Chief Financial Officer at Hologic
Thank you Steve, and good afternoon everyone. We are very pleased to share fourth quarter results that significantly exceeded our guidance. In our last earnings call, we said that while we were forecasting conservatively, we were well prepared to generate upside if COVID testing demand increased due to the Delta variant. And that's exactly what happened. Increased COVID test sales in the fourth quarter more than compensated for macro headwinds that have affected many medtech companies recently. Our fourth quarter performance demonstrates that we are in a strong position regardless of how COVID evolves. We benefit from our invaluable testing contributions if the pandemic drags on, or from a strong base business when it wanes.
In the fourth quarter, revenue and EPS were down compared to the prior year, when COVID-19 testing volumes were near their peak. Total revenue of $1.32 billion declined almost 3%, and 6% organically. But these figures mask the solid recovery of our base businesses. As Steve said, if you back out COVID assay revenue, as well as collection kits, instruments and ancillaries that are shared by our COVID and other tests, revenue grew by 12% organically. This growth, which compares favorably to the 5% to 7% long-term guidance we provided last quarter, was driven by resilience across all our divisions, despite utilization pressure from the Delta variant and customer staffing shortages.
EPS of $1.61 in the fourth quarter was down 22% compared to the prior year, as expected. But earnings exceeded the midpoint of our guidance by about 68%. Underlying this, our cash flow conversion remains tremendous, allowing us to continue pursuing tuck-in M&A and share repurchase, which I'll touch on in a moment.
Before I do that, let me provide some detail on our divisional revenue results. To provide a more complete picture of our performance, I will at times compare our results to both 2020 and 2019, as well as exclude the impact of COVID-19 where applicable.
In Diagnostics, global revenue of $836.8 million, declined 11.5% compared to the prior year. However, excluding COVID assay sales and related items, worldwide Diagnostics revenue increased 5%. Although COVID testing revenue declined compared to the prior year, it still far exceeded our expectations, as the Delta variant surged throughout the quarter. In Q4 2021, we shipped about 21 million COVID tests to customers, generating assay revenue of $443 million globally. Demand in the United States was robust and represented about two-thirds of total COVID assay revenue. This dynamic highlights the breadth of our Panther installed base, our commitment to respond to customer needs, and our flexibility to capture testing demand wherever and whenever it occurs.
To better understand the underlying performance of our non-COVID molecular business, I will again exclude COVID assay sales and related ancillary items. If we do this, we see that base molecular revenue grew about 6.5% organically in the fourth quarter. Compared to the same quarter of 2019, molecular grew about 10%. Rounding out Diagnostics, cytology and perinatal grew 3% compared to the prior year. But compared to 2019, these businesses were still down low-single digits, as well woman visits have not yet fully recovered from the pandemic.
In Breast Health, global revenue of $334.2 million grew 15%, as the business rebounded from a weak prior year period and showcased its increasing diversity in the face of the latest Delta surge. Both breast imaging and interventional business increased, with imaging growing 12% and interventional up 27%. Furthermore, our strategy to increase recurring revenue continues to pay off, as global service revenue was approximately 40% of the division's total in the quarter, nearly twice as large as global gantry sales.
In Surgical, fourth quarter revenue of $122 million grew 21%. This strong performance was driven by MyoSure, which had another impressive quarter, growing in the mid-teens. While surgical procedures were depressed in August and September, the impact was far less than what we experienced at the beginning of the pandemic. In fact, compared to 2019 levels, Surgical was up mid-single digits. Further, we continue to add products to the bag of our best-in-class sales force. The acquisition of Acessa and agreement to acquire Bolder set us up nicely for fiscal 2022 and beyond.
Lastly, in our small Skeletal business, revenue of $23.6 million increased 26% compared to the prior year period, and mid-single-digits compared to 2019.
Now let's move on to the rest of the P&L for the fourth quarter. Gross margin of 69.4% exceeded our forecast, driven by higher-than-expected COVID-19 testing volumes in the period. Compared to the prior year, gross margin declined 480 basis points. Total operating expenses of $353.2 million increased 28% in the fourth quarter, but recent acquisitions contributed about a third of this increase. In addition, we deliberately reinvested for future growth with incremental spending in R&D and marketing, spent $9 million on the one-time employee bonus that Steve mentioned, and made a $10 million donation to our charitable fund in the quarter. Finally, our non-GAAP tax rate in the quarter was 21.5%, consistent with prior periods. Putting all this together, operating margin declined 1,120 basis points versus the prior year period, but came in above our forecast at a very healthy 42.5%. Net margin also declined 880 basis points, but was a very strong 31.6%. Non-GAAP net income finished at $415.7 million, and non-GAAP earnings per share were $1.61, far above the top end of our forecast.
Before we cover our 2022 guidance, I'll touch on a few other financial metrics. Cash flow from operations was $465 million in the fourth quarter. This completed our best ever cash flow year, as we generated more than $2.3 billion of operating cash in 2021. These strong cash flows continue to give us tremendous financial and strategic flexibility. For example, in the fourth quarter we agreed to acquire Bolder Surgical for $160 million. And although we did not repurchase any shares in our fourth quarter, we have bought back more than a million shares so far in the first quarter of 2022.
