Hologic Inc (HOLX) 2008 Q1 法說會逐字稿

Welcome to the Hologic Inc. Q1 fiscal year 2008 earnings results call. Today's conference is being recorded. Before we begin, management of Hologic Inc. have asked that the following statement be read.

Certain statements made by management of Hologic Inc. during the course of this conference call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involved known and unknown risks, uncertainties and other factors, which may cause actual results, performance or achievements of Hologic to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include, amongst others, those detailed from time to time in the Company's filings with the Securities 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 change in events, conditions or circumstances on which any such statement is based.

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

Thank you, very much. Good morning, everyone and thank you for attending our first-quarter fiscal 2008 conference call. Joining me on the call this morning is Pat Sullivan, our Executive Chairman; Dr. Jay Stein, our Co-Founder and Chief Technology Officer; Rob Cascella, our President and COO; and Glen Muir, our Executive VP and CFO.

Before proceeding I'll remind you the Safe Harbor statement accompanying our press release applies to comments made during this call. We're very pleased to share with you our fiscal first-quarter results for the period ended December 29, 2007. I'll briefly touch upon the highlights while Glen will provide further details on our operational progress as well as guidance for fiscal '08. We'll then open the call for your questions.

First let me start off by offering a very sincere thank you all Hologic associates worldwide for their outstanding efforts to provide more health, more life and more hope for more women everywhere. It is their effort and passion that makes Hologic what it is today, which is the women's health leader.

Before I discuss first-quarter performance, I'd like to briefly touch on alignment efforts to date. A little more than three months ago we completed the acquisition of Cytyc. The past 90 days has been extremely busy in terms of establishing the framework to maximize resources. I have personally traveled to Europe and Asia to meet with sales and support teams, attended customer meetings in the UK and have scheduled for additional ones in Europe later this month. I've also visited the Adeza, Adiana and Costa Rican facilities.

Integration efforts are progressing extremely well. In addition to infrastructure and back office program alignment we have focused heavily on distribution and product development strategies. We're also leveraging our product development resources at Suros and R2 to enhance and accelerate [divestment] activities across multiple Cytyc productline including MammoSite, NovaSure and imager products.

From operational perspective we have combined service, IT, HR, legal, accounting and regulatory under common leadership. We're already benefiting from our purchasing power in logistics, travel, IT and components parts buying and it is clearly our expectation benefits will continue to accrue as operational teams drive economies of scale.

As previously mentioned last order we launched the Celero family of products which are spring loaded handheld breast biopsy devices. These disposables devices are being marketed by our new interventional breast solutions group, which is a combination of salesforces from Cytyc MammoSite, Suros biopsy and BioLucent MammoPad teams.

We have focused our efforts on seamlessly integrating these associates and products to create a tremendous combination for women's health. The initial success of selling the Celero by this team has been very encouraging and holds great promise for the future. Yesterday we concluded our first of two national sales meetings to be held this year. In this first session we focused on cross training on bone densitometry products which will be marketed into the OB/Gyn channel.

Our Gyn surgical and diagnostic sales team had the opportunity to work with our breast health imaging specialist and learn firsthand about our mammography and biopsy productlines. Our breast health solutions sales team focused on enhancing their product knowledge on our MammoSite and Celero line while getting a glimpse at our new enhancements that will be introduced in the future.

After the opportunity to visit with these highly professional men and women from the Gyn surgical diagnostics and interventional breast solutions sales team for the past four days, my perspective on leveraging their skill set, their energy and their incredible passion for marketing of women's health products is greater than I could have imagined.

Now on to first-quarter performance. I'm pleased to say this was our 16th consecutive quarter of increased revenue growth. We were once again able to deliver record revenues and backlog during the quarter. First let me take a few minutes to summarize our financial results.

As stated in our press release, fiscal 2008 first-quarter revenues totaled $371.4 million which is a 120% increase over the first quarter of fiscal '07. The increase was primarily due to the inclusion of Cytyc revenues which totaled approximately $158 million in the fiscal quarter.

For the first quarter of fiscal '08 our non-GAAP adjusted net income increased 121% to $61.4 million compared to our non-GAAP adjusted net income of $19.7 million in the first quarter fiscal '07. On a GAAP basis we reported a net loss of $360 million which included onetime non-recurring and other charges which Glen will go into great detail regarding in his portion of the call.

Highlights from the quarter are as follows -- breast health revenues were $197 million for the first quarter which represents a 43% increase over the $138 million for the same period in fiscal '07. Selenia full field digital mammography system sales with R2 CAD software continue to set quarterly records. As you may remember from our last quarterly conference call, we forecasted 361 Selenia for the fiscal first quarter. Once again we surpassed our target by recognizing 384 Selenia systems as revenue in Q1. The Company's backlog for orders of Selenia was 578 systems in Q1 and total backlog for all products was $244.5 million.

The diagnostics and Gyn surgical business for a full 13-week quarter posted a 20% growth in revenues over the comparable December quarter one year ago. Gains were across the board with solid growth internationally. In summary, we're very pleased with our first-quarter results as they surpassed our projection and provide a solid foundation for achieving our goals for this fiscal year. Demand for our products remains strong and we look forward to the full contribution from our enhanced sales capabilities and the opportunity to fully leverage the synergies of our combined company as we progress through the year.

I'd also be remiss if I did not thank Pat Sullivan for his contribution to bringing continuity and stability to the alignment process and for his leadership and counsel as Chairman of the Board. I'd also like to acknowledge the incredible efforts of our members of the Board of Directors for quickly becoming a cohesive, productive and effective team that has had to address significant challenges bringing two companies together.

Lastly, I would like to call your attention to a press release we issued last night disclosing our Board of Directors approved a 2 for 1 stock split with a record date of March 21, 2008 and a distribution date of April 2, 2008. The stock split will be subject to stockholder approval at our upcoming annual meeting on March 11, 2008 and we believe this will result in better distribution and increased liquidity in our stock. And now for more detail on the Company's operations and finances let me turn the call over to Glen. Glen?

Thanks, Jack. I will now expand on the financial results of the quarter. My comments are also summarized in a PowerPoint accessed on the IR page of our corporate website at Hologic.com. My presentation today includes certain non-GAAP financial measures and a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP counterparts as set forth in the same PowerPoint presentation at Hologic.com.

This marked another quarter of record revenues, adjusted earnings and backlog when viewed either on the new Hologic basis together with Cytyc or on a stand-alone basis of the historical Hologic businesses. In either case our momentum is continuing and we are seeing growth across all our major project groups.

A couple of things to keep in mind. First, our merger with Cytyc occurred on October 22nd, resulting in only 10 weeks of their operations being included in our reported results. And second, there are a number of Cytyc merger related adjustments that are of a nonrecurring nature and distort the operational earnings of our combined results.

Looking at the former Cytyc businesses for a full 13-week quarter, their revenues would have been (technical difficulty) million, a 20% growth over the comparable December quarter from one year ago revenues which were $163 million, and 4% revenue growth over the September quarter's revenues which were $187 million.

Included in our GAAP results are three Cytyc merger related charges that total $414 million and are nonrecurring. These are for the write-off of in process R&D, the inventory write-off to fair market value and the intangible asset impairment charge. This quarter the amortization of intangible assets related to our acquisition increased to $26.2 million.

