Hologic Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 14 speakers on the call.

Operator

Good afternoon, and welcome to the Hologic 4th quarter fiscal 2023 earnings conference call. My name is Cynthia, and I am your operator for today's call. Today's conference is being recorded. Call. I would now like to introduce Ryan Simon, Vice President, Investor Relations to begin the call.

Operator

Please go ahead, sir.

Speaker 1

Quarter. Thank you, Cynthia. Good afternoon, and thank you for joining Hologic's 4th quarter fiscal 2023 earnings call. Quarter. With me today is Steve McMillan, the company's Chairman, President and Chief Executive Officer.

Speaker 1

Carline Overton, quarter. Our Chief Financial Officer is currently on bereavement and will not be joining us today. Karleen is with family, and I will be covering for her on our call. Quarter. Please join me in wishing Carleen and her family well.

Speaker 1

Our Q4 press release is available now on the Investors section of our website. Call. We will also post our prepared remarks to our website shortly after we deliver them, as well as an updated corporate presentation. Quarter and a replay of this call will be available on our website for the next 30 days. Before we begin, quarter.

Speaker 1

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 quarter to differ materially from those expressed or implied. Such factors include those referenced in the Safe Harbor statement included in our earnings release and quarter. Also during this call, we will discuss certain non GAAP financial measures. A reconciliation to GAAP can be found in our earnings release.

Speaker 1

Quarter. 2 of these non GAAP measures are 1, organic revenue, which we define as revenue excluding divested businesses quarter and revenue from acquired businesses owned by Hologic for less than 1 year and 2, organic revenue excluding COVID-nineteen, quarter, which excludes COVID-nineteen assay revenue, revenue related to COVID-nineteen and sales from discontinued products in diagnostics. Quarter. 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. Call.

Speaker 1

Now I'd like to turn the call over to Steve McMillan, Hologic's CEO.

Speaker 2

Thank you, Ryan, and good afternoon, everyone. And before I get started, I just want to do a quarter. Quick shout out to Karleen and her family and let everybody know our thoughts and prayers are with her today. We are pleased to discuss Hologic's financial results for the Q4 of fiscal 2023. Total revenue was $945,300,000 quarter and non GAAP earnings per share was $0.89 It was another strong quarter overall with revenue finishing at the high end of our range quarter and EPS Exceeding Our Guidance.

Speaker 2

Our 4th quarter capped off a tremendous year where we continued our track record of success, quarter strengthened our business and delivered on our commitments. For the full year, we posted quarter with $4,030,000,000 in revenue and non GAAP EPS of $3.96 quarter. In 2023, quite frankly, we delivered some pretty exceptional organic growth rates, quarter, which were far above our longer term targets. At the start of the year, we committed to deliver low double digit growth quarter. Across each division, in the end, we delivered more growing annual organic revenue quarter.

Speaker 2

Ex COVID in the mid teens at 15.6 percent with every division growing north quarter of 13% and international growth just above 20%. Quarter. Despite various macro challenges, like clockwork, we continued to deliver, raising our financial guidance throughout the year quarter and living up to our commitments. At the same time, our balance sheet remains incredibly strong quarter and we have the financial flexibility to grow our business for the long term. For fiscal 'twenty four, quarter.

Speaker 2

We are confident in our ability to deliver against our 5% to 7% ex COVID long term organic growth target, quarter. Even against significant comps, 1 less selling week and a challenging macro environment. Quarter. In fact, if we look at 2024 on an adjusted daily sales basis, our annual organic revenue growth rate quarter. Excluding COVID is projected to be in the 6% to 8% range.

Speaker 2

Whether adjusting for selling days or not, quarter. We believe our results will truly stand out from the crowd as we progress throughout fiscal 2024, particularly following a year quarter of almost 16% growth ex COVID in 2023. Quarter. Before sharing more of our excitement for 2024, we will first reflect on our Q4 results. Quarter.

Speaker 2

In Q4, we grew total organic revenue, excluding COVID, 16.7% quarter with double digit growth in every division. We again delivered on our promises. Quarter. At the division level, Breast Health grew 27.4%, driven primarily by the recovery in our gantry business. Quarter.

Speaker 2

Interventional breast also posted a strong quarter growing in the low double digits. We are pleased the division's gantry recovery is quarter. Tracking to our expectations following the industry's chip supply challenges. Moving on to diagnostics, quarter. Organic growth ex COVID was 10.2%, again driven by our strong molecular business.

Speaker 2

Quarter. Organic molecular diagnostics ex COVID grew 15% for the quarter, quarter, driven once again by strong contributions from BV, CVTV, Amgen and BioTheranostics. Quarter. With fiscal 2023 revenue ex COVID at $1,480,000,000 our diagnostics business is over quarter, 40% larger than it was in 2019. Even more impressive, our base molecular business quarter.

Speaker 2

Is now nearly 80%, eight-zero percent larger than it was pre pandemic. Quarter. Molecular has grown through a combination of more than doubling our Panther installed base, adding new menu, gaining new customers, quarter as well as acquisitions into adjacent markets. This transformation and durable performance speaks to the ongoing success quarter. Rounding out the divisions, surgical revenue at over $600,000,000 in fiscal 'twenty three quarter is now nearly 40% larger than what it was in 2019.

Speaker 2

In Q4, surgical grew 10.6% quarter, driven primarily by MyoSure and Fluent, both growing double digits. In addition, our laparoscopic portfolio quarter also grew double digits, albeit smaller in dollars compared to MyoSure and Fluent. More importantly, quarter. We are pleased our laparoscopic portfolio continues to gain traction. To close the overview of our quarterly results and fiscal 2023 highlights, quarter.

