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Earnings call: Hologic reports solid Q4 and FY 2024 results, optimistic for 2025

EditorEmilio Ghigini
Published 11/05/2024, 02:46 AM
© Reuters.
HOLX
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Hologic, Inc. (NASDAQ:HOLX), a medical technology company, reported a strong performance in its fourth quarter and full fiscal year 2024, with total Q4 revenue at $987.9 million and non-GAAP earnings per share (EPS) of $1.01. This surpassed the company's previous guidance.

For fiscal 2024, Hologic achieved $4.03 billion in revenue and non-GAAP EPS of $4.08. The company highlighted growth in its Molecular Diagnostics business, excluding COVID, and strategic acquisitions as key drivers.

Looking ahead to fiscal 2025, Hologic provided guidance suggesting Q1 revenue between $1.025 billion and $1.035 billion and full-year revenue of $4.15 billion to $4.20 billion, with EPS between $4.25 and $4.35.

The company remains optimistic about future growth, particularly in international markets, and plans to continue its strategy of leveraging its product portfolio and mergers and acquisitions (M&A).

Key Takeaways

  • Hologic's Q4 revenue reached $987.9 million, with non-GAAP EPS of $1.01, beating guidance.
  • Fiscal 2024 revenue stood at $4.03 billion, with non-GAAP EPS of $4.08.
  • The company experienced a 9% growth in its Molecular Diagnostics business.
  • Hologic announced a new $250 million accelerated share repurchase program.
  • Revenue from the Scalable business declined by 54.9% in Q4 due to a temporary shipping halt, which is expected to resume in Q1 2025.
  • Fiscal 2025 guidance projects Q1 revenue of $1.025 billion to $1.035 billion and full-year revenue of $4.15 billion to $4.20 billion, with EPS between $4.25 and $4.35.
  • The company anticipates organic growth of about 4% for the full year 2025.

Company Outlook

  • Hologic aims to drive future growth through its strong product portfolio and M&A strategy, focusing on untapped international markets.
  • The company expects to sustain growth and strengthen its product pipeline in fiscal 2025.

Bearish Highlights

  • The Scalable business saw a significant decline due to a temporary shipping halt.
  • The Breast Health business may experience a slower revenue period in 2025 before a new product launch drives growth.

Bullish Highlights

  • Diagnostics revenue grew 6.2% in Q4, with Molecular Diagnostics up 9.1%.
  • Breast Health and Surgical revenues increased by 6.2% and 5.4%, respectively.
  • The international business has grown nearly 50% since 2019, showing significant untapped potential.

Misses

  • Fiscal 2024 total revenue slightly declined by 0.2%, but showed an organic growth of 5.3% excluding COVID.

Q&A Highlights

  • The company discussed its fiscal year 2025 outlook, with a revenue growth midpoint of 4% and expected margin expansion.
  • International sales are expected to outpace domestic growth.
  • The NovaSure product is experiencing a decline in the U.S. market due to competition but is growing internationally.
  • The anticipated acquisition of Gynesonics is expected to complement existing products without cannibalization.

Overall, Hologic is positioning itself for continued growth and operational efficiency improvements, with a particular focus on international market opportunities. The company's leadership expressed confidence in its strategic direction and ability to navigate challenges in the coming fiscal year.

InvestingPro Insights

Hologic's strong performance in Q4 and fiscal 2024 is reflected in its current market position. According to InvestingPro data, the company boasts a market capitalization of $19.45 billion, indicating its significant presence in the medical technology sector. This aligns with the company's reported revenue of $3.99 billion for the last twelve months as of Q3 2024, showcasing its substantial market footprint.

The company's financial health is further underscored by two key InvestingPro Tips. Firstly, Hologic operates with a moderate level of debt, which supports its ability to invest in growth initiatives and acquisitions as mentioned in the earnings report. Secondly, the company's liquid assets exceed short-term obligations, providing financial flexibility to pursue its strategic objectives, including the new $250 million accelerated share repurchase program announced in the earnings call.

Hologic's stock performance has been noteworthy, with a 21.92% price total return over the past year. This positive trend is consistent with the company's optimistic outlook for fiscal 2025 and its focus on international market expansion. The stock is currently trading near its 52-week high, with a price that is 98.88% of its highest point, reflecting investor confidence in Hologic's growth strategy and market position.

For investors seeking a deeper understanding of Hologic's potential, InvestingPro offers 8 additional tips that could provide valuable insights into the company's financial health and market prospects.

Full transcript - Hologic Inc (HOLX) Q4 2024:

Operator: Good afternoon, and welcome to the Hologic's Fourth Quarter Fiscal 2024 Earnings Conference Call. My name is Shelly, and I am your operator for today’s call. Today's conference is being recorded. All lines have been placed on mute. I would now like to introduce Ryan Simon, Vice President, Investor Relations to begin the call.

