HOLOGIC INC Q4 FY2024 Earnings Call

Good afternoon, and welcome to Hologic's Fourth Quarter Fiscal 2024 Earnings Conference Call. My name is Shelly, 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.

Thank you, Shelly. Good afternoon and thank you for joining Hologic's fourth quarter fiscal 2024 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 fourth 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 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. And two, organic revenue excluding COVID-19, which further excludes COVID-19 assay revenue, other 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.

Thank you, Ryan, and good afternoon, everyone. We are pleased to discuss our financial results for the fourth quarter of fiscal 2024. Total revenue was $987.9 million and non-GAAP earnings per share were $1.01. We closed the fiscal year with revenue above the high end of our previous guidance range and EPS at the midpoint. Our fourth quarter results underscore the durable growth of our business and our ability to consistently deliver. For the full fiscal year 2024, we posted $4.03 billion in revenue and non-GAAP EPS of $4.08. Before discussing our themes for today, we'd like to first reflect on the fiscal year we just completed. In 2024, we made great progress strengthening and growing our business. By leveraging our leading brands, we drove diverse revenue growth and delivered industry-leading margins, all while generating exceptional cash flow. This enabled us to achieve broad-based growth and expand our end markets thanks to our intense focus on workflow automation and identifying opportunities for better solutions. At the same time, we executed our M&A strategy effectively, while delivering differentiated solutions for our customers and further solidifying our durable competitive advantage as champions of women's health. We also continue to make progress and are still in the early innings of the large international opportunity that lies ahead. Going a level deeper, we have four highlights to share that reflect our progress. One, for the full year, our Molecular Diagnostics business grew 9%, excluding COVID, continuing its strong growth. These results should put to rest any concerns regarding Panther utilization in a post-COVID environment. Two, in breast imaging, we maintained our market-leading position while effectively navigating through the impact of the global semiconductor chip shortage. Three, from an operating margin perspective, we finished the year at 30%, maintaining profitability in the top tier of our peer group with opportunities for further improvement in 2025. Regarding our M&A strategy, four, we have been patient, disciplined and notably more active recently as opportunities we've been cultivating have become actionable. More specifically, we acquired Endomagnetics in July and signed a definitive agreement in October to acquire Gynesonics. Both are tuck-in deals that align with our M&A strategy and fit nicely into our global portfolio. We are the right partner to maximize these business opportunities, helping to benefit more women with the innovative products from these deals. From a broader capital allocation perspective, in 2024, we fully funded key organic initiatives and continued to reduce our share count. Additionally, as part of our release today, we announced our intention to launch a new $250 million accelerated share repurchase program. Overall, we have the ability to consistently deliver value to our shareholders through solid top line growth, operating and net margin expansion, and strong cash generation and deployment. Now moving to our two themes for our call. One, reinforcing who we are and how we got here. And two, shedding more light on where we are today and where we're headed in 2025 and beyond. As we've said before, Hologic is a company you can count on. Over the past 10 years, our non-GAAP EPS compound annual growth rate is over 10%, a meaningful achievement. Looking ahead, there will be ups and downs, challenges and headwinds but we expect to deliver as we have over the past decade. Since joining Hologic in 2013, we have dramatically transformed our business through two important phases. First, we steadied the ship and firmly rooted our leadership brands across our three main franchises: diagnostics, breast health, and surgical. Second, during the COVID pandemic, we added several growth drivers across each of our franchises, both organically and through acquisitions. Today, we have industry-leading platforms in each franchise and some of the strongest commercial channels in healthcare. The common theme across these two phases of transformation is our ability to create markets, establish market-leading positions and drive growth by generating new opportunities. Looking back, products such as the Panther, Horizon DXA, our ThinPrep liquid-based Pap test, 3D mammography, NovaSure, and MyoSure all represented improvements on the standard of care and therefore new markets at the time of their introduction. These trailblazing product lines generated new opportunities, which we continue to capitalize on today. Building on our foundation, products such as the Panther Fusion, Breast Cancer Index, Genius Digital Cytology, AI in mammography, Fluent, and Acessa leverage our established core businesses and enable more growth through market-creating innovation. That said, as an organization, we are never satisfied and consistently aim to create new essential innovations to make the best even better. Our culture and leadership have never been stronger as we continue to make a profound impact on women's health globally. Looking ahead to fiscal 2025, we are excited about our durable revenue base, diverse mix of growth drivers including our latest in Endomagnetics, and the opportunity to further strengthen our new product pipeline through organic and inorganic opportunities. We anticipate 2025 to be another year we deliver on our commitments, positioning Hologic for even greater long-term success. Now, I will pass the call over to Essex.