Speaker 2

Our international business continued to be accretive to overall growth rates, growing north of 28% quarter. On an organic ex COVID basis in Q4, we expect international to continue to be a key part quarter. Before moving on, we'd like to revisit and reinforce our capital allocation strategy. Quarter. In short, our capital allocation strategy remains the same.

Speaker 2

We continue to prioritize M and A opportunities quarter. And second, we consistently look to utilize cash towards share repurchases and we continue to be quarter. Having said that, we have recently seen the opportunity to deploy our cash balance more significantly, quarter. Taking the following four actions. 1, in Q4 2023, we deployed $238,000,000 of capital quarter to buy back 3,200,000 shares.

Speaker 2

2nd, in our current fiscal Q1 2024, call. We have already repurchased another 2,200,000 shares for $150,000,000 quarter. 3, today we announced an additional $500,000,000 accelerated share repurchase program. Quarter. And 4, we recently paid down $250,000,000 of higher variable interest rate debt.

Speaker 2

Quarter. Ryan will expand on both the ASR and debt repayment in his remarks. Quarter. Looking back 4 plus years since the start of the pandemic, the biggest acquisition we have made is of ourselves. Quarter.

Speaker 2

During this period, we deployed over $1,400,000,000 on M and A opportunities and nearly $2,300,000,000 quarter. On share repurchases, including our recent repurchases in Q1 2024. And today's ASR announcement quarter. We'll make that $2,800,000,000 As you can see, we are very confident quarter in our position for the years ahead. Rounding out our capital allocation discussion, to ensure we are optimized for the future, quarter.

Speaker 2

We carefully evaluate our portfolio on an ongoing basis. As a result, as mentioned in our release, quarter. We have recently divested our small SSI ultrasound business. Shifting gears, quarter. As we have shared on prior calls, we have broadly transformed our business and strengthened our fundamentals.

Speaker 2

Quarter. Quarter by quarter, year by year, with macro hurdles ever present, we continue to prove our strength. Quarter. Today, we are effectively a new Hologic retooled and recapitalized with strong brands, quarter. Weidemotes, industry leading margins and the strongest deepest leadership team we've ever had.

Speaker 2

Quarter. Hologic is a differentiated and more competitive company than at any time in our 38 year history. Quarter. At our core, we are fundamentally guided by our purpose, passion and promise. Our purpose, quarter.

Speaker 2

Our passion to champion women's health globally quarter and our promise, the science of sure, to provide healthcare professionals with clinically differentiated high quality products. Quarter. Across each division, we have distinct advantages created by our unique focus quarter on elevating women's health through innovative products and trailblazing social initiatives like the Hologic Global Women's Health Index. Quarter. We ultimately develop our leading positions by leaning into our purpose and proactively meeting our customers' and patients' needs.

Speaker 2

Quarter. We will highlight 3 examples today. First, we are not only leaders in women's health, quarter. But we are also sector leaders in workflow automation. Our customers continue to deal with challenges sourcing technicians quarter and the persistent pressure to efficiently manage costs.

Speaker 2

As a result, user friendly systems and efficient workflow solutions quarter. Our Panther instrument to our Brevera breast biopsy and Fluent systems quarter. To name only a few, each product is designed to transform manual, labor intensive, cumbersome processes quarter in the easy to use, dependable and efficient workflows. 2nd, the massive footprint quarter and sheer size of our installed bases in diagnostics and breast health provide a strong foundation in today's world. Quarter.

Speaker 2

With more than 3,260 Panther instruments installed worldwide and over 10,000 mammography quarter. We have the opportunity to be integral partners with the laboratories, hospitals and screening centers we support. For Panther, as customers add more menu and drive incremental volume, quarter. Our Molecular Diagnostics business continues to grow while also becoming more valuable to our customers and more deeply rooted in their operations. Call.

Speaker 2

The same could be said for our Breast Health business. Hologic is unique in our ability to support our customers quarter. We will now begin the Q4 of 2019 with our ecosystem of technologies that integrate across a patient's journey, creating a more comfortable patient experience, quarter. Greater clinical confidence for practitioners and increased operational efficiencies for our customers. Quarter.

Speaker 2

Moving on to our 3rd example, our long standing brand leadership across multiple product lines in each division, quarter, which yields strong, stable margins and steady cash flow generation. We are innovators and leaders quarter in breast and cervical cancer screening, STI testing, abnormal uterine bleeding treatment and fibroid removal. Quarter. This is a significant statement given the strong competitors we face in each respective business. Quarter.

Speaker 2

Our diversified leadership and scale across our business lines support industry leading margins and cash flow quarter. And in turn, we have the ability to further invest and grow our business. Altogether, quarter. We are emerging as a premier growth company, differentiated and more competitive, delivering strong growth quarter. Across each division and international, as the new much stronger Hologic we are today, we consistently deliver quarter and aim to continue to do so.

Speaker 2

Turning our attention to 2024, I will touch on some of the high level growth drivers in each business call. And Ryan will finish the call with further detail related to next year's guidance. First, in Breast Health, quarter. We expect 2024 to be another strong year of growth. With our gantry backlog remaining elevated compared to historic levels, quarter.

Speaker 2

We have greater visibility into our pipeline, translating to higher confidence in future gantry sales, creating another exciting year quarter for Breast Health. In diagnostics, as in recent years, Molecular will continue to drive growth for the division. Quarter. We expect our large global Panther installed base to continue to add new menu while also increasing volume for existing assays. Quarter.

Speaker 2

In addition, our biotheranostics business, which we acquired in 2021, is expected to continue delivering quarter. Double digit growth being accretive even to our molecular growth rate. In 2023, quarter. Biotheranostics grew over 30% and we are still in early innings growing the breast cancer index test. Quarter.

