Q4 2019 Earnings Call
Good afternoon, and welcome to Healogics fourth quarter fiscal 2019 earnings Conference call. My name is Cody and I'm your operator for today's call.
Today's conference call is being recorded all lines have been placed on me it.
I'd now like to introduce Microwatts, Vice President Investor Relations and corporate communications to begin the call.
Thank you Coty, good afternoon, and thanks for joining us for Healogics fourth quarter fiscal 2019 earnings call when its day or Steve Macmillan, The company's chairman, President and Chief Executive Officer, and Carlino Barton, Our Chief Financial Officer, Steven Carlene, both have some prepared remarks. Today, then we'll have a question and answer session.
Our fourth quarter press releases available now on the Investor section of our website. We also will post our prepared remarks to or website. Shortly after we deliver them.
Finally, a replay of this call will be archived through November 29.
Before we begin I'd like to inform you that certain statements. We make during this call will before looking at 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 include those referenced in the Safe Harbor statement. That's included in our earnings release and in our filings with the FCC.
Also during this call we will be discussing certain non-GAAP financial measures reconciliation to GAAP can be found in our earnings release.
Finally, any percentage changes that we discussed will be on a year over year basis and revenue growth rates will be expressed in constant currency unless otherwise noted now I'd like to turn the call over to Steve Macmillan Hologic CEO .
Thank you, Mike and good afternoon, everyone.
We're pleased to discuss Hologic financial results for the fourth quarter.
Fiscal 2019, our sixth consecutive quarter of good consistent results.
<unk> revenue came in very strong at $865.8 million, 87.3% growth rate in constant currency it exceeded our guidance.
Improving operating in that margins drove non-GAAP earnings per share of 65 cents, an increase up 12.1% and inline with our expectations.
We wrapped up fiscal 2019 with our best revenue growth of the year.
This growth was balanced with sales increasing in each of our divisions, both domestically and outside the United States.
In addition to very good results in our largest businesses breast health and molecular diagnostics. We're excited by the continued strengthening of surgical which posted its best growth in 10 quarters.
Before we discuss the quarterly details.
Let me step back and give a status report on the company as a whole since we're marking the end of our fiscal year.
We have clearly made a lot of progress over the last six quarters.
The first half of fiscal 2018, our overall growth rate was about 2%. If you strip out the divested blood screening business and the inorganic benefits of cynosure.
We restructured our leadership team around that time and by the second half of last year growth had improved to the 4% range.
For the full year of fiscal 2019 growth was 5.7%.
Well ahead of our initial guidance as we added two tuck in acquisitions to solid underlying organic growth of about 4%.
This organic performance, which excludes currency movements blood screening and facts Itron and focal is impressive when you consider that we operate in several flat or declining markets, where our leading market shares make it challenging to grow.
In short, we executed well over the last year and a half and expect to do the same in fiscal 2020.
Now, let me break down our performance further by providing a brief snapshot of how we're doing in each of our major franchises.
In U.S. breast health, which grew 9.1% for all of 2019.
We are using internal R&D and external acquisitions to build on an incredibly strong domestic leadership position in Threed mammography.
By leveraging our installed base, we're creating a steadier more diversified growth engine across the continuum of breast health care.
In domestic diagnostics, which grew 4.5% for the full year, we're partnering with our customers to drive market growth.
And leveraging our installed base of fully automated Panther instruments with the broadest assay menu in the mid to high volume molecular space.
In U.S. surgical which grew 2.8% for the fiscal year, we have revitalized our salesforce and our R&D engine to drive steadily improving growth.
In domestic medical aesthetics, which declined 9.9% for all of 2019, we have stabilized or U.S. salesforce as we await internally developed and externally licensed new products to drive growth.
Outside the United States, where revenue grew 8.2% in 2019, we have transformed what was effectively a start up a few short years ago into a consistent growth driver with much opportunity ahead for both revenue growth and profit improvement.
With that introduction, let's discuss our fourth quarter result in more detail.
Revenue of $865.8 million exceeded our guidance and grew a robust 7.3%.
Within this the acquired facts to try and focal businesses contributed $14.6 million to revenue.
We're off to a good start with these deals with low teens growth for the full year on a pro forma basis.
Excluding sales from our divested blood screening business, which increased in the fourth quarter revenue of $849.1 million grew 6.9% still our best overall growth rate of the year.
In terms of geography domestic sales of $656.2 million increased a very healthy 6.7% in the core.
Excluding blood screening again U.S. growth was 6.2%.
Accelerating for the fifth consecutive quarter.
Outside the United States sales of $209.6 million.
Increased 9.2% in constant currency.
Nice rebound compared to the third quarter.
Now, let me provide some more detail on our divisional revenue results.
In our biggest division.
