Earnings Call Transcript
HOLOGIC INC (HOLX)
Earnings Call Transcript - HOLX Q1 2022
Operator, Operator
Good afternoon and welcome to Hologic's First Quarter 2022 Earnings Conference Call. My name is Ron and I am 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
Thank you, Ron. Good afternoon and thank you for joining Hologic's first quarter fiscal 2022 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 first quarter press release is available now on the Investors section of our website along with an updated corporate presentation. We also will post our prepared remarks to our website shortly after we deliver them. And a replay of this call will be available through March 4. 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 included in our earnings release and SEC filings. 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 and revenue from acquired businesses owned by Hologic for less than one year. 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.
Steve MacMillan, CEO
Thank you, Ryan, and good afternoon, everyone. We are pleased to discuss our financial results for the first quarter of fiscal 2022. Once again, our results are strong. We are off to a great start in all divisions with diagnostics, breast and skeletal health, and surgical each delivering more than 8% global organic growth, excluding COVID revenue. For the quarter, revenue was $1.47 billion and non-GAAP earnings per share were $2.17. Both numbers significantly exceeded the high-end of our guidance by 28% on the top-line, and 74% on the bottom. Over the last several quarters, and most recently at the JPMorgan conference, we've been communicating three major themes. First, our base business is stronger, with more diverse growth drivers than ever before. Second, as the COVID pandemic remains, we continue to help meet the world's testing needs and generate financial upside. And third, because of the first two points, we are well positioned to generate strong results regardless of how various uncertainties evolve, from the pandemic to supply chain challenges to healthcare utilization. In other words, you can count on us to deliver in today's uncertain business environment. These themes are certainly playing out as we look at our first quarter results and our dramatically improved outlook for the fiscal year. Our base businesses are performing well. And we are making a massive difference against COVID. As a result, we are raising our revenue and earnings guidance significantly as we expect upside from COVID-19 testing, along with strength in our diagnostics and surgical businesses to more than compensate for temporary supply chain challenges that have emerged in our breast health business. As we shared at JPMorgan, we are a fundamentally different company than eight years ago. Now more than ever before, Hologic has more diverse and higher margin recurring revenue across each division in each geography around the world. Our strong performance is the result of execution against our strategic plan and has been accelerated by our financial success during the pandemic. As evidenced by our Q1 results, we are well positioned for long-term sustainable growth, regardless of the direction the pandemic may turn. While we can't predict the future path of COVID, we'd like to expand today on what we do know that Hologic is emerging from this pandemic a much stronger company. More specifically, we will focus on what we know in each division. It gives us clear confidence in our ability to maintain sustained growth over the long-term. First, in our diagnostics division, we know that our huge industry-leading installed base of automated high-throughput Panther systems, along with our robust menu of 19 assays across Panther and Panther fusion, will drive strong growth well into the future. Today, our Panther installed base is over 3,000 units, 75% larger than prior to the pandemic, with almost half of these placed internationally. Of note, demand for our Panthers is still strong globally. We placed well over 100 Panthers in the first quarter alone, more than double our pace prior to the pandemic. At this stage in the pandemic, this clearly indicates that customers expect to use these systems for non-COVID testing. Utilization of our Panther systems is also strong. We are seeing clear signs that customers are leveraging our menu of 19 assays on our significantly expanded Panther footprint. First and foremost, the growth of molecular diagnostic sales reflects this growing utilization. For Q1, our core molecular diagnostics franchise grew 14% worldwide, excluding COVID revenues, product discontinuations, as well as recent M&A activity. Now, we know a question on some people's minds is: will these Panthers be used post-pandemic? The answer is an emphatic yes, based on the following. First, nearly 90% of U.S. COVID customers are already running at least one other assay. This speaks to our customers being bona fide molecular diagnostics players who are invested in molecular testing for the long haul and who we expect will adopt more of our assays over time. And second, the incredible automation and workflow simplicity of the Panther, which dramatically minimizes labor activity and costs. In a labor-restricted world, our customers realize the enormous advantage of our Panther system. Extending and broadening the adoption of our portfolio of assays is a fundamental element of the diagnostic growth strategy. Our sales teams have done a tremendous job winning strategic accounts, strengthening our relationship with customers, and fueling our razor, razor-blade business model with both legacy women's health tests and new assays. As an example, leveraging our leadership in women's health, our vaginitis panel is off to a great start with $13 million of revenue in the first quarter, roughly 2.5x the first quarter of 2021. We are extremely proud of the panel's success and believe this will be our most successful diagnostic launch ever, COVID