Q4 2023 GE HealthCare Technologies Inc Earnings Call

Operator: www.plastics-car.com Good day and welcome to GE HealthCare's fourth quarter 2023 earnings. At this time, all participants are on a listen-only basis. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising you of your handbook. To withdraw your question, press star 1

Okay.

Good day, and welcome to GE Healthcare's fourth quarter 2023 earnings call.

At this time all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to.

To ask a question. During this session you will need to press star one one on your telephone.

You will then hear an automated message advising your hand is right to withdraw your question press.

Carolyn: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Carolyn, Chief Investor, Relations Office. Please go ahead.

One one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Caroline borders Chief Investor Relations Officer. Please go ahead.

Carolyn: Thank you. Good morning, and welcome to GE HealthCare's fourth quarter 2023 earnings call. I'm joined by our President and CEO, Peter Arduini, and our 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.

Thank you good morning, and welcome to GE Healthcare's fourth quarter 2023 earnings call I'm joined by our President and CEO, Peter Arduini, and our Vice President and CFO, Jason <unk>. Our conference call remarks will include both GAAP and non-GAAP financial results reconciliation.

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.

Carolyn: 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.

Due to risks and uncertainties and with that I'll hand, the call over to Peter.

Peter J. Arduini: Thanks, Carolyn. Let me start by providing a few highlights from our successful first year as a public company. I'm proud of our teams' execution to deliver robust financial results with performance that all met or exceeded guidance. In fact, our execution throughout the year allowed us to raise guidance twice. We've continued to increase our R&D investment, launching over 40 new innovations tied to our care pathway and digital strategy. As a result of our investment, we estimate that we will gain global market share in equipment in 2023. And once again, we topped the FDA's list of AI-enabled device authorizations with 58, more than any other medtech company. Backlog remains robust, led by an improved capital equipment landscape. And we significantly strengthened our balance sheet as we paid down $1 billion in debt since the beginning of the fourth quarter.

Thanks Carolyn.

Let me start by providing a few highlights from our successful first year as a public company.

I'm proud of how our teams executed to deliver robust financial results with performance that all met or exceeded guidance in fact, our execution throughout the year allowed us to raise guidance twice with.

We've continued to increase our R&D investment launching over 40, new innovations tied to our care pathway and digital strategy.

As a result of our investments we estimate that we gained global market share and equipment in 2023.

Once again, we taught the Fda's list of AI enabled device authorizations with 58 more than any other med Tech company.

Backlog remains robust led by an improved capital equipment landscape.

We significantly strengthened our balance sheet as we paid down $1 billion in debt since the beginning of the fourth quarter our.

Peter J. Arduini: Our financial flexibility enables us to drive both organic and inorganic investment, such as the CaptionHealth and Imactus acquisitions completed in 2023. More recently, we announced our plans to acquire MIMS software, which I'll discuss in greater detail later in the call. We continue to build our position as a trusted partner, and here are a few highlights from throughout the year.

Our financial flexibility enables us to drive both organic and inorganic investment such as the caption health and <unk> acquisitions completed in 2023.

More recently, we announced our plans to acquire MIM software, which I will discuss in greater detail later in the call.

We continue to build our position as a trusted partner and here are a few highlights from throughout the year.

Peter J. Arduini: On the commercial side, we secured multi-year enterprise deals globally with contract values totaling approximately $2.5 billion in 2023, fueling our growth. We also expanded our 40-year relationship with the University of Wisconsin-Madison by entering a 10-year strategic collaboration that goes beyond medical imaging to new frontiers in digital technologies and disease-focused solutions. Separately, the Bill and Melinda Gates Foundation and BARDA, a division within the U.S. Department of Health and Services, are funding programs totaling over $80 million that will allow us to develop new AI applications for ultrasound, benefit patients in low and middle-income countries and patients with lung pathologies and traumatic injuries. We also announced a collaboration with Novo Nordisk to advance the clinical and product development of peripheral focused, We've Jason Carl joined us last year and has had an immediate impact.

On the commercial side, we secured multi year enterprise deals globally with contract values totaling approximately $2 5 billion in 2023 fueling our growth. We also expanded our 40 year relationship with the University of Wisconsin Madison by entering a 10 year strategic collaboration that goes.

Beyond medical imaging to new frontiers, and digital technologies and disease focused solutions set.

Separately, the Bill and Melinda Gates Foundation, and BARDA, a division within the U S Department of Health and services are funding programs totaling over $80 million that will allow us to develop new AI applications for ultrasound benefit patients in low and middle income countries and patients with <unk>.

Pathologies and traumatic injuries.

We also announced a collaboration with Novo Nordisk to advance the clinical and product development of peripheral focused ultrasound.

We've assembled a strong world class leadership team, Jason Karl joined US last year and has had an immediate impact.

Peter J. Arduini: He's had the opportunity to assess our organizational needs, forecasting models, financial systems, and processes, and is adding significant strategic and operational value. Similarly, Taha joined us as Chief Technology Officer more than a year ago. And he's been charting our digital future and strategy while building a high-performance team of top healthcare technology experts. In 2023, we published our inaugural sustainability report highlighting our progress and commitment to corporate responsibility and risk. Lastly, we introduced 2024 guidance today, which Jay will discuss in greater detail. Our outlook reflects an improved capital equipment landscape, but it also reflects continued strength on top of two consecutive years of high single-digit organic sales. Similar to last quarter, we conducted a survey of a broad set of U.S. customers, which supports our forecast for 2024. Our latest survey showed improved financial optimism and Capital Budget Outlook versus the last survey in October. Global procedures remain strong, and we believe all of this points to a constructive setup for the year.

<unk> had the opportunity to assess our organizational needs forecasting models financial systems and processes and is adding significant strategic and operational value.

Similarly, Todd joined Us as Chief Technology officer, more than a year ago and he's been charting our digital future and strategy while building a high performing team of top health care technology experts.

In 2023, we published our inaugural sustainability report, highlighting our progress and commitment to corporate responsibility and risk management.

Lastly, we introduced 2024 guidance today, which Jay will discuss in greater detail our outlook reflects an improved capital equipment landscape. It also reflects continued strength.

On top of two consecutive years of high single digit organic sales growth.

Similar to last quarter, we conducted a survey of a broad set of U S customers, which supports our forecast for 2024 are.

Our latest survey showed improved financial optimism and capital budget outlook versus the last survey in October.

Global procedures remains strong, which we believe all of this points to a constructive setup for the year.

James K. Saccaro: Now I'll pass the call on to Jay to take us through the financials and our business performance, and I'll conclude the call with a discussion around our R&D commitments and the innovation we're delivering for customers. Jay?

Now I'll pass the call on to Jay to take us through the financials and our business performance and I'll conclude the call with a discussion around our R&D commitments and the innovation, we're delivering for customers Jay.

James K. Saccaro: Thanks, Pete. Let's start with our financial performance on slide four. For the fourth quarter of 2023, revenues of $5.2 billion increased 5% year over year and grew 5% organically. This was driven by sales of diagnostics, imaging, and patient care solutions. Recall that this 5% organic growth was on top of the 13% we delivered in the fourth quarter of 2022, which benefited from an easing supply chain. Organic orders increased 3% year over year. Order dollars continue to outpace sales, leading to a total company bill of 1.05 times, up sequentially from 1.03 times due to healthy product orders, including equipment.

Thanks Pete.

Let's start with our financial performance on slide four for the fourth quarter of 2023 revenues of $5 2 billion increased 5% year over year and grew 5% organically.

This was driven by sales in pharmaceutical diagnostics imaging and patient care solutions.

Call that this 5% organic growth was on top of the 13% we delivered in the fourth quarter of 2022, which benefited from easing supply chain.

Organic orders increased 3% year over year order dollars continued to outpace sales leading to a total company book to Bill of one five times up sequentially from $1 three times due to healthy product orders, including equipment.

James K. Saccaro: We exited the year with a record backlog of $19.1 billion, up $700 million sequentially. This performance gives us continued confidence in our expectations for 2024. Fourth quarter adjusted EBIT margin was 16.1%. Sequentially, margin improved 70 basis points, supported by seasonally higher volume, while we expanded our investment in future innovation. Year-over-year standalone adjusted EBIT margin was flat as benefits from productivity and price were offset primarily by investment.

We exited the year with a record backlog of $19 1 billion up $700 million sequentially.

This performance gives us continued confidence in our expectations for 2024.

Fourth quarter adjusted EBIT margin was 16, 1% sequentially margin improved 70 basis points supported by seasonally higher volume, while we expanded our investments in future innovation.

Year over year Standalone adjusted EBIT margin was flat as benefits from productivity and price were offset primarily by investments.

The lean methodologies that the foundation of our productivity.

James K. Saccaro: The Lean Methodology is at the foundation of our productivity, yielding strong performance in the fourth quarter with improvements in logistics, sourcing, and services. Our teams came together to increase on-time delivery to our customers by 11% year-over-year, with lean actions improving demand forecast accuracy, supplier planning, and lead times. We also saw past-due backlog efficiency with a greater than 50% improvement year-over-year in imaging alone. For the fourth quarter, we delivered adjusted EPS of $1.18, up 11% on a standalone basis. The pre-cash flow of $956 million was down slightly year over year.

<unk> strong performance in the fourth quarter with improvements in logistics stores seeing in services. Our teams came together to increase on time delivery to our customers by 11% year over year with lean actions improving demand forecast accuracy supplier planning and lead times. We also saw.

Past due backlog efficiency with a greater than 50% improvement year over year and imaging alone.

For the fourth quarter, we delivered adjusted EPS of $1 18.

Up 11% on a standalone basis.

Free cash flow of $956 million was down slightly year over year. This was impacted by approximately $330 million of spin related items, such as interest and post retirement benefit payments.

James K. Saccaro: This was impacted by approximately $330 million of SPIN-related items such as interest and post-retirement benefit payments. Turning to our full year results on slide 5, for 2023, revenues of $19.6 billion grew 8% organically versus last year. All of our regions and segments saw positive revenue growth. Also, it is important to note that recurring revenue, which drives revenue predictability and higher margin, was greater than 45% of total revenue for the year. Organic orders grew 3% year-over-year, and book-to-bill was 1.03 times. On a standalone basis, the 2023 adjusted EBIT margin was up 60 basis points.

Turning to our full year results on slide five for 2023 revenues of $19 6 billion grew 8% organically versus last year.

All of our regions and segments saw positive revenue growth.

Also important to note recurring revenue, which drives revenue predictability and higher margin was greater than 45% of total revenues for the year.

Organic orders grew 3% year over year and book to Bill was one three times.

