Good afternoon, and welcome to the Hologic Incorporated Second Quarter Fiscal 2018 Earnings Conference Call. My name is James, and I'm your operator for today's call. Today's conference is being recorded. All lines have been placed on mute. I'd now like to introduce Mike Watts, Vice President, Investor Relations and Corporate Communications, to begin the call.

Thank you, James. Good afternoon, and thanks for joining us for Hologic second quarter fiscal 2018 earnings call. With me today are Steve MacMillan, the company's Chairman, President and Chief Executive Officer; and Bob McMahon, our Chief Financial Officer. Steve and Bob both have some prepared remarks today, then we'll have a question-and-answer session. Our second quarter press release is available now on the Investors section of our newly redesigned website. We also will post our prepared remarks to our website shortly after we deliver them. Finally, a replay of this call will be archived for 30 days. Before we begin, I'd like to inform you that certain statements we make during this call will be forward-looking. These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Such factors include those referenced in the Safe Harbor statement that's included in our earnings release and in our filings with the SEC. Also during this call, we will be discussing certain non-GAAP financial measures. A reconciliation to GAAP can be found in our earnings release. Finally, any percentage changes that we discuss will be on a year-over-year basis, and revenue growth rates will be expressed in constant currency unless otherwise noted. Now, I'd like to turn the call over to Steve MacMillan, Hologic CEO.

Thank you, Mike, and good afternoon, everyone. We appreciate you joining us to discuss Hologic's financial results for the second quarter of fiscal 2018. Our results were solid overall. Total revenue finished above our guidance range, and earnings per share met our expectations. On the other hand, we are writing down the value of Cynosure and lowering our annual revenue guidance based mainly on a reset of expectations for that business, which we'll discuss more in a moment. As a quick overview of our second quarter results, revenue of $789.3 million grew 10.3% on a reported basis, or 8.3% in constant currency. Excluding the impact of the Cynosure acquisition and the blood screening divestiture, both of which occurred in the second quarter of last year, revenue increased 4.8%, or 2.6% in constant currency. This was in line with the assumptions underpinning our last guidance. In terms of geography, our international business again demonstrated robust growth in the second quarter. International revenue exceeded $200 million for the first time and increased 28%, helped by the contribution of Cynosure. Even excluding Cynosure and blood, international sales increased 15.1%, with broad based strength across our various divisions and regions. In the United States, revenue of $588.5 million increased 3.3%, again primarily due to the acquisition of Cynosure. Excluding Cynosure and blood, U.S. revenue was basically flat. In terms of divisional performance, our Breast and Skeletal businesses performed well in the second quarter. Diagnostics sales were a little soft as anticipated as we believe fewer women had regular checkups in January and February due to weather and the severe flu season. Surgical sales declined again in the quarter, as expected, although we are seeing early signs of improvement. As for Cynosure, the business is stronger today than at any point since we bought it.…

Thank you, Steve, and good afternoon, everyone. Today in my remarks I'm going to highlight some of our other divisional sales drivers, walk through our second quarter income statement, touch on a few other key financial metrics, and then I'll finish with our updated financial guidance for 2018. Unless otherwise noted, my remarks will focus on non-GAAP results, and percent changes will be on a year-over-year basis in constant currency. Steve already highlighted our Breast Health, Surgical and Cynosure businesses, so I'll start my discussion with Diagnostics. Global Diagnostics sales of $279.7 million decreased 7.6% in constant currency. Removing the impact of our divested blood screening business, diagnostics sales grew 1.8% against the toughest comp of the year for the core business. As we alluded to on our last call, we believe U.S. diagnostics result in January and February were affected by severe weather and a terrible flu season that reduced well-woman visits. As evidence of this, our Diagnostic sales per day declined in January and February compared to prior year periods, but rebounded nicely in March. Diagnostics growth was once again led by molecular diagnostics, where global sales of $150.7 million increased 4.4%. In the United States, where we enjoy very high market shares in our key assay categories, molecular sales grew 2.5%. International molecular diagnostics grew a healthy 15% based on strength across our Aptima women's health test as well as in products. Moving on to cytology and perinatal. Global revenues of $117.7 million declined 1.4%. We are the undisputed market leader in cytology with our ThinPrep liquid Pap test and are proud of the role that more than 650 million pap tests since introduction have played in dramatically reducing deaths from cervical cancer. Our product advantages and customer relationships have enabled us to gain significant market share…

