Q4 2022 Hologic Inc Earnings Call
Good afternoon, and welcome to the whole logics for fourth quarter fiscal 2022 earnings conference call. My name is Jenny 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 <unk>, Vice President Investor relation.
To begin the call.
Thank you Jenny good afternoon, and thank you for joining <unk> fourth quarter fiscal 2022 earnings call with me today are Steve Macmillan, The company's chairman, President and Chief Executive Officer, and Carlene Overton, 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 as well as an updated corporate presentation and a replay of this call will be available through November 30th.
Before we begin we would like to inform you that certain statements we make today well before 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.
These non-GAAP measures are one organic revenue, which we define as constant currency revenue, excluding the divested blood screening business and revenue from acquired businesses, all biologic for less than one year.
And two organic revenue, excluding COVID-19, which exclude COVID-19 assay revenue revenue related to COVID-19, and discontinued products sales in diagnostics.
Finally, any percentage change we discussed 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 CEO .
Thank you Ryan and good afternoon, everyone and happy Halloween.
We're pleased to discuss our financial results for the fourth quarter of fiscal 2022.
And provide guidance for fiscal 'twenty three.
It was another dynamic year for whole logic, delivering strong performance, while navigating macro headwinds.
And we closed 2022.
Once again posting outstanding results for the quarter.
Total revenue was $953 $3 million.
And non-GAAP earnings per share was <unk> 82 sets.
Seating, both our base business and Covid guidance.
We also deployed $175 million of capital to buy back two and a half million shares in the quarter.
For those of you keeping score for the full year, we utilized $542 million of our exceptional cash flow to repurchased seven 7 million shares reflecting great confidence in our future.
For today's call, we will first provide a high level overview of our fourth quarter performance and then reflect on our full year results.
In doing so we'll also share insights into our future outlook as we look forward to 2023.
Overall make no mistake.
Our consistent strong performance in these turbulent times is no coincidence.
We are a fundamentally different company today than when we entered the Covid pandemic.
We also understand that some of you are still trying to ascertain the strength of our core businesses.
As we look ahead.
Each of our core franchises list.
Listen closely here.
Diagnostics.
Rest and surgical.
Are expected to produce low double digit topline growth for our fiscal 2023.
As we set out to do just over two and a half years ago.
We are emerging from the pandemic a much stronger company.
We thoughtfully and strategically reinvested our upside earnings into both our business and into our passion to be champions for women's health.
Our ability to step up to the plate during the pandemic and address the global demand for Covid testing was an incredible achievement.
But our real homerun once the transformation of Hologic that cannot be ignored.
Through organic and inorganic.
Additions.
We now have more growth drivers across our business.
Each of our divisions than ever before.
These growth drivers layered on top of our market leading core franchises.
Form a solid foundation that anchors our business in these volatile and pivotal times.
Under the intense pressures of the macroeconomic landscape, we live in today, all companies will face adversity.
That said because hologic is a much stronger company today.
We will thrive.
As we've said before you can count on us to deliver on our commitments.
Even in the face of volatility and uncertainty.
It's equally important to recognize that our revenue is the least capital sensitive it has ever been in our 36 year history.
For fiscal 'twenty, two given COVID-19 and the impact from chip shortages.
Only 12% of our revenue was from capital <unk>.
A percentage, we expect we will settle well below pre pandemic levels.
Truly astounding change from where we were just a few years ago.
And a transformation that makes hologic a more durable company.
In the face of a potential recessionary environment.
Our confidence and conviction in our business is underpinned by our unwavering commitment to our purpose driven business strategy.
A strategy that is centered around our purpose.
To enable healthier lives everywhere every day.
Our passion to become global champions for women's health.
And our promise the science of sure.
We don't see our commitment to mission and ESG as a trend or fad.
Instead, we know that in order to continue to achieve our strong financial results.
We must continue on our path to elevate and improve women's health and wellbeing around the world.
Now, let's turn to the quarter results.
As expected our strong performance was driven primarily by both our molecular diagnostics and surgical businesses.
To answer the question we're sure many of you are wondering.
Core Panther utilization is strong.
Our molecular diagnostics business grew north of 17% in Q4, excluding COVID-19 driven primarily by more assays being run through our expanded Panther installed base.
This exceptional growth was once again broad based.
And fueled by a combination of legacy and newer assays in a robust molecular portfolio.
Our legacy STI business contributed growth dollars.
While our newer assays, including our vaginitis panel Amgen and our virology portfolio lifted the growth rate.
As for Panther placements.
We now have nearly 3250 Panthers placed around the world.
A remarkable achievement, considering we exited fiscal 2019 slightly north of 1700 Panthers in the field.
In surgical our business grew nearly 9% organically and over 11%, including the Boulder acquisition.
