Deborah R. Gordon - Vice President of Investor Relations and Corporate Communications Stephen P. MacMillan - Chief Executive Officer, President and Director Robert W. McMahon - Chief Financial Officer.

Vijay Kumar - ISI Group Inc., Research Division Tycho W. Peterson - JP Morgan Chase & Co, Research Division Richard Newitter - Leerink Swann LLC, Research Division Shu Wang - Morgan Stanley, Research Division Isaac Ro - Goldman Sachs Group Inc., Research Division William R.

Quirk - Piper Jaffray Companies, Research Division Michael Matson - Needham & Company, LLC, Research Division Anthony Petrone - Jefferies LLC, Research Division Douglas Schenkel - Cowen and Company, LLC, Research Division Brian Weinstein - William Blair & Company L.L.C., Research Division Jonathan D.

Block - Stifel, Nicolaus & Company, Incorporated, Research Division John Zecy - Morningstar Inc., Research Division.

Good afternoon, and welcome to the Hologic, Inc. Fourth Quarter Fiscal 2014 Earnings Conference Call. My name is Amber, and I am your operator for today's call. Today's conference is being recorded. [Operator Instructions] I would now like to introduce Deborah Gordon, Vice President, Investor Relations and Corporate Communications, to begin the call..

Thank you, Amber. Good afternoon and thank you for joining us for Hologic's Fourth Quarter Fiscal 2014 Earnings Call. With me today are Steve MacMillan, President and Chief Executive Officer; and Bob McMahon, Chief Financial Officer. Today's call will consist of opening remarks followed by a question-and-answer session.

The replay of this call will be archived on our website through Wednesday, November 26 and a copy of our fourth quarter release is available in the Investor Relations section of our website. Also in that section is a supplemental financial presentation related to the comments that will be made during today's opening remarks.

Before we begin, I would like to inform you that certain statements we make during the call may be forward-looking. These statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from any future results implied by such statements.

Such factors include those referenced in our Safe Harbor statement 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 also be found in our fourth quarter earnings release.

I would now like to turn the call over to Steve MacMillan..

one, accelerating growth in our U.S. Breast Health business; and two, significantly accelerating our international business. We feel very good about our ability to achieve this step change in annual growth and strong cost controls will yield leverage earnings growth.

We've set the stage in fiscal 2014 and we will continue to execute and build on the strong momentum. So overall, while we're not yet where we want to be, we have delivered on our promise not only to improve, but to grow each franchise.

We said we would focus on accelerating growth, paying down debt and improving our return on invested capital and we are doing all 3. The fourth quarter marked the milestone with each franchise returning to growth and we expect this momentum to accelerate in fiscal 2015. With that, I'll now turn the call over to Bob..

Thank you, Steve. I am pleased to speak to our fourth quarter financial results and then I will provide more detail on our guidance for the full year and first quarter of fiscal '15. Unless otherwise noted, all of my commentary regarding changes will be on a year-over-year non-GAAP basis.

Before getting into the divisional results, I'll first remind investors that during our fourth quarter, we entered into an amended license agreement with Roka Bioscience and we received $20 million in cash and stock. This was recorded as revenue within our Diagnostics segment and it resulted in an incremental $0.05 in EPS in the quarter.

All of my commentary on the fourth quarter will be based on our underlying business results and then, therefore, will be net of this onetime benefit. Fourth quarter revenues were $640 million, up 3% on a reported basis and up 2.8% operationally or on a constant currency basis as compared to $622 million in the prior year.

These results were at the high end of our guidance range of $630 million to $640 million. Again, this excludes the onetime $20 million revenue contribution. As Steve mentioned, we are pleased to report that all 4 divisions reported growth in the quarter. And looking at the divisional results.

Excluding the onetime $20 million revenue benefit, our Diagnostics business posted revenues of $297 million, up a reported 2.4% and up 2.3% operationally versus the prior year. Cytology and perinatal revenues declined 3% on a reported basis to $121 million. U.S. and international revenues declined 4% and 1%, respectively.

