Good afternoon, and welcome to Hologic's First Quarter Fiscal 2020 Earnings Conference Call. My name is Justin, and I am your operator for today's call. Today's conference is being recorded. [Operator Instructions]. I would now like to introduce Mike Watts, Vice President, Investor Relations and Corporate Communications, to begin the call.

Thank you, Justin. Good afternoon, and thanks for joining us for Hologic's First Quarter Fiscal 2020 Earnings Call. With me today are Steve MacMillan, the company's Chairman, President and Chief Executive Officer; and Karleen Oberton, our Chief Financial Officer. Steve and Karleen both have some prepared remarks, then we'll have a question-and-answer session. Our first quarter press release is available now on the Investors section of our website. We also will post our prepared remarks to our website shortly after we deliver them. Finally, a replay of this call will be archived through February 21. Before we begin, I'd like to inform you that certain statements we make during this call will be forward-looking. These statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Such factors include those that are referenced in the safe harbor statement that's included in our earnings release and in our filings with the SEC. Also during this call, we will be discussing certain non-GAAP financial measures. A reconciliation to GAAP can be found in our earnings release. One of these non-GAAP measures is organic revenue, which we are defining as constant currency revenue less the divested Blood Screening and Cynosure businesses as well as the acquired SuperSonic Imagine business. We hope that our discussion of organic revenue in this call will simplify a complex quarter and help you focus on the parts of our business that matter most. Finally, any percentage changes that we discuss will be on a year-over-year basis, and revenue growth rates will be expressed in constant currency unless otherwise noted. Now I'd like to turn the call over to Steve MacMillan, Hologic's CEO.