Speaker 2

BCI is still the only test recognized by NCCN guidelines and the American Society of Clinical Oncology quarter to predict which patients are likely to benefit from extended adjuvant therapy beyond 5 years, yet another example of an innovative quarter and differentiated product. In surgical, MyoSure, our FLUENT system and our newer laparoscopic products that we acquired via Boulder and Assessa are projected to continue to drive growth. Quarter. Internationally, surgical also continues to shine. In 2023, our international surgical growth rate quarter.

Speaker 2

Was more than double the U. S. Growth rate. Surgical is clearly emerging as a strong and profitable growth driver. Call.

Speaker 2

To conclude, entering 2024, we are a new and differentiated Hologic. We are bigger, quarter. Stronger and more competitive than ever. Our leadership brands, growth drivers across all three divisions, quarter. Durable margin profile and strong balance sheet will continue to power us forward.

Speaker 2

As we look ahead to 2024, quarter. We are poised to continue to grow and make an even bigger impact on women's health around the world. Quarter. With that, let me hand the call over to Ryan.

Speaker 1

Thank you, Steve, and again, good afternoon, everyone. In my remarks today, I will touch on our 4th quarter financial results, recap our annual performance for certain items and end with our fiscal 2024 guidance quarter for Q1 and the full year. We are pleased to close out fiscal 2023 with yet another strong quarter of growth and profitability. Quarter. In our Q4, total revenue was $945,300,000 and again, we delivered double digit organic quarter.

Speaker 1

Revenue growth, growing 16.7%, excluding the impact of COVID. In addition, quarter. Our Q4 non GAAP earnings per share were $0.89 growing 8.5% compared to the prior year quarter, despite significantly less COVID testing revenue. For the full year 2023, total revenue was $4,030,000,000 quarter. Organic ex COVID revenue grew 15.6 percent and non GAAP earnings per share were $3.96 quarter.

Speaker 1

These are exceptional results in what has been an unpredictable operating environment. Now moving to a brief discussion of our divisional revenue. Quarter. In Diagnostics, global revenue of $416,400,000 declined 20.6%. However, quarter.

Speaker 1

Excluding COVID assay and COVID related revenues, the division grew 10.2% in the quarter. Performance was again led by molecular diagnostics quarter, growing 15% in the period ex COVID. For the year, Molecular posted very strong global growth of 18.9 quarter. As Steve highlighted, growth continues to be driven by increasing Panther utilization, quarter. Turbocharged by a much larger installed base and strong performance from BioTheranostics.

Speaker 1

Moving next to our COVID results, quarter, which exceeded our previous guidance. COVID assay revenue in our 4th quarter was 21,000,000 quarter. And COVID related revenue, inclusive of a small amount of revenue from discontinued products in diagnostics was 24,000,000 quarter. Staying in diagnostics, our cytology and perinatal business increased 1.3% in our 4th quarter, quarter. A solid result following outsized growth in our preceding Q3 due to the timing of certain larger orders.

Speaker 1

Quarter. Moving to Breast Health. Total 4th quarter Breast Health revenue of $352,800,000 quarter, increased 27.4%. The division's healthy bookings and elevated backlog provides us excellent visibility quarter to meet customer needs and financial targets in fiscal 'twenty four and beyond. Continuing next to Surgical, quarter revenue of $148,000,000 increased 10.6% compared to the prior year.

Speaker 1

Quarter. Surgical's 4th quarter closes out a year in which the business grew a tremendous 15.8% organically, quarter. Excluding the impact of Boulder in Q1 and finally, in our skeletal business, quarter revenue of $28,000,000 was also strong, increasing 15.9%. Quarter. Now, let's move on to the rest of the non GAAP P and L for the 4th quarter.

Speaker 1

Gross margin of 60.4% quarter was driven by strong performance in our base business. However, this result was partially depressed by certain elevated costs, quarter, including higher cost inventory from previously procured semiconductor chips. Moving down the P and L, quarter operating expenses of $303,700,000 decreased approximately 8%. Quarter. This decrease was driven by lower marketing spend in the period compared to the prior year, primarily due to the timing of expenses quarter associated with our WTA partnership.

Speaker 1

The low operating income, other income represented a gain in our fiscal 4th quarter. Quarter. We benefited from higher interest rates on our cash balance, driving elevated levels of interest income. Quarter. In addition, we realized gains on our interest rate hedge, helping to lower interest expense for our floating rate debt.

Speaker 1

Quarter. Finally, our tax rate in Q4 was 19.75 percent as expected. Quarter. Putting these pieces together, operating margin for Q4 came in at 28.3% quarter. And net margin was 23.2%.

Speaker 1

As we have previously discussed, we expect operating margin quarter to improve from this level throughout fiscal 2024. Finally, non GAAP net income finished at 219,300,000 quarter. And non GAAP EPS was $0.89 Moving on from the P and L, cash flow from operations was 258 quarter, capping off a year in which we generated over $1,000,000,000 in operating cash flow. Quarter. As Steve outlined, we were actively repurchasing our shares in Q4 'twenty three as well as the start of Q1 'twenty four.

Speaker 1

Quarter. For the full year 2023, we spent $500,000,000 to repurchase 6,800,000 shares. Even so, quarter. We ended the 4th quarter with $2,700,000,000 of cash on our balance sheet and a net leverage ratio of 0.1 times. Quarter.

Speaker 1

Lastly, after the end of our fiscal Q4, we completed one important capital market transaction quarter and intend to enter into another. First, we repaid $250,000,000 of floating rate debt associated with our credit agreement. Quarter. This debt pay down helps to further protect our balance sheet against the risk of rising interest rates. And second, quarter.

Speaker 1

As Steve mentioned, we continue to bet on ourselves and announced a $500,000,000 ASR, showcasing quarter. Our resolute belief in the value of our business as we look to benefit from the stock market under appreciation of our intrinsic value. Quarter. Now let's move on to our non GAAP financial guidance for the Q1 and full fiscal year. Quarter.