Absent these four acquisition-related charges our pretax earnings this quarter would have been $88.4 million, and using our effective tax rate of 36% net income would have been $56.6 million or $0.51 per share. This is what we normally refer to as our adjusted earnings, although the press release does also exclude the charge of $7.6 million for stock based compensation.

Revenues for the quarter came in $11 million higher than expected led by the increase in Selenias shipped. Our consolidated gross margin, adjusted for acquisition related charges and inventory impairment, was 62.5%, slightly higher than the range of 61 to 62% we were expecting. Our operating expenses, again absent the acquisition related charges, were $111.5 million, at the low end of the range of $110 million to $115 million we were expecting. This combination of increased revenues, improved gross margins and lower operating expenses are what contributed to the better than expected bottom-line results.

We now have four reporting segments and I would like to touch on each briefly. First, our breast health, our largest segment which accounted for 53% of sales includes our mammography, R2, Suros, MammoPad, DRC, AEG and MammoSite operations. This segment is also our fastest growing, up 43% year-over-year fueled by sales of digital mammography and the addition of two new productlines, a MammoSite breast brachytherapy product from Cytyc and the MammoPad from BioLucent.

Each of these two new productlines achieved their highest ever quarterly sales, a strong start for both. But it was again Selenia that led all productlines in growth. Sales increased to $107 million versus $75 million a year ago in $102 million last quarter. This included the sale of 384 Selenias, up from 351 last quarter and higher than the 361 we targeted as demand continues to outpace our expectations.

Domestically we shipped 293 Selenias and internationally we shipped 91 Selenias. In the U.S. 89% of these Selenias were shipped with digital CAD, it's become standard on our Selenias. As Jack stated, at quarter end our backlog of Selenias stood at 578, down 11 from the end of September. Our goal has begun to reduce backlog to shorten the lead time for shipments to our customers. This quarter we took 373 new orders which was higher than last quarter if we adjust for the 40 system bulk order that came in right at quarter end.

For Selenia ASP's this quarter, they were stable with last quarter. As a reminder, taking total Selenia revenues and dividing by the number sold and computing an average can result in a very misleading number. Like last quarter, it's important to realize this calculation is a terrible proxy for actual selling price trends and can be expected to fluctuate widely. The primary drivers for our Selenia ASP's are not competitive factors today but more geographic mix, product hardware configuration and follow-on or repeat orders.

If we now look at our second segment, diagnostics, which accounted for 27% of sales and includes the ThinPrep and full-term products, the $100.3 million of revenues are only for 10 weeks. If we look at pro forma 13-week revenues, this quarter's growth was 22% over the year ago December quarter and 5% over September's quarter. Revenue growth was led by international ThinPrep sales; imager sales, both domestically and internationally; and the addition of FullTerm in the most recent quarter. ThinPrep unit sales in the United States returned to its 9 million tests a quarter level which is what we are expecting going forward.

Our third segment, the Gyn surgical, accounted for 13% of sales, this includes the NovaSure system and the future Adiana product when FDA approved. The MammoSite product is now included under our breast health. Gyn surgical revenues were $49.9 million and, again, were for only 10 weeks. If we look at pro forma 13-week revenues, this quarter's growth was 16% over the year ago December quarter and 2% over September's quarter.

And then fourth, skeletal health, our fourth segment, accounted for 7% of sales and includes the osteoporosis assessment, Mini C arm and MRI productlines. This business continues to be challenging and affected by concerns over reimbursement uncertainty. We expect sales to be fairly flat this year, but earnings to rebound since Q1 was affected by an inventory impairment charge.

In October we closed on a $2.35 billion of term and bridge loan financing for the cash portion due to Cytyc's shareholders in our merger. In December we issued a $1.725 billion convertible note, larger than we expected due to positive demand. We used the proceeds to pay off the bridge loan and part of the term loan.

Also in December, using cash generated from operations and the exercise of stock options, we were able to further pay down the term loan by approximately $350 million leaving a balance of $295 million at December 29th. The convertible accrues interest at the rate of 2% and the term loan has two tranches that accrue at LIBOR plus 225 and LIBOR plus 250. We are well ahead of our initial goal of paying off the term loan within three years.

I would now like to switch to guidance for fiscal 2008. If we first start with Q2 or our current March quarter -- and as a reminder, our previous guidance for this past quarter, Q1, the December quarter, we were expecting consolidated revenues of $360 million, consolidated gross margins of 61 to 62%, combined operating expenses of $110 million to $115 million, non-GAAP adjusted pretax of $85 million and adjusted EPS of $0.49. Our actual results were a bit better than guidance primarily due to the higher revenues led by the increase in Selenias, the improved gross margins and the lower operating expenses.

For the second quarter of fiscal 2008, this March quarter, we expect to continue to increase in total revenues and an improvement in gross margins, both sequentially and compared to the prior year. For the two new reporting segments, diagnostics and Gyn surgical, they will be included for a full 13 weeks versus only 10 weeks in Q1. We are expecting a $40 million increase in revenues from including these two segments for the quarter together with incremental quarterly growth.

In addition, we expect continued quarterly growth from our breast health segment primarily from the demand for Selenias with R2 CAD and more rapid adoption of the Suros biopsy devices. For Selenia we are targeting sales of 395 systems for the quarter which is 11 more than this past quarter and would result in an approximate $3 million increase in revenues. And for Suros biopsy tools we are expecting a $2 million increase in revenue. Altogether this would put consolidated revenues at approximately $415 million for the March quarter.

Our consolidated gross margins are expected to increase slightly to the 62% to 63% range. Our combined operating expenses, this is adjusted excluding the amortization of intangibles, are expected to the approximately $130 million or 31% of revenue.

Due to the rapid pay down of the term loan the interest expense is expected to drop significantly in Q2 to approximately $18 million to $19 million. Non-GAAP adjusted pretax income would increase to $110 million; this includes stock compensation charges of $5 million. At an effective tax rate of 36% and with 127 million shares outstanding our adjusted EPS for Q2 would be approximately $0.55.

Next, our outlook for fiscal '08 which ends on September 27th. We are looking forward to another year of quarterly records for revenues and earnings. For fiscal 2008 we're looking for total consolidated revenues of $1.71 billion in our four reporting segments.

And briefly, for breast health we're forecasting $840 million to $850 million in revenue representing approximately 25% growth over fiscal '07, primarily attributable to the increase in Selenias. We are projecting a year-over-year increase of 391 Selenias to 1,580 FY '08, (technical difficulty) 1,189 in FY '07. This is also an increase of 130 Selenias from last quarter's guidance where we were expecting 1,450 for fiscal year '08.

For diagnostics we are forecasting $490 million to $500 million in revenue representing approximately 15% growth over fiscal '07 due to an increase in international ThinPrep sales, worldwide growth in imager revenue and FullTerm adoption.

For Gyn surgical we are forecasting $240 million to $250 million in revenue representing approximately 15% growth over fiscal '07. (technical difficulty) the continued NovaSure usage and expansion overseas. And in skeletal health we're forecasting $95 million to $100 million in revenue which would be flat with the year before due to the challenging reimbursement climate.

Switching to gross margins consolidated we're looking for combined margins of 62 to 63% for the year on an adjusted non-GAAP reporting basis. This would exclude the amortization of intangibles which are included in cost of sales of approximately $95 million.

