Q2 2025 Hologic Inc Earnings Call

Operator: Good afternoon and welcome to Hologic's second quarter fiscal 2025 earnings conference call. My name is Rachel and I'm your operator for today's call. Today's conference is being recorded.

Good afternoon, and welcome to Hologic second quarter fiscal 2025 earnings Conference call. My name is Rachel and I'm. Your operator for today's call. Today's conference is being recorded all lines have been placed on mute I would now like to introduce Mike watts to begin the call.

Operator: All lines have been placed on mute.

Michael Watts: I would now like to introduce Mike Watts to begin the call.

Michael Watts: Thank you, Rachel.

Mike Watts: Thank you Rachel good afternoon, and thank you for joining Hologic second quarter fiscal 'twenty 25 earnings call with.

Steve Macmillan: Good afternoon, and thank you for joining Hologic's second 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.

Steve Macmillan: With me today are Steve Macmillan, the company's chairman, President and Chief Executive Officer Ethics, Mitchell, our Chief operating officer, and Colleen Overton, Our Chief Financial Officer are.

Michael Watts: Our second quarter press release is available now on the investor 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 for 30 days.

Mike Watts: Our second quarter press release is available now on the investors section of our website.

Mike Watts: 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 for 30 days.

Michael Watts: Before we begin, we'd like to inform you that certain statements we make today will be forward-looking. These statements include 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 filing.

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 include 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.

Michael Watts: Also during this call, we will discuss certain non-GAAP financial measures. A reconciliation to GAAP can be found in our earnings rules. 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. and 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 diagnostics. Finally, any percentage changes that 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 defined as revenue excluding divested businesses and revenue from acquired businesses owned by Hologic for less than one year.

Mike Watts: It also organic revenue, excluding COVID-19, which further exclude COVID-19 assay revenue other revenue related to COVID-19, and sales from discontinued products and diagnostics.

Mike Watts: Finally, any percentage changes that we discuss 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's CEO. Thank you, Mike, and good afternoon, everyone. Thanks for joining us to discuss our financial results for the second quarter of fiscal 2025. As everyone knows all too well, it's been a tumultuous few months from a macroeconomic and policy perspective. But in this challenging environment, we took a step in the right direction this quarter by meeting our financial commitments, making good progress on our plans to reinvigorate. and demonstrating once again the reliability and adaptability of our business model. Specifically, total revenue for the quarter was $1.005 billion, a decrease of 0.5% in cost and currency, but toward the upper end of our guidance.

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

Mike Watts: Thank you, Mike and good afternoon, everyone. Thanks for joining us to discuss our financial results for the second quarter of fiscal 2025.

Mike Watts: As everyone knows all too well, it's been a tumultuous few months from a macroeconomic and policy perspective.

Mike Watts: But in this challenging environment, we took a step in the right direction this quarter by meeting our financial commitments, making good progress on our plans to reinvigorate growth and are demonstrating once again, the reliability and adaptability of our business model.

Mike Watts: Specifically total revenue for the quarter was $1.005 billion, a decrease of 0.5% in constant currency, but toward the upper end of our guidance our diagnostics business continued to grow nicely. Despite steep declines in our Africa business following funding cuts.

Steve Macmillan: Our diagnostics business continued to grow nicely, despite steep declines in our Africa business following funding cuts. And we also got a positive contribution from our skeletal franchise, as previous supply constraints began to lift. Non-GAAP earnings per share were $1.03 at the high end of our guidance range and flat compared to a year ago. This reflected solid gross margin expansion, as well as benefits from share buybacks and a slightly lower tax rate.

Mike Watts: And we also got a positive contribution from our skeletal franchise as previous supply constraints began to lift.

Mike Watts: non-GAAP earnings per share were $1 three at the high end of our guidance range and flat compared to a year ago. This reflected solid gross margin expansion as well as benefits from share buybacks and a slightly lower tax rate.

Steve Macmillan: With that overview, let me discuss how we are approaching today's macro environment from a position of strength, and why we believe we can continue to deliver solid financial results across a range of unpredictable economic and policy scenarios. First, our products deliver significant value to patients and customers. For example, our market leading infectious disease and cancer tests are relatively inexpensive and they help reduce overall health care costs by detecting disease early when it can be treated most effectively. Our breast health products are another good example of We need to accelerate growth here for sure, and this quarter we made good progress on our plans to do that, as Essex will discuss.

Mike Watts: With that overview, let me discuss how we are approaching today's macro environment from a position of strength and why we believe we can continue to deliver solid financial results across a range of unpredictable economic and policy scenarios.

Mike Watts: First our products deliver significant value to patients and customers.

Mike Watts: For example, our market, leading infectious disease and cancer tests are relatively inexpensive and they help reduce overall healthcare costs by detecting disease early when it can be treated most effectively.

Speaker Change: Our breast health products are another. Good example of this we need to accelerate growth here for sure and this quarter. We made good progress on our plans to do that is Essex will discuss.

Steve Macmillan: We are confident in our efforts because we know that our foundation is incredibly strong. Our mammography products are best in class, and as a result, we command leading market shares. With our increasingly diverse portfolio, we can help women across the entire continuum of breast health care. And we have the best market position in this important category for women's health. In addition, our customer relationships are without peer, which translates into lots of recurring revenue. For example, strong growth in Breast Health Service drove $212.6 million of overall non-product revenue for the company this quarter. This represented 21% of our total revenue and grew by a very healthy 12%.

Speaker Change: We are confident in our efforts because we know that our foundation is incredibly strong.

Speaker Change: Our mammography products are best in class and as a result, we command leading market shares with our increasingly diverse portfolio. We can help women across the entire continuum of breast health care and we have the best market position in this important category for women's health.

Speaker Change: In addition, our customer relationships are without peer which translates into a lot of recurring revenue.

Speaker Change: For example, strong growth in breast health service drove $212 $6 million of overall non product revenue for the company. This quarter. This represented 21% of our total revenue and grew by a very healthy 12%.

Steve Macmillan: Second, we have a seasoned management team and a highly engaged workforce of more than 7,000 people who are deeply committed to women's health. In addition to our global leadership team, we are beefing up our organization in key areas like business development, R&D, and quality. Importantly, we are adding experienced professionals who bring deep understanding of their respective end marks. And across the company, our level of employee engagement, which we have tracked every year since 2015, remains terrific. Most recently, we scored in the 98th percentile compared to similar companies, actually tipping up a point from recent years.

Speaker Change: Second we have a seasoned management team and our highly engaged workforce of more than 7000 people who are deeply committed to women's health.

Speaker Change: In addition to our global leadership team, we are beefing up our organization in key areas like business development R&D and quality.

Speaker Change: Importantly, we are adding experienced professionals, who bring deep understanding of their respective end markets.

Speaker Change: And across the company our level of employee engagement, which we have tracked every year since 2015 remains terrific.

Most recently, we scored in the 98 percentile compared to similar companies actually chip tipping up a point from recent years.

Steve Macmillan: And importantly, 99% of employees agree that Hologic's mission makes them feel their jobs are important, also up a point from last year. Hi, employee engagement really shined through in our impressive response to the COVID-19 pandemic and gives us a competitive advantage in dynamic environments like the ones we're navigating today.

Speaker Change: And importantly, 99% of employees agree that Hologic mission makes them feel their jobs are important also up a point from last year.

Speaker Change: High employee engagement really shine through in our impressive response to the COVID-19, pandemic and gives us a competitive advantage in dynamic environments like the ones we're navigating today.

Steve Macmillan: Third, the strength of our balance sheet and cash flows give us tremendous strategic and financial flexibility. We generated $169.5 million in operating cash in the second quarter, largely due to our durable market leading brand. At quarter end, we had cash and equivalents of $1.43 billion, short term investments of $192 million, and an adjusted net leverage ratio of only 0.8%. With our Fortress Balance Sheet, we believe we are in a good position to capitalize on market dislocations from a business development perspective. We continue to search for acquisitions and investments similar to recent deals like endomagnetics, gynasonics, and Mavericks, which are performing well.

Speaker Change: Third the strength of our balance sheet and cash flows give us tremendous strategic and financial flexibility, we generated $169 $5 million in operating cash in the second quarter, largely due to our durable market leading brands.

Speaker Change: At quarter end, we had cash and equivalents of $143 billion short term investments of $192 million and an adjusted net leverage ratio of only 0.8 times.

Speaker Change: With our fortress balance sheet. We believe we are in a good position to capitalize on market dislocations from a business development perspective.

Speaker Change: We continue to search for acquisitions and investments similar to recent deals like Endo, Magnetics, Guyana, Sonics, and Mavericks, which are performing well.

Steve Macmillan: At the same time, we can also return value to shareholders by repurchasing stock. We have repurchased more than $4.5 billion of stock since 2016, including $200 million in the second quarter.

Speaker Change: At the same time, we can also return value to shareholders by repurchasing stock.

Speaker Change: We have repurchased more than $4 $5 billion of stock since 2016, including $200 million in the second quarter.

Steve Macmillan: Before I turn the call over to Essex, let me conclude by saying that the financial execution we saw in the quarter reflects our strong positions in core U.S. and European markets. But unfortunately, exogenous factors are affecting our growth in geographies like Africa, which we discussed in our last call, and China. Today, we are lowering sales expectations for China, which has become an increasingly challenging market due to geopolitical turbulence. with these areas now largely de-risked in our forecast. We look forward to faster growth beginning in the fourth quarter and into 2026. We expect this improvement to be generated by better commercial execution in breast health, easier comps in surgical, breast health and skeletal, organic growth from endomagnetics and gynasonics, and new product introduction.

Speaker Change: Before I turn the call over to Essex, Let me conclude by saying that the financial execution. We saw in the quarter reflects our strong positions in core U S and European markets.

Speaker Change: But unfortunately exogenous factors are affecting our growth in geographies like Africa, which we discussed in our last call and China. Today, we are lowering sales expectations for China, which has become an increasingly challenging market due to geopolitical turbulence.

Speaker Change: With these areas now largely derisked in our forecast, we look forward to faster growth beginning in the fourth quarter and into 2026.

Essex: We expect this improvement to be generated by better commercial execution in breast health easier comps and surgical breast health and skeletal organic growth from Endo magnetics in Guyana, Sonics and new product introductions now I will turn the call over to Essex.

