GE HealthCare Technologies Inc. (GEHC) Earnings Call Transcript & Summary

Good afternoon, good morning, and thank you, everyone, for joining us for another session of the Citi Medtech Conference. My name is Veronika Dubajova, and I'm the medtech analyst at Citi in London. And it is with great pleasure that I am joined today by the management team from GE HealthCare, Peter Arduini, CEO; and Helmut Zodl, CFO. You guys, I still think, have the record of being the youngest company, at least in terms of your listing.

Yes, not our age is probably.

But could -- maybe just as a level set before we dive into bits and pieces of the business, Peter, I'd love to hear -- from you, Helmut, as well, how has this first quarter of you being an independent business gone? What have been some of the good and some of the bad surprises? And maybe just big picture where you are against the plan? And we'll delve into the details, but maybe just [indiscernible].

Yes. I can start and, Helmut, you can jump in. Look, I would say for those that have been involved with spins, it's a heavy lift. And coming out of GE, it wasn't just a spin. We're actually dividing -- creating 3 world-class companies, right, in aviation, in power and health care, we're first out. So finding how you actually do all that upfront probably has even added work. So I would say '22, for us, significant amount of lift. And so as we come out, we obviously have a focused health care Board. We had all of our plans in place and all the buildup today. Honestly, our time now that we can spend more with customers, investors, running the business has gone up. And so from my perspective, looking for some wood here, knock on wood, it's been great that way and kind of get back to it. And it's just the reality of the scale of this business and a spin that there's so much SEC, so much intercompany work that you can take that inside out and spend more time outside in focus.

Yes. I would -- just to reflect what Pete said. I think being really focused on the outside again [indiscernible] my team, the finance team, the IT team spend a lot of time preparing for the spin, getting it done, getting through the earnings announcement. And now I spent the last 2 weeks with customers, traveling, which is really good to be back in business and focusing on the day-to-day business.

And then obviously, you've articulated a fairly detailed LRP. I want to make sure we talk about that. But maybe before we do, give us a little bit of perspective of what you're hearing from your customers. I think hospital CapEx has been a hotly debated topic in the investor community year-to-date. If you can comment to how your conversations are progressing, willingness of hospitals to invest into some of those bigger capital pieces. Any changes in discussions you've noticed in the last couple of months versus end of last year?

Yes. I would say, look, broadly, sentiments around the world vary somewhat. And I'll let Helmut comment on just -- he just got back from our China and [ an Asia ] trip. But I think -- we think Europe, for the most part, is reasonably robust. A lot of capital has been allocated from sick funds, different health systems to kind of build up and fill out some of the holes that were discovered during the COVID windows within Europe. China is actually a different animal by itself. Like I said, I'll let Helmut comment on it, what we think is going to come out here and be quite growing. In the U.S., look, there's been clearly a focus on CapEx and prioritization since COVID started, I mean for everybody. And I think that continues. But I would say if I would say where we were in early December now, there's a bit more optimism of kind of managing the pathway through. And some of that's in what you've probably seen from some of the hospitals that reported that, yes, nursing and other costs are up, but they begin to plateau, in some cases, coming down. Still much higher than where they were, but that gives some pause to say, "Okay, I can see what I need to do." The other phenomena is, in pretty much every market around the world, the backlog of patients waiting to get procedures, in particular, get imaging studies done that can enable procedures is at an all-time high, which, for us, correlates into even in a world of somewhat of restricted capital that one of the first things you want to spend it on is items that drive productivity and capabilities, and we tend to play in that space. So Helmut, you want to add?

Maybe I'll just add a little bit. So I had the opportunity to really meet with 2 of our largest customers, one here in the U.S., another one in China over the last 2 weeks. And it's quite interesting. While there are such big differences between those customers, there is also very high similarities. I think coming out of COVID, and China is just coming out of COVID as we speak here, what really the biggest challenges are? And I think it comes down to, I think, 1 or 2 big challenges that those big hospital systems are facing is a shortage of staff. So nursing, clinically, personnel shortages are still out there. So how do we address -- how can we help address those challenges? Buy products that really drive productivity, help with the throughput. And as Pete said, this demand either is on imaging studies or on selective procedures that we think is out there because you can't get, I would say, your procedure done in next week. It takes several months and so forth. So how can we help as an organization to ease those problems and help our customers become more efficient? That's been the key theme out there. And I think it happens no matter whether the customers in the U.S. or the customers in China, it's really the same thing in this.