Thank you, Mike, and good afternoon, everyone. We're pleased to discuss our strong financial results for the first quarter of fiscal 2020. But before we get into those details, let me start by saying that it's an exciting time for the company and for our shareholders. Now that the divestiture of Cynosure is behind us, we're able to double down on what we do best: helping women and their families live healthier lives through early detection and treatment of disease. Along those lines, at the recent JPMorgan conference, it was exciting to reintroduce ourselves to investors as a unique asset in women's health. Now with a simpler story, minus the overhang of Medical Aesthetics, shareholders can focus on the significant positive changes that have occurred in each of our businesses over the last couple of years. When you do, we think you'll find a company with a broad portfolio of market-leading products for women's health; a company that, over the last 6 years, has grown the top line at mid- single-digit rate and leveraged that into low double-digit growth on the bottom line; a company where each business has strengthened significantly since the first half of 2018, positioning us to drive faster organic revenue growth and better margins in 2020; and a company that is focused on redeploying its strong cash flow more aggressively into growth-accretive tuck-in acquisitions as well as returning cash to our shareholders via stock buybacks. I'm proud to say that for the first time since I joined Hologic, all our domestic divisions as well as our international regions are performing well at the same time, and behind the scenes, that's because our corporate and divisional leadership teams have never been stronger than they are today. With that introduction, let me turn to our first quarter results, which represent our seventh consecutive quarter of solid, consistent performance. Total revenue finished slightly above the high end of our guidance at $850.5 million. This was only 2.8% growth, but it's important to break down the components, as Mike said. He defined organic revenue, which excludes the divested Blood Screening and Medical Aesthetics businesses as well as some earlier-than-expected revenue from SuperSonic Imagine this quarter. So organically, we significantly outperformed expectations, growing 4.6% against our toughest comparable of the year. And this 4.6% compares favorably to our last quarterly guidance, which called for growth of 1.2% to 3%. In terms of the bottom line, we were pleased to hit the high end of our guidance range with EPS of $0.61 in the first quarter, even while absorbing a much worse-than-expected loss from Cynosure. So we are off to a good start in fiscal 2020, with all our divisions and regions showing solid performance. We are particularly excited about our Surgical division, which led the way with 10.2% growth in the quarter; and our Diagnostics business, which outperformed with 6.5% growth, excluding Blood. In terms of geography, domestic sales of $632.7 million increased 1.8% in the first quarter but 3.2% on an organic basis. Outside the United States, sales of $217.8 million increased 6%. But excluding acquisitions and divestitures again, revenue increased 9.2% organically, reflecting the strong foundations we have built for sustainable international growth. Core U.S. sales have grown at a low double-digit rate in each of the last 3 years, and we're well positioned to maintain that pace in the balance of 2020. Now let me provide some more detail on our divisional revenue results. In our biggest division, Breast Health, our core 3D mammography business remains rock solid, and we are building on it with an increasingly diversified product portfolio that spans the continuum of breast health care. As we said at JPMorgan, we have overhauled our sales talent, structure and process to help key account managers sell a growing product portfolio more strategically. And this has led to a more diverse, consistent revenue growth. In the first quarter, underlying trends in Breast Health remained solid. Though consistent with our guidance, growth was slower due to a very difficult prior year comparable when worldwide sales grew more than 13%. Against this, global Breast Health sales totaled $331.1 million this quarter and increased 2.4%. Excluding $6.1 million of sales from SuperSonic Imagine, which was not included in our last guidance, global growth was 0.5%. In terms of geography, domestic Breast Health revenue finished in line with our expectations, with growth of 1.5%. OUS sales increased 5.5% in total but decreased 1.4% without SSI against a very challenging 16.1% comparable in the prior year period. We do expect OUS growth rates to rebound strongly in the balance of the year as the business grows and the comps ease. In terms of the breast subsegments, imaging sales grew 2.4%, benefiting from the SSI revenue I mentioned earlier, while interventional sales increased 2.6%. In imaging, sales of our Genius 3D Mammography systems remain steady driven by our new 3Dimensions and 3D Performance gantries. As we said in San Francisco, we have sold more than 1,000 gantries a year in the United States for each of the last 5 years, a remarkably durable performance that has defied expectations of a rapid drop-off in sales. Not only have we been converting our own 2D units to 3D, we have been gaining a much higher share of competitive conversions than anticipated. This market leadership position provides a solid foundation for divisional growth and a platform onto which we can add new products and strengthen our strategic advantages. In interventional, our first quarter results benefited from strong growth in biopsy disposables as our account managers focus on selling our entire portfolio. However, this was largely offset by a headwind from lower Brevera capital sales, which peaked in the first quarter of 2019 before we began limiting supply. We expect the Brevera headwind to be less onerous in the second and third quarters then flip to a tailwind in the fourth quarter when we begin selling capital again. Our new breast surgery franchise, which consists of the acquired Faxitron and Focal brands plus some legacy Hologic products, also continues to perform very well, with growth in the low teens in the quarter. We're pleased to see our strategic rationale for these division-led tuck-in acquisitions playing out as we accelerate growth by coupling clinically differentiated products with Hologic's commercial infrastructure. And we are equally excited about our acquisition of SuperSonic Imagine, or SSI, during the first quarter. As a reminder, SSI is a French innovator in cart-based ultrasound technology, which is used across the continuum of breast health care. Integration is off to a good start, and we continue to believe that the business will be accretive to our revenue growth rate, albeit with some slight dilution to EPS in the near term. We are especially excited about the opportunity in the United States, where SSI had a very limited sales presence, but will now be able to benefit from our commercial infrastructure and relationships with key customers. Now let's turn to Diagnostics, where we have upgraded our talent and aligned our commercial structure to help lab customers of all sizes grow their business. In the first quarter, total revenue of $311.5 million increased 5.5%. Excluding sales from the divested Blood Screening business, Diagnostics revenue grew 6.5%, an even stronger performance. The growth driver here remains Molecular, where we're placing more Panthers with more assay menu in more countries. This has led to strong increases in consumable sales and consistent revenue growth. In the first quarter, for example, worldwide Molecular sales of $178.5 million grew a robust 9% against a challenging prior year comparable. International Molecular continues to be a standout in both the speed and consistency of growth. OUS Molecular sales increased 22.2%, well into the double digits for the 14th time in 15 quarters. Growth was led by our core women's health tests, our viral load assays, with a growing contribution from HIV in Africa and Panther Fusion. And in the U.S., although we already enjoy high market shares in key assay categories, Molecular sales still grew 6%. This reflects how we work collaboratively with our customers to drive volumes and better patient care in established markets. Domestic growth was again broad-based as customers consolidated testing on our large installed base of Panther instruments. As we showed at JPMorgan, we have shipped more than 200 Panthers globally in each of the last 5 years, fueling a very consistent, profitable razor-blade business model. In the first quarter, our legacy women's health assays for chlamydia, gonorrhea, HPV and Trichomonas drove the growth, with our new vaginosis test, Panther Fusion, and our viral load assays contributing as well. Moving on, we were also pleased that Cytology & Perinatal sales of $121 million grew by 3.1% in the quarter, admittedly versus a soft prior year comp. Perinatal sales were flat, so the growth came from our Thinprep cytology franchise. Domestic sales were down slightly, consistent with recent trends, but OUS sales grew solidly, in part, reflecting the early phase of Germany's decision to adopt co-testing screening for HPV and PAP as the standard of care to minimize cervical cancer risk. To wrap up Diagnostics, revenue related to our divested Blood Screening business was slightly higher than expected at $12 million but declined by 15.5%. As a reminder, this revenue reflects low-margin products and services under transition agreements with Grifols and is excluded from our organic results. Now let's turn to GYN Surgical, our most profitable division on a percentage basis, where best-in-class products, new leadership, new commercial models and new product launches have been consistently accelerating growth for 2-plus years. In the first quarter specifically, sales of $119.1 million increased 10.2%, our fastest growth in 11 quarters. Surgical growth was driven by 3 main factors. First, core MyoSure continues to perform well, with mid-teens growth in the quarter as we expand the market for fibroid removal while gaining share. Second, although the domestic endometrial ablation market continues to contract, NovaSure is stabilizing thanks to renewed focus by our commercial teams. NovaSure was down low single digits in the quarter, an improvement compared to recent periods. We are pleased with the number of competitive wins we are seeing for NovaSure and ended the first quarter with more NovaSure customers in the United States than we started with. Third, new products are growing rapidly, although they still represent less than 10% of divisional revenue. Our Fluent Fluid Management System is our best-selling new Surgical product thus far, with more innovations emerging from our development efforts. And fourth, although international represents less than 20% of Surgical sales, it is growing rapidly, 19.6% in the first quarter. And we've only scratched the surface of this opportunity. To round out the revenue discussion, Skeletal sales of $23.5 million grew 11.4%, our best performance since the fourth quarter of 2017, based on strong growth of our DEXA systems. We're pleased to see the top college and professional sports teams are adopting DEXA technology for body composition testing and that our products will once again be used to assess football players participating in the NFL draft combine. Before we turn the call over to Karleen, let me just close our Medical Aesthetics chapter by saying that we are pleased to have completed the divestiture at the end of December. Cynosure sales in the first quarter were clearly much weaker than expected across the board. And as I mentioned earlier, the business was a significant drag on profitability as well. In terms of our business development strategy moving ahead, we look forward to pursuing more of the smaller division-led deals that have been working well for us. Net, we feel really good about the businesses we're currently in and don't see a need to add a fourth leg to our strategy given the many opportunities for tuck-ins that leverage our existing commercial channels. So in conclusion, it's an exciting time for the company and our shareholders. We are pleased to report our seventh consecutive quarter of strong execution, with 4.6% organic growth against our toughest comparable of the year. Our Surgical and Molecular Diagnostics businesses stood out this quarter, aided by strong international growth. But Breast Health is also performing well, with a multitude of opportunities still ahead. The efforts we have made over the last few years to strengthen capabilities and accelerate growth are paying off across the company, and we are supplementing these efforts with smart capital deployment that is focused on tuck-in acquisitions and share buybacks. Now let me turn the call over to Karleen.

Thank you, Steve, and good afternoon, everyone. In my remarks today, I'm going to walk through the rest of our income statement, touch on a few other key financial metrics, then finish with our updated financial guidance for 2020 as well as for the second 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 first quarter results as organic revenue growth of 4.6% drove sales of $850.5 million, which slightly exceeded our guidance range. In addition, EPS of $0.61 finished at the top end of our guidance despite significant underperformance from the divested Medical Aesthetics business. We also executed on a $205 million accelerated share repurchase program following the Cynosure announcement and bought back an additional $81 million worth of shares on the open market. And our Board has authorized an additional $500 million repurchase program beginning in the third quarter. For all these reasons, fiscal 2020 is off to a great start, and we are raising our guidance for organic revenue growth and EPS accordingly. I'll discuss that more in a minute. But before I do, let me start by reviewing our P&L for the first quarter. Gross margins of 61.6% decreased 60 basis points compared to the prior year period. This was primarily due to the disappointing sales in the divested Cynosure business, product and geographic sales mix and the stronger U.S. dollar. Total operating expenses of $289.3 million increased 5.3% in the first quarter or 4.1% if you exclude SSI's expenses. This increase was driven mainly by higher G&A costs associated with our deferred compensation plan, in which the associated liability is mark-to-market, resulting in higher expense. It's important to note, however, that we hedge this exposure. So most of this expense is offset by a benefit below the line in other income. In addition, research and development expenses increased as we continue to balance growth investments with our goal to drive operating leverage. Based on these increases in operating expenses, operating margin of 27.5% decreased 170 basis points. However, given the deferred compensation dynamic that I just discussed and the benefit in other income, it's probably more appropriate to focus on net margins of 19.3%, which increased 40 basis points despite the Cynosure headwind. Overall, our profitability remains very healthy. All of this led to non-GAAP net income of $164.1 million and non-GAAP earnings per share of $0.61, at the top end of our guidance range, despite absorbing the Cynosure loss. Cynosure ended up costing us more than $0.02 in the quarter, net of the fixed overhead cost that, that division absorbed. Before we cover our revised 2020 guidance, I'll quickly touch on a few other financial metrics. Our leverage ratio stood at 2.5x at the end of the first quarter as we used cash to acquire SuperSonic Imagine and buy back shares. We remain comfortable with a leverage ratio between 2.5 and 3x, recognizing that this could fluctuate based on the timing of acquisitions and buyback activity. Moving on, ROIC was 12.3% on a trailing 12-month basis, an increase of 10 basis points over the prior year. Finally, adjusted EBITDA of $261.9 million increased slightly compared to the prior year. Now I'd like to shift gears and discuss our non-GAAP financial guidance for the full year and second quarter. We are updating our full year guidance based on our good first quarter results and to account for the divestiture of Cynosure. At the high -- at a high level, we are raising our organic constant currency revenue guidance as well as our EPS forecast. Let's start with revenue. As a reminder, we previously guided to reported sales of $3.45 billion to $3.5 billion, which represented constant currency growth of between 3% and 4.5%. This original guidance contemplated an equivalent organic growth rate of 3% to 4.5% since the forecast from the acquired SSI business and the divested Blood Screening business basically offset each other. Based on our strong first quarter results in our core businesses, the divestiture of Cynosure and an updated currency headwind of $10 million, we are increasing our organic revenue growth guidance to a range of 4% to 5%. If we meet or exceed the middle of this range, organic revenue growth would accelerate compared to 2019, as Steve said in his introduction. Now let me transition to reported growth guidance for the full year. We now expect revenue of $30 million to $35 million from SSI and $35 million to $40 million from Blood Screening. This helps us build up to a total reported revenue range of $3.238 billion to $3.268 billion. This range equates to constant currency decline of 3.5% to 2.6% or a reported decline of 3.8% to 2.9%. These declines are driven by the absence of Cynosure revenue in the balance of the year. Based on the improved revenue performance in our core businesses, we expect to invest additional resources in future growth. But at the same time, our buyback activities enable us to offset these additional investments while still driving leverage bottom line growth. So despite absorbing the $0.02 Cynosure loss in the first quarter, we are increasing our full year EPS guidance to a range of $2.63 to $2.67 a share, which represents growth between 8.2% and 9.9%. This full updated -- full year updated guidance is based on diluted shares outstanding of 268 million to 269 million for the full year, which reflects progress on our buyback program and an effective tax rate of approximately 21.75%, the same as our original guidance. Now let's turn to guidance for the second quarter of fiscal 2020. We expect organic revenue growth of 3.4% to 4.8%. This organic growth, combined with the impact of acquisitions and divestitures, leads to a total revenue range of $770 million to $780 million for the quarter. This equates to constant currency decline of 5.4% to 4.2% and a reported decline of between 5.9% and 4.7%. Again, these declines are due to the absence of Cynosure revenue compared to the prior year period. On the bottom line, we expect EPS of $0.61 to $0.63 in the second quarter. This implies growth rates of between 5.2% and 8.6% continuing to outpace revenue. Let me point out that this EPS range incorporates improved gross margins of 62% to 63% in the second quarter, mainly reflecting benefits from the Cynosure divestiture. I'd also like to point out that while other expenses net were $24.8 million in the first quarter, we expect these expenses to increase by more than $5 million sequentially in the second quarter as we don't forecast the benefits we saw in the first quarter to recur. As you update your forecast, let me remind you that we're raising our guidance materially this quarter, so we would encourage you to model to the middle of our guidance range. It's still early in the year, and we've tried to set realistic ranges that incorporate both potential upsides and downsides. Before we open the call for questions, let me conclude by saying we are pleased with how we started 2020. We feel great about our core businesses and now raising our organic growth rate guidance accordingly. We are encouraged by continued strong commercial execution, the progress in our international franchises, the productivity of our R&D pipeline and the deals we have completed. And we are excited about the opportunity to strategically redeploy capital going forward through division-led business development and share buybacks. Overall, we believe we have multiple levers to deliver healthy organic growth -- revenue growth and EPS growth in 2020. With that, I will ask you to operator to open the call for questions. [Operator Instructions]. Operator, we are ready for the first question.

