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.

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.

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…

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…

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…

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

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?

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

Yes, correct.

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.

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?

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.

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

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?

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.

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?

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.

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

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.

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.

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.

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

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%?

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.

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?

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'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.

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.

Our next question is coming from Dan Leonard with UBS.

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.

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.

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?

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.

Our next question is coming from Casey Woodring with JPMorgan.

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?

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.

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

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

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?

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.

Our next question is coming from Mike Matson with Needham & Company.

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?

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.

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?

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.

Our next question is coming from Navann Ty with BNP Paribas.

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.

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.

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

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?

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.

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

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.

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?

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.

Our next question is coming from Mason Carrico with Stephens.

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?

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.

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?

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.

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

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?

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.

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

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?

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.

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%.

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.

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

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?

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.

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.

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

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.

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.

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