Welcome to the RBC Capital Markets 2025 Global Healthcare conference. I'm Conor McNamara, the Life Science Tools and Diagnostics Analyst with RBC. It's my pleasure to welcome Hologic, and with me today is Karleen Oberton, the CFO of Hologic. Karleen, thanks for joining us. Thanks for having me. I'd like to kick it off, and I'm sorry to make this open-ended, but just wanted to give you a chance to, you know, because we don't have—this isn't a presentation format, and you don't have slides. Just quick background on Hologic for those that are new to the story in the room or at home. Absolutely. Hologic is a medical technology company uniquely focused in women's healthcare. We're structured with three primary divisions: our diagnostics, which kind of leads the way with our molecular diagnostics business based on our Panther high-throughput instrument. Also part of the diagnostics business is our cytology business. There There are some really unique synergies there across that platform. We also have our breast health business, which is based on our 3D mammography, and then our surgical business, where we treat abnormal uterine bleeding. I think Hologic, part of the story beyond women's healthcare is what we did during the pandemic. We almost doubled our install base of our Panther instruments, delivering, you know, hundreds of millions of COVID tests around the world. We really leveraged that opportunity both with updating our manufacturing capabilities for our molecular business, but also obtaining new customers with the Panther placements. Please really say that all those new Panthers are running more assays now that COVID is behind us. Great. Thank you for that. We'll come back to dig into each of the business units more. First, wanted to just get some post your fiscal Q2 results and guidance updates because there were some moving pieces. Maybe can you just lay out what changed in your guidance in Q2 for the fiscal year? Sure, absolutely. First of all, for Q2, pleased that we delivered on our financial commitments, delivered revenue and EPS at the high end of our guidance range for the quarter. We did maintain our revenue guidance for the full year, but there was basically China headwinds were offset by favorable effects. While the absolute numbers stayed the same, the growth rate ticked down a little bit on the organic piece. EPS, we took down our EPS range for $0.10, really related to tariff impacts that we expect in the third and fourth quarter. Great. Maybe on the tariff, what specifically are the tariff headwinds for you guys? Yeah, so we outlined that we expect $20 million-$25 million headwind per quarter related to tariffs. That's primarily related to the manufacturing we do in Costa Rica, where we manufacture all of our surgical and most of our breast interventional products. Okay. Those are made by Hologic, and then you pay the tariff as they're shipped to the U.S.? Yes. Okay. And then post the quarter, obviously, the tariff situation is dynamic, and it changes on a weekly basis. Any updates on your thoughts, and, A, you know, how do you potentially mitigate that headwind? And B, you know, any changes since the quarter as far as policy? Yeah, so about two-thirds of that $20-$25 million relate to Costa Rica. That's that 10% across- the- board tariff. We really haven't seen any movement on that. Only about 15% of that $20-$25 million related to China. A little bit of favorability there. Again, the majority relates to Costa Rica. That is one of our best-run plants. We don't have alternative sites for the products that we make there, so we really can't move the manufacturing line. Certainly, we're looking at product flows, IP positioning, looking at working with our suppliers as opportunities present themselves, and ultimately, some pricing. Those activities are ongoing, and we'll have an update probably at our next quarter as to what we think we can mitigate. Okay. You walked through this a little bit on the call, but remind us exactly. It does not—the $20-$25 is a fully loaded quarterly impact once it flows through cost of goods, but initially it goes to inventory, so there is a lag. You will not feel the full $20-$25 until, realistically, probably Q1 2026. Yeah, so what we've lined out is we expect about a $5 million impact in our third quarter, which is our current quarter, probably about close to $20 million in the fourth quarter. You're right, Conor, as we get into Q1 of our fiscal 2026, we'll have that full impact, hopefully with some mitigation there. Okay. That's gross. Any mitigation would be offset. Yeah. Okay. Thanks for that. Now, just stepping back on kind of the other piece, what I'll say is U.S. policy. I'd say Hologic has historically been a victim of what I call misunderstood policy proposals, where announcements by organizations like USPSTF and ACOG, there's been fear from the investment community that those will impact reimbursement on certain either tests that you sell, those tests, and mammography screening. You know, just as you look at the U.S. policy changes that have been implemented over the last several months, is there anything that you see as a business headwind, and then also that you are getting a lot of questions from investors, which may be misunderstood? Yeah. So, you know, I think if you look over the past year in general, that USPSTF has been probably the biggest question around Hologic. Those draft guidelines came out on cervical cancer screening, which still support co-testing, which is, you know, our cytology product and our HPV test. I think that one's been cleared up to some degree. You know, if I look at some of the things on policy, I do not think there's anything that outweighs on Hologic necessarily. If we look at potential cuts to Medicaid, you know, we estimate that less than 20% of our payer mix is Medicaid. We seem to be pretty insulated at this point to a lot of the headlines that we've seen recently. Okay. And then, you know, extending