Thank you. And we'll take our first question today from Doug Schenkel with Cowen. Doug Schenkel - Cowen & Co. LLC: Hey, guys. Good afternoon. We appreciate all the helpful details on Cynosure. But of course, like others, I want to dig in a bit deeper. Last quarter, it sounded like you felt like you were making pretty solid progress with the sales force and that you were seemingly on track. We definitely got that sense as well at our conference when we had the fireside chat with you intra-quarter. So, could you provide a bit more detail on what changed for Cynosure, certainly, over the past quarter and, to some extent, over the last few months? And related to that, is the guidance reduction entirely due to Cynosure sales force changes or is there something broader here? For instance, are there some market dynamics in play that maybe you didn't appreciate fully even a few weeks ago?

Yeah, Doug. It is not market dynamics. It is very much – we feel like we're making good progress with the sales team. But at the end of the day, we were expecting a huge ramp in the second half of the year. And I think as we budgeted and everything else and really went back and looked through our mid-year forecast, I think it's unrealistic in terms of what we were expecting for the second half of the year. But feeling – there is no difference in how we feel from the time we were at your conference to now, other than the ramp going forward. But I think at the end of the day, we delivered in the quarter, frankly, within the range about what I thought we would. But I think the ramp that we had implied in the second half of the year was just way, way beyond what we're going to get to. Doug Schenkel - Cowen & Co. LLC: Yeah. I guess that's kind of the crux of the question, right? I mean, not to be difficult here, but I'm sure you appreciate that, that one thing that you're talking about as being the one thing that changed is kind of the most important thing that's changed. So, what did you see happen in the quarter that you didn't appreciate even a few weeks ago?

Nothing happened in the quarter that we didn't appreciate a few weeks ago, other than really thinking more about the true trajectory going forth. We just delivered $91 million, frankly, in the first fiscal quarter, call it, $85 million and change this quarter, which is frankly very consistent with the seasonal declines you see. Feel good about where we're going. But again, our original guidance for the year implied a much, much stronger ramp, especially in that second half of the year. But I think the team is settling in very, very well. I was just with the sales force a few weeks ago. I think the true churn that occurred in the sales force was just far bigger than we ever imagined, but do feel very good about the leadership and the people we have in place now.

Yeah, Doug, I think, in addition to that, as the teams were settling in, I think we've learned a lot more around the ramp.

Yeah.

And so, we were expecting a much more significant ramp. And as the teams have come in, in this last quarter, I think we've got a better understanding and a better handle on that. And hopefully, we've put ourselves in a situation where we can get into a situation where we can beat and raise, and are looking at this as a conservative number as opposed to chasing the number.

Yeah. Yeah, Doug, just to add one more point. This was only Kevin Thornal's second quarter of actually running the business. And I know it seems like forever, trust me he's a very large shareholder in this company and myself. And where we are, it seems like forever in terms of what we're doing in terms of the turnaround here. But at the end of the day, even as Kevin has gotten in and gotten a lot deeper into the business, much better handle on where that trajectory is going.

Next we'll hear from Jack Meehan with Barclays.

Thanks. Good afternoon. So in Diagnostics, how much do you think the Easter flu weather impacted the quarter? And can you talk about the competitive environment with some of the new products whether you think those are starting to resonate?

Yeah. Jack, hey. This is Bob. I'll answer the first part of your question in terms of the impact. Quite honestly, it's really hard to know. But what we can say is based on some data that we have that well-woman visits in January and February declined at high-single digit rates in the U.S. versus year ago. So we do think it had a decent impact on our business and we saw in March where it actually rebounded and improved a bit. And on the new products, I think we're getting some nice progress on those in the uptake. And so far they're still small relative to the overall size of our STI platform, but we're seeing nice feedback certainly from Fusion as well as some of the new products, the Virals and some of the other new products that we have globally.

