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Operator: Good day, ladies and gentlemen, and welcome to the GE HealthCare Fourth Quarter 2022 Earnings Conference Call. My name is Michelle, and I’ll be your conference coordinator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today’s conference, Carolynne Borders, Chief Investor Relations Officer. Please proceed.

Carolynne Borders: Thanks, Michelle. Welcome to GE HealthCare’s fourth quarter and full year 2022 earnings call. I’m joined by our President and CEO, Peter Arduini; and Vice President and CFO, Helmut Zodl. 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.

Peter Arduini: Thank you, Carolynne, and good morning, everyone. Welcome to our first earnings call as an independent publicly traded company. I’m incredibly proud of the work our team has done to complete the spin-off of GE HealthCare. The energy across the company is palpable and there’s tremendous excitement and focus around our purpose to create a world where healthcare has no limits. I want to thank all of our team for their commitment to the customers and patients we serve as we chart our own path forward and execute on our precision care strategy. Let’s start with our fourth quarter 2022 performance. We delivered strong organic revenue growth of 13% year-over-year, reflecting an acceleration from prior quarters in 2022.

These results were driven by continued robust demand, backlog fulfillment and improved pricing. In addition, supply chain pressures that we experienced earlier in the year eased continuing the trend that we experienced in the third quarter. Adjusted EBIT margin was 17.1%. Volume and price improved in the fourth quarter, but this was offset by inflation, mix, planned R&D investments and some foreign exchange headwinds. We saw sequential margin improvement as volume and price grew and logistics cost eased with the disciplined optimization actions we’ve taken across the business. This result is equivalent to 16.1% on a standalone basis. Adjusted EPS was $1.31 impacted by incremental interest from debt issuance, partially offset by volume and price.

In order to facilitate comparability on a go-forward basis, we’ve also provided a standalone adjusted EPS result of $1.06. Free cash flow was $987 million in the fourth quarter as we start to see supply chain issues ease and we improved collections year-over-year. Total company book-to-bill, which is a calculation of orders to revenues growth, was 1.07 times led by strong orders growth in imaging and ultrasound. For the full year, organic revenues grew 7% year-over-year at the higher end of our mid-single-digit growth target. And while China was impacted by COVID for most of the year, we saw increased momentum coming out of the fourth quarter and we expect that to continue. Globally, we have a healthy backlog heading into 2023 as customers continue to invest in imaging ultrasound as well as PCS.

2022 adjusted EBIT margin was 15.6% impacted by inflationary pressures and planned R&D investments. This is equivalent to the 14.5% on a standalone basis. Looking ahead, we have several levers to expand margin through strategic pricing, enhancing volume and mix and increasing variable cost productivity as discussed at our Investor Day. Adjusted EPS for the full year was $4.63 and our standalone adjusted EPS result was $3.38. Free cash flow was $1.8 billion in 2022, and Helmut will discuss guidance in greater detail here later in the call. Overall, we’re pleased with the strong performance we delivered in 2022. We’re encouraged by the easing supply chain pressures and the resilient end market demand we’re seeing across our portfolio, and we remain confident in our ability to drive sustainable value creation in 20 23.

I’d also like to highlight an important announcement we recently made with the ointment of Dr. Taha Kass-Hout as our Chief Technology Officer. Taha is leading our science and technology organization as well as our efforts to drive growth through clinical research and the advancement of our digital and machine learning capabilities, specifically our Edison Digital Health Platform. He joins us with deep clinical, digital and machine learning experience. Taha was most recently Vice President of Machine Learning and Chief Medical Officer at Amazon. Taha also served as the FDA’s first informatics leader and he’s joining the team at a perfect time as we accelerate investments in digital products and software. As we invest in our business, we’re continuing to make progress on enhancing our operating model to better serve customers through a simplified more decentralized model And we’re reducing bureaucracy in the organization, optimizing our geographic footprint and implementing platforming initiatives across key product lines.

And with that, let me hand the call over to Helmut to walk through our financials and business segment performance. Helmut?

Helmut Zodl: Thanks, Pete. Let’s take a closer look at our financial performance in the fourth quarter. Revenues of $4.9 billion increased 8% year-over-year and were up 13% on an organic basis. Reported product revenues increased 13% versus the prior year, led by Imaging, Patient Care Solutions and Ultrasound. Reported Services revenues declined 2%, mainly due to the unfavorable impact of foreign exchange, partly offset by growth in our cloud services business. We are pleased with product growth in the quarter that will lead to additional services revenue. Now, I’d like to talk about the actions we are taking to increase margins through improving delivery, price and cost. As always, delivering for our customers is our number one priority.

We’ve improved our access to key components, measured by the number of red flag parts that indicate constraints and made good progress in the requalifying, redesigning and tool sourcing parts. In fact, we’ve requalified 7,700 parts since COVID began and we are now seeing the lowest level of red flag parts since the first quarter of 2021. We’ve also applied lean principles to improve our supply chain. A great example of how we apply lean across the organization was our CT’s output initiative this past quarter. We align factory output with customer installations to drive better end-to-end planning. This resulted in an improved customer experience and early deliveries in the quarter. We have achieved a positive sales price index for the third consecutive quarters now.

And this price accretion occurred across each of our four segments in the fourth quarter. We are pleased with our progress in pricing and have good visibility on price in our backlog. We are driving variable cost productivity for logistics and material cost reductions. We are also reducing our real estate footprint and optimizing our commercial organization. Turning to Imaging. We saw strong organic revenue growth, up 18% year-over-year, led by molecular imaging, CT, MR and surgery. Our customers remain focused on expansion of capacity and access to care. Looking ahead, we expect imaging demand will remain healthy supporting top line growth. Following strong revenue growth in the fourth quarter, we expect growth will normalize as we move into the second half of the year.