Tell our core Threed mammography business remains rock solid and we're building on it with an increasingly diversified product portfolio that spans the continuum of breast health care.
Based on internal R&D productivity.
And strategic acquisitions.
We have established ourselves as the trusted experts in breast health.
We offer innovative products that deliver better clinical outcomes for patients and workflows that make life easier for customers.
Together these translate into steadier more predictable revenue.
In the fourth quarter underlying trends and breast health remains strong global sales totaled $342.6 million, an increase of 7.1% against a tough prior year comparable.
In terms of geography.
Metastatic breast health revenue grew a healthy 6.4%.
Outside the United States, we were pleased to post sales growth of 9.4% accelerating compared to the third quarter.
In terms of breast sub segments.
Imaging sales grew 6.5%.
While interventional sales increased 10.2% as we focused on selling our growing portfolio.
Imaging benefited from about $10.4 million effects of truck sales.
While interventional included $4.2 million of focal revenue.
In imaging.
Sales of our genius Threed systems increased strongly.
Stabling, a new quarterly record some eight years after the domestic watch.
And impressive accomplishment by our commercial teams.
On a cumulative basis, we have shipped about 6903 d. systems in the United States, giving us a tremendous installed base onto which we can layer additional revenue streams.
We have converted more than 70% of our own installed base to three D. Yet there are still more than 5000, hologic and competitive to de systems in the United States, providing us multiple years of conversion runway at our current pace, especially as.
We continue to gain market share.
As in recent quarters imaging growth was driven by our new three d. performance and three dimensions gantries.
Demonstrating how innovative R&D is contributing to our growth strategy.
Other new products, including intelligent to de clarity HD and smart curve.
Also added nicely to imaging growth.
We have a long term opportunity to further enhance our existing threed installed base with upgrades like these as well as the new artificial intelligence tools that we are developing and expect to launch this year.
In interventional, our fourth quarter results benefited from strong growth from biopsy, disposables, which more than offset a headwind from lower brevera capital sales due to this the supply constraints, we have previously discussed.
Before I turn to diagnostics, let me update you on our pending acquisition of supersonic imagine or ESI, a French innovator in card based ultrasound technology.
As a reminder, this tuck in deal Leverages, our existing call points and is expected to be accretive to our revenue growth rate, albeit with some slight dilution to EPS in the near term.
In early August we acquired 46% of exercise shares and have now opened a cash tender offer to purchase the rest of the company.
Because we haven't finalized the acquisition yet we recorded asset size fourth quarter results under the equity method of accounting for investments.
This means we booked no revenue or expense from Esa side.
But did record our share of their non-GAAP net loss.
$1.8 million on a non-GAAP basis in other expense.
We expect to close the deal by the end of our first fiscal quarter and Carlene will tell you more about this.
Now, let's turn to diagnostics.
Where revenue of $306.8 million increased 7.1% in the fourth quarter.
Excluding sales from the divested blood screening business diagnostics revenue grew 6.1% still a very strong performance.
Molecular remains the growth driver here based on the productivity, our R&D team, which achieved 19 global clearances in fiscal 2019.
And the sophistication of our lab and physician base sales teams.
In the fourth quarter worldwide molecular sales of $172.1 million.
Grew a very healthy 9.8%.
Internationally molecular grew 13.1%.
Well into the double digits for the 13th time in the last 14 quarters.
Against a very difficult prior year comp.
And in the U.S.
Although we already enjoyed high market shares in key asset categories.
Molecular sales still grew 8.8%.
This reflect how we work collaboratively with our customers to drive volumes and better patient care.
In established markets.
Molecular growth was again broad based in the quarter as customers consolidated testing on our large installed base of fully automated Panther instruments.
Sales of our largest aptamer women's health assets, including Chlamydia gonorrhea, HPV and Trichomonas.
Increased at an impressive high single digit rate overall.
Sales of our many new products also added to growth led by our quantitative viral load tests.
Panther fusion and early contributions from our optima that Genesis assets.
Pantheris carved out a unique highly defensible leadership position in molecular diagnostics.
Just as our genius Threed mammography systems have in breast health.
Over the course of 2019, our global installed base of Panthers grew by more than 200.
About the same amount as the year before.
This brought our cumulative total to more than 1700 units.
45% of which are outside the United States.
[noise] importantly utilization of these instruments has continued to grow as new assay has emerged from our R&D pipeline and as we partner with customers to drive overall testing volume.
Average revenue per Panther is now about $240000 a year on a global basis and grew at a high single digit rate in fiscal 2019.
Moving on cytology, and perinatal sales were $118 million in the fourth quarter, a small increase of 1%.
Cytology sales increased slightly all outside the United States, while Perry NADL sales declined.
Domestic growth in the cytology market remains challenged due to our high market shares and longer cervical cancer testing.