Finally, I should mention that we recently re-financed our Credit Agreement. This further strengthened our balance sheet and financial flexibility by extending the maturity date to 2026, increasing our revolver's borrowing capacity to $2 billion, and lowering our borrowing costs. Based on our strong operational performance, we had $1.17 billion of cash on our balance sheet at the end of the fourth quarter, and our leverage ratio was 0.6 times. We intend to continue using our cash on division-led, tuck-in acquisitions and share repurchases that improve our top and bottom line growth rates. Finally, ROIC was 32.6% on a trailing 12-month basis, a significant increase of 1,410 basis points.
Before we open the call for questions, let me discuss our financial expectations for the first quarter and full-year of fiscal 2022. Although the pandemic remains highly unpredictable, and we are not immune from the supply chain challenges you've been hearing about, we believe we have good visibility into the recovery of our base businesses, as well as a valuable hedge to COVID-19 outbreaks with our testing revenue. In the first quarter of fiscal 2022, we expect strong financial results again, with total revenue in the range of $1.1 billion to $1.15 billion. For all of fiscal 2022, we expect total revenue in the range of $3.75 billion to $4.00 billion, significantly exceeding our pre-pandemic sales. To help with your constant currency modeling, we are assuming foreign exchange headwinds of approximately $2 million in the first quarter of 2022 and $25 million for the full year.
In terms of our divisions, we expect Breast and Skeletal Health, Surgical and core Diagnostics, excluding COVID effects, to grow in line with the 5% to 7% guidance we provided last quarter. In Diagnostics, molecular should continue to lead the way, based on our larger Panther installed base, uptake of new assays like our vaginosis panel, international expansion opportunities, as well as the recent change in chlamydia gonorrhea screening guidelines that supports opt-out testing. In Breast Health, we have quietly been adding multiple growth drivers through acquisitions in breast conserving surgery, ultrasound and specimen radiography, as well as internal development of software and hardware upgrades. Further, we have significant opportunities to expand our 3D installed base and service business internationally.
Finally, in Surgical, we expect MyoSure to continue to drive growth, but to get help from a broadening portfolio of products such as Fluent and Acessa's ProVu. Bolder is not included in our guidance because the deal has not yet closed.
In terms of COVID assay sales, let me remind you that in the last 12 months, we have seen testing demand increase rapidly, then decline rapidly, then increase rapidly again. Said another way, demand remains unpredictable, and a lot can change between now and the end of our fiscal '22. So we continue to forecast conservatively, and view COVID as upside to our strong base business. But we will act aggressively to meet testing demand when and where it arises. With this perspective, we expect COVID assay sales to be at least $200 million in the first quarter of 2022, and at least $300 million for the full year. COVID-related items in Diagnostics are expected to be approximately $45 million in the first quarter, and at least $120 million for the full year. Finally, COVID has given us the opportunity to discontinue certain older products in our Diagnostics franchise. We expect a headwind of about $11 million from rationalizing these products in 2022.
Let me remind you that our organic guidance backs out acquired revenue until the first full quarter after the deals annualize, as well as revenue from our divested blood screening business. We expect blood screening revenue of $5 million to $6 million in Q1, and $20 million to $25 million for the full year. In total, we are backing out roughly $100 million of inorganic revenue for the year, which means that we expect organic revenue to decline 34% to 30% in fiscal '22, based on lower sales of COVID tests. However, to appreciate the underlying growth in our base women's health franchises, it's important to back out of organic revenue COVID assay sales, related ancillary items, and the small amount of SKU rationalization that I mentioned. On this measure, we expect revenue in 2022 to be at least in line with the 5% to 7% long-term guidance that we provided last quarter.
Moving down the P&L, for the full year we forecast our gross margin percentage between 63% and 65%, and our operating margin percentage to be in the low- to mid-30s. We expect both percentages to decline sequentially throughout the year, since the vast majority of COVID testing revenue will likely be recorded in the first half of 2022. In addition, we have incorporated some inflationary pressure in our supply chain into our guidance. Despite this, for the full year both gross and operating margins should be better than before the pandemic.
In terms of operating expenses, we expect spending to be flat to down slightly versus elevated levels in 2021, even as we absorb cost increases and continue to invest proactively in our acquisitions and base business to drive future growth. Below operating income, we expect other expenses, net, to be a little less than $25 million a quarter. Our guidance is based on a tax rate of 21.5%, and diluted shares outstanding of around 260 million for the full year. All this nets out to expected EPS of $1.15 to $1.25 in the first quarter and $3.55 to $3.85 for the year.
As you update your forecasts, let me remind you that macro uncertainty due to the pandemic is still high. We would therefore encourage you to model at the middle of our ranges, which incorporate both potential upsides and downsides.
Let me wrap up by saying that Hologic posted a strong end to our fiscal 2021, with results in our fourth quarter that far exceeded expectations and guidance. With organic investments and multiple acquisitions, we are emerging from the pandemic as a stronger company with core top line growth rates of 5% to 7% and potential upside from COVID.
With that, I will ask the operator to open the call for questions. Please limit your questions to one plus a related follow-up, then return to the queue. Operator, we are ready for the first question.