Thank you everyone for coming. It's my pleasure to introduce the GE HealthCare team here. My name is Michael Klem. I'm a member of the investment banking team. But without further ado, I'll hand it over to Pete Arduini, and then Jay Saccaro, the CFO, will be here for Q&A afterwards. So, Pete?
Thank you. Hello, everyone, and it's great to be here at JP Morgan again. A little bit of rainy weather, but it's great to be here. Again, I'm Peter Arduini, the CEO of GE HealthCare, and we'll spend a little bit of time talking about our journey. Many of you may or may not know, this is our first full year out as a, after completing a spin last year on January 4. So, it's been a great year, and we'll talk a lot about some of those actions that we've taken and the directions that we're headed on. One of the things I would just mention is our purpose as we focus broadly, is to...
We say, "Create a world where healthcare has no limits." And at its largest scale is a bold message, but deeper underneath the edges of that, it really gets into the fact that what we're focused on across the care continuum is focusing some of those larger challenges that our customers have that ultimately affect patients, and teaming up with them to be able to address that. Many of you may or may not know from our imaging platforms and surgical and OR platforms, we touch most of the disease states at some level, up front in the diagnosis, in the actual operation or interventional component, and more and more span that care- pathway, and we'll talk a little bit about what that actually means. So, at a glance, you know, we're a company of over $18 billion in revenue.
You know, a high percentage of our sales, over 50%, is outside of the United States. We have a very large installed base of 4 million pieces of equipment, and we touch about a little over 1 billion patients a year on our products, and so a very large platform to build off of. And we've been focused heavily on integrating of those products, and a lot of that is, as all of us have seen in different industries, as well as healthcare, is the effects of AI. And we've been a leader of integrating artificial intelligence into our products. In fact, we have about 58 products that are authorized by the FDA that are approved for actually being used within the clinical pathways.
We'll talk a little bit more about that and what that means for our journey for the future as a traditional hardware company becoming more and more of a software and AI-led organization. It's been a strong year. You know, for those that have been through spins or watched spins, it's a little bit of a blur, but it's been a great blur. We've delivered on our goals and really set us up well for the next few years. You know, I'd say here, as we say, through the third quarter, you know, we've delivered on our commitments here. Had a very strong overall mid-single-digit- plus growth year from a revenue standpoint, expanded our EBIT margins. In fact, we actually raised twice during the year.
What's super important in this business, as many of you know, is the ability to invest appropriately in R&D, which we've actually been bringing up over the past few years, and now believe we're at the appropriate level. But while doing so, we also increased our adjusted EBIT margin. And I think that's a critical point here, that we're able to actually, through optimizing the company, be able to bring back and increase our EBIT margins while also increasing R&D. 40 innovations we'll talk about that came out. Those products, many of them have a three-year peak year sales, so when they come out, they're generating day one, but they also start increasing year-over-year, which is obviously critical for our continued growth. We're well on our way on our transition service agreements from the mothership at GE.
2024 is an important year, and 2025, but we'll be kind of finishing a lot of those up. And we've made great progress building a world-class team, and not just at my staff level, but deeper in, deeper in the organization. A good mix of strong legacy folks that really know the business, as well as new individuals coming into the team. So the business itself, we run in four overall segments. You can see here, imaging, our largest business, which is about $10 billion. Things such as MRIs, CTs, X-ray, vascular rooms, PET, PET/CT, those types of products used throughout the diagnostic process. Ultrasound, where we have a number one position worldwide, in women's health and cardiovascular and other areas. Big growth area in ultrasound, very much being affected in a positive way, by digitization and AI.
Our patient care solutions business, great business, with lots of opportunity, a leading anesthesia franchise business, as well as one of the top monitoring platforms worldwide, as well as some other components in their neonatal as well as non-invasive cardiology. And then our pharmaceutical diagnostics business, which may seem rather different here, seeing from a med tech company having a pharmaceutical company. These are pharmaceutical diagnostics that are integrated as part of the diagnostic process. So if you've had a contrast injection for an image, we make the contrast agents. And a big, important part of that portfolio is what's called molecular imaging agents, which is on the rise, and we'll talk a little bit more about that. It's about a $90 billion market, growing to roughly $100 billion on these core businesses.
