Hologic - Q2 2024

Transcript

Operator (participant)

Good afternoon, and welcome to the Hologic second quarter fiscal 2024 earnings conference call. My name is Justin, 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.

Ryan Simon (VP of Investor Relations)

Thank you, Justin. Good afternoon, and thank you for joining Hologic's second quarter fiscal 2024 earnings call. With me today are Steve MacMillan, the company's Chairman, President, and Chief Executive Officer, Karleen Oberton, our Chief Financial Officer, and Essex Mitchell, our Chief Operating 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, as well as an updated corporate presentation. 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. Two, organic revenue excluding COVID-19, which further excludes COVID-19 assay revenue, 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 MacMillan, Hologic's CEO.

Stephen P. MacMillan (Chairman, President and CEO)

Thank you, Ryan, and good afternoon, everyone. We are pleased to discuss our financial results for the second quarter of fiscal 2024. For the quarter, total revenue was $1.02 billion, and non-GAAP earnings per share was $1.03. Both revenue and EPS came in above the high end of our guidance, reflecting another strong quarter. Similar to Q1, it is again important to view our Q2 performance in proper perspective. As we shared on our Q1 earnings call in February, throughout 2024, we faced double-digit comps, massive comps in the first half, and still very strong comps in the second. As a reminder, in Q2 of last year, organic molecular diagnostics, ex-COVID, posted growth of nearly 25%, and both surgical and Breast Health posted phenomenal growth of over 25%.

This year, in Q2, on top of the high growth rates from a year ago, we grew our molecular diagnostics business, ex-COVID, 10.7%, our surgical business 7.4%, and our Breast Health business 1%, excluding the divested SSI business. A solid result, given the elevated gantry replacements in Q2 a year ago. We also delivered operating margins of 30.4% in Q2, improving 190 basis points sequentially from Q1, setting us up nicely to approach 31% for the full fiscal year. Now, past the halfway point of fiscal 2024, we believe we are in excellent position to achieve our full year goals. Before moving on to our themes for today, our fiscal second quarter marks the fourth anniversary of when the COVID virus changed the world.

When COVID initially surged, we had three goals: 1, ensure that we take care of our employees. 2, make a huge difference in the world with our Panther system and COVID testing. And 3, emerge as a bigger, stronger, faster-growing company in a post-pandemic world. Fast forward to today. As you can see from our results, we have delivered against these three goals, and we're aiming for more. Not only did we achieve our primary objectives, we also successfully managed to strengthen all of our franchises, both in the U.S. and internationally, remain innovative and disciplined in executing our growth strategies, and build a fortress balance sheet to facilitate future growth. On top of these achievements, we continue to elevate our already high employee engagement scores, and all through complicated macro challenges. That said, we are never satisfied and firmly believe the best is still ahead.

As we look further out beyond the horizon, we see significant potential to continue to innovate and unlock growth opportunities for years to come. Now, on to our three themes for today. First, our core franchises, diagnostics, Breast Health, and surgical, continue to showcase the benefits of our diverse portfolio. As planned, we continue to yield robust growth and durability, because we benefit from being both diagnostics and med tech. Second, our international business quietly continues to drive strong top-line growth, demonstrating our ability to capture potential growth opportunities and turn them into reality. And third, our strong balance sheet and disciplined approach to capital allocation empower us to fortify our foundation, as we've done this week with the announcement of the Endomagnetics acquisition. We have the ability to build on our strengths with significant operational flexibility, which allows us multiple levers to deliver top and bottom line performance.

Turning to our first theme. Sometimes overlooked and misunderstood, the strength of our business comes from the sum of our parts. We are a unique collection of diagnostics and med tech businesses, with many more growth drivers than meets the eye. Each business has multiple growth drivers with tremendous runway ahead. To the outside, it may be unclear how we can keep driving growth with the strong market shares we have. In reality, our product and service diversity creates enduring strength as we advance forward and notch incremental wins. Over time, these wins collectively deliver meaningful and durable growth across multiple franchises and multiple geographies. While we know we don't fit neatly into either diagnostics or medical device, we do fit neatly into the world of improving women's health.

Our unique set of businesses equips us to deliver results and positively impact more and more women, regardless of external macro challenges. Our strong growth over the past four years reflects a combination of multiple durable growth drivers intentionally built into each of our businesses. The beauty here is that over time, and in any given quarter, our growth drivers can change and morph. What we've done is create multi-phase, extended, and stacked growth cycles. The net result is our ability to consistently deliver on a consolidated basis over time. A few examples to highlight from across our business. In our second quarter, worldwide diagnostics growth ex-COVID of 9.8% was again primarily driven by our molecular diagnostics business.

