Hologic Announces Financial Results for Second Quarter of Fiscal 2018
Hologic Announces Financial Results for Second Quarter of Fiscal 2018
-- Revenue of $789.3 Million Grows 10.3%, 8.3% in Constant Currency --
-- Company Posts GAAP Diluted EPS of ($2.46) Due to Non-Cash Charges, Non-GAAP Diluted EPS of $0.53 --
MARLBOROUGH, Mass., May 2, 2018 /PRNewswire/ -- Hologic, Inc. (Nasdaq: HOLX) announced today the Company's financial results for the fiscal second quarter ended March 31, 2018.
Revenue of $789.3 million increased 10.3%, or 8.3% in constant currency, compared to the prior year period. Excluding the acquired medical aesthetics and divested blood screening businesses, revenue increased 4.8%, or 2.6% in constant currency.
GAAP diluted earnings per share (EPS) of ($2.46) decreased $4.30 compared to the prior year period, primarily due to non-cash impairment charges for goodwill and in-process research and development of $685.7 million and $46.0 million, respectively, related to Hologic's Cynosure business. In the prior year period, Hologic recorded an $899.7 million gain related to the divestiture of the blood screening business. Non-GAAP diluted EPS of $0.53 increased 6.0% compared to the prior year period.
"We posted solid financial results in the second quarter, as our breast health and international businesses performed well and drove total revenue above our guidance," said Steve MacMillan, Hologic's Chairman, President and Chief Executive Officer. "And while we are disappointed with the Cynosure write-down, we remain confident that the many changes we have made in that business are leading to a much stronger future."
Key financial results for the fiscal second quarter are shown in the table below. Comparisons to the prior year period are affected by the divestiture of Hologic's blood screening business, which closed in late January 2017, and the acquisition of Cynosure, which closed in late March 2017.
GAAP Non-GAAP
---- --------
Q2'18 Q2'17 Change Q2'18 Q2'17 Change
Increase Increase
(Decrease) (Decrease)
--------- ---------
Revenues $789.3 $715.4 10.3% $789.3 $715.4 10.3%
-------- ------ ------ ---- ------ ------ ----
Gross Margin 52.6% 54.3% (170 bps) 62.7% 63.9% (120 bps)
------------ ---- ---- -------- ---- ---- --------
Operating Expenses $1,019.3 ($611.1) N.M. $266.9 $223.0 19.7%
------------------ -------- ------- ---- ------ ------ ----
Operating Margin (76.5%) 139.8% N.M. 28.9% 32.7% (380 bps)
---------------- ------ ----- ---- ---- ---- --------
Net Margin (86.3%) 73.6% N.M. 18.7% 19.9% (120 bps)
---------- ------ ---- ---- ---- ---- --------
Diluted EPS ($2.46) $1.84 N.M. $0.53 $0.50 6.0%
----------- ------ ----- ---- ----- ----- ---
Throughout this press release, all dollar figures are in millions, except EPS. Some totals may not foot due to rounding. Unless otherwise noted, all results are compared to the corresponding prior year period. Non-GAAP results exclude certain cash and non-cash items as discussed under "Use of Non-GAAP Financial Measures." Constant currency percentage changes show current period revenue results as if the foreign exchange rates were the same as those in the prior year period.
Revenue Detail
$s in millions Q2'18 Q2'17 Reported Constant Currency
Change Change
--- ------ ------
Cytology & Perinatal $117.7 $115.6 1.8% (1.4%)
Molecular
Diagnostics $150.7 $142.1 6.1% 4.4%
Blood Screening $11.3 $38.3 (70.6%) (70.6%)
Total Diagnostics $279.7 $296.0 (5.5%) (7.6%)
----------------- ------ ------ ----- -----
Total Diagnostics
ex. Blood $268.4 $257.7 4.2% 1.8%
----------------- ------ ------ --- ---
Breast Imaging $247.2 $234.0 5.7% 3.7%
Interventional
Breast Solutions $49.7 $44.3 12.2% 10.3%
Other $3.2 $2.2 43.8% 24.6%
----- ---- ---- ---- ----
Total Breast Health $300.1 $280.5 7.0% 4.9%
------------------- ------ ------ --- ---
Body $20.0 $3.6 N.M. N.M.
Skin $40.2 $6.9 N.M. N.M.
Women's Health/
Other $25.3 $5.5 N.M. N.M.
--------------- ----- ---- ---- ----
Total Medical
Aesthetics $85.5 $16.0 N.M. N.M.
------------- ----- ----- ---- ----
GYN Surgical $99.4 $101.1 (1.7%) (3.2%)
------------ ----- ------ ----- -----
Skeletal Health $24.6 $21.8 12.6% 9.9%
--------------- ----- ----- ---- ---
Total $789.3 $715.4 10.3% 8.3%
----- ------ ------ ---- ---
Quarterly revenue highlights:
-- U.S. revenue of $588.5 million increased 3.3%. Excluding the acquired
medical aesthetics and divested blood screening businesses, U.S. revenue
decreased slightly.
-- International revenue of $200.8 million increased 37.8%, or 28.0% in
constant currency. Excluding the acquired medical aesthetics and
divested blood screening businesses, international revenue increased
26.4%, or 15.1% in constant currency.
-- Breast Health revenue totaled $300.1 million, an increase of 7.0%, or
4.9% in constant currency, driven by strong international sales, new
products, and service revenue.
