteoporosis screening/diagnosis and obesity management via bone densitometer Orthopedic imaging via Mini C-Arm FY14 revenue of $91 million Revitalized commercial operations through Horizon new product launch and sales force expansion Reversed long-term sales decline Now poised for innovation and segment expansion 19

20 Significant International Opportunities Hologic is underdeveloped outside the United States Hired new executive with proven track record to oversee all international business units Specific areas of opportunity - 2-D mammography in developed, emerging markets - 3-D upgrades in established markets - ThinPrep to replace conventional Pap - Molecular diagnostics in Europe, Japan - Strengthen partnerships with dealers Integrate with international operations, tax strategy 20

21 Presentation Outline Overview Markets and products Financials and milestones Financial appendix 21

22 Revenue Highlights 3Q Fiscal 2015 Another quarter of strong top-line growth, especially in the U.S. Led by 3D mammography, blood screening, U.S. molecular diagnostics, GYN Surgical Continued stabilization in ThinPrep, NovaSure Revenue ($M) Non-GAAP 3Q15 3Q14 Reported Change CC Change Diagnostics $306.9 $ % 7.0% Breast Health $279.6 $ % 20.2% GYN Surgical $85.5 $ % 11.0% Skeletal Health $22.0 $23.1 (4.7%) (1.4%) Total Revenue $693.9 $ % 12.2% US $539.7 $ % 12.7% OUS $154.2 $ % 10.3% 22

23 Revenue Highlights 3Q YTD Fiscal 2015 Revenue ($M) Non-GAAP YTD 3Q15 YTD 3Q14 Reported Change CC Change Diagnostics $907.7 $ % 6.2% Breast Health $777.1 $ % 12.6% GYN Surgical $248.9 $ % 10.3% Skeletal Health $68.5 $ % 4.3% Total Revenue $2,002.2 $1, % 9.0% US $1,518.1 $1, % 8.5% OUS $484.1 $ % 10.5% 23

24 Financial Highlights 3Q Fiscal 2015 Non-GAAP In millions, except EPS 3Q15 Change vs. 3Q14 YTD 3Q15 Change vs. YTD 3Q14 Revenues $ % $2, % Gross Margin 65.2% 230 bps 64.0% 110 bps Oper. Expenses $ % $ % Oper. Margin 33.2% 170 bps 33.2% 150 bps Net Income $ % $ % Diluted EPS $ % $ % EBITDA $ % $ % 24

25 2015 Financial Guidance Full Year (Non-GAAP*) 4Q (Non-GAAP*) In millions, except EPS Guidance Reported vs CC vs Q15 Guidance Reported vs CC vs Revenues $2,511 $2,687 - $2, % % $ % % Diluted EPS $1.46 $ $ % % $ $ % % * Total revenue for FY14 excludes ~ $20 million one-time contribution from restructuring of Roka license. Guidance provided by press release on 7/29/15. Presentation here is not, and should not be construed as, re-affirmation of guidance. Guidance assumes diluted shares outstanding of 291 million for the full year and an annual effective tax rate of 34.25%. 25

26 Committed to Debt Reduction Free cash flow will be primarily used to reduce debt Net debt* $3.1 billion as of June 2015 Continuing to reduce debt ahead of schedule $0.3 billion voluntary prepayment of Term Loan B in December 2014 Will continue to reduce leverage over next several years Target to reach 2.5x by FY17 year end New 5-year credit agreement for up to $2.5 billion in May Re-financed $1.0 billion Senior Notes in July Net Debt and Leverage Ratio* $4.5 $4.0 $ x $ x 4.0x 3.2x FY12 FY13 FY14 YTD Jun-15 Net debt is total debt minus cash; Leverage ratio is net principal debt to TTM adjusted EBITDA. 26

27 Significant Improvement in ROIC 10.6% 9.7% 10.0% 9.3% 8.2% 8.3% 8.3% Q1 Q2 Q3 Q4 ROIC, as calculated in Hologic s quarterly earnings presentation, is presented on a Trailing Twelve Month (TTM) basis, and is defined as adjusted net operating profit after tax divided by average net debt plus stockholders equity. 27

