Good morning, everybody. Just make a quick reminder that presentations are not open to members of the press. With that, I'd like to welcome GE HealthCare here, Jay Saccaro, Chief Financial Officer, and Carolynne Borders, Head of Investor Relations. As I've mentioned in all of these, happy to keep this interactive. If you do want to ask a question, we'll just get a mic over to you so those participating via webcast can hear the interaction as well. Maybe we could just kind of start with kind of reflections here on Q1. A good start to the year, 4%. You've guided 2%-3% for the balance of the year. Maybe help us think through some of the factors that played into the better-than-expected Q1, and then how that toggled over to the guidance that you provided for the rest of the year.
Sure. David, thank you. Thanks for the invitation to your conference. We really appreciate it. To those that have joined us here in person today, thanks for your interest in our company. I know we have a few shareholders in the room, so we appreciate your support. We were pleased with the first quarter, certainly. We had very robust order growth at 10%. That supported sales growth of 4%, which was a great start to the year. Book- to- bill, 1.09x , very solid. We also had a record backlog. For us, as we look at the first quarter of the year, it really did set us up nicely for achieving our guidance for the rest of the year. It was also supportive of our aspiration as we think about the midterm long-range plan that we've shared with investors. Really nice start.
By the way, the strength was broad-based. We saw strength in the U.S., certainly. We also saw our Europe, Middle East, and Africa business. It was flat on a reported growth basis. Overall, we had some orders as well, growth in that arena. A really nice start to the year. China kind of proceeded in line with our expectations for the most part with a 1% decline. Broad-based strength across the portfolio and a really nice start to the year. Of course, there were a lot of different elements coming into play when we gave guidance in April. Some of that included the tariffs, some of the potential changes to the U.S. healthcare system on the back of budget bills and so on.
What I would say is we wanted to reflect the strength of our internal business and the things that we're doing, but also reflect some of the macroeconomic uncertainties. That's why we left guidance unchanged. We'll continue to watch this and hope for the best as we move through the rest of the year.
Maybe just to clarify on the macroeconomic uncertainties, are these factors that you're seeing influence the business at the time you issued guidance or today, or are these factors that have the potential to play out?
Yeah, what I would say is the environment has been very buoyant. When you talk about 10% order growth and order growth in excess of that in the U.S., it's a really strong environment. There is a lot of reasons that are contributing to that, but things are good. We are very optimistic about how things can work out. We will have to see as we move through the year.
It is hard not to touch on China. I think that was one of the biggest variables in the guidance updates that you sort of went through last year. How are you thinking about China this year in terms of both the underlying dynamics, but also how you are framing it in the guidance?
Yeah, I hope so. First of all, last year we had to make a significant adjustment to China and to our total company guidance as a result of China. We had to lower our China expectations by $500 million or $600 million. That was really dramatic. I think most participants in the market had a similar quantum of impact from the market change. As we approached this year, we really studied the multi-phase tendering process and how that translated to sales. I think by and large, we've got it right. We're expecting a low single-digit decline for China for this year. So far, we're seeing things that support that expectation. To your point, it is a big variable for us.
With China declining, it took something which would be closer to 4% company-wide growth, and it lowered it to 2%-3% because of that decline in China this year. It is an important variable for us. But as we sit here, we expected we had a low single 1% decline in the first quarter, a little bit worse than that in the second quarter. In the third and fourth quarter, it will be closer to what we saw in the first quarter. I think that, and the reason I can say this is because we have a backlog that supports sales. A lot of the sales for 2025 in China will come from the backlog. What we do is we schedule the backlog to specific dates. We have a pathway, and that's how we develop our expectations in addition to some orders.
That's how we have line of sight to what I'm talking about. Of course, things could change, but I think it's trending in line with our expectations.
I think if you look at that from a year-over-year growth perspective, that would imply very little sequential growth in dollars because the comparisons get much easier in China as you pace through the year.
They do get easier in China. The interesting thing is with all of the volatility in the market over the last couple of years, the market is down quite a bit. It is interesting because we had anti-corruption in 2023, and that rolled into stimulus. Actually, stimulus, because of some uncertainty around how it would precisely work, ended up being a depressant to sales last year and even into this year. The interesting thing, though, is the equipment base in China ages by the day. I do believe there will be opportunity. We are cautious in terms of the long-term growth aspiration. We have taken it down from it was high single digits. We think the long-term expectation is closer to mid-single at this point.
At some point, there could be a catch-up that we've not modeled in our numbers just because of the aging state of the installed bases in China. We're all competitors.