-- In Diagnostics:
-- Molecular diagnostics sales of $150.7 million increased 6.1%, or
4.4% in constant currency, driven primarily by continued strength
across our Aptima® women's health products, and new product
revenue.
-- Cytology and perinatal sales of $117.7 million increased 1.8%, but
decreased (1.4%) in constant currency.
-- Blood screening sales of $11.3 million decreased (70.6%). This
business was divested in the second quarter of fiscal 2017, but we
continue to provide products and services under collaboration and
manufacturing supply agreements.
-- GYN Surgical revenue of $99.4 million decreased (1.7%), or (3.2%) in
constant currency. MyoSure® revenue of $52.7 million increased 13.5%,
or 12.3% in constant currency, while NovaSure® revenue of $46.7 million
decreased (14.5%), or (16.3%) in constant currency.
-- Medical Aesthetics revenue was $85.5 million, an increase of 11.5%
compared to pro-forma, prior year sales of $76.7 million, when Cynosure
was an independent company for a majority of the quarter.
-- Skeletal Health revenue of $24.6 million increased 12.6%, or 9.9% in
constant currency.
Segment revenue highlights by geography are shown below:
U.S. Change International International Change
Change
(Constant Currency)
(Reported)
---------
Increase (Decrease)
------------------
Diagnostics (8.5%) 5.7% (4.1%)
----------- ----- --- -----
Diagnostics ex. Blood (0.1%) 19.9% 8.8%
--------------------- ----- ---- ---
Breast Health 0.1% 40.1% 27.6%
------------- --- ---- ----
Medical Aesthetics N.M. N.M. N.M.
------------------ ---- ---- ----
GYN Surgical (5.1%) 18.8% 8.1%
------------ ----- ---- ---
Skeletal Health 18.5% 3.6% (3.2%)
--------------- ---- --- -----
Total Revenues 3.3% 37.8% 28.0%
-------------- --- ---- ----
Total Revenues ex. Blood and Medical Aesthetics (0.3%) 26.4% 15.1%
----------------------------------------------- ----- ---- ----
Expense Detail
Gross margin was 52.6% on a GAAP basis, and 62.7% on a non-GAAP basis. GAAP gross margin declined by 170 basis points, while non-GAAP gross margin declined by 120 basis points, primarily due to geographic and product sales mix.
Operating expenses were $1,019.3 million on a GAAP basis, and $266.9 million on a non-GAAP basis. GAAP operating expenses increased $1,630.4 million primarily due to the Cynosure impairment charges, compared to a prior year period that included a gain of $899.7 million from the sale of our blood screening business, which was recorded as an offset to operating expenses. Non-GAAP operating expenses increased 19.7%, primarily due to the inclusion of Cynosure expenses.
Other Key Financial Results
Net loss for the second quarter was ($681.4) million on a GAAP basis, compared to net income of $526.8 million in the prior year period, due primarily to the Cynosure impairment charges and the gain in the prior year period on the sale of our blood screening business. Adjusted non-GAAP earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter was $248.2 million, a decrease of (3.0%).
During the second quarter, Hologic repurchased 2.8 million shares of its common stock for $106.5 million.
Total debt outstanding at the end of the quarter was $3.4 billion. The company ended the quarter with cash and equivalents of $0.6 billion, and a net leverage ratio (net debt over adjusted EBITDA) of 2.7 times.
On a trailing 12 months basis, adjusted Return on Invested Capital (ROIC) of 12.6% declined 60 basis points compared to the prior year period.
Financial Guidance for Fiscal 2018
"We are lowering our full-year 2018 revenue guidance due primarily to a reset of our near-term sales expectations for Cynosure," said Bob McMahon, the Company's Chief Financial Officer. "But despite the reduction of our revenue forecast, we are reiterating our non-GAAP EPS guidance for the year."
Hologic's financial guidance for fiscal 2018 is shown in the two tables immediately below. The guidance is based on a full year non-GAAP tax rate of approximately 23%, and diluted shares outstanding of approximately 280 million for the full year. As a reminder, percentage changes versus the prior year are affected by the blood screening divestiture and the Cynosure acquisition, both of which closed in the second quarter of fiscal 2017. Constant currency guidance assumes that foreign exchange rates are the same in fiscal 2018 as in fiscal 2017. Current guidance assumes that recent foreign exchange rates persist for all of fiscal 2018.
GAAP
----
Revenue EPS
------- ---
Reported % Guidance $ Reported %
Increase (Decrease) Increase (Decrease)
Guidance $
----------
Current Guidance for 4.0% to 4.9% $3,180 to $3,210 N.M. ($0.34) to ($0.29)
Fiscal 2018 million
----------- -------
Previous Guidance for 4.6% to 7.2% $3,200 to $3,280 (10.6%) to (8.7%) $2.36 to $2.41
Fiscal 2018 million
----------- -------
Non-GAAP
--------
Revenue EPS
------- ---
Constant Reported % Guidance $ Reported %
Currency % Increase Increase
Increase (Decrease) (Decrease) Guidance $
(Decrease)
---
Current Guidance 2.7% to 3.7% 4.0% to 4.9% $3,180 to $3,210 9.4% to 11.8% $2.22 to $2.27
for Fiscal 2018 million
--------------- --- ---
Previous Guidance 3.9% to 6.5% 4.6% to 7.2% $3,200 to $3,280 9.4% to 11.8% $2.22 to $2.27
for Fiscal 2018 million
--------------- --- ---
Hologic's financial guidance for the third quarter of fiscal 2018 is shown in the two tables immediately below.