In molecular diagnostics, over the last few years, we've dramatically expanded both our installed base and menu, nearly doubling our installed base from 1,700 Panthers to over 3,200 during the pandemic, and going from 4 FDA-approved assays to over 20. Our next phase of growth is about menu adoption and driving more volume by focusing largely on existing customers while adding more geographies. At the same time, we continue to broaden our menu. As a result, we create years of growth ahead as we extend our commercial reach and continue to add products to our portfolio. In the second quarter, US molecular diagnostics delivered double-digit growth, led by ongoing adoption of BV, CV, TV on the Panther, strong contributions from our respiratory suite of assays on the Fusion, as well as continued growth from Biotheranostics. Each of these are newer products to our portfolio.

Underscoring the power of our extended reach, layering on top of the strong U.S. molecular performance, international cytology was also accretive to worldwide diagnostics growth. Outside the U.S., diagnostics growth was driven primarily by multi-country adoption of our innovative Genius AI Digital Cytology in the quarter. As a reminder, digital cytology was only recently approved in the U.S. earlier this year, meaning the U.S. opportunity is still ahead. In Breast Health, we've expanded our product offering from imaging to cover the continuum of breast cancer care, including biopsy and surgery. In the second quarter, on a worldwide basis, the gantry and service businesses performed well against very strong comps from the prior year period. Meanwhile, outside of the U.S., our emerging interventional breast business grew double digits in Q2, accretive to the worldwide growth rate. And finally, in surgical.

Once essentially only a U.S. two-product business with NovaSure and MyoSure, we now have Fluent, Acessa, and Bolder. Internationally, we are just getting started with both the core business and new product lines... In Q2, worldwide growth of 7.4% was very strong against the high prior year comp. Our performance was driven in large part by very strong double-digit growth in our international surgical business, which in Q2 is a reflection of continued market penetration, as well as our go-direct strategy in the Nordics. All in, we are a powerful women's health composite. As we extend our reach globally, we expect to grow even in product categories and territories that may, on their surface, appear to be mature and well penetrated. With that, I'll turn the call over to Essex to discuss our final two themes for today.

Essex Mitchell (COO)

Thank you, Steve. As previewed by Steve's discussion about our diverse and durable growth drivers, our strong international growth is a direct result of identifying and capturing under-penetrated market opportunities with steady execution. As a reminder, our international business is over 40% larger than it was in 2019. We are in more territories and more direct than ever before. That said, big picture, we are still in the early days of our international opportunities. Our early success is driven largely by two approaches: one, going direct, and two, entering markets where we elevate the standard of care. For example, on the latter, while the ThinPrep Pap test, 2D, and even 3D mammo, and procedures like NovaSure and MyoSure are widely accepted as standard of care in the US, internationally, this is unfortunately not yet the case.

Many parts of the world, even those considered developed and industrialized, still have the opportunity to elevate their screening, diagnosis, and treatment of women to gold standards. These women deserve it, and Hologic is poised to realize this potential. Accessibility to women's health options around the world remains a priority and a great opportunity for Hologic. This is why our work with the Hologic Global Women's Health Index and our worldwide partnership with the Women's Tennis Association to elevate women's health, education, and access are critically important. Reinforcing our position, the index clearly shows that we are only scratching the surface of the global opportunity, and this holds true even in Europe, with other large market geographies like Asia Pacific being further out on the time horizon.

From our perspective, as leading champions for women's health, we believe there is still significant market adoption opportunity ahead of us, and this adoption will not happen overnight. We expect adoption to grow over time, at different paces around the world as more and more governments prioritize women's health. For our final theme today, we'd like to underscore the importance of our strong balance sheet and recap our capital allocation priorities. With over $2 billion in cash and strong cash flow, we have the capacity to fund key in-house initiatives and also deploy cash towards both M&A and share repurchases. Regarding capital allocation, our strategy remains the same.

We are focused on tuck-in opportunities for our three core franchises, and as we have stated in the past, we have a strong preference for any potential deal to have a clear line of sight to accretion on both top and bottom line. If not immediately, the sooner, the better. Our business development teams across each of our franchises are consistently building and reviewing opportunities in their respective pipelines. We view our ability to shop across multiple aisles as a strength as we continue to grow into an even greater performing composite than we are today. The ability to shop in multiple aisles also creates the flexibility to maneuver potentially unfavorable valuations in one aisle versus another. Overall, a blend of adding in-house developed and external innovation across our strong span franchises is an important part of our growth strategy.