Thank you, Steve. Good afternoon, everyone. In my remarks, I will highlight where we are as a business today including divisional level revenue performance and share insights into where we are headed. As Steve discussed, our success transforming Hologic has been underpinned by our ability to excel as market creators. Over time, our products and solutions become integral to our customers' operations. Across our franchises, we provide solutions that enhance our customer success by incorporating industry-leading workflow automation. As our products significantly improve our customers' operational efficiency, we are more than just a supplier; we become a partner. Today, our portfolio includes several new products with considerable potential. These products span our franchises and geographies creating multiple layers of sustainable future growth. Coupled with our strong balance sheet, we have the firepower to add new growth drivers both organically and inorganically. We are confident that our robust portfolio along with future additions will enable us to grow sustainably and navigate the evolving market landscape with agility and resilience. Now shifting gears to our divisional revenue results for the fourth quarter. In Diagnostics, fourth quarter global revenue of $443.3 million grew 6.2% and 9.2% organically excluding COVID. Molecular Diagnostics remains a pillar of strength for the division, growing 9.1% and 13.2% excluding COVID. Molecular performance continues to be powered by our BV/CV/TV assay and biotheranostics business, both of which have runway for future growth. The division's respiratory, 4-plex, COVID, Flu A, B, and RSV assay also contributed growth for the quarter. For the full year, Molecular posted excellent global growth of 9% ex-COVID. This performance was again driven by BV/CV/TV as we continue to grow this market, moving testing for vaginitis to our FDA-approved assays on our highly automated, high throughput Panther system. In addition, we continue to see accretive growth from our biotheranostics business as we drive adoption and expand coverage for the breast cancer index test. And finally, we are expanding the global footprint of our Panther Fusion system, allowing us to meet the need for high throughput molecular diagnostic respiratory testing while also setting us up nicely as we build additional menu on the platform. Shifting to cytology and our perinatal business within diagnostics, we posted 0.7% growth in our fourth quarter. Since the FDA approval of our Genius Digital Diagnostic System or Digital Pap test, we've worked closely with our early adopting customers and they've given us great positive feedback on the system. This platform represents a significant improvement to the current Pap test workflows. It combines AI and advanced digital imaging to provide customers more sensitive disease detection and streamlined efficiency, a digital AI-assisted Pap test. We are proud to announce that our first U.S. Genius Digital Diagnostics customers went live in the fourth quarter. This milestone is yet another example of Hologic understanding the needs of our customers and responding to changing market dynamics with essential innovation. Turning to Breast Health, total fourth quarter revenue of $375.5 million increased 6.2% or 5.3% organically when excluding SSI and Endomagnetics. Organic growth in the fourth quarter was primarily driven by increased breast imaging service revenue along with contributions from our gantry business and interventional products. In Surgical, fourth quarter revenue of $156.5 million increased 5.4% compared to the prior year. The period's growth was once again led by core MyoSure and the platform's complementary fluent fluid management system, helping to offset declines in our legacy domestic NovaSure business. In addition, our international surgical business continues to drive strong broad-based performance, as we expand access to our technologies into new markets. And finally, in our Scalable business, fourth quarter revenue of $12.7 million decreased 54.9%. This result was expected based on the Horizon DXA stop ship we announced on our third quarter earnings call. As a reminder, this is a temporary headwind and we expect to resume shipping in the back half of our first quarter. Moving next to where we are headed, I will first comment on our international business and close with comments on our M&A strategy. From an international perspective, our efforts to expand globally have been broadly successful. Our international business is nearly 50% larger compared to 2019 with accretive annual revenue growth. That said, the full potential of our international business remains largely untapped. While we have taken key steps and are more directed to international markets than ever before, there is a vast international opportunity available to us that we are still in the early stages of realizing. Over a multi-year horizon, we see meaningful growth prospects for our international business as we continue to penetrate new regions and enhance our presence in existing ones. By leveraging our innovative products and strong brand reputation, we are well positioned to capture emerging market opportunities which we expect to be accretive to total company growth rates for years to come. Shifting now to M&A, it should come as no surprise that a combination of organic and inorganic innovation will add fuel for our future growth. Our M&A strategy continues to focus on pursuing tuck-in deals that align with our three franchises. We aim to identify and acquire assets that leverage our existing strengths, drive top-line growth and add accretion to earnings over time. Going deeper, we prioritize assets that nicely fit into our current market segments or near adjacent markets. We target strategic and high-growth areas across our franchises to enhance our current market position and to build a global durable growth portfolio. In summary, our M&A strategy is designed to identify and integrate valuable assets that drive incremental growth, reinforce our market leadership and deliver sustained value to our shareholders. By maintaining focus on our core markets, exploring adjacent opportunities and driving essential innovation, we believe we are well positioned to navigate 2025 and the years ahead. With that, I'll hand the call over to Karleen.

