Title

Presentation

GE HealthCare Technologies Inc. beats earnings expectations. Reported EPS is $1.14, expectations were $1.05.

Operator: Thank you for standing by, and welcome to GE HealthCare’s Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Carolynne Borders with Investor Relations. Please go ahead.

Carolynne Borders: Thanks, operator. Good morning, and welcome to GE HealthCare’s third quarter 2024 earnings call. I’m joined by our President and CEO, Peter Arduini; and Vice President and CFO, Jay Saccaro. 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. With that, I’ll hand the call over to Peter.

Peter Arduini: Thanks, Carolynne, and thanks to all those joining us today. In the third quarter, we delivered 1% organic revenue growth, in line with our expectations, with strong performance in the U.S. across all segments, and solid growth in Pharmaceutical Diagnostics. In the quarter, we delivered positive price and volume. Organic orders growth was 1%. Excluding China, reported sales growth was approximately 5%, and orders growth was 4%, reflective of a healthy capital equipment market outside of China. On a total company level, we reported strong growth in backlog in the quarter that was primarily driven by services. As a reminder, multiyear service agreements support our reoccurring revenue profile with a high level of revenue predictability at accretive margins.

In the U.S., strong orders in sales were driven by multiyear enterprise deals primarily made up of imaging products, particularly PET and CT systems, which are critical to the diagnosis and treatment of chronic diseases. We are pleased with the progress that we’re making to secure long-term partnerships which is foundational to our growth strategy. Another revenue driver in the quarter was PDx, team continues to deliver for customers, and we’ve seen PDx report seven quarters of high single-digit — or double-digit organic revenue growth. Turning to China, we continue to monitor the market which has been slow to recover. Coordination of stimulus funding is taking longer, so customers are still delaying normal purchasing. This is impacting overall growth in the China market in the near-term.

Bottom line is we continue to view this as a temporary challenge. And over the mid to long-term, we see China as an attractive market. Our margin performance in the quarter demonstrates our ongoing cost optimization priority, specifically the focus that we have on gross margin expansion, including product platforming and variable cost productivity. We continue to make progress with lean, taking action across the organization to make improvements for the benefit of our customers, and to drive better performance in overall safety, quality, delivery cost, and innovation. With overall continued execution, we were able to deliver strong adjusted EBIT margin and adjusted EPS. And we’re raising the low-end of our full-year adjusted EBIT margin and adjusted EPS guidance ranges.

Moving to innovation, we’ve talked about our leading role in Theranostics, a fast-growing field of molecular imaging the diagnosis and treatment of certain types of cancer. We’ve made some notable advancements in the space over the last few months. In Europe, we’re establishing a Center of Excellence with University Medicine Essen, a top research institution in Germany. We’re also leading an approximately $28 million initiative with multiple partners to expand its use. In the U.S., we secured FDA clearance for a new software tool to standardize and automate the process of measuring and calculating radiation dosage during Theranostics treatment. This tool will enable clinicians to safely increase patient access to this effective form of precision medicine.

With that, I’ll pass it to Jay, who will take us through the details of our third quarter performance and our outlook for 2024. Jay?

Jay Saccaro: Thanks, Pete. Let’s start with our financial performance on slide four. For the third quarter of 2024, we reported revenues of $4.9 billion, with organic revenue growth of 1%. This was in line with our expectations. Recall that we delivered 6% organic revenue growth in the third quarter of 2023. On a reported basis, we saw a service revenue growth of 2%, and product revenue was flat. As you can see from our reported sales detail in the quarterly filing this morning, market headwinds in China continue to impact total company sales growth in the quarter by approximately 400 basis points. Global sales growth excluding China was approximately 5%. Organic orders growth was 1% year-over-year, driven by continued strength in the United States and in emerging markets within Rest of World.

Excluding China, organic orders growth was approximately 4%. We continue to see orders dollars outpacing sales leading to a strong company book-to-bill of 1.04x. We exited the third quarter with a healthy backlog of $19.6 billion, up $1.2 billion year-over-year, and up $600 million sequentially. We made strong margin progress in the quarter, delivering an adjusted EBIT margin of 16.3%, up 90 basis points year-over-year, and ahead of our expectations. As a result, third quarter EPS adjusted was $1.14, up 15% year-over-year. We also had tax benefits related to our 2023 tax filings completed in the third quarter of 2024. We generated free cash flow of $651 million, up $81 million year-over-year. Turning to progress we made in the third quarter on margin initiatives on slide five, adjusted gross margin expanded 150 basis points, driven by focused execution with variable cost productivity initiatives, continued sales price accretion, and higher margin NPIs. Of note, we’ve improved our cost productivity in the third quarter by partnering with global suppliers to drive deflation in direct material costs.

We’re also executing cost effective design changes with an enhanced focus on product quality, and improving the customer experience. We continue to see increased sales from digitally-enabled products like AIR Recon DL and Sonic DL in MR, driving higher margins. While expanding margin, we also invested more than $300 million in R&D, equating to roughly 6.5% of sales in the quarter. We remain committed to investments in innovation, focusing on differentiating technology and research collaboration. This includes exciting research in AI and cloud technologies that Pete will talk more about later. Nearly two years since the spin, we’re pleased to have exited the majority of the TSAs and are on track to exit the remaining agreements on time. This positions us well to further optimize our cost structure.

