GE HealthCare Technologies Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good day, and thank you for standing by. Welcome to GE Healthcare's First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that today's conference may be recorded. I will now turn the conference over to your speaker host, Carolynne Borders, Chief Investor Relations Officer. Please go ahead.
Thanks, operator. Good morning, and welcome to GE Healthcare's First Quarter 2024 Earnings Call. I'm joined by our President and CEO, Peter Arduini; and our Vice President and CFO, Jay Saccaro.
Thanks, Carolynne, and thanks to all those joining us today. We've made good progress against our key priorities for 2024. In the first quarter, we delivered margin expansion while continuing to invest in innovation to help solve the evolving needs of customers and patients. Healthy backlog, orders growth and positive book-to-bill position us for accelerated growth for the rest of the year.
Thanks, Pete. Let's start with our financial performance on Slide 4. For the first quarter of 2024, revenues of $4.6 billion were approximately flat organically year-over-year. Recall, this quarter's results followed the strong double-digit growth we delivered in the first quarter of 2023, which benefited from easing supply chain conditions and strong China stimulus sales.
Thanks, Jay. Turning to our Precision innovation strategy on Slide 13. We're excited about recent product introductions across our segments to address customer challenges and improve patient outcomes. The industry continues to be challenged with higher rates of clinical burnout, fueled by increased demand for imaging and caring for an aging population.
Thank you, Peter. [Operator Instructions] Operator, can you please open the line?
[Operator Instructions] First question coming from the line of Suraj Kalia with Oppenheimer.
Peter, can you hear me all right?
Yes, clear.
My apologies for the background noise. So Peter, the obvious question, U.S. year-over-year was flattish. I get your point on China, in terms of ventilators and top comps. Can you set the stage for us in terms of the U.S. portion of the business, the flattish performance in the quarter and how you see it progressing through the year?
Yes, absolutely. I would just kind of start out to say from that standpoint is just remember, we talked about the compare with our toughest one of the year. So obviously, it gets better throughout the year. We talked about that in our guidance. But really, Q1 was impacted by -- fundamentally, it was 2 items. And Jay touched this on the prepared remarks. One was some fulfillment delays in PCS. I think we've got those well in hand to have them resolved by midyear. I think that's the first part of this. There were specific items, us about technology and more about actually delivery of the components. And then the China piece. And again, we know that anticorruption presents a challenging environment, and we expected that to play out through midyear.
Got it. And Peter, my follow-up, specifically within imaging, how should we think about backlog, i.e., business that is already in the hands flowing through in the next 3 quarters versus new orders coming in versus NPI and price increase. Just kind of give us how you all are thinking about within imaging as the year progresses, which are the levers to be pulled? And how should we think about the cadence of imaging growth as the year progresses?
Yes. Great. Thanks. Let me comment and Jay, you can jump in as well on this. So we've got a very solid backlog for our imaging business. I think we feel quite good about the diversity of it, the mix of it and it actually being growing with price in the back. And then new platforming capabilities that are coming in like our IGS system, our new cath lab, which will come in and actually bring better margins. So it's positioned well from that standpoint.
And our next question coming from the line of Edward Ridley-Day with Redburn Atlantic.
So my first question, just to follow up actually on the China stimulus plans. The new Chinese stimulus that is being discussed. We've seen headline details from the authorities there but not much more. Could you speak to what you see the benefit these might be for your addressed markets through the remainder of the year? And your peer yesterday was talking about some evidence of hospital submitting new orders as a result of the potential new stimulus. I don't know if you can speak to that first, please?
Yes. So look, the data is unveiling as we speak. So I think we don't have perfect information on it. But I think if you look at since our guidance, what is new is obviously, not anticorruption, that's out there. And it's going to continue, we believe, to be tough through mid-year as we said before, we believe that that's going to continue to begin to improve in the second half.
That's very helpful. And just a quick follow-up actually on your Radio Pharmaceutical business. If you can give us any color on when we should expect FDA approval for Flurpiridaz? And also any other updates that we should be thinking about or looking for in the remainder of the year?
Yes. Look, I mean Flurpiridaz, if it's your reference, is an agent that's in our PDx business that will be used for cardiac imaging and PET/CT. We think it's going to be a really breakthrough approach to be able to do cardiac perfusion imaging and PET/CT. And a lot of it, as you know, is tied to logistics, the half-life and the ability to ship a product there as opposed to have to generate it in fundamentally seconds on site.
Our next question coming from the line of Sezgi Ozener with HSBC.
I hope you can hear me all right.
Yes.
Great. My first one is on your confidence on the full year '24 outlook. Given the lower book-to-bill, are you more on the lower end? Or do you -- are you equally confident on both ends of your guidance? And the second one is on your pricing versus volume comments. I've seen that the positive pricing comment. Has this been reflected formally across the segments as well as across the region? Some color there would be really helpful.
