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Hologic, inc (HOLX) Q3 2021 Earnings Call Transcript

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Hologic, inc (NASDAQ: HOLX)
Q3 2021 Earnings Call
Jul 28, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Hologic 3Q '21 Earnings Conference Call. My name is Kathy, and I will be your operator for today's call. Today's conference is being recorded. [Operator Instructions]

I would now like to introduce Mike Watts, Vice President, Investor Relations and Corporate Communications, to begin the call.

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Michael Watts -- Vice President, Investor Relations and Corporate Communications

Thank you, Kathy. Good afternoon and thanks for joining us for Hologic's Third Quarter Fiscal 2021 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 third quarter press release is available now on the Investors section of our website. We also will post our prepared remarks to our website shortly after we deliver them. Finally, a replay of this call will be archived through August 27. Before we begin, I'd 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 that's included in our earnings release and in our filings with the SEC. Also during this call, we will be discussing certain non-GAAP financial measures. A reconciliation to GAAP can be found in our earnings release. One of these non-GAAP measures is organic revenue, which we define as constant currency revenue excluding the divested Blood Screening business as well as year one revenue from acquired businesses: currently, Acessa, Biotheranostics, Diagenode and Mobidiag. Finally, any percentage changes that we discuss today 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 P. MacMillan -- Chairman, President and Chief Executive Officer

Thank you, Mike, and good afternoon, everyone. We're pleased to discuss our financial performance for the third quarter of fiscal 2021. We posted excellent results overall driven by a strong rebound in our base businesses and continued contributions to fight the ongoing COVID pandemic. Total revenue was $1.17 billion, up 38%. And non-GAAP earnings per share were $1.33, up 77%. We significantly exceeded our guidance on both the top and bottom lines. Our revenue outperformance was broad-based in the quarter. Our breast and Surgical divisions both grew substantially versus the prior year period when results were negatively affected by the pandemic. And importantly, both businesses also grew compared to the same period of 2019. Our Diagnostics division grew about 20% compared to last year despite lower sales of COVID tests and increased compared to 2019 as well. Karleen will review our full financial results today, but before she does, I want to take a step back and provide some perspective on where Hologic is headed over the longer term, as many of you have requested.

As mentioned in our last call, we have been working through our annual strategic planning process. And based on this, I've never been more excited about our future and the global impact we are making by pursuing our purpose, passion and promise. We know this is important to all our investors and especially those focused on ESG priorities. Hologic is clearly emerging from the COVID-19 pandemic as a stronger faster-growing company. We have a much higher profile on the global stage, which has helped create a stronger and more durable foundation to accelerate our international growth. And we have placed hundreds of new Panther instruments, which is boosting our razor-razorblade business model. From a financial perspective, we have generated more than $2.5 billion of operating cash in just the last five quarters. During this time, we have used about $1.35 billion to buy six companies and about $510 million to buy back our own stock.

In Diagnostics alone, we have added two new growth platforms in Biotheranostics and Mobidiag and substantially increased our assay development capabilities with Diagenode. Based on all this progress, we are now targeting organic revenue growth rates of between 5% and 7% in our base businesses between now and 2025. This excludes sales of COVID assays and related ancillaries, which we expect to decline over our strat plan horizon. Now we'd like to discuss how we expect this to play out in our three divisions. This is more detailed than we'd typically provide in the quarterly call, but it's important to underpin the enthusiasm we have for our future. First, in Diagnostics. We are diversifying our customer base, installing more Panther instruments, continuously adding new assay menu and driving testing demand. Our foundation in diagnostics remains rock-solid with leading U.S. market positions for our ThinPrep pap test and our key women's health assays on the Panther instrument, namely chlamydia, gonorrhea, HPV and Trichomonas.

As leaders in these categories, we have built strong partnerships with many of our largest lab customers that enable us to educate physicians about testing guidelines issued by groups like the CDC. Just last week, in fact, the CDC posted new recommendations that are very positive for public health and for our business. So while our market shares are already very high, we are driving growth by expanding addressable markets. In addition, we have developed related women's health tests that are often performed from the same patient sample, such as our vaginosis panel and our test for Mycoplasma genitalium. Finally, we see significant opportunities to increase sales of other products where our market shares are much lower today. Our response to the COVID pandemic has unquestionably enabled us to accelerate these growth strategies. We have grown from a successful niche player in STI testing into a much more diversified industry leader with a broader customer base. We have done this by dramatically increasing placements of Panther instruments.

Since the start of the pandemic, we have increased our global installed base by more than 50% or in real numbers, by almost 1,000 Panthers. We now have about 1,500 Panthers in the United States and more than 1,200 in other countries. And we are well diversified across customer sizes and types. And as COVID testing wanes, customers are beginning to use these instruments to run more non-COVID assays. This is a significant opportunity because today, about half our customers from the largest reference labs to smaller hospitals run three tests or fewer on their Panther instruments, even though we now have 19 total assays available. We are capitalizing on this opportunity by signing up record levels of new business, as reflected in the test of record, or TORs, metric that we have discussed. Pre-COVID, our best year for TORs was a little more than $20 million. Last fiscal year, we set a new record with about $35 million of new business, and we are on track to comfortably exceed that number in 2021. Outside the United States where Hologic Diagnostics has been less well known historically, COVID has materially elevated our profile. Since the pandemic began, about 1/3 of our COVID assay sales have been generated internationally.