Essex Mitchell: Now I will turn the call over to Essex. Thanks, Steve, and good afternoon, everyone. In my remarks today, I will first review our divisional revenue performance in the second quarter. Then I will discuss our exposure to the recently announced tariffs as they stand today. As Steve said, we are pleased to deliver revenue in the second quarter at the high end of our guidance. Our performance was driven by another strong corner in Diagon and an accelerated recovery of product supply in our skeletal starting with diagnose. Second quarter revenue of 453.6 million grew 1.5% or 5.2% excluding COVID related sales.

Speaker Change: Thanks, Steve and good afternoon, everyone.

Essex: In my remarks today I will first review our divisional revenue performance in the second quarter.

Essex: And I will discuss our exposure to the recently announced tariffs as they stand today.

Essex: As Steve said, we are pleased to deliver revenue in the second quarter at the high end of our guidance range. Our performance was driven by another strong quarter in diagnostics and an accelerated recovery of product supply at our skeletal business.

Essex: Starting with diagnostics.

Essex: Second quarter revenue of $453 6 million grew one 5% or five 2% excluding COVID-19 related sales.

Essex Mitchell: Growth for the division continues to be led by the molecular diagnostics, which grew 1.7%. or 7.8% excluding COVID. Specifically, We've benefited from the continued strong growth of our BBCV-TB assay, higher sales of our respiratory assays and strong growth in our biopharagnostics oncology business. BBC VTV continues to represent a significant opportunity for Hologic. Studies show that in the U.S. alone, over 20 million women experience vaginitis each year. We estimate that less than 40% of these women are being tested with older manual testing methods still representing a meaningful portion. Our diagnostics team has been making great progress to address this unmet need by driving awareness and establishing reimbursement for our accurate, high-throughput molecular diagnostic tests.

Essex: Growth for the division continues to be led by the molecular diagnostics, which grew one 7% or seven 8% excluding COVID-19.

Essex: Specifically, we benefited from the continued strong growth of our BVA Phebe TB assay higher sales of our respiratory assays and strong growth in our buyout their gnostics oncology business.

Essex: <unk> TV continues to represent a significant opportunity for hologic.

Essex: Studies show that in the U S alone over 20 million women experience vaginitis each year.

Essex: We estimate that less than 40% of these women are being tested with older manual testing methods still represented a meaningful portion of this.

Our diagnostics team.

Essex: Has been making great progress to address this unmet need by driving awareness and establishing reimbursement for our accurate high throughput molecular diagnostic test.

Essex Mitchell: As many of you who track the weekly CDC data know, the United States suffered through a severe flu season this year. This led to strong growth of our respiratory assays in the second quarter. As a reminder, these tests are run on our Panther Fusion Sidecar. So heavy respiratory demand boosts interest in Panther Fusion among our customer base and also opens up the door for menu consolidation, including with lab-developed tests. In our biotherapeutics oncology business, we continue to see strong adoption of our breast cancer index. A unique indicator that helps a woman understand whether she'll benefit from continued endocrine therapy.

Essex: As many of you to track the weekly CDC data, knowing the United States suffered through a severe flu season this year.

This led to strong growth of our respiratory assays in the second quarter.

Essex: As a reminder, these tests are run on our Panther fusion sidecar.

Essex: So heavy respiratory demand boost interest and Panther fusion among our customer base and also opens up the door for menu consolidation, including with lab developed tests.

Essex: And our buyout their gnostics oncology business, we continue to see strong adoption of our breast cancer Index test.

Essex: A unique indicator that help a woman understand whether whether she will benefit from continued endocrine therapy.

Essex Mitchell: Offsetting some of the growth in our core molecular business this quarter was less HIV testing in Africa, which resulted from funding cuts to USAID that were previously discussed. Unfortunately, we're now seeing this affect other nonprofit organizations, resulting in a significant disruption to the testing infrastructure that had been in place in the region. It's worth noting that excluding lower product sales associated with our work in Africa, core molecular revenue would have grown at a low double-digit rate in the second quarter. In our cytology and perinatal businesses, second quarter revenue declined 0.6%. sales grew modestly in the US as we continue to see adoption of our genius AI.

Essex: Offsetting some of the growth in our core molecular business. This quarter was less HIV testing in Africa, which resulted from funding cuts to USAID that were previously discussed on.

Essex: Unfortunately, we're now seeing this effect other nonprofit organization, resulting in a significant disruption to the testing infrastructure that had been in place in the region.

Essex: It's worth noting that excluding lower product sales associated with our work in Africa core molecular revenue would have grown at a low double digit rate in the second quarter.

Essex: And our cytology and perinatal businesses.

Essex: Quarter revenue declined 6%.

Essex: Sales grew modestly in the U S. As we continue to see adoption of our genius AI product.

Essex Mitchell: but were offset by low single-digit decline internationally. International sales were affected by the ongoing physician strike in South Korea and lower hospital spending in China.

Essex: But were offset by low single digit decline internationally.

Essex: Our national sales were affected by the ongoing position strike in South Korea, and lower hospital spending in China.

Essex Mitchell: Moving to breast health. Revenue of $356.2 million declined 6.9% or 9.2% organically, excluding SSI and endomagnetic. As a reminder, when we updated guidance last quarter, we anticipated this would be a down year for Gantry.

Essex: Moving to breast health revenue of $356 $2 million declined six 9% or nine 2% organically, excluding ssi and Indo magnetics.

Essex: As a reminder, when we updated guidance last quarter, we anticipated this would be a down year for gas replaces at the same time, we announced new leadership, a new leadership team.

Essex Mitchell: At the same time, we announce new leadership, a new leadership. We're excited by the progress this team has already made in three key areas, which are laying the foundation for better growth in the future. First, we've reorganized our sales team to have a clear split between our capital and disposable product sales. These selling processes require different skill sets, and we believe this RE-ORG, combined with more concrete selling strategies, will drive clear focus and improve performance within our commercial channels. Second, the team has refined our end-of-life strategy for older gantries that still remain in the field.

Essex: We're excited by the progress. This team has already made in three key areas, which are laying the foundation for better growth in the future.

Essex: First we have reorganized our sales team to have a clearer split between our capital and disposable product sales reps. These selling processes require different skill sets and we believe this reward combined with more concrete selling strategies will drive clear focus and improved performance.

Essex: Within our commercial channels.

Essex: Second the team has refined our end of life strategy for older Gantries that still remain in the field. We have a clear line of sight to where these older units are and this month, we are rolling out a new offensive strategy that motivates, both our customers and our own reps to upgrade these older units.

Essex Mitchell: We have clear line-of-sight to where these older units are, and this month we are rolling out a new offensive strategy that motivates both our customers and our own reps to upgrade these older units. Third, we began selling our endomagnetics products directly. through our own sales force in North America, rather than through the distributor that Indomag had used in the past. by leveraging the capabilities of our commercial. We feel well positioned to address the significant market opportunity for wireless localization. Our Indomag team has strong momentum entering the second half of our fiscal year and we continue to be excited about the acquisition overall.

Essex: Yeah.

Essex: Third we began selling our inbuilt magnetics products directly.

Essex: Through our own sales force in North America, rather than through the distributor that Endo Mac had used in the past.

Essex: By leveraging the capabilities of our commercial channel, we feel well positioned to address the significant market opportunity for wireless localization. Our <unk> team has strong momentum entering the second half of our fiscal year and we continue to be excited about the acquisition overall.

Essex Mitchell: While our commercial team focuses on driving gantry upgrades, our service team continues to do an outstanding job with our current install base of approximately 15,000 3D gantries worldwide. As Steve said, recurring service revenue grew strongly in the second quarter and now accounts for over 45% of total breast health revenue. In surgical, second quarter revenue of $162.5 million increased 5.1% or 1.1% organically, excluding gynecology. Our international surgical business grew 16.2% in the quarter, another strong result. As our team continues to drive market development and awareness for our minimally invasive GYN products, we see meaningful runway ahead globally.

Essex: While our commercial team focuses on driving gantry upgrades. Our service team continues to do an outstanding job with our current installed base of approximately 15000 <unk> Gantries worldwide.

Essex: Steve said recurring service revenue grew strongly in the second quarter and now account for over 45% of total breast health revenue.

Speaker Change: In surgical second quarter revenue of 162, 5 million increased five 1% or one 1% organically excluding guidance Onyx.

Speaker Change: Our international surgical business grew 16, 2% in the quarter. Another strong result.

Speaker Change: As our team continues to drive market development and awareness for our minimally invasive <unk> products, we see meaningful runway ahead globally.

Essex Mitchell: Of note, we've seen great traction since we launched our Fluent Pro system late last year. This system helps improve the performance and the user experience of our Maurer Shore platform. which has resulted in strong customer feedback.

Speaker Change: Of note, we have seen great traction since we launched our fluid pro system late last year. This system helps improve the performance.

Speaker Change: And the user experience of our <unk> platform.

Speaker Change: Which has resulted in strong customer feedback.

Essex Mitchell: We were also excited to close the Gynasonics acquisition early in the second quarter. as mentioned on our last earnings call. Guided Sonic Financial Results are meeting expectations, we're pleased with how the integration has progressed, and we're excited for this future opportunity.

Speaker Change: We were also excited to close the <unk> acquisition early in the second quarter as.

Speaker Change: As mentioned on our last earnings call <unk> financial results are meeting expectations. We're pleased with how the integration has progressed and we're excited for this future opportunity.

Essex Mitchell: Finally, in our skeletal business, second quarter revenue of $33 million grew $22.9%. Our team made great progress partnering with our third-party manufacturers.

Speaker Change: Finally in our skeletal business second quarter revenue of $33 million grew 22, 9% our team made great progress partnering with our third party manufacturer to accelerate the production ramp of our <unk> system.

Essex Mitchell: Accelerate the production ramp of our DEXA system. in the quarter, exceeding our internal expectations.

Speaker Change: In the quarter.

Speaker Change: <unk>, our internal expectations.

Essex Mitchell: Before turning the call over to Karleen, I wanted to provide some perspective on our exposure to tariffs that have recently been announced. At a high level, the vast majority of our manufacturing is done here in the United States. For diagnostics, we manufacture in California, Massachusetts, and New Hampshire. We have a small production site in the UK, but that primarily serves the international market. In breast health, our mammography manufacturing is all done in Delaware. We do export products to China that are made in the United Manufacturing that's done outside of the U.S. is primarily for our surgical and interventional breast.

Speaker Change: Before turning the call over to Colleen I wanted to provide some perspective on our exposure to tariffs that have been recently been announced.