As anticipated the COVID-19 pressure on our surgical business abated in the quarter and we saw procedural volumes return as well as acceleration from our new business lines.
Powering the strong performance in surgical where the same growth drivers as in Q3.
<unk> fluent and solid contribution from Boulder and assessor.
In breast health as expected the business was down 16% driven primarily by the chip shortage adversely impacting our gantry business.
Having said that we have confidence that the worst of the shortage is behind us and that the business will return and accelerate throughout 2023.
We will go into more depth on breast health later in the call.
Shifting gears.
We will now reflect on our full year results and outlook for fiscal 2023.
For 2022.
Diagnostics grew 10, 2%.
Surgical grew six 3% and.
In breast and skeletal health declined seven 7% driven primarily by constrained gantry sales as a result of chip shortages.
Net without the chip shortage. It is very clear that each of our businesses would have been solidly at or above our long term guidance.
As a reminder, each of these figures are in constant currency exclude acquisitions until they annualize and also exclude COVID-19 assays as well as COVID-19 related and discontinued products revenue.
We are extremely proud of where we landed in both diagnostics and surgical.
And we have high confidence that the concentrated impact on breast health will rebound strongly in 2023.
Looking forward by Division as mentioned at the onset of this call each of our businesses, including international is expected to achieve low double digit growth in fiscal 2023.
In diagnostics.
Howard by our vastly expanded Panther installed base, we expect low double digit growth from the division in 2023.
Bolstering growth for the Division, we expect continued strong sequential growth from bioterror and optics as well as incremental contribution from Moby Die AG internationally.
Focusing on molecular diagnostics, our growth thesis centers on more customers running more volume and more menu on our Panther systems.
While we are still in the early days of ramp the utilization we are already seeing positive signs today.
With our broad menu, we are well positioned to continued double digit growth in our core molecular Panther business in 2023.
To provide additional color and shed more light on non Covid Panther utilization.
Pre COVID-19 at the end of our fiscal 2019.
About 20% of U S customers were running at least four assays on their Panther systems.
Fast forward to the close of Q4 now over 33% of U S customers are running at least four assays.
Nice improvement and still future opportunity ahead.
Moreover, last quarter, we spoke to the fact that over 90% of all Covid customers were running at least one other non COVID-19 assay.
Many of you asked what about new customers acquired during Covid.
As of the Q4 close over 85% of new customers worldwide are running at least one other assay on their Panthers in addition to Covid.
More impressive is that over 55% of these new to a whole logic customers.
Our running at least two non COVID-19 assays on their Panthers.
A strong signal of future utilization at new customer sites.
While still early we expect these positive utilization trends to continue in the quarters and years to come.
Now turning to surgical.
We also expect surgical to deliver low double digit growth in 2023.
Consistent with the last two quarters of 2022, we believe my assurance fluent plus assessor in Boulder will lead the way.
We expect the division's revenue to accelerate as we continue to integrate our acquired laparoscopic assets into the business and into the bags of our strong surgical sales force.
Increased physician access and payer coverage for a laparoscopic portfolio should continue to improve over time and be a tailwind for growth.
Longer term our goal is to build both assessor in Boulder in the $100 million plus surgical brands that will complement our market, leading <unk> and <unk> products.
In breast health, we fully expect to exit 2023, achieving low double digit topline growth from the supply constrained 2022 comps.
We have confidence the worst of the chip shortage is behind us.
As chip supply normalizes as it should over the course of 2023, we expect our gantry business to return to strength.
Frankly, as we work down the backlog, we have the opportunity to perform slightly above the historical gantry placement run rate <unk>.
As we exit the fiscal year.
Even with the shortage of Gantries, we faced in 2022, we maintained our market leading position in the U S.
Grew our presence internationally and have no reason to believe we are giving any ground to the competition.
In fact, the backlog for our best in class Gantries continues to grow and we continue to receive orders at a healthy rate.
We also understand capital budgets may face increased pressure given the macro environment. Despite.
This challenge we remain confident in our ability to place gantries, even if we enter a recession.
The reality is the gantries tend to be at the lower price point of hospital capital spend gas.
Gantries also represent both a value driving opportunity for our customers and more importantly, essential capital equipment for world class patient care.
Finally, our international business will continue to be a tailwind and a powerful lever of growth for each division.
In 2020 to our international business grew just north of 6% organically excluding COVID-19.
Hosting strong growth, even with the chip headwind and constrained gantry supply.
International is now nearly 30% of total revenue and poised to continue its growth trajectory.
Looking forward to 2023.
We are confident our international business, excluding the impact of Covid will return to double digit top line growth and sustain the momentum created by our strong response to Covid and for our groundbreaking initiatives like the Hologic Global Womens Health Index and our global.
Access initiatives.
To conclude at Hologic, We know we must center on our purpose to achieve our strong financial results.
