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Hologic Inc (NASDAQ:HOLX)
Q3 2020 Earnings Call
Jul 29, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to Hologic's Third Quarter Fiscal 2020 Earnings Conference Call. My name is Cody, and I'm your operator for today's call. [Operator Instructions] [Operator Instructions]

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

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

Thank you, Cody. Good afternoon, and thanks for joining us for Hologic's Third Quarter Fiscal 2020 Earnings Call. With me today are Steve MacMillan, the company's Chairman, President and CEO; and Karleen Oberton, our Chief Financial Officer. Steve and Karleen both have some prepared remarks today, then we'll have a question-and-answer session. 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 21. Before we begin, I'd like to inform you that certain statements we make during this call 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 that are referenced in our 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. As a reminder, we're defining organic revenue as constant currency revenue less the divested blood screening and Cynosure businesses as well as the acquired SuperSonic Imagine business. Finally, any percentage changes that we discuss will be on a year-over-year basis, and revenue growth rates will be expressed 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 results for the third quarter of fiscal 2020. Our results were very strong and reflect the value of our unique set of businesses in a time of great economic uncertainty. To begin, these last several months have been the most challenging, tumultuous and unpredictable time of my career, but also the most exhilarating and ultimately gratifying. There is still a lot of history to be written regarding this pandemic, and things can change very quickly in COVID time.

But we're very pleased with the significant contributions Hologic has made to human health thus far and excited about our ability to do even more. I am just so proud of our team who are working day and night with customers, regulators, suppliers, elected officials and others to address the most pressing problem facing the world today. In the last couple of years, we've talked a lot about social responsibility and Hologic's corporate purpose: to enable healthier lives everywhere, every day.

It is this purpose that inspired our people to do more than seemed possible in the third quarter of fiscal 2020. Never before have we lived into our mission more completely or touched more human lives than during the COVID-19 pandemic. Indeed, our results flow from the positive impact we're making on human health. Karleen will cover the details, but let's start by saying that while the quarter began with great uncertainty and painful decisions to preserve cash flow, it ended with results that were better than we ever envisioned.

We posted total revenue of $822.9 million and earnings per share of $0.75. Revenue grew 8.1% organically, and EPS increased 19%. These growth rates, our best organic performance in a very long time, significantly beat our expectations at the start of the quarter. Outperformance was driven by unprecedented demand for our COVID tests on the Panther system as well as the quicker-than-expected strengthening of our Surgical division. In addition, COVID testing surged late in the quarter. So our results also far exceeded the update we provided via the 8-K in June.

We'll now highlight three primary points related to COVID, then Karleen will cover the rest of the business. First, our manufacturing and supply chain team did an amazing job in the quarter to ramp up production of our COVID assays, helping more labs and doctors deliver diagnostic insights when and where they are needed. Second, we believe our diagnostic response to COVID will have short-, medium- and long-term benefits for the company as a whole.

And third, the strengthening of our international franchises over the years is enabling us to make a big difference in the COVID fight today, which, in turn, will further accelerate our international business going forward. Let's start with manufacturing and supply chain, an area that doesn't get a lot of attention on the typical earnings call. That's unfortunate because delivering high-quality, highly precise products that doctors rely on to make critical decisions is at the core of our business.

In the case of COVID, we are producing millions of tests that weren't even invented a few short months ago. And each test has to meet exactingly high-performance and quality standards. In this unique time when demand for COVID tests is exceeding supply, high-quality, high-volume manufacturing is critical. Although you'd never know it from the media stories, the diagnostics industry as a whole has done an unbelievable job of ramping up COVID production capacity.

As a nation, we are on pace to conduct about 23 million tests in July. This is more than double the level of testing as recently as May and more than 20 times the number of tests performed in March. In total, more than 52 million COVID tests have been performed in the United States. For perspective, this is about 50% more than in the other G7 countries combined. Never before has a molecular diagnostic test been scaled up to these volumes this fast. In fact, the amount of COVID testing being done today is about seven times greater than the next most common molecular diagnostic test.

Our industry and its employees have a lot to be proud of, and we are striving to do more. In Hologic's case, as soon as we launched our first COVID assay in March, a PCR test that runs on Panther Fusion, we were overwhelmed with calls from customers everywhere. So we immediately activated three key projects, working closely with our suppliers and partners around the world. First, we began developing a second COVID assay to leverage our proprietary Aptima technologies and manufacturing capacity and to run on our large installed base of Panther instruments.

Pre-COVID, we produced about 20 million molecular diagnostic tests a quarter, with the vast majority of this comprising TMA assays for infectious diseases like chlamydia, HPV and HIV. Since the pandemic reduced demand for these tests, we were able to redirect human and technological capacity to produce our Aptima COVID assay. In essence, we merged the supply chains for our COVID tests and our legacy products to increase COVID production capacity. Second, we set out to double our molecular diagnostics manufacturing capacity by the fall to 40 million tests or more per quarter as we move into fiscal 2021.

We essentially established a goal to achieve our 10-year expansion plan in about six months. And third, we began working with our partner, STRATEC, to roughly double production of our Panther instruments. Based on these actions, in our earnings call three months ago, we shared our goal to produce at least one million COVID tests a week, on average, starting in late May. This would have enabled us to realize revenue of about $150 million or more in the second quarter.