Speaker 1

For our Q1, we are expecting total revenue in the range of $960,000,000 to $985,000,000 quarter and EPS of $0.92 to $0.97 For the full year 2024, quarter. Our guidance assumes revenue of $3,920,000,000 to $4,020,000,000 and EPS of quarter. $3.90 to $4.10 As you reconcile our guidance to your models, we would like call out 3 specific items pertaining to full year total revenue. 1, the headwind of 4 less selling days quarter in fiscal 'twenty four compared to fiscal 'twenty three, which is about $40,000,000 2, quarter. The divestiture of the SSI Ultrasound business, about a $20,000,000 headwind and 3, the impact of FX, quarter.

Speaker 1

Also about a $20,000,000 headwind. First, with respect to selling days, our fiscal 'twenty three was a 53 week year. Quarter. In fiscal 'twenty four, we have 4 less selling days compared to 'twenty three, specifically within Q1. Quarter.

Speaker 1

We estimate the impact of the 4 less selling days to be a headwind of about 400 basis points to our Q1 results quarter and more than 100 basis points for the full year. 2nd, regarding the divestiture of the SSI Ultrasound Business, quarter. In the same way we treat revenue from our divested blood screening business, we will be removing ultrasound revenue from both the current and prior year quarter when calculating our organic growth rates in fiscal 'twenty quarter. $4,500,000 in Q1 'twenty three and about $20,000,000 for the full fiscal year. Quarter.

Speaker 1

For fiscal 'twenty four, we expect immaterial remaining ultrasound revenue of less than $1,000,000 per quarter. Quarter. And 3rd, in terms of foreign exchange, we are assuming an FX tailwind of approximately $3,000,000 for Q1 quarter and a headwind of about $20,000,000 for the full year. We anticipate the impact of the recently stronger U. S.

Speaker 1

Dollar quarter to be more acutely felt in the back half of our fiscal 2024. Now turning to our divisional guidance. Quarter. We expect that each base business will grow within our 5% to 7% framework for the full fiscal year at the midpoint. Quarter.

Speaker 1

However, this may not be every division, every quarter due to strong 2023 comps for certain businesses. Quarter. Starting with core diagnostics, we expect the business to grow within our 5% to 7% long term target for the full fiscal year 'twenty four, quarter, but likely below this level in Q1. Our first quarter growth rates will be impacted not only by the 4 extra quarter. Selling days in the prior year period, but also strong non COVID respiratory comps.

Speaker 1

As we plan for fiscal 'twenty four, quarter. We are forecasting conservatively for menu items related to flu and RSV. At this point, we do not quarter. Foresee a respiratory season in the first half of fiscal twenty twenty four that mirrors last year. Quarter.

Speaker 1

Closing out our non COVID diagnostics business, we expect blood revenue of about $8,000,000 in Q1 quarter and about $30,000,000 for the full year. In terms of COVID revenue, we expect COVID assay sale quarter to be about $15,000,000 in the Q1 of 'twenty four and about $40,000,000 for the full year. Quarter. COVID related items are expected to be about $30,000,000 in the Q1 and about $105,000,000 for the full year. Quarter.

Speaker 1

Moving to Breast Health, we expect fiscal 'twenty four to showcase strong demand for our product portfolio as supply chain challenges abate. Quarter. As a reminder, due to supply chain challenges in the prior year, our growth rate in fiscal Q1 will likely be above trend. Quarter. Therefore, as we move throughout the year and comps normalize, growth rates may recede.

Speaker 1

However, total revenue should quarter. Quarter. We expect growth rates within our long term target of 5% to 7% for the full year, but below this level for Q1. Quarter. In our Q1 of fiscal 'twenty four, surgical will be impacted by the 4 less selling days, as well as the fact that we are lapping a pricing benefit quarter from NovaSure's B5 product line extension.

Speaker 1

Moving next to margins. We expect the cadence of improvement throughout fiscal 'twenty four quarter for both gross margin and operating margin as we work through higher costs during the year. For gross margin, quarter. We anticipate Q1 levels at approximately 60%, exiting the fiscal year in the low 60s. Quarter.

Speaker 1

Similarly, our guidance assumes Q1 operating margins in the high 20s with a Q4 quarter. 24 exit rate in the low 30s. Continuing to work down the P and L, quarter. We expect Q1 to represent our highest quarter of operating expense in fiscal 'twenty four. This is due to normal seasonal quarter.

Speaker 1

Expenses associated with internal global sales meetings to kick off our fiscal year. For the balance of the year, we anticipate quarterly operating quarter. We expect to be in line with the back half of our fiscal 'twenty three. Below operating income, quarter. We estimate fiscal 'twenty four other income, net, to be approximately neutral in Q1 and an expense quarter of between $40,000,000 to $60,000,000 for the full year.

Speaker 1

Our guidance is based on an annual effective tax rate quarter of approximately 19.75 percent and diluted shares outstanding are expected to be approximately quarter, which is a very strong Q4 wrapped up a remarkable year for Hologic. Quarter. As we move to our fiscal 2024, we remain focused on advancing women's health around the world, while delivering on our promises and commitments to quarter shareholders, employees, customers and patients. With that, we ask the operator to open the call for questions.

Operator

Quarter. Thank share. Your mute function is turned off to allow the signal to reach our equipment. In the interest of time, we ask that you please limit yourself to one question and one follow-up question. We will take our first question from Puneet Souda with Leerink Partners.

Operator

Please go ahead.

Speaker 3

Quarter. Hi, Steve. Thanks for taking the questions and thanks, Ryan, for the details there on financials. Quarter. If I could ask 2 of my questions together.

