The operator introduces the GE HealthCare Fourth Quarter 2023 Earnings Call and hands the call over to Carolynne Borders, Chief Investor Relations Officer. She is joined by President and CEO Peter Arduini and Vice President and CFO Jay Saccaro. They will discuss both GAAP and non-GAAP financial results and make forward-looking statements. Peter highlights the company's successful first year as a public company, with strong financial results and increased R&D investment. He also mentions their market share gains and FDA authorizations for AI-enabled devices. The company's backlog is strong and they have paid down $1 billion in debt.

The company has strong financial flexibility and has made several strategic investments, including acquisitions and partnerships. They have secured multiyear enterprise deals and collaborations with organizations such as the University of Wisconsin-Madison, the Bill & Melinda Gates Foundation, and Novo Nordisk. The company has also strengthened its leadership team and published a sustainability report. They have also announced their 2024 guidance.

In the third paragraph, the company discusses their outlook for the future, which is positive due to an improved capital equipment landscape and strong sales growth. They conducted a survey of customers which showed improved financial optimism and global procedures remain strong. The call will now be passed to Jay to discuss the financials, which show a 5% increase in revenues and a 3% increase in organic orders. The company also had a record backlog and a 16.1% adjusted EBIT margin.

In the fourth quarter, the lean methodology was instrumental in improving logistics, sourcing, and services, resulting in an 11% increase in on-time delivery to customers and a 50% improvement in past-due backlog. The company also saw growth in adjusted EPS and free cash flow for the year, with recurring revenue making up more than 45% of total revenue. Organic orders and book-to-bill ratio also saw positive growth. The company's segments, PDx, PCS, and Imaging, saw strong organic revenue growth, while Ultrasound had a 2% increase.

In 2022, Ultrasound had strong results as supply chain constraints eased and all segments had positive price. In 2023, there were sequential improvements in adjusted EBIT margin due to volume, commercial execution, and productivity. Adjusted gross margin increased by 120 basis points and there was more than 3% positive sales price. In 2024, there is expected to be 1 to 2 percentage points of positive price, and R&D investment will continue to support innovation. Productivity initiatives have gained traction and G&A spend is being optimized. In 2023, nearly 280 TSAs were completed.

The company is on track to exit most of its remaining TSAs in 2024, giving them confidence in their plans to optimize G&A and reach their medium-term margin goals. They incurred $200 million of recurring costs in 2023 that impacted segment EBIT margin rates, but these costs will serve as an opportunity to operate more efficiently in the future. The Imaging segment saw 4% organic revenue growth driven by backlog conversion and price, while Ultrasound saw a 2% decline due to lower volume. Both segments are expected to have a positive outlook in 2024.

The company saw a decline in margins due to market conditions, but was able to offset it partially through cost productivity. They saw growth in Ultrasound equipment and Patient Care Solutions, and had solid performance in Pharmaceutical Diagnostics. They are investing in their pipeline and have recently launched new products. Their cash flow performance was strong.

The company ended the year with a stronger financial profile, including a stronger balance sheet and improved financial flexibility. They generated $956 million in free cash flow and saw operational improvements in all segments. They also reduced aged inventory and improved collections. For the year, they delivered strong free cash flow and paid down $1 billion of debt. They expect organic revenue growth of 4% in 2024, with a slight foreign exchange headwind. They also expect an increase in adjusted EBIT margin and a steady adjusted effective tax rate. The Pillar 2 global minimum tax is not expected to have a significant impact on their tax expense in 2024.

The company expects to deliver strong adjusted EPS and free cash flow for the full year, with the fourth quarter being the strongest period. They anticipate lower organic revenue growth and adjusted EBIT margin in the first quarter, but expect it to improve in the second half of the year. The company is confident in their ability to meet their guidance for 2024, thanks to their strong backlog and new product launches. They also plan to acquire MIM Software, which will drive top line growth and be accretive to earnings in the long term. The company recognizes the challenges their customers face in integrating multiple AI applications into their workflows.

The company has developed an App Orchestrator to simplify the process of selecting and integrating AI solutions in healthcare. They are also developing a subscription-based cloud application for this purpose. The company is actively pursuing AI across their product portfolio and sees growth opportunities in the field of molecular imaging. Their pharmaceutical portfolio targets a diverse range of diseases and they have a pipeline product for diagnosing coronary artery disease which shows promise for cardiologists.

The use of Theranostics in molecular and functional imaging has the potential to offer more sensitivity and specificity than current methods, with a longer half-life that allows for easier transportation. This approach combines diagnostic imaging with both diagnostics and therapeutic radiopharmaceuticals, leading to fewer side effects for patients. The Theranostics market is expected to grow significantly in the coming years, with potential applications in various types of cancer. The company plans to expand its Theranostics franchise through organic and inorganic means, with the recent announcement of an acquisition.

The company plans to integrate new capabilities into their devices to improve imaging and diagnostic capabilities. They are excited about the potential for growth in molecular imaging and Theranostics. They have achieved their financial and operational objectives for the year and are making progress in innovation. They have a strong balance sheet and are on track to meet their medium-term targets. The speaker then opens the call for questions. The first question is about the company's performance in the first quarter and whether they can still grow revenues and expand margins, to which the response is that they expect both but at a lower rate than the full year.

In the first half of the year, revenue and margin growth will be lower than in the second half, due to a challenging comparison to last year's strong performance in the first quarter. Despite this, revenue and margin are still expected to grow in the first quarter, but at a slower rate. The company's sales and orders in China were affected by a focus on expanding medical coverage, a stimulus funding, and the anti-corruption act. The impact of the act varies across different provinces and the company believes it is a positive step towards better compliance.

