Hologic, Inc.
Q2 2019 Earnings Call Transcript

Published: 1 May 2019

[Operator:]

Good afternoon, and welcome to the Hologic, Inc. Second Quarter Fiscal 2019 Earnings Conference Call. My name is Dory, I'm your operator for today's call. Today's conference call is being recorded. All lines have been placed on mute. I would now like to introduce Mike Watts, Vice President, Investor Relations and Corporate Communications, to begin the call.

[Mike Watts:]

Thank you, Dory. Good afternoon and thanks for joining us for Hologic’s second quarter fiscal 2019 earnings call.

[Steve MacMillan:]

Thank you Mike, and good afternoon, everyone. We’re pleased to discuss Hologic’s financial results for the second quarter of fiscal 2019. For the fourth consecutive quarter, we posted strong results overall, as total revenue of $818.4 million and non-GAAP earnings per share of $0.58, both finished ahead of our guidance ranges. Like in recent periods, growth was driven by our largest businesses, Breast Health and Molecular Diagnostics, and our international franchises continue to perform well. This quarter we also benefited from improved performance in our Surgical division. These strong revenue results continue the positive momentum that started to build in the second half of 2018, after we reorganized our leadership team earlier in the year. This momentum is based on some familiar strategies that we have discussed in the past. We continue to focus on accelerating growth by leveraging our core strengths and market-leading products, especially our large installed bases of Genius 3D mammography systems and Panther instruments, which in turn create tremendous recurring revenue streams. We are also increasing our penetration into international markets and broadening our product portfolios through both internal R&D and external business development. And we saw all these strategies pay off this quarter.

[Karleen Oberton:]

Thank you, Steve, and good afternoon, everyone. In my remarks today, I’m going to walk through the rest of the income statement, touch on a few other key financial metrics, and then finish up with our updated financial guidance for 2019, as well as the third quarter. Unless otherwise noted, my remarks will focus on non-GAAP results, and percentage changes will be on a year-over-year basis in constant currency. As Steve described, we are pleased with our second quarter results, as revenue of $818.4 million and EPS of $0.58 exceeded our guidance. We benefited from strong performances by our largest businesses, Breast Health and Molecular Diagnostics, as well as improved results in our Surgical division. And our international franchises continued to grow solidly. Our overall performance has been very solid through the first half of our fiscal year, and we are again raising our financial guidance as a result. Although 90% of our business is doing well, our Medical Aesthetics business continues to lag, as everyone knows. As Steve said, we did see some positive signs in the quarter, but as we kicked off our annual strategic planning process, it became clear that from an accounting perspective, we needed to lower the carrying value of our intangible assets and equipment associated with key products like SculpSure, MonaLisa Touch and TempSure Vitalia. As a result, we booked a significant GAAP write-down of $443.8 million this quarter, which hit COGS primarily but also other operating expenses. This action, which is non-cash, is in addition to the write-down we recorded a year ago, which related to goodwill and in-process R&D. So, while this write-down is disappointing, I want to emphasize that it primarily reflects negative trends that we have previously discussed, and which we expect to improve based on the strategies we have in place.

[Operator:]

Thank you. We will take our first question from Tycho Peterson with JP Morgan. Please go ahead, sir.

[Tycho Peterson:]

Hey, thanks. I'll start with Breast Health, Steve, obviously putting up good numbers there. Can you maybe talk about the replacement cycle? How much is the legacy installed 3D base you're starting to upgrade with 3Dimensions in 3D Performance. And then, Faxitron and Focal are obviously adding a lot, how much cross-selling and bundling are you doing there too?

[Steve MacMillan:]

In terms of the existing base versus the new, the vast majority of our revenue is still coming from selling new 3Ds to both competitive customers, as well as upgrading our existing 3Ds. I think, as we mentioned, we still got, 3,000 to 6,000 installed 2Ds left in the U.S. So, we’ve still got years worth of replacements. and that's still the primary driver of our Breast Health business, which makes us feel so good about the sustainability, while we're starting to get certainly some of the grades, but they clearly are much smaller percentages of total on the upgrades. As it relates to Faxitron and Focal, it's been very nice and that we've been able to merge the sales forces, put them together and off to a very nice start as we really start to sell the breast conserving surgery line, as well as a couple of our own legacy products that are in there. And, I would say, we're still deep down in the earlier stages. This was really the first quarter that the combined selling organizations were on the street together. And we feel really good about the initial starts there.

