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

So I'm going to start off big picture, which is always the best place to think about it.

Tell me what you're seeing in the market. I mean this year, we started -- entered the market or entered the year worried about everything. We were worried about the impact of the ACA. We're worried about how to think about CapEx given the impact of the ACA. And then I've added to my long list of worries the weather. I mean, that always impacts procedures and the such. So I'd love to get your sort of mile-high view to get us started.

Great. First of all, thank you so much for the invitation to the conference. To those in the room, thank you so much for joining us. I think this is our third year since the spin-off. We've been here every year. So we really appreciate your interest and support of our company. Listen, there's a lot going on in the marketplace for sure. But from our standpoint, really focused on executing in this dynamic environment. What does this mean? This means driving commercial excellence to generate orders growth to secure revenue growth. This means real focus on margin enhancements and driving productivity initiatives, also means an incredible focus on innovation. And because we believe all of these things will serve us no matter what the environment looks like. And so as we think about turning the page from last year, really pleased with what we were able to do in 2025 to set us up for 2026. We delivered 5% on a full year basis, orders growth organically. We delivered revenue growth of 3.5% on an organic basis, all of those things setting us up for success in 2026. And I think very prominently, we've made great progress on innovation. We highlighted much of that at RSNA. So I think you can look at the news every day and see lots of different things. But as far as our focus, continued execution and demonstrating that. I think that's really what we've been able to do.

It's interesting because every RSNA, the GE HealthCare presence since the spin seems to percolate up just a little bit, and you had a number of products that were being showcased there. I think the one that got our attention was Photonova and expectations for Photon Counting. And -- do you -- first of all, I'd love to get your thoughts on the timing of bringing this product to market. And then I have a few follow-ups.

Yes. I think from our standpoint, filing in place, and then we'll expect approval at some point this year. We'll get some orders this year, and then the real revenue impact starts to occur in 2027. And so it's interesting because I've talked about the growth rate this year in terms of sales, is very much triggered by the commercial performance that we put in place last year. And then what happens in 2027, is that starts to benefit from this whole set of product launches that we have in place. So it's really -- it's a really interesting multiyear story that we're putting together here. But Photonova, as an example, not a material impact to sales this year, but starts to come into play next year. Same story with whole body PET.

So when you think about the sales cycle, I'm going to make this up, you get FDA -- correct me, you get FDA approval in August, right? Do you -- are you taking orders now and you take orders August 19, again, making that up. How do you think about that?

So once you have approval, you start taking orders, but remember it takes time because you start to introduce your customers to the product. They really want to understand it well. So it takes a few months before you're generating orders from new products in general. And then it's months after that to get sales. So that's why, from our standpoint, it's a multiyear story that we have in place. Now interestingly, the answer to the question does depend on the business because where we've seen more immediate impact, and you see it in our numbers, we're pleased today to have Phil Rackliffe, who runs our AVS business with us. And so excited with the performance in that business over the last several quarters. And that is very much benefiting from the near-term impact from innovation. It's a shorter sales cycle in that area. So it does depend on the business. But in the case of some of the imaging areas that you referenced, it is a little bit of a longer lead time item. And part of that, too, comes down to listen, if you're putting a new CT machine in place, room design becomes a question. It's not on wheels. So we have to design it into the hospital, and that just takes extra time.

And from a competitive standpoint, I mean, how do I think about this versus your competition? How do I think about this maybe cannibalizing other CT products which you currently have?

Yes, I think from our standpoint, this is really a new segment for us. So the cannibalization risk is not high. What we're very excited about is over the last 5 years, we have invested significantly in R&D. R&D levels have advanced and grown quite substantially. And it's important to think about it in terms of total innovation investment, that which sits in R&D, but then there's also some in cost of goods. So we've escalated that dramatically over the last several years, really with the goal of parity or better with the product portfolio relative to our peers. And so we're so close to that. And once we've launched these products, we feel we're in an outstanding competitive position. We're starting to see that -- we're starting to see wins in some of the areas that we've launched already. And so we'll continue that as we go forward.

