Hologic Inc (HOLX) 2007 Q4 法說會逐字稿

Welcome to Hologic incorporated Q4 fiscal year earnings conference call. Today's conference is being recorded.

Before we begin, management of Hologic Inc. has asked the following statement be read: certain statements made by management of Hologic Inc. during the course of this conference, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievement of Hologic to be materially different from future results, performance, or achievement, expressed or implied by such forward-looking statements.

Such factors include among others, those details from time to time in the company's filings with Security and Exchange Commission. We expressly disclaim any obligation, or undertaking, to release publicly any updates or revisions, to any forward-looking statements, to reflect any change in our expectations, or any changes in events, conditions or circumstances, on which any such statements is based.

At this time, for opening remarks and introductions, I would like to turn the call over to the CEO, Mr. Jack Cummings. Please go ahead sir.

Well thank you Shirlon, and good morning, everybody. Thank you for attending our fourth quarter, and fiscal 2007 year-end conference call. Joining me this morning is Pat Sullivan our Chairman, Jay Stein our Co-Founder and Chief Technology Officer, Rob Cascella our President and COO, and Glenn Muir our Executive EP and CFO, and before proceeding I need to remind you of the safe harbor statement accompanying our press release applies to comments made during the call. We are very pleased to share with you our fourth quarter and our fiscal year-end financial results for the period ended September 29, 2007. I will briefly touch on the highlights, while Glenn will provide further details on our operational progress, as well as guidance for fiscal 2008, and we will then open the call for questions.

Prior to discussing our quarterly performance, I would like to bring everyone up to date on our merger with Cytyc. On October 22, we completed our merger with Cytyc, thus creating a global leader in women's health care. The product portfolios of Hologic and Cytyc provide some of the most advanced technologies in the world, to address the health care needs of women. By combining our companies, we are able to leverage the strength of each business, with respect to complimentary, best in class product, channels of distribution and infrastructure development.

And I would like to take just a moment to welcome, all of the Cytyc associates world wide to our family. Over the past few weeks I have the pleasure to personally meet with many team members in Marlboro, and in addition I have attended customer meetings in Scotland with our northern European team, traveled to Costa Rica, and visited with our enthusiastic team in San Jose, and traveled to Hong Kong to meet with our Managing Director for the Far East. Cytyc has a team of passionate professionals, and together with Hologic's team, we will reach our shared goal of improving women's health care, world wide through better detection, improved diagnosis, less invasive treatment and therapies, and overall better outcomes.

With that, now let me review our performance. I am very pleased to say this marks our 15th consecutive quarter of increased revenue and earnings. All of the Hologic team members did an outstanding job in the fourth quarter, and as a result of their efforts, we were once again able to record revenues, earnings, and backlog.

Let me take a few minutes to summarize our financial results. As stated in our press release, fourth quarter fiscal 2007 revenues totaled $202.6 million which represents a 31% increase over the fourth quarter of fiscal 2006. Fourth quarter fiscal '07 net income totaled $32.1 million, compared with a net loss of $1.5 million in the fourth quarter of fiscal '06.

Fourth quarter of '06 results though, included a write off of in-process R&D in connection with a Suros and R2 acquisition. As an additional comparison for you, our non-GAAP adjusted net income for the fourth quarter of fiscal '07 increased 132%, to $35.9 million compared to our non-GAAP adjusted net income of $15.5 million in the fourth quarter of if fiscal '06. For the 12 months ending September 29, '07, revenues increased 60%, to $738.4 million, compared to revenues of $462.7 million for the 12 month period in fiscal '06. And for the 12 months ended September 29, '07, Hologic recognized net income of $94.6 million or $1.72 per diluted share, compared with net income of $27.4 million or $0.56 per diluted share for the comparable 12 months period in fiscal '06.

Q4 revenue and earnings exceeded our previous record high for the third quarter of fiscal '07. Mammography and Breast Care revenues increased 45% to $165.1 million for the fourth quarter of fiscal '07, compare to $114.2 million for same period in '06.

Selenia full field digital mammography system sales continue to set quarterly records. As you may recall from our last quarterly conference call, we forecasted 340 Selenia's for the fiscal fourth quarter. Once again we surpassed our target, by recognizing 351 Selenia systems, as revenue in Q4 up from the 193 systems we recognized as revenue for Q4 2006, an increase of 82%. For all of fiscal '07, we recognized 1,189 Selenia systems as revenue, which represents 114% increase, over the 555 systems sold in '06. Fourth quarter Selenia bookings were solid pushing backlog to 589 systems, which is 30% higher, 455 systems we had in backlog at the end of fiscal '06.

Also contributing to quarterly growth was an increase in orders for Hologics computer aided detection system for digital mammography, and our Suros line breast biopsy systems and devices. Total backlog for all products at quarters end was 241 million, which represents a 24% increase over the 194.7 million backlogs ending Q4 of '06.

In summary, whether acquisitions of R2, Suros, AEG, BioLucent, and most recently Cytyc, we have built a company that's larger, stronger and better positioned to serve the health care needs of women. We are a company with a unified culture, and a shared passion for innovation and growth. Throughout fiscal '07, we have kept the promises we have made to our customers, our investors, and our dedicated team of Hologic associates world wide, that make us the company we are today. With our established track record we expect further progress and success, and now, I have the pleasure of asking Pat, who I believe has a streak of participating in over 40 consecutive conference calls, for his comments and perspective, on moving forward together as one company. Pat.

Thank you, Jack. These are truly exciting times for the combined companies of Cytyc and Hologic. As Jack mentioned the combination of these two companies, creates one of the leading companies in the world with a broader wave of products focused on women's health.

Over several months, I have also had the opportunity to meet with Hologic's people in the field. I attended a Hologic scientific advisory board meeting, as well as the meeting of their leading distributors in Europe. In both instances I was completely impressed with the people I met, and the dedication they displayed. I am convinced this merger is a good fit, for both companies as we start to integrate the businesses and the people together, to realize the future potential of Hologic.

From my perspective we are off to a very strong start. The day after the merger closed, we held the first meeting of the new Hologic Board of Directors, and hit the ground running. I was truly impressed at how well the members of the two boards came together, to work as a very effective board. As noted in the press release, the ongoing patent litigation between Cytyc that we had with [Trigraph Imaging] was settled. Since the terms of the settlement are confidential between the two companies, I am not at liberty to comment further, other than to say, that we are very pleased this litigation is behind us.

Over the next several months, I will be spending a fair bit of time with Glenn, meeting with investors at upcoming conferences, as well as attending the RS&A in Chicago, and hope to see some of you there. Finally, as we close this chapter, and this part of the Cytyc story, I would like to personally thank those Cytyc executives and board members who are not moving forward, for their significant contributions to Cytyc's success in the past, and to thank those that are moving forward for their continued dedication to women's health, under the Hologic banner. With that I would like to turn the call over to Glenn for any update on the financial performance. Glenn.

Thank you, Pat. Let me now expand on the financial results. My comments, are also summarized in a power point presentation, accessible on the IR page of our corporate website. My presentation today includes certain non-GAAP financial measures, and a reconciliation of these non-GAAP financial measures to their most comparable GAAP counterparts as set forth in this same power point presentation at Hologic.com.

It was another stellar quarter for Selenia, which just like last quarter accounted for one-half of our total revenues. Total revenues at $202.6 million were $11.1 million or 6% higher than the June quarter and $48.5 million or 31% higher than Q4 September of last year. Selenia sales this quarter continue to be robust, recording revenues of $101.7 million, representing over 2/3 of our growth year over year. We also saw continued growth from our Suros bio group, which more than doubled from Q4 of last year, and our service group, which experienced a revenue increase from $23.5 million to $31 million, as we continue to capture a higher percentage of service contracts on a growing installed basis of Selenias.

Regarding Selenias, the 351 systems sold this quarter was above the forecast at the beginning of the quarter, we had targeted 340, demand continues to outpace our expectations. 287 or 82% of these were sold in the U.S., and 64 were sold overseas. In addition in the U.S., 260 or 91% of these were shipped with digitalCAD. The Selenia ASP this quarter, as with last quarter are stable.

Last quarter I believe there was a bit of confusion around the Selenia average selling prices, and a misconception that ASPs had tumbled, taking total Selenia revenues, and dividing by the number sold, to compute an average, can result in a very misleading number. Like last quarter, it is important to realize calculation is a terrible proxy for actual selling price trends, and can be expected to fluctuate widely. When thinking about our ASPs it is important to note, competitive factors are currently low on the list. The primary drivers for our seemingly changing ASPs are as follows, first the geographic mix. As we sell more internationally, our mathematically calculated ASP will go down, this is primarily due to the fact that we sell through distributors at a transfer price, who are then responsible for most of the service, sales and marketing expenses. So although gross margins may be lower, operating margins are almost the same as a direct sale.

Second for our product mix, our Selenia line has expanded to include various hardware configuration changes, that can affect a total ASP, without affecting the price of the base capture modality. This is especially true in multi-unit orders, where our customer won't need a full contingent of soft copy viewing workstations, or capture devices. And then third, in regards to follow on sales, we are beginning to see existing digital customers place repeat orders, and they will only require the base capture modality as they already have the viewing infrastructure in place. So what does all this mean? Not much from a margin standpoint. We are disclosing total Selenia revenue because it does account for one-half of our total, and we are disclosing the number of Selenias, because it has become a standard benchmark. We need to be cautious when using these to try to derive an average. Much more meaningful is to look at the individual gross margins on each sale, as we do internally. This strips away the differences in hardware configuration. And for the quarter, our gross margins in the mammography breast care segment increased to 52.3% versus 49.9% in the June '07 quarter, and 46% in the September quarter one year ago.

Our overall consolidated growth margins improved this quarter as well, hitting 48.2% or 49.5% on a non-GAAP adjusted basis, due in large part to overall increase sales volume, and the continuing shift in mix to the higher margin Selenia digital mammography sales. As Jack stated, our consolidated net income if this quarter was $32.1 million. This increase in GAAP income handily beat our expectations as the higher level of revenues contributed $32.4 million of additional gross profit during Q4 of last year. Partially offsetting this was an increase in operating expenses, also primarily due to the increased volume. Without the acquisition related charges, and stock compensation expenses the non-GAAP net income would have been $35.9 million. This works out to an adjusted EPS of $0.65.

If now we could look at our largest reporting segment, the mammography breast care, and compare it on a sequential basis to our June quarter, the press release gives the comparison to the year earlier quarter. This quarter, the revenues from our mammography breast care segment accounted for 82% of our total, up 8% from the June quarter. The increase in revenues of $11.6 million from June, was primarily due to the increase in the number of Selenia's sold from 328 to 351, and an increase in Suros console sales, and biopsy hand piece volume. The increase in operating income was due to the increased gross profit from the higher revenues, and the operating income as a percent of revenues continued to increased hitting 28.2%, up from 24.7% last quarter.

Switching to ending backlog, which at September 29 was 241 million, was considerably higher than the 193 million balance from a year ago, and slightly higher than the June balance of 22 million. As Jack stated, the backlog of Selenia's rose to a new high, 589 systems, up 52 from the June quarter, and up 134 from one year ago. Even though we shipped 11 more Selenias than expected, our unit backlog increased again this quarter, as we took orders for 403 Selenias. This was a much better booking quarter than expected.

Two factors stood out, first the continued interest in digital mammography in general. This market is continuing to expand, especially here in the United States, and digital has become a standard of care. And number two, Selenia is recognized as the best of breed digital product out there, and it has allowed us to achieve a 55% plus market share, here in the United States. Also to note this quarter though, is that we benefited from the timing of a large single order for 40 systems, which is something we don't see every quarter, and probably won't see in the December quarter. In Q1 '08, the December '08 quarter, we will again increase the shipments of Selenias, with the goal of stemming this rise in ending backlog.

I would now like to provide our outlook for fiscal 2008, our fiscal 2008 guidance which ends on September 27, 2008. We have completed our operating budget for FY '08 for both Hologic and Cytyc, which includes the synergies, integration stats, and revenue targets on a combined entity basis. On October 22, the day of merger, we did start with a fully vetted operating plan in place. If we start with fiscal '08, we are looking for total consolidated revenues of $1.7 billion.

Basically in four reporting segments, for the mammography breast health and the skeletal health segment, we are forecasting $900 million in revenue, which represents 22% growth over fiscal 2007, and this is primarily attributable to an increased in Selenias. We are projecting an increase of 261 Selenias from 1,189 in FY '07 to 1,450 in FY '08. In addition, we are expecting continued revenue growth from the Suros biopsy group of about $30 million dollars, and service revenue growth in excess of $30 million.

Second of all, for the other two reporting segments, the diagnostics and the surgical segments, we are forecasting $800 million in revenue, representing 13% growth over fiscal 2007, attributable to across the board growth in Cytyc's two FY '08 reporting segments, their diagnostic with expected revenues of $485 million, due to imager sales, Adesia, and continued international expansion, and surgical with expected revenues of $315 million due to NovaSure and also continued international expansion and growing acceptance.

It is also important to note that only 49 weeks of Cytyc's projected revenues are included in our fiscal 2008 budget. We are missing the first three weeks which resulted in about $35 million in revenues. If these three missing weeks were included, Cytyc's year over year growth would have been closer to 18% and our consolidated growth in fiscal 2008 for revenues would have been projected to be 20%.

Next for gross margin. We are looking for combined gross margins of approximately 61% to 62% on an adjusted non-GAAP reporting basis. This does exclude the amortization of intangibles included in cost, for which it will be approximately $105 million in FY '08. Combined operating expenses are expected to be $515 million to $520 million for the year, and are also excluding the amortization of intangibles which are expected to be around $35 million. Included in the above numbers though, are approximately $15 million of FAS123R stock compensation charges. We have not backed them out of our guidance, but will indicate what they are quarterly, and show them on our non-GAAP reconciliation schedule in the press release as we currently do.

