GE HealthCare Technologies Stock

I'm Larry Biegelsen, the medical device analyst at Wells Fargo, and it's my pleasure to host this fireside chat with the management team from GE HealthCare. With us, we have Pete Arduini, President and CEO; and George Newcomb, the Interim CFO. Also in attendance is Carolynne Borders, Head of Investor Relations.

Pete and George, thanks so much for being here.

Thanks for having us, Larry.

So let's start with the strong Q2 results. Pete, 11% order growth, book-to-bill of 1.15. It looks like one of your competitors, Siemens, also saw a strong Q2 on those metrics. So what drove the strength in Q2? I know you said 3/4 of it came from service contracts. And how should we think about order growth in the second half of the year?

Yes. Look, Larry, I think Q2 was obviously a strong quarter, to your point, over 11% growth. I want to clarify something, though, is that, that was all equipment and orders coming through. The backlog that grew to $2.1 billion. The vast majority of that still doesn't come through orders. The way we recognize service is we will capture a large contract. It will go into the backlog. And then as it's consumed, portions of that will come through. So I mean, again, big backlog build and 11% orders growth in the quarter. So it was quite good.

Look, I think underlying that, the markets are strong. We're seeing still a lot of long waits to get scans. Some of that's driven by the need for many of our modalities now to be prepared for drug therapy or device therapy. And so that's been driving it. And then the other aspect is we're now bringing out more and more new products, and those new products are obviously driving some of the growth. So it was obviously definitely a good one, and we feel very good about what that means now for Q3 and Q4.

That's helpful. So that leads me to my next question. The organic growth guidance this year implies an acceleration in the second half of the year on a 2-year stack basis. So how much of the strong orders in Q2 contribute to that? And what are the other drivers?

Yes. I mean some of the Q2 orders will come through, but particularly in what was traditionally the previous ultrasound business, we'll see those come through. But some of the long-cycle items will come out more so off the backlog as we take a look in the second half of the year. Our ramp-up is -- the traditional setup is we typically have a stronger back half just based on hospital budgets and stuff. And so the ratios look quite good. I mean they're relatively favorable.

I mean to give you an idea, coming into the third quarter, we actually had a higher percentage of the actual revenue committed, which basically means the site has their site readiness, we verified it. We've got the configuration. We've made the product. And so we were pushing 80% coming in. So we feel quite good about what that looks like. And then because of our backlog, because of the ramp, we've got good visibility into Q4. So we feel quite good about that ability for the acceleration and what it means here for '26 finish.

And just last one on '26. The margins are also expected to increase on a year-over-year basis in the second half. What are the drivers of the margin increase in the second half?

George, do you want to take it?

Yes, sure. So look, traditionally, right, historically, we've had about 250 basis points lift in margins second half versus first half, right? As you think about the drivers there, we have the NPIs, right? So a lot of new products coming out. We've got traditional productivity that we do, right? We've got price. We've got PDx, which continues to be strong for us, and then we've got the PCS recovery. So maybe thinking about that a little bit further, with the NPIs, right, each of the products that are coming out now have a better margin than their predicate product. And as they start to mix into our revenue, then our margins will go up.

On our productivity, we've got sourcing initiatives. We've got manufacturing initiatives. We have overall, we announced earlier this year, the combination of our AVS and our imaging platforms, we should get productivity from that over time. Similarly, with our commercial, we merged some of our commercial groups together, we should get synergies there. And as we -- as you think about price, we got a little bit of price in the second quarter as we reprice the orders that we have are taking now, we'll start to see that come through. And then PDx continues to be a strong part of our business. And obviously, it's our highest margin business.

And then lastly, look, we had a rough first half with PCS. We had some supply chain issues. We had some supplier issues. And as we start to push that out into the second half, we should see a recovery there, and that should also be a margin lift. So you kind of package all that together, that's why we see the second half.

Very helpful. Pete, I mean, I heard your earlier comments that we saw the Q2 results, but there's a lot of concerns in the investment community about the health of hospitals because of some of these policy changes and ones that are potentially coming like 340B. What's your view? And what's your visibility into some of these hospital capital equipment budgets into next year?

Yes. No, and I know, Larry, even here at your conference earlier, there's been some discussions on procedure volumes and such. I mean what we do, just to kind of let you know, I mean, we obviously spend a lot of time with hospital CFOs and CEOs, not just myself, but our teams on actually scanning and taking a look at how budgets will be planned out. In many cases, they have a capital budget structure that's 3 years out and part of this discussion is interrogating to understand, is it changing or not. We do a survey every quarter as well where we compare notes and stuff. And then we really try to get as much procedural data. And those are the combinations of things we look at.

At this point, we really don't see any kind of pullback in our specific arena. And some of that gets into the -- what's been evolving and really we've seen a lot of this since COVID is just the need again for imaging for even pharmaceuticals. I mean you go back 10 years, there weren't many drugs that said you need to have a pre-post scan. If you look now at the use of a lot of these because they're so expensive to determine efficacy, there are scans that are happening. The amyloid beta products, you know well. There's actually MRI needed to see if there's any type of adverse effects. There's PET scans needed. So that has created on top of the baby boomer window, just a longer backlog to be able to access scans. And we aren't seeing a lot of change in that.

Now you get into the current contemporary points you raised about the Medicaid changes. All of our U.S. customers knew it was coming, right? It was kind of foreshadowed. So they've been working plans. Obviously, certain jurisdictions in certain areas, the mix shift is a little more painful than others. But we're not seeing that translate into, I'm not going to spend capital. In some cases, you actually see people saying there's more of an urgency that we need to be able to get the right equipment in that can bring in more higher mix procedures into the portfolio.

And then on your 340B point, 340B, obviously, however your views are, how it's been used by hospitals, it has been used that way. I mean we don't foresee something taking place that goes back to ground zero. Even if it were kind of capped off an expansion, it would still play -- it would still have an adequate role, obviously, in helping hospitals fund their needs. So we project at this point in time a reasonably stable environment. The #1 driver of that, though, is the amount of procedure growth that's underpinning it.

That's helpful. Good to hear. China, a big part of your business. It grew low single digits in the second quarter, but you still expect China to decline slightly in 2026. So Pete, what do you see on the ground today in China, including VBP?

Yes. Look, I mean, China has been a very, obviously, dynamics is an understatement market over the last couple of years. I mean if you think of the prior 2 market and all of us down double digits, it's good to see that we're starting to see some stabilization. And to your point, Larry, we're still predicting to say we're going to be slightly down. But it's definitely being more stable and more predictable, which is step one. I think the growth of VBP, it's a little bit of a double-edged sword, meaning it creates more price pressure, but it also provides transparency and visibility. Even for a company of our size and scale that's been in China, making things for over 35 years and being there for over 100 years, our visibility of what was transpiring was still some of the lowest of any country we participate in because there would be deals we just didn't see.

When it becomes in VBP, you see it all. Now you may not want to participate in all, but your visibility goes up. And there's deals we've won at acceptable margin rates that we probably wouldn't have seen without it. I think the second thing is what it does is actually elevates it to a level where the ability for certain players to maybe manipulate an outcome are pretty much eliminated. And I think that's one of the reasons the government likes the approach. So we've actually done a little bit better in VBP. We also are adjusting our go-to-market. You don't need to have the same extensive clinical structure or distribution structure. And so we will have different margin approaches and what we will pay to support that. And so I think those are all the things that say this is what means it's starting to stabilize.

That being said, you have to be local. We moved the vast majority of our in China for China manufacturing there in the last 4 years. We still have last mile of another 10%. But that's critical because if you want to compete in China, everything you sell there, in many cases, if it's going to be associated with price, has to be sourced locally. Otherwise, one of the local players is going to have an advantage over you. And that's one of the strategies that we've been going after.

And so I'd just say last piece, Larry, as we look into the horizon, it's hard to always predict how China is playing out. But I think we're going to see continued stability. I think we've talked about this in the past. I don't think we see a big spike back up. But if we could move from negative territory to slightly positive and continue to improve that, that's the kind of expectations we would have that would help us achieve our longer-term goals.

That's helpful. And so it sounds like the national tender process that came out a few months ago is something you're -- not -- sorry to put words in your mouth, but is that a net positive for you because of this visibility or not? Is it how...

Yes. It's -- I'd say it's net equal. We were expecting all -- like when this came out, there's a lot of people say, VBP is only going to be 15%, 20% of the market. I mean we had modeled that ultimately, over time, it's going to be over half of the market. And we had looked at what are the pros and cons in a very stark way to say that, which then gets you into a mode of saying, if this is where it's going to be, how will that play out? There's no doubt in the last quarter or so, we had some benefits, and we did a little bit better in VBP. If you follow it, which I know you have in some of the other disposable areas -- sometimes the price starts in the first rounds out more challenging and then it starts moderating back because customers want quality, customers want service.

In a disposable world, you can say company A wins, company B is out, all of Bs out and it's just A, in our world, you have an installed base. So there might be one new product. If you have 8 of these other products and you put a different one in, it works differently, it's serviced differently, it causes more challenges. And so I would say we have a few more opportunities to kind of have the right type of discussion why you'd want to buy us other than just price. And if we get in early enough and we have those right discussions, I think we can win. And so that's what we've been seeing. But again, it's still a challenging market, but it's a stabilizing market, and that really is what we want in our forward plans.

Okay. Good to hear. Switching gears to PCS. I guess 2-part question. One is, based on what George said earlier, it sounds like you expect some improvement in the second half. I just want to make sure I'm hearing that correctly. And second, what do you need to -- what needs to happen before you kind of conclude the strategic review?

Yes. Well, I think to George's point, again, the first half, we had some fixable events that took place. Some of it was related to supply chain, some of it was related to manufacturing. And most of it was associated with some older products that we just have had either end-of-life components, things of that nature that we've converted out. And so that challenged some of the supply chain. Most of that has been behind us, and we've been really focused on this quarter. I think Jeannette and her team have done a nice job of really focusing on moving from what would normally be monthly, weekly execution into weekly, daily. And that rhythm to make sure that the teams are on track. Because as George said, when you look at the profitability of that business, there's a reasonable amount of fixed cost. Filling the plants makes a huge difference for the conversion of profit. And we're on track. I feel good about the direction that we're going.

And so the first step to any type of strategic look is, well, let's get the business back to what it should be able to do. And I think as we exit this year, I think we're going to be able to see that with improvement in Q3 and continued on in Q4. So that's step one. And then, look, broadly on the analysis, it's a really good portfolio of products. The question for us, it's a capital allocation. I mean if you think about monitoring, one of the top 2 monitoring businesses, top anesthesia business, diagnostic cardiology, one of the top 2 diagnostic cardiology businesses, a top 3 infant care business and a top 3 kind of disposable cuffs business. It's a diverse one. So the question is, do all those things need to be together? That's one of the discussions.

And are there pieces that would make sense someplace else versus keeping those together. And then there's a fundamental question of the whole business. Do we keep it with the improvements we're making? Or is it better someplace else? And part of that discussion, Larry, will be less about, is this a good or bad business, it's a good business, is could we put more capital to work in PDx or the new AIS and be able to drive that. And I think by -- as we get through the end of this year, starting next year, we'll have a really clear view of that. But make no mistake, job 1 is get it back on track. And I think we're off to the right start.

So it sounds like we can get an update on the strategic review conclusions, maybe I'm thinking like the Q4 call by then.

I think we'll be in a window to tell more -- talk more about it at that point in time in February, yes.

Okay. That's helpful. PDx, really strong Q2, almost 15% growth.

Great work here.

So what drove the strength? How are you thinking about the rest of the year? It does seem like a supply issue one of your competitors contributed to some degree.

Yes. Do you want to start off on PDx and then I'll...

Yes. Yes. So I think, look, obviously, we did see strong growth, I mean, on our core contrast media product, right, where as we see it out in the market, right, the supply is just about keeping up with demand. So that -- from our perspective, that continues to be strong for us. Our radiopharmaceuticals continues to do well and is ramping as we would like. And then I think as we look out into the rest of the year, again, with the procedures that Pete talked about, we don't see a subsiding of demand on that. So I think that's -- from that perspective, that's how we think about PDx.

Yes. And it's a really cool business, and it's kind of entering into a renaissance window. It's interesting. Contrast business has been around for 35 years. It's been generic for the last 18 to 20, yet it's still growing. And a lot of that's underlying, Larry, when you talk to all the device guys that need CT imaging to support it, or anything that's happening in the vascular lab, neurovascular, peripheral vascular, cardiovascular, there's contrast agencies. And you know in the outpatient world, there's growth there. That's driving it.

And to George's point, between us and the other key suppliers, I mean, supply and demand is just matching up. And so to this point about other entrants coming in, there's been, over the years, 8, 10 different entrants that come in or come out. It's not the easiest generic market, meaning it's not -- you put a replacement vial on the shelf and it gets a script. You got to be in the hospitals, you got to be working with injector companies and those things. But I think we view there's probably some room for expansion just based on this market is projected to double over the next 10 years, and we're already seeing that linearity and that ramp matching that.

So I think our business, we feel good about where it is and what we are able to do to protect that and grow it based on our differentiators, which are supply continuity, the amount of features, the alignment with injectors. And then on the radiopharma side, this is -- it's continuing to ramp, but not just in Flyrcado, which is the myocardial perfusion product, you know, Larry, but also Cerianna for breast cancer, we're starting to see Vizamyl ramp up quite a bit. These are all double-digit growth products. And I think we're going to continue to see that as you see the efficacy of the diagnostics and then also how that works with therapy. So a big part of our play is to continue to build out that business to be more robust across the value chain.

I think of this NMP acquisition we did in Japan is both CMO-type distribution, but it's also new molecules. And the CMO area is also quite a profitable area. The ability to develop your own molecules and leverage them in different geographies. All those things give you differentiation that's hard to duplicate. And then obviously, if you align that with what we do in PET, what we do in SPECT and have the equipment, we're one of the few companies that actually can kind of bring these solutions together for customers in a really exciting area, but can be a complex area if you don't have someone like GE HealthCare to kind of simplify it for you. So I'm quite bullish on where we're headed there. And I think what you saw is emblematic of both of those businesses continuing to do well.

That's helpful. A couple of follow-ups. Is the one short term, is Guerbet still having supply issues in Q3? Are you see?

Well, I don't want to comment specifically about any other player, but let's just say, in our space, there's still some supply disruptions that are happening. Yes.

Okay. And then on the generic Omnipaque, you know what your competitor is saying publicly in terms of their kind of aspirations. I guess one question is initially, they're going to go after the spot market. How big is the spot market relative to the contracted market, which is probably a little more protected?

Well, it plays back to your previous question about what are some of the other shorts out there. But spot market could be 20% of the business, depending on where people are at different points of time with availability and such. But again, the demand around the world is growing. I think because of our global footprint, we also have the opportunities to move from one country to another based on demand -- also based on how we take a look at profitability or where we want to supply it. So I think from that standpoint, we're actually in pretty good shape, what we contract, how we think about it.

And again, just to remind everyone, sometimes when we get in these discussions, people think this is a $1,000 a dose drug. I mean we're talking about maybe $15 to do a full-body CT study. And the cost of goods on these products when you start getting down into the single digits based on iodine and stuff, make these challenging to make profit. And so we're not talking about huge numbers. The other aspect is when you do an ANDA and you come out, you pick one product to go to follow, right, their NDA. But these products are fundamentally interchangeable. And so I think as spot market opportunities come up, there's still room for a player out there to do reasonably well and all of us still to continue to grow.

And I think your LRP calls for PDx growing high single digits.

Correct.

No change to that.

Not at this point in time. I mean, obviously, we're doing better than that. We'll update when we update. But obviously, it's good to see that it's outperforming what we said it would do.

Okay. But it sounds like you think you can do at least high single digits. It's not.

I think we have good opportunity to overperform. And obviously, we're doing that right now. And so it's step by step here. Let's see how we do in the next couple of quarters, but I'm optimistic about what we've got going in PDx.

And Flyrcado, you've been giving very helpful kind of dosing numbers up each quarter. We can do the math. But based on what you told us on the Q2 call, it does seem like a pretty steep ramp to get to the $500 million goal in 2028. I guess the question is -- simple question is, how do you get there?

Yes. And I think, Larry, you appreciate this if you follow more than med tech. I think on the pharma side of things, the big part is getting adoption into some of these centers, even if they're a low rate of users to start. And then the ramp can go up multiple hundred doses very quickly. So what we've spent time on is, obviously, the dose number is helpful for you guys to model. Last quarter, I also mentioned that we had close to, I think, 30 new folks that came on. That's the number ultimately that I keep a close eye on because they start -- we originally were like 90 days to get them up to having a moderate dose use. Now it's about 60 days as we've got the rhythm going. But you bring on 30 and then you bring on another 30, 60, 90, those guys go from 1 to 2 doses a day to start going to 8, 10, 12. And ultimately, that's how you get a solid base of users that have that patient flow.

So I would expect to see by the time we exit the back end of this year, that we're on track to the right cohort of users to get us over half of the way there here in '27. I mean that's kind of how we look at the volume. But I feel quite good about the ramp. And again, one of the things that sometimes gets lost in all this is what's the customer feedback, hands down, best product out there for myocardial perfusion, the ease of use of it, the quality of what it does relative to false negative, false positive kind of elimination versus predicates. So all those things are holding up, which is the most important aspect to determine how well it will do long term.

So just one follow-up on that, Pete. So maybe to make sure I understood you correctly. You said about more than halfway there or something to that effect in '27. Are you saying basically $250 million in '27 because $500 million...

I'm not saying actual doses, Larry. I'm talking about the users set up, which we don't give that full number that we'll be able to ramp. That's the important part. Whether we have the actual dose translates to the dollars is less important to me than the amount of users that can easily ramp up to that.

You weren't saying $250 million next year.

I didn't say $250 million here, but we'll give some more clarity, obviously, when we give updates for '27.

But you reiterate, you still feel good about the $500 million...

Yes. No. Look, I think the $500 million in '28, I think long-term $1 billion molecule, all that 100% in line. What the actual number is for '27, we'll give when we get the beginning of '27, how we're thinking about it.

Helpful. Turning to the innovation cycle. You have a lot going on.

In a good way, right?

Right. No, I see press releases coming out almost on a daily basis on new product flow. But you said on the Q2 call, these new products are still under 20% of the value of order growth. Photonova Spectra and was also a minimal order contributor. I think you just got CE Mark. Is that right?

Correct.

So how are you thinking about the contribution from new products, including Photonova Spectra going forward?

Yes. I mean, just to be clear, I mean, we have new products that are in our growth number driving it. But these what we call kind of lighthouse products, the ones like Photonova Spectra, total body PETs, [indiscernible], those are the ones that are still small contributors to the overall number. And so that's -- again, that's the -- if you think of the #1 reason we feel good about being a mid-single-digit grower out into the future. It's because we're getting our chin to the bar there now where we have struggled in the past, and we're just starting to get to this phase of this new wave of innovation.

So I think Photonova Spectra, we feel quite good about getting CE Mark. We have the 510(k). Orders will start coming in at a higher pace here in the second half. We'll be ready to start more of our shipments in the beginning of '27. So that's in line with what we had planned. MR is actually doing quite well. I think the SIGNA Bolt, our 3D platform, our whole new UI interface, which is AI-driven is getting a ton of great reviews to help really drive our growth at a level of where we're picking up share for the first time in quite some time, which is great to see in that business as well as platforming. And we'll talk more about this in the future, but the platforming and it's also bringing the profitability up within that business, which is super important.

And then our total body PET, I think we've got the most interesting platform out in the marketplace, what that can do not only now with its sensitivity, but longer term about more procedures that move further upstream into the process as well as we just announced to the -- I think it was our CE Mark on our 12-head SPECT camera and some of the early work that's coming out there for some of these new molecules like actinium as well as the beta molecules, the only product in the world that can actually -- same product could image in SPECT for theranostics. So some really good stuff that's got us back as well in the top eyes of a lot of the luminaries around the world discussing about the GE products.

And then ultrasound and vascular are hyper critical. I think if you look at the growth that's happening in outpatients, everybody is talking about vascular labs or C-arms or ultrasound products there. And I would argue, right now, we probably have the best lineup of anybody out there. In vascular, for sure, this is the best lineup GE HealthCare has ever had, period. And what that means is now you're competing in a really growing space and an area that typically has higher margins and higher growth rates than some of the other modalities we're in. So we're set up well.