Leading into our strategy, on Monday, we announced our agreement to acquire Endomagnetics Ltd, a provider of breast cancer surgery technologies, for approximately $310 million. Endomag portfolio of innovative breast surgery, localization, and lymphatic tracing products complements and diversifies our expanding interventional breast business. We are excited for the potential to join forces, amplify growth, and better serve patients around the world. In calendar 2023, Endomag generated approximately $35 million of revenue, and we believe our combined global reach and breadth of interventional options will accelerate growth in this exciting space. At this point, we are still early and do not have a definitive timeline on closing the transaction, though we estimate to close in the second half of the calendar year.

Before turning the call over to Karleen, let me conclude by saying, we are proud of our strong Q2 results that build on our Q1 performance. All said, we are in a solid position to carry our success into Q3 and Q4.

Karleen M. Oberton (CFO)

Thank you, Essex, and good afternoon, everyone. In my statements today, I will provide an overview of our revenue results, walk down our income statement showcasing strong performance, touch on a few other key financial metrics, and finish with our guidance for the third quarter and full fiscal 2024. As highlighted, our second quarter financial results were very strong, exceeding our expectations on revenue and profitability. Q2 was a continuation of our momentum from Q1. Total revenue came in at $1.018 billion, beating the midpoint of our guidance by $18 million. We delivered organic growth of 4.9%, excluding COVID, on top of a challenging double-digit comp from the prior year. In addition, non-GAAP earnings per share was $1.03, which exceeded the high end of our guidance by 3 cents.

Before moving on to our franchise results, we want to highlight the continued strength of our balance sheet. In Q2, we generated over $290 million in cash from operating activities and ended the quarter with nearly $2.2 billion on the balance sheet. Our strong cash balance, leverage ratio well below our target range, and ability to consistently generate strong cash flow provide us the flexibility to fund innovation and execute our capital allocation strategy. We have significant firepower to continue to deploy capital as opportunities arise. Turning to our franchise results. In diagnostics, second quarter revenue of $450.1 million declined 3.2%. Excluding COVID assay and related revenue, worldwide diagnostics grew by 9.8%. Within diagnostics, molecular diagnostics continues to contribute significantly, growing 10.7% excluding COVID.

We continue to see underlying strength in BV/CV/TV, which continues its outstanding growth trajectory. BV/CV/TV is tracking to become our second-largest assay globally, with very little international revenue, as we have focused primarily on the US market. Additionally, as expected, non-COVID respiratory assay sales remained solid as the flu season continued into our second quarter. Growth was a combination of more volume year over year across our respiratory menu, plus ASP lifts from elevated contribution from our COVID, flu A, flu B, and RSV four-plex assay. Finally, Biotheranostics remains a strong pillar of growth for our base molecular business. Rounding out diagnostics, cytology and perinatal grew 7.9% globally, primarily fueled by double-digit growth internationally, as well as impact from the prior year comp. As a reminder, Q2 last year was adversely impacted by supply constraint issues related to a third-party logistics partner.

Level set, growth in the second quarter is above our long-term expectations for this business. Moving on to Breast Health. Total second quarter revenue of $384.6 million decreased 0.3%, but grew 1% when excluding SSI. As a reminder, Q1 2024 resulted in an elevated growth rate, assisted by lapping soft prior year performance due to supply constraints in Q1 2023. The opposite is true for Q2 2024, where we faced significant prior year comps. In Q2 of last year, we placed an elevated number of gantries as semiconductor chip supply and visibility improved. For the remainder of the year, we expect growth rates in the gantry business to normalize. Within Breast Health, growth was driven primarily by our international interventional mix.

This highlights the diversity of growth drivers Steve and Essex commented on, and the fact that growth drivers across our business and within our divisions can change and morph over time. Continuing next to Surgical. Second quarter revenue of $156 million increased 7.4%. Surgical growth continues to be fueled by MyoSure and the related Fluent Fluid Management System. As anticipated, NovaSure continues to be a headwind to growth as we lapped the prior year NovaSure V5 ASP lift. Finally, in our Skeletal business, second quarter revenue of $27.1 million declined 14.3% from lower capital placements and upgrades. Now, let's move on to the rest of the non-GAAP P&L for the second quarter.