We continue to see domestic ThinPrep volume being pressured by interval expansion, but we are encouraged to see the improvements internationally as we began to refocus our sales efforts on key markets and improve our execution. Our molecular diagnostics business increased 3% to $117 million driven by the U.S. results.

Our core Aptima franchise experienced healthy growth primarily due to the continued uptake at Quest, the broader adoption of Aptima HPV, as well as gains in the CT/GC and Trichomonas. Partially offsetting this growth was a decline in instrument sales as we sold $9 million worth of TIGRIS systems to Quest in the fourth quarter of last year.

Our blood screening business had revenues of $59 million and increased 14% driven by international growth, primarily due to the Japanese Red Cross deal, partially offsetting by the declines in the U.S. From an instrument standpoint, we had another strong quarter with Panther as customers continue to see the benefits of our superior automation.

Our installed base increased approximately 80% in fiscal '14 and we are on track to place 1,000 instruments globally by the end of fiscal '15. Now moving on to Breast Health. Revenues in this division were $241 million, up a reported 3.1% and up 3% operationally.

This was driven primarily by strong global 3D mammography system sales and service revenue. Partially offsetting this increase was the anticipated decline of 2D system sales as customers shift to 3D.

In addition, as Steve mentioned, we ended the quarter with a strong order backlog and feel very good about the continued growth in this division, especially with the reimbursement news. Turning to GYN Surgical franchise. Revenues were $78 million, up a reported 2.3% and up 2.1% operationally.

This was the second consecutive quarter of growth, a trend we expect to continue. This performance was led by double-digit MyoSure and single-digit international NovaSure growth, offset by a mid-single digit decline in U.S. NovaSure sales. And finally, our Skeletal Health revenues were $23 million, up a reported 10.4% and up 10.3% operationally.

We are seeing nice traction in sales of our new Horizon platform. Now moving on to our fourth quarter performance for the rest of the P&L. Gross margins were 63.6%, up 210 basis points from last year, slightly higher than our implied guidance for the quarter, driven primarily by favorable product revenue mix.

Operating expenses were $199 million, representing a 14% increase and in line with our guidance. We finished the quarter with EPS of $0.38, exceeding the high end of our guidance by $0.01.

Before turning to the balance sheet, I would like to share that we successfully closed the sale of our MRI breast coils product line to Philips at the end of fourth quarter. While I'm not going to provide the details on the transaction, the product line did generate revenues of approximately $20 million on an annualized basis.

This is an example of a product line divestiture that will help us focus resources on more strategic and core areas of the company. This divestiture did not impact our fourth quarter non-GAAP results. Now turning to the balance sheet.

We continue to generate strong cash flows as operating cash flow was $132 million for the quarter and $508 million for the year. In addition, we made $595 million worth of principal payments in fiscal '14 and ended the year with $742 million in cash.

This resulted in $3.5 billion of net debt, down from $4 billion in net debt at the beginning of the year. We improved our return on invested capital and ended the year at 9.3% versus 8.3% last year. And finally, we did not repurchase any shares during the fourth quarter.

I will now discuss our non-GAAP guidance which, as a reminder, is detailed in our supplementary PowerPoint presentation. Fiscal '15 growth rates are on a year-over-year basis and do not include the onetime revenue benefit of $20 million recorded in the fourth quarter of 2014.

I also encourage you to model to the midpoint of the guidance ranges, which is how we think about the outlook. Our guidance will first be based on an operational basis, which excludes the impact of foreign currency. We believe this provides better insight into the performance of the business.

We will also provide estimates of our revenue and EPS with the impact that current exchange rates are expected to have on the translation of those results. For fiscal '15, we expect revenues to increase approximately 2% to 3.5% on an operational or constant currency basis.

To put that in perspective, when adjusting for the MRI breast coils divestiture, the growth rate would be approximately 3% to 4.5%, clearly, accelerated organic growth versus our performance in 2014.

To help frame in the impact of currency, if full year fiscal '15 exchange rates were similar -- were to remain similar to the current exchange rates as of last week, our growth rate would decrease approximately 100 basis points.

