GE HealthCare Technologies Inc. ($GEHC)

Okay. Good morning. Thanks, everybody, for joining us. I'm very pleased to have with us today the management team from GE HealthCare, Jay Saccaro; Phil Rackliffe, who runs the...

AVS.

Right. Ultrasound and image-guided therapies. As well as Carolynne Borders. So my name is Matt Miksic. I cover U.S. medical devices here at Barclays.

First question, I guess, it's been kind of thrown into our basket about a week -- a little over a week ago as -- a couple of questions around the Middle East and price of oil. So one of the things I suspect we'll be asking everyone today and tomorrow is exposure of your business to Middle East to start. And then we'll get into oil and a couple of other quick follow-ups.

Great. Matt, first of all, thank you for the invitation to the conference. We appreciate it. We always enjoy coming down here, so it's nice to see you once again. As we think about Middle East exposure, for us, the primary focus right now is on safety, continuity -- safety of our employees and ensuring business continuity is in place. We really want to make sure that we're getting product around the world in the most effective way. We understand there are disruptions as a result of this, but we're really working hard to navigate that situation well. Our overall exposure to the Middle East is small. So it's not a huge business for us. But as we think about things like the price of oil, we'll have to watch how this evolves over time and what implications there are. But as we sit here today, the team is very focused on ensuring that the operation continues from a very stable and consistent standpoint and that we get through this swiftly.

Okay. And just to put a finer point on it, I'm sure folks will be asking, and to the extent you can put a finer point on the exposures, is that less than 5%, less than 2%?

Yes. It's definitely less than 5%. It's not a big piece of our overall business.

Okay. And then completely understand the concern over the people in the region. So maybe talk a little bit about manufacturing or folks in operations that you have in the region?

Yes, we do -- we obviously have a commercial business in the region. And then we do have some manufacturing that's done in Israel that supplies the world, so PET and certain SPECT devices. We have a bit of ultrasound that comes out of there. And so for us, ensuring that we have the right corridors to get this product out of Israel, and furthermore, that we have adequate inventory outside Israel and outside of any conflict zone, those are top priorities for us.

Okay. And again, I guess, alternate supplies, components for manufacturing, is that a dual-sourced...

It's interesting because we don't comment on specific product lines. But I think one of the things that we've learned, first through COVID and then through our tariff experience, is dual supply, agility of the supply chain and resiliency of the supply chain are all so crucial to the success of our company that it's a point of emphasis in every one of our supply chain reviews. And as we think about the strategy that we've put in place and are embarking on, you heard a little bit about it during our earnings call when we talked about moving certain things to different zones, but that's happening all the time in terms of how we think about making sure that we have the most dynamic supply chain available to us.

Okay. And then just on price of oil, it's obviously kicked up here a bit. The question is, for how long? But maybe drawing any comparisons to last time we saw higher prices of oil and whether it's transportation or resins or other aspects, how would you describe the potential impact?

So it's way too early to comment on potential impacts from this. What I would say, in our case, is we have a number of levers to offset this, really making sure that we are capturing the economic value for the services and products that we provide to our customers. That's first and foremost. And if our input costs have changed dramatically as a result of some form of shock, we have to think about that in terms of how we think about the cost of our product. And then second, as we think about our productivity initiatives, which is something that we've made a lot of progress on over the last several years, those productivity initiatives don't stop and we'll continue to accelerate and think about how we can offset any increases that come to bear.

Okay. So early on oil, and I guess in the scheme of things, most of your products, we're not talking about plastic devices or catheters or things where resins might constitute a significant part of your cost of goods. These are higher-margin, multi-component equipment.

True. We don't have an enormous resin component to what we're doing. And so the price of oil is more about things like the logistics costs that we face.

Got it. And last time around, was there something -- as you went to manage through higher cost of energy in '22, for example, what were -- remind us how this might be similar or different.

We don't know how this is yet going to play out. I think that was a little more sustained in terms of price of energy and those impacts. And really what we did then is what we would do now, which is we manage through careful pricing, we manage through careful cost initiatives. Those are the things that we focus on. So we'll have to see. I think over the next several weeks, we'll be putting together our next forecast and really try to have a better understanding of what expectations are around duration of conflict and sustained price of oil, things of that nature.

Okay. A couple of other sort of current event topics: tariffs. Just you started the year talking about facing sort of like a bit of a tailwind in this year potentially. But how should investors be thinking about sort of the shift in the mechanisms applying tariffs in the U.S. and how that year-over-year we should be thinking about tariff expense for GE HealthCare?

Sure. At the highest level, what we've said is tariffs were around $250 million last year, and this year, they will be less than that. And by the way, as far as huge achievements and evidence of the impact that our new Heartbeat business system is having, I think that's one of the most prominent early examples that we can point to. At the beginning of -- in April of last year, we were faced with a very daunting challenge. I think in the initial roll-up, the tariff bill was like $1 billion, and we very quickly mitigated that to $0.5 billion. And then when rates came down, it was $500 million and we mitigated it to $250 million. But for us, it was really important to have tariffs be a net contributor to growth on the bottom line in 2026. Every single one of our teams got to work in terms of identifying opportunities to mitigate. We had daily management, weekly management, detailed tracking project plans. And gosh, we were able to get tariffs down, when most companies were faced with tariffs doubling just because of the nature of the timing of tariffs and inventory rollout. So that was -- I thought that was a fantastic result and a testament to execution of our supply chain team and our business teams. Now a lot has happened since then. We had a Supreme Court ruling, so IEEPA tariffs were taken off the table, and so that was good news. And for several hours, there was a real upside to the plan. Several hours later, we talked about the implementation of 122 tariffs. Now tariffs that are the same are 301 and 232 tariffs; there's no change to those. But essentially, as we kind of done -- as we've done the math on this, the replacement of IEEPA tariffs with 122 tariffs, assuming a similar kind of -- assuming that the 122 tariffs stay in place for the rest of the year, you end up basically in the same spot. Now interestingly, there will be some questions around timing. And to the extent that we are able to collect refunds, how does that impact things from a cash flow and from an income statement standpoint in the short term? Those are things that we'll have to navigate. But at the end of the day, as we look at it, it's fairly similar impacts.

Okay. And zooming out, I mean, some folks might look at everything that's been done to mitigate tariffs as sort of moving a bunch of things around and maybe looking back and wondering, do we really have to move these things around? But what are some of the changes that you made? And what are some of the positives that came out of sort of making the supply chain more flexible and making the manufacturing maybe more diversified?

You said it. You said it. Look, we might not have made all the moves. But what we've tried to do with all of our moves throughout this process is look at them from a no-regrets lens. How wrong could I be about the tariffs in place from this country? And what is the penalty if I'm wrong? And in all of those instances, what we found is it's a small price to pay, especially because if your goal is a diverse, resilient, agile supply chain, the moves that we made were, generally speaking, all consistent with that. So I kind of look back on what we've done, I'm okay with it. I think we've set ourselves up in the right way. And frankly, we'll continue to have discussions about how we optimize our supply chain globally, how we ensure we have the right network in place that is durable, capable of withstanding supply shocks, et cetera.

Okay. And then one more sort of, call it, current events type question, which is around generics, in contrast. So Omnipaque in particular. Generic competitor, began sort of entering this market with a label. Maybe talk a little bit about the effects that you anticipate and how you plan to sort of manage that new competition.

Sure. So Amneal has talked about launching a couple of codes of our iohexol product. That's okay, and there's room in the market. As we look at it, we put together our guidance very aware of Amneal's expected launch and expected strategy. And when we talk about confirming our midterm aspirations, which we feel very good about, we have a line of sight to what we expect that they're going to do. For us, this market has had multiple competitors for a very long period of time. So we are the leader, but there are several others that we compete with, not on a direct basis, to your point, but certainly on a very-near proxy basis that allows them to compete really well, and they've done well over the time. Now ultimately, when we think about this business, there are a few things that are crucially important. First, consistency of supply. There have been numerous instances where the industry has been short as a result of manufacturing issues. And so one of the things we are intensely focused on, while on the one hand these are generics and not differentiated, on the other hand, consistency of supply is a clear differentiator. Second, quality of product, another crucial element. Third, just sort of general brand recognition and general relationship with hospitals. So I think you stack these things up. And then finally, comprehensive portfolio. Listen, we sell 20 SKUs in this area. We have a broad array of products, similar products in this space. And so we do have that other advantage as well. I'm not suggesting that we're underestimating them, because we're not. But what I am saying is we feel pretty good about this franchise at GE HealthCare and our ability to continue to grow. The last thing I would say is the demand for this product continues to grow, and the supply is relatively tight. And so as we look out in the coming years, there's continued opportunity to grow the business.

Okay. And all of that sort of baked into your 3% to 4% margin plans for this year, obviously. All right. So with those kind of out of the way, maybe let's talk about the 3% to 4% and some of the drivers to that. You have some big products, I think, that folks have been -- have captured a lot of investor focus, including Flyrcado, which is now kind of entering its second year here, things like total body PET and photon counting CT later this year. But maybe talk a little bit about some of the other products that are driving growth -- revenue growth now and you expect to kind of continue to drive growth for the rest of the year.

Great. So I'll turn it over to Phil in a second. But just generally speaking, we've talked about 3% to 4% growth. And what I think is most interesting about that is, to a large extent, and some of Phil's products being an exception, to a large extent, this does not benefit from all of the work that we've done on innovation. That really, those products will -- many of those products in our Imaging business, as an example, will start to take orders in the coming quarters, but won't have a demonstrable revenue impact until next year. And so it really gets very exciting for us to say what that's going to do. And that's really what supports our midterm vision, our midterm aspiration. What supports us today though as we think about the 3% to 4% is all of the work that we did last year from a commercial standpoint. We did -- we put in place some great deals around the world: large customer collaborations that we've established, things like Sutter, but many other deals like that. We just announced a collaboration with UCSF. So proud to associate with such a world-class institution. And so all of that commercial work set us up with a record backlog, up $2 billion year-over-year. And then as we sort of work through the math on this year's expectations, it was that, the lion's share of that, that sort of supported this 3% to 4% growth. And just based on the cadence of deliveries and things of that nature, the first quarter is a little bit below. And the rest starts to look more like the mid-single digits that we'd like to see over the midterm and we expect to see in 2027. Having said all of that, the one area where we're seeing some impact in the near term from innovation, perhaps the most prominent, you did mention Flyrcado, Flyrcado is entering its sophomore year, we're very excited to see what that can do and very optimistic about where we can drive that. But Phil's business is one that has had an immediate impact. We've seen it in Q4 and it started strong. So Phil, why don't you talk about some of the drivers of innovation in the product portfolio?

Yes. Thanks, Jay, and thank you, Matt, for the question. So just in the last quarter, as a proof point, we've launched 3 products that are very much cutting-edge for the technology. The first one being in the ultrasound space with cardiovascular ultrasound, and that was the launch of our Vivid Pioneer. This product has a lot of unique features that actually decrease the amount of time it takes to get an echocardiograph and also with much fewer clicks and excellent image quality. The other thing that this product does is really focus in on the growth in interventional cardiology and structural heart. So it has sizing tools and measurement tools, whether that be around your aortic, your mitral, your tricuspid, your pulmonary veins. So it has all those features that are AI-driven within that product. That launched in the fourth quarter of last year and we're beating all of our internal estimates on that. The second example is really around Allia Moveo. Allia Moveo is our next-generation gantry or x-ray machine for interventional procedures. And that can be for interventional cardiology, it can be for interventional radiology and a host of other procedures. We've just launched that at ECR in Vienna last week and also at RSNA in December. That again is doing excellent. We've had our first 2 installs and it's meeting customer demand. And the third product, just to update, that's part of this growth trajectory that Jay talked about -- R5, it's our next-generation general ultrasound imaging. And what this product does, the best quote and feature that I had was that it can reduce the scan time by 60%, 6-0, with 80% less clicks. It was funny, last week, we had a large event to kick off this LOGIQ R5, the key doctor, kind of one of the world's best ultrasound physician, pulled me aside and said, "You're just making it too easy. You're making it too easy and too fast. It used to be my specialty, is being able to get those certain measurements." It was kind of funny when he pulled me aside and said we make it too easy. But those are the types of things that we're doing to increase access to care and to have a repeatable experience for patients.

Okay. And also tied to some of the growth in outpatient interventional suites, lung biopsy and in cardio, and tied into some of the efforts of Intuitive in Ion and J&J in MONARCH. So not only, I'd say, new products, but new products in growth markets, which is great. And then the sort of -- back to the sort of big platform or sort of new-entry products that folks have been focused on, total body PET and photon counting, maybe talk a little bit about how you expect those, assuming they come in on time, middle of the year towards the end of the year, back half of the year let's call it, how that starts to drive either bookings or orders or revenues for the growth model.

Yes. We're definitely excited about those 2 products. I think for us, we consider ourselves a leader in imaging. And the reality is we don't participate today in certain segments. We don't have a total body PET available nor do we have a photon counter available. And so as we bring those to market, we have so many customers that like to buy from us, and now we will give them an offering which is a world-class product that they can use. How does this work though from a timing standpoint? Both of these products, there may be a little bit of sales impact in Q4, but really the lion's share will come in 2027. And part of this comes down to when you talk about imaging and you talk about sort of new, innovative technologies that are very -- represent changes and sort of step-changes in care and process for a hospital, it takes time, first of all, to get the order. And then once you get the order, it takes months to have it sort of set up in the right way at a hospital. And so our expectation is we'll start to see orders in the second half of this year. Let's see, maybe a little bit earlier. And then the revenue impact will come for the most part in 2027. There may be a bit in the fourth quarter, but really setting us up nicely for this acceleration that we expect to see next year.

Okay. And then the growth of some of the products you mentioned, there's some 5 additional products, sort of ultrasound products this year as well, plus those, kind of becomes the growth model for '27.

Exactly. Now the ultrasound ones, like we said, because most of these products are on wheels, it's faster to revenue, from order to revenue is much faster. And so we saw that, Phil demonstrated that so clearly to us in the fourth quarter and it continues. But some of those we can impact in the near term. But the big ones, some of these big imaging ones, do take a little bit more time.

Okay. Well, we're running down on time, so I think we'll leave it there. But Jay, Phil, Carolynne, thanks so much for joining us.

Thank you.

You bet.