Ryan Simon: Thank you, Shelly. Good afternoon and thank you for joining Hologic's fourth quarter fiscal 2024 earnings call. With me today are Steve MacMillan, the company's Chairman, President, and Chief Executive Officer; Essex Mitchell, our Chief Operating Officer; and Karleen Oberton, our Chief Financial Officer. Our fourth quarter press release is available now on the Investors section of our website. We will also post our prepared remarks to our website shortly after we deliver them, and a replay of this call will be available on our website for the next 30 days. Before we begin, we would like to inform you that certain statements we make today will be forward-looking. These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Such factors include those referenced in the safe harbor statement included in our earnings release and SEC filings. Also during this call, we will discuss certain non-GAAP financial measures. A reconciliation to GAAP can be found in our earnings release. Two of these non-GAAP measures are one, organic revenue, which we define as revenue excluding divested businesses and revenue from acquired businesses owned by Hologic for less than one year. And two, organic revenue excluding COVID-19, which further excludes COVID-19 assay revenue, other revenue related to COVID-19 and sales from discontinued products in diagnostics. Finally, any percentage changes we discuss will be on a year-over-year basis and revenue growth rates will be in constant currency unless otherwise noted. Now, I'd like to turn the call over to Steve McMillan, Hologic's CEO.

Stephen MacMillan: Thank you, Ryan, and good afternoon, everyone. We are pleased to discuss our financial results for the fourth quarter of fiscal 2024. Total revenue was $987.9 million and non-GAAP earnings per share were $1.01. We closed the fiscal year with another solid with revenue above the high end of our previous guidance range and EPS at the midpoint. Our fourth quarter results underscore the durable growth of our business and our ability to consistently deliver. For the full fiscal year 2024, we posted $4.03 billion in revenue and non-GAAP EPS of $4.08. Before discussing our themes for today, we'd like to first reflect on the fiscal year we just completed. In 2024, we made great progress strengthening and growing our business. By leveraging our leading brands, we drove diverse revenue growth and delivered industry leading margins, all while generating exceptional cash flow. This enabled us to achieve broad based growth and expand our end markets. Thanks to our intense focus on workflow automation and identifying opportunities for better solutions. At the same time, we executed our M&A strategy effectively, while delivering differentiated solutions for our customers and further solidifying our durable competitive advantage as champions of women's health. We also continue to make progress and are still in the early innings of the large international opportunity that lies ahead. Going a level deeper, we have four highlights to share that reflect our progress. One, for the full year, our Molecular Diagnostics business grew 9%, excluding COVID, continuing its strong growth. These results should put to rest any concerns regarding Panther utilization in a post-COVID environment. Two, in breast imaging, we maintained our market leading position while effectively navigating through the impact of the global semiconductor chip shortage. Three, from an operating margin perspective, we finished the year at 30%, maintaining profitability in the top tier of our peer group with opportunities for further improvement in 2025. Regarding our M&A strategy, four, we have been patient, disciplined and notably more active recently as opportunities we've been cultivating have become actionable. More specifically, we acquired Endomagnetics in July and signed a definitive agreement in October to acquire Gynesonics. Both are tuck in deals that are straight down the fairway as it relates to our M&A strategy and fit nicely into our global portfolio. We are the right partner to maximize these business opportunities, helping to benefit more women with the innovative products from these deals. From a broader capital allocation perspective, in 2024, we fully funded key organic initiatives and continued to reduce our share count. Additionally, as part of our release today, we announced our intention to launch a new $250 million accelerated share repurchase program. Overall, we have the ability to consistently deliver value to our shareholders through solid top line growth, operating and net margin expansion and strong and strong cash generation and deployment. Now moving to our two themes for our call. One, reinforcing who we are and how we got here. And two, shedding more light on where we are today and where we're headed in 2025 and beyond. As we've said before, Hologic is a company you can count on. Over the past 10 years, our non-GAAP EPS compound annual growth rate is over 10%, a meaningful achievement. Despite changing markets and unexpected macro conditions over the years, we have consistently delivered. Looking ahead, there will be ups and downs, challenges and headwinds but we expect to deliver as we have over the past decade. Since joining Hologic in 2013, we have dramatically transformed our business through two important phases. First, we steadied the ship and firmly rooted our leadership brands across our three main franchises: diagnostics, breast health and surgical. Second, during the COVID pandemic, we added several growth drivers across each of our franchises, both organically and through acquisitions. Today, we have industry leading platforms in each franchise and some of the strongest commercial channels in healthcare. The common theme across these two phases of transformation is our ability to create markets, establish market leading positions and drive growth by generating new opportunities. Looking back, products such as the Panther, Horizon DXA, our ThinPrep liquid based Pap test, 3D mammography, NovaSure, and MyoSure all represented improvements on the standard of care and therefore new markets at the time of their introduction. These trailblazing product lines generated new opportunities, which we continue to capitalize on today. Building on our foundation, products such as the Panther Fusion, Breast Cancer Index, Genius Digital Cytology, AI in mammography, Fluent (NASDAQ:FLNT) and Acessa leverage our established core businesses and enable more growth through market-creating innovation. That said, as an organization, we are never satisfied and consistently aim to create new essential innovations to make the best even better. Our culture and leadership have never been stronger as we continue to make a profound impact on women's health globally. Looking ahead to fiscal 2025, we are excited about our durable revenue base, diverse mix of growth drivers including our latest in Endomagnetics, and the opportunity to further strengthen our new product pipeline through organic and inorganic opportunities. We anticipate 2025 to be another year we deliver on our commitments, positioning Hologic for even greater long-term success. Now, I will pass the call over to Essex.