Okay. That's helpful. Any early feedback from customers on Photonova Spectra? Your technology is a little bit different from your competitors. Any early feedback?

Yes. I mean, obviously, we've had a lot of the clinical guys that have done stuff whether it be the University of Wisconsin and such. And I think short of it is the dose characteristics are amazing. I think image quality, people have been really blown away with the spatial resolution and even the algorithm work of what that means in challenging areas where there's metal and things that you traditionally have artifacts. And then the part that folks are super, I think, enamored with is the spectral imaging capability, this multi-bin separation that allows you to understand tissue characteristics that doesn't happen on the first-generation products that our competition has.

And I think the last part is we've tried to kind of make it easy, meaning certain features on the first-generation products, you have to determine, am I in high res? Do I have to have wide field of view? Am I -- I have to select these modes. Ours runs constantly in the same mode. And why that's important is as you get into these studies, you say, "Oh, I really wish I had this data on this cardiac patient." Well, the only way you're going to get it on a first-generation system is you got to go back and scan them. On ours, all the data is there. So yes, we got to get it out there. We got to get more reps and all those things. But those are the things that customers tell us they like about our design.

Great. Pete, I wanted to turn to the medium term. You recently, I think on the Q2 call, reiterated your commitment to the medium-term targets for sales and margins. And I know you haven't provided guidance for 2027 yet, but what do you think you -- what do you see for 2027 to get you to the target ranges? And I guess you have a CFO transition, so just to confirm, so it's still...

So we've got George here, who's been obviously our Controller and has done a fabulous job stepping in as the interim. We're super excited to have Bill Grogan join. Bill is going to join actually next week. So we'll have him in the saddle, has a great background, spent 10 years as a CFO, primarily in industrials, but also in mixed industry. He was at IDEX, where there's some life sciences businesses. And I think his fit that's super great for GE HealthCare is we do have a diversity of complex technological development. He's got experience there. Someone who's grown up in business systems. I think what's really important for us and some of the better execution you're seeing is our implementation of our business system called Heartbeat.

I think Bill is going to be someone that can really step in and understand how to make heartbeat better and embrace it. And then he's just had a really good track record, I think, of thinking about how to actually optimize businesses for higher performance. So we're really excited. That's all on track, and we're excited about getting him on board. Look, when I look at where we are with midterm, I feel quite good. I mean if you think about the macro world for everybody, it's been a challenging last 3 to 4 years, whether it be some of the China challenges, then having the tariffs.

And then as many of the tech world have said with the cost of memory, some of the changes -- these are some of the biggest changes they've seen in their whole career in 30-some years. At some point here, some of these things have to subside behind us. But even having those laid on top, which could be worth almost a couple of hundred basis points of headwind, when we said we would be 17% to 20%, we're still on track to that even with those headwinds. Well, why is that? Well, we are getting price. We are getting VCP and cost reductions at a better rate. Our new products are all coming out at higher gross margins than their predicate, and they're actually performing better.

And then we're benefiting from some of this mix in some of the businesses we talked about that are higher. So I feel quite good about it. Obviously, we're demonstrating the mid-single-digit growth. Orders of 11% quarter is great. That's not something we would say you're going to perform all the time on. But in the trailing 12 months, we're now at a 5% range, which in previous years, we haven't been. So those are the key things. And then, again, we're going to be focused heavily on margin. We think we still have lots of room to go. And it's that composite of all these things together, a better solution, a better cost structure and then ultimately, better optimization of kind of how we bring all these things together.

So mid-single-digit organic growth, you're not there this year. But that is the LRP target.

Correct.

And you still feel good about that.

Yes, yes. And I think you're going to see us continually make some progress against that.

I mean if you're not there next year, it's kind of hard to get there in the LRP, right?

Correct.

Okay. Fair enough. Pete, any -- I really appreciate you being here. We've got a minute left. Well, I didn't ask you about capital allocation and M&A. Anything you want to add on that?

Well, I would just say -- I mean, look, first, thanks for having us here. Look, capital allocation, none of our priorities have changed. Obviously, our highest return IRR work is internal investments. Hopefully, you're seeing that with all the new products coming out. I think we're at the right level as a percentage of sales and R&D right now. We've done selective buybacks. We've done some things here with our dividend. But we believe that there's some good opportunities with the right types of tuck-in M&A.

Things that can actually build out the girth of the company, either defensive capabilities, but in many ways, moving us into new areas where you see more recurring revenue or higher mix. I think Intelrad is a great example. Digital space, we can integrate more together around growing at high single digits, potential to grow faster and margins in the 30s. And so those are the kind of things you're going to see more of. But look, I think we're at a point right now as an inflection point for the company where those midterm goals are really becoming real, and we feel quite good about where we are positioned.

Perfect. Great. Thank you.

Thank you again.

Good day, and thank you for standing by. Welcome to the GE Healthcare Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carolynne Borders, Chief Investor Relations Officer. Ma'am, please go ahead.

Thanks, operator. Good morning, and welcome to GE Healthcare's Second Quarter 2026 Earnings Call. I'm joined by our President and CEO, Peter Arduini, and Vice President and CFO, Jay Saccaro; and our Controller and Chief Accounting Officer, [George Nukem]. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides available on our website. During this call, we'll make forward-looking statements about our performance. These statements are based on how we see things today. As described in our SEC filings, actual results may differ materially due to risks and uncertainties. And with that, I'll hand the call over to Peter.

Thanks, Carolynne. Good morning, and thank you for joining us today. We were pleased with our strong performance in the second quarter. Orders increased 11% and with strong backlog, which grew $2.6 billion year-over-year and book-to-bill of 1.15x, all of which were at record levels. We're seeing healthy end market demand in all 3 of our segments and across geographies, reflected in the growth of our differentiated products and solutions that improve clinical outcomes and productivity. This sentiment was once again reflected in our most recent survey of top U.S. customers. We're increasingly becoming a key productivity enabler for our customers as they navigate capacity constraints and workflow challenges.

At the same time, the substantial changes that we've made in our commercial organizations and progress on our new innovations, many of which are AI-enabled, strengthen our competitive position and are delivering results. We've launched several new products from our pipeline with more to come, and these products position us well to contribute meaningfully through the balance of the year and beyond. We're also seeing continued traction in our service businesses, strengthening our recurring revenue base and creating additional value for customers. Fundamentally, it's the sum of all of these parts that gives us confidence in the remainder of the year and our medium-term outlook. Revenue growth in the quarter was led by strength in pharmaceutical diagnostics and advanced imaging solutions.

Patient Care Solutions performance remained challenged. We're actioning improvement initiatives via our business system, Heartbeat, with a focus on increasing shipment velocity and backlog conversion of our monitoring and anesthesia product lines to deliver PCS revenue and margin improvement in the second half. A bright spot in the quarter was strong PCS orders growth, particularly in monitoring, driven by our new platforms and recent sales force realignment. As we focus on accelerating recovery in this business, a comprehensive review of the strategic options is underway to determine the best path to maximize long-term growth and value. including continued ownership of sale and other value-enhancing transactions. This is a business with depth and breadth that touches many areas within health systems.

We have a healthy pipeline of new products in anesthesia and monitoring as well as digital offerings expected to be introduced this year and in 2027. Moving to Slide 4. Let's look at how we're delivering on our growth strategy, starting with how we enable precision care. D3 brings together smart devices and drugs, a disease state-focused and digital capabilities, particularly AI. Heartbeat helps us align customer needs, product development, sales and service capabilities more effectively. And together, they help us bring innovative products to market faster and strengthen customer relationships while improving the margin profile of the portfolio over time. Our D3 strategy is resonating with customers and their interest in our differentiated solutions is reflected in our strong orders growth in the quarter, including broad-based contributions from Ultrasound, MR, CT, patient monitoring, radiopharmaceuticals and interventional labs among others.

This aligns to the global demand backdrop we're seeing for our technologies and underscores our differentiated innovations and field teams are winning in the market. In the U.S., we're seeing strong interest in Photonova Spectra, our Photon Counting CT platform, and we expect CE marking in the second half of 2026, which will expand our opportunity in Europe. We've also received great customer feedback on True Definition DL, our latest deep learning CT software upgrade that enables nearly double the image resolution across the installed base. Like Air Recon DL, this is another good example of how we are using AI to enhance the clinical value of existing systems while giving customers another pathway to enhance performance.

We also offer this as a subscription model, which brings recurring revenue. Together, these innovations highlight how we're expanding the value of our CT portfolio through new products and software innovations that appeal to customers. In PDX, we had a strong quarter in contrast media and robust growth in U.S. radiopharmaceuticals. This reflects the growing demand for advanced imaging that requires the breadth of our PDX portfolio. As an example, Visimel, our amyloid PET imaging agent had strong double-digit revenue growth in the quarter. reflecting an increase in therapy adoption and an evolving Alzheimer's EcoCare system, which includes broader diagnostic capabilities to identify and evaluate at-risk patients.

Additionally, we are on track with our Plakadoramp. In the quarter, we delivered 545 doses for the week ending July 24. This is approximately a 40% increase over April levels. We onboarded more customers this quarter, which we expect will lead to increased utilization in the second half of the year. Customer feedback and acceptance remains strong. Looking to the second half, we remain focused on continuing to build momentum and these important indicators of our long-term growth trajectory. We remain confident in our medium-term target of $500 million or more in annual revenues by 2028. Moving to business optimization. We continue to prioritize additional cost and price actions as we navigate a dynamic macro environment. We lead the industry in bringing AI to customers, and we're also equally focused on using AI inside the company to improve productivity, simplify work and strengthen our supply chain, so teams can spend more time on activities that create the greatest value for our customers.

Since implementing the operational changes to create AIS and Global Markets, we have significantly increased our customer focus with channel changes that were completed in the second quarter. The AIS structure allows us to be a more nimble and agile organization. Before I turn the call over to Jay to review our financial results, I'd like to take a moment to thank him for his partnership and contributions to GE Healthcare over the past 3 years. [indiscernible] help build a strong financial organization and still greater financial discipline across the company and has been an important partner as we've executed our strategy.

We're grateful for his leadership and impact that he's had on the business, and we wish you all the best in your next endeavor. During this transition, I have full confidence in George Nukem, our incoming interim CFO, who has extensive experience. With that, I'll turn the call over to Jay to review our financial results. Jay?

Thanks, Pete. I really appreciate the partnership, and it's been a privilege to work alongside you in such a talented organization. I'm also proud of all that we've accomplished together. And I have great confidence in the team and the strong foundation we've built to continue executing on the strategy, delivering for patients, customers and shareholders. With that, I'll turn to our second quarter financial performance on Slide 5.

We delivered revenue of $5.3 billion, representing 3.5% organic growth year-over-year in line with our expectations. On a reported basis, we saw revenue growth across all regions. We had solid performance in product and service revenues at 4.7% and 7.7% growth, respectively. Service growth benefited from operational performance as well as contributions from the recent Intelerad acquisition. Organic orders growth was robust, up 11.1% year-over-year, the highest since our spin. We saw orders growth across all of our segments with particular strength in several of our longer cycle products in radiology, which represents our former imaging business.

These products have longer sales conversion cycles, and we expect these orders to contribute to revenue more meaningfully in 2027. Book-to-bill was 1.15x, also our highest since the spend, and we exited the quarter with a record backlog of $23.9 billion, up $2.6 billion year-over-year and $2.1 billion sequentially. Approximately 1/4 of the sequential increase is in product backlog, while the balance relates to multiyear service agreements that convert to revenue over time. Adjusted EBIT of $750 million included $23 million in recognized refunds from EPA tariffs incurred in the first quarter of 2026. Adjusted EBIT margin of 14.2% was down 40 basis points year-over-year. We delivered adjusted EPS of $1.13 in the quarter, up 6.6% year-over-year.

Adjusted EPS benefited from $0.04 of tariff refunds and $0.02 due to a lower tax rate year-over-year. Even when adjusting for these contributions, performance exceeded our expectations. Lastly, our free cash flow was $68 million in the quarter, which includes tariff refunds of $107 million. For this quarter, given macro dynamics, we thought it would be helpful to include additional details on our margin performance on Slide 6. Adjusted EBIT margin was 14.2%, down 40 basis points year-over-year. Let's walk through the drivers. First, year-over-year with margin was negatively impacted by the challenging quarter in PCS as well as incremental inflationary costs from memory chips, oil and freight and other components.

Despite these challenges, strong commercial execution drove volume growth providing a margin tailwind year-over-year. Part B is helping us better connect our product and commercial teams as we bring our latest innovations to market, supporting both growth and margin expansion. A great example is our Vivid Pioneer Ultrasound, which leverages a platform approach to achieve a lower manufactured cost, coupled with differentiated AI capabilities that drive higher pricing. This product is performing better than we expected and has allowed us to deliver a significantly higher gross margin than the prior platform. This development model is replicated across all of our products in our new wave of innovation.

Meanwhile, we're focusing on daily management to enable incremental price and cost actions to help offset inflation impacts in 2026. We started to see these improvements take hold in the second quarter and expect it to contribute more meaningfully to margin in the second half of the year and in 2027 even net of investments that we continue to make in the business. Lastly, the year-over-year impact of tariffs was neutral when including the benefit of refunds. Let's move to segment performance, starting with Advanced Imaging Solutions on Slide 7. As a reminder, this is our first quarter reporting the combined business that were formerly known as imaging and advanced visualization solutions and we are providing a recast of prior period financials on our website.

Organic revenue grew 5% year-over-year, driven by strength in Cardiovascular and Interventional Solutions CT and molecular imaging. EBIT mortgage increased 90 basis points year-over-year driven by volume and price, partially offset by inflation. We expect a combination of higher-margin AI-enabled NPIs like those in MR and CT, along with elevated clinical and commercial expertise to continue to drive growth. Moving to pharmaceutical diagnostics on Slide 8. We delivered particularly strong organic revenue growth of 14.6% with strong volume and pricing in contrast media as well as robust growth in our U.S. radiopharmaceutical business. This was driven by increased adoption of disease-specific tracers across the portfolio. EBIT margin of 29.6% grew 30 basis points year-over-year benefiting from volume and price, partially offset by planned investments in new products and our innovation pipeline.

For example, we're making progress in our ongoing Phase II and III clinical trial for a noncatalinium-based contrast agent, which we believe has the potential to significantly advance the MR contrast landscape. Looking ahead, we continue to expect growth driven by global contrast demand and scaling of our U.S. radiopharmaceutical business. As a reminder, turn market demand is close to outpacing total market supply. We're a leader in contrast media where we win through our focus on supply chain resiliency and delivering the diversity of SKUs our customers require.

Moving to Patient Care Solutions on Slide 9. Organic revenue declined 13.5% and segment EBIT was negative. We had operational fulfillment challenges in the quarter. As Pete mentioned, we've implemented several changes to strengthen supply and manufacturing capabilities that will address these issues. We expect to see supply improvement, which will benefit both sales and margin in the second half of the year. July has started well in this regard. On a positive note, PCS had strong first half orders growth driven by monitoring as well as demand for our premium anesthesia product internationally. Backlog is well positioned. And in the second half of the year, we expect to deliver sequential improvement driven by daily focus and weekly execution plans to drive volume and margin recovery. We expect FDA clearance for our premium anesthesia device in the second half of 2026.

As we reflect on overall results in the quarter, while PCS continued to be challenged, we're very pleased with the performance in the remainder of our business. Turning to cash on Slide 10. We delivered free cash flow of $68 million. Year-over-year cash flow increased primarily due to tariff refunds, partially offset by working capital investments and CapEx to support growth. We returned capital to shareholders through the repurchase of approximately $200 million worth of shares and continue to pay a dividend. I'll now turn the call back over to Pete to talk more about the full year outlook. Pete?

Thanks, Jay. As noted throughout the call, we're pleased with the momentum in our business, reflecting healthy end market demand and continued commercial execution, which gives us confidence in our full year outlook. We're maintaining full year guidance, and this reflects 3% to 4% organic sales growth and 10 to 40 basis points adjusted EBIT margin expansion, that gets us to a range of 15.4% of 15.7%. We're maintaining our adjusted EPS guidance in the range of $4.80 to $5, approximately 5% to 9% growth year-over-year. Free cash flow is expected to be approximately $1.6 billion in 2026. For the third quarter, we expect year-over-year organic revenue growth to be in the range of 3% to 4% as well as low double-digit adjusted EPS growth year-over-year. Now I'll turn to Slide 12, which highlights the strategic value of creating AIS and how our team, our differentiated portfolio and these unique advantages are advancing our growth strategy. We're in the early stages of our new wave of innovation, which is already driving strong results as reflected in our orders growth in the quarter while also delivering higher gross margins as these products scale.

Today, we have stronger commercial alignment with our customers, which includes 3 areas that we hear differentiate GE Healthcare, one, deeper clinical expertise, our field teams with their business alignment create an agile team of experts able to address clinical and technical challenges; two, our expanded service capabilities, which includes equipment maintenance and also a growing set of SaaS and software AI-enabled offerings brings a broad toolkit to customers; and three, GE Healthcare brings enterprise problem solving to all levels in the integrated delivery network globally. We hear from customers that our teams are collaborative, creative and relentlessly focused on helping them solve their toughest challenges.

These 3 areas allow us to get closer to our customers and help them solve increasingly complex clinical and operational challenges. Lastly, Heartbeat strengthens how we execute. It enables repeatable processes and a culture of accountability and connects our teams more closely with customers. While we're still early in our Heartbeat journey, we're already seeing the benefits a global business system can bring. This focus is helping us win opportunities with leading institutions like the examples you'll see on the next slide. Catholic Health in New York wanted to expand our structural heart and electrophysiology programs and improve productivity and consistency across care settings. Working with their team, we jointly built a road map for technology modernization and services support to address their needs.

This includes our latest cardiovascular ultrasound Vivid Pioneer, our interventional platform, Alia and comprehensive digital tools to create a disease state integrated solution, which strengthens Catholic Health's position in the market. Technology was an enabler, not a starting point. The result was an approximately $500 million agreement for equipment, service and process expertise that will result in orders over time. We saw a similar dynamic with the University Hospital, Essen in Germany, where the focus was oncology and theranostics. By aligning technology goals and targeted outcomes, we work together to provide a fully integrated nuclear medicine solution that includes cyclotrons for tracer production, our new total body PET and SPECT systems and MIM software for AI-enabled imaging analysis and therapy planning. These 2 examples show how we bring together our portfolio around disease states, not just products, underscoring the value of D3 and heartbeat to deliver for customers.

In summary, we've made meaningful progress with our innovation pipeline. New products are gaining traction. Our commercial changes are demonstrating results and our recent customer agreements show how those innovations are being pulled into larger long-term relationships. I'm proud of the AIS and PDX teams for their performance in the quarter. Combined, these 2 businesses grew approximately 6.5% and expanded margin 100 basis points year-over-year. We remain confident in the fundamentals of our business, and I'm proud of our team's commitment to delivering value for patients and customers worldwide. With that, we'll open up the call for Q&A.

Operator, we'll go ahead and take questions.

[Operator Instructions] Our first question will come from the line of Larry Bechelson with Wells Fargo.

Jay, it was a pleasure working with you, and I wish you nothing but the best of luck going forward. So for my first question, Pete, I'd love to hear more color on what drove the strength in orders in Q2, was there anything onetime? And how sustainable is that? And you know there are concerns around capital equipment demand in the U.S. given the ACA subsidy cuts. What are you seeing?

Yes, Larry, thanks for the question. Look, I mean, we were delighted with our orders performance in the quarter. I would say, look, I mean, 11% is an outstanding number. We've always talked about that being in the mid-single-digit range with orders is quite critical. I think we feel good about that as we go into the second half as well. and that converts that mid-single digit to mid-single-digit revenue, again, which is aligned to our guide. So this is quite good. There really weren't any particular one-timers or any type of business coming in from Q3. It was just really good execution at a street level with our teams with the vast majority of it being our legacy portfolio that complemented with some of the new products helping to deliver.