And the relationships we have established will help us win business and drive future growth. Finally, the strong cash flow we've generated from COVID sales has enabled us to complete three recent acquisitions in Diagnostics that together are expected to contribute more than $100 million of annual revenue as well as providing new growth platforms that increase our top line growth rate. First, Biotheranostics enables us to enter the lab-based oncology space, a longtime area of interest that has been growing rapidly. Biotheranostics is off to an excellent start with about $13 million of revenue in the third quarter, more than 30% higher than their best quarter prior to the pandemic. Second, Diagenode will help us add PCR-based menu to our Panther Fusion instrument both in Europe and in the United States. And third, the acquisition of Mobidiag enables us to enter the rapidly growing market for acute care near-patient testing, which we have been monitoring for years.

We believe the Novodiag instrument provides the right combination of ease of use, rapid turnaround and low manufacturing cost to expand into smaller hospitals and create a multi-hundred million-dollar product line over time. Now let's shift gears and discuss our Breast & Skeletal Health division, where revenue growth is becoming more diversified, more recurring, more global and more consistent than ever before. Similar to Diagnostics, our strategic plan is built on a foundation of strength. We are the leaders in breast health based on a long history of innovation, partnership with customers and focus across the continuum of breast care. Our strategy is built around the innovative market-leading Genius 3D Mammography platform. Like all our key products, our Genius exams make a real difference in women's lives. They detect more dangerous cancers while reducing unnecessary callbacks. A few years ago, many investor questions focused on whether we could overcome the 3D cliff that was thought to be inevitable once the market converted to 3D. We don't get that question much anymore because we have leveraged our leadership in 3D to create a much more diversified business with more consistent, steady revenue growth. In fact, in the third quarter, U.S. gantry sales represented less than 20% of global breast health revenue.

We have accomplished this in four ways. First, we have expanded our service business. If we think of breast health service as a single product, it would be the company's second largest with more than $500 million of global revenue over the last four quarters. While we don't expect this to grow dramatically over our strategic planning horizon, service will continue to underpin our financial results and be the cornerstone of the tight relationships we have with our customers. Second, we have beefed up our R&D capabilities beyond our traditional focus on X-ray imaging. We have developed new software packages like Clarity HD, which provides the industry's fastest, highest-resolution images. We have introduced new tools like Genius AI detection, a deep learning-based software that helps radiologists detect subtle potential cancers. And we pioneered Brevera to fully integrate the biopsy procedure with specimen radiography for the first time. Brevera alone is now generating about $40 million of annual revenue, and we expect all these new products to drive growth over our strat plan horizon.

Third, we have acquired four companies since 2018 to broaden our product portfolio, expand across the continuum of breast healthcare and become the partner of choice for all a customers' breast health needs. These acquisitions include Faxitron, which bolstered our offerings in specimen radiography; and Focal, which moved us further into breast-conserving surgery; and SuperSonic Imagine, which strengthened our position in ultrasound; and SOMATEX, which increased innovation in breast biopsy markers. In aggregate, these deals are now adding about $90 million annually to breast health revenue and are important contributors to growth in our strategic plan. And fourth, we are expanding internationally in breast health. Our focus is to continue gaining market share with our existing 3D and upgradable 2D mammography products, the same products that have established leadership positions in the United States. We are also bringing the new products I've discussed both internally developed and acquired two additional countries.

And we've purchased distributors in Germany, Spain and other markets to get closer to customers and secure more service revenue. Now let's turn to our GYN Surgical division. Surgical was our fastest-growing division before the pandemic, and our strategic plan assumes that Surgical will continue its momentum through 2025. We have a unique opportunity to leverage our strength in the OB/GYN channel to provide differentiated solutions throughout women's lives. While today, our products mainly help middle-aged women, in the future, we plan to have a stronger presence among mothers-to-be and older women as we expand our offerings within the hysteroscopic, laparoscopic and pelvic health markets. Within Surgical, MyoSure remains the world's leading hysteroscopic product to remove smaller, less complicated fibroids. Since July is Fibroid Awareness Month, you've probably seen many articles describing the huge number of women who are affected by fibroids and the way they often suffer in silence or undergo invasive procedures, such as hysterectomies. It's clear that this market remains large and underpenetrated and that after many years of exceptional growth, MyoSure still has plenty of room to run.

We are also very excited about Acessa, which we acquired in 2020, and its laparoscopic fibroid treatment system. Acessa is a perfect complement to MyoSure as the system is used to treat larger, more complicated fibroids that MyoSure can't reach. Importantly, the same OB/GYNs who rely on MyoSure have the potential to use Acessa, so it's a great fit for our sales force. We recently received two pieces of good news on Acessa, that it's now included in ACOG's updated fibroid management guidance and Cigna's list of medically necessary procedures. These are important milestones on our road to creating another $100 million-plus surgical brand alongside MyoSure and NovaSure. Another reason we feel confident in Surgical's future is the revitalization of our R&D pipeline. A few years ago, the division was basically a 2-product show. Today, however, we sell multiple versions of these products as well as new fluid management system, hysteroscopes and other GYN surgical tools. and we have a robust pipeline of new products in development.

Finally, based on the strengthening of our global commercial capabilities, we now have many opportunities to deliver our less invasive surgical solutions to women around the world since less than 20% of the division's revenue is generated outside the United States today. Before I turn the call over to Karleen, let me wrap up by saying that, to me, Hologic looks like a fundamentally different company today than just 18 months ago before the pandemic. We have three franchises growing faster than they ever have. We are growing in all major regions of the world. We have added multiple new growth drivers in all our divisions. And with our COVID test, we have a significant new product line to provide upside to a strong base. Taken together, we are excited for the future and confident that we will grow our base, non-COVID business between 5% and 7% over the next several years.

