Chief Financial Officer at Hologic
Thank you, Steve. And good afternoon, everyone. We are very pleased to share second quarter results that significantly exceeded our guidance for both in revenue and EPS. Our second quarter performance once again highlights the strength of our diverse business. While the Omicron variant negatively impacted our base businesses early in the quarter, our COVID testing upside more than offset this headwind. It's also important to understand that our balance sheet is stronger than ever, providing key strategic flexibility in this uncertain macro environment.
Further, we continue to generate very healthy free cash flow, funding our capital deployment priorities. In the second quarter, we generated significant operating cash flow and executed $200 million of share repurchase, both of which I'll touch on in more detail shortly. Before we do that, we will provide color on our consolidated and divisional results for the second quarter.
As a reminder, revenue in our fiscal second quarter is typically seasonally lower compared to our first quarter, which benefits from increased patient activity before calendar year-end. In the quarter, total revenue of over $1.4 billion was very strong and came in more than a $150 million higher than the midpoint of our previous guidance. In addition, EPS of $2.07 in the second quarter far exceeded our guidance range of $1.50 to $1.60.
Turning to our divisional results. Diagnostics global revenue of $987.1 million declined 5.6% compared to the prior year. However, excluding COVID, worldwide organic diagnostics revenue increased 4%. As discussed, the division's results early in Q2 were negatively impacted by the Omicron COVID-19 variant. Our base diagnostics business is inversely correlated to spikes in the pandemic as women tend to postpone office visits when COVID cases surge. However, we were encouraged by improving trends throughout March as COVID cases declined. This gives us great confidence in the underlying health of our base diagnostics franchise.
Moving specifically to our molecular diagnostics business, we will again exclude the impact of COVID. Making these adjustments, base molecular revenue grew above 7% organically in the second quarter. This growth was driven by strong uptake in newer assays, such as our vaginitis panel, and menu within our urology product line. As it relates to our COVID results, we generated $584 million of COVID assay revenue, far exceeding our guidance of $400 million. We shipped about 28.5 million tests to customers as ASPs held steady around $20 per test globally. The United States represented about 60% of total COVID assay revenue, however, testing demand was strong in international markets as well. Rounding out Diagnostics, our cytology and perinatal businesses were essentially flat compared to the prior year as these segments were also impacted by COVID-19's influence on womens' wellness visits.
In Breast Health, global revenue of $310.4 million was down approximately 7% as expected, primarily driven by the chip shortages that we have discussed. In our interventional business, incremental supply chain pressure of a few million dollars surfaced during the quarter. Specific to our disposable biopsy needles. As a result, our interventional business was down slightly less than 1% in the period. While supply chain challenges persist, demand for our best-in-class Breast Health products remain strong. And as Steve commented, we expect to see improvement in 2023.
In surgical, second quarter revenue of $117.3 million grew 3.5%. As we foreshadowed during our first quarter call, the Omicron caused a pull back in elective procedures in the first half of the quarter, but this is a trend as proved later in the period as COVID cases declined. Furthermore, we saw a nice resilience from several of our newer products such as the Fluent Fluid Management System and solid contributions from both its CoolSeal devices. Lastly, in our Skeletal business revenue of $20.9 million decreased 6% compared to the prior year period.
Now let's move on to the rest of the non-GAAP P&L for the second quarter. Gross margin of 71% was well ahead of our forecast, driven by higher than expected COVID-19 testing volumes in the period. Total operating expenses of $338.2 million increased 22% in the second quarter. As we have done throughout the pandemic, given the benefit from COVID-19 profitability, we took the opportunity to reinvest in our base businesses. We also allocated spend to key marketing initiatives to help drive awareness for women's health.
For example, second quarter operating expenses included our Super Bowl and Olympics commercials, as well as expenses associated with our WTA partnership. The combined total of these initiatives contributed slightly more than $25 million to operating expenses in the quarter. In addition, within operating expenses, recent acquisitions added slightly less than $35 million in the quarter, about $25 million higher than the prior year period. Finally, our tax rate in Q2 was 20.5%, marginally lower than our expectations, given the higher COVID-19 revenue outside the United States.
Putting these pieces together, operating margin for Q2 came in well above our forecast at 47.4%, and net margin was very strong at 36.5%. Non-GAAP net income finished at $524.2 million and non-GAAP earnings per share was $2.07, nearly 35% above the midpoint of our prior guidance.
Moving on from the P&L, cash flow from operations was $1.06 billion in the second quarter, inclusive of tax refunds totaling approximately $418 million, related to sale of our previously-held Medical Aesthetics business in 2020. When normalizing for these refunds, cash generation for the quarter was still exceptional. These robust cash flows continue to provide tremendous financial and strategic flexibility. For example, as referred to earlier, we repurchased 2.9 million shares of our stock for $200 million in the quarter. We continue to view our ongoing share repurchase program as a lever to drive value for our shareholders. Further, we continue to diligently pursue M&A opportunities in each one of our division.
