reintroducing a unique asset in women’s health...• in breast health, more genius 3d mammography...

January 13, 2020 1

Reintroducing a Unique Asset in Women’s Health

Steve MacMillanChairman, President and CEO38th Annual J.P. Morgan Healthcare Conference

January 13, 2020

Safe Harbor Statement

2

This presentation 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 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 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 expectations.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 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 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; the risks that acquisitions may involve unexpected costs or unexpected liabilities; the risks of conducting business internationally, including the effect of exchange rate fluctuations on those operations; manufacturing risks, including the Company’s reliance on a single or limited source of supply for key components, and 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; competition; and the Company’s ability to attract and retain qualified personnel.The risks included above are not exhaustive. Other factors that could adversely affect the company's business and prospects are described in filings made 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.Hologic, Aptima, Aptima Combo 2, Genius, Horizon, MyoSure, NovaSure, Panther, Selenia, Eviva, ATEC, The Science of Sure, Affirm, Brevera, ThinPrep, Tigris, PicoSure, SculpSure, Faxitron, Focal, BioZorb, Clarity HD, SmartCurve, Intelligent 2D, Quantra and associated logos, as may be used in this presentation, are trademarks and/or registered trademarks of Hologic, Inc. and/or its subsidiaries in the United States and/or other countries.

January 13, 2020

Non-GAAP Financial Measures

3

The Company has presented the following non-GAAP financial measures in this presentation: constant currency revenues; non-GAAP gross margin; non-GAAP operating expenses; non-GAAP operating margin; non-GAAP net income; non-GAAP EPS; and adjusted EBITDA. 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 and impairment of goodwill and intangible assets; (ii) additional depreciation expense from acquired fixed assets and accelerated depreciation related to consolidation and closure of facilities; (iii) additional expenses resulting from the purchase accounting adjustment to record inventory at fair value; (iv) non-cash interest expense related to amortization of the debt discount from the equity conversion option of the convertible notes; (v) restructuring and divestiture charges and 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; (vi) transaction related expenses for divestitures and acquisitions; (vii) gains/losses on disposal of a business; (viii) debt extinguishment losses and related transaction costs; (viii) the unrealized (gains) losses on the mark-to-market of forward foreign currency and option contracts for which the Company has not elected hedge accounting; (ix) litigation settlement charges (benefits) and non-income tax related charges (benefits); (x) other-than-temporary impairment losses on investments and realized gains resulting from the sale of investments; (xi) the one-time discrete impact of tax reform primarily related to remeasuring net deferred tax liabilities; (xii) other one-time, non-recurring, unusual or infrequent charges, expenses or gains that may not be indicative of the Company's core business results; and (xiii) 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 presentation 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 will 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 presentation.

January 13, 2020

Presentation Outline

4

Investment thesis

Purpose, passion, promise

Our journey

Leveraging our strengths

Financials and conclusion

January 13, 2020 5

Investment Thesis• Broad portfolio of market-leading

products for women’s health

• MSD top-line, LDD bottom-line growth compounder over six years

• Divesting Cynosure removed overhang, simplified story

• All businesses strengthened in 2019

• Opportunity to improve organic revenue growth, margins in 2020

• Redeploying strong cash flow into acquisitions, buybacks

January 13, 2020


6

Investment thesis


Our journey



January 13, 2020 7

January 13, 2020

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1990 2017 -

5

10

15

20

25

30

35

1990 2017

US Cancer Death Rate Trend

Source: National Cancer Institute, Cancer Statistics, 2020. Age-adjusted death rate per 100,000 population, females all ages.

