Hologic, Inc.

Hologic, Inc.

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Medical - Instruments & Supplies

Hologic, Inc. (HOLX) Q2 2013 Earnings Call Transcript

Published at 2013-05-06 21:50:05
Executives
Deborah R. Gordon - Vice President of Investor Relations Robert A. Cascella - Chief Executive Officer, President and Director Glenn P. Muir - Chief Financial Officer, Executive Vice President of Finance & Administration and Director David P. Harding - Senior Vice President and General Manager of International Peter K. Soltani - Senior Vice President and General Manager of Breast Health Line of Business
Analysts
David R. Lewis - Morgan Stanley, Research Division Richard Newitter - Leerink Swann LLC, Research Division Tycho W. Peterson - JP Morgan Chase & Co, Research Division Amit Bhalla - Citigroup Inc, Research Division Isaac Ro - Goldman Sachs Group Inc., Research Division Vijay Kumar - ISI Group Inc., Research Division Doug Schenkel - Cowen and Company, LLC, Research Division William B. Bonello - Craig-Hallum Capital Group LLC, Research Division Anthony Petrone - Jefferies & Company, Inc., Research Division
Operator
Good day, everyone, and welcome to the Hologic Inc. Second Quarter Fiscal 2013 Earnings Conference Call. My name is Jessica, and I'm your operator for today's call. Today's conference call is being recorded. [Operator Instructions] I would now like to introduce Deborah Gordon, Vice President, Investor Relations, to begin the call. Please go ahead. Deborah R. Gordon: Thank you, Jessica. Good afternoon, and thank you for joining us for Hologic's second quarter fiscal 2013 earnings call. The replay of this call will be archived on our website through Friday, May 24, and a copy of our press release discussing our second quarter results, as well as our third quarter and fiscal 2013 guidance, is available in the Overview section of the IR section of our website. Also in that section is the PowerPoint presentation related to the comments that will be made during today's opening remarks. Before we begin, I would like to remind you that certain statements made by Hologic during the course of this call may constitute forward-looking statements. 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 in our second quarter fiscal 2013 earnings release and in the company's filings with the Securities and Exchange Commission. Also, during this call, we will be discussing certain financial measures not prepared in accordance with Generally Accepted Accounting Principles or GAAP. A reconciliation of these non-GAAP financial measures to the related GAAP financial measures can also be found in our second quarter earnings release, including the financial tables in the release. Please note, today's call will consist of opening remarks from management, followed by a 30-minute Q&A session. We do need to limit each participant's questions to just 1, with 1 related follow-up as necessary. However, please feel free to go back into queue, and if time permits, we'll be more than happy to take your questions at that time. I would now like to turn the call over to Rob Cascella, President and Chief Executive Officer. Robert A. Cascella: Thanks, Deb, and good afternoon and thank you for dialing into our second quarter call. Joining me on today's call is Glenn Muir, our Executive Vice President and Chief Financial Officer; Peter Soltani, Senior Vice President and General Manager of Women's Health; and David Harding, Senior Vice President and General Manager of International Operations. Today, we're going to summarize the second quarter results. I'll give you an update on our 3D tomosynthesis. We'll also discuss our Diagnostic franchise, including where we stand with the integration of Gen-Probe and our progress in achieving targeted synergies, and provide a brief overview in some of our other key businesses. I'll then turn the call over to Glenn to discuss our financial results and guidance. And then as Deb said, we'll open the call up for Q&A. Before I begin, I would like to put into perspective the quarter's results and how they relate to our overall business thesis. Although we experienced some volatility in our second quarter revenue, our business fundamentals remained solid. This quarter's revenue shortfall was caused by a few specific events, which I will detail momentarily. But the longer-term opportunities Hologic represents have not wavered a bit. Tomo uptake is extraordinary, given external circumstances. The Gen-Probe acquisition has significantly strengthened our Diagnostic business, and the added synergies we've been discussing with you are becoming a reality. The mid- to long-term growth profile for Hologic is extremely attractive across multiple product lines. We have assembled the necessary products to drive sustainable growth and have a solid business case for each of our franchises. I'll now turn to some of the details in the quarter. Glenn will discuss this in much greater detail, but in summary, adjusted Q2 revenues were $619 million. They were 31% higher than last year, though below the guidance range we provided on our last quarterly call. On a pro forma basis, revenues were flat to last year. Solid expense management, combined with the benefits of cost synergies related to our acquisition of Gen-Probe, allowed us to deliver EPS of $0.35, which was ahead of our guidance. To summarize, the major elements of the shortfall were related specifically to the following. Our China ThinPrep business experienced some disruption, as we restructured our sales organization with a combination of dealers and direct to gain broader coverage of the market. Although we believe this is recoverable, it penalized our revenues by nearly $8 million in the quarter. In the U.S., ThinPrep also experienced some downward pressures, as major labs experienced utilization issues, which created order shortfalls of $4 million off from expectations. And finally, there was a fall-off of 2D mammography as more customers considered tomo purchases. This situation was exacerbated by the scarcity in capital spending dollars on nearly a global basis. This accounted for another $6 million of our shortfall. In addition to our strong earnings, there were a number of other positive developments in the quarter. Strong 3D tomo uptake continued, as we met our initial goal of placements in the U.S. for the first 2 years post-approval. The highly anticipated Oslo study was formally published and demonstrated a strong result for 3D, with substantial improvement in cancer detection rates and fewer false positives versus conventional 2D alone. We also had 2 other important studies. The Italian STORM screening study published online in The Lancet Oncology, and the Stephen Rose study from Houston Breast Imaging, which was recently accepted for publication in the American Journal of Roentgenology, both with equally compelling results. Synergies from the Gen-Probe acquisition continue to track ahead of plan and are expected to exceed $60 million in the first year versus our initial target of $40 million. I'd now like to talk about 3D tomo and our commercial efforts around that product. Overall, we experienced strong demand for the product and remain pleased with the growth of adoption. Importantly, we remain on track to more than double our installed base of domestic tomo systems during fiscal '13. In the U.S., we continued to see the same dynamic we discussed last quarter, whereby increasing demand for 3D tomo was largely offset by a corresponding decrease in 2D digital systems. In fact, the reality in the U.S. market is the majority of customers want to buy tomo, but struggle with budget approval and the logistics of a partial practice conversion. And what I mean by that is they're struggling to sort out how they can buy just 1 unit. Following the publication of the Oslo study, our quote activity grew by 38%, indicating a significantly stronger interest in the product. This quote activity has nearly doubled what we experienced last year and currently double that of the interest in 2D systems. Competitively, the facts are still clear. We have the only 3D tomo system in the market in the U.S., with limited competition outside the U.S. We are achieving more competitive displacement in the U.S. and Europe markets