Now let me hand the call over to Karleen.

Karleen Oberton -- Chief Financial Officer

Thank you, Steve, and good afternoon, everyone. As Steve said, our third quarter results exceeded expectations as revenue and EPS grew significantly compared to the prior year. Revenue of $1.17 billion increased 38%. Organically, revenue grew 34% driven by continued sequential improvement in our base businesses and a meaningful contribution from global COVID testing revenue. We exceeded our top and bottom line guidance with upside in both our base and COVID. We also significantly improved profitability compared to the prior year period. As a result, EPS of $1.33 in the third quarter increased 77%. Further, operating cash flow remained robust, allowing us to execute on our capital allocation strategy, which I'll discuss more in a moment. Before I do that, let me provide some detail on our divisional revenue results. Providing a more complete picture of our performance, I will often compare our results to the third quarters of both 2020 and 2019. In Diagnostics, global revenue of $665.5 million grew an impressive 20% compared to the prior year period, based on higher-than-expected COVID sales and the strength of our core molecular franchise. Within Diagnostics, Molecular Diagnostics increased 11.9% globally as massive growth internationally more than offset the decline in U.S. COVID sales.

Although COVID testing revenue declined, it still exceeded our most recent guidance. Specifically, we shipped about 14 million COVID tests to customers, generating assay revenue of $291 million globally. About 2/3 of COVID assay revenues generated outside the United States in the quarter, reflecting the broader global footprint that Steve discussed. To better understand the underlying performance of our non-COVID businesses, let me remind you that the pandemic has also increased sales of collection kits, instruments and ancillaries that are used with our COVID test. Backing this revenue out of the current and prior year period provides a better picture of true underlying trends. If we do this, we see that base molecular revenue in total Diagnostics sales grew about 76% organically in the third quarter. Compared to the same quarter of 2019, molecular grew in the mid-teens and total Diagnostics grew mid-single digits. Rounding out Diagnostics, our Cytology & Perinatal businesses grew 75% compared to the prior year. But compared to 2019, these businesses were still slightly behind their pre-pandemic levels. In breast health, global revenue of $349 million grew 53% and exceptional results as the franchise continues to gain momentum.

As evidence of this, revenue has now increased sequentially and compared to 2019 for the last three quarters. The division's strong performance remains well rounded, reflecting our commitment to diversifying revenue streams, as Steve discussed. Both breast imaging and the interventional businesses increased compared to the prior year period, with imaging growing 43% and interventional increasing 120%. Although we remain encouraged by continued improvement in the capital environment, capital is still not quite back to the 2019 levels. However, breast screening rates continue to improve. And with a healthy backlog, we are encouraged about continued recovery over the next few quarters. In Surgical, third quarter revenue of $127.9 million grew 143% while also exceeding 2019 levels by low double digits. Surgical's strong performance has been driven by normalizing procedure volumes, MyoSure and new products in the hands of our exceptional sales force.

Lastly, in skeletal, revenue of $25.9 million increased 66% compared to the prior year period and was also up low single digits compared to 2019. Overall, in terms of geography, domestic sales of $749.9 million increased almost 14%. On an organic basis, U.S. revenue was up 10%. Outside the United States, sales of $418.4 million increased 130% -- 137%. Organically, sales outside the U.S. grew 131%, a tremendous result. Now let's move on to the rest of the P&L for the third quarter. Gross margin of 66.1% increased 140 basis points, driven by volume recovery in our base businesses and a nice contribution from sales of our COVID test. Continuing down the P&L. Total operating expenses of $310.1 million increased 19% in the third quarter. Excluding expenses from our recent acquisitions, operating expenses would have increased about 11% as we reinvested for future growth with incremental spending in R&D and marketing. In addition, remember that given uncertainties associated with the pandemic, we cut back on spending in our third quarter of 2020. Our non-GAAP tax rate in the quarter was 21.5% driven by a favorable geographic income mix, mainly sales of COVID tests outside the United States.

Putting this all together, operating margin increased 650 basis points to 39.5%, and net margin increased 580 basis points to 29.5%. As a result, non-GAAP net income finished at $344.8 million and non-GAAP earnings per share were $1.33, exceeding the top end of our guidance. Before we cover our fourth quarter guidance, I'll quickly touch on a few other financial metrics. Driven by our strong performance of our base businesses as well as the contribution from COVID testing, cash flow from operations was $663 million in the third quarter. This was nearly double our non-GAAP net income, highlighting excellent cash conversion. These strong cash flows continue to give us tremendous financial and strategic flexibility. For example, in the third quarter, we closed the acquisition of Mobidiag for an enterprise value of $808 million and also repurchased three million shares of our stock for $188 million. Overall, we had $828 million of cash at the end of the third quarter, and our leverage ratio was 0.7 times.

We intend to continue using our cash on divisional-led tuck-in acquisitions and share repurchases that improve our top and bottom line growth rates. Finally, ROIC was 34.7% on a trailing 12-month basis, a significant increase of 2,190 basis points. Before we open the call for questions, let me discuss our expectations for the fourth quarter of fiscal 2021 and provide a few comments on longer-term targets. In the fourth quarter of fiscal 2021, we expect strong financial results again with total revenue in the range of $1 billion to $1.04 billion, representing constant currency decline of 27% to 24% versus the prior year period, which benefited from huge COVID assay sales. For perspective, in the fourth quarter of 2019, we generated less than $800 million of revenue, excluding the divested Cynosure business. So we expect to grow significantly above pre-pandemic levels. In our base businesses, we expect continued momentum and recovery to generate very strong growth rates compared to the fourth quarter of 2020 given the negative impact of the pandemic a year ago. And we expect this franchise to grow nicely compared to 2019 as well. In terms of COVID assay sales, the U.S. testing market continues to decline. As we forecasted last quarter, we expect this trend to continue as more people are vaccinated. In addition, summer vacations may further reduce demand domestically and in Europe.