GAAP
----
Revenue EPS
------- ---
Reported % Guidance $ Reported %
Increase Increase Guidance $
(Decrease) (Decrease)
--------- ---------
Guidance for the Third (1.4%) to 0.5% $795 to $810 38.1% to 47.6% $0.29 to $0.31
Quarter of Fiscal 2018 million
---------------------- -------
Non-GAAP
--------
Revenue EPS
------- ---
Constant Reported % Guidance $ Reported %
Currency % Increase Increase
Increase (Decrease) (Decrease) Guidance $
(Decrease)
---------
Guidance for the Third (2.8%) to (1.0%) (1.4%) to 0.5% $795 to $810 million 10.0% to 14.0% $0.55 to $0.57
Quarter of Fiscal 2018
---------------------- ---
To assist with "apples to apples" analyses of Hologic's ongoing, base business, the historical contributions of blood screening to Hologic's quarterly revenues and EPS are shown below:
GAAP
----
2017 2018
---- ----
Q1 Q2 Q3 Q4 Total Q1 Q2
--- --- --- --- ----- --- ---
Revenue $65.2 $38.3 $19.0 $18.0 $140.5 $12.6 $11.3
------- ----- ----- ----- ----- ------ ----- -----
EPS $0.06 $1.62 $0.01 $0.01 $1.70 $0.01 $0.01
--- ----- ----- ----- ----- ----- ----- -----
Non-GAAP
--------
2017 2018
---- ----
Q1 Q2 Q3 Q4 Total Q1 Q2
--- --- --- --- ----- --- ---
Revenue $65.2 $38.3 $19.0 $18.0 $140.5 $12.6 $11.3
------- ----- ----- ----- ----- ------ ----- -----
EPS $0.10 $0.04 $0.01 $0.01 $0.16 $0.01 $0.01
--- ----- ----- ----- ----- ----- ----- -----
Use of Non-GAAP Financial Measures
The Company has presented the following non-GAAP financial measures in this press release: constant currency revenues; non-GAAP gross profit; non-GAAP gross margin; non-GAAP operating expenses; non-GAAP income from operations; non-GAAP operating margin; non-GAAP interest expense; non-GAAP pre-tax income; non-GAAP tax rate; non-GAAP net margin; non-GAAP net income; non-GAAP diluted EPS; adjusted EBITDA; and adjusted ROIC. Constant currency presentations show reported period revenue results as if the foreign exchange rates were the same as those in effect in the comparable prior year period. The Company defines its non-GAAP net income, EPS, and other non-GAAP financial measures to exclude, as applicable: (i) the amortization of intangible assets; (ii) impairment of goodwill and intangible assets; (iiI) additional depreciation expense from acquired fixed assets and accelerated depreciation related to business consolidation and closure of facilities; (iv) additional expense resulting from the purchase accounting adjustment to record inventory at fair value; (v) non-cash interest expense related to amortization of the debt discount from the equity conversion option of convertible notes; (vi) restructuring and divestiture charges, facility closure and consolidation charges and costs incurred to integrate acquisitions (including retention, transaction bonuses, legal and professional consulting services) and separate divested businesses from existing operations; (vii) transaction related expenses for divestitures and acquisitions; (viii) gain on disposal of business; (ix) debt extinguishment losses and related transaction costs; (x) the unrealized (gains) losses on the mark-to-market of forward foreign currency contracts for which the Company has not elected hedge accounting; (xi) litigation settlement charges (benefits) and non-income tax related charges (benefits); (xii) other-than-temporary impairment losses on investments and realized (gains) losses resulting from the sale of investments; (xiii) the one-time discrete impact of tax reform primarily related to remeasuring net deferred tax liabilities and providing taxes for the deemed repatriation of foreign earnings (xiv) other one-time, non-recurring, unusual or infrequent charges, expenses or gains that may not be indicative of the Company's core business results as detailed in our reconciliations of such adjustments; and (xv) income taxes related to such adjustments. The Company defines adjusted EBITDA as its non-GAAP net income plus net interest expense, income taxes, and depreciation and amortization expense included in its non-GAAP net income.
These non-GAAP financial measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP. The Company's definition of these non-GAAP measures may differ from similarly titled measures used by others.
The non-GAAP financial measures used in this press release adjust for specified items that can be highly variable or difficult to predict. The Company generally uses these non-GAAP financial measures to facilitate management's financial and operational decision-making, including evaluation of Hologic's historical operating results, comparison to competitors' operating results and determination of management incentive compensation. These non-GAAP financial measures reflect an additional way of viewing aspects of the company's operations that, when viewed with GAAP results and the reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of factors and trends affecting Hologic's business.
Because non-GAAP financial measures exclude the effect of items that increase or decrease the company's reported results of operations, management strongly encourages investors to review the company's consolidated financial statements and publicly filed reports in their entirety. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the tables accompanying this release.
Future Non-GAAP Adjustments
Future GAAP EPS may be affected by changes in ongoing assumptions and judgments, and may also be affected by non-recurring, unusual or unanticipated charges, expenses or gains, which are excluded in the calculation of the Company's non-GAAP EPS guidance as described in this press release.