Essex Mitchell: Thank you, Steve. Good afternoon, everyone. In my remarks, I will highlight where we are as a business today including divisional level revenue performance and share insights into where we are headed. As Steve discussed, our success transforming Hologic has been underpinned by our ability to excel as market creators. Over time, our products and solutions become integral to our customers' operations. Across our franchises, we provide solutions that enhance our customer success by incorporating industry leading workflow automation. As our products significantly improve our customers' operational efficiency, we are more than just a supplier, we become a partner. Today, our portfolio includes several new products with considerable potential. These products span our franchises and geographies creating multiple layers of sustainable future growth. Coupled with our strong balance sheet, we have the firepower to add new growth drivers both organically and inorganically. We are confident that our robust portfolio along with future additions will enable us to grow sustainably and navigate the evolving market landscape with agility and resilience. Now shifting gears to our divisional revenue results for the fourth quarter. In Diagnostics, fourth quarter global revenue of $443.3 million grew 6.2% and 9.2% organically excluding COVID. Molecular Diagnostics remains a pillar of strength for the division, growing 9.1% and 13.2% excluding COVID. Molecular performance continues to be powered by our BV/CV/TV assay and biotheranostics business, both of which have runway for future growth. The divisions respiratory, 4-plex, COVID, Flu A, B, RSV assay also contributed growth for the quarter. For the full year, Molecular posted excellent global growth of 9% ex-COVID. This performance was again driven by BV/CV/TV as we continue to grow this market, moving testing for vaginitis to our FDA approved assays on our highly automated, high throughput Panther system. In addition, we continue to see accretive growth from our biotheranostics business as we drive adoption and expand coverage for the breast cancer index test. And finally, we are expanding the global footprint of our Panther Fusion system, allowing us to meet the need for high throughput molecular diagnostic respiratory testing, while also setting us up nicely as we build additional menu on the platform. Shifting to cytology and our perinatal business within diagnostics, we posted 0.7% growth in our fourth quarter. Since the FDA approval of our Genius Digital Diagnostic System or Digital Pap test, we've worked closely with our early adopting customers and they've given us great positive feedback on the system. This platform represents a significant improvement to the current Pap test workflows. It combines AI and advanced digital imaging to provide customers more sensitive disease detection and a streamlined efficiency, a digital AI assisted Pap test. We are proud to announce that our first U.S. Genius Digital Diagnostics customers went live in the fourth customers went live in the fourth quarter. This milestone is yet another example of Hologic understanding the needs of our customers and responding to changing market dynamics with essential innovation.Turning to Breast Health. Total fourth quarter revenue of $375.5 million, increased 6.2% or 5.3% organically when excluding SSI and Endomagnetics. Organic growth in the fourth quarter was primarily driven by increased breast imaging service revenue along with contributions from our gantry business and interventional products.In Surgical, fourth quarter revenue of $156.5 million increased 5.4% compared to the prior year. The period's growth was once again led by core MyoSure and the platform's complementary fluent fluid management system, helping to offset declines in our legacy domestic NovaSure business. In addition, our international surgical business continues to drive strong broad based performance, as we expand access to our technologies into new markets.And finally, in our Scalable business, fourth quarter revenue of $12.7 million decreased 54.9%. This result was expected based on the Horizon DXA stop ship we announced on our third quarter earnings call. As a reminder, this is a temporary headwind and we expect to resume shipping in the back half of our first quarter.Moving next to where we are headed, I will first comment on our international business and close with comments on our M&A strategy. From an international perspective, our efforts to expand globally have been broadly successful. Our international business is nearly 50% larger compared to 2019 with an accretive annual revenue growth. That said, the full potential of our international business remains largely untapped. While we have taken key steps and are more directed international markets than ever before, there is a vast international opportunity available to us that we are still in the early stages of realizing. Over a multi-year horizon, we see meaningful growth prospects for our international business as we continue to penetrate new regions and enhance our presence in existing ones. By leveraging our innovative products and strong brand reputation, we are well positioned to capture emerging markets opportunities, which we expect to be accretive to total company growth rates for years to come.Shifting now to M&A, it should come as no surprise that a combination of organic and inorganic innovation will add fuel for our future growth. Our M&A strategy continues to focus on pursuing tuck-in deals that align with our three franchises. We aim to identify and acquire assets that leverage our existing strengths, drive top-line growth and add accretion to earnings over time. Going deeper, we prioritize assets that nicely fit into our current market segments or near adjacent markets. We target strategic and high growth areas across our franchises to enhance our current market position and to build global durable growth portfolio. In summary, our M&A strategy is designed to identify and integrate valuable assets that drive incremental growth, reinforce our market leadership and deliver sustained value to our shareholders. By maintaining focus on our core markets, exploring adjacent opportunities and driving essential innovation, we believe we are well positioned to navigate 2025 and the years ahead. With that, I'll hand the call over to Karleen.