as more marquee customers decide they can no longer wait for tomo, as it is being viewed as the best-in-class technology. We have more confidence than ever in the adoption of 3D, with the primary constraint on its growth related to the tight capital spending environment. In the near term, higher interest in 3D and limited capital budget dollars have accelerated the decline in 2D demand beyond what would normally be expected in a replacement cycle. Nonetheless, the overall outlook remains compelling as we penetrate the $4 billion U.S. digital market. From a reimbursement perspective, as we said we would do after key clinical studies were published, we began formal discussions with CMS to request a reimbursement code. In early April, we had our first meeting with CMS, where we presented clinical data, including the results of the Oslo study. In addition, data from other U.S. studies were also reviewed. At the same time as our discussions go on with CMS, we are engaged in discussions with private payers in an effort to establish reimbursement, irrespective of the timing of obtaining a CMS reimbursement code. Our expected time frame remains the same as what we previously communicated, and we anticipate having an interim or alternative reimbursement code in place by the end of the calendar year. Now I'd like to talk a little bit about the other businesses, and I'll start with the Diagnostic segment. Overall, we experienced some challenges in our legacy Diagnostic business, specifically within cytology. And as a result, our total Diagnostic business was effectively flat on a year-over-year pro forma basis. That said, I do want to emphasize key product growth drivers, where our molecular business experienced solid growth and market share gains. I'll give you a little bit of an update on PANTHER. We remain very pleased with the ongoing launch of the PANTHER system, as placements continue to exceed our expectations. Glenn will report on some of the details, but as we said on our last call, we have begun transitioning from an initial focus of DTS customer conversions to new accounts. This strategy is already resulting in some critical new account wins. It is important to understand these recent wins have yet to appear on our results due to lag time associated with both the validation process and the transition of test volumes from prior platforms. This could take potentially 3 to 6 months to realize. But to put some perspective on this, we have closed a total of 48 new accounts this past quarter alone, with 23 of them being in the U.S. and the balance from international. We are finding interest in PANTHER is driven not only by its superior automation capabilities, but also a significant interest among lab customers for consolidating, expanding test menus onto a single platform. While our APTIMA assays for CT/GC and Trichomonas have broad appeal, we expect an acceleration in wins from accounts currently using competitive systems once we have HPV approved on PANTHER, which we expect before the end of the fiscal year. This system has broad appeal from large to mid to even smaller labs. Remember, PANTHER represents a strong economic opportunity for a lab running as few as 25 tests per day. A little bit about HPV. This franchise continues to demonstrate impressive growth, increasing more than 45% on a year-over-year basis. We estimate our market share is above 20% and will be firmly in the mid-20s by year-end. APTIMA HPV experienced its strongest quarter ever, and we're starting to see key account wins based on our competitive advantages in automation and specificity. These developments represent real inroads in the market and are a great example of the revenue synergies we discussed at the time of our acquisition. In fact, there are a number of high-volume regional labs that have already contracted in validating APTIMA HPV, and those in the very late stages of evaluation. As stated, we believe HPV assay adoption will grow even more quickly when available on PANTHER. Similarly, for APTIMA Trichomonas, we are seeing a compelling growth opportunity, as we continue to build out the market for molecular-based testing. Trich revenues are maintaining a high double-digit growth rate and, in the quarter, grew 57% over last year. During the quarter, we received clearance for APTIMA Trich to run on PANTHER, and we expect this to drive further growth. Even our flagship molecular product, our APTIMA Combo 2 for Chlamydia and gonorrhea testing grew 7% in the quarter, with international growing more than 15% and the U.S. market growing 6% on the strength of our market leadership and competitive takeaways. This is another example of our revenue synergies. Overall, we were quite pleased with the performance of Gen-Probe in the quarter. The women's health molecular business grew 10% over the pro forma results from prior year. Glenn's going to cover the diagnostic details on our legacy business, but I would like to comment. In the past, we have talked about a 2% to 3% annual erosion rate for liquid-based cytology in the U.S. This quarter, some labs and other market participants stated a market decline of as much as 8% to 10%. We believe this is the result of an increasing adoption of screening guidelines, causing the interval between exams to expand. Our ThinPrep business has declined approximately 7% this quarter on a year-over-year basis. We believe our less-than-market erosion rate is due largely to competitive account conversions offset by the timing of some large lab orders, which we feel will be recoverable. Consequently, we are increasing our net erosion rate to 4% to 5% for the balance of the year, up from the 2% to 3% erosion we had previously quoted. So as we look at our Diagnostic business today, our molecular diagnostics product continued to generate attractive growth and represent the future of the franchise. That's consistent with a broader view of the industry, which recognizes that molecular is the part of the market that will continue to generate the highest growth rates. Our acquisition of Gen-Probe positions us to remain at the forefront of this higher growth market segment, with a strong product portfolio and the ability to drive future revenue synergies. With respect to our more mature products, specifically ThinPrep, we will focus the U.S. business on account conversions and believe international opportunities for growth remains strong. In addition, these product lines are highly profitable and strong cash contributors to our overall business. Now to move on to Surgical. Here, again, Glenn will talk about the details, but I wanted to talk about some of the subtleties in the business. MyoSure has turned out to be a strong growth driver for the company. We are achieving a revenue run rate of around $65 million annually, with what we believe to be, still, an early market penetration. NovaSure remains under pressure in the U.S., where healthcare economics work against this otherwise extremely powerful technology. I do not believe we will have very select o-US growth opportunities for this product in places like Europe, China and Brazil, where we are already seizing these opportunities. So despite the challenges NovaSure poses in the U.S., the outlook for our overall GYN Surgical business remains attractive, based on international expansion and the continued impressive growth of MyoSure. In summary, we are confident that we are executing the right strategy to position Hologic to achieve long-term and sustainable growth across our franchises. In Breast Health, it is no longer a matter of if tomo becomes successful, but rather when. This is a $4 billion opportunity in the U.S. and potentially another $3 billion abroad. All early market indicators are very strong, and the product is performing beyond expectations. As we have stated in the past, the early phase of market adoption will be lumpy, but there is solid evidence 3D tomo will continue to accelerate for the next 3 to 5 years. With respect to Diagnostics, the strength that the Gen-Probe acquisition has brought to the business is now a reality. The purpose of this acquisition was to provide a growth driver for our mature ThinPrep franchise, and although early, it is doing just that. We are seeing solid growth across all of our molecular