Thanks to herculean efforts by our operations team, we're proud to report that we significantly exceeded this goal. And we're able to increase our total molecular diagnostics test production by about 50% in the third quarter to roughly 30 million tests. This enabled us to ship almost 13 million COVID tests to customers, including an extra production lot, leading to sales of $324 million. Based on data from the COVID tracking project, we estimate that we provided 1/4 to 1/3 of the test results delivered in the United States during the quarter.

How did we get there? Through a combination of ingenuity, investment and brute force. In terms of ingenuity, we validated the use of one of our specimen transfer tubes, one that is typically used with our ThinPrep pap tests, for COVID testing. This helped total kit capacity catch up to our underlying production of reagents and enabled us to ship millions of additional tests. And we validated a new sample collection and loading method that reduces the use of penetrable caps, a short-term constraint that we discussed last quarter.

In terms of investment, we currently expect to spend over $50 million in capital to expand COVID production with about $14 million of that spent through the third quarter. Some of this is being used to install new high-speed filling lines, and we are also investing in new custom machinery to produce more penetrable caps. As announced this week, this effort is also being supported by HHS and DOD. In terms of brute force, we are producing 24/7 at our facility in San Diego. Employees from areas like IS and finance were trained to work on the packaging lines, while we hire over 150 new operations employees here, more than a 50% increase.

We also expanded capabilities at our diagnostics plant in Manchester, United Kingdom, which began producing COVID tests at the end of June. Overall, these actions have provided the capacity to produce at least 1.5 million COVID tests per week, on average, and should enable COVID sales to increase sequentially in the fourth quarter, over and above our very strong Q3, even while accommodating higher volumes of our women's health tests. And there is the potential to do more if we are able to work through some remaining supply chain constraints on certain instrument components.

The second point is that our diagnostic response to COVID will have short-, medium- and long-term benefits for Hologic as a whole. In the short term, the benefits are obvious. Over the next several quarters, COVID testing will help drive strong overall corporate growth even before the base business fully recovers. In the medium term, we expect that the record number of Panther and Panther Fusion instruments that we are placing now will turbocharge our razor-razorblade business model and dramatically increase pull-through of other assays.

These include our new women's health tests, our quantitative virology products and our respiratory mini-panels. To illustrate this, over the last several years, we have placed an average of 228 new Panther systems globally per year. In the third quarter alone, we placed 208 systems, 208. That was made possible by a significant expansion of production capacity at STRATEC and even by refurbishing more than 50 Panthers from our own research labs. At the end of June, our installed base stood at more than 2,000 systems with almost 45% of these outside the United States.

And over this fiscal year, we expect to place about 500 Panthers, more than doubling our recent annual run rate. Of the 152 systems shipped this quarter in the United States, we estimate that more than 60% will replace one of our older workhorse, TIGRIS Systems, over time. This will enable those customers to access our full menu of 16 FDA-authorized tests on Panther rather than the four that are cleared on TIGRIS. The other 40% of systems either displaced a competitor or enabled a new customer to begin testing. And some of these new customers are specifically targeting nascent growth opportunities, such as home sample collection.

One way we measure new customer adoption internally as well as incentivize our sales force is by tracking what we call TORs, or tests of record, and the contracted year one revenue associated with them. A TOR is achieved when a customer goes live with a new assay on our system. In 2020, even as COVID is driving tremendous interest in Panther, our sales team has been focused on securing downstream revenue from other tests. Based on their excellent work and motivated by double the payout on non-COVID TORs, we have already set a record for TOR revenue. And we have even more signed and waiting to go live over the next couple of quarters.

Since Panther was cleared in 2012, we have seen over and over again that as customers come to know and love the system, they adopt additional tests that drive even more pull-through, and we would expect the same dynamic to play out here. This will drive growth in the long-term as even as multiple COVID vaccines are hopefully commercialized. While everyone at Hologic is rooting for a successful vaccine development, it's important to note that the strength and duration of immunity still have to be established.

And consumer surveys indicate that many people may choose not to be vaccinated. For these reasons, we also forecast there will be a long-term market for COVID testing on a global basis, just as testing coexists with vaccines today for pathogens such as HPV, hepatitis B and influenza. The third point we want to make is that the strengthening of our international franchises over the years is enabling us to make a big difference in the fight against COVID today, which, in turn, will reshape our international businesses going forward.

Let us give you a little more color on that. Over the last three years, international sales have been a major growth driver for the company, with our base businesses growing at a low double-digit CAGR organically. Within this, Molecular Diagnostics has been leading the charge with growth rates often exceeding 20%. Underpinning this growth, we have invested methodically in our leadership and commercial infrastructure.

We also divested Cynosure, which enabled our leaders to focus on the businesses they know best. For example, in our European region specifically, we had an installed base of about 220 Panthers in 2016, just before our Regional President, Jan Verstreken, joined the company. By the end of the third quarter, however, that number had doubled. By leveraging this installed base, our team has signed contracts in about a dozen countries that secure about $500 million of COVID testing revenue over the next four quarters with opportunities to grow this further.

The largest contract is with the U.K. Department of Health, which is worth nearly $190 million. While the vast majority of our COVID revenues in the third quarter came from the United States, expanding production capacity will enable us to serve more global customers going forward. In the third quarter alone, we shipped almost 60 Panther instruments to lab customers outside the United States.

