Q3 2024 GE HealthCare Technologies Inc Earnings Call
The End
Speaker Change: Thank you for standing by and welcome to GE Health Cares 3rd Quarter, 2024 earnings conference call. At this time, all participants are new listeners only mode. After the speaker presentation, there will be a question in answer session.
Speaker Change: To ask a question during the session, you will need to press star, one, one on your telephone.
Speaker Change: To remove yourself from the queue you may press star 11 again.
Speaker Change: I would now like to turn the call over to Carolyn Borders with investor relations.
Speaker Change: Please go ahead.
Carolyn Borders: Thanks, operator.
Carolyn Borders: Good morning and welcome to GE Health Care Third Corner, 2024 earnings call.
Carolyn Borders: I'm joined by our president and CEO, Peter Arduini, and Vice President and CFO, Jay Saccaro. Our conference call remarks will include both GAP and GAP financial results.
Carolyn Borders: Reconciliation between Gap and Nongat measures can be found in today's press release and in the presentation slides available on our website.
Carolyn Borders: During this call we'll make forward looking statements about our performance. These statements are based on how we see things today. SS described in our SEC filing, actual results may differ materially due to risks and uncertainties. With that I'll hand the call over to Peter.
Peter Arduini: and thanks to all those joining us today. In the third quarter we delivered 1% organic revenue growth in line with our expectations.
Peter Arduini: The strong performance in the US across all segments and solid growth and pharmaceutical diagnostic in the quarter we deliver positive price and volume.
Peter Arduini: for the first time in the world.
Peter Arduini: Excluding China, reported sales growth was approximately 5%.
Peter Arduini: and orders growth was 4%.
Peter Arduini: Reflective of a healthy capital equipment market outside of China.
Peter Arduini: At a total company level, we reported strong growth in backlog in the quarter that was primarily driven by services.
Peter Arduini: As a reminder, multi-year service agreements support our recurring revenue profile, with a high level of revenue predictability at a creative margins.
Peter Arduini: In the U.S. Strong Worders and Sales, we're driven by multi-year enterprise deals.
Peter Arduini: Primarily made up of imaging products, particularly PET and CT systems, which are critical to the diagnosis and treatment of chronic diseases.
Peter Arduini: We are pleased with the progress that we're making to secure a long-term partnership.
Peter Arduini: which is foundational to our growth strategy.
Peter Arduini: Another revenue driver in the corridor was PDFs, the team continues to deliver for customers and we've seen PDFs report 7, 4, 5 single digit or double digit organic revenue.
Peter Arduini: Turning to China, we continue the monitor the market which has been slowed recovered.
Peter Arduini: Coordination of stimulus funding is taking longer, so customers are still delaying normal purchasing.
Peter Arduini: This is impacting overall growth in the China market and the near-term. Bottom line is we continue to view this as a temporary challenge. And over the mid-to-long term we see China as the attractive market.
Peter Arduini: Our margin performance in the quarter demonstrates our ongoing cost optimization priority, specifically the focus that we have on gross margin expansion, including product platforming and variable cost productivity.
Peter Arduini: We continue to make progress with lean, taking action across the organization to make improvements to the benefit of our customers and to drive better performance in overall safety, quality, delivery cost and innovation.
Peter Arduini: With overall continued execution, we were able to deliver strong adjusted EBIT margin and adjusted EPS. And we're raising the low end of our full year adjusted EBIT margin and adjusted EPS guidance range.
Peter Arduini: Moving to innovation, we've talked about our leading role in Theronostics. A fast growing field in molecular imaging, the diagnosis and treatment of certain types of cancer.
Peter Arduini: We've made some notable advancements in the space over the last few months.
Peter Arduini: in Europe, establishing a center of excellence with University Medicine Essence.
Peter Arduini: The Top Research Institution in Germany. We're also leading an approximately $28.9 initiative with multiple partners to expand its use.
Peter Arduini: In the U.S., we secured FDA clearance for a new software tool to standardize and automate the process of measuring and calculating radiation dose, those that's during their non-strivenment.
Peter Arduini: This tool will enable clinicians to safely increase patient access to this effective form of precision medicine.
Peter Arduini: With that I'll pass it to Jay who will take us through the details of our third quarter performance and our outlook for 2024. Jay
Jay Saccaro: Thanks, Pete. Let's start with our financial performance on slide 4. For the third quarter of 2024, we reported revenues of $4.9 billion, with organic revenue growth of 1%.
Jay Saccaro: This was in line with our expectations. Recall that we delivered 6% organic revenue growth in the third quarter of 2023.
Jay Saccaro: On a reported basis, we saw a service revenue growth of 2% and product revenue was flat.
Jay Saccaro: As you can see from our reported sales detail in the quarterly filing this morning.
Jay Saccaro: Market headwinds in China continue to impact total company sales growth in the quarter by approximately 400 basis points.
Jay Saccaro: Global Sales Growth Excluding China was approximately 5%.
Jay Saccaro: For Vanic Orr's growth was 1% year over year, driven by continued strength in the United States and in emerging markets within the rest of the world.
Jay Saccaro: Excluding China, organic borders growth was approximately 4%.
Jay Saccaro: We continue to see orders to ours outpacing sales, leading to a strong company booked a bill of 1.04 times.
Jay Saccaro: Reexited the third quarter with the healthy backlog of $19.6 billion off $1.2 billion year over year and up $600 million sequentially.
Jay Saccaro: We made a strong market margin progress in the quarter delivering an adjusted EBIT margin of 16.3% up 90 basis points year over year and ahead of our expectations.
Jay Saccaro: As a result, third quarter EPS adjusted was $1.14 up 15% year over year.
Jay Saccaro: We also had tax benefits related to our 2023 tax filing completed in the third quarter of 2024.