Segment EBIT margin declined 120 basis points year-over-year. We realized improving volume and price, but this was offset by headwinds from inflation, mix and planned investments. Our double-digit investment in imaging R&D this quarter reflects our commitment to innovation and commercial growth. During the quarter, NPI’s driving growth included our Revolution Apex CT with a scalable detector as well as Ascend CT with improved imaging and workflow. Globally, we’ve already seen success using deep learning from improved image quality in MR with AIR Recon DL. We are now very proud to be the first to extend those capabilities to Omni Legend PET/CT with precision deep learning available in select regions. Sequentially, EBIT margin increased 120 basis points, driven by improved volume and price.

We expect margin expansion in 2023 to be driven by NPIs, commercial execution, supply chain productivity, platforming, and digital. Overall, we are investing to drive technology leadership and have the opportunity to increase market share with strategic NPIs digital and AI leadership and a focus on care pathways. In addition, we’re making progress with platforming initiatives that provide a more consistent user experience and drive parts sensitization and cost reduction. Moving to Ultrasound. Customer demand continues to be strong in both hospital and other care settings. Organic revenues were up 7% year-over-year, driven by price, improvements in sourcing and fulfillment. Our customer-led innovation continues to drive healthy revenue growth with strong performance in radiology and primary care, women’s health and cardiovascular, and our handheld business delivered strong growth in the quarter.

We see continuous traction with our differentiated products, including our recently launched Voluson Expert 22 premium ultrasound system for women’s health and the Vivid E95 ultrasound addition advanced cardiovascular ultrasound. Both innovations are powered by advanced artificial intelligence tools to help improve workflow, efficiency and productivity. Segment EBIT margin contracted 120 basis points year-over-year. In the fourth quarter, price improved. However, we experienced headwinds from inflation and planned investments. In line with our lean philosophy, we are shifting from stocking inventory to make to order. This initiative is streamlining cost and reducing lead times. We are enabling this through redesign of parts, dual sourcing and platforming.

This is an initiative that we will be leveraging across the company, providing additional margin opportunity. Looking ahead, we are driving sustainable growth in ultrasound through continuous NPI innovation, commercial excellence and localization. The integration of BK Medical is also well on track. Let’s move to Patient Care Solutions. PCS had a solid fourth quarter, following a year of supply chain challenges, which improved as we exited 2022. Organic revenue was up 10% year-over-year, driven by volume and price improvement. Higher volumes were driven by supply delivery and the launch of NPIs. Looking ahead, we expect fulfillment to improve as we ship our backlog. PCS margins increased 410 basis points compared to fourth quarter 2021, with improving price and volume as well as lower cost, partially offset by inflation.

The cost favorability drove roughly half of the upside and was associated with one time items. Sequentially, PCS margins increased significantly due to improving volume and price. We remain focused on innovation and commercial growth investments with R&D investment up double digits in the fourth quarter. Key highlights from the quarter include continued momentum with patient monitoring, including Portrait Mobile and CARESCAPE Canvas in Europe. Moving to Pharmaceutical Diagnostics. Organic revenues were up 2% year-over-year impacted by fewer procedures in China due to COVID as well as normalization of U.S. customer inventory. Margins were impacted due to inflationary pressures on raw materials and lower volumes. The team is executing on the pricing strategy that is built around the value we deliver for our customers and patients.

We continue to monitor the COVID situation closely in China and expect elective procedures to pick up when COVID infections decline. In the fourth quarter, we introduced a new GE HealthCare CT motion injector that will provide better product integration and an improved patient experience. Next, I’ll walk through our cash performance for fourth quarter and full year 2022. During the quarter, we generated $987 million of free cash flow, up year-over-year with improvement in supply chain and collections. With our focus on prioritizing patients and customers, our free cash flow declined for the full year 2022. But as we enter 2023, we are well positioned to deliver on our backlog. This is a robust and consistent cash flow generating business with a disciplined capital allocation strategy.

We are committed to a strong investment-grade rating and will employ a disciplined capital allocation framework. This will include paying down debt and evaluating accretive M&A that advances our precision care strategy. Our balance sheet is strong. As expected post spin, our day one cash balance was $1.8 billion. Day one leverage, excluding pension, was approximately 2.5 times, in line with our expectation. Let me now move to our 2023 financial outlook. For the full year 2023, we are reaffirming our guidance that was introduced on January 10, calling for year-over-year organic revenue growth in the range of 5% to 7%. We expect stronger organic revenue growth in the first half of the year with more normalized growth in the second half. We continue to expect fully adjusted EBIT margin to be in the range of 15% to 15.5%, reflecting an expansion of 50 basis points to 100 basis points over the 2022 standalone adjusted EBIT margin of 14.5%.

This includes the impact of approximately $200 million of standalone costs. Margin expansion in 2023 will be back-half weighted as transformation initiatives take hold. We expect 2023 adjusted EPS in the range of $3.60 to $3.75, reflecting a growth of 7% to 11%. This compares to 2022 standalone adjusted EPS of $3.38, and includes the impact of the standalone costs. We are assuming a tax and adjusted tax rate of 23% to 25%. Free cash flow conversion is expected to be 85% or more for the full year. Our cash flow outlook assumes that the legislation requiring R&D capitalization for tax purposes is repealed or deferred beyond 2023. The free cash flow impact of this legislation is approximately 10 points of free cash flow conversion for the year.

Second half free cash flow will be substantially higher than the first half of the year, in line with typical cash seasonality due to increased inventory as well as interest and compensation and benefits payments in the first half. Now let me hand back to Pete.