Yes. And Helmut, I think you're back from China.

Yes.

And obviously, we heard a lot in the fourth quarter about the stimulus program there to provide financing for capital equipment purchases to hospitals. What's the latest you're hearing on that? Is that continuing through the beginning of this year? And how significant of an opportunity are you thinking this is for you guys?

Right. So obviously, China is a very important market for us, and it's the second biggest health care market in our industry. And the stimulus program that the Chinese government put in place of around more than $200 billion overall for the economy, more than $20 billion in health care, I think, has really, I think, helped some of the stressed hospital systems because I spent a little bit of time not only with the private customers in China, but also with, I would say, nonprofit customers in China. And those hospital systems have really been challenged, I think, through COVID because they have, basically, no revenue or very limited revenue. So the program that the government put in place around providing financing of basically 0 cost financing to those customers, really, I think, had an effect for them to reinvest back into the business, build out their infrastructure and build also beyond, I think, their existing hospitals that they have. So we've seen that in Q4. We're seeing it in Q1. And we don't know really how long it will continue. The government I don't think has made a clear statement, yes, to say it's going to be limited only to a certain period of time, but we clearly can see the demand picking up. I would say the positive momentum for those customers coming back, again serving patients out there, which is really quite positive. So we are very local in China, which we really feel good about in terms of our localization and how much product we manufacture in China. I think our synergy is paying off in there.

That makes sense. I should say for anyone in the room, if you have any questions, please raise your hand, and we'll get a mic to you. But I will continue. And maybe just briefly on the competitive environment. Curious to hear from both of you how you feel GE is positioned now as an independent company, especially within the imaging segment. We've seen one of your peers have some pretty significant issues in terms of order delivery and supply chain. Is that creating opportunities? And sort of how are you thinking about the funnel and your relative ability to outperform the market in imaging? We'll obviously talk about the other businesses later, but let's do imaging first.

Yes. I mean, look, in short, I think we feel that we're well positioned. I've mentioned this in other format. But a few years ago, we increased the investments into R&D, pretty substantially step up. And we were clearly at below some of our peer group competitors. The benefit of that is in the last 2 years, we've had more products come out. And we talk about our Vitality Index, and that's really the percentage of sales in a given year coming from products manufactured in the last 2 years or designing come out invented -- not manufactured, invented. And that was roughly 35%. We ended the year like 29%, almost 30%. If you're above 20% in general, that's pretty good. But that's kind of the engine that's been helping us been able to grow. It's also helped us be able to get some price where it makes sense. And so we feel quite good about that. We also made some changes within our field structure. And so leaders that really know how to kind of deliver, and we kind of focus on the trifecta, bring the best talent in the org, clinically astute and understand the clinical issues and understand the technology differentiation. And that's actually helped us win and win some share, but also gain some price. And so that's kind of the balance of what we've seen. I would say just marketplace, there's always puts and takes about who's doing well, who's not, who has challenges. I think there's clearly some opportunities we have in certain segments of the market to gain share.

Would that be MRI, for instance?

Well, I think in general, in MR and other modalities, there's just an underproduction right now for the need or the lead times from certain companies because parts access is just longer than what's needed. And we've been fortunate. We did a lot of product redesign, component redesigns that our lead time came down 35%, 40% in MR year-over-year. So that's helpful. And obviously, we're hoping here that the economy stays where it's at so that our supply base and stuff can continue to improve. But the demand is definitely driving it. And in a case where we can deliver faster with some differentiated features, we're definitely winning.

Okay. And obviously, you guys struggled with the supply chain through most of last year, but things improved pretty notably starting in Q3. What are you seeing now when you look at component availability? Any issues that are still out there? Any things that are worrying you? And how much visibility do you have into all that?

So I think we've seen the supply situation really improving, especially as we went through Q4 and also going into Q1. So we're seeing that really stabilize. We're not fully out of it, I would say, 100%, but we are seeing it in 2 aspects of availability of parts and also in the cost of parts. So what we spent last year on what we call spot purchases, so we had to buy a product at significantly inflated price, that has come down dramatically. It's running significantly less than what it has in the last year. So that gives us really good confidence. And we went long on inventory. We took a decision, Pete and myself, last year to really prioritize patients and customers first. So that I think has paid off. Our working capital was not the way I would like it to be as we exited the year, but I think it really gave us the ability to ship to customers, grow double digits in Q3 and Q4. And we want to maintain that momentum to be here for customers and do that. But clearly, the supply situation is much, much better than it was in the middle of last year, and we see that also as we go forward. But there are some elements still out there that is a little bit of concern.