With these factors in mind, we expect COVID assay sales to range from $150 million to $170 million in the fourth quarter. In addition, COVID-related items in diagnostics are expected to be approximately $30 million in the fourth quarter, down roughly $20 million sequentially. If new variants drive demand that exceeds our current expectations, we are well prepared to deliver for our customers and generate upside to our estimates. Our fourth quarter guidance includes approximately $35 million of acquired revenue from Mobidiag, Biotheranostics, Diagenode and Acessa. Backing this out as well as $9 million of expected Blood Screening revenue, we expect organic revenue to decline 30% to 27%. But excluding COVID assay sales and related revenue, we forecast organic revenue to grow low to mid-teens in the fourth quarter. Below operating income, I would point out that we expect other expenses net to increase to about $25 million in the fourth quarter. Our guidance is based on a tax rate of 21.5% and diluted shares outstanding of 260 million for the quarter. All of this nets out to expected EPS of $0.92 to $1 in the fourth quarter. Given the outsized impact of COVID assay sales in the prior year period, this translates to a decline of 56% to 52%. As you update your forecast, 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 incorporates both potential upsides and downsides. Before we open up the call for questions, let me touch on a few longer-term items.

As Steve discussed, based on our recent strategic planning process, we are confident that organic revenue can grow 5% to 7% through our fiscal 2025, excluding sales of COVID assays as well as the related ancillaries and instruments. Many of you have also asked for our perspective on COVID assay sales next year. And the shortest, most accurate answer is we don't know, no one does, given the uncertainty -- significant uncertainties that still exist and that seemingly change on a weekly basis. Having said that, we do understand your desire for some kind of framework. Toward that end, we believe that given the scope of the ongoing pandemic and our broad global installed base of Panther instruments, it's unlikely that COVID assays revenue will be much less than $200 million next year, which would make COVID one of our biggest molecular assays. It's certainly possible that sales could be more than that, maybe as much as double. But we are going to be conservative at this stage and consider anything above $200 million potential upside.

We would encourage you to do the same and focus instead on the strong underlying growth rates in our base businesses that Steve discussed. Let me wrap up by saying that Hologic showed tremendous growth in the third quarter with results that exceeded guidance. We continue to make a huge impact on women's health globally and are meeting COVID testing needs as the pandemic evolves. Further, with organic investments in multiple acquisitions, we are emerging from the pandemic as a stronger company with top line growth rates of 5% to 7%, excluding COVID impacts.

With that, I will ask the operator to open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And we'll go first to Tycho Peterson of JPMorgan.

Tycho Peterson -- JPMorgan -- Analyst

Hey, thanks. A question to kick it off on guidance both near term and then the longer-term outlook. So the fourth quarter guidance, you're a bit below consensus at the midpoint on both revenue and earnings. A lot of that's obviously the COVID roll-off, but I just want to make sure there's not any deterioration model for the base business in the fourth quarter outlook. And then longer term, the 5% to 7% growth, obviously, you've got easy comps from '21 as it was still impacted heavily by COVID. So should we assume the core non-COVID growth longer term, it could be at the high end or above, given the comp dynamic here in the near term?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Sure. Starting with the fourth quarter guidance, Tycho, you should feel very good about the underlying trends in the base businesses. We feel really good about each of them, and it's the COVID decline that really leads us. And we're continuing to be conservative. Day-to-day, it's hard to exactly predict what's going on in the COVID world. three weeks ago looked very different than a week ago. So we want to continue to be able to get people to focus on our base businesses that we feel good about. And we don't want to go too far on the longer-term piece, but I think saying a 5% to 7% for this company, it's very different than where we've been. And yes, so the comps are a little depressed somewhat next year, but not dramatically given that some of our business has bounced back pretty well. And I think we feel good about each franchise contributing steady growth as we go through that period. Karleen?

Karleen Oberton -- Chief Financial Officer

Yes. And I would just add to that, Tycho, that some of the elements of our franchises are not back to the '19 levels. If you think about cytology, you think about NovaSure and some of our STIs that are related to well-woman visits, those are still getting back to those '19 levels.

Tycho Peterson -- JPMorgan -- Analyst

Okay. That's helpful. And then a follow-up on capital deployment. Obviously, you've been very active on the M&A front, but you did repurchase three million shares this quarter. I'm just curious how you think about M&A going forward? Do you have a pause here? And would you shift more to buybacks given the valuation and the growth outlook you've laid out here?

Karleen Oberton -- Chief Financial Officer

No. I think the M&A pipeline is still certainly active. Again, it's division-led, so maybe a little more quiet on the Diagnostics front for a while. But the other divisions are certainly still active. And I think given the cash flow, Tycho, we can still continue to do both. We can still continue to do M&A and share repurchase, and that strategy will continue.

Operator

Our next question will come from Patrick Donnelly of Citi.