Elsewhere in diagnostics revenue related to our divested blood screening business was higher than expected at $16.7 million, an increase of 29.7% compared to last year.
As a reminder, this revenue reflects low margin products and services under transition agreements with cripples. So the outperformance here hurt our gross margin percentage for the quarter.
Now, let's turn to Gyn surgical our most profitable division where growth has been consistently accelerating behind a reenergized salesforce and our revitalized R&D pipeline.
In the fourth quarter sales of $114.5 million increased 7.3%.
Our fastest growth in 10 quarters.
We want to spend a little time, highlighting the tremendous progress we've made in surgical under the leadership of Sean Darty, who was named Division President a little more than two years ago.
Under Sean's leadership U.S. revenue growth has increased sequentially in six of the last seven quarters against progressively more difficult comps.
Underpinning this performance we have made significant changes in the talent.
Structure and incentives of our domestic sales team.
And these changes are paying off.
At the same time, our surgical business outside the United States, while still small has been growing rapidly.
And we've only scratched the surface of this opportunity.
From a product perspective, Myosure and know for sure remain the leaders in the fibroid removal and endometrial ablation categories respectively.
Myosure remains a healthy grower with significant runway ahead, as we launch line extensions and supporting products and replace more antiquated methods.
As for Nova sure. We believe our market share is stable and in many cases, we're winning customers back, although we need to slow category declines.
Finally, new products have begun to contribute materially to surgical growth, most notably our fluent fluid management system and new omni three in one has to ASCO.
And we just launched our omni lock cervical seal and new DEFINITY cervical dilator.
So like breast health surgical is becoming much more diverse enabling us to better leverage a large and strengthening salesforce.
And we intend to add more new products in the future through both internal development and acquisitions.
Now, let's turn to medical aesthetics, where global sales of $76.9 million represented about 9% of consolidated revenue increased 10.3%.
As a reminder, we had an easy comparable in the prior year period, as we booked revenue reversal of $6.8 million associated with refunds and rebates and temperature vitalia in the fourth quarter of 2018.
Excluding this cynosure sales would have been basically flat, reflecting a business environment that hasn't changed much.
Specifically, our skin related products continue to do well, while our lasers for body contouring and women's health continued to struggle a bit as we await new products both in licensed and internally developed to drive future growth.
To round out the revenue discussion briefly skeletal sales of $25 million grew 3.7% based on growth of our DEXA systems for bone density and body composition testing.
To wrap up our fourth quarter results represent our sixth consecutive quarter of strong execution.
Building on our market, leading brands and large installed bases in the United States, especially in breast health and diagnostics, we are expanding international.
Internationally churning out new products from our revitalized R&D pipeline and effectively integrating tuck in acquisitions, while looking for more.
Now, let me turn the call over the Carlin.
Thank you, Steve and good afternoon, everyone.
In my remarks today Im going to walk through our income statement.
Much on a few other key financial metrics than finished with our initial financial guidance for 2020.
Unless otherwise noted my remarks will focus on non-GAAP result in percentage changes will be on a year over year basis in constant currency.
As Steve described we are pleased with our fourth quarter results.
As revenue of 865.8 million exceeded our guidance and EPS at 65 cents finished in line with our expectations.
Our performance was balanced and strong with sales growth in each of our businesses, both domestically and internationally.
In addition, operating and net margins improved as we continue to manage the business from leverage profitable growth.
With that introduction, let me stop our reviewing our piano for the fourth quarter.
Gross margins at 61.7% decreased slightly by 10 basis points compared to the prior year period.
This decrease was primarily due to higher manufacturing cost the stronger us dollar trade tat tariffs in China and product sales mix.
However, it's worth noting that gross margins did improve sequentially for the third straight quarter and we expect this trend to continue in 2020.
Total operating expenses of 279.3 million increased 5% in the fourth quarter, but.
But excluding facts autonomy vocal operating expenses increased just 2.7%.
Reflecting strong expense discipline, especially in DNA.
We continue to balance growth investments with our goal to drive operating leverage in our R&D pipeline has never been more productive than it is today.
Based on improvements in the top line and strong operating discipline operating margins at 29.4% increased 30 basis points.
Operating margin also improved sequentially to our best level since the fourth quarter 2017.
Other expense net totaled 33 million in the fourth quarter.
As Steve explain this line all.
This line included our share of five result, specifically a loss of 1.8 million, which was not contemplated in our most recent guidance.
Other expenses also benefited from gain from our currency hedges.
As a reminder, these hedges reset back to zero in 2020, assuming currencies stay flat.
Finally, net margins of 20.2% increased 70 basis points compared to the prior year period.
Our best results since the third quarter 2016.
In addition to better operating margins to be had slightly lower effective tax rate, which effectively offset the loss from SSDI.
Overall, our net profitability remains very healthy.