Peter Arduini: Thanks, Helmut. Before we go to questions, I’d like to reiterate how we’re executing against our long-term growth strategy. Our teams are well positioned to deliver on our 2023 commitments. We’re investing in organic growth as demonstrated by the introduction of over 40 new products at the RSNA event in November. And with workflow solutions enhanced by AI to help healthcare professionals and health systems overcome the top operational challenges they face today, while also improving outcomes for patients. We’re deepening customer engagement across care pathways, including oncology and cardiology, and we’ve announced some exciting new products, collaborations and investments that are changing the way healthcare is delivered.

On the M&A front, we recently announced the agreement to acquire IMACTIS, an innovator in CT Interventional guidance. This acquisition, although small, is our first as an independent company and is a great example of the type of transactions that we plan to pursue. They had innovative technology in fast-growing areas that enhances the breadth of capabilities we can deliver for customers. In Imaging, we’re very proud to announce SIGNA Experience, an MR platform that was €“ comes with an integrated set of solutions, including workflow capabilities, an intuitive user interface and deep learning AI applications such as Air Recon DL, which has already reduced scan times for approximately 5.5 million patients globally and is increasing efficiency for clinicians.

Globally, demand for minimally invasive surgical procedures continues to grow. In the U. S., for example, ambulatory surgical centers are performing more than half of all outpatient procedures. And to serve patients, our customers need efficient imaging capabilities. As a leader in surgery imaging, which is a high-growth and high-margin business for us, we see increasing opportunities for our OEC 3D C-arms to provide precise 2D and 3D images interoperably for many of clinical applications being done in ASCs, including spine, orthopedics and pulmonary work. During the fourth quarter, we also announced an $80 million investment in one of our facilities in Norway to increase capacity for our contrast active pharmaceutical ingredient. In our PCS business, we’re excited about our Portrait Mobile patient monitoring solution currently available in Europe.

This technology allows us to expand care into sub-acute therapy areas, giving providers the ability to monitor patients that aren’t always monitor as thoroughly as they should be. In Ultrasound, we’re excited about the customer demand for our Vivid Cardiac Ultrasound portfolio, which again is equipped with AI features that help improve consistency of assessing the heart muscles function and significantly reduce the time it takes to acquire those imaging measurements. And in digital, we continue to make progress with the development of our Edison Digital Health Platform to help solve customer challenges. We have several pilots underway at hospital systems in the U. S. and Europe and we expect that cloud-based or on-prem Edison Digital Health Platform will be a vendor agnostic platform aggregating data from multiple sources and enabling integrated care pathway management.

Our goal is that customers will benefit from a wide range of AI applications developed by us and third parties to make better connected decisions, operate more efficiently or better detect trends and populations. These are just a few of the examples of products and partnerships we’ve invested in to advance our capabilities in precision care. And so with that, we’d like to open up the call for questions.

Carolynne Borders: Thank you, Peter. I’d like to ask participants to please limit yourself to one question and one follow-up, so that we can take as many questions as possible during the one hour that we have allotted for the call. Michelle, can you please open the line?

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Operator: Thank you. One moment for your question. Our first question comes from Drew Ranieri with Morgan Stanley. Your line is open.

Drew Ranieri: Hi, everyone. Thanks for taking the question.

Peter Arduini: Good morning, Drew.

Drew Ranieri: Good morning. Good morning and congratulations to you and the GE HealthCare team on the spin-off and Pete welcome back to more earnings calls. Just maybe first to start on the macro environment. I think there’s still some concerns that there will be a capital spending slowdown at some stage. Your results, I mean, you’re pointing to ongoing demand across your portfolio, but maybe just help us kind of square what you’re seeing from the demand side globally? Maybe what product categories are getting probably the most interest? And do you think there has been any risk of pull forward of capital sales just over the past year or anything? And I have a follow-up. Thanks.

Peter Arduini: Thanks, Drew, for the question. Yes, I would just say if I go around the world and start maybe in Europe, there’s still robust demand at this point. I think as we’ve talked about in the past with €“ in different audiences, that from different sick funds and tenders to really drive incremental imaging capabilities post-COVID. And so we see that continuing here into the future. China has obviously been a topic in the news. And although COVID was challenging in Q4, there was quite a bit of investment that we saw going into imaging in particular and in an ultrasound. And we believe as the market there works through some of the challenges with COVID in Q1, but there’s just a lot of pent-up demand. If you think about 2022 and even 2021 with some of the lockdowns, there’s a lot of people that have a lot of procedures to be taken care of.

And in the United States, we were pleased to see with different customers that have reported as well as customers that myself, Helmut and the team have been talking to regularly are seeing improving conditions. It doesn’t mean that they’re back to, say, 2019 levels. But it means that we’re seeing improvements in labor costs. The demand or backlog, meaning the need for imaging procedures, both in our interventional diagnostic and ultrasound modalities is still at a record high. And so we look as we start the year that the demand is running strong. I think part of the piece that we all keep an eye on is CapEx prioritization in the United States. I think all indications are that people are being prudent and prioritizing for sure, but many of the technologies that we offer tend to be prioritized to the higher end of the list.

And what customers tell us is, in many cases, that added productivity to get patients diagnosed faster, sooner, get them healthier and out of the system is one of the key attributes that we bring. So we’re cautiously optimistic, but I’d say with our large backlog that we have starting the year, we feel good about the horizon that we see here over the next couple of quarters.

Drew Ranieri: Got it. Thank you. Maybe one other question just on the margin expansion, maybe more for Helmut. But can you maybe help us just bridge the 50 basis point to 100 basis point of improvement for the year. Maybe just talk about, is this all really gross margin-driven or on the leverage side? But just trying to get a better sense there and maybe how your 5% to 7% organic growth guidance really will drive that margin expansion and if there’s any particular segments that are really going to be the primary beneficiaries? Thank you.

