Q1 2025 Hologic Inc Earnings Call

Operator: Good afternoon and welcome to the Hologic's first quarter fiscal 2025 earnings conference call.

Good afternoon, and welcome to the whole logics first quarter fiscal 'twenty 'twenty five earnings Conference call. My name is Lisa and I'm. Your operator for today's call today's conference is being recorded.

Operator: My name is Lisa and I'm your operator for today's call. Today's conference is being recorded. All lines have been placed on mute.

Speaker Change: All lines have been placed on mute.

Mike Watts: I would now like to introduce Mike Watts, Corporate Vice President, Investor Relations, to begin the call. Please go ahead, sir.

Speaker Change: I would now like to introduce Mike Watts, corporate Vice President Investor Relations to begin the call. Please go ahead Sir.

Mike Watts: Thank you, Lisa.

Mike Watts: Thank you Lisa good afternoon, and thank you for joining <unk> first quarter fiscal 2025 earnings call with me today are Steve Macmillan, The company's chairman, President and Chief Executive Officer Ethics, Mitchell, our Chief operating officer, and Colleen Obertan, Our Chief Financial Officer are.

Mike Watts: Good afternoon, and thank you for joining Hologic's first quarter fiscal 2025 earnings call. With me today are Steve MacMillan, the company's Chairman, President and Chief Executive Officer, Essex Mitchell, our Chief Operating Officer, and Karleen Oberton, our Chief Financial Officer. Our first 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. And a replay of this call will be available on our website for the next 30 days.

Mike Watts: Our first 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.

Mike Watts: A replay of this call will be available on our website for the next 30 days.

Mike Watts: Before we begin, we'd 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 the Safe Harbor Statement that's included in our earnings release and SEC file.

Mike Watts: Before we begin we'd like to inform you that certain statements. We make today will be forward looking.

Mike Watts: These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied.

Mike Watts: Such factors include those referenced in the Safe Harbor statement. That's included in our earnings release and SEC filings.

Mike Watts: 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 organic revenue, which we define as revenue excluding divested businesses and revenue from acquired businesses owned by Hologic for less than one year. Also, organic revenue excluding COVID-19. which further excludes COVID-19 assay revenue, other revenue related to COVID-19, and sales from discontinued products and diet. Finally, any percentage changes we discuss will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted.

Mike Watts: Also during this call we will discuss certain non-GAAP financial measures a reconciliation to GAAP can be found in our earnings release.

Mike Watts: Two of these non-GAAP measures are organic revenue, which we define as revenue excluding divested businesses and revenue from acquired businesses own biologic for less than one year.

Mike Watts: Also organic revenue, excluding COVID-19.

Mike Watts: Which further exclude COVID-19 assay revenue.

Mike Watts: Other revenue related to Covid, 19, and sales from discontinued products and diagnostics.

Mike Watts: 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.

Steve Macmillan: Now I'd like to turn the call over to Steve MacMillan, Hologic CEO. Good afternoon, everyone. I'd like to begin today by welcoming Mike back to the Hologic team. We are all excited to have him back.

Mike Watts: Now I'd like to turn the call over to Steve Macmillan Hologic CEO.

Mike Watts: Good afternoon, everyone.

To begin today by welcoming Mike back to the whole logic team. We are all excited to have him back.

Steve Macmillan: And now we are pleased to discuss our financial results for the first quarter of fiscal 2025. As we pre-announced last month, total revenue for the quarter was $1.022 billion, an increase of 1% on a constant currency basis. This was in line with our guidance as the stronger dollar subtracted about $9 million from reported revenue since we guided in early November. Non-GAAP earnings per share were $1.03 at the high end of our guidance range and an increase of $0.05. This reflected strong improvement in non-GAAP operating margins of 90 basis points, as well as share buybacks, and the benefits of our foreign exchange hedging program.

Mike Watts: And now we are pleased to discuss our financial results for the first quarter of fiscal 2025.

Mike Watts: As we pre announced last night total revenue for the quarter was $1.022 billion, an increase of 1% on a constant currency basis.

Mike Watts: Was in line with our guidance as the stronger dollar subtracted about $9 million from reported revenue.

Mike Watts: We guided in early November.

Mike Watts: non-GAAP earnings per share were $1 <unk> at the high end of our guidance range and an increase of 5%.

Mike Watts: This reflected strong improvement in non-GAAP operating margins of 90 basis points as well as share buybacks and the benefits of our foreign exchange hedging program.

Steve Macmillan: In my remarks today, I'd like to revisit some of the themes from our presentation at the J.P. Morgan Conference last month. In that discussion, we reflected back on Hologic's strong financial performance since 2014. Our main point, however, was not about the past. It was that we believe we can continue to grow revenue and earnings at similar rates in the future. Why do we believe that? Because of our market leading products and the strong organizational capabilities we have steadily built around them. To be more specific, from 2014 through 2024, Hologic grew revenue from about $2.5 billion to more than $4 billion.

Mike Watts: In my remarks today I'd like to revisit some of the themes from our presentation at the Jpmorgan Conference last month.

Mike Watts: In that discussion, we reflected back on whole logic strong financial performance since 2014.

Mike Watts: Our main point, however was not about the past it was that we believe we can continue to grow revenue and earnings at similar rates in the future.

Mike Watts: Why do we believe that because of our market leading products and the strong organizational capabilities, we have steadily built around that.

Mike Watts: To be more specific from 2014 through 2020 for logic grew revenue from about $2 $5 billion to more than $4 billion.

Steve Macmillan: This represented a compound annual growth rate of 4.8 percent, including all our acquisitions and divestitures along the way. Over this same period, non-GAAP earnings per share increased from $1.40 to $4.08, representing a CAGR of 10.8%, more than double the rate of sales growth.

Mike Watts: This represented a compound annual growth rate of four 8%, including all of our acquisitions and divestitures along the way.

Mike Watts: Over this same period non-GAAP earnings per share increased from $1 46 to $4 eight <unk>, representing a CAGR of 10.8% more than double the rate of sales growth.

Steve Macmillan: At J.P. Morgan, our primary message was that we believe we can continue to grow earnings at a double-digit rate into the future. While some years, like this one, may be below this level, we are confident in our future and still believe this is an appropriate long-term goal. The financial algorithm that will get us there includes a continuation of mid-single-digit growth on the top line, modest expansion of our already best-in-class operating margin. and a healthy mix of acquisitions and share buybacks to increase both our revenue and EPS growth rate.

Speaker Change: At J P. Morgan our primary message was that we believe we can continue to grow earnings at a double digit rate into the future.

Speaker Change: While some years like this one may be below this level, we are confident in our future and still believe this is an appropriate long term goals.

The financial algorithm that will get US there includes a continuation of mid single digit growth on the top line.

Speaker Change: Modest expansion of our already best in class operating margin.

Speaker Change: And a healthy mix of acquisitions and share buybacks to increase both our revenue and EPS growth rates.

Steve Macmillan: The foundation for this expected performance, of course, lies in our market leading brands, which generate a tremendous amount of reliable cash flow. from Panther, Aptima and ThinPrep and Diagnostics. to Genius in Breast Health, to Myoshare and Novashare in Surgical. We enjoy leading market shares that have proven durable over time. Much of our growth comes from building around these brands and using the cash they generate to drive future innovation. For example, we now have more than 20 assays on our Panther and Panther Fusion platform. We have built a reliable service business in breast health that is now larger than our capital sales, which can be more volatile.

Speaker Change: The foundation for this expected performance of course lies in our market, leading brands, which generate a tremendous amount of reliable cash flow.

Speaker Change: From Panther abdomen, and thin rapid diagnostics to genius in breast health Tamiya, assuring overshorten surgical we enjoy leading market shares that have proven durable over time.

Speaker Change: Much of our growth comes from building around these brands and using the cash they generate to drive future innovation.

Speaker Change: For example, we now have more than 20 assays on our Panther and Panther fusion platforms.

We have built a reliable service business in breast health that is now larger than our capital sales, which can be more volatile.

Steve Macmillan: And we are adding products to our surgical division, both organically and inorganically, to leverage our excellent sales channel.

Speaker Change: And we are adding products to our surgical division, both organically and inorganically to leverage our excellent sales channel.

Steve Macmillan: Best-in-class products don't just happen. Instead, they are the result of several organizational capabilities that we have very deliberately built and nurtured over time. And these capabilities give us confidence in our ability to hit our financial targets in the future. For example, our 7,000 employees around the world are motivated by a passion for women's health. They have demonstrated an ability to create and expand markets for the benefit of patients and customers. and to redefine clinical standards of care. Examples include transitioning traditional pap testing to liquid and now adding digital capabilities to catch more cancers and improve workflow.

Speaker Change: Best in class products don't just happen.

Speaker Change: Instead, they are the result of several organizational capabilities that we have very deliberately built and nurtured overtime.

Speaker Change: And these capabilities give us confidence in our ability to hit our financial targets in the future.

Speaker Change: For example, our 7000 employees around the world are motivated by a passion for women's health.

Speaker Change: They have demonstrated an ability to create and expand markets for the benefit of patients and customers.

Speaker Change: And to redefine clinical standards of care.

Examples include transitioning traditional pap testing to liquid Pap.

Speaker Change: And now, adding digital capabilities to catch more cancers and improved workflow.

Steve Macmillan: And more recently, we have partnered with our customers to literally create a market for high throughput vaginitis testing, which has fueled our second largest molecular diagnostics test on the Panther system.

Speaker Change: And more recently, we have partnered with our customers to literally create a market for high throughput vaginitis testing, which has fueled our second largest molecular diagnostics test.

Speaker Change: On the Panther system.

Steve Macmillan: Many of these successes originated in the United States. But we have now built the capabilities to grow internationally on a consistent basis. We continue to go direct in more geographies and business. most recently in our surgical division, while strengthening our market access capabilities around the globe.

Speaker Change: Many of these successes originated in the United States.

Speaker Change: But we have now built the capabilities to grow internationally on a consistent basis.

Speaker Change: We continue to go direct in more geographies and businesses. Most recently in our surgical division, while strengthening our market access capabilities around the globe.

Steve Macmillan: Similarly, we have learned from past mistakes and improved our business development capabilities. We have strengthened our talent and processes for conducting due diligence on new targets, cultivating relationships with them, and integrating acquired assets more effectively. This internal maturation has been reflected in the solid performance of some of our more recent acquisitions. For example, biothermostics, endomagnetics, and gynasonics should all boost our revenue growth. These organizational capabilities give us confidence in the future, especially our ability to be a consistent double digit earnings compounder and deliver value to shareholders reliably over time.

Speaker Change: Similarly, we have learned from past mistakes and improved our business development capabilities, we have.

Speaker Change: Have strengthened our talent and processes for conducting due diligence on new targets.

Speaker Change: <unk> relationships with them and integrating acquired assets more effectively.

Speaker Change: This internal maturation has been reflected in the solid performance of some of our more recent acquisitions.

Speaker Change: For example, bioterror and optics Endo magnetics, and <unk> should all boost our revenue growth rate.

Speaker Change: These organizational capabilities give us confidence in the future, especially our ability to be a consistent double digit earnings compound or and deliver value to shareholders reliably over time now.

