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

Well, good morning, and I'm thrilled to be here with all of you at the GE HealthCare booth at RSNA. Before we get started with some questions and answers, I'm just going to toss it open to you to make some introductory remarks. But also, this is quite the booth.

Yes. Thank you for coming, by the way. And we've got with us Jay Saccaro, CFO; and Taha Kass-Hout, our Chief Scientific Officer. And yes, for those of you that haven't been to an RSNA before, it's quite an event. I think it's one of the largest, clearly, in North America healthcare meetings. It's the Radiological Society of North America, where all of the ecosystem around radiology really comes, around the world. And as you can see, both sides of McCormick Place really filled with equipment. And so our booth here is quite a large sprawling booth, but it gives a great opportunity for individual clinicians as well as hospital systems to come through and to be able to see not just a given product, but everything together. And so it tends to be a very vibrant event, and now, with a lot of digital and AI and equipment together, it just gives a great format to demonstrate that.

So how has it been going for you so far?

It's been great. I think from Sunday, the floor was packed. That's what we want. We really want to have high contact, very good sessions. The last I heard our leads were up quite good, which is obviously an important measurement of this. But I think importantly is the ability to kind of have some of our big customers be able to really interact with us. And -- on the booth, you get a chance to see this, and we have virtual online for those that are more interested. We've got over 40 new product introductions that we're actually introducing here at the event, significant amount of artificial intelligence and digital components, which are becoming a bigger part of this. I think many know that radiology -- our radiology partners, us as a team, really tend to be kind of cutting edge on digital applications, mainly because it's a core of a lot of what we do. So that's a big part of the features here. But a significant amount of interest and excitement about different capabilities from what we call theranostics all the way through different types of diagnosis and therapeutic pathways.

You led me straight to my first question, which is artificial intelligence. It's been all the rage in the press these days, but it's really percolating into the medical device arena also. And in fact, GE HealthCare has been doing quite a bit in artificial intelligence for some time. Could you just sort of level set us and give us a big-picture view of what's GE doing in that area?

Yes. Well, I'll make a couple of comments and then Taha who owns our broad scientific and development group from the hardware teams, but also on the digital, can comment more specifically. But if you were to walk around, I would say there's 4 big things that you would see. One is kind of this idea of AI inside that either helps make the image quality or capabilities better because of how the algorithms work or actually changes the productivity paradigm. A 10-year-old product, we can make 50% more efficient. That's a huge opportunity for customers. So that's one set, and we've led the area of doing those things. The other area is how do you make actually increased productivity or capabilities of a user. So guidance in some cases. So like in our ultrasound area, we have AI integrated in a product called Venue and across the board. It actually helps a novice user be more effective at using a product. Other areas such as diagnosis, so actually helping find different lesions or potential issues. And so we've got an area where we incorporate not only our own apps, but third-party, and how do you orchestrate that? And I think the fourth area, we're talking a lot about here, and Taha can touch on, is this idea of quality control, cyber, and all that. Because as you bring all these together, and they're great, how do you make sure they're doing what you want them to do? And all 4 of those are big topics.

Yes, absolutely. Just to kind of follow on that, it's -- I mean our digital and AI strategy enhances growth opportunities by really encompassing precision care and helping clinicians and radiologists to do their job better and also improve patient outcomes. And if you step back a little bit, I mean, this year survey has shown 42,000 shortages in radiologists. Radiologists -- about 49% of radiologists have expressed burnout, and it's the highest in the medical field. And that comes down to 2 major challenges, dealing with more and more flood of information that they have to do to do their job, whether that's diagnosis and also pushing into treatment. But also the workflow efficiency, how can I do more with less time that I have. So that explains our strategy around. Today, GE HealthCare is the leader in MedTech when it comes to the FDA-approved, AI-enabled devices, authorizations by the FDA. It's about -- and broad -- across a broad range of capabilities. AI enablement, as Pete mentioned, for example, faster, bringing scan times for ultrasound with less keystrokes by automating that by up to 80%. If you look at AIR Recon DL on the MR machine, not only is it improving the imaging, you can do faster scans but also better quality scans where you get 3x the clarity, twice as much resolution from the same MR machines. But also widen out to the -- how you can deal with the funnel of patients, the work we have done with MGB around missed care opportunities. So these are not just patients not showing up. Patients showing up, but you can't really take care of them, where we have shown also accuracy of that model to do up to about probably 96%, and we continue to innovate in that space. Specific to the AI development that we're doing, the AI we're developing ourselves that goes on the machine; for example, better quality of the image, faster scans, better workflow efficiency. The second area is also working with third parties, inviting innovations from anywhere through our app orchestration. A lot of radiologists love to see apps sort of work behind the scene to do various challenges along their diagnosis. For example, a patient -- COVID patient need to zoom in whether the patient had pulmonary embolism. There's an app for that, that's been developed and validated and FDA approved by a third party. So today, with our app orchestrator, we orchestrate about close to 30 of those apps. These are well-curated applications, all FDA approved. A lot of the radiologists enjoy that experience because it's seamless workflow, but also reduces a lot of the total cost of ownership on the health systems where CIOs and CTOs not having to worry about how can I plug and play this application, what about the security holes, the cybersecurity, and do that.