Okay. There's a whole long list of products that we talk about, and I think Wall Street -- can't speak of all of Wall Street, we've become very focused on 2 Photon Counting and Flyrcado, but there's a whole bunch of others that you unveiled at RSNA, and we've been talking about. I'm going to throw out a couple, but if I'm missing something, please jump in and be like, hey, we don't think that you're paying attention over here. So the first one I'm going to throw out is Omni total body PET/CT and StarGuide SPECT/CT. Those are launching outside of the United States, there is a game plan to bring it into the United States.

Those are great products. Here's the thing. We're a leader in imaging today. And yet we don't have a total body PET offering. It's an important market. for diagnostics, really, really important, and we don't participate today.

How large do you think it is?

We haven't set the size of the market, but you can do the work, and it's a meaningful opportunity for us. And so here we go. We're going to launch a product, and we'll start to participate in this space that we have not participated in to date. So a total blue ocean for us, not cannibalistic and brings us to parity. We'll have a great offering, actually really excited about the offering that we have. So those are a couple of good products. But in our area of -- in AVS, a whole fleet of products coming. And by the way, we're winning today. So maybe we'll turn it to Phil and let's see what he has to say about it because by the way, the interesting thing, and I think we should highlight this during our discussion today. Today, we announced a press release a collaboration with UCSF. But let's put a pin in that and come back to that later. Yesterday, we launched -- we announced approval of a new product, which is another one in the stream of AVS products which we're incredibly excited about.

Phil, you're up.

Yes. Well, thank you, Jay. It all starts with intentional innovation and really getting to what the customer needs, understanding those needs and then putting those into new products and workflow solutions. So you've seen 3 of those products actually launch in the last 3 months. Number one being Vivid Pioneer. So it's our premium and ultra-premium cardiovascular ultrasound machine. It is doing exceedingly well, and it's beating our internal models. We're coming out there with greater price at a lower cost of goods. So that continues one of the key innovations we have is around interventional cardiology and diagnostic cardiology with that product. The second being Allia Moveo. So Allia Moveo, I was just at the first install at Baylor St. Luke's 2 days ago watching that product in action, a product very much designed around the patient to really free up the room to allow the clinician to treat that patient in the best optimal way. And the third one this morning -- yesterday morning, actually, was LOGIQ R5. LOGIQ R5 is a software suite that can be added to new products, but also existing products and just one factoid with -- you can be able to provide an ultrasound procedure in 60% less time with 80% less strokes, keystrokes. And so when you think about the issue we're trying to solve in health care right now is this. Procedures still continue to go up. Access is still poor, but the sonographers and the clinicians being able to perform those is going the wrong way. That's where we come in. That's where we come in with AI solutions that are very intuitive to take strokes out, to take time out in order -- enabling a hospital to actually see more patients. That's just 3 of them. There's also 3 to 4 additional material ones in the back half of 2026.

So when you -- I'm going to ask the same question. When you launch these products, it has a shorter time frame to when you actually start to see their revenue. And so walk us through that. And part of what I'm really trying to get at is we're going to get to the finances. How do we think about the quarters throughout the year? And how do we think about the jumping off point?

Yes. So there's 2 realms of products that Jay was talking about. Number one is more of a capital-intensive product that's going to take room construction and build out that can be 6 months, that can be 18 months. It depends on the facility, HVAC requirements, right certifications and all the like. So there's some time lag to that. Other products like ultrasound literally, that could take a PO today and then based on our lead times, have that product develop within the next week or 2. So it really depends on the product category in which we're talking about. Majority of products within AVS are more of what we call flow business. So you can take an order the previous quarter and you can fulfill it the next. Other products will take a little bit longer. So that's how we think about the businesses internally.

And Phil was talking about some of the newer products, but his team has also introduced a lot of new products over the last year. So those are also some of the things that are going to help us drive 2026 growth along with PDX and some of the other businesses. So lot to talk about.

Yes.

So of all of these products, because we're all going to live here and do some more homework, what do you think we're missing? What are the ones that you're like, this is the product or 2 or 3, I don't care that we really need to be focusing on?

