Q4 2023 Hologic Inc Earnings Call
Please standby.
Good afternoon, and welcome to the Hologic fourth quarter fiscal 2023 earnings Conference call. My name is Cynthia and I'm your operator for today's call.
Today's conference is being recorded.
All lines have been placed on mute I would now like to introduce Ryan Simon Vice President Investor Relations to begin the call. Please go ahead Sir.
Thank you Cynthia good afternoon, and thank you for joining <unk> fourth quarter fiscal 2023 earnings call with me today is Steve Macmillan, The company's chairman, President and Chief Executive Officer, Carlene Overton, Our Chief Financial Officer is currently on bereavement and will not be joining us today.
Cardenas with family and I will be covering for her on our call. Please join me in wishing Colleen and her family well.
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 on our website for the next 30 days.
Before we begin we would like to inform you that certain statements. We make today will be forward looking these statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied.
Such factors include those referenced in our Safe Harbor statement included in our earnings release and SEC filings.
Also during this call we will discuss certain non-GAAP financial measures a reconciliation to GAAP can be found in our earnings release.
Two of these non-GAAP measures are one organic revenue, which we define as revenue excluding divested businesses and revenue from acquired businesses owned by Hologic for less than one year.
And two organic revenue, excluding COVID-19, which excludes COVID-19 assay revenue revenue related to COVID-19, and sales from discontinued products and diagnostics.
Finally, any percentage changes, 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 before I get started I just wanted to do a quick shout out to carlene and her family and let everybody know our thoughts and prayers are with her today.
Our pleased to discuss <unk> financial results for the fourth quarter of fiscal 2023.
Total revenue was $945 3 million.
And non-GAAP earnings per share was <unk> 89, it was another strong quarter overall with revenue, finishing at the high end of our range and EPS exceeding our guidance.
Our fourth quarter capped off a tremendous year, where we continued our track record of success strengthened our business and delivered on our commitments for.
For the full year, we posted four point over $3 billion in revenue and non-GAAP EPS of $3 96.
In 2023 quite frankly, we delivered some pretty exceptional organic growth rates, which were far above our longer term targets.
At the start of the year, we committed to deliver low double digit growth across each division.
In the end, we delivered more growing annual organic revenue ex COVID-19 in the mid teens at 15, 6%.
With every division growing north of 13% and international growth just above 20%.
Despite various macro challenges.
Like Clockwork, we continued to deliver.
Raising our financial guidance throughout the year and living up to our commitments.
At the same time, our balance sheet remains incredibly strong and we have the financial flexibility to grow our business for the long term.
For fiscal 'twenty four we are confident in our ability to deliver against our 5% to 7% ex COVID-19 long term organic growth target even against significant comps one less selling week.
And a challenging macro environment.
In fact, if we look at 2024 on an adjusted daily sales basis.
Our annual organic revenue growth rate, excluding COVID-19 is projected to be in the 6% to 8% range.
Whether adjusting for selling days or not we believe our results will truly standout from the crowd as we progress throughout fiscal 2024, particularly following a year of almost 16% growth ex COVID-19 in 2023.
Before sharing more of our excitement for 2024, we will first reflect on our Q4 results.
In Q4, we grew total organic revenue, excluding Covid 16, 7%.
With double digit growth in every division.
We again delivered on our promises.
At the division level breast health grew 27, 4% driven primarily by the recovery in our gantry business.
Interventional breast also posted a strong quarter growing in the low double digits. We are pleased the division's gantry recovery is tracking to our expectations following the industry's chip supply challenges.
Moving on to diagnostics organic growth ex Covid was 10, 2% again, driven by our strong molecular business.
Organic molecular diagnostics ex Covid grew 15% for the quarter.
Driven once again by strong contributions from BV CV TV Mg.
And Jen and bioterror and optics.
With fiscal 2023 revenue ex Covid at 148 billion.
Our diagnostics business is over 40% larger than it was in 2019.
Even more impressive our base molecular business is now nearly 80% eight zero percent larger than it was pre pandemic.
Molecular has grown through a combination of more than doubling our panther installed base, adding new menu, gaining new customers as well as acquisitions into adjacent markets.
This transformation and durable performance speaks to the ongoing success of our growth strategy.
Rounding out the divisions surgical revenue at over $600 million in fiscal 'twenty. Three is now nearly 40% larger than what it was in 2019.
In Q4 surgical grew 10, 6% driven primarily by <unk> and fluid both growing double digits.
In addition, our laparoscopic portfolio also grew double digits, albeit smaller in dollars compared to my assurance fluid.
More importantly, we are pleased our laparoscopic portfolio continues to gain traction.
To close the overview of our quarterly results and fiscal 2023 highlights.
Our international business continued to be accretive to overall growth rates growing north of 28% on an organic ex COVID-19 basis in Q4, we.
We expect international to continue to be a key part of our growth story.