And then as we've done and I highlighted the addition of enterprise accounts, I think we had about 6 enterprise accounts that contributed to some of the growth. But again, there weren't any items that were significantly big ones that were outliers. It was broad-based, and it was pretty consistent. I think if you look across molecular imaging, ultrasound, MR, CT, or vascular labs, the ultrasound whole portfolio. We talk a lot about cardiac, but point of care, general women's health, everyone did well. And I would say there's been a lot of focus by our teams on how we execute. So we talk a lot about Heartbeat in the management system, but some of those things get down to how do we improve visibility. And we improve visibility, meaning what deals we see to participate around the world by a couple of points this quarter. That translated into a couple of points of higher win rate. And those are some of the actions that you can't always execute each quarter on, but it came together quite well. So that's the broader level of it.

And again, relative to a beat on the orders, that's the way we'd like to see it. It was broad-based and consistent across the board. The other aspect, I think, you mentioned was how the markets are doing. From a procedure standpoint, I know there's been various news in the marketplace. Our best procedures view is really how PDX is doing, and then actually how we would see some of the equipment that goes into procedure-based areas like cath labs. Both of those are doing very well. Our contrast agent business is doing extremely well. You heard Jay mentioned about the performance of the numbers, both radiopharma as well as in contrast. And so that's a procedure based. And then in our Vascular and Surgical businesses, that both represent vascular procedures, ortho procedures, cardiac, all of those continue to do well. And we haven't really seen any pullback from surveys that we've done out there.

I would remind you, though, that we are a type of business that when any type of challenge comes to the hospital, the ability to have an imaging study that can get to a diagnosis very quickly and move a patient onto the right type of therapy and be able to get them out of the system healthy. We typically see an uptick. And in many cases, with large deals, that's a big part of the discussion what can we do to improve their overall productivity. So thanks for the question.

That's very helpful. And just for my follow-up, Pete, we heard the Q3 guidance that you gave. the comps get tougher in the second half, help bridge the second half implied acceleration on a comp-adjusted basis embedded in the guidance? What are the drivers?

Sure, Larry. Maybe I'll start on this one. I think a lot of this comes down to the robust orders performance that Pete talked to, 11% on a quarter basis. If you look at it on a 2-year stack, over 7% order growth. It really sets us up well heading into the second half. As we think about the first half, second half split, over the last few years, we've seen roughly 48% of our revenue in the first half and 52% in the second half. Our 2026 outlook is basically in line with this historic trend. And as we look into the third quarter, 1 of the areas that we analyze is the thing called secured rate, how secure is the equipment revenue heading into the quarter. And our secured rate on equipment, we're at 80 -- over 80%, nearly 85% secured and during the quarter. which is up several percentage points versus prior quarters. So we feel very good about that forecast.

Also supporting the second half growth will be PCS stabilization. We'll see a bit of that and Florcato growth and more broadly, radiopharmaceutical growth as well. So really, those are the contributors to the second half, which we feel very solid about at this point in the quarter. And from a bottom line standpoint, look, our seasonality is such that we have more profit in the second half than the first half we typically do. Historically, it's 55% roughly in the second half, 45% in the first half. And historically, we see from the first half to second half, about 2.5 percentage points of margin improvement. Now interestingly, we'll do a little bit better than that this year. and what it's going to come down to is really all the price and cost actions that we implemented in the second quarter that will carry us through into the second half, driving us over 300 basis points of expansion from the first half to the second half with the other notable point being the new products that are coming in are higher margins really helped the mix as we approach the second half.

So really, that's the story of the first half versus the second half, Larry.

[Operator Instructions] Our next question is going to come from the line of Vijay Kumar with Evercore ISI.

Congrats. Pete, maybe my first 1 for you on the former diagnostics. Another solid mid-teens you gave the located numbers. Can you just talk about what's driving it? It looks like the base business exploits doing really well. What's driving that and how you think what located or ramp, are we still good for the $0.5 billion number, maybe the time lines for moving here?

Yes, Vijay, thanks for the question. Maybe I'll start at PDX and just kind of flow down through it to that point. So again, we did have a very strong quarter, and it was contrast and it was broad-based in Radiopharma. And again, I think this is right on pace to many of the trends that we're seeing out there. We've said in the past, we expect the business to grow high single-digit range. I think that's kind of the expectation. This was obviously a little bit higher performance within the given quarter. But it was broad-based. I think I mentioned Visma, that was up significantly. And again, it's highly tied to the amyloid beta therapy adoption, doing well there. our product ad scan for Parkinson's disease was up quite a bit, seriana and breast cancer. And then obviously, forcado kind of our premier product within that area, and we're pleased with the progress. I think this won't obviously be linear. There's going to be bigger spikes at different points in time. But at this point, the 535 doses, which, again, is about 40% increase, the other aspect I mentioned on the prepared remarks was the fact that we brought on quite a few new customers as well, pretty much about that same ratio.

And they will -- when you bring them on, I think we've talked about this in the past, first 60 days, they're minimally productive. And then past that, they start increasing the amount of doses. And so we're in a really good spot here to ramp this up as we go into Q3 and Q4. And the longer-term opportunity of $0.5 billion annually by 2028 is fully intact. I mean, again, remind people if you think of the perfusion studies that are out there in the pet world, you get about 10% of those studies overall, that's roughly about $500 million in revenue. So we think we -- as we've always talked about, we have much -- a very good chance to do better than that, but we're focused on the $0.5 billion here by 2028.

That's very helpful, Pete. Jay, one for you. Look, this never an ideal claim for transition, seem a bit abrupt for us. Maybe talk about why now and where in the CFO search process?

Vijay, obviously, it's very difficult to leave. We've made such tremendous progress at the company on the innovation pipeline, really setting up processes, establishing the Heartbeat operating system. I feel so good about where the business currently sits and where it's heading. And so it makes it very hard to leave. Also, the partnership with Pete and our leadership team has been a remarkable one. I have nothing but respect for that team. And I believe we have a world-class finance function that I've been privileged to work with. So -- all of that makes it difficult. For me, what this came down to is a very unique opportunity at a great company to expand my role beyond finance, so that's what really this came down to. It's never an opportune time. But what I would say is I really do believe we put the building blocks in place that have set the company up going forward in the right direction. Pete, maybe you could talk a little bit about the search.

Yes, I'll take the search. I mean, obviously, Vijay, we just kicked it off. We're going to move quite quickly as we dig into it, I think we're blessed with our market recognition, people understanding what we're doing with AI, how we're in the interesting seat to transform health care. So we've got a lot of interest that's out there. And so I would expect we'll be able to talk more about it here in the coming months about how we're making progress against it. In the meantime, George, who's been with this over 38 years in many different roles, deeply involved in all of our operations over the past x years, at least since I've been here and beyond is going to be a great partner here for me.

Our next question comes from the line of Rick Wise with Stifel.

Pete, a question for you and then a question for Jay. You obviously talked about the new wave of innovation. And stepping back, just -- are you seeing the impact from that wave of innovation, broadly speaking, is that broadly at a higher level, we're seeing drive orders? Should we expect to see that broad portfolio drive accelerated order growth as you look ahead for the next several years? How are you thinking about it? And more specifically talk about the impact having Photo Nova Spectra now launched is having broadly on the full portfolio pull-through.

Yes, Rick, thanks for the question. Again, I think, particularly if you look at this quarter, we really had all the things kind of come together. I mean we've had some growth here from some of the new products. But again, in the spectrum of all the products that we've talked about, it's still under 20% of the value, meaning it's still a smaller contributor. I'll talk about PhotoNova in a minute, but PhonoNova was a minimal contributor to the orders book. That's all still in front of us. What really drove CT was our breadth of our core product line. So you've got really good products that we've been able to raise some level of price, a fair amount of price on them and new products that actually have better cost positions and slightly higher price that's in that book. But I think some of these changes we just talked about, we mentioned Global Markets and AIS, our ability to actually just execute better in front of the customer to be able to describe why us versus someone else, be able to focus on their problem and how to bring our products together to solve their problems.

We've been focused on this quite a bit. And so that's rising impact, and I give a lot of credit to our field teams, both sales and service for that aspect of it. And then the piece relative to enterprise. There are more and more enterprise deals increasing. But I mean, just to get -- put in perspective, I talked about Catholic Health, which is a great partner, only about 1/5 of those orders are actually a part of what went into second quarter. So there's still much in front of us. So it was broad-based and consistent. And then I think when you look at MR, MR is an area for us that we have talked about investing in to increase margins. We've talked about increasing and changing the profile. The team's done quite well. The Bolt 3T, the new fully integrated user experience, which we updated just a few months ago, it's the first change in probably 25 years in our MR platform widely viewed as probably the best UI now in the marketplace, making a big difference.

The whole portfolio that's playing out in molecular imaging, our PET platform, what's happening there, doing well. PCS, as we mentioned, actually on the orders front, actually doing quite well with monitoring for the new platforms that are out there. And then in the AI and specifically in ultrasound and interventional we're doing very well. And those products, as Phil mentioned, as well, have a faster turn. So they will contribute more to revenue conversion in the second half. the traditional imaging products will be probably more so early in 2027, mainly because they have a room build out. But we're in very good shape there.

To your PhotoNova question, Things are on track. I had mentioned we need CE marking. That's going to be in the second half of the year. It's a little bit later than we initially communicated, but all in good shape there. we had really very good step-ups in the funnel. I mean this is preorder, but this is prospects that are qualified and ready to step into an order phase. So we're in quite good shape there. And again, that will be a significant growth driver here as we get late into this year and into next year. And so at this point in time, it's not a major driver within the orders book, but will be in the future.

Got you. And Jay, wishing you all the best in your next job, new role. But you're leaving Pete, you're leaving your successor and you're leaving us with the medium-term '26, '28 outlook goals and targets, the mid-single-digit organic growth, high teens to 20% adjusted EBIT margin, high single digit to low double-digit EPS growth, 90% free cash flow conversion -- but what's your comfort? What's your comfort as you're leaving or -- what's your comfort with the medium-term targets now?

So Rick, while we're here live, I'll let Jay here as make his comment, and then I'll jump in, Jay, maybe you want to hit it quickly.

Yes, Rick, we feel very good about the midterm story. And for us, what we always knew was that the midterm story would be unlocked by 2 things: one, the innovation cycle, and I'm so proud that we've been able to deliver on this. And now it's about executing commercialization that's going to drive that. and 2 is implementation of an operating system, we call it Heartbeat to drive rigor around commercial and the operational aspects of what we need to do. And so those 2 ingredients are going to be the things that unlock this midterm story. And I have to say both have been put in place and serve as an incredibly solid foundation.

Yes. No, look, I think, Rick, we feel quite bullish about where we stand with our midterm targets. Jay hit it. I mean, look, it all starts with do you have the right demand in the marketplace which is matched up with the right sales and service teams, but it comes with the right products. We believe we've got the right portfolio coming out. And that portfolio is yet to really deliver the type of results. I just mentioned the Photo Nova ramp that we expect. All of those products have the opportunity for higher price. There's not been 1 product that we introduced that hasn't come out at a higher value than it's predicate and customers are willing to pay for it. Why? Because it has a lot of embedded features that makes them more productive, whether they're AI or just how they're built into it, and we've leveraged this platform approach, where we've been able to come up with, I think, better reliability, but also better cost because of the reuse and leverage of different chassis.

So the combination of those is faster growth and better gross margin. So there's a big chunk there. Jay hit on Heartbeat, which again, I think you're going to hear more and more about what that does for consistency and better execution. And then this point I made on the prepared remarks about AI inside, we see a significant opportunity to increase our own productivity with the use of AI inside so that as we grow, we can grow with a lower G&A based on a higher base. And a lot of that is with the use of agents and tools that can help us be more consistent. So we're locked in, we feel very good about our midterm targets. And honestly, this is a great quarter here to demonstrate that we're well positioned to deliver on it.

Next question will come from the line of Travis Steed with BofA Securities.

Jay, will miss working with you and best of luck in your new role. I wanted to ask about inflation impact on margins. Anything you'd kind of call out or quantified this quarter. you look at the different buckets you gave last quarter, [indiscernible] oil and freight costs and other inflation buckets, how those are trending versus 3 months ago and how you kind of think about the go forward there?

So -- yes, overall, from an inflation standpoint, what I would say is we saw a very volatile macro environment to start the year. We had the memory chip phenomena. We had the war in the Middle East impact logistics and freight and certain other metals. But -- so last quarter, we had to take an approach to adjust the guidance. What I would say is since then, things are broadly speaking, tracking in line with our expectations. Memory chips have continued to increase, but much more modestly. So we're seeing -- we've seen a little bit of increase since the first quarter call, but nothing notable. And oil, while it remains elevated, it is down a bit from the previous peak. And so the $250 million assumption, which included some cushion in it when we put together when we put it together is still the appropriate amount for where we sit today.

In the second quarter, inflation was about 120 basis point headwind, which was in line with our expectations. And I think for me, the most important aspect is in conjunction with that gross inflation, we put in place a series of mechanisms to offset it both in terms of cost and price. And we've made really good progress on both of those initiatives, which will support growth into the second half of the year, but then also into 2027.

Great. And then kind of a follow-up on the PCS business, the decline this quarter, any more color you'd give on that and when that business starts to stabilize, and then the PCS strategic review, how that's tracking and what you do with extra cash, if you got cash in that strategic review?

Yes, Travis, thanks for the question. Look, I think, again, the first bright spot on PCS was we saw orders growth, particularly in the monitoring world that hasn't performed at that level in quite some months. That's heavily tied to, I think we refocused the sales organization in the quarter that was completed as well as some of the new products. So that's a super important point that needs to be out there. But the reality of it is, look, we had operational fulfillment challenges in the quarter. What do those mean? -- short on supply, some critical components, things of that nature. Ultimately, that results in our inability to fulfill, some of those specific orders, obviously, will move out into the second half.

We feel good at this point in time with the new focus that the team has in place that we'll be able to fulfill those and correct those. But ultimately, it's about shoring up our supply chain and our ability to deliver consistency consistently. And so Janet and the team have a daily, weekly focus on this. I'd say we've really got into the details to be able to get the business aligned and feel good about what we can do to be able to address those. As we mentioned as well, I will expect that we will see improvement here within the second half quarter-over-quarter, I think, both on top line and bottom line. This is a business that is heavily tied to its volume from its profitability standpoint. So as we move velocity, particularly in monitoring anesthesia through those facilities, you'll see the corresponding profit increase.

Look, on the strategic review, Travis, to your question, you would expect us to be taking a look at this business in many different ways to say how do we have this be a contributor. Wheather it's a contributor for us or someone else that needs to be addressed. That's job one. And again, I think over the coming quarters, the efforts that we have to improve its profitability, improve its growth profile, feel quite good about the level of actions that we have in place. That being said, we're looking at multiple alternatives here. And so we have many different products that are in this portfolio. do all of those fit. That's a fundamental question. The constructs of the geography of where we compete with that business. the construct of what our overall SG&A levels, those are all of the aspects there.

Obviously, to the full extreme of is this business better parked with someone else. So over the coming quarters, it will be about improvement of the business while simultaneously looking at those options. To your point on if you were to do something, what would you do with the cash? I think it's obviously too early to discuss anything like that at this point. But our capital allocation priorities wouldn't change in either case, right? So we've been very clear about that, Jay and I in the past. That won't change going forward. Our focus on our organic investment is some of the highest returns. We've talked about those. You're seeing that play through in our orders growth. We believe that inorganic the right level of tuck-in deals can make a lot of sense for this business to continue to grow it. And then we have other vehicles to distribute cash back share buyback and stuff.

We've done some in the quarter. most likely, as in all things, it's not 1 lever, it's the right combination based on time.

Our next question will come from the line of Robbie Marcus with JPMorgan.

This is Henry on for Robbie. I'll just ask both of them upfront. So first, on the generic Omnipack, could you just talk a little bit about what you're seeing today in terms of the AB rated approvals, and a little more importantly, what you expect the impact to be in the second half of '26 and 2027? And then second question, on the EPS guide, the prior guide didn't include a rebate. So today, why did you choose not to raise the EPS guidance given the tariff refund and lower taxes that benefited second quarter relative to the prior expectations?

Jay, do you want to take the first 1 and then maybe I'll take the guide.

Sure. So on Amneal, we haven't seen any impact at this point at all. What I would say is that the current contrast market demand is very close to outpacing total market supply. So it's a very tight market as we sit here today. And then as we forecast the market growing going forward, our expectation is based on increased procedure volumes in places like cath labs, we expect the market to double in size over the next decade. So we're really talking about incredibly robust growth. With this growth, there have been periods of tight supply over the years. So we believe there's room for incremental supply on the market. The other thing I would say is like generic competition is not new in these contrast media markets, and we've successfully navigated through multiple market cycles. And the way we do it, it comes down to being a trusted and consistent supplier that comes down to having the full portfolio of products available and really being there when your customers need them.

So listen, we never underestimate competition at all. We haven't seen an impact to date. We think that this market is going to be a tight 1 going forward. But then also, we do believe that there are aspects that differentiate our offering relative to others. And then Pete, maybe on the guidance question.

Yes, I'll take the guidance question. So your question was, with some of the tariff cash benefit, how come you didn't raise Look, I think we recognized $0.04 of adjusted EPS related to the '26 tariffs within P&L. I think others have taken more at a $0.04 level, this being halfway through the year and multiple cost items tied to oil, chips still somewhat in flux. We just thought it made sense to kind of stay where we're at. Obviously, if those stay at lower levels, we'll have upside within our guide. I think we have the appropriate cushion here to meet and potentially exceed. And so it just made sense at this point in time to kind of hold where we're at.

Our next question will come from the line of Joanne Wuensch with Citi.

I want to pause on China and think about what is going on in that region in terms of provincial budgets, VBP, pricing and anything else you can share geographically.

Joanne, thanks for the question. Yes, look, there's always evolving dynamics in China. I would just say for us that when we look at China, the changes, the evolution are not new or I would say, out of the ordinary of what we're expecting. I mean, we had expected that China over time will continue to expand VBP constructs. We've seen over the past couple of years, we've seen in other industries that way. It makes sense. It aligns to their strategy on anticorruption because they tend to be more transparent than non [indiscernible] So from that standpoint, we haven't seen anything out of the ordinary. We were pleased with our China performance in Q2, which I describe as in line with expectations. And we're making good progress in the most recent quarters.

I think under Will's leadership, we've strengthened the portfolio. We've focused on clinical value propositions as well as we've stood up a provincial government affairs group. It's been very helpful in how we think about properly positioning and strategic alignment on these VBP, which again, based on the recent headline news are going to continue to grow. So I think we view it from that standpoint. I also think it's -- our view on the dynamics of the region haven't greatly improved at this point. But we feel it's prudent to continue to assume kind of a year-over-year decline in 2026. That's what we've built into our plan, and there hasn't been any change there.

Obviously, if that improves, that would be upside, but fundamentally in line with what our current expectations are. And I'd say we're getting better at making the right configuration decisions, getting the right clinical discussions happening to be able to perform at a better level.

Our next question will be from the line of Vik Chopra with BMO.

Jay, thanks for all the help over the years, pleasure working with you. So maybe on the first question, you've ordered -- you highlighted strong orders and growth and initiatives to ship -- to improve shipping velocity and backlog conversion in PCS I'm just wondering what level of margin recovery you expect from fixing these challenges alone? And how much would PCS have grown if you didn't have the supply chain issues in the second quarter?

Vik, we're not -- I'm not going to get into hypotheticals to kind of play that out. But I would say, if you look at our historical performance, when we had minimal challenges, we would expect to be back to that level. That's how I would frame it up. And again, much of that is specifically tied to velocity. We have a fixed cost structure without that velocity going through it, it has a disproportionate effect on profit. So once we get velocity back, I think you can look at the previous year rates, and that's what we'd expect to be getting back to.

Okay. Got it. And you referenced this new product cycle, the back half of '26 and into 2027 with new products across all modalities, call it, over the next 6 to 18 months. I'm just curious, Pete, which 2 or 3 NPIs do you view as the highest margin and the highest share gain opportunities.