Maybe just to add a point on that, we're seeing this stimulus behave a little bit differently than the one we saw in 2022, which was driven more so by the central government. This time, we are seeing the stimulus roll out across 31 provinces, which is part of the reason that it's taking a little bit longer.
OK. I think some of the macro dynamics have overshadowed the business-by-business sort of product drivers. Maybe we could spend a little bit of time going into the individual businesses and walking through kind of performance and some recent updates. I think we can start with PDX, just given all the focus on Flyrcado. Maybe just sort of talk us through kind of some of the dynamics in that franchise and how we should think about how the Flyrcado ramp planning and early kind of uptake is going.
Yeah, this has been a real bright spot for us. PDX has been a business that's performed extremely well. And it's got really nice attributes in terms of recurring revenue and procedure-driven revenue, which is just great. Over the last several years, we've seen a nice mix of both volume growth and pricing with a bit of new product. To a large extent, that's what we're going to see this year as well. It will be a mix of volumes driven by critical procedures, some pricing, and then also the benefit of new products. The new product area starts to get really exciting for us as it relates in particular to Flyrcado. So far, we're in the launch phase of this new product. We got approval. We announced the first dose. It's been very well received.
We're working very hard to set this up so that we hopefully beat the $30 million target that we've shared with investors. We're working very hard to line up success against that. What that involves is really a number of different facets. It starts with, do you have capacity? In this case, you need to have local manufacturing facilities, I put that in quotes, to support rollout. For us, by year-end, we expect to have 30 radiopharmacies around the United States in support of basically 90% of the potential patient population. Right now, we're at 13. That's progressing really well. The second piece is we have reimbursement from a CMS standpoint, but you also have to have commercial carrier reimbursement set up. Really good progress in those areas.
The third is you have to support, of course, you have to convince physicians that this is the right diagnostic tool. You also have to ensure that you have centers operationalizing this in the right way. It is not enough to sign up a center because when you sign up a center, they are going to start with one or two doses on the way to converting a larger portion of their patient population. When they start with one or two doses, you have to ensure that they have a good experience with those patients. They will move from two patients to four patients to something much larger than that. For us, we are having success signing up centers. We are also really working hard to make sure those centers have a good experience with the product and GE HealthCare.
So far, that's going well. As I say, our hope is $30 million this year. That's our expectation. We hope to do better on a way to a number that will be meaningfully larger than that next year. We're very optimistic about this particular product. It fits into this whole area of pharmaceutical diagnostics where these are great products that we sell. We think we're a world-class manufacturer here, and there will be continued opportunity.
Flyrcado has gotten a ton of attention just given its opportunity set. What other products would you point people to, or are there other products in the pipeline that will come to surface over the course of this year? How should we think about additional launches?
Yeah, so obviously, we have Vizamyl on the market today. And that's been a source of great growth. And it's becoming a very meaningful number for us. And to a large extent, that's dependent on the success of the Alzheimer's therapies that are out there. We continue to watch that, continue to support growth in Vizamyl. That's one other. The core business is a huge growth driver. If you have a CT scan, you're going to have iodine or something like that. If you are having an MRI, more often than not, or very often, I should say, it's with a contrast agent that's gadolinium-based in many instances. We sell those products. Those core products are going to continue to grow.
What gets interesting for me is there are things like we in-license a product called FAPI, which is for specific types of cancers that are heavy glucose consumers. This does a great job highlighting the cancer in unique ways. That is something that in the future will be a product that we launch. In addition to that, gadolinium is one particular MRI agent. What we are developing is a manganese-based agent, which has certain attributes, which we believe may be very favorable and interesting to radiologists. That is another one that is going to be coming. None of these are near term. I think we have got enough near-term stuff to support robust growth in this. Those represent longer-term opportunities and our commitment to continue to evolve and advance this portfolio.
If we think about PDX in the context of the LRP or the market, I think you've talked about this as a 5%-6% growth category. Is that a good way to think about it than Flyrcado layered on top of that?
In our PDX, which our expectation is PDX grows faster than the equipment. We have said our company should grow mid-single digits over the next several years with PDX growing faster than that. You could say a little bit above the 5%-6%. Included in that is this $500 million+ number for Flyrcado. Listen, my hope is the plus is large. That is what we are working towards. It is too early to say what the right number for Flyrcado is long term, but it is a real source of excitement for our team. By the way, we want to create a world where health care has no limits. That is like the mission of the company. Flyrcado helps that in a very meaningful way. We are getting after it. That is the assumption in the plan.
Maybe we could go over to imaging, which I think the imaging numbers get heavily impacted by the exposure to China and probably do mask some of the performance in other geographies. One of the questions I frequently do get on imaging is what's happening competitively, especially versus Siemens? What's your kind of take on the competitive landscape and how you're doing in imaging?