And I was going to say, what are those elements that are still problematic?

It's still a little bit in the microchip side. We have some components, as you can imagine, in our industry, in our business, where we have single-source components. So when you have demand going up significantly, you always have challenges how quickly can suppliers scale up their manufacturing. So it's a little bit in chips. It's a little bit in single-source components where there is some challenges, yes.

And MR coils?

Getting better.

Okay. Innovation, obviously, is a big feature of the story going forward. And you guys have talked about, one, photon counting as a big opportunity. So maybe refresh our memory on where you are with that project and how long until we see a commercial solution available from you. And then as you think about what this could mean for the CT business, how much of a competitive advantage do you think [indiscernible]?

So -- well, I'd first just frame a high level kind of this framework that we used to think about where we're headed, which is this D3 concept of leadership devices, a disease-phased -- disease-focused attention, so how do we integrate around solving an outcome for disease state and digital enablement. And so those 3 across all of our businesses and across the company integrate how we think about each of our business areas. We've got projects that are going on. And even on the M&A front, you should be able to draw a line between what we say in higher-performing devices, a solution in disease or in digitization. Specifically to CT, we've actually had a very successful last couple of years. I mean CT for, I think, the whole industry became an unbelievably important tool in the fight with COVID because if you don't want to actually have to interact too heavily with a patient, but get down to exactly what's wrong with them, you can do a full body CT scan in seconds and pretty much know. And so around the world, the growth of that modality for all companies, us as one of the leaders and everyone else, it has expanded quite a bit. And I think we're going to continue to see its ubiquitous expand. What [ Brian ] is talking about, photon counting, is kind of the next generation, and I'm talking about a 20-, 30-year leap in technology evolution. So photon counting is a completely different way of actually creating an image in CT. It literally is when X-ray comes out of the tube instead of the flood of the radiation and an inverse kind of projection calculation. You count every photon. I mean get your head wrapped around that. It's huge amounts of terabytes per second of data that you gather. Why would you want to do that? Well, if you can do that, you can actually separate the different levels of tissue at a molecular level to understand more specifics other than just spatial resolution in the pure anatomy itself. And the more you can provide separation, the more you can get into different delineation of diseases with quantifiable data, radiomics, if you will, to help diagnose differently. If you can count each photon, you also have the opportunity to potentially throw away those that don't count to make the image and potentially reduce your overall radiation dose. So there's a lot of things that are associated with it. We're working on what we would consider the second generation of the technology, which is a deep silicon approach. There's a lot of reasons we chose that. One is the energy levels. There are other players in the market using something called Cadmium zinc telluride, which we know well. Our nuclear med cameras are all used for that. It's great for that. It has challenges relative to a couple of different attributes that we believe long term are going to limit its capabilities and why we put our bet on deep silicon, which we also believe outside is going to give this great energy separation, probably 2x what ZZT will do. But it also is going to allow us on the cost curve to get the cost down because the way you really turn this into a big play is not just have it as a super premium system, but be able to have your full CT line. And so I would say in the '25 time frame is what we're thinking about is when a product like that comes out to market.

And your thoughts on how widely used it will become. I guess the product that's on the market from one of your competitors at the moment is very much a premium-priced technology. I mean do you think photon counting becomes ubiquitous?

Yes. I think over time, it will, as long as the cost curve can be delivered and, honestly, the promise of what it can do over traditional systems today. I mean if you look at the systems we all have out today between cardiac imaging, lung screening, the dose efficiency, the body coverage, trauma, they do quite a good job. This idea of spectral imaging, the separation of energy levels that you can see things, find things that you can't do today and you can actually incorporate that on a really efficient system, I think, is a big opportunity. And so we totally believe that, yes, you start out on the premium scale, but if you can drive the cost curve down because of the design decisions you've made, it ultimately will come to the vast majority of the systems.

Okay. Anything else that we should be sort of keeping an eye out either in the ultrasound or in the imaging business over the next couple of years?