So maybe I'll start. Then Jay, you can talk a little bit more about some of the book-to-bill and the cadence. But look, as I walked through just a minute ago, the impact for the first quarter, including the difficult comp, we expect that to alleviate through the year, which, again, gives us strong confidence in our ability to hit our guidance. And again, 4 things. The comps get better quarter-over-quarter. Funnel growing on orders and sales. We have good visibility into, including our service funnel. So how does service grow?
Sure. From a book-to-bill standpoint, you have to recall that we include in our book-to-bill calculation, both service and PDx coming in at 1:1. So if we were to adjust those 2 items out, the actual book-to-bill is much higher. So we feel good about the overall book-to-bill that we have for the quarter. The other thing I would say is the backlog sits at near record levels. So we're sitting at roughly $19 billion of backlog.
And our next question coming from the line of Craig Bijou with Bank of America Securities.
I wanted to start on order growth. And you guys have seen low single-digit order growth over the last 3 quarters. And I understand that there are a couple of reasons for that. But wanted to see if you guys could maybe give a little bit more color on how that order growth translates into revenue growth in subsequent quarters. And your confidence that order growth will really accelerate over '24, and then be able to drive kind of the mid-single-digit revenue growth target that you guys have put out there.
Yes, Craig, thanks for the question. It's a great question. Look, the reality of it is, is that over the last year plus, 1.5 years, we've actually had a positive book-to-bill ratio again. And we give that ratio with everything in, so that you can see not just the capital piece, but you kind of get a feel for the total composite of it.
Great. And if I could follow up on the hospital CapEx sentiment. You mentioned that it's still pretty good. So are you hear -- I know you guys -- you survey your customers often. So are you hearing any concern given that the interest rate environment, it looks like we're not going to see many more cuts. And then just on top of that, maybe just talk about how the pricing, your ability to get that price that Jay mentioned in one of the previous calls. How does that get impacted in -- if there's some concern or hesitation on capital spending by hospitals?
Yes. Let me start and then, Jay, you can kind of fill in some of the gaps on this. I think again, if you compare it to over a year ago, you're taking a look at an environment where hospitals were primarily in the red, heavily tied to labor cost. We're seeing that moderate and most of our customers, particularly our big important IDNs back in the black. So I think that's a quarterly. Relative to rates, it's obviously out there. It's a topic. We haven't really seen it come up in a major discussion that's limiting how things are playing out.
That's exactly right. I think -- and we do a survey each quarter. Pete's comments are very reflective of what we heard from our customers, continued procedure volume demand, staffing shortages, ease, good economics for the hospitals. Interest rates really have played a less prominent role in some of those discussions and survey results. So we feel quite good about that.
Our next question coming from the line of Larry Biegelsen with Wells Fargo.
A follow-up on China. So sales were down about 11% in Q1 in China. What are the expectations for the rest of the year? Does the new stimulus represent potential upside to the prior guidance? And I had one follow-up.
Yes. I think it will depend upon when the details of the stimulus package are laid out. Because as Pete said earlier, we did see some hesitancy amongst customers as they wait clarity on the stimulus rules before submitting orders and that makes complete sense to me. We've seen that continue in the second quarter of the year. And so from our standpoint, the stimulus package, Larry, we view that as a good long-term catalyst for the market. Exactly when that shapes up with respect to 2024 is something that we're watching.
Yes. I mean, Larry, the only thing I would add is from our guide, not a lot has changed. The first half, we guided would be negative. The second half will be positive. I think in the second half, the STEM is going to have an effect of probably having a bigger step up in Q4 than Q3 just because of the delivery time to ship equipment.
That's helpful. Pete, you've been very active on the business development front, but mostly very small deals. Is that what we should expect going forward? And maybe just refresh us on areas of interest and if you think robotics is -- would fit within GE Healthcare?
Yes. Look, Larry, I would just say on your last point on robotics, it's not a -- from a surgical standpoint, it's not a top priority focus for us. I think from a broader standpoint of robotics and AI. And I mentioned our Allia IGS is actually a robot that actually comes into position and how it's used, it's one of the only that's actually used within the cath lab from that standpoint.
Our next question coming from the line of Ryan Zimmerman with BTIG.
A lot has been asked. I want to ask two separate questions. One, [indiscernible] numbers were off to, I think, a strong start for Biogen, at least, that's what it seemed like. And so just curious how the conversation around Alzheimer's has changed at all? Or the trajectory that you're expecting, I think, for the uptake and kind of patient adoption? And then I have a second one on margins.
Yes, Ryan. So you heard Jay's comments probably on the call. Relatively, we saw some slight upticks here for Vizamyl. I would just again remind everyone what we said is our expectation was that we'll start seeing some uptick more in the second half of the year. I think that's pretty much in line with what we're expecting. I think since we gave guidance, there's been some discussions that the Lilly drug might be a little bit delayed coming out. But when the combination of all of those from a diagnostic standpoint, which is what our role is, we expect to see some of that picking up in the second half of the year.
Okay. And then, Jay, we spend a little -- go ahead, sorry.
No. I would say go ahead and ask your next question, Ryan.
