Hologic : Second Quarter Fiscal 2025 Earnings Conference Call Transcript

Published: 2025-05-02 10:32:23 ET HOLX

Published on 05/02/2025 at 10:32

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

HOLX.OQ - Q2 2025 Hologic Inc Earnings Call

EVENT DATE/TIME: MAY 01, 2025 / 8:30PM GMT

OVERVIEW:

Company Summary

‌Good afternoon, and welcome to Hologic's Second Quarter Fiscal 2025 Earnings Conference Call. My name is Rachel, and I'm your operator for today's call. Today's conference is being recorded.

I would now like to introduce Mike Watts to begin the call.

Thank you, Rachel. Good afternoon, and thank you for joining Hologic's Second Quarter Fiscal 2025 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 second 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 for 30 days.

Before we begin, we'd like to inform you that certain statements we make today will be forward-looking. These statements include 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 that's 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 organic revenue, which we define as revenue excluding divested businesses and revenue from acquired businesses owned by Hologic for less than 1 year and also organic revenue, excluding COVID-19, which further excludes COVID-19 assay revenue, other revenue related to COVID-19 and sales from discontinued products and diagnostics.

Finally, any percentage changes that 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 MacMillan, Hologic's CEO.

Thank you, Mike, and good afternoon, everyone. Thanks for joining us to discuss our financial results for the second quarter of fiscal 2025. As everyone knows all too well, it's been a tumultuous few months from a macroeconomic and policy perspective. But in this challenging environment, we took a step in the right direction this quarter by meeting our financial commitments, making good progress on our plans to reinvigorate growth and demonstrating once again the reliability and adaptability of our business model.

Specifically, total revenue for the quarter was $1.005 billion, a decrease of 0.5% in constant currency, but toward the upper end of our guidance. Our Diagnostics business continued to grow nicely despite steep declines in our Africa business following funding cuts. And we also got a positive contribution from our skeletal franchise as previous supply constraints began to lift.

Non-GAAP earnings per share were $1.03, at the high end of our guidance range and flat compared to a year ago. This reflected solid gross margin expansion as well as benefits from share buybacks and a slightly lower tax rate.

With that overview, let me discuss how we are approaching today's macro environment from a position of strength and why we believe we can continue to deliver solid financial results across a range of unpredictable economic and policy scenarios.

First, our products deliver significant value to patients and customers. For example, our market-leading infectious disease and cancer tests are relatively inexpensive, and they help reduce overall health care costs by detecting disease early when it can be treated most effectively. Our Breast Health products are another good example of this. We need to accelerate growth here for sure. And this quarter, we made good progress on our plans to do that, as Essex will discuss.

We are confident in our efforts because we know that our foundation is incredibly strong. Our mammography products are best-in-class. And as a result, we command leading market shares. With our increasingly diverse portfolio, we can help women across the entire continuum of breast health care, and we have the best market position in this important category for women's health.

In addition, our customer relationships are without peer, which translates into lots of recurring revenue. For example, strong growth in Breast Health service drove $212.6 million of overall nonproduct revenue for the company this quarter. This represented 21% of our total revenue and grew by a very healthy 12%.

Second, we have a seasoned management team and a highly engaged workforce of more than 7,000 people who are deeply committed to women's health. In addition to our global leadership team, we are beefing up our organization in key areas like business development, R&D and quality. Importantly, we are adding experienced professionals who bring deep understanding of their respective end markets.

And across the company, our level of employee engagement, which we have tracked every year since 2015, remains terrific. Most recently, we scored in the 98th percentile compared to similar companies, actually tipping up a point from recent years. And importantly, 99% of employees agree that Hologic's mission makes them feel their jobs are important, also up 1 point from last year. High employee engagement really shined through in our impressive response to the COVID-19 pandemic and gives us a competitive advantage in dynamic environments like the ones we're navigating today.

Third, the strength of our balance sheet and cash flows give us tremendous strategic and financial flexibility. We generated $169.5 million in operating cash in the second quarter, largely due to our durable market-leading brands. At quarter end, we had cash and equivalents of $1.43 billion, short-term investments of $192 million and an adjusted net leverage ratio of only 0.8x. With our fortress balance sheet, we believe we are in a good position to capitalize on market dislocations from a business development perspective. We continue to search for acquisitions and investments similar to recent deals like Endomagnetics, Gynesonics and Maverix, which are performing well.

At the same time, we can also return value to shareholders by repurchasing stock. We have repurchased more than $4.5 billion of stock since 2016, including $200 million in the second quarter.

Before I turn the call over to Essex, let me conclude by saying that the financial execution we saw in the quarter reflects our strong positions in core US and European markets. But unfortunately, exogenous factors are affecting our growth in geographies like Africa, which we discussed in our last call, and China. Today, we are lowering sales expectations for China, which has become an increasingly challenging market due to geopolitical turbulence.

With these areas now largely derisked in our forecast, we look forward to faster growth beginning in the fourth quarter and into 2026. We expect this improvement to be generated by better commercial execution in Breast Health, easier comps in Surgical, Breast Health and Skeletal, organic growth from Endomagnetics and Gynesonics and new product introductions.

‌Now I will turn the call over to Essex.

Thanks, Steve, and good afternoon, everyone. In my remarks today, I will first review our divisional revenue performance in the second quarter. Then I will discuss our exposure to the recently announced tariffs as they stand today.