This would result in reported revenue growth of approximately 1% to 2.5% or revenues between $2.54 billion and $2.57 billion, which is what we suggest you use in your models.

We expect continuing momentum coming out of fiscal '14 and our guidance assumes that all 4 segments will grow operationally in fiscal '15, led by mid-single-digit growth in our Breast Health franchise. This is despite the approximately 2-point headwind associated with the MRI divestiture.

We also expect slightly positive growth in our Diagnostics business, low single-digit growth in surgical and mid-single digit growth in our skeletal franchise.

To further help you with your modeling, we expect gross margins to remain relatively consistent with full year fiscal '14 actuals, leverage in operating expenses as a percent of sales, net interest expense of $175 million, 286 million diluted shares and a 34.75% tax rate.

As a result, for fiscal '15, we expect EPS to increase to a range of $1.50 to $1.54, representing approximately 3% to 5.5% growth on a reported basis. We expect to achieve this growth despite the expectation of a negative foreign exchange impact of approximately $0.03 as our manufacturing footprint is predominantly U.S.-based.

Our EPS guidance translates to reported net income growth of 5% to 8% after stripping out the impact of share dilution. Lastly, we expect to generate operating cash flows in the range of $510 million to $525 million and capital expenditures to be in the range of $75 million to $85 million.

I hope you find this additional color helpful and again, I encourage you to focus your modeling on the midpoint of our ranges. Now moving on to guidance for the first quarter of fiscal '15. We expect revenues to increase between 3% and 4.5% on an operational and constant currency basis.

We estimate that foreign currency translation will decrease revenues by approximately 100 basis points resulting in reported revenue growth of 2% to 3.5%. We are, therefore, introducing guidance of $625 million to $635 million. We also expect EPS of $0.35 to $0.36, representing growth of 3% to 6% on a reported basis.

Finally, I would like to wrap up by reiterating that deleveraging remains one of our top priorities and return on invested capital remains an important performance metrics for driving shareholder value and as such, this continues to be a significant component of executive compensation.

While our performance is improving, we believe we can do better and we will be -- remain focused on helping the organization improve ROIC over time. With that, I will turn the call back over to Steve..

Great. Before we take questions, I'd like to summarize by reiterating that while we are encouraged by the improved results we saw in fiscal 2014, we still have a lot of work to do. To that end, we would like to remind every one of our commitments going into fiscal 2015.

One, we expect to drive accelerated annual revenue income growth across all of our franchisees. Two, we will continue to invest in our global infrastructure with the main focus on our customer-facing teams, getting the right people in the right roles and improving our R&D productivity.

And three, we are committed to paying down debt and generating strong cash flows. In closing, we feel good about the progress to date, feel even better about our future and you can count on us to deliver on our commitments. With that, operator, please open the call up to questions..

[Operator Instructions] We will go first to Vijay Kumar with Evercore ISI..

So just quickly, I guess, on the guidance. I just want to make sure that the guidance excludes the $20 million of divestitures. And how do you sort of handicap the recent CMS reimbursement on 3D tomo? And I guess, I'm trying to get down from the top line to the bottom line, the EPS guide looks a little weak, so any color would be helpful..

Sure. Vijay, why don't I start it and Bob can jump in. So just to clarify, the divestitures are gone. So we took -- basically, the Roka stuff was a 2014 event. So we haven't counted that in either. On 2015, we had about $20 million of MRI business.

That's normally part of Breast Health that would've been in there, that we haven't pulled it out as a separate item. But so we're basically just going to be going against that.

So it depresses a little bit of that growth rate and probably looks a little funny to the models because, trust me, we feel really good about where the Breast Health business is going, particularly to your point on the reimbursement. And I think the way we look at the reimbursement right now is it's a little early to get too far ahead of ourselves.

And I'll give a macro comment. Right now, at this point in time, is we're making great progress. It'd be really easy to be celebrating and getting a little bit ahead of ourselves. And I think from a guidance standpoint, we want to continue to be sensible and let each quarter continue to play out and let us put the points on the board.