Rick, it's tough to choose between all of your children, which ones you like the most. But look, I think the team has done a very good job, many of them having big contributions. Now obviously, there are certain segments that disproportionately our bigger use models within a hospital. So our MR growth will have a disproportionate benefit from a profit and growth standpoint as we roll new products out. Our Photon counting system put another spectral will fall in the same way. and ultrasound across the board because what Phil and team have been able to do is leverage that platform approach across all of them. But I would say things such as like our vascular labs are very interesting. And that's a combination of -- we haven't traditionally performed as well there. We've had other competitors from outside the United States that have done better -- and I think as we've talked about, we think we actually have probably the best system out there today that will come in multiple configurations.

For us, that opens up competitive account doors that we haven't been able to compete in. So that's -- that would be how I would frame that up. But again, even in our mammography platform, we're doing quite well because now we have a very competitive image quality and performance capabilities. our core X-ray platform. Again, this has been just a maniacal focus to make sure that we're in a #1 or #2 position with all of our products and that they're greatly enhanced with artificial intelligence tools that change the productivity paradigm for customers. And that's what we're seeing. So early days yet, but we're feel quite good about the receptivity at this point.

Our last question is going to come from the line of Matt Taylor with Jefferies.

Jay, good luck in your next role. It's been great working with you for 20 years.

Thanks, Matt.

So I just wanted to ask more about the outlook for costs. You talked about the levels versus your prior guide for this year. Could you talk a little bit about next year and how you're planning for the potential for increases in memory costs and oil is in flux, but if oil goes higher, how would you be able to hedge against that with some of the mitigation actions and the pricing that you've implemented?

Yes, Matt, it's Pete. Look, I think the short answer is we have to be able to get adequate price to be able to offset those types of changes in the marketplace. All of our new products, we've been heavily focused on, on the cost side. And so there will be a natural lift in gross margins based on all of that. But in particular, the price aspects. And if you recall, we talked about raising prices and taking price actions in the first half. We will see more of an uplift of price here in the second half. And then obviously, that will continue into the beginning of 2027. So I don't know, Jay, if you want to add anything else to it.

Yes. The only thing I would add, Matt, is if you look at the story in the quarter, really related to a PCS challenge driving down overall margin for the company despite very, very high inflation in the quarter, some of the highest that we've seen in years in a specific quarter, we still expanded margin, excluding PCS, by, I think, around 100 basis points, so a really remarkable story. You can expect to see more of that as we go into the future. And with the PCS business stabilizing, that to serve catalyst. So I think the playbook that we put in place this year, notably, cost management and price to offset inflation while there is a lag, and we saw that in the second quarter, the lag does benefit Q3, Q4 and all the way into next year.

This concludes the question-and-answer session, and I will hand the call back to Peter for his closing remarks.

Thanks, operator, and thanks, everyone, for your interest in GE Healthcare. We look forward to connecting with many of you here in upcoming discussions or some of our investor events in the near term. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Okay. We're on the clock. Good morning. I'm Matt Taylor, the medical supplies and devices analyst here at Jefferies, and I'm pleased to be joined by the management team from GE HealthCare. We have Jay Saccaro here, the CFO; and Carolynne Borders, who runs the Investor Relations function and we'll have about half an hour for Q&A. Side note, this room is usually 100 degrees. So I don't know what they did, but I guess they must have fixed the air conditioner here or we're just lucky that we're early.

We'll take it.

Yes, I'm excited not to sweat through this whole -- we'll make you sweat, Jay. Now we have some questions that I prepared here. And maybe I just wanted to start, Jay, with some reflections on how the year has started. Talk a little bit about the assumptions and guidance, but I really want to walk through some of the changes that you made to the guide in Q1. Maybe can you talk about why you did that and the confidence that you'll be able to hit the reset guide?

Great. First of all, Matt, as always, thanks for hosting us here. We appreciate your interest. We appreciate you following the company for so long. And then thanks to those that have joined us in the room, we definitely appreciate your interest in our company. A mixed first quarter in the sense that a lot of good from a demand generation standpoint, a lot of good stuff occurring in the market today. But at the same time, we did have some challenges that we foresaw with respect to costs throughout the year. And this really relates to some inflationary impacts. So we did have to adjust guidance downwards. We take that very seriously. We don't like to adjust guidance. But sometimes it's required and the appropriate thing to do as was the case here.

First, on the demand side, we delivered orders growth of -- on a 2-year basis, 11%, which compounds at about 5.5%, 6%, which is a great order performance and exactly where we want to be. We delivered book-to-bill in the quarter of 1.07x. Now that includes a number of things that roll through at 1:1, namely our service business and our PDx business where revenue equals orders. So if you look at equipment only, we had a higher than 1.07x book-to-bill, which is a great performance. And the backlog sitting at $21.8 billion stands at a record. We also did our customer surveys in the quarter, and the backdrop in the U.S., in particular, continues to be very robust. So from a demand standpoint, the revenue in the quarter grew 2.9% as compared to 2% to 3% in the guide. Demand side and sales side started very strong.

And I would also say, here's what's interesting that most of that was related to existing products on the market and commercial execution versus new products and new innovation, which will benefit future quarters. So really a nice story based on the desire for upgrading with our existing portfolio of products. Now there are a few new ones that had launched that benefited the quarter, notably Vivid Pioneer, which is an outstanding product really simplifies things for cardiac ultrasound. We're so thrilled with how that product is doing the receptivity, how it makes the lives easier for sonographers, very excited about that. But generally speaking, this was all about existing products on the market. So really nice demand backdrop.

On the other side, we had a cost challenge. Obviously, we did not anticipate a conflict in the Middle East. That cost us on a full year basis, about $150 million in gross inflation between logistics costs and incremental costs related to things like rare earth elements. And then we had a memory chip challenge, which, as you all know, over the last several months, the cost of memory chips has just severely increased. And so we wanted to reflect an adjustment in our cost profile for that.

Now interestingly, of this $250 million in inflation, we're able to offset a very reasonable amount. So we offset about $0.06 of -- we offset through price roughly $0.17. We offset through incremental cost actions that we delivered in the short term. So we offset a fair amount, but we thought the prudent thing to do was to reflect these escalated costs in our guide.

Now as we think about the level of conservatism and this and that, we always try to have very achievable, conservative guidance. What we did in this case is we took commodity prices as we saw them at the time. We added a little bit of buffer to that. So we had some incremental contingency on the commodity price side. We also added some incremental operational contingency and we put that all together and the result was $0.15 of a reduction in overall guidance at the top and bottom end of the range. Again, I think it's the right thing to do. And I think for us, it sets us up in a way that will hopefully have a good performance through the rest of the year.

Okay. Maybe I'll just ask a couple of follow-ups on the points you brought up there. Let's start with cost that's where we ended. You mentioned putting in some buffer for the inflationary headwinds that you saw. Can you talk about how much buffer there is there? I guess one of the questions that I've gotten from investors is memory keeps going up. So do you have enough buffer to keep up with memory if it continues to rise in cost and how do you manage that?

So listen, I think we have adequate buffer based on what we've seen. If memory costs triple or fivetuple or something like that, of course, we would have to like look at this very carefully. But I think we've added adequate buffer. Importantly, we don't comment on performance in the quarter and we don't give updates on the quarter, but you can look at the price of oil. I mean that was -- the price of oil, logistics, freight and so on, which is correlated to that is at or below where it's below where it was when we put the forecast together. So listen, we feel okay about what we've put together from a guidance standpoint. I think we'll have adequate contingency at the end of the year, barring unforeseen shocks, which could have, of course, emerged. But as we sit here today, we haven't seen that.

One other specific question on this issue that I've gotten is, is there something about the chips that you use or the way that you contract that makes the rise of memory have more of an impact on your P&L than it does peers? Or is it more or less the same?

Listen, I think it will be similar impacts across the peer group. Now you have to look at near peers versus loose proxy peers because there are companies in "Medtech" that aren't exposed to chips like we are. But those that are, I think, are experiencing similar amounts, and you've seen that in a few of the earnings calls, folks have pointed that out. So it should be similar levels.

I think part of the dynamic here is that the capital equipment that we are delivering to the market, these are highly specialized devices. So we'll be more in line with a like a Healthineers or a Philips versus some other Medtech peers in terms of the amount of specialization that's required. And so that is another difference.

The only thing I would say is there's an important element to point out which is a temporal disconnect between cost and price. What I mean by that is the way our orders have historically been structured once an order is in the book, there is price risk that's borne by the supplier, and that's consistent across the industry. The good news for -- so the bad news for us is that it impacts us for a short period of time, and you see that in the guidance that we shared. The good news for us is that over time, we address price. And we'll get after this very quickly so that we can sort it out. the notion that we're only adding $0.06 in price this year versus our original planned expectations. That's not to say that there will not be a much more significant price impact next year as we reflect these input costs in our pricing strategy, it's more to say that much of the sales this year are already in the book versus next year and the year after, we'll be able to reflect new pricing.

And maybe let's go back to the other KPIs that you mentioned in Q1 that were positive. You had solid revenue growth, order book, book-to-bill in backlogs and without the benefit of a lot of new products that are coming. So we'd love for you to talk a little bit about how you think those KPIs could evolve through the year and specifically, do you think you could start to get some uplift as those new products launch?

So we definitely think that new products will benefit orders, equipment backlog, sales as we go forward. And really, the spirit behind moving the growth rate of the company structurally from where it has been to this mid-single digit, it's very much about new products. So what's happened this year is last year, we grew 3.5%. This year, we've guided 3% to 4%. But again, in both of those cases, not a huge impact from new products. As we start to bring in photon counting, as we start to launch total body PET, our next-gen SPECT solution as Flyrcado becomes a larger piece of the overall portfolio as we continue to innovate in MR with our Freelium offering. I encourage everybody in the room to check out on our website, the Investor Relations presentation from last quarter. Included in that is a page where we highlight all the new launches. That's what's going to take us up.

And so you'll start to see it in orders. It shows up first in orders, and then it will be the catalyst that allows us to accelerate the sales growth from this 3% to 4% land where we've been in the last couple of years to something more robust than that.

Maybe you mentioned photon counting first. I don't know if that was by mistake, but that's the product that I get the most questions about. It's a big new category.

Definitely not by mistake.

And so could you talk about your solution there, maybe how it's differentiated and when we would start to see orders coming in both from the EU and the U.S.

Yes. It's interesting. We're really excited about photon counting. But I want to make a point of emphasis, which is our Revolution CT platform is doing really well today. And that's not photon counting. It's AI-enabled, technology-enabled, really a great offering or selling -- and we're ordering a lot of that particular product, which I think is just fabulous.

Now what happens with Photon counting is a couple of things. We believe certainly relative to conventional CT, and we'll see how it compares to the competitive offerings, which we're excited to highlight. We believe relative to conventional CT, it provides better concurrent spectral and spatial resolution than offerings on the market. It's concurrent meaning you can enhance spectral resolution and spatial resolution with the same image at the same time. In addition, that will lead to better tissue characterization and it may actually change treatment choices as a result of the image that we're putting together versus conventional. So incredibly excited about what that will bring.

We highlighted this at our RSNA last year. And what I will tell you is there was real excitement from clinicians around what this product is going to do. The pipeline is backing that up. Our pipeline we reported on the first quarter, and we're not -- this was a select data element that we shared. I'm not sure that we'll share on an ongoing basis. We'll see. But we highlighted on the earnings call a pipeline of over $100 million which is very early stage and very swift progress for a new product. So let's see what this can do. I think it will be an important element. As we talk about 27%, 28% growth, I think Photon counting will be an important feature.

And I guess, maybe talk a little bit about the differentiation between your solution and your peers and how important is having some of these, I'll call them, gap fillers because you've been sort of catching up in certain areas. And it feels like with the slate of product launches that you'll have, you'll see kind of on par in every area, how does that enable you to compete for some of these strategic contracts that you've been buying for?

Yes. Interesting because if you think about it, we've been doing pretty well over the last several years despite a portfolio that had not been refreshed for the most part. And then we start to have launches and those launches like Vivid Pioneer. I was visiting with the sonographer, and she exhibited incredibly real excitement around what it's doing in terms of workflow simplification, speed to get through the process, making the sonographer's life easier with better image quality. Incredibly excited about the impact of Vivid Pioneer. If you go to an interventional suite and you talk to the ones that are now implementing Allia Moveo, they'll talk about how this product is making their lives that much easier. So we've been competing well with a disciplined commercial team, absent new products. Here we are with a set of gap closers, and I would contend in a number of areas, not only will the gap be closed, but we will advance beyond the current state. I really believe that. And we can -- all in due time, those discussions will take place. And it's probably more appropriate to have those discussions with doctors and physicians versus others.

But many of these products will leapfrog. And so once you have that with the commercial organization that we have world-class with the service organization that we have world-class, we believe that's what's going to be the catalyst that takes us to this mid-single-digit growth. So I'm very excited about many of the products in the pipeline. As I said, you can see it on our website today, but it really is about accelerating progress and closing those gaps, advancing versus the current state and then commercializing them effectively.

And maybe we could just round out the tariff -- the cost discussion with tariffs. So we didn't discuss that in the first question there, but could you remind us what you're assuming for the tariff guidance this year, how that could play through next year and just where the points of uncertainty still are.

Yes. Certainly, there are points of uncertainty. What we've done is we -- last year, we had around $250 million of net tariff impact. I think it was roughly $500 million gross and then we offset with many mitigation actions. This year, we said is a little bit less or a tailwind versus last year. And that's kind of the working assumption that we have. Now I know that there are tariffs set to expire in June. And to the extent that tariffs -- sorry, July time frame, to the extent that tariffs expire and are not replaced with something else, perhaps that could be an upside for us. But what we've included is we've assumed that those tariffs run through the rest of the year at those current levels. And if that's the case, then we would be neutral. What I think will happen is the 122 tariffs will go away. They will be replaced by something else, perhaps a 232 investigation. And I'm hopeful that it becomes neutral or a tailwind. What we tried to do is include an assumption that reflects some level of conservatism relative to what could happen. So it might be an upside for us. We don't know. It's a very volatile world, and we'll watch this really carefully.

I think the other moving part is USMCA. How have you thought about that? And how would that impact things that were gonna change?

Yes. Listen, we'll have to watch. We definitely avail ourselves of the USMCA exemption. It's an important part for us. And again, by carrying the tariffs through the rest of the year despite they might expire, we're hopeful that this provides an offset to what could happen. We'll watch it really carefully though. And now the important thing is once we know what the final state of affairs is. We have ways to mitigate. Obviously, price is one, especially if it's an industry-wide phenomena. But in addition to that, there are decisions that we can make use of free trade zones, use of different suppliers, switching supplier locations for certain products. So all of those things, we can dynamically react to and we've done a really good job going from $500 million to $250 million was no small fee, right? And so -- and then the point is our goal was to mitigate more and more of that as we move forward. It's just we don't know exactly what the right strategy is at this point. Once we know what the guardrails are, we can implement effective countermeasures.

And maybe I'll just ask you one more follow-up on the pipeline. You talked about Photon Counting CT, total body PET. There's a number of other ones that are on that slide that could be meaningful drivers. What are the ones on that slide that you don't feel like get enough attention from the Street where the organization is a lot more excited on what investors appear to be?

Yes. It's interesting because we talk about Photon counting, we talk about total body PET. We spent a lot of time on those. And I understand why because, listen, we're one of the, if not the leader in imaging today. And yet, there are markets that are foreclosed to us. We don't participate in photon counting. It's an increasingly -- it was a small sliver. It's increasing in size. We don't participate in total body PET today. These are two markets that will open up to us with the launch of these new products. So it is truly a blue ocean for us. And I -- so that's why we talk about those markets. But it's interesting because you go across the portfolio, and we are refreshing.

I talked extensively about Vivid Pioneer. I'm personally really excited about that. Allia Moveo. This is for interventional suites, and it's a surgical C-arm. What's happened here is as the interventional suite targets more and more minimally invasive procedures, the flexibility needed in the space, the ability to move around the space is increasingly important. Allia Moveo, and you can get the hint in the name, is a more mobile offering that we have. It's more constrained in terms of the space that it utilizes. So it allows us to address the emerging needs in this. Guess what? People are really interested in this product. They love it. They're thrilled with how it's going.

In addition, our MR upgrades. So we're going to be launching our MR with Freelium, which is an incredibly exciting offering that we'll have in place. And again, it enhances our MR, not only with new technical features, but also all of the hard work that we're doing on AI incorporated into the product comes in our next-gen MR offerings. We have a next-gen SPECT device that will move us further into theranostics. And then we haven't even talked about Flyrcado, which is a tremendously exciting product for us. And in addition to that, we're developing a -- today for MRIs, the contrast agent of choice is gadolinium. We're developing a manganese-based product, which we're incredibly excited about. This is a very large market. It's a growing market. And what this is, it's -- manganese is naturally occurring in the body versus gadolinium, which is not. So we think this will be a really interesting offering in the PDx business. That should be very exciting. Now again, it's not launching anytime soon. But the point is we have a number of things that are launching soon. And then we have things that are a little longer lead time. All of these things will contribute to this mid-single-digit growth story that we talk about.

Great. So maybe we could spend a minute on Flyrcado. It's kind of a trigger word for me. But we did a lot of work on that in the fall and identified what we think is a huge clinical opportunity but it's just been a little bit slower to evolve than we would have thought with the manufacturing coming online. You did make a lot of progress quarter-on-quarter. So I just would like to get some kind of updated understanding of how that could progress from here? And when do you think that will start to show in the numbers?

Yes. So first of all, we're increasingly confident in the $500 million plus by 2028. It's a really exciting product. Now it did take longer than we anticipated last year. And I don't know that I -- I've spent time with our customers a couple of weeks ago. We went to see a radiopharmacy in New York City. And so we saw that. And then we went -- we traveled with the dose to the cardiac imaging center at Langone at NYU. And I have to say, here's -- what I walked away with is it's a highly complicated product to make from a radiopharmacy standpoint. But radiopharmacies very quickly climbed the learning curve. So your first dose, maybe you're running at a 70% on-time delivery rate. But then as you optimize, you quickly get to 95% plus. Somebody like PharmaLogic, really good supplier, well above the 95%. Interestingly, but it's not something that on day 1, you can do. Then the second thing that happens is the doses travel in a small cooler or like -- looks like a cooler, but it's obviously a very safe container to the clinics where doses take place. They arrive at the clinics and it moves around the clinic in a different way than the clinics used to. So if you think about the barriers to adoption, it's not reimbursement, those pathways are now clear. But the barriers to adoption have been are my radiopharmacies supplying at the right rate. Because remember, we want people to be able to count on doses showing up. And then do our cardiac imaging centers understand how to work with the dose. And so those have been the two barriers. But guess what? The great news is the radiopharmacy network is moving to the right spot. We're not only onboarding new customers. We added 50% of the customer base since the beginning of the year, but the existing customers are getting comfort and migrating up in terms of dose utilization per site. So all of these things -- but again, you don't appreciate it until you see it. It takes time. And we're working with both the radiopharmacy and the customers to ensure that they have the optimal workflow so that they can effectively deliver the outcomes. It's clear clinicians love the image quality.

I saw it myself. It was stunning image quality that this Flyrcado delivers. But getting it -- getting from dose manufacture to high-quality image is a complex process with lots of movement, and we've now -- we're helping our customers get there. So we took the -- we did roughly a $25 million run rate in Q1. We've taken that up to a $50 million annual run rate in Q2. So really good progress on this front. One of the things we decided to do this year in the first year of launch is to provide a weekly dose number from an illustrative week once per quarter as we go through the year. And so we'll have another number that we share in July and then October and then maybe we'll move on to a different process as we go forward. But we wanted to -- given the importance of this, and I know you've done a lot of work on this particular product, we want to share some data. So we'll have another data point for you in July.

Great. I guess -- could you address -- you mentioned increased confidence in the $500 million-plus starting from about $50 million run rate in Q1. So I guess, could you talk about how linear you expect that progress to be? Is there sort of a tipping point that happens what are some guideposts that we should look forward to track your progress?