As discussed on prior calls, we see substantial opportunity over the next few years as it relates to IT and other structural cost optimization initiatives. One example of this is the implementation of software to eliminate duplicate and non-value added applications. By aligning licenses with specific roles and responsibilities, we’ll deliver an annual savings of approximately $4 million. This is one of the many projects we have in our IT transformation roadmap. Given the volume pressures, we’re maintaining a disciplined approach to our discretionary spending. Before we turn to our segments, as a reminder, we’re now reporting results in our new segment structure, which went into effect on July 1. Image Guided Therapies previously part of Imaging was realigned to the former Ultrasound segment, which is now known as Advanced Visualization Solutions.

This structure better aligns to future clinical trends and will better enable us to deliver strong business and customer impacts by providing the right image guidance in the right care setting. Now, let’s move on to segment performance starting with Imaging on slide six. Organic revenue was down 1% versus the prior year due to headwinds in the China market as we expected. This was partially offset by strength in the United States. Segment EBIT margin was up 200 basis points year-over-year. We continued to make progress on enhancing gross margin through productivity. Additionally, we saw favorable mix and positive price. We continue to see strong demand, particularly in the U.S. with opportunities in replacements, upgrades and services. Turning to Advanced Visualization Solutions on slide seven, Organic revenue was flat year-over-year with increased sales volume in the U.S. offset by a decrease in China due to the previously discussed market headwinds.

Segment EBIT margin decreased 90 basis points year-over-year, driven by unfavorable mix. Cost productivity improvements through standardization and new product introductions offset inflation. Moving to Patient Care Solutions on slide eight, organic revenue was up 2% year-over-year, driven by backlog execution and following 9% growth in the prior year. Segment EBIT margin increased 10 basis points year-over-year with improved productivity. The team has reduced past due backlog throughout the year, driven by lean principles to increase capacity. These actions will allow for greater fulfillment flexibility in future quarters. Moving to Pharmaceutical Diagnostics on slide nine, we delivered another solid quarter, generating 7% year-over-year organic growth, driven by healthy procedure volumes.

And we delivered EBIT margin of approximately 31%. We’re pleased with the continued growth contributions and margin expansion in this segment as well as the progress we’ve made in expanding our capacity and pipeline investments. We’re encouraged by the recent CMS reimbursement proposal and the potential for patients to have access to important diagnostic scans in U.S. hospitals. This increases our confidence that our proprietary molecules like DaTscan, Vizamyl, Cerianna, and Flyrcado can be growth drivers for the company over time. If the proposed payment rule is finalized, we expect to see accelerated utilization of PET diagnostics and potentially an increase in the overall penetration rate for PET diagnostics versus other alternatives. Turning to slide 10, I’ll walk through cash flow.

We delivered strong free cash flow of $651 million, up $81 million year-over-year. We saw progress in driving working capital management efficiency. We’re improving our accounts payable processes. And we saw strong collections in the U.S. and PDx business year-over-year. We had a great example of lean in action on inventory management and material processes at one of our key imaging sites. The team held a Kaizen and identified opportunities, and implemented changes to reduce the lead time from staging through shipping, leading to approximately $4 million of inventory savings. Again, this is just one of the many examples taking place in our facilities around the world. Looking ahead, in line with seasonality, we expect to deliver strong free cash flow in the fourth quarter, which is typically our highest revenue and cash generating quarter.

Now, let’s turn to our outlook on slide 11. We expect full-year 2024 organic revenue growth to trend toward the lower end of our 1% to 2% guidance due to the continued China market softness. Based on this trend, we expect to see limited market benefit from China’s stimulus through the first-half of 2025. As a result of our strong margin performance year-to-date, we’re raising the low-end of adjusted EBIT margin guidance to be in the range of 15.8% to 16%, reflecting expansion of 70 to 90 basis points versus 2023 adjusted EBIT margin of 15.1%. As it relates to our financial assumptions, we’re trending towards the lower end of our adjusted tax rate range of 23% to 25%, given some additional tax incentives recognized in the third quarter of 2024.

We also expect the revenue headwind from foreign exchange to be less than one half of a percent in 2024. And with increasing confidence in our ability to grow the bottom line, we’re raising the low-end of the range of adjusted EPS guidance by $0.05 now to $4.25 to $4.35 per share. This reflects year-over-year growth of 8% to 11%. We continue to expect free cash flow for the year to be approximately $1.8 billion. With that, I’ll turn the call back over to Pete.

Peter Arduini: Thanks, Jay. We’re excited to talk to you about all of the growth opportunities ahead at our Investor Day in November. But today, I’ll highlight two of these opportunities. We recently announced Flyrcado, also known as flurpiridaz. This is the first and only FDA-approved F-18 PET myocardial perfusion imaging tracer for patients with coronary artery disease. It’s been called a game-changer by some cardiologists because of its improved diagnostic accuracy compared to traditional spec imaging. And its half-life is significantly longer than the most commonly used cardiac PET tracers. Flyrcado will become commercially available in the U.S. in early 2025, and we believe it will provide a meaningful impact for clinicians and their patients.