Speaker Change: At a high level the vast majority of our manufacturing is done here in the United States for diagnostics, we manufacturer in California, Massachusetts, and New Hampshire, we have a small production site in the U K, but that primarily serves the international market.

Speaker Change: Breast health, our mammography manufacturing is all done in Delaware, we do export product in China that are made in the United States.

Speaker Change: Manufacturing outside of the U S is primarily for our surgical and interventional breast products.

Essex Mitchell: These products, excluding gynosonics, are produced in Costa Rica. For gynosonics and skeletal, we use third party manufacturers in Mexico, but we expect products made in Mexico to be substantially exempt from tariffs under the U.S. MCA.

Speaker Change: These products excluding guidance on X are produced in Costa Rica.

Speaker Change: Our guidance Sonics and skeletal we use third party manufacturers in Mexico, but we expect products made in Mexico to be substantially exempt from tariffs under the U S. MCA.

Essex Mitchell: When we analyze the tariffs that have been announced relative to our manufacturing activities, we forecast a gross impact of $20 to $25 million a quarter. Roughly two-thirds of our exposure relates to terrorists from Costa Rica and about 15% from China. All other countries make up the rest.

When we analyze the tariffs that have been announced relative to our manufacturing activities, we forecast a growth impact of $20 million to $25 million a quarter.

Speaker Change: Roughly two thirds of our exposure relates to Paris from Costa Rica, and about 15% from China.

Speaker Change: All other countries make up the rest.

Essex Mitchell: Karleen will discuss how these increased costs will affect the balance sheet and income.

Speaker Change: <unk> will discuss how these increased costs will affect the balance sheet and income statement, but before I turn the call over to her let me say that our estimates do not include higher prices that our suppliers may attempt to pass on to us, but they also do not include.

Essex Mitchell: But before I turn the call over to her, let me say that our estimates do not include higher prices that our suppliers may attempt to pass on. But they also do not include potential offsets from the many mitigation efforts we have underway. In the short term, we do not anticipate much pricing flexibility. Since most of our affected sales are made under long-term.

Speaker Change: Offsets from the many mitigation efforts we have underway.

Speaker Change: In the short term, we do not anticipate much pricing flexibility.

Speaker Change: Most of our affected sales are made under long term contracts, but like every multinational company, we are implementing and exploring a number of potential actions to mitigate the financial impact of tariffs in whatever form they may eventually take.

Essex Mitchell: But like every multinational company, we are implementing and exploring a number of potential actions to mitigate the financial impact of tariffs in whatever form they may eventually be. Obviously, this is a fluid situation that may continue to change and we will remain flexible.

Speaker Change: Obviously this is a fluid situation that may continue to change and we will remain flexible with that I'll hand, the call over to Carlin.

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 etc. on several key financial and finish with our guide. In the second quarter, we delivered EPS of $1,000. at the high end of our guidance. In addition to posting solid revenue, we exercise discipline, expense management, and and utilize multiple levers such as share repurchases and tax drive strong profitability for the quarter. starting with an on-gap growth margin. Finished the quarter at 61.14. Grouping by 40 basis points compared to the prior...

Carlin: Thank you Alex and good afternoon, everyone.

Carlin: My comments today I will start by walking through the rest of our non-GAAP income statement.

Carlin: That's on several key financial metrics.

Carlin: And then finish with our guidance for fiscal Q3 and full year.

Carlin: In the second quarter, we delivered EPS of $1 three at the high end of our guidance range.

Carlin: In addition to posting solid revenue, we exercise disciplined expense management and utilize multiple levers such as share repurchases and tax efficiency.

Carlin: <unk> strong profitability for the quarter.

Carlin: Starting with non-GAAP gross margin.

Carlin: Finished the quarter at 61, 1%.

Carlin: Improving by 40 basis points compared to the prior year.

Carlin: The primary drivers of this improvement were strong diagnostic sale.

Karleen Oberton: The primary drives of this improvement were strong diagnostic sales. as well as adding Endomag and Gynasonics to our corporate profiles. Their creative gross margins create a solid foundation. Clear Pathway to Operating Profitability Moving down the P&L. Operating expenses of $312.9 million increased $1.7 million. This increase was driven by the inclusion of endomag and gynasonics in our research.

Carlin: As well as adding <unk> in Ghana, Sonics to our corporate profile.

Carlin: They are accretive gross margins create a solid foundation.

Carlin: Clear pathway to operating profitability over time.

Carlin: Moving down the P&L.

Carlin: Second quarter operating expenses of $312 9 million increased one 7%.

Carlin: This increase was driven by the inclusion of Endo Mac in Guyana, Sonics and our results.

Karleen Oberton: For more information, call 1-866-433-4332 Operating expenses would have decreased for reflecting good expense control in a period of lower Operating Margin finished at $34,000. Although operating margin decreased by 40 basis points compared to the prior year, it increased 60 basis points sequentially. below operating Other income net was a loss in our fiscal second quarter of slightly more than $14 million. This loss is roughly in line with our expectations. This was greater than the prior year as we generated less interest income given our capital Finally, our tax rate in Q2 is 19%. We've selected a true-up to match our new expected full-year effective tax rate of $19.25.

Carlin: Excluding these deals.

Carlin: Operating expenses would have decreased four 6%.

Carlin: Nothing good expense control in a period of lower revenue.

Carlin: Second quarter operating margin finished at 30%.

Carlin: A strong result, considering we are integrating two acquisitions.

Speaker Change: Although operating margin decreased by 40 basis points compared to the prior year.

Speaker Change: It increased 60 basis points sequentially.

Speaker Change: Despite lower absolute revenue.

Speaker Change: Below operating income other income net was a loss.

Speaker Change: <unk> second quarter of slightly more than $14 million.

Speaker Change: This loss was roughly in line with our expectations.

Speaker Change: Greater than the prior year as we generated less interest income given our capital deployment activity.

Speaker Change: Finally, our tax rate in Q2 was 19%.

Speaker Change: This reflected a true up to match, our new expected full year effective tax rate of 19, 5%.

Karleen Oberton: All together, net margin for the quarter was 23.2%. Increasing 80 basis points compared to the prior year. It's still excellent. Our strong profitability helps us generate a tremendous amount of cash.

Speaker Change: Altogether net margin for the quarter was 23, 2%.

Speaker Change: Increasing 80 basis points compared to the prior year, but still excellent compared to our peers.

Speaker Change: Our strong profitability helps us generate a tremendous amount of cash flow over.

Karleen Oberton: for more information. Attributed to our Fortress Balance Sheet at Steve's. As a result, we have the ability to execute on both tuck-in M&A and shared repurchase. In the second quarter, for example, we closed the Ghanasonic's acquisition. for approximately $350 million. while also buying back 3 million shares for $200 million. Purchase activity drove our weighted average diluted share count down to 227 million. An increase of over 10 million shares compared to the prior year. Combined, these results led to non-GAAP earnings per share of a dollar. Another quarter of delivering at the high end of our guidance range.

Speaker Change: Over time.

Speaker Change: Tribute to our fortress balance sheet as Steve said.

Speaker Change: As a result, we have the ability to execute on both tuck in M&A and share repurchases.

Speaker Change: In the second quarter for example, we closed the <unk> acquisition for approximately $350 million.

Speaker Change: While also buying back 3 million shares for $200 million.

Speaker Change: This repurchase activity drove our weighted average diluted share count down to $227 million.

Speaker Change: A decrease of over 10 million shares compared to the prior year.

Speaker Change: Combined these results led to non-GAAP earnings per share of $1 three.

Speaker Change: Another quarter of delivering at the high end of our guidance range.

Speaker Change: With growing uncertainty in the geopolitical environment.

Karleen Oberton: With growing uncertainty in the geopolitical environment, our balance sheet and cash flow have us well positioned to navigate whatever In the second quarter, we generated a cash flow of $169.5 million. Exited the quarter with over $1.6 billion in cash and investments on our balance.

Speaker Change: Balance sheet and cash flow have us well positioned to navigate whatever comes next.

Speaker Change: In the second quarter, we generated cash flow of $169 5 million.

Speaker Change: And exited the quarter with over one 6 billion in cash and investments on our balance sheet.

Karleen Oberton: Now let's move on to our updated non-GAAP financial guidance for the full fiscal year and third quarter. While we are staying nimble in the face of rapid geopolitical change. Tariffs announced in early April and the ensuing trade war in China are impacting our financial forecast in two main ways. Even though we manufacture mainly in the U.S. as Essex says.

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

Speaker Change: While we are staying nimble in the face of rapid geopolitical changes.

Speaker Change: The tariffs announced in early April and the ensuing trade war in China are impacting our financial forecast in two main ways.

Speaker Change: First even though we mean manufactured mainly in the U S. As a success.

Karleen Oberton: Tariffs related mostly to Costa Rica and China will increase inventory acquisition costs by $20 to $25 million per quarter this year. We record these costs as inventory as they are incurred. then amortize them through the P&L over inventory. This means that in the income state. We expect cost of goods sold to increase by about $5 million in the third quarter. and by almost $20 million in the These estimates assume no changes in policy. and do not include the potential mitigation efforts that we have underway. China becomes increasingly difficult for U.S.-based companies. We are lowering our forecasted China revenue for the year by roughly $20 million.

Speaker Change: Paris related mostly to Costa Rica in China will increase inventory acquisition costs by $20 million to $25 million per quarter. This year.

Speaker Change: From an accounting standpoint.

Speaker Change: Record these costs as inventory as they are incurred.

Speaker Change: Then amortize them through the P&L over inventory turns.

Speaker Change: This means that in the income statement, we expect cost of goods sold increased by about $5 million in the third quarter.

Speaker Change: And by almost $20 million in the fourth quarter.

Speaker Change: These estimates assume no changes in policy.

Speaker Change: And do not include the potential mitigation efforts that we have underway.

Speaker Change: Second.

Speaker Change: As China becomes increasingly difficult for U S based company.

Speaker Change: Lowering our forecasted China revenue for the year by roughly $20 million.

Karleen Oberton: We now expect only about $50 million in revenue from China in fiscal 2020.

Speaker Change: We now expect only about $50 million in revenue from China in fiscal 2025.

Karleen Oberton: which we believe largely do risk us from future geopolitical...

Speaker Change: Which we believe largely de risked class from future geopolitical turmoil.

Speaker Change: To reflect the net impact of these items on our annual outlook, we are lowering our non-GAAP EPS guidance range by 10.