All this led to non-GAAP net income of 175 million in the fourth quarter and non-GAAP earnings per share at 65 cents in line with that forecast.
On a GAAP basis, we posted.
Yes at 15 cents lower than expected due to non cash impairment charges totaling 79.2 million related to medical aesthetics.
As Steve noted not much has changed in this business, but we booked at these charges as part of our normal yearend accounting process of reviewing long lived assets for impairment.
Before we move onto our initial 2020 guidance I'll quickly touch on a few other key financial metrics.
Our leverage ratio stood at 2.3 times at the ended the fourth quarter.
We remain comfortable around this level recognizing that the ratio could fluctuate based on the timing of acquisitions and buyback activity.
The combination of strong profit growth and debt improved our return on invested capital.
As of yearend ROI C was 13% on a trailing 12 month basis.
An increase of 40 basis points over the prior year.
Finally in the fourth quarter adjusted EBITDA improved to 277.7 million an increase of 5.5%.
Now I'd like to discuss our initial non-GAAP financial guidance for fiscal 2020.
Before I do let me remind you that as usual there are several puts and takes in comparing 2020 to 2000 to 2019.
In terms of headwinds revenues from our divested blood screening business is expected to decline significantly in 2020.
Foreign exchange rates at recent levels will be a drag on reported results of about 17 million a roughly 50 basis points on the company overall.
On the positive side, the acquisition of supersonic imagine well represent a tailwind to reported revenue growth in 2020.
Our guidance it seems that exercise revenue and operating results will be consolidated into hologic financials at the beginning of the second quarter.
With revenues totaling 25 to 30 million for the nine month.
Current Street estimates include a wide range of timing scenario. So hopefully this guidance will help with modeling.
For the first quarter, we have assumed a portion of SSL locked in as a reminder, at this I will be slightly dilutive to non-GAAP EPS for the full year as we said when we announced the deal.
As you update your forecast, we encourage you to model at the middle of our guidance ranges as these this early stage.
As we've tried to set realistic ranges that incorporate both potential upsides and downsides.
We anticipate that fiscal 2020 will be a good idea for hologic overall.
Specifically, we anticipate constant currency revenue growth of 3% to 4.5% inline with our improved organic performance in 2019.
If we need the high end of this range or exceeded organic revenue growth should accelerate compared to 2019.
Based on recent exchange rate, our topline guidance translates into reported growth rates between 2.5 in 3.9% and sales of 3.45 billion to 3.5 billion.
We expect tuck in acquisitions to continue being an important part of Hologic story going forward and believed that additional deals will boost revenue in 2020.
But as you think about our organic growth rate I would point out that the blood screening headwind in the ESI tailwind I previously discussed basically offset each other next year.
Said another way.
Our organic growth rate should be similar to the constant currency growth rate of 3% to 4.5% 2020, depending on how you model the various components.
In terms of global Division, our guidance contemplates similar growth rates in diagnostics, excluding blood screening breast conserving though.
In the lower part of mid single digit.
We forecast less less growth in skeletal medical aesthetics.
Within these estimates international revenue should grow in the high single digits on a constant currency basis in line with 2019, as we continue to see opportunities to drive substantial drive sustainable growth in multiple markets across all our businesses.
In diagnostics molecular should continue to lead the charge in 2020 behind Pampe pit.
Panther fusion and increased utilization of more than 15 women's health virology and respiratory assays.
We anticipate 30 to 35 million of revenue from the divested blood screening business much lower than in 2019.
In breast health wealth will be driven by multiple new products accretive growth from back to China vocal our international business.
Three quarters of SSR result, in a large service annuity that now told well over 450 million annually.
In surgical we expect growth from the continued expansion of my shore the stabilization of never sure the new products, Steve discussed and international.
In medical aesthetics, we expect growth from an increasingly productive salesforce and new products, including temperature from in stem shore, which we recently launched in Europe .
In terms of profitability.
We forecast gross margins to improve to 61.6% in full year 2019.
We expect better margins due to lower manufacturing costs improved product mix.
The option benefits the ramp of new product sales and our ongoing cost reduction efforts.
These benefits will be partially offset by the expansion of our international business, which adds gross margin dollars, but crashes our gross margin percentage.
In terms of the quarters.
We forecast the gross margin percentage will increase sequentially as the year goes on.
Based on the mix benefits from newly launched products and higher overall revenues.
In terms of operating expenses, we expect to continue showing strong leverage that helps drive healthy growth in operating margin percentage and ultimately F.
Even as we absorb and incremental $8 million and costs related to the new European MDR in Ivy D.R. regulations.
Our guidance does not include a reinstatement of the medical device excise tax.
Consistent with streets current modeling in our expectation that it will be suspended again.