If we look at share over the last several years in imaging, we've gained. We feel very good about the performance in imaging. By the way, look at the order growth in the fourth quarter of this year, the fourth quarter of last year, first quarter of this year. You had incredibly robust order growth, large part driven by imaging, inclusive of CT, inclusive of MR. We've had tremendous performance and good momentum in that critically important business. By the way, even if you look at it over a four-quarter period, you're still talking about 4%-5% order growth, incredibly robust performance, a lot of that driven by imaging, despite, to your point, the impacts from China. We feel quite good about where imaging is heading. Why is that? We've made some significant investments in MR in the form of AI.
Specifically, AIR Recon DL is a product that we've been selling for years. In our view, it really differentiates our MR platform. What it allows for is a faster, higher quality image with the use of AI. Basically, AI is used to improve the signal-to-noise ratio. Incredibly exciting work that we've done with respect to that has led to robust MR growth. In the case of CT, we have also invested heavily in AI in support of that work. We believe we have a wonderful platform, our high-end Apex platform. We had tremendous CT growth in the third and fourth quarter from an order standpoint, a lot of that driven by investments that we've made. Remember, taking a step back, our R&D as a percent of sales just a few years ago was 4.5% of sales. We bolstered that to 7% as a company.
A lot of that is geared towards imaging. A lot of it's geared towards other areas. Some of it has impacted our numbers already. Some will continue to impact into the future. That's really what's supporting it. Some of these AI investments, like Sonic DL, which cuts cardiac MR time substantially, north of 50% in some instances. Why is this? I talk about reduction in image times. The reason I talk about that is because if you think about hospitals today, the MR suite is perhaps one of the most constrained areas. If there are opportunities to reduce time under image, to reduce the spin time, it's a big deal because it allows for more patient throughput. It's those kinds of things that have, I believe, differentiated us and allowed us to improve our share position over the last several years.
Could I just add two other key products that we will be bringing to market next year in 2026 will be photon counting and full-body PET that will help our imaging. We do have a very large global install base. That is a natural target for us to sell into with those new products.
On the imaging side, I know this is sort of a nuance, but any issues with rare earth materials as it relates to magnets or anything else that could impact or disrupt sales?
The one I'd point to more specifically would be gadolinium, which we are applying for the special licenses to be able to continue that supply. We do have more than a year's worth of supply in gadolinium, so we feel comfortable with that. There are certain rare earth elements that are used for imaging equipment that we're obviously going to pursue a similar path on licenses.
You have sufficient inventory of that as well.
We haven't had any issues with production stop on that.
OK. On some of these AI features, how do you make money? You figured out the business model?
The answer is we've been selling and we've been generating revenue from AI for years. It's not an insignificant amount of money. For a company that does a lot of different things, we have a decent amount of AI revenue. Why? AIR Recon DL is the prime example of this. If you can help solve the problem for hospitals to make older magnets a little more efficient, a little more diagnostically capable, they'll pay for that. By the way, with new magnets, with new MR machines, to the extent that you can attach a piece of software that makes it more efficient and more diagnostically capable, people pay for that. We've chosen to model that through a purchase price distinct for AIR Recon DL. It's been a nice driver for us.
By the way, part of the reason it's a nice driver is because not only is it incremental revenue attached, and the attachment rate is non-trivial, but it's an incredibly high margin sale. We've been very pleased with that. Now, listen, there are other areas that are more complex to monetize. I get that as you look at certain futuristic uses of AI. When you talk about the basics of, hey, help me make my image faster and more readable, people will pay for that. In the case of AIR Recon DL, Sonic DL, direct product areas, we've seen the real benefit from AI in terms of sales. We expect to have $1.2 billion in digital sales in the current format. We believe that that's going to migrate to $1.8 billion in the next few years.
A lot of that is on the back of some of these products. It does get a little more esoteric as we talk about things like Command Center. Command Center is a great product, which is helping hospitals organize their workflow more efficiently with the use of AI. We are talking about a Command Center in the cloud version that we are developing. We are really excited about that. We have not impacted sales that much to date through that. That is more in the coming years. Direct product has played a big role in terms of sales impact in the short term.
That's very helpful. That's a good segue. I want to see if we can get through PCS and AVS. I want to cover margins and everyone's favorite tariff topic. It's a good segue to PCS. I do not know better. What's the deal on that business? How are you going to get that business to grow?