Essex Mitchell: Now I will turn the call over to Essex. Thank you, Steve, and good afternoon, everyone. In my remarks today, I will first review our divisional revenue performance in the first quarter. Then I'll provide a little color on Gynesonics, a tuck-in acquisition we recently closed in our surgical business that we are excited about. As Steve said, we met our revenue guidance on a constant currency basis in the first quarter, growing one percent. At the highest level, we outperformed in diagnostics, but lagged in breast cancer. Surgical and skeletal were roughly in line with our expectations. Our diagnostics business continues to be one of the best-performing diversified assets in the world.

Speaker Change: Now I will turn the call over to Asics.

Asics: Thank you, Steve and good afternoon, everyone. In my remarks today I will first review our divisional revenue performance in the first quarter.

Asics: Then I'll provide a little color on Guyana Sonics, a tuck in acquisition, we recently closed and our surgical business that we are excited about.

Asics: As Steve said, we met our revenue guidance on a constant currency basis in the first quarter growing 1%.

Asics: At the highest level, we outperform in diagnostics, but lagged in breast health surgical and skeletal were roughly in line with our expectations.

Asics: Our diagnostics business continues to be one of the best performing diversified asset in this space.

Essex Mitchell: and Q1 was another strong quarter. Revenue of $470.6 million grew 5.2% and 9.1% organically, excluding COVID. Growth for the division continues to be led by molecular diagnostics, which grew 6.7%. for 11% excluding COVID. Within molecular, our biotherapeutic lab tests. continue to grow at a healthy double-digit rate. and our BBCB TV essay also had another outstanding quarter of strong double-digit growth. We believe we are only in the middle innings of realizing the total opportunity for this task. For example, we have just begun using our physician's sales force to expand the vaginitis testing market in the U.S., leveraging the same playbook we have used to grow our legacy women's health Our core women's health assays that run on our automated Panther platform.

Asics: In Q1 was another strong quarter.

Asics: Revenue of $478 6 million grew five 2% and nine 1% organically excluding COVID-19.

Asics: Growth for the division continues to be led by molecular diagnostics, which grew six 7% or.

Asics: Or 11% excluding COVID-19.

Asics: Within molecular or buyout their gnostics lab testing business continued to grow at a healthy double digit rate.

Asics: And our <unk> TV assay also had another outstanding quarter of strong double digit growth.

Asics: We believe we are only in the middle innings of realizing the total opportunity for this test.

Asics: For example, we have just begun using our physician sales force to expand the vaginitis testing market in the U S. Leveraging the same playbook, we have used to grow our legacy women's health tests.

Our core women's health assays that run on our automated Panther platform also had a strong.

Essex Mitchell: also had a strong performance in the quarter. We often get investor questions about competition diagnostics. So I want to be clear that these assays have held leading market positions for some time, and our sales force continues to win new business and grow that share despite an always competitive environment. Although respiratory testing is a relatively small piece of our business, it is seasonal and can vary significantly based on flu prevalence. This quarter, the respiratory season started slowly, but worsened in late December. As a result, non-COVID respiratory sales finished close to our expectations for the quarter. These respiratory as well as many of the other assays we have in development run on our PANTHER Fusion Cycle.

Performance in the quarter.

Asics: Often get investor questions about competition diagnostics, so I want to be clear that these assays have held leading market positions for some time that our sales force continues to win new business and grow that share despite an always competitive environment.

Asics: Although respiratory testing is a relatively small piece of our business. It is seasonal and can vary significantly based on flu prevalence. This quarter. The respiratory season started slowly but worse in late December as a result, non COVID-19 respiratory sales.

Asics: Finished close to our expectations for the quarter.

Asics: These respiratory tests as well as many of the other assays, we have in development run on our Panther fusion sidecar for.

Essex Mitchell: For our customers, having a Panther Fusion is the key to unlocking our full menu. We have been pleased to see our Salesforce grow the attachment rate of the Panther Fusion in recent quarters. Nearly 40% of our U.S. customers now have a fusion system. and our Cytology and Perinatal Business within Diagnostics. We saw higher than average growth of 4.7% for the quarter. As a reminder, sales in the prior year quarter were slightly depressed, resulting in an easier comp for the current period.

Asics: For our customers, having a panther fusion is the key to unlocking our full menu.

Asics: We have been pleased to see our salesforce grow the attachment rate of the Panther fusion in recent quarters.

Asics: Nearly 40% of our U S customers now have a fusion system.

Asics: And our cytology and perinatal business within diagnostics, we saw higher than average growth of four 7% for the quarter.

Asics: As a reminder, sales in the prior year quarter were slightly depressed, resulting in an easier comp for the current period.

Essex Mitchell: Moving to Breast Health. Total first quarter revenue of $369.1 million was disappointed. still declined 2.1% or 5.8% organically when excluding SSI and endomagnetism. The decline versus prior year was primarily driven by lower sales of capital equipment. However, we continue to see strong growth in service revenue, which tends to be more steady than gantry. Reflecting our long term strategy to diversify revenue in this business, service accountant for more than 40% of sales in Q1. As we've analyzed the breast health market... We have concluded that 2025 will be a softer year for GANS replacements than we initially This is for a few reasons.

Asics: Moving to breast health.

Asics: Total fourth first quarter revenue of $369 1 billion was disappointing.

Asics: <unk> declined two 1% or $5 eight organically, when excluding Ssi and Indo magnetics.

Asics: The decline versus prior year was primarily driven by lower sales of capital equipment.

Asics: However, we continue to see strong growth in service revenue, which tends to be more steady than gantry sales.

Asics: Reflecting our long term strategy to diversify revenue in this business service accounted for more than 40% of sales in Q1.

Asics: As we've analyzed the breast health market recently, we have concluded that 2025 will be a softer year for gantry placements than we initially expected.

Asics: This is for a few reasons.

Essex Mitchell: As we recovered from the chip shortage, we saw multiple quarters of sustained double-digit growth in mammography. This clouded our picture of what a normal gantry market would look like entering 2025 and has made for tough competition. Now that we have upgraded most 2D units in the United States to our 3D standard of care, our challenge is to drive 3D to 3D conversion. In this context, we are seeing customers lengthen their replacement cycles, especially those who are considering our new Envision platform, which we expect to launch commercially next year. On the bright side, our competitive position remains strong.

Asics: As we recovered from the chip shortage, we saw multiple quarters of sustained double digit growth in mammography sales.

Asics: This collateral our picture of what a normal gantry market will look like entering 2025 and has made for tough comps.

Asics: Now that we have upgraded most of <unk> units in the United States to our three D. <unk> standard of care, our challenge is to drive <unk> to <unk> conversions.

Asics: In this context, we are seeing customers lengthen their replacement cycle, especially those who are considering our new envision platform, which we expect to launch commercially next year.

Asics: On the bright side, our competitive position remains strong.

Essex Mitchell: And we have received very positive feedback on Envision since we introduced it at RSNA, which gives us long-term confidence. Customers are excited about the system's better image quality, patient experience, and workflow. Outside of the United States, we are also seeing pressure on capital investments, as many private and government hospital customers.

Asics: And we have received very positive feedback on envision since we introduced it at RSA, which gives us long term confidence cut.

Asics: Customers are excited about the systems better image quality patient experience and workflow.

Asics: Outside of the United States. We are also seeing pressure on capital investments as many private and government hospital customers struggle with local budgetary constraints.

Essex Mitchell: Unknown Attendee, Michael Ryskin, Andrew Cooper, Casey Woodring, Daniel Leonard, Michael Matson, Turning to our interventional breast business, we are pleased with the integration and performance of endomagnetics, which we acquired in the fourth quarter of fiscal 2024, and is well positioned for a strong We are excited about Indomag's innovative on-market products, but also its R&D capabilities, which will provide opportunities to further broaden our interventional breast portfolio. In surgical, first quarter revenue of $166.3 million, increased $2.5 million. Q1 was another strong quarter for our international surgical business, with growth of nearly 20%. In the U.S., results were in line with our expectations considering the temporary headwind of the IV fluid shortage that we discussed on our Q4 earnings.

Asics: Turning to our interventional breast business, we are pleased with the integration and performance of Indo Magnetics, which we acquired in the fourth quarter of fiscal 2024 and is well positioned for a strong year.

Asics: We are excited about <unk> innovative on market products, but also its R&D capabilities, which will provide opportunities to further broaden our interventional breast portfolio.

Asics: In surgical first quarter revenue of $166 3 million increased two 5%.

Asics: Q1 was another strong quarter for our international surgical business with growth of nearly 20%.

Asics: In the U S results were in line with our expectations considering the temporary headwind of the IV fluid shortage that we discussed on our Q4 earnings call.

Essex Mitchell: Most of our customers saw their IV fluid constraints resolve as we exited the quarter, so we do not expect this to have a significant impact going forward.

Most of our customers solve their IV fluid constraints resolved as we exited the quarter. So we do not expect to have this to have a significant impact going forward.

Essex Mitchell: Finally, in our scalable business, first quarter revenue of $15.8 million decreased $37.4%. as shipping for some of our Horizon DEXA units resumed later in the quarter than originally anticipated. We expect the manufacturing of these units to progressively ramp up to full capacity. before returning to normal in the third quarter.

Asics: Finally in our skeletal business first quarter revenue of $15 8 million decreased 37.

Asics: 4%.

Asics: As shipping for some of our horizon <unk> units resumed later in the quarter than originally anticipated.

Asics: We expect the manufacturing of these units to progressively ramp up to full capacity.

Asics: Before returning to normal in the third quarter.

Essex Mitchell: Before I hand the call over to Karleen, I wanted to highlight the gynosonic acquisition that we completed in January. We're excited to introduce their Sonata system into our surgical portfolio. Sonata is a minimally invasive radial frequency ablation tool used to treat uterine fibroids that are less accessible. by Myosur or Essex. So it's highly complementary to our current portfolio and fits nicely into our sales bags of the largest commercial channel we have. Dinosonic had about $28 million of revenue. in its most recent fiscal year, including a healthy mix of international We expect sales to grow at a healthy double digit rate in the hands of our large GYN sales Dynasonic's gross margin is solid, although planned investments will make the acquisition slightly dilutive to non-GAAP EPS.

Colleen Obertan: Before I hand, the call over to Colleen.

Wanted to highlight the guidance on its acquisition that we completed in January.

Colleen Obertan: We're excited to introduce there so not a system into our surgical portfolio.

Colleen Obertan: Sonata is a minimally invasive radio frequency ablation tool used to treat uterine fibroids that are less accessible by maiasaur or assessor. So.

Colleen Obertan: So it's highly complementary to our current portfolio and fits nicely into our sales bags of the largest commercial channel we have.

Colleen Obertan: <unk> had about $28 million of.

Colleen Obertan: Revenue.

Colleen Obertan: In its most recent fiscal year, including a healthy mix of international sales, we expect sales to grow at a healthy double digit rate in the hands of our large <unk> and salesforce.

Colleen Obertan: <unk> gross margin is solid although planned investments will make the acquisition slightly dilutive to non-GAAP EPS this year.

Essex Mitchell: As Steve mentioned, strengthening our business development capabilities has been a key focus for the organization in recent years. In each division, and at the corporate level, we now have teams in place that bring a deep understanding of the respective end markets and significant experience in diligence and integration. The success of recent deals like biothermagnetics, endomagnetics, and our good start with gynosonics give us confidence in our ability to identify and integrate future deals. As we've said many times, Accessing high-growth, adjacent markets through successful M&A will be key to our growth strategy moving forward.