Karleen Oberton: This slide reflects the net impact of these items on our annual outlook.

Karleen Oberton: We are lowering our non-GAAP EPS guidance range by 10%. $4.15 to $4.25. At the same time, we are maintaining our full-year revenue guidance. $4.05 billion to $4.10 billion. as the weakening U.S. dollar is roughly compensating for the reduction. For the third quarter, we are expecting total revenues of $1 billion to $1.01 billion. and Nongap EPS in the range of $1.04 to $1.07.

Speaker Change: $4 15 to $4 25.

Speaker Change: At the same time, we are maintaining our full year revenue guidance of 4.05 billion to $4. One zero billion as the weakening U S. Dollar is roughly compensating for the reduction in China revenue.

Speaker Change: For the third quarter, we are expecting total revenues of 1 billion to $1 1 billion and non-GAAP EPS in the range of $1 four to $1 seven.

Karleen Oberton: We still anticipate solid growth in our fourth quarter in line with our longer term expectations. Because of the weaker U.S. dollar, we now forecast currency to represent headwind of approximately $10-15 million for the full year, and a negligible headwind in the fiscal third quarter. In terms of the divisions, our outlook from our prior guidance remains largely We still expect diagnostics to grow mid-single digits for the year, excluding the impact of declining COVID-19. Strong growth from our BVCV-TB assay in biotheranostics oncology business. will be partially offset by declining sales of our HIV test in Africa due to the federal funding cuts and lower sales.

Speaker Change: We still anticipate solid growth in our fourth quarter in line with our longer term expectations.

Speaker Change: Because of the weaker U S. Dollar, we now forecast currency to represent a headwind of approximately $10 million to $15 million for the full year and a negligible headwind in the fiscal third quarter.

Speaker Change: In terms of the division our outlook from our prior guidance remains largely unchanged.

Speaker Change: We still expect diagnostics to grow mid single digits for the year, excluding the impact of the declining COVID-19 sales.

Speaker Change: Strong growth from our BBC television assay in <unk> oncology business will be partially offset by declining sales of our HIV test in Africa due to the federal funding cuts and lower sales in China.

Karleen Oberton: For COVID revenue, we expect assay sales to be about $5 million in the third quarter and approximately $35 to $40 million for the full year. COVID-related items are expected to be about $25 million in the third quarter and $100 to $105 million Finally, in Diagnostics, we expect blood screening revenue of about $6 million in Q3. $20 to $25 million for the full year. As a reminder, both COVID related sales and blood screening revenues are backed out of our organic growth. Within Breast Health, we still expect a low single digit decline for the full year on a reported basis.

Speaker Change: But COVID-19 revenue, we expect assay sales to be about $5 million in the third quarter and approximately $35 million to $40 million for the full year.

Speaker Change: Covid related items are expected to be about $25 million in the third quarter and $100 million to $105 million for the year.

Speaker Change: Finally in diagnostics, we expect blood screening revenue of about $6 million in Q3, and 20% to $25 million for the full year.

Speaker Change: As a reminder of Covid related sales and blood screening revenues.

Speaker Change: Backed out of our organic growth calculation.

Speaker Change: Within breast health, we still expect a low single digit declines for the full year on a reported basis.

Karleen Oberton: and amid single-digit decline, Organic.

Speaker Change: And a mid single digit decline organically.

Karleen Oberton: As discussed on our last earnings call, we are forecasting lower gantry sales this year. following two years of elevated We continue to expect breast health to return to healthy growth in the fourth quarter.

Speaker Change: As discussed on our last earnings call. We are forecasting lower gantry sales. This year following two years of elevated shipments.

Speaker Change: Continue to expect to breast health to return to healthy growth in the fourth quarter.

Karleen Oberton: Lastly, in surgical. We still forecast this business to grow high single digits for the year driven by the Gynasonics app. We expect surges to grow in the low single-digit organic. is driven by strong international sales and continued adoption of our new Fluent Pro Fluid Mint.

Speaker Change: Lastly in surgical we still forecast this business to grow high single digits for the year driven by the <unk> acquisition.

Speaker Change: We expect <unk> to grow in the low single digits organically.

Speaker Change: By strong international sales and continued adoption of our new fluid <unk> fluid management system.

Karleen Oberton: Moving to the rest of the P&A. We expect gross margins in the low 60s for the full year. We forecast gross margins to decline sequentially from Q3 to Q4 as the P&L impact of the tariff Operating We continue to expect low 30s for the full year, which is very healthy. Below operating income, we estimate other income net to be an expense of approximately $20 million in Q3. at an expense of approximately $55 to $60 million for the full year. Our annual effective tax rate of 19.25% reflects a 25 basis point savings from our prior guidance.

Speaker Change: Moving to the rest of the P&L we.

Speaker Change: We expect gross margins in the low <unk> for the full year.

Speaker Change: We forecast gross margins to decline sequentially from Q3 to Q4 as the P&L impact of the tariff becomes more significant.

Speaker Change: Well operating margin, we continue to expect low <unk> for the full year, which is very healthy.

Speaker Change: Below operating income we estimate other income net to be an expense of approximately $20 million in Q3, and an expense of approximately $55 million to $60 million for the full year.

Speaker Change: Our annual effective tax rate of $19 two 5% reflects the 25 basis points savings from our prior guidance.

Karleen Oberton: Deluded shares outstanding are expected to be approximately $228 million.

Speaker Change: Diluted shares outstanding are expected to be approximately $228 million for the full year.

Karleen Oberton: To conclude, in our second quarter we were pleased to deliver on our financial Revenue and EPS both at the high end of our guidance. Tariffs in China are new headwinds that will affect our results this year. But we continue to be excited about building on strong market positions in our core business. We expect to make good progress on these efforts in the second half of our fiscal year and to exit the fourth quarter with improved...

Speaker Change: To conclude in our second quarter, we were pleased to deliver on our financial commitments with revenue and EPS. Both at the high end of our guidance ranges.

Speaker Change: Tariffs in China on new headwinds that will affect our results this year.

Speaker Change: So we continue to be excited about building on strong market positions in our core businesses.

Speaker Change: We expect to make good progress on these efforts in the second half of our fiscal year and to exit the fourth quarter with improved growth rates.

Michael Watts: With that, we ask the operator to open the call. Thank you.

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

Speaker Change: Thank you.

Operator: 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. Please limit yourself to one question and one follow-up in order to give everyone an opportunity. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question.

Speaker Change: Alright dialed in via the telephone and would like to ask a question. Please signal by pressing star one on your telephone keypad.

Speaker Change: These limit yourself to one question and one follow up in order to give everyone an opportunity.

Speaker Change: 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: Again, Please press star one to ask a question.

Patrick Donnelly: We will take our first question from Patrick Donnelly with Citi. Hey guys, thanks for taking the questions. Steve, maybe one just on the on the tariff backdrop, you know, appreciate the color on that front. It sounds like you guys have the China piece, you know, pretty, pretty well telegraphed here.

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

Patrick Donnelly: Hey, guys. Thanks for taking the questions.

Speaker Change: Steve maybe one just on the on the tariff backdrop.

Speaker Change: Appreciate the color on that front. It sounds like you guys you have the China piece.

Speaker Change: Pretty pretty well telegraphed here.

Steve Macmillan: On the higher cost, potential higher cost from suppliers, then the mitigation efforts on your side, can you just talk through, I guess, the potential scenario of outcomes here? You know, are you having any of those conversations or suppliers talking about higher prices? What are the mitigation efforts?

Speaker Change: Higher costs potential higher costs from supplier than the mitigation efforts on your side can you just talk through I guess the potential scenario of outcomes here.

Speaker Change: Are you having any of those conversations are suppliers talking about higher prices one of the mitigation efforts I just I just want to talk.

Steve Macmillan: I just want to talk through kind of what's going on in the background and what that could mean for numbers as we move forward. Yeah, we don't think it's going to dramatically affect. We think there's offsets both ways. We're not having major discussions. We're just, it's such a wacky time. We'd be silly not to think that some people would be looking at that. But overall, it's really our Costa Rica footprint is what we're baked in, and we figure we'll offset anything.

Speaker Change: Kind of what's going on in the background and what that could mean for numbers as we move forward.

Speaker Change: Yes, we don't think it's going to dramatically affect we think theres offsets both ways, we're not having major discussions we're just it's such a wacky time.

Speaker Change: We'd be silly not to think that some people would be looking at that but overall, it's really our Costa Rica.

Speaker Change: Footprint is what were baked in and we figure it will offset anything else.

Speaker Change: Okay.

Speaker Change: Little pumps.

Speaker Change: And then maybe one on the breast side it sounds like maybe a little bit of a gig or the sales force some more focus on the equipment side. Some on the consumables is that just strategically ahead of the launch yes. It sounds like restful kind of that mid single organic decline. This year ramps up into <unk>, maybe just talk about the sales force focus and what Youre hearing on the capital side.

Speaker Change: Obviously in a volatile market as we just talked about whats the appetite on capital from hospital to hearing there. Thank you guys.

Steve Macmillan: Yeah, Patrick, thanks.

Steve Macmillan: I'm glad you asked the breast health question, because if I step back and give a bigger perspective on it, if you go back, you know, 15 years, right, this used to be a boom-bust kind of business, and it was very volatile in terms of our breast health business. And really what we set out and achieved through most of the 2010s, as it were, is really getting a much more stable and steady business through both more steady placement of gantries instead of the boom-bust and the cliffs and all that stuff that many of you remember, as well as building out our service business to be much more recurring revenue and strengthening the footprint into the interventional space where we've got more disposables coming through.

Speaker Change: Yeah, Thanks, and glad you asked the breast health question, because if I step back and give a bigger perspective on it. If you go back 15 years. This used to be a boom bust kind of business and it was very volatile in terms of our breast health business and really what we set out and achieved through most of the 2000 tens as it.

Speaker Change: Or is really getting a much more stable and steady business through Baltimore steady placement of Gantries instead of the boom bust and eclipse and all that stuff that many of you remember as well as building out our service business to be much more recurring revenue.

Speaker Change: And linked to strengthening the footprint into the interventional space, where we've got more disposables coming through so we really feel like we've proven that ability to have a nice longer runway and a much more steady business.