Our strong results, we will continue to drive patient education, and access initiatives and continue to invest in our business.
While our strategic investments, we will continue to deliver innovative life changing technologies.
These technologies will power, our perpetual cycle of reaching and helping more patients all while delivering value and strong financial results for our shareholders.
Before turning the call over to Colleen, let me close by saying that we are incredibly excited about where we are bid.
And even more excited about where we're headed.
And finally from me personally and the rest of our global leadership team, we would like to thank and congratulate each and every one of our nearly 7000 employees around the world.
Their dedication to our purpose and another incredible year at Hologic.
With that let me hand, the call over to Carlin.
Thank you, Steve and good afternoon, everyone.
We are very pleased to share our fourth quarter financial performance capping off the end to an excellent fiscal year.
These results highlight our current position of strength.
As well as tremendous opportunities that lie ahead.
Growth in the period was powered by core diagnostics and surgical businesses.
As both franchises posted strong growth to close 2022.
For our second quarter in a row these businesses each showcased multiple growth catalysts.
And as we look towards our fiscal 2023, we are excited to drive this momentum forward.
In breast health, we are proud of the resilience of our teens.
Although our chip allocations are still constrained we believe that the worst of that vision supply chain problems are in the rearview.
As I will highlight in more detail when discussing our guidance for next year.
We should see continuous improvement in our chip supply in that gantry revenue throughout fiscal 2023.
Finally, before moving on to our divisional results. It is important to reiterate that our balance sheet is a key point of strength as we head into fiscal 2023.
Our leverage rate remains far below our target range and our capital structure its Christine.
Biding, our business incredible confidence and flexibility given the increasingly uncertain macro environment.
Moving on I'll now provide more color on our financial results.
In the fourth quarter revenue and profitability once again significantly exceeded our estimates.
Total revenue came in at $953 $3 million.
This result was nearly $100 million higher than the midpoint of our guidance.
I had a greater than expected.
FX headwind of approximately $27 million in the quarter.
And non-GAAP EPS was <unk> 82.
Roughly <unk> <unk> higher than the midpoint of our prior guide.
Turning to our businesses result in diagnostics global revenue of $529 million declined 35, 6% compared to the prior year. However.
However, it is important to note that COVID-19 testing revenue was elevated in our fiscal fourth quarter of 2021 due to the onset of the Delta variant.
Therefore, a more accurate depiction of the state of the diagnostics business is to exclude Covid assay revenue related ancillary and a small amount of revenue from discontinued products.
Making these adjustments, we see that worldwide organic diagnostics revenue increased 11% in the quarter.
Fantastic result.
Within diagnostics, our molecular business was again extremely strong growing more than 17% in the fourth quarter when excluding the impact of COVID-19.
Growth in molecular was broad based driven by solid performance in our legacy STI portfolio.
As well as continued success of both our vaginitis panel and our virology menu.
These results in conjunction with the exceptional performance of our molecular business last quarter highlight strong traction in our base Panther business.
As it relates to our Covid results, we generated $151 million of Covid assay revenue in the quarter.
While exceeding our previous guidance.
In terms of Covid assay revenue split by geography domestic demand outpaced our expectations.
With the U S Covid assay revenue, representing nearly 70% of total COVID-19 testing revenue in the period.
As expected international demand continued to moderate.
Yeah.
Rounding out diagnostics.
Our cytology and perinatal businesses increased one 5% compared to the prior year.
In breast health global revenue of $271 1 million was down 16% as expected primarily driven by chip supply shortages.
For Q4, the impact to revenue from the chip supply shortage was in line with our prior guidance.
In surgical fourth quarter revenue of $133 $3 million grew more than 11%.
And excluding the Boulder acquisition the business grew nearly 9%.
We are very encouraged by another strong quarter from our surgical franchise as the momentum we saw in our fiscal third quarter continued into our fiscal fourth quarter.
The division's results were again led by miles sure influent with contributions from recent acquisitions.
Lastly, in our skeletal business revenue of $24 million increased approximately 4% compared to the prior year period.
Now, let's move on to the rest of the non-GAAP P&L for the fourth quarter.
Gross margin of 62, 5% was ahead of our forecast.
Driven by higher than expected COVID-19 testing volume and strong results in our base business in the period.
Total operating expenses of $329 $9 million in the fourth quarter decreased six 6% compared to the prior year period.
This discrete this decrease was driven by less spend within G&A and sales.
Partially offset by higher marketing and R&D expense.
Below operating income other income was an expense of $3 $1 million less than anticipated primarily due to gains associated with our foreign exchange hedging activities.
Finally, our tax rate in Q4 was 21% as expected.
Putting these pieces together operating margin for Q4 came in at 27, 9% and net margin was 21, 8%. Both ahead of our previous estimates.
non-GAAP net income finished at $207 5 million and non-GAAP EPS with ADT.