Jay Saccaro: We generated free cash flow of $651 million up $81 million.
Jay Saccaro: Training's progress we made in the third quarter on March and Initiative on Slide 5.
Jay Saccaro: A Justice Gross margin expanded 150 basis points driven by focused execution with variable cost productivity initiatives, continued sales price, accretion and higher margin and PIs.
Jay Saccaro: Of note, we've improved our cross productivity in the third quarter by partnering with global suppliers to drive deflation in direct material costs.
Jay Saccaro: We're also executing cost-effective design changes with an enhanced focus on product quality and improving the customer experience.
Jay Saccaro: We continue to see increased sales from digitally enabled products like Air Recount, DL and Sonic DL in MR driving higher margins.
Jay Saccaro: While in Spani Margin, we also invested more than $300 million in R&D, equating to roughly 6.5% of sales in the quarter.
Jay Saccaro: We remain committed to investment in innovation, focusing on differentiating technology and research collaboration.
Jay Saccaro: This includes exciting research and AI and cloud technologies that Pete will talk more about later.
Jay Saccaro: Nearly two years since the span will please have exit at the majority of the TSAs at Arman Track to exit the remaining agreements on time. This position is well to further optimize our cross-structured.
Jay Saccaro: As discussed on prior calls, we see substantial opportunity over the next few years as it relates to IT and other structural costs optimization initiatives.
Jay Saccaro: One example of this is the implementation of software to eliminate duplicate and non-value added applications. By lining licenses with specific roles and responsibilities, we'll deliver an annual savings of approximately $4 million.
Jay Saccaro: This is one of the many projects we have in our IT Transformation Roadmap.
Jay Saccaro: Given the volume pressures we're maintaining a discipline approach to our discretionary spending.
Speaker Change: Before we turn to our segments as a reminder, we're now reporting results in our new segment structure which went into effect on July 1st.
Speaker Change: Image-Godden therapies previously part of imaging was reliant to the former ultrasound segment, which is now known as advanced visualization solutions.
Speaker Change: This structure better aligns to future clinical trends and will better enable us to deliver strong business and customer impacts by providing the right image guidance in the right care setting.
Speaker Change: Now, let's move on to segment performance starting with imaging on slide 6.
Speaker Change: Organic revenue is down 1% versus the prior year due to headwinds in the China market as we expected. This is partially all set by strength in the United States.
Speaker Change: Sacman Eben Margin was up 200 basis points a year over year.
Speaker Change: We continue to make progress on enhancing gross margins through productivity. Additionally, we saw favorable mix and positive price.
Speaker Change: We continue to see strong demand, particularly in the U.S. with opportunities and replacements, upgrades and services.
Speaker Change: Turn into advanced visualization solutions on slide 7.
Speaker Change: Organic revenue was flat year over year, with increased sale volume in the US offset by a decrease in China due to the previously discussed market headwinds.
Speaker Change: So I've been even more agenda-creased 190 basis points year over year driven by unfavorable mix.
Speaker Change: Clause Productivity Improvements through Standardization and New Product Introductions Offset Inflation.
Speaker Change: Movement to patient care solutions on flight 8. Organic revenue was up 2% year over year, driven by backlog execution. Following 9% growth in the prior year.
Speaker Change: So I'm an even moreigen increased 10 basis points year a year with improved productivity. The team has reduced past two backlogs throughout the year driven by lean principles to increase capacity.
Speaker Change: These actions will allow for greater fulfilment flexibility in future quarters.
Speaker Change: Moving to pharmaceutical diagnostic on slide 9, we delivered another solid quarter, generating 7% year-over-year organic growth driven by healthy procedure volumes, and we delivered even margin of approximately 31%.
Speaker Change: We're pleased with the continued growth contributions in margin expansion in this segment. As well as the progress we've made in expanding our capacity and pipeline investments.
Speaker Change: We're encouraged by the recent CMS reimbursement proposal and the potential for patients to have access to important diagnostic scans and U.S. hospitals.
Speaker Change: This increases our confidence that our proprietary molecules, like that scan, visible, seriana, and flercado can be grown drivers for the company over time.
Speaker Change: with their proposed payment rules finalized. We expect to see accelerated utilization of pet diagnostics and potentially an increase in the overall penetration rate for pet diagnostics versus other alternatives.
Speaker Change: During this slide town, we'll have to attach flow. We delivered strong free cash flow of $651,000,000,000 up to 81,000,000 year over year. We saw progress in driving working capital management efficiency.
Speaker Change: We're improving our Accounts Fable Processes, and we saw strong collections in the US and PDX Business year over year.
Speaker Change: We have a great example of lean in action on inventory management and material processes at one of our key imaging sites.
Speaker Change: The team held a Kai Zen and identified opportunities and implemented changes to reduce the lead time from staging through shipping, leading to approximately $4 million of inventory savings.
Speaker Change: Again, this is just one of the many examples taking place in our facilities around the world.
Speaker Change: Looking ahead, in line with seasonality, we expected delivers strong free cash flow in the fourth quarter, which is typically our highest revenue and cash generating quarter.
Speaker Change: Now, let's start to our outlook on flight 11. We expect full year 2024 organic revenue growth to trend towards the lower end of our 1 to 2% guidance due to the continued China market softness.
Speaker Change: Based on this trend, we expect to see limited market benefit from China's stimulus through the first half of 2025.
Speaker Change: As a result of our strong, margin performance year-to-date.
Speaker Change: We're raising the low end of adjusted, even margin guidance to be in the range.
Speaker Change: 15.8 to 16%.
Speaker Change: reflecting expansion of 70 to 90 basis points versus 2023, adjusted even margin of 15.1%.
Speaker Change: As a relates to our financial assumptions, we're trending towards the lower end of our adjusted tax rate range of 23 to 25%. Given some additional tax incentives, we're recognized in the third quarter of 2024.
Speaker Change: We also expect the revenue had went from foreign exchange to be less than 1.5% in 2024.
Speaker Change: and with increasing confidence and our ability to grow the bottom line, we're raising the low end of the range of adjusted EPS guidance by five cents. Now, to four dollars and twenty five cents to four dollars and thirty five cents per share.
Speaker Change: This reflects Euro-Veir grove of 8 to 11%.
Speaker Change: We continue to expect free cash flow for the year to be approximately $1.8 billion.
Speaker Change: With that, I'll turn the call back over to Pete.
Peter Arduini: Thanks, Jay. We're excited to talk to you about all of the growth opportunities ahead at our investor day in November. But today I'll highlight two of these opportunities.
Speaker Change: We recently announced for Cato, also known as Pupyrdaz. This is the first to knowling FDA approved F-18 pet, BioCardial Prefusion Imaging Tracer, for patients with coronary artery disease.
Speaker Change: It's been called a gain changer by some cardiologists because of its improved diagnostic accuracy compared to traditional spec imaging. And its half-life is significantly longer than the most commonly used cardiac petraseers.
Speaker Change: Percado will become commercially available in the U.S. in early 2025 and we believe it will provide a meaningful impact for clinicians and their patients.
Speaker Change: I won't go deep into the details now. We'll do that at Investor Day. But to give you a sense of the opportunity, we estimate that there are around 6 million myocardial perfusion imaging procedures per year in the U.S., of which we believe PET MPI makes up about 5 to 10 percent.
Speaker Change: Revenue will ramp over time and we're working with health care providers to build out the capacity required to enable greater access to PET for cardiology.
Speaker Change: We see an opportunity for revenues of greater than $500 million annually from this one proprietary molecule once the health system infrastructure is in place.
Speaker Change: We're excited about the opportunity for Frucato and for other radiopharmaceuticals, given the significant advancements we're seeing in this space, as well as the potential changes in reimbursement that will drive more personalized care.
Speaker Change: Additionally, we're investing in new AI and cloud-based solutions to better serve our customers who face data overload and widespread operational inefficiencies that drain their resources.
Speaker Change: We recently announced our latest advancements at Health, a premier technology event in Las Vegas, including Care Intellect, an offering of generative AI-powered clinical and operational applications.
Speaker Change: It streamlines patient data from multiple systems into a single view to help optimize care delivery and quality across disease states.
Speaker Change: We also shared several research projects that seek to address pressing care needs and reduce cognitive and administrative burdens on clinicians.
Speaker Change: We continue to invest in AI and cloud innovations that will drive future reoccurring revenue.
Speaker Change: which we'll talk more about next month.
Speaker Change: Thank you very much.
Speaker Change: In summary, we delivered positive sales and orders growth in the quarter, reflecting strength in the U.S. and solid PDX revenue performance.
Speaker Change: with approximately 5% sales growth and 4% orders growth, excluding China. We'd see a healthy capital equipment environment.
Speaker Change: We're confident in the fundamentals of our business, supported by our innovation and our pipeline, as well as our strong backlog.
Speaker Change: The team's focus on Lean to improve the customer experience and enhance productivity has allowed us to deliver strong bottom line results.
Speaker Change: As we enter the final quarter of the year, our expectations for 2024 on the top line reflect the China market dynamics, and with continued bottom line expansion driven by our team's strong operational focus and execution.
Speaker Change: With that, we'll open up the call for questions.
Speaker Change: Thank you, Peter. I'd like to ask participants to please limit yourself to one question and one follow-up. Operator, can you please open the line?
Speaker Change: Our first question.
Speaker Change: comes from the line of Robbie Marcus of J.P. Morgan. Your question please, Robbie.
Robbie Marcus: Oh, great. Good morning. Thanks for taking the questions.
Robbie Marcus: Two for me. One on margins, one on China. Maybe to start with margins, another good quarter with upside on operating margin, drop that through to EPS. I guess the question is really around the line of sight. How much of the low-hanging fruit has been picked already?
Robbie Marcus: today, and what's your line of sight to future operating margin expansion as you move into the next phase of separation?
Speaker Change: Sure. Robbie, overall.
Speaker Change: margins have trended well. As we commented and as you can see in our financials, EBIT margin is roughly up 70 basis points on a year-to-date basis.
Speaker Change: and gross margins up about 130 basis points.
Speaker Change: So we feel really good about the initiatives that we have and the operational focus on expanding margin. And I'll remind you, all of this is done against lower sales volumes than we expected at the beginning of the year.
Speaker Change: and, frankly, as we look at what we've delivered on so far this year, you know, it's about that pricing that we've talked about historically, largely in line with what we've previously expected. We've talked about variable cost productivity initiatives that have more than offset inflation.
Speaker Change: And then we also have general savings initiatives we put in place that yielded a result.
Speaker Change: I would say that, you know, one thing that we did at the midpoint of the year, you know, when we saw a little bit more of a challenging revenue environment, we wanted to make sure we had the right cost profile for the business in place.
Speaker Change: to support delivery of our earnings. So we put some incremental savings initiatives in place. We're really pleased with what we've been able to do on this front. So you can see the really good progress in the financial results. But I think as we look forward,
Speaker Change: We also have a very good line of sight to future margin improvements. And I would say we're really excited to share some of this.
Speaker Change: at the upcoming Investor Day, kind of how we're thinking about the long-term margin profile.
Speaker Change: As we look forward, you'll see some of the continued themes, continued focus on pricing, continued focus on productivity initiatives.
Speaker Change: But what's going to supplement it as we move into the future is first, you know, this idea that as we come off the transition service agreements, which has been a very significant effort this year, and we expect to principally conclude it this year, it does allow us to pursue a number of new initiatives that we've been unable to to date.
Speaker Change: The second thing that you'll start to see in the future is the benefit of all of these R&D investments that we've made. We are launching differentiated products, and we'll start to highlight that for you. And that has with it a real customer interest in those products, so a revenue growth element, but also a margin element as well as we look at things like platforming. So the complexion changes a little bit, but what I would say is we have a long way to go on margin, and we also have very good line of sight to what we're trying to achieve.
Speaker Change: Great. Maybe one on China, which was down over 20% in the quarter, and we're seeing this across the board with your competitors.
Speaker Change: I guess the question is really how do you think about the forward trajectory of China? Like you said, ex-China business grew 5%. That's where people are sitting for the total company for next year.
Speaker Change: what's your visibility into the current trends in China and any stabilization and improvement? And how do you think about China as we move into next year? Obviously, that'll be the biggest lever on sales growth, I imagine. Thanks a lot.
Speaker Change: Thanks Robbie. Maybe, maybe I'll kind of...
Speaker Change: expand a little bit on this so we can kind of address because I'm sure other people have questions on this maybe in
Speaker Change: and one question between Jay and I. We'll go a little bit through this and then have time for other topics. But look, as we said, I think the China market has been slow to recover. I mean, we were pretty clear about this back in July as well.
Speaker Change: And as we mentioned on the call, stimulus funding coordination, I would say, is taking longer. So customers are still delaying normal purchasing.
Speaker Change: And again, this is impacting the overall growth in China market in the near term. I would say program details.
Speaker Change: for many of the 31 providences are now available and we stay closely connected with the local markets as we have a large team on the ground there. I think we have a pretty good understanding of how things are evolving.
Speaker Change: And as I said in our prepared remarks, and we see it today, you see limited market improvement, really going out through the first half of 2025. And so, you know, the question might be, well, how do you think about that? And I'll say we think about it in four steps, particularly in capital equipment, which is
Speaker Change: This first part is...
Speaker Change: you know, are funds released, are funds set up? And so, yes, there are clarity about certain tenders, but where the funds are and are they released hasn't been fully communicated. And then you move into actually kicking off the tender process itself, where is it going to be multiple awardees, single, whatnot?
Speaker Change: then you actually have the awarding of them. So hospitals find out which products they're going to get and in many cases most of these products have an installation process, right? There's power, building setup, and things of that nature that have to take place and then they're installed and the sales takes place.
Speaker Change: When we look at that sequence of things, that's when we basically say we see limited recovery relative to what one would see in sales in the first half of 2025.
Speaker Change: That all being said, you know, we believe it's a temporary challenge, and again, over the mid- to long-term,
Speaker Change: We think China market is going to be obviously a very attractive market. All during this time, the need is not going away. The actual demand is still being pent up, all right? Nothing has changed from that standpoint.
Speaker Change: Well, we're just taking a pragmatic view until we really see change happening. Jay, maybe you can add a little bit more details here about how we thought about the guide and how we look at how this all works.
Jay Saccaro: Thank you for having me. Sure.
Jay Saccaro: So when we gave guidance in July you'll you'll you will all recall we we reduced guidance roughly 400 to 600 million dollars at the midpoint 500 million related to China on the sales line and that correlated to our total company guide of one to two percent.
Jay Saccaro: Our view today is within the range of outcomes we expected, but it's just at the lower end, at approximately 1%.
Jay Saccaro: Year-to-date sales in China are down 17%, and we now expect China to be down high teens for the full year.
Jay Saccaro: And so what that means is it's closer to that $600 million impact. When stimulus starts to come through, it will be a positive development, and we think we're well positioned to benefit, but timing that is something that we don't want to get involved in.
Jay Saccaro: As we as it relates to when the rebound takes place in China 25 like at this point I would say we expect limited benefit from the stimulus through the first half of 25. We'll watch this very carefully in the coming months leading up to giving guidance in February.
Jay Saccaro: So, I mean, in essence, you know, we've taken
Jay Saccaro: fundamentally the effects of the China discussions out of how we are thinking about
Jay Saccaro: the guy, we're keeping a very close watch on the marketplace.
Jay Saccaro: And obviously, we're really well-positioned when the stimulus finally comes through and the market comes back. At the same time...
Jay Saccaro: We've had tremendous growth in the United States. We've got great things happening in other markets within Southeast Asia. We see growth being able to be positioned well to continue to accelerate in the rest of, say, in Europe.
Jay Saccaro: And again, at Investor Day, what we're super excited about is to talk to you about, you know, the big three in our world, which is where Radio Pharmaceuticals is going, the new products that we have coming out in categories where we might not have had a leadership product that we will in the future.
Jay Saccaro: and then digital and AI. So it's the combination of all of those pieces together, but I'd say China as we see it today, I think we've kind of articulated our views on it.
Speaker Change: Appreciate it. Thanks a lot.
Speaker Change: Thanks Robbie.
Robbie Marcus: Thank you.
Speaker Change: Our next question comes from the line of Ryan Zimmerman of BTIG. Your line is open, Ryan. Yeah, thank you. Good morning, everyone.
Ryan Zimmerman: speak with you this morning. So I appreciate the commentary on China and the margins. I actually want to ask about for Cato a little bit.
Ryan Zimmerman: You know, Pete, appreciate the comments.
Ryan Zimmerman: kind of put around it.
Ryan Zimmerman: I'm curious, there's been a lot of questions from investors around pricing of Florcado.
Ryan Zimmerman: relative to maybe rubidium-82 and when I do the math it kind of lands somewhere in that 2 to 3x
Ryan Zimmerman: range relative to where Rubidium is coming in at. And so I'm just curious if you can comment a little bit more about how you think about, you know, pricing that product given its features, its half-life, etc., you know, as a premium to what's out there in the market today.