And like in the U.S., our commercial teams are capitalizing on the intense demand for COVID tests to drive pull-through of our other assays, which is a robust opportunity given our lower market shares globally. Before turning the call over to Karleen, let me conclude by saying that the COVID-19 pandemic has really highlighted the importance of diagnostics within the healthcare system. In the future, we hope that this will lead to a strengthening of the public health infrastructure, more favorable reimbursement for diagnostic testing and hopefully even more appreciation for the value of early detection, which is our core focus.

At the same time, our response to the pandemic is also making Hologic a much more successful and influential player within the diagnostics industry, both domestically and overseas. This is based on the power of our technology and automation and the ability of our people to quickly and effectively respond to public health needs. There is absolutely no doubt that our Diagnostics division, and therefore, our company as a whole, is becoming a stronger organization through this challenging time.

Now we'll turn the call over to Karleen.

Karleen Oberton -- Chief Financial Officer

Thank you, Steve, and good afternoon, everyone. In my remarks today, I'm going to provide an overview of our divisional sales results, walk through our income statement, briefly touch on a few other key financial metrics and finish by reinstating our financial guidance for the fourth quarter. Let me start by summarizing our third quarter results. Revenue of $822.9 million declined 3.1% due to the divestiture of Cynosure. Organically, we grew 8.1% as strong sales of our COVID-19 diagnostic assays offset weakness in the rest of the business as a result of the pandemic.

Profitability improved with EPS of $0.75, increasing 19%, well ahead of our expectations. We entered the third quarter facing unprecedented uncertainty, and we acted prudently and decisively to reduce expenses and preserve cash. However, the hard work and ingenuity of our teams helped to maximize the value of our two COVID assays, and the rest of our business is recovering better than expected. As a result, we generated strong cash flow in the quarter, which enabled us to repay $250 million that we had borrowed under our revolver as a precautionary measure. Our balance sheet and liquidity are stronger than ever.

For all these reasons, we are optimistic that we are in a position for a very successful fourth quarter. With that introduction, I will now provide some more detail on our divisional revenue results. Diagnostics, our largest division, grew an outstanding 74.9% in the third quarter, driven by molecular, where sales increased 170.3%. As Steve mentioned, in response to the unprecedented need for COVID testing, we increased our production capacity substantially in the third quarter. This enabled us to ship about 13 million COVID tests to customers, generating revenue of $324 million.

Outside of COVID-19 testing, our base molecular and cytology businesses declined, but trends improved as the quarter went on. Breast Health revenue was negatively affected by the pandemic, but the division performed in line with our expectations. Global Breast Health sales of $224 million decreased 30.9%. Excluding $3.9 million of sales from SuperSonic Imagine, sales decreased 32.1% organically.

Demand for many of our products was negatively impacted by COVID-19, especially in the United States, as our customers focused on responding to the pandemic, delayed or reduced purchase of the capital equipment and rescheduled routine screening appointments. However, service revenue and international sales declined much less, cushioning the overall decline. In Surgical, sales of $51.5 million decreased 53.9%, better than our internal forecast as the business begun to recover more rapidly than anticipated.

Weekly demand declined close to 90% early in the quarter as elective procedures were postponed. However, we saw steady, substantial improvement in May and more so in June. Overall, in terms of geography, domestic sales of $660.8 million increased 2.9% on a reported basis, as strong sales of COVID tests more than offset the impact of the Cynosure divestiture and reductions across all other business product lines. But on an organic basis, U.S. revenue was up 11.2%.

Outside the United States, reported sales of $162.1 million decreased 21.2% on a reported basis and 2.8% organically. As you know, many countries began to emerge from the COVID pandemic earlier than the U.S. did, which helped our results. In addition, we began shipping our COVID-19 assays to our international customers in June and expect these to be significant contributors to our future growth. Moving on to the rest of the P&L for the third quarter. Gross margin of 64.7% increased 310 basis points, driven primarily by sales of COVID tests and the divestiture of our lower-margin Cynosure business. These benefits were partially offset by lower sales of in our other divisions as a result of the pandemic.

Total operating expenses of $261.1 million decreased 5.5% in the third quarter, driven mainly by the divestiture of Cynosure. However, expenses were significantly higher than our expectations entering the quarter when we were planning for worst-case scenarios that thankfully never materialized. This was driven mainly by higher compensation expense as accruals for incentive compensation increased in line with our financial results. In addition, we experienced higher-than-normal bad debt expense in the quarter, most notably a write-off associated with a change in a Breast Health distributor in Latin America.

Lastly, we made a $10 million charitable contribution to the company's donor-advised funds and accelerated spending on some R&D and marketing programs to bolster future growth. Putting all this together, operating margin increased 380 basis points to 33%, and net margin increased 360 basis points to 23.7%, both recent highs. As a result, this led to non-GAAP net income of $194.7 million and non-GAAP earnings per share of $0.75, well ahead of our expectations.

Before we cover our 2020 fourth quarter guidance, I'll quickly touch on a few other financial metrics. At the end of the third quarter, our leverage ratio stood at 2.4 times and we had $744 million of cash. Cash flow from operations was $223 million in the third quarter, a very strong result. Based on this cash flow, we paid repaid $250 million of debt under our revolving credit facility. We also believe we are well positioned to take advantage of still uncertain market conditions to pursue tuck-in acquisitions in each of our divisions.