So the way to track -- we'll give you another data point in July. What we want to resist -- I mean, here's the thing. We have an incredibly rich pipeline. Photon counting, total body PET, Allia Moveo, Vivid Pioneer. Vivid Pioneer is a monster product for us. So we have this incredibly rich pipeline. What we don't want to do, as we looked at this year and we talked about this rich slate, we don't want to give guidance by product. We really don't want to do that or interpolate. And so we have this number that's hanging out there, the $500 million plus. We can tell you we feel really good about it. How we're going to get there on a quarterly basis, we're going to leave that up to the reader to determine, but we feel very good about where we're going. We'll give you data points this year on Flyrcado. And so we'll be able to judge the next quarter, how it's going, but we feel quite good about what we've been able to do. And more importantly, the work that we're doing with our customers so that they can have confidence to increase the rate of utilization. So that's really what's going on.

Got you. And then with the few minutes we have here left, I wanted to address two other topics. One is China. So maybe we could talk a little bit about what you're seeing in China. If you could talk to whether there could be any kind of turnaround there this year and whether it could be a growth market for you in the future.

So China has been a challenge for us over the last several years. We had a lower guidance very significantly because of a market change in 2024, and that -- the frustrations or the challenges in that market continued in 2025. What I would say is we've done a couple of things. First, we brought in a new leader, Will Song and some other leaders, including our finance leaders new, Jennifer is outstanding. I just spent time with that team the other night. And making very good progress improving the predictability of performance in the market, making also very good progress on win rates. We're seeing improved win rates in that market in certain areas. So good progress there. We've modeled China down this year versus last year. That's what we've shared with you.

Do I believe China returns to growth at some point? I do. And I think we'll, with the commercial execution, changing the approach in terms of how we go to market, increasing emphasis on certain areas like government affairs. We're really seeing good momentum in this market, and it will start to pay off over time. We're not changing the guidance this year, we expect it down. That's okay. but I am expecting this to normalize in the coming years. And it's not going to be a double-digit grower. I don't anticipate that at any point, but it should be a contributor at some point over the medium term.

Great. And maybe just to wrap up, I'd love to ask you about capital allocation. So since the spin, you paid down debt, you've done some deals, including the Intelerad acquisition recently. So I'd love to hear how A, that's going; and then B, how you think about balancing the opportunity of doing all these tuck-in M&As that you have in your pipeline versus buying back stock and where the shares are? So how are you thinking about it now?

Yes. So it's interesting because you look at the capital allocation approach, reinvest in the business, make sure we have the right R&D envelopes, capital spending so that we can deliver and exceed the plans that we've put together. That's priority #1. Once we've done that, we do pay a small dividend, but it really comes down to business development and share buyback. Business development, we want things that are accretive to growth, accretive to economics of the company strategically related to what we do. The deals that we've done for the most part are situations where we're the only one or two buyers for those assets. If you look at the Intelerad acquisition, if you look at what we've done with our ultrasound acquisitions over the years, these are situations where we're not competing with broad sets of groups because we can drive real incremental and differential value to the asset. That was absolutely the case with the Intelerad acquisition.

And then we like to buy shares. From our standpoint, we have an intrinsic value model of the shares. In the first quarter, we repurchased $100 million in the quarter, and we did so at a price of $70. What that means is we believe that the $70 price represents a discount to the intrinsic value. The shares have traded off since then. You saw a number of management and board members purchasing shares in the quarter. We don't report our own share buyback activity until after the quarter is over. So stay tuned and see what the story looks like on our Q2 earnings call.

Matt, thank you so much. We appreciate your interest in our company and the support. I mean also all the thorough work that you do.

Thanks, Jay. Thanks, Carolynne. Thanks, everybody.

Good morning everybody. I think we're still in the running. This is Travis Steed, the Bank of America MedTech analyst. And next up at our Vegas conference, we have GE HealthCare. We have Jay Saccaro, CFO; Philip Rackliffe, President and CEO of Advanced Imaging Solutions and Carolynne Border, Vice President of Investor Relations on stage. Thanks for joining us.

Thank you, Travis. Appreciate the invitation to the conference. It's nice to see those in the room. Thanks for the interest in our company.

Great. Maybe just to start out, coming off Q1, the guide reduction, maybe just higher level, kind of level set us kind of post Q1 Where things stand?

Obviously, a disappointing first quarter, right? We ended up having to lower guidance for the year, which is something we take very seriously. And for us, there were just some very dramatic inflationary costs that we're faced with that we had to reflect in the guidance going forward to put the appropriate level of risk into the guidance.

But having said that, we are very optimistic about many aspects of the business and the long-term potential that we at GE HealthCare have. It begins with in the first quarter, you'll note that we grew orders a little over 1%. That was against the 10% comp. So very good performance from an order standpoint. From a sales standpoint, we came in at the high end of our expected range. So from a commercial standpoint, things are operating well. You'll note in the investor materials that we shared on the earnings call, there was a slide that we included, which reflected the pipeline and when we anticipate things launching.

The pipeline has moved incredibly well with almost all of our products in line with expectations. So we release to set this up for great long-term potential. We didn't spend a lot of time on the call emphasizing our management system, Heartbeat, but we've made tremendous progress on that aspect as well. So as I look to the future, and I look at really the long-term potential of the business, we feel really quite good.

But as you point out, we did have to reduce guidance as a result of some of the challenges that we faced in the near term.

There was some stock buybacks from management and Board of Directors, if you want to address that? And what drove the change to buy stock?

So I can't speak for the others. I don't want to speak for personal investments of leaders. But what I will say is in the first quarter of this year, we repurchased shares at around $70. Now when we repurchase shares, we do so based on -- and we have an intrinsic value model, which is a discounted cash flow, and we compare that to the price of the shares. And so you can imagine, after the shares sold off very substantially, relative to our intrinsic value calculation, the shares represent even a more substantial buy than they previously did.

Why is that? Because the long-term fundamentals are intact. And this is just a short-term issue that we have to navigate and will reflect in price and so on. Once we've done that, the long-term value is very much intact. So I think that the other leaders on the team looked at the share price and perhaps did the same math and said, "Hey, these represent a great opportunity. And we don't report on buybacks during the quarter. We wait until the 10-Q. So I'll point you to that when that's filed.

But buybacks is still kind of an ongoing strategy for capital deployment?

Absolutely. It represents a great -- like I say, for us, from a capital deployment standpoint, first, we want to reinvest in the business to accelerate growth. second, and we have a lot of good programs. And all of that funding of R&D over the last several years has paid huge dividends in the pipeline that we have now, right? So reinvest in the business. number two, targeted smart M&A. In the first quarter, we closed Intelerad, which will represent a great deal for our company going forward.

I'm so excited about how that is strategically accretive, but also financially accretive. It hit all of the marks. And then once we do those 2 things, we also have opportunity for share buyback. And so in the first quarter, we did some buybacks stay tuned on the second quarter. As I say, I think the shares represent a real value at this point.

And so we'll continue that. And then, of course, we pay a dividend as well.

Okay. That's helpful. There was also a change to combine ABS to your Advanced Imaging Solutions business with AIS gets -- A gets into AIS. So just the rationale for that change and what made that change?

Sure, I'll take that. Travis. Thank you very much for the question. As we thought about first, how are customers buying, where is the market going to? Where are they evolving to? They are evolving to a more customer-focused care continuum that runs horizontal. So what we saw within our own company was an opportunity to actually go get that and meet the customer where they're at as we think about larger enterprise deals. And where that is at, is that a patient comes in and gets their very first scan, and that scan is detected and you have a lesion, then that's diagnosed.

Then it has to go into a step of pre-procedural planning and then you need to go to an intervention or a theranostic or a therapy. We have a unique opportunity at GE HealthCare to very much differentiate ourselves because we have such good products across the modalities. The opportunity now is to actually think horizontal into more solutions with data with AI in order to increase efficiency and workflow for health care systems and ultimately look to improve patient outcomes.

That's helpful. There is -- I also wanted to ask on PCS. There was like -- I think Pete alluded to on the call, strategic assessment in PCS. Just kind of curious what that referenced and what's going on in PCS.

Yes. PCS had a disappointing first quarter. Now it was largely expected. The way that their order sequences have sort of emerged. We have a lot of things being delivered in the second half of the year. So that was as expected. And we're launching a new product, a care station product for anesthesia. It should be very well received by the marketplace, but that too is a second half launch.

So the first quarter was largely in line with expectations. But I will say, an 8% decline with the margin that, that business printed is not an acceptable threshold of performance for our businesses going forward.

And so what Pete said is we're looking at strategic alternatives. Obviously, for us, there is an intense focus on the fix. So all activities are underway to kind of get that business going in the right direction. We should start to see that pay benefits in the second half of the year. And then just evaluating all of the different component pieces, what kind of role this plays at the company. All of those elements are things that we're looking at related to PCS.

Are there a lot of synergies in that business between the other businesses?

There are some, but it is not linked as, for example, Ultrasound and imaging, as you see by the announcement today. Well, interestingly, what the changes that we've made allow us to do is really shine a spotlight specifically on PCS. You can see it's separated from the other businesses. It's discrete. So we really can shine a spotlight and watch that business improve.

And assuming it's a lower-margin business?

Well we clearly -- it is a lower margin business. Now we have plans to improve the margin and that margin should improve over the course of the year, but relative to Imaging and Ultrasound in this new combined business and relative to, of course, PDx this would be the lower margin of the 3.

Okay. And I do want to kind of address the big topic, inflation. I think the thing that most investors are wondering is why they're big numbers in terms of total dollars. And so why is GE HealthCare seeing it and others aren't?

Yes. I think some more recent reports have indicated inflationary impacts on their financials. So we start to see that. Now looking at MedTech specifically, we have a different portfolio. right? Our products are highly engineered products that have components from all over the world, and they are very substantial pieces of equipment for the most part.

And so it's more exposed to things like rare earth elements. It's more exposed to freight costs as we ship them across the world. So taking a step back, in the first quarter, we had -- 2 things occur that really changed the profile of our inflation forecast. The first was the war in Iran. And essentially, what happened is you had oil costs go up substantially. Much of our freight costs, our fuel cost, jet fuel, all of that sort of substantially increased. That was about $100 million impact from freight and logistics costs. We also saw, as a result of this conflict a $50 million increase in other areas.

So things like, for example, Helium was one component. There was a key helium facility in Qatar that was destroyed as a result of the conflict that added some incremental costs. So that whole package of items was about $150 million, and it was very much related to this Middle East conflict. The second component, and you probably read about this weekend in the journal, is memory chip inflation. We've seen extraordinary increases in this cost category and it's impacted both our ABS and our Imaging lines pretty substantially.

And so we've seen a $100 million increase in a cost category that was much smaller than that last year. Now we're weathering the storm. We're navigating this in a couple of different ways. For 2026, we've put in place some cost measures to offset. We also have some pricing, but those benefits will even more substantially impact 2027.

I think another question that I get is you've had a lot of headwinds on margins with tariffs come through. You've had to offset some of that. Like is it just gotten to the point where it's just harder to offset some of these inflationary pressures. So you're just going to have to just take the margin hit right now because of all the tariffs?

Well, so we -- if you look back over the last 2 years, we've had 2 substantial impacts. One is tariffs, and that increased our cost structure around $250 million. And then the second is this inflation related to the items that I described moments ago, that's another $250 million. So here's the interesting point, right? Despite $250 million in tariffs last year, we still were able to grow EPS. And despite $250 million in gross inflation this year, we are going to grow EPS mid to high single digits this year.

And so I kind of take a step back and say, yes, we've absorbed extraordinary situations over the last 2 years. I do think the business has shown some level of resiliency despite that. And then as we move to next year, we will have more degrees of freedom in terms of pricing. Many of the cost initiatives that we're starting now will pay larger dividends, so I'm hopeful that we'll be able to offset a much more substantial portion of the gross inflation that we've experienced this year into next year.

Okay. So and I think a lot of people look at one of your competitors, their imaging business is 21% and low 20% margins and your imaging and ABS margins are kind of mid-teens. Like is that still an opportunity? I don't know if you -- I'm sure you look at peers and comps and margins. Just trying to think about, is that kind of the opportunity for this business still?

Yes. We still have a great opportunity from a margin standpoint to close that gap. And what it comes down to is a few things. First, this Heartbeat business system how we operate the business in a lean manner is 1 key element to a lot of different things, more successful sales execution, more successful new product launches, but also our margin program. The new products that we're launching, many of them, in fact, virtually all of them, I should say, come at a higher price with a lower cost than the predicate.

And so if you -- Phil can tell us all about Vivid Pioneer, which is a remarkable product for cardiac Ultrasound, it is doing extremely well. and it's coming in at higher prices and lower cost. So it really is a wonderful element to the P&L when we launch those products. That innovation super cycle is happening now. And so we're sitting here, the second half of this year will benefit to some extent from it.

But then as we move into next year, there will be much more substantial benefits from some of these new innovative products on the margin profile of the company. And then finally, just general cost discipline is an area we're intensely focused on. That will also play out as we move into next year.

On the memory side, specifically, there was a $100 million increase that you put in the guidance. I mean even since then, there's been some issues in terms of supply and strikes and some questions on where prices are going higher. Is there supply constraints. Just trying to think about what you factored in and ways you can kind of mitigate if those prices go higher or there's actually supply constraints in that -- in memory?

Sure. So with respect to memory, what we did was we took current prices, we assumed that they would exist for the rest of the year, then we added some buffer on top of that. And then we added some incremental contingencies, just general operational contingency. So we do have multiple layers to protect us against incremental costs. Incremental reduction should flow directly through. But incremental costs, we should be able to offset a portion of that before we run into a challenge.

And in terms of supply, do you have supply lockdown for a certain amount of time or...

We do. We do and we're actively working with our suppliers to access incremental supply. We haven't seen this as a challenge to date.

Okay. And then same -- same kind of questions on helium and some of the other rare materials.

Helium, is up millions of dollars, right? So it's not -- but it's in that $50 million category. We were not supplied, I believe, for the most part, from the Qatar facility that was destroyed, but it did disrupt the global marketplace. We haven't seen shortage situations. The price is up quite a bit, but it's a very small component in the overall cost of goods profile of the company, which is why we haven't called it out as a discrete driver.

And most of our helium that we secure is not coming from the Middle East.

Okay. And in terms of pricing actions, you've got CPI up today. Just curious if there's ways you can think about offsetting some of those through pricing? And also how to think about the backlog, is there flexibility on the backlog that you have on pricing?

Our ability to reprice the backlog is more limited. Our ability to price new orders is wide open. And here's the thing. Our costs at this moment in time have structurally changed versus prior. And so we are looking at -- we're reflecting that in all of the decisions that we make with respect to new business orders and we're reflecting new prices as a result. We have to. Now the good news is we sell great products, and those products are becoming more innovative. So the compelling nature of that value proposition, we believe is still there, but we do have to reflect the higher costs that we're faced with.

Okay. Maybe skipping back to the revenue side or the top line side. You put up 1% order growth on the comp, 10% comp, like a big tough comp there. Just kind of curious what drove that? And I assume we should see accelerating order growth over the course of the year?

Yes. So we should -- we expect to see higher growth in 1% through the rest of the year, certainly given the very, very challenging comp that we had last year. I was pleased that we grew over 1% in the first quarter. Now here's the interesting thing. Over the last year, much of the strong order book that we put together was more about commercial execution and winning in the market than it was about new products. That was the reality.

And even into the first quarter, the majority was existing products that we're selling. Now there are a few in our Ultrasound business, for example, I referenced one already. But there are a few where we've seen the new products start to bolster the order acceleration. But it's not really meaningful yet. That starts to pick up in the second half of the year, and it's even more pronounced as we go to next year. Over the midterm, we're expecting to grow sales mid-single digits. We guided -- we did 3.5% last year. We guided 3% to 4% this year. What that means is there will be a step up. And so we'll start to see that in the second half, but then also as we roll into next year.

Okay. And then maybe Phil bring you in a little bit, talk about some of the innovation of the portfolio and the 10 new products you're launching.

Yes. I think all the money that we put forth since spin and over $3 billion in investment, that is starting to pay off. And what you're seeing now is the most exciting new product innovations that we've ever seen in the future in this next decade than we've ever seen within GE HealthCare. And it's not just 1 product category, whether it's CT or MR, Ultrasound or image-guided therapies. It's well balanced. You have material new NPIs hitting across every product modality over the next 6 to 18 months.

So we're beginning to see this innovation cycle really pay off. It's very exciting. Plus you add to that, that we're meeting customers where they want to be met with the formation of AIS also gives us an opportunity to platform better and to think more better horizontally. See if this element of both, great product -- new products coming out in each of the modalities and then also horizontally how do we best operate to meet customers where their needs are.

And so those 2 things together we're in a very good position based on the investments that we put forth the previous 3 years and frankly, are continuing into the future.

And on Photon Counting CT, do you think about that as like a share-taking ability? Is it upgrading your existing installed base?

We see it as a blue ocean. I mean I think there is a new area that we are going to enter into, and we had the ability to see what has been out there already. Yes, we are not first to market, but we're able to see how others are differentiating themselves so that we can pick our spots with a differentiated offering and enable ourselves to win. So I don't think it's actually as much cannibalizing our own installed base as it is going out and getting new pastures.

What else kind of -- you talked about getting the sites ready to building the pipeline. Can you elaborate on kind of what all is involved in that for Photon Counting CT?

Can you repeat the question?

Yes. You've talked about getting sites ready and building the pipeline for Photon Counting CT, just kind of elaborate on that?

Yes. I mean so far, as of date I didn't check it this morning, but as of last week, we had a funnel of well in excess of $100 million already of a potential funnel. So as we just got approval, we're beginning to have the discussions with health care systems now across the course of Q3 and Q4, and we'll begin to see that convert into revenue as we get into the back half of '26, but also '27.

Okay. And you expect kind of revenue contribution from these key new products in the first half '27, right?

Correct, but it's much more beyond than just Photon Counting. There are other highly material products that's one product in one category. There are very material differentiated products across many modalities that are coming out.

And you're seeing that in the orders and backlog coming in?

For sure. I mean, we bring up Vivid Pioneer a lot, but that product has done exceedingly well, well better than what our internal estimates were. We look to continue that momentum across other modalities.

Travis, we talked on the earnings call about -- particularly for imaging, when you think about sales funnel to order is typically around 5 to 6 months and then order to revenue is typically another 5 to 6 months, if that's helpful as a frame of reference.

It is. And when you just think about the overall imaging market, kind of your share position, are you share taking, share losing kind of just a state of affairs on the market in itself and just anything that you'd call out that's changing from a market standpoint.

The market in general for imaging continues to be strong. Just to be reminded, right, the ability for a health care institution to understand the detection is a critical care pathway component of being able to treat that patient. And so we continue to see imaging market growth strong and it will continue into the future. As far as our ability to take more share vis-a-vis the competition, I think we're doing well, and we're continuing to expand.

Okay. Then on just the overall capital environment, there's obviously some question marks on ACA and utilization and what that means for hospital budgets and kind of mix on healthcare. I don't know if you're seeing customers and capital spending, thinking about things differently or not, but...

Yes. We do a survey every quarter. I know you do as well. And our survey has been -- continues to be very, very strong. Our top customers are still interested in investing. Hospitals are very profitable at this moment in time. Utilization rates are great. And so overall, we think it's a good backdrop from a capital standpoint to continue to launch these new products into.

Okay. And then China, just kind of state of affairs in China at this point?

Look, we've done a lot in China to revamp or enhance our operation. It started with bringing in a leader, Will Song, who's done an amazing job. And really what he's focused on is commercial go-to-market, also the government affairs, making sure we have the right targeting of different segments.

And the results have been actually pretty good. We're enhancing win rates in the market, which is great to see. We're also seeing a more constructive backdrop overall in the economy. So we expect -- we've budgeted China down that we're not changing that expectation at this point. But I will say we're starting to improve the predictability there, and we're also starting to be successful from a win rate standpoint, which is just great to see.

Now Phil was there, I think, 2 times in the last month. So Phil, do you want to add anything from your perspective on the ground?

I would not suggest to do that, Jay. But what I would say is that, in general, when I was there recently, the sediment has stabilized. And I think we've met with a lot of senior people, party secretaries. We have a large footprint there as it relates to thousands of people, many manufacturing plants, and we still think it is a very good growing and the biggest health care market that is coming. Now how we actually are going to address that is going to be a very -- where a very focused strategy will come in. We really honed in our clinical astuteness and being able to pick our spots on where we're going to play and not play, and then also working with JV partners along the way.