On a standalone basis 2023, adjusted EBIT margin was up 60 basis points.

James K. Saccaro: Suggested EPS of $3.93 exceeded our guidance and represented standalone growth of 16%. Pre-cash flow was more than $1.7 billion and translated into a strong conversion rate of 95%, which was ahead of our guidance for the year. This was driven by the solid progress we made in working capital associated with multiple initiatives focused on inventory and collections processing. On slide six, let's take a closer look at segment revenue performance for the year. For full year 23, we delivered strong year-over-year organic growth of 8% for revenue. This was led by PDX with 18% growth, PCS at 8%, and imaging at 7%, driven by both volume and price. Ultrasound organic revenue increased by 2%.

Adjusted EPS of $3 93 exceeded our guidance and represented Standalone growth of 16%.

Free cash flow was more than $1 7 billion and translated into a strong conversion rate of 95%, which was ahead of our guidance for the year. This.

This was driven by the solid progress we made in working capital associated with multiple initiatives focused on inventory and collections processes.

On slide six let's take a look closer look at segment revenue performance for the year.

For full year 'twenty, three we delivered strong year over year organic growth of 8% for revenues. This was led by pdx with 18% growth Tcs at 8% and imaging at 7% driven by both volume and price.

Ultrasound organic revenue increased 2%.

James K. Saccaro: Recall that in 2022, we had multiple quarters of strong ultrasound results as supply chain constraints eased. I'd also note that all segments delivered positive price in the year, reflecting our continued pricing disadvantage. Looking ahead, we believe all of our segments are well positioned as we move into 2024 from both an innovation and operational perspective. I'll walk through more details on this for each segment shortly.

Recall that in 2022, we had multiple quarters of strong ultrasound results as supply chain constraints eased I would also note that all segments delivered positive price in the year, reflecting our continued pricing discipline.

Looking ahead, we believe all of our segments are well positioned as we move into 2024 from both an innovation and operational perspective.

I'll walk through more details on this for each segment shortly.

James K. Saccaro: Turning to the progress we made in 2023 on margin initiatives on slide 7, as we moved through the year, we drove sequential improvements and adjusted EBIT margin driven by volume, commercial execution, and productivity for the year. We increased adjusted gross margin by 120 basis points versus 2022 and delivered more than 3% in positive sales price for the year, ahead of our expectations. In 2024, we expect 1-2 percentage points of positive price as we deliver increasing value to our customers. We're also starting to see margin expansion from improving volumes and higher margin NPIs given our continued R&D investment. During the year, we invested more than $1 billion in R&D, equating to over 6% of sales, all while expanding margins. In 2024, we expect to be in the same range as a percent of sales or slightly higher, supporting our innovation pipeline. Our productivity initiatives have also gained traction as logistics costs continue to improve, spot buys decrease, and as we implement cost-efficient design changes. We have also experienced improved labor productivity driven by a greater proportion of remote fixed work in the application of digital tools.

Turning to the progress we made in 2023 on margin initiatives on slide seven as we move through the year, we drove sequential improvements in adjusted EBIT margin driven by volume commercial execution and productivity.

For the year.

We increased adjusted gross margin by 120 basis points versus 2022, and delivered more than 3% and positive sales price for the year ahead of our expectations. In 2024, we expect 1% to two percentage points of positive price as we deliver increasing value to our customers.

We're also starting to see margin expansion from improving volumes and higher margin NPI, given our continued R&D investment.

For the year, we invested more than $1 billion in R&D equating to over 6% of sales all while expanding margins in 2024, we expect to be in the same range as a percent of sales or slightly higher supporting our innovation pipeline.

Our productivity initiatives have also gained traction as logistics costs continued to improve spot buys decrease and as we implemented cost efficient design changes. We have also experienced improved labor productivity driven by a greater proportion of remote fix and the application of digital tools.

Relative to G&A, we're optimizing our spend by right sizing, our real estate footprint and it infrastructure to generate additional efficiencies.

We've made solid progress in exiting TSA as in 2023 with nearly 280 completed through the end of <unk>.

James K. Saccaro: Relative to GNA, we're optimizing our spend by right-sizing our real estate footprint and IT infrastructure to generate additional efficiency. We made solid progress in exiting TSAs in 2023, with nearly 280 completed through the end of 4Q. We're on track to exit the vast majority of the remaining TSAs in 2024, which gives us confidence in our GNA optimization plans, an important part of reaching medium-term margin goals. Given our progress across the organization, we have solid visibility to deliver on our high teens to 20% adjusted EBIT margin target over the medium term. Now, I'll turn to our segment. As a reminder, in 2023, we incurred approximately $200 million of recurring standalone costs that impact our segment EBIT margin rate. We did not have these expenses in 2022.

We're on track to exit the vast majority of the remaining TSA as in 2024, which gives us confidence in our G&A optimization plans and important part of reaching medium term margin goals.

Given our progress across the organization, we have solid visibility to deliver on our high teens to 20% adjusted EBIT margin target over the medium term.

Now I'll turn to our segments as a reminder, in 2023, we incurred approximately $200 million of recurrent standalone cost and impact our segment EBIT margin rates.

We did not have these expenses in 2022. These costs were allocated based on revenue and equated to approximately 100 basis points of margin headwind for each segment.

Going forward these costs will be in our run rate, but serve as an opportunity to operate more efficiently in the future.

Let's start with our imaging segment on slide eight where we generated organic revenue growth of 4% year over year. This was driven by improved backlog conversion and price growth was up against fourth quarter sales that experienced strong double digit increase in 2022.

James K. Saccaro: These costs were allocated based on revenue and equated to approximately 100 basis points of margin headwind for each segment. Going forward, these costs will be included in our run rate but serve as an opportunity to operate more efficiently in the future. Let's start with our imaging segment on slide eight, where we generated organic revenue growth of 4% year-over-year. This was driven by improved backlog conversion and price. Growth was up against fourth-quarter sales that experienced a strong double-digit increase in 2022. Segment EBIT margin was up 10 basis points year over year as we made progress on enhancing gross margin.

Segment EBIT margin was up 10 basis points year over year as we made progress on enhancing gross margin imaging equipment growth outpaced service growth in the quarter and for the year, which impacted margin mix as we build our installed base with future service growth opportunity we.

We saw strong progress in our product platforming initiatives across several modalities, including <unk> and <unk>.

Customer demand for our imaging product remains healthy and our growing backlog is driven by new product introductions.

James K. Saccaro: Imaging equipment growth outpaced service gross in the quarter and for the year, which impacted margin mix as we build our installed base with future service growth opportunities. We saw strong progress in our product platforming initiatives across several modalities, including CT and MR. Customer demand for our imaging products remains healthy, and our growing backlog is driven by new product introductions. Turning to ultrasound, on slide nine. Organic revenue was down 2% year over year due to the impact of lower volume tied to a challenging comparison for the same period last year.

Turning to ultrasound on slide nine organic revenue was down 2% year over year due to the impact of lower volume tied to a challenging comparison for the same period last year.

We continue to have a positive outlook for this segment as we entered 2024.

Segment EBIT margin declined year over year due to investments such as the caption health artificial intelligence integration. This year over year margin decline was partially mitigated by cost productivity as we drove standardization and commonality across our platforms.

As we exited the year, we saw opportunities for ultrasound equipment based on a combination of our commercial efforts and improving market conditions with recent customer commitments and interest in new products enhanced by AI technology, we are well positioned as we enter 2024.

James K. Saccaro: We continue to have a positive outlook for this segment as we enter 2024, but segment EBIT margin declined year-over-year due to investments such as the caption health artificial intelligence integration. This year-over-year margin decline was partially mitigated by cost productivity as we drove standardization and commonality across our platform. As we exited the year, we saw opportunities for ultrasound equipment based on a combination of our commercial efforts and improving market conditions. With recent customer commitments and interest in new products enhanced by AI technology, we're well positioned as we enter 2024. Moving to patient care solutions on slide 10. Organic revenue was up 4%, driven by progress on price and operational process improvement.

Moving to patient care solutions on slide 10, organic revenue was up 4% driven by progress on price and operational process improvements.

Revenue increase as we fulfill more backlog in addition to contribution from MPI similar to imaging recall that sales growth in the fourth quarter last year increased double digits due to <unk>.

Using supply chain environment.

Ccs margin decreased 320 basis points compared to last year, driven by investments and one time favorability that we experienced in the prior year during the quarter. The team delivered on improved supplier lead times and lower inventory.

As we look ahead, we're excited about recent product launches that should contribute to future growth.

Finally, moving to pharmaceutical diagnostics on slide 11, we are in.

Another solid quarter generating 23% year over year organic growth associated with an easier year over year comparison and pricing.

James K. Saccaro: Revenue increased as we fulfilled more backlog, in addition to contribution from MPIs. Similar to imaging, recall that sales growth in the fourth quarter last year increased double digits due to an easing supply chain environment. PCS margin decreased 320 basis points compared to last year, driven by investments and one-time favorability that we experienced in the prior year.

Segment EBIT margin of 24, 4% improved 140 basis points year over year, driven by price volume and productivity actions.

We're encouraged by the continuing strength of global imaging procedures, which drives the need for imaging agents we.

We are executing on our innovation strategy through investments in our pipeline across care areas.

James K. Saccaro: During the quarter, the team delivered on improved supplier lead times and lower inventory. As we look ahead, we're excited about recent product launches that should contribute to future growth. Finally, moving to pharmaceutical diagnostics on slide 11, we have another solid quarter, generating 23% year-over-year organic growth associated with an easier year-over-year comparison and price. Segment EBIT margin of 24.4% improved 140 basis points year-over-year, driven by the Price, Volume, and Productivity Act.

<unk> the in licensing of fatty assets, which we believe will play a key role in targeting this protein to detect certain types of cancer. This is an area of significant potential for the nuclear medicine and oncology communities.

Turning to slide 12, I'll walk through our cash flow performance.

We exited the year with an improved financial profile, including a stronger balance sheet and enhanced financial flexibility to support our future growth.

We generated free cash flow of $956 million during the fourth quarter down $31 million year over year with Standalone cash outflows.

Inventory turns improved in the quarter the highest day events since the beginning of 2021.

James K. Saccaro: We're encouraged by the continuing strength of global imaging procedures, which drives the need for imaging agents. We are executing our innovation strategy through investments in our pipeline across care areas, including the in-licensing of FAPI assets, which we believe will play a key role in targeting this protein to detect certain types of cancer. This is an area of significant potential for the nuclear medicine and oncology community.

This is the result of our lean supply chain actions, we saw operational improvements, including lead time reductions and greater inventory turns and all segments, our aged inventory balance decreased and we have stronger input controls in place, including safety stock reduction and optimize stock planning in addition, our.