Patrick Donnelly -- Citi -- Analyst

Great. Thanks. Steve, maybe one for you on the long-term guide. Certainly appreciate all the color there. One of the biggest questions we get is just how to get comfortable with the big increase in Panther placements for that utilization beyond COVID. I mean we've seen so many various systems, see their installed base move higher as well. I guess when you guys work through the guidance, how do you think about this piece? I mean, obviously, there's things like test of record that you look at, that feel good about the attach rate in the near term and driving healthy utilization. But maybe just talk about that dynamic. Again, there's a ton of systems out there. What did you kind of include in the guidance in terms of Panther winning out in terms of some of that share beyond COVID?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Sure, Patrick. It really comes across on multiple fronts. Some is actually the contractual obligations as we place these Panthers, particularly to provide both COVID revenue but on an ongoing basis. The other piece is -- and you're right, there's a lot of systems out there now. The simple -- my super simple way is the "common sense talk to the customer" approach. And I think you've been out there with enough of the labs as well to hear what is going to be important on an ongoing basis is the most highly automated instruments that provide the best level of tests. And it's what has led us to really the unbelievable market shares that we have in virtually all of our businesses. But when you look at Panther, the automated platform, the incredible automation. And particularly, as labs start to look to the future, where labor is going to be tougher and tougher to come by. And so what we continue to hear is Panther is where they want to consolidate.

And in the early days of COVID, everybody went everywhere and got every machine and every test that they could get, and some are still bleeding off inventories from some of those. We just keep hearing over and over, the lab techs, especially, that are still running out inventory of other people's stuff, they want to consolidate on Panther. And I think we've got a multiyear long-term track record of delivering on that. This is not a pie in the sky, hey, we just placed a bunch of Panthers in the last 15 months and think this is going to happen. It's what we've been doing for six or seven years pre-Panther, which is we place more Panthers every year. As our customers get used to them, they want to put more and more stuff on them. So I think it's going to really help us emerge. All automated platforms are not the same. All boxes are not the same. Panther has established itself in the high-volume space, high throughput space for a good reason.

Michael Watts -- Vice President, Investor Relations and Corporate Communications

Hey, Patrick, it's Mike. The only thing I might add to that just briefly is, although we weren't aware when we put our strat plan together of the new CDC guidelines that were just issued, I think, last week, certainly, those are helpful to our business when you think about things like the opportunity for universal screening around chlamydia, gonorrhea, when you think about molecular testing for Amgen, when you think about molecular testing for BV. So as I said, that wasn't something we were aware of at the time, but it certainly speaks to our ability to work with our largest lab customers to drive primary demand and expand some of those categories.

Patrick Donnelly -- Citi -- Analyst

That's helpful perspective. And maybe just a quick follow-up for Karleen, just on the COVID piece. Can you talk about the pricing, another 2/3 of the business, as you mentioned, is OUS. I know that was kind of shaking around $20. Have the recent contracts been a little more in the mid-teens? What's the right way to think about that? And then just pushing that forward on that $200 million floor for next year, how should we be thinking about pricing as we go forward?

Karleen Oberton -- Chief Financial Officer

Yes. Certainly. From Q2 to Q3, we saw that average pricing come down from $25 to closer to $20 given that dynamic of OUS being 2/3 of the revenue. And I think what we'll see is that as we renew those contracts, we'll probably see pricing coming down. And then as maybe reimbursement goes away, would have some pricing pressure. But I think even if we end up with an average ASP in the low to mid-teens, that's still very profitable assay for us.

Operator

And next, we will go to Vijay Kumar of Evercore ISI.

Vijay Kumar -- Evercore ISI -- Analyst

Hey guys, thanks for taking my question. Steve, a lot of details here, a lot of numbers. I appreciate the color. Maybe some -- a little bit more details on some of the assumptions behind the 5% to 7%. That 5% to 7% over the next few years, are we starting at 5% and progressing toward the higher end? Or maybe talk about the cadence. And what basically is it assuming for breast versus Diagnostics versus Surgical franchises?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Yes. I think, Vijay, at the highest level, we probably see each franchise being roughly in that range. Some may be a little bit faster. And we don't see dramatic changes year-over-year. It's not front-end loaded, it's not back-end loaded. So we're not ready to give formal-formal year-by-year guidance. Let's wait until our November call when we give our 2022 guidance. But I think our underlying belief is, as you well know, those are growth rates better than we were coming in. And we always said when COVID struck, we're going to emerge as a stronger, faster-growing company. And we feel like this is exactly what we see for each of the businesses going forward.

Karleen Oberton -- Chief Financial Officer

Yes. And I would just add that to your point, Steve, that historically, it's never been all of the businesses growing at these rates. It's been one or the other. So this is what gives us confidence and excitement when the growth rate is driven by all of the businesses.

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Yes. Which I think the magic of that as well, Vijay, and you know it from having lived through the breast health peaks and valleys, we -- even Surgical early on, weak and then kind of some good quarters and back down. I think we just see this profound underlying strength of each of the franchises both domestically and internationally with a cadence of product flow and the installed base and the service where there's just a strength that has not existed and we've been building over time in each of the businesses and then supplement it with the acquisitions that are giving us effectively accretive to the top line growth rates, more products in the bag. It's just -- there's no magic to it, but it's a lot of things coming together.

Vijay Kumar -- Evercore ISI -- Analyst

Understood. That's helpful, Steve. And maybe Karleen, one for you. What should the 5% to 7% on the top translate to the bottom line? I guess going back to some of the debates on the stock a few years ago, peak margins, it was a question. So where are we on margins right now when you did assume some capital -- logic now from the double-digit earnings growth trajectory?

