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Hologic Q2 Sales Increase 2 Percent

NEW YORK (GenomeWeb News) — Hologic reported after the close of the market on Wednesday a 2 percent increase in fiscal second quarter revenues despite a 2 percent decrease in sales for its Diagnostics segment.

For the three months ended March 29, the Bedford, Mass.-based company reported revenues of $625 million compared to $612.7 million in the same quarter last year but besting the average Wall Street estimate of $609 million.

Hologic noted that the prior-year period included $10.6 million from Lifecodes, which the company sold in March 2013. On a non-GAAP adjusted basis, revenues increased 1 percent from $619.1 million in Q2 2013. Non-GAAP revenues in Q2 2013 reflect the addition of $6.4 million that was eliminated for GAAP purposes as a result of a purchase accounting adjustment.

Product sales were up 1 percent to $521.1 million from $516.1 million, while service and other revenues climbed nearly 8 percent to $103.9 million from $96.5 million.

By segment, Diagnostics revenues totaled $290.8 million in Q2, a decrease of 2 percent from $296.5 million in the year-ago period. On an adjusted basis, which includes the aforementioned $6.4 million prior-year purchase accounting adjustment, Diagnostics sales declined 4 percent.

Hologic attributed this decline primarily to its divestiture of Lifecodes and decreases in ThinPrep Pap test sales in the US. Partially offsetting the decline was molecular product sales primarily from the company's Aptima product line and blood screening revenues. During the quarter, Grifols, the company's blood screening partner, was selected as a partner by the Japanese Red Cross to screen the country's 5.3 million annual blood donations using Hologic's Panther system and associated assays.

"This represents a huge win for Grifols and us, and is a strong validation of Hologic's Panther system and its capabilities," CEO Stephen MacMillan said during a conference call recapping Hologic's Q2 earnings. "The JRC made its selection after rigorous scientific evaluation of our instrumentation and assays in comparison with the latest offerings from the incumbent vendor. The technological advantages of Panther and the benefits it delivers in terms of workflow, reliability, and ease of use are becoming more evident in ongoing competitive evaluations."

MacMillan noted that implementation of this contract will begin toward the end of Hologic's fiscal 2014, and as such the majority of the initial financial contribution will be realized in fiscal 2015.

In other segments, Breast Health grew almost 9 percent to $238.7 million from $220.1 million; GYN Surgical revenues dropped about 2 percent to $72 million from $73.7 million; and Skeletal Health sales jumped 5 percent to $23.5 million from $22.4 million in Q2 2013.

Hologic shaved its net loss for the quarter to $16.8 million, or $.06 per share, from $51.1 million, or $.19 per share, in the same quarter last year. On a non-GAAP basis, the company recorded net income of $103.1 million, or $.37 per share, beating Wall Street estimates of $.33 per share.

The company's R&D costs were essentially flat at $49.9 million compared to $49.6 million in Q2 2013, while SG&A costs were $140.8 million, down from $152.8 million in the prior-year period.

Hologic finished the quarter with $490.4 million in cash and cash equivalents.

Hologic provided guidance of $615 million to $625 million for fiscal third quarter revenues, flat to 2 percent down from Q3 2013 revenues of $626.1 million. The company also raised its fiscal 2014 revenue guidance to a range of $2.46 billion to $2.49 billion from a range of $2.425 billion to $2.475 billion provided in February. Year over year this represents a decrease of 1 percent to 2 percent over fiscal 2013 non-GAAP revenues of $2.512 billion.

Hologic also raised its fiscal 2014 non-GAAP EPS guidance to a range of $1.37 to $1.40 as compared to $1.34 to $1.38 provided in February.

During the earnings call, MacMillan also noted that Hologic recently completed a strategic review of the company that began last August.

"To be perfectly clear, the purpose of the review was always to determine how best to maximize shareholder value," MacMillan said. "We carefully assessed a wide range of options, including significant divestitures, but concluded that the best near-term path to greater value creation is to: one, accelerate growth of our existing businesses; two, no major divestitures, though there are opportunities to divest fringe assets; and three, implement more effective capital allocation and financial planning with a major opportunity to lower our tax rate significantly over time."

Despite the plan to not make major divestitures, MacMillan noted that Hologic is doing some "pruning around the edges" by eliminating some of the company's lowest-margin businesses.

For instance, Hologic CFO Glenn Muir said during the call that the company is seeking a buyer for its MRI breast coils product line. "This is an example of a business line divestiture that will help us focus our resources on more strategic and profitable areas of the company," Muir said.

In addition, Hologic said it is closing its high-tech drum factory in Germany and consolidating certain assets of that factory into a newer Delaware-based facility. This closure did involve a reduction in headcount.

"We see these as positive developments in our plan to focus resources where they can have the greatest impact on our growth strategy," Muir said. "As we continue to make progress on these and similar initiatives, we will provide updates. We will also look at other small divestitures depending on the valuations they can command."

Finally, during the call MacMillan noted that Muir would be retiring as CFO of Hologic after more than 25 years at the company. MacMillan said that Hologic is in an active process to bring in a new CFO, and that Muir would remain in his role until the company is able to do so.

Shares of Hologic jumped 8 percent to $22.62 in Thursday morning trade on the Nasdaq.

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