Thank you, Essex, and good afternoon everyone. In my comments today, we will begin with an overview of our solid fourth quarter and full-year financial results, providing more color on margin and capital deployment. In closing, we will finish with our fiscal 2025 guidance for Q1 and the full year. We are pleased to close fiscal 2024 by continuing to meet or exceed our commitments on both the top and bottom line. In our fourth quarter, total revenue was $987.9 million growing 4.2% over the prior year period and 5% organically excluding COVID. In addition, our Q4 non-GAAP earnings per share were $1.01 growing 13.5%. For the full fiscal 2024, total revenue was $4.030 billion declining 0.2%, while growing 5.3% organically excluding COVID. And non-GAAP earnings per share were $4.08 growing 3%. Given the revenue headwind of the skeletal stop ship in Q4, we view these results as solid. More notably, for the second quarter in a row, we returned to top line growth for our total business as we continue to bend the revenue curve in a positive direction. Before moving on to the income statement, we'd like to highlight the continued strength of our balance sheet as well as our commitment to our capital allocation strategy. In fiscal 2024, we pulled both levers of our capital allocation strategy by completing a revenue accretive tuck-in M&A deal in Endomagnetics, while also repurchasing 11.2 million shares for $808 million which includes a $500 million ASR completed in the second quarter. Over the course of fiscal 2024, we reduced our diluted share count by over 10 million shares, demonstrating our commitment to leveraging our strong balance sheet and cash flow to manage our share count and deliver EPS growth. Starting off 2025, as Steve mentioned, we remain confident in our business. We continue to leverage our ability to repurchase shares with the announcement of our intention to enter into a new $250 million ASR. With our strong operating cash flow, we are in an excellent position to continue funding our priority organic investments as well as our capital allocation strategy. We exited the year with over $2.4 million in cash and investments on the balance sheet and we'll continue to pursue growth opportunities in fiscal 2025. As mentioned earlier on this call, we are off to a great start by signing a definitive agreement in October to acquire Gynesonics. We anticipate closing this deal in the first half of calendar 2025. Now on to the non-GAAP P&L for the fourth quarter, starting at gross margin. In Q4, gross margin increased to 61.5%, and up 110 basis points year-over-year, driven by broad-based domestic revenue growth. We are pleased with this performance, having achieved steady expansion throughout the year while overcoming several headwinds, including the amortization of higher-cost inventory of semiconductor chips and the headwind from the skeletal stop ship. Moving down the P&L, fourth quarter operating expenses of $311 million increased approximately 2.4%. This increase was primarily driven by the inclusion of Endomagnetics in our fourth quarter results as well as stronger local currencies in our international business. Excluding the impact of Endomagnetics and FX, our operating expenses were approximately flat compared to the prior year. Altogether, fourth quarter operating margins finished at 30% and net margin was 24%, both representing a modest increase over the prior year. Below operating income, other income net represented a loss in our fiscal fourth quarter of slightly less than $1 million, better than previously anticipated due to lower net interest expense. Finally, our tax rate in Q4 was 19.75% as expected. Now let's move on to our non-GAAP financial guidance for the first quarter in the full fiscal year of 2025. In the first quarter of fiscal 2025, we are expecting total revenue in the range of $1.025 billion to $1.035 billion and EPS of $1 to $1.03. For the full year 2025, our guidance assumes revenue of $4.15 billion to $4.20 billion and EPS of $4.25 to $4.35. Help with constant currency modeling, we are assuming a foreign exchange tailwind of slightly less than $10 million for Q1 and $30 million for the full year. Our guidance assumes the recent trend of strengthening local currencies in our international markets continues