Colleen Obertan: As Steve mentioned strengthening our business development capabilities has been a key focus for the organization in recent years in each division and at the corporate level. We now have teams in place that bring a deep understanding of the respective end market and significant experience in diligence.

Colleen Obertan: And integration.

Colleen Obertan: The success of recent deal like buyout their gnostics indoor magnetics and our good start with Guyana, Sonics give us confidence in our ability to identify and integrate future deals.

Colleen Obertan: As we've said many times.

Colleen Obertan: Accessing high growth adjacent markets through successful M&A will be key to our growth strategy moving forward.

Karleen Oberton: With that, I'll hand the call over to Karleen. Thank you, Essex, and good afternoon, everyone. In my comments today, I will start by walking through the rest of our non-GAAP income statement. then touch on several key financial metrics. And we can finish with our guidance for fiscal Q2 in the full year. Let me begin by saying we are pleased to grow non-GAAP earnings per share by 5% this quarter. when revenue only grew one. Although we clearly want revenue to grow faster, and we believe it will, this demonstrates the substantial operating leverage we can generate and gives us confidence that we can grow earnings at a double-digit rate over time.

Colleen Obertan: With that I'll hand, the call over to Colleen.

Colleen Obertan: Thank you ethics and good afternoon, everyone.

Speaker Change: And my comments today I will start by walking through the rest of our non-GAAP income statement.

Speaker Change: <unk> touch on several key financial metrics and finish with our guidance for fiscal Q2 and the full year.

Speaker Change: Let me begin by saying we are.

Speaker Change: Pleased to grow non-GAAP earnings per share by 5% this quarter when revenue only grew 1%.

Speaker Change: Although we clearly want revenue to grow faster and we believe it well.

Speaker Change: Demonstrates the substantial operating leverage we can generate it gives us confidence that we can grow earnings at a double digit rate over time.

Karleen Oberton: So how did we do that in the first quarter? start, non-gap growth margin of 61.6%, increased 80 base This margin expansion was primarily the result of sample product measurement.

Speaker Change: So how did we do that in the first quarter.

Speaker Change: non-GAAP gross margin of 61, 6% increased 80 basis points.

Speaker Change: This margin expansion was primarily the result of favorable product mix.

Karleen Oberton: and Operating Efficiency. Moving down to P&L, first quarter operating expenses of $329 million. As a reminder, Q1 usually represents our highest level of operating expense for the year. Despite this, the year-over-year increase was driven by the addition of endomagnetic including Endomag, operating expenses would have decreased 2.0%. First Quarter Operating Margin finished at 29.4%. representing an increase of 90. This operating margin expansion came primarily from drop-through of a higher gross margin. Steve Stead Leveraging the P&L to drive modest margin expansion. from already best-in-class levels.

Speaker Change: And operating efficiency.

Speaker Change: Moving down the P&L first quarter operating expenses of $329 million increased approximately 5%.

Speaker Change: As a reminder, Q1, usually represents our highest level of operating expenses for the year due to several large commercial initiatives.

Speaker Change: Despite this the year over year increase was driven by the addition of Endo magnetics.

Speaker Change: Excluding <unk> operating expenses would have decreased two 3%.

First quarter operating margin finished at 29, 4%, representing an increase of 90 basis points.

Speaker Change: This operating margin expansion came primarily from drop through at a higher gross margin and good expense control.

Steve Macmillan: As Steve said.

Steve Macmillan: Leveraging the P&L to drive modest margin expansion from.

Steve Macmillan: And operating best in class levels.

Karleen Oberton: Strong EPS Growth Remains a Key Factor. below operating Other income net was a loss in our fiscal first quarter by slightly more than $4 million. This result was better than expected due to the benefit of our foreign exchange hedging program. As a reminder, this hedging program seeks to minimize the negative or positive bottom line impact of currency fluctuation. Finally, our tax rate in Q1 was 19.5% as of All together, net margin for the quarter was 23.4% Because we have tremendous confidence in our long-term future. We continue to bet on ourselves and use our balance sheet to enhance shareholder value.

Steve Macmillan: Strong EPS growth remains a key focus.

Steve Macmillan: Hello operating income.

Steve Macmillan: Other income net was a loss in our fiscal first quarter by slightly more than $4 million.

Steve Macmillan: This result was better than expected due to the benefit of our foreign exchange hedging program.

Steve Macmillan: As a reminder, this hedging program seeks to minimize the negative or positive bottom line impact of currency fluctuations.

Steve Macmillan: Finally, our tax rate in Q1 was 19, 5% as expected.

Steve Macmillan: Altogether net margin for the quarter was 23, 4%.

Steve Macmillan: Approximately flat to the prior year and very strong relative to our diagnostics and med Tech peers.

Steve Macmillan: Because we have tremendous confidence in our long term future.

Steve Macmillan: We continue to bet on ourselves and use our balance sheet to enhance shareholder value.

Karleen Oberton: In the first quarter, we repurchased 6.8 million shares for a total of $517 million. including the completion of the $250 million dollar ASR announced on our Q4. As a result, we brought our weighted average diluted share count down to $232 million. a decrease of 8 million shares compared to the prior year. All of this led to non-GAAP earnings per share of $1.03. which we were pleased to deliver at the high end of our guidance. Strong operating cash flow of $189 million in the first quarter. Our total is $2 billion in cash and investments on our balance sheet at the end of the quarter.

Steve Macmillan: In the first quarter, we repurchased six 8 million shares for a total of $517 million.

Steve Macmillan: Including the completion of the $250 million ASR announced on our Q4 earnings call.

Steve Macmillan: As a result, we brought our weighted average diluted share count down to 232 million.

Steve Macmillan: A decrease of 8 million shares compared to the prior year.

Steve Macmillan: This led to non-GAAP earnings per share of $1 <unk>.

Steve Macmillan: Which we were pleased to deliver at the high end of our guidance range.

Steve Macmillan: With strong operating cash flow of $189 million in the first quarter and 2 billion in cash and investments on our balance sheet at the end of the quarter. We are well positioned to continue to execute our capital deployment strategy to drive both top and bottom line growth.

Karleen Oberton: We are well positioned to continue to execute our capital deployment strategy. to drive both top and bottom line growth.

Karleen Oberton: Now let's move on to our updated non-GAAP financial guidance for the full fiscal year and for the second quarter. I'd like to start by acknowledging the dramatic shift in the geopolitical and macro environment since we first provided guidance in early November. As everyone knows, we are seeing an immediate impact from the new administration in the U.S. in terms of policy changes in a strengthening U.S. dollar. Entering the new calendar year, we also have greater visibility on our end market landscape for 2020. Combining these pieces together, we are using this opportunity to reset our financial expectations for the year.

Steve Macmillan: Now, let's move on to our updated non-GAAP financial guidance for the full fiscal year and for the second quarter.

Steve Macmillan: I'd like to start by acknowledging the dramatic shift in the geopolitical and macro environment. Since we first provided guidance in early November.

Steve Macmillan: As everyone knows we are seeing an immediate impact from the new administration in the U S.

Steve Macmillan: Both in terms of policy changes and a strengthening U S dollar.

Steve Macmillan: Entering the new calendar year, we also have greater visibility on our end market landscape by 2025.

Steve Macmillan: Combining these pieces together, we are using this opportunity to reset our financial expectations for the year.

Karleen Oberton: For the full year, we are lowering our revenue guidance range by $100 million. 4.05 $4.10 billion. But we are maintaining our non-gap EPS guidance of $4.25. $24.35 Our diagnostics and surgical businesses are performing well. We are adding roughly $25 million of Gynasonics revenue to our reported results. Positive developments are being offset by three factors. First, like everyone else, we have experienced a significant strengthening of the U.S. dollar since early November. We now expect FX to represent a headwind of $30 million for the full year. This represents a swing of more than $60 million from our original expectation.

Steve Macmillan: For the full year, we are lowering our revenue guidance range by $100 million.

Steve Macmillan: To 4.05 to $4 1 billion.

Steve Macmillan: But we are maintaining our non-GAAP EPS guidance of $4 25 to.

Steve Macmillan: To $4 35.

Steve Macmillan: Our diagnostics and surgical businesses are performing well and we are adding roughly $25 million of Guyana Sonics revenue to our reported results.

Steve Macmillan: However.

Steve Macmillan: These positive developments are being offset by three factors.

Steve Macmillan: First like everyone else, we have experienced a significant strengthening of the U S. Dollar since early November.

Steve Macmillan: We now expect FX to represent a headwind of $30 million for the full year.

Steve Macmillan: This represents a swing of more than $60 million from our original.

Steve Macmillan: <unk> expectations.

Karleen Oberton: which we are baking into our reduced guidance. Second, we are expecting lower sales of our breast health capital equipment for the year. as Essex D. We didn't have a clear picture of the gantry marks. led to two aggressive forecasts for 2020. Specially considering that our next generation gantry is still a ways off. Two potential policy changes in the new U.S. administration are introducing uncertainty in our business. The freeze on foreign aid has affected our main partner for HIV testing and development. The President's Emergency Plan for AIDS Relief, or PEPFAR. Although PEPFAR has been granted exemption based on the life-saving work they do, activities on the ground have still been disrupted.

Steve Macmillan: Which we are baking into our reduced guidance today.

Steve Macmillan: Second.

Steve Macmillan: We are expecting lower sales of our breast health capital equipment for the year.

Speaker Change: As Essex detail, we didn't have a clear picture of the gantry market, which led to too aggressive forecast by 2025.

Speaker Change: Considering that our next generation cancer is still a ways off.

Speaker Change: Alright.

Speaker Change: To potential policy changes and the new U S administration are introducing uncertainty in our business.

Speaker Change: First the freeze on foreign aid has affected our main partner for HIV testing and developing countries.

Speaker Change: The President's emergency plan for AIDS relief or PEPFAR.

Speaker Change: Although PEPFAR has been granted an exemption based on the lifesaving work they do.

Speaker Change: Activities on the ground has still been disrupted.

Karleen Oberton: This disruption could affect our revenue by as much as $30 million for the balance of our fiscal year. Second, contract manufacturers in Mexico make our skeletal and gynosonics products. So we could be subject to tariffs that lower our gross margins as we import them into the United States. Although these are relatively small pieces of our business and the tariffs have been delayed for now, we believe it is appropriate to risk-adjust our forecast. Despite these headwinds, we are maintaining our full year EPS guidance of $4.25 to $4.35. The strong financial discipline and capabilities we've established as an organization.

Speaker Change: This disruption could affect our revenue by as much as $30 million for the balance of our fiscal year.

Speaker Change: Second contract manufacturers in Mexico, make our skeletal and garner sonics products.

Speaker Change: We could be subject to tariffs that lower our gross margin as we import them into the United States.

Speaker Change: Although these are relatively small pieces of our businesses.

Speaker Change: In the tax code than the tariffs have been delayed for now we believe it is appropriate to risks risk adjust our forecast for the potential impact.

Speaker Change: Despite these headwinds we are maintaining our full year EPS guidance of $4 25 to $4 35.

Speaker Change: The strong financial discipline and capabilities, we've established as an organization.

Karleen Oberton: are enabling us to mitigate the bottom line impact of these. For the second quarter, we are expecting total revenues in the range of $995 million. to $1.005 billion. Including a $10 million FX head. and Non-Gas EPS in the range of $1 to $1.03.