Combined operating expenses are expected to be $515 million to $520 million for the year and also exclude the amortization of intangibles which are expected to be $31 million. This would be approximately 30% of sales for operating expenses.

Included in the above are approximately $20 million of FAS 123R stock compensation charges. We have not back 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, at December 29th we had 1.725 billion convertible note bearing interest at 2% and $295 million of a term loan at LIBOR plus between 225 and 250. In addition, we have about $13 million of a revolver that we used in Germany to fund our AEG operations.

Last quarter we were forecasting interest expense for the year of approximately $110 million. Since then we were successful with our convertible offering and based on demand increase the size of the convert beyond our earlier expectations. Extra proceeds went to paying down the higher interest rate term loan. In addition, we generated approximately $350 million of cash flow from operations and stock option exercises and used it to pay the term loan down to its current balance of $295 million.

We expect to pay the remainder of the term loan off in calendar 2008 and now believe our interest expense will be approximately $80 million for the fiscal year due primarily to the lower term loan balance. Our effective tax rate is expected to continue at 36% and for shares outstanding, we are expecting shares to increase to 127 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.

Based on all of the above, we are expecting non-GAAP adjusted pretax income, excluding only amortization of intangibles, of $450 million to $455 million and our EPS guidance for FY '08 on an adjusted basis with 125 million shares outstanding would be $2.30 to $2.35. This is absent the effective merger-related charges such as in-process R&D and the amortization of intangibles. With that, let me turn it back over to Jack.

Thank you, Glen. During the first quarter, the FDA Obstetrics and Gynelogical Devices Advisory Panel recommended the premarket application for Adiana permanent contraception of female sterilization be approvable. The panel reached its decision by a vote of 10 to 3. The panel requested that several conditions be included as part of the approvable signing. These conditions request additional postmarked studies which we are currently discussing with the FDA.

In a letter received in January the FDA requested three-year follow-up data on patients who are participating in the pivotal clinical trial of Adiana. We expect to provide the requested data to the FDA later in '08 in order for their review to be completed. We don't believe this delay in Adiana's review represents any long-term impact on its potential contribution to our Gyn surgical group.

And on an additional note, we are making solid progress on an enhanced version of the current Adiana design which will provide additional benefits to patients and clinicians which we will be readying for market submission.

On January 22nd, we announced the definitive agreement to sell the full worldwide rights to Gestiva upon approval of the pending NDA by the FDA to KV Pharmaceutical. The purchase price to be received is $82 million in cash, $7.5 million payable at the closing of the transaction expected later this month and $74.5 million payable upon approval by the FDA and the production of an initial quantity of Gestiva expected later this calendar year. And we're pleased with this divestiture because it monetizes significant value that may be better realized by a dedicated pharmaceutical company and allows us to focus more heavily in our primary product fields.

As discussed earlier, the FDA has changed its requirements for the approval of tomosynthesis from a PMA supplement to a new PMA submission. This change in status required us to submit additional information concerning manufacturing processes and safety and effective data. No additional clinical information has been requested and the PMA has since been submitted to the FDA and we're awaiting their acknowledgment.

In the meantime, we are in the process of installing 15 alpha and beta units beginning in February with a number being built under manufacturing control. We're making very strong progress. These units will provide valuable clinical information that may be used for further validation and to assist in obtaining reimbursement for the system.

The RSNA scientific assembly and technical exposition which was held in Chicago the last week of November was an even greater success than the year before. We exhibited our full productline with emphasis on our core women's health group. Of course, the highlight of the show for many of our customers was our ongoing development work in 3-D digital mammography or tomosynthesis.

In the quarter Hologic was added to the Nasdaq 100 index which includes 100 of the largest domestic and international non-financial securities listed on the NASDAQ and is based on market capitalization across the major industry groups and this is quite an accomplishment for the Company.

In closing, we had another record quarter. While we've accomplished quite a bit this past quarter, we have more to accomplish for the remainder of fiscal '08. We believe we have consistently made steady progress toward our long-term goals of enhancing shareholder value, driving top-line growth, improving profitability while maintaining the quality and reliability our customers have come to expect.

As a result of our performance in fiscal Q1 we believe we have the operational momentum to carry us through fiscal '08 and beyond. And with the added resources and energy the Cytyc associates bring to the combined company the possibilities are endless. Together Hologic and Cytyc associates worldwide are truly leveraging the power of one -- one company, one goal, working together for the betterment of women everywhere.

This now concludes our opening remarks. Pat, Rob, Glenn, Jay and I are now pleased to answer any questions you may have. Operator?

(OPERATOR INSTRUCTIONS). Eric Lo, Merrill Lynch.

Good morning, guys. I was hoping to get additional clarification in terms of your fiscal '08 revenue guidance. I think compared to what you guys provided previously you guys are going to, if I heard correctly, $935 million to $950 million for breast health and skeletal health, and then $730 million to $750 million for diagnostic and surgical. Can you provide a little color in terms of where the changes are coming from compared to your previous guidance?

Eric, let me help a little bit on that. The previous guidance we tried to simplify things. The reporting segment hadn't fully been vetted. So when we gave the guidance of $900 million for the historical Hologic business and the $800 million for historical Cytyc it included obviously the historical products. We've made some changes internally such as the MammoSite has now moved under the breast health. So there's been some realignment of products within these segments to better align the resources that we're using.

So I appreciate that the four segments changed somewhat and we tried to reflect that new reporting in this morning's comments between the breast health, diagnostics, Gyn surgical and skeletal health. There's been no change other than to really increase our guidance for revenues for the fiscal year, bringing them up slightly due in great part to the continued success we're seeing in Selenia.

Can you talk about the increase in terms of Selenia backlog? You're going up 130 units. Where is that coming from? Is it coming primarily from the U.S. or coming from the international markets?

It continues to be a combination of the two and I'll let Rob chime in in a moment. But if we look at this quarter's order rate, this was a significant increase internationally for Hologic having sold 91. So our bookings internationally were even higher for the quarter, so we're beginning to see a nice trend internationally as well as domestically. So I would say it is coming from both pieces at this point and we are at a new level now for international bookings and orders.

Nothing to add other that Glen's absolutely right on. The U.S. market continues to grow at a steady pace; there is just accelerated growth over what our trend has been internationally. So you're seeing more international units than what we would have seen last year.

That's great. Last question has to do with the credit crunch which some other capital equipment providers have commented on on their earnings calls. So I was hoping to get a little color in terms of what percentage your customers have actually financed the systems and who do they work with to get the financing and have you guys actually seen any impact as a result of the credit crunch?

This is Jack and we really haven't seen any impact. Our customers primarily pay cash for the Selenias. Rob, you may want to add a little more granularity to that, but it really hasn't changed for us over the last couple years.

I think we're running at -- probably 10% to 15% of our domestic business at this point is being financed through third parties, our own programs or our customer programs. The balance of it is being purchased with cash payments.

Great, thank you.

Amit Hazan, Oppenheimer.

Good morning, guys. Just a quick follow-up on the last question first of all, just to make sure we're clear on the sales guidance. Was there any product in particular that you have reduced guidance for as it relates to your prior guidance on the last call?