Great.

We've always said that those are – yeah, I'm sorry. We've always said those are primarily going to be a growth driver in 2019.

Got it. And then a two parter on Breast Health. International, great results. Maybe just talk about what the drivers were there. And then in the U.S., recent MQSA data month-to-month, but just talk about some of the recent placement trends? Thanks.

Sure. International, I think, we are thrilled with the progress we're making. And I'd also remind everybody since we have Kevin Thornal running our Cynosure business, he's the one we sent in Europe a couple of years ago and it was a train wreck. And he totally put all the foundational elements into place that are paying off today for international business. Country by country, we are winning more tenders. Our dealers are more engaged. We also did pick up our dealer in Germany as well as Spain and are winning more accounts since those are now owned by us than they used to win – winning more tenders than what they did when they were standalone dealers. So, just feeling great about the foundational progress that has been built over there. Regarding the MQSA data, I'd remind everybody, there's always little variations. And particularly there was a change in methodology that occurred in April where the FDA is now basically having the ACR, certify the machines. We think that may have resulted in more volatility than usual on the most recent number. Having said that, we feel great about what we are doing in the Breast Health business. And I'm so proud of our team. The market shares we continue to garner, particularly in the United States on 3D, is well beyond, I think, what anybody, ourselves included, could've imagined a couple of years ago in a very competitive market. What our teams are doing there, and not only driving additional gantries and winning so many competitive customers over to us, but then building out that product line. Our interventional business being built out, the service business, the software, and if you see, again, that whole cliff that everybody was so concerned about a couple of years ago under Pete Valenti and our team in the U.S., they have really, really started to change that curve and feel very good about both what they've done and where we're headed.

Next, we'll hear from Vijay Kumar with Evercore ISI.

Hey, guys. Thanks for taking my question. Steve, if I had to maybe draw an analogy, it's been an interesting season so far. One of – your peer company from your former life, they took their numbers and the stock actually went-up because the feeling was it was clear when you went for it. And I think what some of the hoarders are questioning is especially looking at quarter stock is in the aftermarket, has the guidance been reset? Like, what's the comfort level that this has been now reset and we won't have any more disappointments going forward?

Sure, Vijay. It's a great question. Glad you asked it. We feel very good. We don't like the reset. And candidly, we have a lot of debate of do we go as low as we do? We wanted it to be a clearing event. We wanted to get the numbers down as painful as it is. We know there's been a huge overhang and there's been such an obsession with Cynosure. And I would tell you, as I sit here today I have two very mixed feelings. One is I am disappointed because we never like to do this to have to write down and take guidance down. On the other hand I much more confident in our outlook of where we're going. And I fundamentally believe business by business, we have every business getting stronger and going on the right track. So it's – and I know that's a weird juxtaposition of emotions. But as I sit here – I know having been with the Cynosure sales team, that market is still a great market. We are increasingly getting the team together. And I don't think people fully understood even though we've talked about it, the gaping holes we had in that sales team. So now as I'm starting to see people getting the wins together. really feeling very good. And my – frankly, I think our hope was this would be the clearing event to try to get the obsession around Cynosure monthly number, quarterly numbers behind us to where we're not going to be missing and we're going to get into a good place going forward.

No, understood. And maybe, Bob, one on the guidance. The EPS, I'm kind of having a hard time getting to the range. Is there something below the line maybe on the tax rate for the year which went down, which maybe perhaps – and explain such as given the guidance cut on the top line and what we saw from a margin front in the Q?

No. The tax rate is pretty consistent across the quarters. What we have said is, we were taking some investment – the opportunity to make some investment as a result of the tax rate reduction earlier in the year, and we're actually managing some of the rate or the take down through OpEx reductions. So we're not making – we've made some investments. We were planning to make more. We're actually probably scaling some of that back to ensure that we've got the strong foundation, because we didn't deliver all of the EPS earnings potential as a result of the tax rate reduction to the bottom line when we first gave guidance.

