Chief Financial Officer at Hologic
Thank you, Steve, and good afternoon everyone.
We are very pleased to share our fourth quarter financial performance; capping off the end to an excellent fiscal year. These results highlight our current position of strength, as well as tremendous opportunities that lie ahead.
Growth in the period was powered by our core Diagnostics and Surgical businesses, as both franchises posted strong growth to close 2022. For a second quarter in a row, these businesses each showcased multiple growth catalysts. And as we look towards our fiscal 2023, we are excited to drive this momentum forward.
In Breast Health, we are proud of the resilience of our teams. Although our chip allocations are still constrained, we believe that the worst of the division's supply chain problems are in the rearview. As I will highlight in more detail when discussing our guidance for next year, we should see continuous improvement in our chip supply and thus gantry revenue throughout fiscal 2023.
Finally, before moving on to our divisional results, it is important to reiterate that our balance sheet is a key point of strength as we head into fiscal 2023. Our leverage rate remains far below our target range and our capital structure is pristine, providing our business incredible confidence and flexibility given the increasingly uncertain macro environment.
Moving on, I will now provide more color on our financial results. In the fourth quarter, revenue and profitability once again significantly exceeded our estimates, as total revenue came in at $953.3 million. This result was nearly $100 million higher than the mid-point of our guidance, despite a greater than anticipated FX headwind of approximately $27 million in the quarter. And non-GAAP EPS was 82 cents, roughly 20 cents higher than the mid-point of our prior guide.
Turning to our business results, in Diagnostics, global revenue of $520.9 million declined 35.6% compared to the prior year. However, it is important to note that COVID testing revenue was elevated in our fiscal fourth quarter of 2021 due to the onset of the Delta variant. Therefore, a more accurate depiction of the state of the Diagnostics business is to exclude COVID assay revenue, related ancillaries, and a small amount of revenue from discontinued products. When making these adjustments, we see that worldwide organic Diagnostics revenue increased 11% in the quarter, a fantastic result.
Within Diagnostics, our Molecular business was again extremely strong, growing more than 17% in the fourth quarter when excluding the impact of COVID-19. Growth in Molecular was broad based, driven by solid performance in our legacy STI portfolio, as well as the continued success of both our vaginitis panel and our virology menu. These results -- in conjunction with the exceptional performance of our molecular business last quarter -- highlight strong traction in our base Panther business.
As it relates to our COVID results, we generated $151 million of COVID assay revenue in the quarter, well exceeding our previous guidance.
In terms of the COVID assay revenue split by geography, domestic demand outpaced our expectations, with U.S. COVID assay revenue representing nearly 70% of total COVID testing revenue in the period. As expected, international demand continued to moderate.
Rounding out Diagnostics, our cytology and perinatal businesses increased 1.5% compared to the prior year.
In Breast Health, global revenue of $275.1 million was down 16%, as expected, primarily driven by chip supply shortages. For Q4, the impact to revenue from the chip supply shortage was in-line with our prior guidance.
In Surgical, fourth quarter revenue of $133.3 million grew more than 11%. And excluding the Bolder acquisition, the business grew nearly 9%. We are very encouraged by another strong quarter from our Surgical franchise, as the momentum we saw in our fiscal third quarter continued into our fiscal fourth quarter. The division's results were again led by MyoSure and Fluent with contributions from recent acquisitions.
Lastly, in our Skeletal business, revenue of $24.0 million increased approximately 4% compared to the prior year period.
Now let's move on to the rest of the non-GAAP P&L for the fourth quarter. Gross margin of 62.5% was ahead of our forecast, driven by higher-than-expected COVID-19 testing volume and strong results in our base business in the period.
Total operating expenses of $329.9 million in the fourth quarter decreased 6.6% compared to the prior year period. This decrease was driven by less spend within G&A and Sales, partially offset by higher marketing and R&D expense.
Below operating income, Other Income was an expense of $3.1 million, less than anticipated, primarily due to gains associated with our foreign exchange hedging activities. Finally, our tax rate in Q4 was 21%, as expected.
Putting these pieces together, operating margin for Q4 came in at 27.9%, and net margin was 21.8%, both ahead of our previous estimates. Non-GAAP net income finished at $207.5 million, and non-GAAP EPS was 82 cents.
Moving on from the P&L, cash flow from operations was $168.7 million in the fourth quarter. Based on strong cash conversion, we had $2.3 billion of cash on our balance sheet and our leverage ratio was 0.2 times. Our cash generation continues to be excellent, and our balance sheet remains a pillar of strength. Both positive attributes in any environment, but are especially valuable in periods of macro instability like we face today. And although we have continued to build cash, our M&A teams in each division remain active and our funnel of potential tuck-in opportunities is robust.