But with our expansion in pathways, this market TAM has an opportunity to grow much wider, particularly with our focus on AI, care- pathways, and the amount of service that, that we deliver. I would note, too, it's really important to say that about 45% of our sales are recurring sales to date, with contract-based type, support for those. With our growth in all of these different areas, particularly the ones mentioned in the brackets, we'll see that recurring revenue growth year-over-year. If you get down to what's our bigger vision of what, what difference does GE HealthCare make in the world? This is it. We're super focused on precision care....
I think for all of us, you know, all of us are uniquely different, and what's ultimately gonna make a difference for curing you, keeping you healthy, is those differences and understanding of those very early, so that the clinician, your support teams and stuff relative to a diagnosis, can really do what's most specific for you. And you think about this unique patient information, how do you get to it? We're very focused on how you bring multimodal data together. Imaging data, pathology, all the omics, histology, and lab data. And how does that come together in a way that with artificial intelligence, single- pane- of- glass, in the right instance to the right clinicians, that information is there when it's needed? As we all know, we have a lot of disparate systems in care today.
One of the great opportunities for GE HealthCare to help customers is to play that role and to bring many of these precision capabilities forward. And so how do we do that? You know, look, we talk about this in very clear terms around how we think about the different legs of the stool, and this Venn diagram touches on it. It's about smart devices and drugs, ones that are very much integrated in, cloud-enabled, integrated AI in them, that allows them to connect and talk to other products. And very much an open mindset relative to partnerships and multi-vendor capabilities. I think the days of one vendor and closed systems is obviously passed in many industries, and it's closing quickly within the healthcare world. And that's a focus for us of how we develop our products.
This idea of disease states is super important. I mean, care- pathways such as oncology or cardiology, the disease being the more specific area, maybe it's prostate cancer or it's coronary artery disease, how we actually think about and wire the company that way, to think from screening to therapy, what our role is, and to think about where our role doesn't play today, and should we partner, should we acquire, how we drive the engine. Obviously, the more complete solution you have that drives a better outcome, whether in cost or outcome or both, in many cases, drives a better value for customers, which in many cases they're willing to pay more for. That's an important part of how we start thinking about our direction forward. The really important glue to all of this is the digital capabilities.
I think cloud enablement, SaaS models for capabilities, but artificial intelligence, either integrated into the products themselves to help diagnose, to help a caregiver be more productive, or ultimately, in this mode of bringing multimodal components together and having an AI framework and foundational model that can actually help a clinician get to the right answer faster. That ultimately is where we're headed, and we're super excited about the opportunity and have made, quite frankly, very good progress in 2023 on this strategy. So innovation in our world obviously is heavily tied to products as well. This is just a list of some of the new products that we've announced over the last year. At the big radiological meeting just a few months ago, we highlighted the radiological products on here.
But we've really made some great progress where I would say, you know, just a few years ago, we were investing around $700 million in R&D. We're well over $1 billion today, and our effectiveness of those dollars has gone up. And so the flywheel effect of that, plus also outside money and grant from other organizations, has enabled us to be in a position to be well-funded to deliver on this innovation. And so there's quite a few interesting products on here that have advanced, such as PET/CT and PET/MR, and where that's headed with molecular imaging. Our whole ultrasound portfolio, which has grown quite a bit and is now being enabled by miniaturization, hand-held, as well as the integration of AI, to enable it to be used by new users, an emergency room doctor or a nurse in a different environment.
Those are all future- growth environments for us. And on the lower right, you see a color image there of some of the new tracers and agents we'll talk about in a few minutes. But in this case, that's a shot of Vizamyl on an Alzheimer's patient, and actually how the brain lights up and how that's seen. So obviously, with some of the new drugs coming out, we would expect to see that as a growth driver in the future. And then just picked a few clinical growth opportunities beyond our normal day-to-day items to say, where are some of the catalysts? Molecular imaging is one of those areas for those that have known it or been in it; it's been the promise for many years, but it's never really kind of come to be.
We're really coming into the window where molecular imaging is gonna make a significant difference. Molecular imaging, as opposed to anatomical, where you see the outlines of a vessel or capability, actually shows function of an organ. And obviously, as we get into more drugs and therapies that are actually trying to understand what's happening, molecular imaging becomes a critical part. There's a saying in molecular imaging that you see what you treat, and you treat what you see. And that's one of the promises, particularly of what's called theranostics, this combination of delivering a therapy that can unload a radiation dose directly to a cell without external beam radiation, and you can actually see it, track it, and manage the dose.