-39%

Breast cancer Cervical cancer

Much Has Been Accomplished …

-38%

… But Much Remains to be Done


10

Investment thesis


Our journey



January 13, 2020 11

Our Journey

TRANSFORMEDUS Sales

Organizations

BUILTInternationalCommercialCapabilities

REVITALIZEDResearch andDevelopment

DIVISIONALIZEDBusiness

Development Capabilities

PURSUINGOpportunities

in Supply Chain, Infrastructure

January 13, 2020 12

Transformed U.S. Sales Organizations

• In Breast Health, overhauled sales talent, structure and process to help key account managers sell a growing product portfolio more strategically

• In Surgical, changed sales rep compensation to 100% commission to incentivize hunting rather than gathering

• In Diagnostics, upgraded talent and aligned structure to help customers of all sizes grow their businesses

January 13, 2020 13

Built International Commercial Capabilities

Note: Percentage changes are in constant currency, $ amounts are as reported.

$533 $510 $491 $538 $634 $671

$-

$100

$200

$300

$400

$500

$600

$700

$800

2014 2015 2016 2017 2018 2019

Core OUS Revenue (ex. Blood, Aesthetics)

0%11%

13%

-5% 5%

11%

January 13, 2020 14

Revitalized Research and Development

Note: New products represent those launched since 2015. Not all revenue is incremental. For example, MyoSure and NovaSure line extensions are included in Surgical.

B&SH

B&SHB&SH

Dx

Dx

Surgical

Surgical

Surgical

$0

$100

$200

$300

$400

$500

$600

$700

2017 2018 2019

Revenue from Recently Launched Products

January 13, 2020 15

Created Divisional Business Development Capabilities

• Building good track record of divisional deals– Distributors– Faxitron– Focal– SuperSonic Imagine

January 13, 2020 16

Growth Products

US Cytology & Perinatal

US NovaSure

Blood

2014

Growth Products

US Cytology & Perinatal

US NovaSure

Blood

2019 Ex-Cynosure

Result: Portfolio Has Shifted Toward Higher Growth

January 13, 2020


17

Investment thesis


Our journey



18

Leveraging Our Strengths

• In Breast Health, more Genius 3D mammography systems are strengthening our competitive position and enabling growth across the continuum of care, leading to more diverse, consistent revenue growth

• In Diagnostics, more Panther instruments in more countries, with more menu, are leading to strong increases in consumables sales and consistent revenue growth

• In Surgical, best-in-class products, new leadership, new commercial models and new product launches are accelerating growth

• We intend to deploy our strong free cash flow more aggressively on growth-accretive tuck-in acquisitions and share buybacks

19

In Breast, More Genius 3D Mammography Systems …

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2014 2015 2016 2017 2018 2019

Cumulative US Shipments*

+1,098

+1,163

+1,042

+1,086

+1,159

* Bars represent units at end of Hologic fiscal years.

20

… Strengthen Our Competitive Position …

HologicAll

others

2013

Hologic

All others

2019

US Mammography Market Share

R A D I O L O G I S T

S U R G E O N R A D I A T I O N O N C O L O G I S T

P A T H O L O G I S T

S C R E E N D X I M A G E B I O P S Y L O C A L I Z E S L N BR E M O V E ,

F I L L , & M A R K

S P E C I M E N E V A L U A T I O N

R A D I A T I O NT H E R A P Y

APBISpecimen Radiography

… And Enable Growth Across the Continuum of Care …

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

FY'15 FY'19

Breast Conserving Surgery

Total OUS

Service

Interventional

Accessories and Equipment

Gantries

13%

20%

21%

12%

12%

30%

21%

25%

11%

30%

4%

22

… Leading to More Diverse, Consistent Revenue Growth

Note: All except “Total OUS” are US only. Percentages do not add to 100% due to rounding.

23

In Dx, More Panthers in More Countries …

0

500

1000

1500

2000

2014 2015 2016 2017 2018 2019

Cumulative Global Shipments*

US Shipments OUS Shipments

+252

+214

+207

+253

+213

* Bars represent units at end of Hologic fiscal years.

0

5

10

15

20

US Assays Cleared in 2015

24

… Combined with More Menu …

40

5

10

15

20

US Assays Cleared in 2019

16

25

… Lead to Strong Growth in Consumable Sales …

$0

$50

$100

$150

$200

$250

$300

2014 2015 2016 2017 2018 2019

Global Assay Pull-Through per Panther

Global Pull-Through

~$150k

~$240k

1 Assay

2 Assays3+ Assays

Assay Use per Panther in U.S.*

* Data as of end of Hologic 2019 fiscal year.