Below the line, we expect other expenses net to be greater in fiscal 2020, then the roughly 130 million we recorded in 2019.
Primarily due to the absence of foreign currency hedge gains based on recent exchange rate.
All this leads to forecasted earnings per share between $2 is 60 cents into dolls and 65 cents in 2020.
This represents reported growth of between seven and 9.1% about double the rate of revenue growth.
Despite FX headwinds from currency and diminishing contributions fraud divested blood screening business.
We expect quarterly EPS to ramp up sequentially as the year progressive as it did in 2019.
This guidance assumes full year tax rate of approximately 21.75% flat to 2019.
And diluted shares outstanding of about 272 million.
Yeah.
We also expect to continue generating robust to free cash flow and 2020 in the mid 600 million range, excluding onetime items.
Now, let's cover guidance for the first quarter fiscal 2020.
We expect revenues of 835 to 850 million in the quarter.
This reflects constant currency growth of one [noise].
3%.
And report.
5% to 2.3%.
As a reminder, I breast health business performed exceptionally well first quarter 2019, which contributes to loan growth rate this year.
And most years breast health is seasonally weaker in the December quarter due to our us in a and holidays.
We forecast non-GAAP diluted earnings per share 59 to 61 cents in the first quarter, representing 1.7% to 5.2% growth on a reported basis.
Before we open the call for questions, Let me conclude by saying our fourth quarter capped off a successful year for the company.
Our largest businesses breast health and molecular diagnostics led the way and surgical continued to improve driving revenue outperformance overall.
We are encouraged by.
Continued strong commercial execution the progress in our international franchises, the productivity of our R&D pipeline and the deals we have completed.
We continue to exercise tight expense controls and strategically redeploy capital.
Overall, we feel confident in our foundation heading into 2020 and have the levers to deliver a healthy revenue and EPS growth.
With that.
The operated to open the call for questions. Please limit your questions to one plus unrelated follow up then returned to the Q.
Operator, we're ready for the first question.
Oh, absolutely if you'd like to ask a question. Please stand by pressing star wondering your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to labor signal to reach our equipment.
We would like test that you keep your question to just one please feel free to go back into the queue. If time permits will be more than happy to take your follow up questions at the time.
Once again at the start when if you'd like to ask a question and we'll hear first from Tyco Peterson with JP Morgan. Please go ahead.
Hey, Thanks, I'll start with guidance, Steve you haven't really backed off the notion that you can be a mid single digit growth company, obviously, you're getting a little bit below that but given that kind of spate of new product launches that you highlighted on the call. It seems like the bias would be maybe towards the higher into guidance. So are there things.
Things that are actually going to be a little bit of a drag on growth as we think about next year and then can you talk a little bit about which then new product launches could be most incremental offering to Q.
Sure Tyco make no mistake, we feel really good about the ZIP code that we're getting into here in terms of organic growth and certainly if you look.
In this most recent quarter number was well well above where we've been we just don't want to get too far ahead of ourselves. It's kind of like we had a great first quarter to the year, yeah, 13%, Yeah. We're about to go against a 13.5% comp in breast health and you know at 11% in molecular diagnostics.
As we start the year. So we just don't want to get too far ahead of ourselves, but don't mistake that for confidence in the underlying growth of the business all the new products coming through building quarter upon quarter surgical bouncing back and getting stronger. So I think we feel very good. We're just this is.
Coming out of the gates, it's certainly an uncertain global economy and everything else right now there's no sense with us being too far ahead of ourselves, but don't mistake the guidance for how we feel that business.
And then for the follow up question on margin leverage.
Colleen you called the I called out the tariff hit on gross margins I'm wondering if you can kind of quantify that and as we think about 2020, just curious where do you see the operating margin levers.
Sure. So I think the first part of your question Tyco, the we've quantified the China tariffs around $10 million annually at as the headwind and as we look at operating margins a into 2020, we do expect leveraged one we expect gross margins to improve we expect higher revenue and we.
Do believe there's still opportunities in the middle of the piano, especially as we integrate recent acquisitions to contribute to the margin growth.
Thank you and then take our next question from Bill Quirk with Piper Jaffray.
Great. Thanks, and good afternoon everybody.
Yeah. Thanks.
So I guess first question, Steve kind of bigger picture you appreciate that the capital exposure in the model is much less than it once was or still hearing some pockets of potential capital softness, particularly the U.S. just curious what your thoughts are present.
Yeah, I think as one of a few people who is running a company through the last major economic meltdown you as you know billing always can be a little more cautious.
And having said that I think we feel better and better about our says the sustainability of our business first off you know were so much less dependent on capital our diagnostics business. Our surgical businesses. These are all recurring revenue and increasingly our breast health business between the Gantries are a smaller and.
Smaller portion of that the service businesses big the additional product upgrades and those kind of things that are smaller outlays that can be funded out of operating expenses from the hospital budgets.