PCS is a business which did benefit from some very intense dynamics coming out of COVID. To a large extent, that kind of shaped the curve for 2024 and some of this performance that we've seen to date. Here's the interesting thing about PCS. We help hospitals solve very important problems in terms of patient monitoring and patient care that can save significant money and drive outcomes in positive ways. We are really optimistic about this area over the midterm. We have a number of new products in development that will support this in both the U.S. and outside. Importantly, we hired a new leader, Jeannette Bankes, who's a long-time med tech executive, highly skilled. She's kind of shepherding this area for us.
There's a lot of great opportunity in terms of our own internal development, but also in terms of business development and other areas. I would say, though, that from my standpoint, this is one that, again, has this a bit of a COVID overhang. That should sort out over time because the core products are necessary, capable, and we have a lot of really neat internal innovations coming soon.
That was a pull forward coming out of COVID, basically?
What happened coming out of COVID and even in COVID, there was robust order growth, like off-the-charts order growth for a period of a couple of years. Then we paid that off 2022, 2023, even into sales growth 2024. We have moderated our expectations for that business. Again, it's one where long term, we're very excited about.
Lastly, on AVS, I'm waiting for the breakout quarter here because you go into any hospital and EP volumes, structural heart volumes are all growing at very robust rates. They're also constructing labs, expanding capacity, not yet seeing that play through into your business as a derivative of that. Is that a fair assessment? How should we think about that business?
I'm going to paste this piece of the transcript and share it with the business leader, Phil Rackliffe.
Yeah, please do.
We are very excited about this business. Part of the putting of the two together was for some of the reasons that you specifically mentioned in your question here. What I would say is this business has been negatively impacted by China. That is definitely a factor. There is a real opportunity for growth. There are constrained procedure volumes. EP labs are completely constrained today. There is opportunity for builds and growth. As we think about the long term, this is an incredibly exciting business for us. By the way, you look at the growth and the order growth that we are seeing in this area, we had a series of launches a little over a year ago where we are starting to see that momentum play out, in particular in the U.S. market where some of those new innovations were geared. We are seeing really good momentum.
Some of the workflow improvements that we've made, the incorporation of Caption Health to simplify, incredibly optimistic about the core ultrasound business. To your point, the surgery business that we have, there's a lot of opportunity there. This one is a nice long-term growth driver for us.
Before we go to the P&L, maybe it's helpful just kind of to frame out for folks just the cadence of product launch to revenue because I think it's a little bit different with capital equipment than some of the other markets that we cover. You get a product approved, you got to do some marketing, physician education, hospital CFO, blah, blah, blah. Then you get the order, and then there's revenue. Is there a good bogey you could give us to think about product approval to revenue contribution timelines?
The answer is it depends. To your point, it's not an immediate, it takes time. For example, in Flyrcado, we're talking about changing workflow in centers. It just takes time to build that up. We had the approval, we had the first patient, but we're only talking about $30 million in kind of calendar year revenue. A lot of that is based upon this idea of taking conversion education. What I would say is the more innovative the product is, the more time it takes to explain the benefits, sell the benefits, and then bring to revenue and to impact. Flyrcado is a unique example. The time frame is a little bit longer.
As we bring new MR devices with new AI capabilities, radiologists or technicians change perhaps how they think about the workflow of their procedure, at least to some extent. When you do that, that's incremental sales. Could it be six months? It could be six months from approval to meaningful orders or sales. It could take some time to do that. At the same time, stay patient, stay investing in R&D, and set yourself up for this bolus of new launches. Like in 2026, we laid this out at our investor day. We have an incredibly robust set of products launching in 2026. There will be some revenue impact in 2026. In 2027 and 2028, it should be very robust. Things like whole-body PET. Whole-body PET is not a market we play in today. We do not sell whole-body PET.
This represents a great untapped opportunity for us. It is about getting it out, explaining our benefits to our product. We should get that, and that should have an impact in 2026.
Excellent. Let's touch on tariffs. I think obviously the impact that you had communicated on your earnings call was, I think, as expected, but toward the higher side of what we saw across med tech. I don't know. We have tariffs. We don't have tariffs. Right now, we're on this variety of pauses. How should we think about detariffing for you guys and maybe remind people of the framework that you laid out on the earnings call?
Sure. On the earnings call, we basically said we have roughly a $500 million net impact from tariffs. Over a billion gross due to back MCA qualifications offsets that we had, we got a billion down to $500 million for 2025, which is $0.85. Our expectation is that next year is below $0.85. Why? Because we have incremental mitigation activity that we're working on that will have more of an impact next year. Some of it is dependent on the final contours of trade deals that are put in place. We have to wait and see before we pursue all of the mitigation that we'd like to pursue on final trade deals. That is why next year is less than this year. This year is $0.85. We also said for investors that the vast majority of our impact is between the U.S. and China corridor back and forth.