<unk> improved as a result of our focused daily management system.

James K. Saccaro: Turning to slide 12, a walk through our cash flow performance. We exited the year with an improved financial profile, including a stronger balance sheet and enhanced financial flexibility to support our future growth. We generated free cash flow of $956 million during the fourth quarter, down $31 million year-over-year with stand-alone cash outflow.

For the year, we delivered strong free cash flow of over $1 $7 billion. This equates to 95% free cash flow conversion.

We also strengthened our balance sheet by paying down $1 billion of debt since the start of the fourth quarter with a strong balance sheet and a balanced capital allocation strategy. We will continue to focus on organic and inorganic investment deleveraging and paying a dividend.

James K. Saccaro: Inventory turns improved in the quarter, the highest they have been since the beginning of 2021. This is the result of our Lean Supply Chain Actions. We saw operational improvements, including lead time reductions and greater inventory turns in all segments. Our aged inventory balance decreased, and we have stronger input controls in place, including safety stock reduction and optimized stock planning.

Now, let's turn to our outlook on slide 13 for 2024, we expect organic revenue growth to be approximately 4%. This compares to a strong growth of 8% and 23 that was driven by easing supply chains and price gains I would note that we expect a foreign exchange headwind to revenue of less than 1% in 2020.

Four.

We expect full year adjusted EBIT margin to be in the range of 15, 6% to 15, 9% representing expansion of 50 to 80 basis points, given the progress, we're making with volume commercial execution and optimization.

James K. Saccaro: In addition, our collections improved as a result of our focused daily management system. For the year, we delivered strong free cash flow of over $1.7 billion, which equates to 95% free cash flow conversion. We also strengthened our balance sheet by paying down $1 billion of debt since the start of the fourth quarter.

We assume an adjusted effective tax rate in the range of 23% to 25%. The pillar two global minimum tax is not anticipated to have a significant impact on our tax expense in 2024.

On adjusted EPS, we expect to deliver between $4 20.

And $4 35 for the full year representing growth in the range of 7% to 11% versus 2023 lastly, we expect to deliver free cash flow of approximately $1 8 billion for the full year.

James K. Saccaro: With a strong balance sheet and a balanced capital allocation strategy, we'll continue to focus on organic and inorganic investment, deleveraging, and paying a dividend. Now, let's turn to our outlook on slide 13. For 2024, we expect organic revenue growth to be approximately 4%. This compares to strong growth of 8% in 2023 that was driven by easing supply chains and price. I would note that we expect a foreign exchange headwind to revenue of less than 1% in 2024. We expect full-year adjusted EBIT margin to be in the range of 15.6 to 15.9%, representing an expansion of 50 to 80 basis points, given the progress we're making with volume, commercial execution, and optimization. We assume an adjusted effective tax rate in the range of 23% to 25%. The Pillar 2 Global Minimum Tax is not anticipated to have a significant impact on our tax expense in 2024.

While we don't give quarterly guidance, it's important to note that given the seasonal nature of our business. The fourth quarter is typically the strongest period for orders sales dollars and adjusted EBIT margin.

We expect year over year organic revenue growth and adjusted EBIT margin in the first quarter to be the lowest of the year.

Also remember that organic sales growth in the first half of 2023 was very strong at 11%.

As a result organic revenue growth is expected to be stronger in the second half of the year versus the first half in 2024.

To wrap up.

Entering 2024 from a position of strength as we executed well in 2023.

Our solid backlog order intake and adjusted EBIT margin progress gives us confidence in our ability to deliver on our guidance for 2024.

Now I'll hand, the call back over to Pete.

Thanks, Jay through an emphasis on R&D, we continue to innovate across our four segments, our new product vitality index, which measures new products contributing to orders in the year was healthy at 26%.

James K. Saccaro: For unadjusted EPS, we expect to deliver between $4.20 and $4.35 for the full year, representing growth in the range of 7 to 11 percent versus 2023. Lastly, we expect to deliver free cash flow of approximately $1.8 billion for the full year. While we don't give quarterly guidance, it's important to note that given the seasonal nature of our business, the fourth quarter is typically the strongest period for orders, sales dollars, and adjusted EBIT margins. We expect year-over-year organic revenue growth and adjusted EBIT margin in the first quarter to be the lowest of the year. Also, remember that organic sales growth in the first half of 2023 was very strong at 11%. As a result, organic revenue growth is expected to be stronger in the second half of the year versus the first half of 2024. To wrap up, we're entering 2024 from a position of strength as we executed well in 2023. Our solid backlog, order intake, and adjusted EBIT margin progress gives us confidence in our ability to deliver on our guidance for 2024. Now, I'll hand the call back over to Jay. Thanks, Jay.

More than 40, new innovations in 2023 as I noted before many of which are AI and digitally enabled bringing more opportunity to increase gross margin with these enhanced capabilities.

Earlier, I mentioned, our plans to acquire MIM software a leader in AI enabled image analysis.

Workflow tools across multiple care areas once integrated post close NIM is expected to drive accretive top line growth and we expect the transaction to be neutral to adjusted EBIT in year, one and accretive thereafter.

One of the dilemmas, our customers face is integrating the variety of multi vendor AI applications into their workflows, our new App Orchestrator is the solution that simplifies the AI selection integration and workflow process for health care professionals.

Providing easy access to pre validated apps.

We're helping reduce the pressure that often comes with the overhead of evaluating acquiring and implementing solutions for many companies.

We're in the process of developing the subscription based application for the cloud.

Our high growth high margin AI solutions are designed to increase productivity efficiency and diagnostic confidence customers have the option to purchase new AI equipped devices, whereas in upgrades to existing equipment.

We're actively pursuing AI across our product portfolio with a focused effort to expedite product development in 2024.

Moving to molecular imaging on slide 15 in the role of MIM software to enhance our precision care strategy.

For starters, our unique portfolio of pet Emaar.

And multi had spec Cte radio tracers and digital offers providers a comprehensive solution to deliver on this growing field of diagnostics and therapeutics.

Peter J. Arduini: Through an emphasis on R&D, we continue to innovate across our four segments. Our New Product Vitality Index, which measures new products contributing to orders in the year, was healthy at 26%. We launched more than 40 new innovations in 2023, as I noted before, many of which are AI and digitally enabled, bringing more opportunities to increase gross margin with these enhanced capabilities. Earlier, I mentioned our plans to acquire MIMS software, a leader in AI-enabled image analysis and workflow tools across multiple care areas. Once integrated post-close, MIM is expected to drive accretive top-line growth, and we expect the transaction to be neutral to adjusted EBIT in year one and accretive thereafter. One of the dilemmas our customers face is integrating the variety of multi-vendor AI applications into their work. Our new App Orchestrator is a solution that simplifies the AI selection, integration, and workflow process for healthcare professionals. By providing easy access to pre-validated apps, we're helping reduce the pressure that often comes with the overhead of evaluating, acquiring, and implementing solutions from many companies.

Novel therapies become more widely available our tracers play an increasingly important role putting us at the center of this transformation of care that will help enable better patient outcomes across many care pathways as functional imaging expands.

This chart illustrates the diversity of our pharmaceutical portfolio of both existing and in the pipeline and the diseases that each one uniquely targets.

We see growth opportunities with our existing products like <unk> for patients with suspected Alzheimer's disease, as new therapies ramp up and Syriana for metastatic breast cancer, which are used both in conjunction with Pac systems for diagnosis.

Preferred as a pipeline product for diagnosing and assessing coronary artery disease is expected to significantly advance pet imaging.

Cardiologists say it shows promise for a variety of reasons.

First it has the potential to offer more sensitivity and specificity, then spect and technetium, which is the standard of care. It's.

Its longer half life may allow doses to be ordered and transported longer distances. Unlike other products on the market, which require onsite production, which can be a limiting factor for smaller hospitals and cardiac imaging centers.

One of the most exciting advancements in molecular and functional imaging is theyre gnostics.

Theres a motto for this rapidly growing field that it allows you to see what you treat and treat what you see.

Peter J. Arduini: We're in the process of developing this subscription-based application for the cloud. Our high growth, high margin AI solutions are designed to increase productivity, efficiency, and diagnostic competence. Customers have the option to purchase new AI-equipped devices or as an upgrade to existing equipment. We're actively pursuing AI across our product portfolio with a focused effort to expedite product development in 2024. Moving to molecular imaging on slide 15 and the role of MIMS software to enhance our precision care.

So our gnostics combined diagnostic imaging equipment, Radiopharmaceuticals, both diagnostics and therapeutics.

With the goal of eliminating cancer cells without affecting healthy tissues, and this has fewer side effects for patients.

This approach can bring significant improvements for many cancer types and one of the reasons why molecular imaging has a very promising future.

To give you some perspective currently the overall Faro gnostics market, which includes equipment tracers and therapies is approximately $9 billion.

And is expected to grow to $40 billion by 2032.

Peter J. Arduini: For starters, our unique portfolio of PET-MR, PET-CT, and multi-head SPECT-CT, radio tracers, and digital offers providers a comprehensive solution to deliver on this growing field of diagnostics and therapeutics. As novel therapies become more widely available, our tracers play an increasingly important role, putting us at the center of this transformation of care that will help enable better patient outcomes across many care pathways, as functional imaging. This chart illustrates the diversity of our pharmaceutical portfolio, both existing and in the pipeline, and the diseases that each one uniquely targets. We see growth opportunities with our existing products like Vizimel for patients with suspected Alzheimer's disease as new therapies ramp up, and Syriana for metastatic breast cancer, which are used both in conjunction with PET systems for digestion. Fliperidaz, a pipeline product for diagnosing and assessing coronary artery disease, is expected to significantly advance PET-CT imaging.

Today Theyre Gnostics is primarily used in thyroid neuro endocrine and prostate cancer. However, a growing pipeline of drugs across the industry for future applications include breast ovarian pancreatic and lung cancers show, even more promise to potentially extend the length and quality of life.

For more patients we expect to play an important role in the delivery of these new therapies.

And the next three years, we plan to significantly increase our current thorough gnostics franchise through a combination of organic and inorganic expansion.

We're excited about the opportunity to be a trusted partner, helping our customers navigate this important and growing field of medical imaging.

This mission to improve outcomes across care pathways will be enabled by our announced announced intention to acquire <unk>.

After close we plan to integrate these new capabilities into GE healthcare's devices to enhance imaging fusion multimodal inputs for diagnostics therapy planning and monitoring.

By leveraging these new tools across various.

Care areas.

We can differentiate our solutions for the benefit of patients and healthcare systems worldwide, particularly around <unk>.