And we think, Joanne, I mean, to Taha's point, this is going to be really important because there's going to be all these thousands of applications, your clinicians may want different. And if you're going to use different companies without a single way of integrating into your workflow, you're not going to gain the productivity. And I think that's been one of the real positive reviewed areas, obviously, on the booth this...

Exactly. That's -- and then another thing is the clinicians trust in these AI and the output of this AI, so how can I continue to trust that the output is clear. That's another area of technology and development for us right now. We're doing a pilot with MGB to do the full feedback loop. How is the algorithm? Algorithms like AI is just like software, have life cycle. And over time, the output might change depending on different characteristics in the hospital and the data and the patients. So we're doing a full end-to-end evaluation for these models so that we can have a continuous feedback loop in how these models are offered, and we're going to offer that also back to the enterprise next year.

So this isn't just to aid in diagnosis and to aid in communication, it is a full circle solution...

Exactly.

Okay.

It's a one-stop shop where you can do -- where you can orchestrate these apps, we can bring our own apps, whether that's in a device or in the workflow, and provide a full feedback loop.

And where do these technologies come from?

So -- technologies we're developing. So we're making material investment in [ digital ] applications all the way from multimodal data aggregation and synthesis, security, cybersecurity, Internet of Things, in addition to applications we're developing that fits whether on a device or in the workflow, and we're inviting third-party vendors to come, also plug in their applications in the workflow, as I mentioned, with app orchestrator. Over 30 of those are available today.

Okay. So it's not just a closed system. Others are able to...

We're agnostic, open. Yes.

Agnostic, open system. So one of the systems, the AIR Recon DL is getting a lot of air time. Walk us through what that is, what makes it special?

Yes, I can start. And so AIR Recon DL and the deep learning, that's the DL stands for, has been an approach that's been incorporated in multiple products and our PET/CT, our CT systems, MRs, where it originated. What it really does is -- I'm going to -- the MR, the software guys are going to push me for butchering this, but I want to make the point simply on this, how you've done reconstruction in MR, and maybe 40 years hasn't fundamentally changed. So we're fundamentally water, H20, a lot of hydrogen lines to the magnet. That's how you make an image in MR. And as these change with RF input, a certain percentage of those molecules make an image. They're actually a very small percentage. In image quality, it's called signal-to-noise, how much turns to make an image, how much do you throw away. Well, a deep learning model is you can actually get into the scenario where you can understand what is not going to make an image and what is going to make an image. And in many cases then eliminate that data, so immediately, your signal-to-noise ratio goes up, a big part of how you improve image quality, but also the processing of data that will never be used to make an image, actually helps you create a much faster capability, much faster procedure. So the great part is for a customer, why they're so excited is you have like 8 or 9 MRs and you buy 2 new ones. Well, guess what everyone wants to use from their patients. They want to use the first 2 new ones because the other ones might not have had image quality that's as good as the brand new one from 10 years ago or it might not have the same productivity. And what we can do is installed base upgrades and new systems at AIR Recon DL and make them state-of-the-art. And so if you think about it in a world where you're short on tax, nursing costs are expensive, you're short on radiologists, and you can take an MR that you had that was doing 20 patients a day, upgrade this and now be able to do 30 plus, it's huge ROI. And these are months' return on the payment. So that's where the real energy started, the CT team is doing something similar. The PET team and PET/CT, which is a lot of growth in that area, has fundamentally changed how you think about the actual crystal dynamics and how that works, but that's been super interesting. And I'd say I've been in this business for a long time. This is probably the deep learning adds into how you make an image and what that does to performance. This is one of probably the bigger changes that have happened in the last decade.

So you mentioned using in other areas, such as I'm going to question ultrasound. And how you think about the launch of Vscan Air SL?