Before moving on we'd like to revisit and reinforce our capital allocation strategy ensure.
In short our capital allocation strategy remains the same we continue to prioritize M&A opportunities.
Second we consistently look to utilize cash towards share repurchases.
And we continue to be patient.
Having said that we have recently seen the opportunity to deploy our cash balance more significantly taking the following four actions.
One in Q4, 2023, we deployed $238 million of capital to buy back three 2 million shares.
Second in our current fiscal Q1 2024, we have already repurchased another $2 2 million shares for $150 million.
Three today, we announced an additional $500 million.
<unk> share repurchase program.
And four we recently paid down $250 million of higher variable interest rate debt.
Ryan will expand on both the ASR and debt repayment in his remarks.
Looking back four plus years since the start of the pandemic. The biggest acquisition we have made is ourselves.
During this period, we deployed over $1 $4 billion on M&A opportunities.
And nearly $2 3 billion onshore.
On share repurchases, including our recent repurchases in Q1 2024.
And today's ASR announcements, we will make that $2 8 billion.
As you can see we are very confident in our position for the years ahead.
Rounding out our capital allocation discussion to ensure we are optimized for the future.
We carefully evaluate our portfolio on an ongoing basis.
As a result as mentioned in our release, we have recently divested our small ssi ultrasound business.
Shifting gears as we have shared on prior calls we are broadly transformed our business and strengthened our fundamentals.
Quarter by quarter.
Year by year with macro hurdles ever present, we continue to prove our strength.
Today, we are effectively a new hologic.
Retooled and recapitalized with strong brand wide moats industry, leading margins and the strongest deepest leadership team we've ever had.
<unk> is a differentiated and more competitive company than at any time in our 38 year history.
At our core we are fundamentally guided by our purpose passion and promise.
Our purpose to enable healthier lives everywhere every day, our passion to champion women's health globally.
And our promise the science of sure to provide healthcare professionals with clinically differentiated high quality products.
Across each division, we have distinct advantages created by our unique focus on elevating women's health through innovative products and Trailblazing social initiatives like the Hologic Global Womens Health Index.
We ultimately develop our leading positions by leaning into our purpose.
Proactively meeting our customers and.
And patient needs.
I will highlight three examples today.
First we are not only leaders in women's health, but we're also sector leaders in workflow automation.
Our customers continue to deal with challenges sourcing technicians, and the persistent pressure to efficiently manage costs.
As a result user friendly systems and efficient workflow solutions are at the top of our customer's expectations.
From our Panther instrument to our provera breast biopsy and fluid systems to name only a few.
Each product is designed to transform manual labor intensive cumbersome processes.
And the easy to use dependable and efficient workflows.
Second the massive footprint and sheer size of our installed basis in diagnostics and breast health provide a strong foundation in today's world with more than 3260 Panther instruments installed worldwide.
Over 10000 mammography systems installed across the U S.
You have the opportunity to be integral partners with the laboratories hospitals and screening centers we support.
For Panther as customers add more menu and drive incremental volume our molecular diagnostics business continues to grow while also becoming more valuable to our customers and more deeply rooted in our operations.
The same can be said for our breast health business.
<unk> is unique in our ability to support our customers and their patients at each step along the breast care continuum.
We differentiate ourselves with our ecosystem of technologies that integrate across a patient's journey, creating a more comfortable patient experience greater clinical confidence for practitioners and.
And increased operational efficiencies for our customers.
Moving onto our third example, our longstanding brand leadership across multiple product lines in each division.
Which yields strong stable margins and steady cash flow generation.
We are innovators and leaders in breast and cervical cancer screening STI testing abnormal uterine bleeding treatment and fibroid removal. This is a significant statement given the strong competitors, we face in each respective business.
Our diversified leadership and scale across our business lines support industry, leading margins and cash flow.
And in turn we have the ability to further invest and grow our business.
Altogether, we are emerging as a premier growth company differentiated and more competitive delivering strong growth across each division and international as.
As the new much stronger Hologic, we are today, we consistently deliver and aim to continue to do so.
Turning our attention to 2024, I will touch on some of the high level growth drivers in each business and Ryan will finish the call with further detail related to next year's guidance.
In breast health, we expect 2024 to be another strong year of growth with our gantry backlog remaining elevated compared to historic levels, we have greater visibility into our pipeline.
<unk> to higher confidence in future gantry sales.
Creating another exciting year for breast health.
In diagnostics as in recent years molecular will continue to drive growth for the division.
We expect our large global Panther installed base to continue to add new menu, while also increasing volume for existing assays.
In addition, our biotherapeutics business, which we acquired in 2021 is expected to continue delivering double digit growth being accretive even to our molecular growth rate.
In 2023, <unk> grew over 30% and we are still in early innings growing the breast cancer Index test.
<unk> is still the only test recognized by NCC and guidelines.
