Hologic, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Top Line and Profitability: Total revenue for Q3 was $1.01 billion and non-GAAP earnings per share was $1.06, both above guidance. Operating margin was 31.2%, and $100 million was deployed to repurchase 1.4 million shares.
• Business Performance: Reported revenue returned to growth at 3.1% year-over-year, organic ex-COVID grew 5.8%. Molecular Diagnostics grew 10.5% excluding COVID, Breast Health grew 7.1%, and Surgical grew 6.2%.
• Acquisition: Closed the Endomagnetics acquisition, which is expected to add revenue, margin, and EPS accretion over time. Fiscal year-to-date, 10.5 million shares have been repurchased for $750 million.
• International Growth: International Diagnostics and Surgical have growth drivers in STI testing, cytology, and MyoSure, with meaningful market expansion opportunities internationally.
• Innovation: Focus on next-generation gantry system in Breast Health with emphasis on workflow, patient experience, image quality, and AI integration in breast and genius digital cytology.

Segment Performance

• Diagnostics: Third quarter revenue was $440.8 million, growing 0.7%. Excluding COVID assay and related revenue, worldwide Diagnostics grew by 6.0%. Molecular Diagnostics grew 10.5% excluding COVID, with BV CV/TV becoming the second-largest assay globally. Cytology and Perinatal declined 2.9% globally, with U.S. declines partially offset by international growth.
• Breast Health: Total third quarter revenue was $385 million, increasing by 7.1%, or 8.2% when excluding SSI. Growth was primarily driven by Breast Imaging with solid domestic and international results.
• Surgical: Third quarter revenue was $166.6 million, increasing 6.2%. Growth was fueled by MyoSure and the Fluent Fluid Management System, with International growing just under 20% in the quarter.
• Skeletal: Third quarter revenue was $19 million, declining 29.7% due to lower Horizon DXA shipments resulting from a temporary stop ship related to a non-conformance issue.

Guidance

• Fourth Quarter 2024: Total revenue expected in the range of $970 million to $985 million, and EPS of $0.97 to $1.04.
• Full Year 2024: Revenue of $4.012 billion to $4.027 billion and EPS of $4.04 to $4.11. Lowered midpoint of prior revenue guidance by $5 million due to Skeletal Health stop ship, partially offset by Q3 performance and Endomagnetics acquisition. FX expected to have a $3 million headwind in Q4 and a slight tailwind for the full year.
• Franchises: Diagnostics, Breast Health, and Surgical expected to grow mid-single digits in Q4 and full year, excluding COVID. Molecular Diagnostics to drive high-single digit growth excluding COVID in Q4; Cytology and Perinatal expected mid-single digit growth in Q4 but flat to Q3 sequentially; COVID assay sales expected about $7 million in Q4 '24 and $70 million for the full year.

Risks

• Skeletal Health: Temporary stop ship related to a non-conformance issue in Horizon DXA shipments, impacting revenue, with an estimated $16 million headwind in the fourth quarter specifically.

Q: Patrick Donnelly asked about the core business and the skeletal piece impact.

A: Stephen MacMillan said the three core businesses are going great, and the skeletal piece is a hiccup due to a supplier issue. Karleen Oberton added about the $16 million headwind in the fourth quarter specifically.

Q: Patrick Donnelly asked about margin profile.

A: Karleen Oberton said they'd like to ground in pre-pandemic operating margins at 31.5%, expect to be in that range exiting Q4 '24, and have confidence to be at pre-pandemic levels in '25 with considerations of lower margin profile from acquisitions, international business, and supply chain costs.

Q: Tejas Savant asked about EPS growth algorithm.

A: Karleen Oberton said they're not giving 2025 guidance yet, but expect high-single digit to low double-digit earnings growth as balance using the whole P&L including margin expansion, share repurchase, and potential tax favorability.

Q: Jack Meehan asked about Panther placements and BV CV/TV.

A: Stephen MacMillan said Panther placements are still lower than pre-COVID but moving up. Karleen Oberton said BV CV/TV is a large growing assay with potential to be the largest someday.

Q: Vijay Kumar asked about skeletal ship and backlog.

A: Stephen MacMillan said it won't be lost revenue, and they feel good about it potentially being a tailwind for fiscal '25.

Q: Anthony Petrone asked about cytology lumpiness and Panther utilization.

A: Stephen MacMillan said cytology business is consistent with early positive customer acceptance of digital cytology. Karleen Oberton said over 55% of new Panther customers are running two or more assays, and over a third of U.S. customers are running four or more assays with a target range of 4-6.

Q: Michael Matson asked about cytology growth and PAF vs primary HPV testing.

A: Stephen MacMillan said they're seeing nice acceptance of digital cytology with more dialogues benefiting businesses, and working with guidelines country by country.

Q: Casey Woodring asked about molecular growth and top line algorithm for 2025.

A: Stephen MacMillan said they'll give more detail in November guidance.

Q: Michael Ryskin asked about skeletal stop ship timing and capital deployment.

A: Stephen MacMillan said they have good line of sight to resolve by early '25. Karleen Oberton said priority is tuck-in M&A for revenue growth and then share repurchase.

Q: Navann Ty asked about M&A pipeline and innovation.

A: Stephen MacMillan said they're disciplined buyers and can redeploy cash via share repurchases. Karleen Oberton said innovation includes next-generation gantry focusing on workflow, patient experience, image quality, and AI in breast and cytology.

Q: Ryan Zimmerman asked about next-gen gantry and BioZorb recall.

A: Karleen Oberton said no specifics on timing yet. Essex Mitchell said BioZorb recall is unrelated to Endomag and they're working through it. Karleen Oberton said facility integration in breast business is ongoing in various stages.

Q: Mason Carrico asked about molecular business adoption of Fusion sidecar.

A: Stephen MacMillan said they're seeing steady adoption of the Fusion sidecar with quarter-over-quarter growth in customer adoption.

Q: Andrew Cooper asked about margin drivers.

A: Karleen Oberton said it's more geared towards the skeletal stop ship than Endomag, with stop ship having an impact on margins.

Q: Lou Lee asked about breast gantry placement.

A: Karleen Oberton said they have confidence gantries will grow year-over-year and be at pre-pandemic levels in 2025 but didn't give specific regional comments.

Q: Puneet Souda asked about skeletal market competitiveness.

A: Stephen MacMillan said they still feel great about the market and products, and it's a supplier issue that will be resolved within another quarter.