product lines. Our cost and expense synergies are growing, as we accelerate our consolidation ahead of schedule. We are now seeing the power of our revenue synergies with multiple account conversions in the U.S., driven by the power of our physician sales team, and international growth rates for even the more mature product lines, like CT/GC, are averaging in the mid-teens. For Surgical, the U.S. market maturity of NovaSure will be more than offset by the growth potential of MyoSure as it becomes a more substantial piece of this segment. In the meantime, pricing is stable and operating margins are over 40%, a 10-percentage-point improvement over a year ago. Finally, our deleveraging strategy remains intact, as we continue to generate strong profitability and cash flow. In summary, we firmly believe that our leading-edge products and commitment to fiscal discipline will continue to drive strong profitability and long-term growth for Hologic. With that, I'd like to turn the call over to Glenn to talk a little bit more about the numbers. Glenn P. Muir: Thank you, Rob. Second quarter non-GAAP consolidated revenues increased 31.4% due to the addition of Gen-Probe, and foreign currency had a negligible impact on revenues. On an apples-to-apples basis, pro forma revenue growth was flat compared to the prior year, when adjusted to include Gen-Probe for Q2 of last year and to exclude divested businesses, such as LIFECODES and Adiana, in both quarters. I will detail the reasons, starting with our largest segment. Diagnostics revenues represented 49% of total revenues this quarter, increasing $151.1 million or 99.5%. On a pro forma basis, which includes Gen-Probe revenues from a year ago and excludes revenues from our divested businesses, Diagnostics revenues were essentially flat, and below our forecasted pro forma growth of low- to mid-single digits. We experienced a sharper decline in the legacy Diagnostics business than expected, which was offset by growth in the Gen-Probe molecular business. Within our legacy Diagnostics business, the overall ThinPrep revenues declined 7% year-over-year, caused mainly by a shortfall in China and lower major lab purchases in The States. The China shortfall was largely due to the disruption caused by our restructuring of our sales channel. The purpose of the restructuring is to provide broader coverage into multiple market tiers and provinces as we introduce our expanded portfolio. We believe this is recoverable, but it will take some time. In addition, as Bob indicated, in the U.S., we experienced a larger-than-expected decline in ThinPrep volume due to delays in orders from large lab customers, leading to a decline in volumes beyond what we would normally expect as it relates to interval expansion. The good news is ThinPrep is gaining market share as a result of recent competitive wins against our major liquid-based cytology competitor, who continues to be challenged with regard to HPV testing from their sample vial. This has created a much higher rate of account conversions in the quarter, and as a result, we believe the overall U.S. market will continue to erode. But this accelerated erosion will be partially offset by share gains in the marketplace. Gen-Probe's revenues increased 6% year-over-year on a pro forma basis, which excludes the contributions from divested businesses in both periods. This solid growth came from strong results for our clinical Diagnostics products, which were up high-single digits on a pro forma basis. Notably, our APTIMA Combo 2 for CT/GC was the largest contributor to growth this quarter, and we were especially pleased with the robust growth from our recent portfolio additions, such as Trichomonas and HPV. The blood screening business grew 2%, consistent with our outlook for that business. Breast Health revenues represented 35% of total sales and increased $1.4 million or 0.7%. This increase was below the mid-single-digit guidance we provided last quarter. Total segment revenue growth was driven by a low double-digit increase in service revenues, partially offset by a low single-digit decline in product revenues. This is a continuation of the dynamic we reported last quarter, specifically the ongoing mix shift to our superior 3D tomo platform from our legacy 2D Selenia product lines. This quarter, on a dollar basis, our worldwide 2D mammo systems were down 20% year-over-year, and our 3D systems were up 30%. Looking at our Dimensions product lines, that is both our 2D dimensions alone and also our 3D tomo systems. They represented 75% of worldwide digital mammography product revenues and 63% of units sold this quarter. Order growth during the period drove a 29% sequential increase in backlog of worldwide mammography systems at quarter end on a unit basis. As it relates specifically to 3D tomo units, this quarter, we saw a 34% increase in sales order bookings and a 98% increase in backlog, both year-over-year. The strong order rate driving our backlog continues to increase and represents an important data point, supporting our belief that the adoption curve not only remains strong but also appears to be on an improving trend. We are very pleased with the strong interest, growth and increasing adoption of our Dimensions product lines, including 3D tomo. GYN Surgical revenues represented 12% of total sales and declined $3.5 million or 4.5% this quarter on a reported basis. Excluding Adiana in both periods, GYN Surgical sales increased 1.4% compared to last year, below the guidance of mid single-digit growth we provided last quarter. On a geographic basis, domestic sales were essentially flat year-over-year as a result of lower NovaSure sales. However, our outside the U.S. business grew over 18%. Although NovaSure declined in the high single digits, we are confident we are not losing market share within the endometrial ablation market. As Rob explained earlier, we continue to experience the headwinds we cited last quarter, in the form of high-patient deductibles and the continued emergence of lower-cost, non-GEA alternatives, which pressured results again this quarter. Further challenging NovaSure sales is the increase in payers adopting mandatory treatment pathways that place a higher priority on initiating therapy with lower-cost drugs and IUD treatments. This trend is unlikely to change with the further implementation of the Affordable Care Act. The overall decline in NovaSure was offset by another quarter of very strong performance from MyoSure. MyoSure sales continued to increase substantially, with revenues increasing nearly 80% year-over-year. This business is at a run rate of around $65 million annually. And the product is still at the early stage of adoption, with only very minor contribution from international as yet. We remain very optimistic about the longer-term growth outlook for MyoSure. Next, a brief review of second quarter non-GAAP performance on the rest of the P&L. Our gross margins were 62.6%, up 140 basis points year-over-year and 10 basis points sequentially, and within our guidance range despite the lower revenue. The strength in margins was primarily the result of geographic and product mix, namely the weakness in international markets, which tend to have lower selling prices than in the U.S., as well as the shift from 2D to higher-priced 3D mammography systems, and from sales of Adiana to the higher-margin MyoSure. Year-over-year Breast Health and Surgical posted higher margins for these reasons, and Diagnostics posted lower margins, primarily due to the decrease in cytology sales, which were partially offset by Gen-Probe. Operating expenses increased $46.3 million or 31.2%, to $195 million, representing 31% of sales compared to 32% last year. In addition, expenses were down almost 2% sequentially and were $10 million or 5% below the low end of our guidance range. Compared to guidance, expenses were lower due to our ability to gain operating leverage and manage expenses in the face of challenging times. I would like to emphasize the areas in which we managed expenses did not come from activities that generate revenue or support future growth, but rather from operating cost-saving initiatives, as well as from the realization of cost synergies from the Gen-Probe acquisition. Importantly, we