So that's some of the kind of the green shoots you're talking about was the win rate in China?

That's right.

Now maybe moving over to Flyrcado. You're seeing some progress there versus kind of January. I'm just understanding kind of what your -- some of the kinks you're working out and the workflow and how things are going with Flyrcado?

Flyrcado has been going great. We're thrilled with the progress that team has made over the last several months, really over the last 6 months, as we've gone into full launch mode of the product. From a rate standpoint, I think we were at around $25 million in annual run rate. It's bumped up to about $46 million run rate 1 quarter later. So really good performance over the course of the quarter. We're very focused on continuing to drive that on the way to $500 million plus in revenue by 2028.

Now interestingly, there are essentially 3 different elements in play to optimize the launch. You have to make sure that your customer economics are solid. They understand the reimbursement pathway. You have to make sure that you have the manufacturing workflow correct at the radiopharmacies.

And then finally, you have to make sure that in the facility, the facilities are optimized to open up adoption of Flyrcado. And what was heartening for me in the first quarter was not only did we see new customers, which you would expect to see, but also we saw very good and solid ramps at existing customers. And I had the opportunity last week to travel around New York City with a dose of Flyrcado. Basically, we started at PharmaLogic, which is one of our suppliers. We saw how that was made.

We watched it. It's a very complex process. A company like that is supporting us with very high production rates, successful on-time delivery rates. But mind you, when you launch this product for the first time, new batches are hard to make. And you have to learn how the product works and learn all the nuances of the specific product. And so PharmaLogic is doing a great job supplying us.

We then took the dose and then went to NYU to see it delivered in a cardiac imaging center. And what was interesting for me is there are so many little pitfalls in the process that could exist that could disrupt the successful adoption of Flyrcado. And it's up to us to help our customers work through those because each customer is unique in some way. But at the end of the day, there is a standard work opportunity for us.

And this goes back all the way to our discussion of Heartbeat helping our customers optimize their process so that they can open up the flywheel of adoption. That's exactly what we're doing with them. So as we think about the 3 barriers, reimbursement, supply chain and then also customer adoption, customer workflow. We feel great about what we've been able to do in the quarter. Let's see what happens in Q2.

And then I assume there's kind of the balance between utilization at sites and adding new sites and kind of 2 different ways to grow. But what do you think about the growth in Flyrcado. Is it more of a linear ramp to the $500 million? Or is there a point where you can give an unlock and kind of can go more asymtotic?

Let's see. I don't -- we've stopped short of giving Flyrcado guidance. We did commit this year to give a number each quarter representing an illustrative week for doses. So we'll do that again. But as far as the adoption rate, we're very focused on thoughtful adoption. What I mean is we're not adding a bunch of customers unless we know those customers will have a good experience. If we know that, we'll bring them on board. If we don't, we're going to be hesitant to add them to the roster of customers.

And so far, it's been playing out very well. We are adding customers at a good pace. And then at the same time, we're also ramping existing customers, which is exactly what we want because at the end of this, the 2026 Q1 number is not important in the context of what we're trying to do. What is important is that we have successful adoption and great customer experience using this novel new program.

Okay. That's helpful. And I forgot to ask one question on the margins, just kind of this year question. Gross margins, 13.5% in Q1, stepping up to 17%. Sorry, I said that wrong. But the second ramp, half ramp in gross margins. I just want to understand like the ramp there.

Yes. So second half margins will be higher than the first half margins for a few different reasons. First, normal seasonality. Q4 is typically our biggest quarter with the highest margin. Second, the benefit of the new products from a sales standpoint, we do start to see more benefit in the second half than the first half. That's another driver. Third, you heard -- you saw us with a $90-plus million tariff number in Q1. That goes down by the fourth quarter of the year. So it's another tailwind.

Now offsetting that, we have the inflation. But like I said, we have that sort of baked into the math that supports the second half acceleration.

Okay. And anything else that you want to end with before we close?

No, I think we hit it. We're incredibly excited about what we've put in place from an innovation standpoint, from a management system standpoint, our Heartbeat business system, and now it's about accelerating and navigating a very volatile world.

Okay. Great. Thanks a lot.

Good day, and thank you for standing by. Welcome to the GE HealthCare First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

Now it's my pleasure to hand the conference over to Carolynne Borders. Please proceed.

Thanks, operator. Good morning, and welcome to GE HealthCare's First Quarter 2026 Earnings Call. I'm joined by our President and CEO, Peter Arduini; and Vice President and CFO, Jay Saccaro.

Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides available on our website.

During this call, we'll make forward-looking statements about our performance. These statements are based on how we see things today. As described in our SEC filings, actual results may differ materially due to risks and uncertainties.

With that, I'll turn the call over to Peter.

Thanks, Carolynne. Good morning, and thank you for joining us. Let me start with our performance in the first quarter of 2026. We were pleased with the top line growth that came in at the high end of our expectations driven by our pharmaceutical diagnostics, advanced visualization solutions and imaging businesses. We also had strong services growth in the quarter. This all reflects disciplined commercial execution and accelerated customer adoption of new products designed to help clinicians enhance diagnostic accuracy and guide more precision treatment decisions across disease states.

As we think about the capital equipment backdrop, we're seeing healthy customer demand globally with resilient procedure growth. Aligned to this, we saw solid performance in orders, book-to-bill and backlog. We delivered double-digit reported growth in EMEA and Rest of World, mid-single-digit growth in U.S. and China sales were in line with our expectations. However, we were disappointed by profit performance in the first quarter, which was impacted by a recall associated with a PDx supplier that has since been resolved. Later in the quarter, we began to see more significant increases in material costs, which we expect will continue for the remainder of the year.

We remain confident in our ability to procure supply to meet customer demand. But given the inflationary environment, we're taking a prudent view and reducing our profit and free cash flow guidance for 2026. Slide 4 shows the inflation impacts to our profit guidance and the offsetting measures we've identified to mitigate. For background, the magnitude of specific input costs changed significantly as we move through the first quarter, primarily related to two dynamics, an approximate $100 million increase in the price of memory chips, which are critical components utilized in many of our products as well as an increase in oil and freight costs of approximately $100 million. Other inflation impacts are expected to total approximately $50 million with metals, such as tungsten as an example.

Prior to any mitigation, the gross impact of these costs is approximately $250 million or $0.43 per share. We expect to offset more than half of the inflation impact in 2026 with price and cost actions. Taking a prudent view for the year, we are reducing our full year adjusted EPS guidance by $0.15 associated with the remaining inflation impact. Including this impact, we will still deliver mid- to high single-digit adjusted EPS growth.

Now I'd like to highlight strategic accomplishments that we're advancing our growth strategy. In the first quarter in Precision Care, we advanced our pipeline of innovation with key milestones in CT and MR, our two largest revenue-generating modalities. Regulatory clearances in both the U.S. and Japan market inflection point for Photonova Spectra, our differentiated Photon Counting CT platform. Customer feedback about the image quality has been extremely positive, including the ultra-high resolution and soft tissue clarity in all modes of scanning. We're actively working with customers on site readiness, and building a strong pipeline for future sales.

In MR, we received multiple FDA clearances for next-generation technologies, including a new 3T and reduced Helium platform and state-of-the-art AI-powered workflow solution. Aligned to typical imaging order conversion time lines, we expect revenue contribution from our key imaging NPIs to begin in the first half of 2027.

In PDx, we saw growth across contrast media and radiopharmaceuticals, along with growth in our molecular imaging equipment. This is driven by an aging population, increased chronic diseases and demand for precision care globally. We're pleased to see Flyrcado continuing to ramp with a nearly 80% increase in doses since late January. We delivered over 390 doses for the week ended April 17. We're onboarding new customers, including high-volume sites, and we've seen an acceleration in the average number of doses that customers are ordering each week. We remain focused on delivering high-quality customer experience, while there will always be some week-to-week variability, we're encouraged by our trajectory. And this reinforces our confidence in our medium-term target of $500 million or more in annual revenue by 2028.

growth is also accelerating, supported by the expanding use of disease-modifying Alzheimer's therapies that are driving increased demand for amyloid beta imaging. Looking to the future, one of the most significant research areas we've been focused on is developing our novel gadolinium free MRI contrast agents. If successful, this manganese-based agent would provide a differentiated alternative to Getelinium by addressing retention concerns and reducing reliance on rare developments. We see this as a significant opportunity to expand our role in the current $1.2 billion contrast MR market by overcoming key challenges for both patients and clinicians.

We recently reached a meaningful clinical milestone with the first patient dosed in our Phase II and Phase III study. This innovation is under FDA Fast Track designation granted to drugs that address serious conditions and unmet needs and can accelerate regulatory review. If successful, both the combination trial and Fast Track designation would speed up the time to market. This milestone underscores both the urgency and the promise of our approach and reinforces our conviction that our innovation can significantly advance the MRI contrast plans game.

In the area of growth acceleration, we delivered growth across PDx, ABS and imaging business with strong commercial execution. Our high-margin services business, the large driver of our recurring revenue also did well in the quarter. We also completed the acquisition of Intelerad in the first quarter. This advances our strategy to deliver a fully connected cloud-first enterprise imaging ecosystem that spans hospitals and outpatient settings. We're excited about the opportunity to grow our AI, cloud and software capabilities, leveraging our Intelerad platform.

As we focus on continued business optimization, price and cost programs are a top priority as well as executing on our new wave of innovation that will not only drive revenue but also margin growth. Today, we announced that we're combining imaging and ABS to create a new segment, advanced imaging solutions led by Phil Rocklin. This change now moves us from 4 distinct segments to 3: AIS, PDx, and PCS, which will allow us to more effectively capitalize on our new wave of innovation, sharpen our disease state focus and accelerate growth.

As health care becomes more precise, the need for advanced imaging to confidently diagnose and deliver therapy is increasingly important. There's also a growing demand for connected clinical workflows that drive real-time decisions and outcomes. Structural Heart and cardiology is a clear example. It's one of the fastest-growing areas in health care with a shift to less invasive image-guided therapies. At every stage of the patient journey, procedures depend on advanced imaging, spanning CT, ultrasound and real-time guidance in the cath lab. Having vertical ownership from investment decisions to integrated supply chain in the segment will better enable us to deliver differentiated technologies while streamlining our business and reducing costs, and we're excited about this next step on our growth path. And Phil has the right focus and expertise to drive this business forward.

We also announced a new global markets region led by Katrina Trump that we believe will strengthen how commercial teams build and scale expertise across markets and bring the full portfolio to customers globally to maximize growth in enterprise accounts.

Now I'll turn the call over to Jay to discuss financial results. Jay?

Thanks, Pete. Let's start with a high-level look at our financial performance for the first quarter on Slide 6. We delivered revenue of $5.1 billion, representing 2.9% organic growth year-over-year, coming in at the high end of our expectations. Healthy global demand drove double-digit reported revenue growth in EMEA and the Rest of World and mid-single-digit growth in the U.S. China revenue declined year-over-year, which was in line with our expectations and improved sequentially. On a reported basis, we had strong performance in product and service revenues at 7.3% and 7.5% growth, respectively. Our service business continues to be a key differentiator with growth driven by a healthy capture rate. Orders grew 1.1% following 10.3% growth in the year ago period.

We delivered a solid book-to-bill at 1.07x, and we exited the quarter with a record backlog of $21.8 billion, up $1.2 billion year-over-year. We were disappointed with the adjusted EBIT margin of 13.5% and adjusted EPS of $0.99. Of note, adjusted EPS included approximately $0.16 of tariff impact. Lastly, our free cash flow was $112 million in the quarter.

Looking more closely at margin performance on Slide 7. Adjusted EBIT margin was 13.5%, down approximately 150 basis points year-over-year. Recall that we expected to see the largest tariff impact for 2026 in the first quarter, given the timing of the 2025 policy changes.

Year-over-year margin performance was also impacted by declines in PCS and the PDx supplier issue. Commercial execution driving increased volume, strategic pricing and contract settlements were tailwinds to margin in the quarter.

Moving to segment performance, starting with Imaging on Slide 8. Organic revenue grew 3.8% year-over-year, with robust growth in the U.S. and EMEA, particularly in CT and X-ray. We're seeing strong customer demand for our CT product line, particularly with our Revolution vibe that is focused on the growing cardiac exam segment. EBIT performance benefited primarily from volume, but declined year-over-year due to tariff expenses. Excluding tariffs, margins would have been accretive year-over-year. Overall, we're well positioned to capture market demand with the introduction of differentiated new products, including Photonova Spectra.

Turning to Advanced Visualization Solutions, on Slide 9, we delivered organic revenue growth of 4.4% year-over-year, with continued strong performance in the U.S. and EMEA, driven by new product adoption across the portfolio. EBIT margin increased by 120 basis points year-over-year, driven by volume and contract settlements, partially offset by tariffs. As we look ahead, we expect continued demand driven by current and future new products across cardiovascular surgery and ultrasound.

Moving to Patient Care Solutions on Slide 10. Organic revenue declined 8.1% year-over-year, primarily attributed to select large monitoring installations more concentrated in the second half of the year. Total segment orders grew in the quarter, and we're expecting U.S. clearance for our new premium anesthesia product in the third quarter of this year. Segment EBIT margin declined 500 basis points year-over-year, primarily reflecting the decline in volume as well as tariff impacts. We're taking specific actions to improve PCS performance, focus on improving backlog conversion, increasing price and optimizing segment cost structure.

Moving to Pharmaceutical Diagnostics on Slide 11. We delivered another strong quarter of organic revenue growth at 9.7%, driven by global strength in contrast media, continued price execution, and robust growth in our radiopharmaceutical portfolio. EBIT margin declined year-over-year primarily due to the discrete supplier issue, planned investments in our radiopharmaceutical pipeline and the Nihon Medi-Physics acquisition. Radiopharmaceutical adoption, including Flyrcado, is progressing well as evidenced by the dose acceleration from late January.

Turning to our cash performance on Slide 12. We delivered free cash flow of $112 million, up $13 million year-over-year, supported by working capital improvements. We continue to execute on our capital allocation strategy, including the completion of the Intelerad acquisition, which we expect to strengthen our imaging portfolio and drive total company recurring revenue. In the first quarter, Intelerad's business performance was in line with the expectations we previously shared. We've repaid $500 million of debt in the first quarter. We also returned capital to shareholders through our dividend and the repurchase of approximately $100 million of our shares.

Now turning to our outlook on Slide 13. We're maintaining our top line guidance of 3% to 4% organic sales growth, in line with the healthy customer demand globally and a good start to the year. We continue to factor in a cautious outlook on China and expect limited impact to revenue from the conflict in the Middle East. To note, the Middle East represents approximately 3% of total company revenue.

Regarding foreign exchange impacts, while rates have been volatile, we currently anticipate an approximate 100 basis point benefit to revenues this year. Related to adjusted EBIT, as noted earlier, we expect approximately $250 million of gross inflation impact for the full year. We're taking price and cost actions that are expected to offset more than half of the impact, which will partially benefit this year with larger benefits in 2027.

Given these dynamics, we are prudently reducing our profit outlook for 2026. We now expect adjusted EBIT margin to be in the range of 15.4% to 15.7%, reflecting expansion of 10 to 40 basis points year-over-year. We continue to expect tariff impact in 2026 to be lower than '25. Note that we do not expect a material benefit following the tariff policy changes announced earlier this year.

We're also reducing our adjusted EPS guidance to a range of $4.80 to $5 per share, which represents approximately 5% to 9% growth year-over-year. In the wake of the current inflationary environment, we believe this is the right thing to do. With the change in profit outlook, we now expect free cash flow of approximately $1.6 billion in 2026. Intelerad acquisition is expected to have a minimal impact to adjusted EBIT margin and adjusted EPS in 2026.

For the second quarter, we expect year-over-year organic revenue growth to be in the range of 3% to 4% and adjusted EPS performance to decline in the low single digits year-over-year. Note that we will provide a recasted financials for the new AIS segment with our second quarter 2026 reporting.

With that, I'll turn the call back over to Pete. Pete?

Thanks, Jay. Turning to Slide 14. This chart demonstrates the clear progress we're making to deliver on our new wave of innovation. The majority of our latest NPIs have moved from regulatory clearance to early commercial orders, which is an important step towards enabling more meaningful revenue beginning in 2027. You may recall, all of these innovations are differentiated because of a unique design or AI capabilities and have higher margins than our predicate products. Several of these time lines are earlier than expected, and we feel good about the team's high CD ratio and how we're tracking to deliver on our pipeline.

In summary, we continue to view 2026 as a pivotal year with the strongest innovation cycle we've had in the past decade that we believe will accelerate revenue and margin growth. At the same time, we're working to manage through a dynamic macro environment with operational rigor. The fundamentals of the business remain strong. We're making meaningful progress advancing our precision care strategy and unlocking value for customers, patients and shareholders.

With that, we'll open up the call for Q&A.

Thank you, Peter. I'd like to ask participants to please limit yourself to one question and one followup. Operator, can you please open the line?

[Operator Instructions] Our first question is from the line of Vijay Kumar with Evercore ISI.

I guess my first one is on maybe when you look at the organic cadence. Back half does imply a step up. And when I look at your order growth and book-to-bill, it looks like your capital book-to-bill was well north of 1.1. Just talk about this back half revenue acceleration, just given you had some noise around PCS, would your orders are coming in well above what gets back half to be close to that mid-single range given we're starting the year at 3%?

Vijay, thanks for the question. You're right that book-to-bill came in at 1.07 all in, and so if you strip things out, I think the equipment obviously doing better. Look, as I said in my prepared remarks, the overall capital equipment market is healthy. That's super critical, and we're doing well. We're winning at a higher rate. The U.S. market, particularly has strong procedures growth. And I've mentioned on the call that EMEA and the Rest of World is actually doing quite well. It was actually up double digits, which is very good to see. So mid-single U.S. and Rest of World at double digit as well as China kind of aligning to where we are. I think that, coupled with the products that we have that I just went through on the last page, the structure piece, which actually, in some ways, will help us be even more focused. It gives us much more technical and clinical focus specifically on these new products, like how do you differentiate our photon counting versus the other guys. So we feel quite good about that. And we're well positioned with this to continue to accelerate both orders and sales here as we go through the year. Jay, I don't know if you want to add anything else to do that?

Sure. Vijay, remember 1% orders growth in the first quarter against the 10% comp, really, really good start to the year, an illustrative of a healthy capital environment. The backlog sits at a record level. So we think from a plan standpoint, the year has shaped up on the top line consistent with what we originally expected. The other thing I would add is the key NPIs, some of the ones that we've seen in our ABS business, like Vivid Pioneer are performing very well. And we're also seeing some benefit in our area of imaging, too. So really good start on those. Those will support acceleration in the second half.

And then the other thing is we are expecting some improvement in PCS in the second half attributable to some monitoring deals that are earmarked for delivery in the second half along with the new product. So really, that's the story as we look at the second half of the year.

Understood. And maybe, Jay, my second one on the inflation assumptions around EPS. Talk about the $250 million number that you quoted. What does it assume? Is it assuming current inflation trends? Does it have some cushion if things worsen? And how should we think about the cadence of that inflation impact rate? Obviously, you noted second quarter EPS would be down. Does it assume an outsized inflation impact and then it gets better in the back half?

Yes. So Vijay, just maybe taking a second on the overall guidance. No change to sales guidance, which we feel good about, as I mentioned earlier. The issue for us really relates to some dramatic changes to certain input costs that we saw during the first quarter of the year. And what it really comes down to is memory chips and then the geopolitical events impacting things like oil, freight and certain other commodity costs. What we have assumed for the rest of the year is that these commodity costs remain at elevated levels, the elevated levels they're at today, and we haven't included some level of cushion against that. And so we've included that as the working assumption in this guidance. We have offset measures in place. We talked about implementing price changes, but that's really primarily on new orders.

We've talked about evaluating modes of transportation to impact freight exposure, and we are taking some measured cost actions. But the things like price will have a more prominent impact on the second half of this year and into next year than they do in the second quarter because a lot of our -- the sales that are represented in the second quarter as an example, are in the backlog today. I think we've taken a prudent approach here. We obviously are disappointed that we had to lower guidance. We don't like that at all, but it's the right thing to do under the circumstances. And I think the actions that we're putting in place will benefit more in the second half of the year, but then into next year as well.