For interest expense we are forecasting interest expense on the outstanding $2.35 billion of debt, of approximately $110 million. This is $30 million higher than we were expecting on May 20, when we announced a deal, due primarily to three factors. First, the overall long term Libor rate we are using, is a bit higher than it was in May. Number two, the credit spread on the term loan is 25 to 50 basis points higher, and number three, we were expecting a lower coupon equity link debenture, concurrent with the deal close. At this point we are reviewing our options, deal in equity link debenture sits in nicely with our capital structure, but have not settled on the timing.

The above combined results also reflect a results of Cytyc for only 49 weeks instead of 52 as I mentioned, due to their closing of the merger on October 22, and not the September 30, date we had hoped for. It does make a difference, as it reduced expected revenues by almost $35 million, and pretax income by about (inaudible) dollars. For the year our effective tax rate is expected to be 36%. If we look at shares outstanding for Q1, we are expecting total shares outstanding for EPS purposes, to be approximately $110 million. This will be lower than the total outstandings, since the shares issued for Cytyc will only be outstanding ten of the 13 weeks. We are expecting the shares outstanding to increase to 126 million in Q2 and to 130 million by the end of the fiscal year. This should result in a weighted average, number outstanding of 125 million. This is the number outstanding we were expecting in the May time frame.

So for EPS based on all the above we are expecting non-GAAP adjusted pretax income which excludes only the amortization of intangibles of $420 million to $425 million. And our EPS guidance for FY '08 on this adjusted basis with 125 million shares outstanding, would be $2.15 to $2.20. This is absent the effect of any merger-related charges, such as in-process R&D, which will hit, and distort Q1.

Going back to May though, on the same basis, our guidance was, at that time $2.35 to $2.40. Operationally, we are a bit ahead of where we thought we would be, looking at the combined results, and are very pleased with the synergies and targets baked into our budget. The $0.20 disconnect is due directly two items already identified. Number one, the higher interest expense cost of $30 million, that was approximately $0.15 on an after-tax EPS basis. We do believe this drag will be short lived, as we will be very focused on the rapid repayment of our term debt, and expect a year from now, that the term debt itself could be one-half of its current $1.1 million balance. And number two, missing the first three weeks of Cytyc's results, in the current budget cost us about $0.05 on after tax EPS basis.

Switching to Q1, our December 2007 quarter, our September Q4 actual results were a bit better than expected. We are expecting continued growth in revenues in Q1 of '08, on both the Hologic and Cytyc business groups, of just over $5 million each. This would equate to over $10 million in sequential growth; however at the same time, we will only recognize in Cytyc's revenue this quarter ten out of the 13 weeks. At a run rate of about $12 million a week, missing three weeks has a sizable impact on the consolidated total. So instead of combined guidance, for this upcoming quarter of $395 million to $400 million, we are looking at reported revenues of approximately $360 million.

On a Hologic side we are continuing to see growth in Selenia sales, we are expecting to sell 361 Selenias or 10 more than last quarter. We expect that the mammography breast health segment will have the largest revenue increase this quarter. On the Cytyc side, we expect to fold their international operation into the reporting for diagnostics and surgical. Both of these segments will then, and are expected to show sequential growth this quarter. Consolidated growth margins are expected in the 61% to 62% range.

Combined operating expenses excluding the amortization of intangibles, are expected to be in the $110 million to $115 million range. Interest expense, associated with the $2.35 billion of new debt, is expected to be approximately $30 million for the quarter, and non-GAAP adjusted pretax income would increase to $85 million. This includes stock compensation charges of $3 million. At an effective tax rate of 36% and with 110 million shares outstanding, our EPS for Q1 would be approximately $0.49. However there are a number of one time acquisition related charges that will hit Q1, and will distort our true results. Not included in the adjusted non-GAAP figures above will be charges for; in-process R&D of approximately $320 million, inventory write up to fair market value of approximately $35 million, and stock compensation expense of approximately $6 million to $7 million, from the acceleration of certain Hologic stock options. These expenses will be identified when we report our Q1, it will be included on the reconciliation to GAAP in our reported numbers. If I could turn it back to you.

Thank you, Glenn. I would like to just kind of look ahead here. While we have accomplished quite a bit in fiscal '07, we certainly have a lot more to go to accomplish in fiscal '08 as a much larger company. Some of our goals for the upcoming year include, continue to aggressively pursue share gains for our Selenia digital mammography in both the U.S. and in the international markets. And for the ThinPrep pap test and the imager, we want to increase adoption across a broader segment of the international markets.

For NovaSure we want to drive more minimally invasive treatments procedures to the office from the OR, and for MammoSite, we want to increase awareness of partial breast eradiation as a potential alternative to external beam, which is the current standard of care. An example of one such product is our Solero device. As you'll recall, we launched the Suro Solero self contained hand held core breast biopsy device, which is already generating significant interest in the medical community. Beginning last week, 50 MammoSite sales reps joined forces, with 30 Suros breast care technology reps to jointly sell the Solero, Solero mark introducers and the biopsy kit, as well as their own individual product lines. Each team will have two distinct sales channels with MammoSite sales reps, selling to surgeons offices, and the Suros breast care technology reps selling to hospitals and breast imagining centers. Combined these two groups will make a significant impact on growing the customer base held by Suros. This is a unique product placement opportunity for doctors, patients, and Hologic, and it is only one example. There's a long list of agenda items for fiscal '08.

We are looking forward to our national sales meeting in January where our talented diagnostics and GYN surgical teams will come together on driving efficiencies across the spectrum of products we market, including cross-training in products, and new initiatives such as the introduction of our bone disotomitry products into the OBGYN channels. We definitely have some exciting times ahead.

In closing, Hologic enters fiscal 2008 as a technology leader in women's health. We will continue to invest in technology, as we deliver the very best the industry has to offer, across all product lines, while expanding upon future platforms, which will position us ahead of the competitive curve. With all of our accomplishments in fiscal 2007, we look forward to 2008 with great excitement. I would like to thank the 3500 Hologic team members world wide, for their continued hard work and dedication to make our objectives a reality. We could never achieve our goals without having a passionate and a committed team of associates, and we have the best the industry has to offer. And that is why we are number one.

And on a final note our next conference call is scheduled for Tuesday morning, November 27. It will be held at the Radiological Society of North America Symposium, which we hold (inaudible) which will be our fourth analyst day that we hold there in Chicago. If you are planning to go to the RS&A this year, we would like to invite you to our morning presentation which will focus on new product developments and introductions this year. If you are interested, call or e-mail us, and we will make sure you are on the guest list. This now concludes our opening remarks, and I would be most pleased as will Pat and Glenn, and Rob, and Jay to take you questions. So I will now turn the call back over to Shirlon, and ask her to key everybody up.

The question and answer session will be conducted electronically. (OPERATOR INSTRUCTIONS). We will go first to Amit Hazan, CIBC World Markets.

Good morning guys.

Good morning.

Congratulations on the acquisition closing. I thought maybe I would start asking on the Cytyc side, just for a little bit more color if you can, at least on the growth of some of the product lines we had been accustomed to hearing about, NovaSure and perhaps Approxima .

That's fine, Pat you want to do that?

If you look at the overall domestic surgical products, in total, it was a 24% growth quarter over-- versus the September quarter of last year, and (inaudible) nine months was about a 30% growth, in total surgical, we did see a relatively seasonal quarter in our-- in the September quarter with NovaSure being slightly down from where it ended the second quarter.

Could you answer the same question in terms of the guidance you provided?

Yes. Amit It's Glenn. You mean the earlier guidance on--

In terms of the fiscal year '08 guidance, just trying to get a sense, if we are looking at Cytyc surgical and Cytyc diagnostic, what is making up some of the growth there?

Well, when we think about, let me try to help a little bit there. It gets a little bit difficult with fiscal year '08, because the reported results are going to be hindered a bit by losing these three weeks. And--

Well, Glenn let me interrupt for just a second. Also, when we go to the four reporting segments, you are going to find surgical is not an apples to apples, as it was before, because MammoSite is moving out of that group into our interventional breast health group, with Suros so it will no longer be part of surgical. So it won't be an apples to apples, but we did have a good increase this quarter domestically in the surgical products group, we're of about 24%. Glenn, I am sorry to interrupt.

That's okay. That helps. If we look at it though, Amit, and we look at the guidance we're giving or as Jack said, the two segments, that formerly were Cytyc, both the diagnostic and surgical, and expect for a moment that with some of restructuring the reporting has changed, that those segments will include international in the future. So those two segments we are looking at, to comprise $800 million of the $1.7 billion we are projecting for '08, and if we look at the diagnostics, that piece would be $485 million, and that is growth. That is 18% growth over FY '08, and it is being driven by, here in the United States, imager sales, internationally, by ThinPrep in general, and then both domestically and international, by the full term product itself, so all lumped together, you are looking at the mid teen, as a percent growth for diagnostics.

And it is a similar story with the surgical though. The surgical in FY '08 is expected to be about $315 million. That's really being dominated by the NovaSure procedure itself, both here in the U.S., and also beginning to get traction international, as we expand outside the U.S. and see some growing acceptance. I don't know if that helps.

It does and I will follow up off line but can you just in terms of Adiana, or Justiva, do you include either in your guidance, and what is your expectation for Adiana approval?

The Adiana approval, Pat, why don't you go?

We submitted that, as I think we indicated on the last call in August of this past summer, and would expect a panel some time in mid-December, followed by an approval into February, March time frame. We would start to launch the product at that point in time, and I think we have relatively little in terms of guidance for the Adiana product for next year. Justiva, I don't think we have anything in that, we are in the middle of a animal study we expect to wrap up an approval would be, in about the fiscal-- sorry the calendar third quarter of next year.

There are no numbers in there for Justiva for '08, and as Pat said, very minimal for Adiana .

One final question, and I'll jump back in queue, Glenn in terms of the guidance you provided for EPS, versus the guidance you gave in May, just to be clear, from all of the work you have done, the only two reasons that the guidance is lower, is because of the interest expense, and Cytyc not contributing the full fiscal year? Is that correct?

Yes, that is correct. Those are the two differences, and actually from an operational standpoint, we are quite pleased with where we ended out, or came out with a combined budget. So the unfortunately, the two knocks, when we look back to May were those two items.

Okay. Thanks very much, guys.

We will go next to Glenn Novarro, Banc Of America.

Two questions. One regarding the guidance, the lower guidance, $0.15 was due to higher interest expenses, and then Glenn, you said that you know, you are still looking at some sort of equity-linked product. If you were to do an equity-linked product, let's say in the next several months, would that $0.15 drag be reduced, and what's your best guess as to what it would be reduced by? That's question one, and then secondly, you had a very good quarter with Selenia and the backlog. Can you giver us a sense of, was that market share gain, growth, any color that you can give us. I think in the past you have said that you pretty much are capturing 55% of all placement. Is that consistent? Thanks.

I will let Rob answer the question on Selenia since he is out on the road making every single one of those sales and I will stick with the interest expense on the $0.15. And in that $110 million, is baked in, later in the fiscal year, some kind of lower coupon rate, than what we currently have on the term. So we have baked a little bit in; however, I will admit we are probably being a bit conservative with that number, so that it at least doesn't come in higher than that, and I would have to say, that there is probably a little bit of leverage, if we have a nice placement of some other equity linked adventure out there, and we're successful as we intend to be, in paying down the term loan, maybe even a little bit faster than we were expecting. And I even alluded to that, in that even though we are starting with the $1.1 billion of term loan, I do believe that we are in a good position that we can get that paid off in half. Some of it might be a restructuring or replacement, but nonetheless, almost in half by the end the fiscal year, and that could be helpful to this $0.15, but at the moment we are just comfortable with that $0.15, Glenn.

Okay, great.

Glenn, on the Selenia backlog, Rob is going to answer that, but I am elated to find out he has been involved in every single sale, because now Jay and myself and Tom Umble and a lot of our folks, we are just going to kind of pack it in, and for the rest of the year, sit back and run the business while he's out there.

I may have over reached a bit on that, sorry.

Right.

Thank you, both. Glenn on a serious note, I will try to respond, we had a very strong quarter relative to just market interest, and I think the digital mammography market continues to grow, and there's deeper penetration on many, many fronts. I think that, linked with the fact that it was our fourth quarter, a lot of sales, compensation plans have threshold pricing and trigger amounts. That drove some business as well. The large single order, we're viewing as a, we are very happy and pleased that we received that, but we view that outside of our trend and some what of an anomaly, from a market share perspective, new booking versus revenue, we're probably north of 60%.

60.

60, yes.

Okay. So you are starting to take market share from GE. One last thing, that 40 unit placement, was that part of the original guidance in terms of Selenia orders that you gave three months ago?

No. No, that was not.

Okay. All right.

We had a strong quarter without that.

Okay. Great. Thank you.

We will go next to Tycho Peterson, JPMorgan.

Good morning. Thanks for taking the call. Hey, Rob. Maybe following up on that last line of questioning, on the call there was some discussion about multi-system orders and repeat orders. Can you give us a sense of how many of your orders today are either multi-system or repeat orders with existing customers?

Sure. The, we are seeing a much higher percentage of multi-system orders, and also customers coming back to fully convert to digital. I would guesstimate at this point, we are probably talking about somewhere in the area of 40%. It could be a bit higher, but that may be a fourth quarter phenomenon as well Tycho, but we are seeing larger orders than originally expected, from a broader range of customers, and for the first time, we are actually seeing multi-system orders from outside the United States, which typically has not been part of the trend.

Is that predominantly Europe?

Yes.

Okay. How about, are you also seeing competitive swap outs for GE installations? You have talked about seeing some of those in the past.