are increasing the amount of Gen-Probe cost synergies we are expecting this year to just over $60 million, up from our previous guidance of $40 million. And as a result, net income of $93.8 million this quarter was in line with our expectations and resulted in EPS of $0.35 this quarter, which was above our guidance range of $0.33 to $0.34. Now turning to the balance sheet. As of March 30, our cash and equivalents totaled $752 million, which was up $186 million from the end of fiscal '12 and $32 million from the end of the first quarter, reflecting another period of focused working capital management, contributing to strong free cash flow generation. Note that several of the cash flow drivers in the second quarter are consistent with prior years. Sequentially, our second quarter included higher cash outflows as a result of the timing of tax payments of approximately $80 million as compared to less than $5 million in Q1, higher interest payments totaling approximately $60 million as a result of payments on our various debt instruments, contingent consideration payments to former Interlace shareholders of just under $90 million. And lastly, this quarter was the first quarter we incurred the medical device tax, which was $6.5 million. One item to note that added positively to our cash inflow this quarter was the approximate $85 million cash receipt for the sale of our LIFECODES business. However, we excluded this amount for purposes of our non-GAAP results and free cash flow guidance for the year, and did the same with the contingent consideration payment to Interlace. Our total debt obligations stand at $5 billion, resulting in a ratio of total debt-to-EBITDA of approximately 4.5. We remain committed to reducing this ratio to 2.5 by the end of fiscal 2015. For operating free cash flow guidance for the fiscal year, we are maintaining our original guidance of $600 million based on the continued earnings strength. As a reminder, we have continued to define this measure as cash before the Gen-Probe financing of $3.5 billion, in order to highlight the cash flow available for interest and debt repayment. Our expected free cash flow is net of both working capital adjustments and capital spending, including equipment we place at customer sites, which together approximate $100 million per year. It does not include proceeds from divestitures, such as KV Pharmaceutical or LIFECODES, nor does it include the contingent consideration payment for acquisitions, which, for fiscal 2013, are expected to be slightly over $200 million. To achieve our stated goal of improving our balance sheet condition, we completed 2 financial transactions during the second fiscal quarter. The first transaction occurred in February, when we exchanged $370 million of outstanding convertible notes that were expected to be put to us in December 2013 for equivalent convertible notes with the same strike price. Then in March, we repriced both the $1 billion Term Loan A and the Revolving Credit Facility, which lowered the interest rate on each by 100 basis points, from LIBOR plus 3% to LIBOR plus 2%. The convert exchange will provide us with additional debt repayment flexibility, so we can pay higher interest term loan debt sooner. It doesn't change our original expectation of approximately $775 million of debt reduction by the end of the calendar year. The Term Loan A refinancing was to take advantage of lower available interest rates and should drive annual savings of approximately $10 million. Switching to guidance, our expectations are fully detailed in the earnings release and our supplementary PowerPoint presentation, both which are posted on our IR website. For the third quarter of fiscal 2013, we expect revenues in the range of $625 million to $630 million, representing year-over-year growth of 33% to 34%. On a pro forma basis, excluding the divested businesses, we expect growth of approximately 2.5%. We do not expect any more purchase accounting adjustments relating to our Novartis collaboration. Our guidance assumes currency rates consistent with the average rate during Q2 '13, the continued ramp-up of new products, including the Dimensions, PANTHER and MyoSure system. In Q3 of the prior year, Adiana generated revenues of $2.2 million, and LIFECODES had revenues of $11.4 million. We also expect gross margins of approximately 63% and operating expenses of $190 million to $195 million or approximately 30% to 31% of revenues, up year-over-year, primarily due to the inclusion of Gen-Probe's operating results, and down sequentially from Q2 '13 due to the timing of R&D projects, headcount reductions, cost savings initiatives and increased Gen-Probe synergies. In addition, Q3 of '13 operating expenses include approximately $6 million in additional G&A expense related to the medical device excise tax that went into effect on January 1. We'll have interest expense of approximately $56 million and an effective tax rate of 32%. Diluted shares are expected to be approximately 273 million and diluted EPS in the range of approximately $0.36 to $0.37. For fiscal 2013, which ends on September 28, we are reducing our non-GAAP revenue guidance to a range of $2.53 billion to $2.55 billion from our previous expectation of $2.61 billion to $2.64 billion. Year-over-year, our new guidance represents an increase in revenues of 26% to 27%, primarily from the inclusion of the Gen-Probe acquisition. And on a pro forma basis, revenues in each of our operating segments will increase low single digits over fiscal 2012. The pro forma growth rate for Diagnostics includes Gen-Probe revenues for the full year of fiscal 2012 and excludes revenues from divested business, primarily from LIFECODES, which totaled $23 million and $45 million in fiscal 2013 and 2012, respectively. The pro forma growth rate for Surgical excludes Adiana revenues of $11 million in fiscal 2012. For gross margins, we are reaffirming our guidance of approximately 63%. For operating expense, we are lowering our guidance to $760 million to $770 million, which is approximately 30% of revenues. We now expect to incur approximately $20 million of G&A expense in fiscal 2013 related to the medical device excise tax, and are factoring in just over $60 million in cost synergies relating to the Gen-Probe acquisition. For interest expense, we are maintaining our guidance of $220 million, and we are reaffirming our expected diluted shares outstanding of 272 million and our effective tax rate of 32%. And lastly, we are reducing our EPS guidance to a range of $1.54 to $1.56 from $1.58 to $1.60, which results in EPS growth of 11% to 13% over last year. This reduction factors in the lower revenue guidance, coupled with reduced operating expenses from Gen-Probe synergies and other cost-saving initiatives. As a reminder, this EPS guidance includes the impact of the medical device excise tax, which we now expect to be $0.05 dilutive and, if excluded, would drive EPS growth to 15% to 17%. And with that, I would like to turn the call back to Rob. Robert A. Cascella: Thanks, Glenn. Just a couple of closing comments. I'll say once again, the fundamental pillars of growth for our business remain strong. Tomo is poised to become the new standard of care in mammography, and all indicators continue to reinforce this outlook. Our portfolio approach, proprietary assays and superior automation position our Diagnostic business to enter new market segments and drive growth over the long term. Although MyoSure is in the early stages of the successful commercialization, we believe it has the potential to accelerate growth of our Surgical business. As a result of these positive indicators, we are reflecting a stronger second half of the year. However, when considering the GAAP required to maintain guidance in light of the U.S. healthcare concerns and unstable European market and a slowdown in all the key parts of the world, we believe it is only prudent for some moderator optimism. Over the mid to longer term, our current product portfolio and development pipeline will drive sustainable growth for Hologic and will continue to be complemented by our strong profitability and cash flow. I want to thank you for your participation on the call and have the operator open the call up for questions. Thank you.
