The operator welcomes listeners to Hologic's third quarter fiscal 2024 earnings conference call and introduces the company's executives. The third quarter press release and prepared remarks will be posted on the company's website, and a replay of the call will be available. The speakers caution that certain statements may be forward-looking and discuss non-GAAP financial measures. They define two of these measures as organic revenue and organic revenue, excluding COVID-19.

Hologic's CEO, Stephen MacMillan, discusses the company's financial results for the third quarter of fiscal 2024. Revenue and non-GAAP earnings per share were both above the high-end of their guidance, with a 31.2% operating margin and $100 million in share repurchases. This translates to a 14% growth in EPS and a return to revenue growth. The company's strong performance answers questions about the strength and durability of their business and demonstrates their growth and potential. After eleven quarters of COVID-driven declines, Hologic has returned to growth.

In the third paragraph, the speaker discusses the company's top line revenue growth of 3.1% and highlights their strong organic growth of 5.8%. They then introduce the themes for the call, including a recap of their performance since the start of the fiscal year and an update on international growth and M&A activities. The speaker addresses five key questions on investors' minds, including the growth of Panther utilization, the return of Breast Health to full strength, Hologic's operating margins, their capital deployment, and their leadership in cervical cancer screening. The speaker confidently states that the answer to all five questions is yes and provides further details on each topic. They also mention the strong growth of their molecular diagnostics business and the success of their Panther platform.

In the past 15 quarters, the company has consistently delivered high performance, with strong results in breast health, recovering from the chip shortage, and maintaining a strong operating margin. Their recent acquisition of Endomagnetics has also been successfully executed as part of their overall M&A strategy.

The paragraph discusses the company's recent deal with Endomag and their plans for capital allocation, including share repurchases and potential M&A opportunities. The company also addresses potential changes in USPSTF guidelines and their commitment to navigating the landscape. The success of the company's growth strategy is attributed to their focus on women's health and multiple growth drivers, particularly in International Diagnostics and Surgical.

The company experienced growth in molecular STI testing, cytology, and MyoSure internationally, highlighting the potential for market expansion. They are focused on increasing their share in STI testing and other categories, as well as introducing new products to underpenetrated markets. The demand for their minimally invasive options for treating uterine polyps and fibroids is high, and they believe all women should have access to these options. Despite being more established in the US, there are still significant opportunities for growth internationally.

The speaker discusses the company's position as leaders in women's health and their recent acquisition of Endomagnetics, a company with a strong track record and established products in the interventional breast surgery market. They anticipate strong revenue growth and increased profitability with the addition of Endomagnetics to their portfolio. The speaker then hands the call over to Karleen, who will provide an overview of the company's financial results for the quarter and their guidance for the future.

In the third quarter, our company saw a 3.1% increase in revenue and 5.8% organic growth, excluding COVID. Our non-GAAP earnings per share also exceeded our prior guidance. Our balance sheet remains strong, with over $400 million in cash generated and $2.4 billion on hand. We also made a strategic acquisition and continued our share repurchases. In our Diagnostics franchise, we saw 0.7% revenue growth, with strong performance from Molecular Diagnostics and Biotheranostics. Non-COVID respiratory assay sales declined as expected, but year-over-year growth remains strong. Cytology and Perinatal saw a decline globally, but with solid international growth offsetting U.S. declines.

In the third quarter, the cytology business has returned to normal, but growth rates were impacted due to customers building up inventory in the previous year. The Breast Health segment saw a 7.1% increase in revenue, driven by Breast Imaging and strong international growth. The Surgical segment grew by 6.2%, with MyoSure and Laparoscopy driving the growth. International sales also saw significant growth. However, the Skeletal business saw a decline of 29.7% due to a temporary stop in shipments. Gross margin improved by 30 basis points compared to the previous year, and operating expenses decreased by 3.5%.

The company's operating margin decreased due to the divested SSI business, but increased year-over-year due to top line growth, expanding gross margins, and lower operating expenses. Other income, net, represented an expense of nearly $3 million and interest income was lower due to share repurchases and higher interest rates. The tax rate for Q3 was as expected. For Q4 and full year fiscal 2024, the company expects total revenue and EPS to be in a certain range. The company lowered its revenue guidance by $5 million due to a temporary Skeletal Health stop ship, but expects growth in Diagnostics, Breast Health, and Surgical franchises.

Fiscal year '24 will have four fewer selling days compared to fiscal year '23, which is estimated to be a headwind of more than 100 basis points. In Q4, Molecular Diagnostics is expected to drive high-single digit growth, while Cytology and Perinatal are expected to have mid-single digit growth. Blood revenue is expected to be $6 million in Q4 and $20 million for the year. COVID revenue is expected to be $7 million in Q4 and $70 million for the year. Breast Health is expected to grow mid-single digits with solid gantry placements and strong demand for products and services. Surgical revenue is expected to grow mid-single digits from MyoSure, Fluent, and laparoscopy division.

Hologic's guidance for Q4 assumes continued improvement in gross and operating margins, with a projected exit for the fiscal year in the low 60s for gross margin and low 30s for operating margin. The company also expects other income, net to be an expense of approximately $8 million in Q4 and $11 million for the full year. The guidance is based on an annual effective tax rate of 19.75% and diluted shares outstanding of approximately 238 million. Hologic had a strong Q3 and is excited about the performance of all its franchises and its strong balance sheet. The operator opened the call for questions. The first question was about the Q4 guidance, specifically regarding the core business. The company stated that the guidance is primarily impacted by the skeletal business, but the core business remains strong.