in fiscal '25. Overall, for the full fiscal year, our guidance assumes organic ex-COVID growth of approximately 4% at the midpoint. We expect revenue growth to build throughout the year. In Q1, we will be impacted by several transitory headwinds, such as the stop ship in our skeletal business as well as strong prior year comparisons in Breast Health and Surgical. We are also planning conservatively around the respiratory season and the residual impact from recent hurricanes, including the saline IV fluid shortage that we anticipate will be a headwind to our more elective breast and surgical procedures. Now moving on to assumptions underlying our revenue guidance at the division level. For core diagnostics, we expect mid-single-digit growth for the full year, driven by our BV/CV/TV assay and the ongoing adoption of our Biotheranostics BCI test. Further, as Essex mentioned, we successfully launched Genius Digital Cytology in the U.S. during the fourth quarter. We are excited to continue this rollout and the growth opportunity it represents. Regarding COVID and respiratory assay assumptions, given the inherent variability of the respiratory season, we continue to plan conservatively for both, while maintaining capacity to aggressively meet any surges in demand. In addition, fiscal 2024 saw COVID revenue transitioning to our 4-Plex respiratory assay in our base molecular business. In 2025, we anticipate lapping the benefit of this conversion. In terms of COVID revenue, we expect COVID assay sales to about $10 million in the first quarter and approximately $25 million for the full year. COVID-related items are expected to be about $24 million in the first quarter and approximately $95 million for the full year. Closing out our diagnostics business, we expect blood screening revenue of about $5 million in Q1 and about $20 million for the full year. Turning to Breast Health. Over the past two fiscal years, we experienced elevated growth rates as we gradually recovered from the global chip shortage. Moving past this dynamic in fiscal 2025, we expect the gantry business within Breast Health to return to more normal growth ahead of our anticipated next-generation gantry launch. In our Interventional Breast segment, we expect continued strong performance from our portfolio of disposable needles and markers, though partially offset by recent withdrawal BioZorb products from the market. Lastly, in surgical, we expect broad-based progress across our portfolio to offset anticipated domestic NovaSure declines. We also foresee strong international surgical growth in fiscal '25 driven by deeper market access and market penetration opportunities. Moving next to margins. Our fiscal '25 guidance assumes both gross margin and operating margin expansion, highlighting our strong operational discipline and commitment to shareholder value. Thus, we expect Q1 gross margins around 60% and expect improvement of roughly 50 basis points over the course of the year. Additionally, we expect Q1 operating margins around 30%, with an expected increase of 50 to 100 basis points throughout the year. We are in an outstanding position given the current macro environment. Working down the P&L, we expect Q1 to represent our highest quarter of operating expense in fiscal '25. This is due to normal seasonal expenses, including larger marketing campaigns as well as sales and trade meetings. For the balance of the year, we anticipate quarterly operating expense to represent a modest increase over fiscal '24 as we include the addition of Endomagnetics business into our fiscal '25 guidance. Below operating income, we estimate fiscal '25 other income net to be an expense of approximately $10 million to $15 million in Q1 and an expense between $50 million and $60 million for the full year. Our guidance is based on an annual effective tax rate of approximately 19.5%, and diluted shares outstanding are expected to be approximately $235 million for the full year. To conclude, our solid fourth quarter completes another successful year for Hologic. As always, our focus remains on advancing women's health globally and delivering durable long-term results. Entering fiscal '25, we are excited about the opportunities ahead. With that, we ask the operator to open the call for questions.

