Welcome, everyone. I'm Puneet Souda, life science tools and diagnostics analyst here at Leerink, and my pleasure to be hosting Karleen Oberton, CFO of Hologic. As Steve says, best CFO in the business. So wonderful to have you here, Karleen. Thank you. It's great to be here. Yeah. Thank you. So, maybe if folks have questions in the audience, please raise your hand, and we'll get a mic to you. You know, first question I just sort of wanted to start with was maybe just to set the stage. I mean, Hologic, as Steve has said, it's the company has been transformed after the pandemic. And thanks to the larger Panther install base that's out there, you continue to deliver ahead of the long-term 5%-7%- Mm-hmm growth that you said, 30%+ op margins Mm in the business, strong balance sheet. I mean, all the things that, you know, in times like these Mm a company can value. Mm. You know, just maybe talk to us, where do you think Hologic can continue to win and see this type of a sort of a growth and, you know, what opportunities that excite you the most? Yeah. Sure, sure. So certainly, Puneet, as you said, we really believe that Hologic coming out of the pandemic is bigger, faster, stronger company. And what gives me confidence in that, and really how I view the strength in that, is the diversity of the growth, meaning that all of our businesses have growth drivers as we look ahead. They all have organic growth drivers, inorganic opportunities. You know, there is operating efficiency opportunities, and certainly international still continues to be, for all of our divisions, growing faster than the U.S. And, you know, as we all know, women are very much underserved outside the U.S., and so a great way for us to lean into our purpose and drive our financial results the same. So, feel good about where we're at. As you said, the Panther install base has transformed the molecular diagnostics business, but also, you know, in our breast business, we have an incredible install base of 3D gantries that we continue to kinda leverage that, that moat, if you will, of, of technology differentiated products. Got it. You know, just following up on that, you know, long-term growth, Panther installs well above 3,000. You know, if you look at the 5%-7% long-term guide, maybe just help us today, you know, sort of understand, given the sort of growth that you're seeing, you know, why is that sort of the right number? Just, you know, going forward, you have, you know, your growth coming from molecular Dx, you have the, you know, breast business and surgical. So just, when all these franchises are working out well, is it just sort of more conservatism, or is there something else in it? Yeah. Yeah, Yeah, let me put it in perspective. That 5%-7% we gave back in 2021 Mm that outlook was through 2025. And as you know, over the past several years, we've grown well above that. So actually, maintaining that 5%-7% is a stronger number than we originally gave that long-term guidance. So I think that's one we're really proud of that, of how we've been able to execute consistently and above, but feel at this point in time, we're holding at that 5%-7%. If you think about the divisions, you know, certainly the franchise molecular diagnostics is gonna grow above that 7%. Mm ... but cytology is probably below that, right? Mm. That's where you get that in the 5%-7%, trending towards Mm the 7%. Surgical, think about closer to the seven, and again, you've got MyoSure, which outpaced growth, but NovaSure has been a little bit of a decliner- Mm as that is, you know, a legacy product. So getting back into that 5%-7%, where when you look at all the franchises together. And then breast, you know, as we continue to recover through the supply chain challenges Mm and work down our backlog, you know, the biggest piece of revenue in that division is actually our service contracts. Mm. Right? So that's tied to that installed base. So, that is gonna grow on that lower end of the range. So that's why I think when we look for the long term, while there is the potential to elevate, at this point, given the portfolio, we're, we're comfortable with the 5%-7%. Okay, it makes a ton of sense. And, you know, want to touch on sort of, you know, gross margin, operating margin, sort of ex-COVID. And, you know, 2024 guide is for low, I think 60% gross margin, 30% for op margin. There is still sort of COVID in the numbers, so maybe, you know, could you describe once that sort of comes out? And I have a follow-up there too, and why, you know, what, what point COVID itself, these numbers get endemic? I know there's Mm limited amount of COVID, but when does that get endemic? And then if you strip that out, would you still say 60% gross margin, 30% op margin? Yeah. So, if we put it kind of the margins in perspective, prior to Mm the pandemic, gross margin was roughly 61%, operating margin was about 31.5%. Mm. I see us, as we manage through some of the supply