Operator
[Operator Instructions] And our first question will come from David Lewis from Morgan Stanley. David R. Lewis - Morgan Stanley, Research Division: Rob, I appreciate your comments on the macro environment, and I think everyone knows it's challenging. But I think one of the stated objectives for management in the last couple of quarters has been guidance was conservative, and obviously, it wasn't as conservative as you hoped. So I guess the first question, can you just explain to us your approach to guidance for the remainder of the year? And how do you convince shareholders that this guidance frankly is achievable? Robert A. Cascella: Sure. And I think it's a very fair question, David. First off, I think we have strong confidence in our earnings numbers. I think we've done a good job at maintaining costs and expenses, and we are seeing the cost synergies from the Gen-Probe acquisition materializing at a faster rate. More importantly, from a revenue perspective, the things that we commented on, in both my script and Glenn's, has been, on the Breast Health side, we have an increase in backlog, which we believe relates to additional bookings and also, obviously, revenue for the second half of the year. And the other side of what we talked about on our Diagnostic businesses, we have a large number of competitive takeaways. We have market penetration in new areas within the Diagnostic market, all contributing to what we define as our second half revenue. Now keep in mind, our second half has always been stronger. We average somewhere between 3% to 5% higher in the second half than the first half. In this analysis and in this guidance, we are averaging around 3% for fiscal '13, and we're basing that on the strength of what we just saw with bookings rate and backlog in Breast Health, as well as the competitive takeaways that have not yet made their way to revenue on the Diagnostic side. David R. Lewis - Morgan Stanley, Research Division: Very clear. Maybe a follow-up on guidance as well. Your fourth quarter revenue guidance, implied revenue guidance, it looks like it's in line with your historical cyclicality, which you basically just mentioned. The EPS number though, for the fourth quarter, does look stronger than we would normally expect. And if I'm reading that right, and are there any reasons why the fourth quarter earnings number would be materially stronger than the third? Robert A. Cascella: Yes, it's a little -- a fair question. And it's a little bit of some of the things that we talked about earlier. When we look at our -- the ability to leverage costs and expenses, it is completely driven by the fact that not all of our cost basis is fixed -- or variable, I should say. And as a result of that, as revenues increase, not only do we get favorable impacts in manufacturing, but we also are able to leverage the fixed operating expenses, so that our profitability, our operating margin changes by percentage points as a result of that. And that's just math. 90% of our operating expenses are fixed and don't move with revenues. So as we generate higher levels of revenue, it changes the metric relative to our operating returns.
Operator
And we'll now move to Richard Newitter from Leerink Swann. Richard Newitter - Leerink Swann LLC, Research Division: Just maybe, Rob, could you -- last quarter, I think you had some of the same dynamics playing out in the Breast Health division, and you kind of saw a strong backlog of 3D and the trends in 2D, but you left your guidance unchanged. Now you've made some assumptions, clearly, about what kind of acceleration in -- or impact from the deferral of 2D. One, can you quantify what that is for the back half, what kind of year-over-year decline do you think you'll see in 2D? And then two, what gives you confidence that it won't necessarily be worse than what you're anticipating right now, since it was a little bit worse than what you had anticipated as of last quarter? Robert A. Cascella: Yes, I think it's a very fair question. As we indicated earlier, it looks as if the 2D fall-off rate is about 20%. We're not expecting that to be dramatically different for the balance of the year. I don't see it improving, and in fact, we're trying to manage it from an erosion perspective. What we're doing defensively, quite frankly, in order to shore that number up, is to really look at the low end of the market, with a lot of the used Selenias that we now have in on trade from our 3D dimension sales, and going after the low end markets in different parts of the world, as well as the low end market that has not yet converted here in the States. Again, as we look at the change in mammography, I think from a positive perspective, we're seeing great quote activity, we're seeing a lot of interest in 3D, but it is causing the 2D replacement market to stall. And what we're doing now is trying to mitigate further erosion with some of the measures that I just talked about. And they're very, very tactical. Richard Newitter - Leerink Swann LLC, Research Division: Got it. And just a quick follow-up. I may have missed it, but did you provide kind of where you stood with respect to your original kind of initial adopter, 500 to 700? Robert A. Cascella: We said we were very pleased that we made the range that we had given for the first 2 years after FDA approval and, more importantly, that we were also confident in our more than doubling of the installed base for fiscal '13. Richard Newitter - Leerink Swann LLC, Research Division: Off of what level? Robert A. Cascella: Off of the level that we ended fiscal '12 at. So if you did the math as to where we said we were at, which was 60% of the range for fiscal '12, we said that we would more than double the aggregate installed base of tomo units in the United States in '13.