And the American society of clinical oncology to predict which patients are likely to benefit from extended adjuvant therapy beyond five years, yet. Another example of an innovative and differentiated product.
In surgical <unk> or fluid system, and our newer laparoscopic products that we acquired via Boulder and assessor are projected to continue to drive growth.
Internationally surgical also continues to shine in 2023, our international surgical growth rate was more than double the U S growth rate.
Surgical is clearly emerging as a strong and profitable growth drivers.
To conclude entering 2024, we are a new and differentiated hologic, where bigger stronger and more competitive than ever our leadership brands growth drivers across all three divisions durable margin profile and strong balance sheet well.
Continue to power us forward.
As we look ahead to 2024, we are poised to continue to grow and make an even bigger impact on women's health.
The world with that let me hand, the call over to Ryan.
Thank you, Steve and again good afternoon, everyone. In my remarks today I will touch on our fourth quarter financial results recap our annual performance for certain items and end with our fiscal 2020 for our guidance for Q1 and the full year.
We are pleased to close out fiscal 2023 with yet another strong quarter of growth and profitability.
In our fourth quarter total revenue was $945 3 million and again, we delivered double digit organic revenue growth growing 16, 7%, excluding the impact of Covid in.
In addition, our Q4 non-GAAP earnings per share were <unk> 89.
Growing eight 5% compared to the prior year, despite significantly less COVID-19 testing revenue.
For the full year 2023 total revenue was 4.03 billion organic ex Covid revenue grew 15, 6% and non-GAAP earnings per share or $3 96.
These are exceptional results in what has been an unpredictable operating environment now.
Now moving to a brief discussion of our divisional revenue.
And diagnostics global revenue of $416 4 million declined 26%, however, excluding COVID-19 assay and Covid related revenues. The division grew 10, 2% in the quarter performance was again led by molecular diagnostics growing 15.
Percent in the period ex Covid.
For the year molecular posted very strong global growth of 18, 9% ex COVID-19.
As Steve highlighted growth continues to be driven by increasing panther utilization turbocharged by a much larger installed base and strong performance from Biopharma and optics.
Moving next to our Covid results, which exceeded our previous guidance.
Covid assay revenue in our fourth quarter was $21 million and Covid related revenue inclusive of a small amount of revenue from discontinued products and diagnostics was $24 million.
Staying in diagnostics, our cytology and perinatal business increased one 3% and our fourth quarter.
A solid result, following outsized growth in our preceding third quarter due to the timing of certain larger orders.
Moving to breast health total fourth quarter breast health revenue of $352 8 million increased 27, 4% the division's healthy bookings and elevated backlog provides us excellent visibility to meet customer needs and financial targets and physical.
<unk> 24 and beyond.
Continuing next to surgical fourth quarter revenue of $148 million increased 10, 6% compared to the prior year.
<unk> fourth quarter closes out a year in which the business grew a tremendous 15, 8% organically excluding the impact of Boulder in Q1.
And finally in our skeletal business fourth quarter revenue of $28 million was also strong increasing 15, 9%.
Now, let's move on to the rest of the non-GAAP P&L for the fourth quarter.
Gross margin of 64% was driven by strong performance in our base business.
However, this result was partially depressed by certain elevated costs, including higher cost inventory from previously procured semiconductor chips.
Moving down the P&L fourth quarter operating expenses of $303 7 million decreased approximately 8%.
This decrease was driven by lower marketing spend in the period compared to the prior year, primarily due to the timing of expenses associated with our WTO partnership.
Below operating income other income represented a gain in our fiscal fourth quarter, we benefited from higher interest rates on our cash balance driving elevated levels of interest income.
In addition, we realized gain on our interest rate hedge helping to lower interest expense for our floating rate debt.
Finally, our tax rate in Q4 was 1970, 5% as expected.
Putting these pieces together operating margin for Q4 came in at 28, 3% and net margin was 23, 2%.
As we have previously discussed we expect operating margin to improve from this level throughout fiscal 2024.
Finally, non-GAAP net income finished at $219 3 million and non-GAAP EPS was <unk> 89.
Moving on from the P&L cash flow from operations was $258 7 million in the fourth quarter capping off a year in which we generated over $1 billion in operating cash flow at.
As Steve outlined we were actively repurchasing our shares in Q4, 'twenty three as well as the start of Q1 24 for.
For the full year 2023, we spent 500 million to repurchase six 8 million shares.
Even so we ended the fourth quarter with two 7 billion of cash on our balance sheet and a net leverage ratio of 0.1 time.
Lastly, after the end of our fiscal fourth quarter, we completed one important capital market transaction and intend to enter into another.
First we repaid $250 million of floating rate debt associated with our credit agreement. This debt Paydown helps to further protect our balance sheet against the risk of rising interest rates and.