Gross margin was 60.7% for the quarter and in line with expectations. The decline of 160 basis points from the prior year was anticipated and primarily driven by lower COVID sales compared to the prior year period. As a reminder, we expect gross margin to improve as we work past the amortization of previously procured higher-priced semiconductor chips. Total operating expense of $307.6 million in the second quarter decreased by 3%. This decrease was primarily driven by elimination of expenses related to the divested FSI business. As Steve mentioned, the operating margin was 30.4% for the second quarter. The year-over-year decline of 90 basis points was driven primarily from lower COVID sales. Sequentially, as expected, operating margins expanded 190 basis points from Q1, largely from lower operating expenses in Q2.

A strong result for the quarter. Below operating income, other income net represented a loss of nearly $6 million in our fiscal second quarter. As expected, interest income is lower due to lower cash balances from the significant share repurchases completed earlier in the fiscal year. Additionally, interest expense is up due to lower proceeds from our interest rate swaps. Finally, our tax rate in Q2 was 19.75%, as expected. Now let's move on to our non-GAAP financial guidance for the third quarter and full year fiscal 2024. For Q3 2024, we are expecting total revenue in the range of $992.5 million-$1,007.5 million, an EPS of $0.98-$1.05.

For the full year 2024, our guidance assumes revenue of $4 billion-$4.05 billion, an EPS of $4.02-$4.12. With respect to foreign exchange, we expect the recent strengthening of the US dollar to create a significant headwind in the second half of the year. For Q3, we are assuming an FX headwind of about $3 million. For the full year, we now expect a slight tailwind of about $2 million. All in, this represents about a two- to ten million dollar impact to our prior guidance. And as a reminder, prior guidance assumed a $12 million tailwind for the full year. Turning to our franchises, we want to reiterate that we expect each to grow at least 5%-7% in our fiscal 2024, excluding the impact of COVID.

While we have navigated the most challenging comps from fiscal 2023, we still have strong double-digit comps across the board to close out fiscal 2024. Starting with diagnostics, we expect our molecular diagnostics business to drive high single-digit growth, excluding COVID, as customers continue to adopt and drive utilization of our expanded menu. In cytology and perinatal, however, we expect minimal growth in Q3. In Q3 of last year, customers built inventory as a result of the third-party shipping constraints experienced in Q2 of 2023, resulting in slightly elevated sales. We expect to see more normalized comps for our cytology and perinatal business in fiscal year 2025. Closing out on non-COVID diagnostics, we expect blood revenue of approximately $7 million in Q3 and $28 million for the full year.

In terms of COVID revenue, we expect COVID assay sales to be about $5-$10 million in Q3 2024, and about $60-$65 million for the full year. COVID-related items are expected to be about $25 million in the third quarter and approximately $105 million for the full year. Moving on to Breast Health. We remain on pace to grow the business within the 5%-7% range for the year. As a reminder, we closed out fiscal 2023 with three straight quarters of 25%+ growth rates. We expect steady performance in Breast Health in the back half of the year as the business continues to improve sequentially. The demand for our portfolio of products and service remains strong, and we continue to have excellent visibility into gantry orders.

Further, our confidence in delivering more gantries than last year remains high. We continue to successfully manage resource availability among both our install teams and our customers, as customers balance the need to meet elevated demand for screening and staffing constraints. Finally, in surgical, we anticipate our full-year fiscal 2024 revenue growth to be at the high end of our 5%-7% long-term target. The growth will continue to come from MyoSure, Fluent, as well as both Acessa and Boulder. Moving next to margins, we reiterate that our guidance assumes a cadence of improvement throughout fiscal 2024 for both gross margin and operating margin. For gross margin, we anticipate Q3 will improve sequentially from Q2 as we continue to work through our higher-cost chips in Breast Health. Remain on pace to exit the fiscal year in the low 60s.

Our guidance also assumes Q3 operating margins in the low 30s, and we remain on pace to finish fiscal 2024 approaching 31%. Below operating income, we estimate fiscal 2024 other income net to be an expense of approximately $10 million in Q3, and an expense between $30 million and $40 million for the full year. Our guidance is based on an annual effective tax rate of approximately 19.75%, and diluted shares outstanding are expected to be approximately 238 million for the whole year. To conclude, Q2 was another strong quarter and sets us up nicely for the second half of the year. As always, we remain focused on advancing women's health around the world, while delivering on our promises and commitments to our shareholders, employees, customers, and patients.

With that, we ask the operator to open the call for questions.

Operator (participant)

Thank you. If you would like to signal with questions, please press star one on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question and one follow-up question. Again, star one, if you would like to signal with questions, star one. We'll take our first question from Patrick Donnelly with Citi.