As it relates to share repurchases, they remain an integral part of our capital deployment strategy moving forward. In the fourth quarter we repurchased 2.5 million shares for $175 million. Further, on September 22nd our Board of Directors approved a new 5-year share repurchase authorization for up to $1 billion.
Now let's move on to our updated non-GAAP financial guidance for the first quarter and full year fiscal 2023. As a reminder our organic guidance excludes acquisition revenue until each deal annualizes. Therefore, our first quarter guidance only excludes Bolder revenue from our organic base. Bolder becomes organic in our fiscal second quarter of 2023.
In the first quarter of fiscal 2023, we expect strong financial results again, with total revenue in the range of $940 to $990 million. For all of fiscal 2023, we expect total revenue in the range of $3.7 to $3.9 billion, significantly exceeding our pre-pandemic levels. This guidance assumes low double digit organic revenue growth ex. COVID in each division for the full-year fiscal 2023.
To help with your constant currency modeling, we are assuming significant foreign exchange headwinds of slightly more than $30 million in the first quarter of 2023, and approximately $90 million for the full year. Please note, that while we have taken a conservative view when considering the strength of the U.S. dollar, currency markets continue to be very unpredictable.
In terms of our divisions, we expect Breast Health, Surgical and core Diagnostics, excluding the impact of COVID, to grow low double digits for 2023.
In Diagnostics, we expect our molecular business to continue to drive growth. Our Panther continues to deliver incredible benefits for our customers through assay consolidation, scalability, and automation. In this environment where labor remains a scarce resource, our highly automated Panther is a tremendous value proposition. With nearly 20 assays on menu, we are eager to capitalize on this great opportunity to increase utilization on our expanded installed base.
Finally, as Steve mentioned, we now have approximately 3,250 Panther's placed globally, placing more than 350 Panthers in fiscal 2022 and 49 units in Q4. Going forward we will return to reporting Panther placements on an annual cadence.
Moving to Breast Health, we are excited for the year ahead. Our customer base is hungry for our best-in-class mammography instrumentation. We continue to expect chip supply to gradually improve throughout 2023 and therefore the division's revenue should increase throughout the year. And while we only have line of site to allocations impacting revenue about two quarters out, we remain optimistic that the gantry business will exit fiscal 2023 at or near normalized levels.
As it relates to our guidance, we expect Breast Health revenue to be down low double digits in our fiscal first quarter of 2023, given the prior year was not yet impacted by supply chain shortages. However, for the full-year, our guidance assumes that Breast Health will grow low double-digits, reflecting supply recovery as the year progresses.
Finally, in Surgical, we expect more broad-based growth than ever before. We anticipate MyoSure will continue to drive growth, but also expect notable lift from our Fluent Fluid Management System, as well as our laparoscopic portfolio of Acessa and Bolder.
In terms of COVID sales, consistent with prior messaging, we believe COVID could be one of our largest molecular assays over the long-term. Having said that, given how quickly we've seen the pandemic change course, we believe it is still too early to accurately forecast an endemic state. As result, we expect COVID assay sales to be $75 million in the first quarter of 2023, and $150 million for the full year. COVID-related items, inclusive of a small amount of discontinued product revenue, are expected to be approximately $35 million in the first quarter, and $130 million for the full year.
Moving down the P&L, for the full year we forecast our non-GAAP gross margin percentage in the low 60s and our non-GAAP operating margin percentage to be approximately 30%. Please note that we anticipate our COVID revenue, which is margin accretive, will be front-end loaded to the first half of 2023 to coincide with the fall and winter seasons in the U.S. In addition, we have again incorporated elevated inflationary pressures into our guidance as it relates to input costs. We foresee these higher costs persisting throughout 2023.
In terms of operating expenses, we expect spending to be down compared to the prior year. While we will continue to invest in our business, marketing spend will be lower in fiscal 2023, as our fiscal 2022 had several large one-time expense items, such as our Super Bowl Bold [Phonetic] commercial and higher spending for initiatives such as our WTA partnership.
Below operating income, we expect other expenses, net, to be around $20 million a quarter. Our guidance is based on an effective tax rate of approximately 19.0%. And diluted shares outstanding are expected to be approximately 252 million for the full year. All this nets out to expected non-GAAP EPS of $0.80 to $0.90 in the first quarter and $3.30 to $3.60 for the year.
To conclude, let me wrap up by saying that our strong fourth quarter results once again exceeded our guidance despite the various macro headwinds. Performance was driven by exceptional growth in our molecular diagnostics and Surgical businesses, which we expect to continue. And while the future macro-outlook remains uncertain, with a natural hedge to future COVID uncertainties and a fortress balance sheet, we are well positioned to continue to deliver strong results in our fiscal 2023.
With that, we ask the operator to open the call for questions.