Helmut Zodl: Yes. Thank you, Drew. I think so when we look at the overall margin expansion in the 50 basis points to 100 basis points, there is a number of drivers in there So clearly, volume is a driver, VCP, so we have a cost productivity, improvement in material cost, improvement in logistics cost, and also price is key drivers. So those are really, I would say, those key elements that are driving them with the positive improvement on the margin side. If you look at the headwinds against that, we’re still seeing material costs elevated. So especially material cost that is sitting on our balance sheet, in our inventory currently. And we also continue to invest into the business, both for our growth, but also what we are putting innovation investment in R&D into the business.

So these are really the offsetting element. So both of those elements together are really driving our 50 basis point to 100 basis point margin expansion and we’re very focused on what is really in our control, which is price, VCP and obviously volume execution. That’s really how we look at the margin expansion for 2023. If I give you a little bit more color, Drew, on the four segments, obviously, as you’ve seen in the fourth quarter, the Imaging segment, very strong with its growth. We expect that growth, as we work through our backlog, continue especially for the first half. So there’s going to be more growth on the imaging side. But also all our other three segments, Ultrasound, PCS and PDx, we expect to grow in that range as we have laid out the 5% to 7% as we go forward.

So it’s a very good balance as we go into the New Year.

Operator: Our next question comes from Ed Ridley-Day with Redburn. Your line is open.

Peter Arduini: Good morning.

Ed Ridley-Day: Good morning. Thank you very much, and I’d add my congratulations on your successful spin and your results. And first question for me would be actually around your molecular imaging business, this continues to drive growth in the wider imaging business. Could you help us better quantify the benefits you see there, particularly what percent of your imaging business does this represent roughly? And also in pharmaceutical diagnostics, you have provided the market breakdown between contrast and molecular. But what percent of pharmaceutical diagnostics is radio pharmaceuticals? It’s a great opportunity. So it’d be great to have any color you can give on that? And just a quick follow-up on pricing. Could you give us an idea of the price €“ rough price increase you hope to push through for this year? Thank you.

Peter Arduini: Thanks, Ed, for the questions, Yes, I’ll start maybe a little bit with MI and frame it up, and then maybe, Helmut, you can comment a little bit on price. I would start first with saying, yes, I think one of the really interesting things that we’re excited about strategically is we’re the only company out there that actually makes the fuels for molecular imaging as well as has the devices that capture to create the images themselves. Why that’s important is this rise of different technologies out there called theranostics, this combination of a therapy and a diagnostic together and how you tune the device to the agent whether it be in the neurosciences area such as Parkinson’s or amyloid beta plaque imaging or other parts of the body.

There’s a lot of longer-term benefits we think will come that way. Our €“ in the agent business itself, MI agents are about a third of volume, about two-thirds is contrast imaging agents used in the X-ray equipment. But we believe that’s going to be a growing area with again newer capabilities coming out of the pharma space that we play a critical role in helping do the diagnostics. On the device side itself, we’ve got a great platform, a great team. We do some outstanding work here in the United States as well as in Israel on these devices, probably one of the deeper expertise capabilities on different technologies, whether they be BGO or LSO, different types of PET/CT detectors as well as the CZT expertise we have within our MI devices.

And combined between PET and MI, we think that this is going to be continuing growth area. It’s still at this point compared to MR and CT, a more moderate sized business. But again, with the rise of these new technologies and giving an example of an aging comes out that needs this type a follow-up to actually assess either amyloid beta plaque or other capabilities, we believe our MI technologies out in the industry will really play a key role in helping drive that diagnosis. And then down the road can even play a larger role in the therapy process either dose or delivery of agents. So, Helmut, you may want to comment a little bit on the pricing question.

Helmut Zodl: Yes. Thanks, Pete. So Ed, on price, we’re quite happy with the progress we’ve been making on price throughout the year. So we started really tracking price on orders last year. So we have both a management system that looks at the orders, but also looks at how much price we have in sales. And in sales, since the second quarter, we have price in our sales or in revenue. It started at the low single-digit. It improved as it went through the third quarter. And we are now for some of our modalities in the mid single-digit level what we are seeing on price. So we were quite happy about how we performed, and we also have good visibility on price for this in our backlog. So we already know what is going to happen and ship here over the next quarters and how much price is in the backlog.

Carolynne Borders: Michelle, we’ll take our next question.

Operator: Thank you. Our next question comes from Vijay Kumar with Evercore. Your line is open.

Vijay Kumar: Hey, guys. Congratulations on a nice finish here and thanks for taking my question.

Peter Arduini: Thank you.

Vijay Kumar: Maybe my first question here on the guidance assumptions here. Peter, can you talk about any trends and cancellation rates or cadence that we need to be aware of? When you look at the 5% or 7%, what is pricing? How much of that 5% or 7% do you have visibility given the backlog and the book-to-bill ratios here?

Peter Arduini: Yes, Vijay. Look, good question. We have some actually quite good visibility at this point with carrying a little bit larger backlog than we normally do. One of the advantages of that is we actually have greater visibility out into the distance about what the deals look like, what the margin is on the deal, the timing thereof. And one of the things our operating teams in each of the segments have done a very nice job is actually speaking with customers and getting all the installed base products planned out as far as we can go, which is in many cases, a couple of quarters out, which is longer than we have historically done, but we did that purposely just based on some of the questions within the macro environment.