Karleen Oberton: Thank you, Essex, and good afternoon everyone. In my comments today, we will begin with an overview of our solid fourth quarter and full year financial results, providing more color on margin and capital deployment. In closing, we will finish with our fiscal 2025 guidance for Q1 and the full year. We are pleased to close fiscal 2024 by continuing to meet or exceed our commitments on both the top and bottom line. In our fourth quarter, total revenue was $987.9 million growing 4.2% over the prior year period and 5% organically excluding COVID. In addition, our Q4 non-GAAP earnings per share were $1.01 growing 13.5%. For the full fiscal 2024, total revenue was $4.030 billion declining 0.2%, while growing 5.3% organically excluding COVID. And non-GAAP earnings per share were $4.08 growing 3%. Given the revenue headwind of the skeletal stop ship in Q4, we view these results as solid. More notably, for the second quarter in a row, we returned to top line growth for our total business as we continue to bend the revenue curve in a positive direction. Before moving on to the income statement, we'd like to highlight the continued strength of our balance sheet as well as our commitment to our capital allocation strategy. In fiscal 2024, we pulled both levers of our capital allocation strategy by completing a revenue accretive tuck in M&A deal in Endomagnetics, while also repurchasing 11.2 million shares for $808 million which includes a $500 million ASR completed in the second quarter. Over the course of fiscal 2024, we reduced our diluted share count by over 10 million shares, demonstrating our commitment to leveraging our strong balance sheet and cash flow to manage our share count and deliver EPS growth. Starting off 2025, as Steve mentioned, we remain confident in our business. We continue to leverage our ability to repurchase shares with the announcement of our intention to enter into a new $250 million ASR. With our strong operating cash flow, we are in excellent position to continue funding our priority organic investments as well as our capital allocation strategy. We exited the year with over $2.4 million in cash and investments on the balance sheet and we'll continue to pursue growth opportunities in fiscal 2025. As mentioned earlier on this call, we are off to a great start by signing a definitive agreement in October to acquire Gynesonics. We anticipate closing this deal in the first half of calendar 2025. Now on to the non-GAAP P&L for the fourth quarter, starting at gross margin. In Q4, gross margin increased to 61.5%, and up 110 basis points year-over-year, driven by broad based domestic revenue growth. We are pleased with this performance, having achieved steady expansion throughout the year while overcoming several headwinds, including the amortization of higher cost inventory of semiconductor chips and the headwind from the skeletal stop ship. Moving down the P&L. Fourth quarter operating expenses of $311 million increased approximately 2.4%. This increase was primarily driven by the inclusion of Endomagnetics in our fourth quarter results as well as stronger local currencies in our international business. Excluding the impact of Endomagnetics and FX, our operating expenses were approximately flat compared to the prior year. Altogether, fourth quarter operating margins finished at 30% and net margin was 24%, both representing a modest increase over the prior year. Below operating income, other income net represented a loss in our fiscal fourth quarter of slightly less than $1 million, better than previously anticipated due to lower net interest expense. Finally, our tax rate in Q4 was 19.75% as expected. Now let's move on to our non-GAAP financial guidance for the first quarter in full fiscal year of 2025. In the first quarter of fiscal 2025, we are expecting total revenue in the range of $1.025 billion to $1.035 billion and EPS of $1 to $1.03. For the full year 2025, our guidance assumes revenue of $4.15 billion to $4.20 billion and EPS of $4.25 to $4.35. Help with constant currency modeling, we are assuming a foreign exchange tailwind of slightly less than $10 million for Q1 and $30 million for the full year. Our guidance assumes the recent trend of strengthening local currencies in our international markets continues in fiscal '25. Overall, for the full fiscal year, our guidance assumes organic ex-COVID growth of approximately 4% at the midpoint. We expect revenue growth to build throughout the year. In Q1, we will be impacted by several transitory headwinds, such as the stop ship in our skeletal business as well as strong prior year comparisons in Breast Health and Surgical. We are also planning conservatively around the respiratory season and the residual impact from recent hurricanes, including the saline IV fluid shortage that we anticipate will be a headwind to our more elective breast and surgical procedures. Now moving on to assumptions underlying our revenue guidance at the division level. For core diagnostics, we expect mid-single-digit growth for the full year, driven by our BV/CV/TV assay and the ongoing adoption of our Biotheranostics BCI test. Further, as Essex mentioned, we successfully launched genius digital cytology in the U.S. during the fourth quarter. We are excited to continue this rollout and the growth opportunity it represents. Regarding COVID and respiratory assay assumptions, given the inherent variability of the respiratory season, we continue to plan conservatively for both, while maintaining capacity to aggressively meet any surges in demand. In addition, fiscal 2024 saw COVID revenue transitioning to our 4-Plex respiratory assay in our base molecular business. In 2025, we anticipate lapping the benefit of this conversion. In terms of COVID revenue, we expect COVID assay sales to about $10 million in the first quarter and approximately $25 million for the full year. COVID-related items are expected to be about $24 million in the first quarter and approximately $95 million for the full year. Closing out our diagnostics business, we expect blood screening revenue of about $5 million in Q1 and about $20 million for the full year. Turning to Breast Health. Over the past two fiscal years, we experienced elevated growth rates as we gradually recovered from the global chip shortage. Moving past this dynamic in fiscal 2025, we expect the gantry business within Breast Health to return to more normal growth ahead of our anticipated next-generation gantry launch. In our Interventional Breast segment, we expect continued strong performance from our portfolio of disposable needles and markers, though partially offset by recent withdrawal BioZorb products from the market. Lastly, in surgical, we expect broad-based progress across our portfolio to offset anticipated domestic NovaSure declines. We also foresee strong international surgical growth in fiscal '25 and driven by deeper market access and market penetration opportunities. Moving next to margins. Our fiscal '25 guidance assumes both gross margin and operating margin expansion, highlighting our strong operational discipline and commitment to shareholder value. Thus, we expect Q1 gross margins around 60% and expect improvement of roughly 50 basis points over the course of the year. Additionally, we expect Q1 operating margins around 30%, with an expected increase of 50 basis points to 100 basis points throughout the year. We are in outstanding position given the current macro environment. Working down the P&L. We expect Q1 to represent our highest quarter of operating expense in fiscal '25. This is due to normal seasonal expenses, including larger marketing campaigns as well as sales and trade meetings. For the balance of the year, we anticipate quarterly operating expense to represent a modest increase over fiscal '24 as we include the addition of Endomagnetics business into our fiscal '25 guidance. Below operating income, we estimate fiscal '25 other income net to be an expense of approximately $10 million to $15 million in Q1 and an expense between $50 million and $60 million for the full year. Our guidance is based on an annual effective tax rate of approximately 19.5%, and diluted shares outstanding are expected to be approximately $235 million for the full year. To conclude, our solid fourth quarter completes another successful year for Hologic. As always, our focus remains on advancing women's health globally and delivering durable long-term results. Entering fiscal '25, we are excited about the opportunities ahead. With that, we ask the operator to open the call for questions.