Moving on from the P&L.
Cash flow from operations was $168 7 million in the fourth quarter.
Based on our strong cash conversion, we had $2 3 billion of cash on our balance sheet and our leverage ratio was two times.
Our cash generation continues to be excellent and our balance <unk> balance sheet remains a pillar of strength.
Both positive attributes in any environment, but are especially valuable in periods of macro instability likely face today.
And although we have continued to build cash our M&A teams in each division remain active and our funnel of potential tuck in opportunities is robust.
As it relates to share repurchases. They remain an integral part of our capital deployment strategy moving forward.
In the fourth quarter, we repurchased two 5 million shares for $175 million.
Further on September 22nd our board of Directors approved a new five year share repurchase authorization for up to $1 billion.
Yeah.
Now, let's move on to our updated non-GAAP financial guidance for the first quarter and full year fiscal 2023.
As a reminder, our organic guidance excludes acquisition revenue until each deal annualize.
Therefore, our first quarter guidance only exclude the boulder revenues from our organic base.
Hold it becomes organic in our fiscal second quarter of 2023.
In the first quarter of fiscal 2023, we expect strong financial results again.
With total revenue in the range of $940 million to $990 million.
For all of fiscal 2023, we expect total revenue in the range of $3 seven to $3 9 billion Cigna.
Significantly exceeding our pre pandemic levels.
This guidance assumes low double digit organic revenue growth, excluding COVID-19 in each division for the full year fiscal 2023.
To help with your constant currency modeling, we are assuming significant foreign exchange headwinds slightly more than $30 million in the first quarter of 2023 and approximately $90 million for the full year.
Please note that while we have taken a conservative view when considering the strength of the U S dollar.
Currency markets continued to be very unpredictable.
In terms of our divisions, we expect breast health surgical and core diagnostics, excluding the impact of Covid to grow low double digits for 2023.
In diagnostics, we expect our molecular business continue to drive growth.
Panther continues to deliver incredible benefits for our customers the assay consolidation scalability and automation.
In this environment, where labor remains a scarce resource.
Highly automated Panther is a tremendous value proposition.
With nearly 20 assays on the menu we are eager to capitalize on this great opportunity to increase utilization on our expanded install base.
Finally, as Steve mentioned, we are now have approximately 3250 Panthers placed globally.
More than 350 Panthers in fiscal 2022, and 49 units in Q4.
Going forward, we will return to reporting Panther placements on an annual cadence.
Moving to breast health, we are excited for the year ahead, our customer base is hungry for our best in class mammography instrumentation.
We continue to expect chip supply to gradually improve throughout 2023, and therefore, the division's revenue should increase throughout the year.
While we only have line of sight to allocations impacting revenue about two quarters out we remain optimistic that the gantry business, we'll exit fiscal 2023 at our near normalized levels.
As it relates to our guidance, we expect breast health revenue to be down low double digits in our first fiscal quarter of 2023, given that the prior year was not yet impacted by supply chain shortages.
However for the full year, our guidance assumes the breast health will grow low double digits, reflecting supply recovery as the year progresses.
Finally in surgical we expect more broad base growth than ever before we anticipate <unk> will continue to drive growth, but also expect notable lift from our fluent fluid management system as well as our laparoscopic portfolio of assessor in Boulder.
Yeah.
In terms of cobot sales consistent with prior messaging, we believe COVID-19 could be one of our largest molecular assays over the long term.
Having said that given how quickly we've seen the pandemic change course, we believe it is still too early to accurately forecast and endemic state.
As a result, we expect COVID-19 assay sales to be $75 million in the fourth quarter of 2023 and $150 million for the full year.
Covid related items inclusive the small amount of discontinued product revenue are expected to be approximately $35 million in the first quarter and $130 million for the full year.
Moving down the P&L for the full year, we forecast our non-GAAP gross margin percentage in the low sixty's and our non-GAAP operating margin percentage to be approximately 30%.
Please note that we anticipate our covered revenue, which is margin accretive will be front end loaded to the first half of 2023 to coincide with the fall and winter seasons in the U S.
In addition, we have again incorporated elevated inflationary pressures into our guidance as it relates to input costs, we see foresee these higher cost persisting throughout 2023.
In terms of operating expenses, we expect spending to be down compared to the prior year. While we will continue to invest in our business marketing spend will be lower in fiscal 'twenty three as our fiscal 2022 had several large onetime expense items.
Such as active about both commercial and higher spending for initiatives such as our <unk> partnership.
Below operating income, we expect other expenses net to be around $20 million a quarter.
Our guidance is based on an effective tax rate of approximately 19% and.
And diluted shares outstanding are expected to be approximately $252 million for the full year.
All this nets out to expected non-GAAP EPS of <unk> 80 to 90.