And second as Steve mentioned, we continue to bet on ourselves and announced a $500 million ASR showcasing our resolute belief in the value of our business as we look to benefit from the stock market under appreciation of our entrance seek value.
Now, let's move on to our non-GAAP financial guidance for the first quarter and full fiscal year.
For our Q1, we are expecting total revenue in the range of 962 985 million and EPS of <unk> 92 to 97.
For the full year 2024, our guidance assumes revenue of $3 92 to 4.02 billion and EPS of $3 90 to $4 10.
As you reconcile our guidance to your models, we would like to call out three specific items pertaining to full year total revenue one the headwind of four less selling days in fiscal 'twenty four compared to fiscal 'twenty, three which is about $40 million.
To the divestiture of the Ssi ultrasound business about a $20 million headwind.
And three the impact of FX also about a $20 million headwind.
First with respect to selling days, our fiscal 'twenty three was a 53 week year and fiscal 'twenty four we have four less selling days compared to 23, specifically within Q1, we estimate the impact of the four less selling days to be a headwind of about 400 basis points to.
Our Q1 results and more than 100 basis points for the full year.
Second regarding the divestiture of Ssi ultrasound business in the same way, we treat revenue from our divested blood screening business, we will be removing ultrasound revenue from both the current and prior year when calculating our organic growth rates in fiscal 'twenty four.
This ultrasound revenue was approximately $4 5 million in Q1, 'twenty, three and about $20 million for the full fiscal year.
For fiscal 'twenty, four we expect immaterial remaining ultrasound revenue of less than $1 million per quarter.
And third in terms of foreign exchange, we are assuming an FX tailwind of approximately $3 million for Q1, and a headwind of about $20 million for the full year we.
We anticipate the impact of the recently stronger U S dollar to be more acutely felt in the back half of our fiscal 2024.
Now turning to our divisional guidance.
We expect that each base business will grow within our 5% to 7% framework for the full fiscal year at the midpoint. However, this may not be every division every quarter due to a strong 2023 comp for certain businesses.
Starting with core diagnostics, we expect the business to grow within our 5% to 7% long term target for the full fiscal year 'twenty four but likely below this level in Q1, our first quarter growth rates will be impacted not only by the four extra selling days in the prior year period.
But also strong non COVID-19 respiratory comps.
As we plan for fiscal 'twenty four we are forecasting conservatively for menu items related to flu and RSV at this point, we do not foresee a respiratory season in the first half of fiscal 'twenty for that mirrors last year.
Closing out our non Covid diagnostics business, we expect blood revenue of about $8 million in Q1 and about $30 million for the full year.
In terms of Covid revenue, we expect Covid assay fail to be about $15 million in the first quarter of 'twenty, four and about $40 million for the full year.
Covid related items are expected to be about $30 million in the first quarter and about $105 million for the full year.
Moving to breast health, we expect fiscal 'twenty four to showcase strong demand for our product portfolio and supply chain challenges abate.
As a reminder, due to supply chain challenges in the prior year our growth rate in fiscal Q1 will likely be above trend.
Therefore, as we move throughout the year and comps normalize growth rates may receive however, total revenue should increase as we begin to work through our elevated backlog.
Finally in surgical we expect growth rates within our long term target of 5% to 7% for the full year, but below this level for Q1 and.
In our first quarter of fiscal 'twenty, four surgical will be impacted by the four less selling days as well as the fact that we are lapping a pricing benefit from <unk> five product line extension.
Moving next to margins.
We expect the cadence of improvement throughout fiscal 'twenty four for both gross margin and operating margin as we work through higher cost during the year.
For gross margin, we anticipate Q1 level at approximately 60% exiting the fiscal year in the low sixty's.
Similarly, our guidance assumes Q1 operating margins in the high 20, with a Q4 'twenty four exit rate in the low thirties.
Continuing to work down the P&L, we expect Q1 to represent our highest quarter of operating expense in fiscal 'twenty four.
This is due to normal seasonal expenses associated with internal global sales meetings to kick off our fiscal year.
For the balance of the year, we anticipate quarterly operating expense to be in line with the back half of our fiscal 'twenty three.
Below operating income we estimate fiscal 'twenty for other income net to be approximately neutral in Q1, and an expense of between $40 million to $60 million for the full year.
Our guidance is based on an annual effective tax rate of approximately 1970, 5% and diluted shares outstanding are expected to be approximately $239 million for the full year.
To conclude our strong fourth quarter wrapped up a remarkable year for hologic as we move to our fiscal 2024, we remain focused on advancing women's health around the world, while delivering on our promises and commitments to shareholders employees customers and patients.
With that we ask the operator to open the call for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow the signal to reach our equipment.
The interest of time, we ask that you. Please limit yourself to one question and one follow up question again Press Star one to ask a question. We will take our first question from Puneet <unk> with Leerink partners. Please go ahead.
Yeah, Hi, Steve.