I think most folks have tuned into quite a few, and they've done it in the right way. I think Photon counting is a big deal. I think whole body PET is a big deal. I think some of the ones that Phil reference are also important. Flyrcado is great. But here's the thing that I think is really important. We talk about -- Phil used the words intentional innovation, thoughtful innovation. What we're really trying to do is help our customers solve problems in better ways. And when you couple that with smart innovation, it leads to a partnership that is a little bit different than what we've seen in the past. We always talk about the Sutter deal that we did last year, and we've done a number of important collaborations in that regard. But we just today announced a collaboration with UCSF, one of the premier health care institutions in the world. So proud of that collaboration and that partnership. It's a long-standing arrangement that we've had in place, but now this is a new 10-year deal. And if you look at the press release, they talk about wanting to enhance how they provide care in efficient ways to their customers. And we talk specifically about things like remote imaging opportunities. We talk about workforce education. We talk about enhancements to MR and how they do MR. All of those things are supported through innovation. So now we're thinking about customer-backed innovation and then how can we monetize and partner it. If I think about what people might be missing, everybody understands the linear dimensions of what we're going after. But when you put it all together in a thoughtful way and you couple it with a world-class commercial organization, you couple it with a world-class service organization and products that work incredibly well together, that's where it all comes together into a model that works on a sustainable basis, and you see Exhibit A this morning.

So I was -- I usually on this chat by asking what do you think the Street is missing? And I think what I'm hearing you say that we may be missing is that it's not this product or this product or this product, it's the collective and the partnership that you're building with each of the health care delivery institutions.

I think that's right. I think everybody does a good job of saying, okay, I've got the 9 products and here's what I can anticipate with respect to each. But when you put all of those together with a customer-backed mentality. Remember, we started years ago what we call our worldwide product planning process. And it's very much part of this heartbeat business system that we've put in place. And the reality is this -- it ensures that you're getting the customer input into all aspects of your development process and you're prioritizing products based on customer impact. And so I think it's something that we believe that it's going to serve us incredibly well as we look to the future, and it's starting to pay off now.

And so when you think about 3 years since your IPO, how has this view or global look? I'm not sure what the right phrase is, changed? And how has it evolved?

The level of sophistication in terms of our product planning process has stepped up every single year. The first time you do it, do you have consistent financials across every single 1 of the assets that you're looking at? You don't. Everybody is using different models. So one of the things we said is we need to migrate down a path of consistent financials, all housed in one system because for us, we have to be able to make trade-offs that are intelligent across our businesses. And so that's just one small example. How we gather customer input? We have to have a consistent way of doing that. And so all of these things have enhanced. But I think the biggest change, we've always had this commercial mindset. We've always had this idea that we're going to be the best partner to our customers at the forefront. What we now have is a pipeline that's supportive of that and products on the market that are very supportive of that. So I think that's the...

I would just add. The robustness of our portfolio across modalities enables us to take a different approach to customers around care areas. This is really important. So you heard Pete talk about our D3 strategy, taking our devices plus digital in a particular disease state. When you look across disease states like cardiovascular, like oncology, like neurology, we can begin to meet patient -- meet customers with really what's their biggest pain point across the whole continuum of that disease state, not modality by modality. So we're running horizontal along with being as good as we can be in the modality and providing solutions that enable that.

And how is artificial intelligence and digital and all the buzzwords changed this viewpoint?

So for us, we've been using AI, selling AI-related products for years. I mean, I think, in fact, large language models have taken -- there's so much interest in that today. And there's real opportunity there. But if you think about like the original uses of AI, it's really about image identification, image enhancements, and we've been all over this. One of the most prominent examples of that is our AIR Recon DL product. And this basically is a product that attaches to our MR devices. And it allows for faster images. It reduces image time and it enhances image quality. And we're selling it on all of our new magnets. Many of our old magnets were also selling this as an add-on feature. And it's a big deal because if you think about radiology departments today, in many instances, they're constrained. The devices are constrained, and so you trying to get an MRI or cardiac MRI, any kind of MRI scheduled in many hospital systems takes quite a bit of time due to the constraints. Well, if you can alleviate that using AI, it's a big deal. And so that's one example. But across our portfolio, whether it be in our new ultrasound devices, we're incorporating AI to simplify workflow and reduce amount of time. Across the portfolio, we're seeing real opportunities here. Now in some instances, we price separately. In some instances, it's embedded in the price of the product, allowing for new products to come at a real premium to existing products. But make no mistake, we've been at this AI game for a long time. We have over 100 AI-enabled FDA-approved devices on the market. I believe that's leading the industry. And so we're going to continue to invest in this and drive this going forward.

You have AI approved or AI-enabled products, but you also have Software as a Service that runs through your business?

We do.

Have you shared recently what that is?

Listen, we've said Software as a Service, inclusive of all of our digital , which is a subset of all of our digital, we said at the Investor Day was $1.2 billion, growing to $1.8 billion in the coming years. And we feel very good about that opportunity, our opportunity to differentiate through that, and we'll continue to drive that.

Okay. Switching just a little bit, pharmaceutical diagnostics. In some ways, get some of the Sunshine because it's Flyrcado, Flyrcado, Flyrcado all day long, but there's a lot of products that are in there. And when I take a look at the numbers every time you deliver them, it's very strong growth. So if you could just sort of back up and talk about all the bits and pieces that are in there and what we should be focusing on?

Yes. I mean this is a direct function of imaging volumes. In many instances, if you're getting a CT, you're using a contrast agent of some kind. If you're getting an MRI, you're using gadolinium or some variant of that. And all of that is about enhancing the quality of images. Now Flyrcado is a great example, and it's kind of unique in terms of incredible enhancements to the image, but across the portfolio, if you're getting imaging done, more often than not, your doctor will prescribe, the radiologist will prescribe using an imaging agent. And we have benefited from that. We're a consistent supplier. We're a world-class partner. And the result of that, and we've seen some pricing benefit. So the result of all of that is this business has been growing extremely well for years, and we do believe that the growth will continue at a pace faster than the rest of our company as we look out over the long-range plan. Now we do have some unique elements in place to support. So Vizamyl is a nice product that we have. We've talked about that in the past, used for Alzheimer's and represents a great opportunity.

Has that gained the traction that you expected it to?

Yes, it's moving along well in terms of product. We don't -- here's the interesting thing. One of the things that we're moving away from a little bit is like we have so many products that we're launching. And really it's a fleet of new products. We're not going to report out on the sales related to each one. As it relates to Flyrcado, we gave a data point just because I know it's so important to investors in terms of how that's progressing. We'll periodically share some information in the first year of launch on Flyrcado, but our strong bias, given competitive dynamics and all sorts of things, is like let's look at the PDX business in total and see how you feel about that. In our case, we feel great about what PDX is doing, and Vizamyl and Flyrcado are all subsets of that.

And what are some of the other subsets that continue that double-digit growth?

Well, the traditional contrast agents are just an outstanding contributor to that. And something that, from our standpoint, radiology departments, it's necessary to have these products in place. And then as far as innovative new products, we have a few more in the pipeline that could be very interesting. But let's see.

Okay. If you're smiling over there, you want to add something, Phil?

No, I think Jay covered it well. I mean there's a lot of new AI innovations. You think about what we just talked about, which is modality by modality, we have excellent products. The real beauty in having those excellent products is now you can run horizontally back to that point where, let's say, you get a very early CT or an MR scan, I can tell you with a propensity score what it may be, the susceptibility of that spot or tumor and then actually be able to tell you what intervention you may want to use. Is it better treated with medicine or via an interventional procedure? There is value in having that and running a data stream across it.

So when you think about -- that is helpful. But maybe we start thinking in a different direction. When we think about the competitive landscape, do all the bits and pieces that GE Healthcare is now offering, how does that line up to your competitors? And given your vertical or horizontal look across the board, how does that change that?

Well, I think you look across the core technologies being kind of MR, x-ray, MR, CT, ultrasound broadly and then interventional, we have a very strong portfolio. You can look at the relative strength of that vis-a-vis others. There's public data available. What I'll say is that in ultrasound in particular, because I'll speak for AVS, we're market share leaders. And within ultrasound, there's really 4 or 5 different subsegments of that, whether that be cardiovascular, women's health, general imaging, point of care is a large growth driver. So being able to take those assets, put those together, puts us in a good competitive position.

And are there areas, specifically in AVS that you're missing, but I'm also going to ask for the broader company, where you're like, if only we could get into this visualization area, then we would be set.

As we indicated back at Investor Day a couple of years back, we gave a pipeline of products that were coming. So there were some gaps. We are addressing those gaps, and we feel confident those dates are achievable.

Okay. And the same question for you, Jay.