Our business development goals have not changed. We continue to look for deals that accelerate growth and deliver attractive economic returns, either by leveraging an existing commercial channel or helping us expand into near adjacencies. Finally, ROIC was 12.8% on a trailing 12-month basis, an increase of 30 basis points, and adjusted EBITDA of $299 million increased 8.2%. Before we open the call for questions, I would like to discuss our expectations for the fourth quarter of fiscal 2020. While our business environment remains uncertain due to the COVID-19 pandemic, we are pleased that visibility has increased compared to last quarter.

This is enabling us to provide quarterly guidance again, albeit in much wider ranges than usual. For the fourth quarter of fiscal 2020, we expect total revenue in the range of $925 million to $1,025 million. This represents organic revenue growth of 17.4% to 30.3% for the quarter. Due to the divestiture of Cynosure, revenue compared to the prior year period equates to an increase of 6.7% to 18.3% on a constant currency basis. On the bottom line, we expect EPS of $0.95 to $1.15 in the fourth quarter.

This implies growth rates of between 46.2% and 76.9%, significantly outpacing revenue. I'd also like to point out that we expect other expenses net to increase to about $30 million in the fourth quarter, as we don't forecast gains related to certain investments that resulted from equity markets rebounding in the third quarter. This fourth quarter guidance is based on a full year tax rate of 22.75% and diluted shares outstanding of approximately 265 million for the full year. Now let's turn briefly to our divisional expectations. In Diagnostics, we expect that demand for our two COVID assays will continue to exceed supply in the fourth quarter of fiscal 2020.

As Steve said, our efforts to increase manufacturing capacity should enable us to increase COVID sales compared to the third quarter level. And overall, the forecasted Diagnostics revenue could double or more compared to prior year. In Breast & Skeletal Health, recurring revenues such as service should continue to partially cushion a steeper decline in capital sales, reflecting the diversification strategy that we've been pursuing for several years. Revenue should also perform better outside the United States than domestically. We continue to believe that Breast Health will recover when COVID pressures more slowly than our other divisions.

So while fourth quarter results should be better than the third quarter, we still forecast that Breast & Skeletal Health revenue will decline in the range of 20% or more. In Surgical, we believe revenue will continue to improve based on both the clinical needs for our products and the desire for our hospital customers to shore up their finances by addressing pent-up demand. However, there remains some uncertainty around the pace of this recovery, especially if COVID cases continue to spike in specific geographic regions and customers are forced to suspend elective procedures again.

Overall, we expect Surgical sales in the fourth quarter to be down 20% compared to the prior year period. As you update your forecast, let me remind you that macro uncertainty remains much higher than normal due to the virus we're all dealing with. That's why we're providing wide guidance ranges. And we would encourage you to model at the middle of these ranges, which incorporate both potential upsides and downsides. Before we open the call for questions, let me conclude by saying that Hologic's financial performance in the third quarter was excellent, and our financial condition remains rock solid.

As I look back, it's hard to describe how much our financial situation improved over the course of the quarter. On this, we thank an R&D team that quickly developed new COVID tests and operations and supply chain teams that found a way to knock down just about every barrier to increase production. As Steve said, it's especially gratifying that we did well by doing good in the third quarter. What's more, we expect this performance to get even better in our fourth quarter.

With that, I will ask the operator to open the call for questions. [Operator Instructions] Operator, we are ready for the first question.

Questions and Answers:

Operator

[Operator Instructions] We'll take our first question from Patrick Donnelly with Citi. Please go ahead.

Patrick Donnelly -- Citi -- Analyst

Right, thanks guys. Steve, not even sure where to start. You got through a ton of impressive numbers out, so congratulations on that.

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

Thank you. It was a team effort.

Patrick Donnelly -- Citi -- Analyst

Yes. Absolutely. I know you kind of called out things can change quickly in these times, and I certainly appreciate that. But maybe looking ahead, can you talk through your views on the durability of testing into 2021? I mean, it certainly sounds like you're pretty bullish on the opportunity. But maybe we focus on the U.S., the international, you kind of gave some good color there.

But you guys have obviously ramped capacity nicely. How are you thinking about the setup into fiscal 2021? I mean, it seems like demand is only increasing recently. You gave those numbers on June. Any reason to think things don't continue to accelerate as we head into 1Q and 2Q next year? As you guys have talked about, 4Q certainly looks better than 3Q. Maybe just talk through the setup there from the testing side with the visibility we have today.

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

Sure. And again, Patrick, as you well know, hard to put long-range forecasting, but here's the way we think about it. And it was really around the decision we made in March to double our capacity by the fall, which when people first looked at is, there was none. Here's the simple reality. We're going to be going into a cold and flu season. I think every single person that sneezes or coughs from September through the next season is going to end up getting tested for COVID. And it's not just U.S., it's globally.

And even all the talk of the vaccines, let's say, a vaccine comes, there's still so many unknowns. There's also the fundamental reality that it's going to take months to get everybody vaccinated. Even after that, people are going to be still getting this thing. And particularly on a global basis, we're not going to vaccinate the world, and there's only so long we can shut the world down and have people staying at home and not traveling and everything else.

So I think we really see this again, can't exactly quantify the magnitude. But you know what? I mean, look at all the universities, right? Everybody needs to get back to work. Testing is the key area to help get people comfortable.

So I think we see this at least going well through the next season. And beyond that, this thing is so voracious that we really believe there's going to probably, at a bare minimum, be an ongoing trail of testing just for prevalence or something else and population screening for at least another year or 2. I mean, I think even Pfizer announced as it relates to a vaccine, they see a vaccine market continuing for years. So we really see there a lot more durability there. Having said that, if it's not, we got our base businesses as well. But fundamentally, we think this thing is going to be far more persistent than I think with a lot of people necessarily thought at the beginning.