Yes. If we look at the four segments, no, but if we look individually, because we have a list, we go through of about 20 different productlines now. Individually there are some areas being cut back and let me just give you one example. And that is when we think about our array detectors that come out of DRC we expect by the end of the year to begin increasing our supply of those detectors to Siemens.

As we talked about for some time, we're phasing out of that agreement of supplying them with our detector so we could go direct to the customers on a full-scale basis. So in the current estimate (technical difficulty) not by a small amount that particular productline. There are a couple others that I would only call tweaks, but that they fit into reporting segments that are all showing growth.

Okay, that's great. And then another follow-up on the Selenia. I'm just wondering on unit orders, if we look back now at 2007, at least according to MQSA and we see there have been about 1,850 or so units installed, how do we think about generally the market developing here over the next year or two? Is it your expectation that there are more than 1,800 or 1,900 units ordered in the coming year or are units going to start falling off at some point? How do you guys think about the next year or two in terms of the order rate in the U.S. market?

Our estimate of the U.S. market for this coming year is about 2,000 units and we certainly don't see that decelerating for the following year. At that point we're still at a reasonable penetration rate with the expectation that by 2009-2010 the introduction of new technology restimulates the market and that being tomosynthesis or 3-D mammography.

I'd add to that, Rob, that in 2010 you have a margin market where we're going to have a lot of systems coming off of lease or just because of the usage they've been out there seven years. So I think we're going to see a replacement market in and by itself just of existing digital systems.

Great. And then just on the Cytyc side, it sounds like you're actually even more encouraged with some of their products, in particular international ThinPrep and the imager. So I'm wondering on both -- on international which countries it is that you're seeing the upside from. And then on the imager, if you could just give us an update on what's going on at Quest and if they've started to adopt more aggressively?

On the Quest side that has gone along very well and we're expecting a majority of the ThinPrep volume to go through our imager by the end of Q2 of '08. So that is going extremely well. And as anybody would tell you, it's always a market-by-market basis overseas with the UK certainly leading on the ThinPrep side, but making headways in the other countries there.

It's the large industrial countries, Amit, that are always the ones that leave. I don't think there are any surprises we're doing well in Australia, but we're also waiting. We're waiting on some countries where reimbursement is being evaluated now which I think will help us long-term.

And yes, you're correct and that is we're very excited about the international opportunity. We're seeing what we think is pretty great progress there. But it's a building process, it's a matter of time and our teams are working well together and we're all going to be together in Barcelona in February working on more alignment and growth strategies.

Great. And just one final question for me which is on tomosynthesis. Can you give us a sense of when it was that you had all the information submitted to the FDA? And maybe -- I know you can't predict when approval is coming, but relative to that when you might think either a panel or some development might happen on that front?

The submissions were completed in January and you're absolutely right, it's difficult to predict when there will be a panel. Our estimation is that there's a 180 day clock that will result from the resubmission. They have an acknowledgment period and they add 30 days to that. So we're probably looking at June-July time period.

Great, very helpful. Thanks, guys.

Paul Nouri, Noble Equity Funds.

Good morning. I was just wondering with the considerable cash flow that you'll have next year, or in 2008, are you looking at any acquisitions. Are you actively looking at that?

Well, obviously we always are looking, we're being opportunistic. That certainly hasn't changed. The cash flow certainly is going to help the situation, gives us more flexibility. I think we have pretty good capital in our stock by itself. But the ones that we've been looking at and continue still are of a -- are smaller in nature that we can find of fit the products to our existing channel. But we're being very careful and we're certainly weighing any impact that would have on the alignment progress that we've made between Cytyc and Hologic.

And internationally do you have your own salespeople or is it through a distributor?

It's a hybrid. We have over 200 people internationally. We sell primarily in Europe on a direct basis the diagnostic and surgical products. For the imaging side for the mammography side, for the mammography, bone densitometry, that is sold exclusively through distributors as has been the Company's history.

And that hybrid system will continue. There are certainly markets that are better served being in Asia and Latin America on the imaging side as far as using distributors. And on the ThinPrep side and NovaSure side it's a combination of being direct and through dealers in some selected Asian -- Australia we're direct and in Latin America we use distributors.

Is there a significant opportunity in Asia? In other words, is it under penetrated in terms of enough women getting those tests on a regular basis, as many as do it in America?

I would say to be fair, without a broad generalization, in mainland China women don't get screening tests to any degree whatsoever. In places like Thailand where they're much more progressive women have access to mammography more. But overall the Chinese market is unpenetrated, if you will, slowly, slowly building as the government deals with other capital requirements in building the infrastructure because the growth in mainland China is growing geometrically.

But they're trying to build cities much more than women's health. And in Korea, in Japan that's a much different story where women's health is much more in the forefront as it is in Australia. So consequently we have a long, long runway to go in Asia. We see good opportunity there. We're certainly selling there in the ThinPrep side and that continues to grow. Mammography we're making strides but a long, long way to go there.

Okay. And last question is concerning the skeletal health business. Aside from getting better reimbursement is there any other dynamics to turn that business around?

I'll let Rob answer that and maybe I can opine after that.

We're very encouraged about the cross selling opportunities with the Cytyc diagnostic salesforce. At this recent national sales meeting that Jack referred to there's great enthusiasm with that team having access to the product. A principal market is primary care and we have had very little penetration in that market thus far. So that's an opportunity for this upcoming year.

Okay. Thanks a lot.

Amit Bhalla, Citi.

Thanks for taking the question. I wanted to start with the comment Glen made about the drivers on ASP. Rob, can you comment on configurations and repeat orders, give us a little color on how that has changed over the last quarter or two?

Sure. As we've always said, if you look at a cross-section of our customers, those that are repeat orders, and let's take for instance a 15 to 20% recurrence of ordering on the parts of existing customers, typically they're buying just the gantry. It may be a gantry with CAD, but they're not buying a workstation which is another $65,000 to $70,000. So when you look at the mix of product that has a significant impact on what the mathematical ASP would be.

In addition to that, they're typically not buying things like printers and either the tech workstations or TechMate configurations and things like that. So that becomes a factor. I think it becomes a factor relative to whether or not there is a -- even on a new customer the math model of a customer buying workstations and gantrys is not a 1 for 1 as we have indicated.

So if there is a larger order, and let's say that it might be something line five to seven or eight units, (multiple speakers) might only have two reading or three reading radiologists so they'll buy three workstations. So again, the mathematical mix based on units will look unfavorable relative to the ASP for that particular account.

If I could just continue, because one point to make is when we look at the Selenia ASP's we've always focused on gross margins. And I just wanted to point out that in the mammography division, so as part of breast health at mammography only; the gross margin for December remained constant at 48% with the immediately preceding quarter. And that -- I just want to point out, that even after taking into account that a larger percent went international they have a much lower selling price. So we're able to hold our gross margin even with the shift to international. And that's the way we look at what's happening on the ASP side is to strip out all the differences and configurations and product mix.

So, Glen, just following on that line, a question here -- overseas operating margins for the Selenia, are they still stable?

They are. Now the overseas gross margins would be lower than what we achieve here in the United States because of the lower selling price to our distributor who resells it. However, we incur fewer operating expenses on the sales and marketing side. So at the bottom line they domestically are still slightly more profitable, but the international is pretty close.

all right. Just two follow-up questions, one on backlog. Can you talk about what you're doing to continue to drive the backlog down and get products to customers faster? And also on the Cytyc products, can you give us a little bit more color on how they performed in the quarter, particularly NovaSure and ThinPrep revenues would be helpful. Thank you.