I won’t go deep into the details now, we’ll do that at Investor Day, but to give you a sense of the opportunity, we estimate that there are around six million myocardial perfusion imaging procedures per year in the U.S., of which we believe PET NPI makes up about 5% to 10%. Revenue will ramp over time, and we’re working with healthcare providers to build out the capacity required to enable greater access to PET for cardiology. We see an opportunity for revenues of greater than $500 million annually from this one proprietary molecule once the health system infrastructure is in place. We’re excited about the opportunity for Flyrcado, and for other radio pharmaceuticals given the significant advancements we’re seeing in this space, as well as the potential changes in reimbursement that will drive more personalized care.

Additionally, we’re investing in new AI and cloud-based solutions to better serve our customers who face data overload and widespread operational inefficiencies that drain their resources. We recently announced our latest advancements at HLTH, a premier technology event in Las Vegas, including CareIntellect, an offering of generative AI-powered clinical and operational applications. It streamlines patient data from multiple systems into a single view to help optimize care delivery and quality across disease states. We also shared several research projects that seek to address pressing care needs and reduce cognitive and administrative burdens on clinicians. We continue to invest in AI and cloud innovations that will drive future reoccurring revenue, which we’ll talk more about next month.

In summary, we delivered positive sales and orders growth in the quarter, reflecting strength in the U.S., and solid PDx revenue performance. With approximately 5% sales growth and 4% orders growth excluding China, we see a healthy capital equipment environment. We’re confident in the fundamentals of our business, supported by our innovation and our pipeline, as well as our strong backlog. The team is focused on lean to improve the customer experience and enhanced productivity has allowed us to deliver strong bottom line results. As we enter the final quarter of the year, our expectations for 2024 on the top line reflect the China market dynamics, and with continued bottom line expansion, driven by our team’s strong operational focus and execution.

With that, we’ll 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. Operator, can you please open the line?

Operator: Our first question comes from the line of Robbie Marcus of J.P. Morgan. Your question, please, Robbie?

Robbie Marcus: Great, good morning, and thanks for taking the questions. Two for me, one on margins, one on China, maybe to start with margins, another good quarter with upside on operating margin, dropped that through to EPS. I guess the question is really around the line of sight. How much of the low-hanging fruit has been picked already today, and what’s your line of sight to future operating margin expansion as you move into the next phase of separation?

Jay Saccaro: Sure. Robbie, overall, margins have trended well. As we commented and as you can see in our financials, EBIT margin is roughly up 70 basis points on a year-to-date basis, and gross margin is up about 130 basis points. So, we feel really good about the initiatives that we have and the operational focus on expanding margin. And I’ll remind you, all of this is done against lower sales volumes than we expected at the beginning of the year. And frankly, as we look at what we’ve delivered on so far this year, now it’s about that pricing that we’ve talked about historically, largely in line with what we previously expected. We’ve talked about variable cost productivity initiatives that have more than offset inflation. And then, we also have general savings initiatives we put in place that yielded a result.

I would say that one thing that we did at the midpoint of the year when we saw a little bit more of a challenging revenue environment, we wanted to make sure we had the right cost profile for the business in place to support delivery of our earnings. So, we put some incremental savings initiatives in place. We’re really pleased with that we’ve been able to do on this front. So, you can see the really good progress in the financial result, but I think as we look forward we also have very good line of sight to future margin improvements. And I would say we’re really excited to share some of this at the upcoming Investor Day how we’re thinking about the long-term margin profile. As we look forward, you’ll see some of the continued themes; continued focus on price and continued focus on productivity initiatives.

But what’s going to supplement it as we move into the future is, first, this idea that as we come off the transition service agreement, which has been a very significant effort this year, and we expect to principally conclude it this year, it does allow us to pursue a number of new initiatives that we’ve been unable to, to date. The second thing that you’ll start to see in the future is the benefit of all of these R&D investments that we’ve made. We are launching differentiated products, and we’ll start to highlight that for you. And that has with it a real customer interest in those products or a revenue growth element, but also a margin element as well as we look at things like platforming. So, the complexion changes a little bit, but what I would say is we have a long way to go on margin.

And we also have very good line of sight to what we’re trying to achieve.

Robbie Marcus: Great. Maybe one on China, which was down over 20% in the quarter, and we’re seeing this across the board with your competitors. I guess the question is really how do you think about the forward trajectory of China? Like you said, ex-China business grew 5%, that’s where people are sitting for the total company for next year. What’s your visibility into the current trends in China, and any stabilization and improvement? And how do you think about China as we move into next year as, obviously, that’ll be the biggest lever on sales growth, I imagine? Thanks a lot.