In closing, we're excited about the growth potential of molecular imaging and diagnostics as well as our pipeline pharmaceuticals.

Peter J. Arduini: Cardiologists say it shows promise for a variety of reasons. First, it has the potential to offer more sensitivity and specificity than SPECT and technetium, which is the standard of care. Its longer half-life may allow doses to be ordered and transported longer distances, unlike other products on the market which require on-site production, which can be a limiting factor for smaller hospitals and cardiac centers. One of the most exciting advancements in molecular and functional imaging is Theranos. There's a motto for this rapidly growing field that allows you to see what you treat and treat what you see. Theranostics combines diagnostic imaging equipment with Radio Pharmaceuticals, both diagnostics and therapeutics, with the goal of eliminating cancer cells without affecting healthy tissue, and this has fewer side effects.

And the collective opportunity for these innovations to enable precision care.

To summarize on slide 16, I am extremely proud of our team's execution in 2023, and our focus on patients and customers as well as the progress we've made as a standalone company.

We achieved or exceeded our financial and operational objectives, we laid out at the beginning of the year and we're making significant progress on the innovation front, including digital and artificial intelligence launches. We have a strong balance sheet that allows us to invest in new capabilities organically and Inorganically and we're excited about our momentum.

Mentum as we enter 2024, we remain on track to deliver on our medium term targets with that I'd like to open up the call for questions.

Thank you Peter I would like to ask participants to please limit yourself to one question and one follow up operator can you. Please open the line.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Peter J. Arduini: This approach can bring significant improvements for many cancer types and is one of the reasons why molecular imaging has a very promising future. To give you some perspective, currently, the overall Theranostics market, which includes equipment, tracers, and therapies, is approximately $9 billion and is expected to grow to $40 billion by 2030. Today, Theranostics is primarily used in thyroid, neuroendocrine, and prostate cancer.

One moment for your first question.

And that will come from the line of Craig Bijou with Bank of America. Your line is open good morning, Craig.

Good morning, guys. Thanks for taking the questions.

I appreciate the comments on Q1.

I did want to dive a little bit deeper there.

Ken can you just guys still grow revenues in Q1, given that you do have a pretty strong year over year comp and then on the margin side should we still expect margin expansion in Q1, but maybe it's at a rate.

Peter J. Arduini: However, a growing pipeline of drugs across the industry for future applications, including breast, ovarian, pancreatic, and lung cancers, shows even more promise to potentially extend the length and quality of life for more patients. We expect to play an important role in the delivery of these new therapies. In the next three years, we plan to significantly increase our current Theranostics franchise through a combination of organic and inorganic growth, and we are excited about the opportunity to be a trusted partner, helping our customers navigate this important and growing field. This mission to improve outcomes across care pathways will be enabled by our announced intention to acquire MIPS. After closing, we plan to integrate these new capabilities into GE Healthcare's devices to enhance imaging fusion, multimodal inputs for diagnostics, therapy planning, and monitoring.

Little bit lower than what you're expecting for the full year.

Craig that's right.

Overall as I said in my prepared remarks.

The first half will be lower than the second half and the first quarter will be lower than the second quarter and really what this comes down to is the challenging comp that we saw in Q1 of last year. I believe we had 12% revenue growth, which was really a great performance in that quarter, having said that.

We still expect revenue growth in the first quarter and some level of margin expansion, albeit both of those lower than the full year rates.

Got it that's helpful and as a follow up I did want to touch on China.

Anti corruption.

<unk>.

B.

Peter J. Arduini: By leveraging these new tools across various Care Areas, we can differentiate our solutions for the benefit of patients and health care systems worldwide, particularly around theranostics. In closing, we're excited about the growth potential of molecular imaging and theranostics, as well as our pipeline pharmaceuticals, and the collective opportunity for these innovations to enable precision.

Wanted to get your sense for what what's going on there and did you grow sales and orders in China in Q4, and how should we think about that in the early part of 'twenty four.

Hey, Greg It's Pete will look as you know theres a lot of moving parts within.

Within China.

We've talked a lot about this in the past I think there's three things I mean, there is clearly a focus by the government to expand capabilities in medical coverage and a lot of that comes down to our equipment ultrasound Cte is a first part.

Peter J. Arduini: I'm extremely proud of our team's execution in 2023 and our focus on patients and customers, as well as the progress we've made as a standalone. We achieved or exceeded our financial and operational objectives we laid out at the beginning of the year, and we're making significant progress on the innovation front, including digital and artificial intelligence. We have a strong balance sheet that allows us to invest in new capabilities organically and in our, and we're excited about our momentum as we enter. We remain on track to deliver on our medium-term targets. With that, I'd like to open up the call to questions. Thank you, Peter. I'd like to ask participants to please limit themselves to one question and one follow-up. Operator, can you please open the line?

Second thing is there was the stimulus funding from last year, which was in Q4 and affected in Q1, where we did actually very very well from a share and a growth standpoint, and then we have anti corruption.

What we've seen on the ground is it's not that consistent in many different ways, meaning that certain provinces. There may be less in fact, other provinces or may be more I think that's going to play out and throughout the.

The coming year.

We believe overall that the approach to drive better compliance and a very large country is a good thing and that there isn't necessarily an end date as much as it's a new policy approach about how you do business and for a company like US it's kind of how we do business every country around the world I think that lays it out that way that being said.

Last year for us in China in the first half we had a very strong first half we grew over 20% organic in the first half.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. One moment for our first question, and that will come from the line of Craig Bishu with Bank of America. Your line is open. Good morning, Craig.

2023, so we're actually expecting our growth to be negative year over year, that's contemplated in our guidance in the first half and then in the second half resuming two to growth and.

Craig William Bijou: Morning, guys. Thanks for taking the questions. So Jay, I appreciate the comments on Q1. And I did want to dive a little bit deeper there.

And so that's kind of how we profiled it and that's part of our 4% guidance that we've laid out.

Longer term.

We believe China again with $1 four people $400 million getting quality services today and $1 billion that need it is going to continue to be.

James K. Saccaro: Can you guys still grow revenues in Q1, given that you do have a pretty strong year-over-year comp? And then on the margin side, should we still expect margin expansion in Q1, but maybe it's at a rate a little bit lower than what you're expecting for the full year? Craig, that's right.

Growth market out into the future, but we've taken I think.

Our prudent approach on how we take a look at no growth in the first half and then growth resuming in the second half.

Thanks, guys.

Thank you.

James K. Saccaro: Overall, as I said in my prepared remarks, the first half will be lower than the second half, and the first quarter will be lower than the second quarter. And really, what this comes down to is the challenging comp that we saw in Q1 of last year. I believe we had 12% revenue growth, which was really a great performance in that quarter. Having said that, we still expect revenue growth in the first quarter and some level of margin expansion, albeit both of those being lower than the full-year rate. I got it.

Thank you one moment our next question.

And that will come from the line of Vijay Kumar with Evercore ISI. Your line is open.

Jay.

Hi, Congrats on a nice print here then very good morning to you.

My first at a high level on the guidance here.

4% organic fee increase and we will give given the tougher comps.

Curious what does the guide assuming for pricing.

The book to Bill in Q4 1.6.

And it kind of implies a capital book to Bill was perhaps one point or 1.9, what is the relationship between when I look at those optical numbers of $1.

Peter J. Arduini: That's helpful. And as a follow-up, I did want to touch on China and the Anti Corruption Act. And you basically want to get your sense for what's going on there. And did you grow sales and orders in China in Q4? And how should we think about that in the early parts of 24? Hey, Craig, it's Pete.

On capital versus revenue is there a timing element.

Could perhaps 4% just looking at the book to build of 4% teams.

It looks like it had some cushion.

So maybe I'll talk first about the.

The sales growth for the year, and then talk a little bit about pricing because I think both of those were embedded in the question.

Peter J. Arduini: Well, look, as you know, there are a lot of moving parts within China. You know, we've talked a lot about this in the past. I think there are three things.

Listen we were very pleased with the performance to close out 2023.

Peter J. Arduini: I mean, there is clearly a focus by the government to expand capabilities in medical coverage, and a lot of that comes down to our equipment, ultrasound, and CT, as the first part. The second thing is the stimulus funding from last year, which was in Q4 and affected in Q1, where we did actually very, very well from a share and a growth standpoint. And then we have anti-corruption. You know, what we've seen on the ground is that it's not that consistent in many different ways, meaning that certain provinces may have less in effect; other provinces, there may be more.

On a full year basis, we delivered 8% at the high end of the range and Fracked, a little bit in excess of our expectations for the fourth quarter.

A lot of that came down to execution in terms of translating backlog into sales, which was a testament to all the work in many of our teams and so as we look at that as we look at 2024, we think roughly 4% is a solid number if we think about it we feel really good about 2000.

'twenty three we think the setup is solid we think the business has proven its pretty durable amidst a lot of macroeconomic volatility in 2023, our business performed pretty well and so as a result, we we did put on some incremental orders in the fourth quarter in the last couple of months of 2023.

Peter J. Arduini: I think that's going to play out throughout the coming year. You know, we believe overall that the approach to drive better compliance in a very large country is a good thing and that there isn't necessarily an end date as much as it's a new policy approach about how you do business. And for a company like us, it's kind of how we do business in every country around the world. I think that lays it out that way. That being said, you know, last year for us in China, in the first half, we had a very strong first half.

<unk>, which was ahead of our expectations. So as I said and so it's early in the year. There's a lot of macro dynamics in play Pete talked about one, but frankly, its a volatile world that we're living in and we set the 4% up it's a really challenging comp, but it set up with a very solid backlog a solid.

Book to Bill ratio, and so hopefully things cooperate and we move through the year nicely.

Peter J. Arduini: We grew over 20 percent organically in the first half of 2023. So we're actually expecting our growth to be negative year over year. That's contemplated in our guidance for the first half. And then in the second half, we resume growth.

Pete why don't you add to that and then we can talk about price yes.

Just I think you've covered it other than the fact to say that look we were super pleased with the order book performance.

Theres been obviously, a reasonable amount of questions over this year about order and the translation to revenue putting up strong orders growth in the fourth quarter.

Peter J. Arduini: And so that's kind of how we profiled it. And that's part of our 4 percent guidance that we've laid out. You know, longer term, we believe China, again, with a billion four people, 400 million getting quality services today, and a billion that need them, is going to continue to be a growth market out into the future. But we've taken, I think, a prudent approach on how we take a look at no growth in the first half and then growth resuming in the second. Thanks, guys.

Service and equipment and again when you think about our orders book now being over $19 billion that obviously sets us up for more gas in the tank and later in Q4 in the second half of 2024, but it's also business that we have for multi year deals that gives us visibility.