Yes. There's quite a bit, probably more than we could cover. But if I would pick out a few, I think in the MR side, this idea of more and more integration of artificial intelligence to actually enable a much faster exam. If you think about MR, for anybody's had one, the #1 complaint is why am I in this little bore? And why am I in here for an hour? I think in the next couple of years and even now, most of the MR exams, when you have the latest capabilities on them, outrun the hospital's ability to schedule. And what's good about that is MR is a nonradiation modality becoming the screening modality of choice. And so having a 5-minute MR exam to quickly check on something, whether it be breast cancer, your knee, children, all those things, I think you're going to see a big ramp up in that. And so the MR growth potential, we think, is quite large as well as a key modality for some of the emerging neuroscience drugs and things that are out there. I think ultrasound is the other one I'll just highlight and then one other, monitoring. Ultrasound and handheld, we think, is a big breakthrough opportunity. We just did this deal, Caption Health, just a couple of weeks ago. It helps bring AI into handheld and, ultimately, the rest of the line. Why is that important? Ultrasound tends to be an art. And if you can turn it more into a science that any of us can learn how to scan pretty quickly, you can imagine between all of your primary care physicians, someone in Africa and an outback area taking a look at as a clinic to provide care, someone who's going to an underprivileged neighborhood to collect blood can actually do an ultrasound scan on a patient. It really game changes in how that data comes back to a central hub. And so we're leading in that position. And then the other one just on monitoring, which I think is super interesting, is we're one of the top 2 monitoring players in the world. Most people don't fully realize that. And then monitoring today, no one really captures the patient data. We actually have 2 new platforms coming out in our ultrasound platform that actually will help follow the patient through the institution. Why is that important? Because if you actually are following the patient through, you're not switching them between different boxes. But if you archive their data, you can apply pretty basic machine learning against that to see what's happening with oxygen, what's happening with CO2, what's happening with EKG to predict who may be in distress before they actually go into distress. And we actually, in our respiratory capabilities today with leads that we actually have, we can predict that minutes before it actually happens. And so I think that's one of the future trends that is another exciting area that we're focused on.

That's helpful. And Helmut, how should we think about that R&D focus in the context of the P&L? I think looking at your R&D intensity, it's increased significantly, but it still is below the numbers that we see from your peers. Is that the right way to think about it? Should it go up from here?

Yes. I think over the last few years, and especially in 2022, we have significantly increased our investment into R&D. So we have spent in 2022 more than $1 billion in R&D. And I think to your comment, when you compared to some other companies in our space, it's not always apple-to-apple. So there's a gap difference. There's also a difference when you look at them from an [ ETR ] perspective, we have a large service business. We have a PDx business that don't require that much in R&D. So I think we are not that far off. I think [indiscernible] other companies spend in that space. But to us is really, I would say, spending the amount of R&D effectively, Pete and myself, with the management team, we spend a lot of time on going through how we spend the money. Is it effectively how we spend it? And I think we might actually, I believe, also have a little bit of a structural benefit to where we spend our R&D in terms of a lot of resources in lower-cost locations across the globe. So I think we can always be a little bit better and hopefully have the right return on that R&D investment, which we have significantly stepped up over the last couple of years.

And I think you're running at, what, 7% of sales at the moment?

It's a little bit less than that. It's in the year closer to 6% or so. And we expect that -- so we did a significant step up in 2022. And going forward, I think we will be probably running at the gross level of R&D that's at the top of our revenue guide range. So think about 6%, 7% growth on R&D on an annual basis.

That's helpful. Let me see if we have any questions in the room. I have plenty, but I want to make sure everyone has an opportunity. Maybe before we kind of move to the rest of the P&L, just a quick comment on price. And we've heard from you, but also from your peers, a much bigger focus on pricing and positive pricing over the last 6 to 12 months, I'd say. What are your expectations for price in 2023? And then as you move out beyond 2023, do you think you can sustain this slightly positive year-on-year contribution from price also beyond the current time frame?