But don’t mistake that for lack of confidence in terms of where we're headed. Particularly with the reimbursement part, it gives us a lot of excitement for where that business ought to be going in the coming year.

Bob, I don’t know if you want to add anything?.

No, I think just quickly regarding the guidance. As we were looking through our numbers in the models, because our manufacturing footprint is predominantly U.S.-based, the exchange rate and the translation of those exchanges hit the top line, but they don’t hit our cost base.

And so what you see is that $0.03, which is probably a little greater than what you would look at as our average overall company when you're trying to do the margin. So that's where we get there -- why we got to the numbers that we have.

What I would say is when we're looking at our operating margins from a gross margin perspective, we're looking at those relatively consistently flat, so we're going to look at levers to offset those downsides and then also looking at operating expenses and leveraging those, not at the expense of future growth.

So we continue to build or forecasting continued investments in our R&D areas and, to a certain extent, our sales and marketing organizations. It's primarily around the back office functions where we're looking to streamline..

We will go next to Tycho Peterson with JPMorgan..

And maybe just kind of a follow-on on that last topic.

Can you maybe, Steve, just touch on some of the operational priorities for '15? You talked about some of management changes you made this past year, but maybe just talk about where you are in the process of evaluating manufacturing footprint? When could we start to see some tax rate leverages? Is that more of a '16 event? And just maybe some of the other operational initiatives that are going to be unfolding over the coming year?.

Sure, Tycho. The simple things in terms of focal points for 2015 are driving the heck out of our U.S. mammo business. And we feel really good about both the way orders finished up for the year and where we ought to be going on that business this year.

Really getting our international business, turning that from promise and hope into the early stages of very clear reality. So I think you'll that.

And the third one that really goes across all of our businesses, is really just improving our -- I hate to use the term commercial excellence, but it did -- does come down to that in terms of our selling, our marketing, our customer service through the whole gamut.

And I think that level of operational excellence is going to be driving that improved growth rate as we go into 2015. In terms of both manufacturing strategy and tax, I think there, you've got to assume that's going to be more a '16 event.

We clearly are -- to Bob's point, we're getting hit bigger as on the FX piece, with the dollar strengthening and virtually all of our manufacturing in the U.S. at this stage, it underscores that need to be looking at a more global manufacturing footprint over time.

But we're being -- we've had a lot on our plate in the early stages here just to get sales and the basics going again. That will be the area that manufacturing and tax, that will really start to drive in the future years. So I kind of keep thinking about it.

Current, call it, '15, '16, as far about short-term execution with what we have and call it, somewhere in the '16 and really '17 and beyond, is realizing more of those longer-term benefits..

And we will go next to Rich Newitter with Leerink Partners..

Steve, I just -- I'm jumping between calls. I apologize if this is a repeat, but what -- can you just remind us in the Breast Health, what is baked in with respect to the MRI divestiture? You said that your guidance -- it takes out the $20 million, correct? So it would be $20 million higher.

And then also what about with respect to the exceptionally strong order growth that you referenced on the call? How much of that is factored into the 2015 growth outlook?.

Yes, let's take the first part. So the -- basically, this year, we did $20 million of revenue on MRI coils. That's in our base for '14 that will evaporate in '15. So effectively, what you're looking at is the growth rate for next year is depressed by not having that $20 million in the numbers. So said differently, mid-single digit.

We're basically -- we're giving up 2 points of growth in the comparison. The additional part in terms of the exceptional orders growth, just, say, they were very, very good when -- certainly, in our 10-K, they'll be out there, but we saw real strong growth, much of which was in the Breast Health area. So it gives us great confidence coming into 2015..

Yes, just to add on to that, Steve. If you looked at our performance on a year-to-date basis in '14 versus where we're projecting '15, it's clearly an acceleration on our Breast Health business.

So year-to-date, on an operational basis, approximately 4% we're saying mid-single digits for '15, that included -- that incorporates this $20 million headwind associated with the MRI divestiture. So if we didn't have that, that mid-single digits would be up by another 2 points..

We'll go next to David Lewis with Morgan Stanley..