Isaac Ro with Goldman Sachs has our next question. Isaac Ro - Goldman Sachs & Co. LLC: Good afternoon, guys. Thanks.

Hey, Isaac. Isaac Ro - Goldman Sachs & Co. LLC: On Cynosure – hey. Could you tell us when we might be able to expect meaningful new product launches? And the reason I asked is SculpSure got a 510(k) clearance in 2015, and 2016 was a good year for Cynosure so clearly that product cycle has an immediate and significant impact. So you said that the business might need some refreshing in the portfolio. It would be helpful to know kind of when we might expect that.

Yeah. I think TempSure just launched in this last quarter. So I think part of what gives us increasing confidence of where we're headed is the TempSure launch is off to a very nice start. And it will have additional applications that will be coming over time, so it may not have the incredible spike. SculpSure was probably an unusually large huge uptick. But I think the fundamental strength of TempSure feel really, really good about where that's going. And the initial sell-in, frankly we're very, very pleased with. Isaac Ro - Goldman Sachs & Co. LLC: Okay, thanks. And just a follow-up on capital allocation. Obviously, this is one of the more significant transactions under your tenure and it's been obviously a little disappointing to start. So how has that informed your appetite for future deals? I think in prior quarters you've said that you're still interested looking at bolt-ons. But I'm wondering if maybe it makes sense to pump the brakes a little bit more until you put up a couple good quarters here or if this really sort of unaffected to your view on future M&A? Thanks.

Isaac, obviously, we're incredibly disappointed. And therefore it does affect how we think about it going forward. But really, what it comes down to is we now want to be really focused as we'd like to be on true tuck-ins that supplement our existing businesses. So, that's where we're very focused, much smaller deal size than obviously Cynosure. That was an unusual opportunity. But at the end of the day, we're very focused now really by division. That added a new division to us. Now, all of our focus is within the existing divisions. And the other piece I would say is, I'm much more closely driving the inorganic, the business development propositions by having the division presidents reporting directly to me, and feel very good that we're both making go and no-go decisions faster in the process. And I do think – I hope to see some small little things that will be coming forth over the course of the year, but clearly on a very different scale.

Next, we'll hear from Bill Quirk with Piper Jaffray. William R. Quirk - Piper Jaffray & Co.: Great. Thanks. Good afternoon, everybody.

Hey, Bill.

Hey, Bill. William R. Quirk - Piper Jaffray & Co.: So, I guess I think I know the answer to this first question, but I'm going to throw it out there anyway, Steve. It sounds like – did I hear it correctly that you finished hiring out or building out, I should say, the sales team for Cynosure, so all those seats are filled and now it's kind of a bit of a waiting game to get them up the curve?

Yeah. It's not fully built out, but I'd say we're 90-ish percent there now. And it is. And I would say it's – while it's – I'd probably say it's less about waiting for them to get up to speed. We're training them in a different ways much more aggressively. We're seeing some of them starting to hit the ground running and getting their sales far faster than what we might have usually expected. And that's what gives us a good outlook. I think coming back really to an earlier question two of we haven't wanted to take debt by a thousand cuts. We wanted to survey the situation long enough, have Kevin in this role. He's been reporting directly to me now for the last four months. I think we have a very good handle on where the business is going, what's going on, and figured, okay, let's just take it down and then we build from here. William R. Quirk - Piper Jaffray & Co.: Understood. And then just, I guess, kind of thinking a little longer term, Steve, about the business with new products like TempSure as well as the ongoing competitive dynamic. Once we kind of get through the period of getting these guys up and running, trained, productive, how should we be thinking about the longer term kind of pace of the segment? Should we be thinking about this as double-digit type of revenue growth once we get beyond this interim period here?