Peter Arduini: Thanks, Robbie. Maybe I’ll expand a little bit on this so we can address because I’m sure other people have questions on this, maybe in one question, between Jay and I, we’ll go a little bit through this and then have time for other topics. But look, as we said, I think the China market has been slow to recovery. I mean we were pretty clear about this back in July as well. And as we mentioned on the call, stimulus funding coordination, I would say, is taking longer. So, customers are still delaying normal purchasing. And again, this is impacting the overall growth in China market in the near-term. I would say program details for many of the 31 provinces are now available. And we stay closely connected with the local markets as we have a large team on the ground there, I think we have a pretty good understanding of how things are evolving.

And as I said in our prepared remarks, and we see it today, you see limited market improvement really going out through the first-half of 2025. And so, the question might be, well, how do you think about that? And I’ll say, we think about it in four steps, particularly in capital equipment, which is, this first part is are funds released on funds set up. And so, yes there are clarity about certain tenders, but where the funds are and are they released hasn’t been fully communicated. And then, you move into actually kicking off the tender process itself, where is it going to be multiple awardees, single, whatnot. Then you actually have the awarding of them, so hospitals find out which products they’re going to get. And in many cases most of these products have an installation process, right, there’s power, building setup, and things of that nature that have to take place.

And then, they’re installed, and the sale takes place. When we look at that sequence of things, that’s when we basically say we see limited recovery relative to what one would see in sales in the first-half of 2025. That all being said, we believe this is a temporary challenge. And again, over the mid to long-term, we think China market is going to be, obviously, a very attractive market. All during this time, the need is not going away, the actual demand is still being pent up, all right, that nothing has changed from that standpoint. But we’re just taking a pragmatic view until we really see change happening. Jay, maybe you can add a little bit more details here about how we thought about the guide and how we look at the — how this is evolving?

Jay Saccaro: Sure. So, when we gave guidance in July, you will all recall, we reduced guidance roughly $400 million to $600 million at the midpoint, $500 million related to China on the sales line, and that correlated to our total company guide of 1% to 2%. Our view today is within the range of outcomes we expected, but it’s just at the lower end at approximately 1%. Year-to-date, our sales in China are down 17%, and we now expect China to be down high teens for the full-year. And so, what that means is it’s closer to that $600 million impact. When stimulus starts to come through, it will be a positive development and we think we’re well positioned to benefit, but timing that is something that we don’t want to get involved in.

As it relates to when the rebound takes place in China ’25, like at this point, I would say we expect limited benefit from the stimulus through the first-half of ’25. We’ll watch this very carefully in the coming months leading up to giving guidance in February. So, I mean, in essence, we’ve taken fundamentally the effects of the China discussions out of how we are thinking about the guide. We’re keeping a very close watch on the marketplace. And obviously, we’re really well positioned when the stimulus finally comes through and the market comes back. At the same time, we’ve had tremendous growth in the United States. We’ve got great things happening in other markets within Southeast Asia. We see growth being able to be positioned well to continue to accelerate in the rest of, say, in Europe.

And again, at Investor Day, what we’re super excited about is to talk to you about the big three in our world, which is where radiopharmaceuticals is going, the new products that we have coming out in categories where we might not have had a leadership product that we will in the future, and then digital and AI. So, it’s the combination of all of those pieces together, but I’d say China as we see it today, I think, we’ve kind of articulated our views on it.

Robbie Marcus: Appreciate it. Thanks a lot.

Peter Arduini: Thanks, Robbie.

Operator: Thank you. Our next question comes from the line of Ryan Zimmerman of BTIG. Your line is open, Ryan.

Ryan Zimmerman: Yes. Thank you. Good morning, everyone, nice to speak with you this morning. So, I appreciate the commentary on China and the margins. I actually want to ask about for Flyrcado a little bit. Pete, appreciate the comments you kind of put around it. I’m curious, there’s been a lot of questions from investors around pricing of Flyrcado relative to maybe Rubidium 82, and when I do the math, it kind of lands somewhere in that 2x to 3x range relative to where Rubidium is coming in at. And so, I’m just curious if you can comment a little bit more about how you think about pricing that product given its features, its half-life, et cetera, as a premium to what’s out there in the market today?

Peter Arduini: Yes. Thanks, Ryan, for the question. We’re not ready to talk specifically about the pricing. We will be in the not too distant future. But needless to say, to your point, we’re a product that brings better specificity, sensitivity than predicate and spec, brings significantly better operational capabilities and economics versus the other PET agents that are there, in that case, ammonia or rubidium. We believe the product clearly deserves a premium. And we’re also, as you can imagine right now, since we have approval, the normal process here of working with CMS and other payers to be able to be positioned that way. We’ll be going through a pass through indication as well, which should give a multi-year higher window, see how all of that plays out.

And then, there’s the backdrop here of beyond the drug itself is the outpatient, the prospective outpatient payment structure, which will reimburse these agents separately. So, there’s a lot of good tailwind components on it. But as I mentioned on the call, I mean, the most important words one hears when you’re in this seat is when one of your customers says, I think this is a game-changer. And that’s what’s super exciting here about this for patients. But the fact that perfusion studies fundamentally haven’t had many new innovations in forever. And so, this has the opportunity to really make a difference from that standpoint. And as we mentioned on the call, if you take a look at this, there’s about 6 million myocardial perfusion studies that are out there today, that are done on spec.