This is actually Scott Wang in for David.

Steve, can you discuss your outlook on the 3D tomography business and what it contributed to growth this quarter, what you expect for the trajectory going forward? And whether the acceleration in tomo adoption and conversion will be a little different from the adoption curve for 2D, given the existing installed base out there?.

Yes, I think we feel great about where it's going to go. And in '15, it will clearly be accelerating versus the full year of '14. So in '14, as Bob just mentioned, we posted 4% growth. We clearly see that accelerating even with a couple of points of headwind from the divestiture to the MRI coil. So we see it definitely accelerating.

Relative to your question about 2D versus the original 2D adoption, probably not quite the same curve. It's a different marketplace today. Capital constraints are different. So you've got -- basically, you've got a stronger installed base and you also have still much greater scrutiny on capital purchases within the hospital environment.

So we continue to see this playing out over quarters and quarters. And dare I say, over the coming quarters, really, over the next couple of years, it's part of what makes us feel great about where we're headed here, not just for a 1- or 2-quarter pop, but really a much more sustainable driver over a bunch of quarters coming forward..

And we will go next to Isaac Ro with Goldman Sachs..

I wanted to ask question on Diagnostics. You've obviously done well there at the past year, winning some major contracts in molecular and -- as well as screening -- blood screening, rather. But one thing I did notice is that the competitive landscape in HPV is changing pretty quickly here and some of your competitors are going after screening labels.

Either they have them already or they're going after them for the future.

So number one, do you think you guys need to get a screening label to kind of keep the momentum you have? And if so, how should we think about the OpEx impact there, which is on the R&D line?.

Sure. I'd say, more than anything, we feel really good about how our HPV business is performing. And I think it's pretty clear that we're growing significantly faster than the market. It's a key franchise for us and we're very focused.

Whether we exactly need that label, we're always looking at what is the right labeling and what we need to go forth, but we think between both our existing franchise, we feel like we're in very good shape..

We will go next to Bill Quirk with Piper Jaffray..

A question for me. Very limited sequential slippage in the cytology and perinatal business. So how close do we think we are to kind of seeing the end of the impact of the screening interval extension? And then on blood screening, just curious, you highlighted that as a potential growth avenue down the road.

Just curious how much potentially you see here in the hepatitis E asset that Grifols has in Europe right now?.

Sure. Let me start with the cytology piece. We want to be very careful not to be out in front of declaring a bottom on the interval expansion. I'd say we're getting cautiously optimistic in terms of some of the slowdown in the growth rate.

But until we've proven it, if you know anything about kind of myself and Bob's style, it's going to be let us prove things instead of going out and proclaiming them and we'd rather let the aftereffects really speak for themselves. So I think we feel good about that.

And on the blood screening business, I think we feel really good about being partnered with Grifols outside the U.S. and certainly, what they're working on as well..

And we will go next to Mike Matson with Needham & Company..

I guess, I just wanted to ask about the GE system, their 3D system.

What are you seeing, from a competitive standpoint, pricing-wise? And just how are they positioning against your system?.

Sure. We, frankly, really like the competitive advantage we still feel we have. So at the end of the day, they got -- as you know, they got a noninferiority claim. Theirs takes longer to administer. And the way they're obviously going to try to play to this, they're a great marketing force, you know that well.

They're certainly going to try to bundle and get their GE houses. I think we feel really good about our installed base.

We feel good that we're still, certainly in the recent quarter, still getting a number of competitive wins coming over and I think where it goes first is largely to their installed base and that will be still a formidable force for us. But I think we feel really good about the differentiation that we have..

And we will go next to Anthony Petrone with Jefferies..

Bob, maybe just a quick housekeeping one. On the EPS impact from the MRI divestiture and then a quick follow-up, for 2015 guidance..

Yes. So the EPS impact from the MRI divestiture is de minimis. It's really on the top line, where the biggest impact is. So it doesn't affect our guidance one way or another..

Great.

And then the follow-up?.