Karleen Oberton -- Chief Financial Officer

Yes. So certainly, I think if you looked at our historical trends prior to the pandemic of a regular cadence of growing EPS, high single, low double digits, I mean, I think -- I don't think that's an unreasonable expectation. I think if you go back to Q2 of '20, kind of our last clean quarter before the pandemic, operating income was in the low 30s. Certainly, as we move forward, any COVID revenue was going to be accretive to that percentage. But I do -- I would also say that as we look to that 5% to 7%, international is going to be growing faster than U.S., which is a little lower on the margin side. And certainly acquisitions, probably over the nearer term, are a little dilutive to that.

Operator

And now we will go to Jack Meehan of Nephron Research.

Jack Meehan -- Nephron Research -- Analyst

Thank you. Good afternoon. I wanted to turn back to Diagnostics and get some color on the Panther trajectory. I think I caught 2,700 total systems now. It seems like you're still placing instruments at a higher rate than you have in the past and just thought it was interesting given where we are in the pandemic. Curious to get your thoughts how that will trend from here. And if you look at the systems, I appreciate the color on test or record, but is there any color of how many are just doing COVID-only and ability to translate them to other things?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Sure, Jack. I think the -- as we look to, call it, next year 2022, we're already starting to think about, OK, what would we place in Panthers. And I think a little early to tell, but we're still seeing pretty strong demand. So I would expect '22 not to fall off a cliff, even though we've just placed literally four years' worth in about 15-ish -- 15, 16 months. And I think there's some concern that, that would drop off. I think we'll probably still be in the 200-ish-plus Panthers to be placed even in the next fiscal year. So we're continuing to see very encouraging demand. And I think part of what we're seeing right now is some of our folks picking back up that were running flat out COVID. I don't think there's a ton of them today that are running COVID flat out. I think we're starting to see them picking back up as women's visits are starting to go back in. So part of the magic of the platform is even with the batching -- that not needing to batch, you can just start to get back to running women's health assays, viral loads or COVID tests all simultaneously. So I think we're feeling pretty good about that.

Jack Meehan -- Nephron Research -- Analyst

Great. And sticking with molecular. The Mobidiag acquisition, can you give us an updated time line for when you think Novodiag can enter the U.S. market? And as you look out to 2025, what -- can you humor us with what you think the revenue contribution for this platform can look like here and how it sits next to Panther?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Yes. I think the best way to think about Novo coming to the U.S. is toward the end of that strat plan horizon. I think we've got a few years' worth of work to get it. In the meantime, we do have installs in Europe and already some more interest among customers in Europe since we've acquired them in our sales force that already sells Panthers. So I think we see some opportunity to immediately inject even additional life into that. And I think beyond that, I think as we said in the script, we do see this becoming a multi-hundred million-dollar business over time. That's probably closer to the end of that -- the end of the strat plan horizon to -- particularly, we've really got to get into the U.S. to really get that -- those numbers.

Operator

And now we'll take a question from Brian Weinstein of William Blair.

Dustin -- William Blair -- Analyst

Hey guys, This is Dustin [Phonetic] on the line for Brian. There's been a lot of talk regarding democratization of testing, in particular, STI testing, where we're kind of seeing a number of diagnostic companies going after this market. Can you talk about your viewpoint on how decentralized testing plays and where you think STI testing will kind of take place longer term? And as it relates to you guys, where does entering this market rank in terms of company priorities?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Yes. I think, first off, we've established ourselves with a pretty strong presence in the STIs. And there's always a lot of competition in every market we're in. There's also a lot of hype and talk, frankly, from companies putting projections out there that haven't necessarily operated for a long time in the real world. And at the end of the day, I think we do see increased decentralization. We see opportunities for -- whether it's home collection or other stuff. And we're positioned both with our customers as well as, frankly, just the decentralized footprint that we already have with Panther. So I think it's also important that it's back to the CDC guidelines that just came out last week that we also see significant market expansion, and we're the ones that have been helping to drive that over time. So there will be certainly more competition, more tests being done in different places, and I think we continue to be there.

Dustin -- William Blair -- Analyst

Great. I appreciate that. And this kind of goes off an earlier question a little bit, but I'm wondering if you guys can give an update on the recent diagnostic acquisitions. Things seem to be going pretty well for Biotheranostics, but just looking for a general update of how integrations are going versus expectations and how these businesses were doing in years previously.

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Yes. I think Biotheranostics is a great one. We absolutely love it. It's right down the street here in San Diego. The integration has gone very well. In our San Diego facility this week, I've seen some of the Biotheranostics people. They're already well integrated with our team and I think excited to be part of Hologic. Diagenode, our team over in Belgium, we've been working with them really for five years. They've been developing assays. So we have great relationships there. And on Mobi, I'm exceptionally pleased with what we're seeing and hearing. And Kevin Thornal and his team have made multiple trips over to Finland at a time when lots of people don't want to be traveling to those kind of distances and masks and everything else, our teams have been getting very close to the teams over there. So feeling really, really good.

And it's really the power of the division-led acquisitions where our teams were deeply involved in the diligence and getting to know the teams in advance and chomping at the bit to work together. So I think what's been need is, particularly each of those three companies, the employees of each of those companies, I think, have genuinely been excited to be a part of a company that's got our purpose, passion, promise. And it's not just a big old American company focused only on profit, but we've actually got a much bigger purpose. And I think, particularly as we've done some of the deals in Europe, that's been a big deal to the employees. And the same, frankly, with SOMATEX and SSI, we've done a lot in Europe recently between breast health and Diagnostics. And I think it really resonates with the teams on the ground over there.