Speaker 3

On we've been getting a number of questions around USPSTF, it's right around quarter. Could you update us on your thoughts for co testing versus primary at this point? Quarter. Any change in how it could turn out to be grade A versus grade B? And if you're wondering if you're Incorporating any of that impact in your 2024 guide.

Speaker 3

And then second part, Steve, is just with the FDA LDT regulation, quarter. Do you think it changes the competitive landscape for Panther or for your approved diagnostic platforms? Thank you.

Speaker 4

Quarter. Sure, Puneet.

Speaker 2

Let me take those. 1st, USPS TF, we continue to think there's so much focus on this that's quite frankly quarter. Very little impact to our business. I'd remind you back in 2018 when the first guidelines were being updated at that point in time, quarter. They came out.

Speaker 2

They were against co testing. By the time ultimately they came out as official, co testing was put back in. Quarter. We continue to feel very good about our business regardless of how they go. They also quarter.

Speaker 2

Obviously, people have been focused on for months months, thinking they're coming every other day. We think it's a big do about nothing to be quite candid. Call. Feel great about our business, feel great about the data on co testing and feel great that regardless of how they go, quarter. The clinicians are going to stick with our business and there's going to be no change to our forecasts.

Speaker 2

So regarding the LDT thing, I think again quarter. Great question. It's part of where I view the strength of our business. First off, I think again that there's so much focus on what I call headline risks. Quarter.

Speaker 2

To be clear, the LBT stuff won't come into effect probably until at least 2028. And there's going to be issues that are quarter. We battle between now and then legislatively everything else. So nothing that's going to impact the business over the next 3 years, quarter. Probably next 5.

Speaker 2

At a bare minimum, however, we love where we're positioned and that most of us with our kitting and as you well know quarter. From a Panther standpoint, it could create more opportunities. So the LVT thing probably creates more opportunity for us than it does risk. Quarter. Having said that, we really just don't think much is going to happen on that over the next few years.

Speaker 2

So thanks. We know you probably have another call you want to get to, too, Puneet.

Operator

Quarter. We will take our next question from Jack Meehan with Nephron. Please go ahead.

Speaker 5

Quarter. Thank you. Good afternoon. And first, I hope Karleen and family are doing all right. Quarter.

Speaker 5

And also, Steve, appreciate the commitment to the capital return here to shareholders. I think that's great. I was wondering if you quarter. Just on the business, Bob. Great, good afternoon, Jack.

Speaker 5

I appreciate it. Okay. Can we talk about Panther? Now that we're at the quarter. Are there any updated utilization stats you can share for the system?

Speaker 5

And second, the recent placement rates have quarter. I know there was some pull forward on placements that you're during the pandemic. I was just curious like how long you think this kind of last before quarter. Hospitals and labs start expanding their fleets again. Thanks.

Speaker 2

Yes, great. I think the simplest thing on utilization is that our molecular quarter. This grew 18.9% last year, which is virtually all increased utilization on the Panthers quarter. We just love what we've done there. Clearly, as we said even at the start of last year, Panther placements for the next few years may be very small and frankly quarter.

Speaker 2

Are almost immaterial to us growing the business because at this point there were so many machines put out there as you know from everybody, call. But I think especially from us, now it's really ramping up the menu with our existing customers and an increased focus on expanding the Fusion. Quarter. So I think the magic for us is now that we have so many Panthers installed, we're increasingly going back and getting the Fusion sidecar put on, quarter which opens up the PCR assays and I think we continue to see years years of growth quarter. Just even from the existing installed base as we're expanding the menu and putting more fusions out there.

Speaker 2

So Ryan, do you have anything you want to add?

Speaker 1

Yes. Jack, I'll add to that, that quarter. Our growth as we look forward is not predicated so much on placing additional Panthers. It's really what Steve mentioned is quarter. Placing more assays on the systems, expanding the fusion footprint as well as growing the volumes of the assays adopted

Operator

quarter. We will take our next question from Derik De Bruin with Bank of America. Please go ahead.

Speaker 4

Quarter. Hi, thanks for taking the call. I appreciate it. Just some quarter. You commented on the pricing environment.

Speaker 4

Can you are you Tay, what your sort of expectations are for pricing this year? And Ryan, just, I know you said negative 40 and negative 60 expense for other all in, but what's the interest expense on that, quarter. Just to help clean up the model.

Speaker 2

Yes, I'll take the first part and then kick it over. In terms of pricing, quarter. Overall, we're assuming very modest pricing in our most of our gains really are volume given that a lot of our contracts are already set quarter. With very little pricing increase and I think it's where we're very proud of the fiscal discipline that we've been able to exert quarter. And then getting opportunistic pricing or pricing really has as much mix as we launch new products, Derek, but very little Our growth is based on pricing at this point.

Speaker 1

Yes. And on that second piece, Darren, it's approximately $50,000,000 in quarter. When you're looking at it from a high level, like looking at 23 compared to 24, the biggest quarter. The difference there is, we're assuming less cash on the balance sheet going forward. And But to answer your question specifically $50,000,000 on that interest expense.

Speaker 4

Great. And just one clarifying if I can, the full ASR is embedded To the current guide for EPS.

Speaker 2

Correct.

Operator

Quarter. We will take our next question from Patrick Donnelly with Citi. Please go ahead.

Speaker 4

Quarter. Hey guys, thanks for taking the questions. Steve, maybe one on the breast health side. Obviously, you guys you had a bit of a backlog with the supply chain quarter. Can you just talk about how you're working that down?

Speaker 4

What goes into the guide this year there? And then the second one, quarter. Just on the margin piece, yes, I know we don't have Carline, but maybe Ryan, just in terms of the moving pieces as you think about the 24 margin build, quarter. Obviously COVID coming down, some high margin stuff. Can you just talk about what you guys are doing to offset that and keep margins moving in the right direction?