Operator
And we'll now go to Tycho Peterson from JPMorgan. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Just looking at the quarter, I don’t think anybody's surprised by the utilization pressures or the comments on 2D mammo, but can you talk to the China dynamic, $8 million hit from the restructuring? I guess just give us some conviction that, that will recover in the near term, and maybe just a little bit more color on the steps you took there. Robert A. Cascella: Sure. I'll have David Harding comment on those as well. David? David P. Harding: Yes. Thank you. So we made a concerted decision at the beginning of Q2 to restructure our Diagnostic sales channel in China. We believe that in order to really maximize our growth in this attractive market, we must have a hybrid distribution model made up of both direct- and dealer-based channels. So as we move into a broader set of geographies, we really have to think about redeploying our direct sales teams to the areas of greatest potential and leverage dealers in other markets. The change in the sales channel structure obviously resulted in some sales team disruption and impacted our customer ordering patterns, in what is already a pretty challenging seasonal period due to the lengthy Chinese New Year holidays. To be very specific, we had sales leaders out of the field for certain periods during this restructuring. New dealers had to be qualified, brought on board and trained, and customers had to become acclimated to their new primary contacts, in some cases. And all of this took its toll on the numbers. During our continuing work to optimize the sales channel, we will also be rationalizing our expense profile, so that the overall China profitability remains strong. And as we move into the back half of the year, we're confident that we will drive revenue growth, because I think the fundamentals of the China market are really quite attractive. And while it's highly competitive, it's a great geography as the government continues to invest to broaden healthcare coverage. So we're confident that our revenues will continue to grow. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: And then Rob, are you able to give us any color on mix for the new tomo customers between academic centers, community hospitals? Just what's the customer profile evolving to look like? And also, any thoughts on C-View? Robert A. Cascella: Yes, sure. I think that the -- and I'll let Peter comment on C-View. I think as far as mix, I think we're seeing many more commercial sites versus academic sites buying tomo today. There are sites that are buying it because they believe in the technology, they believe in the marketing power behind the product as well. And there are sites that are interested in gaining market share within their regional markets. Peter, you may want to give an update on C-View. Peter K. Soltani: Sure. The -- we're really just waiting -- it's pretty simple. We're just waiting for FDA approval, and we expect that, that will be forthcoming very, very soon, hopefully within a few weeks. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Okay. And then a quick one for Glenn, and then I'll hop off. You have 1 fewer week in the fourth quarter this year, so I just want to make sure that, that was factored into the segment guidance that you gave earlier. Glenn P. Muir: Yes, it was. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: Okay. So are you able to tell us what the segment assumptions are for the fourth quarter then, given 1 fewer week? Glenn P. Muir: From a revenue growth standpoint, Tycho? [Technical Difficulty]
Operator
And we'll move to Amit Bhalla from Citi. Amit Bhalla - Citigroup Inc, Research Division: Glenn, why don't you finish Tycho's question, then I'll ask mine? It was revenue. Glenn P. Muir: Yes. I think he's talking about revenue. So I think when we get to Q4, we are -- we have tailored our revenue expectations down to the point that, for the fiscal year, we're at low single digits almost across the board in each operating segment. So the extra week, as we talked about before, doesn't really affect any of the capital equipment businesses. It really is on the Diagnostic side of things. But that has been taken into account in the current forecast. Amit Bhalla - Citigroup Inc, Research Division: Okay. My questions are -- I don't understand this comment you made about the China decision. How come, Rob, you didn't factor that in when you were giving your guidance for fiscal 2Q? This -- a change in sales like that just doesn't happen overnight. So can you explain that? Why didn't you factor it in? Why didn't you tell us about it last quarter? Robert A. Cascella: I think it might be a small oversight, and what I mean by that is I think that we thought that much of this could be done in a much more accelerated time frame. But what we really didn't account for is the customer side of the disruption. We knew that the field would be upset because territories were more compressed, the validation process on dealers that we had already identified we thought would be more accelerated. So we had planned this in Q1. We began kicking it off in Q2. And yes, we should have known better. I don't think we anticipated the complications that the market in China would have represented, because we do this all the time in different parts of the world and felt like we had a good process and a good roadmap to affect it. Amit Bhalla - Citigroup Inc, Research Division: And then my follow-up on Diagnostics. Can you talk about how your -- what your assumptions are for the pricing environment for the remainder of the year in this low single-digit growth assumption? I mean, competition is getting a little bit tougher. What are you thinking about in terms of pricing? Robert A. Cascella: Well, it's all over the map, right? I mean, I think -- and in the case of ThinPrep, we have a very strong franchise and great market presence. So we're obviously tuned in to taking share away. I think that's incremental revenue for us. So it will be at a more competitive price, but it shouldn't erode our current pricing structure. I would say that in the case of Diagnostics, we have maintained pricing relative to our CT/GC business. In the areas where we're going after market share, namely in HPV, we have gotten much more aggressive. And you are absolutely right. I think the likes of our competitors in this market are getting very aggressive. I think what we're bringing to bear and what I think has been resonating with our customers is really the power of our automation and the broadness of our menu. I think all of that, linked with the fact that we have this universal transport medium or vial, is giving them a very efficient way for generating high-volume revenue within their labs. So there's a lot of operational efficiencies that we're able to talk about, which allow them to improve gross margins beyond just simple pricing, and that gets back to our automation and this vial strategy.
Operator
We'll now move on to Isaac Ro from Goldman Sachs. Isaac Ro - Goldman Sachs Group Inc., Research Division: I was just hoping to get an updated snapshot on your x U.S. footprint, specifically just given your China comments. Curious to know a couple of items. First off, just could you maybe ballpark the percentage of sales that you generate in China at this point? As I recall, Asia was about 9% in total and just trying to put that $8 million number in context. And then maybe if you could put some color commentary on the rest of the BRIC nations, Brazil and Russia, that would be helpful. David P. Harding: Yes. So I think that's about right in terms of a revenue number for China. We look at about 26% of our overall revenues coming from the international market, and China represents a fair chunk of that. So in about that 9% range is more or less accurate. In terms of our overall footprint, our China headcount is large. It represents a major piece of our overall international footprint and will continue to be that way going forward. In terms of the other BRIC nations, they are less peopled, but are very important. If you think about the overall employee footprint, it's largely concentrated in Europe and in China, but we continue to expand in places like Brazil, where we have a lot of excitement going forward. In Russia, we have a few people that cover that market, but it's largely a dealer-based channel. In India, again, a small number of people, largely driven by dealers. Isaac Ro - Goldman Sachs Group Inc., Research Division: Sorry. Just to clarify, as I understood it, all of Asia was 9%. Is that incorrect? Glenn P. Muir: That is correct. So China would be a slightly smaller chunk of it. Robert A. Cascella: And it's about 2/3 of it. Glenn P. Muir: Yes. Isaac Ro - Goldman Sachs Group Inc., Research Division: Okay. All right. That's helpful. And then if I could just sneak in a follow-up. On just the picture in Gen-Probe, obviously, you guys have a bigger channel than they did. Can you update us on where you are in distributing Gen-Probe's products, specifically in Europe and Japan? Robert A. Cascella: I think that for the most part, the European team is trained. We've had good success in terms of market growth, as I indicated, even our very mature CT/GC business was up 15% on a pro forma year-over-year basis. So we're pleased with the uptake. On an international basis, we're probably seeing, I think, equal successes in different markets, but we are going through product registration processes that can take 6 months to 1 year to complete. So the market that we are most successful in today is Europe, but we believe that, that will branch into China and Japan over this next year. David P. Harding: Yes, just to add a little bit. This is David. We are, in fact, transitioning to our direct business in Japan. So that will take place in the coming quarter, and we feel that we can drive a lot of incremental sales as a result of that. In China, we are still awaiting registration and approvals from the Chinese government, before we can begin fully deploying our sales team there against the core Gen-Probe product line.