Yes. Look, I think from a standpoint of price, the first thing is trying to make sure we always bring the right value for customers, right? If the customer doesn't see the value no matter what market situation you're in, over time, you're not going to be able to gather it. So as the core part of this is this innovation discussion we just had and how that translates into annual singles and doubles to enable more value to get price is super important, and we always haven't done that. So that's a change component. Clearly, coming into the last couple of years with all the rising costs, people and different industries raising price, it's a catalyst to help everyone. And sometimes, in an organization like ours, which is quite large, it's the emphasis you need to kind of move headsets. Why would you do a contract without some negotiated escalator? It's a fair balance. If it doesn't go up, you don't take it. We had many that weren't. Thinking differently about certain products that you just can't get the supply, and you have to have a very tough discussion with someone that says, "Look, I'm sorry, but here's what we're going to try to do to take care of you, but we haven't had a choice, but to take up the pricing." That's kind of what played out the last few years. And what we've done then is actually moved into a situation where we really are measuring our teams and helping them understand that getting a small incremental price can be the difference of 10 new products over the next 3 to 5 years. It can be the difference of the breakthrough product. It can make a difference for that customer you're talking to as patients. And so I think internally, as a company, I think we're in a good spot of understanding how to go after that. We have about 2 to 3 points of price, I would say, that's in -- coming into this year, a lot of it in backlog. Some of that is offset by still higher cost materials that we took the risk to buy last year so that we could fulfill. So some of that nets out relative to gross margin, but we feel pretty good about that. And as we go into the future years, I would say, to have a goal, to have 1 to 2 points of positive price, it's a combination of some of these singles and doubles and adding value to customers, I think, is a very reasonable thing to have. And we come from an industry that historically has probably been down 1 to 2 points. And so I think that's a really important part of our strategy is to be able to do that, measure teams both on innovation to enable that growth and sell value and field be able to capture that. And both of those are how we're doing it are somewhat new within the organization, how we're capturing that.

And so when you think about that 4% to 6% growth ambition that you've communicated as part of the LRP, is price a component within that? And how significant is that?

Yes. So I think in the spectrum of thirds, it's probably one of the thirds that's in there, right? It's a point or so within that window, I think good commercial execution. So the kind of folks that really know how to close, know how to do the clinical, know how to do the leadership piece, all that is another third. And then I'd say the other third is the constant upgrading, refreshing every 12 to 18 months of the product line. And if we have big home runs like photon counting or other items, they could be upside beyond that. But this is the fundamentals of good pricing and really DCP execution -- the commercial execution and then the R&D.

And presumably, then price also plays into the margin guidance. How should we think about that uplift into the high teens to that 20% margin? How important is pricing?

Yes. So where we are now in the mid-teens, 15-ish percent or 14.5% exiting on a stand-alone basis 2022. Our aspiration is going to the 17s into the 20s over the next years to come. And clearly, price all of the pictures that is a key component of that. So we call it commercial excellence, which price is one component of that one, which again, I would say that's really 1/3 of our margin expansion story. The other third of it is really around innovation, how we look at the innovative products, bringing new products into the market, which again can come out higher price accordingly, so there's the innovation component. And the third component to me is really about what we call optimization. So when you think about, as we've exited the GE umbrella, we have TSAs that we'll be running for the next -- between a couple of months and 2 years. We have opportunity to really reestablish, I would say, our footprint in terms of processes, in terms of how we go to market, in terms of real estate, in terms of our IT footprint. So there's this optimization component that we have. A large group in the organization working on how can we set ourselves up really for fit for purpose for our size of organization in the markets that we serve. And that includes, again, in how many countries we want to operate with the sales office, how many of rooftops we need as an organization? How do we change our IT setup, how we use, I would say, tools that are really more standardized, probably what we had under the GM brand. So this is this optimization component, which will result mostly in SG&A savings as we go forward. So all of those things together, we are really planning out for where do we get to by exiting 2024, into the 17% range of adjusted EBIT margin, and then beyond that, how do we get that closer to 20% as we go forward?

I think we have a question there. Go for it.

[indiscernible].

I think it's part of that. So it's part of our, I would say, rooftop footprint optimization. There's also optimization in the way our manufacturing footprint that's part of that. So it's not only sales offices, but also we're looking very closely also at manufacturing footprint accordingly. Because on one side, we want to be [ local for local ]. And I think it really helps, I think, in the supply chain environment to have the effect in the local supply base, serving the locally in the large markets. At the same point in time, do we really need every factory around the globe, and we have many of those, and some of those we have already earmarked for transformation. Yes.