25, as well and I think that's an important aspect here I mentioned $2 5 billion of multi multi year enterprise deals, which we have been really ramping up our capability on not only does that help you in the current year, but it typically gives you two to three years visibility out of business that youre going to get that you don't need to win each year and I think so.

Craig William Bijou: Thank you. Thank you. One moment for our next question, and that will come from the line of Vijay Kumar with Evercore ISI. Your line is open, and Vijay.

Vijay Muniyappa Kumar: Hi Pete, congrats on a nice print here and a very good morning to you. My first high level on the guidance here, 4% organic, seems reasonable given the tougher comps. Curious, what is the guide assuming for pricing? And you know, the book to bill in Q4 was 1.06, which kind of implies a capital book to bill was perhaps 1.08, 1.09. What is the relationship between, you know, when I look at those optical numbers of 1.08, 1.09 on capital versus revenues, right? Is there a timing element, could perhaps 4%, you know? Just looking at this book to build a 4% seems, you know, looks like it has some cushion.

Over the period of time here I, just feel very good and again I'm just.

Satisfied with the work that the team has done and the setup that we've had in to Jay's point we've.

Tried to take into consideration all of the different challenges that may be helping in the world and making sure that we've had.

Appropriate call to be able to deal with whatever parameters come our way.

Vijay as it relates to price.

As I said, we were pleased with price in 'twenty, three we delivered around 3%.

Price in a lot of that comes down to a cultural focus at our company in terms of selling value and appreciation.

Appreciation of our customers of the value that we're bringing to the table. We are trying to innovate you saw the R&D growth number in the quarter and we really are trying to accelerate innovation and that translates to new and unique products.

James K. Saccaro: So maybe I'll talk first about the sales growth for the year and then talk a little bit about pricing because I think both of those were embedded in the question. Listen, we were very pleased with the performance to close out 2023. On a full-year basis, we delivered 8% at the high end of the range. In fact, a little bit in excess of our expectations for the fourth quarter.

And so from our standpoint, that's unlocked a lot of our pricing opportunity and what we expect consistent with the mid term plans that we've laid out is roughly 1% to 2% pricing in 2024, and we will continue that going forward. So I think this is this is about culture, it's about new products and Thats whats really in discipline in terms of how you can.

Structured deals that's really what's enabled this and I would just support that by again, obviously new products arent in the price calculation there in mix.

James K. Saccaro: And a lot of that came down to execution in terms of translating backlog into sales, which was a testament to all the work in many of our teams. And so, as we look at 2024, we think roughly 4% is a solid number. If we think about it, we feel really good about 2023.

But with a focus on having those come out at higher gross margins. When you have a vitality index of 26% over 25% of your products are coming out that have a higher gross margin in the <unk> and ultimately that will be the dynamic even more so than like for like products, which will help drive margin.

That's extremely helpful.

One quick follow up here the margin expansion guide was really impressive 50 to 80 basis points, how much of that is coming from gross margins versus.

James K. Saccaro: We think the setup is solid. We think the business has proven it's pretty durable amidst a lot of macroeconomic volatility in 2023. Our business performed pretty well. And so, as a result, we did put on some incremental orders in the fourth quarter and in the last couple of months of 2023, which was ahead of our expectations, as I said. And so, it's early in the year.

Operating leverage.

Sure and just a word on 2023 margin, we expanded 60 basis points stand alone, but we did that with a dramatic increase in R&D expansion.

So that's the template that we really really like to see and so as we look at 2020 for the vast majority of the expansion will come from gross margin.

James K. Saccaro: There are a lot of macro dynamics in play. Pete talked about one, but frankly, it's a volatile world that we're living in. And we set the 4% up. It's a really challenging comp, but it's set up with a very solid backlog, and a solid book-to-bill ratio. And so, hopefully, things cooperate and we move through the year nicely. Pete, why don't you add to that, and then we can talk about price.

Used some words in my prepared remarks regarding the lean focus at the company.

That's real what we call variable cost productivity initiatives are reshaping, how we operate the manufacturing and distribution operations of the company.

So that's one key element pricing is another key element impacting gross margin. So in 2024 majority comes from gross margin expansion Youll actually see R&D.

Grow as a percentage of sales not to the extent that it did in prior years, but it will increase as a percentage of sales as we continue to grow R&D faster.

Peter J. Arduini: Yeah, no, I would just say, I think you covered it, Jay, other than the fact to say that, look, we were super pleased with the order book performance. There's been obviously a reasonable amount of questions this year about orders and the translation to revenue, putting up strong order growth in the fourth quarter, both service and equipment. And again, when you think about our orders book now being over $19 billion, that obviously sets us up for more gas in the tank and later in the second half of 2024. But it's also business that we have for multi-year deals that gives us visibility into 25 as well. And I think that's an important aspect here. I mentioned 2.5 billion in multi-year enterprise deals, which we've been really ramping up our capability on. Not only does that help you in the current year, but it typically gives you two to three years of visibility out of business that you're going to get that you don't need to win each year. And I think, so for the period of time here, I just feel very good.

And then there will be a little bit of savings from SG&A, that's really the construct behind the 50 to 80 basis points.

Fantastic. Thanks, guys. Thank you.

Thank you one moment our next question.

And that will come from the line of Matt Taylor with Jefferies. Your line is open.

Good morning, Matt.

Hey, good morning, Thank you for taking the question.

I had a follow up you talked a little bit about the phasing with China.

I guess I was wondering if you could comment also on other geographies and how that phase through the year that growth expected to be more more linear in the 4% assumption.

And then the other part of that question is you mentioned the customer survey that you did recently thought was a little bit more positive I was wondering.

If you could unpack that a little bit and talk about how much that went into your forecast.

Sure.

The first part of it.

I think that I think China's listen China is not a huge piece of our business right. It's about 15% overall and so the dynamic that Pete described is one.

That we're working through and I think presents a nice opportunity for the second half of the year and beyond as far as other geographies go they do generally.

Follow some of the same patterns that we that I described as a company overall.

Peter J. Arduini: And again, I'm very satisfied with the work that the team has done and the setup that we've had. And to Jay's point, you know, we've tried to take into consideration all the different challenges that may be happening in the world and make sure that we've had the, you know, the appropriate call to be able to deal with whatever parameters come our way. Vijay, as it relates to price, like I said, we were pleased with the price at 23.

Seeing and really it's not about health of market or buying decision timeframes, but rather it's about the comparator is that we're dealing with.

Q1, Q2, Youre talking about a blended 10 ish percent.

Revenue growth Q3, Q4, a little bit more normal so really it comes down to that in terms of.

Why the growth is going to be the way. It is for us in 2024, I wouldn't point to other geographic factors.

James K. Saccaro: We delivered around 3% of price, and a lot of that comes down to a cultural focus at our company in terms of selling value and an appreciation by our customers of the value that we're bringing to the table. We are trying to innovate. You saw the R&D growth number in the quarter. We really are trying to accelerate innovation, and that translates into new and unique products. And so from our standpoint, that's unlocked a lot of our pricing opportunity. What we expect, consistent with the midterm plan that we've laid out, is roughly 1% to 2% pricing in 2024, and we'll continue that going forward. So I think this is about culture.

Other than that comp.

Now as it relates to the hospital capital surveys overall, we survey each quarter.

And we go through our main customers, we talked to them we have discussions in a in an organized manner using a specific tool that we have in place.

And what we said in the third quarter as we were seeing some signs of optimism from that group and then as we did our most recent survey I would actually point to a couple of different things first we did see increased buying in ordering patterns in the fourth quarter of the year as we closed out in particular in.

Number there was a buoyancy to the markets in particular, the U S market that sort of supported some of the things that we saw in the survey.

Peter J. Arduini: It's about new products, and that's what's really disciplined in terms of how you construct your deals. That's really what's enabled this. And I just support that by, again, obviously new products aren't in the price calculation. But with a focus on having those come out at higher gross margins, when you have a vitality index of 26%, over 25% of your products are coming out that have a higher gross margin than the predicate ones. And ultimately, that will be the dynamic, even more so than like-for-like products, which will help drive sales. That's extremely helpful, Peter. And one quick follow up here. The margin expansion guide was really impressive. 50 to 80 basis points.

The second thing is our internal surveys continued in terms of commentary on positive expectations for growth in 2024, and which I think that was a great piece of data as well and then third.

As we looked at general external information there were a few things that came our way first of all hospital profitability is robust. We saw good reports from a number of providers number of indices, which report on General Hospital health all of those things were good second sentiment surveys that other people conducted.

We're also.

We use words like constructive setup into 2024, we're not sitting here, saying, it's going to be an unbelievable market, but we think it's going to be a solid market. As we approach 2024 of course, we're watching fate fed rate decisions because that will have another element.

James K. Saccaro: How much of that is coming from gross margins versus operating leverage? Sure. And just a word on 2023 margin, you know, we expanded 60 basis points standalone, but we did that with a dramatic increase in R&D expansion. And so that's the template that we really, really like to see. And so as we look at 2024, the vast majority of the expansion will come from gross margin. I used some words in my prepared remarks regarding the lean focus at the company. And that's real.

People look at installing capital and making ultrasound purchases, but by and large we feel good about how we're thinking about 2024, Pete do you want to add anything in terms of customer discussion I think I think you covered it I mean, the only point is look their balance sheets are getting better Matt.

Less travelers nursing and stuff so their costs are going down and so you've seen it in some of the reports profit going up which is what we're hearing so that's there at the same time demand strong, meaning the procedures of patients coming in either from orthopedic cardiovascular neuro.

James K. Saccaro: What we call variable cost productivity initiatives are reshaping how we operate the manufacturing and distribution operations of the company. So that's one key element. Pricing is another key element impacting gross margin.

Across the board and so as you've heard us say as well as others. The more that those procedures grow and new innovations come out. They typically are always supported by much of the equipment that we do we talk about all timers, new therapies are going to come out and as they do grow they're going to require our equipment to image and <unk>.

James K. Saccaro: So in 2024, the majority comes from gross margin expansion; you'll actually see R&D grow as a percentage of sales, not to the extent that it did in prior years, but it will increase as a percentage of sales as we continue to grow R&D faster. And then there will be a little bit of savings from SG&A. That's really the construct behind the 50 to 80 basis points.

<unk> safety as new implants come out in orthopedics and move to an outpatient center, you're going to need an OE C arm to be able to do that procedure backed up with ultrasound.

That's the part that we watch as that customers health, particularly United States is improving and the procedures growth is on the rise.

Okay. Thanks Jay.

Thank you.

Thank you one moment for our next question.