And so that gave us more confidence obviously here about what customers want, when they want it and we’ve got some pretty good visibility into that. Other businesses such as ultrasound that have more flow capabilities based on prospecting funnels and stuff, we have quite good visibility as well. So if we look at that backlog, we know what the cost €“ the input costs are going into that. We have €“ we know what the price is in the backlog. So again, for those deals, it’s quite good. We clearly have orders coming into the system that will feed into that backlog. We know what our current pricing is. And we’ve also either taken some price increases or had some that would cut in. And keep in mind, there’s a couple of different ways to think about price looking at your configurations and really optimizing them is something that we started last year.

And I think that’s of high value. Our new NPIs, we really focus on getting the right value for the customer and pricing it right the first time, which typically then aligns to making sure that we have the right gross margins associated with it. And then classic price increases on many of our products. So again, the combination of those gives us a pretty good view into how we see the year at this point, but probably more so a better lens on the first half.

Vijay Kumar: Understood. That’s helpful. And maybe one follow-up for Helmut. Look at EPS guidance here, 7% to 11% between your organic top line assumptions and margin expansion, I think operating profit should be growing close to double digits here. Any €“ what are you assuming for FX and any below the line sensitivity here on interest expense or other items that we need to be aware of?

Helmut Zodl: Yes. So Vijay, we have been obviously tightening up the range on the EPS guide. So the $3.60 to $3.75, we believe is right in the middle. When you look at the upper and lower end of the revenue and the margin expansion guide, so we wanted to tighten that range up. And to the assumption question, so there’s about 2.5 basis points of negative impact from FX assumed in those numbers, very little below the line. So that’s really how you should look at it.

Peter Arduini: Yes. And I would just say, Vijay, one of the things is we’ve got and we’ve talked about improving supply chain. But again, improving isn’t back to, say, the good old days. All of our input costs have some added cost to them. It’s why we put a lot of focus on variable cost productivity. We’re carrying some inventory from spot buys and things that was at higher rates. And we’re going to see much of that continue into 2023, but we have good visibility to it. And I think as we see how the economy plays out and how that plays out relative to inflation, we’ll have better insights about what we can do about it. But again, our first half visibility looks quite good at this point in time. And again, we’re optimistic that we’re going to continue to see improvements throughout the year.

Vijay Kumar: That’s helpful perspective. Thank you, guys.

Helmut Zodl: Thank you.

Operator: Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Your line is open.

Lawrence Biegelsen: Good morning,

Peter Arduini: Good morning, Larry.

Helmut Zodl: Good morning, Larry.

Lawrence Biegelsen: Hi, Pete. Hi, Helmet. Thanks for taking the question. One on the top line, one on the margins. Pete, you talked about clearly Q4 results were very strong, 18% in imaging. You talked about the backlog here. Is there any way to quantify this? Is there €“ I mean, is this somewhat of a catch-up, if you will, and what are your expectations for that for 2023? Clearly, you’re growing well in excess of historical market growth. And I had one follow-up.

Peter Arduini: Yes. Larry, I think particular to imaging, we obviously as well as us and pretty much everyone in other industries with the installed type products had some pent-up demand. And I mean that’s part of our backlog, right? And we were able to deliver a higher percentage of that. That typically is more in MR, CT, PET/CT, again some of the bigger installation-based products, but it’s affected the whole portfolio at some level. And so, Helmut mentioned the words we focused on making sure that we leaned in on getting the parts that we needed at the right time. It had a little bit of an impact on our cash flow, but we had the components available to ship, which then resulted in the higher growth. And I think with that, we’re going to see that into the first half.

Now we would expect that that will start moderating and get back to more classical historic growth rates. But what’s interesting is you speak with customers again back on the list of their top capital buys are, in many cases, diagnostic imaging equipment, MR ranks up their high. We’ve mentioned the OEC C-arms in our remarks. Anybody that’s doing any type of surgical imaging and outpatient center, that’s the preferred device. So it’s quite strong, but we are definitely running at a higher level. And our RPO or our backlog that we have is quite strong. And again, just to emphasize, we’ve got good visibility on that into 20 23 and well into the year.

Lawrence Biegelsen: Thank you. And Helmut, on €“ well, sales and margin cadence, appreciate the color. Maybe if you could help calibrate us a little bit more. How much lower do you expect second half organic growth? Is it going to be below the 5% to 7%? And then margins kind of how much lower in the first half, do you still expect to be down year year-over-year? Thanks for taking the question.

Helmut Zodl: Larry, So maybe I’ll reiterate how we look at the overall guidance for the full year and quarterly flows. So on revenue, we expect growth to be stronger in the first half, clearly and that is driven by the backlog and also how we have lined up really past and inventory in the first half accordingly. But the good news is going to be that we still expect sequential growth in the €“ into the second half. So typically, our Q3 and Q4 is higher than our Q1 and Q2. But growth rates, we expect to be slightly lower than what we are seeing in the first half accordingly. So that’s the side on the revenue. On the margin side, you will see, I think, more of the margin expansion in the second half as we expect some of those productivity initiatives to taking hold, especially around VCP and cost improvements on the gross margin side.

And the reason for that is really because we still have, as I think, Pete said that earlier, we still have elevated cost that is sitting in our inventory on our balance sheet. And as we flush that inventory through, we will have lower margins in the first half that then will improve into the second half. And we’re already seeing this based on those red flag parts of how much parts we have, how much parts we have to purchase at spot buys. And so that’s going to be the side on the margins and more of that in the second half. And maybe I’ll comment on cash flow also just to be clear on that also. So a very large piece of the cash flow given our seasonality in our business we expect to happen in the second half, less of cash is going to be generated in the first half because of interest payments, because of some of the supplier payments that are bigger in the first half as well.

So that’s really how you should look at the quarterly flow for 2023.

Operator: Our next question comes from Veronika Dubajova with Citi. Your line is open.