Speaker Change: Yeah, thanks Ryan for the question. We're not ready to talk specifically about the pricing. We will be in the not-too-distant future, but needless to say, to your point, for a product that brings
Speaker Change: better specificity sensitivity than PREDICATE and SPAC.
Speaker Change: bring significantly better operational capabilities.
Speaker Change: and Economics versus the other.
Speaker Change: pet agents that are there, in that case, you know, ammonia or rubidium.
Speaker Change: We believe the product clearly deserves a premium. And we're also, as you can imagine right now, since we have approval, you know the normal process here of working with CMS.
Speaker Change: and other payers could be able to be positioned that way. We'll be going through a pass-through indication as well, which...
Speaker Change: should give a multi-year hire window, see how all of that plays out. And then there's the backdrop here of Beyond the Drug itself is the
Speaker Change: is the perspective outpatient payment structure, which will reimburse these agents separately. So there's a lot of good tailwind components on it. But as I mentioned on the call, I mean, the most important words one hears when you're in this seat is when one of your customers says, I think this is a game changer.
Speaker Change: And that's what's super exciting here about this for patients.
Speaker Change: at the fact that, you know, perfusion studies...
Speaker Change: fundamentally haven't had many new innovations in forever.
Speaker Change: And so this has the opportunity to really, you know, make a difference from that standpoint.
Speaker Change: And as we mentioned on the call, you know, if you take a look at this, there's about 6 million myocardial perfusion studies that are out there today.
Speaker Change: that are done on spec. And you typically have to do a rest study, and then you have the patient exercise or do stress, and you compare the heart perfusion at rest and at stress.
Speaker Change: And so that means there's two doses, there's a dose at stress and there's a dose at rest.
Speaker Change: are vice versa, and so each of those doses, obviously.
Speaker Change: have economic value that's associated with them.
Speaker Change: So we, you know, we feel quite good about it. We've got work to do yet to kind of get to the launch play. We've got the work to do here in the rest of the year.
Speaker Change: But, you know, we're on track to what our plans are, which would be really out into later part of Q1 to be in a position to be able to launch the product and have clarity on reimbursement.
Speaker Change: Okay, very helpful. And then, you know, for Jay,
Speaker Change: Part of the algorithm for 4G has been price. You know, the market's growing 2-3%. You've kind of always articulated an assumption of 1-2% in price.
Ryan Zimmerman: I'm wondering if you could comment, Jay, about your assumptions, you know, going into 25, on price, the durability of that, you know, within your customer base, and just how we should be thinking about your ability to get price going forward.
Jay Saccaro: As I mentioned moments ago, we saw a positive sales price in the quarter along the lines of what we expected on a year-to-date basis, prices trending well.
Speaker Change: and I think really what this comes down to and what we're incredibly excited to talk about when we meet with you all is new products being a key catalyst for this.
Speaker Change: You know, we've invested very significantly in R&D over the last several years. And so, as you support your customers with new and innovative devices,
Speaker Change: and new and innovative solutions, price follows. And that's something that we've seen, we've been able to deliver on. So we feel very good about pricing and overall margin related to new products going forward.
Speaker Change: And I would say, you know, Ryan, what we're getting better as an organization to do, and I'll make a call out to Katrine and our U.S. organization about really being able to help the customer understand return on investment.
Speaker Change: You know many of our products and many of our institutions are completely maxed out with procedures And so you buy a new product and yes, you may pay a hundred grand more from it from us than maybe someone else But you can act literally have it paid for in under 18 months
Speaker Change: and you're going to have this then for another six to seven years.
Speaker Change: and the question then is does it really maximize the value for your patients?
Speaker Change: Does it really actually have the uptime? Does it have the added features to deal with it?
Speaker Change: that's in cardiology structured heart or.
Speaker Change: Oncology, and so we're getting better at that and ultimately being able to sell value to go that direction.
Speaker Change: which is why gross margin for us on actually the cost input, but on the value side is an extremely important metric for us. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Joanne Wunsch of Citi. Your question please, Joanne.
Joanne Wunsch: Good morning and thank you for taking the question.
Joanne Wunsch: I'll put them both out front. You gave us the number that you think that Placardo could contribute $500 million once the infrastructure is in place at the hospitals. So I'm curious, what does it take for the infrastructure to be in place? Is this structural? Is it human resources? Something else?
Joanne Wunsch: And then for my second question, can you give us an update on how VisitMill is doing? Thank you.
Speaker Change: Yeah, maybe I'll take the first part and then maybe you can you can touch on Visumal. You know, look, the first part is Forcato is a agent used in PET scanners. I think most of most of the folks on the call understand that a lot of PET has been around oncology applications.
Speaker Change: So if you look in your normal hospital or clinic, the majority of where you're going to find PET has traditionally been in oncology. And there's a lot that's growing on there. I mentioned Theranostics on the call. If you think about PSMA, think about breast cancer. So those systems are getting heated up.
Speaker Change: I think in the initial areas there are certain cardiac centers that have had PET systems prior to this where they've been using other agents. Those will be the first areas that have the infrastructure in place.
Speaker Change: But the point being is is that some customers are going to need to acquire a PET system and have it in their cardiology area to kind of effectively run. We would expect in certain institutions there will be shared use systems.
Speaker Change: But obviously, for a company like us that actually makes the radioisotopes and actually makes the imaging systems, makes the digital tools to integrate all this together, there's actually a really interesting opportunity to not only have the agent sale, but also have capital equipment sales that
Speaker Change: will be part of this. You know, the ramp, I think we're still trying to understand how fast it could be.
Speaker Change: You know, we quoted, you know, when it's in place, over a half billion dollars. Obviously, if you converted all of the business, it's a significantly larger number, but...
Speaker Change: We're not ready to call that at this point in time, but we feel pretty good about it. And again, it gets back to ultimately the difference it can make for a patient and the economics it can mean for our customers to deliver that. This has great economics and it has great outcome for patients. Typically, when those two things happen,
Speaker Change: Yeah, you have a winner on your hands, and that's how we feel about Mercado.
Speaker Change: Thank you.
Speaker Change: And then as it relates to Visamel, we continue to see encouraging progress with Visamel sales in the U.S.
Speaker Change: are sales in the U.S. nearly doubled.
Speaker Change: again in the quarter over quarter. So very, very robust growth rates.
Speaker Change: Our, you know, our approach in Alzheimer's really is about supporting the continuum of care across diagnostic therapy planning, delivery, and monitoring. And also, you know, this area will benefit from the CMS ruling, which we expect to pass. It should also help accelerate this.
Speaker Change: It's still early stages in this area and the patient and the therapy journeys are still in the very early stages But we remain really excited about this opportunity long term And this is another one that we'll highlight at the upcoming investor day And I think Joanne you know this to Jay mentioned in his prepared remarks
Speaker Change: With the reimbursement changes that are coming, you can take these innovative products, some that we've already had in our portfolio and some of these that are new, and now they can be reimbursed or paid for at the value they should be.
Speaker Change: So something that might have only been getting $200 for a customer could get a tenfold increase in reimbursement aligned to that, which then changes a customer's thoughts about how many procedures you can use this for.
Speaker Change: In many cases, you know, a product for like Parkinson's or DAT scan that we've had for some time, which has been successful, can be used more widely because the economics make sense. Or a product like Seriana.
Speaker Change: for breast cancer, which is.
Speaker Change: clearly a product that's indicated that delivers better diagnostics, but it's been tough because of the economics that could change as well. So again, all of these we think are positive and all of these products have higher gross margins than the rest of our portfolio. So the mixed benefit that will come through with these as well is quite positive. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of David Roman of Goldman Sachs. Please go ahead, David.
David Roman: Thank you and good morning everybody. Before I ask the question, I just want to thank you for all the very helpful disclosures on the recast of the business segmentation with all the supporting detail. It is very helpful and appreciated.
David Roman: Maybe just jumping in as a follow-up to what Pete, what you just walked through here on GE's capacity to operate across the entire spectrum within pharmaceutical diagnostics.
David Roman: Maybe you could help us just by deconstructing that business a little bit into its components around capital or capital related items including software and service, how much of that is on the radio tracer side or radio pharma side and how we should think about the different
David Roman: growth levers in each of those pieces and I had a follow-up on the P&L.
Speaker Change: Yes, it's a really good question, David, because unlike most pharmaceutical businesses where, you know, it might be an injectable or an oral sale,
Speaker Change: These are a little more complicated. And I say complicated in some ways.
Speaker Change: that they have to come together in concert with other items, but also in such a way that, you know, from generics or other folks coming into it, you have to actually have the infrastructure. So in the case of these, to remind everyone, they are radioactive agencies.
Speaker Change: how you actually make them, how you deliver them as a very select set of expertise to be able to do that, which we have. And so again, I think at the highest level,
Speaker Change: This first part is, you know, a proprietary molecule portfolio which we have that touches in oncology. That's going to be a beneficial tie to what's happening in this field of theranostics. Again, the ability to actually
Speaker Change: see what you treat and treat what you see. In the neurospace, we talk about visimil and Alzheimer's. That's a radiopharmaceutical tracer, again, to help highlight amyloid beta plaque, or in the case of DAT scan, the ability to actually help understand and diagnose Parkinson's.
Speaker Change: and then in the cardiology side is for CERDAS. So we actually have kind of the...
Speaker Change: the trifecta of different areas here for products. Then you take a look at and you say the reimbursement environment.
Speaker Change: hasn't been the greatest in the U.S.
Speaker Change: has the potential here to evolve. Hopefully, we're going to hear more about the rulings in the near term. We feel pretty good about that, but that will enable those to be paid at.
Speaker Change: effective levels. The other side then is the equipment that these are used into to be able to image. And so we make PET, PET-CT, PET-MR.
Speaker Change: We haven't spoken that much about it most recently, but our Star Guide spec camera is really one of very special product that actually can be used to actually stage some of the therapy drugs in combination.
Speaker Change: That's a critical component to enabling a theranostics study, and what I mean by that is if you don't have a camera like ours, that patient study could take an hour and a half versus ten minutes, and then all of a sudden you don't have a workflow solution. We have that whole package. And the last part is the digital integration.
Speaker Change: and so we bought this company just a...
Speaker Change: a little while ago called MIM.
Speaker Change: fantastic group of individuals, great technology, in the top strategic and most advanced institutions around the world, and we're adding artificial intelligence into it and capabilities. And so what does that product do? It helps you be kind of at the command center, if you will, of how the dose is to that patient, how the product's working. So you have to have all those together.
Speaker Change: and the short answer is we do.
Speaker Change: And so for a customer that's looking into buying parts of this, if they can work with someone like GE Healthcare who has the commercial and technical team that can bring you the whole solution, most likely customers are more willing to come to you and look to your expertise to help implement that. And that's ultimately what we try to do is to help customers.
Speaker Change: solve their solutions and help them implement it broadly.
Speaker Change: That's really helpful. And then, Jay, on the P&L, I know you'll provide 2025.
Speaker Change: guidance at a later date. But as we kind of think about building the building blocks to next year, we appreciate the comments around.
Speaker Change: China's stimulus, but as you look down the income statement you've had this giant step up in R&D that looks to maybe that starts to normalize to more sustainable growth rates.
Speaker Change: SG&A has been well managed, but are there any one-time things that may have occurred this year like rebasing of incentive comp because you're going to come in below the top line that we need to consider in next year and anything that you want to call out for us at this point in time as we think about updating our models into next year?