28 Positive Cash Flow and EBITDA Trends Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 EBITDA Op Cash Flow Free Cash Flow 28

29 Goals for Fiscal Year 2015 Continue turnaround momentum Achieve revenue and EPS guidance Continue paying down debt Define innovation roadmaps for each business Establish a clear performance-driven culture led by new senior team * Financial goals per guidance provided by press release on 11/5/14. Presentation here is not, and should not be construed as, re-affirmation of guidance. Guidance assumes 286 million diluted shares outstanding and tax rate of 34.75%. 29

30 Long-Term Opportunities Revenue Growth Margin Expansion 3D tomo rollout Panther placements and menu expansion International growth Pipeline products Operational improvements G&A leverage Debt reduction Tax strategy 30

31 Presentation Outline Overview Markets and products Financials and milestones Financial appendix 31

32 Business Segments Revenue Detail (unaudited) $s in millions Fiscal Year Q12 12/24/11 2Q12 3/24/12 3Q12 6/23/12 4Q12 9/29/12 Full Year Business Segment Revenues Cytology & Perinatal $137.3 $134.7 $139.8 $144.3 $556.1 Molecular Diagnostics Blood Screening Total Diagnostics $154.1 $151.8 $158.7 $253.5 $718.1 Breast Imaging $167.4 $169.5 $164.0 $181.3 $682.2 Interventional Breast Solutions Other Total Breast Health $215.4 $218.6 $211.5 $230.3 $875.8 Surgical $78.5 $77.2 $77.7 $79.7 $313.1 Skeletal Health $24.7 $23.5 $22.4 $25.1 $95.7 Total Revenues $472.7 $471.2 $470.2 $588.5 $2,

33 Business Segments Revenue Detail (unaudited) $s in millions Fiscal Year Q13 12/29/12 2Q13 3/30/13 3Q13 6/29/13 4Q13 9/28/13 Full Year Business Segment Revenues Cytology & Perinatal $137.0 $124.9 $132.2 $124.8 $519.0 Molecular Diagnostics Blood Screening Total Diagnostics $305.9 $296.5 $297.4 $290.0 $1,189.8 Breast Imaging $173.8 $171.3 $182.9 $188.0 $716.0 Interventional Breast Solutions Other Total Breast Health $220.8 $220.1 $230.0 $234.2 $905.1 Surgical $80.9 $73.7 $75.8 $76.7 $307.1 Skeletal Health $23.7 $22.4 $22.9 $21.2 $90.2 Total Revenues $631.4 $612.7 $626.1 $622.1 $2,

34 Business Segments Revenue Detail (unaudited) $s in millions Business Segment Revenues 1Q14 12/28/13 2Q14 3/29/14 Fiscal Year Q14 6/28/14 4Q14 9/27/14 Full Year Cytology & Perinatal $121.6 $119.4 $122.7 $121.0 $484.7 Molecular Diagnostics * 478.8* Blood Screening Total Diagnostics $285.7 $290.8 $293.1 $317.2* $1,186.8* Breast Imaging $178.0 $189.4 $192.7 $196.3 $756.5 Interventional Breast Solutions Other Total Breast Health $226.5 $238.7 $238.0 $241.5 $944.7 Surgical $78.9 $72.0 $78.5 $78.5 $307.8 Skeletal Health $21.4 $23.5 $23.0 $23.4 $91.3 Total Revenues $612.4 $625.0 $632.6 $660.6* $2,530.7* * Excluding the $20.1 million revenue benefit related to an amendment to the Company s license agreement with Roka Bioscience (all of which was in the U.S.), 4Q14 molecular diagnostics revenue would have been $117.2 million, total diagnostics revenue would have been $297.1 million, and total revenues would have been $640.5 million. Similarly, FY14 molecular diagnostics revenue would have been $458.7 million, total diagnostics revenue would have been $1,166.7 million, and total revenues would have been $ million. 29