Relative to the backlog, I'm not certain that we are as concerned about the backlog as perhaps the question may indicate. And that is because as we ship more the aging of our backlog gets more and more compressed. So even though the absolute dollars and units may not go down as significantly as one might think, the fact that we're shipping nearly 400 units a quarter causes the backlog aging to be quite less than what it might have been six months ago in terms of what our lead-times are.

In addition to that, we are shipping to a customer expectation. So if a customer wants a unit in 30 days the customer has availability, we have availability to do that. And typically on these large orders, as we have said in the past, that customer takes delivery over anywhere from a 30 to a 120 day period. So you have a natural aging as a result of demand and requirements.

You asked a question relative to the ThinPrep and NovaSure business. Well, ThinPrep was up 22% over last year and the Gyn surgical, which obviously is only the NovaSure at this point in time until Adiana comes on, that was up approximately 16% plus. The growth is being stimulated certainly by continued migration to the private office, but on a broader sense what we're looking at is more use within each of the offices that we have product today.

And the more utilization by the existing OB/Gyns will obviously drive long-term growth and we're trying to focus on better education and working with peers to work with these new doctors that are getting into the procedure. So we still think we have a long way to go there. Pat, do you want to add anything?

No, I think you covered it pretty well. We're pretty comfortable and very pleased with the continued success of both NovaSure and ThinPrep and feel very good about the integration and the combination of the companies.

Can I sneak one quick question in for Glen? The interest expense guidance for the second quarter, you said it's $18 million to $19 million. Glen, I'm coming up with a number a little bit lower. Can you just walk us through what the convertible amount is that you're using for that calculation and the term loan again? Thanks.

Sure. The convertible at the balance of $1.725 billion would be at the 2%. We have a current term loan of $295 million that is at LIBOR plus -- there's two tranches. Part of it's at 225; the other part is LIBOR plus 250. And then there's a third piece of the debt that we don't talk a lot about, it's a revolver we have in Germany to fund the AEG operation of between $12 million and $13 million. So maybe that's the piece we're missing and that's a LIBOR plus rate as well.

LIBOR plus what?

Like 250 to 300, I don't know the exact LIBOR plus on that.

Okay, thank you.

Josh Jennings, Jefferies & Co.

Good morning. Subbing in for Mark Richter this morning. My first question -- I may have missed this on the call, Glen, but can you verify my calculations for new orders in the quarter and the sequential comparison to the fourth quarter in '07?

My understanding is that the 4Q '07 orders were 363 new Selenia orders excluding the onetime order of 40 units compared to 373 new Selenia orders in the first quarter of '08. So excluding that onetime order in 4Q orders actually increased sequentially and the first quarter orders were up about 26% year-over-year. Am I thinking about it the right way?

Yes, you are. The new orders in Q1, I believe the 371 is correct, it is up over the September quarter. And Josh, you're right, that excludes that 40 that came the last week of the quarter which was the fall quarter. That's an unusual one for us.

All right, thanks. And I know it's difficult to do, but in terms of the final FDA approval for Adiana product, any update or sort of guidance on estimates of when they could actually make that announcement? Have you gotten any feedback from the FDA?

Well, we expect it by the end of the year, the end of calendar '08. They're looking to see long-term effectiveness data. And while the number one year one and year two pregnancy prevention rates are within the expected range, they want to look at year three. We believe that the three-year rate will continue to support the findings. So we expect it by the end of '08.

And then can you comment on your plans for launching that product and potential for bundling that with NovaSure, possibly combining a radio frequency power console for both of those disposables?

Sure, I think I'll defer to Pat on this, but tell you that -- believe me, when we have the approval we will be ready to go with the product. Actually this has given us a little bit of time and so product will be ready, salespeople trained, ready for a worldwide launch if in fact we do not launch internationally first which is a possibility. Pat, would you like to add more?

I think when you look at NovaSure and the Adiana product, as we talked about when we maybe the acquisition about a year ago, it's a very complimentary fit between those two products and I (inaudible) think a more logical product to put in the sales bag of the NovaSure reps, it's just terrific.

Okay, thanks. Are you still planning on moving manufacturing to Costa Rica for your breast biopsy products? And if you do timelines for that and what can we expect in terms of cost savings?

We're studying all opportunities at this point. The priority for Costa Rica will be getting the factory tools up and moving the NovaSure line, the brachy balloon line, a MammoSite product and then eventually Adiana as well. That is the priority at this point.

Okay. And my last question, in terms of the full field digital mammography market and there being 13,000 plus mammography systems in the United States, how far do you think digital mammography systems can penetrate? Do you guys model 70% penetration, 80% plus penetration, how do you think about that?

Our view may be a little bit different. We think what happened, and we've stated this in the past, that there will be fewer sites practicing mammography, but the equivalent amount of equipment. And that is because the demand continues to increase; compliance or just the aging population will cause the demand to increase. But there will be fewer practitioners because the economics for a small site won't work favorably.

So does it get to 80% or 90%? We think, yes. But in addition to that there will be another round of technological obsolescence as new 3-D technology enters the market. So there will be a resurgence again of the demand long before we hit market saturation.

All right, thanks a lot for taking my questions.

Ed Shenkan, Needham & Co.

Thanks, Jack. I wanted to ask you about NovaSure. We recently did a survey of 70 docs and concluded that about 20% of current utilization is for lifestyle. Could you talk about future marketing message for lifestyle and what you'll be doing in that area in the future?

I'd like to turn that over to our strategist for lifestyle marketing which is Pat Sullivan.

I think the principal focus for the NovaSure is currently the women who suffer from menorrhagia. I mean there are 7 million women affected by this disorder in the United States, 2.5 million of them seeking treatment. And we all know that 50% of the time when they put the woman on oral contraceptives they're not very effective.

So NovaSure message this year is really to move what we call up the treatment pathway. Their is use for the product we believe on a lifestyle basis, but I think that the near-term focus of the salesforce is clearly going to be on changing the treatment pathway.

And let me add to that. One thing that we look at is that if you look at the women that are on just hormonal therapy it's 1.4 million women. That is clearly the target. And we think the new growth is going to come from taking share from this hormone market, which is probably estimated or about 4X as large as the endometrial ablation market.

So the lifestyle market certainly an opportunity for us, but right in front of us is this 1.4 million women that are taking hormones and it's not effectively helping them. So consequently we think we have a long runway just in that area alone.

And you did give us some breakout to the traditional Cytec business, but it gets a little confusing because they're not full quarters. Could you just give revenues on Adeza, MammoSite if you can and then how many imagers you placed in the quarter?

On the imagers I'm not going to give the number because I don't think it's relevant anymore and I'll tell you why. It's a matter of usage, what our goal certainly is is to drive whether it be 60% or 70% or 80% use of ThinPrep with the imagers themselves. The Adeza we're projecting in the $60 million plus category this year, so you're going to be at the $15 million per quarter plus each quarter. And you had asked -- what was the other one that you wanted it on?

MammoSite.

The MammoSite is part of -- I'll let Rob address that because that's now folded into the number in the breast health solutions area.