aside. In Q1, we also once again responded to our customers' COVID testing needs and generated significant financial upside. We posted $523 million in COVID assay sales, over $300 million more than our outlook and consensus. Clearly, COVID is sticking around longer than anyone would like. And just as clearly, highly accurate molecular testing continues to play a major role in fighting the pandemic. We continue to believe that COVID testing will contribute materially to our business for the foreseeable future. And we remain prepared to meet ongoing demand globally. Second, shifting to our breast and skeletal health business, we know that broadening across the continuum of breast health care from screening and diagnosis through surgery and treatment has transformed this franchise from a once capital-dependent business to a division with more diverse, higher growth recurring revenue. In the first quarter, the breast health business grew 8.4% as we've maintained our high market share and continued to grow our installed base of Genius 3D Mammography systems. The attachment rate of service on this gantry base continues to remain strong at more than 80%, making service one of our largest top-line contributors company-wide. And we continue to upgrade our installed base with high margin software and AI. So the mammography capital business is and will continue to be a meaningful and foundational part of our breast business going forward. In addition, we built a solid adjacent portfolio of more recurring interventional breast surgery products that is driving the growth of the division. These interventional products include markers, needles, including those used in our Brevera biopsy system, and handheld devices. Sales are more recurring in nature, with higher projected growth compared to the legacy capital business. As points of reference, today, the gantry business is only 23% of breast health revenue compared to 29% in 2014, and interventional sales have grown to roughly the same size as gantry revenue. We expect the interventional business to continue its growth and further transform our breast and skeletal division going forward. The increasing diversity of our breast business will help us offset supply chain challenges that have emerged recently, specifically shortages of computer chips in our mammography and other imaging systems. Our updated guidance incorporates a temporary but meaningful revenue headwind for the balance of our fiscal year. Despite this, as Karleen will discuss, we are raising our revenue and EPS guidance significantly based on outperformance in COVID, core molecular, and surgical. Now, shifting gears to surgical, we know that the diversification of the business will drive growth. Despite pandemic headwinds, the division grew 8.2% in the first quarter, and we continue to solidify our market leading positions for NovaSure and MyoSure. With the addition of the Acessa procedure and the close of the Bolder acquisition in late November, our surgical business has a very different profile today, with more growth engines than ever. Acessa revenue in Q1 was nearly three times a year ago and the Bolder integration is off to a great start as we are already seeing Bolder sales through the Hologic surgical sales team. The recent launch of NovaSure version five, developed in-house, is also seeing good traction. It's early days, but we are seeing a lot of excitement in the field around this product. We are committed to maintaining our leadership position in this space with best-in-class products. Further, the Fluent Fluid Management System, also developed in-house, is used to streamline the complexities of fluid management in hysteroscopic procedures. Fluent is another great example of organic innovation driving future growth. Fourth and finally, we know that our international business will be a consistent contributor of growth for years to come. We are no longer the export business of prior years. Through organic growth and M&A, we are direct in more regions than ever before, especially in breast health, with our feet firmly on the street and engaged with customers. In Q1, the international business achieved nearly 13% organic growth, excluding COVID. And we expect strong growth to continue. With the leaders we have in place today, we are confident the foundation we've laid and the progress we've made will yield strong results for many years to come. To add additional perspective, there are over 3.9 billion women in the world with only about 170 million of them in the United States, which is our largest market today. Clearly, we have an opportunity to impact more lives and more women around the world. Through our groundbreaking initiatives, like the Hologic Global Women's Health Index, in conjunction with the opportunity we've earned as leaders in the fight against COVID, we are connecting with world leaders and changemakers to elevate Women's Health around the world. In summary, our first quarter results and improved outlook demonstrate that Hologic is a much different and much stronger business than ever before. Stronger through diversification and stronger from our leadership in COVID molecular testing. These factors are generating exceptional cash flows and a pristine balance sheet that are especially valuable in the midst of uncertain market conditions. As we've done for the duration of this pandemic, we are confident in our ability to manage our business through various uncertainties and continue to deliver strong growth regardless of how external conditions evolve. What is clear to us at Hologic is that we are poised to continue our strong growth, whether COVID wanes or continues; we have fundamentally changed our business into one with more growth drivers and more recurring revenue across all geographies. This gives us the clear confidence that we can navigate change and continue to generate exceptional financial results. With that, let me turn the call over to Karleen.
