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Hologic Q2 2023 Earnings Call Transcript


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Participants

Corporate Executives

  • Ryan Simon
    Vice President, Investor Relations
  • Stephen MacMillan
    Chairman, President and CEO
  • Karleen Oberton
    Chief Financial Officer

Presentation

Operator

Good afternoon, and welcome to the Hologic Second Quarter Fiscal 2023 Earnings Conference Call. My name is Rachel, and I'm your operator for today's call. Today's conference is being recorded. All lines have been placed on mute. I would now like to introduce Ryan Simon, Vice President, Investor Relations, to begin the call.

Ryan Simon
Vice President, Investor Relations at Hologic

Thank you, Rachel. Good afternoon, and thank you for joining Hologic's Second Quarter Fiscal 2023 Earnings Call. With me today are Steve MacMillan, the company's Chairman, President, and Chief Executive Officer; and Karleen Oberton, our Chief Financial Officer. Our second quarter press release is available now on the Investors section of our website. We will also post our prepared remarks to our website shortly after we deliver them as well as an updated corporate presentation and a replay of this call will be available for the next 30 days.

Before we begin, we would like to inform you that certain statements we make today will be forward-looking. These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Such factors include those referenced in the safe harbor statement included in our earnings release and SEC filings. Also, during this call, we will discuss certain non-GAAP financial measures. A reconciliation to GAAP can be found in our earnings release. Two of these non-GAAP measures are; one, organic revenue, which we define as revenue excluding the divested blood screening business and revenue from acquired businesses owned by Hologic for less than one year; and two, organic revenue, excluding COVID-19, which excludes COVID-19 assay revenue, revenue related to COVID-19 and sales from discontinued products in Diagnostics; finally, any percentage changes we discuss will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Now I'd like to turn the call over to Steve MacMillan, Hologic's CEO.

Stephen MacMillan
Chairman, President and CEO at Hologic

Thank you, Ryan, and good afternoon, everyone. Thank you for joining us today to discuss our financial results for the second quarter of fiscal 2023. Our exceptional results confirmed that Hologic is now a much bigger, stronger company with more diverse and durable growth than pre-pandemic. On top of this transformation, with our strong cash flow and exceptional balance sheet, we are operating from a position of strength and are poised to carry our positive momentum forward. We've also said throughout the pandemic that we've dramatically strengthened the company. We recognize that this transformation was harder to see and fully appreciate against a backdrop of COVID spikes and supply chain anomalies.

As these clouds continue to clear the result of our robust transformation really shines. For the quarter, total revenue was $1.03 billion and non-GAAP earnings per share was $1.06, both results were above the high end of our guidance. Before providing the highlights for the quarter, which admittedly did have two more selling days, and we were going against softer comps from last year due to the Omicron surge, make no mistake about it, we are very proud of these results. First and most notable, our organic revenue, excluding COVID, grew 21.9% and with two out of three divisions growing north of 25%. By division, excluding COVID, Diagnostics grew 14.9%, and again, powered by molecular diagnostics, which grew nearly 24%.

Surgical also continued to deliver growing 25.2%. And Breast Health returned to growth, posting a very strong performance of 25.7% growth. Our outstanding results are a testament to the commitment of our many colleagues around the world to our purpose, passion, and promise to elevate women's health. Without the discipline and incredible execution of our teams who have shown up every day throughout the pandemic. This strong performance would not be possible.

Turning to our themes for today. First, we'll provide insight into the growth drivers in each division to showcase and to reinforce the diversity and durability of our transformed business. Second, we'll review our strong performance against our 2023 guidance and longer-term growth targets, helping to frame the outlook for the remainder of the fiscal year and longer term. And to close, we'll reflect on where we stand with COVID today, our progress through the pandemic and our excitement as we look ahead. With that brief introduction, let's now focus on our second quarter performance and specifically, the growth drivers powering our strong results. At the highest level, we continue to demonstrate and appreciate that many of you have come to realize our business is dramatically different compared to where we were pre-pandemic. We are more balanced, more diverse, and more durable. Through the pandemic, we strategically added growth drivers across the company that are contributing to our top line growth today and will do so for years ahead.

These innovative products and services are also accretive to our overall strength within the markets we participate in, deepening our strong relationships with the customers we serve. While the macro environment continues to present a multitude of challenges, you can count on us to deliver. In Diagnostics, Molecular Diagnostics continues to lead the way. Our expanded global installed base of Panthers, over 3,250 strong represents the catalyst for the division's sustained growth.

The superior workflow of the Panther combined with our broad menu of nearly 20 FDA-approved assays across the Panther and Panther Fusion systems, creates tremendous value for our customers and differentiates us from our competition. As we exit the pandemic, we are placing more menu with more throughput on more Panthers and adding more Panther Fusion systems, positioning labs to unlock our full breadth of menu over time. Hologic and our Panther systems are well positioned to continue our strong performance. Consistent with prior quarters, the pillars of Molecular Diagnostics growth were diverse in the period.

Growth was driven by our BV, CV, TV vaginitis panel and aided by our core STI menu, including Chlamydia gonorrhea, HPV, and Trich. We also once again had strong contributions from Biotheranostics and our respiratory menu on the Panther Fusion, where we expect the latter of the two to be more seasonal in nature. In Breast Health, after four quarters of decline, primarily due to semiconductor chip supply headwinds, the division emphatically returned to growth, posting 25.7% growth for the quarter.