[Tycho Peterson:]

And then, one follow-up on guidance. So, you do have a new competitor for NovaSure . Just curious how you think about competitive positioning, and if you've seen any kind of impact at this point.

[Steve MacMillan:]

We are always mindful of new competitors coming into the space. Having said that, at this point, NovaSure has been safely and effectively used in 3 million patients at this point, and has a very strong, proven history and loyal base. We're out there telling that story every day. We've not yet seen any real impact from commercialization of anything. We certainly would expect some over time. But frankly, we feel really good about particularly the total efficacy of our product relative to any comers.

[Operator:]

And we will take our next question from Dan Leonard with Deutsche Bank. Please go ahead, sir.

[Dan Leonard:]

Thank you. So, I want to ask a couple on the molecular business. First, Steve, can you confirm that any price adjustments with large customers were in the numbers for the full quarter? And any color you can give on maybe how pricing and volume dynamics contributed to that double-digit growth rate you reported in molecular?

[Steve MacMillan:]

Sure, Dan. As we had said, we did finalize those contracts last year, virtually all of any of the pricing changes were in the quarter. So, this is, I want to say, quite a new run rate, but from a pricing standpoint, basically reflected in there. And I think what we feel really good, I know there was so much concern last summer with PAMA and with the renegotiations and everything else. We feel great about the relationships we've got with our largest customers. We are driving volume is really the big driver. And we ended up with pricing that really makes sense for both our customers, but particularly for us and feeling particularly on the molecular side very good about the runway ahead.

[Dan Leonard:]

And then, it's interesting that you’re flagging your legacy women's health assays as the big contributor here. Can you update us on how fast do you think that category is growing in the market? And how much faster are you growing compared to the category to your share gain?

[Steve MacMillan:]

Sure. I don't think we have great data on the full category. But, we think it continues to grow part of our whole messaging. And it's what's helped us so much, frankly, with our largest customers is our physician sales force that continues to help educate the physicians and particularly our Yes Means Test campaign of trying to make sure that younger sexually active women are getting tested, we do think continues to drive the overall category. So, this is one of these categories we looked at a few years ago and thought maybe not much growth left, but realizing that actually the true incidence of testing is, while we don't have a great feel, is clearly less than what should be done. And so, we've been really helping to drive that category. And I think as the predominant share player, probably actually still growing faster than the category itself. And, Mike?

[Mike Watts:]

Yes, Dan, it’s Mike. I might just add one thing. And obviously, those tests are all not alike, right? So, a like trichomonas is still fairly underpenetrated. Obviously, the growth rates there would be much higher than for the base chlamydia/gonorrhea business. And we would expect the same thing to happen with the new test like MGen over time as well.

[Operator:]

And we'll be taking our next question from Doug Schenkel with Cowen. Please go ahead, sir.

[Chris Lin:]

Hey, this is Chris on for Doug today. Thanks for taking my question. I just want to follow-up on the previous question. I know you don't to be too granular with molecular diagnostics performance, but could you just help us assess sustainability or the double-digit growth rate for the segment? I mean, you have introduced a number of assays and you're still pretty early with the viral load opportunity. So, is it right to think that molecular diagnostics could at least grow double digits for the balance of the year?

[Steve MacMillan:]

We would not guide to double-digit for the rest of the year. We did mention we had an easier comp. I think we had a very good first quarter, we had an easier comp this quarter. I think, we feel very good about strong sustainable rates but would not model for sustained double-digit. I think outside the U.S., yes; inside the U.S., I’d probably be modeling more mid to maybe slightly higher single-digit growth. But, I think we’d like the overall trajectory.

