Hologic : William Blair 45th Annual Growth Stock Conference Transcript

Published: 2025-06-05 11:50:06 ET HOLX

Published on 06/05/2025 at 11:50

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

HOLX.OQ - Hologic Inc at William Blair Growth Stock Conference

EVENT DATE/TIME: JUNE 04, 2025 / 9:00PM GMT

OVERVIEW:

Company Summary

All right, hi everyone, good afternoon. Thanks for joining us here as we begin to wrap up the second day of the William Blair Growth Stock Conference. If you haven't met me, I'm Andrew Brackmann. I'm the diagnostics analyst here at William Blair that covers Hologic.

Today, we're pleased to have the team, including CFO, Karleen Oberton, and from Investor Relations, Peter Sattler. I am required to tell you that for a full list of research disclosures, please visit williamblair.com. And the format today will be a formal presentation and here, followed by a breakout in [Gene A].

‌With that, I'll turn it over to Karleen. Thanks

Thank you, Andrew, and good afternoon, everyone. So our Safe Harbor statement, non-GAAP financial measures, and let's get to the good stuff.

Hologic. Hologic is a medical technology company uniquely focused in women's health care. In each of our franchises, we have products that are market-leading products based on clinically differentiated outcomes. We are typically what you'd consider the gold standard of care, and that would be, for example, ThinPrep and cervical cancer screening our Panther instrument in molecular diagnostics, our 3D mammography, our 3D Genius mammography in our Breast Health business and our MyoSure for the treatment of fibroids in our surgical business.

These large market-leading shares really are the foundation for growth for the organization. We're able to invest both organically and inorganically around these platforms. These platforms have tremendous gross margin. As a result, we have peer-leading operating margins and tremendous cash flow. And at this point in time, we have a really fortress balance sheet.

We have a credit agreement with best-in-class terms. And we ended our fiscal Q2 with $1.6 billion in cash and investments a leverage ratio less than 1 times. Structurally, we operate within three divisions. Our two largest divisions, are Diagnostics and Breast Health followed by our Surgical division.

From revenue models, we have several different revenue models, including a capital, service and consumables. If you look at the consumables and the service that translates into about 80% of our revenue is recurring in nature.

From a geography perspective, we're clearly indexed to the US with only 25% of our revenue coming outside of the US at this point in time. That clearly is an opportunity for growth for us I would also say that as a women's health care company, while that is an opportunity, it also has its challenges when you think about some of our market-leading products here in the US with breast cancer screening, cervical cancer screening, not every country outside the US has those screening programs.

But again, that's an opportunity with us to partner with health ministries and drive those programs because as we know, early detection of cancer leads to better outcomes and better cost profiles for health systems.

If we look at our growth profile, while we have a couple of challenging quarters that we're dealing with now, if you take a step back and you look back at the past 10 years, revenue has grown just under 5% and we've grown earnings just over 10%. And as we think about our algorithm as we move forward, we talk about mid-single-digit growth. and double-digit earnings growth. And I think we've got a record that we've done that over the last decade, and we'll continue to be able to do that.

So let's talk about a couple of our franchises. So Diagnostics is our largest franchise and is leading us in growth. And if you look at over the last 10 years, the business has grown 6.4%. Now let's take that in its components, this cytology business, which is cervical cancer screening has roughly been flat over the last 10 years as we look at the market in the US is probably flattish to declining and slight growth OUS.

And then molecular really has grown over 2.5 times over this period, driven by our Panther platform in the over 23 assays approved on that instrument.

So let's talk about the Panther. Panther is really the foundation of the molecular diagnostics business. It's a high throughput instrument with best-in-class automation and one of the best hands-off time for the lab techs and we know that labs and the technicians are under a lot of work constraint. And so Panther is a great solution.

And during COVID, we -- our Panther placements literally exploded and almost doubling its size to over 3,300 today. And in addition, just to -- and just to the growth of the Panther, we actually were able to recapitalize many of our large lab customers that had been up until the pandemic running our legacy TIGRIS platform. And think about the legacy TIGRIS platform only had four assays approved on it, recapitalizing all of our customers to Panther opens up the whole menu of 23-plus assays, including Panther and Panther Fusion.

So while the Panther placements exploded during COVID, we've had this tremendous R&D team that has been expanding the menu, which has grown from 2014 with just four assays approved to over 20 approved on our Panther and Panther Fusion platforms.