Steve Macmillan: So we really feel like we've proven that ability to have a nice, longer runway and a much more steady business. And then two massive things hit us here in the early 2020s, from COVID, which created its own challenges, and then particularly the chip shortage. And the way, you know, we think about it internally right now, the last couple of years, our breast health businesses look more like an echocardiogram. You know, it's way up, way down, based on the downs and the chip shortages and then, you know, these weird comparables. And I feel like right now, as we exit and really flush through 25, and even getting into our fourth quarter of this calendar year, this fiscal year, which is really only the third quarter, and then heading into next year, it will be getting back to much more of that steady business.

Speaker Change: And then two massive things hit us here in the early 2000, Twenty's from Covid, which created its own challenges and then, particularly the chip shortage and the way we think about it internally right now the last couple of years, our breast health business is look more like an echocardiogram.

Speaker Change: It's way up way down based on the Dallas and the chip shortages and then these weird comparables.

Speaker Change: And I feel like right now as we exit and really flushed through 'twenty, five and even getting into our fourth quarter of this calendar year. This fiscal year, which is really only the third quarter and then heading into next year, there will be getting back to much more of that steady business and I think thats, where we feel <unk>.

Steve Macmillan: And I think that's where we feel much better. And combined, as the interventional business has grown, to your point, Patrick, and now with EndoMag coming in, we have more sufficient scale to have a much more recurring revenue focus, as well as the capital focus, which will set us up for both the Envision launch, but also maximizing EndoMag and the IBS stuff. So I think we feel it's one of those times where sometimes the numbers are better than the business, and sometimes the business, you start to feel like, starts to turn before the numbers fully demonstrate it.

Patrick Donnelly: Better and combined as the interventional business has grown to your point, Patrick and now with <unk> coming in we have more sufficient scale to have a much more recurring revenue focus as well as the capital focus which will set us up for both the envision launch, but also maximizing endo bag.

Patrick Donnelly: And the Ibs stuff. So I think we feel it's one of those times, where sometimes the numbers are better than the business and sometimes the business you start to feel like start to turn before the numbers fully demonstrated in I would say, we are clearly feel that way with our breast health team right now that they've turned it.

Steve Macmillan: And I would say we are clearly feel that way with our breast health team right now. That they've turned the corner, you know, organizationally, and that will start to show up here in the next couple of years. Thank you.

Patrick Donnelly: Corner Org.

Patrick Donnelly: Organizationally and that will start to show up here in the quarters ahead.

Speaker Change: Thank you we will take our next question from <unk> <unk> with Morgan Stanley.

Tejas Savant: We will take our next question from Tejas Savant with Morgan Stanley. Hey, guys. Good evening.

Patrick Donnelly: Hey, guys good evening.

Karleen Oberton: Maybe one for you, Karleen, to kick things off on the guide. Looks like you've got the, you know, organic constant currency ex-COVID number by about 60 bps or so, and you talked to obviously tariffs in China in there. But I'm curious as to whether that Africa weakness in molecular diagnostics or perhaps incremental sort of weakness in breast health were part of that mix as well. And it sounds like skeletal recovered a little bit sooner in the year. So any upside from that? Just wondering beyond tariffs in China, how to think about the 60 bp haircut?

Speaker Change: One for you carlene to kick things off on the guide it looks like you've got.

Speaker Change: I think constant currency ex COVID-19 number by about 60 bps or so when you talk to US obviously tariff has been China in there, but I'm curious as to whether that Africa weakness in molecular diagnostics or <unk>.

Speaker Change: Perhaps incremental sort of weakness in breast health.

Speaker Change: Part of that mix as well and it sounds like skeletal recovered a little bit sooner in the yard so.

Speaker Change: Any upside from that just just wondering beyond tablets in China, how to think about the.

Speaker Change: 60 bps haircut.

Karleen Oberton: Yeah, I think the 60 bucks haircut is primarily related to the China takedown in the back half of the year, as well as I think we indicated that the Africa call down, I think we talked about $10 million a quarter, and our last call is probably a little bigger than we had originally estimated as it's impacting other non-for-profit entities. So I think that those are the biggest drivers of the takedown, the percentage. Got it.

Speaker Change: Yes, I think the 60 bps haircut is primarily related to the China take down in the back half of the year as well as I think we indicated that the Africa called out I think we talked about $10 million a quarter in our last call is probably a little bigger than we had originally estimated as its impacting other non for profit entity.

Speaker Change: So I think that those are the biggest drivers of the takedown the percentage the 60 bps that you called out.

Speaker Change: Got it.

Steve Macmillan: And then one follow-up for you, Steve, on the gantry side of things. Are you considering revisiting sort of that premium price positioning you'd plan to charge for Envision, just given current market conditions? Or do you still feel good about, you know, the quality and the value that the platform offers? And if it's the former, then could we see a little bit of margin pressure there since I think this is a higher COGS instrument than your current platform? Yeah, I can take that one here. What I would say is we feel very confident with the value that our product brings, and if you think about where our current three-dimensions product sits in the market, it is also at a premium, delivering more value, I would say, than our competition.

Speaker Change: And then one follow up for you Steve on on the gantry side of things are you, considering revisiting sort of that premium price positioning and plan to charge for envision just given current market conditions or do you still feel good about the quality and the value that the platform offers.

Speaker Change: If it's the former then could we see a little bit of margin pressure there.

Speaker Change: I think this is a higher cogs instrument than your current platform.

Speaker Change: Yes, I can take that one here what I would say is we feel very confident.

Speaker Change: The value that our product brings and if you think about where our current three dimensions product sits in the market.

Speaker Change: It is also at a premium delivering more value I would say that our competition. So I think what we've thought about is really being creative in how we bring this product to market with different options and acquisition models to partner with customers to really give them the best in class technology to really identify.

Steve Macmillan: So I think what we've thought about is really being creative on how we bring this product to market with different options and acquisition models to partner with customers to really give them the best-in-class technology to really identify cancer quicker and better, I would say, than we have in the past. So this is not that much more. I would say it includes all the software that we offer coming standard, so it's pretty comparable to where we stand today in the market.

Speaker Change: Cancer quicker and better I would say than we have in a pad. So this is not that much more I would say it included all the software that we offer coming standard so it's pretty comparable to where we stand today in the market.

Speaker Change: Thank you we will take our next question from Jack Meehan with me from research.

Jack Meehan: We will take our next question from Jack Meehan with Nifron Research. Thank you. Good afternoon. Hey, Jack. Hey, Steve.

Jack Meehan: Thank you good afternoon.

Speaker Change: Hey, Jack.

Jack Meehan: Thanks, Steve.

Steve Macmillan: First, wouldn't ask about China, which is something I never thought I would do on a Hologic call just because That's a small portion of revenue. But I was curious, like what you're seeing there in the market today, and the revenue that's coming out of the guide, just any color on like, what segments that's coming out of Yeah, I think at a high level, Jack, because it's been small for us, we're probably less, less competitive there as we go forward. So we're just effectively de-risking it. It's largely our diagnostics business. So which we still feel pretty good about, but just, you know, with that current environment right now, we just would rather de-risk it a little bit further.

Jack Meehan: First wanted to ask about China, which is something I never thought I would do on a hologic call just because it.

Jack Meehan: Such a small portion of revenue, but I was curious like what youre seeing there in the market today and the revenue that's coming out of the guide.

Jack Meehan: Just any color on like what segments, that's coming out of.

Jack Meehan: Yes, I think at a high level, Jack because its been small for us we're probably less.

Jack Meehan: Less competitive there as we go forward. So we're just effectively derisking it.

Jack Meehan: It's largely our diagnostics business.

Jack Meehan: So, which we still feel pretty good about but just.

Jack Meehan: With that current environment right now.

Jack Meehan: We just would rather derisk it a little bit further yeah, and Jack just to put it in perspective, the call down that we have would reflect an ongoing at $30 million business annually. I know, we talked about $25 million to $50 million, but $30 million would be on an annual basis going forward.

Steve Macmillan: Yeah, and Jack, just to put it in perspective, the call down that we have would reflect an ongoing $30 million business annually, and then we talked about $25 is $50 million, but $30 million would be an annual. Got it. Okay, thank you.

Got it okay. Thank you.

Steve Macmillan: As one kind of broader follow up, Steve or Essex or Karleen, just would love to get your thoughts on the utilization environment, like just your feel for how that is at the moment. either I was looking at the guidance surgical organic growth of 1%. And, you know, I know, there's some things weighing down the diagnostics growth at the moment. But do you feel like things are like fairly steady? And maybe there's some of these one off headwinds or any change you've sensed in that regard? Yeah, I think overall, Jack, we feel pretty good on the utilization level, you know, Guy and Serge is not exactly growing much at this stage.

Speaker Change: And there's one kind of broader follow up.

Speaker Change: <unk> currently and just would love to get your thoughts on the utilization environment like just your feel for how that is at the moment.

Speaker Change: Either I was looking at the guidance surgical organic growth of 1%.

Speaker Change: Yes, I know.

There are some things weighing down the diagnostics growth at the moment, but do you feel like things are like fairly steady and maybe there is some of these one off headwinds or.

Speaker Change: Any change.

Speaker Change: In that regard.

Speaker Change: Yes, I think overall, Jack we feel pretty good on the utilization level guidance are not exactly growing much at this stage.

Steve Macmillan: And I think we still are kind of flushing through the bolus that we had of the makeups. So I think, again, as we kind of look to the future, we feel like we're getting all those weird comps behind us. But you know, I would say slower and steadier analytics as it is on the Guy and Serge side.

Speaker Change: And I think we're still our kind of flushing through the the bolus that we had of the make ups. So I think again as we kind of look to the future. We feel like we're getting all of those weird comps behind us.

Speaker Change: But I would say slower and steadier.

Speaker Change: As it is on the guidance search side, yes, I would agree with that if you looked at what elective procedures have done over the last few years, obviously through the Covid times. They were extremely slow if not non existent and then we saw a significant boom similar to our gantry performance over the last couple of years.

Steve Macmillan: Yeah, I would agree with that. If you look at what elective procedures have done over the last few years, obviously, through the COVID times, they were extremely slow, if not non-existent. And then we saw a significant boom, similar to our gantry performance over the last couple years. What we're seeing is a tripling back of everything from colonoscopies to GYN procedures, highly elective procedures are kind of in that more middling slow range versus a more non-elective procedure. So procedure volume as a whole, I think in the industry is solid. I think when you look at highly elective procedures, it's a little bit slower than the overall.

What we're seeing is a a tripling backup everything from colonoscopy for <unk> procedures are highly elective procedures are kind of in a more middling slow range versus a more non elective procedures.