We're seeing strong adoption on MammoSite. We're approaching 40,000 cases in total. Our target was somewhere in the area on a 13-week basis to be around $9 million and we are on track for that or have been on track for that. So I think all the news is very positive on MammoSite at this point.

And Jack, for future divestitures, [gliacyte] is the next one I think that we're expecting. Are there any other pieces of the business that we should be thinking about?

No, there are no other pieces under consideration. And gliacyte we are trying to find a good home for. The product, as everybody knows, had limited sales but there's certainly a very needy portion of the population struck with cancer that it helps. So we want to put it in the right hands to help people and we're trying to do that. But that is the only other product that we're considering.

Okay, no other questions. Thanks.

Thomas Kahn, Kahn Brothers LLC.

Could you give us a little more color on the alpha beta positioning of these new tomosynthesis machines? And secondly, do you have any insights as to what some of the competition might be doing in tomosynthesis? Thank you.

Rob is going to interrupt me if I start anyway. So Rob, you might as well talk about the alpha beta units.

The intent of the alphas are really twofold. It was to be certain that the commercial version of the product functions like the research unit. And then two, it was to gather very valuable user interface kind of data and just performance data. The betas are really a continuation of that, but they are more directed towards clinical trials that will reinforce our ability to get reimbursement, clinical trials that may assist us on other FDA filings, all those sorts of things. So we're really trying to take our time to not just get the immediate approval but also look for the future in terms of other versions of approvals and also reimbursement.

As far as the competition, based on what we saw at RSNA I would imagine that -- we think we're ahead, but that's something that we never want to take our eye off the ball or lessen our urgency about it. So we're moving forward as if it's a race to the finish line. We do believe that if there was a second player that might be in the tomo market over the next 12 to 18 months it is most likely GE. And then we think Siemens will follow that as is typical for them.

But Rob, you know it's interesting, I went over to GE at the RSNA and they essentially had nothing. I mean they had a machine sitting in the corner and a salesman who couldn't demonstrate anything. And I asked him what's going on; he said we're testing in the U.S. and Europe or something. It seemed like they were not pushing it. They had no interest in doing the great work that you folks have done over the past few years in prepping the medical community to what's coming on.

Thank you for saying that. I think that may be the case. Again, we don't want to be reckless about it and our goal is to focus on our technology and the commercialization of that. And whether we're first or not, we believe we will be, we know we will be the best relative to technology. And as a result of that we stay focused on our own business.

I guess I would add we would absolutely never underestimate General Electric and its scale and its ability to market products. They're a formidable company. Clearly after RSNA with the innovations made by Siemens in their MRI area and the CT area and what Phillips came out with and Toshiba. Clearly I think that their focus should be in those areas as the other companies have made incredible strides and are taking marketshare. But we can't tell them their business and they don't tell us ours. We wish them well.

Thank you very much.

Isaac Ro, Leerink Swann.

Thanks for taking the question. First off on skeletal health, you mentioned a bit of an earnings rebound this year. Should we think of that as sort of a low single-digits out margin or thereabouts this year?

I don't think I'd -- I think what we're most focused on is rebuilding our top line and there will be an earnings improvement as a result of -- a small amount of incremental volume. We view this year as a rebuilding year for that and retrenching and redistribution.

Okay. And then on Selenia, it looks like your market share in the U.S. obviously continues to be very strong. How would you characterize marketshare trends outside the U.S. particularly in Europe where you have guys like Sectra and whatnot starting to show up?

It's interesting; you can't look at Europe as one market. I would not put Sectra in that mix as a threat. But you can't look at Europe as one market; it is really country by country. We have a very strong presence in certain markets, 40-45%, Germany, the Netherlands, the UK and Latin America, Brazil or Mexico, places like that. And then in other markets we might be as low as 25%. On average we are looking for a third of the international share in terms of what we predict to be units that will be placed of this nature, meaning the DR nature around the world.

Okay. And then Adeza, you talk about some of these countries -- by countries being more competitive than others. Have you considered -- is price competition more of an issue in some of those markets and places where you don't feel like you want to cut price to get share, is that part of the issue?

Absolutely. I think a lot of it -- well, particularly in Asia, we choose in many respects not to get into a price war because we really don't want to discount our product to that level. We're not direct, we're dealer based, so it is a bit more difficult for us to get as low as let's say a GE might selling in China or in some cases Japan.

So we are picking our fights pretty strategically where we think there is a significant market opportunity. Because of public sector acknowledgment and reimbursement for digital we're investing more heavily in marketing dollars to support our dealers and hence we are seeing positive movement on the international front.

Okay. And then a last question on tomo. I think you mentioned 15 beta systems I think maybe next month or something like that. Where would you see that number going towards the end of the year? And then are you still comfortable with getting CPT codes in place for fiscal 2010?

Yes, it's 15 units and they are a mixture of alphas and betas and they start to be installed in February and that installation of betas will continue on for -- probably through June. It is conceivable that in the process of a beta that we may receive FDA approval and at that point it will be a commercial unit that will just we sold to a customer. So that period of beta or the beta trial will go on for quite some time.

Relative to the CPT, we're going all that we can at this point to aggregate the data that's going to be necessary to work with the proper regulatory and governing bodies as precursors to a CPT one code, like the American College of Radiology, all with preparation to move forward in that direction. But yes, 2010 is probably the best guess.

Okay, great. Thanks very much.

Tycho Peterson, JPMorgan.

Thanks for taking the call. Rob, just actually following up on that last question. As we kind of think about potentially the upgrade cycle and having to do some forklift upgrades for some of the Selenias that are in the field, how do you plan to kind of manage through that transition once you've got approval for tomo?

We're actually doing it, Tycho, as a real opportunity. As we have said, part of our strategy is to take back Selenias. We have a tremendous unmet demand for refurbished Selenias. So our goal is that we will have an amortization table that would suggest that a 25% per year amortization against a used Selenia would then result in a trade-in credit or trade-up credit for that particular customer.

And there will be a premium and pricing that has not been set for the new product, but based on that trade-up credit the customer will pay the net of that. We will then turn around a Selenia on a refurbish plan and introduce that either internationally or into the lower end or lower volume segment of the domestic market.

Okay. On NovaSure, there's been -- I'm just wondering what the competitive landscape is like these days in the sense that we've heard from American Med and some others that there's kind of more noise around Biolytic and some of these other competitors that have emerged. Can you just give us a sense? I mean it sounds like your numbers are obviously very good so it sounds like you're not really seeing impact. But is there more noise out there in the market than there's been historically?

I don't own if there's more noise. Historically, I think Pat can talk on the historical part. I think, today, we are continuing to make great strides. I don't see that -- Pat?

Yes, I don't think we've seen a lot of competitive change. I was a little confused on your question on the NovaSure side, the historical competitors and then I think you mentioned, I think, one of the MammoSite competitors.

No, no. I mentioned Biolytic, which is going after the in-office market.

I don't see any change. We do more in-office NovaSure than any other competitor, probably all of them combined, so I don't see any change to the competitive landscape.

Okay. On the Selenia pricing, Glen, it sounds like there has been some stabilization here in the near term. Is it still fair to assume kind of a 5% price decline for the base units going forward?