chain issues that we've talked about, primarily in the breast business, you know, at those levels as we exit 2024, so we see that recovery. We haven't given specific margin detail on COVID, but certainly it's accretive to the corporate average. But if you look at what we've guided for Q3, that we've said about $5 million-$10 million of COVID revenue Mm probably de minimis impact at this point in time as we kind of exit the pandemic fully. I see. Okay, got it. Got it. And, you know, staying on margins, sort of how should we think about the, you know, biggest margin levers across the country. I mean, across the company, and what do you see driving the sort of most operating leverage? I mean, can we—the question underlying that is, can we get to that mid-30% EBIT margins? Back again. Yeah, so to put that mid-30 Mm-hmm in perspective, I think that was, Yeah ... when we still had the blood screening- Sure business. So that blood screening business. Mm-hmm -was a highly profitable business that we disposed of in 2017. So, and given that our margin profile, even at that pre-pandemic of 31.5%, is very rich, right? Mm-hmm. I don't see that as our goal to get back to that mid-30s. Mm-hmm. It's more of how do we continue to accelerate the top line and drive earnings faster than that? So if we stick at the 5%-7%, you're approaching that low double-digit earnings growth. And so we look at that as not only through the revenue growth, but, you know, some op margin expansion, but what can we do below the line, including tax rate, to drive that earnings growth? Got it. Got it. And pricing, you know, what should we be assuming of a pricing increases this year? And sort of wondering how you're thinking about longer term on price increases now with sort of the supply chain challenges somewhat behind. You know, and talk to us about sort of your ability to offset those costs with further price increases. Yeah, so I think pricing's is a bit of a challenge for us as we're already a premium-priced product. Mm-hmm. Certainly in the breast health business, where we had the most kind of supply chain challenges, really difficult to meaningfully offset those prices. But I think we're at a point now, specifically for breast- Mm-hmm -where we've kind of worked through those higher cost, components- Mm-hmm -that we had to procure during the height of the supply chain challenges. But, you know, I think we do look at pricing, and certainly online extensions when we launch new products. That's where we're gonna take some pricing. On our service contracts, again, those long-term contracts, when they come up for renewal, we have a regular cadence of pricing. So where we can do it, we take advantage of it, but it's not significant. It's more from volume is where we'll get our growth. Got it. Okay. And, let's pivot to Endomag, Endomag acquisition that you had recently. Interventional breast offering. Maybe just tell us about sort of how it's positioned, and what is the growth profile? I think that was a big question for us too, and investors. Like, what is the growth profile of Endomag, and how should we think about the contribution both on the top line and on the margin line? Yes. So, Puneet, let me first say- Yeah ... we're really excited about that potential acquisition- Mm-hmm but that we are still in the regulatory approval process. Mm-hmm. So I can't say much beyond what we've already talked about. Yes, so Endomag in calendar 2023 did about $35 million of revenue, a mix of direct and indirect, a mix of U.S. and OUS. They're actually a U.K.-based company. I would say that we certainly expect the revenue profile to be accretive to our revenue growth. I would also say that's obviously an opportunity for us to leverage our direct sales force in the U.S., where they... Again, a U.K.-based company wouldn't have that significant direct presence that we have and the ability to kind of drop that in within our breast surgical sales team. So, and on the bottom line- Mm-hmm I think we said it, we expect it to be slightly dilutive in the near term, but Mm-hmm accretive thereafter. Okay. Okay. Got it. And when you, you know, again, continuing on the theme of M&A, you've remained fairly, you know, opportunistic when it came to, you know, sort of deploying cash. You had the ASR, you had some deleveraging, you had some, you know, I mean, obviously, M&A, a number of deals that have happened over the last few years. So maybe just help us understand, how are you weighing these things in the current market environment, M&A versus more capital deployment towards share repurchases? Yeah, I mean, our perspective really hasn't changed. Mm-hmm you know, we're focused on deploying capital. The priority is gonna be M&A. As we know, if we can acquire assets that move that revenue growth rate up, that's gonna create multiple expansion, right? So, so that's gonna be the primary driver. But, you know, obviously, we need confidence in that