Veronika Dubajova: Hi, good morning and thank you, guys, for taking my questions and congratulations on the successful spin as well.

Peter Arduini: Thanks, Veronika.

Veronika Dubajova: Maybe you guys can talk a little bit about the competitive environment that you’re seeing, and I’m thinking in particular in imaging and ultrasound. Curious if you’re seeing any changes. We saw one of your peers this morning canceled some historical orders, which they felt were at a lower price. Is that creating opportunities? Or in general, are you seeing opportunities that are driven by the disruption that this one peer of yours has suffered? And maybe specifically if you can comment on China and how the local strategy is playing out for you guys? Then I have one follow-up after that, but I appreciate this is a long question, so I’ll let you answer that first.

Peter Arduini: Yes, Veronika, I would say, look, from an environment in the marketplace, I would say a little bit just because of some of the dynamics here that there’s quite a bit of demand that’s actually out in the marketplace when you look at these backlogs of imaging procedures. And so all of the different players, I think, at some level are having some positive benefits of this market. I mean, again, the prioritization of the CapEx just doesn’t apply to GE HealthCare, right? It applies to everybody. And so we’re expecting that there’s a reasonable healthy amount of demand out there. And everyone at some level has had different experiences and challenges with their supply chain. So there is some similarities. At the same time, we think because of the investments that we’ve made over the past few years, we have some products that are winning share more so about the capabilities they bring to patients and customers than a situation where maybe one or two of our competitors are in.

And so I mentioned molecular imaging, where we’ve got leadership positions. What we’ve done in MR with our image quality as well as productivity, our CT surgery, what’s come out with ultrasound, that’s how we’re winning the day and in many cases, taking share in different marketplaces. I would say we are really being balanced about what we go after to make sure that we get the right margins and capability around. So that’s an important part of our overall strategy. I would say to your China question, look, there’s always been lots of local competitors. In many of our modalities for 10 to 20 years, there’s been 5x or 4x the amount of competition within China for China versus the rest of the world. And I think, as you know, we’ve been competing there for many, many years, manufacturing for over 30.

So we have a pretty good handle on it. And with some of the stimulus funds that were €“ the government put out really at the beginning of Q4, we’ve been seeing some robust demand for imaging equipment, in particular, both ultrasound and the whole spectrum of the imaging portfolio. And again, I think we’re going to see that continue into beginning of next year. And so we’ve been able to be quite successful we believe in competing against, both multinational as well as local competitors. We see ourselves, in many cases, as local €“ as a local player in many of our modalities again because of how we actually design and make products in China for China. You have another question?

Veronika Dubajova: Yeah, I did it, which was China specifically, if you can just remind us what proportion of your portfolio is certified as local now? And when might we hit 100%?

Helmut Zodl: Yes. So, Veronika, we have a very large components of our portfolio is localized. And I would say it’s not close to 100%, but not far off 100%, that’s how I will answer the question for most of our modalities. And we continue to expand that on an ongoing basis because it’s not only the localization of the manufacturing, but there’s also the innovation in China. So having specific product that’s really made for China, made in China, that’s really how we look at it. So innovating for the China market then accordingly. So this is quite high percentages. The teams worked very hard. And we have a long €“ as Pete said earlier, we have a long history in China. It’s an important market for us. Our brand is very well recognized, which we are proud of and we are continuing to innovate for customers in China.

Peter Arduini: And I would just to put a finer point, Veronika, I mean, for what we have set as our operating plan for 2023, we have all of that localized and feel quite good about it. As Helmut said, as we bring new products out, one of the big question is, how much you’re going to localize versus not. But for what we need to compete, we’re in a very good position with localized components and that type of recognition that’s needed in certain types of tenders or constructs to compete.

Operator: Our next question comes from Anthony Petrone with Mizuho. Your line is open.

Peter Arduini: Hi, Anthony.

Helmut Zodl: Good morning, Anthony.

Anthony Petrone: Hi, Pete. Hi, Helmut. Congratulations on the spin and a great initial quarter out of the gate here. So congratulations to the team. Maybe a little bit on new product introductions, MPIs and that is certainly a contributor here. So in the plus 13% overall, I guess what percent of that actually came from new products.? And then when we think about the backlog, what is embedded in there for new products? What percentage of the backlog is going to flow through with newer systems that are recently introduced, let’s say, over the last 12 to 18 months? And I’ll have one quick follow-up on capital allocation.

Peter Arduini: Yes, Anthony, I’ll make some comments and Helmut feel free to jump in. I think again, in this business having new products that bring solutions that solve some of the challenges for customers, in many case, productivity, products that help deal with some of the labor challenges or expertise and then solving big issues for patients. We’ve been quite fortunate with a lot of our launches recently again and some of the classic modalities, MR, CT, we mentioned about the PET system that has integrated AI on it. All of those have played a key role. I think in the fourth quarter, we were in the upper 20s, high 20s or so relative to vitality rate on new products that have been recently launched. My metric typically is if you’re above 20% in that range, that’s a very good vitality metric, then you were closer to 30% within new products that are out there.

I think there’s quite a bit of demand as we talked about for certain products in outpatient centers and there’s still quite a bit of demand in updating, in some levels, an older fleet within the acute hospitals around the world. Helmut, do you want to add anything?

Helmut Zodl: Yes, I would just add, I think as Pete said, so the innovation and the new products are happening really across the portfolio. I just would call out, it’s happening both on the device and I talked about a couple of those innovation in my remarks, but it’s also happening on the digital side. So a lot of AI and machine learning that happens on the device accordingly, which is really a different way of introducing an NPI. So there’s a lot of times spend on that by the team, which really helps clinicians significantly both get more productive, but also help better patient outcomes.