One of the things we've done -- we've started and have done over multiple companies is the whole look at complexity and configurations. And so in our industry, it's not uncommon to have a proliferation of this tail of sales. You look at 80% of your sales come from 20% of your configurations. And we have a similar distribution. So how do you cut some of that tail off? How do you take a look then about moving those customers into standard configs, hopefully higher gross margin, which typically can do? And then what's that mean for plant footprint consolidation? So I think we've got opportunity. One thing that is that we're quite good at is we don't do everything from dirt up, and we actually are pretty good at leveraging our broad network. And I think there's a bigger opportunity to kind of partner in different regional hubs around the world to have a more robust supply chain that's regionally based. And I think that's one of the other items that we're looking at.

And as you think about moving from that 17% exit rate at the end of '24 up to 20%, what's the biggest delta in that sort of latter part of that LRP that gets you all the way up to 20%?

So I think it's -- I think a couple of components. We talked a lot about the innovation, which I think will be part of that one. I think the continuous conversion in excellence, I think, is also part of that piece. And clearly, what we can do, I think, also on the SG&A optimization is also part of that. So it's really, again, that all 3 components, but I think we will continue. And clearly, M&A. We're obviously looking at M&A also as -- on an inorganic basis where we can add into the portfolio and continue to drive the growth and have accretive M&A as we go along. So that's part of that expense story.

And I think just if you think of our 4 segments specifically, more growth in ultrasound at 30% margins doesn't hurt. Having imaging come closer to our next competitor, those 2 dynamics are a big part of that whole component.

Makes sense. Makes sense. I want to talk a little bit about 2023. And obviously, you've guided for 5% to 7% organic this year. You said first half better than the second half. You exited the year growing -- last year growing very healthily. I don't know if you're able to comment on what you're seeing year-to-date from an organic sales growth perspective, but maybe just help us think through, is the first half within 5% to 7% but at the upper end and the second half is at the lower end? Or is it -- are you above it in the first half and below it in the second half? How should we think about it?

Maybe mean I'll frame the first half, second half. So clearly, we are looking for because, again, growth rates are going to be easier in the first half. So we're looking at something that's going to be most likely at the high end or even beyond the guidance for the first half. So again, the 5% to 7% -- so I think about 7%, maybe even above that in the first half. And then I think in the second half, being more at the lower end on the growth rates and maybe even at the very lower end as we exited Q4. So that's really how we looked at that because again, how the growth rates were this year -- sorry, last year in 2022 is going to be a little bit reversed as we go into 2023 from that perspective. But overall, every quarter, we expect that we will see sequential growth as we go through the year. So Q1 bigger than -- Q2 bigger than Q1, Q3 bigger than Q2 and then Q4 bigger than Q3 accordingly. So that's how we probably look through the...

I think it's fair to say, since we've given guidance, we haven't seen anything that's fundamentally changed.

Yes, no change. I think -- yes.

Maybe on margins, and phasing for 2023. Again, you've talked about 50 to 100 basis points. Is that more first half or second half weighted? And then maybe a slight challenge for me, which is if I look at the pricing that you've talked about, and if I look at, for instance, the guidance that some of your peers have given at the magnitude of margin expansion they expect this year, the 50 to 100 basis points is below that. So why could you not do more, especially if you get price benefit and freight comes down and inventories normalize to some extent and you get some raw material benefit? Sorry, I know it's 2 parts to my question, but take it away.

So think about, again, the margin expansion story will be a little bit reversed from the revenue story, coupled with the revenue growth, but where we expect more of the margin expansion coming in the second half. And the reason for that is really because we obviously exited the year with quite a large amount of inventory. That inventory was still purchased at higher prices where we paid quite some premiums in last year. And that inventory we have to flush through, that we flush through most of it in the first half of the year. So we'll see slight less of that margin expansion in the first half, but -- yes, that's going to be how we look at that, yes.

And why not more than 50 to 100?

Because again, I think -- you have to think about we will -- we are shipping more of our backlog to this in imaging. So we're shipping more hardware, which is actually very good because that hardware is then having a service attach as we go along once the product gets out of the voluntary period for most of the part. But our mix will be a little bit a headwind as we go through the year because of the large imaging hardware component that we have had in there. But that will ease as we go through the rest of the year when we have more services coming through.

And I think as we've mentioned before, we want to kind of see how recession/economy plays out around the world. If things play out the way they're going thus far, could we do a little bit better? Potentially. But as we know the macro environment is a little fragile and so just understanding how things play out on supply. But I think we've got quite a good pathway to -- and with different levers, obviously, depending on what plays out.