Absolutely. That's how we're thinking about it, Bill. This is still the fastest-growing market of any market we compete in. And as you know, with us, every market we compete in, we play to do very well and grow faster than the markets. And I fully believe we will be there in the exact same place over time. This is a product-driven, relationship-driven, sales force-driven business, just as our other businesses. We've had a little bit of an extra learning curve in this particular one. But there is nothing in it that says we can't compete and do exceptionally well. We also see it still – despite obviously a major competitor in Allergan, the rest of the business is still very – the rest of the industry is still very fragmented. And we see big opportunity still over time that will also be an area for tuck-ins and things like that once we have the sales force well established. And that's exactly where we're going to be focused.

Our next question comes from Tycho Peterson with JPMorgan.

Hey, Steve. Can you talk more about the strategy to get GYN Surg growing again, other than easy comps and new leadership? And on the competitive front, you did – publication has been asked if you retracted, so I'm just wondering whether you're willing to comment on that at all as well.

Yeah. I'm very, very happy that you asked that question. It will not be retracted. We feel very good about the underlying way that that study was done. So, feel really, really good about that. And you said other than easy comps and leadership, I'll go with the second one. Other than leadership, well, leadership is what it's about. And this is another one that we replaced the President, the VP of Sales, three of the four regional leaders and more than half of the managers, all in the last nine months, and feel really, really good about where that business and those leaders are going from a competitive standpoint. You see, MyoSure started to pick back up this quarter. We're watching the underlying trends and feeling good that that business has come down. We said back in January at your conference, I said, hey, we're going to be in for a few rougher quarters. If you look, our first quarter was down, call it, 8%; this quarter, down 5-ish. I think we may still not – we'll likely still be down a touch maybe this quarter. And I think by the time we exit the year, exactly as we said at your conference in January, I think we'll be back to growth and moving in that right trajectory. But as I acknowledge, I think we fell asleep at the switch a little bit too long. We were slow making leadership changes in that division, and our teams are fighting back now.

Okay. And then, a follow-up on Cyno, for Bob maybe. Was the entire guidance cut from Cyno? You said it was primarily Cyno, so I just want to make sure there's not something else that's changing in the assumptions. And then, does the write-down have implications on the level of reinvestment you're willing to make on that business around DTC and other areas?

Yeah. I'll take the second question first. The answer on that is no, it doesn't affect the level of investment. The write-off is really a reflection of, hey, we've got a much lower base than it was originally contemplated in our model and it's going to take us longer, but we're still expecting growth in that business and we'll invest behind that. In regards to the takedown, the majority of it – vast majority of it was Cynosure. We took that down multiple tens of millions of dollars, as you can expect or as you can imagine, relative to the forecast that we had built in. There are some small changes relative to probably Diagnostics with the not getting back, the January and February, but those are small. I would add one other thing on the piece with NovaSure. I think not only the clinical results that have come out and were published, but also some of the survey, I think we've given our sales organization more tools to be able to be much more competitive in the marketplace. So, it's not only new leadership, it's also new tools to actually get out there and provide. And then with NovaSure ADVANCED that's been out, really driving that as well.

Jon Block with Stifel has our next question. Jonathan David Block - Stifel, Nicolaus & Co., Inc.: Great. Thanks, guys. Good afternoon.

Hey, Jon. Jonathan David Block - Stifel, Nicolaus & Co., Inc.: Hey, Steve. I'll ask two quick ones. First, just on the gross margins. The gross margins were a bit below what we were looking for specific to fiscal 2Q. And so, Bob, maybe if you can talk about, was that specific to one division versus another? And then, how should we think about gross margins going forward? And then, I just got a quick follow-up.

Yeah. So, there wasn't any one-time discrete event in there. It was really a result of probably two things, geographic mix with our international business really driving that and then product mix within the divisions. I would expect that to be flat to slightly improving over the rest of the year. As Surgical comes back to growth, that's a very highly – a very accretive gross margin business. And then, actually as the U.S. business and Cynosure, that also has a much better gross margin than overall Cynosure as a whole. So, we do think that that will help – kind of help with gross margin going forward, and we've obviously got our continued productivity model programs as well. Jonathan David Block - Stifel, Nicolaus & Co., Inc.: Okay. Great. And then, I think I've got this number right, but the 15.1% international growth, call it, ex Cyno and blood, can you approximate what the organic growth was, sort of if you exclude some of the recent distributor tuck-ins, if you can quantify that? Thanks, guys.