And you typically have to do a rest study and then you have the patient exercise or do stress and you compare the heart perfusion at rest and at stress. And so, that means there’s two doses. There’s a dose at stress and there’s a dose at rest or vice versa. And so, each of those doses obviously have economic value that’s associated with them. So, we feel quite good about it. We’ve got work to do yet to kind of get to the launch play. We’ve got the work to do here in the rest of the year. But we’re on track to what our plans are, which would be really out into later part of Q1 to be in a position to be able to launch the product and have clarity on reimbursement.

Ryan Zimmerman: Okay, very helpful. And then, for Jay, part of the algorithm for 4G has been in price. The market is growing 2%, 3%. You’ve kind of always articulated an assumption of 1% to 2% in price. I’m wondering if you could comment, Jay, about your assumptions going into ’25 on price, the durability of that within your customer base and just how we should be thinking about your ability to get price going forward.

Jay Saccaro: Sure. As I mentioned moments ago, we saw a positive sales price in the quarter along the lines of what we expected on a year-to-date basis, price is trending well. And I think really what this comes down to and what we’re incredibly excited to talk about when we meet with you all is new products being a key catalyst for this. We’ve invested very significantly in R&D over the last several years. And so, as you support your customers with new and innovative devices and new and innovative solutions, price follows. And that’s something that we’ve seen, we’ve been able to deliver on. So, we feel very good about pricing and overall margin related to new products going forward.

Peter Arduini: And I would say, Ryan, what we’re getting better as an organization to do and I’ll make a call out to Catrine and our U.S. organization about really being able to help the customer understand return on investment. Many of our products and many of our institutions are completely maxed out with procedures. And so, you buy a new product and yes, you may pay 100 grant more from us than maybe someone else, but you can literally have it paid for in under 18 months. And you’re going to have this then for another six to seven years. And the question then is, does it really maximize the value for your patients? Does it really actually have the uptime? Does it have the added features to deal with if it’s in cardiology, structured heart or oncology?

And so we’re getting better at that and ultimately being able to sell value to go that direction, which is why gross margin for us on actually the cost input, but on the value side is an extremely important metric for us.

Ryan Zimmerman: Thank you.

Operator: Thank you. Our next question comes from the line of Joanne Wuensch of Citi. Your question, please, Joanne.

Joanne Wuensch: Good morning, and thank you for taking the question. I’ll put them both out front. You gave us the number that you think that Flyrcado could contribute $500 million once the infrastructure is in place at the hospitals. So, I’m curious, what does it take for the infrastructure to be in place? Is this structural? Is it human resources, something else? And then, for my second question, can you give us an update on how, Vizamyl is doing? Thank you.

Peter Arduini: Yes. Maybe I’ll take the first part and then Jay maybe you can touch on Vizamyl. Look, so first part is, Flyrcado is an agent used in PET scanners. I think most of the folks on the call understand that a lot of PET has been around oncology applications. So, if you look in your normal hospital or clinic, the majority of where you’re going to find PET has traditionally been in oncology. And there’s a lot that’s growing on there. I mentioned Theranostics on the call, if you think about PSMA, think about breast cancer. So, those systems are getting up. I think in the initial areas, there are certain cardiac centers that have had PET systems prior to this where they’ve been using other agents. Those will be the first areas that have the infrastructure in place.

But the point being is, is that some customers are going to need to acquire a PET system and have it in their cardiology area to effectively run. We would expect in certain institutions there’ll be shared use systems, but obviously for a company like us that actually makes the radio isotopes and actually makes the imaging systems, makes the digital tools to integrate all this together. There’s actually a really interesting opportunity to not only have the agent sale, but also have capital equipment sales that will be part of this. The ramp, I think we’re still trying to understand how fast it could be. We quoted when it’s in place over a $0.5 billion. Obviously, if you converted all of the business, it’s a significantly larger number, but we’re not ready to call that at this point in time.

But we feel pretty good about it. And again, it gets back to ultimately the difference it can make for a patient and the economics it can mean for our customers to deliver that. This has great economics and it has great outcome for patients. Typically when those two things happen, you have a winner on your hands, and that’s how we feel about Flyrcado. And then, as it relates to Vizamyl, we continue to see encouraging progress with Vizamyl sales in the U.S. Our sales in the U.S. nearly doubled in the quarter-over-quarter, so very, very robust growth rates. Our approach in Alzheimer’s really is about supporting the continuum of care across diagnostic, therapy planning, delivery, and monitoring. And also, this area will benefit from the CMS ruling, which we expect to pass.

That should also help accelerate this. It’s still early stages in this area, and the patient and the therapy journeys are still in the very early stages, but we remain really excited about this opportunity long-term. And this is another one that we’ll highlight at the upcoming Investor Day.