Yes. So look, in ultrasound and on the booth there, in particular, we're showing this integration of company we bought just at the beginning of the year, and now, 6 months transpired, we've already integrated their technology into our system. And I think one of the things that Taha is bringing is this focus of how we separate hardware and software and have API integration so that what might have taken 2 years to integrate, one can do in months. And that's a really important part of our story going forward, about how we bring innovations, particularly software to the market that have higher margins and capabilities. The SL, the handheld is if you've seen it, and I should have had one up here is our handheld ultrasound system, we have 2 versions: one focused for general imaging; one, the SL you mentioned, we just launched for cardiology and vascular procedures. And the great part about the product is that you really have micronized and shrunk down the capabilities into a handheld nontethered system. So there's no wires to it, talks to your cell phone, and the ability for that to have image quality that's as good as maybe one of the best systems we made 8 to 10 years ago exists in that. And so we've coupled that with artificial intelligence, in this case, the Caption Health product, to be able to help someone that doesn't have multiple years of training to be able to use it more effectively. So our vision for this is -- particularly of handheld ultrasound, if we're sitting down 7, 8, 9 years from now, that when you go to see your primary care doctor, they're not just using a stethoscope, they're using handheld ultrasound. And you can imagine without even knowing all the applications, how much more of a thorough physical evaluation can take place, and then, how those images can be integrated into their hospital network, how you can think about the diagnosis, how AI can play a major role in that. So there's a lot of excitement around handheld ultrasound. We just signed an agreement and had funds come from the Gates Foundation to take the same technology into underdeveloped markets around the world. We're doing other work with different folks to be able to enable underprivileged neighborhoods within the United States where people may -- aren't coming into an institution. How do you have an economic provider actually reach their house to be able to do basic scans for other capabilities? But ultrasound, there's a lot of opportunity with AI and its mobile capabilities in the future.

So what are the obstacles to adopting these technologies?

I mean trust in AI is the biggest obstacle today or challenge that a lot of clinicians have expressed. While they're very, very excited about AI, they're also worried about how you monitor the output of these AIs so they can remain consistent, number 1. And number 2 is explain how the output was done in the first place. This is why we're making those material investments, as I mentioned earlier, in breaking that black box. By improving the full feedback loop and also help explain to clinicians how any decision in the process, whether that is on the preprocessing or in the workflow, the output of those is fully integrated and fully explained to those clinicians.

I'm going to ask a question to you, Jay. How do you monetize all of this?

It's a great question. But interestingly enough, as we think about our digital revenues today, we have over $1 billion in digital-related sales. And so products like AIR Recon DL are products that our customers despite barriers to adoption are real products for us that we're selling today that are having a great impact on our customers. And so I think from our standpoint, to the extent that we're able to solve problems, make hospitals more efficient, increase the quality of diagnosis, we're finding that there's an easy ability to monetize those things, and how you do it, whether it be a subscription, an outright purchase, and add on to a service deal, how you do it. That's a separate question, but I think the proof in our case is there with over $1 billion in sales today, and we have high aspirations in terms of where we can take that going forward.

I think the other aspect of it, which is exciting, is we have, what, Jay, 45%, 50% reoccurring revenue base today. Obviously, the other side of it is a lot of capital transactions. And as we grow this base, one of our goals is to offer to customers reoccurring models, either in SaaS models or subscription, which many years ago in this industry weren't as well accepted. Today, they're becoming more accepted. And I think to be able to bring in a lot of these capabilities via subscription makes it easier for the customer from an ongoing payment standpoint. But obviously, for us, these high-margin features on a reoccurring basis is quite interesting.

Yes. And the example, as I mentioned earlier, the app orchestration is a single plug-in, single billing, and safe and secure assurance to customers. And they don't have to spend 9, 18-month cycle to plug one at a time. You just come to one place with GE HealthCare. We offer our applications in addition to third parties using a SaaS model.

Excellent. Given the size of the spirit, I think there's a lot of technologies that we could talk about. But if there's a couple of others that you would like to highlight, what would those be?