on other U.S. policy, including tariffs, I mean, do you see any tailwinds to Hologic? You know, for example, on your diagnostics business where you do manufacture in the U.S. and sell primarily in the U.S., does that give you a competitive advantage over any of the other diagnostics players or, you know, other areas that you see potential long-term opportunities for you to take a step? Yeah. You know, I think one of the things I would note is some of the dialing back on the LDT testing. If you think about our Panther Fusion platform, which is an open-channel platform for PCR testing, if labs continue to do LDT testing, they can use our high-throughput Fusion sidecar, if you will, on that testing. That would be one of the tailwinds we would see, yes. Okay. That is because regulation on LDT is not as severe as initially feared. Exactly. Are you starting to see that? Was there maybe a pause in conversion or addition of the Panther Fusion from your customers, and now that they realize, okay, LDTs are here to stay, we can expand, and we're more likely to do that? Yeah, I think we're focused on getting out our Panther Fusion because not only just the LDT, but it also opens the full menu. If you think about our respiratory menu is on the Panther Fusion. Regardless of the LDT environment, we're out there trying to hopefully have every customer eventually have a Fusion sidecar and have that full availability of our menu. Okay. And, you know, extending on the Panther Fusion, and this is an optional add-on to the Panther boxes that are out there, and it gives, I'll call it, panel or multiplexing capabilities for those customers. And so, you know, one thing that we've noticed is several players in the diagnostics space have talked about STD panels and other panels that they plan on launching. How important is it for you to have that competitive offering? If you look at kind of focused on the STD specifically, do you see that market moving to more of the panels, and will you be able to compete with the Fusion? Is that a key? Yeah. The majority of our STD is not on the Fusion. It's on the TMA technology on the core Panther itself. We have about probably 70% plus market share. Think about what the lab is able to do is run multiple tests from one sample. I don't think it's necessarily something that we will be at a disadvantage at. Okay. All right. Great. What about other areas in diagnostics outside of STD? I mean, obviously, during the pandemic, I think you guys did a third of all molecular COVID tests globally. I may be wrong on that number. Coming out of the pandemic, you guys have not talked a lot about the respiratory opportunity, where some of the other players that did have that COVID benefit have talked about this endemic state of respiratory sales. Did you just de-emphasize respiratory because that's not something that was a core competency? You know, as you mentioned, you're the women's health company. Have you de-emphasized that? Is it just, or is that more of an opportunity for you to longer term get additional respiratory? Yeah. Yeah. I do not think we have de-emphasized it. Maybe we just have not talked about it as much. Our respiratory business right now is probably close to $100 million of business globally. I think probably why it is seasonal. It is something that we often have to explain in different quarters of impacting the molecular business. That is a newer business for us, certainly not to de-emphasize. I am really pleased that it is over $100 million now. Okay. Great. And then this is maybe a loaded question, but Hologic has a history of success in each of their business units. And many, including myself, I think I've published it, are you a victim of your own success, where if you look at the old Hologic, you took, you know, 85% of the mammography market years ago. And then with Panther, you launched and you took a very significant share, I think above 80%, most of the STD tests. And these are against larger organizations that have the ability to bundle some of those offerings. And then within the surgical area, the products that you sell, same thing, 80+%. So first off, congratulations on doing that. That's very successful. But what has been the key to that success? And then are there opportunities? Do you look at products right now that you have that you could sell that you look, and say, okay, we're at 15% share, we have the opportunity to get to 80% and we think we can get there? Yes. Let me take that in a couple of pieces. You're right, we have tremendous share. That share that you talked about references is in the U.S. Still tremendous opportunity outside the U.S. for our products to gain share and continue to grow. I think that success, we're not a victim of that success. We've actually leveraging that success in each of our divisions. You think about, we talked about the Panther, and we talked about the significant share we have in STDs. Now we leverage that business to launch the BVCV, right? Which is the most common reason women go to the gynecologist. That's driving our growth. We leverage that large install base. We leverage the success, the customer relations that we have, the workflow that our products deliver, the differentiated technology to continue to grow. We'll do that both organically and inorganically. You see that with surgical, the introduction of our Fluid Management Solution, which is organic. Then we buy Gynosonics. We layer on additional treatments for fibroids. Again, leveraging that sales force, leveraging those customer relationships. I don't think we're a victim of our success at all. Okay. Good answer. Maybe this will take us to some more financial questions, but on capital deployment, you guys have done a good job of blending buybacks along with tuck-in M&A. You know, should investors think of any change in your strategy? Obviously, you have done some smaller deals. You know, what's the appetite for a larger deal? How do you weigh that