Speaker 4

Thank you guys.

Speaker 2

Quarter. Great. Thanks. First in terms of the Breast Health business, I think we see clearly placing quarter. At least a double digit increase in the gantries this year both domestically and internationally.

Speaker 2

We really got it going more in our 2nd fiscal quarter. Last year, so especially this Q1, we'll show much bigger growth for the Breast Health business. But I think we feel great about being able to continue quarter to place the gantries and just based on the backlog alone, let alone the additional customers we're winning. Quick first crack at the margin piece. The way I think about it is before Ryan comes in is, I think they quarter.

Speaker 2

We'll basically be lower in our 1st fiscal quarter and then growing through the year as we continue to bleed through the higher cost, quarter, especially chips in gantries. And we're also in the midst of relocating some of our basically our manufacturing for our Breast Health business quarter from Connecticut down to Delaware. So at the current time, we've got double costs as we do that and I think we've got great visibility quarter. That those gross and operating margins will be improving throughout the year. If you want to add more to that.

Speaker 1

Yes, sure, Steve. So as we previously called out, quarter. Q3, Q4, our expectation is that would be the trough with respect to operating margins. And as Steve mentioned, our expectation is to work up from there quarter. To the low 30s as an exit rate in 2024.

Speaker 1

Steve pointed to the fact that we're working past and farther away from the highest cost quarter. Our breast business is also recovering, which is going to be a tailwind to margins as well. Call. We did mention that we divested the FSI business, and that will also be a tailwind quarter to margins as we go into 2024.

Operator

Our next question comes from Tejas Savant with Morgan Stanley. Please go ahead.

Speaker 6

Hi, team. It's Madison on for Tejas. Thanks for taking the question. Quarter. Maybe just firstly, I was wondering if you could elaborate on how you're thinking about international growth for 2024.

Speaker 6

Quarter. I know you flagged the under indexation to China as an advantage in the near term, but what's your combined exposure

Speaker 7

quarter.

Speaker 6

To China and the Middle East, and should any of that ongoing comp sites weigh on the demand throughout the latter part of quarter in the Middle East region.

Speaker 2

Sure. We have very little in the Middle East and China is 2%. So between the two, quarter. It's call it 2% to 3% really. So we're I think we love that from the current environment.

Speaker 2

Quarter. And as it relates to international overall, I think we've continued to see our international business as being clearly accretive to the growth rates of the company. Quarter. And really over the last number of years, it's been a double digit grower and wouldn't count out that it couldn't do that again this year. So quarter.

Speaker 2

We've strengthened our international businesses significantly over time. Our Breast Health business getting stronger. Diagnostics has benefited hugely from All the additional Panther placements, so that's been growing tremendously internationally. And our surgical business after years of trying to work quarter. And getting products approved is really also starting to take off internationally as we said a real nice grower here over last year.

Speaker 2

So I I think we see all three franchises being in very good shape to grow here in 2024.

Operator

Quarter. We will take our next question from Vijay Kumar with Evercore. Please go ahead.

Speaker 8

Hey, this is Kevin on for Vijay. Just a clarifying question on the 4% to quarter. 7% base organic guidance for the full year. Does this include or exclude the 4 selling days impact, Meaning excluding the impact would guide the 5% to 8%?

Speaker 2

You got it exactly. Quarter. Yes, we factored that in. So that's why it's actually yes, it's 5 to a little north of 8.

Speaker 1

And just a reminder that is ex

Speaker 8

quarter. Got it. So just a follow-up, if the guide excludes days impact, quarter. Why is the lower end?

Speaker 2

No, it includes the day the 4 to 7 Is including, just to clarify.

Operator

Okay, got it.

Speaker 8

Quarter. And just a follow-up then. You also highlighted new share repurchasing quarter and an accelerated repurchase program. Is this a change in your capital allocation priorities? Quarter.

Speaker 8

It seems like M and A was a focus in previous quarters.

Speaker 2

Yes. As we reiterated, we continue to focus on M and A. Right quarter. Right now, we just happen to think that one of the great acquisition opportunities is our own stock with where it's priced, and we're trying to send that quarter. But we're continuing to look for external M and A as well, but we just love the position we're in.

Speaker 2

So it's not a quarter. It's just an extra opportunistic based on where the valuation of ourselves sits right now. Thanks, Kevin.

Operator

Quarter. We'll take our next question from Tun Daley with Wells Fargo. Please go ahead.

Speaker 7

Quarter. Thanks. So, Steve, following up on the Fusion comments you made to Jack's question, quarter. Could you update us on the percent of the Panther installed base currently Fusion enabled at the end of fiscal year 'twenty three? And I guess quarter.

Speaker 7

Or similarly, what were the Fusion CyStar placements in 2023?

Speaker 1

Quarter. What I'll comment on is the current attachment rate and it's about 20% to the Panther installed base.

Speaker 2

Quarter. Yes, which is growing, but the way we look at it, it doesn't have to be 100%, because the key is we think about it per customer. Quarter. And so that each customer needs enough fusions to be able to deliver what they need for their products. So We've seen very nice growth.

Speaker 2

We're not necessarily disclosing the exact numbers, but really like the growth there.

Speaker 7

Quarter. Okay, got it. Then, Brett, just talked about healthy bookings, elevated backlog, great visibility into 24. Just quarter. If you can help us, how much of the 24 breast revenue expectations are currently covered in your backlog or Direct visibility via hard orders, just curious on kind of the coverage rate for the year versus the fiscal year?

Speaker 2

Think about all quarter. Actually, if you look at it as you'll see in the 10 ks that basically we've got the orders quarter in place for the year. Now we're going to continue to add orders to that for further out periods, but we're in great shape coming into the year.

