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    HOLOGIC (HOLX)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$75.91Last close (May 2, 2024)
    Post-Earnings Price$79.60Open (May 3, 2024)
    Price Change
    $3.69(+4.86%)
    • Increased utilization of Panther instruments with a long growth runway ahead. Since April 2020, over 90% of new Panther customers are running at least one additional assay, and over 55% are running at least two additional assays, demonstrating the value and workflow advantages of the Panther system and indicating significant potential to drive further utilization of the installed base.
    • Significant international growth opportunities through market development and direct sales strategies. Hologic is focusing on international expansion, particularly for assays like BV/CV/TV, which have strong momentum in the U.S. but minimal international contribution so far, representing a longer-term growth opportunity. Additionally, by transitioning from distributors to direct sales in international markets, Hologic expects to improve margins and outcomes due to enhanced market development and access capabilities.
    • Strategic acquisition of Endo-Mag to enhance the interventional breast portfolio and accelerate growth. The acquisition is expected to be accretive to the division's growth rate, leveraging Hologic's significant direct sales force in the U.S. as a differentiator, and fitting nicely with the existing interventional portfolio.
    • Limited near-term international growth opportunities for the BV/CV/TV assay, as the market is underdeveloped and the company has minimal expectations internationally in the near term.
    • Full-year guidance was not raised despite exceeding expectations, due to currency headwinds, indicating potential caution about future performance.
    • Increased competition from larger peers in the market could impact Hologic's market share and growth in certain segments.
    1. Capital Allocation Priorities
      Q: How are you prioritizing capital allocation amid share repurchases and M&A?
      A: Management aims to pursue acquisitions like Endo-Mag, targeting deals around $300 million on a regular basis. They emphasized flexibility to conduct share buybacks and maintain a strong balance sheet, enabled by ongoing cash flow generation. While the ideal is consistent acquisitions and some buybacks, they acknowledge the real world isn't linear and remain comfortable amassing cash for future opportunities.

    2. Endomag Acquisition Rationale
      Q: What's the strategic rationale for acquiring Endomag now?
      A: The acquisition aligns with Hologic's strategy to expand across the breast care continuum, particularly into interventional techniques. They've been tracking Endomag for some time and seized the opportunity when it became available. The asset fits well with their existing portfolio, leveraging their significant direct sales force in the U.S., and is expected to be accretive to the division's growth rate.

    3. Guidance Tightening vs. Raising
      Q: Given strong performance, why tighten rather than raise guidance?
      A: The impact on full-year guidance is primarily related to currency fluctuations. On a constant currency basis, the midpoint of the guidance is up slightly. Management prefers to tighten the range to hone in on delivering within it without getting ahead of themselves.

    4. Diagnostics Market Strength
      Q: What drives the continued strength in Molecular Diagnostics?
      A: The strong performance is attributed to widespread placement of Panther systems during COVID-19, nearly doubling worldwide placements. The Panther's automation, extensive assay menu, compact footprint, and addition of the Fusion sidecar have led to increased adoption and utilization. Customers are adding more tests to their Panthers, validating the company's long-term strategy.

    5. Future Growth Expectations
      Q: Could growth exceed the long-range plan in fiscal '25?
      A: Management declined to provide specific guidance for fiscal '25 at this time. They are focused on delivering current results and investing for future growth, with more details to be shared in the November call.

    6. International Margin Expansion
      Q: How will you drive margin expansion internationally?
      A: Strategies include going direct in more markets, improving outcomes through better market development and access capabilities. Investments over the past five years in commercial infrastructure are reaching a leverage point. Additionally, the Surgical portfolio, being accretive to margins, will contribute to overall margin improvement.

    7. Competitive Position in Diagnostics
      Q: How do you view competitive dynamics in Molecular Diagnostics?
      A: Hologic focuses on building their business by serving customers and growing categories rather than on market share. They've expanded their respiratory menu and added the Fusion sidecar, strengthening offerings in reference labs, hospital systems, and public health labs. They believe they have economic and workflow advantages, along with superior assay sensitivity and specificity.

    8. Breast Health Impact from USPSTF Guidelines
      Q: How will new mammography guidelines affect your Breast Health business?
      A: Management does not expect significant impact since the USPSTF remains in the biannual screening world. Breast Health is a capital sale and less volume-dependent, so changes in screening frequency have minimal effect. They see the guidelines as a step forward for women but note they don't go far enough for women over 74.

    9. Genius Digital Cytology Feedback
      Q: What's the early feedback on the Genius Digital Cytology system?
      A: The system was recently approved in the U.S., and the company is partnering with lab customers on implementation and workflow integration. There's excitement about its potential in a labor-constrained environment, but minimal contribution is expected in fiscal '24.

    10. Panther System Utilization
      Q: How is assay utilization trending on the Panther system?
      A: Since 2019, the percentage of customers running four or more assays increased from about 20% to nearly 40% by 2022. For Panthers placed since April 2020, over 90% of new customers run at least one other assay, and over 55% run at least two other assays. This reflects the value and workflow efficiency customers find with the Panther system.

    11. International BV/CV/TV Opportunity
      Q: What's the growth potential for BV/CV/TV assays internationally?
      A: The company is at early stages internationally, with the market and indications not fully developed. It's seen as a longer-term market development opportunity with minimal near-term expectations. However, there's strong momentum in the U.S. market.

    12. Breast Health Equipment Lifecycle
      Q: How will you monetize upgrade opportunities in Breast Health devices?
      A: Hologic has been intentional in smoothing out the business and moving away from boom-bust replacement cycles. They offer backward-compatible software and upgrades, allowing customers to improve systems without waiting for next-gen gantries. New developments are in progress to be discussed, likely in 2025.

    13. International Growth Drivers
      Q: What regions or products are driving international growth?
      A: Growth comes from a mix of products in various countries, particularly in the Surgical and Interventional spaces. Acquisitions like their distributor in the Nordics enhance direct sales efforts. Success is built on incremental expansion and reinvestment across geographies and products.

    14. HPV Primary Screening Trial Design
      Q: What's needed to establish an HPV primary screening claim?
      A: The company is focused on maintaining co-testing as the gold standard. They note a modest uptick in cervical cancer coinciding with extended screening intervals, reinforcing belief in co-testing. There are no immediate plans to pursue HPV primary screening claims.

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