I think we feel very very good about the likelihood of continued growth within the businesses and the fact that weve really transformed what the company looked like certainly going into the last downturn.
Got it and then as a follow up just.
Following up rather on a and one of the diagnostic comments you made about the average utilization for Panther can you remind us where you are in percentage terms on average I seem to recall that we were at something like 40% to 50% utilization on the systems and then just briefly kind of how high can that go is about 80% is good.
As it gets and then you're looking at a second system. Thanks.
Sure not to get too granular with it bill the I would say in the U.S., we're certainly seeing numbers, probably above that and outside the U.S. still below that 40 ish percent numbers. So we still have a lot of a lot of runway ahead of us and I think part of what we feel really good about is the continued.
Placing of the Panthers and then the way we keep thinking about this is we keep placing more and more panthers each year. Another 200 ish last year and then as you know, we're putting more and more menu on to each path or both domestically and internationally. So there's still a long way to go without us having too.
You know place an enormous amount of additional path or so a lot of the capitals already been made you know that's been part of that the gross margin issue even internationally.
As we've been placing more of the Panthers and then that will recoup and it'll be part of our margin expansion story in the years ahead, yeah, just to add to that you know if we look at certain key international markets. We only have wanted to ask these approved on the Panther and as we pursue additional regulatory approvals that will drive that increased utility.
Nation in the margin expansion that Steve mentioned.
Thank you and that took our next question from Jack Meehan with Barclays.
Thank you one just focus on the diagnostics business.
Yeah, obviously pretty strong and molecular I'm just curious what you thought the runway was like for placements in the U.S. just based on the math around 1700, and the overall, 45% U.S. last year was 1500 about 40 or I'm, sorry that was international 40% International was low.
Last year. It just seems like a lot of the placements were in a rational over the last year.
So what's the runway for placements in the U.S. and maybe just more broadly.
Seeing any signs of consolidation amongst labs, and how might that impact.
Kind of the runway per Panther.
Yeah, I think highest level you know, we're probably in the seventh ish inning in the United States still a little earlier internationally.
But I think still some significant opportunities, particularly with our largest.
Our largest customers to your second point of lab consolidation.
I think that's an inevitable that we expect to continue to see I think it's part of where we feel great about the relationships that we've cultivated very deep relationships, obviously with the largest players.
In the United States, we continue to work very closely with them to help drive categories volumes and as they are really the consolidate tours.
We will benefit certainly from a volume standpoint going for.
Hey, Jack its Mike if I can just had one thing to that about the U.S. market.
Steve said, we have placed a lot of Panthers in the us, but we have I think 15 16 different tests approved on Panther domestically and only about half of our customers use more than two assets. So theres lots more room onboard those systems to layer additional menu.
As it gets approved and is already approved.
Great and not that was going to be my follow up question is thank I caught sexual health grew high single digits. Overall. So was wondering if you just give us a mark to market in terms of what the virology versus fusion splits. How you know just looking at 2019, what the total was for the year and what the guidance.
Within the molecular forecast assumes for those continuing to expand.
Yes, I mean, that's that's a lot of detail there Jack we probably are going to go quite that far I mean, I think we talk we've talked about virology, a year ago being in the $20 million range.
I don't think it quite doubled but kind of close to that.
In the most recent 2019.
Fusion is off to a good start ramping off a base, but that basis is much smaller than that.
Thank you will hear now from Ivy Mammogram Bank of America.
Hi.
Thank you for taking the questions.
I guess just a broad question to start off can you talk more about Oh, U.S. trend, you're talking about I'm watching more.
In all U.S. and extend the base, which might have some impacts on the margin.
I wanted to see what's the opportunity there what.
Still out there on top Youre still a with the largest opportunities out there. Thank you.
Sure I think as we look at it we see tremendous opportunities for all of our franchises in all of the major geographies I think we really put.
More of a footprint down or in western Europe over the last few years, where we now have we've gone direct.
In the breast health business really in the UK in in Portugal, Spain, Germany, Switzerland, Austria, we still use dealers in most of the rest of Europe , but I think we've really built a competency there are diagnostics business, we've gone more and more direct.
In those businesses in surgical we're really just getting started we're really only in a few countries in Europe , and starting to build that business out as well.
Shifting over to Asia Pac, it's it's really a fairly similar story.
The biggest underdevelopment candidly as Japan.
That will take longer certainly to build out just given that the fundamental dynamics, particularly in the breast health space, there, but I think we're seeing very nice progress across the diagnostics business, including cytology.
And.
Big opportunities in breast health in diagnostics and surgical certainly over time as well. So I think the way we think about it is you know we each year. We're building a few more competencies and it's not going to be something you're going to see an inflection point, but consistently growing at an accretive.
