The paragraph is an introduction to Hologic's Second Quarter Fiscal 2025 Earnings Conference Call. Rachel, the operator, introduces Mike Watts, who welcomes participants and introduces key company figures, including Steve McMillan, Essex Mitchell, and Karleen Oberton. They announce the availability of the second-quarter press release on their website and mention that a replay of the call will be available for 30 days. Mike Watts notes that some statements made during the call will be forward-looking and subject to risks and uncertainties, as detailed in their earnings release and SEC filings. He also mentions the use of non-GAAP financial measures and defines organic revenue, including adjustments like excluding COVID-19-related revenue. Steve McMillan, the CEO, is then introduced to continue the call.

In the second quarter of fiscal 2025, Steve MacMillan reported that his company met financial commitments despite a challenging macroeconomic environment. Total revenue was $1.005 billion, with a slight decrease in constant currency, but within the guidance range. The Diagnostics business remained strong despite funding cuts in Africa, and the skeletal franchise benefitted from eased supply constraints. Non-GAAP earnings per share were $1.03. The company's products, particularly in infectious disease and cancer testing, offer significant value by reducing healthcare costs, and there is a focus on accelerating growth in breast health products. Despite economic challenges, the company believes in its strong foundation and ability to deliver solid results.

The paragraph highlights the strengths of the company, focusing on its leading position in mammography products, strong customer relationships, and growing non-product revenue. It emphasizes the company's diverse portfolio in breast healthcare, a committed workforce, and high employee engagement, which was particularly evident during the COVID-19 pandemic. The paragraph also points out the company's seasoned management, strategic organizational improvements, and solid financial standing, with significant operating cash and a low net leverage ratio, providing financial and strategic flexibility.

The company reports a strong financial position, emphasizing its ability to capitalize on market opportunities through acquisitions and investments similar to previous successful deals. It has also returned value to shareholders by repurchasing over $4.5 billion in stock since 2016. Although facing challenges in markets like Africa and China due to geopolitical issues, the company is optimistic about growth starting in the fourth quarter, driven by better commercial execution, organic growth, and new product launches. Essex Mitchell reports that second-quarter revenue met the high end of their expectations, with strong performance in diagnostics and recovery in the skeletal business.

The paragraph discusses the growth of Hologic’s molecular diagnostics division, highlighting a 1.7% overall growth, or 7.8% excluding COVID-related factors. This growth is mainly driven by increased sales of their BV/CV/TV assays, respiratory assays, and the Biotheranostics oncology business. They note that only around 40% of the 20 million U.S. women experiencing vaginitis are currently being tested with outdated methods, and their diagnostics team aims to improve this with better awareness and reimbursement for their molecular tests. A severe flu season boosted demand for their respiratory assays, benefiting their Panther Fusion platform. In the oncology sector, their breast cancer index test is gaining traction. However, growth was offset by reduced HIV testing in Africa due to USAID funding cuts, which are affecting other nonprofit organizations and disrupting testing infrastructure. Excluding Africa-related issues, the molecular division's revenue growth would have been in the low double digits for the second quarter.

In the second quarter, the cytology and perinatal sectors experienced a 0.6% revenue decline due to international challenges, despite modest growth in the U.S. Breast health revenue fell 6.9%, or 9.2% organically, with a noted decline in gantry placements. A new leadership team has been established, focusing on reorganizing the sales team, strategizing upgrades for older gantry units, and directly selling Endomagnetics products in North America to boost performance and capitalize on market opportunities. The Endomag team is showing strong momentum for the year's second half.

The commercial and service teams are focusing on gantry upgrades and managing a global base of 15,000 3D gantries, respectively, leading to significant growth in recurring service revenue, now making up over 45% of total breast health revenue. The surgical segment saw a 5.1% revenue increase, with strong international growth, particularly for minimally invasive GYN products. The launch of the Fluent Pro system has enhanced the MyoSure platform, yielding positive customer feedback. The recent Gynesonics acquisition is progressing well. The skeletal business also experienced robust growth, exceeding production expectations for the DEXA system. Despite recent tariffs, most manufacturing remains in the United States, with minimal impact expected due to limited overseas production.