Vijay Muniyappa Kumar: Thanks guys. Thank you. Thank you. One moment for our next question, and that will come from the line between Matt Taylor and Jeffries.

And that will come from the line of Larry <unk> with Wells Fargo. Your line is open.

Hey, Larry Good morning, Hey, Good morning, Pete Good morning, Jay Thanks for taking the question.

Matthew Charles Taylor: Your line is open. Morning, Matt. Good morning. Thank you for taking the question. So I had a follow-up. He talked a little bit about the phasing with China. And I guess I was wondering if you could comment also on other geographies and how that phase through the years that growth is expected to be more linear in the 4% assumption.

Have two pipeline questions first.

The slides say you filed prepared as you talked about in your prepared remarks are you expecting approval in 2024, and there are about 9 million myocardial perfusion imaging test in the U S. Each year do you think flu Paradise can capture a significant portion of the MPI market over time and I had one follow up.

James K. Saccaro: And then the other part of that question is, you mentioned the customer survey that you did recently that was a little bit more positive. I was wondering if you could unpack that a little bit and talk about how much that went into your forecast. Sure, you want to take the first part?

<unk>.

Yes, Larry look were.

I won't give my estimate of when the agency approvals would be but the normative rates would say at some point here.

In the later second half of the year based on what the normal dates would be for an NDA.

James K. Saccaro: Yeah, I think that China's not a huge piece of our business, listen. It's about 15% overall, and so the dynamic that Pete described is one that we're working through and I think presents a nice opportunity for the second half of the year and beyond. As far as other geographies go, they do generally follow some of the same patterns that I described as a company overall.

That we should be in the process for an approval.

Look it's a very exciting drug.

You know you've written on it.

Well the standard of care Forever as I mentioned in my prepared remarks is a spec camera and technetium.

Many of US here I think on the call listing and no. If you go to any type of hospital.

Okay perfusion test to see how your heart is functioning, which then directly translates into how is the plumbing or your vessel is doing and how is the electrical system doing and it's a very efficient test the challenges the current products.

James K. Saccaro: We're seeing, and really, it's not about the health of the market or buying decision timeframes, but rather, it's about the comparators that we're dealing with. Q1, Q2, you're talking about a blended 10-ish percent revenue growth. Q3, Q4, a little bit more normal. So really, it comes down to that in terms of why the growth is going to be the way it is for us in 2024. I wouldn't point to other geographic factors other than that comp.

<unk> actually don't have the level of specificity or sensitivity, meaning that they can't always point to a direct interventional action in the early data again to be substantiated with the right approval is that a product like preferred as can greatly increase the specificity and sensitivity to your point, it's not a <unk>.

Product that's used on a spec camera, it's a product that's used on pet Cte Cte is not widely used in cardiology. If this product were to take off and capture a larger percentage of it which we believe over time will be the case, it's going to acquire more pet Cts systems in cardiology or in.

James K. Saccaro: Now, as it relates to hospital capital surveys, you know, overall, we survey each quarter and we go to our main customers, we talk to them, we have discussions in an organized manner using a specific tool that we have in place. And what we said in the third quarter was that we were seeing some signs of optimism from that group. And then, you know, as we did our most recent survey, I would actually point to a couple different things. First, we did see increased buying and ordering patterns in the fourth quarter of the year.

<unk> with radiology and so were quite.

Excited about I think it's a great support for cardiovascular care I know cardiologists you have looked at have been very impressed with it.

But we will see how that plays out we're not counting on any significant ramp right now in our midterm.

Abuse, we have I would say reasonable numbers that in some future date post approval, we'll talk about but to your point with the size of the opportunity there could be some scenarios, where this could end up being a larger piece of the business over time.

James K. Saccaro: As we closed out, in particular, in December, there was a buoyancy in the markets, in particular the U.S. market, that, you know, sort of supported some of the things that we saw in the survey. The second thing is that our internal surveys continued in terms of commentary on positive expectations for growth in 2024, which I think that was a great piece of data as well. And then third, as we looked at general external information, there were a few things that came our way. First of all, hospital profitability is robust. We saw good reports from a number of providers, and a number of indices which report on general hospital health. All of those things were good.

That's very helpful. Pete I'd love to get an update on your progress with the photon counting CP technology, what are the next steps and milestones.

The process to bring this to the market in the U S and outside the U S. Thank you.

Yes, Larry Thanks, Yes photon counting.

<unk>, obviously very exciting technology for Cte really probably the biggest transformation to come to <unk> in the last 30, some years beyond multi slice and it has that opportunity to bring better resolution reduced dose, but also bring functional capabilities within the <unk> world, which typically is the <unk>.

Peter J. Arduini: Second, sentiment surveys that other people conducted were also positive. You know, we use words like constructive setup into 2024. We're not sitting here saying it's going to be an unbelievable market, but we think it's going to be a solid market as we approach 2024. Of course, we're watching Fed rate decisions because that will have another element as people look at installing capital and making ultrasound purchases, but by and large, we feel good about how we're thinking about 2024. Pete, do you want to add anything in terms of customer discussion? Well, I think you, I think you covered it. I mean, the only point, look, their balance sheets are getting better, Matt, the less travelers and nursing and stuff.

Anatomical imager, but doesn't show, what's happening more to cellular or in Oregon level and photon how has that capability.

There is obviously some other players in the marketplace. Currently we have beta sites that are actually running where we're actually doing a lot of work currently.

We believe our technology approach, which is the use of a deep silicone is unique in a lot of different ways, but I would just say for the whole broader sector. All of us that are playing in and I think this is going to be a strong revolution for the whole industry, mainly because <unk> ability to be installed many different places and it's just ubiquitous use for <unk>.

So many different diagnosis, so standby more to come we will be talking more about it throughout the year, but we're making good progress on the platform. So thanks for the question.

Thank you.

One moment for our next question.

And that will come from the line of Joanne Wuensch with Citi. Your line is open.

Good morning, Julien Good morning, Good morning, and thank you for taking the question.

Matthew Charles Taylor: So their costs are going down, and so you've seen in some of the reports profit going up, which is what we're hearing. So that's there. At the same time, demand is high, meaning the procedures of patients coming in, either from orthopedic, cardiovascular, neuro, I mean, across the board. And so, you know, as you've heard, [inaudible] So the customer's health, particularly in the United States, is improving, and the growth of procedures is on the rise. Great. Thanks, Pete. Thanks, Jay.

As you move more and more into AI enabled technologies could you comment on your thoughts on how to translate that.

To dollars and cents is it a subscription model is it.

Software as a service how do we think about that.

Yes, John it's a great question and I would say our strategies are evolving and it will be in many ways multifaceted. So just to give an example, and today world, where we have a product like <unk>, which again is this new way of actually how an MRI actually creates an imaging using artificial intelligence.

Lawrence H. Biegelsen: Thank you. Thank you. One moment for our next question, and that will come from the line of Larry Biegelsen with Wells Fargo. Your line is open. Good morning, Pete. Good morning, Jay.

And the corresponding upgrades that we can take to.

Our installed base today, those fundamentally result in a higher price value proposition higher gross margins for an acquisition in that space and I think theres still going to be plenty of those opportunities to say this product by itself and this product plus AI is actually four 510 points higher in gross.

Peter J. Arduini: Thanks for taking the question. I'm going to ask two pipeline questions. First, Pete, the slides say you filed FluParadise.

Lawrence H. Biegelsen: You talked about it in your prepared remarks. Are you expecting approval in 2024? And there are about 9 million myocardial perfusion imaging tests in the U.S. each year. Do you think FluParadise can capture a significant portion of the MPI market over time? And I had one follow-up.

Because of what it actually does and that will still account for a reasonable part.

Of our growth. The second part then is actually bringing certain capabilities via a SaaS model as they're a pure standalone software capabilities. So take my prepared remarks, I talked about the App Orchestrator. There is a great example of a product that will be cloud based can fit on many different pacs systems and work.

Peter J. Arduini: Yeah, Larry, look, we're, you know, I won't give my estimate of when the agency approvals would be, but you know, the normative rates would say at some point here, in the later second half of the year based on what the normal dates would be for an NDA, that we should be in the process for an approval. Look, it's a very exciting drug, and I mean, I know you've written about it as well. The standard of care forever, as I mentioned in my prepared remarks, is a spec camera and technetium. Many of us here, I think on the call listening in, know if you go to any type of hospital or type of therapeutic test to see how your heart is functioning, which then directly translates into how your plumbing or your vessels are doing, and how your electrical system is doing.

With multi vendor equipment and customers may decide that at one hospital or their whole network. They want it and so they could pay or one onsite capability via SaaS that could pay for multiple and then writing upon that will be applications from other third parties and we will have an opportunity to say youll get.

70% will take 30% as the enabler into our broader installed base than others and so there's a multifaceted way I would say in 2020 for one of our big operating priorities are big priorities. We have is really building out this go to market and monetization model, but it's going to evolve everything from more value to our <unk>.

Peter J. Arduini: And it's a very efficient test. The challenge is that current products just don't have the level of specificity or sensitivity, meaning that they can't always point to a direct intervention. And the early data, again, to be substantiated with the right approval, is that a product like Propertaz can greatly increase specificity and sensitivity. But to your point, it's not a product that's used on a spec camera.

A hardware, which we can actually obtain more value for all the way through different almost down to by the us capabilities that again, that's going to expand over multiple years, but that's how we're thinking about it.

Putting in place the right type of SaaS backbone for the whole company.

Thank you very much.

One moment for our next question.

And that will come from the line of Graham Doyle with UBS. Your line is open.

Hey, Graham.

Peter J. Arduini: It's a product that's used on PET-CT. PET-CT is not widely used in cardiology. If this product were to take off and capture a larger percentage of it, which we believe over time will be the case, it will acquire more PET-CT systems in cardiology or in cooperation with radiology. And so we're quite excited about it. I think it's a great support for cardiovascular care. I know cardiologists have looked at it and have been very impressed with it, but we'll see how that plays out.

Hey, guys. Thanks, a lot for taking my question is how can we just touch on China again, just to clarify one of the statements earlier.

You said, you're expecting no growth, but also negative growth in the first half.

Is it negative or no growth I E flat.

For the full year are you expecting China to grow and then just a quick clarification one after that on the order book.

Sure on China, we expect a decline in the first half.

But remember in Q1 of 2023 in Q2 of 2023, we had around 20% growth. So we've always kind of modeled the decline in the first half growth in the second half and as a result, we're expecting growth for the year.

Peter J. Arduini: We're not counting on any significant ramp right now in our midterm views. We have, I'd say, reasonable numbers that in some future days post-approval, we'll talk about. But to your point, with the size of the opportunity, there could be some scenarios where this could end up being a larger piece of the business. That's very helpful.