Jay Saccaro: And I think, Joanne, you know, this that Jay mentioned in his prepared remarks, with the reimbursement changes that are coming, you can take these innovative products, some that we’ve already had in our portfolio and some of these that are new, and now they can be reimbursed or paid for at the value they should be. So, something that might have only been getting $200 for a customer could get a tenfold increase in reimbursement aligned to that, which then changes a customer’s thoughts about how many procedures you can use this for. In many cases, a product for like Parkinson’s for DaTscan that we’ve had for some time, which has been successful, can be used more widely because the economics make sense. Or a product like Cerianna for breast cancer, which is clearly a product that’s indicated that delivers better diagnostics, but has been tough because of the economics, that could change as well.

So, again, all of these we think are positive and all of these products have higher gross margins than the rest of our portfolio. So, the mixed benefit that will come through with these as well is quite positive. Thank you.

Joanne Wuensch: Thank you.

Operator: Thank you. Our next question comes from the line of David Roman of Goldman Sachs. Please go ahead, David.

David Roman: Thank you, and good morning, everybody. Before I ask the question, I just wanted to thank you for all the very helpful disclosures on the recast of the business segmentation with all the supporting detail. It is very helpful and appreciated. Maybe just jumping in as a follow-up to what, Pete, what you just walked through here on GE’s capacity to operate across the entire spectrum within pharmaceutical diagnostics, maybe you could help us just by deconstructing that business a little bit into its components around capital or capital-related items, including software and service, how much of that is on the radio tracer side or radio pharma side, and how we should think about the different growth levers in each of those pieces. And I had a follow-up on the P&L.

Peter Arduini: Yes, it’s a really good question, David, because unlike most pharmaceutical businesses where, it might be an injectable or an oral sale, these are a little more complicated. And I say complicated in some ways that they have to come together in concert with other items, but also in such a way that, from generics or other folks coming into it, you have to actually have the infrastructure. So, in the case of these, to remind everyone, they are radioactive agents. How you actually make them? How you deliver them, as a very select set of expertise to be able to do that, which we have. And so, again, I think at the highest level, this first part is a proprietary molecule portfolio which we have, it touches in oncology, that’s going to be a beneficial tie to what’s happening in this field of Theranostics, again, the ability to actually see what you treat and treat what you see.

In the neurospace, we talk about Vizamyl and Alzheimer’s. That’s a radiopharmaceutical neurospace, we talk about Vizamyl and Alzheimer’s. That’s a radiopharmaceutical tracer, again, to help highlight amyloid beta plaque, or in the case of DaTscan, the ability to actually help understand and diagnose Parkinson’s. And then, in the cardiology side is for CERDAS. So, we actually have the trifecta of different areas here for products. Then you take a look at it and you say the reimbursement environment hasn’t been the greatest in the U.S. That has the potential here to evolve. Hopefully, we’re going to hear more about the rulings in the near term. We feel pretty good about that. But that will enable those to be paid at effective level. The other side, then, is the equipment that these are used into to be able to image.

And so, we make PET, PET/CT, PET/MR. We haven’t spoken that much about it most recently, but our StarGuide SPECT camera is really a one of very special product that actually can be used to actually stage some of the therapy drugs in combination. That’s a critical component to enabling a Theranostics study and what I mean by that is if you don’t have a camera like ours, that patient study could take an hour and a half versus 10 minutes and then all of a sudden you don’t have a workflow solution. We have that whole package. And the last part is the digital integration. And so, we bought this company just a little while ago called MIM. Fantastic group of individuals, great technology in the top strategic and most advanced institutions around the world, and we’re adding artificial intelligence into it and capabilities.

And so, what does that product do? It helps you be kind of at the command center, if you will, of how the dose is to that patient, how the product’s working. So, you have to have all those together. And the short answer is, we do. And so, for a customer that’s looking into buying parts of this, if they can work with someone like GE HealthCare, who has the commercial and technical team that can bring you the whole solution, most likely customers are more willing to come to you and look to your expertise to help implement that. And that’s ultimately what we try to do is to help customers solve their solutions and help them implement it broadly.

David Roman: That’s really helpful. And then, Jay, on the P&L, I know you’ll provide 2025 guidance at a later date, but as we kind of think about the building blocks to next year. We appreciate the comments around China’s stimulus, but as you look down the income statement, you’ve had this giant step up in R&D that looks at maybe that starts to normalize to more sustainable growth rates. SG&A has been well managed, but are there any one-time things that may have occurred this year, like rebasing of incentive comp, because you’re going to come in below the top line that we need to consider in next year and anything that you want to call out for us at this point in time as we think about updating our models into next year?

Jay Saccaro: Sure. And David, by the way, thanks for your comment on the recast financials. I know that there are a lot of finance and accounting folks and legal folks from GE HealthCare listening and who put a lot of work into that. So, we appreciate that. As you think about next year P&Ls stopping short of any guidance, one key variable is this China factor. To your point, and I’ve said this in the past, R&D has been growing at a significantly higher rate than sales. At some point, it will grow in line with sales, and we will get closer to that next year. And then, from an SG&A standpoint, you’re right, incentive payouts when sales are off are lower, but it’s more of a variable compensation thing, it kind of moves with sales.