Operator
And we'll now go to Vijay Kumar from ISI Group. Vijay Kumar - ISI Group Inc., Research Division: I wanted to touch on the whole reimbursement discussion. You mentioned that you had your -- initially met with CMS. You were also in talks with private payers, and there has been some question marks in the marketplace, where the 3D tomo wouldn't necessarily get a $50 incremental. And people often cite cost benefit analysis. And I'm just curious if you could comment on this thought and sort of how those initial discussions have gone relative to your expectations. Robert A. Cascella: I would say that the -- and Peter will comment as well. Of course, I would say that private pay is very interested in a cost benefit analysis. And, in fact, that is the reason why, irrespective of the timeline with CMS, that we have private pay interest. I mean, look, we can reduce the number of callbacks, we can reduce the number of unnecessary biopsies. And, in fact, just the fact that we find more cancers earlier saves money. So that part of the argument works very, very well. And our modeling around that argument, I think, is compelling. With CMS, I think it's really going to be a matter of really suggesting that this is a beneficial technology. And, in fact, it's not as much about cost savings as it is about patient benefits, particularly the Medicare patient population, because that's what their focus is. And we've been able to effectively demonstrate that there is a reduction in recall and higher sensitivity, even with Medicare. And, in fact, in some studies, it's been enhanced for Medicare patients as well. Peter, you may want to add... Peter K. Soltani: Well, I would just emphasize the importance of the health economic aspects of tomo and some of the additional burdens, in terms of equipment costs and the reading physicians, that would warrant an additional reimbursement. So, again, we're very optimistic that we'll get the right outcome. Vijay Kumar - ISI Group Inc., Research Division: Great. And now I just want to go back to the China restructuring. Not to beat a dead horse, but I mean, if you look at the competitor commentary, utilization in the U.S. is down anywhere from mid- to high-single digits. And if you look at the magnitude of miss, $4 million in the U.S. versus $8 million in China. Can you just talk to us -- like what gives you the confidence like those steps can be remedied? Like what's the time frame which it's going to take for sales to come back? David P. Harding: I think we're very confident that sales are going to come back in Q3. If you just sort of look at the pattern, Q1 was very strong. As you know, Q2 is seasonally very weak, in general. And then add on top of it these restructuring activities, we're very confident that it's going to pop back in Q3 and Q4. Robert A. Cascella: I think the other point we might make when we think about China and the miss on China is just to restate that, that is actually a miss from what we had been forecasting to do in that territory as opposed to a comparison with the prior year. I mean, the China business was still a strong business. It is down a little bit year-over-year, but the miss that we're talking about was our expectation for continued revenue ramp in this particular quarter. So it still is a great business for us.
Operator
And we'll now move to Doug Schenkel from Cowen and Company. Doug Schenkel - Cowen and Company, LLC, Research Division: My first one is really a math question. I want to take a different angle on a question that was asked earlier. You've cut your total full year forecast for operating spend by just about $35 million. It sounds like almost half of this is incremental Gen-Probe synergies. Is the balance simply the drop through on a lower revenue number? Or are there other areas you've cut? And then building off of this, it seems like your operating spend will be, by far, the lowest in the fourth quarter, I believe around $180 million. This implies incrementals in the 70s. Is there any reason we shouldn't be cognizant of that as we contemplate how to model out spend in subsequent quarters and, for that matter, operating cash flow? I just want to make sure there's no calendar effect on expenses or some expense that was pushed out of this fiscal year into next. Robert A. Cascella: Yes. I'll give you one summary on just the balance in addition to Gen-Probe synergies, and they will happen overtime over the course of this year. And, in fact, some of those involve facility closure and so on and so forth. So you may see an uneven weighting from 1 quarter to the next. But in addition to Gen-Probe, we've taken a hard look and have continued to take a hard look at all of the businesses, and are looking at areas where the company may have had an excessive expense structure or unnecessary costs and expenses and so on and so forth. So we have very selectively, over the last 6 months, have been doing much to consolidate. We closed another facility and we announced that earlier, not this quarter. That had nothing to do with the Gen-Probe business. It was all part of the biopsy business. And all of that is an effort to try to consolidate facilities and personnel. But Glenn, you may want to comment on the balance of what's in the year. Glenn P. Muir: Yes. No, I think Doug hit it right on. When we look at our expense forecast for the remainder of the year, it does, number one, now include the Gen-Probe cost synergies, which are much better than when we started the year. We are now seeing just over $60 million for the full fiscal year in Gen-Probe cost synergies. That was factored in, as well as these overall Hologic cost initiatives, saving initiatives. So we don't tend to add expenses even though we had revenue growth in our original plan. We don't add hiring or expenses in advance of that revenue. So we were very aggressive in dialing it back for Q3 and Q4. So when we look at Q4, Doug, it is a range of expenses, but the $180 million you quoted is within that range that we would be expecting. There's really no onetime expenses that are lower that we would point to. If I look at FY '14 though, and I think you're alluding to what -- how to model it going forward. As a reminder, we all know Q1, we are hit with some higher marketing expenses for RSNA, but that's not really the point. I think if we get to FY '14 and we begin to trend up on the revenue side, well, at that point, the operating expenses will increase. So they won't stay at a low level of Q4, hopefully, forever. I would expect them to begin to trend up, but that trending to trail our revenue growth. Right now, we're looking at operating expenses at 30% of total revenue. So we've constantly lowered that from 33% down to 30%. So we've made great strides on the cost side, which you can imagine with -- on the gross margin side, leaves us with operating margin now well over 30%. So we're in the 31%, 32% for operating margin before tax. So we're in a pretty good situation from that standpoint. I would also point out with some of these cost savings, not all of the savings affect just operating costs. There will be a little bit of a gross margin improvement as well, with some of these cost initiatives. So we actually do have a greater sense of comfort when we give guidance, on the gross margin guidance we gave of approximately 63%. So I think Q3 and Q4, from an earnings standpoint, we would expect to continue to look fairly strong. Doug Schenkel - Cowen and Company, LLC, Research Division: Okay, that's all really helpful. And I guess if I could ask a follow-up or, really, a separate question on ThinPrep. I know it wasn't the best quarter, but at the same time, you talked about share gains, which, for what it's worth, is consistent with what we've heard about in some of our recent checks. What inning do you think you are in this initiative? And how do you weigh the risk that a customer who's inclined to move to APTIMA HPV might not, because co-testing isn't available to them on another platform from a competitor? And are you still planning to seek approval for co-testing on non-ThinPrep vials? Robert A. Cascella: Yes, sure. I think to the first part of the question, I think we're really early on. We're probably 2 quarters into what we defined as a much more aggressive campaign to really go after account conversions. Our intent would still be to get validated for the SurePath vial. I think the difficulty today is that no one is, and I think that's what's created some of the issues. So we recognize that that's part of the market, and we certainly don't want to have an impediment against our APTIMA HPV because of that limitation.