Based on our strong operational performance, we had $2.3 billion of cash on our balance sheet at the end of the second quarter and our leverage ratio was 0.3 times. Our capital structure is fortified. And while we ended the quarter with an elevated cash balance, we continue to be thorough in exercising discipline as we evaluate opportunities. Given the macro environment, we have comfort with our elevated cash balance and the ability to be patient as we identify high quality opportunities.
Now, let's move on to our updated guidance for the third quarter and full year fiscal 2022. In the third quarter, we expect to continue our track record of delivering strong financial results, with total revenue in the range of $875 million to $915 million. For the full year fiscal 2022, we expect total revenue in the range of $4.6 billion to $4.7 billion, significantly exceeding our prior full year guidance by $175 million at the midpoint. We are raising guidance once again in the face of an uncertain macro backdrop highlighting our confidence in our business.
Given the continued strength of the US dollar into aid with constant currency modeling, we are assuming foreign exchange headwinds of approximately $20 million in the third quarter of 2022 and $65 million for the full year. This FX unfavorability to revenue is higher than our guidance from last quarter.
In diagnostics, we expect molecular to continue to drive growth based on our Panther installed base of over 3,100 instruments globally, over 80% larger than the start of the pandemic. We are all are also seeing encouraging uptake of our newer assays like our vaginitis panel, viral [Phonetic] and Amgen, as well as the tremendous international expansion opportunities. In terms of COVID sales, we expect COVID Assay sales to be at least $100 million in the third quarter of 2022 and approximately $1.25 billion for the full year. COVID related items inclusive of small amount of discontinued product revenue are expected to be approximately $35 million in the third quarter and $215 million for the full year.
In Breast Health, our organic and inorganic investments continue to perform well and highlight the diversity of the division's revenue streams. For example, Brevera had another great result growing mid teens in the last quarter. In addition, recurring service revenue represented more than 40% of total sales in Q2. In terms of the Breast Health chip shortage announced last quarter, given significant uncertainty still exists in the chip market, the possibility of an incremental $50 million headwind in the back half of 2022 exists and we have incorporated this into our guidance. While we are seeing early signs of improvement in chip supply, we are forecasting conservatively. To reemphasize, this headwind is purely a supply issue and not one of underlying demand which remained strong.
Finally, in surgicals, we feel great about the trajectory of our business as COVID trends improve. MyoSure and related organic products such as Fluent continue to drive near-term growth. We expect meaningful contribution from both Acessa and Bolder over the next several years. As a reminder, our organic guidance backs out of revenue from acquisitions until the first full quarter after the deal annualizes, as well as revenue from our divested blood screening business. In terms of the deal, Biotheranostics and Diagenode will become part of our organic revenue in Q3 '22. Therefore, the organic revenue adjustments for Q3 include Mobidiag and Bolder. In Q4, Bolder only.
Moving down to P&L, for the full year, we forecast our non-GAAP gross margin percentage to be in the mid to high 60s and our non-GAAP operating margin percentage to be in the high 30s. Both estimates are higher than our guidance last quarter.
Further, our second half guidance incorporates the margin impact from our Breast Health supply chain revenue shortfall. As a reminder, gantry gross margin is accretive to the consolidated averages and we have maintained operating spend in order to be in a position to move quickly once we receive chips. In addition, we have again incorporated inflationary supply chain cost into our guidance as it relates to electronics plastics and logistics. Despite these headwinds, for the full year, we expect both growth in operating margins to be above pre-pandemic levels.
In terms of operating expenses, we expect spending to be up compared to 2021 but be lower in the second half of 2022 compared to the first half. As we have continued to highlight in quarters with higher COVID testing revenue, we will take the opportunity to invest for future growth. Below [Phonetic] operating income, we expect other expenses net to be a little less than 25 million a quarter for the remainder of the year. Our guidance is based on effective tax rate of 21% and diluted shares outstanding of around $255 million for the full year. All of this net debt to expected EPS of $0.67 to $0.72 in the third quarter and $5.45 to $5.65 for the full year, 10% above our prior guidance at the midpoint.
As you update your forecasts, let me remind you that macro uncertainty due to the pandemic related supply chain challenges in geopolitical conflicts remain 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's Hologic posted very strong second quarter results that far exceeded expectations and guidance. We are also raising our financial guidance for the year, even as we are increasing anticipated supply chain headwinds, highlighting the multiple growth drivers we have added to each of our franchises and benefits from COVID testing. With a strong balance sheet and best-in-class cash flow generation, we are well positioned.
With that, we ask the operator to open the call for questions.