So, as sales moves up, that category moves up. I don’t expect to see a very dramatic one-time step-up next year as a result of reduction this year. So, I think the items that you characterized are the right ones, and we’ll construct the rest of it leading up to guidance in February.

David Roman: Great. Appreciate you taking the questions.

Operator: Thank you. Our next question comes from the line of Larry Biegelsen of Wells Fargo. Your question, please, Larry.

Larry Biegelsen: Good morning. Thanks for taking the question.

Jay Saccaro: Good morning.

Larry Biegelsen: Good morning. I just wanted to follow up maybe a little bit on David’s comments. What’s the message on 2025, given your China comments of limited recovery for the — through the first-half, or limited benefit, I think, from the stimulus in the first-half of 2025? I’m asking because the comps get easier for China in the first quarter of 2025. It’s declining the first quarter of this year. So, is the message on China that it declines or grows in 2025 and how does that impact the mid-single-digit top line growth and margin progression next year? And I had one follow-up.

Jay Saccaro: Yes, Larry. I think, we will start short of giving guidance for next year because I think what we’ve seen is there’s a lot of volatility in that market in particular, and so we’re going to wait for a lot to gather a lot more information before we give guidance in February. As it relates to midterm guidance, we feel very good about midterm compounded, mid-single-digit organic revenue growth. And in a capital business, some years are above, as we saw in ’22, ’23, some years below, as we saw in ’24. But on balance, we’ve been able to execute on this mid-single-digit growth, and we look forward to talking to you more about that at our Investor Day. From a margin standpoint, we feel very good about what we’ve been able to do in 2024, delivering at the high end of the range despite a low-end revenue guide.

And the pipeline for margin looks really good in 2025 and beyond. And so, that’s kind of what we’re prepared to say in terms of the outlook for the company. And as it relates to 2025, it’s more wait and see to see how this market does. We think, long-term, China represents a really good and attractive market for GE HealthCare. We’ve been there a long time. We’ve been manufacturing there over 30 years. So, it’s a robust environment. But anticipating the timing of this recovery has proved to be a really challenging forecasting exercise. So, based on all of that, we’re going to be conservative when we give guidance as we typically are, and we’re going to be thoughtful and incorporate all the information. We’ll get a lot more information in the coming months.

And then, the last thing I would say is, you know, looking at things over time, we feel very good about the margin expansion plan. So, that’s something that, you know, I think we’ve been intensely focused on, and we’ve been able to deliver on margin despite a wide range of outcomes on revenue, as we’ve seen. Pete, what would you add to that?

Peter Arduini: I think you hit it. And Larry, as you know, we’ve got our Investor Day in less than a month here in November on the 21st. And I think we’re going to try to lay our case out here on what we’ve got for top line growth over the next three years, which fundamentally, as you guys all know, in this industry, it takes some time to be able to execute on some of the programs. And we feel super good. And one of the goals is to show you what we’ve done with the R&D money, which is the NPI pipeline in areas that you would expect and in areas that I hope you’ll be impressed with. It’s going to open up new growth areas for us within our portfolio, how we’re evolving the digital and AI front, and again, not only just in inside the products but products by themselves that are digital in nature.

And then, this whole radiopharmaceutical piece, and to me, it’s those three levers that are going to help us really around the world, but particularly in some of the Western developed markets where precision medicine is becoming an adopted at a faster rate.

Larry Biegelsen: That’s very helpful. Just to speak in a quick follow-up, Jay, can you confirm the implied Q4 organic growth is slightly above 2% based on the new guidance. What gets better in Q4 versus Q3 and the confidence in the sequential ramp in dollars from Q3 to Q4? Thank you.

Jay Saccaro: Yes. So, the third quarter came in as we expected, roughly 1%. In the fourth quarter, we do reflect the China dynamic. Fourth quarter is typically our strongest quarter of the year from a volume standpoint. I think last year, we had a $400 million step-up from 3Q to 4Q. We’re expecting, I think, roughly similar levels as we look at the numbers this year, maybe a little bit more. And how are we going to get there? It’s about continued strength in our PDx and service business. Those things will step up in the fourth quarter. We’ve made a lot of positive comments about the U.S. market. We expect that to continue. And then, the last thing I would say is we do have an analytic that we put in place each of our quarters, looking at conversion of backlog, looking at what’s repeatable, recurring revenue, backlog, and then how much do we need to sell and install in the quarter.

And so, just to walk through that very briefly, about half of our revenue is related to recurring items, notably service and PDx. And we have a very good line of sight in that area. The remaining half is equipment-related. And equipment-related comes down to two pieces. How much are you counting on from the backlog and how much are you counting to sell and install in the quarter? From the backlog, we’re over 75% secured as we say at this point which is very complex to historic rates. And we feel good about that component. And then, the other piece is how much do you sell and install in the quarter. And as we look at the funnel and anticipated conversion to orders and to sales, we’ll expect to see conversion rates similar to what we’ve had in the past.

And so, nothing dramatic in terms of trajectory differences, and all of that yields that roughly 2% revenue growth in the fourth quarter. So, there’s a lot of different ways to look at it. But that’s one detailed way that we go through it when we feel good about the fourth quarter.