Peter Arduini: Yes. And the last part, Anthony, is I think from a service standpoint, as we sell these more highly sophisticated products into the installed base, 12 months out, the probability of capturing that for a service contract because of the sophistication of the product and really the limited amount of other folks that can provide the type of services needed for one of these advanced products will then become more reoccurring revenue growth down the road. And so that type of capture rate involved with leading products, it’s an important part of our equation on growth.

Anthony Petrone: Very helpful. And quickly on capital allocation, it’s been dynamic out of the gate here. You did the tuck-in with IMACTIS. We also had the debt recapitalization with the spin. And of course, you’re doing internal investments with contrast, expanded the plant last year. So maybe just high-level comments on capital allocation when we think of internal investment, the debt service out of the gate here post spin, tuck-in M&A and then return to free cash holders? Again congratulations. Thanks.

Peter Arduini: Yes. Thanks.

Helmut Zodl: Yes. Thanks, Anthony. So the way we look at our capital location, first and foremost, we are very happy with our strong investment-grade ratings we received last year. This is important for us access to capital, but it’s also equally important for our customers. I mean, Pete just talked about long-term services contracts. People want a strong financial partner that know €“ they know that’s going to be with them for many years, sometimes decades only. So this is first and foremost very important. Obviously, investing in the business is a key priority. We increased our R&A investment substantially in 2022, it was up more than $1 billion that we spend on R&D now. And going forward, we expect that to really grow with the revenue.

But when you then look at the rest of the capital allocation, obviously, this is a strong cash-generating business. I’m talking about 85% or more free cash flow conversion. And we will use and deploy that cash to continue to invest organically into the business, but also out of the free cash flow inorganic investment. IMACTIS was one example. Pete and I spent a lot of time with our M&A team to look at opportunities because I think it’s important for us to see what is out there and make sure that we have a good transparency and visibility and then make decisions that are going to be very disciplined for such acquisitions if they fit into our portfolio and AI accretive both at the top line growth, but also from a profitability perspective.

Operator: Our next question comes from Ryan Zimmerman with BTIG. Your line is open.

Ryan Zimmerman: Hey, thanks for taking the questions, and I echo everyone else’s sentiments in the first quarter here. So just want to ask about two metrics that you’re giving to The Street? And what is the book-to-bill ratio? I know there’s been a lot of questions on it, but would appreciate some historical context in terms of how to think about that 1.07 ratio and how to think about it on a go forward basis? If you could give us any quantitative perspective from prior quarters on the book-to-bill ratio and just how to think about that? And similarly in that vein, I’ll ask my follow-up is, is there’s about $10 billion in remaining performance obligations, at least as of the filings. And so just if you can, Helmut, elaborate on the length of those obligations, how far those extend out?

How those are realized over the coming quarters? And then how to think about that $10 billion on a go-forward basis? Is that kind of the par level to think about 4G healthcare as we think about going forward? And if you’ll be giving out these kind of metrics going forward? Thank you.

Helmut Zodl: Yes. So Ryan, I think to the RPO, we feel good about the Q4 in a book-to-bill ratio of 1.07. And this really I think demonstrated that the markets are strong. The book-to-bill, the way how we define it is really, I think, a quite simple calculation across the whole portfolio. And you mustn’t forget, we had quite a large services business in this as well where book-to-bill is 1. Also the PDx business for us as a book-to-bill of 1. So when we look across the portfolio, you will see book-to-bill is actually higher in our imaging products, where we have obviously from taking the order until shipment takes a longer time and we’re quite comfortable with the backlog. Historically, that book-to-bill, I would say, has been running in similar ranges.

It would have been up above the 110 level at certain quarters if we look at historically, but it’s running at a very solid basis at this stage. As it relates to our RPO, the RPO, as you mentioned, is a big amount that we have disclosed and we’re quite happy with that backlog. The RPO, the way it’s defined, I want to be also maybe clear on, it’s defined as backlog that is non-cancelable. So we also have backlog that is non €“ that is cancelable, where we see very, very little, very few cancelations from our customers because they’re committed to the product, that’s really how we look at that RPO. And we’re exiting the year at a very strong position both on the RPO side as well as the total backlog. And just to be clear, the RPO, it is $14 billion.

I don’t know if they did better $10 billion number you quoted came from, but it is $14 billion at the end of 2022.

Ryan Zimmerman: Thanks, Helmut. Thanks for taking the questions.

Helmut Zodl: Thank you.

Peter Arduini: Thanks, Ryan.

Operator: Thank you. Our next question comes from Jason Bednar with Piper Sandler. Your line is open.

Jason Bednar: Hey, good morning, everybody. And again, I’ll echo the congratulations here on the quarter and the guide and with the spin and everything. I do want to touch here on China and build on the discussions from prior questions. I think most acknowledge there’s some level of pent-up demand in that market. I know you’ve referenced it, Pete. It might be tough to call right now, but how do you see the China market unfolding here for GE HealthCare in 2023? And really, as we look throughout the year, if there’s any cadence you’d like us to think about? And then maybe if you could speak to what you’ve embedded in the guide for China this year?

Peter Arduini: Yes, Jason, I think €“ look, I think China, it’s obviously tricky to fully estimate how things will play out. I mean, we’re cautiously optimistic. But again, if you pull the lens back, you look at the market, you take a look at how, in many cases, procedures have been suppressed over the last 18 months at least potentially even 24 months. Things are clearly opening up. And yes, there’s challenges within the hospitals now with COVID patients and such. But if we think of our own facilities that we’ve been able to keep running through Q4 when COVID levels were up 60%, 70% in the environment, we were able to do that with learnings we had from how to run it in the first half of 2022. But we’re now seeing a lot of those rates, particularly in the bigger cities, where a lot of the businesses transacted to drop off quite a bit.