We've talked about that in the past that our expectation over time would be to see something like that year-over-year. We haven't really seen that though yet, Tycho, so I guess we would still maintain that it probably is going to come at some point, but it is being offset by other savings that we are seeing even on the cost side improvements that we have been making in the productline. So that even with that in mind, I would expect the gross margin within that division to continue to go up.

Okay. And then just finally, on the salesforce, it's been a while I guess since we got a total headcount number. Can you give us a sense of how the integration is going, where you are at headcount and to the extent you've had turnover or may be adding?

Rob, do you want to do that, (inaudible)?

Sure. The combined force as we look at our market parts today in the U.S., we're really north of 400 people. And we've realigned the Cytyc salesforce to be much more focused on the diagnostic market and calling on OB/Gyn docs, but from the perspective of selling ThinPrep and FullTerm we've realigned the surgical sales team or the Gyn surgical sales team to really promote NovaSure and ready them for Adiana with the idea that we want to drive more business to the office because we think that will be even more complementary when the Adiana product is released.

On the realignment of our interventional breast solutions, as Jack indicated earlier, we have now added the MammoSite product into that team and that team is comprised of account managers that call on breast surgeons as well as account managers that call on radiology. So we have a great play in terms of the synergies of now taking our interventional products, our Celero, our ATEC and driving those through the breast surgery market. And we also have the ability to then introduce products that are treatment and therapy related, namely -- obviously the first being MammoSite.

In addition to that, we indicated the cross selling that will take place between the our osteo specialists and the folks that are on the OB/Gyn diagnostic sales team. So overall we have a very strong team and we've realigned it to focus on the areas that we want to build, and that is driving more Gyn surgical products to the office, promoting the FullTerm product in a much more aggressive way, and then clearly aligning our interventional team to promote not just diagnostics but treatment and therapy devices to both [ras] and breast surgeons.

Okay, thank you very much.

Jayson Bedford, Raymond James.

Good morning. Just a couple quick ones here. The 91 international Selenia units -- I'm just wondering, is that a level that you expect to build on going forward?

Yes, our intent is to continue to build our international business.

Okay. So I'm assuming there weren't any type of onetime orders or anything like that assumed in that number?

There weren't, but let me just be a little bit careful about that though, Jayson. The 91 was a fairly steep jump up for us from the September quarter. And if we just go back to our guidance for a moment about the 1,580 Selenias for the year. We would still be thinking on terms that 80% of those would be in the U.S. and 20% would be overseas.

So that would imply a quarterly average I guess in the low 80's kind of range. So that is what we're expecting during the year to be at that slightly lower level for an average. So this was a good quarter internationally, it signaled growth overseas, but I just want to be careful on how it fits into the guidance of 1,580.

That's a good point, Glen, because we're not dealing with a homogeneous market. So consequently, as one market comes on others sit and then others get more active while others pull back a little bit.

Okay, that's very helpful. And then on NovaSure, I guess I look at it a little differently and wonder what can you guys do as a company to reaccelerate growth in that NovaSure business?

I think that as we talked about earlier, the fact is that it's an educational process clearly. You have the 1.4 million women that are taking hormones and I think that that is a market that we're going to put much more emphasis against. Also there was a publication earlier in the year for new practice guidelines from ACOG, American College of Obstetrics and Gynecology, which helped expand the use of the ablation as first-line therapy for women with excessive bleeding.

And what it basically said in the bulletin was endometrial ablation is indicated for the treatment of menorrhagia or patient perceived, which are critical words, heavy menstrual bleeding. So what in essence we're saying is now that it is appropriate as a first-line treatment, endometrial ablation, and we have to continue to go out, tell the story to doctors, continue to make available to them their peers for training and just continue to hammer home the message. I think that's what we have to do.

Okay, that's helpful. And then just lastly, it looked like your OpEx guidance didn't really change for the year. I'm wondering if there are any new initiatives planned that could yield some cost synergies.

Yes, the operating expense guidance was exactly the same as it was last quarter. Now just to keep in mind for Q2, the operating expenses are higher than Q1, but that simply reflects the three weeks we had missed in the beginning of the quarter. But the full-year operating expense is the same guidance that we were anticipating.

Right. And I guess I'm just wondering now that Cytyc is in the folds for 10 weeks, have you identified any type of kind of synergies with redundancies that could help you going forward?

I think when we think about it that likelihood exists, Jayson. I don't think we're ready to commit, but I would expect you'd be more likely to see a positive outcome on that than a negative.

Jayson, I think that you're going to see more synergies clearly on the sales side and OpEx is just going to happen as a function of these teams that we've put together on both sides, whether it be logistics or IT or whatever that they're hammering out new contracts with the suppliers of these products.

On the sales side, if you look at this first quarter ending in December, we were readying for the RSNA, we were readying for a national sales meeting with the diagnostics surgical and the interventional breast solution group, we're cross training on Celero, we've done cross training on the bone densitometry, we've got another sales meeting coming up in February in Europe and in May in the United States on the domestic side.

So we're looking at top line while at the same time letting the committees do their work and working with providers or suppliers on getting costs down there. Are there synergies, are there going to be additional ones? The answer is, yes. But we're trying to do as much as we can without screwing up a wonderful company. So we're just being judicious about it, but the answer is, yes, it's going to happen.

I appreciate it. Thanks, guys. I'll get back in queue.

Bruce Jackson, RBC Capital Markets.

A few quick ThinPrep questions. Can you give us the percentage of units that were imaged in the quarter?

Well, we'll play stump the stars right now and try to get that. Ask another one while (multiple speakers) I take a breath.

Sure. And then another just quick ThinPrep question. Can you split out the ThinPrep revenue from the Adeza revenue? You said Adeza was about $15 million in the quarter; what was the ThinPrep revenue in the U.S.?

We have a 10-week and we have a 13-week.

I'll take the 13-week.

It was in the -- probably the 60 million range -- $55 million to $60 million range. And that obviously excludes the FullTerm.

Okay. And then moving over to NovaSure, do we have the disposable units that were sold in the quarter?

Yes, Bruce, let me jump in. I think what we want to do is to focus on the four reporting segments and the hesitation is to make sure that we're all on the same page. We're not going to split out the individual MammoSite and NovaSure revenues on a stand-alone basis going forward. I think what we want to talk about is if we're seeing growth and progress in those areas. And for instance, in MammoSite, this was a record quarter for MammoSite, but it is part of the breast health group, it is part of the group that we're expecting to grow 25% this year over last year.

For NovaSure we were up this quarter if you look at the immediately preceding quarter, and we were up this quarter as it relates to the prior year. So there continue to be positive trends in NovaSure. Now NovaSure is the only product currently in surgical until Adiana comes online. And what we've said about that reporting segment is we're expecting 15% growth year-over-year. That implies pretty steady sequential growth, but not phenomenal growth.

So I don't think we want to talk about incremental growth on a quarterly basis. We just want to talk about the reporting segment in general and probably won't disclose the number of controllers for NovaSure, that's probably something we want to get away from and just focus on the overall growth. NovaSure growth came from both domestic and international, it wasn't one or the other, it came in both areas.

Okay, that was my next question.

I think we want to leave the impression on the trends that we're seeing as opposed to the exact small dollar increase in a domestic versus an international market.

Also by the way, the number is in the mid 50's for the amount of ThinPreps that were imaged.

Okay. And then one Selenia question. With the increase in the placements that you're assuming, is there kind of an implicit backlog reduction assumption in there?