Comp considerations aside, the strong growth in Breast Health resulted from a combination of four positive factors. First, semiconductor chip availability continues to improve, allowing for the delivery of more gantries in the quarter than planned. This included moving a number of gantries originally allocated for the back half of the year into the second quarter. As a result, for the balance of the year, we anticipate Q3 and Q4 gantry delivery levels to each register modestly below Q2, though still well ahead of last year as our visibility and chip availability continues to strengthen.

Second, exceptional demand for our clinically differentiated mammography instruments remains high. And despite the duration of the chip headwind, our backlog remains strong, and we are seeing no increase in order cancellations. Third, in Q2, we again delivered strong service revenue service being the largest source of revenue for the division as we consistently demonstrate our value proposition and strengthen our relationships with customers. And fourth, the interventional side of the Breast Health business returned to form, growing 13.9% for the quarter, driven by our disposable portfolio such as Brevera biopsy needles and Somatex Tumark markers.

This strong interventional result also serves as an indication of our success navigating some of the non-chip related supply chain headwinds we faced in prior quarters. To close out Breast Health, we'd like to take this opportunity to thank our chip supply partners who have aligned with our purpose and have prioritized women's health. As a result, we had the ability and confidence to deliver more gantries than projected this quarter, and our customers are better positioned to screen more women sooner rather than later.

We are thankful for these strengthened partnerships, which have also undeniably influenced our innovation and design efforts, making Hologic even stronger for the future. While much attention has been given to Diagnostics and Breast Health, our surgical business has also remarkably transformed during the last few years and is emerging as a meaningful driver of growth for us globally, a completely different business than three to four years ago. It's much bigger, stronger and faster growing. In Q2, Surgical grew more than 25% and was driven by strong contributions from our hysteroscopic portfolio of MyoSure the Fluent fluid management system and NovaSure.

On the latter, we are encouraged by yet another strong quarter for our latest NovaSure iteration, the NovaSure V5. In addition, our laparoscopic portfolio continues to build momentum and is growing into a larger driver for the division. Now we'll move on from the division growth drivers to reflect on our performance against our guidance for the year. At the beginning of the fiscal year, we said that each division would deliver low double-digit organic growth for 2023, excluding COVID.

As the Q2 close marks the halfway point of the fiscal year, we are pleased to share our progress towards achieving our 2023 goal. Through the first half of our fiscal year, the total company has delivered organic growth of nearly 14%, excluding COVID. And by division, Diagnostics, Surgical and Breast Health have grown 15.4%, 19.6%, and 9.1%, respectively. This puts us in great shape to achieve or exceed our initial low double-digit 2023 targets.

Looking ahead, Diagnostics and Surgical, we will have much tougher comps going forward. By the close of Q3 last year, both divisions were posting solid numbers, resulting in healthier, stronger comps we will now be facing. And for Breast Health going forward, due to the phasing of the chip headwind, the opposite is true. Our Breast Health comps in the back half of fiscal '23 will be softer than in Q2. Now, focusing on our longer-term growth projections with recent very strong results, we understand that some may question whether our 5% to 7% excluding COVID, organic revenue growth rate through 2025 is still appropriate.

In short, we believe that it is because we see fiscal '23 as a unique year. Taking a step back, we view our long-term revenue goal as more impressive today due to our expectation for double-digit growth in 2023 on top of our already strong performance since we announced the target. Shifting gears to our final topic today, COVID. In Q2, we generated $71 million in COVID assay revenue, exceeding our prior guidance of $50 million. We are excited for the opportunity to turn the corner and further concentrate our energy and resources to continue to drive our dynamic business forward. Since the start of the pandemic in early 2020, we maximize the opportunities presented.

We rose to the occasion, delivering high-quality, highly accurate molecular tests to meet the world's testing needs. For this, we are extremely proud. And should COVID wave return leaning on a massive expansion of our manufacturing capacity and operational flexibility, we are even more capable of weathering future storms. We are also extremely proud of the larger and stronger business Hologic is today. We've accelerated years of Panther placements across the globe and as a byproduct, we expanded our largely domestic business into a much more formidable global enterprise. Today, Hologic is a more recognized and respected worldwide brand which is immensely more influenced to advance women's health around the world.

With the benefits from our response to the pandemic we diligently and thoughtfully invested in our business, adding growth driving products through organic R&D innovation, and completing strategic acquisitions. And equally important, through it all, even during the strongest quarters of COVID revenue, we maintained expense discipline. We managed our business with precision and never got ahead of ourselves with headcount. And when the world needed it most, we made opportunistic and carefully timed marketing investments with our Super Bowl ad and WTA sponsorship, each encouraging women to prioritize their health and to return to well woman exams that were put off during the pandemic, maintaining our operational discipline and opportunistic investment approach, affords us the ability to continue to support R&D, marketing and sales initiatives today, all while keeping expenses relatively flat versus a year ago, after adjusting for the Super Bowl and WTA initiatives.

All in, our Q2 results demonstrate that we are realizing the benefits of our transformed bigger, stronger business that is fueled by our purpose-driven culture. We've built our culture from the ground up over many years, and it has powered our success through the challenges of the pandemic, where we maximized our opportunity. As a result, Hologic has transformed into the strong force we are today and at the same time, transformed our future. We have strengthened our durable growth path, and our future is bright. With that, let me turn the call over to Karleen.

Karleen Oberton
Chief Financial Officer at Hologic

Thank you, Steve, and good afternoon, everyone. In my statements today, I'm going to recap our divisional revenue results, provide a walk-through of our income statement, touch on a few other key financial metrics, and finish with our guidance for the full year and third quarter of fiscal 2023. As Steve said, our second quarter financial results were very strong and well ahead of our expectations for both revenue and profitability.