Sure we're, as you might guess, the installed base of older competitive products are now coming to term on lease, or otherwise, and many of those are now, are being approached by Hologic sales folks in terms of replacing those with new Hologic equipment. We are succeeding in winning over some of those ac accounts.

You know, on the topic of bundling, you have talked in the past about the pull through with maybe Suros in some of the multi-care tables. Can you give us a sense as to how often you are seeing bundling as well?

If we sale a multi-care table, we are always quoting on an a-tech as well, so that there is an automatic synergistic fit between the multi-care and our breast biopsy products. In addition, although there's not a direct link, there's a packaging and pricing, when we sell Selenias, and as that relates to an a-tech, or a multi-care for that matter even, our osteoporosis assessment products. I would say that at this point, that bundling equates to somewhere near 20% to 25% of our business, incorporates a Selenia with other modality type products.

Okay. You have been pretty good in the past about breaking Suros R2, and the AEG contribution. Is that something you can do again and maybe add BioLucent?

What do you think? I mean we--

The R2 is a little difficult. It is all bundled together in the $101 million of Selenia sales. For the most part, most of the R2 we sell is bundled on digital. There's still some small follow on analog, but it really is together, it has become just a normal part of Selenia at this point over 90% of the U.S. Selenia had CAT on it. Suros has been steadily increasing every single quarter. This past quarter we hit close to $18 million on the Suros. The importance there is, if we look out into FY '08 we continuing to see that to increase, now that we have more of the boxes out there. We are guiding to a $30 million increase in FY '08, over the almost $60 million that Suros contributed in FY '07. So it is nice growth in FY '08 for that whole Suros group.

Okay. And finally, I guess if I'd be somewhat remiss if I didn't give you a chance to address the Phillips news, however you want to comment on that.

This is Jack. I don't really see it as a lot of news. I think we have a high regard for Phillips. We know them very well. They have no experience or very, very limited experience in selling mammography. They did years and years ago, and they actually sold an old low rad private label product. They sell, and they have access to a Siemen system, in Europe on the analog side. If it is a new system, then they will have to go through the PMA process. If it is a system that they're using from someone else under a private label, they will still have to do some filings, the only ones that are approved, as you know, are Siemens, ourselves, and General Electric and FUJI. I don't know where they're going to go for it unless it is with Siemens, if it's with anybody else they'll have to go through the process. I think they're a great company, and I think they should stick to their knitting on 64 flight CT scanners and MRIs.

Okay. That's helpful. Thank you very much.

We will go next Ed Jenkins, Needham & Company.

Thanks, Jack. A question on the imagers, you know, Quest is going to now start implementing, I wondered if you could tell us how many units you expect for Quest, maybe what time frame, and how many imagers we did in the quarter?

I will take a chapter from Pat. He has said this so many times, so I'm not trying to steal his thunder, but as far as the relationship with Quest goes, over time, we expect to place the imager in the majority of Quest sites, and that is about as good as we are going to get, relative to the relationship and the number et cetera. That's based on our agreement with Quest, and it is a growing relationship, and it is a solid one, and I am very happy we can be involved in that now with Pat. But we are in deference to our client Quest, we are saying exactly what they would like us to say, and there's no reason for either one of us to say any more than we are very, very, excited about the fact that in the majority of their sites, there will be an imager over the course of time.

Can you say how many imagers were in the quarter?

Pat you want to talk about that one?

We continue to ship over 30 imagers on a quarterly basis. This quarter we did 36 for the quarter. As I have said many times, we expect that number to continue at about 30 per quarter, but we did a little better this quarter than we had historically done in the past. Then to Jack's point, we are excited that the pilot was successfully concluded, and that they're implementing this phase deployment. We are very excited about that development.

And now you won't be breaking out internationally. We will forward into the other business units as you said, where does (inaudible) are you still thinking about, or selling that business, or is it sticking with the family?

Cleo site will be sold.

Okay. And until it gets sold, where do you break it out?

It is the number is so nominal, that it is really not material at all. It is lost in the-- I guess the surgical number, Pat or?

Yes, it's in surgical but it is a diminimous number, not really material to the results.

Last question, as far as head count reductions, and cost savings with the merger, can you tell us what has happened to date, and what you would expect to happen in the upcoming days?

Pat, you or I could answer that.

I would say, as I have mentioned, there were a number of senior executives at Cytyc that decided to move on and do other things. Tim Adams as an example, Dan Levange has retired, and remains on the board, there are several others, but I think in total, Jack there were ten or eleven.

Eleven people total, so and we do not, those that decided to leave on their own, and the few others, those changes have been made, and everybody is in place, marching forward. So we do not expect to make any changes other than in the course of normal business.

You wouldn't expect changes then in the sales force, and other areas, coming up should we expect business as usual?

Absolutely. If anything, I think you would see us adding sales people. Business are growing and, we are continuing to look in that area, but you are not going to certainly see change out there, those people that were driving the change on the diagnostics and surgical business, are exactly the same people in the field that are driving it today, as are the district managers and field sales people. We don't see change other than in the course of normal business.

Thanks, jack.

Thank you.

We will go next to Mark Richter, Jefferies.

Hi guys, good morning.

Good morning, Mark.

Can you just break out new orders in the quarter, they were obviously strong, the U.S. versus OUS?

For which product line.

For digital mammography systems.

Usually runs 80/20, but Rob?

It looks like we, of the orders that we booked, I am just looking at some of the information that we have. It is about 80/20. 350 so on units were domestic, and the balance is international for the booking rate for the quarter.

Okay. Perfect. Thanks. During the quarter, Ravnet obviously, announced it will purchase, over 30 full field digital mammography systems, based on our diligence, we learned that was you guys, and also learned they have about 55 or so sites that could buy additional digital systems. Can you just comment on, if you have any expectations of filling those orders and sort of timing on that?

At this point we are focusing on the initial orders and obviously we want to do the best job we possibly can on those, and if I am sure, if we execute there will be future business, that hopefully we will be rewarded with.

Okay. Thanks. Just back to guidance, I mean last quarter you talked about sort of with the credit markets declining, you sort of, people were starting to think about it, and talk about, potentially this impacting you, you commented that you didn't think it would necessarily, or impact guidance. Clearly it did. Glenn can you maybe help us understand better what has changed in that time frame?

Well, I think when we think about guidance, Mark. I think we are really talking about the effect of the interest expense. Is that what you are asking?

Exactly.

The $0.05 effect from Cytyc closing three weeks later than we anticipated, is clearly unfortunate. We just can't get around that in purchase accounting, you don't get credit for those three weeks. That's just the way it is.

I think when we look at the interest expense, there's some uncontrollable factors here, and as the credit markets weakened, we appreciated we are in a very strong position, with the syndicate of banks that provided a firm underwritten loan. We knew this deal was going to get done but at the same time we wanted it placed very efficiently. We did in fact make some certain accommodations during this time frame, and as you know, we really didn't have much control over Libor. So when we take all of this into account, it did have an impact. I would argue that in my mind, it isn't any kind of sizable impact, because if I am sitting here a year from now, and most of that term loan has, is gone, we are going to be in a much different position. So I am not, I am not troubled by that $0.15. I mean it is very short lived in any case. I think we just have to appreciate it for what it was, in the kind of credit market environment we have.