revenue profile. You know, we wanna have a, a point of leverage and expertise that we bring, that the asset performs better as part of Hologic, you know, that really nice strategic fit. Mm-hmm. And then, you know, value creation, so you need, need to get it at the right price. So that's, you know, like Steve said on the last earnings call, we'd love to do an Endomag every quarter Mm-hmm but deal creation just doesn't happen like that. So, but that is kind of the desire, and then certainly share repurchase. I would say over the past several years, we've, you know, repurchased, you know, double our stock versus M&A Mm-hmm from a capital deployment. So really believe in ourselves- Mm-hmm and in the opportunity there, and you'll continue to see us to do that share repurchase activity. Got it. Just, you know, continuing on, just on the M&A side, you had-- you know, if I look at the prior deals, you had Biotheranostics, Diagenode, Mobidiag, Bolder, now Endomag. You know, maybe help us understand what's, from your perspective, and obviously, you know, Steve, perspective is important here in terms of how these portfolios are fitting together, but what's the sort of common thread as you're looking across these acquisitions? And, you know, what makes these, as you said, you know, if you could find an Endomag or, I mean, as Steve said, Endomag every quarter, you would acquire it, but what are some other sort of, characteristics sort of that you're looking at? And would you say it's, you know, the focus diagnostics versus surgical versus medtech? Yeah. Well, first, I'll say that Mm-hmm all of our divisions have business development groups Mm-hmm that are all actively, looking for assets, cultivating relationships, so that we can, you know, find those right strategic fits. Mm-hmm. So there's not a priority, per se, by division where we don't wanna deploy capital. We're all, they're all pretty active. Mm-hmm. I would say, you know, beyond kind of the financial metrics obviously that we're looking at, you know, I think we feel that we're better operators, meaning that we want on-market products where we can, you know, where obviously where hopefully there's already reimbursement or a guideline established that then we're just leveraging our commercial and operational expertise. Mm-hmm. for that asset. Mm-hmm. I see, okay. And I know historically on the diagnostic side, you've focused more on the platform, but then Biotheranostics was a slight departure from that. Mm-hmm. You know, is the focus still... Help me understand. I mean, obviously there's a large number of companies that are out there, number of them in sort of the early diagnostic or central lab space that are not so profitable- Mm-hmm. – and whatnot. As you look at that sort of landscape, is the focus continuing to be on sort of the platform and enabling the customer, or taking more on the, you know, something that you can bring in and bring to the central lab? Yeah, I would say that, you know, from a diagnostics perspective, you know, let me just touch on Biotheranostics. Mm-hmm. I would say we're still kind of in a learning mode there Mm and in operating a lab, and how do we create leverage? Certainly, a lot of runway with that asset still, you know, very low penetration, so we're kind of how do we build the penetration of that, that product, and while we operate a lab efficiently Mm-hmm and drive more profitable growth. So I think that over time, there might be an opportunity to add more there. But again, I would say we're still in the learning mode with that asset. I think with the rest of molecular diagnostics, you know, I think, you know, closer to the patient is something that we continue to evaluate in that portfolio. But, you know, I think and certainly workflow, what can we do for our customers? You see those large central lab customers, how can we partner with them, is Mm-hmm. is always a focus. Got it. Okay. And, you know, when you think about the appetite, there being, and, you know, sort of the number of deals, but when we think about sort of the larger deals out there, what's sort of holding you back from that? Is it more the valuation, just given the market makeup, or is it more fit? Maybe just walk us through that. It's probably a little bit of all of the above. Yeah. You know, if we talk about looking for assets... So certainly in diagnostics, we could find a lot of assets at the right value, but they're significantly dilutive, right? And so when you look at looking at assets that have on-market products that are not gonna be dilutive, there's that premium there, right? So we have to or they're gonna command a significant premium that, you know, raises the confidence level Mm-hmm. that it has to be an absolute right strategic fit. Mm-hmm and that we are the best owner for that, for that product. Got it. Yep. And just remind me, what is the ideal leverage ratio that you're targeting here, and at what level