The speaker discusses the company's performance in China in the first half of the previous year, with over 20% organic growth. They expect negative growth in the first half of the current year, but anticipate growth to resume in the second half. They believe China will continue to be a growth market in the long term. The company has a 4% guidance for the current year, which includes no growth in the first half and growth in the second half. The speaker also mentions the company's 8% performance in the fourth quarter of the previous year.

The company's strong execution and backlog translation into sales in 2023 has set them up for a solid 4% growth in 2024. Despite macroeconomic volatility, the company has a solid backlog and book-to-bill ratio, and they hope for things to go smoothly throughout the year. The company's order book is over $19 billion, with multiyear deals providing visibility into 2025. These deals also help in the current year and provide 2-3 years of business without the need to win new contracts.

The speaker expresses satisfaction with the team's work and discusses the company's focus on addressing challenges and delivering value to customers. The company has seen success in pricing and expects continued growth through innovation and product mix. The speaker also mentions a 50-80 basis point margin expansion guide, with a focus on both gross margins and operating leverage.

The company saw a 60 basis point standalone expansion in 2024, with the majority of the expansion coming from gross margin. R&D will also grow as a percentage of sales, while there will be some savings from SG&A. The phasing of growth in China is expected to be more linear, and the company recently conducted a customer survey that showed positive results. China accounts for about 15% of the company's overall business.

The company is working through a dynamic described by Pete and sees an opportunity for growth in the second half of the year and beyond. Other geographies follow similar patterns, with a blended 10% revenue growth in Q1 and Q2 and a more normal growth in Q3 and Q4. The company's internal and external surveys show signs of optimism, with increased buying and ordering patterns in the fourth quarter and positive expectations for growth in 2024. Hospital profitability is also robust and sentiment surveys conducted by others show a constructive setup for 2024.

The company is optimistic about the market in 2024 and is closely monitoring Fed rate decisions. The balance sheets of customers are improving and demand for procedures is strong. The company believes that new therapies and procedures will require their equipment, such as ultrasound and OECC arms. The company has filed for Flurpiridaz.

The speaker is not giving a specific date for when they expect approval for Flurpiridaz, but it is likely to happen in the second half of the year. They believe that the drug has the potential to capture a significant portion of the myocardial perfusion imaging market, as it has shown to have greater specificity and sensitivity compared to current products. Flurpiridaz is used on PET/CT systems, which are not widely used in cardiology, but the company expects this to change as the drug gains popularity. The speaker is confident in the potential of Flurpiridaz to improve cardiovascular care and has received positive feedback from cardiologists.

The company is not expecting significant growth in the mid-term, but there is potential for the photon counting CT technology to become a larger part of their business in the future. They are currently working on beta sites and believe their approach using deep silicone is unique. The technology has the potential to revolutionize the industry and the company will continue to provide updates throughout the year.

Peter Arduini, in response to a question about AI-enabled technology, explains that the company's strategies are evolving and will involve multiple facets. One example is AIR Recon DL, which results in higher gross margins for an acquisition. Another facet is offering capabilities through a Software-as-a-Service (SaaS) model, such as the App Orchestrator, which can be used with various equipment and customers can pay for one or multiple instances. The company will also have the opportunity to partner with third-parties and take a percentage of their sales as an enabler for their installed base.

The speaker discusses their big operating priority for 2024, which is building out a go-to-market and monetization model. This will involve offering more value for hardware and expanding to buy-use capabilities. They also mention putting in place a SaaS backbone for the company. When asked about China, they clarify that they expect a decline in the first half but growth for the full year. They also mention winning multiple enterprise deals totaling over $2.5 billion, which will be booked within a 2-year window.

The speaker, Peter Arduini, is responding to a question about the company's approach to booking orders and the potential for photon counting technology in the CT market. He mentions that the company is not currently booking orders beyond 3 years and expects photon counting to become more prevalent in the premium CT market within 5 years and in the wider market within 10 years. The next question is about Theranostics, and Arduini mentions the potential for growth in both diagnostics and therapeutics, as well as the supply chain.

The speaker discusses the consolidation of the medical imaging space and how GE can play a role by offering critical products such as PET/CT and multi-head SPECT/CT systems. They also mention the importance of integrating images and using MIM Software, which will be acquired by GE. Additionally, GE's capability in manufacturing and distributing tracers and cyclotrons gives them an advantage in the industry. This allows for opportunities to work with pharmaceutical companies and lead in delivering doses to customers.

The speaker reminds the audience that unlike other drugs, these products have a limited shelf life and require expertise to deliver them to patients on the same day. They are excited about the impact these products will have on patients and have the capabilities to play different roles as they grow. In terms of capital allocation, they plan to reinvest in the business, pursue strategic M&A, and have already announced three deals in 2023. They aim for EBIT expansion and solid ROIs.

In 2023, the company made investments and paid down debt while also focusing on cash flow generation. They saw success in their pricing strategy and were able to negotiate multiyear contracts with escalators for both hardware and service agreements. This allowed for a balance between upfront and ongoing revenue.

The speaker discusses the various services offered by GE HealthCare, such as asset tracking tools, and how they have been able to achieve success in all of their service offerings. They also mention that services have a higher profit margin and that gaining share in the market will lead to future business through service contracts. The speaker thanks their colleagues and highlights their focus on delivering safe and high-quality products for their customers. They also mention that they have met their commitments for 2023 and have a full pipeline of new products and clinical indications. The speaker concludes by thanking the participants and inviting them to attend upcoming conferences.

This summary was generated with AI and may contain some inaccuracies.