Patrick Donnelly (Analyst)

Hey, guys. Thanks for taking the questions. Steve, maybe one on the diagnostics, particularly the molecular DXP, you know, continues to put up pretty good numbers in spite of obviously some tough comps. Pretty competitive environment, too. Can you just peel back that a little bit and just talk about what you're seeing in the market? You know, again, you called out obviously a few assays that are doing well, but just curious, you know, the key drivers of strength there and the durability as you look forward and how you think about that franchise over the next few quarters.

Stephen P. MacMillan (Chairman, President and CEO)

Yeah, Patrick, I really call it, it's the dividend and reward for coming to the country and the world's rescue when they needed us during COVID. And as you well know, we placed a ton of Panthers, almost doubled our worldwide placements. And the big question all through that time and through those next few years was: Yeah, but what's gonna happen to those Panthers on the back end? And what we said is, "Just keep watching." Because I think what we feel great about is in a labor-constrained world, our Panther and the workflow automation, combined with the incredible menu that we have, the tight footprint on Panther, and then we've added the Fusion sidecar, that these things are just incredible workhorses that really are getting the adoption.

You know, I think you start to—when you put a, you know, double-digit number on top of a 25% number from last year, what we're really just seeing is more customers putting more menu on their Panthers. And I think it's the proof is what we've been saying for years, and hopefully, it's starting to become evident in the results.

Patrick Donnelly (Analyst)

That's helpful. I appreciate it. And then maybe just on the capital allocation side, you know, that remains in focus. Obviously, you guys announced the recent deal. Can you just talk about the priorities? You had a larger repo, I think that was last quarter. You know, a smaller deal, a little bit of dilution. How do you think about the priorities here in terms of the balance sheet and how active will you be on the M&A side post that deal? You know, just how large you're thinking would be helpful.

Stephen P. MacMillan (Chairman, President and CEO)

Yeah, Patrick, let's try to put this into context. We were talking as a team about this the other day and said, "If we could line up the perfect world, we'd love to do, like, one Endomag every quarter." Right? You know, $300 million deal, bring in some additional revenue, products that drop in, that we know what to do, and just kind of keep phasing those along, and then maybe a little bit of a buyback here or there. The real world doesn't work nearly as linear, but that's what we would like to be doing, is those size deals on a fairly regular basis.

Because they don't always pop up from time to time, it is where we'll jump in and do some buybacks, and we're comfortable amassing the cash, because there might be a year where we can do, you know, a number of these, like we did at one point during COVID, when we picked up Biotheranostics, Bolder, Acessa, Diagenode, you know, these things that have all been very good for us. So, you know, no, no real change. We think the Endomagnetics deal is right down the fairway, hopefully exactly what anybody would expect from us and what we've been signaling. And if we can find more of those, that'd be great. With that, I'll kick it to Karleen.

Karleen M. Oberton (CFO)

Yeah, I would just emphasize, Patrick, you know, that the strength of our balance sheet as well as our ongoing cash flow generation, allows us significant flexibility to do things like Endomag and the share repurchase on an ongoing and regular basis. So you know, for years to come, as we look at our financial projections over, you know, the coming years, we have a lot of flexibility and strength.

Stephen P. MacMillan (Chairman, President and CEO)

Well, it gives some good context. Thanks, Patrick.

Operator (participant)

Our next question will come from Jack Meehan with Nephron Research.

Stephen P. MacMillan (Chairman, President and CEO)

Hey, Jack.

Jack Meehan (Analyst)

Thank you. Good afternoon.

Stephen P. MacMillan (Chairman, President and CEO)

Hello.

Jack Meehan (Analyst)

Wanted to take the Eagles questions offline. For now, I wanted to focus on the Breast Health business, pick up where we just left off. I was wondering, you know, Essex talked a little bit about the timeline to close Endomag. You know, is there any commentary you can share just around the valuation for the deal in context of, like, what your expectations are in terms of the growth rate of this business? Maybe more broadly, just how it fits with the existing portfolio.

Karleen M. Oberton (CFO)

Yeah, well, I think we think it fits really nicely with our existing interventional portfolio. And I think that's one of the values that we'll bring is that currently, Endomag uses a mix of direct and distributors. And we obviously have a significant direct sales force here in the U.S., that I think will be a differentiator for us with that asset in our hands.

Jack Meehan (Analyst)

Any comments you can share around, like, the growth rate you're expecting for this business?

Karleen M. Oberton (CFO)

Yeah, I would just say, Jeff, we would expect it to be accretive, certainly to the division's growth rate.

Stephen P. MacMillan (Chairman, President and CEO)

Yeah. With most of these deals are sort of accretive, accretive bottom line.

Operator (participant)

Oh, I'm sorry, go ahead.

