GE HealthCare Technologies Inc.

Good day, everyone, and thank you for standing by. Welcome to GE Healthcare's second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To participate, you will need to press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, simply press star 11 again. please be advised that today's conference is being recorded. I will hand the call over to the Chief Investor Relations Officer, Caroline Borders. You may begin.

Thanks, Operator. Good morning and welcome to GE Healthcare's second quarter 2024 earnings call. I'm joined by our President and CEO, Peter Arduini, and Vice President and CFO, Jay Sakharo. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides available on our website. During this call, we'll make forward-looking statements about our performance. These statements are based on how we see things today. As described in our SEC filings, actual results may differ materially due to risks and uncertainties. And with that, I'll hand the call over to Peter.

Thanks, Carolyn, and thanks to all those joining us today. In the second quarter, we delivered 1% organic revenue and 3% orders growth, with all segments contributing. We also expanded margins despite headwinds in the China market. We saw particular strength in the U.S. given replacement cycles and increased use of imaging across disease stage for diagnostics and resilience in the ultrasound market. Excluding China, global revenue growth was 4% and orders growth was 6%. We believe we're gaining market share in each of our segments, and we are continuing to invest in products and services that will accelerate growth in the future. As it relates to China performance, we previously communicated that the region would experience negative sales growth in the first half as we faced a challenging compare. At the time, we expected positive sales growth in the second half. Today, the prolonged timing of the rollout of the new stimulus announced earlier this year is impacting timing of orders and sales. We expect a continued sales decline in China year over year in the second half, and we anticipate growth in China will be negative for the year. As a result, we're lowering our total company full-year organic revenue growth guidance. It's important to note that despite this revenue reduction, we are maintaining our EPS guidance for the year. Although we're disappointed with the second half reduction in sales growth, this is a temporary challenge, and we expect to see China market orders recovery later in the year. We continue to view this market as an attractive long-term opportunity. While China weighed on orders and revenues, we're encouraged by our margin performance in the quarter. Our team has embraced lean and identified process and product improvements at the end of 2023 and the first half of 2024. We're now seeing those benefits coming through our P&L, along with increased customer satisfaction, ultimately resulting in higher win rates in products and services. We're making great progress executing improvements that deliver better value to our customers and patients and eliminating waste, leveraging continuous improvement, or Kaizen. We run approximately 400 sessions throughout the year and recently completed our global CEO Kaizen Week. During the week, we held 28 events across our sites where my leadership team and I joined colleagues to drive and execute process changes and improvements. which is a key aspect of a good Kaizen. Teams were focused on growth, cost, and working capital improvements, some of which have immediate impact at the end of the week, while others will drive impact later in the year. One of our cost improvement Kaizens, a team consisting of engineering, quality, and sourcing, built a plan for a high-running CT platform that will reduce overall costs by 23%, with 15% coming out in the first year. In Waukesha, my team focused on improving our responsiveness to customer demand as well as cost savings for the CT and PET CT products that we manufacture there. We created a visual management tool called a HyJunka board that shows plant capacity, system availability, and customer orders. The new tool will help us level load production, optimize manufacturing flow, and meet customer demand while shrinking the lead time on our critical OmniLegend PET CT system by 31%, and reduce future costs to create these scanners. It was an energizing week for all. Leveraging our productivity progress this year, we are raising our adjusted EBIT margin guidance, and we're reaffirming our outlook for adjusted EPS and free cash flow. Jay will discuss our outlook in greater detail later in the Moving to commercial execution milestones, as I mentioned, we had a strong quarter in the U.S. where we secured more than $800 million of multimodality equipment, software, and service contracts. The U.S. market continues to be robust, particularly in imaging, IGT, and ultrasound. We saw strong orders and sales growth in the region and continue to see a healthy pipeline for growth. In July, we made two important announcements to develop proprietary AI tools to help expedite clinical and operational efficiencies. This included our agreement to acquire the AI division of Intelligent Ultrasound, a developer of AI tools for women's health ultrasound products, and a strategic collaboration with Amazon Web Services to build foundation models and generative AI tools to streamline hospital operations and care delivery. Now I'll pass it to Jay who will take us through the details of our second quarter performance. Jay?