Yes, across the portfolio, I think we feel incredible -- well, first of all, we feel very good about the entire offering that we bring to bear. And that's inclusive of PDX. I think it's a really relevant part of the portfolio. And increasingly, as these imaging agents get more advanced how they interact with device and how you sort of sell the whole package gets very interesting. But then to Phil's point, as we launch many of these new products, we do have some gaps today. But as we launch these new products, we close to parity or in many cases, surpass. And we feel great about getting those to market and what that does competitively.

So you know where I'm going with this. I'm going to the concept of M&A. And the company has been active in M&A since the spin out, but I'm curious where you're currently thinking.

Yes. M&A. So we've been active in M&A, and we've done a number of deals over the years. And what I would say is all of the deals we've done are very tightly related to our strategy. And they're all sort of revenue accretive, accretive to the bottom line in the near term with robust ROIs. And for us, we have fairly stringent financial guidelines that we look at. And then we look at this question of strategy. I'm really pleased because at the end of the day, you can say whatever you want about M&A. But then if you look at our body of work, it really does match up to that nicely. Intelerad was a clear gap in our product portfolio, right? Imaging archiving is really important. And for us to have now this software offering that serves as a beachhead for further AI offerings to our customers is tremendous, and it's a tremendous enhancement. We believe that there's many different aspects of synergies that we're going to be able to get after with respect to this. We'll be able to accelerate the growth from the double -- low double digits that it is today. and it's going to be accretive from an EBIT standpoint. So it's a wonderful deal. It's a great example. But if you look at all the other deals we've done, Caption Health, many of Phil's products today incorporate Caption Health, which accelerates image capture and makes it simpler for people to access. Our -- we did a deal with Intelligent Ultrasound which automates the maternal fetal exam. We did MIM, which is a great offering for radiation oncology workflow allows us to win in that space. So all of the deals we've done really strategically related to what we do, very attractive economics. We'll continue to deploy capital that way. I think it's a great thing for us to get after.

But in terms of size, is this -- should we think of similar size acquisitions?

We never rule out anything. But I would say, by and large, the deals that you've done are emblematic of what the pipeline looks like. Could there be a larger deal? Perhaps. But the likelihood is we continue to do these kinds of deals that we've put in place.

So want to talk a little bit about the financial guidance that you gave for the year. It was for 3% to 4% organic growth, having completed 3.5% growth organic in 2025. Why is 3% to 4% the right number?

3% to 4% is the right number. First of all, very pleased with the close out of last year. Remember, because we were expecting a 3-ish percent, and we ended up north of that, which was great. And it was a testament to actually, some of Phil's business doing really well, our commercial efforts in the U.S. and international.

We have the home tape, Phil.

Can we delete that part. So really a solid close out to the year. So that was great. As we looked at this year, it's interesting because we talk a lot about these new products. And yet, we're not anticipating a huge impact to sales in 2026 from the new product pipeline. You'll see some in Phil's business, Flyrcado becomes more meaningful as we go through the course of the year. But generally speaking, the real benefit to our products -- from our products comes in 2027. And so why do we feel good about the 3% to 4%? The 3% to 4% is very much based on the commercial performance in 2025. So the orders that we put in place last year, remember Sutter, remember 5% full year orders growth, that starts to play into 2026. And then what happens in 2026 because remember, our expectation is mid-single-digit growth over the midterm. Well, guess what, 3% to 4% is not that. So you start to see a tick up next year on the back of all of this great innovation that we've put in place.

So you have your backlog, you have your book-to-bill. How should we think about that rolling to revenue? Now you've been very clear. '26 is sort of an order year. '27 is a revenue year. But do they roll off on quarters? I mean you've got a line of sight on...

Well, what's going to happen is when we put together a revenue forecast, we basically look at the entire backlog, and there are shipment dates or installation dates attached to that. And so that's one important input. Then we look at the sales funnel that we have in place. And that's another really important input to -- because a lot of that will translate to sales in the current year. And based on that, we come together with a number. Now interestingly, in this year's case, 2% to 3% in Q1. And then you see a little bit of a ramp for the Q2 to Q4. That grows faster than that. Because remember, if you're 3% to 4% for the year, 2% to 3% for Q1, the back half of the year, starts to look a little bit more normal relative to the midterm expectations.

Well, mid-single digits.

Well, that's what you start to get to if you just simply do the math, take out the 2% to 3%. And so we feel great about where everything sits. The pipeline that we've put together and then how this situates us for 2026 and then the new products accelerate.