26

… And Consistent Revenue Growth

Note: Percentage changes are in constant currency, $ amounts are as reported, less one-time royalties 2014-2017.

$459 $487 $513 $570 $612 $675

$-

$100

$200

$300

$400

$500

$600

$700

$800

2014 2015 2016 2017 2018 2019

Global Molecular Sales Ex. One-Time Royalties

6%12%

7%

-3%7%

11%

27

GYN Surgical

• Best-in-class products

• New leadership

• New sales model

• New launches

-7% -3% 0%

3%

1%

4%5%

7%

10%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20

Surgical Revenue Accelerating

28

Strong Free Cash Flow Also a Strength

• $650-700 million in 2020

• Comfortable with leverage ratio 2.5 to 3x

• Goal to deploy cash more aggressively– Growth-accretive acquisitions

» Division-led tuck-ins, not big deals» Leverage existing channels or expand into near adjacencies» Accretive to growth rate» Attractive ROIC, EPS accretion over time

– Share buybacks» $900+ million from fiscal 2016 through 2019 year-end» Plus $205 million ASR» Board authorized additional $500 million


29

Investment thesis


Our journey



$2,511 $2,705 $2,833 $3,059 $3,218 $3,367

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2014 2015 2016 2017 2018 2019

Total Revenue*

0.4%

6.0% Revenue Growth from 2014 to 2019

30

9.8%

* Total non-GAAP revenue growth in millions. As reported except FY14, which excludes ~$20 million one-time revenue from amending Roka license. FY’17 includes partial year contributions from the divested blood screening and acquired Cynosure businesses, which also affect growth rates. Growth rates in constant currency.

5.4%8.3% 4.3%

5.7%

$1.46 $1.67 $1.96 $2.03 $2.23 $2.43

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

2014 2015 2016 2017 2018 2019

Non-GAAP EPS*

-2.7%

10.7% Annual Growth in Non-GAAP EPS

31

9.0%9.9%

3.6%17.4%

14.4%

* Non-GAAP EPS as reported except FY14, which excludes ~$0.05 one-time contribution from amending Roka license. FY’17 includes partial year contributions from the divested blood screening and acquired Cynosure businesses, which also affect growth rates.

32

Momentum Continues with Core Outperformance in Q1Preliminary

Q1’20 Revenue

Q1’19Revenue

Approximate Change (CC)

Diagnostics $311.5 $296.6 5.5%

Excluding Blood $299.5 $282.4 6.5%

Breast Health $331.1 $324.7 2.4%

Excluding SSI $325.0 $324.7 0.5%

Medical Aesthetics $65.3 $79.8 (17.7%)

GYN Surgical $119.1 $108.4 10.2%

Skeletal Health $23.5 $21.2 11.4%

Total $850.5 $830.7 2.8%

Excluding Blood, SSI, CYNO $767.1 $736.7 4.6%

Note: These preliminary revenue results are estimates only and are subject to revision until the Company reports its full financial results for the first quarter of fiscal 2020 on January 29, 2020. SSI revenue of $6.1 million was not included in quarterly guidance provided on 11/6/19.

33

Investment Thesis• Broad portfolio of market-leading

products for women’s health

• MSD top-line, LDD bottom-line growth compounder over six years

• Divesting Cynosure removed overhang, simplified story

• All businesses strengthened in 2019

• Opportunity to improve organic revenue growth, margins in 2020

• Redeploying strong cash flow into acquisitions, buybacks

34

Reintroducing a Unique Asset in Women’s Health

For More Information:Mike Watts, VP of [email protected]

Financial Appendix

35

Reconciliation of GAAP to Non-GAAP (unaudited)

36

$s in millions, except earnings per shareYears Ended

September 28, 2019 September 29, 2018GROSS PROFITGAAP gross profit $1,170.9 $1,696.7