We play a major role in it, from the top spec systems, PET, as well as our recent acquisition we just announced a day ago here, MIM Software, which will play a crucial role of integrating some of that data, and I'll talk about that. As well as Vizamyl for Alzheimer's, and we also have a product in development for cardiac perfusion for Flyrcado, which is quite promising as really one of the first products used in PET/CT for cardiac imaging. Outpatient solutions, we all know outpatient growth is growing significantly, bringing orthopedic and vascular studies into a more patient-friendly environment, a more cost-effective environment. We have a great suite of offerings-...
The C-arm you see here is the number one C-arm really around the world, our OEC product, and we've integrated some of the most advanced software and AI capabilities in that. So now in an outpatient lab, what you could only find in a fixed lab many years ago, we can take in an outpatient center, which makes for a more safer, more integrated approach. So, lots of interesting things there, as well as integration with ultrasound. And then if you look at on the right, on the digitally enabled, I'll talk a few things that we're doing, but in particular, this product that we have, Command Center, which really helps at an executive level in the hospital. How do you run your operation? Where do you have the bottlenecks? And I'm not talking about retrospective analysis, about real-time, second-by-second analysis about patient flow.
Will you have four beds by the end of the day to free up four high-value transfers into your institution? We can help caregivers figure that out, and there's a lot more interesting things to add, new tiles, as we call, into that, into that model. So on the AI side, I just thought I'd give an example. I mentioned that, with 58 different approved applications from the FDA. One of the interesting things we demonstrated at RSNA, you can imagine many of these new AI diagnostic tools for radiology and stuff coming from many companies. We aren't going to be the company that develops all of them. We're going to be the company that develops some of those.
But the challenge is for a customer, the dilemma is, let's say there's 15 or 20 or 30 of these you want to use, how do you integrate them into your workflow without killing your workflow or adding time to get things done when you're already short on labor, and the labor you already have is very expensive? And that's where we come into the picture within radiology, and what we demonstrated with this App Orchestrator, which, think of it this way, is a platform that can enable SaaS capabilities for those applications. For any of the third parties that qualify, we have an economic model where we can participate some, but the vast majority of the value goes to them.
But we integrate it in a way so that the customer, if they want this application on a chest study or this application on a prostate study, they can choose those. And when the scan is done, it's implemented, so when the radiologist gets there, that work list is already integrated to have those on there. We can provide cyber. We can also provide input on the models. And do you see drift? How's calibration, the quality of it? So this is a very exciting area, and again, will be an area of growth for us relative to recurring revenues in the future. But I wanted to give you an example of how we're thinking, again, how we play a much larger role at the enterprise and how artificial intelligence can play a significant role enhancing productivity, but also transforming the role GE HealthCare plays.
So from a year-to-date financials, I think, as I mentioned, we've had a great start. You know, we've had a 9% organic growth coming out as a new company. Our book-to-bill is what we call 1.03, which fundamentally means we're bringing in more orders than we're actually sending out. We have a very healthy backlog of over $18.4 billion of products. That's about $1 billion bigger than we were pre-pandemic, and kind of emblematic of the demand for the products and services we have. You can see here from our EBIT margin, up 90 points versus our standalone, which was very important for us to continue that growth.
And up 19% on our EPS from a standalone standpoint, and, and it's a great cash-generating business that we think will be able to demonstrate 85% plus cash flow conversion into the future. One of the key commitments that we made last year, it was actually in December going to January, was: what do we want to be here in the, in the medium- term? These are critical targets for us that we feel quite good about and, and I would say made very good progress in 2023 that sets us up well for 2024 and 2025. Mid-single-digit organic revenue growth, we obviously outperformed that in our, in our first year.
high teens to 20% adjusted EBIT margin, getting the right structures in place that, yes, we showed growth within our overall EBIT margins, but what's even more important is we have the right structures in place in each of the business to continue to do that while funding R&D at the higher levels we talked about, because the R&D will fund the, obviously, faster growth. And we obviously believe that it's super important to be able to deliver upon the higher margins. I mentioned the cash flow conversion and the focus that we have on it, and then a disciplined capital allocation that I'll talk to a little bit.