Conference Call and Webcast
Hologic's management will host a conference call at 4:30 p.m. ET today to discuss its financial results for the second quarter of fiscal 2018. Approximately 10 minutes before the call, dial 800-239-9838 (in the U.S.) or +1 323-794-2551 (international) and enter access code 9419425. A replay will be available approximately two hours after the call ends through Friday, May 25, 2018. The replay numbers are 888-203-1112 (U.S.) or +1 719-457-0820 (international), access code 9419425, Pin 7605. The Company will also provide a live webcast of the call at http://investors.hologic.com.
About Hologic, Inc.
Hologic, Inc. is an innovative medical technology company primarily focused on improving women's health and well-being through early detection and treatment. For more information on Hologic, visit www.hologic.com.
Hologic, Aptima, MyoSure, NovaSure, Cynosure, The Science of Sure, and associated logos are trademarks and/or registered trademarks of Hologic, Inc. and/or its subsidiaries in the United States and/or other countries.
Forward-Looking Statements
This news release contains forward-looking information that involves risks and uncertainties, including statements about the Company's plans, objectives, expectations and intentions. Such statements include, without limitation: financial or other information included herein based upon or otherwise incorporating judgments or estimates relating to future performance, events or expectations; the Company's strategies, positioning, resources, capabilities, and expectations for future performance; and the Company's outlook and financial and other guidance. These forward-looking statements are based upon assumptions made by the Company as of the date hereof and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those anticipated.
Risks and uncertainties that could adversely affect the Company's business and prospects, and otherwise cause actual results to differ materially from those anticipated, include without limitation: the ability of the Company to successfully manage leadership and organizational changes, including the ability of the Company to attract, motivate and retain key employees; U.S., European and general worldwide economic conditions and related uncertainties; the Company's reliance on third-party reimbursement policies to support the sales and market acceptance of its products, including the possible adverse impact of government regulation and changes in the availability and amount of reimbursement and uncertainties for new products or product enhancements; uncertainties regarding recently passed U.S. tax reform legislation; uncertainties regarding healthcare reform legislation, including associated tax provisions, or budget reduction or other cost containment efforts; changes in guidelines, recommendations and studies published by various organizations that could affect the use of the Company's products; uncertainties inherent in the development of new products and the enhancement of existing products, including FDA approval and/or clearance and other regulatory risks, technical risks, cost overruns and delays; the risk that products may contain undetected errors or defects or otherwise not perform as anticipated; risks associated with strategic alliances and the ability of the Company to realize anticipated benefits of those alliances; risks associated with acquisitions, including, without limitation, the Company's ability to successfully integrate acquired businesses, the risks that the acquired businesses may not operate as effectively and efficiently as expected even if otherwise successfully integrated, and the risks that acquisitions may involve unexpected costs or unexpected liabilities; the risks of conducting business internationally; the risk of adverse exchange rate fluctuations on the Company's international activities and businesses; manufacturing risks, including the Company's reliance on a single or limited source of supply for key components, the need to comply with especially high standards for the manufacture of many of its products and risks associated with utilizing third party manufacturers; the Company's ability to predict accurately the demand for its products, and products under development, and to develop strategies to address its markets successfully; the early stage of market development for certain of the Company's products; the Company's leverage risks, including the Company's obligation to meet payment obligations and financial covenants associated with its debt; risks related to the use and protection of intellectual property; expenses, uncertainties and potential liabilities relating to litigation, including, without limitation, commercial, intellectual property, employment and product liability litigation; technical innovations that could render products marketed or under development by the Company obsolete; and competition.
The risks included above are not exhaustive. Other factors that could adversely affect the Company's business and prospects are described in the filings made by the Company with the SEC. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements presented herein to reflect any change in expectations or any change in events, conditions or circumstances on which any such statements are based.
Contact
Michael Watts
Vice President, Investor Relations and Corporate Communications