Operator
And we'll now go to Bill Bonello from Craig-Hallum. William B. Bonello - Craig-Hallum Capital Group LLC, Research Division: So I just have a question, too, on the Diagnostics business. In terms of cervical cancer overall, I mean, as you look down the road, do you view this as a growing product area for you? In other words, can the gains in ThinPrep share and the growth in HPV, is that enough to offset the accelerated interval expansion in cytology testing, in general? And sort of if so, how do you think about the potential growth in that business overall? Robert A. Cascella: Yes. I mean, look, it's a very fair question. We think, over the next 3 to 5 years, that there is an acceleration in the erosion of the U.S.-based cytology business. But we also think that co-testing becomes a much bigger part of that market from an HPV testing perspective. So there is a bit of normalization even though the interval expansion could be 3 years or more. And I know some of our contemporaries have commented on what doctors now are complying with, those guidelines. More importantly, however, is that we see pockets of growth for both product lines in different parts of the world. We think that there are markets that have not made a decision outside of conventional Pap, that are substantial markets, Germany, for instance. We think that the market penetration in a place like China is very early on. For that matter, Japan is very early on. And that's probably -- some of those are not markets where co-testing will prevail, and they will either be cytology markets or they'll be HPV or DNA and genetic testing market. I think beyond that, Latin America is wide open as well, and we see those as opportunities. So I don't -- I think if we look at the cervical cancer screening from a U.S.-centric perspective, I think it ends up becoming a trade-off. I mean, we are winning today and growing that business quite simply because we don't have much of a presence in HPV, and we are changing that. But without a doubt, the cytology market will decline as a result. Now we can gain more share, but at some point, the cytology market erosion in the U.S. will outpace the ability to gain more share in the U.S. Where we see the opportunities for both of those products is on a global basis. And that's where I think that, if we start looking at the future, and what I mean by the future is maybe the next 3, 5 and even 7 years, I think we see stronger growth on an o-US basis for either one of those products than where we are standing today. William B. Bonello - Craig-Hallum Capital Group LLC, Research Division: Okay, that's very helpful. And then just when I think about your PANTHER placement and the competitive wins that you talked about, how is that playing out in terms of kind of what you expected for PANTHER placements and wins when you first contemplated doing the Gen-Probe acquisition? Robert A. Cascella: I'll answer 2 ways. I mean, one, just from a metric perspective, we're ahead of plan relative to placements. Two, the product is extraordinary. I talked about workflow benefits and operational efficiencies. I talked about the ability to now add menu to that product. It has been so well-received in each of the scenarios that we have applied it to, that it gives us great confidence about just the overall potential of that product from a longer-term perspective. So I think one, again, reiterate, it's exceeded expectations. And, in fact, we believe that when HPV is approved on PANTHER, that not only will we close more HPV accounts, we'll close more CT/GC accounts with it, because what people are waiting for is a complete STD menu on that product. And it has the capabilities to do that. And it has the features and functionality to make random sampling a reality, so that you get workflow efficiencies, as well as a full menu. So we're ultimately -- and if you haven't gotten it from my comment, we're ultimately very, very excited about it.
Operator
We'll now go to Anthony Petrone from Jefferies Group. Anthony Petrone - Jefferies & Company, Inc., Research Division: A couple on Gen-Probe. I don't know, Glenn, if you can just review maybe the blood screening trends in the quarter. And maybe a higher-level question, can you review what major contracts are still up for bid this year on the blood screening side? And then I have a follow-up. Glenn P. Muir: Yes, there's really not a major bid up for this year. That's a fairly stable business. And for this year, we're looking for it to be up 2%. So it actually dragged down. I commented on Gen-Probe being up 6%. Well, the blood screening did drag that percent down a little bit. But that would look to be stable. The growth in blood screening will come in the future, especially if you look at some of the Asian countries out there. China has some tenders out there. There's one in Thailand, we're working on, I believe. But those are all -- they don't kick in for a couple of years. There's one for Japan that they're looking at. But once again, these are a couple of years out. These are long-term contracts at this point. Anthony Petrone - Jefferies & Company, Inc., Research Division: That's helpful. And then just a follow-up there on the operating cost side. You mentioned the $50 million or so in cost savings through this year. Can you just review for us what are the savings from LIFECODES, the sale of LIFECODES and how much is in that $50 million number? And then just what type of portfolio pruning potentially could you see later in this year that can also help that number? Glenn P. Muir: Yes. Well, we did include -- there was a little bit of disconnect concerning LIFECODES last quarter, because we did not anticipate owning it beyond December and had to readjust our cost guidance -- cost expense guidance for the full fiscal year. We increased it by $10 million to take into account having LIFECODES for this quarter. And we hit just under that. I mean, the actual expenses at LIFECODES in Q2 were $8 million or $9 million on revenues of a little bit over $11 million. That's now done. So when we look at the remainder of the year, that LIFECODES is kind of already reflected in our full year's forecast of $760 million to $770 million. As we look at pruning, we have pruned the big pieces at this point. We always look at the portfolio, and we'll continue to do so. But I don't see another big piece that will come in play this fiscal year.
Operator
And that's all the time we have for questions. I'll turn the conference back over to our presenters for any additional or closing remarks. Robert A. Cascella: I just want to thank everyone for their participation and questions, and we'll update you during the course of this next quarter. Thank you.
Operator
This concludes today's presentation. Thank you for your participation.