Our next question comes from the line of Joan Wuensch with Citi.

Can you hear me okay?

We can, Joan.

Wonderful. I'm just trying to sort of pull apart the first quarter a little bit more, particularly in the Miss and PCS. And I'm just curious if you can detail that a little bit better? And how do you think about this on a go-forward basis?

Sure. So -- so listen, as we think about the first quarter relative to our expectations, the impact was really about a supplier quality issue we encountered in our PDx business. It was roughly $0.05 of impact. It came about late in the first quarter. It led to a write-off of some product, but also a sales shortfall or not for this issue, we would have achieved the quarter. So obviously, not pleased with the performance in the first quarter, but it was really isolated to this PDx supplier issue. PCS decline, but that was generally speaking, in line with our expectations. Pete, maybe you talk about PCS performance.

Yes. I think, Joan, to your question, and I think Jay delineated. We had built in some cushion relative to what we expected PCS to do, and it was relatively to that area. And at that point, we weren't happy with how the results were. But just to reinforce the points we made on the call is, the two areas where a lot of the larger monitoring deals, which fundamentally that revenue carries a vast majority of the margin are more second half loaded. And so that puts more pressure on the first half from the margins on that.

The second area is the new anesthesia product. It's really our first new premium anesthesia product in many, many years. I think it's going to be a very good product. Some customers are obviously waiting to kind of see that come out. We feel pretty good that the clearances and stuff will be on track for Q3. And as I mentioned, a little bit later in that period. So those are both orders and sales drivers. The backlog piece on the monitoring are deals that we have with well-established customers and they'll get executed.

Having said that, look, I'm not pleased with the decline in this magnitude, and we're heavily focused on mitigation actions. Jay mentioned some of them for the business, but backlog conversion, pricing in this business, in particular, and we're looking at the overall structure.

With PCS being more of a stand-alone segment really in the future, we have the opportunity to do more of a strategic assessment of the portfolio in all the parts as pieces. But ultimately, we'll address the underperformance.

Our next question is from Travis Steed with Bank of America Securities.

First, I'd like to start out on Takato progress, almost double the run rate in April versus January. But so far from the $500 million target. So just curious how that trended over the last kind of 3 months and kind of where you see that business going forward?

Yes, Travis, thanks for the question. Look, step by step here, I would say. It was a great quarter for the radiopharmaceutical team in general, but particularly for the molecule to your point, we're pleased with the acceleration. The ramp has gone pretty much in line with what we have thought. I think if you think about some of our previous discussions, the weekly volumes have continued to increase throughout the quarter. Really, as we thought, I think, reflecting the customer demand that's out there and just the way we see new customers versus existing customers adding on.

We're also hearing more positive commentary from users, which is a really important part. This becomes kind of a network of users talking to other users. And so that buzz is out there. As we stated, the week ending April 17, we had 390 doses. We have about 31 now active CMOs. You may recall in the first quarter, we talked about the performance of those needed to improve. All of those are performing well, which sets us up for continued growth. And we're also expanding the customer base. I think that's -- the base has grown probably close to the same amount as the molecule growth during that same time period. So we're on track. Price is obviously holding as well.

Clinically, the integration of the workflows is progressing. We talked about that in the past. I think the workflow is relative to cardiology and stuff are on track. So again, all in all, I feel quite good about where it's at. We've got still a lot of work in front of us. But as we mentioned, this gives us confidence here of what we've talked about, about $0.5 billion sales molecule by 2028.

Great. And maybe a follow-up question on China. You mentioned a cautious outlook on China kind of baked into the guidance. Curious what you're seeing there? If you're seeing any green shoots or things changing on the margin? And what all is kind of baked in from a market standpoint and from a competition standpoint?

Yes. Look, China performance was in line with our expectations for Q1 and it improved sequentially, which is important because, obviously, in the previous quarters, it's been more challenged. We were intentional in setting a conscious outlook for '26 and still expect the China sales to be down year-over-year. But it's also important that we are seeing some level of green shoots here in the marketplace. I think, look, we aren't satisfied where the China performance is at this point in time. But as I mentioned, under Will's leadership and honestly, the market, we're starting to see some more promising commentary. And I'd say things like improving market predictability is super important. A few of our operational changes that the team has put in place have enabled us to be able to be more clear and accountable strengthening our commercial organization. We've done some things to optimize that with our distributor network, and we're seeing the benefit of that. Being more clinical, particularly in certain geographic areas has helped us out win at a higher rate and just be more nimble. So I think those are important aspects as well as we're getting better traction with our JV, which -- that we have a Sinopharm on DBPs in certain tenders.

So Phil and I literally just came back, I think it's a week today from China where we met with customers and leaders and our team and had an opportunity to spend some time into the marketplace and talking. And I think relative to the acceptance of our products, the excitement about the pipeline coming and the changes that we're making. Again, it's still going to be a more challenged year, but I think we're starting to get more stabilization in the China market.

And our next question is from Robbie Marcus with JPM.

Great. Two for me. Maybe the first one, just to circle back on guidance, Jay. We've seen some negative revisions over the past few years. A lot of it has been from unintended global events. But how are you thinking about the amount of cushion you've put in here, especially given you've been reduced -- offsetting a lot of these costs the past few years. How much is legitimate offsets versus perhaps under investment? And how much cushion is there?

Sure. So Robbie, with this reduction, we've tried to provide adequate cushion in the guidance that we have and also adequate offsets in terms of pricing cost measures. I think importantly for us, you see about $0.23 of offsets that we're reflecting in our guidance. Now importantly, much of that is in Q3 and Q4 versus Q2, which is why you see a decline in earnings in Q2 before you start to see some acceleration in the back half of the year. But that's really related to when the mitigation actions were able to kick in.

Now as it relates to underinvestment in the business, one thing we've been intensely focused on is ensuring that we have adequate R&D spending in place and also adequate commercial investments in place to support all of the great progress that we're making on the pipeline. So we've done all of that. But as far as discretionary spending areas outside of that, we're intensely focused on mitigating those and managing those areas. So I think the answer is, I believe we have adequate contingency and I believe that we're continuing to invest in the right way in the business.

Yes. I think, Robbie, as we've said, look, our growth were set up well for the rest of the year. Look, we've taken this hard decision with some of these hyperinflation items, but now it's up from here. We're not counting on hope on these plans. We've got strong operational plans to make sure that we can do the reset and be able to actually move from here upward.

Great. Maybe a quick follow-up. There are coming generics in the diagnostics business -- pharmaceutical diagnostics, sorry. It seems more like a 2027 issue than a '26 issue. How are you positioning and thinking about generic impact into the end of the year and into 2027? Are there any measures you could do to help mute any competitive impact and anything else we should be thinking about there?

Robbie, look, we haven't seen any impact from any of the entrants at this point in time. Obviously, we take all competitors very seriously. And the reality of it is the market today is a generic market. There's branded generic products that are out there, but there's already 6, 7 different players within the marketplace. Customers look for a full SKU lineup. The more you mix SKUs, the more the probability of mistakes, resiliency in the supply chain, that product breadth and convenience, different sizes that integrate into injectors, things of that nature. So those are all of the different pieces that are out there. Obviously, to your point, we have contracting options about how we integrate products to fully offer the wide spectrum that an IDN needs and all of those things that we're constantly looking at. But just to be clear, at this point in time, we're not really seeing any impact from any new entrants into the marketplace.

Peter, maybe if I could just ask a little clarification. I believe these are AB -- they're able to be switched at the pharmacy level versus branded generics. So does that change the strategy at all?

No. I mean there's some different contracting positioning, but it also can mean that anybody within the group, any of the folks that are making products if they're challenged on delivery or that, that those products can be reasonably substituted. And so we deal with that today, right? If we were short or one of our competitors today, we're short, one of us could step in. And I think that dynamic we're dealing with today. So that would be a similar type of competitive issue or challenge that the team is used to dealing with.

Our next question comes from David Roman with Goldman Sachs.

Maybe I'll start just on Photon Counting CT. Could you just elaborate a little bit further on the commercial strategy here? And maybe help us think through market segmentation especially in the context of your primary competitor here, I believe, having kind of a 2-tiered product and pricing structure?

Yes, Dave, thanks for the question. I would first start out just to say with we're actually doing quite well in the CT market around the world without even having our Photon Counting system on the marketplace. And the question is why is that? Well, there is a growing need for CT of different types throughout the world. This product that we introduced just about a year ago is dedicated to cardiology and it's just taken off tremendously. It's actually one of the biggest drivers for what's taking place in Europe and international marketplaces. So we have allocated more dedicated resources and focus into the field into CT. Some of the changes we announced are about having more specialized reps, people that can go in and talk head-to-head clinical, technical and ultimately, productivity differences to customers. I think that's super important as opposed to having more of a generic discussion.

We also are big believers that artificial intelligence breakthroughs are also going to change traditional CT. So we have a list of different things that are going to be coming out that are going to increase resolution and capabilities in our traditional CT range and will be significantly more cost-effective for someone who wants more resolution and maybe going to Photon Counting. So there's an interesting mix that's out there. All that being said, we're super excited about our Photon Counting approach. I think when customers look at our resolution, they look at our contrast capabilities in what's called spectral imaging or being able to see tissue differentiation, they're seeing a system that doesn't have trade-offs compared to maybe what's available in the market.

You have this high-resolution all-in capability upfront that you don't have to make these trade-offs. So we're going to come in at the ultra-high end. There's a lot of customers who've been waiting for us for some time. Typically, this will start with the conversion of our installed base. It will then move to broader tenders on competitive targets. We just had the approval, as you know, at the end of March, beginning of April. We've got a solid funnel of opportunities over $100 million of that.

And the way to think about this is that between you getting approval, it's many times 4 to 6 months that customers have to do the assessment, they have to look at. That then builds a bigger order funnel. And then it's 5 to 8 months after that, pending on the customer have the room ready or are they building out that the sales transfers take place. But I think we feel quite good about where we are with approvals, where we are builds and the timing to sales conversion. But the most important thing is we think we chose well on our technology approach.

That's very helpful perspective. And then maybe, Jay, just a follow-up here on some of the input cost dynamics. Could you maybe help us understand a little bit more detail just on the phasing and impact of some of these considerations do you cause? I guess I would have expected you to have some amount of raw material on hand right now given your inventory turns that would enable you to buffer kind of the impact in the immediate term and then potentially see the impact build throughout the year, but maybe help us break down a little bit the timing of some of the cost headwinds, what gets realized now? And then what's kind of just deferred given the natural dynamics in your business from the timing of acquisition raw material through final finished goods and sale?

Yes. Good comment, David. And really, as we think about the impact of these incremental inflationary costs, there was limited impact in the first quarter, if any, because of what we call FIFO rolling out in future quarters the impact of higher-priced raw materials. And so we saw very little impact in the first quarter. The second quarter is really the first quarter where we see a real impact from inflation. And some of it, the logistics attaches to our product at the very end in many cases. And so we see some of those more immediate impacts. And then with our faster flow items faster turn businesses, we're starting to see an impact in the second quarter. The largest impact will be in the third quarter in fourth quarter. But the good news for us is much of the offsets that we have in place start to benefit the second half of the year. So the $0.23, we're not really able to impact the second quarter in terms of those areas very much at all. But really, that benefits the second half of the year. So that's really the overview.

Our next question comes from Larry Biegelsen with Wells Fargo.

Jay, I wanted to start with Intelerad, and how that's impacting the guidance in 2026, particularly margins and interest expense? And I imagine the interest expense goes up starting in the second quarter. And I thought this was a relatively high-margin business. And do you expect the deal to be accretive to both sales -- organic sales growth and EPS next year? And I have one follow-up.

Sure. So first, just as a reminder, Intelerad really was about extending our cloud capabilities and outpatient networks and the efficiency of care teams and helping us deliver precision care for patients globally. So really excited about that transaction. And we were also very pleased to report closing it in the first quarter. So that came in, in line with our expectations, perhaps a little bit better. But overall, good start. And the momentum is continuing in a good way. We previously said double-digit sales growth is what we expect, and we expect to accelerate that a little bit over time. And we also talked about margin accretion. We talked about an EBITDA margin north of 30%. And so all of that is holding true. Of course, you have things like integration costs and so on. But in the first year, we're expecting this to be slightly dilutive, but we've kind of sort of covered that in the forecast as we add EBIT but then include the incremental interest expense. So what I would say is it's fairly neutral from a bottom line standpoint in the first year. As we move to 2027, we'll see a little bit of positive contribution on the bottom line, but then also as an accelerant to sales growth. So we're pleased with this one. I think the strategic logic of it as we closed it and now are studying it even further is more intact and the financial profile is continuing as we expected, which is just great to see.

Jay, one follow-up maybe on the cadence. I think you've addressed sales, but on margins, in EPS in '26. Your comments on the call imply margins and EPS should be up pretty significantly in the second half of the year. And do you now expect gross margin to be down year-over-year because of inflation?

We do expect margins to improve in the second half of the year. A lot of that benefits from some acceleration in sales in the second half of the year, the new product contribution in the second half of the year. And then those self-help initiatives I described earlier, which benefit the second half of the year. So we will see a margin step up second half versus first half. Now I would say that we typically see that in normal years, but we will definitely see it this year.

And then secondly, from a gross margin standpoint, I would say it's going to be relatively neutral year-over-year. A lot of the activities that we're putting in place will offset the inflation. And so relatively neutral year-over-year from a gross margin standpoint.

Our next question comes from Matt Taylor with Jeffries.

I wanted to double-click on some of the commentary you made on the PDx, which had a good quarter. So good to see the progress of Flyrcado. I guess, could you help us understand what the gating factors are there to drive more production because it does seem like there's demand in the market? And I also wanted to ask about the MRI contrast agent. You mentioned some progress on that program. Could you talk about when that could actually launch? What's the time line to get through Phase II, Phase III?

Sure. Maybe I'll start on Flyrcado. We were really pleased with the progress on Flyrcado. The run rate -- the annual run rate went from roughly $25 million or so to $46 million in April, and we're continuing to work to accelerate that. Now as we've said historically, it's an equation that involves supply and our ability of customers to modify workflow to incorporate and sort of deliver doses at higher levels. We're incorporating new customers, but we also want them to climb ramp up from low levels to higher levels of dose utilization. And so it really comes down to continuing to manage the CMO network. We're intensely focused on very high levels of delivery rate, over 95% is our target. We'll continue to migrate and add some new CMOs, but also ensure the right delivery rate is in place. And then add new customers and ensure that they're comfortable ramping their own utilization of the product. But we were very pleased with the progress in the quarter. I think all of the positive feedback we're getting in terms of the benefits of this particular product are coming true. So it's a good start. Pete, do you want to talk about the other products?

Yes. I'll just comment on Flyrcado as well. I think as we've talked about previously, customer reimbursement constructs, customers are getting that worked out both privately and through the health system structure, which is important. The workflows are, I think, our algorithm operationally, how we go to a customer and help them set up, that's definitely getting to be a more well-oiled machine.

And then as Jay said, too, with the CMOs, they're how to make the product has improved. So those are all critical items. And so as we bring on more customers, the ability to scale from I'm doing 2 to 3 patients a day, so I'm doing 10 or 12, increases as we go out the year. And so we're optimistic about that. We still are going slow to go fast because again, we think this has a long-term potential being a $1 billion molecule. And so again, excited about how the team has been leading this and where we're doing going.

So your second question you asked was about the new MRI imaging agent that we have in clinical studies. This is super exciting. I think if you follow the MRI imaging in general, you would say the future of imaging heavily hangs towards MRI. It's radiation-free, very friendly for children, older adults and the technology with things like air recon DL are moving from where it used to be 45, 50 minute exams down to 10 to 15. So the modality is going to continue to grow.

Oil limitations has been the contrast agents available. Forever, it's been catalydium. Catalydium has been a great workhorse, but it has challenges. It has retention challenges in the body. It really can't be used with pediatrics. It comes from sources only one part of the world to rare earth element. And so it's been limiting about what one can do. And there's been other attempts that have been challenged over the years to come out with different agents, but we really think we've got a winner here. Obviously, we need to be able to make it through our studies successfully. We had a successful Phase I, which is where a lot of these products in the past have failed relative to tox studies and overall adverse events, but we've done quite well through Phase I. This is now in a Phase II, Phase III combined study, which is around dose optimization to image quality. And you might have seen some work that actually took place earlier at the Mayo Clinic that we feel very good about. This is a manganese-based product. There have been other folks that have worked on manganese in the past. I think the difference is all about your formulation which we have a very proprietary focused approach here that enables the molecule to be able to provide high-quality imaging comparable to GAD but be able to remove from the body in an effective way. That's really the key here.

And obviously, if we're successful of achieving that bringing a proprietary first-to-market molecule into this market where there hasn't been anything in decades, we think is a really big opportunity. Not only to grow and obviously have a high-performing, highly profitable product but it really fundamentally changes how we think about how MRI imaging for vascular imaging can be done on all types of population.

So this is super exciting. The fast track and the dueling speed up this a product like this that didn't have those capabilities might be out in the 2030 range with fast tracking and the combined studies, if successful, this could be a 2029 type molecule introduction to the marketplace.

Our next question is from Ryan Zimmerman with BTIG.

Pete, with the changes in the organizational structure with imaging and AVS, you talked about the rationale for it to some degree. But I'm wondering how you think about the benefits of it? If there is increased business capture, does the growth profile of that business collectively change or move higher from what may have been maybe a mid-single digit to maybe the high end of the mid-single-digit range. I'm just wondering if you could kind of articulate how you think about the downstream implications of those changes from an order standpoint that we may see in kind of this new segment?

Yes, Ryan, really good question. Look, as we thought about AIS at the highest level, it's all about what can we do to drive a higher growth profile organization. Yes, there will be some cost benefits that will help margin, but the #1 priority was that. The predicate model was realistically the model that Phil was running prior to this, which you may recall, ABS was taking ultrasound and image-guided solutions to put them together. And we saw an opportunity by putting them together on the way we articulate the technology story to customers to be winning at a higher level, candidly, by doing it that way. But on the back end, on the R&D side, finding new ways faster to come up with differentiated products. And fundamentally, AIS is a bigger version of that. So we would expect at the street level, starting rather quickly to be able to see us being able to bring solutions and articulate differentiated value faster with this model. But I think on the upstream side, meaning on the R&D side, when you think about a cardiac pathway or an oncology pathway, all the products needed to work together now fit into that AIS construct. And so as far as allocation of R&D dollars, faster moving to get something done, two less meetings to me to make a decision, all of that gets much more streamlined. And so that's -- we would expect we'll see some benefits in this year, but obviously, more benefits come in the following years as you start thinking about how you're building products and framing that to customers.

Yes. Understood. And then for Jay, cash -- free cash flow has ticked up a little bit versus last year. In the face of these inflationary pressures, you guys bought back shares, about $100 million or so. You have dividends. It's been a very balanced, I would say, capital deployment strategy thus far. Does your prioritization of capital deployment change in the face of some of these inflationary pressures, meaning more to share repurchases, less M&A? Just take us through kind of your thought process, I guess, Jay, as you think about what you do with that cash, again, in the face of some of these changing input costs and so forth?

Great. Thanks for the question. really good progress on cash flow in the quarter. I think we did a particularly nice job with respect to working capital balances. And this business generates a lot of cash, and so we have the opportunity to deploy it. We will first continue to invest in the business organically. To Robbie's question earlier around R&D levels and so on, we'll continue to ensure appropriate investment so that we can drive this business forward.

We'll also do disciplined M&A. I think from our standpoint, the quarter was a great example of that, closing the Intelerad deal. That's a very good ROIC deal over time. It's strategically and economically accretive to the company. So that's exactly the kind of M&A we will continue to do. And then we will look to see when the shares sell off and we look at them relative to the intrinsic value, we will evaluate buyback. We felt very good about the buy that we did last quarter, and we did so because we feel very strongly about the long-term prospects of the business. As we think about some of the mechanisms we're putting in place now like pricing, which will benefit next year, like the new product momentum that will benefit next year, we feel very good about the share buyback program, and we'll look to continue to do that as a supplement to M&A.