Okay. There was a stat, New product introductions are expected to be -- or innovations to drive 1% to 2% of growth in the medium term.

Yes.

Medium term, meaning when? '27, '28?

Yes, you'll start to -- '27 -- because remember, what we said was through '28, new products are 1% to 2% of an impact. So -- and guess what, we've seen a little bit of that this year. We'll see a little bit of that this year, certainly, but not at that level, not at the high end of that level until we start to get to 2027.

So do you think that the LRP that you've put in place 1.5 years ago still holds?

Yes. I think there's -- I mean we feel good about the LRP we've put in place. We've said mid-single-digit growth, and we said high teens to 20% plus in terms of margin. Now with tariffs, getting to a 20% plus by 2028, obviously would be very challenging. That was a dynamic that changed, but we feel good about the 17% to 20% plus range over the medium term. And structurally, there's no barrier that prevents us from getting to those high margin levels over time. So the long-range plan or the midterm plan that we've put in place is something that we're working hard on and gets unlocked through innovation, through the heartbeat system that we have in place. All of those things contribute to this performance.

So let's talk about tariffs. They changed a little bit last week.

They have. So a lot of moving pieces, by the minute, by the way, by the minute...

Can you tell by all means?

There was an article in the Wall Street Journal about CEO spending a lot of time with the weekend on tariffs, and I can confirm that we were. And still, there's a lot of moving pieces there. IEEPA tariffs, the Supreme Court made a ruling on those. That was good news. Very quickly thereafter, we added a 15% tariff that was offsetting 122 that was offsetting. And then the 301 and the 232 tariffs remain as is. And so from our standpoint, how does this shake out? Well, guess what, there is a meaningful offset to the upside. There was an upside created by IEEPA rollback but it's offset, generally speaking, by the inclusion of these new tariffs that we have in place. So at the end of the day, if these tariffs are in place for a full year, we may end up being in a similar place to where we currently sit. Now here's what I will tell you, though. One of the things that I'm very proud of is all of the work that we've done on tariff mitigation over the last year. The fact that we were able to say tariffs down this year despite the fact that on an apples-to-apples basis, you'd expect to see it doubling, I think is a huge element and a huge achievement by our team. And then as we look at this new tariff regime and structure that's been put in place, will start working very quickly. So I expect to have a substantive update on this on our earnings call. At this point, we're not -- we expect we might be in a similar place to where we're currently at, but we watch it very carefully on the daily.

So if -- and there is a world where there's a more significant tariff relief than a little bit better here, a little bit worse there. Do you then say, cool, we can invest that money? Or do you let it flow through because you've done so much work on managing and mitigating tariffs?

So if there is tariff relief from our standpoint, our plans, we are intensely focused on funding R&D to a sufficient level so that we can win long term. We are also very focused on funding SG&A so that we can win long term. We're also looking to benefit from AI on the back office and all of these different things, and we are. So our cost profile, if there's a tariff windfall at some point, it's not like we're going to say, "Oh, there's all these things that were not funded that should be funded as a result." So we would expect that to come through. But as we sit here today, we have more work to do, but I don't see a huge benefit from IEEPA offset by the new tariffs that have been put in place.

Okay. Research and development was ticking up as a percentage of revenue in the early days of the spin. And then a little bit less so in the more recent quarters, given revenue is lower, a little bit of this, a little bit of that. How do we think about R&D investments, particularly in light of what you just been saying?

Yes, we'll continue to invest. Now it's interesting because one of the phenomena that's happened is -- and it was really pronounced in 2025, we'll see it a little bit in 2026, which is there are certain costs related to innovation that sit in cost of goods. As products move closer to launch, and they've passed the feasibility assessment, the finalization of those product costs sits not in R&D, but moves to the cost of goods line. So that's why we've talked more in some cases, and we've quantified you should look a little bit more at this innovation investment concept versus a simple R&D line. And by the way, some of our near competitors, I believe, based on the accounting standards they use, have all of that bundled in an R&D line. And so we feel great about the fact that we've been able to increase R&D investments so much over the years. And 2025, you saw an increase in total investment despite a decrease in the R&D line. And so we'll continue to invest in R&D and ensure that we're funding not only this current plate. But remember, we have to keep in mind that in 2027, 2028 and 2029, we want to have a whole new set of products that we're talking about. So we'll continue to invest in R&D.