35 Business Segments Revenue Detail (unaudited) $s in millions Fiscal Year Q15 12/27/14 2Q15 3/28/15 3Q15 6/27/15 4Q15 9/26/15 Business Segment Revenues Cytology & Perinatal $120.1 $113.3 $118.1 Molecular Diagnostics Blood Screening Total Diagnostics $304.1 $296.7 $306.9 Breast Imaging $197.5 $211.0 $234.1 Interventional Breast Solutions Other Total Breast Health $242.0 $255.5 $279.6 GYN Surgical $84.4 $79.1 $85.5 Skeletal Health $22.3 $24.2 $22.0 Total Revenues $652.8 $655.5 $

36 Reconciliation of GAAP to Non-GAAP (unaudited) $s in millions, except earnings per share Three Months Ended June 27, 2015 June 28, 2014 GROSS PROFIT GAAP gross profit $387.7 $312.8 Adjustments: Amortization of intangible assets $73.1 $80.5 Fair value adjustment to depreciation expense Acquisition and integration-related costs Impairment charges Other Non-GAAP gross profit $452.7 $398.0 GROSS MARGIN PERCENTAGE GAAP gross margin percentage 54.6% 49.4% Impact of adjustments above 10.6% 13.5% Non-GAAP gross margin percentage 65.2% 62.9% OPERATING EXPENSES GAAP operating expenses $262.7 $236.6 Adjustments: Amortization of intangible assets (27.4) (29.7) Fair value adjustment to depreciation expense 3 (1.0) (1.3) Acquisition and integration-related costs 3 - (0.7) Restructuring and divestiture charges (11.9) (6.7) Non-GAAP operating expenses $222.4 $198.2 OPERATING MARGIN GAAP income from operations $116.0 $76.2 Adjustments to gross profit as detailed above Adjustments to operating expenses as detailed above Non-GAAP income from operations $230.3 $199.8 Continued on next page 29

37 Reconciliation of GAAP to Non-GAAP (unaudited) $s in millions, except earnings per share Three Months Ended June 27, 2015 June 28, 2014 OPERATING MARGIN PERCENTAGE GAAP operating margin percentage 16.7% 12.0% Impact of adjustments above 16.5% 19.5% Non-GAAP operating margin percentage 33.2% 31.5% INTEREST EXPENSE GAAP interest expense $52.4 $52.4 Adjustments: Non-cash interest expense relating to convertible notes (9.2) (8.5) Debt transaction charges (4.6) - Non-GAAP interest expense $38.6 $43.9 PRE-TAX INCOME GAAP pre-tax earnings (loss) $46.7 $22.6 Adjustments to pre-tax earnings (loss) as detailed above Debt transaction charges Other Non-GAAP pre-tax income $193.0 $158.1 NET INCOME GAAP net income (loss) $29.4 $11.3 Adjustments to GAAP net income (loss) as detailed above Income tax effect of reconciling items 2 (48.8) (44.2) Non-GAAP net income $126.9 $102.4 EARNINGS PER SHARE GAAP earnings (loss) per share Diluted $0.10 $0.04 Adjustments to net earnings (loss) (as detailed below) Non-GAAP earnings per share Diluted 1 $0.43 $0.37 ADJUSTED EBITDA Non-GAAP net income $126.9 $102.4 Interest expense, net, not adjusted above Provision for income taxes Depreciation expense, not adjusted above Adjusted EBITDA $249.7 $221.7 Continued on next page 29

38 Reconciliation of GAAP to Non-GAAP (unaudited) Footnotes: 1 Non-GAAP earnings per share was calculated based on: 292,612 and 279,205 weighted average diluted shares outstanding for the three months ended June 27, 2015 and June 28, 2014, respectively. 2 To reflect an annual effective tax rate of 34.25% and on a non-gaap basis for fiscal 2015 and 2014, respectively. 3 The breakdown of this expense by P&L line item is as follows: $s in millions, except earnings per share Three Months Ended June 27, 2015 June 28, 2014 Acquisition and integration-related costs R&D - $0.4 S&M G&A Total OpEx COGS Total Adjustment $0.1 $2.7 Fair value adjustment to depreciation expense R&D $0.2 $0.4 S&M G&A Total OpEx $1.0 $1.3 COGS Total Adjustment $1.8 $3.0 YTD GAAP to Non-GAAP reconciliation tables available in 3Q Fiscal 2015 Earnings Release. 29

39 For more information: Michael Watts VP, Investor Relations and Corporate Communications