The paragraph outlines a company's export and manufacturing activities, highlighting that while some products are made in the U.S., others, particularly surgical and interventional breast products, are manufactured in Costa Rica and Mexico. It acknowledges the impact of tariffs, estimating a gross impact of $20 million to $25 million per quarter, with most exposure from Costa Rica and a smaller portion from China. The company is exploring ways to mitigate these tariff impacts, as most sales are bound by long-term contracts. Karleen Oberton then takes over to discuss the non-GAAP income statement and provides guidance for fiscal Q3 and the full year, noting EPS of $1.03 in the second quarter reached the high end of their expectations.

In the reported quarter, the company demonstrated strong profitability through disciplined expense management and strategies like share repurchases and tax efficiency. The non-GAAP gross margin improved to 61.1% due to strong diagnostic sales and the addition of Endomag and Gynasonics. Operating expenses increased slightly due to these acquisitions, but would have decreased without them, indicating effective expense control. The operating margin was 30%, with a slight annual decline offset by a sequential increase. Other income showed a loss of over $14 million, influenced by reduced interest income. The tax rate was adjusted to 19% for alignment with the annual target. Despite an 80 basis point decline in net margin to 23.2% compared to the previous year, the company maintained strong cash flow and a robust balance sheet, enabling ongoing mergers, acquisitions, and share buybacks.

In the second quarter, the company acquired Gynasonics for $350 million and repurchased 3 million shares for $200 million, reducing its diluted share count significantly. This led to non-GAAP earnings per share of $1.03, achieving high-end guidance. Despite geopolitical uncertainties, the company is financially stable, generating $169.5 million in cash flow and holding over $1.6 billion in cash and investments. However, tariffs primarily affecting Costa Rica and China will raise inventory acquisition costs by $20 million to $25 million quarterly, impacting the cost of goods sold by $5 million in the third quarter and $20 million in the fourth. Additionally, anticipated revenue from China has been decreased by approximately $20 million due to increasing business challenges there.

The company is projecting $50 million in revenue from China for fiscal 2025, which minimizes geopolitical risks. Due to various factors, they are reducing their non-GAAP EPS guidance by $0.10 but are maintaining their full-year revenue guidance between $4.05 billion and $4.10 billion, as the weaker U.S. dollar offsets reduced China revenue. For Q3, expected revenues are between $1 billion and $1.01 billion, with non-GAAP EPS of $1.04 to $1.07. The weaker dollar is estimated to create a full-year currency headwind of $10 million to $15 million, with minimal impact in Q3. Diagnostics is expected to grow in mid-single digits, excluding falling COVID-19 sales. Strong performance in oncology assays will be offset by declining HIV test sales and reduced activity in China. COVID-related revenue is anticipated to be $5 million in Q3 and $35 million to $40 million for the year, with total COVID items projected at $25 million for Q3 and $100 million to $105 million for the full year. Blood screening revenue is expected to be $6 million in Q3 and $20 million to $25 million for the year. COVID-related sales and blood screening revenues are excluded from organic growth calculations.

The paragraph outlines the company's financial projections and performance expectations for the year. In Breast Health, a low-single digit decline is expected on a reported basis, with a mid-single digit organic decline due to lower gantry sales after two years of elevated shipments. Growth is anticipated to resume in the fourth quarter. The Surgical division is projected to grow by high-single digits overall, partially driven by the Gynesonics acquisition, with low-single digit organic growth, supported by international sales and the new Fluent Pro Fluid Management System. Gross margins are expected to be in the low-60s, with sequential declines from Q3 to Q4 due to tariffs. Operating margin is forecasted in the low-30s for the year. Other income is expected to be a net expense of $20 million in Q3 and $55-60 million for the full year. The annual effective tax rate is 19.25%, reflecting a 25 basis point saving from previous guidance, and diluted shares outstanding are projected to be 228 million. The company delivered revenue and EPS at the high end of guidance in Q2, but new Chinese tariffs present challenges. The company aims to capitalize on strong market positions and improve growth rates by the end of the fiscal year. The paragraph concludes with the operator opening the floor for questions.