Okay. Thanks. That's helpful, and the last question just is, can you provide us to the extent that you're comfortable, or will, any (inaudible) updates in terms of timing of, of anything basically, any time line updates on (inaudible)?

Sure. The-- the FDA submission has been completed. We are waiting for comments, and obviously a review. There will be a panel review. It is not yet scheduled. Other than that, we are, we believe that we are on track from product development perspective, and are also in a position, come the first calendar quarter we'll be installing baby units at clinical sites. So that we, you know we can gather more market data. We will be presenting some additional clinical data at RS&A, as well in terms of the findings from our reader study, and the researchers that we have used thus far. That's about it.

As an add on, the market data Rob is talking about, that we'll be doing in the January, March time frame, has nothing to do with our filing. It is additional work that we're doing. The filing what's complete and submitted as he said. This is for other indications, and uses.

Perfect. Thanks, guys.

We will go next to Amit Bhalla, Citi.

hello, thanks for taking the question. I just wanted to follow up these on (inaudible) what's the date you are expecting for the panel?

We don't have a specific date yet. That is still under discussion we would imagine it is probably some time in the first quarter calendar.

Okay. Then for Glenn, can you talk to us about synergy guidance, and any updates there on the cost and revenue side for the next couple of years?

Yes. I don't think when we pulled our budget together, we didn't really focus on the synergies, as much as we focused on the growth going forward. So I really don't have a good update to give you, nor do I anticipate going forward, that we will step back and look at synergies, we are looking at this going forward, but I would-- this apply a little bit with some of the cost savings we talked about earlier. We are clearly in a growth mode, and if we look at the revenue guidance for FY '08, if it was a full year for Cytyc, we're looking at projected revenue of 20%. So it really is, all hands on board to get that growth here, both domestically, and to expand internationally. so the synergies are the simple synergies that you would expect by cross selling with sales forces we talked about before, but things we don't have a dollar amount to put against it, some of the cost savings from one public company, but they're clearly not anything, substantial, really to go into. This is all about driving both companies business going forward.

Okay. That is helpful. Can you comment on the mammography operating margin? It again, was very strong in the quarter. Can you talk about what your expectations are for 2008, and what kind of room you have left for better contribution on the bottom line?

I think as we continue to grow that business, we have two things that work in our favor, one is that, obviously we are getting better factory absorption and utilization, so we have an implicit margin improvement from that perspective, and then secondly our operating expenses are not all variable. So again, as we continue to shift more, we end up having improved profitability, because of the fixed versus variable aspects of operating expenses also benefited by the gross margin improvement that I mentioned just a bit ago.

So, what should we be thinking about for the mammography operating margin for next year, and I'll just thow in, how should we think about the order run rate for the upcoming quarters?

I will answer the second one first. As we have always said, orders are not a-- they're not a trend, in a quarterly snapshot because of things just like this last quarter. That's an extraordinary example. But there may be others where there are larger orders from single customers that end up distorting what the trended orders might look like within a given quarter. We're expecting order growth, we're expecting both growth in the domestic market, and also we're expecting very strong growth internationally, for this upcoming year. As far as the operating margins, from an improvement perspective, I think we have commented on our gross margins, from an overall business perspective. I think where we are going to see operating margin improvement is on really just the reduction in operating expenses as a percentage of sales, for the very reasons that I gave earlier, in terms of that being fixed versus variable, and we assumed that maybe that's one to two percentage points of an improvement, relative to operating expenses as a percent of that business units revenue.

So then just want to make sure I heard it correctly, you did about 1320 orders this year for fiscal '08, that order number should be increasing on a full year basis?

Yes.

Okay. Thank you.

We will go next to Isaac Rowe, Lehring Swann.

Good morning everyone, thanks for taking the question. First question, can you maybe give us an update on where you stand in terms of your space and maybe capacity in Costa Rica, and what your plans are for that space over the next year?

We are in the progress of building a new factory in Costa Rica. We have got about a-- factory right now of about 40,000 square feet, we're on a two shift basis there in the current facility. We have broken ground, the shell is up. We expect that factory to come on line mid next year and it triples, more than triples the footprint of the factory that gives us more capacity to meet the demand.

Okay.

Also for expansion purposes, of other capacity that we have in place for those type of assembly products.

Second question on the osteoporosis business, looks like the operating margin there has stabilized, what do you think the opportunity is a year from now, in that business based on the current reimbursement environment?

I think we are seeing a shift. First off, let me comment that I think our international business has been quite strong. So we see good margin and revenue, certainly not double digit growth, but a stable to moderate growth business. Domestically, I think we've seen the worst of it relative to a decline in revenue, and that was primarily the result of our focus on primary care which is a market which is much more difficult than a declining reimbursement environment to penetrate. What we are seeing today is acute care of a hospital market resurging, relative to not just more units, but at a higher ASP, because they typically are a higher end product offering. So again, we don't-- it is not going to be a double digit growth business for '08, but we do believe that a single digit growth in that 5% to 6% range is appropriate for that business.

Okay. Thanks. Last question will just be on CAD, I know in the news lately there's been a little concern coming out of United on reimbursement changes there, given what happened over in Portland earlier this year, do you think it's conceivable that UNH has taken a similar, very limited cursory overview of that New England Journal study, and haven't kicked the tires on the benefits of the technology and that maybe there's a more in depth policy review that's going on there?

Yes. Yes to all of that. We think that, it is a reaction to an article, and a study, that have known flaws, clearly, much effort is going into convincing United that, that was a decision, they erred in their decision. Our expectation is, is that they will see the benefits clinically of CAD and do the right thing for their universal patient.

Great. Thanks so much.

Sure.

We will go next to Jayson Bedford, Raymond James.

Hi. Good morning. Thanks for taking the call. A couple of questions, first because I know it is going to come up, just looking at the number of Selenias in the quarter, your guidance was 340, you didn't expect the 40 unit order, you did 351, you back that out, you did 311, I am just wondering is that more of a timing issue? Is the more important number, the number of new orders at 403 units?

The units that came in, none of those were revenue for the quarter.

Okay.

That's the first thing and in secondly, in fact, those will not materialize as revenue, all, within even this next quarter, those will be spread out over multiple quarters.

So they're part of the new order number.

They're part of the new order number. Yes.

Okay. Thanks. That's helpful. On the guidance, I think I have somewhere in my notes, that combined business gross margin could be 65%, it looks like the guidance here is 61% to 62%. One, did I hear incorrectly, or two, what has happened in the last few months?

I don't think anything has happened. As we put the business together, we really focused on where we would add for FY '08, and try to structure our guidance around what we are seeing today. I think what we have to appreciate is, just like in the Hologic businesses, we where always talked about a target margin of getting to, of 50%. That's what the 65% represents. We have a target out there that we are going to strive to hit over the next year or two, and that would be that 65% target.