Total revenue came in at $1.03 billion beating the midpoint of our guidance by over $70 million and our non-GAAP earnings per share were $1.06, 25% higher than the midpoint of our guide. We also continue to repurchase our shares. In Q2, we repurchased approximately 600,000 shares for $50 million and year-to-date, we have repurchased 2.2 million shares for $150 million before moving to our divisional results, we want to emphasize again that our balance sheet is a bedrock of strength in an uncertain macro landscape. With nearly $2.6 billion of cash and a leverage ratio well below our target range, we have tremendous amount of firepower should opportunities for capital deployment arise.

However, while we are very active, our philosophy remains to be patient, which we will discuss in more substance shortly. Before we do that, let me recap our divisional revenue results. In Diagnostics, global revenue of $464.7 million declined 52.2%. However, it is important to recognize that COVID testing revenue in the prior year period was inflated because of Omicron. Specifically, we generated $584 million of COVID assay revenue in Q2 2022, more than 8x higher than our COVID assay revenue for Q2 2023. Therefore, a more accurate depiction of the long-term health of the Diagnostics business is to exclude COVID assay and related ancillary revenues.

By making this adjustment, we see that organic diagnostics revenue increased 14.9% in the quarter. The Diagnostics division continues to be led by molecular, which grew nearly 24% in the period, excluding COVID. As Steve highlighted, Power in Q2 performance within Molecular Diagnostics was our increasingly diverse portfolio of assets as the newer assays contributed alongside our legacy women's health portfolio. Rounding out Diagnostics, our cytology and perinatal businesses declined 0.7% compared to the prior year. Moving to Breast Health. Our fiscal second quarter results were terrific. Total revenue of $385.4 million increased 25.7%, and while this performance was aided by soft comps due to supply chain headwinds in the prior year, the outcome still exceeded our estimates.

Moving next to Surgical. Second quarter revenue of $144.8 million increased approximately 25% compared to the prior year. And finally, in our Skeletal business, revenue of $31.6 million increased slightly more than 53%. It is important to point out that growth rates in our Skeletal business can change based on the timing of just a few orders, therefore, we would caution when modeling not to extrapolate this level of growth going forward. Now let's move on to the rest of the non-GAAP P&L for the second quarter. Gross margin of 62.1% was driven by strong performance in our base business and higher-than-expected COVID-19 testing revenues.

Total operating expenses of $317 million in the second quarter decreased 6.3%. The decrease was driven by less marketing spend as our Super Bowl ad in the initial portion of the expense from our partnership with the WTA were incurred in the prior year period. When normalizing for these marketing initiatives, total operating expenses would have been relatively flat compared to the prior year, partially offsetting lower marketing spend in the quarter was higher R&D and sales expense as we continue to invest in internal programs to drive topline growth. Below operating income, other expense represented a gain in our fiscal second quarter.

Net, we benefited from higher interest rates in the period as interest income from our nearly $2.6 billion cash balance more than offset elevated interest expense on our floating rate debt instruments. Finally, our tax rate in Q2 was 19%, as expected. Putting these pieces together, operating margin for Q2 came in at 31.3% and net margin was 25.9%. Non-GAAP net income finished at $265.7 million and non-GAAP EPS was $1.06. Moving on from the P&L. Cash flow from operations was $206.3 million in the second quarter. We had nearly $2.6 billion of cash on our balance sheet and our leverage ratio remained at 0.2x.

As it relates to our broader capital allocation strategy, our philosophy remains unchanged. We continue to be very active and selective in screening potential targets, while also exercising discipline and patience. We are operating from a position of strength as we explore opportunities. Now let's move on to our updated non-GAAP financial guidance for the third quarter and full year fiscal 2023. In the third quarter of fiscal 2023, we expect strong financial results with total revenue in the range of $930 million to $980 million, representing another quarter of double-digit growth when you exclude COVID.

For the full year fiscal 2023, we are again increasing our guidance and expect total revenue in the range of $3.925 billion to $4.025 billion. To help with constant currency modeling, we are assuming minimal foreign exchange headwinds in the third quarter at less than $5 million. And for the full year, we are expecting approximately $40 million in foreign exchange headwinds.

These headwinds have improved compared to our previous guidance as the relative strength of the U.S. dollar has abated over the past several months. Turning to our divisions. Each business maintains its own unique growth drivers for the remainder of our fiscal 2023 and beyond. In Diagnostics, we expect continued strong performance out of molecular, aided by steady support from cytology.

Within molecular, we are excited to go after additional greenfield opportunities with newer assays such as BV, CV, TV and Amgen, while also reinforcing our leadership position in core women's health screening. Closing out non-COVID diagnostics, we expect blood revenue of slightly more than $30 million for the year. In terms of COVID revenue, we expect COVID assay sales to be approximately $25 million in the third quarter of 2023 and $245 million for the full year.

COVID-related items, inclusive of a small amount of discontinued product revenue are expected to be slightly less than $30 million in the third quarter and approximately $120 million for the full year. Moving to Breast Health. As mentioned, we capitalized on improved chip availability and moved a number of gantries allocated for the back half of the year into Q2. As a result, we are assuming total Breast Health revenue above Q1 2023 levels for each quarter in the back half of this fiscal year, but below Q2.