(858) 410-8588
HOLOGIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except number of shares, which are reflected in thousands, and per share data)
Three Months Ended Six Months Ended
March 31, 2018 April 1, 2017 March 31, 2018 April 1, 2017
-------------- ------------- -------------- -------------
Revenues:
Product $645.0 $594.8 $1,295.7 $1,208.1
Service and other 144.3 120.6 284.7 241.7
----- ----- ----- -----
Total revenues 789.3 715.4 1,580.4 1,449.8
----- ----- ------- -------
Cost of revenues:
Product 217.1 200.6 430.8 398.8
Amortization of acquired intangible assets 79.8 65.2 159.6 138.7
Service and other 77.3 60.9 150.4 118.8
---- ---- ----- -----
Gross profit 415.1 388.7 839.6 793.5
----- ----- ----- -----
Operating expenses:
Research and development 56.8 55.4 111.6 109.8
Selling and marketing 130.5 103.4 270.0 213.3
General and administrative 83.8 117.4 161.7 187.3
Amortization of acquired intangible asset 14.7 10.8 29.1 32.2
Impairment of intangible assets 46.0 - 46.0 -
Impairment of goodwill 685.7 - 685.7 -
Gain on sale of business - (899.7) - (899.7)
Restructuring charges 1.8 1.6 5.6 4.8
Total operating expenses 1,019.3 (611.1) 1,309.7 (352.3)
------- ------ ------- ------
(Loss) income from operations (604.2) 999.8 (470.1) 1,145.8
Interest income 2.1 1.9 2.9 2.2
Interest expense (38.9) (37.5) (79.9) (77.9)
Debt extinguishment losses (44.9) - (45.9) -
Other (expense) income, net (5.1) 3.4 (2.2) 13.6
---- --- ---- ----
(Loss) income before income taxes (691.0) 967.6 (595.2) 1,083.7
(Benefit) provision for income taxes (9.6) 440.8 (320.5) 470.4
---- ----- ------ -----
Net (loss) income $(681.4) $526.8 $(274.7) $613.3
======= ====== ======= ======
Net (loss) income per common share:
Basic $(2.46) $1.88 $(0.99) $2.19
====== ===== ====== =====
Diluted $(2.46) $1.84 $(0.99) $2.15
====== ===== ====== =====
Weighted average number of shares outstanding:
Basic 277,114 280,215 276,985 279,439
======= ======= ======= =======
Diluted 277,114 286,010 276,985 285,117
======= ======= ======= =======
HOLOGIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
March 31, 2018 September 30, 2017
-------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $614.2 $540.6
Accounts receivable, net 544.2 533.5
Inventories 361.9 331.6
Other current assets 114.9 72.9
Total current assets 1,635.2 1,478.6
------- -------
Property, plant and equipment, net 468.6 472.8
Goodwill and intangible assets, net 5,042.2 5,943.5
Other assets 88.4 84.7
Total assets $7,234.4 $7,979.6
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $611.5 $1,150.8
Accounts payable and accrued liabilities 515.6 543.5
Deferred revenue 172.5 171.2
Total current liabilities 1,299.6 1,865.5
------- -------
Long-term debt, net of current portion 2,739.2 2,172.1
Deferred income taxes 543.5 973.6
Other long-term liabilities 206.5 183.7
Total stockholders' equity 2,445.6 2,784.7
Total liabilities and stockholders' equity $7,234.4 $7,979.6
======== ========
HOLOGIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
Six Months Ended
March 31, 2018 April 1, 2017
-------------- -------------
OPERATING ACTIVITIES
Net (loss) income $(274.7) $613.3
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation 52.0 39.5
Amortization of acquired intangibles 188.7 170.9
Non-cash interest expense 11.2 26.9
Stock-based compensation expense 35.9 39.0
Deferred income taxes (433.6) (262.6)
Goodwill impairment charge 685.7 -
Intangible asset impairment charge 46.0 -
Debt extinguishment loss 45.9 -
Gain on disposal of business - (899.7)
Fair value write-up of acquired inventory sold - 2.4
Other adjustments and non-cash items 7.3 (5.9)
Changes in operating assets and liabilities, excluding the effect of acquisitions:
Accounts receivable 2.5 28.0
Inventories (27.5) (29.0)
Prepaid income taxes (29.8) 0.4
Prepaid expenses and other assets (9.1) (4.0)
Accounts payable (9.5) 0.5
Accrued expenses and other liabilities (22.5) 551.9
Deferred revenue (2.0) (18.2)
Net cash provided by operating activities 266.5 253.4
----- -----
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (4.4) (1,471.4)
Net proceeds from sale of business - 1,865.0
Capital expenditures (24.6) (24.5)
Increase in equipment under customer usage agreements (24.2) (25.3)
Proceeds from sale of available-for-sale marketable securities 0.1 81.8
Purchase of cost-method investment (6.0) -
Other activity (2.2) (1.8)
Net cash (used in) provided by investing activities (61.3) 423.8
----- -----
FINANCING ACTIVITIES
Repayment of long-term debt (1,340.6) (37.5)
Proceeds from long-term debt 1,500.0 -
Proceeds from senior notes 1,350.0 -
Repayment of senior notes (1,037.7)
Repayment of amounts borrowed under accounts receivable securitization program - (44.0)
Proceeds from accounts receivable securitization agreement - 8.0
Payments to extinguish convertible notes (302.8) (21.0)
Proceeds from amounts borrowed under revolving credit line 710.0 -
Repayments of amounts borrowed under revolving credit line (900.0) -
Payment of debt issuance costs (23.5) -
Repurchase of common stock (90.7) -
Proceeds from issuance of common stock pursuant to employee stock plans 16.3 26.6
Payments under capital lease obligations (0.8) -
Payment of minimum tax withholdings on net share settlements of equity awards (15.6) (17.6)
Net cash used in financing activities (135.4) (85.5)