Speaker Change: We are enabling us to mitigate the bottom line impact of these issues.

Speaker Change: For the.

Speaker Change: Quarter, we are expecting total revenues in the range of $995 million.

Speaker Change: The 1.005 billion <unk>.

Speaker Change: Including a $10 million FX headwind.

Speaker Change: And non-GAAP EPS in the range of $1 to $1 <unk>.

Karleen Oberton: Now let me provide some additional details that underpin our guide. In terms of quarterly pacing, we expect our revenue growth rate to improve in the third quarter and further in Q3. So we should exit the year above our long-term, mid-single-digit target on quarterly. In terms of the divisions, we expect diagnostics to grow mid-single digits for the year. Excluding the impact of declining COVID-19 sales. We continue to forecast that growth will be driven by strength in our molecular women's health assays in biotheranostics lab. for COVID-19. We expect assay sales to be about $9 million in the second quarter.

Speaker Change: Now let me provide some additional details that underpin our guidance.

In terms of quarterly pacing, we expect our revenue growth rate to improve in the third quarter and further in Q4.

Speaker Change: We should exit the year above our long term mid single digit target target on quarterly basis.

Speaker Change: In terms of the divisions, we expect diagnostics to grow mid single digits for the year, excluding the impact of declining COVID-19 sales.

Speaker Change: We continue to forecast that growth will be driven by strength in our molecular women's health assays and buyers. There are now six lab testing.

Speaker Change: But COVID-19 revenue.

Speaker Change: We expect assay sales to be about $9 million in the second quarter.

Karleen Oberton: Approximately $35 million for the full year. COVID related items are expected to be about $25 million in the second quarter, and approximately at 100 million for the Finally, in Diagnostics, we expect blood screening revenue of about $5 million in Q2 and about $20 million for the full year. As you know, both COVID related sales and blood screen revenue are backed out of our organic growth. Within Breast Health, as mentioned, we are lowering our expectations for the full year based on softer capital equipment. We now expect this business to decline in the low single digits for the full year, including endomagnetic.

Speaker Change: And approximately $35 million for the full year.

Speaker Change: Covid related items are expected to be about $25 million in the second quarter and approximately a $100 million for the year.

Speaker Change: Finally in diagnostics, we expect blood screening revenue of about $5 million in Q2.

Speaker Change: And about $20 million for the full year.

Speaker Change: As you know both COVID-19 related sales and blood screening revenue are backed out of our organic growth calculation.

Speaker Change: Within breast health as mentioned, we are lowering our expectations for the full year based on software capital equipment sales.

We now expect this business to decline in the low single digits for the full year, including Endo Magnetics.

Karleen Oberton: We do, however, expect revenue growth to build in the second half, with good year-over-year growth in Q4 as we exit our fiscal year. Lastly, in surgical, we expect high single-digit growth for the Unknown Attendee, Michael Ryskin, Andrew Cooper, Casey Woodring, Daniel Leonard, Ryan Simon, Derik Bruin, Max Masucci, Essex Mitchell, Hologic Inc In our core surgical business, we expect ROTH to be powered by internationals with contributions in the U.S. from MyoShore. Moving to the rest of the P&L, we expect growth margin in the low 60s for the full year. We anticipate growth margins to step up in the second half with higher sales.

Speaker Change: We do however expect revenue growth to build in the second half with good year over year growth in Q4, as we exit our fiscal year.

Speaker Change: Lastly in surgical we expect high single digit growth for the year.

Speaker Change: Inclusion of Ghana Sonics in our results for the.

Speaker Change: Three quarters.

Speaker Change: And our core surgical business, we expect growth to be powered by international with contributions in the U S from Ashwin fluid.

Speaker Change: Moving to the rest of the P&L, we expect gross margin in the low <unk> for the full year.

Speaker Change: We anticipate gross margins to step up in the second half with higher sales the.

Karleen Oberton: The Elimination of Redundant Manufacturing Facilities in Embrassed Health in Direct Sales and Endometriosis. Operating margin, we're expecting to be in the low 30s for the full year. http://www.fema.gov Below operating income, we estimate other income net to be an expense of $10 to $15 million in Q2. in an expense between $40 and $45 million for the full fiscal year. Our effective tax rate of approximately 19.5% for the full year remains unchanged from our prior guidance. To reflect the share repurchase activity we completed in Q1, diluted shares outstanding are expected to be approximately $230 million for the full year.

Speaker Change: The elimination of redundant manufacturing facilities and in breast health and direct sales in endometriosis.

Speaker Change: Our operating margin, we're expecting to be in the low thirties for the full year with steady margin expansion as we move through the year.

Speaker Change: Below operating income we estimate other income net to be an expense of $10 million to $15 million in Q2.

Speaker Change: And in expense between 40% and $45 million for the full fiscal year.

Speaker Change: Our effective tax rate of approximately 19, 5% for the full year remains unchanged from our prior guidance.

Speaker Change: To reflect the share repurchase activity. We completed in Q1 diluted shares outstanding are expected to be approximately $230 million for the full year.

Karleen Oberton: To conclude, our financial discipline and strength have us in a position to meet our EPS commitments even in a year where we're seeing pressures on the top line. We believe these pressures are largely transitory in nature. and we expect top-line growth to be healthy as we exit the year. We feel great about the long-term outlook for each of our divisions, driven by our ability to retain and grow our market-leading positions, while continuing to add new growth drivers through internal innovation and business development.

Speaker Change: To conclude our financial discipline and strength have us in a position to meet our EPS commitments, even where we're seeing pressure on the top line.

Speaker Change: We believe these pressures are largely transitory in nature, and we expect top line growth to be healthy as we exit the year.

Speaker Change: We feel great about the long term outlook for each of our divisions, driven by our ability to retain and grow our market leading positions, while continuing to add new growth drivers through internal innovation and business development.

Operator: With that, we ask the operator to open the call. Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Please limit yourself to one question with one follow-up. Again, press star 1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal.

Speaker Change: With that we ask the operator to open the call for questions.

Speaker Change: Thank you if you are dialed in via the telephone and we'd like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker Change: If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Speaker Change: Please limit yourself to one question with one follow up.

Speaker Change: Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal.

Patrick Donnelly: We'll take our first question from Patrick Donnelly with Citi. Hey, guys. Thank you for taking the questions. Steve, maybe starting on the gantry side, not surprisingly. You've obviously lived through a lot of different capex cycles on the hospital side.

Speaker Change: We will take our first question from Patrick Donnelly with Citi.

Patrick Donnelly: Hey, guys. Thank you for taking the questions.

Speaker Change: Steve maybe starting on the gantry side not surprisingly.

Speaker Change: You've obviously moved through a lot of different capex cycle on the hospital side, maybe just take us through what Youre seeing there how much of it.

Steve Macmillan: Maybe just take us through what you're seeing there, how much of it is again, maybe a little bit of a pause before the product launch, just the right way to think about that piece as that number came down a little bit. Just wanted to talk through that. Yeah, Patrick, great, great one. Let me try to put it in context. I think where we really, frankly, missed the boat a little bit was when we had three quarters in a row of 27% plus breast health growth growth in the late 23 and into early 24 period. You know, that was really a bolus that made the market bigger during that time period than what the long term trend is.

Speaker Change: Maybe a little bit of a pause before the product launch just the right way to think about that piece of it is that number came down a little bit just wanted to talk through that.

Patrick Donnelly: Yeah, Patrick Great, great well I want to try to put into context, I think where we really frankly missed the boat a little bit was when we had three quarters in a row of 27% plus breast health growth growth in the late 'twenty three and into early 'twenty four period.

Patrick Donnelly: That was really a bolus that made the market bigger during that time period than what the long term trend is it's a little bit like even surgical had a couple of great quarters coming out of Covid and breast health had the same thing coming out of chips. So we had that year 'twenty three we grew at 17%.

Steve Macmillan: It's a little bit like even surgical had a couple of great quarters coming out of COVID. And breast health had the same thing coming out of CHIP. So we had that year, you know, 23, we grew at 17% plus for the full year, grew another 6% on top of that last year. And I think instead of really going back and looking at the longer term trend of the market, we were just building on top of that. So the long term trend of the market is clearly below what it was in 2023. Now, I think what we're seeing this particular year is the total market, therefore, is probably going to be down a little bit, just as we saw in some of the other businesses kind of post COVID.

Patrick Donnelly: Plus for the full year grew another 6% on top of that last year, and I think instead of really going back and looking at the longer term trend of the market. We were just building on top of that so the long term trend of the market is clearly below what it was in 2023 now I think what.

Patrick Donnelly: We're seeing this particular year is the total market. Therefore is probably going to be down a little bit just as we saw in some of the other businesses kind of post Covid, we'll see the same for chips combined with the fact that we've got a new gantry on deck.

Steve Macmillan: We'll see the same for CHIPS, combined with the fact that we've got a new gantry on deck. So I think the positives we look at it is probably going to be a down market this year for the overall market globally. But we've got something on the horizon that I think will both reaccelerate the market in 26. As well as reaccelerate our So that hopefully frames it in some good context. I think it's more cyclical, clearly. And you know that we've got a long track record of being able to call out either cyclical or structural issues, usually with pretty good accuracy.

Patrick Donnelly: So I think the positives we look at it is it's probably going to be a down market. This year for the overall market globally.

Patrick Donnelly: But we've got something on the horizon that I think we're both reaccelerate the market in 2006 as well as Reaccelerate our business, so that hopefully frames it.

Patrick Donnelly: And some good context, I think it's more cyclical clearly and you know that.

Patrick Donnelly: We've got a long track record of being able to call out either cyclical or structural.

Patrick Donnelly: Issues, usually with pretty good accuracy. So I think this one is very clearly a little cyclical.

Steve Macmillan: So I think this one is very clearly.

Steve Macmillan: Okay, that's helpful.

Unknown Attendee: And then maybe one on the diagnostic side, you know, helpful to have some more color in the script there on just what you're seeing. On the competitive side, you know, we get some questions there, clearly we do as well.

Speaker Change: Okay. That's helpful. And then maybe one on the diagnostic side hopeful perhaps some more color in the script, there or just what youre seeing on the competitive side, we get some questions. There clearly you do as well any changes there, whether it's <unk> or other parts of the portfolio that the competitive landscape has changed at all.

Unknown Attendee: Any changes there, whether it's BDC-DCV or other parts of the portfolio that the competitive landscape has changed at all?

Steve Macmillan: And then just curious, when you think about the growth outlook there, you know, the key things in the pipeline we should be focusing on that could supplement the growth as we move forward here. Thanks, Luke. several questions into your one follow-up. how excited we are about our diagnostics. And, you know, what we said when we went into COVID by placing all the Panthers around the world, and even as we saw the ups and downs, you know, as Omicron, Delta, everything else was hitting, we just systematically got stronger in terms of our Panther placement.

Speaker Change: And then just curious when you think about the growth outlook there the key things in the pipeline, we should be focusing on.

Speaker Change: Could supplement the growth as we move forward here.

Good job Patrick working several questions into your one follow up.

Speaker Change: Kudos to you so hey high level I can't tell you how excited we are about our diagnostics business and what we said when we went into COVID-19 by placing all the Panthers around the world and even as we saw the ups and downs.

Speaker Change: As <unk> Delta everything else was hitting we just systematically got stronger in terms of our Panther placements.