Okay. Maybe let's switch tacks and talk briefly about M&A and your ambitions there. Tuck-in versus transformative, how are you thinking about that? You've been fairly active since you came out of your parent company. We've seen a couple of smaller transactions. Is that more of what we should expect from you? Or do you have desire to think about larger, more transformational transactions?

Yes. So again, just to the fact that someone asked you say, boy, you guys have been very active, one per month. As we know, it's kind of the rules of the farm, right? What soil and seed you planted 10 months ago are harvested a year later. So we started a year ago really being religious about weekly BD going through stuff. [ Brian ] is here with us who runs our business development stuff and spending time building relationships and harvesting. And so many of these things we've been working on for a while. But by definition, if you looked at our funnel, they're 90% kind of singles and doubles. And the exciting part for us is we have quite a big list of items. Many of these we will never act on, but I'm just a big believer that actually having your leadership organization really looking at weekly, what's happening? Did something go in play? What's going on? If these guys buy this, what's it mean to us? It's how you run an agile company with a dynamic competitive situation. That being said, I think there's a lot of interesting small tuck-in deals kind of like IMACTIS, which brought us interventional capabilities on CT. We did have the Caption Health, which has brought in the AI piece for ultrasound. Partnerships that we've done in different areas in ultrasound as well as monitoring. I mean we think that there's quite a bit. So you should expect to see that. Look, on scale, by definition, we're more focused on smaller tuck-in deals that we can plug in into the business, that's kind of the core of it. I think as we go over time, I think we have more firepower to do more. We consider more. But what's important, more so when you say transformational, is things that are somewhat [ steady and are nitty ], right? So in a 3-legged stool analogy, when you have 2 legs in your camp and one reaches into something new, those are kind of our favorite because we either know how to build the technology where we know the channel or we're learning a new component relative to a disease state. And those tend to be higher success because you really know what good is on the inside as opposed to you're counting on the company you're acquiring. So those type of deals, obviously, can range from $20 million, $30 million to $1 billion plus. BK Medical is a great example of deep ultrasound, deep capabilities on probe technologies, but brand new in neurosurgery to us. But we can leverage that capability, grow that business in the teens, great margins and evolve that into other places in our business in ultrasound, but also potentially venture out into some of those new commercial areas that we've developed. And so I think that's what we're going to look at. Like most things, you never say never if the perfect scenario of accretion strategy, all those things align, you have to look at them. And as we all know, you can't predict when those things are going to happen. But our core focus is in these types of singles and doubles that over time really add a ton of value to the company.

And maybe, Helmut, from your side [indiscernible] on the balance sheet, what the path looks like from here?

So the balance sheet, I would say, we are quite happy with our investment-grade rating. I think that is very important for us. It's important for us. It's also important for our customers because they want a partner that is going to be in there for the long term because some of the equipment we are selling, they're going to be using for 5, 10 or maybe even more years. So our investment-grade rating is very important for us. Where that rating is now, I think, is also important for us. Paying down debt, I think it will be something that is going to be -- is high on the agenda on the focus of the capital allocation. So we will be paying down debt as we go along. And we have the facilities, the way how we set up the debt stack [indiscernible] accordingly. And then I think investing into the business organically and inorganically is very, very critical for us. The question that always comes up is what you're going to do with the dividend? That's an interesting question, and we're going to be having the discussion with our Board in not too long time and more to come here in not too long time on that item. But otherwise, it's really about investing into the business, doing what Pete just said on the M&A side and maintaining a strong investment-grade rating and then paying down debt.

Fantastic. We have 20 seconds left. And so Pete, this is your elevator pitch for what do you think, having been a public company now for a little while, what are investors missing? And what we should be spending more time on that we haven't talked about today?

Well, I think just from -- I don't think that people are missing a whole lot. But I think the appreciation for a focused health care company, in the markets we're in, with the scale that we have and the digital capabilities we're adding, we really have the opportunity to do a stepwise change over the next 5 to 7 years. And I think you're seeing some of it as more people understand the company, the capabilities we have at GE Healthcare. And I believe last part is some of that you can see by the people that are joining our organization, our new CTO came in from Amazon, Head of AI and Machine Learning there, because they see the potential as well. And I think with that, we'll focus on how we get there, but I think there's some bigger opportunities down the road that can make a difference.

Fantastic. We will leave at that. We look forward to watching that over time. Thank you guys for being here. I really appreciate it.

Thank you.

Thanks for having us.