Today, when we look at our customers, only about 1/3 run four or more assay. So as we think about revenue growth moving forward for molecular, it's about utilization, how do we continue to drive utilization on that Panther platform, and we do that in two ways. Commercially, we have a lab sales force that partners with the lab, but we also have a physician sales force that partners with our labs to get customer level data to understand screening frequency, and we go out and talk to docs and promote screening guidelines to grow the markets and grow revenue both for our lab customers and ourselves.

As well in the Diagnostics division is our Biotheranostics asset that we acquired in 2021. That was our step into specialty lab, having a CLIA lab capabilities, when we bought Biotheranostics about $35 million in revenue, probably approaching $125 million in revenue today and still early days of penetration, probably about 12% penetrated. So expect that to be a growth platform moving forward as well.

Our Breast & Skeletal Health business starts with the gantry and a tremendous installed base for screening. And what we've done is we've invested both organically and inorganically across what we call the patient continuum of care.

So women starts with screening, annual screening. If there's something suspicious, she goes to biopsy where we have our Affirm prone table as well as Brevera for taking samples. And if, unfortunately, it is cancer that move on to surgery, where we have products, markers that are used in surgery as well as our latest acquisition, one of our latest acquisitions, Endomagnetics, which is a wireless marker that we see the market converting from wire to wireless marking for breast surgery.

And when you look at the components of revenue, you can see that our service revenue has almost doubled over the last 10 years. This service revenue is largely attached to that gantry installed base. We have a very high attach rate, a low 80% where we have that reoccurring revenue for that installed base, and as we've diversified and invested again against that patient continuum of care, that gantry business, which about 10 years ago, was about 1/3 of the division's revenue is probably less than 20% at this point in time.

And as I mentioned, that is the growth in the install base, tremendous growth, both internationally and the US. And from a 3D perspective, we have high 80% -- we have 80% share plus of the 3D market in the US and still room to grow share and convert the market OUS from 2D to 3D.

In our Surgical business, our Surgical business has grown nicely over the last 10 years at that 7.6% CAGR. That has really been led by our minimally invasive treatment of fibroids, our MyoSure product and our Fluent fluid management products has really driven that growth.

We've recently acquired Gynesonics which enhances our fibroid treatment portfolio. So you think about fibroids characterized by size and location. The MyoSure will treat smaller fibroids. And now with Gynesonics, we're able to treat larger fibroids -- and with our Accesa platform, we can also treat fibroids laparoscopically that are outside the uterus, when we think about surgical and the treatment of fibroids, the unfortunate reality is that women wait an average of 3.5 years before they actually get a fibroid treated.

And as well, unfortunately, so often that treatment is a hysterectomy. And so our opportunity is to get more women treated sooner and get treated with minimally invasive procedure versus the hysterectomy. So I think we have a pretty unique culture. Given our focus and our purpose to be champions of women's health. I think we're purpose-driven and results driven. And I think that plays nicely in that diagram we call our virtuous circle.

So it starts with innovation, investing organically and inorganically to bring these clinically differentiated products to market. So we do that, we grow revenue and profits. And as we do that, we're able to take some of that profit to invest in market expansion, market access, and then we treat more women.

And so as we do that, as we treat more women and we drive more revenue, we're able to continue to invest. So that is the virtuous circle. And as a CFO of an organization, we don't need an off-site to figure out what our purpose is, it's what we've always done. We've always been champions of women's health, and we'll continue to do that.

We have over 7,000 employees. We have a highly engaged employee workforce with 99 percentile ratings as it relates to our mission and purpose, again, to be champions of women's health and really resonates with people and how they feel good about their jobs. And we've also had several recognitions as great places to work.

One of the investments we've made in being champions of women's health has been in our global women's health index. This is where we partner with Gallup, and we do a global survey of the status of women's health -- women and girls health and well-being. And we're able to measure progress across a number of different spectrums that allows us to have conversations with health ministries and other leaders to talk about the status of women's health in their country or their region and how we might improve it. And again, things like cancer screening, STD screenings are things that lead to better outcome for women.

We've also had a -- been the title sponsor of the WTA over the last four years, if anyone watches tennis and then the non-grand slam events. You'll see Hologic on the net. And this has really been a special partnership. And I think a lot of the women on the tour really appreciate that Hologic, a women's health company, has been their sponsor and also sponsoring ensuring that they get equal pay as their male counterparts.

So as we look forward, we start from this capability to create and expand markets, and we've done that across all of our franchises. So converting from the pap test to our ThinPrep pap test, which is a liquid-based cytology, which again drives better outcomes in screening. We've converted the market from 2D to 3D here in the US and have a dominant position with our clinically superior images in best-in-class scan times about a little over three seconds in a scan time with our 3D machine.