Karleen Oberton -- Chief Financial Officer

And I would just add in Surgical, our Acessa acquisition, some recent good news there. We've got a guideline from ACOG and coverage from Cigna. So we're excited for what that's going to do in FY '22.

Operator

And now we will go to Anthony Petrone with Jefferies.

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Anthony, are you there?

Operator

Anthony, your line is open you have us unmute.

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Move on.

Operator

And we'll move to our next question. That will be from Tejas Savant of Morgan Stanley.

Tejas Savant -- Morgan Stanley -- Analyst

Hey guys. Good evening. So Steve, one on the Panther placements for you, particularly in terms of the new Panthers that you're placing with new to Hologic customers. How has that mix evolved over the last few quarters? And specific to those customers, can you share some color in terms of the menu uptake?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Sure. The -- we don't have the incredible detail on that, other than I would just say, frankly, a lot of them in place with existing customers, a lot with new customers. What we've been seeing on each of them is certainly, a lot of the new customers, the initial impetus was for COVID revenue. But they've been qualifying and porting over the other assays as the COVID revenue has started to come down a little bit as, frankly, the lab tech has been able to come up for error and qualify things. So I think we feel very good, as evidenced by the underlying trajectory of our core Diagnostics business coming back. And Mike?

Michael Watts -- Vice President, Investor Relations and Corporate Communications

Tejas, it's Mike. If we look at our test of record metric as an indicator of what you're asking about, probably no surprise. We've got a big chunk of Aptima Combo two new business coming in. That's our biggest selling assay other than COVID. We've got a big chunk of HPV, human papilloma virus, business coming in. But I think what's really encouraging is even bigger than that is the interest in our vaginosis panel, BV/CV, TV. So that's a little bit of a reflection of what we were talking about before in terms of our ability to take an existing menu and build out from it with a new test that oftentimes comes from the same sample type. So that's been encouraging.

Tejas Savant -- Morgan Stanley -- Analyst

Got it. Very helpful. And then a couple of unrelated ones for Karleen here. Karleen, you spoke about sort of about $160 million in COVID testing contributions for the fourth quarter and then about $200 million as a floor for fiscal '22. Can you just outline what your assumptions were around sort of potentially the Delta variant leading to an uptick in testing and perhaps even a relatively strong flu season? Would that all the upside? And are you seeing any pickup at all in the last few weeks in terms of a trend reversal because of the delta dynamic?

Karleen Oberton -- Chief Financial Officer

Yes. I would say our approach to the Q4 guide was similar to what we did in Q3, was looking at our July actual, looking at what's contracted pretty much outside the U.S. as a commitment and then looking at recent trends. So for the most part, I would say Delta accelerating with the upside as well as the flu season will likely be upside to those numbers that we've provided.

Operator

And now we will go to Derik De Bruin of Bank of America.

Juan -- Bank of America -- Analyst

Hi this is Juan [Phonetic] on for Derik. You've alluded to it, but with -- specifically on Mobidiag's competitive landscape, you have other companies pushing into the small complex molecular landscape. And I was wondering how we should think about the revenue ramp. You had the $42 million in '20 and, of course, it's going to be the leading growth driver in 2025. And also, what's their contribution in this quarter?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Sure. I think the -- we clearly do see it getting much bigger in the out-years as we come to the United States. So it will be a few million a quarter right now. Part of that will depend, particularly in Europe -- it's all European business right now. And I think you'll see it build over the year. Now they had some COVID revenue last year. So again, the core business, we see it picking up over time here and even starting as we go into the new year.

Juan -- Bank of America -- Analyst

Got you. And then any -- are there any other assets that you want to digest in the near term? Maybe again in the Diagnostics or on the European front, seeing that the integrations of the Diagnostics, like Mobidiag, they're all going well?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

I think we feel really good with what we have, and it allows us to be opportunistic. There's nothing that we're lacking right now, and we'll continue just to kind of keep our eyes and ears open. I would say, I think we feel very good about integrating everything we have right now and that alone. One way to think about it, we've accelerated multiple years of acquisitions in Diagnostics in a real short period of time. We did three deals in a Three to Four month window of announced -- actual closing three deals and, call it, a six, seven month window. That covered our next couple of years of some of what we were hoping to do. So we're now hot and heavy into the integrations and into the execution mode that we tend to be pretty good on the execution side. But we'll continue to keep our eyes open. But there's no gaping holes in our portfolio.

Operator

And now we will go to Max Masucci of Cowen and Company.

Max Masucci -- Cowen and Company -- Analyst

Hi. Good afternoon. Thanks for all the details today. Can you just give us a bit more detail around how the recoveries has trended for routine wellness and breast screening visits lately, where that backlog stands? And what sort of impact you've seen more recently just with the emergence of the Delta variant?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Sure. I think overall, we've seen pretty good recoveries really in mammography. The core women's health, some of the sexually transmitted infection and pap tests have not bounced fully back yet. And I think we see that as an opportunity for the future that they will get back. But I think we've seen a little more recovery in -- on the mammography side. Most places are back close to 100%. I think the very recent trends with Delta, we're seeing little pockets here and there of small hospital systems here or there in certain geographies that may not be scheduling extra visits right now, things like that. But I don't think it will be material to the quarter going forth.