And our first question is coming from Patrick Donnelly with Citi.

Karleen, maybe you start where you finished it. Just on the margins, Karleen, can you talk through how to think about the year? Obviously, a lot of folks are anchored to kind of the 31.5% for the year. And I know there was a lot of focus as COVID finally gets cleaned up, land on that number. Can you talk about the moving pieces on the margin front for the year and kind of where we should be thinking about the year and then the expansion potential off of this as well?

Yes. So you talk about fiscal '25, Patrick, moving forward?

Yes, correct.

Yes. So I think we talked about certainly some headwinds in the first half of the year that we think those are transitory in nature. And certainly, when we talk about the IV fluids shortage impacting surgical our most profitable business that gives you some of the first half challenges that we think are, again, transitory and we'll work through those over the course of the year. I think as we also think about the year, we've talked about network optimization opportunities that have been underway, we'll start to see more of a benefit from those as we exit the fiscal year. So those are some of the key items that we look to over the course of the year. And again, if you look at the full year revenue guidance, 4% at the midpoint to the full year lower than that. Certainly, in Q1 as we start off, that gives you a sense of accelerated revenue growth in the back year that's going to help that margin expansion at the end of the year.

Okay, that's helpful. Steve, could you discuss the outlook for the Breast Health business this year? It seems like there might be a new launch on the gantry side. How should we approach this considering potential risks and maybe a slight pause or a replacement cycle that could follow? Please outline your thoughts on Breast Health with the new products coming in and the expected growth there.

Yes. Thanks, Patrick. I think the reality of the new gantry is that's going to be more impacted in kind of '26, '27, '28 from revenue. We are in that year prior to the launch that it might be a touch slower on pure gantries. The flip side is, as our service business as the interventional business and particularly things like Endomag coming through, it's the magic of continuing to deliver. So probably be a little bit lower than the last couple of years, as Karleen mentioned. But still very solid and we still feel really good about the existing gantries and the customers we still have to go, but probably just a little bit lower than last year before it reaccelerates.

Our next question is coming from Jack Meehan with Nephron Research.

I had a couple of diagnostic question. Backwards leaps over players here. First question, now that it is the end of the year, I was wondering, it sounds like Biotheranostics, BV/CV/TV, two of the key growth drivers here. Could you just give us a mark-to-market for the year, ballpark of what the sales were? And then, what your view is on kind of how much the level of growth you should expect in 2025?

Yes. So I'd say a couple of points on BV/CV/TV, I think we've talked about that as approximately our second largest assay. So it's going to be several hundred million dollars in revenue. Biotheranostics is not at that level. It's probably closer to the $100 million plus level. I would think about those as BBC a very strong double-digit grower will continue to grow double-digits in '25, probably a little lesser rate given the increasing base. And Biotheranostics, a solid double-digit grower in '24 and we expect similar in '25.

And then, Karleen, you also talked about the transition you saw this year to the respiratory panel. And just trying to read through the lines, it sounds like you're expecting you re at least your initial assumption is that decline this year? Any chance you could give us a ballpark what that sales contribution was in 2024 and just assumptions there?

Yes, it was definitely in the several tens of millions of dollars for the Plex assay. At this point, we've transitioned from COVID revenue to this product. We don't anticipate another transition year, which is why it's a slight challenge as we look at the first half of '25.

Our next question is coming from Anthony Petrone with Mizuho Group.

Coming back on the quarter here. Maybe one breast health and one on Gynesonics, the acquisition announced a couple of weeks ago. On Breast Health, just in terms of gantry rollout post RSNA and we think about next fiscal year, should we be thinking that sort of the 2014 to 2017 sort of installs from the 3D Tomosynthesis on initial product cycle, those would be up for renewal beginning next year? Or is there a bigger portion of that installed base that potentially is eligible for an upgrade? And then just on Gynesonics, the Sonata system, maybe just a little bit on how many systems already out there in the marketplace and just synergies with the existing GYN surgical portfolio.

Yes. On the Breast Health piece, I would think it's going to be a rolling. I wouldn't expect some big bolus of the 2014 to 2017 all coming due. I think we're going to be phasing it out. And frankly, again, looking for more durable growth than the quick bullish of uptake. And then on Gynesonics.