Patrick Donnelly -- Citi -- Analyst

No, that's helpful. And maybe on the margin side, can you just talk through expectations there? Obviously, you guys are investing a lot for areas like capacity expansion. And are you plugging money into other growth initiatives, just capitalizing again on these near-term tailwinds and big cash flow numbers,etc? And then quickly on the margins as well. Anything to call out on the profile of the international COVID testing? Is that a bit lower just given how massive those orders are?

Karleen Oberton -- Chief Financial Officer

Yes. So this is Karleen. So a couple of things. So yes, certainly, we are investing in capacity but also in our R&D, for sure, to accelerate future products. And on your point on ASPs outside the U.S., yes, those will be a little lower than what we've seen at this point in the U.S.

Patrick Donnelly -- Citi -- Analyst

Thank you.

Operator

We'll now take our next question from Chris Lin with Cowen. Please go ahead.

Chris Lin -- Cowen -- Analyst

Hey, thanks for taking my question and Congrats. Steve, in your prepared remarks, you stated that Hologic could increase manufacturing even more if you can work through some of the supply chain constraints. Could you just help us understand what these constraints are? And if you are able to overcome them, how much would your manufacturing capacity increase over 1.5 million a week?

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

Sure, Chris. They the constraints themselves go really through the supply chain. A lot of it's even things that get used on Panther itself. So our ability to produce the test kits and everything else is good. But there you've seen there's been some acknowledgment out there about pipette tips shortages and other things like that, things that we don't control, that we don't even supply to the vendors.

They buy them directly. So we're even working with manufacturers of some of the ancillary ingredients, and it's probably a little too early to sell. We think there's clearly a little bit of upside beyond the high end of our guidance if we can crack these things, but feel really good about the guidance we have.

Karleen Oberton -- Chief Financial Officer

Yes. And I would just add that as we think about increasing capacity, we're seeing our base business and Diagnostics come back as well. So it's going to be a challenge or in balancing on the two products.

Chris Lin -- Cowen -- Analyst

Got it. And then for my follow-up, I believe your Panther shipment forecast of 500 total placements in fiscal 2020 implies that placements declined sequentially in Q4 from the 208 systems that you placed in Q3. If this is right, could you just provide a bit more detail on this decline? Is this a function of STRATEC's manufacturing constraints in depleting your refurbished research lab systems? And just looking ahead, can you give us a sense of the Panther instrument backlog?

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

Sure, Chris. They will be a little bit lower. To your point, we said about 50 of those that we shipped were refurbished ones. So we figured, they're all gone, we've literally taken everyone out of our buildings that we didn't have. We also had a little bit of inventory coming into the quarter. So we've shipped as you can imagine, we've shipped every last one.

That as I joked every time, there was a White House press conference, and various customers or whatever were down there promising more volume. They came back in the next day. It's 1-800-Hologic. What else can you do for us? So we drained everything that we had in the inventory. We're building now at a certainly at about a double the rate, but it will be a bit of a sequential decline. But we got we made so much progress this quarter that, that already sets us up well.

Chris Lin -- Cowen -- Analyst

Thank you.

Operator

We'll hear next from Tycho Peterson with JPMorgan. Please go ahead.

Tycho Peterson -- JPMorgan -- Analyst

Hey, thanks, Stephen, there's been a lot of talk about pooling samples. Can you just talk a little bit about what you think pooling will do to Panther utilization? And then any thoughts on flu tests for legacy Panther to have a syndromic panel on the larger installed base?

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

Sure. Tycho, as you well know, as a leader in this space, we're so close to the FDA, to our customers and trying to help come up with solutions. I think as it relates to pooling, we are working closely with the FDA and with our customers to look at some claims and think that we'll be certainly a player in that space. And it may help increase the overall capacity, particularly in an environment right now where there are frankly a lot more people that would still like to be tested that we think that may help, more on a testing where it's less diagnostic and more screening.

And I think there's going to be a ton of that come the fall with universities and everybody else trying to get back. So we think there will become a place for pooling, and it's something we're very familiar with, really going back to our blood screening days. So as it relates to a combo, again, you can imagine, given our presence in this space, we're looking at combo products for the fall as well. We continue to hear from customers, government, COVID is going to be the primary need. I hate to say it, but we think this year that, frankly, when somebody gets flu, they're going to be relieved versus COVID is still going to be a bigger concern. But we'll be there in all fronts.

Tycho Peterson -- JPMorgan -- Analyst

And then for the follow-up, just can you talk a little bit more about the women's health recovery, how you think about that beyond the fiscal fourth quarter? Mammography may start to come back. Is that more of a 2021 event? Or could you see some uptick in the year-end?

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

Yes. I think part of what we're not totally sure about yet, we've seen a significant strengthening, certainly June, July ish of both our Surgical and women's health businesses and Diagnostics. We think a chunk of that was catch-up, people that delayed and kind of got rescheduled. So we're not yet sure exactly what the trajectory will be, particularly as you have the additional hot spots and this and that. But I think overall, we feel pretty good about the progress there.

And really, our Breast Health business, the diversification that we have in that business, so much more disposable and recurring service revenue and everything else, that is probably still going to be the slower climb out. But we're seeing some real positive signs in that business as well. But having said that, we're obviously forecasting, as Karleen said, still to be down somewhat in the current quarter and continuing probably to strengthen here over time.