Karleen Oberton, CFO
Thank you, Steve, and good afternoon, everyone. We are very pleased to share first-quarter results that significantly exceeded our guidance on both the top line and bottom line. Our first quarter highlights an improving base business that grew 9% organically excluding COVID-19 revenues. As Steve mentioned, our diversified business model is paying off. Each of our franchises excluding COVID grew more than 8% in the quarter, broadly exceeding our long-term revenue growth target of 5% to 7%. It is also important to note that our base business strength occurred in a quarter that started with the Delta wave and ended with COVID cases surging due to Omicron. Total revenues for the quarter of $1.47 billion showcased strength in every business and was significantly ahead of our previous guidance. EPS of $2.17 in the first quarter far surpassed our initial guidance range of $1.15 to $1.25. We also continued to generate healthy free cash flow, funding our capital deployment priorities of tuck-in M&A and share repurchases. We believe our balance sheet is a significant advantage in times of market uncertainty, which I'll touch on shortly. Before I do that, let me provide some detail on our divisional revenue results. For clarity on our performance, I will exclude the impact of COVID-19 where applicable. In diagnostics, global revenue of $950.4 million declined 15.2% compared to the prior year. However, excluding COVID assay sales-related ancillary items and a small level of discontinued products, worldwide diagnostics revenue increased just over 10%. To better understand the underlying performance of our non-COVID molecular business, I will again exclude COVID-19 benefits. By doing this, base molecular revenue grew about 14% organically in the first quarter. The growth was driven by strong execution across our global portfolio as our largest non-COVID assay, chlamydia and gonorrhea, was above pre-pandemic levels. Our newer vaginitis panel contributed well ahead of last year's run rate. And internationally, we continued to see strong demand for our Panther instrumentation. From our perspective, our annual molecular business excluding COVID is now more than $100 million larger than before the pandemic. As it relates to our COVID-19 results, we continue to forecast conservatively, but act aggressively behind the scenes to meet demand for our customers. In the quarter, we generated $523 million of COVID assay revenue and shipped about 26 million tests to our customers. The United States represented about 60% of total COVID assay revenue, although demand was high around the world. Rounding out diagnostics, cytology and perinatal grew 5% compared to the prior year, a nice result that was also above 2019 levels. In breast health, global revenue of $359.3 million grew more than 8%. This growth was driven by our interventional business, as Steve highlighted, which was up nearly 20% in the quarter. Breast imaging and service also increased mid-single digits in the period, underscoring resilience in the face of COVID headwinds. Our strategy to diversify and increase recurring revenue continues to pay off. In surgical, first-quarter revenue of $134.3 million grew 8%. This solid performance was driven by a nice rebound in NovaSure from the launch of our next-generation B5 system as well as momentum from new products such as Fluent and Acessa. While our surgical business was impacted by pullbacks in elective procedures, the impact was minimal in the quarter. We continued to stay close to our customers monitoring the Omicron surge and related staffing issues, which we do expect to be a headwind in Q2. Lastly, our skeletal business had revenue of $27.1 million, which increased 10% compared to the prior year period. Now let's move on to the rest of the P&L for the first quarter. Gross margin of 72.1% significantly beat our forecast, driven by higher than expected COVID-19 test volumes in the period. Total operating expenses of $333.9 million increased 22% in the first quarter, but were down 5% sequentially compared to Q4. We continue to reinvest for future growth with incremental spending in R&D and marketing, pulling forward initiatives given the benefit from COVID-19. Further within our operating expenses, the inclusion of recent acquisitions accounted for a spend of approximately $30 million in Q1, and we also made additional charitable donations in the quarter. Finally, our non-GAAP tax rate in Q1 is 21.5% as expected. Putting these pieces together, the operating margin came in well above our forecast at 49.4% and net margin was a very strong 37.7%. Non-GAAP net income finished at $554.7 million and non-GAAP earnings per share was $2.17, nearly 75% above the top end of our prior guidance. Moving on, cash flow from operations was $564 million in the first quarter, a very strong result, which was more than 100% of non-GAAP net income. These robust cash flows continue to give us tremendous financial and strategic flexibility. For example, in the quarter, we repurchased 2.3 million shares of our stock for $167 million and closed the acquisition of Bolder Surgical for $160 million. We continued to evaluate M&A that strategically fits well within our existing sales channels or the narrow adjacency. Based on our strong operational performance, we had $1.4 billion of cash on our balance sheet at the end of the first quarter. And our leverage ratio was 0.6x. Our capital structure is as strong as it has ever been. And we intend to deploy our excess cash on division-led acquisitions, as well as share repurchases that improve our top and bottom-line growth rates. For example, we have been buying shares under our 10b5-1 plan within our second fiscal quarter to take advantages of market volatility. Finally, ROIC was 29.4% on a trailing 12-month basis, an increase of 270 basis points compared to the prior year. Before we discuss our increased guidance for the second quarter and full year fiscal 2022, I want to mention a few key points. Although the pandemic remains highly uncertain, we believe we are well-positioned either way it may turn. Should there be future outbreaks, we will meet our customers' needs and generate additional COVID testing revenue. Or should the pandemic subside, we expect strong performance in our base businesses. We believe we are nicely hedged against macro and market volatility. As it relates to supply chain headwinds, these