Steve Macmillan: and then rolling out the menu of particularly BVCV where we've rolled out a new assay and then we've created the market and we're still, as Essex mentioned, we're still in the mid-innings at most as it relates to the BVCV opportunity and I think when you look at our molecular business then you add in biothermostics, I don't think I've ever been more excited about where this diagnostics business is going particularly in a world where there's a lot of noise as you well know in the diagnostic space right now and you know the way we try to look at it is that core molecular lab channel are we winning or losing and we feel really good about our position as we as we build out from there and you know then we've still got the international opportunities on top of it all and still a lot of growth in biothermostics as well.

Speaker Change: And then rolling out the menu, particularly bvc, the where we've rolled out a new assay and then we've created the market and we're still as <unk> mentioned, we're still in that mid innings at most as it relates to the BDC the opportunity and I think when you look at our molecular business.

Speaker Change: Then you add in <unk> I don't think I've ever been more excited about where this diagnostics business is going particularly in a world where there's a lot of noise as you well know in the diagnostic space right now and the way we try to look at it is that core molecular lab channel.

Speaker Change: Are we winning or losing and we feel really good about our position as we are as we build out from there.

Speaker Change: And then we stood at the international opportunities on top of it all and still a lot of growth in <unk> as well. So yeah I would just add on to that as far as you know what.

Anthony Petrone: I would just add on to that as far as you know what I'll call our special sauce in our molecular diagnostics physician sales force where we really partner with our lab customers to promote guidelines and I think as we said in our prepared remarks we're just starting that now with BVCV so that's what gives us confidence that there's still runway for growth for that newer We'll move to our next question from Anthony Petrone with Mizuho Group.

Speaker Change: What I will call our special sauce in our molecular diagnostics, our physician sales force, where we really partner with our lab customers to promote guidelines and I think as we said in our prepared remarks, we're just starting that now with <unk>. So that's what gives us confidence that there's still runway for growth for that that newer assay.

Speaker Change: Well move to our next question from Anthony Petrone with Mizuho group.

Unknown Attendee: Thanks and welcome back Mike. Nice to hear your voice. Maybe a high level one just you know for the long term sort of medium term financial outlook.

Speaker Change: Okay.

Speaker Change: Welcome back Mike Nice nice to hear your voice.

Speaker Change: A high level one.

Speaker Change: For the long term sort of medium term financial outlook meant Steve <unk>.

Steve Macmillan: I mean Steve and or Essex, you know when you think about that that mid single digit sort of profile I think you know we look at the last time that range was out there was five to seven percent and we're trending here obviously in the low single digits right now we're in the low point of a cyclical gantry cycle here you know what what sort of gets you back to five to seven percent how long do you think that that will take and what amount of that it will come organically versus inorganically and then quickly just on the second one diagnostics you know late last year you had h5n1 bird flu development with CDC it sounds like that actually could be an assay this year is that something we should expect thanks again Great, Anthony.

Speaker Change: When you think about that that mid single digit sort of profile I think when we look at the last time that range was out there was 5% to 7%.

Speaker Change: We're trending here, obviously in the low single digits right now.

Speaker Change: We're in the low point of a cyclical gantries side.

Speaker Change: Cycle here.

Speaker Change: What sort of gets you back to 5% to 7% how long do you think that will take and what amount of that will come organically versus Inorganically and then quickly just on the second one diagnostics late last year you had.

Speaker Change: H five N one bird flu development with CDC.

Speaker Change: It sounds like that actually could be an assay. This year is that something we should expect thanks again.

Steve Macmillan: Yeah, I think, you know, the highest level, I kind of laugh a little bit in that, as you'll recall, we put out the five to seven for a three year window, the 23, 24, 25 window. In our very first year, you know, we promptly delivered about 17% organic growth in that year. And then everybody was challenging us to raise that number. And effectively, what we're really saying is, we're mid single digits. And, you know, this year, right, frankly, just for a few quarters, we think we're below it, not, you know, it'll for the full year to be below that.

Anthony Petrone: Great Anthony Yeah, I think the highest level.

Speaker Change: I kind of laugh a little bit in that as you will recall, we put out the five to seven for a three year window. The 'twenty three 'twenty four 'twenty five window.

Anthony Petrone: Our very first year.

Properly delivered about 17%.

Anthony Petrone: Organic growth in that year than everybody was challenging as too.

Anthony Petrone: Raise that number and effectively what we're really saying is we're mid single digits and.

Anthony Petrone: This year frankly, just for a few quarters, we think we're below it.

Anthony Petrone: For the full year to be below that but just as it was way above.

Steve Macmillan: But just as it was way above, you know, we said we weren't that good. We're also not, not as bad in a cyclical period where we're recovering from the, you know, frankly, a lot of those big comps. So what gives us excitement going forward really is each franchise, right? The surgical business keeps strengthening and the addition of gynosonics, the international expansion there is looking great. Our diagnostics business, as we've said, is great. By the way, we'd love to view that H1N1 is going to be anything. I probably put this one in my world, kind of like the Zika virus.

We said, we werent that good we're also not not as bad in a cyclical period, where we're recovering from the frankly a lot of the big comps. So what gives us excitement going forward really is each franchise right. The surgical business keeps strengthening and the addition of Guyana Sonics. The international expansion there is looking great or.

Anthony Petrone: Diagnostics business as we've said is great by the way, we'd love to give you that H, one and one is going to be anything.

Anthony Petrone: I probably put this one in my world kind of like the Zika virus. We did we're always there for the government and for the CDC to be one of the quickest to develop any of these and even as we did in COVID-19 right at the beginning we didn't know if it would amount to anything obviously that would amount to something very big.

Steve Macmillan: We've, we're always there for the government and for the CDC to be one of the quickest to develop any of these. And even as we did in COVID, right at the beginning, we didn't know if it would amount to anything. Obviously, that would amount to something very big. I wouldn't assume a lot for H1N1, if that came, that would be upside, you know, to our, to our business.

Anthony Petrone: I wouldn't assume a lot for H one N. One if that came that would be upside.

Doug Schenkel: And then the breast health business, as we continue to build out the disposable side of the business, the interventional side with things like endomagnetics, and then as the new gantry kicks in next year, I think that gets us back very solidly into our longer You know consistent trajectory in that mid-single range of top-line growth Thank you We'll move to our next question from Doug Schenkel with Wolf Research. Hey, good afternoon, everybody. And thank you for taking my questions. Two that I'd like to touch on.

Anthony Petrone: To our to our business and then the breast health business as we continue to build out the disposable side of the business interventional side with things like Endo Magnetics, and then as the new gantry kicks in next year I think that gets us back very solidly into our longer term.

Anthony Petrone: Consistent trajectory in that mid single range of topline growth.

Anthony Petrone: Thank you.

Speaker Change: Well move to our next question from Doug Schenkel with Wolfe Research.

Doug Schenkel: Hey, good afternoon, everybody and thank you for taking my questions.

Doug Schenkel: One is, it's just a little bit unclear to me how much of the change in your assumption that you've embedded into guidance for breast health as a function of market conditions versus a reassessment of the impact of market stalling in advance of the new gantry launch. If it's more stalling, that might lead to a big acceleration in revenue growth down the line. If it's the market, that's something else. So could you just provide a little more color there?

Doug Schenkel: To that I'd like to touch on one is it's just a little bit unclear to me how much of the change in euro assumption.

Doug Schenkel: That you've embedded into guidance for breast health as a function of market conditions versus a reassessment of the.

Doug Schenkel: The impact of market stalling in advance of the new gantry launch.

Speaker Change: It's more stalling that might lead to a big acceleration in revenue growth down the line. If it's a market that's something else. So could you just provide a little more color. There and then the second topic is really M&A in your prepared remarks, you talked about the importance of M&A as part of the long term.

Steve Macmillan: And then the second topic is really M&A and your prepared remarks. You talked about the importance of M&A as part of the long-term strategy. Can you just provide any updated thoughts on one, the environment given the new administration and two, what parameters you're using and assessing potential targets, revenue growth, margins, accretion, ROIC? Thank you. Great. I'll start with the breadth comments here. So I do think we tried to outline that it is a blend of both market conditions and, given our high market share, our new launch, slowing the market down. But if I had to weight it, I would say market conditions are the bigger impact.

Speaker Change: Strategy could you just provide any updated thoughts on one the environment given the new administration and to what parameters you're using in assessing potential targets revenue growth margins accretion ROIC Jay Thank you.

Speaker Change: Great I'll start with the breast comments here so.

Speaker Change: I do think we tried to outline that it is a blend of both market conditions and.

Speaker Change: Given our high market share our new launch.

Speaker Change: Slowing the market down, but if you had to weighted I would say market conditions are.

Speaker Change: The bigger impact and so that does give us confidence about our future moving forward and do expect this business to accelerate as we exited the year moving forward. The big thing I would say that if you think about coming out of the chip shortage with a significant amount of pent up demand.

Steve Macmillan: And so that does give us confidence about our future moving forward and do expect this business to accelerate as we exit the year moving forward. The big thing I would say is that if you think about coming out of the chip shortage with a significant amount of pinned up demand, we got through a ton of that, I would say, over the 23 and 24 time period. In addition to that... As we've seen other areas of acceleration, those were driven by large, Innovation Advances Primarily Driven by Us. So when you saw going from the 2D to the 3D market, that was a huge catalyst, not only in a technological advance, but also with regard to reimbursement and a number of other factors that helped physicians and caregivers.

Speaker Change: We got through a ton of that I would say.

Speaker Change: Over the 'twenty three 'twenty four time period in addition to that.

Speaker Change: As we've seen other areas of acceleration those were driven by large.

Speaker Change: Innovation advances, primarily driven by us so when you saw going from the two the two to three D market that was a huge catalyst not only in the technological advance, but also with regards to reimbursement in a number of factors that helps physicians and caregivers.

Steve Macmillan: So as we look at a technological advance coming up here, I would say from us early in 26, we do believe that has an impact. But largely, I think the chip shortage rebound is playing a bigger impact on the flow year this year with. with the breast business. So, you know, I still would say it's both. But if I had to lean one way or another, I would tell you that it's a bigger impact on the market.

Speaker Change: As we as we look at a technical logical events coming up here I would say from US early in 'twenty six we do believe that it has an impact but largely I think the chip shortage rebound is playing a bigger impact on the slower year this year with.

Speaker Change: With the breast business. So you know I still would say, it's both but if I had to lean one way or another I would tell you that it's a bigger impact on the market and I'll, probably start with the M&A and ticket.

Steve Macmillan: And I'll probably start with the M&A and then kick it to Karleen. And I would say our capital allocation strategy is M&A first. And obviously, anything we can do to help the bottom line, if needed, We have the luxury of being able to do both. I think if you look at our most recent acquisitions of endomagnetics and gynotonics, that's right in the wheelhouse of what we would like to continue to do. Nice size, on-market products that we can grow at a top line, at a creative rate to our core growth rate is exactly the place we'd like to be.

Speaker Change: <unk> and <unk>.

Speaker Change: I would say our capital allocation strategy is M&A first and obviously anything we can do to help the bottom line if needed.

The luxury of being able to do both.

Speaker Change: If you look at our most recent acquisitions.

Speaker Change: Endo Magnetics and <unk>, that's right in the wheelhouse of what we would like to continue to do.