Yes, I can address the Gynesonics question. First, we won't go into any details about the installed base or anything like that until we close. However, I can say that we believe this addition complements our portfolio and aligns well with what our surgical team is doing every day. The same customers are performing the same types of procedures, like hysteroscopy or trans cervical, which is where our strengths lie. We're excited about it and will share more information after we close.

Our next question is coming from Vijay Kumar with Evercore ISI.

Steve, I missed the first part of the call. Looking at the guidance of 3.4x to 4.7x excluding COVID, how do you connect this to the long-range plan of 57? Is skeletal still a challenge in fiscal '25, and is there anything else we should consider to connect your current guidance to the 5% to 7%?

Yes. What you missed, Vijay, is that we're experiencing what we refer to as transitory headwinds, particularly in Q1 and potentially extending into Q2. We mentioned in our prepared remarks that we expect to start shipping skeletal products in the latter part of Q1, which is definitely a challenge for us. We've also been conservative regarding our respiratory products due to the seasonality of flu. Additionally, the IV fluid shortages resulting from the hurricanes are anticipated to impact our surgical and breast businesses that require those fluids this quarter, and it may extend into Q2. Considering all these temporary headwinds for the first half, if you look at the midpoint of our guidance for the entire year, we expect a significantly lower growth rate in Q1, indicating that the second half is likely to show accelerated growth in revenue.

Understood. Steve, maybe on this IV flow shortage, none of the other metric companies have called us. I'm curious. Are you seeing something now? Or is this more of a modeling assumption?

I believe a few have mentioned it. Additionally, I want to remind you that we were the first to point out the chip shortage. We have been at the forefront of many observations, as you know, because we are very close to the business and we are noticing some small issues. Another aspect is that our surgical business is heavily elective. Consequently, what is happening is that hospitals, particularly Baxter, are focusing on emergency and non-elective procedures. Therefore, we anticipate a slight short-term impact, but it is clearly temporary, and nothing significant beyond that as we expect to recover quickly. In fact, this could transition from being a headwind to a tailwind, but we always prefer to take a conservative approach at the beginning of the year.

Yes. Vijay, I would say at least three to four other med tech companies have called it out specifically. So we're not alone in this.

Our next question is coming from Dan Leonard with UBS.

This is Lu on for Dan. I wanted to ask about the short-term challenges. Can you provide some insight into the extent of the shortages? Additionally, what factors contribute to the cautious outlook for respiratory revenue? Any further details would be appreciated.

Yes. We haven't specifically quantified it. We've mentioned that the skeletal stop ship amounts to roughly $5 million a month, which may provide some context for our anticipated return to shipments in the latter half of the year. Regarding the conservatism in the respiratory sector, it could range from at least $10 million to $20 million. As for the IV fluid situation, it is still developing, and we don't have a clear understanding of that yet.

Okay. Got it. And then I wanted to touch a little bit on the share repo that you mentioned, the $250 million, is that going to happen entirely in one quarter? Or is that like a year or multiyear program?

Yes. We expect we're going to kick that off in the next couple of weeks here, and it should finish within our fiscal second quarter. So we'll have a prorated benefit, if you will, within the fiscal 2025 full year.

Our next question is coming from Casey Woodring with JPMorgan.

I was curious if you could break out the 1Q guide by business segment, just to help us understand the growth acceleration expected over the course here between segments? And then also, curious what you're expecting in terms of international business growth versus domestic sales in '25 and what the outlook is across the different businesses internationally?

Yes, we haven't provided specific details, but considering the transitory headwinds, diagnostics likely experience the least impact, with mid-single-digit growth anticipated for the first quarter, while the other businesses are expected to be below that.

And then just internationally as well, how you're thinking about that?

Yes. We expect international to grow at a faster rate than our domestic business.

Got it. Okay. And then just maybe if I can fit in one quick last one. So you talked about leveraging some supply chain costs moving around to give you some tax benefit. Just wondering if there's anything baked in there from a supply chain perspective that 19.5% tax rate for '25 or if there's some upside to that number?