Effect of exchange rate changes on cash and cash equivalents 3.8 (5.5)
Net increase in cash and cash equivalents 73.6 586.2
Cash and cash equivalents, beginning of period 540.6 548.4
Cash and cash equivalents, end of period $614.2 $1,134.6
====== ========
HOLOGIC, INC.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
(Unaudited)
(In millions, except earnings per share and margin percentages)
Three Months Ended Six Months Ended
March 31, 2018 April 1, 2017 March 31, 2018 April 1, 2017
-------------- ------------- -------------- -------------
Gross Profit:
GAAP gross profit $415.1 $388.7 $839.6 $793.5
Adjustments:
Amortization of acquired intangible assets (1) 79.8 65.2 159.6 138.7
Incremental depreciation expense (2) 0.1 0.2 0.3 0.5
Integration/consolidation costs (3) - 0.6 - 0.7
Fair value write-up of acquired inventory (15) - 2.4 - 2.4
--- --- --- ---
Non-GAAP gross profit $495.0 $457.1 $999.5 $935.8
====== ====== ====== ======
Gross Margin Percentage:
GAAP gross margin percentage 52.6% 54.3% 53.1% 54.7%
Impact of adjustments above 10.1% 9.6% 10.1% 9.8%
---- --- ---- ---
Non-GAAP gross margin percentage 62.7% 63.9% 63.2% 64.5%
==== ==== ==== ====
Operating Expenses:
GAAP operating expenses $1,019.3 $(611.1) $1,309.7 $(352.3)
Adjustments:
Amortization of acquired intangible assets (1) (14.7) (10.8) (29.1) (32.2)
Incremental depreciation expense (2) (1.6) (0.4) (5.1) (0.9)
Transaction expenses (4) (0.3) (19.4) (0.7) (22.0)
Non-income tax (charge) benefit (9) - (28.8) 4.0 (28.8)
Integration/consolidation costs (3) (0.6) (4.6) (1.1) (4.6)
Restructuring charges (3) (1.8) (1.6) (5.6) (4.8)
Research and development asset charge (16) (1.7) - (1.7) -
Impairment of intangible asset (17) (46.0) - (46.0) -
Impairment of goodwill (18) (685.7) - (685.7) -
Gain on sale of business (14) - 899.7 - 899.7
Non-GAAP operating expenses $266.9 $223.0 $538.7 $454.1
====== ====== ====== ======
Operating Margin:
GAAP (loss) income from operations $(604.2) $999.8 (470.1) 1,145.8
Adjustments to gross profit as detailed above 79.9 68.4 159.9 142.4
Adjustments to operating expenses as detailed above 752.4 (834.1) 771.0 (806.4)
----- ------ ----- ------
Non-GAAP income from operations $228.1 $234.1 $460.8 $481.8
====== ====== ====== ======
Operating Margin Percentage:
GAAP (loss) income from operations margin percentage (76.5)% 139.8% (29.7)% 79.0%
Impact of adjustments above 105.4% (107.1)% 58.9% (45.8)%
----- ------- ---- ------
Non-GAAP operating margin percentage 28.9% 32.7% 29.2% 33.2%
==== ==== ==== ====
Interest Expense:
GAAP interest expense $38.9 $37.5 79.9 77.9
Adjustments:
Non-cash interest expense relating to convertible notes (5) (0.6) (4.9) (3.5) (10.1)
Debt transaction costs (10) (2.6) - (4.3) -
Non-GAAP interest expense $35.7 $32.6 $72.1 $67.8
===== ===== ===== =====
Pre-Tax (Loss) Income:
GAAP pre-tax (loss) earnings $(691.0) $967.6 (595.2) 1,083.7
Adjustments to pre-tax (loss) earnings as detailed above 835.5 (760.8) 938.7 (653.9)
Debt extinguishment losses (6) 44.9 - 45.9 -
Loss (gain) on sale of available-for-sale marketable securities (7) - (3.8) 0.6 (3.7)
Unrealized losses (gains) on forward foreign currency contracts (8) 1.7 3.9 0.2 (4.5)
--- --- --- ----
Non-GAAP pre-tax income $191.1 $206.9 390.2 421.6
====== ====== ===== =====
Net (loss) income:
GAAP net (loss) income $(681.4) $526.8 $(274.7) $613.3
Adjustments:
Amortization of acquired intangible assets (1) 94.5 76.0 188.7 170.9
Fair value write-up of acquired inventory sold (15) - 2.4 - 2.4
Non-cash interest expense relating to convertible notes (5) 0.6 4.9 3.5 10.1
Restructuring and transaction-related expenses (3) (4) 2.7 26.2 7.4 32.1
Non-income tax expense (benefit) (9) - 28.8 (4.0) 28.8
Incremental depreciation expense (2) 1.7 0.6 5.4 1.4
Impairment of intangible asset (17) 46.0 - 46.0 -
Impairment of goodwill (18) 685.7 - 685.7 -
Research and development asset charge (16) 1.7 - 1.7 -
Debt extinguishment loss and expenses (6) (10) 47.5 - 50.2 -
Loss (gain) on sale of available-for-sale marketable securities (7) - (3.8) 0.6 (3.7)
Unrealized losses (gains) on forward foreign currency contracts (8) 1.7 3.9 0.2 (4.5)
Gain on sale of business (14) - (899.7) - (899.7)
Discrete impact of tax reform (11) 2.1 - (327.1) -
Income tax effect of reconciling items (12) (55.5) 376.6 (83.0) 339.7
----- ----- ----- -----
Non-GAAP net income $147.3 $142.7 $300.6 $290.8
====== ====== ====== ======
Net (Loss) Income Percentage:
GAAP net (loss) income percentage (86.3)% 73.6% (17.4)% 42.3%
Impact of adjustments above 105.0% (53.7)% 36.4% (22.2)%
----- ------ ---- ------
Non-GAAP net income percentage 18.7% 19.9% 19.0% 20.1%
==== ==== ==== ====
Earnings (loss) per share:
GAAP (loss) earnings per share - Diluted $(2.46) $1.84 $(0.99) $2.15
Adjustment to net earnings (as detailed above) 2.99 (1.34) 2.06 (1.13)
---- ----- ---- -----
Non-GAAP earnings per share - diluted (13) $0.53 $0.50 $1.07 $1.02
===== ===== ===== =====
Adjusted EBITDA:
Non-GAAP net income $147.3 $142.7 $300.6 $290.8
Interest expense, net, not adjusted above 33.6 30.7 69.2 65.6
Provision for income taxes 44.0 64.1 89.8 130.6
Depreciation expense, not adjusted above 23.3 18.4 46.6 38.0
---- ---- ---- ----
Adjusted EBITDA $248.2 $255.9 $506.2 $525.0
====== ====== ====== ======
Explanatory Notes to Reconciliations:
(1) To reflect non-cash expenses
attributable to the amortization of
acquired intangible assets.