It is being driven by the things Rob talked about. Clearly, the mammography breast care segment, has the highest potential for improved gross margins. I think the surgical would be probably number two, led by NovaSure, so we see a path getting up to 65%. We are not comfortable for FY '08, at being there at this point in time, but that's would be the direction we'd expect to head, as the revenues continue to increase, and we get more leverage out of the business.

Okay. That's fair. Lastly a couple of quick ones for Rob on the mammography side. Are you selling more, or seeing increased interest in the Selenia S product, and then secondly, are you seeing more interest from lower volume centers out there?

There is a pick up in Selenia S but it is a-- it is still a small percentage of the number of overall Selenias that get booked. To the second question, yes. We are certainly now seeing that it is a combination as I said, of multi-system orders with larger customers, but it's also smaller customers now, that are looking at Selenia, but they're looking at it from a-- from a group buying perspective. So they're a member within a GPO, and they're relying on the GPO to negotiate better rates or better pricing for them. Groups like Broadlane, or Novation, so that although they may be smaller players, with not a lot of buying power, they're benefiting by the buying power of being a member of an organization, so we are seeing a lot of tie-ins to that as well.

Lastly, Rob on the tomosynthesis product, have you completed the final form factor of the product?

Yes. There are alpha units, that are in the commercial format, but built under engineering control, that are in the market today at two sites, two research sites, the beta unit, will be built under manufacturing control pre-FDA and those will be out in the market in January. But they're a duplicate, or really effectively the same product as our alpha, just built by a different discipline within the organization, meaning manufacturing versus engineering.

And the manufacturing and scale up preparation for the beta units is that largely complete?

We actually already have infrastructure built in our second facility in Danbury, Connecticut so they-- the alphas were built by engineering with manufacturing support, and the betas will be built by manufacturing with engineering support, all within the same facility, which has already been created. It is part of the organization that we have in Connecticut.

Okay. Fair enough. Thanks, guys.

We will go next to Thomas Kahn, Kahn Brothers.

Good morning. Could you tell us, again when will the tomosynthesis be in the market, and secondly, when will the Selenia machines be shipped with the mechanism for tomosynthesis built in whether or not the customer is going to buy tomo at this time or not?

In terms of when the product will be released, a commercial release will really be contingent on FDA approval. If we assume sometime in the second calendar quarter, but again, it is contingent on FDA approval, and that may be an unknown at this point.

Okay.

With respect to the product shipping with the capabilities of tomo. The existing Selenia will not, the new platform product, and for lack of another name, will be called Selenia two, will be shipped when it leaves the factory as tomo ready, and every one of those that will leave the factory will have all mechanisms in it to perform 3D mammography, it will be shipped as a premium 2D product.

The expectations for '08 however will be, that we will ship those in very limited quantities. We certainly want to focus on the quality and reliability of the system, and I think, and have told the outside world earlier that really we believe that volume for this product should be expected in '09 and beyond. And in '08 will be a year of hardening the designs from a commercial perspective and improving upon the performance.

What happens in '08, let's say that Selenia and Selenia two are available, how do I make a choice as to which I want to buy? And if I buy the Selenia, how do I get a credit, or upgrade if I then want to go to Selenia two?

You have almost answered the question for yourself which is very good. That is that if you are, Selenia two is going be sold at a premium. People that buy it in '08 will be because they want tomo, they're early adopters, academic environment, they're willing to pay the premium. They're going to buy a Selenia, they don't need 3D mammography, they'll buy the standard Selenia today with the idea that they'll get a trade up credit to be applied to their tomosynthesis product when and if they're ready. That trade up credit is yet to be determined, but we have always had a history of obsolescence protection as a company, and are most fair relative to the amount of trade in credit, and the amortization of the value of that unit over time.

Would anyone buy a Selenia two without the software to do tomo?

Sure.

How would they do that, Rob, in other words, why would I buy a two, I wouldn't have the money in my budget to pay for the software, so I buy the two with the hope I get the money later on to buy the software?

That's exactly right. So you would buy, you would buy this premium 2D that left the factory tomo ready.

Yes.

The idea then, next year's budget you bought the software key, or license, to then do 3D mammography.

Do we have a rough idea as to what a Selenia would cost, a Selenia two would cost, and then the software would cost?

Selenia two is going to be a premium over the existing Selenia, because in fact it is tomo ready, and has other features and functionality benefits to it. The premium for tomo, as a stand alone upgrade, is probably somewhere in the area, and the market will dictate the amount, but somewhere in the area of $150,000 to $200,000.

What we are saying basically is, kind of with the same number of units, your revenues could be very much elevated, because while they may be a Selenia unit, they're really a Selenia tomo unit, which goes for much more money?

I think with the addition of tomo shipping at volume, of course, the ASP will change on the product because of the added value of 3D mammography, in addition a significant component will will be software. So the expectation would be that the--

And margins.

The margin would be better as well.

Thank you very much.

We will go next to Bruce Jackson, RBC Capital Markets.

Good morning, a couple of Cytyc questions. Can you tell us how many disposable units were sold in the quarter, and what percent were imaged?

Sure. It was greater than 50% of the test in the quarter were run through the ThinPrep imaging system. We did see a little softness in our ThinPrep pap test kit number to, just a little over 8.5 million tests, which was driven primarily by ordering patterns of our largest customers, moving to a distant time procurement. We are currently back at the run rate of the 9 million tests per quarter, on a quarterly basis. And again 36 imagining systems were shipped during the quarter.

Okay. And with the imaging revenue, was it about $20.4 million?

Yes. It was just north of that, Bruce.

And then, okay. And then do you also, can you give us the break out on the Adesia revenue for the quarter?

Yes, Adesia actually had a very strong quarter, they were up 19% over a year ago preacquisition, 11% in the second quarter. They were over $15.5 million in revenue, which was a very strong quarter for us, and I think that two reasons for that, one I think the sales force is now fully trained, with the initial training on the symptomatic patients and we also, in calendar Q3 began training our sales team on the value of using the full term tests for the at risk population. So we're feeling pretty good about the traction we have on full-term.

Do you have an estimate for how much of the at risk population we are getting?

It is a very difficult number to try to back into at this point.

Okay. How about NovaSure, what was NovaSure in the quarter?

Overall, NovaSure for the quarter, was about a little over $56 million in quarterly revenue, up 25%. It was down a little bit from our calendar Q2 again, primarily due to seasonality that we typically see in the September quarter, as well as our calendar Q2 was a very strong quarter over Q1, a $6 million increase. We've placed more than 500 NovaSure controllers in the quarter, and we talk about in-office use of NovaSure was about 9.1% of NovaSure revenues, up from 8% in the prior quarter, and toward our goal of 10% by the end of December.

Okay. And then moving over to United Health and the CAD debate, do you think there's going to be any impact here, a 3D tomo discussion with them, because of the increased emphasis on looking at CAD reimbursement?

Specifically with United as it relates to tomo?

Just in general, do you think the reimbursement climate is getting more challenging, and do you think this could impact your ability to get reimbursed for the 3D tomo?.