In the first quarter.
And three the $3 30 to $3 60 for the year.
To conclude let me wrap up by saying that our strong fourth quarter results once again exceeded our guidance despite the various macro headwinds.
Performance was driven by exceptional growth in our molecular diagnostics and surgical businesses, which we expect to continue.
And while the future macro outlook remains uncertain with a natural hedge to future COVID-19 uncertainties and a fortress balance sheet. We are well positioned to continued strong results in our fiscal 2023.
With that we ask the operator to open the call for questions.
Thanks.
Thank you I would like to ask a question. Please signal by pressing star one on your telephone keypad and if you are using speaker phone. Please make sure. Your mute function is turned off to have like a signal to reach our equipment. We ask that you. Please limit yourself to one question with one follow up.
Again star one for questions.
And we will go to our first question from Patrick Donnelly with Citi.
Hey, guys. Thank you for taking the questions.
Hey, Patrick.
Hey, Steve how are you.
Maybe one for you on the on the breast health side.
It sounds like the gantry backlog continues to build good order pace.
Could you just talk I guess about the visibility into that chip improvement, obviously again the guidance kind of implied as the year goes you guys you talked about the exit rate.
The improvement kind of mid year, but do you maybe just talk about the visibility there again on the order side are you seeing any any share shift or kind of customers staying with you guys.
Through this and then similarly, just on kind of stay on the Gantries you mentioned, even in a recession and feel pretty good about what the what the order growth would look like I guess, what gives you that confidence a lot of questions about hospital Capex, obviously, maybe just focus on the gantries in the first of all I would appreciate it.
Sure Patrick I think what we feel great about is over time and we haven't built the market share in the installed base in the United States and really around the world, but especially in the U S without people really buying into the superiority of our products from a labeling from a workflow standpoint from a clinical.
Efficacy published data everything else that we're doing to both detect.
Earlier stage cancers sooner also reducing the false positives and avoiding.
Needless callbacks.
People have really seen that so when it comes down to it of a hospital system.
Is looking to need a few new gantries for their system. They are not going to want to go away from us because they've made that decision to come into us. So they are much more willing to wait until we're back in business plus the other reality is this is it across the board industry issue. So it's not like we're sure.
Sure and others can provide so we really have two things going for us which is call. It the micro our products and the incredible products, we're offering in the macro that what we're dealing with the chip issue is being felt by everybody else. So I think our customers understand that I think anybody who is in purchasing or.
Works for hospital, they all understand the supply chains and their own <unk>.
Personalized right you need a dishwasher fixed in.
The parts taking months to get those kinds of things that are playing out and everybody's life and I think everybody understand okay. She is going to be a little while so we feel great about.
Customers continuing to want our products.
And feeling better and better about our visibility into as we've been working with all of the chip vendors right down to every single SKU in how many chips go into every one of our machines, feeling better and better about where we'll go.
Okay. No. That's helpful. And then maybe on the back of that you mentioned in terms of the op margins.
It's going to be heavier in the first half, which is margin accretive but at the same time as we just got through there with Steve.
Breast health recoveries would be more second half that's been a drag on margins. So how should we think about the op margin cadence throughout the year I know you talked about 30% for the year, but maybe just talk about how that rolls through given the moving pieces between COVID-19 breast health and some other things there. Thank you guys.
Yeah, I mean I would think.
The 30% is probably pretty consistent throughout throughout the quarters of the as you said the dynamics kind of change first half versus back half.
I think that 30% plus or minus at any quarter pointed to I think I think you're right on.
And so we'll go to our next question from Tejas Savant with Morgan Stanley .
Hey, guys good afternoon.
Just just following up on that margin question here, a little bit can you just call out specifically in terms of the Covid contribution assumptions, you're baking in your remind us of what the gross and operating margin assumptions are for that piece versus the rest of the business.
Yes Tejas.
Say that the what we've noted in the prepared remarks is that Covid is accretive to the corporate averages, but we haven't disclosed specifically and I'd also add on that when you think about in this macro environment and our initial guide for the full year to say that our margins operating margins are going to be at 30%, which are pretty rich compared to the industry.
It's pretty strong results and we're really proud of that and actually even if you look at our net margins prior to pre pandemic levels, which were around 20% a guide would imply that the roughly 22% to 23% really reinforcing our earnings power.
Got it that's helpful.
And then just a quick follow up there in terms of the ranges you've baked into the guide can you just walk us through what's assumed for the breast health recovery.
The high end of the guide are you assuming essentially a return to normalcy by the fourth quarter.
Or is there still some possibility of recovery, taking a little bit longer.
Yeah, I think the guide would imply that we're approaching normalized levels as we exit the year I would also say that you know.