Operator: [Operator Instructions] And our first question is coming from the line of Patrick Donnelly with Citi.

Patrick Donnelly: Karleen, maybe you start where you finished it. Just on the margins, Karleen, can you talk through how to think about the year? Obviously, a lot of folks are anchored to kind of the 31.5% for the year. And I know there was a lot of focus as COVID finally gets cleaned up, land on that number. Can you talk about the moving pieces on the margin front for the year and kind of where we should be thinking about the year and then the expansion potential off of this as well?

Karleen Oberton: Yes. So you talk about fiscal '25, Patrick, moving forward?

Patrick Donnelly: Yes, correct.

Karleen Oberton: Yes. So I think we talked about certainly some headwinds in the first half of the year that we think those are transitory in nature. And certainly, when we talk about the IV fluids shortage impacting surgical our most profitable business that gives you some of the first half challenges that we think are, again, transitory and we'll work through those over the course of the year. I think as we also think about the year, we've talked about network optimization opportunities that have been underway, we'll start to see more of a benefit from those as we exit the fiscal year. So those are some of the key items that we look to over the course of the year. And again, if you look at the full year revenue guidance, 4% at the midpoint to the full year lower than that. Certainly, in Q1 as we start off, that gives you a sense of accelerated revenue growth in the back year that's going to help that margin expansion at the end of the year.

Patrick Donnelly: Okay. That's helpful. And then, Steve, maybe just on the Breast Health business. Can you talk about the outlook for the year. It sounds like maybe a new launch moving here on the gantry side, how to think about -- there's always risk and maybe a little bit of a pause before that or a replacement cycle on the back of it. So maybe just frame up how to think about Breast Health with some new products coming and what the growth could look like there?

Stephen MacMillan: Yes. Thanks, Patrick. I think the reality of the new gantry is that's going to be more impacted in kind of '26, '27, '28 from revenue. We are in that year prior to the launch that it might be a touch slower on pure gantries. The flip side is, as our service business as the interventional business and particularly things like Endomag coming through, it's the magic of continuing to deliver. So probably be a little bit lower than the last couple of years, as Karleen mentioned. But still very solid and we still feel really good about the existing gantries and the customers we still have to go, but probably just a little bit lower than last year before it reaccelerates.

Operator: Our next question is coming from Jack Meehan with Nephron Research.

Jack Meehan: I had a couple of diagnostic question. Backwards leaps over players here. First question, now that it is the end of the year, I was wondering, it sounds like Biotheranostics, BV/CV/TV, two of the key growth drivers here. Could you just give us a mark-to-market for the year, ballpark of what the sales were? And then, what your view is on kind of how much the level of growth you should expect in 2025?

Karleen Oberton: Yes. So I'd say a couple of points on BV/CV/TV, I think we've talked about that as approximately our second largest assay. So it's going to be several hundred million dollars in revenue. Biotheranostics is not at that level. It's probably closer to the $100 million plus level. I would think about those as BBC a very strong double-digit grower will continue to grow double-digits in '25, probably a little lesser rate given the increasing base. And Biotheranostics, a solid double-digit grower in '24 and we expect similar in '25.

Jack Meehan: And then, Karleen, you also talked about the transition you saw this year to the respiratory panel. And just trying to read through the lines, it sounds like you're expecting you re at least your initial assumption is that decline this year? Any chance you could give us a ballpark what that sales contribution was in 2024 and just assumptions there?