challenges have become more specific in recent weeks. Due to the lack of available chips, we expect a temporary shortage of supply that will lengthen delivery timelines for mammography capital in our breast health division. While we hope to mitigate these effects, for conservatism we are estimating around $200 million of revenue will be pushed out of fiscal 2022. This includes up to $50 million headwind in our second quarter, as we are proactively beginning to extend lead times of new units to preserve inventory and maintain service continuity for gantries already in the field. This headwind is purely a supply issue and not one of underlying demand, which remains strong. Despite the supply shortage, we are significantly increasing our full year revenue outlook, underscoring the evolution of our diversified business model. We expect our diagnostics and surgical businesses along with COVID contributions to more than offset mammography headwinds. Now, let me move on to our specific guidance. In the second quarter of fiscal 2022, we expect very strong financial results again, with total revenue in the range of $1.25 billion to $1.3 billion. As a reminder, our Q2 revenue is usually seasonally lower than Q1. For all of fiscal 2022, we expect total revenue in the range of $4.4 billion to $4.55 billion, significantly exceeding our prior full-year guidance by $600 million at the midpoint. Given the recent strength of the U.S. dollar to aid with constant currency modeling, we are assuming foreign exchange headwinds of approximately $23 million in the second quarter of 2022 and $56 million for the full year. In diagnostics, molecular continues to be the growth engine based on our larger Panther installed base of over 3,000 instruments globally. Further, we are seeing encouraging uptake of new assays like our Vaginitis panel, as well as tremendous international expansion opportunities and a rebound in our core STI assays. As a result, for fiscal 2022, we expect our base diagnostics franchise inclusive of cytology and perinatal to grow high single digits. In breast health, our organic and inorganic investments continued to perform well. For example, Brevera is off to a great start in 2022, growing in the high teens for the quarter. Further, recurring service revenue represents approximately 40% of total sales in Q1. Finally, in surgical we expect MyoSure to continue to drive growth, with help from better NovaSure performance. In addition, we expect new products and the recent acquisitions of Acessa and Bolder to add momentum to an already fast-growing franchise. Like base diagnostics, we expect surgical to grow above our long-term organic guidance for fiscal 2022. In terms of COVID assay sales, the only certainty is that no one really knows how demand will progress for the rest of the year. Therefore, as we have done for the past several quarters, we are forecasting conservatively and will act aggressively. With that in mind, we expect COVID assay sales to be at least $400 million in the second quarter of 2022. And at least $1 billion for the full year. COVID-related items, including revenue from discontinued products and diagnostics, are expected to be approximately $50 million in the second quarter and $190 million for the full year. As a reminder, our organic guidance backs out of revenue from acquisitions until the first full quarter after the deals annualize, as well as revenue from our divested blood screening business. We expect blood screening revenue of $5 million to $6 million in Q2 and $20 million to $25 million for the full year. In total, we are backing out roughly $110 million of inorganic revenues for the year. To appreciate the underlying growth of our business, it is important to back out organic revenue, COVID assay sales, related ancillary items, and a small amount of discontinued product revenue in diagnostics. On this measure and excluding the previously mentioned supply chain headwinds in breast health, we expect the rest of Hologic to grow at least at the high-end of our 5% to 7% long-term guidance. Moving down the P&L, for the full year we forecast our gross margin percentages in the mid-60s and our operating margin percentage to be in the mid to high 30s. Both estimates are higher than our guidance last quarter. We expect both percentages to decline sequentially throughout the year, consistent with our conservative planning that most COVID demand will occur in the first half. In addition, we have incorporated additional inflationary supply chain costs into our guidance as it relates to electronics, plastics, and logistics. Despite this, for the full year, both gross and operating margin should be well above pre-pandemic levels. In terms of operating expenses, we expect spending to be up compared to 2021, but decline sequentially in the back half of the year. As we've continued to highlight in quarters with higher COVID testing revenue, we will take the opportunity to invest more for future growth. Below operating income, we expect other expenses net to be a little less than $25 million a quarter for the remainder of the year. Our guidance is based on an effective tax rate of 21.5% and diluted shares outstanding of around 256 million for the full year. All this nets out to expected EPS of $1.50 to $1.60 in the second quarter, well above current consensus estimates and $4.90 to $5.20 for the full year, 36% above our prior guidance at the midpoint. As you update your forecast, let me remind you that macro uncertainty due to the pandemic and related supply chain challenges are still high. We would therefore encourage you to model in the middle of our ranges, which incorporate both potential upsides and downsides. Let me wrap up by saying that Hologic posted very strong first-quarter results that far exceeded expectations and guidance. We are also significantly raising our financial guidance for the year, highlighting the multiple growth drivers we have added to each of our franchises in the upside to our business from capturing demand for COVID testing. With organic investments, multiple acquisitions, and additional financial flexibility for capital deployment, we are a much stronger company than two years ago, and well positioned to prosper in the face of various uncertainties. With that, I will ask the operator to open the call for questions. Please limit your questions to one plus a related follow-up, then return to the queue.