Perfect that's Super clear and then just on the orders I think you mentioned.

Quite a sizable multiyear contract when does that get all booked in the Q4 'twenty three as well then.

Peter J. Arduini: Pete, I'd love to get an update on your progress with the photon counting CT technology. What are the next steps and milestones in the process to bring this to the market in the US and outside the US? Thanks. Yeah, Larry, thanks. Yeah, photon counting is obviously very exciting technology for CT, really probably the biggest transformation to come to CT in the last 30 years beyond multislice. And it has that opportunity to bring better resolution, reduce dose, but also bring functional capabilities within the CT world, which typically is a great anatomical imager but doesn't show what's happening more at the cellular or organ level. And the photon has that capability.

Yes, Graham what I actually I think referenced was over the year.

Multiple multiple enterprise deals that we've won that amount to over $2 5 billion.

Our current processes as we bring in significant amounts of orders, we typically you don't book.

On a two year window of our orders so we have something thats captured four.

Five 610 years, we arent actually booking years.

Seven or excuse me three and beyond in our current order book, that's not our approach that we implement so this quarter, we put in the 3% growth or very near term orders that we won in the fourth quarter that will see play out in 'twenty four 'twenty five.

Peter J. Arduini: There are obviously some other players in the marketplace. Currently, we have beta sites that are actually running where we're actually doing a lot of work. Currently, we believe our technology approach, which is the use of deep silicone, is unique in a lot of different ways. But I would just say for the whole broader sector, all of us that are playing it, I think this is going to be a strong revolution for the whole industry, mainly because of CT's ability to be installed in many different places and its just ubiquitous use for so many different diagnoses. So, standby, more to come. We'll be talking more about it throughout the year, but we're making good progress on the platform. So, thanks for the question. Thank you. Thank you. Thank you.

Perfect.

Quick one on that and so John kind of proud of them earlier.

Is it your expectation that on.

Call. It a five year view, just becomes kind of the standard of care within CPE more broadly as it becomes economic and we should expect that this in most cities in Europe and the U S becomes photon counting.

I think five years is a little bit optimistic I mean, I think I've heard what others have said as well I think in the 10 year window, that's probably more realistic keep in mind.

85% of all <unk> in the world tend to be more mid tier value based products some of them sell for 200 $300000.

Lawrence H. Biegelsen: One moment for our next question, and that will come from the line of Joanne Wuensch with Citi. Your line is open. Good morning, Joanne.

In different parts of the world. So thats a wide community of what's in a Cta to your point is on the premium end and stuff I think in the five year window, yes, youre going to see a significantly higher percentage of photon counting.

Joanne Karen Wuensch: Good morning. Good morning, and thank you for taking the call. As you move more and more into AI-enabled technologies, could you comment on your thoughts on how to translate that to dollars and cents? Is it a subscription model? Is it software as a service? How do we think about that? Yeah, Joanna. It's a great question.

Alright, Thank you very much guys I'll jump back in the queue. Thank you.

Thank you one moment for our next question.

And that will come from the line of Anthony <unk> with Mizuho. Your line is open.

Good morning, Anthony.

Good morning, Pete how are you good morning, Jay Congrats on a solid year post spin and maybe I'll start with just a question on thorough gnostics you have it in the in the slide deck here, obviously, GE healthcare well positioned on the diagnostic side you mentioned.

Peter J. Arduini: And I would say our strategies are evolving, and they will be, in many ways, multifaceted. So just to give an example, in today's world, where we have a product like Air Recon DL, which again is this new way of actually how an MRI actually creates an image using artificial intelligence, and the corresponding upgrades that we can take to our installed base. Today, those fundamentally result in a higher price value proposition, higher gross margins for an acquisition in that space. And I think there's still going to be plenty of those opportunities to say that the product by itself, and this product plus AI is actually four or five, 10 points higher in gross margin because of what it actually does. And that will still account for a reasonable part of our growth.

Both organically and Inorganically, just wondering how youre thinking about the other pieces of third Gnostics you have.

Therapeutics and supply chain you can grow more in diagnostics. So just maybe your thoughts on.

How that space is consolidating and where GE can play specifically and I'll have a follow up for Jay on capital allocation.

Yes, it's a good question I mean, obviously at the baseline level.

As these therapies take off pads Cte is a critical product I mean for all practical purposes. Its a limited world of folks that manufacturing pet Cte <unk>, where one of them.

We think to do this effectively you have to have a multi had spec <unk>, we have a <unk> system called the Star Guide.

Peter J. Arduini: The second part then is actually bringing certain capabilities via a SaaS model as their pure standalone software capability. So, in my prepared remarks, I talked about the app orchestrator. It's a great example of a product that will be cloud-based, can fit on many different PAC systems, and work with multi-vendor equipment.

None of our major competitors really have that product why is that important. If you are a traditional too Ed. It's an hour to do the study versus you can do at 15 minutes or less you can't run. The fact that Theyre Gnostics Department. If you don't have a multi had camera. So thats kind of the stakes. The next thing is you need to integrate those images and look at them together to die.

<unk> look at radiation dose patient might have had external beam radiation radiation from the drug itself and you look at both of those MIM software is really the best in the world, they're going to be part of US post close that's going to bring a missing link. It's also a capability that really nobody else in the industry.

Peter J. Arduini: And customers may decide that at one hospital or their whole network, they want it, and so they could pay for one onsite capability via SaaS, or they could pay for multiple. And then riding upon that will be applications from other third parties. And we will have an opportunity to say, you know, you'll get 70%, and we'll take 30% as an enabler into our broader installed base and others. And so there's a multifaceted way, I would say in 2024, one of our big operating priorities or big priorities we have is really building out this go-to-market and monetization model. But it's going to evolve everything from more value to a piece of hardware, which we can actually attain more value for all the way through different almost down to the user's capabilities, that again, that's going to expand over multiple years. But that's how we're thinking about it.

Has when you couple that with those products and then on the tracer side. We're the only company who has the equipment and manufacturers the tracers, others distribute but theres a big difference between just shipping it around and making it and so we have the logistics capability. We also have the manufacturing capability and we also make the cyclotron.

Again, our particle accelerators that actually help create many of these so theres multiple opportunities here.

Either working with some of the pharmaceutical companies directly playing a leadership role with customers on how you deliver these doses and that just remind everybody. Unlike other drugs, where you can just deliver in any center. These products have a half life, which means the moment you make them. They are degrading and so how you actually taken order and get it.

Peter J. Arduini: And putting in place the right type of SaaS backbone for the whole company. Thank you very much. Thank you. One moment for our next question, and that will come from the line of Graham Doyle with UBS. Your line is open. Hey, Graham.

To a patient that day for the right potency is one of the things we have expertise and so again as these grow and what we're excited about is the impact they're going to have on patients effectiveness and low side effects.

<unk> got most of the debt.

Graham Doyle: Morning guys, thanks a lot for taking my questions. Can we just touch on China again, just to clarify one of the statements earlier. You said you were expecting no growth but also negative growth in the first half. Just is it negative or no growth, i.e., flat?

Capabilities to play different roles throughout the growth of this and that's what we're planning to do.

Helpful and Jay real quick on capital allocation and uses of cash for this year.

M&A more of a priority you did $1 billion debt pay down and then just free cash flow conversion that would be helpful. Thanks.

Sure.

James K. Saccaro: And just for the full year, are you expecting China to grow? And then just a quick clarification after that on the order book. Sure. On China, we expect a decline in the first half.

Thanks for the question I think 2023 was really a great case study in terms of how we think about capital allocation. It starts to your point with free cash flow.

James K. Saccaro: But remember, in Q1 of 2023 and Q2 of 2023, we had around 20% growth. So we've always kind of modeled the decline in the first half and growth in the second half. And as a result, we're expecting growth for the year. Perfect, that's super clear. And then just on the orders, I think you mentioned quite a sizable multi-year contract win. Does that get it all booked in Q4-23 as well?

We were able to deliver 95% conversion, which we were very proud of we did a lot of work on the balance sheet on working capital balances and collections on inventory turns which I commented on in my prepared remarks, and the result was we exceeded our cash flow expectations by a good margin.

And we set up 2024 with another solid 90% conversion rate in free cash flow growth and so then the question is how do you deploy that well in 2023. The first thing we like to do is reinvest in the business to accelerate growth and so what we were able to do it.

Peter J. Arduini: Yeah, Graham, what I actually think referenced was over the year, multiple, multiple enterprise deals that we've won that amount to over two and a half billion dollars. Our current processes, as we bring in significant amounts of orders, we typically don't book out beyond a two year window on our orders. So if we have something that's captured for, you know, five, six, 10 years, we aren't actually booking years, seven, excuse me, three and beyond in our current order book. That's not the approach that we implement.

His drive EBIT expansion of 60 basis points despite.

20 ish percent growth in R&D, and we also significantly expanded capex investments. So 0.1 reinvest in the business. The second thing we like to do is strategic M&A over the course of 2023, we announced three deals.

Mac this caption and nims all of them have the profile of deals that we like strategically relevant accretive to our business really solid rois over time, so all of them hit the profile and made us a bit more competitive in the marketplace with more offerings for our customers.

Graham Doyle: So the order we put in for the 3% growth is very near-term orders that we want in the fourth quarter that will see play out in 24 and in 25. Perfect. A really cheeky quick one.

Peter J. Arduini: On that photon counting that you brought up earlier, is it your expectation that, on a, I don't know, call it a five-year view, this becomes kind of the standard of care within CT more broadly as it becomes economical, and we should expect that this, you know, most CTs in New York and certainly the U.S. become photon carriers. I think five years is a little bit optimistic. I mean, I think, you know, I've heard what others have said as well.

Also in 2023, we made a number of minority investments that allow us to learn about new areas.

And a sort of experimental manner. So we don't talk too much about all of those investments, but we made quite a few in 2023 and over time, we expect these to yield dividends.

We also like to focus on the balance sheet. So we paid down a $1 billion in debt in 2023 significantly enhancing the financial flexibility going forward and finally, we paid a dividend. So I guess the way I think about it everything was on display in 2023 in terms of how we think about.

Peter J. Arduini: I think in the 10 year window, that's probably more realistic. Keep in mind, you know, 85% of all CTs in the world tend to be more mid-tier value-based products. Some of them sell for, you know, 200 to 300,000 in different parts of the world.

A disciplined capital allocation strategy and as we move forward I would expect to see more of the same all of that though as I said at the beginning of this was is unlocked by cash flow generation, which is a real area of focus for us.