Okay. But the move from R&D into gross margin, maybe shifting that view a bit.

Yes.

China was a benefit, then was a headwind. I'm not sure what to label it right now. What's the state of the union there?

Yes. We -- there is some cause for optimism. We're pleased with what Will has done in terms of reestablishing a commercial organization, really revamping and the partnerships that we have in place government affairs, all of those aspects, he brings a great lens to that market. He's a world-class leader and somebody who can really drive commercial excellence throughout that organization. We also saw -- last year, we won some tenders. Some of those tenders will play through in terms of this year. We've seen some encouraging signs with respect to VBP. So all of those things are going okay. But this has been a really volatile market for us. And we're budgeting China down this year.

Down to single digits.

We haven't said. And part of the reason we haven't said is because China is approximately 10% of our sales. The U.S. is far more significant. We're not giving guidance on the U.S. We're not really giving guidance on China other than to say, broadly speaking, China down. And I think that could this recover at some point? Let's see. Let's see how it goes, but we don't really want to count on China being this sort of buoyant market with respect to our numbers. We'll watch it very carefully, and see how it progresses.

Is there a world or a time frame where you think it won't be a headwind, it won't be China down?

I do. I do think that because at the end of the day, there is a huge unmet need in China. And I believe that at some point, China will be perhaps the largest market in -- the largest health care market in the world. The question is when. And so I think that this will be a contributor. But again, we're not counting on it this year.

And how much more are you seeing local manufacturers there?

I mean, listen, there are formidable competitors in China, United Imaging, Mindray, really good competitors. And there's a whole suite of other companies as well that we're mindful of. We believe that with the partnerships, the products, the commercial go-to-market, we have opportunity to continue to participate in that market in a good way. But make no mistake, they're formidable competitors.

And Phil, how do you think about the world when you start going to introduce new products? Is there a shift in your geographic approach.

I think overall, when you think about the maybe 3 markets, we'll take U.S., and we'll take Europe and then we can take Asia. In particular, as we think about the U.S. continue to see strong underlying growth of medical procedures, CapEx. So really, the ability for us to deploy. We talked a lot about 3 years ago, over the course of the last 3 years, we invested $3 billion in innovation and R&D. Now we're beginning to see that and the impact of that paying off, almost quarter-on-quarter. Pick the product, you highlighted 2 of them. But in particular, there's a whole bunch of the products that drive material sales. Now that cadence is starting to happen. We're getting the commercial Moxie and people are being able to see us as a system provider. So I think U.S. continues to be strong. Europe as well had a very good momentum coming out of last year. And then within Asia, I think you depicted it right, Jay. I think as it relates to China, we're picking our spots where we need to win. We're thinking about our cost of goods sold there and how we continue to locally source, and position ourselves in a way to win. So I think they're all in many ways, different. But in particular, the growth continues. I mean, obviously, our overall impact of China to total business continues to get lower, but we're still growing. Well, how are we growing? Well, we're going through growth in other markets. So I think it's starting to pay off and really like the portfolio on where we sit.

Excellent. So to wrap things up. So when we're here next year, what do you think we're going to be talking about?

It's interesting because I was reflecting back, you asked me this question every year.

Ask it every year.

Which is great.

It's easy to anticipate.

Because last year, I said, Joanne, I hope we're going to be talking about innovation and its impact. And I hope that we will have launched or talked about a lot of stuff at our RSNA conference is what I said last year. Now in between, we've spent a lot of time talking about tariffs and other things. So what happens as we go to next year? My expectation is we will talk a lot about the impact of this innovation cycle that we were able to select -- successfully deliver on in 2026. In addition to that, I expect that we will have many, many more examples of how our heartbeat system has helped optimize our business and drive -- driven forward excellence across all of the dimensions, safety, quality, delivery, cost, innovation. So I'll expect we'll be talking a lot about that as well. So those are a few things. I imagine we'll be talking about tariffs. I think that will probably be on the agenda as well next year. But I think for us, hopefully overshadowing that will be this focus on innovation and operational excellence through this lean business system we've established.

Excellent. Jay, Phil, Carolynne, thank you so much for coming.

Thank you.

Thank you.

Thank you.