Operator, Operator
Thank you. We'll take the first question from Dan Leonard with Wells Fargo.
Dan Leonard, Analyst
My first question on capital deployment. Could you elaborate or offer a bit more color on how aggressive you plan to be on the capital deployment front as cash builds on the balance sheet?
Karleen Oberton, CFO
Yes. I think what we've talked about is managing our free cash flow that we want to fully deploy our annual free cash flow between tuck-in M&A and share repurchases. But having said that, Dan, we obviously will continue to be disciplined as it relates to tuck-in M&A that would be the priority. So we might let some cash build on the balance sheet while again, being disciplined and looking for the right deal.
Dan Leonard, Analyst
And then, an unrelated follow-up, have your views on endemic COVID testing needs evolved at all?
Stephen MacMillan, CEO
We believe COVID will be endemic. And we believe there will be ongoing molecular testing and probably feel even stronger about it than ever. Right? If you go back two years ago, none of us would have imagined we'd be having the amount of testing going on now. And at the end of the day, I think most governments and most people around the world have realized that while there's antigen testing out there for true population health and frankly, to truly capture what's going on molecular is the answer. And I think we feel better and better. That's going to be an ongoing part of our business for many, many years. It's a virus; it mutates. And Omicron is not the last mutation of this thing. And I think we feel that we're well poised.
Operator, Operator
We'll take the next question from the line of Vijay Kumar with Evercore ISI.
Vijay Kumar, Analyst
Just one on the supply chain that you brought up, Steve. What I guess is this on the breast health segment or which segment is this impacting? I'm curious what we've been hearing this from other companies, I feel like when we had the guidance three months ago, right, things weren't as bad and now the things changed in the last three months. And what's been the base guidance reduction because of the supply chain impact, because I do feel like other parts of the base business are coming in better. So maybe if you could just talk about if the gross impact from supply chain was 200 million of revenue push out? How much of that was offset by better base performance?
Stephen MacMillan, CEO
Yes. Certainly, some of it is, as we've highlighted with both surgical and diagnostics-based businesses, strengthening. Just as we've forecasted, COVID, conservatively, we want to put that out there. You don't have to look around at supply chain issues, the semiconductor and chip issues have not gotten better. And we're not totally sure exactly when that will fully work its way out. We're lengthening lead times for our deliveries, and it's all in the breast health primarily in the gantry business. And we've got obviously maintained some chips for service. So, we're being conservative and taking care of our existing customers. And we'll lengthen, and frankly, it'll make next year probably look better. It's great we can absorb this, what I call an annoyance right now, when the rest of the businesses are firing.
Karleen Oberton, CFO
Yes. I would just build on that, Vijay is that, I think what we have here in Q2 is we have inventory to cover that $50 million of revenue shortfall. But we're actively allocating to Steve's point to service because that's the most important thing is that we've got inventory to keep that installed base up and running so that women can get back to screening.
Vijay Kumar, Analyst
Understood. And then maybe one follow-up, I think the prior guidance had 150 million contribution from M&A, did that change Karlene and Steve, I think you mentioned something about 90% of U.S. Panther customers, are they using an additional assay? Maybe talk about what kind of assays are they using? Are these CTGC high volume? What kind of revenue pull through can we expect in a post-pandemic given the higher install base?
Karleen Oberton, CFO
Yes, yes. So I think on the total revenue from acquisitions in 2022, is roughly $170 million. And then we talked about the inorganic piece that we're pulling out $110 million. And I think you went to another question there on the assays, I think certainly, the STI assays are our biggest asset. So I would say that a lot of customers, that would be primarily what they're running.
Operator, Operator
And we'll now take the next question from the line of Jack Meehan with Nephron Research.
Jack Meehan, Analyst
Wanted to maybe continue on that path. Steve, your comment around the vaginitis panel feel like it's a pretty big statement to say you think it could become your most successful launch outside of COVID? If memory serves me right, I'm pretty sure chlamydia, gonorrhea is over $300 million business for you. So maybe just talk about the adoption you're seeing, like, what you think the ramp looks like for revenue?
Stephen MacMillan, CEO
Yes. I think clearly, it's taken us a long time to get chlamydia and gonorrhea up into that multi-hundred million range. But I think we feel really, this is going to be over years. But I think we're feeling pretty good about that ramp; you figure if we just did $13 million in the first quarter, multiply that by four and you've got the very bare minimum of, I think what we expect to do this year. So they'll probably continue to build through the quarters. And I think if we fast forward a few years from now, certainly goes north of 100 now its way to 200.