[Operator Instructions]. And we'll go ahead and take the first question from Patrick Donnelly with Citi.

Maybe just on Cynosure in the wake of the divestiture. Obviously, this was a big focus or distraction, whatever you want to call it, for the investor base. But how much in the divestiture allow for an increased focus internally? Given things are segmented out, did it not consume too much mind share? Or do you feel like there's not going to be a renewed focus on the core business, particularly in areas like internationally, your businesses seem to be run a little closer to each other? Did Cyno get kind of a disproportionate amount of attention there? Or do you feel like there's going to be an increase especially even outside of the removal on the overall growth number?

Yes. Patrick, your -- the last part of your question is extra insightful, that in the U.S., there was -- really, the core businesses were not as distracted, but clearly, Karleen, me and Mike, the whole senior management team was. Internationally, to your point, I think what we're really excited about is the international folks being able to really double down on the 3 core businesses because like anything, they were probably spending a disproportionate amount of time and energy dealing with customer issues, service issues, whatever it might be on the Cynosure business. And I will tell you, if you talk to our head of Asia Pac, our head of the European area and then you get into the country leaders and everything else, they, I think, are very excited about the opportunities ahead. And I think we've been making very nice progress in the last few years internationally, but this is probably the best news they can get out of it. And it makes us more excited about the opportunities ahead.

And Patrick, this is Karleen. The only thing I would also add is that it kind of shows such a back-end-loaded revenue in the quarter. Really, this divesture also gives us increased confidence in our forecasting ability and ability to reinvest when we see upside. So I think it's a benefit there though as well.

And our next question will come from Doug Schenkel with Cowen.

This is Chris on for Doug today. Maybe just to follow up on the Cynosure question a bit.

Hey, Chris, before you get started, just for the -- this is Mike. Just for the operator, it's fine to let folks ask a second follow-up question, just to be clear. So I just wanted to make that point that you're welcome to ask a follow-up. Sorry about that.

Go ahead. Okay. So could you just help us bridge the organic revenue growth guidance as it relates to Cynosure in the core business? I guess, said differently, to what extent was organic revenue growth guidance increased due to the removal of Cynosure from results?

There was a bit of both. I think at the -- truthfully, at the start of the year, Cynosure, we thought, was going to grow roughly in line with the rest of the businesses. Now clearly, that did not happen in the first quarter because of the divestiture and the announcement. So it was a pretty ugly quarter. But I think if you really look at it, at the end of the day, the revised guidance upward is also more conviction and confidence in our core businesses. So it's really more about the additional confidence we have in our core businesses. We didn't really see Cyno being a drag. Now probably, it would have been, but it's -- clearly, we feel better and better about each of the 3 other businesses.

Yes. And I think to the point that Steve made earlier, internationally, is it's a significant piece of the upward take in that guidance.

Okay. And then for a follow-up question, has the severe flu season benefited your Panther Fusion respiratory assays? And could you just ballpark how big that business is now?

Yes. We wish it was, but we're still so small in the flu business. If anything, we always -- we're probably still at that stage where it could possibly hurt us a touch as people may give up other visits to their doctors. But I think, overall, awash, but we don't see it being a big benefit to us yet just because we're not as big yet in that space.

Yes. Chris, just -- this is Mike. Just to give a little more color on that. I think we've said, last year, our Fusion respiratory assay revenue was around $10 million, a little bit less. So that will give you a sense. I mean certainly, we were up in the quarter as you would expect, and we would expect to be up in the year. But as Steve said, not a huge deal.

And our next question comes from Tycho Peterson with JPMorgan.

Just looking at guidance, the midpoint and higher end obviously implies an acceleration, ex Cyno. Can you just talk about, by segment, where you're seeing the acceleration for 2020? Is it mostly on the GYN Surg side? And if so, how sustainable is that? You hit over 10% there this quarter, so just curious about where you see the acceleration this year.

Yes. Clearly, we're really pleased with the Surgical performance and the continued improved performance we've seen over the -- several quarters now. But yes, I would say acceleration is clearly from Surgical and probably Diagnostic as well.

And then you're bumping up the SSI guide from $25 million to $30 million to $30 million to $35 million. Can you just talk a little bit about how you're bundling that with the rest of the offering? Anything to note on the integration front and how you see that ramp going?

Yes. So I would just say that the increase really has to do with the timing of obtaining the controlling interest. So when we originally guided in Q4, we assumed we would not have a controlling interest and therefore, no revenue in the first quarter. So the uptake is really the timing of that controlling interest. And I think it's early days, but the integration is off to a start. And I think, as we've said before, SSI had minimal presence in the U.S., only, I think, 5 reps -- sales reps in the U.S. And so our teams are excited to drop that product into their -- our sophisticated commercial infrastructure here in the U.S.

And our next question comes from Jack Meehan with Barclays.

I wanted to go back to the Molecular growth in the quarter and maybe just focus on what's going on in the U.S. I think you mentioned in the script that the core women's health was still growing well. But I'm just curious because we've seen, in just the past couple of quarters, I think last quarter, U.S. Molecular grew 9%. Just what was the -- maybe just why did that slow down a little bit in the quarter? Was there anything from a comp perspective? Or what's going on, on the women's health side?

Yes. Jack, it's Mike. I think we were pretty happy with the Molecular number in the quarter, both U.S. as well as OUS. As we've talked about in that business, it's not really any one thing that drives growth. Certainly, the core women's health assay, specifically chlamydia, gonorrhea, HPV and Trich, are the biggest tests. So they have to grow for the business to kind of show the performance that you've seen, but they were up very solidly in the quarter in mature markets. Viral load was a nice contributor as well. I think we highlighted some growth in Africa, in particular, from viral load. And I would say some of the new products, particularly the vaginosis panel, the BV/CV test, are starting to contribute as well. So pleased with where that division is. And I guess I would say -- sorry, Jack, I guess the other thing. I mean remember, that had a really bad comp last year, too. It was a very challenging prior year comp. So that might be some of what you're seeing.

Okay. Got it. And then I think on the flip side, with Cytology, I thought the international growth looks pretty good, and I know, working off somewhat small numbers. And I picked up, I guess, the comment around Germany. Just do you feel like there's -- how durable do you think the double digit on the international side is as a lever to keep Cytology nudging forward?

I would not expect it to be a double-digit growth. I think like all these things in international, sometimes, it's the smaller bases and timing, you get a little capital sale, you get some things like -- having said that, I think we do see it being at least a slightly growing asset outside the U.S. to offset the declines in the U.S. And it's why I think, globally, we feel like Cytology is roughly a flattish business. And international gets a little more growth. It might tweak that slightly better, but I don't think it's necessarily a double-digit grower.

And our next question comes from Bill Kirk with Piper Sandler.

This is Rachel on for Bill. So the international Diagnostics business continues to grow to a fast level of a pace. How much of this is driven by new products versus share gains? And how long can this sort of pace continue?

Yes. I think we talked about -- I think the majority of the growth is from share gains, a little less from the -- the new products' contribution is the viral load internationally, which is contributing nicely. But we expect continued double-digit growth, probably maybe not at the rate that we've seen as they come against some of those tougher comps, but feel really good about that business.

We have been placing more Panthers internationally over the recent quarters than we have in the U.S. So I think our ability to continue to sustain that we feel really good about.

Great. And then given the combination of new products across almost all of your divisions and M&A completed so far, how much capacity do your teams have for additional transactions?

I'm sorry. We couldn't hear that. Could you repeat that question?

Yes. So given the combination of new products across all divisions and M&A completed so far, how much capacity do you think your teams have for additional transactions?

Yes. So I think the transactions that we've done to date have been in the Breast Health division because certainly, within Diagnostics and Surgical, there's more than adequate capacity to take on transactions. I think Breast Health has -- still has a very active M&A pipeline. They do have a lot of integration activities. But certainly, we feel that if the right deal came along, we have the ability to make the capacity to do a transaction.

Our next question will come from Brian Weinstein with William Blair.

Just going back to OUS here for a minute. Obviously, it's been a great driver, and it looks like there's a lot to go here. But can you give us any kind of an update on where you actually do stand in terms of market share for some of the key products? You've typically said that they were around half of what they were for key products here in the States. Where is that now? And what are your longer-term kind of thoughts about where market shares can wind up over there? Can they get to U.S. level still, do you think?

Brian, I think it's so hard, quite frankly, to really have a great handle on our market shares by segment because there's not great data on a lot of these. I think, anecdotally, from what we just feel, yes, there's still enormous opportunities ahead. And when you look at our relative revenue, under 1/4 of most of our businesses are outside the U.S., where clearly huge opportunities do, again, continue to be playing out not just in the coming quarters, but really, we think we've got a decade's worth of runway here in terms of solid growth before they even catch up to the U.S., probably ultimately the U.S. shares.

Okay. And then on some of the investments that you're talking about and having a little bit more flexibility to make some of those investments, what are the key strategic investment areas that you guys are focusing on this year? And if there was some upside to develop, where are the incremental investments likely to be made?

Sure. There's always the extra R&D projects that will come up even during the course of the year that we'll look at. I think we now have better and better leadership internationally. And so that ability to be thinking about adding some more sales reps behind certain franchises in certain countries, I think those kind of opportunities are the kind that can -- we can redeploy efforts as we go through and then the occasional marketing activities as well. But it's really looked at by franchise, by geography, combination, sales, marketing, R&D.

And our next question comes from David Lewis with Morgan Stanley.

Just two questions on earnings and margins for Karleen. Karleen, so $0.03 in the buyback, $0.02 to $0.04 from removed Cyno dilution. That's around $0.05 to $0.07, and you're raising the guide by $0.02. So that incremental $0.03 to $0.05 of additional reinvestment, where is that going? And a quick follow-up on margins.

Yes. So Dave, let me walk you through how we thought about we'd raise the guidance on the bottom line. So yes, we absorbed the $0.02, additional $0.02 loss. We'd talked about the ASR was about $0.02. Again, there is -- that includes the impact of the stranded costs in the -- from Cynosure because they will bring a piece of our overhead. And then the incremental ASR -- the incremental open share repurchase is less than $0.01 for the full year. So it gets you close to $0.025 at the midpoint.

Okay. But you still expect the Cynosure divestiture to be $0.02 to $0.04 accretive for the year?

Yes, I don't -- hey, David, it's Mike. I don't know that we said $0.02 to $0.04 accretive for the year. I think when we announced the divestiture, basically, the business was breakeven or at least was expected to be breakeven for the year. Clearly, they did worse than that in the first quarter. We said that the combination of the divestiture and the ASR would be about $0.02 accretive. Maybe that's where we weren't clear. But -- so we were kind of looking at those things as roughly $0.02 accretive. And then, of course, we absorbed, as Karleen said, some extra dilution that's baked into the raise in Q1 here.

Our next question will come from Raj Denhoy with Jefferies.

I wonder if maybe I could hit on a couple of things. You mentioned the gantry placement number has been pretty consistent at about 1,000 for several years running now. I realize that the acceleration of this business is only about 6 or 7 years old. But at some point, do we start to see a replacement cycle in 3D? Could that number start to pick up as you move out a couple of years from now?

Yes. I mean I think, eventually, that if you think about 3D was originally approved in 2011, but you had that significant uptake in the 2014, 2015 time frame. With the 7-year life, 7 to 9 year life, at some point, there's a replacement cycle there. But I think we've intentionally smoothed out that cycle with the upgrades that we're doing to the field now. Because if you think about our greatest gantry, 3D, 3Dimensions, those features and functionalities are backwards-compatible to the installed base. So really, trying to minimize that pent-up demand in our replacement cycle. So we feel good and really are pleased with the steady approach of placements over the coming years.

Okay. That's fair. And maybe just a follow-up on the last question, on David's question, about the guidance, the earnings guidance, in particular, all of the raises just around the ASR and the Cynosure divestiture. And so Karleen, I'm just curious about your views on sort of other margin expansion initiatives, which you guys can undertake over the next year-plus in order to take your margins even higher than where they are now.

Yes. So certainly, that's always a focus, to create leverage in an operating margin. And I think, always, we have ongoing programs within the supply chain organization to work on that. And then there's still efforts within the middle of the P&L that we can take. It's an active -- it's an ongoing activity throughout the organization to look for leverage points.

I would remind you, Raj, as you well know, our margins are already pretty good. So a big part of our focus at this point has really been on accelerating that organic growth rate via the investments in R&D, sales, marketing. And we think, overall, it's going to be a pretty good combination, but more on accelerating the sales growth than on huge additional focuses on margins. But again, obviously, we're always working and expect to improve the margins as well.

And our next question comes from Ivy Ma with Bank of America. Ivy M&A: Karleen, appreciate the color on the guide so far. Not to beat the margin question to death, I just wanted to see how should we think about the margin improvement in this fiscal year and beyond given the removal of Cynosure in terms of both gross margin and operating margin would be great. And then I have a follow-up on the gross margin this quarter as well.

Yes. So if you look even at just what we've guided to for Q2, 62% to 63%, compared to where we ended Q1, you can see the midpoint of the 100 basis improvement in the margin profile. So I think that's 50 to 100 basis points is how we're thinking the impact is for Cynosure as we move forward. And I think operating margins certainly will be more than that on the gross margin given that Cynosure was such a heavy OpEx business.

Great. That's helpful. And then a follow-up. So on the gross margin decline this quarter, could you help us unpack how much in the 60 bps just relates to Cynosure, the mix and then the stuff that you would see, please?

Yes, maybe I'll describe it another ways. The majority of that decline was really Cynosure. So if you looked at the base business, gross margins are essentially flat year-over-year. And if we looked at quarterly trending of gross margins in '19, Q1 was our best gross margin quarter. So majority is really Cynosure-related.

[Operator Instructions]. Our next question comes from Jayson Bedford with Raymond James.

So I wanted just to revisit the segment growth. I came off the fourth quarter call thinking Diagnostics, Breast Health, Surgical would all grow in that 4% to 5% range for the year. I realize that comps come into play here, but Surgical was obviously well above this level. Breast Health was below this level. So maybe you can just level-set us on segment expectations for the year, if they've changed at all.

Yes. I think, overall, probably each of our businesses is going to grow solidly in the mid-singles for the year. Breast Health, that will include a little bit of help from SSI, as we said at the start. And then Surgical was probably a little bit at the higher end of that piece; and Diagnostics, pretty much right in the middle. So I think all of that gets to that 4% to 5% organic that we're talking about.

The Breast Health mid-single include SSI?

Yes.

Yes. I think, as we always said, especially going against the first 2 quarters where we had these monster comps from a year ago. That's why our initial guidance, if you recall from last quarter, only called for 1.2% to 3.0% organic growth.

And we'll go back to Dan Brennan with UBS.

This is Nathan Treybeck calling for Dan Brennan. Can you hear me?

Hey. There we go. All right.

A lot of pressure on this question now.

Yes. Definitely. Third time is the charm, I guess. In terms of going back to Molecular, can you frame the size of the OUS opportunity in terms of, I guess, an addressable dollar figure?

I don't know. We've got a great number on that because, again, just some of the data sources and other stuff. But I think it gets back to we have a lot of runway ahead to consider the size of our Molecular business outside the U.S. relative to inside. Can we easily double and triple it over the longer term where we are today to outside the U.S.? Yes.

Okay. And just staying on Molecular. Can you discuss the split between share gains from other Molecular players versus, let's say, converting less from non-Molecular approaches?

It's so hard to know that when you start to deal country-by-country and everything else. I think we feel good about the trajectory. And obviously, it sources above.

And our next question will come from Ivy Ma with Bank of America.

I just wanted to talk about Surgical for a minute. Can you talk about how sustainable is that segment's growth and what your expectations are for the rest of this fiscal year, especially as the comp gets tougher later in the year?

Yes. I think we -- what we said is Surgical -- I think Steve just talked about the segment, that we expect Surgical at the high end of that mid-single digit given the Q1 performance. Again, we have contribution from new products coming throughout the continuation of the year. But to your point, we are coming up against higher comps. So that's why we don't -- we're not projecting that 10% for the full year.

And thank you. That is all the time we have for questions today. This now concludes Hologic's First Quarter Fiscal 2020 Earnings Conference Call. Have a good evening.