Well, I'll start, and Taha, how you jump in. I think when you come into the front end, I think in our MR area, MRI is booming. It's non-ionizing, non-radiation modality. And with some of the implementations we've done with deep learning, we have a product called Sonic DL, which fundamentally changes the ability to do cardiac at unbelievable speeds. But what's happening now is you're able to have MR, which in many cases, just a few years ago was a 45-minute, 1-hour study, you're getting down to sub-30-minute slots, even to a screening capability, which is just great for everyone, honestly, and the ability to use it that more. What we have on the floor is a product we call the Champion, which is a wide bore 1.5. So for those claustrophobic folks out there, this is a great answer of a shorter magnet that's more open. But the important part is it's at a value price point in many cases, that brings all of this great deep learning capabilities to it. Most of the time, you'll see those deep learning capabilities are only on all the higher-end systems. We've made a commitment to take it across the continuum. And the reason being is hospitals have flagship institutions where they have most premium, and they have outpatient centers where they have mid-tier-type products, and you want to be able to have consistency. So that's a big one. In the booth too, there's a lot of buzz on this topic of theranostics. So this is a combination of a diagnostic and a therapeutic together. There's been a lot of buzz on prostate cancer. Some drugs that have come out from Novartis that have really made a significant difference. But to deliver those, you need a really integrated host of imaging equipment, the right type of nuclear medicine camera. We've got a very interesting product that's really optimized for that, the StarGuide PET/CT. And there's a really interesting opportunity to integrate all of that in with digital products to optimize it. We're quite bullish that with the pipeline of pharmacological agents coming out and stuff, that this is going to be an interesting growth area. The ultrasound area we talked about is just booming. It's hard to even walk through it on a regular basis because our GI ultrasound, we have a brand-new product in the area, and we also have a lot of the guidance products that are going on. But across the area, I would say the interest is high. It's just really interesting right now about how much imaging in particular is playing a significant role. You follow the rest of the device industry. All these great new things happening in cardiology, oncology, orthopedics, many cases need primary baseline imaging, follow-up imaging. They need guidance to that, and we play a significant role. And that's really what's driving a lot of the growth of our market, and I think we're going to see into the future. So there's just a ton of interest from that standpoint. And that's why we have a lot of hospital systems that are coming through as an aggregate to take a look at what do they need to do to upgrade the whole fleet over a multiyear period of time.

The next topic, I think we could spend an hour on, but I do need to mention Alzheimer's, which has become quite discussed. And I'm going to throw a couple of questions out there, again, in the interest of time. What is the current treatment paradigm? How does GE play a role in the new treatment paradigm?

Yes. I mean we play a critical role here, both in diagnosing as well as treatment of Alzheimer's. Through the sleuth of our -- if you want to look at the full scope from cyclotrons to introducing these tracers to PET imaging to also MR, as these approvals come with these new drugs in the market, which we're really excited about, but it's very important to understand the progress that needs to be made. For example, the patient -- Alzheimer's patient needs first a PET image to just evaluate the -- where they are in their Alzheimer's. We have a tracer called Vizamyl, it's FDA approved, which is -- not only has certain characteristics as far as geographic coverage, but also provide a color map of the plaque in the brain. Then, as you apply these images over time, you need to kind of do multiple MRs every 2 weeks to monitor how the drug -- these are drugs which are very, very effective, but can also have very severe adverse events such as brain swelling or brain bleed. So you need to be able to do multiple of those MRs over time. And then a final PET to see whether the drug has been effective or not with the size of plaque sort of reduced. All that is covered with digital solutions that we offer because as in the journey of a patient we generate a lot of images, a lot of data that comes from the lab results as well from the medical record as you track that longitudinally. So this is where we provide a single pane of glass to monitor all this information. So whether radiologist or the treating physician will be able to go to one place, be able to see how the patient is progressing.

And it's a good example, Joanne, of how our world is changing, where we would talk about just the specs and features of an MRI or a CT or an ultrasound or whatnot, interventional lab. And that, yes, that still goes on. But more and more, we're having these discussions about care pathways or a specific disease state. So in the spectrum of neurological disease, a care pathway, specifically the disease state of Alzheimer's as Taha just went through, yes, we're having discussions at an executive level. So look at these, new drugs are coming out, how are you thinking about implementing those? You just don't go to the infusion center and get it, you need to have all the things he just went through. Do you have the right equipment in the right areas? Do you have the right features on it to do that? How are you going to manage that? And we play a consultative role across fleets of organizations to do that. And I think across each of the different disease states, more and more of that is taking place. And the more we can integrate our products together to solve solutions for customers, we get more value for that. And that's a big part of what we're trying to demonstrate here, but in many other venues as well.

And so when you find somebody is using Vizamyl in patients to detect Alzheimer's, are they more likely or more inclined to use other GE HealthCare products?

I think the answer is probably one agent by itself may not change it. But if we can bring a solution that -- when you make these agents, in many cases, they have -- they are half-life-based agents because they're radioactive isotopes. How you get the amount that you need when you need it? Do you have the right systems? Do you have the right equipment? If you bring the broader solution, will customers say, "I want to work with you for everything." There's a higher probability of that. And again, that's why the integration of how we do these things, we think, gives us advantage. Taha also touched on another important point is how do you take all this data and put it in a way that actually gives you the quality control or the capabilities to do this at a more effective level? We're working on those solutions as well. And again, different areas across the company, whether it be cardiology, neurology, actually different areas in oncology. We mentioned prostate cancer, lung cancer. So that's a really important aspect of how we create value. The more our products work together seamlessly, and we can even incorporate other technologies in the ecosystem, so-called third-party pieces, we become more of an option -- a preferred option in the eyes of our customer.