(2) To reflect non-cash fair value
adjustments for additional
depreciation expense related to the
fair value write-up of fixed assets
acquired in the Gen-Probe
acquisition and accelerated
depreciation expense related to
facility closure and business
consolidation.
(3) To reflect restructuring charges, and
certain costs associated with the
Company's integration and facility
consolidation plans, which primarily
include retention and transfer
costs, as well as costs incurred to
integrate acquisitions and dispose
businesses, including consulting,
legal and accounting fees.
(4) To reflect expenses incurred with
third parties related to
acquisitions and divestitures prior
to when such transactions are
completed. These expenses primarily
comprise broker fees, legal fees,
and consulting and due diligence
fees.
(5) To reflect non-cash interest expense
related to the amortization of the
debt discount from the equity
conversion option of the Company's
convertible notes.
(6) To reflect debt extinguishment losses
primarily from refinancing the
Company's Credit Agreement and
Senior Notes.
(7) To reflect a realized gains and
losses on the sale of available-
for-sale marketable securities.
(8) To reflect non-cash unrealized gains
and losses on the mark-to market on
outstanding forward foreign currency
contracts, which do not qualify for
hedge accounting.
(9) To reflect a non-income tax benefit
in the first quarter of fiscal 2018
of $4.0 million as the Company
settled a non-income tax issue
under audit and to reflect non-
income tax charges of $28.8 million
recorded in the second quarter of
fiscal 2017 as the Company
determined during the second quarter
that a loss became probable
associated with a non-income tax
issue under audit.
(10) To reflect the amount of debt
issuance costs recorded directly to
interest expense as a result of
refinancing the Company's Credit
Agreement and Senior Notes in the
first and second quarters of fiscal
2018, respectively.
(11) To reflect the discrete impact of tax
reform to the Company's income tax
provision primarily recorded in the
first quarter of fiscal 2018
comprised of a tax benefit of $353.1
million to remeasure the Company's
net deferred tax liabilities at the
lower federal tax rate, partially
offset by the net tax charge of
$26.0 million for the transition tax
(i.e. repatriation of cash held
offshore).
(12) To reflect an estimated annual
effective tax rate of 23.0% and
31.0% for fiscal 2018 and 2017,
respectively.
(13) Non-GAAP earnings per share was
calculated based on 280,047 and
280,424 weighted average diluted
shares outstanding for the three and
six months ended March 31, 2018,
respectively, and 286,010 and
285,117 for the three and six months
ended April 1, 2017, respectively.
(14) To reflect the gain realized on the
sale of the Blood Screening business
to Grifols in the second quarter of
fiscal 2017.
(15) To reflect the fair value step up of
inventory sold during the period
related to the Cynosure acquisition.
(16) To reflect the purchase of intangible
assets to be used in a research and
development project that have no
future alternative use.
(17) To reflect the impairment of an IPR&D
asset acquired in the Cynosure
acquisition that was abandoned
during the second quarter of fiscal
2018 due to unsuccessful clinical
results.
(18) To reflect a goodwill impairment
charge in the Medical Aesthetics
reportable segment, which is
comprised solely of the Cynosure
business. The Company identified
impairment indicators in the second
quarter of fiscal 2018 and performed
an interim goodwill impairment test,
which resulted in the fair value of
the reporting unit being
significantly less than its carrying
value. Accordingly, the Company
recorded a goodwill impairment
charge in the second quarter of
fiscal 2018.
Reconciliation of GAAP to non-GAAP EPS Guidance:
Guidance Range Guidance Range
-------------- --------------
Quarter Ending Year Ending
June 30, 2018 September 29,
2018
------------- --------------
Low High Low High
--- ---- --- ----
GAAP Net Income (Loss)
Per Share $0.29 $0.31 ($0.34) ($0.29)
---------------------- ----- ----- ------ ------
Amortization of
intangible assets $0.34 $0.34 $1.35 $1.35
------------------ ----- ----- ----- -----
Amortization of debt
discount - - $0.01 $0.01
-------------------- --- --- ----- -----
Debt extinguishment
losses and
transaction costs - - $0.18 $0.18
------------------- --- --- ----- -----
Accelerated
depreciation and
other charges $0.01 $0.01 $0.06 $0.06
----------------- ----- ----- ----- -----
Impairment of
intangible asset - - $0.16 $0.16
----------------- --- --- ----- -----
Impairment of goodwill - - $2.46 $2.46
---------------------- --- --- ----- -----
Discrete impact of tax
reform - - ($1.17) ($1.17)
---------------------- --- --- ------ ------
Tax impact of
exclusions $(0.09) $(0.09) ($0.49) ($0.49)
------------- ------ ------ ------ ------
Non-GAAP Net Income
Per Share $0.55 $0.57 $2.22 $2.27
------------------- ----- ----- ----- -----
Reconciliations of Reported to Constant Currency Revenue:
$s in millions Q2'18 Q2'17 Reported Change Foreign Currency
Effect Constant
$ % Currency
Change
--- ------
Cytology & Perinatal $117.7 $115.6 1.8% $(3.7) (3.2%) (1.4%)
Molecular Diagnostics $150.7 $142.1 6.1% $(2.3) (1.7%) 4.4%
Blood Screening $11.3 $38.3 (70.6%) - - (70.6%)
Total Diagnostics $279.7 $296.0 (5.5%) $(6.1) (2.1%) (7.6%)
----------------- ------ ------ ----- ----- ----- -----
Total Diagnostics ex. Blood $268.4 $257.7 4.2% $(6.1) (2.4%) 1.8%
--------------------------- ------ ------ --- ----- ----- ---
Breast Imaging $247.2 $234.0 5.7% $(4.8) (2.0%) 3.7%
Interventional Breast Solutions $49.7 $44.3 12.2% $(0.8) (1.9%) 10.3%
Other $3.2 $2.2 43.8% $(0.4) (19.1%) 24.6%
----- ---- ---- ---- ----- ------ ----
Total Breast Health $300.1 $280.5 7.0% $(6.1) (2.1%) 4.9%
------------------- ------ ------ --- ----- ----- ---
Body $20.0 $3.6 N.M. - - N.M.