Adjustments:Amortization of intangible assets 318.5 319.4Incremental depreciation expense 0.3 0.6Integration/consolidation costs - 0.6Impairment of intangible assets and equipment 578.7 -Fair value write-up of acquired inventory 7.1 1.1

Non-GAAP gross profit $2,075.5 $2,018.4GROSS MARGIN PERCENTAGEGAAP gross margin percentage 34.8% 52.7%

Impact of adjustments above 26.8% 10.0%Non-GAAP gross margin percentage 61.6% 62.7%

OPERATING EXPENSESGAAP operating expenses $1,294.7 $1,934.6

Adjustments:Amortization of intangible assets (52.0) (59.3)Incremental depreciation expense (1.1) (7.4)Transaction expenses (4.5) (2.5)Non-income tax benefit (charge) - 4.0Contingent consideration adjustment (1.7) -Integration/consolidation costs (9.8) (3.5)Litigation settlements (4.5) (34.8)Restructuring charges (6.6) (14.2)Purchased research and development asset charges (4.5) (1.7)Impairment of intangible asset and equipment (106.7) (46.0)Impairment of goodwill - (685.7)

Non-GAAP operating expenses $1,103.3 $1,083.5OPERATING MARGINGAAP (loss) income from operations ($123.8) $(237.9)Adjustments to gross profit as detailed above 904.6 321.7Adjustments to operating expenses as detailed above 191.4 851.1Non-GAAP income from operations $972.2 $934.9

Continued on next page

Reconciliation of GAAP to Non-GAAP (unaudited)

37

$s in millions, except earnings per shareYears Ended

September 28, 2019 September 29, 2018OPERATING MARGIN PERCENTAGEGAAP operating margin percentage (3.7%) (7.4%)Impact of adjustments above 32.6% 36.5%Non-GAAP operating margin percentage 28.9% 29.1%INTEREST EXPENSEGAAP interest expense $140.8 $148.7

Adjustments: Non-cash interest expense relating to convertible notes - (3.5)Debt transaction costs (0.8) (4.3)

Non-GAAP interest expense $140.0 $140.9PRE-TAX INCOMEGAAP pre-tax (loss) earnings $(257.7) $(418.6)

Adjustments to pre-tax (loss) earnings as detailed above 1,096.8 1,180.6Debt extinguishment loss 0.8 45.9(Gain) Loss on sale of available-for-sale marketable securities (0.9) 0.6Loss from SSI 1.5 -Unrealized losses (gains) on forward foreign currency contracts 2.1 (6.6)Other charges - 1.1

Non-GAAP pre-tax income $842.6 $803.0NET INCOMEGAAP net (loss) income $(203.6) $(111.3)

Adjustments to GAAP net (loss) income as detailed above 1,100.3 1,219.4Tax benefit of internal reorganization (19.2) -Discrete impact of tax reform 5.0 (346.2)Income tax effect of reconciling items 2 (223.2) (143.6)

Non-GAAP net income $659.3 $618.3EARNINGS PER SHAREGAAP (loss) earnings per share – Diluted $(0.76) $(0.40)

Adjustments to net earnings (as detailed below) 3.19 2.63Non-GAAP earnings per share – Diluted 1 $2.43 $2.23ADJUSTED EBITDANon-GAAP net income $659.3 $618.3

Interest expense, net, not adjusted above 135.3 134.6Provision for income taxes 183.3 184.7Depreciation expense, not adjusted above 91.0 93.6

Adjusted EBITDA $1,068.9 $1,031.21Non-GAAP earnings per share was calculated based on 271,263 and 277,850 weighted average diluted shares outstanding for the years ended September 29, 2019 and September 29,2018 respectively. 2 To reflect an annual effective tax rate of 21.75% and 23.0% on a non-GAAP basis for fiscal 2019 and 2018, respectively.

reintroducing a unique asset in women’s health...• in breast health, more genius 3d mammography...

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