Part of the recovery, even if we did get incremental gantry chips than anticipated, yes, there's resource limitations as a field service engineers, who maintains the installed base also do the actual installs in any quarter. So there will be a balance through their recovery, but I would in general think about a gradual sequential recut.
Throughout the course of the year and exiting close to normal levels.
Got it thank you.
Awesome.
Alright.
And we will go to our next question from Anthony Petrone with Mizuho group.
Thanks, and congratulations on a strong finish to the year here and good to see.
At least some visibility into calendar 'twenty three just given the headwinds I guess I'm going to start on on Covid testing and just the guidance that was issued here.
And then a follow up on broader diagnostics understanding that it's still tough to forecast pandemic.
Ebbs and flows, but maybe perhaps one of the things that that is.
Sort of becoming evident here's the tender patterns.
It would be from large lab entities or even governmental contracts and so when you think into 2023.
Are there any incremental visibility that you can point to as it relates to just larger.
Tenders, whether it be U S O U S.
At the hospital level or at the government level, and then I'll have a follow up on broader diagnostics. Thanks.
Yes, I wouldn't say, we've got any more visibility we have been very close to our customers all along Anthony in terms of both international from the.
The ministries of health deciding things right down to the regional authorities within various countries.
And the same within every one of our customers in the U S. Both the main labs as well as the hospitals. So I think we continue to stay close.
And.
Feel very good about our position in the way we continue to think about Covid is.
We're going to deliver whatever the marketplace needs, we're not going to get over our skis in terms of forecasting is financially.
And then in terms of just.
Quick follow up on Covid, I mean, as we think of it as a.
Consistent cash flow driver.
Looking ahead, maybe beyond 2023.
What point do testing providers really look at this as a.
A relatively consistent cash flow business that reliable reliably.
Again, there is going to be a contributor going forward. So just kind of the broader views on the consistency of Covid and then lastly, diagnostics. When you think of testing intensity a lot of new Panther users are.
How do you think that that plays out.
Great.
Just beyond the point, we are here at the end of this fiscal year. Thanks again.
Thanks, Anthony we didn't fully hear the second part of that question because you were cutting in and out on the first part as it relates to.
The first part of the follow up in terms of consistency on Covid I think the way we've approached this all along has been <unk>.
You can't predict this has never been consistent it has been volatile by region and end.
<unk> timeframe and.
Any eight week period people have been.
Way off probably trying to predict what was about to happen. So again, what we have said at the beginning however was we thought that this long term would create a new assay for us that would be far more enduring than I think anybody ever thought it would be back in 2020 back too.
What people thought.
When everybody thought this was going to go away in a hurry or it was going to go away as soon as vaccines arrived or molecular testing was going to go away as soon as antigen tests came along.
What we've learned is this thing is going to be around and frankly as long as countries like China are still trying to zero COVID-19 approach and everything else and the fact that this thing we always said in the beginning this is a respiratory virus that will mutate herd immunity was <unk>.
Never going to be achieved.
And we thought we would end up with an enduring business, whether that enduring business ends up being 5100 $150 million to $200 million, we really don't know, but we feel really good that we're in that business.
Yes.
Thank you I'll hop back in.
Right.
And we'll go next to Jack Meehan of Nephron research.
Thank you good afternoon.
Jack eight now.
And the Phillies various.
Yeah.
Good morning.
Alright.
Exactly well I have a couple of questions on molecular testing before I go trick or treating.
The first is on the Covid sales, so I think based on your disclosures it sounds.
<unk> like the U S assay sales were about $105 million, which was pretty stable sequentially and I look at the government Pcr data.
Volumes were down 27% quarter over quarter. So just curious.
The Covid side, if you could talk about either share dynamics or was there any end of quarter ordering into the respiratory season any color on that would be great.
It's hard for us to fully know on share stuff because of the various pieces I would say there were no unusual ordering patterns at quarter end. So none of this was a stocking up.
For fourth quarter, we generally our business is very diversified and I think one of the things. We did as you will know early in the pandemic is we went out to a very broad customer base and I think that has helped insulate and provide a little more.
Enduring nature to our business. It's also helped our pricing holdup.
<unk>, well and so I think we feel pretty good but.
It just continues to go in regions and spikes and this and that it does feel like U S testing is kind of settling in for.
For the first time to a more normalized pattern.
We're still we're starting to see that certainly in our own business, but no unusual spikes.
Okay.
And then as my second question. So I appreciate the commentary about the new customers.
The 85% running more than $1, 55% more than two <unk>.
There any color you can share on like what are they running is this beyond respiratory testing.
And I don't know if you have any stats handy, but how large is the virology business. If I look at the full year, how large is the vaginitis business any updates on those would be great.
Yes, I think we stopped disclosing the actual number on that but very strong growth year over year and that business continues to have a nice trajectory I would say that you know it's it's diverse in the other assays, but probably leaning towards the core women's health assays are primarily.