These results are still expected to deliver healthy double-digit revenue growth compared to the prior year in Q3 and Q4. Finally, in Surgical, we expect strong low double-digit growth in fiscal Q3 and for the full year. Starting with our legacy portfolio, we are pleased by the performance of NovaSure and MyoSure. In NovaSure, customers continue to see the benefits of our innovative V5 line extension and with MyoSure, we continue to grow the myomectomy total addressable market. However, the beauty of our surgical business today is that the franchise is more than just NovaSure, MyoSure, and our guidance contemplates fluent, Bolder and Acessa adding accretive growth to the division's top line.

Moving down the P& for the full year, we continue to expect our non-GAAP gross margin percentage to be in the low 60s, and our non-GAAP operating margin percentage to be approximately 30%. Within this operating margin profile, we have again incorporated elevated inflationary pressures into our guidance of approximately 200 to 250 basis points, which we expect to persist throughout fiscal 2023 and likely into fiscal 2024. In terms of operating expenses, we expect spending to move lower sequentially in Q3 and remain relatively flat in Q4.

As Steve shared, we are proud of how we have managed expenses over the last several years. Our level of operating expense is expected to decline not because of reduction head count but rather due to our efficient management of larger marketing initiatives coinciding with periods of elevated COVID testing revenue. Below operating income, we expect other income net to be an expense of slightly more than $20 million for the full year. Our guidance is based on an annual effective tax rate of approximately 19% and diluted shares outstanding are expected to be approximately $250 million for the full year.

All this nets out to expected non-GAAP EPS of $0.83 to $0.93 in the third quarter and $3.75 to $3.95 for the year. To conclude, our strong second quarter results exceeded our guidance, and we are once again raising our full year estimates despite larger macro uncertainties. Our growth in the quarter was broad-based with each business growing double digits organically, excluding COVID. Our results reinforce the fact that Hologic is a much stronger company than just a few years ago. We are larger and more durable than prior to the pandemic and our balance sheet is as strong as it's ever been. As we move to the back half of our fiscal 2023, we are excited to continue to advance women's health, while also delivering strong financial results and creating value for all of our stakeholders. With that, we ask the operator to open the call for questions.

Questions and Answers

Operator

Thank you. [Operator Instructions]. Our first question comes from Patrick Donnelly with Citi. Please go ahead.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Hey, guys. Thank you for taking the question. [multiple speakers] How are you. Karleen, maybe just one on the margin profile. You guys have done 31%, I think, both this quarter and last quarter. That guidance still for 30% op margins, obviously implies a bit of a step down here in the second half. Can you just talk about, I guess, the moving pieces in the second half? And then just thinking forward about what the right exit rate would be? Because, obviously, again, the second half will be a little lower as we work our way towards '24, just thinking about the margin profile. I know during COVID, you guys always talked about kind of that landing rate margin numbers. So if we could just revisit that and the second half and then also does that move forward right ballpark to think about the out margin would be helpful?

Karleen Oberton
Chief Financial Officer at Hologic

Yes, sure. So I think when you look at the second half compared to the first two quarters, certainly, the low COVID revenue are putting pressure on that operating margin compared to the first half. And I think prior to pandemic, Patrick, what is also putting pressure on those operating margins are the higher inflationary costs that we've quantified it. 200 to 250 basis points for the full year. So I think moving forward to think about low 30s is probably the right way to think about it as we move forward, like you said.

Patrick Donnelly
Analyst at Smith Barney Citigroup

Okay. Understood. M&A commentary, Steve, that's something that's come up a lot more this quarter with investors. I know Karleen, I think you had a tremendous amount of firepower there during the call. Can you just talk about the pipeline, the appetite here? I know you guys want to be patient, but what the right sizing is, whether it's a leverage ratio? Is -- are you looking only in core areas, Steve, I believe you said in the past, you don't want to add another leg to the stool, but would love to just talk through the M&A side, given it's become a bit more of a focus here since last quarter?

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. I think overall, Patrick, our strategy remains the same, which is being patient, diligent and active. And I think our focus continues to be leveraging the capabilities and strengths that we have and leveraging the existing sales channels. So bulking up the businesses that we have makes sense. We are considering widening the aperture to consider larger deals, but frankly, those would be things with more mature earnings profiles and still be accretive to growth. So each of the divisions has some pretty nice pipelines. We've also because the core business is doing so well, again, I think it gives us that ability to be patient because we don't have to do anything. And so it's this magical combination of we can afford to be patient. We've got a lot going on, but we'll continue to see where it goes.

Operator

We'll take our next question from the line of Tim Daley with Wells Fargo. Please go ahead.

Timothy Daley
Analyst at Wells Fargo & Company

Great. Thank you so much. So just curious about the growth performance driven by the selling days. I think you guys called out two extra selling days in the quarter. What was the contribution of that towards growth? And then how should we think about that for the year? And then as well, any potential offsets or not once we start thinking about modeling 2024?

Karleen Oberton
Chief Financial Officer at Hologic

Yes, the contribution really wasn't that significant, probably less than 200 basis points in the quarter. I think when we compare it to Q1, we had that full calendar week, which drives the service revenue which really didn't have any minimal impact in this quarter. And as we look at the balance of the year, I think it's a pretty negligible effect of extra days.

Operator

Our next question comes from the line of Casey Woodring with JPMorgan. Please go ahead.

Casey Woodring
Analyst at JPMorgan Chase & Co.

Great. Thank you for taking my questions. So you talked about Breast Health pull forward on chip allocations, which sort of drove the non-COVID beat here. Is there further upside to chip allocations this year, could we see another surprise bump in the back-half, I would be interested to hear what you're hearing from suppliers on that front.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. Casey, I think it was kind of a more of a one-time bump here as it now gets very steady. I think we feel really good about our visibility, frankly, not just through 2003, but into 2004 and we continue to manage this for the long haul. We had to run a little extra overtime for some of our service people with the extra installs and I think we'll be in a really good rate here going forward.