Stephen P. MacMillan (Chairman, President and CEO)

Yep, go ahead. Sorry. I'm sorry. Go ahead, Justin.

Operator (participant)

Oh, I'm sorry. I was just gonna say our, our next question is from Tejas Savant with Morgan Stanley.

Speaker 14

Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. I have one question on the recent breast cancer screening update. If USPSTF recommends annual mammography screening, then what does that do from a physician adoption standpoint, given ACS is already there? And then from a quantitative standpoint, how much of an uplift would annual testing represent to your Breast Health business?

Stephen P. MacMillan (Chairman, President and CEO)

Yeah, you know, as you, as you saw, they're really kind of still in the biannual world, and we don't think the USPSTF guidelines change much. Recall that our Breast Health is really a screening business where it's a capital sale, and less volume dependent. But, you know, we really don't see much of an impact either way, just as when the guidelines shifted, quote-unquote, negatively a few years back, didn't see a downturn there and, and don't see a big shift now. We do think the guidelines are a step forward for women, unless you're a woman over 74, where they still haven't gone far enough.

Speaker 14

Got it. That was helpful. And then another question on USPSTF. If they were to move to an HPV primary, what would a potential trial design look like to establish a primary HPV claim on your existing Aptima test? And what would the timelines be to run such trial? Is there a possibility of using real-world data, or would you need a prospective trial?

Stephen P. MacMillan (Chairman, President and CEO)

We are very focused on maintaining co-testing as the gold standard. If anything, what we're seeing is a modest uptick in cervical cancer in women in the United States, that really started when the intervals went from 3 to 5 years back, almost 10 years ago, and believe absolutely that co-testing is the right way to go. So that's that continues to be our basis, based on the scientific facts. Thank you.

Operator (participant)

Our next question comes from Vijay Kumar with Evercore.

Speaker 13

Hi, this is Kevin on for Vijay. First, congrats on the quarter. 5% on top of a tough comp last year is impressive. Just on your organic revenue guide range, it looks like it's tightened versus being raised. Given performance in the quarter, why not raise guidance? And was this quarter performance above your internal expectations? Thank you.

Karleen M. Oberton (CFO)

Yeah, I would just say, the impact on the full year guidance is primarily related to currency. If you actually look at the midpoint of this guide versus our prior guide on a constant currency basis, it's up slightly. And so we really view the performance in this quarter allowed us to tighten the range, as you indicated, and really hone in on delivering, within that range.

Stephen P. MacMillan (Chairman, President and CEO)

No need to get too far ahead of ourselves.

Speaker 13

Thank you.

Stephen P. MacMillan (Chairman, President and CEO)

Great. Thank you.

Operator (participant)

We'll take a question from Puneet Souda with Leerink Partners.

Puneet Souda (Analyst)

Hi, Steve. Thanks for taking the question. So, first one, if I could touch on the, Genius Digital Cytology system. I mean, you've had that in the U.S. market for, correct me, for a quarter or so. Can you provide a feedback on sort of what are you hearing from the early folks in the field? And, you know, do you expect the, you know, international adoption of this sort of playing out similarly within the U.S.? And, are you hearing anything in terms of the pushback, in terms of the overall throughput of the system?

Karleen M. Oberton (CFO)

Yeah, let me kick off in that. Yes, it was just recently approved in the U.S., and I would say that we're really partnering with our lab customers on implementing and integrating into the workflow. So that's what we're focused on, really more of a successful integration into the lab workflow at this point. So yeah, minimal contribution in 2024 from the U.S. approval, but I think, you know, the feedback here, early days, is there's a lot of excitement of what this can do in what we've talked about in a labor-constrained environment. And yeah, we think this will be really well received.

Puneet Souda (Analyst)

Got it. Thanks, Karleen. And a broader question maybe for Steve. I mean, when you look at the overall, the competitive landscape, Steve, there is another larger peer who's on the point-of-care testing side, but they pointed out 40% growth in Strep A in women's health. And I know sort of their positioning is different in the market, but just wondering sort of how you're seeing the share shift. We're also seeing that one of the larger peers that's in the reference lab side, they still don't have RSV in the market for their product. So just trying to understand sort of where the opportunity set for Hologic continues to be the most, the strongest, and where you think the share opportunities will be-- will continue to be the sort of the strongest going forward.