In a Q&A session, Patrick Donnelly from Citi asks Steve MacMillan about the potential impacts of tariffs and supplier cost increases on their business. Steve responds that they aren't having major discussions about cost increases and believe they can mitigate any effects, primarily through their Costa Rica operations. Patrick also inquires about changes in their sales force strategy, particularly in the breast segment, ahead of a new product launch. Steve confirms there is a strategic focus on the equipment and consumables side, despite a challenging market environment, and notes that the breast segment is expected to see growth in the fourth quarter.

The paragraph discusses the evolution and current state of the Breast Health business, which has transitioned from a volatile 'boom-bust' model 15 years ago to a more stable and recurring revenue structure through strategic measures in the 2010s, such as steady placement of gantries and expanding the service business. However, challenges like COVID-19 and a chip shortage in the early 2020s caused fluctuations, likened to an echocardiogram. The business expects to return to stability by 2025, supported by growth in the interventional sector and new opportunities with Endomag and upcoming product launches like Envision. The focus is on balancing recurring revenue with capital investment.

The paragraph is part of a Q&A session during an earnings call. The speakers discuss the company's financial guidance, particularly a 60 basis point reduction in organic constant currency growth excluding COVID impacts. Karleen Oberton attributes this decline mainly to reduced business in China and a greater-than-expected slowdown in Africa affecting non-profit entities. The conversation also touches on the Breast Health team's positive organizational turnaround and potential improvements in future quarters. Tejas Savant from Morgan Stanley inquires about any additional factors contributing to the financial outlook adjustments, and the status of the premium pricing strategy for the Envision platform amidst current market conditions.

In the paragraph, Steve MacMillan addresses concerns about potential margin pressure due to a new product with higher cost of goods sold (COGS) compared to their current platform. He expresses confidence in the value their product brings, highlighting that their current 3Dimensions product is already positioned at a premium in the market, offering more value than competitors. They aim to creatively market the new product with various options and acquisition models to provide best-in-class cancer detection technology. The conversation then shifts to a discussion with Jack Meehan about Hologic's activities in China. MacMillan notes that their business in China is small, mainly in the Diagnostics sector, and they are choosing to de-risk it given the current environment. Karleen Oberton adds context by stating that the annual revenue from China is approximately $30 million.

In the paragraph, Steve MacMillan and Essex Mitchell discuss the current state of surgical and diagnostic procedure utilization. Steve mentions that they are seeing steady utilization levels and are moving past previous fluctuations. Essex adds that after a post-COVID surge in elective procedures, there's now a slowdown in these types of procedures, particularly elective ones like colonoscopies and gynecological surgeries, while the overall procedure volume remains stable. They both convey a sense of cautious optimism, suggesting that despite some slowdowns, the industry is in a solid position.

The paragraph discusses supply chain management and capital expenditure (CapEx) considerations related to mammography equipment and a new gantry launch. Steve MacMillan mentions that their supply chain for mammography equipment is strong, as it's primarily based in the U.S. and Costa Rica, and there are no current plans to change this setup. Regarding CapEx pressures, MacMillan feels confident that the investments in the new gantry won't be burdensome for hospitals, as these expenses are typically amortized over time and the purchases are not excessively large. He believes that meaningful product improvements will encourage hospitals to allocate budgets for these upgrades. The conversation then transitions to a question from an operator to Vijay Kumar with Evercore ISI, followed by an unidentified participant, Kevin, asking about the replacement cycle.

In the paragraph, Karleen Oberton discusses the gantry replacement cycle, mentioning that the average lifespan of gantries has extended from 7-9 years to 10-12 years. This extension is attributed to the excellent service provided and the lack of external factors pushing for quicker replacement. The company is in an ongoing replacement cycle with a steady annual placement of gantries. Essex Mitchell addresses a question from Anthony Petrone about the semiconductor supply chain, confirming that the company has not encountered recent issues with semiconductors due to an expanded network, thus not facing any immediate headwinds for the next gantry cycle.