I would say, you know, as we've spent a lot of time talking to customers, specific surveys that we've done on the capital front, we're actually quite encouraged by the outlook we see going into 2024, even more so than as we came into 2023, about the opportunity for our customers to be able to spend and invest in capital. Again, that gives us confidence here as we start 2024 relative to our plans for the year, and ultimately, for our mid-term plans here out over the next couple years. A little more specificity from a revenue standpoint. You know, I would say our teams have done a very nice job. Our commercial execution has just been very, very good.
Our leader in North America, Catherine, has done just an outstanding job between driving visibility, driving our conversion, and really bringing our enterprise capabilities back. The ability to come to a large IDN and be able to outfit them with all of the products that they need, our win rates are up significantly relative to that, and that has a multi-year impact for us. I think if you speak to some customers that are out there, and they'd say: "What's the new GE HealthCare feel like?" I think they'd say, "It feels different." I think they're leaning in more. They're a little more humble. They're a little bit more focused on the solutions, and I think, we've benefited from that growth.
We've been able to get more value, some of that's directly tied to price, but a lot of that's also tied to just actually solving problems for customers, thinking about their clinical issue and helping bring the right products. And then the innovation piece we talked about is a super big deal... On the margin side of things, similar story. I mean, we came out as a stand-alone company about 14.5%.
We obviously have stepped up from there, and we believe we've got all the right plans in place to consistently grow here over the next couple years, 2024, 2025, and beyond, using a lot of this algorithm that's out there, starting with the commercial execution piece and being able to have that type of intensity of our teams to be able to seek out and solve those problems and be the winning technology. Innovation's critical here. I think that first sub-bullet up there is important. You don't get funding in GE HealthCare if the NPI that's coming out doesn't have a higher gross margin than the predicate, period. If it's a safety, that's different. Other than that, you gotta be able to deliver a higher gross margin, which is value, a combination of price and cost position.
So we're very focused on that across the company, and those products that we've approved that have the three-year growth ranges are just really now starting to bear fruit. So that's a nice lift within our portfolio. Then, as a new spun-out company, you can imagine we've got a lot of optimization opportunities. Jay brings a great wealth of experience from his background in this area as well. But things such as product platforming within our imaging business, to be able to bring those margins up to the level of the 17-20 range is a big deal. 2023, we made a lot of progress on deep detailed plans to get there. A focus on variable cost productivity.
Every year, finding the same level of mid-single-digit reductions in product costs, and those together, again, focusing on gross margin, as well as a lot of the classic things, in particular, leveraging G&A down while keeping your R&D value up. Putting the most important value things, getting those funded, and finding new creative ways to reduce structural costs. So with this, again, we feel quite good about our journey to this high teens to 20% range. And I'd mentioned capital allocation. You know, the four areas here, investing appropriately in our innovative pipelines, which we're well on track to. And again, I don't believe we're in a situation that we have to have major step-ups because we've been able to do that over the past few years and are in a good position to be able to execute off of that level.
M&A, we just announced the deal yesterday. I think the tuck-in approach that fits to our overall strategic plans, that bring deals in that are accretive into top-line growth, in many cases in day one, and are accretive at bottom line by year two, and in many cases, break- even in year one, is the type of deals we're looking at and that's what we did with the MIM deal that we announced on Monday. We're also making some minority investments. We don't talk a lot about this, but I would say in the space, some companies have been super successful with getting board seats, being inside on technology that if you tried to fund yourself, would be too risky and too expensive.
But you learn a ton, and you decide which direction you may wanna go, and I think this will bear fruit over the coming years for us as we're involved in a lot of interesting things that are bearing out. And then we're committed to a dividend that over... will grow over time. At $0.03 at this point in time is what we've, what we've communicated. So I mentioned the deal, MIM Software. It's a great fit for us. It's a company that's been around for a few years, an innovator within fusion of images and integration of capabilities across the care- pathway pipelines. They have some leadership positions in radiation oncology on actually planning and simulation type of work.
But in molecular imaging, in particular, where you're actually having to integrate SPECT and PET/CT and different types of data to decide how well the drug is working, what you're gonna do with dose, they've got just a great platform. And that, coupled with our hardware platform, really is a missing link of what anybody in the industry really has to offer. So we're excited about that. But again, I think this is a great example of a deal that accretive to growth, you know, break- even from a margin standpoint in year one, accretive thereafter.