Karleen Oberton, CFO
Yes. I want to emphasize that when we discuss the launch, it's worth noting that the assay took about five to six years to reach $70 million, and we are approaching that milestone just a couple of years into our launch. This illustrates the success of our launch.
Stephen MacMillan, CEO
It's a very meaningful indication; it's been completely under diagnosed and I think it's part of the rapid uptake. And it's really a great reason to go to the doctor.
Jack Meehan, Analyst
Great. I also wanted to follow up on the supply chain issue. Looking at my model, the breast imaging product sales didn't seem to be significantly impacted in the fiscal first quarter. Is this something that has only started to gain momentum in the last few weeks? The mention of 200 million in this context seems quite significant for that line item, so any additional insights would be appreciated.
Stephen MacMillan, CEO
Yes, it has become clear that we've been searching for solutions. I've observed our operations team over the past couple of years. They've put in tremendous effort with MTUs, Tecan tips, swabs, and glass tubes. During COVID, we scaled up to get more Panthers out the door. We faced many issues with our chip suppliers, but we kept believing we would find alternatives and solutions. Ultimately, we managed to manufacture additional plastic and explore other options. However, we have been unable to produce semiconductor chips, relying on the global supply chain, which has been under strain. While this didn’t affect last quarter at all and isn’t hurting us at the moment, it will impact us moving forward. We could sell many more chips that we have allocated for new gantries, and we want to ensure every gantry is operational. Therefore, we are reserving a significant portion of the incoming chips for ongoing service. If we aimed solely at maximizing short-term revenue, the impact wouldn’t be as substantial, but we prioritize the service side. It’s certainly a nuisance, and it’s a considerable number that we want to highlight. However, it also shows how much progress we’ve made as a company. A hit like this would have been significant eight years ago, and even three or four years ago, it would have felt like a major setback. Now, it’s just a minor setback that we are confident we can overcome as we set ourselves up for future success.
Operator, Operator
We’ll now take the next question from the line of Patrick Donnelly with Citi.
Patrick Donnelly, Analyst
Hey, thanks for taking the questions, guys. Steve, you touched a little bit on kind of the Panther outlook beyond COVID. Certainly the question we get most as well, kind of stretching beyond that is utilization is going to be the right number to look at anymore beyond this. How are you framing the right way to look at this business beyond COVID? Because again, obviously, the installed base is far bigger. I think everyone tries to put a utilization number on it; how do you frame that view, kind of setting it up and looking at that business beyond COVID, or at least when COVID is endemic that's why?
Stephen MacMillan, CEO
We view the situation in straightforward terms regarding our total revenue. We expect to have over 3,000 Panthers, and while the overall dollar volume may decrease from pre-pandemic levels globally in the short term, this is due to our increased placements internationally where revenue from Panthers is less. Additionally, we've reached out to some smaller customers, which should prove beneficial over time. Essentially, our revenue approach relies on the number of Panthers we have multiplied by the revenue each Panther generates. We anticipate significant potential for growth in this area over time. Many customers who acquired Panthers in the past year or so are preparing to start using the standard assays, but COVID spikes continue to hinder this progress. There remains considerable pent-up demand from delays caused mainly in 2020 and 2021. Despite the resurgence of COVID, we achieved a 14% growth this quarter. Although it's challenging to make precise forecasts, it ultimately comes down to our plans to increase sales of assays on a larger number of machines, which should lead to growth rates that exceed the company's average for the foreseeable future.
Karleen Oberton, CFO
And just to add maybe a finer point to that even versus Q1 ‘19. That's basically like your business is up over 40%, I mean, that's a tremendous growth over the past couple of years.
Patrick Donnelly, Analyst
Sure. That's helpful, it's a hard number to determine for sure regarding the go-through. Karleen, this might be for you about the margin setup. You've mentioned some supply chain issues, which I assume are contributing to inflationary pressures. Can you discuss the core margin as we try to account for the impact of COVID a bit? How does that look for the remainder of the year? Additionally, what effect are you seeing from the supply chain challenges on breast?
Karleen Oberton, CFO
Yes, certainly. Yes, the supply chain is both the revenue on breast and some of the higher costs as well, though, that we mentioned. I think absent of the revenue headwind, certainly that base business operating margins, if we had minimal COVID are still in that low 30%, that we were prior to the pandemic. So we continue to keep an eye on that. And I think, again, some of the strengths that we talked about continue to contribute to that base business is still healthy on the operating margin line.
Operator, Operator
We'll now take the next question from the line of Tejas Savant with Morgan Stanley.
Tejas Savant, Analyst
Just sort of following up on Patrick's second question there. Karleen, can you just give us your updated views on what is a good sort of blended ASP to use, given the U.S. versus OUS mix in the COVID testing side? And to what degree do you expect some of the investments you've made in commercial capabilities and operating leverage as well, to cushion the COVID testing margin over time as the mix evolves?