[Chris Lin:]

Okay. And then, for the follow-up question, could you just help us dissect the gross and operating margin performance, a bit more detail? I appreciate the commentary on some of the onetime charges but even if we back out those costs, margins would have been a bit below Street expectation, despite the strong revenue contribution from the high-margin businesses of Molecular Diagnostics and Cytology. So, I’m just curios what are those some of the other headwinds for margins.

[Karleen Oberton:]

Hi. This is Karleen. So, let me take a stab at that. I think beyond the onetime items, we clearly had higher blood screening revenue than we anticipated. And to remind everyone, there’s virtually no gross margin on that revenue. Coupled with some of the products mix that we had in the quarter, specifically in the Cynosure business, contributed to the margin headwind.

[Operator:]

We will be taking our next question from Vijay Kumar with Evercore. Please go ahead.

[Vijay Kumar:]

Maybe a couple on guidance here. Just, Karleen, on the gross margins here, the one timers as you called, what is the visibility that you have in gross margin stepping up? When you talk gross margins improving in the back half, is this all gross margin driven, and I guess the implications that the revenue mix in the back half it should be similar to what we saw in 2Q?

[Karleen Oberton:]

Yes. So, I think what gives us confidence in the back half is that we don’t pursue those onetime items again and again. Majority of those related to the Cynosure business and some of the integration activities that are now substantially complete for the international locations. I think when we look at the back half of the year, our normal cadence is that revenues increase as well as volumes increase which are going to drive favorable absorption just as well as overall larger gross margin dollars. From a planning perspective, the teams have cost reduction efforts that kind of kick off at the beginning of the fiscal year and start to really contribute as we get to the back of to the year.

[Vijay Kumar:]

And then, one follow-up on the guidance here. You beat EPS by same. You look at the tax rate lower, it almost looks like most of the guidance range came from the lowering of tax rate. I’m just curious, is there anything happening below the line in the back half on the FX hedges and how should we be thinking of some of those items?

[Karleen Oberton:]

Yes. I don’t think there is anything unusual in the bank half below the line that we’ve anticipated in the guidance. I think, as we think about the guidance, yes, there is definitely beat in the quarter, there is some benefit from lower tax rate. But we'd really like to -- what we also want to do is allow the R&D teams to invest some more in the back half to accelerate some projects.

[Vijay Kumar:]

FX hedges should be gained in the back half?

[Karleen Oberton:]

In theory, yes.

[Operator:]

We will be taking our next question from Jack Meehan with Barclays. Please go ahead, sir.

[Jack Meehan:]

I was hoping on the GYN Surgical business. Could you break out the contributions from NovaSure and MyoSure? And Steve, I was curious, just given the growth rates for MyoSure, how much runway you think there is left to drive adoption to get up to the NovaSure level?

[Karleen Oberton:]

So, let me start off with the contribution. So, on a worldwide basis, total Surgical division was about $102 million with a little over 40% of that comes from NovaSure and the balance from MyoSure.

[Steve MacMillan:]

So, to pick up on it, MyoSure has become the bigger part, and it's defied our expectations for a long time, and seems to continue to grow. We still see opportunities, frankly, to grow the overall category, and continue to feel good as that being a major driver for Surgical, particularly as the U.S. sales force has gotten back up to speed and in a strong place today.

[Mike Watts:]

Yes. I think, Jack, in the prepared remarks we mentioned that MyoSure in aggregate grew very low-double-digits in the quarter and NovaSure was consistent with recent quarters, it didn't go down as much kind of in that low to mid-single-digit decline range. And Dory, for you. It’s fine to allow folks to ask one follow-up question to. So, Jack, if you have a follow-up, go ahead.

[Steve MacMillan:]

Got to be related, though, Jack. Got to be related.

[Jack Meehan:]

Well, maybe on the NovaSure point then. I’d just be curious, as you look at the back half and then the 2020, do you think that this can get back to growth or are you thinking that kind of stabilization is the right way to be thinking about this business for you?

[Steve MacMillan:]

I think stabilization is probably about the best we can do just given how penetrated we are in a category that's probably not really going -- growing and may have some competitors emerge. So, I think, we continue to keep that flat as probably a pretty good performance.