Thanks for taking the questions and thanks, Ryan for the details there on financials.
If I could ask two of my questions together.
On we've been getting a number of questions around USPS TF, it's right around the corner could you update us on your thoughts for co testing versus.
Primarily at this point.
Any change in how.
It could turn out to be great <unk> versus grade B and if you're wondering if you are.
Cooperating any of that impact in your 2024 guide.
And then second part Steve is just with the SBA LDP regulation do you think it changes the competitive landscape for Panther or four Youre approved diagnostic platforms. Thank you.
Sure Let me take those first USPS TF.
Continuing with acres. So much focus on this that's quite frankly, a very little impact to our business. So I'd remind you back in 2018 when the first guidelines were updated at that point in time. They came out they were against co testing and by the time ultimately they came out.
His official co testing was put back in we continue to feel very good about our business regardless of how they go. They also obviously people have been focused on for months and months think of a come in every other day.
We think it's bigger do about nothing to be quite candid.
Great about our business feel great about the data on co testing and feel great that regardless of how they go the clinicians are going to stick with our business and theres going to be no change to our forecasts. So regarding the <unk> thing I think again.
Great question.
Part of where our view of the strength of our business first of all I think again that there is so much focus on what I would call headline risks to be clear the LDP stuff won't come into effect, probably until at least 2028 and there is going to be issues that are going to be battle between now and then legislatively everything else, so nothing thats going to impact the business over the <unk>.
Three years, probably next five at a bare minimum however, we love where we're positioned in that most of us with our kitting and as you will know from our Panther standpoint, it could create more opportunities. So the <unk> probably creates more opportunity for us than it does risk having.
Having said that we really just don't think much is going to happen on that over the next few years.
Thanks minority private another call you want to get to two penny right.
Alright.
We will take our next question from Jack Meehan with more from please go ahead.
Thank you good afternoon and.
First I hope Caerleon family are doing.
Alright.
And also Steve appreciate the commitment to the capital return to shareholders I think that's great.
I was wondering if you just on the business.
Jack.
I appreciate it.
Okay can we talk about Panther now that we're at the end of the year are there any updated utilization stats you can share for the system and second.
The recent placement rates have slowed I know there was some pull forward on placements during the pandemic.
I was just curious like how long you think this kind of last before.
Hospitals and labs start expanding their fleets again thanks.
Yes, Greg I think the simplest thing on utilization is that our molecular business grew 18, 9% last year.
Which is virtually all increased utilization on the Panthers and we just love what we've done there.
Clearly as we said even at the start of last year Panther placements for the next few years, maybe very small and frankly are almost immaterial to us growing the business because at this point there were so many machines put out there as you know from everybody, but I think especially from US now, it's really ramping up the menu with our existing customers and an.
<unk> focus on expanding the fusion. So I think the magic for US is now that we have so many panthers installed we're increasingly going back and getting the fusion sidecar put on which opens up the PCR assays.
And I think we continue to see years and years of growth just even from the existing installed base as were expanding the menu and putting more fusions out there. So Brian do you have anything you want to yes, Jack I'll add to that that our growth as we look forward does not predicated so much on placing additional Panthers is really what what.
Steve mentioned is.
Placing more assays on the systems expanding the fusion.
<unk> footprint as well as growing the volumes of the assays adopted.
So far.
And go Eagles.
For you Jack.
Yes.
Yeah.
We will take our next question from Derik de Bruin with Bank of America. Please go ahead.
Hey, Derik.
Hi, Thanks for taking the call.
Great.
Just some.
You commented on the pricing environment.
So I'll tell you what your sort of expectations are for pricing this year and Bryan just.
I know you said negative 48 navigate 60.
Spence for other all in but what's the interest expense on that just a clinical model.
Yeah, I'll take the first partnering kick it over in terms of pricing overall, we're assuming very modest pricing in most of our gains really are volume given that a lot of our contracts are already set.
With very little pricing increase and I think it's where we're very proud of the fiscal discipline that we've been able to exert and then getting opportunistic pricing or pricing really as.
As much mix as we launched new products, Derik, but very little of our.
Our growth is based on pricing at this point.
Yeah and on that second piece starts of approximately $50 million in expense in that number.
When youre looking at it from a high level like looking at 'twenty three compared to.
24, the biggest.
<unk> there is we're assuming less cash on me on the balance sheet going forward.
And.
But to answer your question, specifically $50 million $50 million on that interest expense right.
Just one clarifying if I can the full ASR is embedded into the current guide for EPS.
Correct correct correct.
We will take our next question from Patrick Donnelly with Citi. Please go ahead.
Yes.
Hey, guys. Thanks for taking the questions.
Steve maybe one on the breast health side, obviously, you guys had a bit of a backlog with the supply chain issues last year can you just talk about how youre working that down what goes into the guide this year there.
One just on the margin piece.