And so our estimates would be Q1, I think, is going to be a little bit choppy based on the type of products. If I think of flowable products like our PDx is tied to procedures, probably a lower level of a procedure volume in that quarter versus how we would see quarters two, three and four. But on equipment, we actually would expect that it’s still going to be reasonably strong and it’s driven by a different dynamic, which is the stimulus funds that are out there and requiring products to be taken on install. We also make some products that actually help assist with COVID patients whether it be monitoring events or other products in CT and stuff. So there’s a bunch of different activities going on, but we would expect that China will continue to ramp throughout the year.

And again, we can’t predict all the different changes that may take out, but our take at this point in time is Q1 a little bit more tempered and then continue improvement throughout the year.

Jason Bednar: Okay. That’s helpful. Thanks, Pete. And then maybe just as a follow-up with respect to price and I’ll come back to that topic here. Pete, you and the team do have a lot of confidence in price and tailwind supporting growth here going forward. I know we’ve talked a lot about price increases on products and goods, but I guess how are you seeing pricing play out in the services side of your business? And are you anticipating similar pricing power there over time with your service contracts? Thank you.

Peter Arduini: Yes. No, I think, look, I would just say on broader pricing, our job to get price really comes down to is to bring more value to the customer to help solve their problems. And the more we can create products that really solve a bigger issue, we can get our fair share of more pricing. And so having your organization, your teams aligned and thinking that way, having a gross margin focus as well, is something we’ve just driven across the company and build into compensation plans, build into focus. So I think that’s an important part. And it goes for both equipment and services. Obviously, with services, there’s a different type of horizon, usually multi-year how you think about it. We’re also investing in innovative new services, whether they be different types of remote capabilities, Again, when you think about the brake fix side of our business, these are highly valuable products that being down for half a day or a day can wipe out a lot of profits for the institution.

So if you have capabilities to be able to keep the product up running, customers are able to pay more for that. The other aspect is there are other services with an S on the end and some of those are digital on how you run your operation or how you can run capabilities. And in that €“ those cases, we can obviously ask for even higher prices as well as better margins than what we would have from normal brake fix. But we’ve been successful at taking selective increases. And again, with more of these advanced products, the related service contracts for them will also have a tail of better pricing down the road as well.

Operator: Our next question and our last question comes from Yuan Zhi with B. Riley. Your line is open.

Yuan Zhi: Good morning. This is Yuan, and thank you for taking our questions. I have a couple of them related to the pharmaceutical diagnostic business. First, on PDx. PDx was listed as a revenue priority. Can you elaborate between molecular imaging and contrast media, which segment would drive the growth you guys have mentioned? And I have a follow-up question. Thank you.

Peter Arduini: Yes. No, look, good question. PDx is definitely a growth driver. And again, I just want to reframe as we talked about all of our businesses, all of them have growth opportunities and all of them have margin expansion. But PDx has more of a growth priority upfront. And I think it’s both sides of the PDx Health, both our contrast business as well as our MI business, we’re expecting to see accelerated growth. As an example, in contrast with the growth of the imaging procedures that we’re talking about, anything that needs a contrasted-based capability like a vascular study with our leadership position in contrast ionized imaging, we’re going to continue to see that increase. So I think that’s one. On the molecular imaging side, again, with the rise of new agents that are out there, whether they be in prostate or different neuroscience-based agents, we would be expecting to see that pick up.

I would say the contrast agent is probably more of a temporal or closer 2023 impact. And the MI is probably has more of an impact later in 2023 into 2024, just to kind of give you a profile of how we think about the growth there.

Yuan Zhi: Got it. Thank you for the helpful color there. The follow-up question is our understanding is that the product such as Optison for ultrasound and with Vizamyl for Alzheimer’s disease PET scan maintaining a healthy gross margin. Can you maybe help us understand what prevents competitors to lower price and gain a larger market share, while at the same time, what stops other companies entering the space and making generic compounds of this product? Thank you.

Peter Arduini: Yes. No, it’s a good question. I would say, first of all, they do have healthy margins. One of the interesting things about our pharmaceutical diagnostic business, both in contrast and MI that you had referenced, is the proprietary nature of how we make it, I would say, the capital hurdles of the infrastructure and then the sophistication of the infrastructure. And just to give an example, if there is a typical molecule in the pharmaceutical world that comes in a 10 ml vial and a generic comes out, people can have five ready, they can be shelf stable, they can be shipped around the world, stored for two years. Many of our agents are made that have half-lives, they’re radioactive, right, that only can live for maybe a couple of days.

And so you literally have to have production capabilities cyclotron setup, a distribution network on how to deliver radioactive capabilities to pharmacies, we have that infrastructure and that know-how. And so even though some of these will have patents on them, the actual barriers to entry are more around the infrastructure and capability than they are based on particular IP and the normal pharmaceutical space.

Operator: That concludes the question-and-answer session. Please proceed with any closing remarks.

Peter Arduini: Thank you. So, look, in closing, let me just reiterate how excited I’m about our path forward as we invest in our business. The emphasis on innovative products in high-growth areas, many we talked about today, we delivered strong organic revenue growth and sequential margin improvement in the fourth quarter and we expect to capitalize on robust demand in 2023, as we execute on our revenue drivers across each of our segments. And we’re also optimizing the business through lean. We’ve given quite a few examples today, and this gives us confidence in our ability to reach our margin targets and drive meaningful shareholder value over the long-term. Our full team is united and excited about our purpose-driven approach for the benefit of customers and most importantly patients that we serve. So thank you for joining us today, and we look forward to seeing you at one of our upcoming conferences that will attend. Thank you very much.

Operator: Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. Everyone, have a great day.