Hologic, Inc. (HOLX) Q3 2025 Earnings Call Transcript

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Overview

Hologic's earnings call presented mixed signals: strong product development and strategic initiatives, but lowered EPS guidance and reduced revenue expectations from China. The Q&A session highlighted management's confidence in future growth, especially in Breast Health and Endomag, but lacked clarity on tariff mitigation and Fusion test contributions. With a lowered EPS and China revenue, alongside optimistic guidance and strategic growth, the overall sentiment is neutral, indicating a balanced outlook for short-term stock movement.

Key Financial Performance

Total Revenue $1.024 billion, a slight growth of 0.4% year-over-year. Reasons for change: Diagnostics business growth, sequential improvement in Breast Health business, and positive contribution from the skeletal franchise.

Non-GAAP Earnings Per Share (EPS) $1.08, a slight increase of 1.9% year-over-year. Reasons for change: Solid revenue results and controlled expenses across the organization.

Non-GAAP Operating Margin Just above 30%, maintained year-over-year. Reasons for stability: Controlled expenses and mitigation of tariff impacts.

Diagnostics Revenue $448.9 million, grew 0.9% year-over-year (2.9% organically excluding COVID-related sales). Reasons for change: Growth in molecular diagnostics and Panther Fusion adoption, despite geopolitical challenges in China and Africa.

Breast Health Revenue $365.2 million, declined 5.8% year-over-year (10.8% organically excluding Endomagnetics and SSI). Reasons for decline: Tough comparison to the prior year, but sequential improvement and strong interventional performance.

Surgical Revenue $178.4 million, increased 6.3% year-over-year (1.2% organically excluding Gynesonics). Reasons for growth: International growth driven by reimbursement establishment and market expansion.

Skeletal Revenue $31.3 million, grew 62.1% year-over-year. Reasons for growth: Resumed shipping of final DEXA model and meeting pent-up demand.

Non-GAAP Gross Margin 60.3%, declined 80 basis points year-over-year. Reasons for decline: Product mix and reserve recorded in Skeletal Health division.

Operating Expenses $309.6 million, increased 2.2% year-over-year. Reasons for increase: Inclusion of Endomag and Gynesonics, and increased expense related to deferred compensation plan.

Net Margin 23.8%, decreased 100 basis points year-over-year. Reasons for decline: Dilutive impact of Endomag and Gynesonics acquisitions.

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Operating Highlights

Genius AI Detection PRO: Launched as a cloud-based AI assistant for radiologists, improving accuracy and efficiency in mammogram analysis. It reduces reading time by up to 24% and integrates key information into a single interface.

Endomagnetics products (Magseed and Magtrace): Contributed nearly $20 million in revenue. These products enhance breast cancer surgery by enabling tumor localization and lymph node mapping.

Panther Fusion: Expanded menu offerings and Open Access testing kits contributed to growth. Plans to diversify menu further with tests for GI and hospital-acquired infections.

International Surgical Growth: Revenue grew 24.8%, driven by reimbursement establishment in new markets and expansion into additional markets.

Breast Health Market: Despite a decline, sequential improvement was noted. New strategies for gantry upgrades and competitive wins were highlighted.

Tariff Mitigation: Reduced expected tariff expenses from $20-25 million to $10-12 million per quarter through supply chain adjustments.

Operational Efficiency: Disciplined expense management led to a 4.3% decline in operating expenses (excluding acquisitions).

Breast Health Strategic Focus: Strengthened commercial execution and launched new strategies for gantry upgrades. Focused on clinical and product innovation to maintain market leadership.

Diagnostics Expansion: Continued rollout of Genius digital cytology platform and education efforts to expand testing for vaginitis and sexually transmitted infections.

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Risk or Challenges

Geopolitical Turmoil: Funding cuts to U.S. aid in Africa and the challenging operating environment in China have negatively impacted the Diagnostics business, particularly in terms of revenue growth.