$0.65 of the $0.85 is in that U.S.-China corridor at the very elevated rates that were present at the time we gave guidance. The rates were like over $1.25, really robust rates. What we said then was because that was such a big thing, we wanted to size that for investors. We said, listen, if on May 1st there is a deal and the rates between U.S. and China come down bilaterally by 100 basis points, we would eliminate $0.40 of that $0.85 impact. That is what we were able to say at the time. Now, fortunately, rates came down. It was May 12th, and they came down 115%. We were in the right range as we thought about that. Of course, we assumed that would be sustained for the full year, the full remainder of the year. We are still sort of contingent on that.
How do we think about this going forward? Look, it's hard to say. We're going to watch very carefully what happens. Our assumption is on July 7th, rates go back to the Liberation Day rates. We're going to watch that very carefully, what deals get done, what happens with the U.S.-China trade dynamic. All of those things will inform what we give when we give guidance. I think from our standpoint, intensely focused on mitigation, meaning looking at dual source, looking at making local for local, looking at working with our suppliers to get supplies from the right countries. All of those things, we're going to continue regardless. Then evaluate the cost. If it's prohibitive to do it, we, of course, wouldn't do it.
I think there are a whole set of no regrets moves that we'll continue to work on that should benefit us. Then we'll be ready for whatever happens in the July time frame and share guidance. I think our guidance philosophy will be the same as we've given so far.
Which is?
Which is whatever the rates have been announced, reflect them in your guidance. If there's a pause, assume the pause is going to end, reflect that in your guidance. I think we'll put all of those principles in place.
OK. Are there any actions you're taking now in the midst of the China pause, for example, that would impact second quarter results, whether that's running plants at high levels of capacity utilization, building inventory, et cetera?
Not materially. When we gave guidance, we had some set of assumptions around the mitigation activities that we outlined and what the impact would be on inventory, what the impacts would be on costs, and so on. Remember, on the earnings call, one of the things that we said is we are focused on managing costs in a very disciplined manner. We are earmarking some of those savings for if there are costs related to tariff mitigation, we wanted to have dollars available for that. That is why we did not have a there was not a big reduction or anything like that. Because, listen, there may be some one-time costs or specific costs related to tariffs that we have to address. We wanted to be mindful to protect that.
OK. Maybe we'll close on capital allocation. I mean, you announced the buyback authorization, the first one since the spin, I think, at the time of the earnings call. I think your LRP had assumed really just cash piling up and no real deployment of the balance sheet. Maybe just give us an update how you're thinking about use of cash now.
Sure. To your point, the long-range plan, the LTS that we shared had no real deployment of capital in the form of business development or in the form of share buyback or anything like that. We just had it accumulate. We did announce a buyback. Really, this is a tool that we want to have at our disposal for opportunistic deployment. When the shares are displaced, we want to be able to take advantage of that in a robust manner. We were not, without us in a buyback, we did not have that vehicle available to us, which is why we put the buyback in place. To be clear, we are really interested in business development as a vehicle for us. We are excited about the portfolio that we have.
We're really excited about the innovation that we have in place and how that's going to bear fruit in 2026, 2027, 2028, and beyond. There are unique opportunities for us to supplement with smart M&A. What I've found very compelling about our portfolio is there are so many areas in the portfolio where we have a unique and distinct strategic advantage that lends itself to acquisitions that would give us proprietary returns. We did a deal with a company called MIMS . MIMS is Radiation Oncology Workflow Software. The interesting thing about MIMS is we would lose to a competitor that had better workflow than we had because we didn't have MIMS . Or if we won a deal, oftentimes a customer would buy MIMS to put on top. It was a great deal where it's a very unique transaction to us.
It had very good financial profile as a result of that. That is the kind of deal that we want to do. By the way, there are a lot of deals like that in the market today, which get us very excited about the opportunity for M&A. We, of course, on a third, we pay a dividend. From a hierarchy standpoint, reinvest in the business to drive returns, primarily in the form of R&D. Sometimes that requires some sales and marketing support, but primarily in the form of R&D. Evidence of this, four and a half growth goes to 7% of sales from an R&D standpoint. Second is you focus on M&A as an opportunity to deploy. Third, we have share buyback. Of course, we pay a small dividend.
We think it's a balanced capital allocation approach, but really excited about the opportunities that have been presented to us.
Excellent. I think with that, we are at time. Jay and Carolynne, thank you. Thank you for your support and thank you for your participation.
Great to see you again, David.
Thanks, Jay.