Karleen Oberton, CFO
From an average selling price perspective, pricing has remained steady at around $20 for the quarter. Looking ahead, we do anticipate that pricing will decrease, particularly as we renew international contracts, which come with a lower average selling price. Additionally, in the U.S., once the public health emergency concludes, we expect that the current higher payments for testing will likely decrease. However, we still have some distance to cover before pricing returns to a level that will positively contribute to the overall corporate average revenue. Regarding our business and margins, our supply chain teams have annual improvement targets, and some of their efforts this year are helping to mitigate the higher costs we are experiencing. We are also concentrating on network optimization opportunities. We've mentioned our strategic investments in international markets over the years, and we believe that as international revenue increases, it will lead to enhanced margin growth from that segment of our business.
Tejas Savant, Analyst
Got it. And one for you, Steve, on the launch of the Panther tracks here in December. Can you sort of quantify the cost savings that some of your high-throughput customers could see from the added automation here? And overtime do you expect us to drive an uptick in Panther sales in new accounts? Or is this more of a convenience for your current high-throughput customers, given some of the labor issues everybody's seeing at the moment?
Karleen Oberton, CFO
Yes, absolutely. We do think this would be a labor efficiency for our labs. This is something that there's a really long lead time to the track system, so 18 to 24 months. So we won't have any kind of data on actual cost savings for a couple of years. But this is something that we actually have partnered with our customers on, on the development of how it will work in the lab. And we're excited to officially launch it here.
Operator, Operator
We will now take the next questions from the line of Brian Weinstein with William Blair.
Brian Weinstein, Analyst
So I guess let's talk a little bit about geographic performance. Did you continue to lean into that, and maybe you can be a little bit more specific about territories and products and kind of run through where you're seeing the strings? I recognize it's kind of across the board. But if there's anything that you would kind of call out there? And then, what maybe I missed a bit. Can you talk also about what the U.S. growth rate was? And I'll have a follow-up after that. Thanks.
Stephen MacMillan, CEO
Yes, I think, overall, international, obviously, we said is a double-digit grower. And I think we'd said years ago, we expected that international would become probably a double-digit grower for many, many years. And I think we're exactly into that. A lot of it candidly, Brian is really coming out of Western Europe, because that's where our biggest footprint is. And it's where we've placed a ton of the Panthers. We're starting to get certainly more of it out of out of Asia Pacific as well. But the bigger chunk is really Western Europe, a little bit of Africa. And I think we continue to feel good. And overall, the international growth rate is above the U.S rate.
Brian Weinstein, Analyst
Yes. Is there anything on kind of a product side? I mean, obviously diagnostics is, I'm guessing, driving that, but are any of the other kinds of businesses seeing significant acceleration OUS? That you'd want to call out there?
Stephen MacMillan, CEO
I believe the positive developments are widespread. Our cytology business is performing well, especially in some key markets in Western Europe. Over the past few years, our molecular business outside the U.S. has consistently achieved around 20 percent growth, and this trend is set to accelerate. Our breast health segment has also been very strong, particularly following our SOMATEX acquisition, a German company that has enhanced our presence in that field. Surgical is starting to improve as well. The encouraging aspect is that our growth is not reliant on just one region, product, or franchise. Instead, we're seeing a multitude of factors contributing to our strength, which boosts our confidence for the future.
Operator, Operator
We will now take the next question from the line of Tycho Peterson with JPMorgan.
Casey Woodring, Analyst
This is Casey on for Tycho. Thanks for taking my questions. First one is on breast health. So how should we think about breast health margins given the shift towards recurring revenue now, the 23% of the business is gantries? How's that margin profile change alongside this mixed shift? And I guess in the near term, what sort of impact to margins is embedded in the 2022 numbers with lower gantry sales?
Karleen Oberton, CFO
Yes. So I think on the breast health business, if we think about operating margins, certainly the service business is accretive to the operating margins, which is the biggest part of revenue for that division. Then I would say, then there's probably equal contribution from gantries and interventional from an operating module perspective. Certainly, the headwind, the $200 million headwind is significant to that division. But, fortunately here, we were able to raise our full-year guidance based on the performance of the rest of the business and the COVID contributions. So we can well manage this headwind and not have to do things like manage headcount or the other things. So preserve our great salesforce that we have and our service engineers and still feel good about managing through this headwind.
Casey Woodring, Analyst
Got it. That's helpful. I was wondering if you can give us some updated test of record metrics in the molecular side. How did those trends in the last few quarters and how much of this x-COVID growth is coming from existing customers that are just reporting more of their menu over to Panther versus new customers? Thank you.