Operator

Quarter. We'll take our next question from Anthony Petrone with Mizuho Group. Please go ahead.

Speaker 9

Quarter. Thanks. Good afternoon and also send condolences to Karleen and her family. Maybe the first one on biotheranostics, just up 30% quarter for the full year and obviously still in the early days as you mentioned Steve in your prepared comments. I'm just wondering when you think about quarter.

Speaker 9

I guess the synergy to the Breast Health business, you have 10,000 gantries out there. And I think there's 2 call points really for biotheragnostics, OBGYN and then possibly a little bit in radiology specifically, but how should we quarter. I'll be thinking about how many of your Breast Health installed base users are currently using biotheranostics and quarter. How long will it take to sort of extract that entire synergy? And then specifically on margins quarter.

Speaker 9

For Ryan, just when we that trajectory from high 20s in the Q1 to low 30s, is that linear? Are there certain inflection quarter. So what are they? Is it operating leverage or more in pricing at the gross margin line? Thanks.

Speaker 2

Quarter. Sure, Anthony. On the first one, it's a great question and I don't have the specifics. I think quarter. Our biotheranostics sales team has been out there really focusing on a number of key docs.

Speaker 2

Quarter. And so as they're building it up, I do think we're back to the early innings, still lots of opportunity to more broaden it with both our breast quarter. As well as even our diagnostics, OB GYN sales forces. So still a lot of opportunity ahead to your point. Quarter.

Speaker 1

Yes, Anthony, on the margins as we've stated in the commentary, looking to work up from the high 20s to the low 30s through the course of quarter. It should be a relatively consistent trajectory up to that range. As I mentioned on the prior question, Breast Health quarter. Recovery is a tailwind to the margins. The farther we get away from the higher cost quarter.

Speaker 1

Our gantry as we progress throughout the year, that should be helpful

Speaker 3

quarter as well.

Speaker 1

And again, the savings from SSI should be felt quarter in the back half of the year as well.

Operator

We'll take our next question from Casey Woodring with JPMorgan. Please go ahead.

Speaker 10

Great. Thank you for taking my questions and my condolences to Carline and her family. Quarter. So I just wanted to talk about the guidance surgical business. So growth this year is going to be within the LRP range coming off of 16% organic comp in 'twenty three.

Speaker 10

Can quarter. Can you just talk about some of the growth drivers there? It sounds like international is a big piece of it. It sounds like pricing drove outperformance this year as well. So can you just talk about quarter.

Speaker 10

How that business performed this year and the sustainability into next year. And then just one more quickly on the margin. So I think in 'twenty three, you baked in something around 200 basis points to 2.50 basis quarter. Inflationary headwinds outside of that higher semi chip costs. How should we think about that dynamic here in 2024?

Speaker 10

Thank you.

Speaker 2

Quarter. Sure. On the guidance surge business, I'd say we had everything working for us in 2023, quarter. Including the NovaSure V5 launch that had did have some pricing associated really. It showed up more as mix, but it was a higher priced product.

Speaker 2

Quarter. And then I think frankly procedures were pretty good, but we fired across all cylinders NovaSure, MyoSure, Fluent quarter. And then also Boulder and Assessa and did it both domestically and internationally. I think as we go into next year, quarter. MyoSure and Fluent and Boulder and Assessa all continuing to look as very good growth.

Speaker 2

NovaSure will probably be back quarter. Flattish to possibly down a touch, but internationally, I think again we see international being a solid double digit quarter in the year. So, feeling very, very good about our position. I would tell you one of the biggest quarter. Surprises to me probably over my almost decade now at Hologic has been the continued growth and the sheer scale of MyoSure quarter.

Speaker 2

As it continues to really grow the category and if we think about TAMs, the total available market never realized how big quarter. It would be and I think we're continuing to expand that market. So feeling very, very good about that. Quarter. I'll let Ryan take the second part of that.

Speaker 2

Everybody's decided I can't handle margin questions. So I'll go ahead and let Ryan go ahead and take them.

Speaker 1

Yes. So, I do want to clarify one comment that we made to Derek's question earlier. It is actually quarter. $50,000,000 in income and $130,000,000 in expense. So I had flip flopped that in the prior question.

Speaker 1

Quarter. And again, with respect to margins, kind of just reiterating the comments that we've made here, it is an expectation that we are going from, quarter. Again, the high 20s to the low 30s. The biggest impacting driver, again, is the breast recovery and moving again quarter. Farther away from the higher priced chips.

Speaker 2

Yes, I think that's what gives us such confidence in the gross margin expansion to clarify that is, quarter. It is looking at the current inventory that's sitting on our balance sheet that is just going to flow through here on effectively a first in first out basis. Quarter. So we can see those super high priced chips that we got early and mid in the chip crisis quarter. Leading through the product lines here in the Q1, really by the first two quarters most of that will be done and it gives quarter.

Speaker 2

Great confidence as we continue to work through the year.

Operator

We We'll take our next question from Naveen Thai with BNP Paribas. Please go ahead.

Speaker 11

Quarter. Hi, good afternoon. I just had a follow-up on the M and A. I'm curious to know whether Hologic came across interesting deals since August bin. Do you see a healthy amount of sub-one billion deals?

Speaker 11

Thank you.

Speaker 2

Thanks, Yvonne. We continue to quarter. Tower of the landscape, the bankers have been all over the place with lots of ideas. We frankly are in that great position where we can be patient. Quarter.

Speaker 2

Yes. If I still look at the landscape today, you've got a whole bunch of very smaller companies that went public in COVID time that are quarter. We're leveraging cash and in bad shape. And a lot of those still don't fit our criteria. So then we're looking at other things that quarter.