you're comfortable levering up to? Yeah, I think prior to the pandemic, we were about 2.5 times levered. Mm-hmm. I think, you know, 2-3 range is probably where we're comfortable. Okay. Got it. I want to switch gears and, you know, this question comes up to us from investors. I mean, we had the USPSTF guidelines on, one is cervical cancer and one is breast cancer, but cervical cancer being sort of more important topical. I mean, we were expecting some updates on that by now. Mm-hmm. Any thoughts from your end in terms of potential timing, when this could emerge? Anything sort of gating that? And, you know, how do you think about the USPSTF cervical primary versus co-testing, you know, if it was to come out either way? Yes, let me take that in a couple of buckets. Mm-hmm. Yeah, from a timing perspective, unfortunately, USPSTF is a little bit of a black box. Mm-hmm. We have no real indication as to when we would expect a draft guideline, so anything that comes out on cervical cancer would be draft. To put it in perspective, it took almost a year from the breast cancer draft guidelines to the final to come out. Mm-hmm. In that, we saw the USPSTF kind of recognize that earlier screening for women is better, right? We saw them step back from 50-40. Mm-hmm. But that is, that was the common practice already. Yeah. Right? Right. Yeah. So the theme here is that physician practice, which is based on science and the best health Mm-hmm healthcare for women, is probably what will dominate Mm versus what the USPSTF guidelines say. So, the second point I'll make is that the current guidelines for cervical cancer screening give co-testing and HPV primary the same rating, and that's been since 2018. But only 1%-2% of physicians practice HPV primary, right? So physicians know that co-testing is the best science, that HPV primary misses one in five cancers. HPV primary leads to more colposcopies for women. So. And we also are seeing in the United States right now, the rate of cervical cancer in younger women increasing. Mm-hmm. So, you know, sitting here personally, for the USPSTF to step back on screening seems illogical, and there's been no new scientific data to support a change in guidelines. Having said that, it's Mm-hmm as I mentioned earlier, it's a black box, so Yeah there could be a change. But we believe that any change, again, no near-term impact because it'll come out with draft nine months to a year to get final. And then I think it's gonna be a long term for physicians to actually change practice. Mm-hmm. And again, the USPSTF is in regards to the Affordable Care Act and Medicare or Medicaid, most of the women getting tested are in commercial insurance, right? So just because the USPSTF changes guidelines, doesn't mean that the commercial payers will change what they pay for. So I think, and worst case, guidelines go against co-testing, you know, it's a leaky bucket over a long period of time for us. But again, for the health of women in this country Mm-hmm. and to hopefully reverse what we saw, what we're seeing in increases in the rate of cervical cancer, is that the guidelines don't change. Yeah. No, that's an important point that you pointed out. I mean, sort of it's going to still take longer term if it was to be implemented, but maybe just, if primary testing was sort of required, then, by the guidelines, how do you think about the impact, overall to Hologic in the, in the model? Yeah, I think we haven't quantified that specifically, and I think we've just framed it as a leaky bucket over Mm a really long period of time. And think about if our global cytology business is about, you know, $450 million, about 60% of that is in the U.S. Mm-hmm. So to kind of frame it, again, we believe that co-testing is the best option for women, and we'll keep fighting for that. Got it. Okay, great. I want to switch gears to breast business. Maybe just update us on the sort of the backlog. I know there was initially with the gantries. Where do we stand today? Yeah, so I think we, we feel good about the gantry backlog. Mm-hmm. I would say it's probably... It gives us better visibility over the next 4-5 quarters. Mm. You know, we always have backlog in that business. Mm. It's the nature of a capital business and, you know, typically, you know, healthcare facilities to put in a gantry, even if it's to replace an existing one, it's, it's about a week's process and Mm-hmm these gantries are fully scheduled, you know, 2-3 months out, so there's always a few months of backlog that Mm or a few quarters of backlog that we're playing with. I see. Got it. You do have some tougher comps on the chip supply. I mean, I think it's, you know, 37% in 3Q, and, you know, at least in our model, I think 27% year-over-year for 4Q. But, but you're, you know, you're expecting to deliver more chips versus last year, so maybe just talk to us and sort of what, what should, what should the normalized growth rate look like