Thanks, Pete. Let's start with our financial performance on slide four. For the second quarter of 2024, revenues of $4.8 billion were up 1% organically year over year. Recall this quarter's results compared to 9% growth in the second quarter of 2023. when we experienced easing supply chain constraints. As you can see from our filing this morning, the continued market headwinds in China impacted total company sales growth in the quarter by approximately 300 basis points, meaning global sales growth excluding China was approximately 4%. Organic orders growth was solid, increasing 3% year over year, driven by strength in the U.S. and rest of the world. Excluding a 300 basis point impact of China on orders, orders growth would have been 6%. Orders dollars continue to outpace sales, leading to a strong total company book to bill of 1.06 times versus 1.04 times last year. As a reminder, equipment only book to bill is higher than total company book to bill. We exited the second quarter with a healthy backlog, $19 billion. including strong services growth. Adjusted EBIT margin was 15.3%, up 60 basis points year-over-year, driven by continued improvement in gross margin with productivity and price. Second quarter adjusted EBS was $1, up 9% year-over-year, reflecting adjusted EBIT growth and lower interest expense. Free cash flow was in line with our expectations and was negative. due to the timing of certain payments. On slide five, let's take a closer look at segment revenue performance for the second quarter. We saw very strong PDS sales growth of 14% organically, aligned to global procedural demand. China market headwinds negatively impacted both our imaging and ultrasound segments. Service revenue on a reported basis increased 2%. We continue to make very good progress on margin expansion. Let's walk through this on slide six. In the quarter, adjusted gross margin expanded 110 basis points and adjusted EBIT margin expanded 60 basis points. The team has made significant progress utilizing lean capabilities to focus on margin accretive actions. As a result of these actions, adjusted gross margin increased to 110 basis points, and adjusted EBIT margin grew 60 basis points through the first half of 2024. Gross margin was particularly strong in PDX with volume and stabilization of raw material costs. In imaging, gross margin expanded, led by new product introductions. In our PDX segment, We hosted a Kaizen in our Quark facility in May, which led to over 1.5 million doses of annual capacity improvement and cycle time reduction. This is another great example of how lean enables us to increase our volume and expand margins. In IT, we're focused on permanent cost optimization actions that are resulting in ongoing cost savings. For example, we have consolidated more than 40 vendors supporting our applications to one vendor as we signed a managed service agreement that has resulted in more than $40 million of annual savings. As we exit TSAs, we're developing solutions specific to GE Healthcare's needs. For example, moving more to the cloud and reducing internal data centers, as well as consolidating the number of devices we use. We expect this to drive an additional $20 million of savings in 2024. On the gross profit side, we drove mid-single digit variable cost productivity across all segments in the quarter. In the second quarter, we invested more than $300 million in R&D, growing 10% year over year, while expanding our margin. Recently introduced products with AI are driving higher margins. Now I'll turn to segment performance. Let's start with imaging on slide seven where we had flat organic revenue growth. This was against the difficult comparison to the prior year when sales were up 9%. Growth in this segment was also impacted by China market headwinds. Segment EBIT margin was up 40 basis points year over year. We continue to make progress on enhancing gross margin through productivity and price while also investing in R&D. Margin improved sequentially by 130 basis points versus the first quarter of 2024 due to volume leverage. New product introductions are contributing to particular strength in U.S. product demand. Turning to ultrasound on slide eight, organic revenue was down 1% year-over-year, primarily due to China market headwinds. Segment EBIT margin decreased 120 basis points year-over-year, driven by lower sales in China and inflation. This was partially offset by cost productivity achieved through standardization and new product introductions. We continue to see solid customer demand, especially for our recently launched products. Moving to patient care solutions on slide 9, organic revenue was up 1% year-over-year, following 9% growth in the prior year. Segment EBIT margin decreased 90 basis points year-over-year due to product mix. while productivity actions offset inflation. With expected contributions from new product introductions and a healthy backlog, we are well positioned to drive future growth. Moving to pharmaceutical diagnostics on slide 10, we had another strong quarter, generating 14% year-over-year organic growth, driven by volume pricing and new product introductions. Segment EBIT margin of 31.2%, improved 450 basis points year over year, driven by sales volume, productivity, and pricing. We're pleased with the continued margin expansion in this segment. Security of supply remains top of mind for our customers, and we're continuing to make investments to enhance global supply of contrast agents and radiopharmaceuticals to meet increased demand. In particular, we're encouraged by positive developments in the molecular imaging market, We saw continued acceleration of vis-a-mel doses delivered in the U.S. in the second quarter. These sales increased threefold. Turning to slide 11 on cash flow performance, in the second quarter, free cash flow was negative $182 million due to the normal timing of compensation and interest payments. We continue to expect strong cash generation for the full year. Free cash flow is expected to be substantially higher in the second half of the year, relative to the first as a result of seasonality given higher volumes as well as the timing of certain supplier and compensation payments that occur earlier in the year. Our strong cash flow profile continues to provide us the flexibility to advance our growth strategy while reinvesting in the business and executing a disciplined capital allocation strategy. Now let's turn to our outlook on slide 12. We're taking a prudent approach and are lowering our full year 2024 organic revenue growth guidance to be in the range of 1% to 2% due to temporary market headwinds in China. Despite this reduction, we're raising our guidance for adjusted EBIT margin expansion, which we now expect to be 60 to 90 basis points year over year, associated with the continued momentum we're seeing on productivity and optimization initiatives, along with contribution from MPIs, We're reaffirming our expectation for adjusted EPS in the range of $4.20 to $4.35 with growth of 7% to 11% and free cash flow of approximately $1.8 billion. We expect third quarter year-over-year organic revenue growth of approximately 1% and adjusted EBIT margin expansion to be relatively similar to second quarter. We would expect year-over-year organic revenue growth and adjusted EBIT margin in the fourth quarter to be the highest of the year. As you think about the year, I would note that we expect the revenue headwind from foreign exchange to be less than 1% in 2024. Now, I'd like to turn the call back over to Pete.