As Steve said, we are pleased to deliver revenue in the second quarter at the high end of our guidance range. Our performance was driven by another strong quarter in Diagnostics and an accelerated recovery of product supply in our skeletal business.

Starting with Diagnostics. Second quarter revenue of $453.6 million grew 1.5% or 5.2%, excluding COVID-related sales. Growth for the division continues to be led by the molecular diagnostics, which grew 1.7% or 7.8%, excluding COVID. Specifically, we benefited from the continued strong growth of our BV/CV/TV assay, higher sales of our respiratory assays and strong growth in our Biotheranostics oncology business.

BV CV/TV continues to represent a significant opportunity for Hologic. Studies show that in the US alone, over 20 million women experience vaginitis each year. We estimate that less than 40% of these women are being tested with older manual testing methods still representing a meaningful portion of this. Our Diagnostics team has been making great progress to address this unmet need by driving awareness and establishing reimbursement for our accurate high-throughput molecular diagnostic test.

As many of you who track the weekly CDC data now, the United States suffered through a severe flu season this year. This led to strong growth of our respiratory assays in the second quarter. As a reminder, these tests are run on our Panther Fusion sidecar. So heavy respiratory demand boost interest in Panther Fusion among our customer base and also opens up the door for menu consolidation, including with lab-developed tests.

In our Biotheranostics oncology business, we continue to see strong adoption of our breast cancer index test, a unique indicator that helps a woman understand whether she'll benefit from continued endocrine therapy.

Offsetting some of the growth in our core molecular business this quarter was less HIV testing in Africa, which resulted from funding cuts to USAID that were previously discussed. Unfortunately, we're now seeing this affect other nonprofit organizations, resulting in a significant disruption to the testing infrastructure that had been in place in the region. It's worth noting that excluding lower product sales associated with our work in Africa, core molecular revenue would have grown at a low double-digit rate in the second quarter.

In our cytology and perinatal businesses, second quarter revenue declined 0.6%. Sales grew modestly in the US as we continue to see adoption of our Genius AI product, but were offset by low single-digit decline internationally. International sales were affected by the ongoing physician strike in South Korea and lower hospital spending in China.

Moving to Breast Health. Revenue of $356.2 million declined 6.9% or 9.2% organically, excluding SSI and Endomagnetics. As a reminder, when we updated guidance last quarter, we anticipated this would be a down year for gantry replacements. At the same time, we announced new leadership

-- a new leadership team. We're excited by the progress this team has already made in 3 key areas, which are laying the foundation for better growth in the future.

First, we've reorganized our sales team to have a clear split between our capital and disposable product sales reps. These selling processes require different skill sets, and we believe this reorg, combined with more concrete selling strategies will drive clear focus and improved performance within our commercial channels.

Second, the team has refined our end-of-life strategy for older gantries that still remain in the field. We have clear line of sight to where these older units are. And this month, we are rolling out a new offensive strategy that motivates both our customers and our own reps to upgrade these older units.

Third, we began selling our Endomagnetics products directly through our own sales force in North America rather than through the distributor that Endomag had used in the past. By leveraging the capabilities of our commercial channel, we feel well positioned to address the significant market opportunity for wireless localization. Our Endomag team has strong momentum entering the second half of our fiscal year, and we continue to be excited about the acquisition overall.

While our commercial team focuses on driving gantry upgrades, our service team continues to do an outstanding job with our current installed base of approximately 15,000 3D gantries worldwide. As Steve said, recurring service revenue grew strongly in the second quarter and now accounts for over 45% of total Breast Health revenue. In Surgical, second quarter revenue of $162.5 million increased 5.1% or 1.1% organically, excluding Gynesonics. Our international surgical business grew 16.2% in the quarter, another strong result.

As our team continues to drive market development and awareness for our minimally invasive GYN products, we see meaningful runway ahead globally. Of note, we've seen great traction since we launched our Fluent Pro system late last year. This system helps improve the performance and the user experience of our MyoSure platform, which has resulted in strong customer feedback.

We were also excited to close the Gynesonics acquisition early in the second quarter. As mentioned on our last earnings call. Gynesonics financial results are meeting expectations, we're pleased with how the integration has progressed, and we're excited for this future opportunity.

Finally, in our Skeletal business, second quarter revenue of $33 million grew 22.9%. Our team made great progress partnering with our third-party manufacturer to accelerate the production ramp of our DXA system in the quarter, exceeding our internal expectations. Before turning the call over to Karleen, I wanted to provide some perspective on our exposure to tariffs that have recently been announced.

At a high level, the vast majority of our manufacturing is done here in the United States. For diagnostics, we manufacture in California, Massachusetts and New Hampshire. We have a small production site in the U.K., but that primarily serves the international market. In Breast Health, our mammography manufacturing is all done in Delaware. We do export products to China that are made in the United States.

Manufacturing that's done outside of the US is primarily for our surgical and interventional breast products. These products, excluding Gynesonics, are produced in Costa Rica. For Gynesonics and Skeletal, we use third-party manufacturers in Mexico, but we expect products made in Mexico to be substantially exempt from tariffs under the USMCA.

When we analyze the tariffs that have been announced relative to our manufacturing activities, we forecast a gross impact of $20 million to $25 million a quarter. Roughly 2/3 of our exposure relates to tariffs from Costa Rica and about 15% from China. All other countries make up the rest.

Disclaimer

Hologic Inc. published this content on May 01, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on May 02, 2025 at 14:21 UTC.