Excellent. Jay, this spring, spring, fall, seemingly all year. If I was talking about GLP-1s, I've been talking about China. And so can you sort of give us an update on where you -- comment on China and remind us of what percentage of revenue is generated in that region?

Sure. I'll make some comments, but Pete also just recently got back from China a couple of weeks ago. So we can share -- Pete can share some of his comments in terms of customer visits and so on. But listen, China is an important market for us. It represents 13%, 15% of our overall revenue as a company. It's an important growth engine for us. We've been selling there for decades, decades. And we've had a -- we have manufacturing facilities. Overall, it's a great market for us and one that we're committed to. In the third quarter of this year, there was a lot of noise regarding anticorruption initiatives that the government was pursuing. And I have to say, we were incredibly pleased with our China team and their ability to navigate this environment. We reported double-digit sales growth. We also reported growth in orders as well. Now, there may have been some impact from anticorruption in terms of less activity with physicians and clinicians as a result of the anticorruption initiative. But overall, really happy to report growth in the third quarter. And so as we look forward, China is going to continue to be an important part of our growth story. It's a market we're committed to. We recently announced a joint venture with a local partner to access some markets that we currently are not penetrating in significantly. So it's -- overall, it's a tremendous market for us and a really nice opportunity. Pete, I don't know what you would add to that.

Yes. No. So I was just over my first time as the CEO, now as a separate company, spent about 8, 9 days. As Jay said, we have 7 facilities that -- some in various levels that we've been in Beijing manufacturing for over 40-some years with great relationships there locally. We've got facilities up in Shanghai, Wuxi, out in Shandong, and other areas that we're growing out and just, I would say, really great team. Strong experience, knows how to actually obviously effectively work with customers. We have a very, very strong compliance approach. We bring in everything that we do. I mean that's what's second to none on how GE focuses on our business. But part of my time there was to really understand how the markets are evolving, what's going on, what the dedication is to the government to provide care. And I think, as you know, one of the top priorities for the Chinese government is to bring better care to their people. And one of the most important aspects of doing that is earlier diagnosis. So whether it's a CT and MR or ultrasound, 3 of those that we have leadership positions within China and the continued investments there. So I left actually quite positive on what that continued investment is going to be. Are there going to be ups and downs here and there within China? I'm sure they're -- like most places, there will be. But over the long run, you're talking about probably the largest healthcare market in the world in the next 7 to 10 years. The commitment to bring more care there is a role that we will continue to play. And I would just add on the anticorruption piece that Jay mentioned, clearly had some impacts on everyone. I didn't see a significant lingering effect as I was there, meeting with customers, meeting with government officials and such while we're there. But recall last year in the fourth quarter and into Q1 of this year, there was a large stimulus fund that took place. And so I think more than anything, we had significant uptakes in growth last year in Q4 and even into Q1. And so that's an effect that we're obviously working through that we've communicated. But my outlook for the market of China into '24, '25 actually looks quite positive. And I think things will get back on track here to where they've been.

Yes. It's more of an Asian population, a lot of chronic diseases and more remote areas, which really mirrors why we're doubling down on smarter, more intuitive devices, focus on these disease areas and include through all the digital applications and AI and solutions that we're bringing to market to really kind of play it all together.

Somehow we've run out of time. I'm looking at the clock and like, how did that happen? Two last quick questions. Quick update on hospital CapEx? And what are we going to be talking about in a couple of years?

Yes. So I would say on hospital CapEx, we did a survey. We communicated on our call and basically said first half of '23 to second half, not a lot of change, but actually more optimism on '24, meaning that I'm feeling better about my operating cost running a health system and the investments that we might have been kind of taking our time on, we believe we're going to be able to accelerate as we get into '24, '25. I think that's kind of the broader news. Each of the markets around the world are slightly positive, either [indiscernible] in rates tampering, maybe conflict scenarios changing or markets gaining. What are we going to be talking about? I think if we sit down and we talk about it, I think we're going to be talking about how this industry and particularly with our leadership is going to be driving a lot of changes in disease states. We talked about Alzheimer's. I think the roles in oncology. I think the amount of digital and software solutions reoccurring revenue that's making a difference. I think there's going to be just a significant amount more of that dialogue, and we would love to have you come back to be able to discuss that.

I look forward to it. Thank you.

Thank you very much.

Thank you.