Thanks, Jay. Building on my comments from earlier in the call, our lean culture has allowed us to create a strong pipeline of innovation and accelerate our ability to bring differentiated solutions to market for patients and customers. We'll dive deeper into some of what you see on the slide at Investor Day, but today I'd like to focus on growth and PDX and imaging. We're encouraged by the recent CMS reimbursement proposal and its potential to benefit patients in the U.S. who are facing cancer, cardiovascular, and neurological diseases. This step is expected to unlock the value of our radiopharmaceuticals and PET and SPECT scanners, ultimately enabling more precise diagnostic and treatment planning for patients. To give you some perspective, for the last decade, these molecular imaging agents were treated as a supply with limited reimbursement. which prevented broad-scale use. Assuming the new rule goes into effect on January 1st of 2025, we expect CMS will begin paying market value for these agents, some of which that have an average sale price of thousands of dollars. The change will give hospitals the needed reimbursement to cover their costs better, which has been a long-standing challenge in this space. This comes at a time when we continue to see momentum with existing radiopharmaceuticals, including DatScan, Vizimil, and Ceriana, and the promise of future molecules such as Flapiridaz for cardiovascular disease. We expect each of these products will benefit from the new reimbursement rule. As Jay mentioned, Vizimil doses continue to grow in the second quarter in the U.S. With the recent FDA approval of Denonimab, we anticipate even further uptick of our diagnostic amyloid PET agent. This is still a small contributor to sales growth, but gives us optimism about its sales potential over the next few years. On the equipment side of PET imaging, we expanded our upgradable OmniLegend platform by introducing a smaller detector providing upgradability and value, so customers can adopt the scanner to meet the evolving needs of their patients. We also introduced mini-trace MAGNI, a small, low-cost cyclotron for in-house production of tracers and radioisotopes. And this will help regional hospitals with limited access to commercial distribution or larger hospitals with siting issues that prevent them from building the infrastructure needed to accommodate a traditional size cyclotron. Turning to slide 14. We're aligning our ultrasound and image-guided therapies businesses to better position ourselves for how clinicians use these two modalities in high-growth settings. For example, you can see how multiple products work in conjunction inside an electrophysiology suite, and when integrated in the workflow, create a better experience for our customers and patients. These two businesses combined will unlock more value than they do separately. to sharing more about this at Investor Day. We also made strategic leadership appointments aligned to these changes. As of July 1st, Roland Roth, our previous head of ultrasound, is leading imaging. And Phil Radcliffe, head of image-guided therapies, is leading ultrasound and IGT. Roland and Phil have deep industry knowledge, global mindset, and significant expertise with our products and operations. and they're well positioned to lead our two largest businesses and are off to a great start. Before turning to Q&A on slide 15, I want to thank our team for their commitment to delivering for our customers. In particular, I'd like to thank our government affairs and policy team who advocated for multiple years the proposed CMS hospital outpatient rule for the benefit of patients. As I look ahead, I'm optimistic for a few reasons. We have a strong backlog at $19 billion, and with a prudent approach to our revenue guidance, we feel confident that we can deliver on our outlook. We're encouraged by overall capital equipment spend, particularly in the U.S. We delivered solid orders growth in the quarter at 3%, or 6% excluding China. Our funnel of productivity opportunities is strong, and we were able to raise our adjusted EBIT margin guidance due to our progress on these initiatives, and there's still much more to do here. We're excited about the pipeline of innovation. We have it solves customer challenges, enables improved patient care, and sets us up well for growth in the years to come. More about this in November at our investor day. And lastly, given these factors, we're confident that we can deliver on our medium-term goals. With that, we'd like to open up for questions.

Thank you, Peter. I'd like to ask participants to please limit yourself to one question and one follow-up. Operator, can you please open the line?

Thank you. And as a reminder, that is star 1-1 if you do have a question and wait for your name to be announced. To remove yourself, please press star 1-1 again. Our first question is from Joan Wunsch with Citi. Please proceed.

Good morning, and thank you for taking the question. I think I want to spend my question on China and trying to understand how you think about the pace of opening up new orders from the stimulus program, when do you anticipate it arriving, and how, as we put our 2025 models together, do you think about this rolling into next year? Thank you.

Peter, thanks for the question. So as I mentioned in my prepared remarks, the stimulus program rollout and the details of those plans are taking longer than we estimate, I think, than many people estimated. Just some background, in 2022, when there was a previous rollout just from the central government, it came out pretty quickly. I think it was around under six months from announcement to rollout. That was kind of the predicate we based assumptions on. In 24, the rollout's taking longer, mainly because it's a combination of each of the 31 provinces and the central government working together. And so that's taking longer to roll it out. And, you know, we believe that that's going to be well into late 24 before it begins driving growth. So we've fundamentally taken that out of our numbers. We ultimately expect that this is going to be a positive catalyst for the China market. And we believe it could have a positive impact on orders starting in late 24. But we view this as limited sales impact just on the time between tenders, orders, and sales to take place. And so taking it out of our numbers for the year, we viewed as prudent. But again, we would expect to see the benefit of stimulus having an impact in 25. And obviously, when it does come forward, we'll take advantage of it. Jay, you may want to add a few comments.

Yeah, sure. Just a little more detail on this adjustment. When we provided guidance last quarter, We were estimating roughly a 50 million decline in sales in the second quarter. But we actually saw something worse than that. It was closer to $100 million. And so, in fact, as we look at the first half of the year, you can see in our disclosures, China's down about 15%. And, you know, we've assumed really as we look to the rest of the year, there's going to be no real impact from China's stimulus sales. And also, you know, we're kind of expecting a challenging market for the balance of the year. And so when you think about the guidance adjustment that we did as it relates to 24, at the midpoint of the range, of the 1% to 2% range, it's roughly a $500 million impact in China relative to what we previously thought. You know, when China's stimulus starts to come through, it will be a positive development, but we're not trying to time this or estimate the timing of of the stimulus package, we've taken it out. On the positive side, we do believe that we are well positioned once stimulus starts coming through to take advantage of that, as Pete said. So, you know, overall, we think the market is a good long-term attractive market, but clearly this year is challenging. You know, the only thing I would say is, you know, historically China has been around, or last year's roughly 14% of our business It'll be much less than that this year in the 11% to 12% range as we think about our current modeling.

Thank you. Thank you. Our next question comes from the line of Larry Bigelson with Wells Fargo. Please proceed.

Good morning. Thanks for taking the question. I wanted to start with the 24 guidance. Jay, as you mentioned, you lowered revenues by about $500 million, but maintained margins, actually increased margins a little bit and maintained EPS. So my question is, how are you able to maintain margins and EPS given the revenue reduction? I did have one follow-up.

Great. Thanks, Larry. So look, I think you heard in our prepared remarks a lot of emphasis on Kaizen, on lean culture. on cost initiatives. And we're really proud of that. And I would say that that is the thing that has exceeded our expectations as we look at the bottom line throughout the year. We delivered 60 basis points of margin in the first half of the year against very low revenue growth. And in fact, we had a really good gross margin contribution year over year, 120 basis points in the first half of the year. And in the second quarter, The formula that we've talked about historically is one, you know, that we really delivered on. We had roughly one point of positive impact in price, exactly where we hoped to be. And then notably, our variable costs productivity initiatives, and we talked a little bit about that, more than offset inflation. And then you saw highlights from some of the G&A initiatives, really proud of the work that our IT team is undertaking. But some of those initiatives also contributed in the second quarter. So what happens in the back half of the year is more of the same. In the third quarter, we'll see similar margin expansion to what we saw in Q2. And then in the fourth quarter, you know, at the midpoint of the range, there is some tick up or uptick, I should say, in margin expansion. And it's going to come through continued price. Some of these productivity initiatives offsetting inflation and these cost initiatives that we've had success. And then I would also note that in the fourth quarter of last year, We had around 40 basis points of one-time R&D items we don't expect to repeat. So really, that's the contours of the year as we think about margin improvement. The one thing I would say is, at the beginning of the year, we were cautious and we did risk adjust some of these productivity initiatives and some of these cost containment initiatives. So the question, how do you offset $500 million, it's real execution against these initiatives delivering incremental profit versus our expectations. I think it's a company-wide effort. It's highlighted by things like Kaizen Initiative Week that we had last week. But overall, I feel very good about the margin trajectory.

That's helpful. And Pete or Jay, I heard, Pete, your comments about confidence in the medium-term goals. Any high-level thoughts right now on 2025 You know, do you expect some catch up from China next year? And, you know, are you still confident in the mid single digit growth outlook? Thank you.

Yeah, Larry, thanks for the question. So as I mentioned, you know, in my closing comments that we feel confident in our midterm, medium term goals that we've laid out, both our revenue and our profit goals, profit, obviously, for the reasons that Jay laid out. And really I would say on the growth side, you know, we don't know what value China is going to create in 2025. Obviously it's probably going to be more than we had previously expected. We'll have to see how that shakes out. And it's, you know, it's not time to give guidance on that, but that clearly will be a positive, but I, you know, it's less about markets in my mind. It's more about the core changes we've made in the company, our commercial execution on large integrated deals. our capability to be able to sell more value, get price, be able to actually bring out new products that bring differentiated capabilities. I just feel good about the hand we're holding right now as we kind of finish this year out and move into not only just 25, but beyond. And again, just to make another comment relative to our investor day in November, it'll be our first as an independent company. We want to really highlight the products that we've been building behind the scenes with this increased R&D investment. Remember, we've stepped up our percentage of R&D a couple points over the last few years. And so in MR, in CT, in PET-CT, in monitoring, in ultrasound, all of our business areas we've been investing in the pharmaceutical diagnostic area, new molecules coming out. So we want to be able to tell that story. And so I feel good about the position that we're in. And, you know, we're Again, looking forward here to delivering on our plans for the year and being in a well position over the next couple of years to continue to grow the company. Thanks a lot.

Thank you. Our next question comes from the line of Anthony Petrone with Mizuho Group.

Thanks. Maybe a two-part question here. One is going to be on orders and bookings, and then the second will be on Alzheimer's disease. The order number plus 3% in book to bill 1.06, you know, comes in despite the headwinds in China. And I think a lot of that has to do with just state of the U.S. market. So maybe just a little bit on the U.S. market as it relates to funnel specifically in the imaging and ultrasound segments, you know, how much visibility is there and can this feasibly extend into 2025? And then for Alzheimer's disease, You know, there's a couple of blood-based tests that had results out recently. Clearly, Vizimil is, at least in the early innings here, a preferred imaging solution to onboard Alzheimer's disease patients. So how does Alzheimer's disease play out from the PET-CT side when we consider new tests potentially coming in? Thanks.

Maybe I'll start with that and then turn it over to Pete for some additional color on orders and the Alzheimer's question. Look, the 3% orders growth in the face of a decline in China, I thought was a really good result. Orders excluding China were 6%. And the book to bill, as you point out, actually the book to bill for the quarter of 1.06, I think was the highest since we've spun off. In the U.S., we had a very strong quarter. We saw strong orders and sales growth. And frankly, in each of the segments, orders growth outpaced sales growth in the U.S., So really, really nice market there. The market continues to be robust. We're seeing PDX putting very solid numbers up in line with procedure growth. And as you know, we do a quarterly survey. And then we also do work looking at all of the surveys out there, in particular with respect to the U.S. And many of our customers are telling us in those surveys they plan to spend more on capital investments in the second half. So I think that's a really good backdrop as we look to deliver on the guidance that we've just shared. We're seeing growth in the equipment market in the U.S. We also feel very good about the share position that we have. We launched a number of new products in ultrasound, and so we're seeing a real receptivity to some of the new products that we have in place. So overall, we feel quite good about the U.S. market. We feel good about the orders backdrop. And then the other point I would note is backlog is up sequentially $300 million or in that range at $19 billion. So we're keeping the backlog at the level that we'd like to as we continue to grow the business. Pete, what would you add to that?

Yeah, no, I think you covered it, Jay, but we just, I think Katrine and the U.S. team just had a phenomenal quarter. And it is about products, but it is about, we've talked about the team itself, the talent upgrades that we put in place, the new sales disciplines and processes, and really our enterprise value proposition that we bring to a big IDN. We had quite a few larger wins. And again, I'd even cite some new product areas, like in the Vascular Lab area, where we're winning growth in the IGT business and taking share that we haven't realistically in previous years. But it's an older installed base in the United States, so we think we actually have a pretty good replacement cycle that's going to continue on. Signals from our customers, particularly CFOs that we survey and such, are positive about the investments. And, you know, the way this works out is when you see big growth in a lot of the med tech flowable businesses, catheters and such, or in the pharma side, ultimately that puts more pressure to buy more equipment because you're putting more patients through the system. So we see that in delay. coming through, but are quite confident about how we see the U.S. market. Anthony, your question on the radiopharmaceutical side, you know, look, I think we're going to see a lot of different diagnostics pop up in many of these different phases. How well they'll be accepted and integrated into practice, I think, remains to be seen. I think as it relates to Alzheimer's specifically, I think, you know, all the baseline tests were done off of PET, the pre and the post. you know, being able to actually see where the amyloid beta is, actually see the elimination of it on scans, we believe is going to still be a hallmark of the products. And then, again, depending on how well those therapies take off, like most things, there'll be lots of room for multiple products to continue to grow to do well. I would point, though, back to this broader point about the CMS changes that just took place. Again, if you were doing scans and you're your pharmaceutical product, again, in this case, the radiopharmaceutical diagnostic, you only receive maybe a few hundred dollars for reimbursement on it, and now you receive something closer to the actual list price, which could be thousands of dollars. All of a sudden, the economics for a healthcare provider to move to that space makes a lot of sense. And if you have a larger distribution network of multiple molecules that you're bringing to that customer, you can contract that at a larger scale. And that's really what we're super excited about. Obviously, Alzheimer's being one part of that, but breast cancer, Parkinson's disease, cardiovascular disease down the road, all of those, we look and say with some of these changes that have taken place, we're optimistic about what growth that can bring.

Thank you. Thank you. Our next question comes from the line of Vijay Kumar with Evercore ISI.

Hi, guys. Good morning, and thank you for taking my question. My first question was on guidance. Revenue is cut by 250 basis points. I think operating margins tweaked up 10 basis points. you know, doesn't really explain the EPS rate. Any below-the-line assumptions, change, tax, you know, expense, other income?

No, I mean, broadly speaking, the below-the-line assumptions are unchanged. And so, as we look at it, you know, we have a revenue reduction. It's supported by what we've put forth, I think, You know, it continues to be a fairly wide EPS range, and a lot of that reflects the uncertainty that we see in China. So no major changes below the line, and feel good about, you know, in particular, given the strong performance in the first half, along with the continued line of sight to some of these additional productivity initiatives, we feel good about delivering on this range.

Understood. And Pete, one for you. I know you've spoken about new product momentum, NPI. Talk about some of these new products that you're launching, about to launch. I think you've had a bunch on software side as well. Maybe list them out and, you know, what is incremental here as we look back half into the medium term?

Yeah, look, I think we've got across the business, we've had some multiple updates and upgrades across the product family line, coming to value MR products that we've just introduced, come out with a significant amount of upgrade products. I think one of the things that's driving a lot of growth, particularly in MR, is our upgrades to our deep learning module, in that case, the Sara Recon DL capability, and install-based upgrades. In the ultrasound space, particularly in general imaging, we introduced quarterback quite a few new versions, updated that product line. That has done quite well. This is the logic line. So there's almost four different derivatives there, plus in our voluson women's healthcare line. And we're seeing those pacing on track, if not better. You might have seen our revenue in ultrasound was a little light in this particular quarter, but as we go into the second half, we expect that's going to pick up. In fact, sign as we look forward. I mentioned Vascular and IGT. We're doing quite well with our surgical C-arm OEC business. There's a bunch of new software applications, in-room capabilities that bring almost cath lab-like capabilities into a mobile C-arm. Our Alia platform, we're doing quite well with, which is growing share. And I'd say on the PDX side, particularly on our monitoring systems that are in-room The new monitors themselves, we're seeing some nice pickups. So that's the broader mix. And then, you know, what I was mentioning at Investor Day, we'll talk about what we're going to see in the 25 through 27 range. You know, how we're thinking about where we are with photon counting, next generation MRIs. broader capabilities within PET-CT imaging, just to give an example. So those are some of the bigger investments, obviously, we've been making for the past few years, and they're well on track and, again, will be a highlight of our investor day in November. That's helpful. Thank you, guys. Thanks, BJ.

Thank you. Our next question comes from the line of David Roman with Goldman Sachs. Please proceed.

Thank you, and good morning, everybody. I wanted to dig into China a little bit further, understanding that the stimulus is a bit of an unknown. Maybe we could just take a step back and you could talk a little bit about just underlying drivers in China, because if you look at some of the third-party data, it looks like the vast majority of the installed base across ultrasound, CT, and MR has been refreshed in the past four years. So how should we think about the medium-term underlying growth in China, and is it more than just stimulus? impacting the outlook here?