Speaker Change: Thank you.
Speaker Change: Sure, and David, by the way, thanks for your comment on the recast financials. I know that there are a lot of finance and accounting folks and legal folks from GE Healthcare listening and who put a lot of work into that, so we appreciate that.
Speaker Change: As you think about next year, P&L is stopping short of any guidance.
Speaker Change: One key variable is this China factor.
Speaker Change: To your point, and I've said this in the past,
Speaker Change: R&D has been growing at a significantly higher rate than sales.
Speaker Change: At some point, it will grow in line with sales and we will get closer to that.
Speaker Change: next year.
Speaker Change: And then from an SG&A standpoint, you're right, incentive payouts when sales are off are lower, but it's more of a variable compensation thing. It kind of moves with sales. So as sales moves up, that category moves up. I don't expect to see a very dramatic one-time step-up next year as a result of reduction this year. So I think the items that you characterize are the right ones, and we'll construct the rest of it leading up to guidance in February.
Speaker Change: Great. Appreciate you taking the questions.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line...
Speaker Change: of Larry Bygelson of Wells Fargo. Your question, please, Larry.
Larry Bygelson: Good morning. Thanks for taking the question. Morning. I just wanted to follow up maybe a little bit on David's comments. What's the message on 2025, given your China comments of limited recovery through the first half or limited benefit, I think, from the stimulus in the first half of 2025?
Larry Bygelson: I'm asking because the comps get easier for China in the first quarter of 2025, you know, it's declining the first quarter of this year, so is the message on China that it declines or grows in 2025? And how does that impact the mid-single-digit top-line growth and margin progression?
Larry Bygelson: next year. And I had one follow-up.
Speaker Change: Yeah Larry, I think we'll stop short of giving guidance for next year because you know I think what we've seen is there's a lot of volatility in that market in particular and so we're going to wait for a lot to gather a lot more information before we give guidance in February.
Speaker Change: As it relates to mid-term guidance, we feel very good about mid-term, compounded, mid-single-digit organic revenue growth.
Speaker Change: and in a capital business some years are above as we saw in 22-23, some years below as we saw in 24, but on balance we've been able to execute on this mid-single-digit growth and we look forward to talking to you more about that at our investor day.
Speaker Change: You know, from a margin standpoint, we feel very good about what we've been able to do in 2024.
Speaker Change: delivering at the high end of the range despite a low-end revenue guide.
Speaker Change: And, you know, the pipeline for margin looks really good in 2025 and beyond.
Speaker Change: And so, you know, that's kind of what we're prepared to say in terms of the outlook for the company.
Speaker Change: And as it relates to 25, it's more wait and see to see how this market does.
Speaker Change: We think long-term, China represents a really good and attractive market for GE healthcare. We've been there a long time. We've been manufacturing there over 30 years. So it's a robust environment. But proving, you know, sort of anticipating the timing of this recovery has proved to be a really challenging forecasting exercise. So based on all that, we're going to be conservative when we give guidance, as we typically are. And, you know, we're going to be thoughtful and incorporate all the information. We'll get a lot more information in the coming months.
Speaker Change: And then the last thing I would say is, you know, looking at things over time, we feel very good about the Margin Expansion Plan, so that's something that, you know, I think we've been intensely focused on and we've been able to deliver on margin despite a wide range of outcomes on revenue as we've seen.
Peter Arduini: Pete, what would you add to that? I think you hit it. And Larry, as you know, we've got our investor day in less than a month here in November on the 21st.
Pete: I think we're going to try to lay our case out here on what we've got for top line growth over the next three years, which.
Pete: you know, fundamentally, as you guys all know, in this industry.
Pete: It takes some time to be able to execute on some of the programs, and we feel super good. One of the goals is to show you what we've done with the R&D money, which is the NPI pipeline.
Pete: in areas that you would expect and in areas that I hope you'll be impressed with. It's going to open up new growth areas for us within our portfolio. How we're evolving the digital and AI front, and again, not only just in inside the products, but products by themselves that are digital in nature.
Pete: and then this whole radiopharmaceutical piece. And to me, it's those three levers that are going to help us really around the world, but particularly in some of the Western developed markets where precision medicine is becoming and adopted at a faster rate.
Speaker Change: That's very helpful. Just to get a quick follow-up, Jay, can you confirm the implied Q4 organic growth is slightly above 2% based on the new guidance, and what gets better in Q4 versus Q3, and the confidence in the sequential ramp in dollars from Q3 to Q4? Thank you.
Speaker Change: Yeah, so
Speaker Change: SIRCOR came in as we expected.
Speaker Change: you know roughly one percent.
Jay Saccaro: The fourth quarter we do reflect the China dynamic. Fourth quarter is typically our strongest quarter of the year from a volume standpoint. I think last year we had a $400 million step up from 3Q to 4Q. We're expecting, I think, roughly similar levels as we look at the numbers this year, maybe a little bit more. And how are we going to get there? It's about continued strength in our PDX and service business.
Jay Saccaro: Those things will step up in the fourth quarter. We've made a lot of positive comments about the U.S. market. We expect that to continue.
Jay Saccaro: And then, the last thing I would say is...
Jay Saccaro: We do have an analytic that we put in place.
Jay Saccaro: each of our quarters, looking at conversion of backlog, looking at what's repeatable, recurring revenue, backlog, and then how much do we need to sell and install in the quarter.
Jay Saccaro: and so just to walk through that very briefly, about half of our revenue is related to recurring items, notably service and PDX. And we have a very good line of sight in that area.
Jay Saccaro: The remaining half is equipment-related, and equipment-related comes down to two pieces. How much are you counting on from the backlog, and how much are you counting to sell and install in the quarter?