I'm sorry, Bruce, can you repeat that?

With the new Selenia guidance for (technical difficulty) placements, are you making any kind of assumption for reducing the backlog of units?

As commented earlier, Bruce, our goal is to ship on a customer demand. As our units go up each quarter backlog aging is more and more compressed. So we are not lengthening our turnover of backlog, we're accelerating it. So as a for instance, if we were shipping 500 units a quarter and we had a backlog of 500 it would be a 90-day turning backlog. So we certainly wouldn't want to reduce it from that level. Our goal is to try to keep backlog in line with our customer demand.

So we might see a slight reduction in backlog going forward, but nothing dramatic, would that be --?

That's exactly right.

-- safe to say? Okay, great. That's it for me. Thank you.

Junaid Husain, Soleil Securities.

Pat, if I could push you a bit on the ThinPrep imaging system, I appreciate that you don't give out the imager number anymore, but could you remind us how many imagers you have in the [Lab Corp.] network?

Sorry, how many imagers?

How many imagers in the Lab Corp. network?

There's probably in excess of 60.

And then would you expect this level at Quest as well when they start rolling out?

No, I wouldn't. We've made several improvements to the imager since we started shipping it which allow the units to do about 25% more slides. So the installed base really isn't a relevant measure. We will have probably less units at Quest, but would potentially be able to do more volume with less units. And again, the Quest program is going very well, as Jack mentioned. We expect it to be pretty much fully implemented this year.

Okay. And then last question, Pat or Jack -- with regards to Adiana in the female sterilization market in general, the folks at Conceptus have been saying that they're moving forward with what sounds like an active DTC campaign in '08. It sounds like they might have a full quarter's head start on this DTC campaign before you launch Adiana. So what do you guys think from a sales and marketing strategy perspective in the face of maybe a more (technical difficulty) Conceptus?

Pat, you want to try it and then I'll do it after that?

Yes. I think when you look at DTC, as we all know, DTC can be very expensive. As you know, we tried DTC with NovaSure and had limited success. So I think you have to be very, very careful on DTC campaigns just because of their enormous cost. I think if they decide to do, as they are, a DTC campaign it would only help Adiana in the future because obviously the market would be much more aware of it and I think we would benefit from that investment that they'd be making.

Well, piggybacking on what Pat said, and I talked about this at I think the JPMorgan conference, and that was that we're thrilled that they're going to do this DTC campaign. We encourage them to spend lots of money on it and we think we will certainly be a direct beneficiary of that. And also as Pat said, it's kind of a tricky path that you walk when you do the DTC; you're spending a lot of money and hoping for the return. Sometimes it comes and sometimes it doesn't. If it comes the entire industry is going to benefit from it as it does in a lot of other product categories.

Thanks very much, guys. That's all I've got.

Valerie Brown, Alliance Bernstein.

I actually have three questions. The first one is on tomo. I recall that you had mentioned something about a large-scale screening trial and my understanding from your comments today was that the FDA has not asked for additional clinical data. Could you just provide some more color on the enrollment status of that trial and whether it will look at tomo by itself or tomo in combination with 2-D digital mammo for screening?

There's no government funded, at this point, large-scale screening trial for tomo. We may be doing, and I'm not certain it's large-scale, but a high risk women's trial for screening, but I don't know if that's -- again that's really a specialty study. So I may not be completely understanding you, but there is not a large-scale screening trial that's underway.

And would that be tomo in combination with 2-D mammo or just tomo alone?

I honestly don't think that there is a specification it's been defined at, nor is there a protocol.

But you are going to see continuing clinical work with tomosynthesis and in contrast media as it would compare to MRI. And you'll see co-registration of tomosynthesis with possibly PET or ultrasound. So over the course of the next several years you will see tomo in concert with other modalities.

Okay, thank you. And then secondly, is it possible for you to break out your product sales versus service revenue and what your margin is on each?

Glen?

The service revenue was about $36 million in the quarter of the total revenue that's included in the 371. And we're getting about a 22% gross margin on that service business itself. And that margin has inched up over time for the service group -- and a big part of it, and most of our service is generated in the breast health category and then secondarily in skeletal health.

And a big part of it is from the annual maintenance contracts that we sell after we install the equipment for every Selenia we were getting very good placement of that follow -- on the order of 90 plus percent follow-on for those annual contracts. And that generates that ongoing annuity that we see in service.

And then my last question relates to refurbished units and if you have any information on the refurbished units as a percentage of the total and how those are priced?

We don't really have refurbished units to any significant extent today; that's really fundamental to the trade-up program that we talked about earlier on the call (multiple speakers) selected units that might be show units that after six months we bring back into the factory. But we do not have a lot of units that have come back from the fields just because our -- obviously customers are happy with them and we continue to update them in the field when necessary.

Valerie, you wouldn't see that for at least another year. And in 2010 clearly you'll see much more because they'll have been out there for five to seven years and we'll be using those and selling those more in the international market.

Thank you.

Matthew Scalo, Canaccord Adams.

Thanks for taking the questions. Just two real quick ones here. Have you seen an acceleration in the penetration of lower volume centers by Selenia and maybe that's what's impacting system configuration or is it just geography? And then number two is are you guys aware -- is the FDA going to set up a panel to discuss the CAD situation here as far as potential false positive rates? I've heard kind of a March/April kind of time frame?

With respect to the lower end users, actually what you'd see with that is almost a higher ASP in general because it would be a single modality with a workstation, so it would probably be fully configured. It would almost work at the opposite of what we were suggesting earlier. I do see that there is penetration deeper into that market, but what's happening is a lot of those smaller practices are now being consolidated under a single buying group so they're benefiting by the purchasing power of either a consolidating entity or a group purchasing organization.

With respect to CAD, I think other than the one study that was done and commented on repeatedly, there's been a lot of favorable news on CAD. I mean, (technical difficulty) just had a very favorable report that came out of IHC I believe that spoke very highly of the CAD finding more cancers, not increasing the recall rate.

So I think that the FDA will certainly be viewing CAD, as it has in the past, with certainly a lot of concern relative to its performance. But I don't see that as being anything other than perhaps creating a more stringent regulatory environment for us. It's not a matter of CAD not being reimbursed, it's not a matter of CAD not being accepted clinically. I think as we talked about, over 80% of our domestic Selenias were shipped with CAD, so we don't see a downturn in that respect.

Okay, terrific, guys. Thanks for the insight.

Mike [Barone], [Silverbeck].

I just want to confirm, I thought I heard you say that you would pay the remaining term loan balance, that $295 million, by the end of fiscal year '08. Is that correct?

Calendar '08 -- I think it was calendar '08.

Calendar '08?

Yes.

Okay, great. Thank you.

You're welcome.

And at this point we have no further questions.

Okay. Well, thank you very much, everybody, for taking time. I just wanted to say that we are very excited with the new Hologic, the combination of the two companies is going well. The people, the energy, the passion, the commitment from the senior team at Cytyc and the continuing Hologic is meshing as a really wonderful working organization. So we're thrilled with where we are and we have a long way to go. And with that I wish everybody well and good health and we will see you after our next conference call. And we have a shareholders meeting on March 11th. That's it. Thank you again so much.

And this concludes today's teleconference. We thank you for your participation. Have a wonderful day.