Yeah, David, good question. As we look at China, historically, we've seen this as a very robust growth market. Previously at our investor day, we talked about China growth of six to eight percent. And we feel good long term about the growth dynamics in China. We had a very solid year last year with double digit growth. And then we see a decline this year. But our decline this year is not related to age of installed base as we see it. Our decline this year is very much related to limited buying activity by hospitals as they await clarity on the stimulus. As it pertains to your specific comment on age of installed base, the one thing I would note about your comment is that a lot of the recent purchases in the timeframe that you referenced and the refreshed equipment, we're at lower end or county hospitals versus major institutions where we have a higher presence. And so as we look at the age of our installed base in areas like ultrasound and imaging, it is above the numbers that you've described and is kind of consistent, broadly speaking, with global averages. So I do think there's a dynamic of the tier of hospital in play. But overall, you know, we think this will continue to be a really nice market for us long term. Pete, I don't know if you'd add anything.

Yeah, I think you covered it, Jay, but just a couple facts. As you know, David, I mean, the China population, a billion four, about 400 million have, I'd say, pretty good access. There's a billion people that don't. So, you know, we have a partnership with Sinopharm, with other broader distributor capabilities to be able to reach into that market. untapped market. And so that will continue to be a growth area. It's probably also going to be part of some of the investments that the government is making. The other tidbit is that used equipment isn't actually allowed to be sold within China. And so there really isn't a recycling of used equipment around. It ends up being all new equipment coming in. And so that actually even has a higher effect on growth than in other markets where, particularly in the United States, where we have quite a bit of upgrades and and movement around equipment. That doesn't exist in China. So when we look at the numbers, I think we feel pretty good about what the longer term growth potential is just based on those facts.

That's super helpful. And maybe just a follow up on some of your comments about the US. We've now heard a couple companies talk about operating rooms and other parts of the hospital facing capacity constraints. You called out EP as an area of growth focus for you. How should we think about kind of your tethering to some of these higher growth attractive end markets, whether that's structural hard or EP? Do we see that in your interventional imaging segment? So how should we think about the contribution to GE? And then does that change any of your sort of strategic thoughts here from a business development standpoint on areas of interest being, you know, you sit around the periphery of a lot of these procedures kind of going more into the implantable device or sort of, quote, unquote, inside the body side of things?

Yeah, David, it's a really good question, and obviously we'll spend more time in some strategic settings on this, but look at a high level. We have the strategy we focus on, we articulate as D3, which again is smart, integrated, connected devices that work together around a given disease state or care pathway and enable to drive more productivity or better outcomes with digital or AI features. And so if you take that EP example you had, The first part is having world-class electrophysiology labs that we can win the hardware. And the reality of it is, a few years ago, we probably didn't have all the right features. We do now. So we think from a standpoint of winning those labs, we're going to win at a higher rate than we did in the past. On the disease state side of electrophysiology itself, we actually have folks that are primarily focused on that to say, how does ultrasound, how does the EP devices How does the actual data systems work together so we can come up with a better solution? And we are working on that. It's one of the main reasons that we created the IGT ultrasound alignment, because there's a lot more cardiovascular benefits in everything from channel to the development side. And to your broader point, when you start thinking about disease states, it opens your lens up to say, Well, should I partner with this company more because if we do, we could solve this customer problem? Or should I buy this asset because together these four things create more value? And to answer your question, absolutely, we're expanding our horizons to think about what should be part of GE Healthcare.

Terrific. Thanks so much and look forward to seeing you in November. Thank you.

Thank you. Our next question comes from the line of Matt Taylor with Jefferies.

Hi, thank you for taking the question. I guess I had one question on the PDX business. You talked a little bit about the Medicare changes, obviously a big positive for that space. I guess I was wondering if that changes your thoughts on the long-term opportunity or the growth rate for the contrast media or molecular imaging markets that you're in. And I was hoping you've called out a couple of times the last few calls with the great growth you're seeing there. If you could outline the opportunity for that or for PuraDads just to give us a better sense of what they're contributing today or how you feel about them contributing to growth, especially next year as you launch for PuraDads.

Sure. Maybe I'll start with a few comments and then turn it over to Pete as well. Overall, the PDX business has been growing really well. We saw 14% in the second quarter. A lot of that relates to volume. About 10% of that relates to volume with a couple points of price and new products also contributing. And you heard us talk about some of the new specialty products in the call. We talked about Visumel volumes tripling in the U.S. And based on the new CMS along with the new approval, we're really optimistic about this particular product long term. And if I think about areas that are changing, Relative to the prior investor day and prior long-term expectations, this whole area is one that we have a little bit more optimism on. Visumil sales at this point are still very small, so we're still talking a few million dollars. But as we see the uptake of the Alzheimer's therapies, we're seeing continued interest and implementation of programs to support diagnostics in this area. So we expect to see continued growth throughout the year. I think the CMS ruling could unlock accelerated growth next year, both in Visomel, Flapiridaz, and some of the other products that we're working on. Pete, I don't know if you'd like to add to that.

Yeah, I just think we haven't framed up what all the longer-term growth yet will be on the molecules. But needless to say, we're more optimistic today than we were prior to the approval. And again, what we're working through right now and frame this up is just take an example, again, of a product that the hospital might be paying a couple thousand dollars for, but they're getting reimbursed $200 for. Now in the future, they'll get reimbursed at what they're paying for it. And so to be able to detail that and have a discussion with an institution about how to build out a program that's actually going to be a value creator for them And our confidence that the outcome capabilities for the patient is higher is very strong. So you think about Syriana for metastatic breast cancer, it's actually on many of the guidance documents now, but it's challenging economical for someone to actually implement it on a day-to-day process. On tomorrow's situation, that changes. And the other aspect is probably even less about what we do on diagnostics and more about what pharmaceutical companies are doing with therapies. And so the more therapies that come out in this space, the more, you know, you need someone like a GE Healthcare that has the equipment, the data integration, the distribution capabilities, and the diagnostic molecules to help kind of solve the equation. And so we will obviously spend more time on this with investors. But this is a very positive direction, and it's quite helpful for our growth strategies in the coming years.

Thanks, guys. Can I just ask one follow-up, too, on China? I'm just trying to square your comments with some of the competitors, the peers, and your approach to guidance there. I guess, do you think that you're seeing the same things as your competitors? They're talking about orders starting to come back through the second half of the year, and I'm just curious if you're being more purposeful about being conservative with your China guidance, just given the uncertainty there, or do you think that you're aligned with how others are calling it?

Sure. So just to start, and I'll turn it over to Pete, first half decline in sales 15%. As we look at the market and the orders in the market, and we're talking about market and tender activity versus anything share-related, You know, we think a prudent number is in this, adjust down the number, $500 million at the midpoint, leading to a high-teens decline in the second half of the year. Now, again, we've taken out the benefit of impact from stimulus on sales. And I would also say that, you know, through at least the third quarter, we have a very locked-up dynamic on orders and into the fourth. Now, could we be wrong to the upside? We might be. But as we look at it today, we felt it was prudent not to try to time the impact on the fourth quarter in terms of sales. And we've removed that. I'm hopeful that we do better. But at this point, we think this was the right thing to do. We'll watch the stimulus really carefully as we think about what the impact on 2025 will be. But we have continued declines and a tough market forecasted. And again, it's not a GE-specific item. This is a broad-based market view that we have.

I think Jay hit the point. So, again, when this comes back, you know, for us, this is really largely related to timing of the China stimulus program. So we're not betting on the timing. We think we've got our base case lined out well, which is really tied to our installed base, what's our secured business that we have here coming through the second half. And as I mentioned, you know, we would expect to see some orders uptick later this year. But when we take a look at particularly the equipment we have between time you win a tender, get an order, have the room ready and install it, that order to sales piece would be very tight. And hence why we just decided to take it out.

Thanks, Pete.

Thank you. Our next question comes from the line of Graham Doyle with UBS.

Morning, Graham. Morning, guys. Morning, guys. Thanks for taking the question. It's again a follow-up on China. So it's just when you kind of called out the actual number, it looks to me like there's kind of like a 40% down in H2 versus your original assumption, which is obviously a very, very large change. And it just makes me sort of wonder, what's the confidence then that you do hit your midterm targets, say, starting from next year, given how volatile that market is? And to the point Matt made, I mean, I was with both Siemens and Philips today, and it does sound like they're not forecasting a decline of anywhere near that magnitude in SECNAF and China Resonance. So is it genuinely just a lot more prudence, or is there something happening in, say, the patient monitoring market that maybe the others aren't seeing? It would be great to get that. Thank you.

Yeah, Graham, I can start. I mean, look, for our business in China, it's primarily an imaging ultrasound story. All of us have different mixes of products, so there's not obviously a one-to-one match. But I'll tell you what we did. So what we've done is we have our sales force going out to all 31 of the provinces, all of our big customers, and actually asking the questions when you're going to buy, what you're going to buy, what that's going to look up. And we kind of roll that all up for each 31 providence and try to understand from what they're saying what the timing would look like. And then based on that, understand how long it takes to tender, how long it takes to get to order, how much time then to actually do an install based on the mix. And when we do that roll-up, we do think there's going to be orders coming, but we just don't think that there's enough time on the clock from a sales standpoint. And to Jay's point, we might be wrong, but we're not in the business of trying to guess, and we just thought it prudent to take it out.

It kind of begs the question, why was it in there in the first place? At what point did you put stimulus into the guidance at the start of this year? Because it didn't seem like something that was that certain at the start. So I'm just trying to figure out how much more certainty do you have?

Yeah, look, very fair question. Keep in mind, in 2002, when stimulus came, within four to six months, it ramped unbelievably quickly. And so I think as we started the year, it wasn't super clear if there was going to be stimulus or not. I think you may recall. But as we got closer to Q2, the question is, if it follows the same ramp, it's going to probably be within this year. What's new is the fact that when it is slower and someone's deciding to buy, if you buy something now, you may not get the 30%, 40%, 50% value from the government to actually support your sale. So naturally, you're going to wait to kind of make a decision to see what stimulus is. That's really the difference here in the calculation that I don't think anybody saw that it would take that much longer.

I mean, the only thing to add is this is not even like, so we're seeing a depressed level of demand relative to normal as people await clarity. We think the stimulus is a good positive thing long term. But in the market, as we saw it in Q2, as we see Q3 quarter to date, it is depressing activity in the market thus far. And so that's why we made the assumption that we did.

Okay. So it sounds like an air pocket sort of situation for this period. That's super helpful. Thanks a lot, guys.

Thank you. Thank you so much. Our next question comes from the line of Patrick Wood with Morgan Stanley. Please proceed.

Brilliant. Thank you so much for taking the questions. Apologies if I heard this wrong. I thought you guys mentioned the Q3 was something like plus one organic. And so of the implied Q4 step up, you know, qualitatively, how much is a function of, you know, those ultrasound launches relative to the strong US imaging market? Apologies if I missed this earlier, but if you could just unpack the 4Q, that would be really helpful.