Speaker Change: Procedure, so procedure volume as a whole I think the industry is solid I think when you look at highly elective procedures, it's a little bit slower than the overall space.

Speaker Change: Thank you.

Puneet Souda: We will take our next question from Puneet Souda with Lyrinc Partners. Yeah, hi guys. Steve, thanks for taking my question. I'll combine it into one. On the supply chain side, I would love to understand what you can do in terms of supply chain management. A number of companies are mitigating the impact by moving the inputs to different countries. Just wondering what you can do there.

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

Speaker Change: Yeah, Hi, guys. Thanks.

Speaker Change: Thanks for taking my question.

Speaker Change: I'll.

Speaker Change: Combined it into one.

The supply chain side would love to understand what you can do in terms of supply chain management, a number of companies are mitigating the impact on moving.

Speaker Change: The inputs to different countries.

Speaker Change: Just wondering what you can do there and then on the on the gantry side, just trying to understand on the capital expense.

Steve Macmillan: And then on the gantry side, just trying to understand on the capital expense, why wouldn't you see more CAPEX pressures from the hospital and the hospital systems in the current economic environment? And how should we think about the breast health new gantry and the headwind from that, you know, given the launch next year? Thank you. Yeah, I think, Puneet, on the supply chain stuff, probably like everybody, we're, you know, evaluating things. I think, ultimately, we feel very good about our supply chain in that all of our mammography equipment is made in the U.S. Our diagnostic stuff for the U.S.

Speaker Change: You see more capex pressures from the hospital and the hospital systems in the current economic environment and how should we think about the breast health new.

Speaker Change: Gantry.

Speaker Change: And the headwind from that.

Speaker Change: Given the launch next year. Thank you.

Speaker Change: Yes, I think puneet on the supply chain stuff, probably like everybody. We're evaluating things I think ultimately we feel very good about our supply chain and that all of our mammography equivalents made in the U S. Our diagnostic stuff in the U S as U S or.

Steve Macmillan: is U.S. So we're, you know, heavily, heavily dependent there. And then it's really the Costa Rica piece, but we've got a great manufacturing footprint in Costa Rica. I don't think we're gonna be moving that by any stretch. So, you know, we'll, you know, we'll always value it. But ultimately, over the long run, we think we're in a really good position on that front. You know, regarding the CapEx and our new gantry coming, I think we feel very good in that, again, these are not massive purchases, and it's something that, frankly, gets amortized over time. And, you know, these are not huge, huge purchase prices for hospitals.

Speaker Change: Heavily heavily dependent there and then it's really the Costa Rica piece, but we've got a great manufacturing footprint in Costa Rica, I don't think were going to be moving that by any stretch so well.

Speaker Change: We will always evaluate but ultimately over the long run we think we're in a really good position on that front regarding the capex in our new gantry coming I think we feel very good in that again these are not massive.

Speaker Change: Purchases and it's something that frankly gets amortized over time and these are not huge huge purchase prices for hospitals.

Steve Macmillan: And I think we feel really good about the value that we continue to bring. You know, if I've learned anything through, you know, a bunch of years in healthcare, when you bring a meaningful product improvement to the market, and, you know, we've got the ability to be talking to the hospitals in advance, they'll carve out some budget for it, and I think we feel pretty good.

Speaker Change: And I think we feel really good about the value that we continue to bring it up have learned anything through a bunch of years in healthcare when you bring a meaningful product improvement to the market.

Speaker Change: And we've got the ability to be talking to the hospitals in advance.

They'll they'll carve outs and budget for it and I think we feel pretty good.

Speaker Change: Thank you.

Karleen Oberton: We will take our next question from Vijay Kumar with Evercore ISI. Unknown For Unknown For just one on the replacement cycle. I know you've talked a little bit about. Free End of Life Strategy. Can you give us the latest update on the replacement cycle? How long is the typical life the gantry is out on the field today? And more broadly, where would you say we currently are?

Speaker Change: We will take our next question from Vijay Kumar with Evercore ISI.

Speaker Change: Hi, This is Kevin on for P. J, just one on the replacement cycle.

Speaker Change: I know you've talked a little bit about your gantry end of life strategy.

Speaker Change: Can you give us the latest update on the replacement cycle. How long is the typical life the gantries out on the field today and more broadly what would you say we currently are in the replacement cycle.

Karleen Oberton: Yeah, this is Karleen. I'll kick that question off that answer off. You know, I think the average, we are in a replacement cycle already, as we talked about, we have an end-of-life strategy, so that would tell you that we're in it. I think what we're finding is that the average life of the gantry has extended from what was probably 7 to 9 years to maybe a 10 to 12 years. I think that's a combination of our outstanding service force that Please see the complete disclaimer at https://www.sites.google.com Thank you.

Carlin: This is carlin.

Carlin: Take that question off that answer off I should say I think the average we are in a replacement cycle already as we talked about we have an end of life strategy. So that would tell you, though that we're in it I think what we're finding is that the average life of the gantry has extended from what was five 7% to nine years to maybe 10 to 12 years.

Carlin: I think thats a combination of our outstanding service force that takes.

Carlin: <unk> takes care of the install base and keeps our customers up and running as well as lack of outside catalysts to drive the conversion like higher reimbursement or superior technology. So I think we're in it and I think we would expect over the longer term as Steve I think laid out just a steady.

Carlin: Placement of Gantries every year.

Carlin: Thank you.

Anthony Petrone: We will take our next question from Anthony Petrone with Mizzou Hope. Thanks. Good afternoon, everyone. One supply chain I know a couple of years ago, semiconductors were an issue. It's being thrown around here in the global trade war. And it looks like, at least at the moment, we have exemptions.

Speaker Change: We will take our next question from Anthony <unk> with Mizuho group.

Carlin: Thanks.

Speaker Change: Afternoon, everyone.

Speaker Change: On supply chain I know a couple of years ago semiconductors were an issue it's being thrown around here and a global trade war and it looks like at least at the moment, we have exemptions. So maybe just a revisit on semiconductors.

Essex Mitchell: So maybe just a revisit on semiconductors. How's your inventory of semis and does that present a headwind or lack thereof when you look at the next gantry cycle? And I'll have one quick follow up.

Speaker Change: How is your inventory as Sami isn't does that.

Speaker Change: Present.

Speaker Change: A headwind or lack thereof.

Speaker Change: When you look at the the next gantry cycle and I have one quick follow up.

Essex Mitchell: Yeah, this is Essex. No, we don't have anything on the forefront with regard to that. I think we've really expanded our network through the last challenge and haven't seen any headwinds on the forefront here in the That's helpful.

Speaker Change: Yes. This is ethics no. We don't have anything on the forefront with regard to that I think we've really expand our networks through the last challenge and haven't seen any headwinds on the forefront here in the future.

Speaker Change: That's helpful and then maybe just on the molecular side.

Essex Mitchell: And then, you know, maybe just on on the molecular side, you know, in the past, there have been, you know, contracting cycles with some of the big lab operators, LabCorp Quest, for instance, you know, maybe just an update on where we are in those cycles. And, you know, latest views, you know, perhaps heading into one or more of those contracting cycles. Both in terms of price and volume. Yeah, Anthony, I'll just take that and say that we're not going to disclose the nature of our agreements with our larger customers. I think what I'd point you to is the molecular growth in the quarter that, again, absent the HIV headwinds that we have, molecular would have grown another low double digits this quarter.

Speaker Change: In the past there have been contracting cycles with some of the Big lab operators Labcorp Quest for instance, maybe just an update on where we are in those cycles.

Speaker Change: Latest views, perhaps heading into one or more of those contracting cycles.

Speaker Change: Both in terms of price and volume thanks.

Speaker Change: Yes, Anthony I'll, just take that in to say that we're not going to disclose that.

Speaker Change: Nature of our agreements with our larger customers I think what I'd point you to is the molecular growth in the quarter that again absent the HIV headwinds that we have molecular would've grown another low double digit this quarter, so feel great about that business and certainly underlying customer relationships are strong.

Essex Mitchell: So feel great about that. and certainly our underlying customer relationships are strong.

Speaker Change: Thank you.

Michael Matson: We will take our next question from Mike Matson with Needham. Hi, everyone. This is Joseph on for Mike.

Speaker Change: We will take our next question from Mike Matson with Needham.

Speaker Change: Hi, everyone. This is Joseph on for Mike.

Speaker Change: <unk>.

Michael Matson: I guess with the first one, just looking at the gantry launch, I was wondering if you could give us any color on maybe anything that you're hearing from docs or I guess any type of preorder list you're building, just any type of metrics that you could give, obviously at least a couple of quarters until the launch, but to just try and help us interpret this upcoming demand.

Speaker Change: I guess, what the first one just looking at the gantry launch I was wondering if you can get if you guys could give us any color on it.

Speaker Change: And maybe anything that youre hearing from docs here.

Speaker Change: I guess any type of preorder list you are building just any type of metrics that you could gave obviously at least a couple of quarters until the launch but could you just try and help us interpret this upcoming demand and then.

Steve Macmillan: And then just a related point, my apologies if I'm not understanding this, but the refined end of life strategy for these older gantry units, are you guys attempting to upgrade these old units to the gantries that are currently available, or again, is this kind of preordering for the next launch? Yeah, no, no apology needed. Good, good, good, good question, Anthony. What we're doing is on the to answer the second part of your question first, actually offering our existing gantry. So you know, our three dimensions, particularly for those customers that still have the old ones. Oftentimes, they're ready to, you know, upgrade, and we've still got, you know, best in class of anything.

Speaker Change: Just related point.

Speaker Change: My apologies, if I'm not understanding that could be refined to end of life.

Speaker Change: Strategy for these older gantry units.

Speaker Change: Are you guys attempting to upgrade these old units to the gateways that are currently available or again is this kind of pre ordering for the next launch.

Speaker Change: Yes, no no apology needed.

Speaker Change: Good good good question Anthony.

Speaker Change: What we're doing is.

Speaker Change: On the to answer the second part of your question first actually offering our existing gantry. So our three dimensions, particularly for those customers that still have the old ones.

Speaker Change: Oftentimes they are ready to.

Speaker Change: Upgrade and we've still got best in class or anything so in some cases, we may be bifurcated that will give them some of the existing <unk> and then we will add.