Tariff Impacts: Global tariffs, especially the 10% tariff on imports from Costa Rica and shipments to and from China, are expected to incur $10 million to $12 million in quarterly expenses, impacting gross margins.

Breast Health Revenue Decline: Breast Health revenues declined 5.8% in Q3, with a 10.8% organic decline excluding acquisitions. This was attributed to longer gantry replacement cycles and competitive pressures.

China Market Challenges: The reduction in the China forecast and the difficult operating environment have led to a decline in cytology and perinatal business revenues.

Product Discontinuation: The planned discontinuation of the Fluoroscan InSight system, which generates $18 million in annual revenue, will impact Skeletal Health revenue in fiscal 2026.

COVID-19 Revenue Decline: COVID-related sales have significantly decreased, impacting overall Diagnostics revenue growth.

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Guidance & Outlook

Revenue Expectations: For Q4 2025, total revenue is expected to be in the range of $1.03 billion to $1.04 billion. For the full fiscal year 2025, revenue is projected to be between $4.081 billion and $4.091 billion.

Earnings Per Share (EPS): Non-GAAP EPS for Q4 2025 is expected to range from $1.09 to $1.12. For the full fiscal year 2025, non-GAAP EPS is projected to be between $4.23 and $4.26.

Breast Health Business: The Breast Health segment is expected to return to slight top-line growth in Q4 2025, supported by improved commercial execution and product innovation. Growth is anticipated to continue into fiscal 2026.

Diagnostics Business: Diagnostics revenue outside the U.S. will continue to face challenges in Q4 2025 due to the operating environment in China and reduced funding for HIV tests in Africa. However, the Panther Fusion platform and new assay launches are expected to drive long-term growth.

Surgical Business: Surgical revenue is expected to benefit from an easy comparable period in Q4 2025 and better commercial execution. International growth is anticipated to remain strong, driven by market access and reimbursement expansions.

Skeletal Business: Skeletal revenue is expected to show outsized growth in Q4 2025 due to pent-up demand but will decline in fiscal 2026 as the company discontinues its Fluoroscan product.

Tariff Impact: Tariff expenses are expected to be approximately $8 million in Q4 2025 and will increase to $10 million to $12 million per quarter in fiscal 2026, representing a headwind to gross margin.

Foreign Exchange Impact: A weaker U.S. dollar is expected to provide a tailwind of approximately $6 million in Q4 2025.

COVID-19 Related Sales: COVID assay sales are expected to be about $5 million in Q4 2025, with total COVID-related sales projected at $25 million for the quarter.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What are the dynamics to consider for fiscal '26 growth, and are there any tailwinds or headwinds?

A:Management expects mid-single-digit growth for fiscal '26. Key factors include the Fluoroscan discontinuation and headwinds from China and HIV, which will impact the first half of fiscal '26.

Q:Was there any China DRG impact in the quarter?

A:Management stated that China was less than a $10 million business in Q3, down more than 50% compared to the prior year. They are not directly exposed to specific issues affecting peers but noted a challenging environment.

Q:What are the thoughts on capital allocation and M&A?

A:Management spent over $750 million on buybacks year-to-date and will continue focusing on both M&A and buybacks. However, there are no plans for any large acquisitions currently.

Q:What is the outlook for the Breast Health business and the new product launch?

A:Management feels the hiccups in the Breast Health business are behind them. They are excited about the Envision launch, which will be meaningful in the second half of fiscal '26 and a big driver in subsequent years. The interventional business also hit $100 million this quarter and is expected to grow further.

Q:What is the visibility into Q4 for the Breast Health business?

A:Management is confident in the rebound, citing improved sales force rigor and leadership. They expect a return to growth in Q4 and stronger performance in fiscal '26.

Q:What is the margin outlook for Q4 and fiscal '26?