Casey Woodring
Analyst at JPMorgan Chase & Co.

Great. And then just longer-term, have you changed your expectations at all within molecular diagnostics as it relates to the 5% to 7% total diagnostics growth guide. Just looking at the non- COVID side has been strong for a number of quarters. So just trying to think through your expectations on that business, have they changed at all since you gave that initial guidance now back in July of 2021.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. Longer-term, not necessarily we always just wanted to careful not to get ahead of ourselves. I think clearly in the short-term. And what we aspire to be is certainly better and clearly what we're putting up right now. It's great. Now, it's going to be much tougher. Clearly, when we start bumping up against 24% comparable levels then growing that in that five to seven on-top of those numbers. Cumulative, is getting to be a lot better-off than frankly when we gave the guidance. So, in fact in some ways, it actually is much higher, but we don't want to get too far ahead of ourselves on that number.

Karleen Oberton
Chief Financial Officer at Hologic

Yes. Casey, I would just add that we've always said that we would expect molecular to be at that high end of that five to seven, if not slightly over. But overall DX would be within the five to seven.

Operator

[ Operator Instructions] Our next question comes from the line of Anthony Petron with Mizuho Group. Please go ahead.

Anthony Petrone
Analyst at Mizuho Group

Thanks and congrats on another strong quarter here. The first one would be on surgical, 25% organic. Just trying to get an understanding of how much of that is underlying procedures within women's health just coming back versus, let's say, synergies with Boulder Surgical? And then I'll have one quick follow-up on molecular.

Stephen MacMillan
Chairman, President and CEO at Hologic

Sure, Anthony. I think it's probably more the market coming back and combined with surgical was weaker in this quarter a year ago because of the Onton surge and I think the-- I go back to a year ago, where people are kind of picking a [Indecipherable ] surgical might not be is strong or whatever else. And it was back to that was a market dynamic and I think now, there's probably some catch-up going on procedure wise as you're hearing really across the med-tech space. And having said that I think we feel really good. About how we're performing among that both with our existing businesses and frankly having the broader portfolio that you referenced.

Karleen Oberton
Chief Financial Officer at Hologic

Yes. I would just-- we're getting some really nice traction internationally with our surgical business, a small base, but like I said, some really nice traction that's helping that growth rate for sure.

Anthony Petrone
Analyst at Mizuho Group

And then on molecular just excluding COVID another strong quarter and I'm just wondering if you could provide an update on where utilization on the Panther systems that were placed during the pandemic those new systems where you had some demand pull just where utilization on those systems is today, and where do you think it can go over the next 12 to 18 months. Thanks again.

Karleen Oberton
Chief Financial Officer at Hologic

Yes, Anthony, we haven't really we haven't disclosed that utilization number, but what we have said is that of the new Panthers placed since April 2020, over 85% customers globally, driving at least one other assay beyond COVID. I think, over 55% have at least two other assays that our driving that utilization, so feel-good about the stickiness of those Panthers the new Panthers that have been placed. Our next question comes from the line of Liza Garcia with UBS. Please go ahead.

Liza Garcia
Analyst at UBS Group

Hey guys, thanks so much for taking the questions and congrats on a another strong quarter. So I guess let's turn maybe bio terror NASDAQ. You guys maybe if you could dive in there and thinking about that one. So I know you said strong contribution there, but I know you recently opened up the lab and you've been working on initiatives to help that improving the customer order inflow, but then how do we think about the run-rate, the business there and where that can go. You kind of thinking about diagnostics platforms.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. I think we are as excited, if not more excited about the growth potential, probably more excited even. I would say today than when we acquired the business. The team that we have there is great as you mentioned, we've now brought the lab over from nearby consolidated didn't do our San Diego facility and I think we're realizing that the penetration of this opportunity relative to the full market is still in the very low single digits. So there is potentially a lot of runway. We've been putting in more automation, frankly, just to make the ordering systems easier and other stuff and I think we're really excited. It's clearly growing. Very accretive to the growth rate of the division and we think we'll will be for that's one of those for years to come.

Liza Garcia
Analyst at UBS Group

Great. That's available. And then just circling back to kind of guidance surge. I know that there was some weakness last quarter, but even kind of when you do the 2-year stack. I'm still getting system low double digits, kind of growth there. And I think you've called out in kind of the performance of NovaSure and V5kind if you could just dig in a little bit on kind of, it seems like it's been surprising to the upside there and obviously I know that you've got Fluent and Acessa as well. Just kind of where that portfolio can go and how you think about that and the growth levels there?

Stephen MacMillan
Chairman, President and CEO at Hologic

Liza, I think this is one we've been incredibly excited under the leadership of Essex Mitchell, who has been running that business now for the last few years. He is dramatically strengthened both the US business as well as we've made a couple of those great acquisitions of Acessa and Bolder. And so we are seeing some really nice growth, they still this quarter you may have been a little bit of procedural catch-up in the overall market. So we never wise, you know, we never want to get too far ahead of ourselves, but we love the team that we have there now. And as Karleen said, and you can see in the press release, the growth rate internationally now for surgical is really, really doing well. We're north of 30 and I think in this quarter close to 40 ish percent and that's starting to become meaningful. So I think our as we sit here today think about another growth driver for this company. Surgical is definitely in there.