Stephen P. MacMillan (Chairman, President and CEO)

Yeah, it's funny, in so many ways, we don't focus always as much, probably on share as we do on just building our business for our customers and growing the categories. So, you know, I think what we continue to feel great about is we've got, as you know, Puneet, you know, more respiratory menu than we've ever had. We've got the Fusion sidecar, so we're building a respiratory business. You know, we're not competing in the point of care business. We are very strong in our reference labs, in the hospital systems, the public health labs, and just really focused on delivering for those customers. And we believe we've got both an economic and workflow advantage, as well as frankly, the sensitivity specificity of a lot of our assays. So continuing to feel very good about the growth rates there.

And, you know, at the end of the day, these are big markets, and there will be, you know, I think several companies going up and others that'll be shared owners in the equation. So thank you.

Operator (participant)

Moving on to Casey Woodring with J.P. Morgan.

Casey Woodring (Analyst)

Great. Thank you for taking my questions. So just, you know, now that we're halfway through the fiscal year, looking at the top line guidance above the LRP range on an ex-COVID and ex-selling day basis, after the strong quarter, particularly in diagnostics and surgical, you know, I'm curious on how you guys are thinking about your fiscal 2025, and if growth could fall on essentially the higher end of the LRP range or even above the range. You know, how should we think about the different moving parts there, given the outperformance here so far?

Stephen P. MacMillan (Chairman, President and CEO)

Yeah, Casey, love it. We're, we're not going anywhere near 25 guidance at this point in time. So we've given the long range. We're delivering for now, investing for the future. But stay tuned for the November call, and we'll, we'll get into that. But thank you.

Casey Woodring (Analyst)

All right. And then, maybe if I could just follow up here. How do you assess the international opportunity for BV/CV/TV? You mentioned in the prepared step the strong growth you've seen in that assay really hasn't included any international contributions. So maybe help us frame how much growth runway you have on that assay, just based on, you know, phasing in the international piece. Thank you.

Stephen P. MacMillan (Chairman, President and CEO)

Yeah, we're earlier stages of really looking at the opportunity there. There's some other things on the markets, and frankly, the indications not necessarily as developed. So it's probably a little more of a market development, longer term opportunity for us internationally, as frankly, many of our products have been. So very minimal expectations in the near term internationally. I would tell you, though, we love the momentum we have, certainly in the United States on it. Thank you, Casey.

Operator (participant)

We have a question from Andrew Brackman with William Blair.

Andrew Brackman (Analyst)

Hi, guys. Good afternoon. Thanks for taking the questions. Maybe on the international business and margins in particular, can you maybe just sort of talk to us about some of the levers which exist there to drive future margin expansion for that segment in general, and how much of it, of that is in your control? And I guess, as a related follow-up here, you know, if we go back a handful of years, Hologic has been pretty successful in acquiring distributors, and namely international distributors. So I guess, how does that sort of play into that margin expansion opportunity? Thanks.

Karleen M. Oberton (CFO)

Yeah, certainly, that is one of the strategies to improve margins, is as we go direct. We find that as we go direct, we have better outcomes in those markets with our market development and market access capabilities, which, you know, that is something we have invested in over the last five years. So that strength, that commercial investment is a point of leverage as we move forward, as well as we continue to grow the portfolio, specifically surgical. It's early days, but certainly the surgical portfolio is an accretive product to the overall margin profile for that business. So I think there'll be multiple, multiple drivers as we move forward.

Andrew Brackman (Analyst)

Got it. Thank you.

Stephen P. MacMillan (Chairman, President and CEO)

Great.

Karleen M. Oberton (CFO)

You're welcome.

Stephen P. MacMillan (Chairman, President and CEO)

Thanks, Andrew.

Operator (participant)

Our next question will come from Andrew Cooper with Raymond James.

Andrew Cooper (Analyst)

Hi, everybody. Always great to get the Andrews back to back, I guess.

Stephen P. MacMillan (Chairman, President and CEO)

There you go.

Andrew Cooper (Analyst)

Maybe just first sticking with international. You know, one thing jumps out just looking at the table at the bottom of the release. The region that seems to have the most outsized growth has really been kind of all other. I think part of that might just be COVID unwinding a little bit, but maybe any thoughts there? And then, you know, as you think about the international opportunity, can you highlight maybe if it's a particular product in a particular region or a particular region in general, what areas are you most excited about in terms of that geographic expansion opportunity as we sit here in the start of May 2024?

Stephen P. MacMillan (Chairman, President and CEO)

Yeah, I think the magic of our international business is it's a lot of individual products in individual countries that we've been building kind of market access capabilities and everything over the years. And while there's no one that's driving it, we've just got a series of different products and different geographies that are really building momentum, and a lot of them in kind of the surgical and interventional space. Certainly, you know, we're getting very excited about our surgical business, and its opportunity internationally, both what we've been doing with our own sales forces. Plus, we did mention we acquired our distributor in the Nordics, so continuing to go very well there. And then, you know, it just, you get different times. The fact we got our digital cytology approved internationally, that's been going very well in Western Europe.