[Operator:]

And we will be taking our next question from Bill Quirk with Piper Jaffray. Please go ahead, sir.

[Bill Quirk:]

So first question is going back to the molecular franchise. And I was hoping, Steve, maybe get a little color on -- helping us think about the incremental growth. How much of this is kind of new accounts versus existing accounts adding some of the new menu that you’ve had approved? And then, as a related question, a couple of your large customers were just added to the UnitedHealth Preferred Lab Network, and would be curious about how you're thinking about that incrementally driving some performance here over the next couple years?

[Steve MacMillan:]

Sure. I think, we don't have the exact breakout as to new customers versus existing because sometimes as they consolidate and things like that. I'd say that the simple way to think about it is, we are getting more business with our existing customers. We're clearly seeing frankly some nice increases with our two largest customers. We continue also to place Panthers across the network. And so we see ongoing growth there. But, I think it's particularly we feel really good about our position with the two biggest customers. And especially to your point, as they pick up a little more business in the quarters and years ahead with United Health and some of their various contracts, we like our position with them and think that's going to continue to help drive some good strength. Anything else, Bill?

[Bill Quirk:]

Oh, sure, absolutely. So, a related follow-up question to the total business that is. Just help us think little bit about, I guess, one, sustainability of OUS Breast Health? And then, secondly, could you just revisit the topic of kind of how 3D adoption is going, specifically in Europe? Thanks.

[Steve MacMillan:]

That was a clever related that you worked -- one follow-up related into two different ones. Good Job, Bill. So, I'm sorry, the sustainability of Breast Health...

[Karleen Oberton:]

Yes. I think, first was the international sustainability. And I think, we feel really good about that. I think there's a lot of runway. It’s early days on the overall conversion to 3D there internationally, coupled with still opportunities to go direct in key markets.

[Operator:]

And we will be taking our next question from Dan Brennan with UBS. Please go ahead, sir.

[Dan Brennan:]

Great, thank you. Thanks for taking the questions. Steve, I wanted to ask you a question. Given the growing signs of success of your strategy in imaging via more expanded product sets to meet the needs of the different sized customers, what's the realistic runway you think as we look out for that U.S. breast imaging business, now that you’ve potentially mitigated some of the more cyclicality inherent in that business?

[Steve MacMillan:]

Yes. I think, Dan, overall, we always want to be too careful to get too far ahead of ourselves in terms of longer term outlooks. I think, if you look at the pure mammography business in the U.S., it's probably not grown all that much. The number of gantries is going to be relatively flat probably five years from now as it is today. So, as we had seen that all along, we thought, okay, it's all about broadening the portfolio, figuring out other ways to bring value to it. So, I’d probably still think about it as a low to mid single digit kind of business. And I think our ability to take share and find new avenues above that are what can take us to outperform what is probably much more of a lower single digit market. And obviously we’re very focused on outperforming it.

[Dan Brennan:]

Great. Thank you for that, Steve. And then, maybe this is correlated. So, basically, you made the mention in the prepared remarks regarding the dense breast proposals out of the FDA. I'm just wondering, to the extent those get implemented, could you help us think about giving your superior label there? And this is the question we've gotten numerous times to investors like, how should we think about the opportunity for you to kind of market that and how that would translate into and impact on the business? Thanks.

[Steve MacMillan:]

Sure. This could sound flippant, but I’d basically consider anybody that would use anybody other than our system would be malpractice. But having said that, I think what it does is, you guys know the market shares, which we don't talk about a lot, but we're by far the dominant player in the space, particularly in the U.S. And I think our ability to continue to keep growing our market share off a very high levels, should continue to be there, given the dense breast indication that we have.

[Operator:]

And our next question will be coming from David Lewis with Morgan Stanley. Please go ahead, sir.

[David Lewis:]

Steve, maybe start with you for a second on investments and work maybe one follow-up. Just quickly on investments, Steve, just as you think about capital deployment, at this point with the Aesthetics business. Is there any consideration now with the write-down that you look to divest that business or sell that business? And related to that is, right now as you think about the balance sheet, what is your interest in deploying capital for M&A and sort of where do you think the key strategic areas are for the business?