Speaker 2

Maybe a little bit more established, but the magic that we have for us right now is given our growth rates, given our profitability, quarter. We've got a pretty tight hurdle rate that not a lot of things are making it to the top. So I quarter. I wouldn't expect anything super imminent as we continue to look at the landscape.

Operator

Quarter. Helpful. Thank you.

Speaker 2

Thank you.

Operator

We'll take our next question from Mike Matson with Needham and Company. Please go ahead.

Speaker 8

Quarter. Yes, thanks. So I want

Speaker 12

to ask one about the breast business, specifically the gantries, I guess. Quarter. During when you had all the kind of supply chain issues, you talked about the orders were coming in and remaining strong. And quarter. And I know you've got a backlog now, but I guess what I'm wondering is, what is the ordering looking like?

Speaker 12

Quarter. Because we have seen some kind of mixed signals out there about capital spending at the hospital level. Quarter.

Speaker 2

Yes. We continue to feel good about orders. Having been in this chair in a different company in the 2000 quarter. 2018, 2009 downturn, I'm always particularly attuned to trying to pay attention to concerns about capital freezes or capital tightening. Call.

Speaker 2

I think we just feel great about where we are both in terms of the products we've already got the orders in as well as continuing to get new quarter. So we're booking candidly out beyond the current year at this stage and just quarter. A lot of excitement still in our Breast Health business. I think what's hard for people to grasp is how much we've dramatically expanded our installed base to where we're quarter. So strong in the U.

Speaker 2

S. And so many people just still coming to us. So really feeling very good about it.

Speaker 12

Quarter. Okay, got it. And then just on the international business, I mean, it's good to see that the growth being so strong there and you sound pretty optimistic about the outlook. Quarter. But I was wondering if you could maybe just talk about what's really driving the growth there?

Speaker 12

Is it expanding into new countries? Is it getting new products Approved in your existing markets, is it gaining share in existing markets, is it maybe all of the above?

Speaker 2

Quarter. Yes. I'm glad you asked it. I think the magic for us is it is all of the above. It's this incredible diverse growth quarter.

Speaker 2

That in very simple terms, if we actually do look almost country by country and franchise by franchise quarter. And we were just with literally that the sales leaders of each country for each franchise in Dubai a couple of weeks ago. So quarter. Coming fresh off looking at all the plans. If I look at the U.

Speaker 2

K, right, we have growth plans for diagnostics, not just diagnostics, but quarter. Psychology as well as molecular. In the U. K, we've got plans for the Breast Health business and we have plans for quarter. Surgical and it is it's bringing in the case of surgical, it's bringing those products into these markets.

Speaker 2

It's getting the reimbursement quarter. And it's just been a lot of nothing sexy and no one big driver, which I actually think creates quarter. The excitement and even as places like China have gotten a lot wonkier for most companies because we're small there, We're not counting on that for our growth. We're getting it everywhere else. But it's not sexy, quarter.

Speaker 2

But it's incredibly effective that it's literally almost every franchise in every geography. And these 100 of 1000 here and there, quarter. As you keep adding them up, they become 1,000,000 and 1,000,000 and then tens of 1,000,000, all through it. And I think it's creating this inexorable growth As we're bringing on new customers in each franchise. Thank you, Mike.

Speaker 8

Quarter.

Operator

We'll take our next question from Andrew Brackmann with William Blair. Please go ahead.

Speaker 2

Hi guys. Good afternoon. Thanks for taking the questions and certainly sending condolences to Carline call. Here. I'll just pick the one on the innovation engine here.

Speaker 2

You guys have obviously done well sort of advancing the platforms through R and D and new launches, but quarter. How should we be thinking about major upgrades within the core franchises here over the next couple of years? Anything to call out there or should we be quarter. I guess more singles and doubles moving forward. Thanks.

Speaker 2

Sure, Andrew. I think quarter. We never want to overhype anything, but we've got some neat things coming both particularly organically quarter. In the Breast Health business, diagnostics, obviously, BVCV is off to a tremendous start and we're excited by that organic thing. Quarter.

Speaker 2

And then working it out, but probably more in this continued singles, doubles category that hopefully over time quarter. Those singles and doubles turn into triples. I think if you look at Assessa and Boulder, right, they're growing very nicely. They're still very small. Quarter.

Speaker 2

And so over time, I think the magic from where we sit today is we can see those franchises quarter. Growing at above our company rate for the next 5 plus years at least. And I think that's the magic of what we have going here. Quarter. So again, no one kind of back to Mike's question a little bit.

Speaker 2

No one product driving the growth. It's systematically coming quarter. Across the product lines. And I think it creates a lot more durability. Okay.

Speaker 2

Thanks guys. Thanks, Andrew. Quarter. We have time for one more question.

Operator

And we will take our final question from Andrew Cooper with Raymond James. Please go ahead. Quarter.

Speaker 13

Hey, thanks guys for squeezing me in. I lost already been asked. So maybe just one, you mentioned booking out already into next year quarter. On the Gantry business, just what is the typical kind of visibility you have at this point looking into the year relative to maybe where you sit quarter. Now with this big backlog, in other words, how much bigger is that backlog than it typically would be?

Speaker 1

Quarter. Yes, it's clearly

Speaker 2

peaked. I think we peaked up here in the last year and now we will quarter. I'm sorry to bleed that down, but we typically have reasonable visibility. By the way, it doesn't mean that an order can't be placed now that we wouldn't ship sometime in the next quarter. So it all depends on how they're scheduled and everything else.

Speaker 2

But I think we feel really good about where we sit. Quarter. Great. Anything else? All right.

Operator

That concludes today's question and answer session. And this now concludes the Hologic 4th quarter fiscal 2023 earnings conference call. Have a good evening.

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Earnings Conference Call
Hologic Q4 2023
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