The region assay revenue stream on that system in particular, the menu is equivalent to a TIGRIS, so just kind of I would like to get an update on where that annual annuity stream is today and where maybe that can go by the end of '15?.

What was that? I'm sorry, there was a question that got partially cut off. We didn't hear all of that question..

Is that better now?.

Yes..

Okay, great. Just a quick question on Panther, an update there. If you can give us an update on where the annual revenue stream is in terms of reagents. The menu has expanded and is equivalent to TIGRIS at this point.

Just wondering where that stands today and maybe where it can go by the end of '15?.

Sure. We're more focused in terms of disclosing on Panther placements, which as Bob mentioned, very good, where basically we increased our Panther placements by about 80% in the year. So exiting the year very strong. We're not giving per revenue numbers for the actual instrument..

And we will go next to Doug Schenkel with Cowen and Company..

So the first one is on 3D, just a quick one, balancing incremental reimbursement with incremental competition. What assumption for 3D pricing is embedded into guidance? And then the second question is on Panther.

Any chance you would provide an update on the outlook for the virology program? If I remember correctly, I think the plan was to roll out some menu internationally in calendar '15 and that in the U.S. about a year later, these products are priced at pretty nice levels, but trials can be pretty expensive.

So any details you could provide on plans and timelines would be appreciated, especially given that I think this could have some initial margin pressure, but then again depending on how you're thinking about pricing and keeping in mind some of the pressures on the STD menu from a pricing standpoint, this could actually benefit you as we think about it a year or 2 out..

Sure, Doug. On the -- first, on the 3D mammo pricing, we want to be pretty disciplined and feel like we've got the best product on the market. And therefore, don't want to compete on price. So we're not assuming much erosion on the ASP at this point in time. On the virology piece.

You're dead right, which is the R&D programs to get these things approved are a lot of money and that's a lot of what we're spending right now without the benefits of what will come. We do hope by the end of calendar year '15, which really gets into our fiscal '16, to be able to have the beginning of launches in Europe.

And then to your point, probably at least a year behind that as it relates to the U.S. So right now, we're making the investments in the virology program. The paybacks, which really are at least 12 months out at this point or the beginnings of those paybacks at least..

Yes, just to follow up on that. Some of the guidance that we talked about for the first quarter incorporates some heavier R&D spend because of the timing of those development programs in the viral load area..

We'll go next to Brian Weinstein with William Blair..

Can you talk specifically around that target that you had for 500 incremental placements for 3D? I didn't catch if you guys had commented specifically on that. And then with respect to divestitures, you made a small one, obviously, with the breast coils.

Should we look for potentially other things that you're considering small product line that might be sold over the next 12 months?.

Yes. So for the placement goal in the U.S. of 500 placements, we did exceed that. In fact, we placed 588 units for the year on 3D. So we feel very good about that and obviously, feel better about the future.

Regarding the MRI business, can you repeat the question?.

Do we have more plan like that? I think, at this point, we've largely done a lot of a cleanup.

And we do realize, it kind of makes the models and it makes things look a little muckier than, particularly, as you look at our true growth rate next year and we haven't wanted to restate everything just given the magnitude of it, but we ask you to be mindful of it..

And we'll go next to Jon Block with Stifel..

Maybe the first one, just specific to the P&L. The gross margin, I think you said expect sort of flattish year-over-year. And you had pretty good expansion this year, I think to the tune of roughly 100 basis points. Notably, you had a lot of momentum in the back part of the year.

Can you just talk to the dynamics of why that will be flat year-over-year and you wouldn't see any further expansion? And then I've just got a follow-up..

Yes, in simple terms, why don't I start it and then Bob can add. The simplest way to think about gross margin in 2015 is we have a heavy U.S. manufacturing base in the decline of the dollar. Clear -- or the strengthening of the dollar clearly puts more pressure on our gross margin piece.

The other piece is as we grow our business outside the U.S., we're often doing that through dealers that are in a lower gross margin piece. So we effectively we're going to offset those pressures by really improved manufacturing efficiencies. Bob, did you want to add....

No, that's exactly right..