Operator

Our next question comes from the line of Andrew Cooper with Raymond James, your line is open.

Andrew Cooper
Analyst at Raymond James

Hi, everybody. Thanks for the questions here. Let me just one more on breast and thinking about the commentary for the back-half of the year, how much of that pull-forward. Do we think about working that backlog down and that's why, maybe a little bit lower quarter-over-quarter. In the 3Q versus. Still being a little bit limited by chip supply, just where are you in terms of kind of the allocations versus what you ideally like to have. And just help us think about sort of the cadence as we work-through that the back-half of the year in terms of why a little bit lower being able to maintain maybe a great level that you saw in this quarter.

Karleen Oberton
Chief Financial Officer at Hologic

Yes, what hasn't changed is our outlook for production for the full-year. So we really have a lot of confidence in the total number of [indecipherable ] we can produce based on the chip availability. And with that increased confidence what we allowed to accelerate into Q2 in the back-half. So the total production outlook hasn't changed and I think as we've always, as Steve mentioned, to accelerate even here in the quarter is an uptake on our service, our field service engineers to do those installed. So like we've said all along, we don't think we'll have any outsized quarters as we move through this recovery and certainly cancellations are at a minimal level in that backlog is still really strong.

Andrew Cooper
Analyst at Raymond James

Okay. Super helpful. And then maybe just one more. You mentioned the respiratory seasonality in the prepared remarks. So maybe just help us think about the sizing of kind of where that business is on a non-dilutive basis today and how you think about what that seasonality really looks like through the course of the year as it continues to kind of stick with us post-COVID.

Karleen Oberton
Chief Financial Officer at Hologic

Yes, I mean really strong performance as we think about growth year-over-year that non-COVID respiratory more than doubled versus prior year in the quarter. But what we are planning conservatively as a significant step-down in Q3 and Q4, given the seasonal nature of the respiratory infections. But this continues as the flu seasons in the flu season we're seeing really nice uptake in growth in that business.

Operator

Our next question comes from Puneet Souda with SV8 Securities. Pl ease go ahead.

Puneet Souda
Analyst at SVB Securities

All right, great. Steve, thanks for taking the questions and congrats on another solid quarter here. So first one, at a high level given the macro uncertainty which businesses I mean, if things obviously recessionary talk is hair and ongoing and expectations are sort of lower for the second half across overall in the economy. So where do you think the businesses can hold up better versus others where the team is continuing to watch more closely for the demand term versus where you think the demand will continue to outpace the macro uncertainties.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. Truthfully, I think we feel good about all three of the businesses. As we go into the back-half of the year I mean obviously it's way. The biggest thing is it's one reason we wouldn't get ahead of ourselves and start to raise guidance and raise long-term expectations when we're going into that exact uncertainty that you're referencing, but the fundamentals of each of the businesses. I think we feel really good about.

Puneet Souda
Analyst at SVB Securities

Got it and then a question on HPV stand-alone versus co-testing that's come up again in our investor conversations. So just wondering any updated thoughts on the potential for it to go stand-alone versus co-testing and do you think USPSTF guidelines could get revised potentially with updated information from ACC?. And do you see any risk for co-testing from sort of primary testing with the new emerging competitors in this space.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. Let's start at the highest-level. There is no doubt in our minds. That more frequent co-testing. Is still the absolute best health-care for women. There are anecdotal increases that we're starting to see uptake upticks in cervical cancer screening since the intervals have gotten longer. And frankly there's enough data out as co-testing is significantly better than HPV primary along. So while there are those advocating for that in USPSTF could do that. It doesn't make it the best science and I think we're we feel really, really good and as you know our in our tagline is the science of sure. We feel it's our responsibility to bring the best care to women around the world and we're going to continue to drive for co-testing as the right way to go, so. And frankly, I think most of the certainly most of the US doctors are well aware of that, even if the USPSTF does something to change those guidelines. We think that'll be slow to change because of the remarkable success of the Pap test in largely almost eliminating cervical cancer screening over the last generation or two particularly in the US.

So it's something we feel very strongly about and we believe time and the science will be on our side. Having said that, there's going to be pressures there's deep pocket pharmaceutical companies that want to try to drive to HPV primary. But we feel really good about the science on our side and that our business will be more durable.

Operator

Our next question comes from Jack Meehan with Nephron Research. Please go ahead.

Jack Meehan
Analyst at Nephron Research

Thank you. Good afternoon. Wanted to get your latest expectations on COVID-19. So I heard the guidance commentary we've heard from some of the big labs about volume following often. We have the PHE expertise coming soon. Can you just talk about like the stickiness of this product-line and what your latest stab is on what an endemic number or guidepost might be for 2024 here.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes, Jack. I think that the fundamental reality on COVID is none of us have been able to predict more than a quarter out going. I think if anything, our expectations for next year might be a little bit less. I think we're certainly starting to see it start to ramp off a bit and yet what we feel really good about is those that are still going to do it, we'll be using us. I think we'll still be usage at the hospital levels for admissions for staff, those kind of pieces. So I think we're still going to have some ongoing business, but we're still having this quarter but I think, clearly, you see it coming down to just a few percentage points of the total business at this point. And it's hard to fully predict certainly by the time guidance next year will be more up-to-date but it certainly looks like it's it's falling off. Pretty, pretty sharply at this point, which deep down for our company and getting on with it and learn people's look at the true transformation of the business, we kind of like, but a little bit of that profit flowing through isn't bad either.