Thank you Caroline.
Joy trick or treating.
Appreciate it.
Okay.
And we'll move to our next question from sort of SPP Securities.
Yes, Hi, Steve Carl and Thanks for taking my question so.
Just a bit on the sort of the longer term.
<unk> talked about 5% to 7%, you're saying low double digits here, obviously businesses are recovering low capital expense, but more of a recurring revenue that your customers are spending your way so.
Just talk to us about how should we think about that and is that now a more of a conservative number and just talk to us about how you're thinking about the five 7% longer term.
Yes, I think long term, we're sticking with the five to seven but as we've said all along.
Sometimes it can be above sometimes it will be a little bit below I think for where we are right now we feel very good about delivering a certainly above that for next year, but we don't want to get caught up.
Wait way ahead of ourselves either in saying.
We're moving that guidance up by any stretch. It's just it's that reminder.
Might be some periods of time, where we're a little bit below that and to be periods, we're above it.
But I think we feel solidly about every one of our businesses and we only gave that range about 15 months ago. So we're like we're not don't need to change it at this point.
Okay got it and then Steve.
Broader question for you.
Now in the sort of the post pandemic era, and again, you might have a long tail to it but.
Do you see heightened utilization for flu RSV other respiratory just continuing on because the awareness of <unk>.
Just overall these viruses and overall the significance of <unk> diagnostics and routine primary care settings is such that it's going to be sustained just help us understand do you see.
Our utilization just sustaining here for the respiratory businesses.
Four four.
A long time.
Yeah. It's a great question, because I think we do see probably a higher levels of testing going forth right. The diagnostics industry has been elevated.
And People's desire to know with more certainty what they have.
You can think about something as simple as RSV that we're talking about here in the last few weeks.
I'd argue that 99, 9% of the public had never heard of RSV.
Even a month ago right. So now we're getting into these levels of granularity that people want to know more about and what they have and we think that will be a positive. It's also.
Both what we're able to offer our fusion platform.
Also a big piece that <unk> will bring to us in the future and certainly we're seeing that in our European business right. Now so I think we're well poised to also for the future.
And we will move onto our next question from Lisa Garcia of UBS.
Hey, guys. Thanks for squeezing me in I appreciate it.
Maybe to start off on kind of surgical and kind of.
Expectations, there with them.
Maiasaur kind of leading the growth.
For fiscal 2023 can you kind of talk about what kind of gives you confidence.
It seems like you'd have a little bit more optimism about kind of growth expectations from I am sure in particular, so I'd love to hear kind of what's driving the optimism and.
Also kind of.
Well, let's start there.
I think with Meyer sure we just.
First off a bias because we just came back from our U S sales meeting last week.
With that sales team and it's hard not to be excited when you've been with them, but I think on a more serious.
And deeper basis Youre my assures been a an outsized grower now for seven or eight years long beyond what anybody thought it could be and I think what we continue to see is there is still significant opportunities in the fibroids space Theres still to some degree markets that are underdeveloped.
And my Usher procedure is an amazingly.
Positive procedure with great outcomes.
And so I think we just continue to we're not quite sure what the end market truly is there yes international continues to be a bigger piece of that that performance as well what gives us confidence in that outlook.
Alright, and then can you just update us where your bandwidth the bioterror and optics Clio lab.
So San Diego headquarters and.
On your automation initiatives that you have underway and how we should think about timelines for the maybe potential impact there.
Yes sure.
The build out of the lab and our building here in San Diego has gone well that'll be happening in the next couple of quarters.
And we're adding more automation that will really be kicking in in terms of particularly the ordering system really early next calendar year. So that team just as continues to crush it since they've been part of the Hologic team. We were just with all of their salespeople last week and they are feeling so supported and excite.
To be a part of Hologic than it is part of that classic thing of what we're trying to do as we bring these technologies in and are they enable to put additional investment in them too.
To accelerate the growth rates, what we've done with Boulder, what we're doing with assessor, what we're doing with <unk> and just feeling great about these opportunities.
And well hear next from Max Masucci with Cowen <unk> Company.
Hey, good afternoon, congrats on a very strong year.
First one if we just think about the Panther installed base nearly doubling since pre pandemic times, we have an expanding adoption of non COVID-19 menu items.
Is there a logical range.
At a level, where the non Covid Panther assay gross margins have settled or maybe even in broader terms how the go forward.
Molecular diagnostics gross margins have evolved since pre pandemic times.
Yes, I mean, the gross margins for our molecular business, we've said all along.
Creative to the corporate average, but the dynamics of this business is as we add more of the newer assays, we typically get those at a higher price higher margin, but we give some pricing.
Legacy assays so.
Yeah, we'll get as we produce more in our San Diego facility will naturally gain more absorption, but you know.
Think think about that is holding at <unk>.