The ability for this to actually be missing link in our, our personalized medicine and personalized care strategy, as well as turning this into more of a recurring revenue with SaaS model, it ticks all the boxes for us, and, and there's plenty of other interesting opportunities out like this to kind of build upon our, our strategy. So we'll kind of wrap up, and we'll just do Q&A. Look, we feel great about our first year out. I'm excited about how we're seeing the market shape up, that we see 2024 into 2025 coming together quite well, being quite friendly to, I would say, how we were thinking about the capital market maybe a year ago. And we've been able to accomplish all of our key goals to position us well for, meeting our midterm goals here over, over the next few years.
I think with that, I'll stop, and Mike, well, maybe we go for Q&A.
Perfect. Thanks, Pete. So we have a little over 15 minutes. You guys know the drill. If you have a question, we have microphones coming through, but I've got some prepared remarks to get us started. So Pete, it's been a year since the spin. You've been here for two. Can you talk us through some of the more significant changes you've implemented thus far?
Yeah, I'll be brief. I touched on some of the presentation, but I think, first of all, it's, you know, getting the right people on the bus is key. And we've got a lot of great folks within the organization, our science and technology team. And the domino effect that it has, I think we all know this, but when you have the right leaders in the role, magically, the next layer down, and the next two layers down, you have people calling you, saying, "I wanna be part of that team." And that's what's happening, and we've really built up a great team that's bought into the vision.
I think culturally, we've spent a lot of time talking about what is the right culture in the company, and we have it, and that really starts with this idea, you know, of a mindset that, you know, in the Drucker's words, "Culture eats strategy for breakfast." You gotta have that attitude, which is really about an entrepreneurial attitude within a classic legacy company, but also what we call a growth- or lean- mindset, which is this idea of constantly finding ways to get better, that the job of everyone is that you don't leave the week without finding a way to make things better, and I think we're starting to make good progress on that.
I'd say our operating management system based on lean, both for driving growth and also for margin is, we really are making some good progress about how we think about running the business, and honestly talking about the real issues that are existing, not sweeping them under the table, and fixing them. Ultimately, that's what's gonna make us a great company. That's one, and then the other one I'd say, our innovation process that we've put in place is critical, and we've made very good progress, both on the AI digital side as well as our traditional hardware side. You can imagine an MR or a CT or vascular, the teams get very good at building their products, but how do you think about longitudinally solving the breast cancer solution? We've actually built a construct on how to rewire that to think differently.
Those are probably two of the big ones.
Nice. So maybe shifting gears a little bit, there's obviously been a little bit of a buzz around AI and the ability to leverage it within healthcare. What are some of the technology efforts you're driving within GE HealthCare?
Yeah, so look, there's three big areas. One is inside the products, and that's kind of play one. I think all types of accessory scenarios where we can increase productivity for the caregiver by taking kind of some work out of their hands, simplifying the steps. And then the third piece is the actual diagnosis piece, actually having tools that can enhance the diagnosis or the integration thereof. This ultimate step will be multiple years down the road, is this multimodality, multimodal integration. But I'll just give you a first example on the first one, which just gives an example. You know, an MRI, that actually how it makes an image, hasn't fundamentally changed in, you know, 35, 40 years. And with deep learning, we've fundamentally changed how that actually works.
And what that has done has been, it given us the advantage of actually increasing our image quality significantly. But the part that's caught the broader hospital customers is the fact that not only does that take a 10-year-old system and make it new, but fundamentally, you could take the throughput and increase it by 50%. So in a world where you're paying a lot for labor and those things, doing an upgrade to your scanner, not pulling it out of service, not having to rebuild the room, but doing an upgrade right on it, that's a great example. And I think in ultrasound and CT and vascular, all of our different areas, we have different examples of that.
That's one of the things that's helping us, you know, grow share and also be able to grow our top line, is those type of products inside. As it goes broader and we talk about integrated systems, I think that's the next step.
She's on her way. I'll just keep us going here in the meantime, but what are you expecting for some of your newly launched products? Obviously exciting, but for revenue contributors in 2024, can you walk us through what you're most excited about?