Sure. A lot of this comes down to the strong order performance that we saw in the second quarter and when we booked that for delivery in Q3-Q4 for the ex-China business. Maybe taking a step back and talking about revenue confidence generally, Patrick, about 45% of our revenue is recurring revenue, either in the form of services or PDX. And I would say the volatility around these categories is reasonably low. We have decent predictability. Now, the remaining 55 percent is equipment. And so, for us, as we think about equipment, one of the things we look at is the secured rate, which is the equipment that we have in the backlog that's scheduled for a given quarter. Over the last four quarters, we've had around 75% of our revenue in this secured rate coming from the backlog with the other 25% sold and installed in the quarter. So really 25% of the equipment is up for grabs in a given quarter. That's a phenomenon, again, that we see generally speaking in each of the quarters. As we look at the second half of the year, we see this similar. if not slightly better than the historic 75-25 split going into the second half. And so really what the Q4 step-up, there's a normal step-up from Q3 to Q4, but in specific as it relates to why we have this high level of confidence, it comes down to the backlog and when we're expecting those deliveries to take place. So really that's the driver around the step-up. Of course, to your point, We're going to see continued performance on some of the new product launches. We're also expecting to see continued robust performance out of the U.S. market. But, again, the analytics that we have really supports this Q4 step-up, which we feel good about.

I think the other point you touched on, Jay, is with some of the share gains we've had on some of the larger equipment a year ago, we actually have now service contracts growth, and we're expecting our service contracts just expecting we can see it. It's already on the books. We'll step up a few points in the second half, and that has a higher margin, and obviously it's already on the books.

Yeah, good point on the warranty role. Very one quick follow-up. It's been a few years since I ran this math, but the U.S. installed base, last time I tried to back it out, I got the average age at something like seven years, so pretty old. I don't know if you have any instinct on how that number kind of hits you here.

Yeah, I think it obviously varies quite a bit by modality. It varies by company, too, based on if you're taking a look at your own installed base or the overall. I think in average, it's a little bit older than that. We have some modalities, particularly in MR, where it's probably even a few years older than that. And so that's really boding well right now for us doing upgrades and stuff on conversion. But we believe when we take a look at the whole of ours plus the installed base, there's actually a reasonable amount of replacement cycle needed because of the age. Brilliant. Thank you. Thank you.

Thank you. And our last question is coming from the line of Suraj Kalia with Oppenheimer and Company. Please proceed.

Morning, Peter. Jay, can you hear me all right?

We can. Good morning.

Thank you for taking my questions and Peter, I'll throw both of them you guys' way. And both of these questions are designed really for assessing the differential impact. So first on China, Peter, I wanted to piggyback on David's question from earlier. Your competitors are talking about value partnerships, local for local, and maybe set the stage when China opens up, right? Will the rising tide lift everyone equally, or do you think there will be a differential impact? And part of me is also thinking, how is the book to build specifically within China, looking for the different people? And how should we think about when China opens up, what is the differential impact? Peter, that's one question, and I'll throw the second one also quickly your way. radio pharmaceuticals, again, your competitors are talking about pharmacy networks that give them an edge in radio pharmaceuticals. Help us understand GE's buffers for growth in this segment, especially given what Medicare is doing. Thank you for taking my questions.

Sure. I would say, look, on China, I don't know if I have any better crystal ball than anyone else. I think we are making the assumption that you know, a rising China will benefit everyone at some level. Obviously, there's a lot of local competition. There's multinational players. I think everybody will play at a different point. You know, we've been manufacturing for over 35 years. We source locally for the in-China market. And so we believe we can compete just like a local company. And we're very focused on as, you know, you move into the non- coastal cities into the west areas that you need to actually be even more of a value-based product and capabilities. And so there's two sides to this, very high-end and also value. And I think we've got the type of lineup that we can be competitive there. But I don't think I have any better insights relative to that on how China will play out. Jay, I don't know if you want to add any comments there.

Sure. I mean, I think we'll watch it over time, but we feel very good about the share position that we've been able to protect over time. And a lot of that comes down to the manufacturing that we do in China for China, the large teams that we have on the ground that Pete described. So from a share standpoint, you know, we've been fairly effective thus far. And so as we look at the next stimulus, you know, we have all reasons to believe we'll be able to participate in that market going forward, and we're designing plans to execute on that.

So if we switch to your question relative to kind of radiopharmaceuticals, and look, our We'll spend, again, more time on this at our investor day. But, again, if you think about what makes us unique, everything from cyclotrons and capabilities for on-site generation of your own isotopes at an institution, we're one of the very few companies that kind of has that, as well as the PET technology and PET-CT, PET-MR technology. And actually in the spec camera world becomes super important and multi-head, you know, 10 plus head system that allows you to do some of these oncology staging drugs. And again, if you don't have that, that part of the exam could be an hour and a half where on our system it's 15 minutes. So there's phases of that. You know, network, we do have a distribution structure. There are some other players that have a much larger distribution structure. I would argue with the CMS change, the real value here isn't if you can distribute it. It's just do you actually make it? And so we actually make these molecules that, you know, are in some ways going to be transformational relative to diagnosis of certain diseases. And you could argue they've been handicapped because they haven't been given their fair share of reimbursement for the value they create. It's a preliminary rule. We believe that's going to come into effect on January 1st if it does. we do think that you're going to definitely see significantly more growth on these molecules than we had estimated they would being treated as a supply. So more to come, and obviously that gives us more energy to say this is a space to invest and obviously continue to build out on. Thanks for your question.

Thank you. And this concludes the Q&A session. Please proceed with any closing remarks.

Thank you, everyone, for joining us today, and we look forward to connecting with you in the coming days at one of our conferences in the next few months. As a reminder, we'll host our Investor Day in New York on November 21st. Thanks so much for listening.

And thank you all who participated in today's conference, and you may now disconnect.