Speaker Change: Nice size on market products that we can grow at.

Speaker Change: Topline at an accretive rate to our core growth rate is exactly the place we'd like to be yes, and just to build off of that when we look at financial metrics. It clearly starts with the revenue we were looking at assets that are accretive to the growth rate.

Karleen Oberton: Yeah, and just to build off of that, when we look at financial metrics, it clearly starts with the revenue. We were looking at assets that are accretive to the growth rate. You know, we're looking at things that, you know, hopefully have a gross margin that is at the corporate average or maybe accretive. And like we've seen with the Gynasonics, sometimes they're going to be dilutive on the bottom line, but I think we've got the flexibility to manage that. And then I think over the longer term, we look for, you know, a double-digit ROIC within a reasonable timeframe in terms of return on that investment.

Speaker Change: We're looking at things that.

Speaker Change: Hopefully I have a gross margin that is at the corporate average or maybe accretive and like we've seen with Ghana, Sonics, sometimes theyre going to be dilutive on the bottom line, but I think we've got the flexibility to manage that and I think over the longer term, we look for a double digit ROIC within a reasonable timeframe.

Speaker Change: In terms of return on that investment so and I think if you look at both Endo magnetics and garner stocks they played nicely within that framework.

Karleen Oberton: And I think if you look at both Endomagnetics and Gynasonics, they played nicely within that balance.

Unknown Attendee: Thank you again. We'll move to our next question from Vijay Kumar with Evercore ISI. Hi guys. Thanks for taking my question, Steve. A couple of guidance-related questions here. One on breast, I think breast health, the guidance here, is the organic for the segment assuming down midsingles, Steve? I thought I heard you say the year-on-year declines includes the acquisitions, so I guess the organic implied is down midsingles. Is that right? And I guess looking at Q1, why wouldn't trends improve from Q1? Yes, so you are right that that the organic would be closer to a mid-single-digit decline year-over-year.

Speaker Change: Thank you again.

Speaker Change: We'll move to our next question from Vijay Kumar with Evercore ISI.

Vijay Kumar: Hey, guys. Thanks for taking my question Steve.

Speaker Change: A couple of thoughts.

Speaker Change: Thanks for taking my questions, Steve a couple of guidance related questions here.

Speaker Change: One breast I think breast health.

Speaker Change: The guidance here is the organic for the segment assuming down mid singles, Steve I thought I heard you say.

Speaker Change: The year on year declines includes the acquisitions I guess the organic implied is down mid singles is that right.

Speaker Change: I guess.

Speaker Change: Looking at Q1, why it wouldn't.

Speaker Change: <unk>.

Speaker Change: Trends improved from Q1.

Speaker Change: Yes, So you are right that.

Speaker Change: That the organic would be closer to a mid single digit decline year over year.

Vijay Kumar: You know, and I think as we think about sequentially Q1 to Q2, we're looking at a similar performance, Q1 to Q2, in terms of absolute dollars. I think we're looking for improvement into Q3 and into Q4, and I think we specifically said Q4 would have a nice growth rate as we exited.

Speaker Change: And I think as we think about it.

Speaker Change: <unk> Q1 to Q2.

Speaker Change: But looking at a similar performance Q1 to Q2 in terms of absolute dollars.

Speaker Change: I think we're looking for improvement into Q3 and into Q4 and I think we specifically said Q4 would have a nice growth rate as we exited the year.

Karleen Oberton: Mr. and Karleen, maybe to follow up on a similar question on the surgical franchise, I think the high singles includes Dynasonic, so excluding the acquisition, I think it's pointing to low singles growth. I guess Q1 was impacted by a fluid shortage, right? Shouldn't that go away and numbers improve if, you know, GYN was up low singles, shouldn't that be mid to high singles in the back half? So what I would say is as we did see the impact of the IV fluid shortage in Q1 resolved as we exit the quarter. As we think about Q2, think about Q2 as always a step back from Q1 given the reset of deductibles and then we'll have improving growth rates in the back half of the year and certainly as we add gynosonics into that equation.

Speaker Change: Mr. Encouraging maybe follow up on a similar question on <unk>.

Speaker Change: The surgical franchise I think the high singles includes Guy.

Speaker Change: <unk>, excluding the acquisition I think point to low singles growth.

Speaker Change: I guess Q1 was impacted by by fluid shorter trade Shouldnt that go away in <unk>.

Speaker Change: Numbers improve.

Speaker Change: Joanne was up low singles Shouldnt that be mid to high singles in the back half.

Speaker Change: So what I would say is as we did see the impact of the IV fluid charge in Q1.

Speaker Change: With all that as we exited the quarter as we think about Q2 think about Q2 at all we just step back from Q1, given the reset of deductibles and then we will have improving growth rates in the back half of the year and certainly as we add <unk> into that equation, but.

Karleen Oberton: But I think we've provided the guidance with gynosonics for what we...

Speaker Change: I think we've provided the guidance on with Ghana, Sonic So what we expect for growth.

Tycho Peterson: We'll move to our next question from Tycho Peterson with Jeffreys. Hey, good afternoon.

Speaker Change: Well move to our next question from Tycho Peterson with Jefferies.

Steve Macmillan: Steve, just curious, you know, given your exposure to screening, so just curious, given your, you know, exposure across the portfolio to screening, you know, breast, diagnostic, skeletal, just thoughts on USPSTF, you know, given the Braidwood case, what should we be thinking about here? What have you kind of factored in as you think about guidance for the year? Yeah, we don't expect a big impact from that. At the end of the day, we feel really good about the products that we're providing are meaningful for both patients, and frankly, ones that insurers will want to continue to, to take care of.

Speaker Change: Hey.

Tycho Peterson: Good afternoon, Steve just curious given your exposure to screen.

Speaker Change: I'm sorry go ahead.

Speaker Change: So just curious given your exposure across the portfolio to screening breast diagnostic skeletal just thoughts on USPS TF given the Braidwood case.

Speaker Change: What should we be thinking about here what have you kind of factored in as you think about guidance for the year.

Speaker Change: Yeah, we don't expect a big impact from that at the end of the day, we feel really good about the products that we're providing are meaningful for both patients and frankly ones that insurers will want to continue to.

Steve Macmillan: So I think of all the the stuff we have going on, we're not worried about that and feel very good All right, and then follow up on just Panther utilization, I guess, how should we be thinking about utilization growth in the next, call it five years? Can you kind of double utilization while holding the install base flat? And, you know, what should we be thinking about for the next leg of growth beyond STIs, which, you know, have been putting up great growth, but how do we think about kind of further menu expansion? Yeah, I think the part that we feel great about, both for Panthers is whether it would double on the existing base, that might be a little aggressive, but there's significant opportunity without needing to place them, which is a capital placement.

Speaker Change: To take care of so I think of all the.

Speaker Change: The stuff we have going on.

Speaker Change: Not worried about that and feel very good about where it will be.

Speaker Change: Alright, and then follow up on Panther utilization I guess, how should we be thinking about utilization growth in the next call. It five years can you kind of double utilization, while holding the installed base flat and you know what should we be thinking about for the next leg of growth beyond stis.

Speaker Change: I have been putting up great growth, but how do we think about kind of further menu expansion.

Speaker Change: Yes, I think the part that we feel great about both for Panthers is whether it would double on the existing base that might be a little aggressive, but there is significant opportunity without needing to place them, which is a capital placement and similarly, frankly, our capacity to manufacture.

Steve Macmillan: And similarly, frankly, our capacity to manufacture, because of all the expansions we did during COVID, our need for capex and things like that are very low. So the, you know, on the margin, the ability to expand as we bring more menu. And really, that menu is going to largely be as we expand the Panther fusion sidecar. And I think fusion is not getting as much attention, probably as, as it deserves, because that's really opens up the dramatic opportunity for our PCR assays, which are cheaper to produce, or, you know, cheaper to bring to market faster.

Speaker Change: <unk> because of all the expansions we did during COVID-19.

Speaker Change: Our need for Capex and things like that are very low so the on the margin and the ability to expand as we bring more menu and really that menu is going to largely be as we expand the panther fusion sidecar and I think fusions not getting as much attention probably is.

Speaker Change: As it deserved because thats really opens up.

Speaker Change: The dramatic opportunity for our PCR assays, which are cheaper to produce or cheaper to bring to market faster.

Steve Macmillan: And things like our GI and other things that we coming down the road, will be on that. So the magic is we've got this incredible installed base. that we really can build on. through both Fusion and the additional menus. So I think, you know, we've got. multiple, multiple years of opportunities ahead.

Speaker Change: And things like our Gi and other things that will be coming down the road well beyond that so the magic is we've got this incredible installed base.

That we really can build on.

Speaker Change: Through both fusion and the additional menu. So I think we've got.

Speaker Change: Multiple multiple years of opportunities ahead of us here.

Casey Woodring: We'll move to our next question from Casey Woodring with J.P. Morgan. Great, thank you for taking my questions. So on Breast, can you break out performance in the quarter between U.S. and international customers?

Speaker Change: Well move to our next question from Casey Woodring with J P. Morgan.

Casey Woodring: Great. Thank you for taking my questions.

Casey Woodring: So on <unk> can you break out performance in the quarter between U S and international customers you mentioned the international opportunity as a growth driver in the past, but you know today, you've kind of talked about some budget constraints. Some customers abroad. So wondering how much of an impact you're seeing from that dynamic and the visibility into that improving over the course of the year.

Essex Mitchell: You mentioned the international opportunity as a growth driver in the past, but, you know, today, you kind of talked about some budget constraints from customers abroad, so wondering how much of an impact you're seeing from that dynamic and the visibility into that improving over the course of the year. And I have one follow-up. Yeah, sure, so when we look at the performance of the Breast business, we had declines both in the U.S. and international, and both were, you know, in the mid-single digits, probably a little higher decline in international. Yeah, I think it's that same issue of just...

Casey Woodring: I'll follow up.

Casey Woodring: Yeah sure. So when we look at the performance of the breast business.

Casey Woodring: We had declined both in the U S and international and both were in the mid single digits, probably a little higher decline internationally.

Casey Woodring: Yes, I think it's the same issue.

Essex Mitchell: much slower market right now. Got it. Okay, that's helpful.

Casey Woodring: Much slower market right now.

Casey Woodring: Got it Okay. That's helpful and then.

Essex Mitchell: And then, you know, at our conference, you mentioned that part of the reason you're launching the new gantry in 2026, instead of earlier is that you're consolidating manufacturing to one facility in breast. Just curious on timing there and the potential margin benefit. You know, once the consolidation is finished, and the next gen gantry is, is, is launched and ramped. Thank you. Yeah, so I think we're on track with the facility, with the consolidation, so expect that the facility will not be a holdup as we get into 26. I think in terms of margin, while we will have benefit from consolidation of the facility, and probably a little higher AFP on the new gantry, we do have actually higher costs if you think about one of the components of that new gantry is that the ability for the arm to move forward.

At our conference you mentioned that part of the reason you're launching the new gantry in 2026 instead of earlier is that youre consolidating manufacturing into one facility and breath, just curious on timing there and the potential margin benefit.

Casey Woodring: Once the consolidation is finished in the next Gen Gantries.

Casey Woodring: Is that is launched and ramp thank.

Casey Woodring: Thank you.

Speaker Change: Yeah. So I think we're on track with the facility with the consolidation.