Yeah, look, I touched on them, I think, across our MR portfolio, many of the DL scenarios. I think our PET platform and molecular imaging platform, for all the reasons I mentioned about how MI is growing, we're gonna see some pretty big upticks. Ultrasound, with the new products that we've most recently launched in cardiovascular and women's health, and then this integration on the point of care use with AI, we believe there's gonna be. But I would say across the portfolio, there's quite a bit of interesting opportunities for uptick. And one of the ways we measure it is, you know, of our revenue, what is coming from products that were recently launched within the last 24 months?
And if you're above, you know, 20% within this space, that's pretty good, and we're thinking we're gonna be over 25% in that range plus. So which is, you know, high demand, and a pretty good uptake on that portfolio. But again, we don't depend really on one given product, but the refresh across the line and the backlog that exists with customers is, we see lots of demand across all the platforms.
Yep. Uh.
Sure.
Do you expect AI to replace contrast in the next few years?
Yeah, it's a great question. So do we expect AI to replace contrast over the next few years? I think there's some studies in certain areas that it definitely could reduce the load and potentially change that with certain capabilities. But like in most things, I think from ionized contrast material, maybe gadolinium within MR, I think it's gonna be around for some time. But clearly, there's some opportunities, and we've seen that already, to reduce the actual loads that are out there. But where that exists, I think for contrast agents, I think on the other side of things, the uptick of molecular imaging agents that are a different way of obviously seeing and treating are gonna grow exponentially.
I thought I saw another hand in the audience. Was there another question down here? Yep.
How significant-
We can't hear you.
How significant do you think Portrait Mobile is going to be? It's been a long time coming. It seems like a great value proposition. Is this gonna be a needle mover for GE?
Yeah, so Portrait Mobile is a monitoring platform we've just launched in the last year. It's one of the first new platforms we've had in some time. You know, the beauty of that is it takes us into the ward, where traditionally we haven't done a significant amount of monitoring. We've been more in the critical care area. We absolutely think it's gonna be an interesting uptick. And one of the things that's, in monitoring, that's an interesting trend is continuous monitoring. I mean, many of you out there might be wearing an Apple Watch or-
... you know, Fitbit or something, and you're getting continuous monitoring. If you're in the ward of a hospital, you know, a nurse comes in every so hours and either pricks your finger or takes your blood pressure and such. All of that down the road can be done by a small wearable device that's there. Portrait Mobile would be the capture device to do that, and we think over the next few years, that's going to be an interesting uptick in growth for our, our monitoring business.
We've got another question in the front row, but maybe just to shift gears into financials, and then we'll come right back to you then. This one's for you, Jay. It's been a little over six months since you've joined as CFO. When we look at the medium-term targets laid out in the Investor Day, do we feel that they're the right targets? Do we feel that there's alignment across the organization to drive this home?
Sure. Thanks for the question. Very excited to be part of the organization. I think, the mission of the company, the innovation journey, which I hope came through in the presentation today, and also a tremendous culture and talent. You know, we've got all of the key ingredients to drive a great profile business going forward, so happy to be part of that. Pete and I have spent a lot of time on the midterm targets that we've laid out. This idea of compounded mid-single-digit sales growth, this idea of high teens to 20% margin, along with free cash flow generation in excess of 85%, which I think, by the way, positions us quite well amongst other companies. And we feel very good about the long-term targets that we've set out.
We and midterm and long-term targets we've set out. I think there's a... You know, for us, it's about execution on innovation, commercial execution, and this idea of lean operations. That's— Those are the core fundamentals that support it, and I point to the first three quarters of this year, and we've had tremendous progress in all of those areas. You know, the pipeline's moving forward as we expected. We're driving real pricing in terms of our opportunities. You know, we've been able to execute on margin expansion. So execution-wise, things look quite good. As we look at the capital environment generally, you know, we feel, we feel very good about the capital environment.
We spent a lot of time in the third quarter interviewing customers, surveying customers, and also spending time one-on-one with customers to really get a sense of how is 2024 shaping up. And I think, as Pete mentioned in his prepared remarks, the backdrop is looking good. It's looking better, certainly better than it was in 2023. So we feel like we have the right backdrop in place. We have the right execution framework in place. And so I'm expecting, you know, continued progress, and we feel, as I said, Pete and I are very aligned on what the team laid out in terms of mid-term targets, and I think we have a good pathway to to deliver on that.
Fantastic.
