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    HOLOGIC (HOLX)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$74.41Last close (Feb 1, 2024)
    Post-Earnings Price$74.40Open (Feb 2, 2024)
    Price Change
    $-0.01(-0.01%)
    • Leading-edge AI capabilities in Breast Health, especially with the Genius AI detection program, positioning the company ahead of competitors in workflow advantages and product integration.
    • Strong double-digit international growth for the past 5-6 years, with Breast Health revenue increasing by 33% in constant currency, contributing significantly to overall growth.
    • Strategic focus on improving international margins by disciplined cost management and moving to direct sales in key markets, which is typically accretive to the margin line.
    • International revenue remains dilutive to gross and operating margins: Despite strong international growth, management acknowledged that international revenue is inherently lower margin and dilutive to gross margin and operating margin, impacting overall profitability.
    • Interest expense is expected to increase: The company anticipates a 100 basis point increase in weighted average cost of debt due to the expiration of a favorable interest rate hedge, leading to higher interest expense of approximately $30 million to $50 million for the full year, which could negatively affect net income.
    • Revenue growth may slow due to tough comparisons: Guidance for Q2 indicates an organic revenue growth of about 3.5%, down from 5% in Q1, primarily due to tough comparisons with an exceptionally strong prior-year quarter, suggesting potential slower near-term revenue growth.
    1. Margin Outlook
      Q: Should we expect operating margins to expand to 31% and beyond?
      A: Management expects to exit the year with operating margins around 31%. Gross margin headwinds from gantry chips and network optimization efforts amount to 50 to 75 basis points. They foresee improvements over the course of the year but caution against significant gains in fiscal '25, aiming to continue investing appropriately in R&D and innovation.

    2. Business Segment Growth
      Q: Which segments are driving sustainable growth, and at what rates?
      A: Each business segment is expected to grow within the 5% to 7% range this year. Internationally, segments are at the higher end or slightly beyond that range. In Surgical, MyoSure and Fluent are growing faster, while NovaSure is growing slower.

    3. M&A Strategy and Deal Size
      Q: Are you open to larger M&A deals, and what are your priorities?
      A: They are open to larger deals in the $1 billion-plus range if they bring significant revenue and EBITDA. The focus is on established, profitable businesses, avoiding early-stage or unprofitable projects. Opportunities exist in med tech areas like surgical platforms and breast health.

    4. Breast Health Backlog
      Q: What's the status of the Breast Health backlog and future expectations?
      A: The Breast Health business has several quarters of backlog, likely extending into early 2025 at elevated levels. Elevated backlog is expected for the next 3 to 5 quarters as they supply gantries to customers.

    5. International Growth and Margins
      Q: How are international growth and margins trending, and any efforts to improve them?
      A: International growth is strong, with double-digit increases over the past 5 to 6 years. While international revenue has lower margins, they're improving margins through selective pricing and cost discipline. Going direct in key markets enhances revenue and is typically accretive to margins.

    6. Market Expansion Amid Competition
      Q: How are you expanding markets in competitive areas like viral load and STI testing?
      A: Despite strong competitors, significant opportunities exist to expand markets. Products like BV/CV may become their largest assay. With only 10% of women globally tested for STIs, there's substantial market potential.

    7. CapEx Environment Impact
      Q: What's your outlook on customer CapEx spending and its impact on sales?
      A: They feel positive about the CapEx environment, not seeing dramatic changes affecting their business. Their equipment isn't a major component of hospital CapEx budgets, making them less vulnerable to fluctuations.

    8. Molecular Diagnostics Outlook
      Q: Has growth in Molecular Diagnostics ex-COVID slowed, and what's the outlook?
      A: Growth appeared to slow due to four fewer selling days, reducing the growth rate by 4 to 6 percentage points. They remain confident in the overall run rate and size of the business.

    9. Impact of Fewer Selling Days
      Q: How did fewer selling days affect your quarterly results?
      A: The four fewer selling days significantly impacted disposable run-rate businesses, lowering growth rates by 4 to 6 percentage points.

    10. Tax Rate Outlook
      Q: How will the global minimum tax and R&D tax credit affect your tax rate?
      A: The global minimum tax won't impact them until fiscal 2026. Since their tax rate is already over 15%, the effect is expected to be minimal. Changes in R&D amortization are minimally favorable but have a minimal overall impact.

    11. New Product Approvals Impact
      Q: What is the impact of new product approvals like the Genius Digital DX system?
      A: The Genius Digital DX system improves workflow without significant changes to pricing or margins. Customers are excited due to labor-saving benefits, and it's driving growth internationally, especially in Europe. The approval of digital cytology is seen as a substantial advancement in 40 years.

    12. Interest Expense Increase
      Q: How will the expiration of the interest rate hedge affect interest expense?
      A: With the expiration of a favorable interest rate hedge, weighted average cost of debt will increase by about 100 basis points, leading to interest expense exceeding interest income by $30 million to $50 million for the year.

    13. Biotheranostics Growth Potential
      Q: What's the growth outlook for Biotheranostics' Breast Cancer Index test?
      A: They see significant long-term potential, considering themselves in the early innings. Growth remains accretive and is still progressing nicely.

    14. Panther Utilization Growth
      Q: How is Panther utilization trending among customers?
      A: Panther utilization is growing year-over-year. Customers running four or more assays have nearly doubled from 20% in 2019 to close to 40% at the end of '23.

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