Larry Biegelsen: All right, thanks so much.

Operator: Thank you. Our next question comes from the line of Vijay Kumar of Evercore. Please go ahead, Vijay.

Vijay Kumar: Hey, guys. Thanks for taking my question. I guess, Pete, I have two product-related questions. The first one on Flyrcado, just given all the comments you made, right, is there any reason to think why half of all NPI procedures in the medium term can’t flip over to this flurpiridaz? It’s better for patients, better for hospitals, better for supply chain. I’m just trying to think what the hurdles are.

Peter Arduini: Yes, Vijay, it’s — I agree with you. All of the right components are in place. The biggest piece is, is are there enough PET systems in the right locations, is probably the biggest driver. So, you could clearly see a step-up in the locations where they have the product — again, the product — where they have the PET system in place. But then, it takes some time. Let’s just assume a customer says, “Gee, I really want to go all in on this.” And they give us orders here in the next month to buy the systems. You’re still with a PET room being prepared and installed and stuff in an area. You’re six to nine to 12 months out. And so, that’s probably the biggest piece. But again, over a horizon of three to five years, I think to your point, there are clear scenarios where you could have a much, much higher percentage of conversion. But we’re just trying to be pragmatic at this point in time on how we frame this up.

Vijay Kumar: That’s helpful, Pete. And maybe one related one here is when you think about the system side, right, could Flyrcado be a driver for PET systems for you guys? I know — when you look at systems outside of PET, I think you’ve launched this AI product on the MRI side. Are we seeing any share gains on the system side that could GE HealthCare fundamentally emerge in a much stronger position on the system side?

Peter Arduini: I think the answer is yes. You could clearly see this as a driver. And again, I think it’s for us. I think it’s for the whole category that this will actually have an effect. And the question is, well, why? If you think about PET imaging forever it’s been FDG. So, fundamentally, a generic phase tracer that can be used primarily for broad oncology procedures. Now, you’re getting more personalized, specific molecules that are tied to a given disease state. And so, all of a sudden, the use of PET — again, as I had mentioned earlier, in neuro procedures for Alzheimer’s and cardio for, like, Flyrcado for coronary perfusion, or in oncology as it’s been used, but more specific, and we’ll talk about that at Investor Day about how that pipeline of molecules is coming, and not only in diagnostics but also in therapeutics, which will drive that.

So, we’re quite excited about it. And I would just say for our team, which is in molecular imaging in Roland’s business and the teams, they’ve done a really nice job. We have a platform that actually is very scalable. It’s upgradable in the field. And we also think we have a distinctive capability that enable us to do some early types of evaluation in this space that other products in the market can’t do. So, we’ll talk more about that on November 21, but yes, we’re quite excited about this combination of new agents, reimbursement for the agents, and then the equipment that’s integrated around it, both digital and the hardware. And I think that’s going to be a growth driver for many years to come.

Vijay Kumar: Fantastic. Thanks, guys.

Operator: Thank you. Our next question comes from the line of Sezgi Ozener of HSBC. Your question, please, Sezgi.

Sezgi Ozener: Hi, thanks for taking my question. One, on the revenue classification, please, thanks for the information.

Peter Arduini: Sezgi, I’m really sorry, we can’t hear you at all.

Sezgi Ozener: Is it better now?

Peter Arduini: Let’s go with —

Carolynne Borders: Let’s go to the next question since we can’t hear Sezgi. And this will actually be our last question, given the time constraints.

Sezgi Ozener: Okay, it should be —

Peter Arduini: Is that Sezgi?

Operator: I’m sorry. Actually, we’re on our next question which comes from the line of Navann Ty of BNP Paribas. Your line is open, Navann.

Navann Ty: Hi, good morning. Thanks for squeezing me in. Following up on China, so, we understand there is low visibility. So, which of the four steps you described are we in now in Q1 — sorry, in Q4? And what visibility do you have into the first-half in terms of tender activity moving into the execution phase? And then, on Flyrcado, can you detail what you have to do ahead of the launch in late Q1? And which U.S. markets will you target initially? Thank you.

Peter Arduini: Yes, I think we’ve kind of covered the China part. And of the four parts, we’re kind of in the first step here, which again is we see a lot of activity coming together. The funds haven’t been released, so the tenders haven’t been opened. But it’s kind of the step one. And relative to Flyrcado, I think as far as the work that has to be done, we have the FDA approval. We’re working here in the United States with CMS and what’s called the MACs for the reimbursement process. And, we’ll be working with selective countries around the world to do the same thing. So, that’s the combination of the work as well as our normal ramp ups for commercialization, training of our teams, positioning all those things. But much of that’s in position. And, we would suspect that we’ll be commercializing in late Q1 if everything plays out how we think. Thank you for your question.

Peter Arduini: So, I think with that, we’re going to wrap up, I think. And so, again, thank you all for joining us today. Appreciate all of your interest. And, we look forward to hopefully connecting with all of you in the coming days at our Investor Day, which is just around the corner here at NASDAQ marketplace in New York on November 21st. Thank you.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.