A:Management expects a step-up in gross margins from Q3 to Q4 due to higher revenue and favorable product mix. For fiscal '26, they suggest using the full year of '25 as the jumping-off point for margins, with expectations to absorb incremental tariffs.

Q:Is COVID a headwind for fiscal '26, and how should Fluoroscan be treated in organic calculations?

A:COVID is considered inconsequential at this point. Fluoroscan, being a discontinued product, should be backed out when calculating organic growth.

Q:What is driving the strength in the Endomag business?

A:The strength is attributed to commercial execution, particularly in the U.S., where Hologic took over distribution. The business is growing steadily without one-offs.

Q:What is the timing and revenue contribution of the Fusion test menu expansion?

A:The assays are expected to come online in late '26 or early '27, with meaningful contributions starting in '27 and '28. These are incremental assays, not major opportunities like BV CV.

Q:What is the size of the China and HIV impact in fiscal '26?

A:China's business is expected to be around $10 million per quarter, down from $60-$70 million in the first half of fiscal '25. The HIV business is assumed to contribute minimal numbers next year.

Q:What is the update on Fusion platform utilization and pricing?

A:About one-third of customers have a Fusion platform, and this is expected to grow. Fusion assays are priced at a premium compared to legacy Panther assays.

Q:What is the inventory outlook for the Breast Health business?

A:Management does not anticipate an increase in inventory to support the Envision launch, as many components are similar to the legacy 3D gantry.

Q:How does international growth and pricing contribute to the mid-single-digit growth target?

A:International growth is expected to be accretive, while pricing gains will come more from mix and new product innovation rather than year-over-year price increases.

Q:What is the status of the Breast Health sales force reorganization and end-of-life strategy?

A:The sales force reorganization was largely implemented in Q2, with no disruption in Q3. The end-of-life strategy is in early stages but showing positive early results.

Q:What steps were taken to mitigate tariff impacts, and are there more levers available?

A:Operational efficiencies within the supply chain were leveraged to mitigate about half of the tariff impacts. Management continues to evaluate the situation but did not provide specific details.

Q:What is the outlook for gantry placements and imaging revenue in Q4?

A:3D gantry placements increased sequentially in Q3, and another uptick is expected in Q4. Management has better visibility and confidence in delivering this growth.

Q:What is the diagnostic setup for fiscal '26?

A:Diagnostics is expected to grow within the mid-single-digit range, with headwinds in the first half from China and HIV. BV CV and Biotheranostics have significant runway for growth.

Q:What are the benefits of selling Endomag through a direct sales force?

A:The direct sales force has driven strong performance, with Endomag reaching nearly $20 million in the quarter. The bifurcated sales force also contributed to 6% organic growth in the interventional line.

Q:What is the progress of the Genius cytology platform?

A:The rollout has been slow but positive, with efficiency gains and potential for improved cancer detection. The revenue model includes an uptick for digitization and AI capabilities.

Q:How does Hologic view HPV self-collect developments?

A:Hologic sees this as an opportunity to expand the market and has partnered with labs to offer self-collect options.

Q:What is the outlook for replacing legacy gantries in the Breast Health business?

A:Management expects steady improvement in replacing legacy gantries, with Envision driving further growth in late fiscal '26 and beyond.

Q:What is the impact of USPSTF changes on legacy assays and co-testing?

A:Management believes the changes will not have a significant impact on their business, as their tests are important for women's health and economically beneficial.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the steps taken to mitigate tariff impacts, citing competitive reasons. Additionally, they did not quantify the expected revenue contribution from the Fusion test menu expansion or provide metrics for Genius cytology penetration.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call summary and Q&A highlight mixed results: stable earnings and revenue growth in diagnostics and surgical segments, but declines in breast health and lowered revenue guidance. While strong cash flow and share repurchases are positives, the lack of clarity on supply chain and competitive strategies, coupled with lower guidance, tempers optimism. The absence of new partnerships or strong guidance, and the uncertainty in China and Africa, suggest a neutral stock price movement.

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