Speaker Change: We expect that this facility will not be a hold up as we get into 'twenty six I think in terms of margin, while we will have benefit from consolidation of the facility.

Speaker Change: Probably a little higher asps on the new gantry, we do have actually higher cost. If you think about one of the components of that new gantry is that the ability for the move forward. So I wouldnt expect a dramatic change in the margin profile I think they all kind of note at the end of the day.

Essex Mitchell: So I wouldn't expect a dramatic change in the margin profile. I think they all kind of net out at the end of the day.

Tejas Savant: We'll move to our next question from Tejas Savant with Morgan Stanley.

Speaker Change: Well move to our next question from <unk> <unk> with Morgan Stanley.

Tejas Savant: Hey guys, good evening. Just a couple of cleanups on the gantry side of things, Steve. So, you know, I know you've talked about an upgrade pathway on existing gantry sales. Can you just provide some context on, you know, the degree to which that's, you know, unlocking some conversations for you? Or is it really not sort of making much of a dent pending the new gantry launch? And then, you know, given the leadership changes and conversation sort of adjustments that you've made on breast health performance, how should we think about, you know, the lessons to be learned here?

Speaker Change: Hey, guys good evening.

Speaker Change: Just a couple of clean ups on on the gantry side of things Steve So.

Speaker Change: You've talked about an upgrade pathway on existing gantry sales can you just provide some context on.

Speaker Change: The degree to which that.

Speaker Change: Unlocking some conversations for you or is it really not sort of making much of a dent spending the new gantry launch and then.

Speaker Change: Given the leadership changes in compensation sort of adjustments that you've made on breast health performance.

Speaker Change: How should we think about you know the lessons to be learned here I mean, obviously you talked about.

Steve Macmillan: I mean, obviously, you talked about, you know, perhaps assuming a greater quantum of growth. But beyond that, operationally, are there any other lessons that you'll take away from, you know, the lowering of the growth forecast here on the gantry side of things? Yeah, I think the the discussions for Envision, I think from our leading customers, there's a lot of So, I think we feel great about, you know, we've been the innovators in this space. We've been the pioneers, we've been on the leading edge, continue to feel very good about being in that continued position. I think we did, we probably just got a little over eager about the market growth rates and didn't look back hard enough to realize what we actually had was a bolus.

Perhaps assuming a greater quantum of growth, but beyond that operationally are there any other lessons that you will take away from the lowering of the growth forecasts tiara began pre side of things.

Speaker Change: Yes, I think.

Speaker Change: The discussions for envision I think from our leading customers. There is a lot of excitement. So I think we feel great about we've been the innovators in this space.

Speaker Change: We've been the pioneers had been on the leading edge continue to feel very good about being in that continued position I think we did we probably just got a little over eager.

Speaker Change: The market growth rates and didn't look back hard enough to realize what we actually had was a bullish.

Steve Macmillan: in 23 and beginning of 24, as opposed to a long term trend. You know, we were way above that long term trend. More gantries were placed in those quarters than are typical. And I think we had, you know, some questions. I remember Karleen actually challenging the team a little bit. I think we were just a little too optimistic in that division of thinking about it. And, you know, I probably didn't go as deep as I should have in completely challenging the underlying assumption of the market growth rate. So, you know, it's a quick lesson learned, a little bit of a misstep there, and we'll right back on.

Speaker Change: In 'twenty, three and beginning of 'twenty four as opposed to a long term trend we were way above that long term trend more gantries were placed in those quarters than our typical and I think we had some questions around mcerlean actually challenging the team a little bit I think we were just a little too.

Speaker Change: Optimistic.

Speaker Change: In that division of thinking about it and I probably.

Speaker Change: We didn't go as deep as I should have in completely challenging the underlying assumption of the market growth rates. So.

Speaker Change: It's a quick lesson learned a little bit of a.

Speaker Change: A misstep there and we're right back on track.

Steve Macmillan: And yeah, I will tell you feel really, really good about the new leadership that Essex has put into that business. A new division president, new head of sales, and I think a deeper level of rigor. analytics and flyer and what we had probably coming out of the chip. Got it.

Speaker Change: And yes, I will tell you I feel really really good about the new leadership that Essex has put into that business.

Speaker Change: Our new Division President New head of sales and I think a deeper level of rigor.

Speaker Change: Analytics and fire.

Speaker Change: Then what we had probably coming out of the chip shortage.

Karleen Oberton: That's helpful.

Speaker Change: I think we just got it that's helpful. And then maybe one for you carlene just to clean up on the tariff side of things I. Appreciate the color on Mexico as it relates to guidance Onyx and skeletal but at a high level given given the shifting headlines from one day to the next how much of <unk>.

Karleen Oberton: And then maybe one for you, Karleen, just to clean up on the tariff side of things, you know, appreciate the color on Mexico as it relates to gynosonics and skeletal, but at a high level, you know, given the shifting headlines, you know, from one day to the next, how much of Hologic's OUS revenue is made in the U.S. and how much of, you know, U.S. revenue is dependent on manufacturing overseas at the portfolio level? You know, obviously, you've talked about Canada and Mexico exposure as being pretty minimal. You don't sell much in China. So just any color at the portfolio level would be great.

Speaker Change: Revenue is made in the U S and how much of you know.

Speaker Change: U S revenue was dependent on manufacturing we received at the portfolio level.

Speaker Change: Obviously, you've talked about Canada, and Mexico exposure as being pretty minimal you don't sell much in China. So just any any color at the portfolio level would be great.

Karleen Oberton: Yeah, sure. Our biggest exposure would be related to our manufacturing in Costa Rica. We manufacture all of our surgical products except for gynosonics in Costa Rica, and substantially all of our disposable breast health products are in Costa Rica. So if there was a tariff imposed there, that would be the most significant challenge to us. I think the tariffs that have been talked about right now, Mexico is the one that would, if it was enacted, would impact us, but not terribly significantly, but we did want to call it. Overall, I think we're in a really good position in so many ways in that Effectively, all of our gantries and most of our molecular diagnostics are all made in the United States.

Speaker Change: Sure our biggest exposure I wouldn't be related to our manufacturing Costa Rica, we manufacture all of our surgical products, except Ferghana Sonics, and Costa Rica, and substantially all of our disposal of breast health products in Costa Rica. So if there was a path.

Speaker Change: Imposed there that would be the most significant challenge to us I think the tariffs that have been talked about right now Mexico is the one that would.

Speaker Change: Enacted would impact us, but not terribly significantly, but we did want to call it out.

Speaker Change: And overall I think we're in a really good position in so many ways in that.

Speaker Change: Effectively all of our Gantries in most of our molecular diagnostics are made in the United States.

Karleen Oberton: We resisted a lot of those moves to go overseas through the years and I think it's going to benefit us here well for the next few years at least.

Speaker Change: We resisted a lot of those moves to go go overseas through the year. So I think that's going to benefit us here well for the next few years at least.

Ryan Zimmerman: We'll move to our next question from Ryan Zimmerman with BTIG. Thank you. Thanks for taking the question.

Speaker Change: Well move to our next question from Ryan Zimmerman with BTG.

Ryan Zimmerman: Oh, Thank you thanks for taking the questions.

Ryan Zimmerman: Two for me. One on breasts, and I know we've talked a lot about it this evening. But, you know, as we think about 2026, when you do launch the new gantry, you know, arguably, that would carry a price increase with it. And given where we're assuming kind of growth is today, are you suggesting or implied in that would be a decline in units, just in terms of unit volume, which is offset by, you know, potential price increase? And just, you know, take it in the context of Essex comments, that you're selling 3d to 3d now, going forward.

Speaker Change: Two for me.

Speaker Change: One on breast and I know, we've talked a lot about this evening, but as we think about 2026. When you do launch the new gantry arguably that would carry a price increase with it and given where we're assuming kind of growth is today are you, suggesting or implied in that would be a decline in units.

Just in terms of unit volume, which is offset by potential price increase and just taken in the context of <unk>.

Speaker Change: <unk> comments.

Speaker Change: That you are selling $3 to three day now.

Speaker Change: Going forward.

Steve Macmillan: Yeah, I think what you'll start to see in 26 is units will start to improve again as the new launch. And we will have a combination of both units as well as additional price, you know, from a mixed standpoint.

Speaker Change: Yes, I think what youll start to see in 2006 ish units will start to improve again as the new launch and we will have a combination of both units as well as additional price.

Unknown Attendee: So it's why we feel really good about where we're going to head, you know, we're not going to guide to 26 at this stage. But you know, it's very nice to be sitting where we're sitting feeling like we've got line of sight, we know, you know, a couple of down quarters here, and then we come roaring Okay.

Speaker Change: From a mix standpoint, so it's why we feel really good about where we're going ahead and we're not going to guide to 26 at this stage.

Speaker Change: But you know, it's very nice to be sitting where we're sitting and feel like we've got line of sight.

Speaker Change: A couple of down quarters here, and then we'll come Roaring back.

Karleen Oberton: And then on Gynasonics, you know, I heard you guys call out, I think I heard, and correct me if I'm wrong, Karleen, or Essex, is $28 million in sales. You're guiding to $25 incrementally for this year. I just want to understand, I think that was $28 million on a 12-month basis. The $25 is that three quarters worth of sales? Or is there some disruption assumed there? I just want to be clear. The prepared remarks of $25 million for the balance of the year, which is...

Speaker Change: Okay, and then on Guyana Sonics, you know heard you guys call out I think I heard and correct me if I'm wrong Carlin.

Speaker Change: Our ethics is 28 million in sales you are guiding to 'twenty five incrementally for this year.

Speaker Change: Just want to understand I think it was $28 million on trailing 12 month basis.

Speaker Change: 25 is that three quarters worth of sales or is there some disruption assumed there I just want to be out there.

Speaker Change: Thank God.

Speaker Change: Prepared remarks of $25 million for the balance of the year, which is the three quarters.

Unknown Attendee: Feeling really good about that.

Speaker Change: Feeling really well go ahead.

Speaker Change: Alright.

Jack Meehan: We'll move to our next question from Jack Meehan with Nefron Research. Thank you. Good afternoon. Unknown Speaker, I had a couple in Saquon, we trust. Yep. Um, Karleen, I had a couple of guidance related questions for you. Um, the first was you talked about some of the policy uncertainty as it relates to the HIV testing. I just wanted to clarify, um, did you build in, you talked about disruption up to $30 million of sales. Is that in the guidance or did you put in a risk adjusted number in the guidance or just how did you handle that?

Speaker Change: Well move to our next question from Jack Meehan with Nephron research.

Speaker Change: Thank you good afternoon.

Jack Meehan: Hey, John.

Speaker Change: Couple [laughter].

Speaker Change: Steve Let's take one we trust yep.

Carlene: Carlene I had a couple of guidance related questions for you.

Carlene: The first was you talked about some of the policy uncertainty as it relates to the HIV testing I just wanted to clarify.

Carlene: Did you build in you talked about disruption up to $30 million of sales is that in the guidance or did you put in a risk adjusted number in the guidance or just how did you handle that.

Karleen Oberton: It's in the guidance, substantially in the guidance. Okay, got it. Even though there's been a waiver, there is clearly disruption on the ground, and so they could impact the supply chain significantly, so that's why we've decided... Got it. And just to make sure I understand from a reporting perspective, this would show up in the molecular line for the virology testing or is it something else? Neurology and Molecular Got it. Okay.