Jack Meehan
Analyst at Nephron Research

Yes. Makes sense. Just as a follow-up. Wanted to talk about something that might be a little bit more not COVID isn't durable that might be more durable in the eyes of investors the vaginitis panel. Can you just give any color on the size of that business now is it annualizing over $100 million at this point and just talk about like the penetration in your customer base. How is that going?

Karleen Oberton
Chief Financial Officer at Hologic

Yes. We're really pleased with the performance in that uptake in our full-year outlook would be that would be over $100 million business, clearly. One of our top women's health assays and think the still give room to grow there. So really excited about that uptake and what we can do there with our customers.

Stephen MacMillan
Chairman, President and CEO at Hologic

It's been a really nice surprise for us how big that's getting how quickly. Jack.

Operator

Our next question comes from Tejas Savant with Morgan Stanley. Please go ahead.

Tejas Savant
Analyst at Morgan Stanley

Hey guys, good evening and thanks for the time here. One quick cleanup question on guidance, you actually, Steve, if I may. You got the approval in Europe and Canada on the V5 for NovaSure, how are you thinking about the revenue implications of that over the medium term, your NovaSure I mean, it's been a flattish business doesn't get too much attention from investors, but I think it's still the second largest piece of that segment for you.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. This has been a great business when I arrived here 10 years ago, that was the big part of this division that was most of it and MyoSure, was little thing and it's been fun to see MyoSure come up. But I think our team has done a great job of really trying to maintain NovaSure in the midst of all kinds of both market issues from the ACA Act and everything else. And just continuing to bring innovation and still a great procedure. So I think the overall procedural numbers that marketplace probably continues to be a low-single digit decliner, but I think we do well, we're doing well within that from a share and an innovation standpoint.

Tejas Savant
Analyst at Morgan Stanley

Got it. That's helpful. And then one on imaging. Karleen, I know you talked about sort of the cadence here normalizing versus F2Q levels for the gantries, but did you benefit at all from this very significant correction in demand that some of the U.S semis manufacturers are seeing? I know you've talked about your chips being very distinct from what goes into consumer products in the past, but just curious as to whether that drove a little bit of the uplift here? And to your point, Steve around the macro being something you're watching is this just sort of a little bit of conservatism and wider error bars around sort of the normalization trajectory here that's making you take a relatively conservative stance of the gantry placements versus the field service engineers in that aspect of it.

Karleen Oberton
Chief Financial Officer at Hologic

Yes, so just on the chip issue itself. I don't. increasing availability was not the direct results that have demand dropping other sectors is more of our partnerships with our suppliers and having them understand what we're using the chips for and how important they are and really working closely with them versus other sectors demand declining. And sorry, you had a second part of that question.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. And the other part was just-- being conservative. I think we're managing for the long-haul here too. We're very much thinking about 2024 and what things look like there and I think this is already a really, really good year, let's not get ahead of ourselves.

Operator

Our next question comes from the line of Andrew Brochmann with William Blair. Your line is open.

Andrew Brackmann
Analyst at William Blair

Hi guys, good afternoon and thanks for taking the questions. I've actually got two questions on molecular diagnostics and sexual health specifically, so I'll just ask them both upfront. First CDC had a report out a few weeks ago showing the rise in FTI cases. So maybe can you just sort of remind us and some of the initiatives that you have here with customers and public health services broadly for your testing solutions? And then just secondly on this platform. Can you just sort of talk about what you're seeing internationally with this franchise. Anything is in terms of where wins might be coming from these that versus competitor tests or even sort of LDTs transitioning here. Thanks.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. I think first part, Andrew really is-- I think it's the given gem of our company that doesn't always get as much attention, but is that dedicated physician sales force that we have within our diagnostics business, it's really unique. It's an extra investment from our end. But it is having our reps that call on the physicians and really help educate them, both about the guidelines and including the changing guidelines, where we've gone to effectively the need to opt out, you're getting more screening earlier. And we're --it allows us to partner with a lot of the major labs and even hospital systems where they value that education that we do and it helps us both shape, but also build markets.

When you look at really what Hologic has done and I think we've been pretty good about it across our businesses, we've helped create a lot of markets through physician education. I mean if you go back to the original Pap test and ThinPrep and what we did there what NovaSure and MyoSure have done, we're doing it a lot of diagnostics, certainly through the STI.

And to the second part of your question on international, I think again by placing so many Panthers internationally, it's allowed us to have more of those discussions and start to get some of that menu in around the world as well and then hopefully able to help educate and shift guidelines in those countries over the years ahead as well.

Karleen Oberton
Chief Financial Officer at Hologic

Yes. The only thing I would add internationally for molecular diagnostics is our viral business specifically in Africa continues to have really nice double digit growth as we make investments there to help that regions.

Andrew Brackmann
Analyst at William Blair

Thanks.

Stephen MacMillan
Chairman, President and CEO at Hologic

All right. Thank you.

Operator

Our next question comes from Derik De Bruin with Bank of America. Your line is open.

Derik De Bruin
Analyst at Bank of America

Hey, this is John on for Derik. Good afternoon. I wanted to ask, so recently a federal judge struck down a key provisions of the Affordable Care Act and that kind of jeopardize the free coverage of wide-ranging preventive services including mammograms and cervical cancer screening. How do you see this playing out. And I guess, are you worried at all about reimbursement or does that or do you have any fear of having to pay--the the patients having to pay-out of pocket and that will the turn then determine from screening.

Stephen MacMillan
Chairman, President and CEO at Hologic

No I mean, there's been so many various court cases between state that federal all kinds of frankly goofy going on in the political and court systems right now. We tend to think here, things will prevail and be fine over-time. So we're not going to react any one thing that could easily get overturned again.