Yes, no. We don't have currently but maybe Ryan just in terms of the moving pieces as you think about the 24 margin build obviously COVID-19 coming down some high margin stuff can you just talk about what you guys are doing to offset that and keep margins.
Moving the right direction. Thank you guys.
Great. Thanks first in terms of the breast health business I think we see clearly placing.
At least a double digit increase in gantries this year, both domestically and internationally.
We're really got going more in our second fiscal quarter last year, So, especially this first quarter will show much bigger growth for.
The breast health business, but I think we feel great about being able to continue to place the gantries and.
And just based on the backlog alone let alone the additional customers we're winning.
Quick first first crack at the margin piece the way I would think about it is before Ryan comes in is I think they will basically be lower than our first fiscal quarter and then growing through the year as we continued to bleed through the higher cost, especially chips in gantries and where.
Also in the midst of relocating some of our manufacturer basically our manufacturing for our breast health business from Connecticut, Dow to Delaware. So at the current time, we've got double costs as we do that and I think we've got great visibility that those gross and operating margins.
We'll be improving throughout the year, if you want to add more to that yes sure. Steve. So as we've previously called out Q3 Q4, our expectation is that would be the trough with respect to operating margins and as Steve mentioned, our expectation is to work up from there to the low <unk> as an exit rate in 2024.
Sure.
Steve pointed to the fact that we're working path and farther away from the highest cost chip.
Our breast business is also recovering which is going to be a tailwind to.
<unk> margins.
As well.
We did mentioned that we divested the Ssi business and that will also be a tailwind to margins as we go into 2024.
Our next question comes from Tejas Savant with Morgan Stanley. Please go ahead Sir.
Hi.
Madison on for Peter Thanks for taking the question.
Maybe just firstly I was wondering if you could elaborate on how youre thinking about international growth for 2024.
I know you flagged the.
The next page to China, another advantage in the near term.
What's your combined exposure to China, and the Middle East.
And did any of that ongoing complex way on the demand through the latter part of it.
Right.
Gary Friedman.
Sure we have very little in the middle East in China's 2% so between the two.
It's call it 2% to 3% really so where are we.
We love that from the current environment and as it relates to international overall I think we've continued to see our international business as being clearly accretive to the growth rates of the company and really over the last number of years, it's been a double digit grower.
And wouldn't count out that it couldnt do that again this year so.
Strength in our international businesses significantly over time, our breast health business getting stronger diagnostics has benefited hugely from all of the additional Panther placements. So thats been growing tremendously internationally and our surgical business after years of trying to work on reimbursement and getting products approved is really.
We're also starting to take off internationally as we said a real nice grower here over last year. So I think we see all three franchises being in very good shape to grow here in 2024.
We will take our next question from Vijay Kumar with Evercore. Please go ahead.
Hey, this is Kevin on for P. J, just a clarifying question on the 4% to 7% base organic guidance for the full year does this include or exclude the four selling days impact, meaning excluding the impact would guide the 5% to 8%.
You got it exactly yes, we factored that in so that's why it's actually yeah, it's $5 a little north of eight.
And just a reminder that is ex COVID-19.
So just a follow up.
It excludes the days impact.
Why is <unk>.
Lower and that would include.
It includes the day the four to seven is included and just to clarify.
Okay.
And just a follow up then.
You also highlighted new share repurchasing and fiscal first quarter, an accelerated repurchase program.
Any change in your capital allocation priorities.
It seems like M&A was a focus.
This quarters.
Yes, as we reiterated we continue to focus on M&A right now, which is that and we think that one of the great acquisition opportunities is our own stock before it's priced.
And we're trying to send that signal very strongly.
But we're continuing to look for external M&A as well, but we just love the position. We're in so it's not a change it's just an extra opportunistic based on where the valuation of ourselves sits right now.
Thanks, Kevin.
We will take our next question from Tim Daly with Wells Fargo. Please go ahead.
Great. Thanks.
So Steve following up on the fusion comments you made to Jack's question.
Could you update us on the.
Percent of the Panther installed base currently fusion enables.
The end of fiscal year 'twenty three.
Yes.
Or.
Similarly, what were the fusion sidecar placements in 2023.
Well I'll comment on is the current attachment rate and Thats about 20% to the Panther installed base.
Yeah, and which is is growing but the way we look at it it doesn't have to be 100% of the key as we think about per customer.
And so that each customer needs.
Ah fusions to be able to deliver what they need for their products. So we've seen very nice growth, we're not necessarily disclosing.
The exact numbers, but really like the growth there.
Okay got it.
Bret.
Talk about healthy bookings or backlog visibility into 'twenty forward.
Are you going to help us how.
How much of the 20 for breast <unk>.
Our revenue expectations are currently covered in your backlog or.
Direct visibility.
Hard orders just curious on kind of.
The coverage rate further for the year think about think about all of it actually if you look at it as Youll see in the.