Carlene: And then got substantially on the guidance.

Carlene: Okay, so even though the minute they said they would be.

Carlene: And then a waiver or there is clearly a disruption on the ground and so.

Carlene: They could impact the supply chain significantly so that's why we decided to include it.

Speaker Change: Got it and just to make sure I understand from a reporting perspective. This would show up in the molecular line for the virology testing or is it something else.

Carlene: Barology in molecular yes, that's correct.

Karleen Oberton: And then, um, just was wondering if, um, I heard the commentary around margins for the year and it sounds like there's a little bit of a second half step up, um, just any color, you know, around where we should be landing in 2Q for gross margins and top margins would be helpful. Thank you. Yeah, I would say off-margins for Q2, you might have a little sequential improvement, but clearly more improvement in the back half as we see improvement in revenue, as well as we talked about Q1 and even Q2 to some extent are our largest operating expense quarters.

Speaker Change: Got it okay.

Carlene: Then.

Carlene: Just was wondering if I heard the commentary around margins for the year and it sounds like Theres, a little bit of a second half step up.

Carlene: Just any color around where we should be landing in <unk> for gross margins and op margins would be helpful. Thank you.

Carlene: Let's say op margins for Q2, you might have a little sequential improvement, but clearly more improvement in the back half as we see improvement in revenue as well as we talked about Q1, and even Q2 to some extent our largest operating expense quarters like Q1 with some of our larger commercial meetings and then some of them.

Karleen Oberton: Clearly Q1 with some of our larger commercial meetings and then some of the variable comp structures weighted to expense in the first two quarters versus the last.

Carlene: Variable comp structures weighted to expense in the first two quarters versus the last two quarters.

Puneet Souda: We'll take our next question from Puneet Souda with Leering Partners. Hi, Steve. Thanks for taking the questions.

Speaker Change: We will take our next question from Puneet <unk> with Leerink partners.

Speaker Change: Yeah, Hi, thanks for taking the questions.

Steve Macmillan: You know, if you don't mind, I want to go back to breast again. You know, it appears to me, obviously, three issues here. There's the assessment of the forecast. You also had some changes in the incentive comp and sales reps. And then there's the market issue with the hospital CAPEX. I mean, if I look at the sales side, can you elaborate a little bit on the incentive comp changes and the sales rep changes in the field?

Speaker Change: If you don't mind I want to go back to breast again.

Speaker Change: It appears to me obviously three issues here, there's the assessment of the forecast that you also had some changes in the incentive comp or comp.

Speaker Change: The sales reps.

Speaker Change: And then there is the market issue with the hospital Capex I mean.

Speaker Change: If I look at the sales side can you can you elaborate a little bit on the incentive comp changes in the sales rep changes in the field and then on the hospital side.

Steve Macmillan: And then on the hospital side, if the CAPEX pressures that are on today, if they were to get worse, you know, how can a hospital continue to purchase new equipment if they have to stress their dollars longer? I mean, we're just thinking about the sort of the pressures that the hospitals are seeing, and then maybe potential pressures that could arise from billage or other efforts focusing on the hospitals.

Speaker Change: If the capex pressures that are on today.

Speaker Change: Were to get worse.

Speaker Change: How would it.

Speaker Change: How can a hospital continue to purchase new equipment, if they have to stretch their dollars longer just thinking about the sort of the pressures that the hospitals are seeing and then maybe potential pressures that could arise from village or other efforts focusing on the hospitals.

Steve Macmillan: Yeah, I think as we think about the hospital CapEx to come at that, I think we still feel good, right? And again, you know, I can always go back on the 08-09 downturn where we saw the incredible pressures. Given where mammography sits, which is, you know, a few hundred thousand dollars a unit, and how critically important women's health and mammography screenings are for hospitals, I think we feel really good that the market's going to continue to be fine. And be there. And then from, you know, it's back to overall standpoint, the market a little down.

Speaker Change: Yes, I think as we think about the the hospital capex too to come at that I think we still feel good right. Yeah, I guess I can always go back on the O eight or nine downturn.

Speaker Change: The incredible pressures, given where mammography sits which is a few hundred thousand dollars a unit and how critically important women's health and mammography screenings are for hospitals I think we feel really good that the market is going to continue to be fine and be there.

Speaker Change: And then from its back to overall standpoint, the market a little down our Salesforce evolution.

Unknown Attendee: Our salesforce evolution is one of these things, you know, we go through it from time to time in each of our businesses. And, you know, we're shifting a little bit more to get making sure we're really driving those gantry sales going forth. I think we took our eye off the ball a little bit during the chip shortage, because candidly, we couldn't deliver. And so now she's getting back to that focus on delivery. Operator, I think we have time for one more.

Speaker Change: Is one of these things we go through it from time to time in each of our businesses.

Speaker Change: And we're shifting a little bit.

Speaker Change: More to get making sure we're really driving those gantry sales going forward I think we took our foot off the our eye off the ball a little bit during chip the chip shortage, because candidly, we couldnt deliver and so now she's getting back to that focus on delivering the gantries.

Speaker Change: Operator, I think we have time for one more question.

Andrew Cooper: We'll take our next question from Andrew Cooper with Raymond James. Hey, everybody, thanks for the questions here.

Speaker Change: We will take our next question from Andrew Cooper with Raymond James.

Speaker Change: Hey, everybody thanks for that.

Andrew Cooper: A lot to ask, but maybe just one on kind of the pace of Panther Fusion adoption, you know, is there any reason that 40%, you know, has a cap and can't get to 100 down the road? How do you think about kind of the uptake there as existing customers look to potentially layer in that additional menu? And what does it take from a new menu build out perspective to maybe push some of those folks who haven't done it yet to start looking at a fusion? Yeah, I think we feel really good that ultimately, it probably could get close to 100.

Speaker Change: Questions here.

Speaker Change: I'll have to ask but maybe just one on kind of the peso Panther few here at fusion adoption.

Speaker Change: Is there any reason that 40%.

Speaker Change: <unk> has a cap and can't get to.

Speaker Change: 100 down the road, how do you think about kind of the uptake there as existing customers look to potentially layer in that additional menu and what does it take from our new menu Buildout perspective to maybe push some some of those folks who haven't done it yet too to start looking at Adam.

Speaker Change: Yes, I think we feel really good that ultimately it probably could get close to 100, and it's just kind of a steady steady improvement as we just wind customers one at a time.

Steve Macmillan: And, you know, it's just kind of a steady, steady improvement as we just win customers one at a time. You know, the, the molecular diagnostics business, I think some people don't always understand how much effort it takes to change over a customer from one assay to another. And I think what we feel great about is, as the lab techs are using Panthers, they just want to keep adding more. And then it's okay, we'll add a few more. We'll qualify a new assay. And so as we keep bringing these things out, it's really kind of multiple years of growth ahead, as opposed to, you know, any one year massive step up.

Speaker Change: The molecular diagnostics business I think some people don't always understand how much effort. It takes to changeover a customer from one assay to another.

Speaker Change: And I think what we feel great about is as the lab techs are using Panthers. They just want to keep adding more and then it's okay. We'll add a fusion will qualify a new assay and as soon as we keep bringing these things out it's really kind of multiple years of growth ahead as opposed to.

Steve Macmillan: So I think that's what gives us the underlying confidence that it just grows over time.

Speaker Change: Any one year, a massive step up so I think thats what gives us the underlying confidence in it just grows over time. Thanks Andrew.

Unknown Attendee: Thanks, Andrew. Perfect.

Karleen Oberton: And if I can sneak one more in just on the margins, just want to make sure I understand the guide. You know, if we go back to last quarter, it was near 30% in one queue climbing 50 to 100 basis points. The language was just a little different this quarter in terms of that low 30s for the year and getting better each quarter. Is the exit rate fairly similar? You know, how do we think about kind of the landing spot as we move through the course of the year, knowing that, you know, the slightly lower revenue is certainly a drag on top of maybe some dilution from the M&A?

Andrew Cooper: Perfect and if I can sneak one more in just on the margins just wanted to make sure I understand the guide if we go back to last quarter. It was near 30% in <unk> climbing 50 to 100 basis points. The language was just a little different this quarter in terms of that low thirty's for the year and getting better each quarter.

Andrew Cooper: Right, it's fairly similar how do we think about kind of the landing spot as we move through the course of the year knowing that the slightly lower revenue was certainly a drag on top of.

Andrew Cooper: Maybe some dilution from from the M&A.

Steve Macmillan: Yeah, we'll certainly exit the year at a higher operating margin than where we're at here in Q1 and Q2, but I would just caution that that's not really your jumping off point for 26. Again, we have some seasonality to our operating expenses, as well as, you know, highest operating expenses in Q1 and actually typically lowest revenue in Q2. So we will see that improvement. That would not be your jumping off point Yeah, I think as a reminder, we always do see our operating margin improves over the course of the year, as Karleen said, because the way our expenses flow.

Andrew Cooper: Yeah, well certainly exit the year at a higher operating margin than where we're at.

Andrew Cooper: We are out here in Q1 and Q2.

Andrew Cooper: I would just caution that that's not really your jumping off point for 2006 again, we have some seasonality to our operating expenses as well as Ah yes.

Andrew Cooper: The highest operating expenses in Q1, and actually typically lowest revenue in Q2. So we will see that improvement that would not be a jumping off point for 2006.

Speaker Change: Yes, I think as a reminder, we always do see our operating margin improves over the course of the year as Carlin said, because the way our expenses flow and too often I think people look at the fourth quarter rate is a quote unquote launching off point, we think about it as each quarter year over year. So first quarter relative to last first quarter. You look at we just had 80 basis.

Steve Macmillan: And then too often, I think people look at the fourth quarter rate as a quote, unquote, launching off point. We think about it as each quarter year over year. So first quarter relative to the last first quarter, you look at we just had 80 basis points, it grows margin improvement, you know, in the current quarter, 90, 90 points of op margin improvement in Q1, you know, we just keep thinking about that those rates as opposed to, you know, and then ultimately averaging it over the course of the year, but feeling that, you know, we'll post better, better margins this year than and they were already pretty good.

Andrew Cooper: The gross margin improvement.

Speaker Change: In the current quarter 90 90 points of.

Andrew Cooper: Margin improvement in Q1.

Andrew Cooper: Just keep thinking about that those rates as opposed to yes, and then ultimately averaging at over the course of the year, but feeling that we'll post better better margins this year than last year.

Andrew Cooper: They were already pretty good last year so.

Operator: Thank you.

Andrew Cooper: Thank you.

Operator: This concludes our question and answer session.

Andrew Cooper: This concludes our question and answer session. We will now conclude today's conference call. Thank you for your participation you may now disconnect and have a great day.

Operator: We will now conclude today's conference call. Thank you for your participation.

Operator: You may now disconnect and have a great day.

Andrew Cooper: [music].

Andrew Cooper: Alright.

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Andrew Cooper: Okay.

Andrew Cooper: [music].

Andrew Cooper: Yes.

Andrew Cooper: Okay.

Andrew Cooper: Okay.

Andrew Cooper: Okay.

Andrew Cooper: Okay.

Andrew Cooper: [music].

Andrew Cooper: Okay.

Andrew Cooper: [music].

Andrew Cooper: Yes.

Uh huh.

Andrew Cooper: Yes.