The company's three core businesses are performing well, but there was a hiccup in the Skeletal business due to a supplier issue. The $20 million headwind is mostly related to the fourth quarter. The company aims to achieve pre-pandemic operating margins of 31.5% and expects to be in that range by the end of the fourth quarter. However, due to the addition of lower margin revenue growth drivers, the full-year operating margin for 2024 will be between 30-31%. The recent acquisitions will also have a lower margin profile, but the company is confident in achieving pre-pandemic margins for the full year of 2025.

The international business of the company has a lower margin profile and is facing higher supply chain costs due to chip shortages and integration of facilities. These costs are expected to decrease by 2025. During the Q&A session, a question was asked about the EPS growth for next year, to which the speaker responded that they are still working on their budget and will provide guidance in November. They aim to grow earnings faster than revenue and will consider various factors such as margin expansion, share repurchase, and tax benefits. The company has also made some recent tuck-in acquisitions.

The company's Boulder expansion is seeing success in the thoracic market and there is still potential for growth in pediatrics. The recent acquisition of Endomag is in its early stages, but the team is expected to do well. There is no current feedback from customers. The company is also seeing success with the Panther diagnostic system.

The company's field placements have increased to over 3,300, but are still lower than pre-COVID levels. The BV CV/TV assay is expected to become the company's largest assay in the future. The skeletal ship home ratio may provide a modest tailwind for fiscal year 2025, as the company is working to fix the issue. There are no lost revenues expected. The company's margins for Q4 were not discussed.

The company's expectations for the full year have changed slightly due to the deal and a potential revenue push out, with a projected operating margin of 30-31%. The cytology testing business has been slightly lumpy, but there has been no shift in the market. The change in Q2 to Q3 last year was due to a change in third-party vendor. There is no indication of a changing pattern ahead of the preventative task force rule or the digital platform upgrade. The range of assays used in post-pandemic systems is an average of two, with no indication of a shift in utilization over time.

The company is seeing positive results in their digital cytology business, especially in Europe. They have had good customer acceptance in the United States and expect to see growth in utilization of their Panther system. Outside of the United States, there are fewer cytologists, so the company's digital cytology technology has been well received. The company has also built stronger relationships with ministries of health during the pandemic.

The company is seeing strong growth in their molecular business, especially in the non-respiratory segment. There has been a shift towards point-of-care platforms in the market, but the company remains confident in their Panther system for screening asymptomatic patients.

The speaker discusses the success of their company's economic testing and their confidence in their position. They mention that they expect a 5-7% growth in the top line algorithm, with surgical at the higher end, rest on the lower, and diagnostic in the middle. They also mention a stop ship issue in the skeletal business, but assure that it will be resolved by the first quarter of fiscal 2025 and will not have a significant impact on their overall performance.

The company is in a strong financial position with a focus on deploying cash flow and cash reserves towards tuck-in M&A and share repurchases. The recent acquisition of Endomag was a success and the company is looking at similar deals in the future. They are also investing in innovation, including a next-generation gantry system and AI technology in Breast Health.

The company is in a good financial position to make strategic purchases and invest in innovation. They are working on a next-generation gantry that focuses on workflow, patient experience, and image quality, incorporating AI technology. They expect to grow gantries this year and may provide more details on their plans at RSA. The speaker did not give specifics on timing. The impact of the BioZorb recall on Endo-Magnetic is uncertain. The company has made several deals recently.

In response to a question about facility integration, Essex Mitchell and Karleen Oberton explain that BioZorb and Endomag are unrelated and that they are working through a recall for BioZorb. They also mention that they are currently integrating some facilities in their Breast Health business and are always looking for optimization opportunities. In terms of the molecular business, they mention that they have doubled the Panther installed base during COVID and that adoption for the fusion sidecar has been strong among new customers. They expect the fusion attach rate to continue to grow in the long term.

The company is seeing steady adoption of the Fusion sidecar, which is opening up their menu. They are focusing on customer by customer and have seen more customers adopting the Fusion each quarter. The company does not expect every Panther to need a Fusion and estimates it will be about a third of their total Panthers. The company is seeing good adoption and steady growth. In regards to margins, the impact is more from the stop ship on the skeletal franchise rather than the Endomag acquisition. The company still expects strong margins. They are also working through elevated chip costs and integrating facilities through fiscal '25.

The speaker is asked about the progress of working through higher-cost chips and when they expect to reach normal levels. They respond by saying they are mostly through them and will continue to work through them in 2024 and possibly into 2025. They also mention that as production increases, they will see more favorable absorption. They are also asked about the placement of gantries in the breast business and they say they have confidence that they will see growth year-over-year but are not yet back to pre-pandemic levels, which they expect to reach in 2025. They do not provide specific numbers on gantry placement or regional comments.

Stephen MacMillan confirms that there have been no changes in the competitive landscape of the market for bone density measurement and fracture assessment. He also mentions that there have been some pushouts in the quarter, but overall, the company is still performing well. The core businesses are strong, and they expect to be back to normal within the next quarter. The call concludes after the Q&A session.

This summary was generated with AI and may contain some inaccuracies.