Peter J. Arduini: So that's, it's a wide community of what's in a CT. Your point is on the premium end and stuff. I think in the five-year window, yeah, you're going to see a significantly higher percentage of both. Perfect. Thank you very much, guys. I'll jump back in the queue.

Thank you very much.

Thanks, Anthony. Thank you we do have time for one final question.

And that will come from the line of Patrick Wood with Morgan Stanley. Your line is open.

Amazing. Thank you Hey, I'll keep it to one just given the timing.

Make it a short one.

Anthony Charles Petrone: Thank you. Thank you. One moment for our next question, and that will come from the line of Anthony Petrone with Mizzouho.

Thank you for the detail on the pricing side, just kind of curious like how thats flowing through on the service book, Obviously, you get the one year warranty, but where youre resigning service agreements are you seeing a similar kind of price uplift or what youre getting on the hardware side, so that that traditional ratio between the two is remaining relatively constant just just curious what you're seeing that thanks.

Anthony Charles Petrone: Your line is open. Good morning, Anthony. Good morning, Pete. How are you?

Peter J. Arduini: Good morning, Jay. Congratulations on a solid year, your post-spin. And maybe I'll start, Pete, with just a question on Theranostics. You have it in the slide deck here. Obviously, GE Healthcare is well-positioned on the diagnostics side. You mentioned growth organically and inorganically.

Yes, Patrick.

We benefited from multi year contract <unk> been able to actually have escalators on not only just on upfront, but then actually have.

Escalators through the years and then also we have parts significant large parts business as well as time and material.

Peter J. Arduini: Just wondering how you're thinking about the other pieces of Theranostics. You have therapeutics and supply chain. You can grow more in diagnostics. So maybe your thoughts on how that space is consolidating and where GE can play specifically, and I'll have a follow-up for Jay on capital allocation. Yeah, no, it's a good question.

And then the other aspect of it is different services that we offer it might be.

Asset tracking tools things of that nature, but I would say we've had the good fortune across the board to be able to get some price across all of those different vehicles in service I would say the other thing and it's kind of a given point, but it is important to note that when services.

Peter J. Arduini: I mean, obviously, at the baseline level, as these therapies take off, PET-CT is a critical product. For all practical purposes, it's a limited world of folks that manufacture PET-CT and PET-MR. We are one of them. We think to do this effectively, you have to have a multi-head SPECT-CT. We have a 12-head system called the StarGuide.

Are really one of our highest margin offerings that we have when you are gaining share as I mentioned earlier on the call ultimately to your point when you get to month 13 that becomes a service contract and that higher mix of service over time also as an important driver of our future business. Thanks for that question.

Thank you.

Thank you and Mr. Arduini ill turn the call back over to you for any closing remarks. Thank you. Thank you look I'd just like to close by saying. Thank you so much to our colleagues here at GE healthcare.

Peter J. Arduini: You know, none of our major competitors really have that product. Why is that important? If you have a traditional two-head, it's an hour to do the study, whereas you can do it in 15 minutes or less.

Been a great year theres been a lot of great work and tireless efforts to go into the first year as a public company, but importantly, with all of that the focus on our patients and customers to deliver safe high quality products that make a difference it's at the core of our lean mindset as customers first.

Peter J. Arduini: You can't run an effective theranostics department if you don't have a multi-head camera, so that's kind of the stakes. The next thing is you need to integrate those images and look at them together to diagnose, look at radiation dose. Patients might have had external beam radiation. They get radiation from the drug itself.

We delivered on all of our commitments that we set to deliver in 2023 and as Jay and as we spoke about really sets us up well for 2024 investments. We made in R&D are coming out we have a full pipeline of new products and new clinical indications with that I'd just like to say thank you for joining the call today and we look for.

Peter J. Arduini: You need to look at both of those. MIMS software is really the best in the world. You know, they're going to be part of us post-close. That's going to bring the missing link. It's also a capability that really nobody else in the industry has when you couple that with those products. And then on the tracer side, you know, we're the only company that has the equipment and manufactures the tracers. Others distribute, but there's a big difference between just shipping it around and making it, and so we have the logistics capability. We also have the manufacturing capability, and we also make the cyclotrons, which are particle accelerators that actually help create many of these.

To connecting with you at one of our upcoming conferences. Thank you so much.

This concludes today's program. Thank you all for participating you may now disconnect.

Okay.

Okay.

[music].

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Peter J. Arduini: So there are multiple opportunities here, you know, working with some of the pharmaceutical companies directly, playing a leadership role with customers on how you deliver these doses, and that just reminds everybody, unlike other drugs where you can just deliver them at any center, these products have a half-life, which means the moment you make them, they're degrading. And so how you actually take an order and get it to a patient that day in the right potency is one of the things we have expertise in. So again, as these grow, and what we're excited about is the impact they're going to have on patients, effectiveness, and low side effects, we've got most of the, you know, the capabilities to play different roles throughout the growth of this, and that's what we're planning to do, with Jay real quick on capital allocation uses of cash for this year. Is M&A more the priority? You did a billion debt pay down, and then just free cash flow conversion, that will be helpful. Sure.

Okay.

Yes.

Okay.

Okay.

Okay.

Yes.

Okay.

Sure.

Yes.

Okay.

Good.

Okay.

Okay.

Yes.

Okay.

Okay.

Sure.

[music].

Yes.

Yes.

James K. Saccaro: Thanks for the question. I think 2023 was a really great case study in terms of how we think about capital allocation. It starts at your point with free cash flow. We were able to deliver 95% conversion, which we were very proud of. We did a lot of work on the balance sheet on working capital balances and collections on inventory turns, which I commented on in my prepared remarks. And the result was that we exceeded our cash flow expectations by a good margin. And we set up 2024 with another solid 90% conversion rate and free cash flow growth. And so then the question is, how do you deploy that?

Yeah.

Yes.

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Okay.

Yes.

Okay.

Yes.

Yes.

James K. Saccaro: Well, in 2023, the first thing we like to do is reinvest in the business to accelerate growth. And so what we were able to do is drive EBIT expansion of 60 basis points despite 20-ish percent growth in R&D. And we also significantly expanded CapEx investments. So point one, reinvest in the business.

[music].

Okay.

[music].

James K. Saccaro: The second thing we like to do is strategic M&A. Over the course of 2023, we announced three deals, Emactus, Caption, and MIMS. All of them have the profile of deals that we like, strategically relevant, accretive to our business, and really solid ROIs over time.

Okay.

Yes.

Okay.

Okay.

Okay.

Okay.

[music].

James K. Saccaro: So all of them hit the profile and made us a bit more competitive in the marketplace with more offerings for our customers. Also, in 2023, we made a number of minority investments that allowed us to learn about new areas in a sort of experimental manner. So we don't talk too much about all of those investments, but we made quite a few in 2023. And over time, we expect these to yield dividends. We also like to focus on the balance sheet.

Yes.

Okay.

Okay.

[music].

Okay.

Okay.

[music].

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Thanks.

Yes.

Okay.

Okay.

Sure.

Sure.

Okay.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Okay.

[music].

James K. Saccaro: So we paid down a billion dollars in debt in 2023, significantly enhancing the financial flexibility going forward. And finally, we paid a dividend. So I guess the way I think about it, everything was on display in 2023 in terms of how we think about a disciplined capital allocation strategy. And as we move forward, I would expect to see more of the same.

Okay.

Yes.

[music].

Yes.

Okay.

Yes.

Okay.

Okay.

Okay.

James K. Saccaro: All of that, though, as I said at the beginning of this, is unlocked by cashflow generation, which is a real area of focus for us. Thank you very much. Thanks, Anthony. Thank you. We do have time for one final question, and that will come from the line of Patrick Wood with Morgan Stanley. Your line is open.

[music].

Okay.

Okay.

Sure.

Okay.

Okay.

Okay.

Okay.

Okay.

Yes.

Patrick Wood: Amazing. Thank you. Hey, I'll keep it to one, just given the timing.

Yes.

Okay.

Patrick Wood: I'll make it a short one. Thank you for the detail on the pricing side. Just kind of curious, like, how that's flowing through on the service book. You know, obviously, you get the one-year warranty, but, you know, where you're re-signing service agreements, are you seeing a similar kind of price uplift to what you're getting on the hardware side, so that that traditional ratio between the two is remaining relatively constant? Just curious what you're seeing there. Thanks. Yeah, Patrick.

Thanks.

Okay.

Okay.

Okay.

Okay.

[music].

Okay.

Okay.

Peter J. Arduini: We've benefited from, you know, multi-year contracts, been able to actually have escalators on, not only just on upfront, but then actually have escalators through the years. And then also, we have parts, significant large parts business, as well as time and material. And then the other aspect of it is the different services that we offer. It might be asset tracking tools, things of that nature, but I would say we've had the good fortune across the board to be able to get a price across all those different vehicles and services.

Okay.

Okay.

Okay.

Okay.

Sure.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Yes.

Okay.

Peter J. Arduini: I would say the other thing, and this is kind of a given point, but it's important to note that when services are really one of our highest margin offerings that we have, when you are gaining share, as I mentioned earlier on the call, ultimately, to your point, when you get to month 13, that becomes a service contract. And that higher mix of services over time also is an important driver of our. Thanks for that question.

Okay.

Yes.

Okay.

<unk>.

Yes.

Okay.

Okay.

Sure.

Great.

Okay.

Yes.

Okay.

Peter J. Arduini: Thank you. Thank you. And, Mr. Arduini, I'll turn the call back over to you for any closing remarks. Thank you. Thank you. Look, I just want to close by saying thank you so much to our colleagues here at GE Healthcare. It's been a great year; there's been a lot of great work and tireless efforts to go into the first year as a public company. But importantly, with all of that, our focus on our patients and customers to deliver safe, high-quality products that make a difference. It's at the core of our lean mindset to put customers first. You know, we delivered on all of our commitments that we set to deliver in 2023. And as Jay and I spoke about, it really sets us up well for 2024. Investments we made in R&D are coming out, we have a full pipeline of new products, and new clinical indications.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Yes.

Okay.

Okay.

[music].

Okay.

Please.

Okay.

Okay.

Okay.

Okay.

Okay.

Yes.

Okay.

Yes.

[music].

Okay.

Okay.

Okay.

Okay.

With that, I'd just like to say thank you for joining the call today, and we look forward to connecting with you at one of our upcoming conferences. Thank you so much. This concludes today's program. Thank you all for participating. You may now disconnect. Phone Ringing, ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.globalonenessproject.org

Okay.

Okay.

Okay.

Sure.

Yes.

Okay.

Okay.

Okay.

Sure.

Yes.

Yes.

Sure.

Yes.