Karleen Oberton: Yes. I mean it was definitely in the several tens of millions of dollars for the Plex assay. And so I think at this point, again, that was a transition from COVID revenue to this product. And so I think we're -- don't expect another transition year, if you will. So that's why it's a little bit of a headwind here as we think about the first half of ’25.

Operator: Our next question is coming from Anthony Petrone with Mizuho Group.

Anthony Petrone: Coming back on the quarter here. Maybe one breast health and one on Gynesonics, the acquisition announced a couple of weeks ago. On Breast Health, just in terms of gantry rollout post RSNA and we think about next fiscal year, should we be thinking that sort of the 2014 to 2017 sort of installs from the 3D Tomosynthesis on initial product cycle, those would be up for renewal beginning next year? Or is there a bigger portion of that installed base that potentially is eligible for an upgrade? And then just on Gynesonics, the Sonata system, maybe just a little bit on how many systems already out there in the marketplace and just synergies with the existing GYN surgical portfolio.

Stephen MacMillan: Yes. On the Breast Health piece, I would think it's going to be a rolling. I wouldn't expect some big bolus of the 2014 to 2017 all coming due. I think we're going to be phasing it out. And frankly, again, looking for more durable growth than the quick bullish of uptake. And then on Gynesonics.

Essex Mitchell: Yes I can answer the Gynesonics question. So first, we won't go to any details on installed base or anything like that. And so we actually close. But what I will say is that -- we believe this really complements our portfolio and really aligns with what our surgical team is doing every day. So the same customers doing the same type of procedures that are historic -- hysteroscopic or trans cervical, which really aligns where our strength is at. So excited about it. We'll have a little bit more information once we close.

Operator: Our next question is coming from Vijay Kumar with Evercore ISI.

Vijay Kumar: Steve, sorry -- if you're -- I missed the first part of the call. When I look at the guidance here, 3.4x to 4.7x ex-COVID, I guess, how do you make the bridge to the LRP of 57. Is skeletal still a headwind here in fiscal '25, anything else that we need to be aware of to draw the bridge from your current guide to the 5% to 7%?

Karleen Oberton: Yes. So what you missed, Vijay, is talking about what we call transitory headwinds that we're experiencing here. I'd say, Q1 and potentially into Q2. Both the skeletal again, that we -- in our prepared remarks said we'd start shipping that in the latter half of Q1, so it's definitely a headwind here. And then we talked about being conservative on our respiratory products, again, given the seasonality of flu -- and then finally, the IV fluid shortages that as a result of the hurricanes, we do anticipate that this is going to be a headwind for our surgical and breast businesses that need those fluids. Here in Q1, and it could creep into Q2. So if you take all those transitory headwinds for the first half, you look at the midpoint of our guide for the full year much lower growth rate here in Q1 that gives you a sense that the back half is going to have accelerated growth on the revenue.

Vijay Kumar: Understood. Steve, maybe on this IV flow shortage, none of the other metric companies have called us. I'm curious. Are you seeing something now? Or is this more of a modeling assumption?

Stephen MacMillan: I think a few have mentioned it. And I think the other piece is, candidly, I'd remind you, we were the first one that called out the chip shortage. We've been the first to call out a lot of things, Vijay, as you well know, because we're very close to the business and we are seeing little pockets. I think the other part is our surgical business is very highly elective. And so part of what is happening is clearly Baxter (NYSE:BAX)'s prioritize -- hospitals are prioritizing the emergency and non-elective procedures. So we expect we probably do have a slight more short-term, clearly, transitory impacted, again, nothing lurking beyond that as soon as we come bouncing back. And frankly, it could be a headwind that could turn into a tailing but we always want to be conservative going into starting the year.

Karleen Oberton: Yes. Vijay, I would say at least three to four other med tech companies have called it out specifically. So we're not alone in this.

Operator: Our next question is coming from Dan Leonard with UBS.

Unidentified Analyst: This is [Lu] on for Dan. Just wanted to going back to the transitory headwinds, is it possible to kind of like quantify like what's the magnitude in shortages? And then what is in the kind of conservatism in the respiratory revenue? Just any more color that would be great.

Karleen Oberton: Yes. I mean, we haven't quantified it specifically. I think from -- we've talked about the skeletal stop ship is roughly $5 million a month, so that might give -- we talked about returning to shipment in the back half. So that gives you a sense of what that could be. Certainly, conservatism in the respiratory could be in a range of at least $10 million to $20 million and on the IV fluid, I think that's still evolving and we really don't have a sense of that quite yet.

Unidentified Analyst: Okay. Got it. And then I wanted to touch a little bit on the share repo that you mentioned, the $250 million, is that going to happen entirely in one quarter? Or is that like a year or multiyear program?

Karleen Oberton: Yes. We expect we're going to kick that off in the next couple of weeks here, and it should finish within our fiscal second quarter. So we'll have a prorated benefit, if you will, within the fiscal 2025 full year.

Operator: Our next question is coming from Casey Woodring with JPMorgan.