Rate to the overall company did you want to add to that yeah. I would just accident comments I made earlier in the opportunities clearly expanding the assay menu, including key countries internationally is going to drive growth as wells on the breast health business compared to the U.S., we are still converting from analog to to the not just to date.
Three d., so continued a long runway for our key products.
Thank you that's very helpful.
Lob on that.
Yes, cutting you talked about the margin.
There are lot of puts and takes in the margin trends for next year can you providing sort of a quantification because you can sort of a myriad effect sectors. Thanks.
Yes, I think maybe you're referring to gross margins.
It was a lot of puts and takes it in the results more takes I think than we expected. Though is we look to 2020 I think we're thinking about a range of gross margin expansion of about 50 to 100 basis points as I talked about we believe that will build as the year goes on in that yeah from an operating margin perspective.
Probably a little.
Thank you will hear now from Doug's Nicole.
Alan.
Hey, This is Chris offered Doug. Thanks for taking my question I'm just will not start another question on Europe .
Given the mixed macro backdrop in Europe I curious if you have seen any order softness, especially for the more capital oriented businesses.
We're not seeing any softness.
In Europe at the moment.
I'm always.
A little nervous print Brexit between everything else you have going on there, but we've been.
Planning and preparing and.
I think for US we just continue to feel like our teams are getting stronger and stronger there. So feel good about our outlook and really I can't tell yet how excited we are by our team in Europe . They have just comes so far in the last few years.
Okay, and then maybe a question on breast health I think you've been tracking Q2 hundred 50 to 300 placements in the U.S. sounds like maybe whats bogged down in Q4.
Maybe just help us think about the right way to model the gas replacements and 2020 for us.
I think we see it pretty much in that range and you know we go back to four years ago or so when we.
Said, we were intent on breaking the cycle in the job people empty at our US team has done has been truly.
Breakthrough in breaking that cycle and I think what we've gotten into is much more of a steady cadence of a replacement cycle.
We had articulated we saw coming years ago and it was our intent to do and so I think it's kind of settling into that range.
Which works out pretty well through the positive for that is still gives US years ahead, I think everybody can see from the MQ essay data that's available.
We are clearly gaining far more in the competitive.
Set than just upgrading our so I think it's still gives us.
Years of runway ahead of US here, plus then being able to to go back and get additional revenue from mining the installed base further, but I think thats, a rough way to think about it.
Thank you and then move onto next question from Vijay Kumar with Evercore ISI.
Hey, guys is Luke on for the dock just quick on a breast health. So you guys had a great quarter, there and just thinking about it I was just talked about the place since coming in a bit ahead and the overall macro uncertainty into 2020 as you guys see any pull forwards there on the Capex side.
We have not Luke you know I think we we kind of wondering about that a little bit in our fiscal first quarter of last year when breast health was really strong.
But haven't really seen.
Much to that effect at this point in time.
Okay, and then I guess cynosure on that or the next one of the aesthetics business.
Returning to flat to gross X C.
You know the items in a 18. So you know the outlook in there for 20, you guys are expecting that to kind of accelerate how how should we think about that in Q1 and is that something that's going to build over you know.
The quarters or should that be pretty stable.
Yeah.
To keep the expectations down there I think it'll build over the year because of the way the product pipeline is shaping up we've got some things coming that probably won't quite hit in our fiscal first quarter, but should hopefully start to hit as we go into frankly, the new calendar year. So I think we feel certainly better about.
The build on that business through the year.
Thank you we'll take our next question from David Lewis with Morgan Stanley .
Hi, This is mason on for David today. Thanks for taking my question you reference stabilization of no Usher in fiscal 20 senior second it says is to grow next year and any updates on the combined competitive environment you can provide.
Yeah, we're not declaring that we exceed that business group that know for sure itself growing necessarily next year, we do feel great about the trajectory of the surgical business.
Got it and your share count guidance doesn't incorporate a significant amount of buybacks it looks like but over the past couple of years, you've repurchased about five to 7 million shares a year. Just mean, we should signal an uptick and M&A activity. This year, how should we think about capital deployment balancing thank you.
Yeah. So I don't think anything change in our capital deployment strategy, you know really between tuck in M&A and share repurchase I think from a guide perspective, we just assumed a minimal share repurchase to manage dilution as we just sit here today, it's early in where the cat whether deal flow will play out though.
Thank you will hear now from Raj Denhoy with Jefferies.
Hi, This is Anthony for Raj just [noise] quick one on on guidance and then a couple of on breast health just on guidance supersonic images. So I'm just wondering what's baked in there for 2020.
At the guidance line and just on the follow up on breast health. Thanks.
Sir Anthony Carlene to what we said is on as you know we don't on 100% of that today run the tender offer process. So what our guidance assumed is that we will have revenue from asset size for the three quarters Q2 to Q4 in a range of 25 to 30 million. We've also confirmed that the Q1 will have.