Just a quick question. You mentioned that the spending, hospital spending, is improving relative to 2023. Is that what you mentioned?
Yeah. So what we said was, going into 2024, how do we feel about the hospital capital environment? And the answer is: we feel good. And the reason we feel good is because of all of this survey work that we've done. And so we do expect some improvement relative from 2023 to 2024, in the hospital capital environment. Now, why is that? You know, you've had improved staffing situations in hospitals. You have an interest rate environment that perhaps is going to be more cooperative in 2024. And then finally, hospital economics, and you can look at a variety of indicators, have improved over the course of the year. So we feel good.
What about the separation? Do you think your system will be much more efficient after the separation?
Yes.
To be much more focused on your business rather than being part of a bigger entity?
There are a lot of benefits of separation. It really does allow a level of focus and a level of scrutiny in specific areas that you might not have as part of a broader conglomerate. Furthermore, we really get to optimize things for us specifically versus a broader organization. And so part of the reason we're going to be able to expand margin are some of the benefits of becoming a standalone company. For example, for a standalone company, our IT costs are sub-optimized, right? And now, as we come off transition service agreements in the coming months and years, we really have an opportunity to look at what is best for GE HealthCare from an IT standpoint and deliver against that. And so there's opportunities in IT, there's opportunities in finance, there's opportunities in HR, and even in our commercial organization.
I would say, you know, the benefits of spinning off can be very significant. In our case, it's going to be an important driver of some of the expansion that you're going to see in terms of operational performance.
Yeah, hi. You mentioned precision therapy as one of your key strategic pillars going forward and potential growth in the future. To complete that picture, that circle, are you just focused on diagnostic imaging and then having an AI-based integrator platform and decision-making, or you're looking at more doing an M&A play in genomics and IVD on the one hand, and real therapy, you know, not just theranostics, but, but, like, surgery, radiation therapy, et cetera?
Yeah, a lot in that question. I would say... So first of all, it's hospital-wide. So obviously, with our
... base in radiology, and radiology being one of the kind of cutting the wave on a lot of AI in the institution, that's where it starts. But if you harken back to the chart that I showed for precision care as we frame it up, it is integrating of your genomic data, taking your pathology, if you think of a, an oncology case, and how do you bring that together again on a single pane of glass? But then how AI can be looking at larger foundational models across all of that, to not necessarily direct specifically, but to nudge and move forward where the clinical pathway should be. That, that, that absolutely is where we're going. To your point on therapies, I, I think, you know, we, we touch on interventional cardiology today to deliver.
We play a role within our products in BK Medical and ultrasound in the neurosurgical suite. So we will clearly move more in that direction. We're more of a guidance and driving better outcomes play, but we wouldn't shy away from some of those aspects of it. I would say in the broader spectrum of scenarios, a big part of our role is enabling the ecosystem and doing it in a way that we can capture value and bring value together. But I think you're gonna see us, you know, if you think of us as an imaging radiology company, I think that paradigm will quite shift over time as you're gonna see us with a much wider lens.
Maybe to keep us, or to move back on the financial topic, Jay, specifically talking about margins, it might be helpful for the group here to kind of contextualize what the levers are, both kind of what we've been able to do short- term and what might be a little bit more longer term focus.
Sure. So the goal is high teens to 20%, and we're marching towards that. We'll see margin expansion this year. I'll point to... We've had really nice margin expansion in the third quarter of the year, 100 basis points on a standalone basis. There's really three critical drivers, right? Commercial execution, and this is things like discipline around pricing. This is things like really enhancing our focus on those areas that have the highest margin, selling those products, investing differentially in that. It's about innovation. Pete said it, you know, we're only launching products if they have higher margins than the predicate. So intensely focused on driving a value proposition through innovation that enhances the margin profile of the company. And then the third piece is this idea of lean mindset.
We have been intensely focused on how do we enhance the operations of our manufacturing facilities? How do we enhance our operations from a G&A standpoint, as I commented a bit earlier? That whole lean mindset will be a third component in terms of this margin expansion strategy. So we, as I said, we feel quite good about it. It's something that, you know, we'll expect improvements each year in terms of margin on the way to this target that we've laid out.
Perfect. So we are at time. Just wanted to say, congrats on the strong year. Thank you guys for the presentation, and thank you all for attending.