Just, Jay, on gross margins for a bit here. You got some segments kind of down, you got some segments up, in terms of EBIT margin. Pricing, I think we all understand those dynamics but there are still, I think, a lot of TSAs left. And just help us understand kind of the trajectory of gross margin as you see it today and kind of what you're tackling to get that higher outside of maybe price pickup?
Yes. Overall, I think we were very pleased with the first quarter margin performance. And gross margin, in particular, we expanded 120 basis points, really driven by pricing and productivity. Now there's an element that has not yet featured in our numbers, which is related to some of the new products that Pete referenced in his discussion. We'll see benefits from some of the new imaging and some of the new ultrasound products that will also support gross margin expansion.
Ryan, I would just say and again, just to remind everyone, I mean our focus on the increased R&D dollars is obviously new products. But a really important part of it is kind of doing this gross margin triple, which is getting price out of a new product, increased volume because of differentiated features and reducing the actual cost of that product because of platforming. And so when you do that, obviously, if you can get the growth in the lift because of people want it's differentiated, you get more price at lower cost. We have this focus as we mentioned, that any new product comes out at a higher gross margin. And again, that's something we drive across the whole portfolio.
Our next question coming from the line of Graham Doyle with UBS.
Can I just ask one, again, it's on China, but just to get context for things that we go through a year. So firstly, just on revenues. The comps do get -- I think the comps get a bit easier on the revenue side. But am I correct in saying you did grow revenues in H2? And are you assuming a sort of catch-up now in the numbers that you flagged earlier in the year, that H2 would grow enough to offset this sort of H1 weakness? And then just one question on order intake.
Sure. Maybe first on the China comp and the contours of the year. As you recall, last year, we saw roughly 20% organic growth in the first half of the year. So when we gave guidance originally, we said first half, negative; second half, positive. And one of the things that we're watching very carefully is the time line around this new stimulus package.
Yes. I think, Graham, I mean, it's a little bit more of the same. I mean, the first part is, again, the markets that we participate in around the world over the last 18 months coming out of COVID, have either been roughly flat or slightly down. We see that trend over the next 2 years.
Great. A cheeky quick follow-up on China. Just because the sort of stimulus package or idea that you sort of mentioned, I know Philips and Siemens have referenced something similar. Presumably that relates to this medical equipment renewal because it doesn't, on the surface look, particularly ambitious in terms of the 6% CAGR on spend. But is this something you've seen in the past where these things can expand and become bigger? Is that what gives you some cautious optimism around that?
Well, there's a couple of different views out there. There's a larger stimulus number that's in the trillions of yen that's touching multi-industry and that is money that actually is kind of stipend dollars, if you will, that will go to particular areas within health care and other industries. So what that direct distribution looks like it's a big number. That's more of what we're actually referencing.
Our next question coming from the line of Matt Taylor with Jefferies.
I was hoping you could comment on 2 things. One is that you identified the catalyst in Ultrasound and the resolution for some of the fulfillment issues to resolve catalyst for growth inflection through the year in those segments. Could you help us understand how much inflection that could drive as you work through the launches and resolve the challenges?
So Matt, let me just take. I'll take a hit at the ultrasound piece. I think you're referring to the PCS shipments on that. You can touch on that. Look, I think with Ultrasound, again, I think the first part is, is that when we look at our market dynamics, they are definitely continuing to improve. And as I say, one of the top 2 largest players worldwide, that has a positive impact.
Yes. And just at the highest level, Matt, I do think we have easing comps throughout the year, and I think that's supportive of the accelerated growth profile at a GE HealthCare level. With respect to PCS, we'll see accelerating growth as we move forward here, with the second half of the year, more similar to growth rates that we saw last year. And as we resolve some of the bottlenecks in the second quarter, we'll see some level of improved growth. But then again, more of those benefits will accrue to the second half of the year.
Great. And can I ask a follow-up on phasing? You talked about some sequential improvement in organic growth and margin in the second quarter. And that would be modest improvement. If I think about what modest means, maybe going to slightly positive organic and, I don't know, 20 to 40 basis points on margin. If I flow that through, consensus EPS looks like it needs to come down a little bit. Is that kind of thinking your math wrong? Or can you help us at all with the second quarter?
From a second quarter standpoint, we're looking at low single digits on the sales and continued -- we'll see a reasonable expansion versus the prior year. So -- and that will actually, the first quarter is the lowest quarter of the year. So we'll see a little bit more sequential margin expansion more similar to year-over-year improvements versus last year, similar to what we saw in the first quarter. So I don't have the -- we don't talk about consensus. We don't get into that. But I think those are the dimensions that are in play in the second quarter.
And that concludes the question-and-answer session. Speakers, please proceed with any closing remarks.
Thank you, operator. Thanks, everyone, for joining us today. Hopefully, we addressed your questions. We've got all the right pieces in place here to deliver on our annual guidance that we've laid out, and we look forward to connecting with each of you and some upcoming calls or conferences in the next few months.
Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect.