Q1 2020 Earnings Call
Please standby.
Good afternoon, and welcome to logics first quarter fiscal 2020 earnings conference call.
Name is Justin and I in your operator for today's call. Today's conference is being recorded all lines have been placed on you I.
I would now like to introduce my watch Vice President Investor Relations and corporate communications to begin the call.
Thank you Justin good afternoon, and thanks for joining us for Healogics first quarter fiscal 2020 earnings call with me today or Steve Macmillan, The company's chairman, President and Chief Executive Officer, and Carlino, Virgin Our Chief Financial Officer.
Even carlene both have some prepared remarks, then we'll have a question and answer session.
Our first quarter press releases available now.
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 21st.
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 could 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 FCC.
Also during this call we will be discussing certain non-GAAP financial measures reconciliation to GAAP can be found in our earnings release. One of these non-GAAP measures is organic revenue, which were defining as constant currency revenue less the divested blood screening and cynosure businesses as well as the acquired at supersonic imagine business, we hope to our discussion of or do you.
Revenue in this call will simplify a complex quarter and hope you focused on the parts of our business that matter most.
Finally, any percentage changes that we discussed will be out a year over year basis and revenue growth rates will be expressed in constant currency unless otherwise noted.
Now I'd like to turn the call over to Steve Macmillan Hologic CEO .
Thank you, Mike and good afternoon, everyone.
I'm pleased to discuss our strong financial results for the first quarter fiscal 2020.
Well 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 with 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 J.P. Morgan conference. It was exciting to reintroduce ourselves to investors as 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.
The company that over the last six years has grown the topline at mid single digit right and leveraged that into low double digit growth on the bottom line.
A company were 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 it strong cash flow more aggressively into growth accretive tuck in acquisitions as well is 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 or first quarter results, which represents 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 caused the 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 the P.S. of 61 cents to the first quarter, even while absorbing a much worse than expected loss from cynosure.
So we were off to goods to a good start in fiscal 2020, with all our divisions and regions showing solid performance.
We're 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% to the first quarter, but 3.2% on an organic basis.
[noise] 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 three 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 Threed mammography business remains rock solid and we're building on it with an increasingly diversified product portfolio that spans the continuum of breast health care.
As we said at JP Morgan, we have overhauled our sales talent structure and process to help key account manager sell a growing product portfolio more strategically.
And this has led to 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 what worldwide sales grew more than 13%.
Against this global breast health sales totaled $331.1 million this quarter.
An increase of 2.4%.
Excluding $6.1 million in sales from supersonic imagine, which was not included in our last guidance global growth was half a percent.
In terms of geography domestic breast health revenue finished in line with our expectations with growth of one of the half percent.
Oh U.S. sales increased five at a half percent in total but decreased 1.4% without SSR against a very challenging 16.1% comparable in the prior year period.
We do expect Oh, U.S. growth rates to rebound strongly in the balance of the year as the business grows and the cops <unk>.
In terms of the breast sub segments imaging sales grew 2.4% benefiting from the ESI revenue I mentioned earlier, while interventional sales increased 2.6%.
In imaging.
Sales of our genius Threed mammography systems remain steady.
Driven by our new three dimensions and Threed performance Gantries.
As we said in San Francisco, we have sold more than 1000, Gantries a year in the United States for each of the last five years, a remarkably durable performance that is defied expectations of a rapid drop off in sales.
Not only have we've been converting our own QD units to three D.
We've been getting a much higher share of competitive conversions than anticipated.
This market leadership position provides a solid foundation for divisional growth.
At a platform onto which we could add new products and strengthen our strategic advantages.
In interventional, our first quarter results benefited from strong growth and 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 and the second and third quarters, then flip to a tailwind to the fourth quarter, when we began selling capital again.
Our new breast surgery franchise, which consists of the acquired facts of Tri 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 like coupling clinically differentiated products with Hologic commercial infrastructure.
And we are equally excited about our acquisition of supersonic imagine or asset side during the first quarter.
As a reminder, exercise 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 E. P. S in the near term.
We're especially excited about the opportunity in the United States.
We're asked US I 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've 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% and 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.
Oh, U.S. molecular sales increased 22.2%.
Well into the double digits for the 14th time and 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 pass a few [noise].
And in the U.S., although we already enjoy a high market shares in key asset categories.
Molecular sales still grew 6%.
[noise]. 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 a J P Morgan.
We have shipped more than 200 Panthers globally in each of the last five years fueling a very consistent profitable razor 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 Veggie doses tests Panther fusion, and our viral load assays contributing as well.
Moving on we were also pleased that cytology and perinatal sales of $121 million.
Grew by 3.1% in the quarter.
Admittedly versus a soft prior year comp.
Prenatal sales were flat so the growth came from our Thinprep cytology franchise.
Domestic sales were down slightly consistent with recent trends, but oh U.S. 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 Griffin.
And is excluded from our organic results.
Now, let's turn to Gyn surgical our most profitable division on a percentage basis.
We are best in class products, New leadership, new commercial models and new product launches have been consistently accelerating growth for two 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 three 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 Nova sure is stabilizing thanks to renewed focus by our commercial teams.
No for sure was down low single digits in the quarter.
And improvement compared to recent periods.
We are pleased with the number of competitive wins, we are seeing for Nova sure and ended the first quarter with more Nova sure 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 products, 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.
And we've only scratched the surface of this opportunity.
To round out the revenue discussion skeletal sales of $23.5 billion 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 combat.
Before we turn the call over to Carlene.
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.
Yet we feel really good about the businesses were currently in.
And don't see a need to add a fourth leg to our strategy given that 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're pleased to report our seventh consecutive quarter of strong execution with 4.6% organic growth against our toughest comparable 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 Carlin.
Thank you, Steve and good afternoon, everyone.
In my remarks today, I'm going to walk through the rest of our income statement.
On a few other key financial metrics, then finish with our updated financial guidance for 2020 as well for the second quarter.
Unless otherwise noted my remarks will focus on non-GAAP results.
Percentage changes would be on a year over year basis in constant currency.
As Steve described we I'm pleased with our first quarter result, as organic revenue growth of 4.6% drove down from 850.5 million, which slipped slightly exceeded our guidance range.
In addition, EPS of 61 cents finished at the top end of our guidance despite significant underperformance from that vested 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 shared on the open market.
Dan a board has authorized an additional.
500 million purchase 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 EPC accordingly.
Yes that more on a minute.
But before I do let me start by reviewing I.P. announced the first quarter.
Gross margins at 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.
Chronic and geography geographic sales mix.
Stronger U.S. dollar.
Total operating expenses of 289.3 million increased 5.3% in first quarter or 4.1% exclude pesticide expensive.
This increase was driven mainly by higher gene a cost associated with our deferred compensation plan and would be associated liability is mark to market, resulting in higher expense.
It's important to note however that we had spent exposure.
The most of this expense is offset by a benefit although 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 me increases in operating expenses operating margin of 27.5% decreased 170 basis point.
However, 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 margin of 19.3%, which increased 40 basis points. Despite the cynosure headwind.
Overall, our profitability remained very healthy.
Oh this led to non-GAAP net income of 164.1 million in non-GAAP earnings per share 61 cents.
At the top end of our guidance range, despite absorbing the cynosure lie.
Dinesh <unk> ended up costing us more than two cents in the quarter net of the fixed overhead cost that that division absorbed.
Before we cover our revised my 20 guidance I'll quickly touch on a few other financial metric.
Our leverage ratio stood at 2.5 times at the end of the first quarter.
As we used cash to car supersonic imagine in buybacks here.
Remain comfortable with the leverage ratio between 2.5 in three times.
Recognizing that this could fluctuate based on the timing of acquisitions in buyback activity.
Moving on ROI see 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 car yeah.
Now I'd like to sit scared and discuss our non-GAAP financial guidance for the full year in second quarter.
We are updating our full year guidance based on good first quarter result.
To account for the divestiture cynosure.
At the high level 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 report it's the other 3.45 to 3.5 billion, which represented constant currency growth of between three and 4.5%.
This original guidance contemplate an equivalent organic growth rate of 3% to 4.5%.
The forecast from me quite as aside business in 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 fante currency headwind of $10 million, we are increasing our organic revenue growth guidance range of 4% to 5%.
If we meet or exceed the middle of this range organic revenue growth will accelerate compared to 2019.
He said in his introduction.
Now, let me transition to reported growth guidance the full year.
We now expect revenue of 30 to 35 million, putting aside and 35 to 40 million from blood screening.
This helps us build up to a total reported revenue range of three point Q3, 8 billion to 3.268 billion.
This range equates to constant currency decline of 3.5% to 2.6%.
Well I reported decline of 3.8% to 2.9%.
These declines driven by the absence of cynosure revenue in the balance of the air.
Based on the improved revenue performance in our core businesses, we expect to invest additional resources in future growth.
But at the same time I'm buyback activities enable us to offset these additional investments above skilled driving leverage bottomline growth.
So despite absorbing that Houston cynosure locked in the first quarter, we are increasing our full year EPS guidance to a range of 2.63 to 2.67.
To $2.67, a share which represents growth between 8.29, 0.9% [noise].
This full updated got full year updated guidance is based on diluted shares outstanding of 260 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 gone for the second quarter fiscal 2020.
We expect organic revenue growth of 3.4% to 4.8%.
This organic growth combined with the impact of acquisitions and divestitures lead to a total revenue range at 770 million 780 million for the quarter.
This equates to constant currency decline of 5.4% to 4.2% in a reported decline between 5.94, 0.7%.
Again these declines a deal the absence of cynosure revenue compared to the prior year period.
On the bottom line, we expect EPS of 60 want to 63 cents in the second quarter.
This implies growth rates of between 5.18, 0.6% continued to outpace revenue.
Let me point out that this EPS range incorporates improved gross margin of 60% to 63% in the second quarter.
Mainly reflecting benefits Sonic divestiture.
[noise], but also like to point out that while other expenses net worth 24.8 million in the first quarter. We expect these expenses increased by more than 5 million sequentially in the second quarter.
Don't forecast the benefits, we thought in the past quarter to recur.
Have you update your four cats, let me remind you that were raising our guidance materially this quarter, who 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 not raising our organic 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 redeployed 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 in escrow and 2020 [noise].
With that and lastly operated open call for questions.
Yes, Washington's two one related follow up some returns.
Operator, we are ready for the first question.
Well. Thank you if you would like to signal with questions. Please press star one touchtone telephone.
If you're joining us today, you say speakerphone. Please make sure your mute function is turned off to like a signal to reach our equipment [laughter] star one for questions. We ask you keep your question to just one please feel free to go back into queue. If time permits will be more than happy to take your follow up questions at that time.
And we'll go and take the first question from Patrick Donnelly with Citi.
Great. Thanks, guys, just maybe just on cynosure in the wake the divestiture. Obviously this is a big focus or distraction whatever you want to call. It for the Investor base I wish you. The divestiture allow for an increased focus internally you know given things are segmented out not consume too much mindshare or do you feel like there is not maybe a renewed.
Focus from the core business, particularly in areas like international your business seems to be wrong, a little closer to each other to try and I'll get kinda disproportionate amount of attention. There do you feel like there's going to increase benefit even outside of the removal long on the overall growth number.
Yeah, Patrick your the last part of your question is extra insightful that in the U.S. There was really the the core businesses, but not as distracted, but clearly carlene. They like the whole scene of actually do more internationally to your point I think what we're really excited about is the international folks being able to reach.
Only doubled down on the three core businesses.
Because like anything they will 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 Asiapac, our head of a 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 the last few years internationally, but this is probably the best Newsday go off of that puts us more excited about the opportunities.
Patrick This is currently the only thing I'd also add is that good connoisseur, such a back end loaded revenue in the quarter I'm really just divest also gives us increased confidence not forecasting ability and ability to reinvest when we see upside. So I think it went up at that as well.
And our next question will come from Doug Schenkel with Cowen.
Hey, this is Chris offered dietary thanks for taking my question.
Each to follow up on but try to ensure a question of it.
Hey, guys before you get started but 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.
Just wanted to make that point, a that you're welcome basketball.
Go ahead certain type of that go ahead.
Okay. So could you just help us bridge that organic revenue growth guidance as it relates to cynosure and a core business I guess said differently to what extent was organic revenue growth guidance increased due to the removal of cynosure from results.
It was a bit of both I think it the truthfully at the start of the year side are sure. We thought was gonna grow roughly in line.
With the rest of the businesses now clearly that did not happen in the first quarter.
Because the divestiture in the announcements so it was a pretty ugly quarter, but I think if you really look at 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 Sino being a drag now probably would've been.
But it's clearly we feel better and better that each of the three other businesses, yeah, and I think to the point that Steve made earlier internationally is.
It's going to scan piece of the upward or take a month.
Okay, and then for a follow up question has a severe flu season benefited your Panther fusion respiratory assays and could you just ballpark how big that business is now.
Yeah, we wish it was we're still so small in the flu business.
Anything we always we're probably still at that stayed where it could possibly hurt us a touch.
You know people they give up other visits to the doctors, but I think overall, a wash, but we don't see it being a big benefit to us yet just to remind as big yet in that space Yeah, Chris just like just to give a little more color on that I think we've said last year or or fuse and respiratory assay revenue was around 10 million Bucks 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'd expect to be up in the year, but as Steve said not a huge huge deal.
Yes.
And our next question will come from Tyco Peterson with JP Morgan.
Hey, Thanks, just looking at guidance you know the midpoint of the higher end, obviously implies an acceleration you know ex Sino can you just talk about by segment, where where you're seeing the acceleration for 2020 is it mostly on the guidance or side and you know if so how sustainable is that you had over 10%. There. This quarter. So just curious about where you see the children.
Thank you.
Yeah, clearly we were really pleased with the surgical performance and the continued improved performances seen over the.
Several quarters now, but yeah, I would say acceleration is clearly from surgical and probably diagnostics as well.
And then you're bumping up yes, I guide from 20, 530, or 30 35, you just talk a little bit about you know how your bundling that with with the rest of the offering any anything to note in the integration fraud, and how you see that that ramp going.
Yes, so I would just say that the increase really have to do the timing of the obtaining the controlling interest though when we originally guided Q4, we assumed we would not have a controlling interest in there there were no revenue in first quarter. So the uptake is really the timing of that controlling interest and I think it's early days.
The integration is off to a start and I think as we've said before U.S. OSI had minimal presence in the U.S. only I think five wrap sales reps in the U.S. and so you know our teams are excited at shop that that product into there you are sophisticated commercial infrastructure in the U.S.
And our next question will come from Jack Meehan with Barclays.
Thanks, Good afternoon.
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, we still growing well, but I'm just curious because we've seen just get the past couple of course, I think last quarter U.S. molecular grew 9% just what was that you know maybe.
Just why did that go down a little them quarter with anything from a comp perspective are you know what's going on on the women's health side.
Business to kind of show the performance that you've seen but they were up very solidly in the quarter and mature markets. You know 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 vad. Your noses panel. The B.B.C.B. tests are starting to contribute as well. So you know please would wear that we're that.
Business.
Right and maybe just <unk>.
Alright, Jack I guess, the other thing I mean remember that had a really bad cough last year too. It was a very challenging prior cobb, so that might be some of what some of what you're saying.
Okay.
And then I think on the flipside psychology, I thought the international grow looked pretty good and I know working off someone small numbers and then I.
I guess the common around Germany, just you know do you feel like there's how durable do you think doubled hinge on the international side is it or whatever to keep you know psychology.
Forward.
[noise] would not expect it to be a double digit growth.
All these things and on off I'll, sometimes at the smaller bases and time and you get a little capital sale you get some things like having said that I think we do see it being you know at least day I'm slightly growing asset outside the U.S. to offset that the declines in the U.S. and planning you know globally, we fill up cytology roughly a <unk>.
International gets a little more Grove at night.
Tweak that slightly better, but I don't think it's it's necessarily double digit grower.
And our next question comes from Bilk work with Piper sampler.
Hi, this is great.
Everyone.
I know.
That's nice continues to grow.
How much of this is right.
There's this year games, and how long can listen to taste continuum.
Yeah, I think we talked about you know I think the giant the good rocket from Sharon games.
And the Internet the new product contribution as the viral load 'em internationally, which is contributing nicely at night.
He expects continue yeah double digit growth kind, maybe not going rate that we've seen as they come against some of these tough accomplish but don't really get about that business.
Yeah, we have been placing more panthers internationally over the recent corridors and we have in the U.S.. So I think our ability to continue to sustain that we feel really good about.
Mm.
Right and then given the combination of new products across.
Computed so far how much capacity to your teams have heard they're still transaction.
Mm.
That in fact, we couldn't hear that could you repeat that question.
Yep, so given the combination of new products across all divisions and I'm an completed so far how much capacity do you think your teams have for additional transactions.
Yes, I think that transactions that we've done today and then in the breast Health Division, there's certainly within diagnostics and started to call. This yeah.
Than adequate capacity to take on transactions you know I think breast health has still has a very active emanate pipeline yeah. They do have a lot of integration activities, but yeah, certainly feel that if the right deal came along we have the ability to make the capacity to do a transaction.
And moving on to Dan Breaded with G.P.S.
Hmm.
Did any there.
And again your wine is open. Please go ahead with your question.
What's your <unk>. Your line is open. Please go ahead.
I think we lost data, let's move on.
Absolutely. Our next question will come from Brian Weinstein with William player.
Yeah, it's going to question just going back to O.U.S. to your for a minute obviously, it's been a great driver and it looks like there's a lofty goal 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 which he products. You typically said that they were around half of what they weren't for key products here in it.
In the states, where where is that now <unk> what are your longer term kind of thoughts about where market shares can can wind up over there can they get T.U.S. about must still be using.
You know, Brian I think it it's so hard quite frankly to really have a great handle on our market share it by segment because.
Yeah, there's not great data on a lot of these I think anecdotally from what we.
No just feel yeah, they're still enormous opportunities.
And when you look at our relative revenue you know under a quarter you know most of our businesses are the outside the U.S. were clearly huge opportunities to again continue to be playing out you know not just in the corridors, but really you know we think we've got a decades worth of runway here.
In terms of solid growth before the Dave and catch up to the U.S., Yeah, <unk> 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 a strategic investment areas that you guys are focusing on this year and if there was some upside to develop where the incremental investments like we could be made okay.
Or there's you know there's always the extra r. and D. projects that you know, we'll come up even during the course <unk>. We'll look at I think we now have better and better leadership internationally answer that ability to be thinking about adding some more sales reps be I'm certain franchises in certain countries.
I think those kind of opportunity. So the kind that can we can read to pull any afterwards as we go through and then occasional marketing activities as well, but it's really you know looked at by franchise by geography accommodation you know sales marketing R.D.
And our next question comes from David Lewis with Morgan Stanley .
[laughter].
Good afternoon, <unk> two questions on already margins for Carleen I'm, hoping to.
Three sensitive buyback two to four cents from or Mustata dilution, that's around five to seven cents and you're raising the guy by choose that incremental three to five cents, an additional reinvestment where is that a where is that going on it quick follow up a margins.
Yes. It names, let me walk you through how how we thought we raised the guy that kind of bottom line said, yes, we do have to be a <unk>. We talked about the A.S.R. was about two cents again. There is that includes the impact of the stranded costs in that.
From size, because they'll do I'll bring a piece of our overhead and then the incremental A.S.R. then to mental open share repurchase is you know is less than a penny and for the for yeah.
So I get too close to the two and a half sense at the minute midpoint.
Okay, but you still expect this Saturday that should be two to four cents a creative for the year.
Yeah I don't.
My I don't I don't know that we said two to four cents a credit for the year I think when we announced the divestiture you know basically the business was was break even or at least was expected to be break even for the year clearly they did worse than that in the first quarter, we said that the combination of.
The divestiture and the A.S.R. would be about to send secrete if maybe that's maybe that's where we were clear, but so we were kind of looking at those things as as roughly two cents a creative and then of course, we absorb is currently said some extra dilution bits baked into the raised in Q1 here.
And moving on to Dan Brennan with U.P.S.
Yeah, I guess [laughter].
I gave you your wine is hoping go ahead pleased with your question.
Again, please go ahead.
I think he's having a hard time why don't we move on.
Absolutely. Our next question will come from <unk> with Jeffrey <unk>.
Hi, good afternoon.
Wonder if maybe I could hit on a couple of minutes. You know you mentioned the the the good began to replace the number it's been pretty consistent above a thousand you know for several years running now you don't realize a big celebrations business was only about six or seven years old, but at some 0.2 strokes associate roughly speechcycle.
Three d., they're pretty bad numbers start to pick up you know you move out a couple of years from now.
Yeah, and I think eventually they yeah, you could think about three D. was originally approved in 2011, but you had that no significant uptake in the 2000 14015 time frame, but the seven year life seven to nine your life yet at some point, there's a replacement psycho bad, but I think we've intentionally you know smoothed out.
Psych or with the upgrade that we're doing the theaters now could think about along that great. A scantily three d. three dimensions. Yeah. That's just been functionalities of backwards compatible to install base, a really trying to minimize that pent up demand and every place and cycle. So yeah, we feel good and really pleased with the study.
Approach at places like over the coming years.
Okay. That's there maybe just a follow up on the last question on David's question about the guidance me earnings guidance in particular, you know all the way the team's just round the A.S.R. and you know the the sign it should be investiture and so I'm just curious about your views on.
Other other margin expansion initiatives, which you guys can undertake over the next you know year plus snorted will take your margins <unk> you can hire worthy are now.
Yes. It certainly that's always a focus to increase leverage in an operating margin I think you know always we have ongoing programs within the supply chain organization to to work on that and then there's still athletes within the middle of the P.N. now that we can we can take.
It's an active <unk>, it's an ongoing activity throughout the organization to look for leverage point.
Yeah, We remind you rush as you will know you know our margins are already pretty good. So a big part of our focus at this point is really been accelerating let her vienna growth rate.
Yeah, the investments in R. and D. sales marketing and you don't we think overall, it's going to be a pretty good combination.
More organic celebrating the sales growth in 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 come from I.B. bought with Bank of America.
I think if I take my question highly appreciate a collar on a guy so far I'm not to get the market that I just wanted to see how shall we think about the margin for men.
In this you could call your m. beyond given the removal of furniture.
In terms of both both margin of profit margin would be great and then have a fall off on.
Quarter. Thanks.
Yeah. So if you look even at just what we've got into for a cue Q2, 62% to 63% compared to where we ended Q1, you can see that in the mid point, there's 100 basis improvement in the margin profile I'm feeling you know I think that's 50 to 100 basis points is how we're thinking impact is for sign.
Or.
I think we're forward and I think operating margin certainly will be more than that on the gross margin given that Sasha with such a heavy objects business.
Oh, great. That's helpful. And then the full so owned our cooked margin decline this quarter cause you help us on pack how much in 60 minutes I can relate to furniture Max and.
Please. Thank you yeah, yeah I'll describe it another way to get at the majority of that decline was really sinus source it'd be looked at the base business gross margins are essentially flat here a year and if we looked at.
Quarterly training of course and onto the 19 Q1 with our best gross margin quarter. So majority is really sinus related.
And as a reminder, if you would like to signal, which questions. Please press star one Big Star one.
Next question will come from Jason Bedford with Raymond James.
Ah good afternoon. Thanks, So I want to just to revisit the segment growth I came off the the fourth quarter call thinking diagnostics breast health surgical would would all growing that four or 5% range for the year.
Realize that comps come into play here, but surgical.
What was obviously well above this level bread a 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.
Yeah, I think you know overall, probably each of our businesses is going to grow solidly in the mid singles for the breast health that'll include a little bit of help from S.S.I. as we said at the start and mom surgical's, probably a little bit at the higher end of up decent diagnostic <unk> pretty much right in the middle So.
I like all of that gets to that 4% to 5% organic that we're talking about.
<unk>, but the breast health it's single include S.R.
Yeah, I think is we always said, especially going against the first two corners, where we have these monster calls from a year ago.
That's why our initial guidance if you call for last quarter, only calling for 1.2% to 3.4% organic growth Oh.
Yeah, we'll go back to Dan printing with U.B.S.
I got the snake, they try to make offer down Bennington here.
Hey, everything all the pressure on this question though.
Oh, Yeah definitely a third time's a charm I guess in terms of going back molecular can you frame the size of the old U.S. opportunity in terms of I guess, an intractable dollar figure.
Oh, the other one's got him a rate.
A great number on that because you can't just some of the data sources and other stuff, but I think it gets back to we have a lot a runaway on it.
You know to consider the size of our molecular business outside the U.S. relative to inside yeah.
We.
Easily double and triple a. over the longer term.
Where we are today outside the U.S., yes.
Okay interesting on molecular can you just gotta display between share games from other molecular players versus let's say converting wives from normal like other approaches.
It's so hard to know that when you start to deal country by country.
You know everything else.
Feel good about the trajectory and obviously, it's it's sources of though.
And our next question come from I.B., My with Bank of America.
Hey for putting it back on just wanted to talk about search color for them on it.
It's done about that segments girls and you know.
Alright segmentation power for the back for for fiscal year actually that's a concept tougher anything again. Thank you.
Oh.
Yeah, I think we what we said it surgical I think you just talk about segments.
You know that we expect started to go out the high end of that mid single digit given the key one performance yeah, we have contribution from new products coming throughout the day throughout the continuation of the year, but t. a point, we are coming up against <unk>. So that's why they do not projecting that 10% for the full yeah.
Okay. Thank you.
Oh.
And thank you that is all the time, we have for questions. Today. This now concludes for logics first quarter fiscal 2020 earnings conference call have a good evening.
Oh.