In the 10-K.
That basically we've got the orders in place for the year now we're going to continue to to add orders to that for further out periods, but we're in great shape coming into the year.
Yeah.
We will take our next question from Anthony <unk> with Mizuho Group. Please go ahead.
Thanks, Good afternoon. They also send condolences to Colleen and her family maybe.
Maybe the first one on bioterror Gnostics, just up 30% for.
For the full year.
And obviously still in the early days as you mentioned, Steve in your prepared comments I'm just wondering when you think about.
Yes, the synergy to the breast health business, you have 10000 gantries out there.
And I think there's two call points really for Bioterror Gnostics OBJ Obgyn and then.
Possibly a little bit in in radiology, specifically, but how should we be thinking about how many of your breast health and.
Install base users are currently using <unk>.
How long will it take to sort of extra extract that entire synergy.
And then specifically on margins for Ryan just when that trajectory from high <unk> in the first quarter to low thirties.
That linear or are there certain inflection points throughout the year. If so what are they is it operating leverage or more on pricing at the gross margin line. Thanks.
Sure incident in the first one it's a great question and I don't have the specifics I think our bioterror and <unk> sales team has been out there really focusing on a number of key docs and so as they are building it up I do think with back to the early innings still of <unk>.
Lots of opportunity to more broad net with.
Both our breast health as well as even our diagnostics.
<unk> sales forces so still a lot of opportunity ahead to your point.
Yeah, and Anthony on the margins as we've stated in the commentary looking to work up from the high <unk> to the low <unk> through the course of.
The year it should be relatively consistent trajectory up to that range as I mentioned on the prior question breast health recovery is a tailwind to the margins the farther we get away from the higher cost chips that are in our gantries as we progress throughout the year that should be.
Helpful.
As as well.
And <unk>.
And again the.
The savings from Ssi should be felt.
In the back half of the year as well.
Yeah.
We will take our next question from Casey Woodring with J P. Morgan. Please go ahead.
Great. Thank you for taking my questions and my condolences to correlate and her family.
So I just wanted to talk about the guidance surgical business. So growth. This year, it's going to be within the <unk> range coming off a 16% organic comp 23 can you just talk about some of the growth drivers there. It sounds like international is a big piece of it.
It sounds like pricing drove.
Outperformance this year as well so can you just talk about.
How that business performed this year and the sustainability into next year and then just one more quickly on the margin. So I think in 2003, you baked in something around 200 to 250 basis points.
Inflationary headwinds outside of that higher semi chip costs, how should we think about that that dynamic here in 'twenty four.
Thank you.
Sure on the guidance <unk> business I'd say, we had everything working for us in 2023, including the <unk> launch that had did have some pricing.
Associated really it showed up more as mix, but it was a higher priced product and then I think frankly procedures were pretty good but we fired across all cylinders <unk> Marscher fluent and then also Boulder NSS and.
And did it both domestically and internationally I think as we go into next year, <unk> and fluent and older and assess all continuing to look as very good growth in <unk> will probably be back too.
Flattish to possibly down a touch.
But internationally I think again, we see international being a solid double digit grower in the year so far.
Feeling very very good about our position I would tell you one of the biggest surprises to me probably over my almost decade now at Hologic has been the continued growth in the sheer scale of my assure as it continues to really grow the category and then if we think about.
<unk> Tam total available market never realized how big it would be and I think we're continuing to expand that market. So feeling.
Feeling very very good about that I'll, let Brian take the second part of that everybody has decided I cant handle margin questions.
I'll go ahead, and let Ryan go ahead and take them.
Yes, so I do want to clarify one comment that we made to derek's question earlier.
It is actually $50 million in income and $130 million in expense, So I had flip flop that.
In the in the prior question.
And again with respect to margins kind of just reiterating the comments that we've made here. It is an expectation that we're going from again the high <unk> to the low <unk>.
The biggest impacting driver again is the breast recovery and moving again farther away from the from the higher price chips, Yes, I think thats, what gives us such confidence in the gross margin expansion to clarify that is it is looking at the current inventory that's sitting on our balance sheet that is just going to flow through.
Here on a.
Secondly, a first in first out basis. So we can see those super high priced chips that we got early and mid in the chip crisis bleeding through the product lines here in the first quarter really by the first two quarters most of that will be done and it gives us great confidence as we continue to work through the year.
We will take our next question from Nevada tie with BNP Paribas. Please go ahead.
Yes.
Hi, good afternoon.
Just had a follow up on the M&A curious to know where their holiday came across interesting deal.
Do you see a healthy amount of sub $1 billion deals. Thank you.
Thanks, Brian we continue to scour the landscape the bankers have been all over the place with <unk>.
Lots of ideas, we frankly are in that great position, where we can be patient.
I still look at the landscape today, you've got a whole bunch of very smaller.