So it's, it's just this collection of the different franchises, the different geographies—building over time. And, and I think the magic, as you know, Andrew, you know, from the years in the past, we always said we're going to be building these businesses internationally, not by showing up one day and saying, "Hey, we're going to dramatically expand our sales forces and take a year off in profit growth." We've been making the investments all along, and then as certain products launch in certain countries, then we use that funding to fund the next year and keep building. So it's really just this inexorable building of success.

Andrew Cooper (Analyst)

Great, that's helpful. I'll, I'll stop there. Thank you.

Stephen P. MacMillan (Chairman, President and CEO)

Oh, thanks, Andrew. Take care.

Operator (participant)

Our next question will come from Andrew Petrone with Mizuho Securities.

Brad Bowers (Analyst)

Hi there. This is Brad Bowers, on for Anthony, not another Andrew, but-

Stephen P. MacMillan (Chairman, President and CEO)

I saw that.

Brad Bowers (Analyst)

Talk on the Breast Health business. You know, I figure, you know, whenever we see you guys make a move in Breast Health, obviously, you know, core competency, I feel we should be paying attention. So I wanted to kind of hear your strategic rationale on the Endomag acquisition. You know, why you see now as kind of a time to get bigger on the procedural side of the business, and if we should expect, you know, kind of further moves to cover the swath of the continuum, you know, if there's any other assets that you think that you'd like to have in that portfolio.

Stephen P. MacMillan (Chairman, President and CEO)

Yeah, I think the biggest piece is, it's just a continuation of what we've been doing over the last five, six years, where we've tried to build, especially the gantry business and build out across the breast care continuum, so into biopsies and into interventional techniques. So as we've been building our own markers business, this has been an area we've been looking. We got into LOCalizer a few years back. We've been doing both organic, inorganic, and the timing on this one really is driven by the opportunity to pick up Endomag. They've been a business we've been tracking for quite some time, that we liked a lot, and the opportunity finally became available to grab them. Thank you. But yeah, just continuing on what we've been doing.

Brad Bowers (Analyst)

Got it. That's helpful. And then, just to stay on the breast business, you know, you recently called out, you know, some of the life cycle in the boxes, you know, 2014 launch time frame, so maybe getting to the 9-10-year time frame. Can you just remind us, I guess, the lifespan on these devices and how Hologic plans to kind of best monetize the upgrade replacement opportunity, and also if this is, you know, part of the rationale on timing of any new, you know, systems, software and product enhancements? And thanks again.

Karleen M. Oberton (CFO)

Yeah, I would say we've been very intentional into really smooth out that business and really move away from the boom bust of a life cycle replacement or a replacement cycle. And as we've talked about, we've had many software and other upgrades to the gantry system over the past several years, all of which have been backwards compatible to that install base. The customers have been able to get improvements and upgrades along the way. They don't have to wait for that next gen gantry. But having said that, we certainly have something in development, but that's what we'll be talking about later, probably in 2025.

Stephen P. MacMillan (Chairman, President and CEO)

I think we have one more question.

Operator (participant)

Absolutely. That question will come from Michael Ryskin with Bank of America.

John Kim (Analyst)

Good afternoon. This is John Kim on for Mike. I think we've talked about these numbers before, and I was wondering, you know, the improved utilization tends to be the, seems to be the main contributor. So I was wondering how the average number of assay use for Panther has been trending. Like, what percentage of the customers is using more than one assay versus more than four assays?

Karleen M. Oberton (CFO)

Yeah, so I think if we go back to 2019, we would say that, you know, less than or about 20% of our customers were running about 4 or more assays. At the end of that, end of 2023, that was probably approaching high 30%, maybe 40%. But I think, you know, that's the entire install base. But I think the other, you know, metric I'd point to is the newer Panthers that were placed since April of 2020. So new customers acquired since the pandemic. You know, over 90% of those customers are running at least one other assay, and over 55% are running at least two other assays.

You know, I think that all points to the value, the workflow that our customers see with the Panther instrument and the menu, and that, you know, long runway ahead to continue to drive utilization on the install base.

John Kim (Analyst)

Got it. All right. Thank you.

Stephen P. MacMillan (Chairman, President and CEO)

Great. Thanks, Michael or John.

Operator (participant)

Thank you. This now concludes Hologic's first quarter fiscal 2024 earnings conference call. Have a good evening.