Casey Woodring: I was curious if you could break out the 1Q guide by business segment, just to help us understand the growth acceleration expected over the course here between segments? And then also, curious what you're expecting in terms of international business growth versus domestic sales in '25 and what the outlook is across the different businesses internationally?

Karleen Oberton: Yes. I mean we haven't provided the specific detail, but if you think about -- we talked about those transitory headwinds. Least impact probably in diagnostics. So you think about diagnostics in the mid-single-digit growth for the first quarter, and you have the other businesses below that.

Casey Woodring: And then just internationally as well, how you're thinking about that?

Essex Mitchell: Yes. We expect international to grow at a faster rate than our domestic business.

Casey Woodring: Got it. Okay. And then just maybe if I can fit in one quick last one. So you talked about leveraging some supply chain costs moving around to give you some tax benefit. Just wondering if there's anything baked in there from a supply chain perspective that 19.5% tax rate for '25 or if there's some upside to that number?

Karleen Oberton: Yes. Casey, I would remind you that the 19.5% is lower than fiscal '24. We're taking it down 25 basis points. primarily related to limiting some of our foreign losses that weren't deductible. And of course, we're always looking at other supply chain opportunities or business opportunities to drive the rate. But I wouldn't say that we're ready to commit to anything lower than the 19.5% that's already lower than '24.

Operator: Our next question is coming from Mike Matson (NYSE:MATX) with Needham & Company.

Mike Matson: So I want to ask one on vertical business. So NovaSure sounds like it's declining in the U.S. So can you talk about why and whether or not that's something that could be stabilized and you return to growth? Or is it going to be a perpetual decline?

Essex Mitchell: Yes. What I would say is that for a number of years, the volumes of global endometrial operation across the market have been a slow decliner, we've continued to maintain our market share and do well in the space but we do see alternatives versus competitors become more prevalent such as IUDs and other things to control hormonal abnormal uterine bleeding. So as of right now, we do expect that to continue on a slow decline. We feel great about our ability to continue to grow internationally, which is expanding and has a nice growth rate with NovaSure. So expecting all-in to still put up market-leading results, but we do see it declining in the U.S.

Mike Matson: Okay. Got it. And then just another one on the Gynesonics. I understand it hasn't closed. So I don't know if you can or you're willing or able to answer this. But I guess it looks like it's for fibroids, similar to MyoSure. So I guess, why won't -- why isn't this something that will cannibalize MyoSure to some degree? Is it used for different patients or different types of fibroids or something like that? Is that why wall or?

Essex Mitchell: Yes, it sounds like you're right on it. It is for different fibroids. So we have large fibroids on the outside and in the wall the uterus with Accesa, small polyps and I say only up to type 2 fibroids, with MyoSure. There are six different types of fibroids, Gynesonics so it not a system fills the gap in between both Sonata -- or both Accesa and MyoSure. So it is attacking a different type of fibroid using a different technology than MyoSure.

Operator: Our next question is coming from Navann Ty with BNP Paribas (OTC:BNPQY).

Navann Ty: I have one on M&A. If you could discuss recent M&A environment in Hologic three segments. And maybe more broadly, your capital allocation priorities in 2025.

Karleen Oberton: Yes. I would say that as Hologic M&A is within each division. So each division has their own business development teams that are out there identifying assets, cultivating relationships and hopefully, we're able to acquire assets before they jump into a process. And hopefully, assets that we're kind of the rightful owner of. And so I'd say there's no priority between divisions at this time. It's really about what is the best deal for Hologic. And I think we gave some examples on how Endomagnetics and Gynesonics fit nicely into our current portfolio. And we bring a point of expertise. And I would say, as we look to 2025, I think it's probably more of the same of what we saw in '24, a balance of M&A and share repurchase is what we're looking to do.

Operator: Our next question is coming from Michael Ryskin with Bank of America.

Unidentified Analyst: Hello. This is [John] on for Michael. I wanted to ask about the Panthers. What I believe is one of your manufacturing partners recent tier results, and I was wondering if that has something to do with how the Panther placements are going? I know that utilization and then the assay menu expansion is the way to the growth, but -- and I'm sure the level of placements is far different from what it used to be pre pandemic, but so I wanted to ask how that's been trending?

Karleen Oberton: Yes, absolutely. I think this is something we've talked about for the last couple of years. We have an installed base of over 3,300 Panthers worldwide, which is significantly higher than what we had prior to the pandemic, and we had obviously, an accelerated placement of Panthers during that time. And as we expected, those placements have slowed. But no impact on the growth of the business. As we said, molecular diagnostics, excluding COVID grew 9% in fiscal '24, many years after the end of the -- post the pandemic. So continued strength with that business.

Unidentified Analyst: Well, I mean, if you wanted to give me more color but I would have taken that.

Stephen MacMillan: As you know, [Michael] and some people, I think, sometimes forget is we make all of the revenue on the assays, not on Panther. So I know that we've gotten some questions of investors that are thinking, gee, if we sell less Panthers is that showing a downturn. But as you know, it's a reagent rental model. So frankly, right now, the next few years are largely driving that assay adoption without having to even place a lot of Panthers, which is even better on the CapEx side. So it's a very good structure for us.