I think yes the reimbursement climate is more challenging. Too, I think however, that pair groups and the Government are most open, and interested in those technologies that save downstream health care dollars. And as a result, we believe that things like 3D mammography that will have a higher sensitivity, and a better specificity, will find cancers earlier, or rule out the presence of cancer, and allow women to exit the health care system without having to go through a diagnostic protocol, all of which will save much more significant downstream dollars, and therefore we believe we've garnered the interest and support of payer groups.

All right, thank you.

We will go next to [Janead Husan], Soleil Securities

Good morning, guys.

Morning.

Rob, the busy summer with the introduction of the mobile (inaudible) essential. A couple of questions here. What's your take on a mobile digital mammo box, is this something that your customers have been timing for, or would you relegate this into the niche product, niche market status something maybe more geared for lower volume hospitals or rural hospitals.

Let me first comment we received FDA approval of a mobile Selenia two years ago. We have about 25 units in the market, both domestic and international for mobile Selenias, or those which are in coaches, or trailers. We think that it is a a little bit of a niche, in that it allows a major center to be able to reach out to rural communities. In different parts of eastern Washington state for instance, or rural Georgia, parts of the Midwest where there's not adequate coverage, there is a, not a strong need, but I think there is a benefit being able to mobilize digital mammography. We think that it is certainly helpful, and that we see some activity in it, but it doesn't appear to change anyone's life.

That's helpful. Pat, if you could, help us think about the NovaSure business, especially relative to how much more of a runway there is in expanding the market? My model gets me close to 50% of all (inaudible) performed in the U.S. using the NovaSure. As you think about this business over the next, call it one to two years, how much more can you grow this business in the U.S., and then where are we in terms of expanding utilization of NovaSure in the international markets?

I think as you have heard me talk many times about this, the opportunity for NovaSure, 7 million women are affected in the United States, 2.5 million of those seek treatment. We continue to see procedure growth in the 50,000 to 60,000 procedures on an annual basis.

I think one of the things that happened during the quarter, was that some practice guidelines from the American College of Obstetrics and Gynecology is really helping to expand the use of (inaudible) as the first blind therapy for women with excessive bleeding. This practice bulletin basically says that NovaSure, or endometrial [oculation] is indicated for the treatment of women who have a perceived, heavy menstrual period, and it is not, in using some other oral contraceptives, or other methodologies to try to solve the problem first, should not be construed as a prerequisite. So our sales force is actively using this practice guidelines from ACOG that I think is really helping to move the needle in moving NovaSure up in the front line part of the business, rather than going to hormone therapy first.

On the international side, we have seen tremendous growth in certain areas of the international market although it is only a relatively small percentage of NovaSure sales. UK is very strong for NovaSure, as well as Canada, and the Benelux, so we have a lot of runway yet to go with NovaSure.

Great. Thanks, Pat. Last question for either Jack or Rob, the RS&A meeting is just a few weeks away. Is there anything that we should be paying attention to, in the abstract book, something from the academic community that should be top of mind as we go from scientific session to scientific session at the meeting?

This is Jay Stein. There's a presentation on Tuesday, by Elizabeth Rafferty at MGH, in a special topics session-- a hot topics session which she will be presenting some of the clinical results from our FDA study. I think you will find that of interest.

Great. Thanks Jay. Thanks so much, guys. That's all I have got.

We will go next to Andy Schopick, Nutmeg Securities.

Thank you and good morning. Glenn I want to ask you a CFO type question, trying to absorb all that's being communicated today, especially on the numbers side. If I understand correctly, and I really would like to just ask you to explain from a financial point of view, the rational behind it. For non-GAAP purposes, you are going to exclude amortization of intangible assets of approximately $140 million for fiscal year '08, but will include for non-GAAP purposes, the stock based comp, FAS123R, was it $15 million estimated for this year?

That's correct, Andy. The stock based comp we are expecting right now is $15 million for FY '08.

I'm sorry. Repeat that.

15 million for FY '08.

As you are probably aware, there are some companies that have begun to now not include these FAS123R expenses going forward for non-GAAP purposes, but others are continuing to do so. I want to ask you as the Chief Financial Officer, what is your rationale for no longer backing out these FAS123R expenses for non-GAAP reporting purposes?

Well, I think that I was, we are thinking about it in a more simplistic way, Andy. That is, if we think about the biggest adjustment to our GAAP numbers, it is the amortization of intangibles, it is a huge number, a big number, directly related to the merger with Cytyc.

Of course.

When we talked in May, we had always excluded one number, we really focused on one number to keep it at that simple level. That's why I continue to talk on a non-GAAP adjusted basis of just excluding the amortization of intangibles, although at the same time, even though I say that, we put out a press release, and we clearly identify on the front page of the press release, what the stock option expense is, so that those individuals that is continue to like to back that out, have that information available, and on our non-GAAP reconciliation to GAAP on the back of the press release, I do include that FAS123R charge. So even though I really harped on this in the conference call, what we do is throw those out Andy, and let everybody make up their own mind on how they would like to treat it.

Is there a reason why you feel it should no longer be the FAS123R treated as a non-GAAP measure?

I just simply think that the amount itself is becoming small enough, that it doesn't have the same relevance that it might have in the past, and it is clearly overshadowed by the amortization of intangibles.

Okay. Thank you.

We will have a follow up from Amit Bhalla, Citi.

Hi. Thanks for taking the follow up. There was some questions earlier about new entrance into the market. I remember about a year ago, the FDA panel met to lower the hurdle for new entrance from a PMA to a 510K. Can you talk to us about where that stands with the FDA? Obviously, it seem like it has been delayed in terms of implementation.

It has been. Our expectation is, is that it will go though. But it will probably go through some time by late 2008. There again, it will be, we believe a bit late into the market, since the market will be looking at new technologies like 3D mammography and the like. It comes to this market without an installed base, with 2D mammography, and not an upgrade path to 3D, probably doesn't give us a sense they will have a lot of traction, but in any event we do believe that the downgrade will occur, and it will probably occur by the end of '08.

So that, that means competitive pressures in the near term are pretty diminimous.

The competitive pressures are what they have been, which is ostensibly, we compete against GE, Siemens, and to a lesser extent FUJI.

Right. Thank you.

Sure.

And we have no further questions in the queue. I will turn the conference back over to Mr. Cummings for additional, or closing remarks.

Thank you very much. I will make this very simple. We have, we will be with you again in December, excuse me in November at the RS&A. Once again we welcome you to, and invite you to join us there. You can go through the IR office and Fran Creckle here, and she can help schedule that for you. Secondly, we have our holidays coming up, so we want to wish everyone a safe and happy holiday, and peace in the world.

With that we will see you again at the end of the calendar year and report to you on our first quarter results. We thank everybody, and again, welcome to all of our Cytyc friends throughout the world, who have now joined Hologic. We will do great things together, and Pat, thank you so much for joining us, and your comments today. We look forward to keeping your streak alive. Thank you, everybody.

That concludes today's conference, you may disconnect at this time.