Okay. Very helpful. And then, Steve, I feel a little bit silly asking you for additional color or guidance on the data you gave 2015. But you've done a great job, you turned the corner, you're sort of growing in and around mid-single digit when you normalize for MRI, netbacks, et cetera.

Just when you look out a little bit longer term, do you have the current portfolio to drive a further acceleration to high single digit? Or do you think you would need to go out and just have a few tuck-ins in order to accelerate them even further?.

Thanks, Jon. Probably to get to high single digits, I would say probably a few tuck-ins along the way. I do think we're making great progress. We said at the start of the year, the first thing we need to do is slow down the declines of our declining franchises and accelerate growth of those that will grow. And I think we're making good progress there.

Ultimately, if we can flatline a few of the declining ones and keep accelerating, can we get into at least mid -- at the high end of mid-single digits? I think organically, probably. To truly turn it into the high single digits may require a few tuck-ins along the way.

And again, make no mistake about it, we're not going to go back to the big acquisition stuff, but we will look for prudent acquisitions. The great flip side of the organization right now is, everybody feels, every sales member, feels we've got a great bag to sell right now and that is encouraging..

We'll go next to John Zecy with MorningStar..

Obviously, you've done really well with all the Panther placements and overall, molecular diagnostics performance.

I was hoping you could just maybe talk a bit about what you're hearing on the ground from the low to mid-volume labs? Maybe sort of how their longer-term economics are looking as we maybe progress toward maybe like a more of a bundled payment environment? Just trying to get a sense of how competitive they'll be towards some of their larger reference lab competitors?.

Sure. Right now, I'd say, we're probably overdeveloped in the larger labs and we're starting to look -- frankly, we see those as an opportunity. And probably I think they'll -- there will be some shakeouts, certainly, in that part of the lab space.

But it's still a very fragmented universe and we actually still see -- regardless of the pressures they feel, we see some opportunities for us, particularly with the Panther system..

Yes, I think to build on that point, Steve, as we think about molecular diagnostics going forward, we foresee continued volume increases, which will sit in the sweet spot of our Panther system. What those labs will have is the same pressures that some of the larger labs have that really our Panther and the benefits of our automation really play into.

So we think that over time, we'll be able to take that Panther and go downstream and we think that, that has -- we have a long runway there..

And we will go next to Vijay Kumar with Evercore ISI..

I just had one question on mammography. I guess, as I was thinking of modeling, right, why would any customers buy, I guess, 2D dimensional, right? You just have reimbursement for 3D tomo, that's up 57.

So I guess, as we're modeling, I mean, for those of us who have product models, like, how should we assume the 2D dimensional versus 3D dimensional?.

Yes, I think in the U.S, you ought to assume just about everybody would be going to 3D. We do see significant opportunities with our new Head of International, actually for 2D outside the U.S. We still have a lot of hospitals around the world that are still in the analog world and have not converted over to full-field digital mammography.

And in a lot of cases, I will tell you, a part of what we're trying to do is sell them 3D tomo and they're still in an analog world. So I think our team is realizing there's probably a great opportunity to stepwise them in and get demand on the 2D side. And then, by the way, have the annuity down the road, we can upgrade them to 3D in the future.

So I think the U.S. will be virtually, mostly 3D, but outside the U.S., there will probably some opportunities for 2D..

We have time for only one more question. We will go to Tycho Peterson with JPMorgan..

Just thinking ahead to RSNA, any color on what you might be highlighting? I think, last year, one of the things that you talked a little bit about was contrast mammography potentially replacing breast MRI.

And I'm wondering, thinking about the divestiture, if contrast mammography potentially helps you overcome some of the shortfall from the divestiture?.

Yes. I think the base focal point, candidly, is going to be on our Genius 3D Mammography. We've got such opportunity and such a differentiated product that I don't think we need to reach for other things. And frankly, don't have to do a lot of real marketing or dancing around the edges. I think it's hit them very straight with what we have, Tycho..

Thank you. That is all the time we have for questions today. This now concludes Hologic's Fourth Quarter Fiscal 2014 Earnings Call. Have a great evening..