here? Yeah, so if we look at 2024 specifically Mm Q1 was an easier comp. Q2 was our toughest comp of the year. We saw that play out. Q3 and Q4 are strong comps. Mm but not as elevated as Q2 was. Mm-hmm. And so I think we'll see that normalized back, growth in the back half, but still a recovery growth. Mm-hmm. We're still not delivering total gantries at the level we were prior to the pandemic. I think we'll see us return to that in 2025. Got it. I see. Okay. And just in terms of competitive landscape, has anything changed in terms of overall what you're seeing in the market, just the overall demand in the market, and any new product introductions? Is there anything different competitively? You know, I don't... You know, I think certainly in breast Mm cancer screening, AI is, you know Yeah you know, is certainly a new entry in which we already have those cap Mm some of those capabilities Mm and continuing to invest in those capabilities. You know, shortages of radiologists, what can we do Mm to facilitate the more accurate and more efficient reading of images is always top of mind. We do have a next-generation gantry that we're working on. Nothing meaningful in 2024. It's something we'll probably talk a lot more about in 2025. Got it. Just touching on AI and sort of maybe newer system introduction, you had the Genius Digital Cytology System that was introduced. Maybe what's been the feedback so far, and, you know, how do you think about the throughput of that system in the U.S.? Yeah. So the initial feedback is a lot of excitement and Mm positivity on the workflow. Mm-hmm. So, think about an image that is looked at under a microscope, right? Mm. To be evaluated. Now, that sample, that slide, has been digitized Mm and allows, the radiologist, the cytologist, I'm sorry, to view that image digitally Mm you know, and can view it anywhere. It doesn't have to be right in that lab under that microscope, so that really creates tremendous efficiency for the cytologist in the lab. So I'd say in the U.S. right now, it's early days. We're really working with our largest customers to kind of say: How do we transition that workflow to this digital modality? But there is a lot of excitement about it, and what we'll see is really, we already image these slides today, so it's gonna be more from a revenue perspective, a little uptick in the pricing Mm on the imaging aspect of it. I see. Okay. And so would you expect that to, you know, be... I mean, obviously, the contribution is gonna be small here, but this should be accretive to existing margins as with the improved pricing? I don't think significantly Okay because to think about, if this is, we have a very large install base Mm of equipment that's been fully amortized. Now, we're recapitalizing Okay our customers with new equipment that we'll Mm have to start to amortize. Got it. Okay, thanks. Switching to Panther, I mean, obviously, a very successful platform. Customers call it very, you know, flexible platform in their, in their labs and, and a preferred platform after pandemic. But, just given the strong growth that you've seen, more than 3,000 systems or more than 3,250 sort of today, plus, more than that, where do you think the next leg of growth is, is, is coming from? I mean, if, if these are labs that are already well-capitalized, then where, where do you expect to see the next set of growth? Yeah, so let me take that in a couple of different steps. Mm-hmm. Yes, we've almost doubled our installed base during the pandemic Yeah which is fantastic, and so as expected, we've seen a slowing of Panther placements here recently. Mm-hmm. We expect that to continue for the next couple of years till we get back to a more regular cadence of, like, 200-250. But most of these Panthers are reagent rentals, we call them, so they're placed. So the actual placement of the Panther does not drive any revenue. It's the utilization, it's the menu adoption that drives Panther revenue, and as we saw last quarter, molecular diagnostics grew over 10% globally, right? And I placed minimal Panthers in the quarter. So it's really about, how do we drive more content on the Panthers that are installed? How do we get more assays adopted by our customers? Yeah, and on that point, I mean, you obviously have expanded the menu, I think roughly sort of 19 assays now, and they're—I think you've commented BV CV TV seeing nice growth quarter after quarter. Yeah. You know, maybe just talk to us sort of what's the durability of that, and when you look at the existing competitive landscape and the sort of the need in the market Mm-hmm what gives you confidence of this continued growth here on these? Yeah. So I think it's while we haven't given an updated utilization number lately Mm-hmm it is the continued uptick in our customers by the number of assays and the level of testing that they're doing. So, if we look at our customers, over 90% of our customers have at least one other assay besides COVID. 