The paragraph features a conference call discussion involving Karleen Oberton and Steve MacMillan responding to questions about their company's molecular business and gantry launch plans. Oberton refrains from detailing agreements with major lab operators like Labcorp and Quest but emphasizes the positive growth and strong customer relationships in their molecular segment. Then, an unidentified participant inquires about the demand and pre-order metrics for an upcoming gantry launch. Steve MacMillan clarifies their strategy on updating older gantry units, stating that they are offering upgrades to the current best-in-class models for existing customers ready to update.

The paragraph discusses expectations for increased growth in Q4, driven mainly by a recovery in the Breast Health business and higher gantries. Essex Mitchell mentions receiving positive feedback about a new product debuted at RSNA, which is being refined ahead of its anticipated launch in 2026. Karleen Oberton responds to questions about the Skeletal business, noting that while this quarter saw significant catch-up, Q4 should return to normal trends without elevated revenues. Lu Li from UBS inquires about the reasons for higher expected growth in Q4, and Oberton attributes it to the recovery in Breast Health and contributions from Gynesonics and Endomag in the U.S.

The paragraph is from a financial discussion where Lu LI inquires about potential upsides or downsides for a company's full-year guidance, specifically questioning if European retaliation could be an issue given the company's U.S.-based manufacturing. Karleen Oberton responds that they've provided guidance based on current knowledge and can't speculate on future events. Next, Casey Woodring inquires about a 12% growth in non-product revenue, particularly from breast service components, and Karleen attributes this to effective service leadership, optimized pricing, and a growing installed base. Mike Watts adds that Biotheranostics oncology revenues also contribute to growth.

In the paragraph, Karleen Oberton addresses questions about Biotheranostics and its contribution to the molecular growth rate. She notes that Biotheranostics is positively impacting growth, although Q2 showed stronger growth than expected due to cash collection variability. When asked about tariffs and the strategy for 2026, she mentions there is no guidance yet, but they anticipate a $20-$25 million quarterly headwind unless policies change. Regarding capital allocation in the current macro environment, Oberton confirms the company's strategy remains focused on acquisitions and share repurchases, supported by $1.6 billion in cash and investments.

The paragraph features a conversation between Avery, an unidentified participant filling in for Doug Schenkel from Wolfe Research, and Steve MacMillan regarding hospital procurement and capital deployment. Avery asks about whether hospitals are delaying the purchase of new gantries while waiting for the Envision product and if the imaging business could exceed its long-term growth expectations due to replacement activity. Steve MacMillan responds that while some customers are excited about Envision, most hospitals continue to purchase current models and upgrade to available features rather than delay care. Avery also inquires about capital deployment and merger and acquisition priorities, asking if there's interest in expanding the MedTech portfolio, but Steve MacMillan avoids providing detailed information on M&A strategies.

In the article paragraph, the discussion revolves around the company's Diagnostics, Imaging, and Surgical divisions, with a focus on rental contracts within the Diagnostics business. The majority of their Panther instruments are on rental agreements, typically lasting three to five years with fixed pricing, a longstanding structure. The conversation also touches on the Panther Fusion, noting strong replacements during respiratory seasons. About a third of their customers have Fusion capabilities, which generates interest due to its respiratory testing menu during high-demand seasons.

The paragraph discusses the growth of customers adopting the Fusion system, particularly after the placement of Panthers during COVID, leading to expected growth in menu expansion opportunities. Steve MacMillan expresses optimism about the current and future diagnostics results. In response to a question about African Diagnostics funding, MacMillan indicates they've assumed the loss of funding and view any return as a possible upside, noting the broken infrastructure on the continent. Essex Mitchell adds that despite the shifting funding, the essential medical infrastructure is lacking. Andrew Cooper then inquires about what components are included in the services segment beyond gantry service and Biotheranostics.

The paragraph is from a discussion during Hologic's second quarter earnings call. Karleen Oberton expresses a desire to grow their business, particularly in the gantry service and Biotheranostics, to enhance customer relationships and attach rates. Mason Carrico from Stephens asks for an update on Molecular Diagnostics' competitive landscape and key drivers for Hologic as the market for their assays matures. Steve MacMillan responds, indicating they are in the early to middle stages of market development and intend to expand their women's health portfolio and diagnostic menu offerings, ensuring continued growth through their Panthers installed base. The call concludes with the operator thanking participants.

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