Steve Macmillan: So in some cases, we may be bifurcating, that will give them some of the existing three DS, and then we'll add, you know, the newer gantries when it comes as a reminder on the newer gantry, it's really a 26 event. So we're still a little further out there. Yeah, and with regards to feedback, I think as we really debuted the product at RSNA, we received great feedback at that time. We've continued to engage with physicians and they feel great about it. We're continuing to receive positive feedback, refine the product and getting really excited for the launch.

Speaker Change: The newer gantries when it comes as a reminder, on the newer gantry, it's really a 2006 events. So we're still a little further out there.

Speaker Change: Yeah, and with regards to feedback I think as we.

Speaker Change: Really debuted the product at RSA, we received great feedback at that time, we've continued to engage with physicians and.

Speaker Change: They feel great about it we continue to receive positive feedback refine the product and getting really excited.

Speaker Change: For the launch.

Steve Macmillan: Oh, perfect.

Speaker Change: Okay, perfect and then.

Essex Mitchell: In the skeletal business, was this, you know, largely a full catch up quarter? Is there still a lot of catch up to go? You know, just looking into the second half, should we expect kind of elevated skeletal revenues? Or is it, you know, more or less back to normal? Yeah, I wouldn't expect any elevation in the fourth quarter, probably getting closer back to normal quarterly trends.

Speaker Change: And if that's all right.

Speaker Change: In the skeletal business.

Speaker Change: Was this largely a full catch up quarters Theres still a lot of catch up to go.

Speaker Change: Just looking into the second half.

Speaker Change: Should we expect kind of.

Speaker Change: Elevated skeletal revenues or is it more or less back to normal.

Speaker Change: Yes, I wouldn't expect any elevation in the fourth quarter, probably getting closer back to normal quarterly trends I would say this was.

Unknown Attendee: I would say this was Unknown Attendee Unknown Attendee Thank you.

Speaker Change: During the quarter will be caught up the most.

Speaker Change: Given the ramp up in supply.

Speaker Change: Thank you we'll take our next question from Leo Li with UBS.

Lou Lee: We will take our next question from Lou Lee with UBS. Great, thank you for taking my questions. I think the first one on the guide, so my quick math is showing that the Q4 is roughly like 4% above the Q3 level, so I'm wondering, any comment that you can share on why higher growth in Q4, like any conversation that you have with the customer that really gives you the confidence about the brand? Yeah, so, yes, we do expect Q4 sequentially to be higher than Q3. That will be driven by the recovery in the breast health business.

Leo Li: Great. Thank you for taking my questions I think the first one on the guide.

Leo Li: So my quick math is showing that the Q4, it's mostly like 4%.

Leo Li: All of the carefree level, so I'm wondering.

Leo Li: Any color you can share on why higher growth from Q4 like any conversation that you have is the customer that really gives you the confidence.

Speaker Change: Hi, Brian.

Brian: Yes, so yes, we do expect Q4 sequentially to be higher than Q3 that will be driven by <unk>.

Brian: The recovery in the breast health business, we would expect that we will have higher gantries in the fourth quarter than we do in the.

Karleen Oberton: We would expect that we'll have higher gantries in the fourth quarter than we do in both the second and the third. We'll also have—gynastonics will be a full quarter, and endomeg direct in the U.S., as we've talked about. Those are some of the things. Transcript by Transcription Outsourcing, LLC. Got it. Appreciate that.

Brian: Both the second and the third.

We'll also have Don <unk> will be a full quarter and Omega.

Brian: Direct in the U S. As we've talked about some of the things that will drive.

Brian: The fourth quarter as well as think about skeletal with pretty much a full stop ship in the fourth quarter of the prior year.

Brian: Got it I appreciate that.

Karleen Oberton: Another question, maybe just on kind of like the full year guide. Any other upside or downside scenario that we should be thinking about? I know that there's a lot of color that you already provided in terms of the tariffs. But is there any scenario where there's a retaliation coming out from Europe, given that most of your manufacturing is actually in the US? Would that be an issue? Just wondering if there are like any other mitigating factors that you can lever. Yeah, I mean, I think we've provided the guide and the range based on what we know now.

Brian: Other question, maybe just on kind of like a full year guide.

Brian: Any other upside downside scenario that we should be thinking about I know that there was a lot of colored are you willing to provide that in terms of the tariff.

Brian: But is there any scenario barrett themselves retaliation coming out from Europe, given that most of your manufacturing is actually in the U S would that be an issue. Just wondering if there are like any other mitigating factors that you can becker.

Brian: Yes, I mean, I think we've provided the guide and the range based on what we know now and since we really don't know what's going to happen in the future. There is no need to really comment further.

Karleen Oberton: And since we really don't know what's going to happen in the future, there's no need to really comment.

Brian: Thank you.

Casey Woodring: We will take our next question from Casey Woodring with J.P. Morgan. Great, thank you.

Speaker Change: We will take our next question from Casey Woodring with J P. Morgan.

Brian: Great. Thank you.

Casey Woodring: I'm just curious, on that 12% non-product revenue growth rate you called out, you know, mainly on the breast service component, how did that compare to your expectations in the quarter? What drove that strong number?

Brian: Just curious on that 12% non product revenue growth rate you called out mainly on the breast services component, how does that compare to your expectations in the quarter what drove that strong number and then how should we think that think about that for the rest of the year and maybe on a longer term basis to going forward.

Steve Macmillan: And then how should we think about that for the rest of the year, and maybe on a longer-term basis, too, going forward? I have one follow-up. Thanks. I would call that just great execution by our service leadership. We continue to look at our catch rates, grow our catch rates. We continue to optimize pricing, and the install base continues to grow, so all those things lead to that growth. So, performed largely well.

Brian: A follow up thanks.

Brian: I would call that just great execution by our service leadership, we continue to look at our attach rates grow our attach rate.

Brian: We continue to optimize pricing and the installed base continues to grow its all those things lead to that growth. So performed largely in line with expectations.

Steve Macmillan: And Casey, it's Mike. Just as we report that externally as a detail, our biotherapeutics oncology revenue is in there as well. And as you probably heard from the script, that continues to grow nicely.

Mike: Casey, It's Mike just as we report that externally as the detail our buyout their gnostics oncology revenues in there as well and as you probably heard from the script that continues to grow nicely as well.

Steve Macmillan: Okay, yeah, that was actually my follow-up was what biothermastics grew in the quarter. You know, I imagine it's pretty insulated from a lot of this macro noise, so curious how that's contributing to that molecular growth rate moving forward. Thank you. Yeah, the biotheranostics is accretive to the overall molecular growth rate, and I would just say that a strong quarter here in Q2, given that the portion of that revenue that is on a cash basis, and so that sometimes there's lumpiness in the cash collections and the billing patterns, and Q2 of last year was a little bit of a lighter revenue quarter, so probably a little stronger growth rate than we were.

Speaker Change: Okay. Yeah that was actually my follow up was what <unk>.

Mike: <unk> grew in the quarter.

Mike: I imagine, it's pretty insulated from a lot of this macro noise. So curious how that's contributing to that molecular growth rate moving forward. Thank you.

Mike: Yes, the bioterror and optics is accretive to the overall molecular growth rate and I would just say that.

Mike: A strong quarter here in Q2, given that the portion of that revenue that is on a cash basis.

Mike: And so that sometimes there's lumpiness in the cash collections in the billing patterns in Q2 of last year was a little bit of a lighter revenue quarter, so probably a little stronger growth rate than we would expect going forward.

Speaker Change: Thank you we'll take our next question from Michael <unk> with Bank of America.

Michael Ryskin: We will take our next question from Michael Ryskin with Bank of America. Hi, this is Aaron. I'm from Mike.

Speaker Change: Hi, This is Aaron on for Mike I, just wanted to double click on tariffs for but what I know we've talked about it a lot, but we're already two quarters in 2026 is around the corner. So how are you thinking about.

Steve Macmillan: I just wanted to double click on tariffs for a moment. I know we've talked about it a lot. But, you know, we're already two quarters in 2026 is around the corner. So how are you thinking about, you know, given the ever changing environment we're currently in? How are you thinking about mitigation strategy and tariffs overall, heading into 2026?

Speaker Change: Given the ever changing environment. We're currently in how are you thinking about mitigation strategy in Paris overall heading into 2026.

Steve Macmillan: Yeah, well, first of all, we're not providing any guidance for 2026. I just refer you back to our prepared remarks that, based on what we know today, we would expect a headwind of $20 to $25 million a quarter, and we'd expect that would continue into 2026, unless there's a significant Understood.

Speaker Change: Yeah, well first of all we're not providing any guidance for 2026 I would just refer you back to our prepared remarks that based on what we know today, we would expect a headwind of $20 million to $25 million a quarter.

Speaker Change: We would expect that would continue into 'twenty six unless there's a significant policy change.

Steve Macmillan: And you know, you touched on M&A, buybacks and capital deployment. Given the current macro environment, does that change how you're thinking about it at all? No, I think we feel comfortable with our capital allocation strategy, as we talked about. We've got $1.6 billion of cash and investments on the balance sheet. Our priority is to tuck in M&A and share repurchase as appropriate, I think. Given the current balance on the balance sheet, as well as our ability to generate cash flow going forward, it gives us the optionality to do that.

Speaker Change: Understood and.

Speaker Change: You touched on M&A buybacks and capital deployment, given the current macro environment does that change how you're thinking about it at all.

Speaker Change: No I think we feel comfortable with our capital allocation strategy as we talked about we've got $1 6 billion of cash and investments on the balance sheet. A priority is tuck in M&A and share repurchase is appropriate I think given the current balance on the balance sheet as well as our ability to generate cash flow.

Speaker Change: Going forward it gives us the optionality to do both SBC appropriate.

Steve Macmillan: Thank you.

Thank you we will take our next question from Doug Schenkel with Wolfe Research.

Avery: We will take our next question from Doug Schenkel with Wolf Research. Hey, this is Avery on for Doug. Just first on on imaging. Are you hearing it all from hospital procurement teams that they're holding out on buying new gantries because they're waiting for envision and then just building on that without holding you to any expectation for next year? Could the imaging business potentially grow above that long term three to 4% expectation with the replacement uplift?

Speaker Change: Hey, this is <unk> on for Doug just first on <unk> are you hearing at all from hospital procurement teams that they are holding out on buying new gantries, because they're waiting for envision and then just building on that without holding you to any expectation for next year. It could be your imaging business potentially grow above that long term, 3% to 4% extra.

Speaker Change: Patients.

Speaker Change: With the replacement uplift thank you.