[Steve MacMillan:]

Sure, David. We continue to manage the Company for the long haul. And obviously not every decision we’ve made has been perfect. But we continue to strengthen the business. And frankly, we are excited about some of what we have going on, even in Medical Aesthetics right now. So, we have some great sales people, Brooke Shields joining on as a partner, we feel really good about that. Having said that the broader piece of capital deployment, I think as you’re really seeing, really focused more on a lot of our core businesses and particularly the biggest divisions. So, the two that we’ve done in Breast Health, we feel great about. And I think we really are to a stage that we weren’t a few years ago, which is truly just tuck-ins. And so, the broader capital deployment that can refine good tuck-ins that fit our existing businesses, no need to open additional legs, invest in the businesses that are delivering and executing, and from that also continuing to do with cash left over, both ongoing share repurchases, debt paydown and being very prudent at this point in time with our capital. Karleen, do you want to add anything to that.

[Karleen Oberton:]

Yes. No, I would just say, clearly, we view M&A as a priority from a tuck-in perspective, but the teams are bring really critical at the targets we evaluate here. But there’s an activity that’s ongoing.

[David Lewis:]

Just a quick follow-up, Steve. This is a very balanced quarter relative to last quarter, we saw very significant Breast growth, Breast growth still above market this quarter. Last quarter, you gave us a lot of color in terms of gantry outlook and the pipeline and the transition to that pipeline. So, can you just update on sort of where -- how you feel about the gantry backlog kind of mid part of the year? That’d be very helpful. Thank you.

[Steve MacMillan:]

Sure. We continue to feel very good about the backlog and the ongoing order rates that we track obviously on a very regular basis, but feel good about the ongoing orders growth in the gantry business.

[Operator:]

And we will take our next question from Brian Weinstein with William Blair. Please go ahead sir.

[Brian Weinstein:]

Steve, on the breastsoftware upgrades that I recognize it’s early, but can you talk to us a little bit about what you're seeing there and what this potentially could become for you, longer term? I think, in the past you’ve given us some revenue numbers in the quarter, and any thought on that would be welcome as well.

[Steve MacMillan:]

Sure. We’re still in the early stages of starting to upgrade our existing 3Ds, but between Clarity HD, Intelligent -- the Intelligent software and the SmartCurve paddles. So, they are relatively small but starting to be somewhat meaningful within that division, but still very early stages. And I think it provides just long-term runway. So, it’s -- I would say the way we're thinking about it day-to-day, Brian, the organization is very focused on continuing to convert 2Ds to 3Ds, but also going back and circling and seeing the opportunities, clearly things like the SmartCurve paddle, and the Clarity HD, very nice add-ons to our existing business and a lot of runway ahead.

[Brian Weinstein:]

On the follow-up there, when we think about OUS, can you just give us a little bit more color on specific countries and areas where you’ve seen particular strength? And Karleen, your comment about opportunities to go direct in key markets, can you expand on that and the likelihood that we would see something there at some point this year?

[Karleen Oberton:]

So, I don’t think we’re going to be specific, countries that we’re looking to go direct, but just that there are opportunities that we're considering in certain of our key markets as not all distributors are actionable either. So, weighing all the characters of the targets.

[Steve MacMillan:]

Yes. I think, Brian, we do feel good about obviously over the last 5, 6, 7 years, even we’d gone direct in the UK before. I arrived and we’ve obviously done great acquisitions in Germany, in Portugal and Spain. So, we’re now directing three of the biggest countries, certainly in Europe and continuing to look at how to strengthen our capabilities there, and also doing well in the countries where we’ve now converted from dealer to direct. So, like the foundation of the building over there.

[Karleen Oberton:]

I’d just also add Brian just from an international perspective in the Breast Health, that we talked to just a lot about Europe, but obviously Asia Pacific, there’s a lot of got good momentum and opportunity there moving forward.

[Operator:]

And we will take our next question from Anthony Petrone with Jefferies. Please go ahead, sir.