Tycho Peterson -- JPMorgan -- Analyst

Thank you.

Operator

Our next question comes from Dan Leonard with Wells Fargo. Please go ahead.

Dan Leonard -- Wells Fargo -- Analyst

Hey, Dan. So. Hello. A couple of questions on COVID, surprise, surprise. So first off, Steve, you talked about the opportunity to use your COVID tests to capture other test volume longer term. Can you elaborate on the mechanics of that? Is that contractual? And how confident are you that customers aren't acquiring Panthers with the intent to mothball them in 12 months?

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

Yes. I think a couple of things. We're very confident in that many of them are contractually there, both the U.S. and internationally. Internationally, we've really linked it very clearly into hate to say it, but we're providing you COVID tests, and there's a clear linkage, too, as the COVID volume goes away, we will fill the Panthers with our women's health assays. So there's a lot of new customers that are going to be coming on board. The other fundamental reality that we see everywhere, and it's why, as you see, Hologic, we haven't been showing up in the press conferences, but we're clearly showing up in the marketplace.

Everybody loves Panther. And the more that people use Panther, the more they want to use it. And by definition, the lab techs are constantly out screaming. We've got a number of governors call Kevin Thornal and say, "You know what? I was just touring a couple of the labs in our state. All I keep hearing about is how great your Panther is." And so that even experience there, I think we're seeing more and more people just getting experienced on it, and they love it.

Dan Leonard -- Wells Fargo -- Analyst

Okay. And then for my follow-up, you talked about where the Panthers are going, between TIGRIS, competitive wins and some new customers new to automated molecular diagnostics. That latter group, can you elaborate on what these customers look like? I think you hinted at some nascent opportunities. But really, what does the demographic of this new to automated molecular diagnostic customer look like?

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

Yes. There's one that we had referenced, which is a company called LetsGetChecked, and they're doing a lot of direct to patient, where they use our sample. They send it out, people send it back in, and they're running it on our Panther. And while it's certainly they were actually a nascent customer in with our base products. Then as COVID came in, it's a real opportunity. We've known several people just locally, we've even used them. So I think those are examples of ones that we'll be breaking out.

Dan Leonard -- Wells Fargo -- Analyst

Thank you.

Operator

We'll next take our next question from Brian Weinstein with William Blair. Please go ahead.

Brian Weinstein -- William Blair -- Analyst

Hey guys, thanks for taking the question. And Steve, that was, call it, a door slam that you guys just did, so congrats on that.

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

Thank you. Our Panthers were born to run.

Brian Weinstein -- William Blair -- Analyst

Yes. They were another, But not bad on your part, you did a nice job. As we think about that 1.5 million per week here and all the demand that's there, you mentioned U.S., you mentioned OUS, and you gave some details on those OUS supply agreements that you guys have signed, do you need to increase the capacity in order to be able to meet those OUS supply agreements? And how are you sort of allocating that stuff between the U.S. and OUS at this point?

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

Yes. We do we've only committed to what we know we can make. So that $500 million number that we referenced over the next four quarters internationally is included in our production plans. If we can expand beyond that, we know there continues to be more business both domestically and abroad. What's great is this is where, frankly, having our manufacturing facility in Manchester, U.K., also because that's our diagnostics facility for Europe. Again, just not it was not just San Diego, but it's them cranking full out now. And we really got them up and running in late June on the COVID test.

Brian Weinstein -- William Blair -- Analyst

Okay. And then if I could just kind of press on a previous question a little bit here on the idea of the combo test. I wasn't sure if you were committing to being in the market for the influenza season. And if that would be sort of a true combo test that would be COVID/flu? Or if you're going to get a flu test sort of approved on to Panther, then have kind of a way of doing flu and COVID by running two separate tests? Or just how you're thinking about kind of pursuing that? And just to confirm, if you would be on the market, you thought, by the flu season or not?

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

Brian, it's Mike. I'm going to take that one without the Springsteen reference, I think, sorry. So just as a couple of things. One, just as a reminder, we have the ability to do multiple flu plus COVID on our Fusion instrument today, as you know. So that'll be an important part of the armamentarium. And we are developing a second test that will run on the Panther side that will combine flu with COVID. I'm not going to speculate on when that's going to be available. Obviously, that's impossible to predict. But certainly, the goal is to have it available in the for the fall flu season.

Brian Weinstein -- William Blair -- Analyst

Thank you.

Operator

We'll take our next question from Jack Meehan with Nephron Research. Please go ahead.

Jack Meehan -- Nephron Research -- Analyst

Thank you. Good afternoon. I'll continue on the diagnostic theme. I was curious if you could just comment on how you expect customers to use their Panther systems as the routine volumes start to improve but the COVID testing sustains. Sorry, can you hear me?

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

Yes.

Karleen Oberton -- Chief Financial Officer

Yes.

Jack Meehan -- Nephron Research -- Analyst

Sorry. I thought I could hear something in the background. Yes, just how you expect customers to use the Panther systems as the COVID testing sustains but the routine volumes come back. And is there any cannibalization of existing testing that you expect?

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

It's part of the magic, by the way, as you know, with the random-access Panther. It's so easy to be able to run the women's health test, the COVID test simultaneously, not having to batch, not having to do all the other stuff that can slow stuff down. So we really are seeing our key customers using it for both.