I mentioned MyoSure. So when we bought MyoSure back in 2011, I think it was, we estimated to be maybe $100 million revenue potential. It's close to $400 million today as we continue to educate about the treatment of fibroids and expand that market. We've recently launched our BV/CV assay on our Panther platform. BV/CV is the most common reason vaginized common reason a woman goes to the gynecologist, and so what we're doing there is converting what's been a lab-developed test to an IVD test on a high-throughput Panther instrument.

We've also expanded internationally, and we will continue to do so, as I mentioned earlier, still under-index at only about 25% of our revenue, we've done that through a number of ways. We've gone direct in key markets about 10 years ago. If you looked at most of our businesses were being managed and sold through dealers.

We've gone direct -- and we've invested in market access and market development capabilities to promote screening programs that drive our revenue in those markets and still runway to go internationally for sure.

And so we have this great foundation, and we think we have the ability to build upon that foundation, both organically and inorganically. And you see that organically, what we've done a couple of different things. New product innovation has been the BV/CV assay I mentioned, our Fluent Pro fluid management system is something we developed organically in the house our genius digital cytology, this is the latest innovation in cytology.

If you think about traditional cytology is someone actually standing up and looking into a microscope to evaluate a slide. We have now launched the capability to digitize that slide so that a cytologists can look at that image anywhere on a laptop and then layer on AI to find more cancers and really drive the throughput of that screening capability.

And to come next year, we'll be launching our next-generation gantry, the Envision platform, which brings best-in-class image capability, even shorter scan time than we have today as well as workflow efficiencies.

And we have the ability to continue to grow off that foundation with inorganic investments and some of the ones that we've done recently, it's Biotheranostics in our Diagnostics division, Endomag in Breast Health and Gynesonics in Surgical. I think when you look at each of those, those are really what we call tuck-in acquisitions, where we've acquired assets that are growing faster than the core. We're layering those in, and then we're driving efficiencies on the bottom line to drive operating margins towards our corporate average.

As I mentioned, we have peer-leading margins at 30%, which really translates into the tremendously strong cash flow. If you look at our five year average high 90% conversion of cash flow in averaging probably lately over $1 billion of free cash flow every year. And as I mentioned, we had tremendous cash flow during the '21, '22, '23 time frame at the peak of COVID testing, and as a result, we have the $1.6 billion of cash and investments on the balance sheet.

We have a tremendously strong balance sheet. We have deployed significant cash flow over the last several years, we've deployed about $3.6 billion on share repurchase and another $2 billion on M&A. And we have tremendous firepower to continue to deploy capital, as I mentioned, we're under 1 times leverage. I think we talk about a normal leverage ratio, our normal leverage target would be at 2 times to 3 times. In 2019, before we entered into the pandemic, we're about 2.5 times. So I think that's probably what you'd expect for a normal leverage ratio.

So as we look to the balance of 2025, it's clear we are focused on executing on the second half of the year. if you look at what we guided for Q3, what is implied for Q4, we are returning to growth as we exit the fiscal year. We've made a number of changes within our Breast Health business from sales leadership to sales structure to enhancing our processes, while its early days, two months into Q3, we do see the benefits of those changes and gives us confidence that we will see better execution on our gantry business in Q3 than sequentially better in Q4.

Diagnostics, again, is leading growth. We see continued strong momentum in the Diagnostics business, given the Panther utilization, our installed base and our growing menu. And like everyone else, we're managing through some macro headwinds, both on the tariffs as well as some things that are unique to Hologic.

One of the things that are unique to us is when the USAID funding was stopped that basically took out our HIV business in Sub-Saharan Africa. That was basically a $50 million business annually. We've taken that out of the outlook. While there is discussion that maybe funding will come back we've taken a conservative approach and assumed that it hasn't, but that would be a unique headwind to us at this point in time.

But again, we're focused on delivering and have good line of sight to closing out Q4 in growth. Just as a reminder, this is our guidance for the full year, which again applies pretty low growth organically but has -- but higher growth on the non-GAAP EPS of $4.15 to $4.25.

Our long-term outlook calls for mid-single-digit revenue growth with some margin expansion to drive double-digit earnings growth, and some of that will include share repurchase. As we talked about -- here today, we have tremendous capital, tremendous firepower to manage our dilution as we move forward. Thank you.

Disclaimer

Hologic Inc. published this content on June 04, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on June 05, 2025 at 15:49 UTC.