[Anthony Petrone:]

The first question I’ll have is on Breast Health and then I’ll shift to GYN Surgical in diagnostics the first question. My question there is on OUS molecular, the number jumps off the page, 22% growth, and I think it comes with the clearance from a competitor. I think Abbott announced CE mark clearance for Alinity in certain essays. So, just kind of trying to get a sense of the sustainability of OUS molecular just given the competitive landscape and a follow-up will be on surgical. Thanks.

[Steve MacMillan:]

Sure. I think, we continue to feel really good about our OUS molecular business. The growth rate is 11 out of 12 quarters in a row, we had double-digit growth rates. And we’re still relatively underdeveloped. So, even though there are competitors out there, we’re still in our earlier stages of growth. So, it’s still a relatively smaller business for us. And yes, there is competitors there but I think we feel pretty good about our ability to continue to grow at certainly healthy rates.

[Karleen Oberton:]

Yes. And I would just add that in key countries we don’t have the full menu approved that we have here in the U.S. So, we have focused strategies on trying to get the menus expanded in key countries that will drive higher utilization. So, a lot of good stuff there as well.

[Anthony Petrone:]

And a quick follow-up in surgical would just be the litigation front there and endometrial ablation and gave us an update a few weeks ago. Does that have an impact going forward, or is it more just similar competitive dynamics we should see over the next 12 months, two years? Thanks.

[Mike Watts:]

Yes. Anthony, it’s Mike. I think, the competitive dynamics there are very stable. We believe we are maintaining share and in some cases, winning customers back, which I think is a testament to the work that's going on in the field. And, obviously, don't want to get too much into an open legal process, but the normal, kind of appeals and all that stuff continues to go on. And, we'll just give you an update when we have one.

[Operator:]

And we will take our next question from Richard Newitter with SVB Leerink. Please go ahead.

[JaimeMorgan:]

Hi. This is Jaime on for Rich. So, I wanted to ask a couple of questions on Medical Aesthetics. I guess, the first being, you guys are saying U.S. was in line, OUS was a little bit weaker driven by Asia. So, I was just wondering if you could talk a little bit more about the dynamics that you're seeing in that market that's impacting growth, and then I'll have a follow-up.

[Karleen Oberton:]

Yes. So, I think, given the international markets, I think, as I had mentioned, we are kind of ongoing and integrating into our leadership, our regional leadership structure. And so, as we make some of those changes, we've had some disruption on the cadence of sales there. I think as we integrate, we kind of looked at some policies and procedures and had some accounting adjustments that we made as well, but feel good over the longer term that as our leaders take control this business we’ll have nice cadence of growth.

[Jaime Morgan:]

Okay. And then, I guess, my follow-up would just be, are you seeing anything more within the competitive -- from a competitive perspective across some of the different units, specifically body? And kind of what is the expectation for the remainder of the year, given some of these new strategies that you talked about with Brooke Shields? And any other potential color that you can give around, strategies you are rolling out would be helpful. Thank you.

[Karleen Oberton:]

Yes. So, what I would say is that clearly, we've talked about we have seen competitive factors in the Medical Aesthetics business, specifically in the body sub-segment. Now, we are excited about the Brooke Shields campaign and what that will be able to do, but don't know how meaningful it will be, at this point. I think what I would focus on is what our key strategy is, in-license additional products, to put more in the bag of our sales team to create that cadence of new products, excitement for that sales team, what we think will contribute to turnaround in the U.S. business.

[Operator:]

And we will take our next question from Jon Block with Stifel. Please go ahead.

[Jon Block:]

Great. Thanks, guys. Good afternoon. I'll probably just go for a clarification and then a small question on Breast. So, Karleen, the onetime color was very helpful with gross margin. I just want to make sure, when you say higher and fiscal 2H, just to be clear, is that off the 61% non-GAAP or is that off this adjusted, call it 62? And then maybe, what are your thoughts longer term for gross margin? And then I’ll ask a quick follow-up?

[Karleen Oberton:]

Yes. So, I would say, it's off the adjusted 62, is what we expect in the back half. And I think, as we said, we're not giving longer term guidance. But, I think looking at gross margin in that low-60s is the right way to think about them.