Yes. Casey, I would remind you that the 19.5% is lower than fiscal '24. We're taking it down 25 basis points primarily related to limiting some of our foreign losses that weren't deductible. And of course, we're always looking at other supply chain opportunities or business opportunities to drive the rate. But I wouldn't say that we're ready to commit to anything lower than the 19.5% that's already lower than '24.

Our next question is coming from Mike Matson with Needham & Company.

So I want to ask one on vertical business. So NovaSure sounds like it's declining in the U.S. So can you talk about why and whether or not that's something that could be stabilized and you return to growth? Or is it going to be a perpetual decline?

Yes. What I would say is that for a number of years, the volumes of global endometrial operations across the market have been a slow decliner. We've continued to maintain our market share and do well in the space but we do see alternatives versus competitors become more prevalent such as IUDs and other things to control hormonal abnormal uterine bleeding. So as of right now, we do expect that to continue on a slow decline. We feel great about our ability to continue to grow internationally, which is expanding and has a nice growth rate with NovaSure. So expecting all-in to still put up market-leading results, but we do see it declining in the U.S.

Okay, I understand. I have another question about Gynesonics. I realize the deal hasn't been finalized, so I'm not sure if you can answer this. It seems like their product is for fibroids, similar to MyoSure. Can you explain why it wouldn't cannibalize MyoSure to some extent? Are they targeting different patients or types of fibroids? Is that the reason?

Yes, you are correct. It is designed for different types of fibroids. We have larger fibroids located on the outside and within the wall of the uterus addressed by Accesa, while MyoSure targets smaller polyps and up to type 2 fibroids. There are six distinct types of fibroids, and Gynesonics fills the gap between Sonata, Accesa, and MyoSure. It focuses on a different type of fibroid and employs a different technology compared to MyoSure.

Our next question is coming from Navann Ty with BNP Paribas.

I have one on M&A. If you could discuss the recent M&A environment in Hologic three segments. And maybe more broadly, your capital allocation priorities in 2025.

Yes. I would say that as Hologic M&A is within each division. So each division has their own business development teams that are out there identifying assets, cultivating relationships and hopefully, we're able to acquire assets before they jump into a process. And hopefully, assets that we're kind of the rightful owner of. And so I'd say there's no priority between divisions at this time. It's really about what is the best deal for Hologic. And I think we gave some examples on how Endomagnetics and Gynesonics fit nicely into our current portfolio. And we bring a point of expertise. And I would say, as we look to 2025, I think it's probably more of the same of what we saw in '24, a balance of M&A and share repurchase is what we're looking to do.

Our next question is coming from Michael Ryskin with Bank of America.

Hello. This is John for Michael. I wanted to ask about the Panthers. I'm curious about the recent tier results from one of your manufacturing partners and whether that has any impact on the Panther placements. I understand that utilization and assay menu expansion are key to growth, and I'm sure the level of placements has significantly changed compared to pre-pandemic times, so I would like to know how that trend has been developing.

Yes, certainly. This is a topic we have discussed over the past couple of years. We currently have an installed base of over 3,300 Panthers globally, which is significantly higher than pre-pandemic levels. During that time, we experienced an accelerated placement of Panthers. As we anticipated, the pace of those placements has slowed down, but it has not affected the overall growth of the business. As we've mentioned, molecular diagnostics, excluding COVID, grew by 9% in fiscal '24, even several years after the pandemic ended. This indicates continued strength in that segment of our business.

Well, I mean, if you wanted to give me more color but I would have taken that.

As you know, some people sometimes forget that we generate all of our revenue from the assays, not from Panther. I understand that we've received questions from investors who wonder if selling fewer Panthers indicates a downturn. However, it's important to remember that we operate on a reagent rental model. Currently, the next few years will significantly drive assay adoption without needing to place a lot of Panthers, which is beneficial for our capital expenditure. Overall, this structure is advantageous for us.

And yes, and on that related note, any update to the statistics you provided in the past about 55 users having using two or more assays and 1/3 having four or more?

We haven't provided an update on that. Generally, I would say that those trends continue to improve and move in the right direction.

Our next question is coming from Mason Carrico with Stephens.

This is Harrison on behalf of Mason. Last quarter, you mentioned some facility integrations within the Breast Health business. Could you discuss the timeline of those integrations for this year and the margin impact as we move forward?