Companies that went public in Covid time that are hemorrhaging cash and in bad shape.
And a lot of those still don't fit our criteria. So then we're looking at other things that maybe a little bit more established.
But the magic that we have for US right now is given our growth rates given our profitability.
We've got a pretty tight hurdle rate.
Not a lot of things are making it to the top so I wouldn't expect anything super imminent.
As we continue to.
Look at the landscape.
Helpful. Thank you.
Thank you we'll take our next question from Mike Matson with Needham <unk> Company. Please go ahead.
Yes. Thanks.
So I wanted to ask one about the breast business specifically.
So I guess Terry.
When you had all the kind of supply chain as soon as you talked about the orders were coming in and being strong.
So and I know you've got a backlog now, but I guess, what I'm wondering is.
What is the ordering looking like.
We have seen some kind of mixed signals.
Signals out there about capital spending at the hospital level.
Yes, we continue to feel good about it.
Having.
<unk> been in this chair in a different company than the 2008 2009 downturn I'm always, particularly attuned to trying to pay attention to concerns about capital freezes or capital tightening.
I think we just feel great about where we are.
Both in terms of the products, we've already got the orders and as well as continuing to get new orders.
So we're booking candidly out beyond the current year at this stage and.
A lot of excitement still in our breast health business I think.
Hard for people to grasp is how much we've dramatically expanded our installed base to where we're so strong in the U S.
So many people still coming to us so really feeling very good about it.
Okay got it and then just on the international business I mean, it's good to see.
The growth.
Being so strong there you sound pretty optimistic about the outlook.
But I was wondering if you could maybe just talk about what's really driving the growth there is it.
Expanding into new countries getting new products approved in your existing markets gain.
Gaining share in existing markets.
All of the above.
Yes, it does.
Had you asked I think the magic for US is it is all of the above it's this incredible diverse growth that in very simple terms, if we actually do look almost country by country and franchise by franchise and we were just with literally the sales leaders of each.
Country for each franchise in Dubai, a couple of weeks ago, So coming fresh off looking at all of the plans you know if I look at the U K REIT, we have growth plans for diagnostics, not just diagnostics, but psychology as well as molecular.
In the U K, we've got plans for the breast health business and we have plans for surgical and it is it's bringing in the case of surgical to bringing those products into these markets.
It's getting the reimbursement and it's just been a lot of nothing sexy and no one big driver, which I actually think creates.
The excitement and even as as places like China.
<unk> gotten a lot walk year for most companies because we're small there we're not counting on that for our growth, we're getting it everywhere else, but it.
It's not sexy.
But it's incredibly effective that it's literally every for almost every franchise in every geography and these hundreds of thousands here and there as you keep adding them up they become millions and millions and tens of millions.
All through it and I think it's creating this <unk> growth as we are bringing on new customers in each franchise.
Thank you Mike.
We will take our next question from Andrew Bachmann with William Blair. Please go ahead.
Hi, guys. Good afternoon, thanks for taking the questions and certainly sending condolences to currently here I'll just take the one on the innovation engine here you guys have obviously done well sort of advancing the platforms through R&D and new launches, but how should we be thinking about major upgrades within the core franchises here over the next couple of years anything to call out there or so we'd be.
Expecting I guess more singles and doubles moving forward. Thanks.
Sure I think.
We never want to over hype anything, but we've got some neat things coming both.
Particularly organically in the breast health business diagnostics, obviously <unk> is off to a tremendous start and we're excited by that organic thing.
And then working it out but probably more in this continued singles doubles category.
And hopefully over time, those singles and doubles turn into triples.
I think if you look at assessor in Boulder right. There. They are growing very nicely. There is still very small and so over time I think the magic from where we sit today is we can see those franchises growing at above our company right for the next five plus years at least.
And I think that's the magic of what we have going here. So again, no one kind of back to Mike's question, a little bit no one product driving the growth at systematically coming across.
Across the product lines.
And I think creates a lot more durability.
Okay. Thanks, Scott.
Thanks, Andrew.
We have time for one more question.
We will take our final question from Andrew Cooper with Raymond James. Please go ahead.
Hey, Thanks, guys for squeezing me in.
<unk> already been asked so maybe just one you mentioned booking out already England next year on the gantry business.
What is the typical kind of visibility you have at this point looking into the year relative to maybe where you sit now with this big backlog in other words how.
How much bigger is that backlog than it typically would be.
Yes, it's clearly peaked.
I think we peaked up here in the last year.
Year, and now we will start to bleed that down, but we typically have reasonable visibility.
The way it doesn't mean that an order can be placed now that we wouldn't ship sometime.
In the next quarter. So it all depends on how they are scheduled and everything else, but I think we feel really good about where we sit.
Great.
Alright.
That concludes today's question and answer session and this now concludes the whole logic fourth quarter fiscal 2023 earnings conference call have a good evening.