Unidentified Analyst: And yes, and on that related note, any update to the statistics you provided in the past about 55 users having using two or more assays and 1/3 having four or more?

Karleen Oberton: We haven't provided an update to that. And just in general, I would say that those trends continue to improve -- move in the right direction.

Operator: Our next question is coming from Mason Carrico with Stephens.

Unidentified Analyst: This is [Harrison] on for Mason. It looks like -- so last quarter, I believe you talked about some facility integrations within the Breast Health business. Could you maybe talk a little bit about the cadence or time line of how those integrations will play out this year and then the margin impact as we progress through the year?

Karleen Oberton: Yes. We expect that migration to be completed over the course of which is it's great not only from a manufacturing but also R&D will be ceded there and some great synergies with the R&D teams. But we haven't provided specific improvements, but it is part of the improvement we will see over the course of the year.

Unidentified Analyst: Got it. Yes. Sounds great. And then so within Breast Health. Have we largely moved past the higher cost of chips at this point? Are we at a more normalized level heading into '25 or is there still a drag on margin earlier in the year relative to the back half?

Karleen Oberton: Yes. We're probably on the tail end of that. There was wasn't just one ship. There was many, many different ships that have the issue. So there could be still a few working their way through the system. But I think as we go through '25, we will move past that.

Operator: Our next question is coming from Tejas Savant with Morgan Stanley.

Unknown Analyst: This is [Jason] on for Tejas. So just modeling-related questions. So in skeletal health, do you expect the supply change by the end of F 1Q. So how much of any of the sort of $15 million per quarter loss, can we expect to be recouped in fiscal year 2025 on top of the base sales expectations? And then on BioZorb, could you quantify the financial impact from removing this product for fiscal year '25?

Karleen Oberton: Yes. The BioZorb impact is deminimis, it really as a revenue line item that was less than $10 million in '24. So pretty deminimis. And I think on the skeletal, I think what we're really focused on is getting this back on the market and satisfying our customer demand. I wouldn't project right now that there will be some level of pickup. Again, we need to get it back to shipping status here in the first quarter.

Operator: Our next question is coming from Conor McNamara with RBC Capital Markets.

Ricardo Moreno: This is Ricardo Moreno for Conor. I have a question about as normal growth returns to the gantry business. How does that coincide with earlier the chip shortage that was experienced with the gantry business intersecting with equipment upgrades and replacement cycles?

Karleen Oberton: So what I would say is, as we're kind of through the chip issue and I think we covered that in the prepared comments that as we get into '25, we expect more normalized growth rates. With potentially a little bit of headwind, again, as we anticipate this next-gen gantry. But as Steve talked about, we don't expect a significant increase in that conversion cycle given that technology improvement, software improvements, AI has been available to customers in our installed base over the past several years. It's been very intentional that our R&D efforts were producing upgrades that were backwards compatible to the installed base so that we didn't create this pent-up demand. So I think we're really going to move into a more normalized replacement cycle or an ongoing replacement cycle here in the U.S. which is a great business to have that steady state.

Ricardo Moreno: Fantastic. And coming from FX comments earlier about the international business and focus there. How does that roll in, in terms of reaching the pre-pandemic operating margin goal of 31.5%. Usually, those -- traditionally, those margins have been a bit lower than 30%.

Karleen Oberton: Yes. Well, I think as we've talked about our guide here from fiscal 2025, starting at 30% and expecting some improvement of 50 basis points to 100 basis points over the course of '25. I think you see a really nice balance of us continue to drive improvement in margins where we can. While we know that international is getting bigger and that's usually dilutive to the margins, but as international continues to grow, they have their own opportunities to create leverage on their operating margin line. So it's an ongoing balance and we see -- we're really pleased about what we expect for 2025.

Operator: Our next question is coming from Andrew Brackmann with William Blair.

Maggie Wilmouth: This is Maggie Wil on for Andrew today. Maybe one on Biotheranostics, I know you spoke to earlier, you're expecting kind of that double-digit growth that you saw in fiscal '24 for fiscal 2025. But how should we be thinking about the contribution from that to growth moving forward? And just where do you feel like you are in terms of that opportunity?

Karleen Oberton: Yes. I think we think it's still early innings on that opportunity. I think there's it's pretty low market penetration at this point, but we haven't given guidance beyond '25, but to say that it's still early innings.

Stephen MacMillan: It certainly seems accretive to our company for many years to come, as are most of the acquisitions we've been doing over the last few years.

Operator: And our final question is coming from Andrew Cooper with Raymond James.

Andrew Cooper: Maybe just one more on the margin side to the degree you can help sort of frame the swing factors of adding that 50 bps to 100 bps over the course of the year, how much of that is just these transitory items getting lapsed by the time or resolved by the time you get to the fiscal fourth quarter versus the network optimization and other things you called out in one of your earlier answers.

Karleen Oberton: Yes. We haven't quantified them specifically, but certainly, they are contributing to kind of lower margins here in the beginning, the first half of the year. But again, we view this as transitory and as they clear, we'll reap that margin benefit.

Operator: Thank you. And this now concludes Hologic's third quarter fiscal 2024 earnings conference call. Have a good evening.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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