Yes. We expect that migration to be completed over the course of which is it's great not only from a manufacturing but also R&D will be seeded there and some great synergies with the R&D teams. But we haven't provided specific improvements, but it is part of the improvement we will see over the course of the year.

Got it. Yes. Sounds great. And then so within Breast Health. Have we largely moved past the higher cost of chips at this point? Are we at a more normalized level heading into '25 or is there still a drag on margin earlier in the year relative to the back half?

Yes. We're probably on the tail end of that. There was not just one ship. There were many, many different ships that have the issue. So there could be still a few working their way through the system. But I think as we go through '25, we will move past that.

Our next question is coming from Tejas Savant with Morgan Stanley.

This is Jason asking on behalf of Tejas. I have some modeling-related questions. In terms of skeletal health, do you anticipate the supply chain will be resolved by the end of the first fiscal quarter? How much of the $15 million per quarter loss can we expect to recover in fiscal year 2025, in addition to the base sales expectations? Additionally, regarding BioZorb, could you provide an estimate of the financial impact from discontinuing this product for fiscal year 2025?

Yes. The BioZorb impact is de minimis, it really is a revenue line item that was less than $10 million in '24. So pretty de minimis. And I think on the skeletal, I think what we're really focused on is getting this back on the market and satisfying our customer demand. I wouldn't project right now that there will be some level of pickup. Again, we need to get it back to shipping status here in the first quarter.

Our next question is coming from Conor McNamara with RBC Capital Markets.

This is Ricardo Moreno for Conor. I have a question about as normal growth returns to the gantry business. How does that coincide with earlier the chip shortage that was experienced with the gantry business intersecting with equipment upgrades and replacement cycles?

So what I would say is, as we're kind of through the chip issue and I think we covered that in the prepared comments that as we get into '25, we expect more normalized growth rates. With potentially a little bit of headwind, again, as we anticipate this next-gen gantry. But as Steve talked about, we don't expect a significant increase in that conversion cycle given that technology improvement, software improvements, AI has been available to customers in our installed base over the past several years. It's been very intentional that our R&D efforts were producing upgrades that were backwards compatible to the installed base so that we didn't create this pent-up demand. So I think we're really going to move into a more normalized replacement cycle or an ongoing replacement cycle here in the U.S. which is a great business to have that steady state.

Fantastic. Following the earlier comments about the international business, how does that relate to achieving the pre-pandemic operating margin goal of 31.5%? Traditionally, those margins have typically been a bit lower than 30%.

Yes. I believe that as we've discussed, our guidance for fiscal 2025 starts at 30%, with an expected improvement of 50 to 100 basis points throughout the year. We aim to enhance our margins wherever possible, despite the fact that the growth of our international business typically has a negative impact on margins. However, as our international segment expands, it presents its own opportunities to improve operating margins. It's a continual balancing act, and we are optimistic about our expectations for 2025.

Our next question is coming from Andrew Brackmann with William Blair.

This is Maggie Wil on for Andrew today. Maybe one on Biotheranostics, I know you spoke to earlier, you're expecting kind of that double-digit growth that you saw in fiscal '24 for fiscal 2025. But how should we be thinking about the contribution from that to growth moving forward? And just where do you feel like you are in terms of that opportunity?

Yes. I think we think it's still early innings on that opportunity. I think there's it's pretty low market penetration at this point, but we haven't given guidance beyond '25, but to say that it's still early innings.

It certainly seems accretive to our company for many years to come, as are most of the acquisitions we've been doing over the last few years.

And our final question is coming from Andrew Cooper with Raymond James.

Maybe just one more on the margin side to the degree you can help sort of frame the swing factors of adding that 50 bps to 100 bps over the course of the year, how much of that is just these transitory items getting lapsed by the time or resolved by the time you get to the fiscal fourth quarter versus the network optimization and other things you called out in one of your earlier answers.

Yes. We haven't quantified them specifically, but certainly, they are contributing to kind of lower margins here in the beginning, the first half of the year. But again, we view this as transitory and as they clear, we'll reap that margin benefit.

Thank you. And this now concludes Hologic's fourth quarter fiscal 2024 earnings conference call. Have a good evening.