Higher than corporate averages, but I wouldnt see a significant upward trend anytime.
Okay got it and then final one at $2 3 billion in cash historically low net leverage ratio.
We're seeing recalibrating valuations in the public arena. So could you just give us a peek into the whole object capital allocation playbook should we assume that that buybacks will remain the priority.
In a choppy market environment.
Opportunistic M&A sort of sitting in that number two slot in terms of prioritization.
Max I would actually reverse that so our capital allocation has consistently been to deploy our free cash flow, which as you've noted has grown over the last couple of years, but the priority is the M&A and share repurchases more of an ongoing activity at a minimum to manage dilution from our equity plans and SBC opportune.
<unk> disconnects to jump in I would get a little more but priority will be M&A, but we'll be disciplined in that and that strategy, yeah cause Max I could build on that obviously, if youre looking at in the last year, we didn't do as much on the M&A front the previous year, we did a whole bunch. So sometimes that doctors don't look at any given couple of quarters to say that we've changed.
Our strategy, it's really about the overlying opportunity. The other piece I would reiterate is when you have a healthy base business. It's also given us the enormous ability to be very patient in doing deals and.
I think thats the best part of it all is when your core business is healthy there is no need to do deals and we can do the ones that make sense for us. So clearly to reiterate carlene said number one is still on the acquisition front.
Thank you.
And we'll go to our next question from Tim Daly with Wells Fargo.
Great. Thanks.
Thanks for the time here. So my first one is around the kind of broader macro environment. So.
Thinking about the guidance range here is there any specific non cobra drivers that you're good.
Lay out for us that maybe put you guys at the high end of the guidance range or the low end or whereas cope with that kind of the big the big Delta there.
Covid is not this is we're really talking about our base businesses being strong all three of them.
Great and then following up to that are there any concerns that you have around.
Europeans geographical footprints, particularly relating to some of your third party OEM partners.
Is that contemplated in guidance.
Additional details around that would be helpful.
We certainly worry about.
Geopolitical and particularly the economic scenarios in Europe , and I think particularly as this winter comes in energy and everything else I think having said that that's all the macro and the micro is our teams and our businesses are just in great shape and I think are poised regarding.
<unk> of the environment to be able to power to deliver through that.
Thank you.
Thank you, we'll move next to Derik de Bruin with Bank of America.
Okay.
Good evening.
Youre doing well.
Alright.
Hey, how are you so.
Two questions first of all.
The tax rate is going from 21% to 19%. So can you talk whats driving that and the second question is going to be what are you assuming in pricing.
I mean.
How much of your sort of like double digit organic revenue growth when youre looking at.
Some of the targets or some of the businesses is sort of being driven by price and.
Are your diagnostic customers in particular, starting to potentially push back on pricing as COVID-19 reimbursement.
It is likely to go away next year the higher.
Public health emergency goes away.
Yes, so certainly on the tax rate, we continue to look for opportunities to more effectively leverage our supply chain and our operational footprint.
Looking for a low cost areas and so a lot of that work has been happening over the last 24 months, which is driving that lower tax rate down to 19% for 2023, and I think from one aspect of Covid pricing I think when the public health and marching does go away I do think the pricing certainly much more of a disk.
Fashion with our customers than it has been.
Yes, so Nick Derek we have very little pricing baked into the numbers, we have puts and takes frankly across franchises across geographies and just to give a plug for currently to master.
Everybody is always admired our operating margin piece.
But <unk> been very focused on the net side and our tax team has been working very hard over the last few years do I think to a great great job.
To really kind of show up this year with another opportunity for us to continue to drive that net margin.
And would you use 19% of the go forward rate.
Yes at this point I would unless there's a change in the federal statutory rate I think 19% is good too.
Thank you Derek.
And we'll go next to Casey Woodring with Jpmorgan.
Hi, guys. Thanks for fitting me in.
I guess, just so last time, we spoke I think you guys are pointing to a pre COVID-19 operating margin of 31 and a half from <unk> 'twenty.
A good place to start for 'twenty three.
David would maybe balance out some of the supply chain headwinds of breath. So curious just almost 30% number here can you maybe quantify what the basis point headwind from the supply chain dynamics on the year and then maybe could you also quantify how much lower the international businesses operating margin is in relation to the total company's number. Thank you.
Yes, so I think from the supply chain from the higher cost, it's roughly 200 to 250 basis points on the operating margin that yet we have forecasted would persist through 2023.
We have we have talked about international margins being lower than the U S. But we have not disclosed the difference, but I think certainly there is discussions our teams have focused on improving that leverage as we move forward.
And thank you everyone.
That concludes today's question and answer session.
And this now concludes <unk> fourth quarter fiscal 2022 earnings conference call have a good evening.
Okay.
Yes.
Yes.
Yes.