Our portion of their losses, well in Q1, but no revenue our expenses.
Great and then just on on breast health just wondering if there's an update on the FDA proposal around dense breasts screening just you know when do you think the timing would be for a final rule.
And what do you think really that means for 2020 within breast health should.
The final rule call for more for.
You know more more robust imaging and screening for dense breasts patients.
Thanks again.
Sure Anthony on probably over my lifetime on exactly predicting those kind of things out of F.D.A. I think what we do feel great about is what we control which is we are the only three D with the dense breasts indication that is helping us win new business all of the time as people see that were the ones that have that.
Whether that guideline comes through FDA in 2020, or not you know exactly when it comes through we don't see it is having necessarily a material uptick.
In our business other than a further reinforcement of where the business is going yet as a reminder, that thats been going on at the state level and a bunch of states for quite some time, so that contributes to the what we're seeing today as well yes.
It's clearly a net positive for us.
Thank you we'll take our next question from Brian Weinstein with William Blair.
Hi, guys. Good afternoon. This is actually answered brackman on for Brian Brian One is to be on the cost Steve but he's out celebrating the theres went over the Eagles in second half of that game.
Maybe just on I thought I thought Brian is actually going to be open and try out for the spares that they're having.
Oh [laughter] his leg of that too good I heard they need to kicker.
Yeah well.
Every other ticker [laughter].
All right back to our schedule yes.
[laughter], Oh, but south you mentioned, the artificial intelligence products sort of rolling out through 2020 any additional detail you can provide on what sort of in fact I might have this year and then sort of de lever you think that come from by the company over next several years.
Sure I think it'll be less in terms of meaningful acceleration or anything like that would just be more of the products, where we're starting to sell like clarity HD.
Our smart curve titles were able to start to monetize additional software into the gantries and into our sales, but overtime. We think it's going to help establish that much more of a moat around our business by being the leader is to leverage largest installed base in the busy.
So I don't think you'll be able to meaningfully breakout hey, I products are going to add X million of growth, but they will start to dribble in here later on in 2020, and then start to contribute more in 2021 and beyond.
Okay. That's helpful and then just.
The cleanup question on the Burberry last year, an amendment, the but any update on when that when that might be behind you guys. Thanks.
Sure I think it will likely be later this year as our expectation is we will be back on the market with new capital probably at our fiscal fourth quarter.
So we should be should be there so give Brian our best.
And once again that star one if I could ask a question, we'll hear now from Dan burning with TBS.
Great. Thanks for taking the questions I'm just wondering as question first Steve on Oh molecular what's baked in for 2020 growth is the high single digit consumable growth sustainable and can you comment on.
The competitors in the competitive dynamics in that market.
Sure I think.
As we think about the growth rate for molecular next year, probably smart to to think about it isn't in the mid singles and then gaining pushing upwards towards high singles.
Certainly we're going to be going against some really tough comps, especially the first three quarters this year against global double digit numbers.
So I think we'll still be very strong growth in that space I think for the competitive environment, we feel pretty good we continue to innovate and as we are rolling out more and more asset is.
That business should certainly be goods. So we've guided our overall diagnostics businesses as carlene said probably in at least the low mid single digits. So molecular will clearly be leading above that.
Great and then and then maybe the follow up just on M&A.
How can strategies are working well it sounds like there'll be more to come. So can you just give us some color on the appetite to maybe do say anything bigger kind of how should we think about kind of the level of maybe the size of deals that we should expect going forward now that youve.
Successfully executed a bunch of these thanks.
Sure Dan actually really glad you asked that because probably what's been under appreciated is we've really shifted from a what's been a corporate led business development strategy for what had been most of the two thousands and frankly up you know even up to the cynosure deal.
But over the last few years, we've really built the divisional led tuck in capabilities and I think we're just starting to be to really see what will be able to do there in terms of magnitude would not expect us to exceed for example, our annual cash flow and.
In terms of.
Rough amount of deals so.
I think we're definitely in the that tuck in mode, they'll certainly probably be a few that could be bigger than the 100 million dollar deals we've done today, but nothing thats going to blow the mind or or anything I think we like really frankly being able to both do some acquisitions and do some stock buybacks within each year and well now.
Got a formal policy, it's something we've discussed quite a bit as a management team and our board of really being able to use the natural cash flow that we have each year as opposed as opposed to needing to lever up or take on something more and I think we've now seen there's more opportunities within our core businesses and things that work.
Cited by so thank you.
Tony I think about that but all the time that we have so so thanks, everybody for your time on the call today, and we will talk to you all soon.
Thank you that concludes logics fourth quarter fiscal 2019 earnings conference call have a good evening.