Jay Saccaro: From the backlog, we're over 75% secured, as we say, at this point, which is very comparable to historic rates, and we feel, you know, good about that component.
Jay Saccaro: And then the other piece is how much do you sell and install in the quarter? And as we look at the funnel and anticipated conversion to orders and to sales,
Jay Saccaro: We'll expect to see conversion rates similar to what we've had in the past.
Jay Saccaro: and so nothing nothing dramatic in terms of trajectory differences and all of that yields that roughly 2% revenue growth in the fourth quarter. So there's a lot of different ways to look at it but that's one detailed way that we go through it when we feel good about the fourth quarter.
Speaker Change: Thanks so much.
Speaker Change: Thank you. Our next question comes from the line of Vijay Kumar of Evercore. Please go ahead, Vijay.
Vijay Kumar: Hey guys, thanks for taking my question.
Vijay Kumar: I guess, Pete, I have two product-related questions. The first one on fluorocarbide, you know, just given all the comments you made, right?
Vijay Kumar: Is there any reason to think why, you know, half of all NPI procedures in the medium term can't flip over to this, you know, floor-to-floor desk, and it's better for patients, better for hospitals, better for supply chain?
Vijay Kumar: I'm just trying to think what the hurdles are.
Pete: Yeah, VJ, I agree with you. All of the right components are in place. The biggest piece is, are there enough PET systems in the right locations, is probably the biggest driver.
Pete: So, you know, you could clearly see a step up in the locations where they have the product.
Pete: again, product, where they have the PET system in place.
Pete: But then it takes some time. Let's just assume a customer says, gee, I really want to go all in on this.
Pete: and they give us orders here in the next month to buy the systems, you know, you're still with a pet room being prepared and installed and stuff in an area you're six to nine to twelve months out. And so that's probably the biggest piece. But again, over a horizon of three to five years.
Speaker Change: I think, to your point, there are clear scenarios where you could have a much, much higher percentage of conversion. But we're just trying to be pragmatic at this point in time on how we frame this up.
Speaker Change: That's helpful, Pete, and maybe one related one here is when you think about the system side, right?
Speaker Change: Could Floricardo be a driver for tech systems for you guys? I know
Speaker Change: on, you know, when you look at systems outside of PEP, I think you'll want this AI product on the MRI side. Are we seeing any shared gains on the system side that could see healthcare fundamentally emerge in a much stronger position on the system side?
Speaker Change: I think the answer is yes you could clearly see this as a driver and again I think it's for us I think it's for the whole the whole category that this will actually have an effect and the question is well why if you think about pet imaging forever
Speaker Change: It's been FDG, so fundamentally a generic face tracer that can be used primarily for broad oncology procedures.
Speaker Change: now you're getting more personalized, specific molecules that are tied to a given disease state. And so all of a sudden, you know, the use of PET, again as I mentioned earlier, in neuro procedures for Alzheimer's and cardio for like
Speaker Change: for cardio-coronary perfusion, or an oncology as it's been used, but more specific.
Speaker Change: which will drive that. So we're quite excited about it, and I would just say for our team, which is in molecular imaging,
Speaker Change: in Rowan's business, and...
Speaker Change: the teams. They've done a really nice job. We have a platform that actually is very scalable, it's upgradable in the field, and we also think we have a distinctive capability that...
Speaker Change: that's going to enable us to do.
Speaker Change: some early types of evaluation in this space that other products in the market can't do.
Speaker Change: So we'll talk more about that on November 21st, but.
Speaker Change: Yeah, we're quite excited about this combination of new agents.
Speaker Change: reimbursement for the agents and then the equipment that's integrated around it both digital and and the hardware and think that's going to be a growth driver for many years to come.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Sezgi Oizanay of HSBC.
Speaker Change: Your question please, SESG.
Speaker Change: Hi, thanks for taking my question. One, on the revenue classification, please, thanks for the information. It should be. I'm really sorry, we can't hear you at all.
Speaker Change: Is it better now?
Speaker Change: I think that's about it.
Speaker Change: Oh, is that Jackie?
Speaker Change: I'm sorry, actually, we are on our next question, which comes from the line of Nivan Tai of BNP Parva.
Speaker Change: Your line is open, Nevaeh.
Speaker Change: Hi, good morning. Thanks for squeezing me and following up on China. So we understand there is no visibility So which of the four steps you described are we in now in q1? I'm sorry in q4 and what visibility do you have into the first?
Speaker Change: half in terms of tender activity moving into the execution phase. And then on FIRCADO, can you detail what you have to do ahead of the launch in late Q1 and which U.S. markets will you target initially? Thank you.
Speaker Change: Thank you.
Speaker Change: Yeah, I think we've kind of covered the China part and you know the four parts we're kind of in the first step here.
Speaker Change: which again is, we see a lot of activity coming together.
Speaker Change: The funds haven't been released or the tenders haven't been opened, but it's kind of the step one.
Speaker Change: And relative to Furcado, I think, you know, as far as the work that has to be done, we have the FDA approval.
Speaker Change: We're working here in the United States with CMS and what's called the MACS for the reimbursement process.
Speaker Change: and we'll be working with selective countries around the world to do the same thing. So that's the combination of the work.
Speaker Change: as well as our normal ramp-ups for commercialization, training of our teams, positioning, all of those things. But much of that's in position, and we would suspect that we'll be commercializing in late Q1 if everything plays out how we think. Thank you for your question.
Speaker Change: So I think with that,
Speaker Change: We're going to wrap up, I think. And so, again, thank you all for joining us today. Appreciate all of your interest. And we look forward to hopefully connecting with all of you in the coming days at our Investor Day, which is just around the corner here at NASDAQ Marketplace in New York on November 21st. Thank you.
Speaker Change: Thank you for watching.
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