Karleen Oberton, CFO
Yes. Casey, we think of the test record as an annual number. So to put it in perspective, prior to the pandemic, our largest year was 20 million, we did about 34 million in 2020, and about 40 million in 2021. And we expect that 2022 will be another number in that $30 million to $40 million range.
Operator, Operator
We'll now take the next question from Derik De Bruin with BofA.
Derik De Bruin, Analyst
So actually, I just wanted to follow up on that last question. And just, look, you're placing an enormously impressive number of Panthers at 100, this quarter, that was certainly more than I thought you would have. Just a little bit of color on where your installs are, add-on servicing customers, green fields, competitive replacements. And I guess where is, if you go back and look pre-pandemic and you look at the number of labs that were not doing molecular diagnostics, how is that sort of like overall in step of that overall market expanded, just try to get some script this idea and just the continued pace of Panther placements in the market opportunity.
Stephen MacMillan, CEO
In terms of their direction, it's very broad-based; some are existing customers and some may add a new service. We have gained new customers as well, moving into small labs and larger ones; certainly, some are new for us. Whether it's a competitive win or just an expansion of our lab business, we are definitely seeing that. We believe that the overall focus on high-throughput instruments will benefit us moving forward. We feel confident that this is where we have a significant advantage, particularly with the Panther system.
Derik De Bruin, Analyst
Great. I have one more question. As the geographic mix changes, how should we consider the tax rate in the coming years? Is that still uncertain due to the potential changes in tax laws being discussed? Thank you.
Karleen Oberton, CFO
Yes. Certainly hard to comment on the future tax rate when there's no real legislation in place. And as you know, the devil's in the details on something like that. But certainly if the federal headline rate went up, our overall non-GAAP tax rate would go up. But I would tell you that we certainly have an active tax department that is partnering with our operations team to put in efficiency strategies.
Operator, Operator
We'll now take the next question from the line of Ryan Zimmerman with BTIG.
Ryan Zimmerman, Analyst
Karleen, just on the COVID guidance, if I think back to your four number, originally, I think was around $200 million. We kind of assumed about $50 million a quarter. And now you guys are at a billion you did 500 and change this quarter? The pacing of that number, is it fair to assume, given the line and say you have that $300 million to $400 million can be done in this upcoming quarter? And we should think 50 and 50 in the back half of the year? Or are you thinking about the pace into those COVID sales a little differently than what I laid out?
Karleen Oberton, CFO
Yes, Ryan. So as I said in my prepared remarks, we are assuming about a minimum of $400 million here in the second quarter. So that would lead to your math of roughly $50 million in Q3 and $50 million in Q4.
Operator, Operator
Okay, I must have missed that. Steve, regarding breast procedures, you have expanded further into surgery compared to before. Mammography served as your initial entry point, considering the surgical options and potential expansions beyond your current procedure categories. Is there an opportunity to delve deeper or broaden your surgical offerings in breast health? I'm interested in your perspective on the completeness of your current portfolio compared to your future goals.
Stephen MacMillan, CEO
Yes. We are considering various options as we evaluate our strategy. We have made smaller investments in areas such as markers and Faxitron Focal, which relate to breast-conserving surgery. We are exploring different avenues for growth, especially in breast treatment, where there are opportunities for both organic expansion and other potential developments. We still have the opportunity for one more question.
Operator, Operator
We will take the next question from line of Puneet Souda with SVB Leerink.
Puneet Souda, Analyst
I have a quick question regarding your strong cash flow and current cash reserves. There's been a common inquiry lately about valuation, particularly the apparent disconnect between buyers and sellers in light of the recent decline in public markets. It seems like public market expectations have stabilized, but I'm curious if you're observing anything different in the private market or if this general disconnect is beginning to normalize. How do you assess the current timing and valuations in this context? Thank you.
Stephen MacMillan, CEO
Yes. It's a great question. Certainly when valuation is correct, you always have the sellers kind of remembering the good old days that might have been, and I think right now we feel we're in a great position. There's a lot of stuff that we had every banker, and we had a bunch of both privates and companies went public last year in our face that wanted us to buy them then, and we said to a lot of them, why don't you go ahead and go public? And we'll keep our eyes on you and look at you later. So I think a lot of the corrections may create opportunities for us at the right time, they've got to settle in themselves. And candidly, when you have a really successful business, which we have right now, there's no urgency. So I think we were in that magical spot where our core businesses are so strong and growing that we don't need to do anything. Meanwhile, we keep racking up cash, that puts us in a great position when we do want to act. And we think whether it's this year or whether it's next year, opportunities will present themselves that we'll be able to take advantage of, but absolutely no urgency from our standpoint, while people readjust to what might be the true realities, not what they want to believe the realities could be.
Operator, Operator
And that's all the time we have for questions. This now concludes Hologic’s first quarter fiscal 2022 earnings conference call. Have a good evening.