Steve Macmillan: Thank you. Yeah, so with regards to what we're hearing from hospitals, I would say we are not hearing that people are holding out largely. There are a few customers that are excited about it, that may have a later version of a gantry that are looking forward to it. But largely, all the software that is available on our current three dimensions will be available on our Envision product moving forward. There are a couple key accessibility and workflow features that I would say that you will get as a clear advantage with Envision moving forward. Also having all the software built in, but largely customers today are not going to hold back on delivering, I don't think, best care to women who are going for their annual mammograms. For a lot of the features that we do have available today that they can upgrade to with three dimensions.

Speaker Change: Yes, so with regard to what we're hearing from hospitals I would say we are not hearing that people are holding out largely there are a few customers that are excited about it. They may have a later version of <unk> that are looking forward to it but largely all of the software that is available on our current three dimensions will be available.

Speaker Change: <unk>.

Speaker Change: On our envision product moving forward there are a couple of key accessibility and workflow features but I would say that you will get is a clear advantage with envision moving forward also having all the software built in.

Speaker Change: But largely customers today are not going to hold back on delivering I don't think best care to women who are.

Speaker Change: Going for their annual mammograms.

Speaker Change: For a lot of the features that we do have available today that they can upgrade to with three dimensions.

Steve Macmillan: All right, and then on capital deployment, specifically, you know, obviously, valuations have come in over the past few months. Can you give us any color on your priorities from an M&A perspective? Are you considering later on to your existing MedTech portfolio and potentially gaining more exposure to broader surgical categories? Yeah, we're never going to get that detail. We kind of can do shopping across diagnostics, imaging and, and surgical. We've done a bit of both obviously with both endomag and gynasonics. And we continue to look across the portfolio for tuck ins across Thank you.

Speaker Change: Alright, and then on.

Speaker Change: Sorry.

Speaker Change: On capital deployment, specifically obviously.

Speaker Change: Obviously valuations have come in over the past few months can you give us any color on your priorities from an M&A perspective are you considering layer on to your existing that tech portfolio and potentially gaining more exposure to broader surgical categories.

Speaker Change: Yeah, we're never going to get that detailed we cannot do.

Speaker Change: Do shopping across diagnostics imaging and surgical we've done a bit of both obviously with both <unk> and Guyana Sonics.

Speaker Change: And we continue to look across the portfolio for tuck ins across the company.

Speaker Change: Thank you we will take our next question from Conor Mcnamara with RBC capital.

Connor McNamara: We will take our next question from Connor McNamara with RBC Kappa. Great, thanks for taking the question guys. The first one is on the diagnostics business, what percentage of that of your revenue in diagnostics is on rental contracts, and then do those contracts have any Pricing change put in the contracts that just reset on an annual basis or those fixed price throughout the life of the contract? Yeah, so under our molecular business, those are the Panther instrument is basically majorities under reagent rental agreements where the customer pays on the per assay utilized. Those are typically three to five year contracts that have typically fixed.

Conor Mcnamara: Great. Thanks for taking the question guys.

Speaker Change: The first one is on the diagnostics business.

Conor Mcnamara: What percentage of <unk>.

Speaker Change: Revenue diagnostics as a rental car.

Conor Mcnamara: Contracts.

Conor Mcnamara: Those contracts have any.

Conor Mcnamara: Pricing change put into contracts just reset on an annual basis are those fixed price throughout the life of the contract.

Conor Mcnamara: Yes, so under our molecular business those are the Panther instrument, it basically majorities under reagent rental agreements where the customer pays.

Conor Mcnamara: On the per assay utilized.

Conor Mcnamara: Those are typically three to five year contracts that have.

Conor Mcnamara: Typically fixed pricing.

Essex Mitchell: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES Okay, great. And then at the start of the call, you mentioned strong replacements of the fusion, Panther Fusion, in high respiratory season. Can you just talk about where the fusion penetration is and what you're seeing on ordering patterns from those fusion customers?

Conor Mcnamara: But there is nothing unusual that's happening that that dynamic that structure of that business has been in place for many years.

Conor Mcnamara: Okay, Great and then.

Conor Mcnamara: Part of the call you mentioned strong replacements of the fusion Panther fusion and high respiratory soon can you just talk about.

Conor Mcnamara: Where the.

Conor Mcnamara: Fusion penetration is and what youre seeing on the ordering patterns from those customers. Thanks for the questions.

Essex Mitchell: Thanks for the question. Yes, I would just say that what we track is, you know, Panther Fusion would never be a one for one with Panther. We track more how many customers have a fusion capability within the lab. And at this point, we're probably about a third of our customers have that capability. And I think the comment Stating that the respiratory menu does run on fusion, and as we have these elevated seasons, it typically generates more interest in that. Connor, we are seeing some nice steady growth of customers adopting the fusion, which now we've placed all the Panthers, especially through COVID.

Conor Mcnamara: Yes, I would just say that what we track.

Conor Mcnamara: Panther fusion will never be a one for one with Panther, we track how many customers have fusion capability within the lab and at this point, we're probably about a third of our customers have that capability and I think the comment with stating that the respiratory menu does run on fusion and as we have these elevated season it Tim.

Conor Mcnamara: Greg generates more interest in that in that instrument.

Conor Mcnamara: We are seeing some nice steady growth of customers adopting the fusion.

Conor Mcnamara: Now placed all the Panthers, especially through Covid a lot of the growth for the next five years really will be adding fusions to ultimately all of our customers ideally.

Essex Mitchell: A lot of the growth for the next five years really will be adding fusions to, you know, ultimately all of our customers, ideally. And then that opens up the additional menu opportunity expansion.

Conor Mcnamara: And then that opens up the additional menu opportunity expansion. So I think it's why we feel both very good results for diagnostics today and also for the future.

Essex Mitchell: So I think it's why we feel both very good results for diagnostics today and also for Thank you.

Conor Mcnamara: Thank you.

Andrew Cooper: We will take our next question from Andrew Cooper with Raymond James. In terms of the international stuff, the Africa stuff, we're assuming it's gone and it'll be upside if it comes back. So we certainly hope that some of it will and would expect that some, but we've taken it out of the fight. Yeah, and largely funding can come go, but the infrastructure, as we see it right now, is effectively broken on the continent that delivers that most of the testing and also medical supplies that go are that the people on the ground that actually administer that whether the funding there is not they're not there any longer.

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

Andrew Cooper: Hey, everybody thanks for the questions.

Speaker Change: Well I already asked and maybe just one on the African diagnostics piece some of that funding I think we've talked about.

Speaker Change: And then maybe coming back in so I, just would love any insights on sort of movement and Youre seeing there any glimmers of hope or signs that maybe this is the new normal for for the long term just help us think about the trend there would be great.

Speaker Change: In terms of the international stuff the Africa stuff, we're assuming it's gone.

Speaker Change: And it will be upside if it comes back so we certainly hope.

Speaker Change: Some of it will and we would expect that some but we've taken it out of the forecast, yes, largely funding can come go but the infrastructure as we see it right now is effectively broken on the continent that delivers that most of the testing and also medical supplies that go or.

Speaker Change: That the people on the ground that actually administer that whether the funding there is not they are not there any longer so that's.

Steve Macmillan: So that's why we've essentially taken it out of Yeah, so I would say you're right that it's the gantry service and the biotherapy.

Speaker Change: That's why we've essentially taken it out of our forecast.

Speaker Change: Okay.

Speaker Change: That is helpful. And then I want to go back to the services piece I guess just one.

Speaker Change: Else goes into that besides the gantry service and Bioassay Aeronautics and then two.

Speaker Change: As you guys talk about it a little bit more I think this quarter is that a business model that you would like more of your ambivalent to how do we think about the desire to kind of grow that whether it's organically or inorganically.

Speaker Change: Yeah, So I would say you're right that it's the gantry service and the Bioterror Gnostics makes up the vast majority of that revenue line.

Unknown Attendee: Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES Page PAGE of NUMPAGES www.verbalink.com Page PAGE of NUMPAGES Operator, I think we have time for one more question.

Speaker Change: I think we'd love to see that business grow certainly both <unk> and the service.

Speaker Change: The service revenue the greater are easily attach rates out with our customers and really creates that stickiness of the relationships that we have with our customer.

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

Mason Carrico: Thank you. We will take our last question from Mason Carrico with Hey guys, thanks for taking the questions here. Maybe within molecular diagnostics, it'd be great to get an update just on what you're seeing year-to-date on a competitive front. And if I could just ask my follow-up here, BBCV has been a core driver for you there. I think you've categorized it as in middle innings at this point.

Speaker Change: Thank you we will take our last question from Nathan <unk> with Stephens.

Nathan: Hey, guys. Thanks for taking the questions here.

Maybe with within molecular diagnostics.

Nathan: It would be great to get an update just on what youre seeing year to date on a competitive front and if I could just ask my follow up here.

Nathan: <unk> has been a core driver for you there I think you've categorized it as in middle innings at this point. So what do you view as key to ensuring that molecular continues to be a key driver for hologic is that assays market matures.

Steve Macmillan: So what do you view as key to ensuring that molecular continues to be a key driver for Hologic as that assay's market matures? Yeah, while we're in the middle innings, it's a long game, and we're probably still in the early to early part of those middle innings. So I think we see the women's health portfolio continuing to grow. And then we're really expanding the menu here over time. As we will, you know, just keep adding menu, the fusion sidecar opens it up.

Nathan: Yeah, while we're in the middle innings, it's a long game and we're probably still in the early to early part of those middle innings. So I think we see the womens health portfolio continuing to grow and then we're really expanding the menu here over time.

Nathan: We will just keep adding menu the fusion sidecar opens it up so I think it's that installed base that we havent Panthers that we see years and years of very nice growth coming for our diagnostics business.

Steve Macmillan: So I think it's that installed base that we have in Panthers, that we see years and years of, you know, very nice growth coming for our diet This now concludes Hologic's second quarter earnings call. Thank you for your participation and you may now...

Nathan: Okay.

Nathan: Thank you.

Nathan: This now concludes <unk> second quarter earnings call. Thank.

Nathan: Thank you for your participation and you may now disconnect.

Nathan: Yeah.

Nathan: [music].

Nathan: Okay.

Nathan: Okay.

Nathan: Yes.

Nathan: Okay.

Nathan: Sure.

Nathan: Okay.

Nathan: Okay.

Nathan: Yes.

Nathan: Yes.

Nathan: [music].

Nathan: Yes.