[Jon Block:]

Okay. So, just as we think about an exit rate or a run rate, pay more attention to the fiscal 2H 2019 there.

[Karleen Oberton:]

Yes. I think there is some noise in the first half.

[Steve MacMillan:]

Yes.

[Jon Block:]

Okay. And then, Steve, I’ll pivot. I think, Medical Aesthetics has sort of been asked and answered for the most part. But just over to Brevera, can you just talk about the timing for supply to get back on track there? And then what are the actual plans itself? In other words, is that something you're going take in house from a manufacturing standpoint, or will you continue to outsource that? Thanks, guys.

[Steve MacMillan:]

Sure. Thanks, Jon. I think, we’re probably -- before we’re in really great shape on supply is probably well into next fiscal year because we do have a partner and we're obviously working with that partner right now to resolve the longer term piece. But, we're making some product enhancements to it to make it simpler to make and get beyond the short-term situations we’ve been in.

[Operator:]

And we will take our next question from Mark Massaro with Canaccord Genuity. Please go ahead.

[Mark Massaro:]

Given the dynamics in Medical Aesthetics, should we be thinking about pro forma run rate in the negative double digits or do you think that’s the initiative with Brookfield can potentially move you up into the right?

[Karleen Oberton:]

So, I think as we think about when started the fiscal year we thought this would be a low single grower. I think that’s based on the performance in the last two quarter, as we think about fiscal ‘19, it’s probably low to mid single digit decliner. But, I think what we see is improvements in each quarter as we move through the year.

[Mark Massaro:]

Okay. And then, related to that I guess could you give us a little bit of help about thinking about the cost of the clinical trials with Vitalia and MonaLisa Touch? I don’t think the Brooke Shields marketing would be all that expensive. But I guess my question is, when you factor in the clinical trials costs, the marketing costs, why do you think that keeping the Medical Aesthetics business is worth more than divesting it?

[Steve MacMillan:]

Obviously, we’re continuing to focus and thinking smartly about where we go for the future, and investing prudently in the business. So, we're being smart about how we gauge the spending at this point in time. It’s clearly not making the kind of money that we would like, and in fact losing a little bit in the short-term. And we’re in that process of putting together our longer term plans.

[Mike Watts:]

And, I would say, -- Mark, it’s Mike, I would just add to that. I mean, products like MonaLisa Touch I mean really are very valuable, clinically differentiated products that provide a lot of value to women. So, we definitely want to proceed those indications that will enable us to differentiate ourselves in the market.

[Mark Massaro:]

Okay. Thank you.

[Mike Watts:]

Dory, I think, we’ve got time for one more question.

[Operator:]

And we will be taking our final question from Derik de Bruin with Bank of America Merrill Lynch. Please go ahead.

[Unidentified Analyst:]

This is Ivy on for Derik today. Thank you for squeezing me in. Congrats on quarter. So, just one clarification question on the Breast Health. It sounds like the momentum of Breast health should continue. So, given updated guide, are there any changes on the growth perspective for the sector, particularly given the given the tough comp in first half of the year? Just any additional color would be helpful. Thank you.

[Karleen Oberton:]

Yes. So, I think as we started the fiscal year for Breast Health, we had talked about it being mid-single-digit grower. I would say that based on the performance of the last two quarters for the full year, maybe it's mid to high-single-digit growth. So, yes, you're right the comp’s definitely get harder in the back half of the year and so the growth might come down a bit.

[Unidentified Analyst:]

And one follow-up. So, this quarter, the acquisitions Focal and Faxitron was better than expected. Is that something we should base of estimates for the rest of the year? Looking for just any additional color. Thank you.

[Karleen Oberton:]

So, they had meaningful growth in this quarter. I would say that we expect high-double-digit from them moving forward, but I don't know that it would be in the 40% range. It should be come down.

[Steve MacMillan:]

Great. Thank you, everyone.

[Mike Watts:]

I think, that's all the time we have. Thanks everybody very much.

[Operator:]

This now concludes the Hologic’s second quarter fiscal 2019 earnings call. Have a good evening.