opportunity? What's the driving factor behind what you would look for in an M&A deal? Yeah. Let me step back and talk about capital allocation. We are focused on deploying our free cash flow. We have a tremendous balance sheet right now. We have, you know, over $1.5 billion of cash on a balance sheet. We have a credit facility that's best in class term. What we want to do is every year deploy our free cash flow. Primary focus is going to be M&A because, as we know in med tech, it's growth. Revenue growth is what drives valuation. It's an and for share repurchase. I think if you look at this past year through Q2, we've deployed over $700 million on share repurchase, including an ASR that we did in the first quarter for $250 million. We're in a tremendous position to do both. Okay. From an M&A perspective, you know, I think we're looking at things like Gynosonics and Endomag, the two acquisitions that we just did, where they kind of play within our current divisional structure. We're leveraging our expertise in those areas, whether it's Gynosonics with treatment of fibroids and Endomag with local wireless localization for breast tumors. I think those are the types of things that we're looking for. I think we'll see us do more of that. Okay. And should we be thinking of, you know, tuck-ins within each division or, you know, what's the likelihood or desire to add a fourth leg to the stool? You know, I don't think there's a fourth leg. I think there are adjacencies that make a lot of sense, and hopefully, adjacencies that have a little higher market growth rate to the point you talked about earlier. Okay. Yeah. Great. Just maybe going into M&A strategy on each, you mentioned the med tech. I would say if I look back recently, the surgical side, you've had a ton of success. Is there, you know, from the sales rep perspective within surgical, do they have the desire and/or capacity to add things to their bag? Is that kind of how you think about it? Is there stuff that you can acquire that would layer in right with that same call point? How do we think about kind of things you're looking at? Yeah, I think it's things that we can leverage within that call point. That's our largest sales force, probably a competitive advantage for us. There's also things, how do we that fit within surgical, but maybe we do have to invest a little on the sales side for some different capabilities, but I think it's both. Okay. And then kind of same question within diagnostics, you know, by adding Biotheranostics, you've actually added the lab capability. So it's no longer just, you know, a product and a consumable, but you're actually operating a lab. Does that open the opportunity that you could expand then in some offerings within the lab setting, and, you know, potentially some of these like liquid biopsy type testing or? Yeah. I don't think liquid biopsy, while it's a space that we watch, I don't think you're going to see us step into that foray right now. I do think that Biotheranostics has been a successful acquisition for us in that you could see us do more in the specialty lab, but it'd be probably more on the predictive or prognosis of treatment that you'll see us do testing, not in the liquid biopsy. Got it. Okay. And then finally, same on breast health, you know, obviously you've had a ton of success dominating the gantry market out there for mammographies, and then you've added in some other, you know, more recurring or consumable type products. Is there still room for your sales reps there within breast health to add in some products and make them, you know, basically expand the revenue opportunity without expanding much of the sales force? Yeah. I think what we've done recently with some of the challenges we've had in breast health is that we have restructured the sales team a little bit so that we have sales reps that are uniquely focused on selling what I'll call the large iron, right? Selling the gantry. That's a different sales cycle than the procedure- based, which is our interventional and our breast surgery. I think with that delineation, that gives us the opportunity if there's other assets that, again, along that patient continuum of care that we want to add, we have the sales capability to do it. Okay. If you're looking at an M&A target and you were to prioritize growth accretion, margin accretion, or EPS accretion, how would you prioritize those three? Yeah. So we look at all of them and we look at returns, of course. I think the priority is going to be the revenue growth. That's what we're going to focus on. Do we have confidence in that revenue growth? Do we think that assets can perform better as part of Hologic? That is the primary area that we look at. You know, a lot of these, again, I'll go back to Gynosonics and Endomag. Both of those products are gross margin accretive, right? They're kind of break-even, slightly dilutive, but with that gross margin accretion, it gives us a nice pathway to have them over time contributing on the bottom line in a short period of time, two to three years. Okay. That's what we'll continue to likely look at, right? Strong revenue growth, hopefully some gross margin in line with corporate or better, and then we can drive operating margins over time. Okay. And you've, you know, if you talk about not to get you to commit to any long-term guidance here, but several years ago, you talked about a 5%-7% growth, and then, you know, probably mid-single digits is a more realistic outlook. If you just look at the puts and takes, I think the breast health is probably on the lower end of a mid-single- digit growth. Is that, you know, is the key to getting a mid-single digit growth, offsetting that, or are there things within breast health that you can do to accelerate that too? All of your businesses have the opportunity to grow mid-single digit? Yeah, I think you're right. I think we always talked about from a mid-single- digit growth that breast is going to