Max Masucci -- Cowen and Company -- Analyst

Got it. And Mobidiag, it allows you to serve customers that want both low-plex or higher-plex testing capabilities in the decentralized setting. But just at an industry level, have you seen rising demand for higher-plex testing today compared to pre-pandemic times? And just as a follow-up, do you view Mobidiag as a bigger share taker or game changer in the low-plex or higher-plex segment of the market over time?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Yes, I think we think it's going to play very well in both. But certainly, in the multiplex area over time, I think it's going to be a great platform for us. The magic for us is it does give us a completely new growth platform in addition to Panther. So we've got all the additional Panthers we placed. Now it'll be building up the menu over time and getting those Panthers working at a higher rate while we then are -- subsequently, we'll start to bring in the Mobidiag platform both, frankly, more around Europe. Right now, it's largely just in a few Northern European countries as we expand across Europe. And then ultimately, we'll bring it to the states.

Operator

And we had time for one final question, and that will come from Anthony Petrone again from Jefferies.

Anthony Petrone -- Jefferies -- Analyst

Apologies just hopping between calls. I just have two on Diagnostics. First, on the CDC guidelines. It sort of recommends universal screening, but it looks like it will be site-specific in terms of adopting that protocol. So just wondering how you actually see that rolling out. And certainly, it represents upside for the Aptima Combo STI franchise. But any thoughts early on, on what that can mean for tailwind? And the second one quickly on COVID testing OUS, some of your competitors have referenced tenders. I'm just wondering if the company is participating in tenders and what that kind of represents going forward.

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Sure. I'll start on the second one first. Yes, we're certainly involved in any of the tenders for COVID revenue if -- when we've established very strong relationships upfront. It's also where, frankly, our ability to serve our customers internationally -- as we said, about 2/3 of our revenue from COVID last quarter was internationally. We've built some very strong relationships. And the -- frankly, the health ministers around the world have known they can count on us and they can count on Panthers to deliver. So we feel pretty good about the -- being involved in those. And back to your first piece on the CDC, we feel really good about these new guidelines. And specifically, while it leaves it up to regional, we've got a couple of things going for us. First off, our own Diagnostics sales team that calls on physicians and helps to educate them, but really, more importantly, you're going from effectively an opt-in to an opt-out system.

So there have been so many women who should be having these tests done on a routine visits that have really had to be opted in, and now the default should go the other way. So is that going to affect this coming quarter? Probably not. Will it significantly expand the market here in the coming years? We think so. And we think it's a great move for human health because a lot of the young women when they're -- if they're at the doctor's office and they're with their mom and the doctors asking questions about are they sexually active to decide, do I give this test or not? And therefore, OK, wait. The kid has to answer yes to get the test written. As soon as the default becomes, hey, you might not be, but we're just going to order this test anyway, that is a much -- I think a much better way for society, ultimately, to probably have a better handle on what's really going on.

Michael Watts -- Vice President, Investor Relations and Corporate Communications

Kathy, it looks like we've just got one more left in the queue. We can take that last question quickly if they're still there.

Operator

Certainly, we will go to Ryan Zimmerman of BTIG.

Ryan Zimmerman -- BTIG -- Analyst

Hey Mike, thanks for squeezing me in, Steve and Karleen thank you. Just one for me. So breast growth, Steve, you called out this cliff. And certainly, the percentage of sales, gantry sales is declining. And it kind of dovetails with Vijay's question, how do you think about that growth rate over time? Given the long-range guidance you provided, can that move up from what people have historically thought of as a kind of a low single-digit, mid-single-digit growth rate within breast as the dynamics of that business shift over the next few years?

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Yes, Ryan. I think what we're very encouraged by -- and I'll give Pete Valenti, who has subsequently retired from Hologic -- but when he came into the company and joined me in early 2014, our entire goal was to eliminate the boom/bust, the cliff and the peaks and all that stuff in the Breast Health business. And we've achieved exactly that of going to a much more consistent business through both diversifying, but also by bringing additional ideas to the gantries where we continue to launch better gantries along the way and make that much more stable. So I think what we see there is a core underlying gantry business and service business. But then also as we're getting into a little more of the disposable stuff of the breast surgery stuff and those things, whether it's a bit of Focal, and frankly, the markers that SOMATEX brings, now Brevera with the biopsy, which is the capital, but really then it's the needle use, is adding these ongoing revenue streams that are a little bit accretive to that underlying market growth that we have. So is breast health going to be the fastest growing business? Probably not. But is it going to be comfortably in that range? I think we feel really good about it.

Karleen Oberton -- Chief Financial Officer

Yes. And I think I would just add that internationally, if you think about historically, that breast business was managed -- or commercially was a loose set of dealer network that under Kevin Thornal, we set out a strategy to go direct. We're seeing that improve the international business. I think there's other markets we're looking to go direct. And in general, internationally, our commercial capabilities continue to grow and believe that's going to be helped -- that international breast will be -- breast growth will be accretive to the overall worldwide division.

Ryan Zimmerman -- BTIG -- Analyst

Thank You.

Michael Watts -- Vice President, Investor Relations and Corporate Communications

All right. Thanks, everybody. We appreciate your time this afternoon.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

Michael Watts -- Vice President, Investor Relations and Corporate Communications

Stephen P. MacMillan -- Chairman, President and Chief Executive Officer

Karleen Oberton -- Chief Financial Officer

Tycho Peterson -- JPMorgan -- Analyst

Patrick Donnelly -- Citi -- Analyst

Vijay Kumar -- Evercore ISI -- Analyst

Jack Meehan -- Nephron Research -- Analyst

Dustin -- William Blair -- Analyst

Tejas Savant -- Morgan Stanley -- Analyst

Juan -- Bank of America -- Analyst

Max Masucci -- Cowen and Company -- Analyst

Anthony Petrone -- Jefferies -- Analyst

Ryan Zimmerman -- BTIG -- Analyst

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