Hologic Earnings Call Insights: Breast Health Outlook and Backlog of 3D Product

Hologic Inc (NASDAQ:HOLX) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Breast Health Outlook

Tycho Peterson – JPMorgan: You had called out a couple of things Sandy and the ongoing headwinds from the end of film to digital transitions can you just talk more specifically about the outlook for Breast Health. Where are we in this cycle and what are some of the underlying trends in particular for the 2D business?

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Glenn P. Muir – EVP, Finance and Administration and CFO: The good news as we indicated is that the market seems to be rapidly gravitating towards 3D what that does in the short term is put certainly some headwinds on the 2D business relative to the normal replacement cycle. I think customers are waiting to buy 3D and I think that things like the Oslo study are giving them the kind of initiation that they need to go get budget approvals and I also believe that the further we penetrate into that market the competitive dynamic that’s being created by the broader adoption of tomo is causing more and more customers to buy the products. So, what we’re seeing is been, and as we talked about even last quarter, there may be some lumpiness in this early period of the rollout of this new piece of capital equipment, but all of the indicators appear very, very positive. As a matter of fact that we, in our last call, said that we would nearly double the installed base in this fiscal year and we are saying today that we will, at a minimum, double our installed base of tomo products in the U.S. because we feel much more confident about the rollout of the product.

Tycho Peterson – JPMorgan: Then maybe just a quick follow-up, can you talk about service dynamics there? Obviously you are installing or upgrading the installed base, how do we think about the service business, does that begin to slow once you move past the bolus of upgrades?

Robert A. Cascella – President and CEO: So, I think what happens with service is, as long as the installed base continues to grow, the service revenue continues to grow as well. I think that you may see, and as we have said in the past, a slowing in the growth percent as more and more tomo units are installed, because in fact the tomo units will carry a one year warranty and the existing Selenias that are being decommissioned would come off of service contract. That’s actually the kind of trend that we would want to see. We would have a significant spike in equipment revenue and a tapering of the growth in service as a result of that.

Backlog of 3D Product

Isaac Ro – Goldman Sachs: Just first one if you could maybe touch again with a little more color on the dynamic that you saw this quarter with customers holding off on tomo, is that something you quantify as you look at conversations with your customers, some of the bigger ones that have bigger capital budgets, do you get the sense that there are sort of earmarks being held out over the next 12 and 18 months, is that clearly when reimbursement plays up.

Peter K. Soltani – SVP and General Manager, Breast Health: This is Peter. So, I think you have a number of questions. So, just a couple of observations. Again this was noted earlier, our backlog of 3D product it increased quarter-over-quarter. So, when you see, just a – certainly the continuation of a general positive trend certainly with the sort of a clinical data that was presented at RSNA along with Oslo, that’s probably accelerated peoples not wanting to purchase 2D and in fact sort of deferring their decision until they can signal for additional budget dollars to go right to tomo. So, all of those dynamics are a little bit complicated, but certainly it’s kind of the thing that we will expect to see. I think you had another question towards the end there, if you’d like to repeat that?

Isaac Ro – Goldman Sachs: Sure just wondering, if you could offer any color commentary on especially with your larger customers, you said some of those customers have earmarked dollars if and when they have more clarity on reimbursement. Just try and get sense of how your visibility compares now, than maybe you’ve been prior to Oslo?

Robert A. Cascella – President and CEO: I think what Peter’s indication was of a backlog increase and more interest from an orders activity perspective is a strong indicator for us. I believe and I think we believe very strongly that this product is moving forward from a growth perspective with or without reimbursement. However, the broader adoption of this product, a year down the road of two years down the road is certainly going to be highly depended on that, but we’re not seeing any indication today, nor have we backed away from the numbers that we gave earlier on about the amount of increase to our installed base because of the momentum that we see being developed in the markets. It just simply takes longer to buy a tomo unit than it does to buy a 2D digital mammography unit, for the reasons that we gave, it’s a higher dollar amount, there is no reimbursement, so people are buying for budget dollars that we see happening as is evidenced by the fact that we have a 10% growth in our backlog.

Isaac Ro – Goldman Sachs: If I could just ask one follow-up on the Diagnostic side of business. Can you maybe comment on the pricing and market share environment specifically for HPV and CT/GC just wondering, what you guys are seeing for pricing on both products and then how you feel like your market share?

Robert A. Cascella – President and CEO: I think on CT/GC, what we have not seeing erosion in pricing and in fact we have not lost customers we believe that our market share is stable. We’re still market leaders by a substantial margin here in the United States. I think on the new accounts that we see for HPV, it’s a much more competitive market and I think that because it’s incremental business for us, it is an a lower price than some of our early HPV wins, but it is business that we did not have in the past. So, we’re certainly not going to enjoy the days of $18 or $20 of cash, but I think that the pricing is much, much lower than that. But as I said, we came from a relatively small installed base and market share to now growing to over 20% in those incremental customers that have a lower AUP.