And obviously, we are not going to short-change our core business that we've built this company on, which is women's health. So all of the numbers we're providing are continuing to do well within our women's health business, plus adding on that additional COVID volume. But I think we see the customers being able to use both, and it's part of the again, it's part of the big magic in our system, as you well know.

Karleen Oberton -- Chief Financial Officer

And Jack, I would just add that I think we had talked about prior to COVID that, on average, Panther was only 35% utilized. So there was capacity already within that installed base to add additional testing.

Jack Meehan -- Nephron Research -- Analyst

Great. And then, Steve, I was wondering with everything going on with COVID-19, if it changes your philosophy around M&A and the diagnostics space at all. Historically, I don't think you guys have looked at point-of-care as closely given your positioning in the hospital and regional labs. But do you think it makes sense with the focus on early detection to push further that way?

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

Yes, Jack, great question. I would think you'll see us continuing or probably accelerating a little bit of our bolt-on strategy probably with both Surgical as well as Diagnostics, some things that we're looking and teeing up. And we think this is going to put us in a good position to acquire. Having said that, we also think there's there are clearly some lofty valuations that have been created within some of the space of diagnostics right now. So we're also willing to be patient and certainly don't need to do anything, but I think it does give us more flexibility.

And frankly, having Kevin Thornal out here running this business, as many of you know, Kevin worked for several years in business development in his Stryker days. Having him now running this Diagnostics business and doing an amazing job of that, he also brings a deeper business development bolt-on mindset. And I can tell you there's a lot more activity going on in the division with his leadership here.

Operator

We'll take our next question from Anthony Petrone with Jefferies. Please go ahead.

Anthony Petrone -- Jefferies -- Analyst

Thanks and Congratulations on the quarter on lots of progress in Diagnostics. I have just a couple of math questions on some of the numbers you threw out here, Steve and Karleen. And so first, it would be the $500 million you referenced over the next four quarters for Europe, I guess, how much of that is baked in the fiscal 4Q? Should we just expect that evenly loaded until 1/4 of that goes into next Q?

And then how much is baked in there, I guess, for the fourth quarter for back-to-school? And you referenced it earlier, Steve, but it that strikes us as being a big driver next quarter. And then last, just to get it in there, if we do it another way for looking at your production capacity, at a minimum, we're coming up with $400 million for at just 4Q. Is that a good starting point when we think about the next 90 days?

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

Thanks, Anthony. Certainly, starting on the $500 million, which is an international number, that's both Asia Pac as well as Europe, it's primarily Europe. But just let me set the record straight there. I think a good way to think about that is fairly level-loaded over the next four quarters is kind of the way the contracts are laying out. As it relates to back-to-school, we're clearly we've been building and trying to ramp to get more and more production for this September-October period. So I think that we're clearly seeing and expecting continued growth in the September time frame, and that's what's baked into our guidance.

Anthony Petrone -- Jefferies -- Analyst

Thanks. Excellent. Great.

Operator

We'll hear next from Dan Brennan with UBS. Please go ahead.

Dan Brennan -- UBS -- Analyst

Sure. Great, thanks. Thanks for taking the questions here. Congrats on a really good quarter. So Steve, I guess, could you help us think through maybe how you're thinking about where the market for testing goes? I think you mentioned we're somewhere in the low 20s in the U.S. right now. Where do you think that goes by the fall? Any sense in how you're kind of planning your business? And I'd be interested to know if you could provide what your split is as well between U.S. and OUS COVID testing because it's hard to get a sense of what the OUS COVID testing number is.

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

Yes. It will well, obviously, we've effectively given you a number on in terms of if you take that $500 million outside and divide it by four over the next four quarters, hopefully, that gets you in the range of what the international component will be. Obviously, there'll still be more of it going to the U.S. as well. So it's hard to exactly know where this market's going. But I think when we were I remember being part of an AdvaMed call in, geez, it was late April, early May, and they were saying that the country has the capacity to maybe do 400,000 tests a day maximum.

We're now in that I love your report every day, the 750,000 to 800,000, and we've hit a 900,000 a day. I'd be surprised probably if we're not at one million a day in that September time frame. But again, we're obviously, we've gone the way I think about it is we went five million in April, 10 million in May, 15 million in June. July is going to be over 20 million. It probably puts us on that pace to a 30-ish million number of tests in the United States in that September time frame, and I think being very persistent as it goes through the whole cold and flu season.

Dan Brennan -- UBS -- Analyst

Great. And then maybe just one more on vaccines. You kind of gave your some color upfront on some consumer survey stuff and kind of how you think about the persistence of testing even when we have a vaccine in the market, and we'll have to wait and see what the efficacy of these look like. But is the sense that I think you talked about a real persistent strength in 2021. So and you talked about HPV and influenza. But we were thinking, too, that there could certainly be a much higher vaccination rate given the economic calamity that this has caused.

So I think some investors worry that if we get an effective vaccine, that the testing market could dry up rather quickly if there's like a dramatically higher adherence rate toward getting it. So anyway, it's hard to put the cart before the horse. But how should we think about you think that persistence in the 2021, which you talked about, when we begin to get some of this vaccine data out? Like what are some of the signposts to watch, you think, to see how strong and steady testing could be?