be, whatever that range is, breast is going to be on the lower end of that, given the largest piece of revenue in that business is service revenue. That is the contracted multi-year business that is recurring in nature, right? If that is your biggest piece of it, that is probably going to grow in the low single digits every year. It is really like, how do we drive opportunities in the interventional service, whether it is taking share or growing markets? Okay. And do you ever get at a point, I think you've disclosed this, that when your target growth was 5%-7%, you hit that, but there wasn't a single quarter where your growth was actually within the range of 5%-7%. You know, there's a lot of puts and takes where you've obviously grown above that and below that. You know, and this year we've seen some, you know, some one-offs that have impacted growth, you know, on the skeletal health. You had a stop ship order, which obviously hurt that. Does Hologic ever get to a point where it is a consistent mid-single- digit grower, or is it just the nature of the business where there's going to be lumpiness here and there, and you just kind of have to even it out? Or do we, you know, once we get past some of these headwinds and COVID finally, you know, hits an endemic state, you actually do see line of sight where you could be a consistent mid-single digit grower every quarter? Yeah. Absolutely. There is the potential to do that, but we run the business not on a spreadsheet, right? There is a real world, there are real things that are going on geopolitically that impact our business. I think if you look back over the last 10 years, I think the CAGR is close to 5%, right? I mean, this is the nature of the world that we live in, that you are going to have ups and downs. I think over time, I think you are going to see us consistently grow at the mid-single digit and drive earnings faster than that. I like that. We don't run our business on spreadsheet. I just thought that's how everyone did it. All right. Just some last several questions, but what's your updated China strategy? You know, prior to a lot of the, you know, call it the demand following, a lot of the China-U.S. relationships hurt overall demand in China, and you guys decided to walk away from your expansion plans in China. That's, you know, it's a very small piece of the business, but you called that out as a pressure in Q2. What is your updated China strategy? Is that something longer term you're still exploring, or do you feel pretty good about the business X? You know, that's just a market that you don't need to enter. Yeah, I think we're, I would call it on the sideline, right? I think we still have a commercial presence there. I think we're under pressure right now as, you know, an American manufacturer. You know, the nature of our products in that market are primarily our diagnostics, both cytology and molecular, where there's a lot of local competition. I think while I'd call it on the sideline, we'll see how the geopolitical environment evolves. If we need to ramp up, we have some core capabilities that we can turn back on. Remind me that that's less than 5% of overall sales or in tariffs. Yeah. Prior to the tariff situation, China was less than 2%. Okay. So. Okay. And on the margins, you know, you talked about inorganic opportunities to expand margins. I know you've got some potential tariff headwinds, but, you know, expansion into Europe has historically not been margin accretive. So just how do we think about the organic margin progression capability at Hologic from current levels? Yeah, I think what when Steve presented at JPMorgan a few months ago, he talked about the long-term mid-single digit revenue growth with some margin expansion to drive EPS faster than that. As I think about it, we have invested significantly in our commercial capabilities internationally. Even though there is a margin dilutive, we do get accretion over time as we continue to grow that revenue. We drive more leverage in that business. You know, I feel good about that commitment to drive earnings faster than revenue. Okay. And then what about cost- cut opportunities? A lot of companies within life science tools and diagnostic space have, you know, done these cost- out programs. Obviously, you haven't been hit with some of the same in-market pressure that other life science tools names have. If you look at your overall cost structure, are there areas that, you know, maybe you can consolidate facilities, or there's areas that you over-invested in during the pandemic that you can ratchet back? Yeah. I mean, we're always looking at our manufacturing footprint to optimize it. Certainly, I think what you'll see is as we do acquisitions, those are opportunities to drive integration, drive synergies, and drive leverage. As I mentioned, internationally, we have invested, and now we're going to see the leverage coming out of that business as we move forward. Great. Just one more is on those costs, you know, during the pandemic, you built out obviously a ton of capacity for Panther and for the COVID testing. Is there excess capacity in that business now, or were you able to consume that with non-COVID tests? You know, what type of opportunity is that? Is Is there, if there is, overcapacity? Yeah. We, the Department of Defense funded over $100 million automation improvements in our molecular diagnostics manufacturing, which is primarily in our San Diego facility. Because it was funded by the Department of Defense, there's no headwinds to that capacity. As we continue to grow that molecular business, it's all in that one facility. We continue to drive leverage. Yeah, it was a great partnership with the government, and really pleased with the facility and what we have the capability to do now. Great. Thank you for that. Karleen, thank you for joining us. Thank you, everyone, for listening. We appreciate it. That will wrap. Thank you. Thank you. Thanks. Thank you. Thanks.