Skin $40.2 $6.9 N.M. - - N.M.
Women's Health/Other $25.3 $5.5 N.M. - - N.M.
------------------------- ----- ---- ---- --- --- ----
Total Medical Aesthetics $85.5 $16.0 N.M. - - N.M.
------------------------ ----- ----- ---- --- --- ----
GYN Surgical $99.4 $101.1 (1.7%) $(1.5) (1.5%) (3.2%)
------------ ----- ------ ----- ----- ----- -----
Skeletal Health $24.6 $21.8 12.6% $(0.6) (2.7%) 9.9%
--------------- ----- ----- ---- ----- ----- ---
Total $789.3 $715.4 10.3% $(14.3) (2.0%) 8.3%
----- ------ ------ ---- ------ ----- ---
U.S. Change International Foreign Currency
Effect International Change
Change
$ % (Constant Currency)
(Reported)
---------
Increase (Decrease)
------------------
Diagnostics (8.5%) 5.7% $(6.1) (9.8%) (4.1%)
----------- ----- --- ----- ----- -----
Diagnostics ex. Blood (0.1%) 19.9% $(6.1) (11.1%) 8.8%
--------------------- ----- ---- ----- ------ ---
Breast Health 0.1% 40.1% $(6.0) (12.5%) 27.6%
------------- --- ---- ----- ------ ----
Medical Aesthetics N.M. N.M. - - N.M.
------------------ ---- ---- --- --- ----
GYN Surgical (5.1%) 18.8% $(1.5) (10.7%) 8.1%
------------ ----- ---- ----- ------ ---
Skeletal Health 18.5% 3.6% $(0.6) (6.8%) (3.2%)
--------------- ---- --- ----- ----- -----
Total Revenues 3.3% 37.8% $(14.3) (9.8%) 28.0%
-------------- --- ---- ------ ----- ----
Total Revenues ex. Blood and Medical Aesthetics (0.3%) 26.4% $(14.3) (11.3%) 15.1%
----------------------------------------------- ----- ---- ------ ------ ----
Trailing Twelve Months
ended
March 31, 2018
--------------
Return on Invested Capital:
Adjusted Net Operating Profit After Tax
Non-GAAP net income $588.7
Non-GAAP provision for income taxes 213.2
Non-GAAP interest expense 139.6
Non-GAAP other income (7.6)
----
Adjusted net operating profit before tax $933.9
Non-GAAP average effective tax rate (1) 27.0%
----
Adjusted net operating profit after tax $686.0
======
Average Net Debt plus Average Stockholders' Equity (2)
Average total debt $3,316.9
Less: Average cash, cash equivalents and restricted cash (874.4)
------
Average net debt $2,442.5
Average stockholders' equity (3) $3,019.4
--------
Average net debt plus average stockholders' equity $5,461.9
========
Adjusted ROIC
Adjusted ROIC (adjusted net operating profit after tax 12.6%
above divided by average net debt plus stockholders' equity above)
(1) ROIC is presented on a TTM basis; non-GAAP effective tax rate for the three months ended July 1, 2017 was
29.5%, the three months ended September 30, 2017 was 30.5%, and the three months ended December 30,
2017 and March 31, 2018 was 23.0%.
(2) Calculated using the average of the balances as of March 31, 2018 and April 1, 2017.
(3) Adjusted (increased) to eliminate the effect of the impairment of intangible assets of $32.2 million in fiscal 2014,
and the impairment of goodwill of $685.7 million and an IPR&D asset of $46.0 million in fiscal 2018.
As of
March 31, 2018
--------------
Leverage Ratio:
Total principal debt $3,386.7
Total cash (614.2)
------
Net principal debt, as
adjusted $2,772.5
Adjusted EBITDA for the
last four quarters $1,029.7
--------
Leverage Ratio 2.7
===
Other Supplemental Information:
Three Months Ended Six Months Ended
March 31, April 1, March 31, April 1,
2018 2017 2018 2017
---------- --------- ---------- ---------
Geographic
Revenues
U.S. 74.5% 79.7% 75.0% 78.9%
Europe 12.6% 9.7% 12.0% 10.1%
Asia-Pacific 7.9% 6.5% 8.3% 7.4%
Rest of World 5.0% 4.1% 4.7% 3.6%
Total Revenues 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Revenue Composition
Q2'18
-----
Disposables 44.9%
Capital Equipment 35.5%
Service & Other 19.6%
----
Total Revenues 100.0%
=====
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SOURCE Hologic, Inc.