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

Yes. I think think about it, particularly for the first half of 2021, while the vaccine is rolling out, there's still going to be a bunch of people getting sick. And in the United States, by the way, you got, what, 350-ish million people. And the big part that I keep coming back to because of all of our discussions as a global enterprise, I think there's been so much focus on COVID in the U.S. We're not going to eradicate we're not going to vaccinate seven billion people in the world. And given how persistent this is just Vietnam, if you heard today, right?

Vietnam had gone, I think, 90 days without any cases. And suddenly, it's repopped up in Vietnam. So I think there is going to be this is going to be circulating around the world. And again, exactly what that mean, none of us have the crystal ball. The CDC doesn't have it. The WHO doesn't have it. God forbid, I certainly and our team don't have it. But I think just trying to use some common sense thinking about the real realities by the way, I mean, if I'm honest with you, who's going to likely get vaccinated first in the United States?

It's probably going to be people who have a little more money, who are in the suburbs. And are we going to be getting the migrant worker population and a lot of the other folks that we really need to get where the persistence is bigger? Not sure we're going to get all of those people right away. So I think there's going to be all kinds of reasons why this thing is still going to be out there. The other reality is even over the next five, six months before a vaccine comes, I think we're going to start to get better at realizing, and it'd be helpful if some of the public officials would say, what we have to do is realize we've got to live with this and learn how to cope and learn how to manage.

And diagnostics are such a great tool to help people better understand where is it breaking out, what should we not do. And I think we're getting smarter and smarter so that we don't go into complete lockdowns again and everything else. So I think there's going to be all kinds of ways. If you're a university president right now, so many folks that need information that we're going to be helpful to provide.

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

Operator, I think we could squeeze in we can squeeze in two more questions. [Operator Instructions]

Dan Brennan -- UBS -- Analyst

Thank you.

Operator

We'll take our next question from Ivy Ma with Bank of America. Please go ahead.

Ivy Ma -- Bank of America -- Analyst

Hi, Congrats on the great quarter. So I'll be quick on the question. So I appreciate the color on the 40 million tests per quarter in terms of COVID capacity. So I'm curious, would you expect that 1/4 to 1/3 market share to persist in the next several quarters? And related to that, I mean, do you expect point-of-care to take share from what's currently been going on? And what percentage are you selling to hospitals or other facilities that might have some POC installed during this time?

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

That was a good job, getting about 14 questions in there, Ivy, so very impressive. Let me try and get as much of those answers as I can. First off, to clarify, the 40 million that we're building for production capacity is our total molecular volumes, of which clearly, well more than half of that will be going pretty much toward our base business. So with the so I just want to make sure we didn't confuse and suggest that was a COVID production volume.

In terms of market share, we're really not that focused on market share right now because I don't think any of us can provide the real battle. While we normally battle our competitors, the battle here is all of us battling this pandemic and battling coronavirus. So I think there's going to be plenty of business for us going here. I think as it relates to point-of-care, the point-of-care certainly has a role.

But at the end of the day, super high volumes, it's hard to test 1,000 people using point-of-care just from a manual the time that it takes, while it's quick to get one test back for one person or you get four people tested, it's hard to do hundreds of people in a point-of-care world. And when you're as a country right now, conducting the level of tests, 700,000, 800,000, 900,000 tests a day, you have got to have high-throughput, high-volume systems to do that. So I think we're in one of those unique situations where point-of-care is probably going to continue to grow, and we're going to continue to grow.

Ivy Ma -- Bank of America -- Analyst

Thank you.

Operator

We'll take our final question from Richard Newitter from SVB Leerink. Please go ahead.

Richard Newitter -- SVB Leerink -- Analyst

Hi, thanks for taking the end here. And congrats on the quarter. If I could just maybe on the non-COVID parts of the business, the specifically in your Surgical business. Can you just elaborate a little bit on the trend as you were exiting June into July? I appreciate you had mentioned some backlog work down or deferred procedures getting back on the schedule. But is there what was the trend in the most recent few weeks? Was it improved from the exit rate coming out of June? And if you can comment a little bit on the actual new visits, de novo kind of visits, if you will? And what you're seeing anecdotally in terms of patients seeking out care from that standpoint?

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

Yes. Rich, we're not going to get into how the last two weeks were relative to other two weeks and this and that. I think it's baked into our guidance. We said we'd our Surgical business being down roughly 20-ish percent this quarter. That's a dramatic improvement from the down 50% plus last quarter. I think we like seeing it come back. And then you we have some really good days, and then you have Texas or Florida goes into a slight little lockdown again or whatever, and you see a little bit of things back.

So we don't have perfect visibility to the trend going forward, but we feel really good about the trajectory. We do to the second part of your question on new visits versus backlog, we're trying to track that. And we've got combinations of both, a little more new we don't have exact numbers. But clearly, MyoSure, with its people have fibroid cases, that's going to be that's a lot of new and existing. And NovaSure, there was a little more catch-up initially. But I think we're starting to see new patients coming back in as well. Thank you.

Operator

[Operator Closing Remarks]

Duration: 65 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

Patrick Donnelly -- Citi -- Analyst

Chris Lin -- Cowen -- Analyst

Tycho Peterson -- JPMorgan -- Analyst

Dan Leonard -- Wells Fargo -- Analyst

Brian Weinstein -- William Blair -- Analyst

Jack Meehan -- Nephron Research -- Analyst

Anthony Petrone -- Jefferies -- Analyst

Dan Brennan -- UBS -- Analyst

Ivy Ma -- Bank of America -- Analyst

Richard Newitter -- SVB Leerink -- Analyst

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