Yeah. This is Bob. That was still roughly double-digit total.

Thank you. Next, we hear from Derik De Bruin with Bank of America.

Hi. Good afternoon.

Hey, Derik.

Yes. So, a question or two. So, I appreciate the fact that when you revamped the European sales force, you sent Kevin over there and you were able to turn it around. But when I look at that, it's because I think Hologic certainly has very good technology, very differentiated products and certainly there is a medical need for those products. So – and the same thing in Surgical, I can certainly understand how the sales force coming in, a new management coming in is going to do that. That isn't really the case with Cynosure. I mean, there's not a lot of medical need for it. There is – the publications around it are a little bit choppy in terms of what it is. It's like – so, my question is, it's like, where the same playbooks work given that you're trying to go into a market which is a little bit fuzzier than what you're normally going after?

Yeah. Fair question, Derik. I look at it slightly different. While the medical need is traditionally defined might not be as big, there is huge demand. And the people who want these procedures and the docs providing them, there's a lot more data and the opportunity to drive data. But at the end of the day, this is about great products and great sales people. And that's really what drives this business, and building long-term customer relationships. So, that is not that different than what we can do. And we know, we just got to go prove it. We will.

I mean – and have you seen any traction at all in the OB/GYN market for MonaLisa?

Yes, yes. And again, we think that particularly with additional clinical data over time and our sales force, we're seeing some new customer interest in that product and do feel very good about where that will go over time, and also that that will be the leading edge frankly to help a lot of OB/GYNs get into cash pay, everything else. We always said we didn't do Cynosure for 2017 or 2018, we did it for the long haul. We know patience is thin right now on it, but we're incredibly focused and, frankly, only the coming quarters, what we say now probably isn't going to matter a lot, but I'm very confident we'll be putting those points on the board as we go forward.

Operator, I think we have time for maybe one more question.

Thank you. Our final question will come from Brian Weinstein with William Blair. Brian David Weinstein - William Blair & Co. LLC: Hey, guys. Thanks for taking the questions. And just to follow up a little bit on that last question. There's a lot of talk obviously within Cyno about what's going on in – on the body category, and you mentioned a little bit here on OB/GYN. But there's other parts here, the skin part is well. Can you just talk about where it is that you're really seeing the deficit here relative to what you originally thought? Is it all on that body side? Is it that the OB/GYN's a little bit less or is the skin not coming through kind of where you thought? And can you also address, if you wouldn't mind, what your longer term margin expectations are for the business? I understand – I recognize that you're still thinking longer – double-digit growth in the outyears, but how do you think about the profitability of this business going forward? Thanks.

Sure Brian. The first part is the deficits that we see are less byproduct category than they were the gaping holes where we didn't have sales people on the streets. And again, we keep trying to emphasize, there were a lot of holes in the sales force, we just didn't have people showing up. And therefore every product line was that – we had areas that had virtually very few sales at all. So, it's – the gaps we're looking at are far more by territory than by product line. As we go forth and we're starting to see it, as we're putting people back in those territories, we're seeing SculpSure, we're seeing TempSure, we're seeing Icon. We're seeing all of the categories start to get the lift back up for the things. Ultimately, profitability over time, we think it's going to take some time. The gross margin will be slightly dilutive to the company here in the nearer term. Long-term, can that be at the company average? We certainly would hope so. Operating margins today are very, very small, so that will be an opportunity over time. I think that'll still take multiple years before that gets to a – an operating margin that is not dilutive to the company.

Thank you. That is all the time we have for questions today. This now concludes Hologic's second quarter fiscal 2018 earnings call. Have a good evening.