Derik De Bruin
Analyst at Bank of America

Got you. I appreciate it.

Stephen MacMillan
Chairman, President and CEO at Hologic

Great. All right.

Operator

Our next question comes from the line of Vijay Kumar with Evercore. Please go ahead. Hi, Steve. Congrats on omnichannel, really strong quarter here.

Stephen MacMillan
Chairman, President and CEO at Hologic

Sorry, I missed you on the visit out here.

Vijay Kumar
Analyst at Evercore ISI

No, no, all good, you guys made it up with the trend. I guess on some of the numbers we're seeing here Steve, I'm this is almost.

Stephen MacMillan
Chairman, President and CEO at Hologic

Personality come on.

Vijay Kumar
Analyst at Evercore ISI

You've made it up, but what some pretty impressive numbers. So this is almost auto kind of numbers 20%. Now I understand from an auto perspective there's backlog so I was just curious, when you look at numbers like 25% GYN and 15% overall diagnostics to you. What do you think is driving this? Is this a catch-up of backlog? Or is this perhaps a pull-forward of demand? And then related to that, Steve first-half I think the organic now with almost teens, mid-teens. I think the prior guidance here for all segments double-digits. Is the implication now for the back-half six to seven in-line with the longer-term shafts? So just talk about what drove first half what the implication for the second half.

Stephen MacMillan
Chairman, President and CEO at Hologic

Yes. I think the implication for the second half is still much better than the numbers you just mentioned the--we're still seeing double digit here in the third quarter and likely fourth. So I think I don't think it was pull-forward Vijay to be very clear. I do think the GynSurg market probably like some of the Ortho markets and some of the other markets, some of the docs may have been doing more what I would call catch-up. So I don't think it's as much pull-forward, but they're catching-up from the last few years have not may be doing as many procedures as they could have. So I think we'll that same quarter a year from now maybe not be quite as active. Yes, but I don't think it was any kind of pull-forward per se. I think it's more catch-up and I think we just feel great about our surgical business, we have added more growth drivers. I think again, it's been kind of missed in the COVID spikes. I think it's the business has been most overlooked because of the way the COVID spikes were happening. And just really proud of what that team is doing and we've added Fluent we got MyoSure and NovaSure doing well and then we've got Bolder and Acessa. So and we've got that business getting stronger internationally.

Vijay Kumar
Analyst at Evercore ISI

That's helpful, Steve. According, one for you here. I know you called out the days, any days impact in back-half are days never headwind here in back-half? And-- sorry, on capital allocation. Is this a Steve, sorry, I missed your comments, are you seeing like the pipeline is looking healthier, maybe just put some context around the M&A commentary here on perhaps we're getting closer to something here in the near-term versus how we should interpret your commentary around the pipeline looking across all segments.

Karleen Oberton
Chief Financial Officer at Hologic

Yes. So let me start with the days, Vijay. So we have I think one less day in the fourth quarter. So really negligible impact in the back-half of the year when we talk about selling days and again here in the second quarter, a little bit of benefit, but not to the extent that we had in the first quarter, given the full calendar week and how that impacts our service line. And let me, let me try to answer your M&A. I think what I would say is a couple of things. As we said in the prepared remarks, our philosophy and approach haven't changed division led very active probably some rebuilding over the past year in diagnostics of the pipeline given the level of acquisitions we did in 2021. But we're approaching this from a position of strength our aperture is a little wider, given our firepower and that we can look at some things that maybe a little bigger than we've done in the past, but certainly those things we're looking for mature on product on-market products and accretive to earnings. So, not looking for fourth leg of the stool, but just to leverage our strengths and capabilities that we have across our current businesses.

Operator

Our next question comes from Navann Ty with BNP Paribas, Exane. Please go ahead.

Navann Ty
Analyst at BNP Paribas Exane

Hi, thanks for taking my questions. I just have a few on women's health. So what is the vaginitis assay, still the key driver of Q2 performance? And can you discuss the competitive environment in women's health. So competitors far behind given Hologic's competitive advantage and women's health focus? And thus Hologic's still benefit from the opt-out guidelines for its legacy test and I have a follow-up on M&A after? Thank you.

Karleen Oberton
Chief Financial Officer at Hologic

Yes, so our vaginitis panel as we said, we really like the performance that we've seen the outlook would be that's greater than $100 million for 2023 and really put that as one of our top assays. Women's health, we still market leaders and protecting that market leadership. And as Steve said, one that's the kind of the secret sauce that's under appreciated in how we do that is our physician sales force that's out there, educating physicians on guidelines promoting testing certainly where we saw a change in guidelines about two years ago, where it's more universal screening, we're helping grow our business, as well as our customers business with acquisition sales force.

Navann Ty
Analyst at BNP Paribas Exane

Thank you. And then on M&A be part of the international expansion, or is it mostly--or it's international expansion mostly expanding the installed-base and menu.

Karleen Oberton
Chief Financial Officer at Hologic

From an M&A perspective, certainly some of the recent deals we did, we acquired companies that were based overseas, but Mobidiag, the biggest one would have potential revenue both in the US and OUS over time. And then we do have our go direct strategy primarily in our Breast Health and we've done a little and surgical wounds in the past leveraged dealers and what we find is when we go direct, those business perform better as part of Hologic than on a standalone basis, but certainly as a global organization. We look at acquisitions around the globe, not just in the US.

Operator

Thank you. This now concludes Hologic's second quarter fiscal 2023 earnings conference call. Have a good evening.

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