85% of our new customers Mm those acquired during the pandemic, have at least one other assay besides COVID, which are contracted three- to five-year terms, so still early days. Over 55% have over two other assays, contracted. If we look in the U.S., you know, we went back to 2019, about 20% of our customers were running four or more assays. As of the end of last, end of 2023, that was approaching 35%. Mm. So it's driving that content on the Panther's, and we believe it's still early days. Continue to drive things like BV/CV, probably mid-innings, if you will, a baseball analogy Mm on, on where we are with the adoption of BV/CV, where we're actually converting from a manual lab-developed test to a highly automated Mm-hmm throughput on our Panther utilization, Panther instrument. So, we're continuing to develop. You know, in our roadmap, we have GI panels, we have hospital-acquired infections, so, I believe we'll continue to expand the menu, and again, it's about driving that utilization on the install base that we have that gives us confidence. Got it. One point I wanted to touch there was, just around the FDA LDT regulation. Obviously, the, your menu is FDA approved Mm-hmm in most cases, so it doesn't seem to be an issue. But just wanted to know if there are any other parts of the business where you think it would drive higher cost because you have to now plan for these? Yeah, we don't think it's significant Mm-hmm but if it was anywhere, it'd be in the Biotheranostics, but we think that I see that's a new lab in our San Diego facility, so I think we're in a good spot there. Mm-hmm. Okay, got it. Just, you know, talking, you know, Steve has talked about this, and I wanna understand this better. Maybe it's a little bit underappreciated, aspect from sort of from investor side. If you look at the, the labor pool in the lab today and the automation that Panther is providing, the flexibility it's providing, maybe just, you know, tell us sort of how acute when you look at the customers, when you have conversations across the team, how acute is the staffing issue, and, and where your systems are getting placed, how, sort of how much is it easing that staffing challenge that they have? Yeah, so I'll lead with when we talked about the Yeah cytology Genius product, right? Mm-hmm. Yeah. I mean, I think, there were some of our largest customers prior to the U.S. approval, were like: "How can we- some way we can get it and use it," right? Mm-hmm. They really wanted it for workflow in an area where, you know, there's not... you know, the U.S. isn't producing many more cytologists, right? Yeah. So that, that is a real labor shortage in our cytology. Genius cytology product is real, a real solution there. And I think, you know, certainly Panther, I mean, the workflow there is tremendous. It has the most walkaway time, random access. You don't have to wait and batch before you run it. So I think those are things that are important to our customers, and we Mm and we certainly think about in product design, and even our next generation gantry is part of the, that innovation as workflow. Yeah, good point. Just given the time, I want to touch on a sort of slightly competition question, but help us sort of understand, when you look at the, you know, central lab versus point of care, you have a competitor that's on the LDT side that is more point of care, closer to the patient in some ways, versus the central lab. Is it as sort of a zero-sum game in terms of where the tests are sent, or do you think there is, you know, sort of segmentation of the market that really, it's unlikely one company is unlikely to see an impact from the other in terms of point of care? Yeah, what I would say is, you know, cost is an element. Mm-hmm and turnaround time is an element. So if you think about respiratory Mm where you have an actively ill patient that you need a quick turnaround to. Does the patient need to be isolated? What medication treatment do they need? That point of care is gonna be really important, and you're gonna absorb a higher cost to do that. You look at the STD market. A majority of testing for STD is asymptomatic patients. Mm. So a woman is there just for her well woman visit. Based on her sexual activity or age, the doctor will screen for a variety of STDs. There's no symptoms, there's no need for a quick turnaround. Mm-hmm. You're gonna want the cost there, right? Mm. More efficient cost. I think it's an and Mm that there's still gonna be, for different diseases, conditions, states of disease, where the lab is gonna be the large reference lab is gonna be perfectly fine and more cost-efficient, versus there's gonna be some instances where point of care is more appropriate. Got it. Okay. Alright, super. Well, with that, we're at the time. Thanks for all the insights, Karleen. This was great. Always a pleasure to have you. Great to be here. Thank you. Okay, thanks.