We'll now take our last question from Anthony Petrone of Mizuho.

Maybe one for Jay and then one for Peter and Jay. Just, Jay, on the tariff impact, you're calling out $90 million to $100 million quarterly at the margin, in the presentation material quarterly, it seems like that level is holding. So what do you actually have baked in there from a tariff impact for 2026? And if you do get a reimbursement decision later this year, do you get roughly $100 million back at the margin? And I'll have one quick follow-up on AIS.

Sure. So basically, we said tariff impact in 2026 will be less than 2025. So that's less than $250 million or so is what we expect to see. And based on the mitigation activities that we've put in place, the first quarter will be the biggest impact of the year, and that will trail down through the rest of the year. We have not seen windfall as a result of the IEPA Supreme Court ruling as those tariffs were replaced. And we've assumed those tariffs remain in effect for the rest of the year though there is a tariff impact for the rest of the year. So we've assumed that in the guidance that we've put forward. So that might be an opportunity.

As far as refunds, we will be submitting as many companies will for refunds related to the tariffs that we paid last year. We're hopeful that we'll be successful in terms of recovering that. We haven't determined how we will report that or account for that in terms of adjusted EPS or anything like that. That's not included in the forecast that we put forth today.

And just on AIS, and I don't know if this is across the portfolio or in AI specifically. But when you think about AI-enabled platforms, you have Intelerad in there, it's coming in as a Software-as-a-Service model, but we count 7 AI-enabled assets across the portfolio at this point, various different programs. So will it all show up as Software-as-a-Service? What are the milestones we should look for, for AI-enabled capabilities? What does the economic model look like over time?

Anthony, yes, great question. Look, I think a big part of our growth algorithm is really this combination of new wave of innovation. It's about better commercial execution, both on equipment as well as service. And you saw some of that throughout the call here in the first quarter. I think we're going to be able to highlight that and accelerate our growth here as we go through the year. Relative to AI, it comes in 2 flavors today. One is it's the AI inside. It's why things like Vivid Pioneer are growing at a very high rate right now because of 4, 5 algorithms that make this product better than its competition. So we get a higher price for it. We get multiple hundred points -- basis points improvement in margin, which is a combination of its cost, but it's really about its value. So that's really the first piece. All of those products that I had on the page in the deck all have embedded AI. Some of them have a couple of algorithms. Some of them had 4 or 5. And so that's piece one.

The other part you hit on, which is, again, we're doing more and more, which is actually having SaaS-based capabilities for specific features. So part of our vision is to be able to sell the hardware, have it more standardized of what that feature set is and then have a wide menu of other SaaS cloud-enabled applications that customers can customize by that individual scanner or by their fleet. And so CT is kind of our first modality as well as ultrasound that leads in that. I think you're going to see more and more of that continue to grow. And we're in a good spot now.

Back to Intelerad, why is that important? Because not only in outpatient, but an inpatient, the more that we integrate those tools, that will be the reading interface, not only for the diagnosis, but also, in many cases, deploying the AI tools. And that's all well thought through of how we continue to leverage that. So again, thanks for the question.

Thank you. And this concludes our question-and-answer session. Please proceed with any closing remarks.

Thanks for your interest in GE HealthCare. And again, we look forward to connecting and chatting with many, if not all of you here in some upcoming conferences. Thanks again.

And this concludes our conference. Thank you for participating, and you may now disconnect.

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.

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.

Good day, and thank you for standing by. Welcome to GE HealthCare Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that today's conference is being recorded.

I will now turn the call over to your speaker host for today, Carolynne Borders. Please go ahead.

Thanks, operator. Good morning, and welcome to GE HealthCare's fourth quarter and full year 2025 earnings call. I'm joined by our President and CEO, Peter Arduini; and Vice President and CFO, Jay Saccaro.

Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides available on our website. During this call, we'll make forward-looking statements about our performance. These statements are based on how we see things today. As described in our SEC filings, actual results may differ materially due to risks and uncertainties.

With that, I'll hand the call over to Peter.

Thanks, Carolynne. Good morning, and thank you for joining us. As I look back on our performance in 2025, our third year as a public company, I'm incredibly proud of the meaningful progress that we're making on our innovation renaissance to deliver for our customers and improve patient lives.

In the fourth quarter, we delivered strong financial performance above our expectations. This included double-digit organic revenue growth in pharmaceutical diagnostics and mid-single-digit growth in imaging and advanced visualization solutions. We delivered strong bottom line and cash performance in the fourth quarter, excluding tariffs. The overall capital equipment environment remained healthy. Demand in the U.S. and EMEA remained strong.

In our recent U.S. customer survey, we saw an increase in the number of large customers that plan to invest in capital equipment in 2026. We secured multiple large agreements in the quarter and extended several others. A great example is our 7-year agreement with the University of Rochester Medical Center to advance theranostics and precision medicine. This collaboration crosses every aspect of our enterprise, from AI-enabled imaging equipment and radiopharmaceutical production to systemwide patient monitoring solutions and services.

In November, we announced the planned acquisition of Intelerad. We expect this will accelerate our fully connected cloud-first imaging ecosystem by adding digital tools and SaaS offerings that enhance clinical operations, drive recurring revenue and enable more personalized patient care. As a reminder, in the first full year of ownership, we expect Intelerad revenues to be approximately $270 million, which is growing in the low double digits with an adjusted EBITDA in excess of 30%. Finally, we advanced Heartbeat, our proprietary business system, which we implemented midyear as the next step in our lean journey, we started a few years back, and I'll talk more about this shortly.

Moving to 2025 highlights on Slide 4. We made meaningful progress across the three pillars of our strategic framework. Let's start with precision care, with diseases becoming more prevalent, complex and chronic, the need for integrated solutions has never been greater. As the only diagnostic imaging company with a full portfolio of contrast media and radiopharmaceuticals, we differentiate ourselves with our D3 strategy. We bring together smart devices and drugs across disease states, enabled by digital AI and cloud to help support earlier, more accurate diagnosis and ultimately, therapy delivery.

Our 3-year vitality rate for new products is strong at 55%, up approximately 5% from our prior year. Recall, this means 55% of our revenue is coming from new products. This reinforces that we're delivering the right offerings for our customers. We're making solid progress on our launches. For example, our Omni total body PET and next-gen SPECT are commercially available in Europe, strengthening our position in theranostics.

Our regulatory time lines for products we announced at RSNA are all on track, including Photonovo Spectra Photon Counting CT and Cigna MR with Freelium. Additionally, customers have great things to say about Vivid Pioneer, our most advanced cardiovascular ultrasound system, which has been contributing to strong growth in ABS. And Flyrcado for myocardia perfusion, both of which are currently in the market. We're pleased to report that Flyrcado ramp has been progressing well. You may recall at our last earnings call that we said we're going slow to go fast, to help ensure customers have a high-quality experience, and that starts with being able to deliver doses consistently.

I'm happy to say we're starting the year with our CMO partners more consistently operating at approximately 95% on time to delivery to meet customer demand, which allows us to begin bringing on more patients. In the week ended January 23, we delivered 220 doses of Flyrcado, and we expect the weekly dose rate to continue to increase throughout the year. These improvements allow us to onboard more customers, and we've been making solid progress in reducing the cycle time to activate a new customer.

Overall, the customer experience with Flyrcado has been quite positive based on its many advantages. Also recently, the American Society of Nuclear Cardiology, recommended PET as the preferred imaging modality over SPECT, the current standard of care, reinforcing a meaningful shift towards PET and nuclear cardiology. As I stated before, our confidence in our ability to deliver $500 million or more in Flyrcado revenue by year-end 2028 remains intact. And in the long run, we see a $1 billion opportunity for this novel molecule.

Turning to our second pillar. We accelerated growth with more than $7 billion in enterprise deals globally since our spin. For example, we entered 2025 with one of the largest collaborations Sutter Health. In addition, we signed a multiyear agreement with the Ministry of Health in Indonesia, where we installed more than 300 advanced CT scanners in urban and remote hospitals. Many of these deals have a service component that deliver strong recurring revenue with attractive margins.

In 2025, our service business grew mid-single digits. With the launch of many new advanced products, we would expect our capture rate of service agreements to increase in the future with all the new wave of innovation entering the marketplace. We're also executing on our disciplined capital allocation strategy with tuck-in acquisitions like Nihon Medi-Physics and icometrix, and our planned acquisition of Intelerad. These transactions elevate our portfolio and are expected to drive recurring revenue and supplement top line growth and profitability.

Turning to business optimization, our third strategic pillar. We continue to advance our business system Heartbeat to improve the customer experience and drive productivity to deliver margin expansion. Our teams accomplished this by remaining focused on helping clinicians provide care for patients and delivering greater value for customers and shareholders. We're gaining momentum with our clinical and solution selling strategy in EMEA with several multi-modality deals, including a 20-year collaboration with Nuffield Health, the U.K.'s largest health care charity. The combination of our differentiated portfolio, our team's deep expertise across disease states and best-in-class services sets us apart with our customers globally.

Turning to Slide 5. Underpinning our execution is a step change in how we run the company anchored in key metrics around safety, quality, delivery, cost and innovation or SQDCI. Heartbeat is about driving the right leadership behaviors, culture and KPIs, supported by disciplined processes and tools for problem solving and continuous improvement. Think of Heartbeat as the steady pulse that ultimately runs through our organization to deliver results. An example of where we've deployed Heartbeat in the back half of 2025 was related to a key priority to improve past due backlog, which relates to site readiness or our ability to deliver product.

Heartbeat provides a structured approach to problem solving by eliminating steps, improving information flow across the value stream from our plants all the way to the customer. We increased visibility to orders to help ensure timely delivery, strengthened alignment with our factories and improve how we manage customer site readiness. Because of this, we were able to drive an average monthly improvement of 25% in past due backlog versus the prior year, ultimately translating into improved sales and cash conversion in 2025. It's early days, but we're building our Heartbeat muscle and already seeing the impact. I'm excited about the progress our teams have made to date.

With that, I'll turn it over to Jay to discuss our financial results. Jay?

Thanks, Pete. Let's start with our financial performance for the fourth quarter on Slide 6. We delivered revenue of $5.7 billion, which grew 4.8% organically year-over-year, exceeding our expectations. On a reported basis, product revenue grew 7.9%, and service revenue grew 5.5%.

In the quarter, orders growth was 2%, following 5.6% growth in the year ago period. We exited the quarter with a record backlog of $21.8 billion, which grew $2 billion year-over-year and $600 million sequentially, and we delivered a book-to-bill ratio of 1.06x.

Adjusted EBIT margin was 16.7%, down 200 basis points. Margin was negatively impacted by approximately $100 million in tariff expense as well as unfavorable mix. This was partially offset by volume and price.

Adjusted EPS was $1.44 per share, down 0.7%, including approximately $0.17 of tariff impact. Excluding this impact, adjusted EPS grew 11%.

Lastly, free cash flow was $916 million in the quarter, up $105 million, which included an approximate $90 million tariff impact.

Turning to our full year results on Slide 7. We made excellent progress in 2025, supported by strong end markets, particularly in the U.S. and EMEA. This enabled us to deliver revenue of $20.6 billion with organic growth of 3.5% ahead of guidance. On a reported basis, product revenue increased 4.5% and service revenue grew 5.6%.

For the year, organic orders grew in the mid-single digits. We recorded record backlog and book-to-bill was solid at 1.07x. 2025 adjusted EBIT margin of 15.3%, declined 100 basis points versus the prior year and adjusted EPS of $4.59, grew 2.2%.

Full year results included a tariff impact of approximately $245 million to EBIT and $0.43 to adjusted EPS. Excluding these impacts, adjusted EBIT margin will be up 20 basis points for the year, and adjusted EPS would grow 12%. The improvement was driven by volume and price.

Turning to margin performance on Slide 8. Mitigating tariff impact is another example of Heartbeat in action. For example, we enhanced manufacturing flexibility by shifting a PET/CT line from the Middle East to the U.S. and a surgery line from Asia to the U.S., leveraging existing infrastructure.

We also partner with large vertically integrated contract manufacturers to reposition production within their global networks to more favorable geographies. This is a clear proof point of how Heartbeat enables execution, accelerates change and delivers measurable results.

We're pleased with the work our teams are doing to drive operational efficiency, productivity and SG&A optimization. At the same time, we deployed more than $1.7 billion of innovation investment in 2025. We're doing this in a targeted way, prioritizing programs that strengthen our competitiveness and supports durable, profitable growth.

Let's move on to segment performance, starting with imaging on Slide 9. Organic revenue in the quarter was 5.3% versus the prior year, driven by strong execution in EMEA and the U.S., particularly in nuclear medicine. Segment EBIT margin benefited from volume and price, but declined year-over-year due to tariff pressure. Imaging margin was accretive, excluding tariffs. EBIT margin improved sequentially as a result of continued operational rigor. Overall, we expect to continue to grow this business through large enterprise deals and new product launches.

Turning to Advanced Visualization Solutions on Slide 10. Organic revenue for the quarter was up 4.2%, with continued strong performance in the U.S. and EMEA. New product adoption across the portfolio also contributed to revenue growth. EBIT performance was driven by volume growth and productivity gains, offset by tariffs and inflation. EBIT margin increased, excluding the impact of tariffs. We've seen progress driven by MPIs with growth in surgery, cardiovascular and women's health. Key introductions like Vivid Pioneer are strengthening our leadership in cardiovascular ultrasound. Looking ahead, our road map is focused on differentiated data-driven technologies to accelerate recurring revenue.

Turning to Patient Care Solutions on Slide 11. Organic revenue improved sequentially with restoration of shipments from the third quarter product hold. Organic revenue declined 1.1% versus prior year due to a decline in Life Support Solutions. EBIT margin improved 530 basis points sequentially driven by volume recovery from the product hold, but declined 380 basis points year-over-year, largely due to unfavorable mix and tariffs. Our monitoring transformation remains on track, driven by digitally integrated NPIs that enable improved clinical decision support and workflow management as well as large commercial agreements. Looking ahead, we are also confident that our cost productivity funnel and structural optimization actions position PTS for profitability improvement in the future.

Moving to Pharmaceutical Diagnostics on Slide 12. We delivered another strong quarter with organic sales growth of 12.7%. This was driven by global growth in contrast media, pricing execution and adoption of our U.S. radiopharmaceutical MPI portfolio. EBIT grew 10% and sequential margin expanded 20 basis points, while margin declined 330 basis points year-over-year due to ongoing planned investments in NPIs along with the Nihon Medi-Physics acquisition. We're executing our strategy and expect continued robust growth driven by global demand for contrast media and radiopharmaceuticals for PET imaging.

Now let's look at cash performance and capital deployment on Slide 13. For the year, we delivered free cash flow of $1.5 billion. This included approximately $285 million tariff impact. Free cash flow conversion was 72%. Reinvesting in innovation and organic growth is a top priority. This is translating into a differentiated product portfolio that we expect to improve our competitive position globally. We also look to deploy capital inorganically as evidenced by the 7 acquisitions we've closed in spin. We're pleased that we've also been able to deleverage the balance sheet and solidify our investment-grade credit ratings.

During the year, we returned capital through our dividend and new share repurchase program, which we authorized -- which was authorized by our board in April. Since that time, we've repurchased $200 million in shares at an average price of $71. We continue to demonstrate conviction that our business strategy will drive meaningful shareholder return over time.

Let's turn to our outlook on Slide 14. For 2026, we expect organic revenue growth of 3% to 4%. We've taken a prudent approach to this guidance, which reflects a healthy capital equipment environment and continued commercial execution, while factoring in a cautious outlook on China. Relative to foreign exchange, we expect a benefit to revenue of approximately 150 basis points for the year.

Adjusted EBIT is expected to be in the range of 15.8% to 16.1%, reflecting 50 to 80 basis points of expansion. We continue to expect the impact from tariffs in 2026 to be less than 2025. We plan to continue our tariff mitigation actions in 2026, including supply chain shifts, product transfers to more tariff efficient geographies and expansion of duty-free USMCA efforts.

Our adjusted effective tax rate is expected to be in the range of 20% to 21% for the full year. On adjusted EPS, we expect to deliver a range of $4.95 to $5.15, representing 8% to 12% growth.

Lastly, we anticipate free cash flow of approximately $1.7 billion for the full year, representing growth of 13.0%. For the first quarter, we expect year-over-year organic revenue growth to be in the range of 2% to 3%. While we expect to see the largest tariff impact in the first quarter of the year, given the timing of the 2025 policy changes, we still expect mid-single-digit adjusted EPS growth driven by an increase in volume.

For the first quarter, recall that we had particularly strong orders growth last year, supported by a strong U.S. market, along with the initial booking of a large enterprise deal. As Pete mentioned, we've got a robust pipeline of NPIs. Upon clearance, we expect these to drive future orders growth beginning in 2026.

With that, I'll turn the call back over to Pete. Pete?

Thanks, Jay. In conclusion, we entered 2026 with strong momentum. As part of our ongoing commitment to innovation, we're proud of the demonstrated progress in our pipeline of new products. We are deploying our business system Heartbeat across the enterprise to drive top and bottom line growth. We have significant opportunities in large Brazilian end markets, a record backlog and are accelerating innovation, both organically and inorganic. We also see solid runway for additional margin expansion over time.

Lastly, I'd like to recognize our colleagues worldwide, who have navigated a dynamic environment while remaining focused on delivering for our customers and patients every day.

With that, we'll open up the call for Q&A.

Thank you, Peter. I'd like to ask participants to please limit yourself to one question and one follow-up. Operator, can you please open the line?

[Operator Instructions] Now first question coming from the line of Matthew Taylor with Jefferies.

I did want to ask first for a little bit more color about the 2% order growth, if you could talk about the composition of that and just the outlook for orders and book-to-bill as you look into 2026, given now trailing 12-month orders in the kind of the mid-single-digit range. What are some of the puts and takes, I guess, what are some of the headwinds and tailwinds for orders next year?

Matt, thanks for the question. So we were actually pleased with the order book performance in the fourth quarter. And as I've said in the past, when we think about the health of the business, we really look at 3 different areas. We look at book-to-bill, which was 1.06x in the fourth quarter, 1.07x on a trailing 12-month basis. So robust book-to-bill. We look at the backlog. The backlog sits at a record level. It was up $2 billion year-over-year.

And then finally, we look at the order growth rate. Now when we look at orders, we do look at it in a couple of different ways. We look at the trailing 12 months, as you pointed out, solidly in the mid-single digits. And we also look at a kind of 2-year comparison, 2-year compounded growth or stacked growth to eliminate some anomalies there. And again, it gets us to about 4% in the quarter. So we feel pleased with the order backdrop, and then as we look to next year, a few things are going to happen.

Now first, we'll have a difficult comp in the first quarter of the year related to the Sutter deal and some of those bookings. But then as we move through the rest of the year, we'll start to see the benefit of many of the new products that we highlighted at RSNA, start to come into the order book. So we're really going to see a bit of an acceleration as we approach the second half of the year versus early in the year. And we think this is a really good setup for '26, but as we think about sales impact, we start to see a great sales impact in 2027. Pete, anything to add?

No. Just to the point that you mentioned, Jay, for '26 this year with all the new products we launched in Q4, it's not untypical. We have -- we're on track to all of those regulatory approvals. But until we have those approvals, we can take an order on those. And once we get that approval, the orders will come in and ramp up rather quickly. And if you recall, there's 9 products that probably are the 9 biggest launches we've had in the last decade.

So all of those have $100 million-plus type capabilities in growth. So once we get the right global regulatory approvals, we'll be able to start bringing those into the order book. So from that standpoint, the size of our backlog, I mean, we feel very good where we're positioned here as we start the year.

Great. And as a follow-up, can I ask a question on Flyrcado, my favorite topic. So just wanted to get more color on current state of supply, how things are going with the big partners that you signed and the kind of reception that you're getting from facilities adopting Flyrcado into existing Rubidium or SPECT workflows?

Yes. No, look, I think broadly, as I mentioned in the prepared remarks, we feel really good about where we are with Flyrcado. The feedback -- what's always so important here is how do clinicians feel about this product and making a difference in the diagnosis of the patient. And it is unanimous on the feedback relative to what we're hearing relative to the image quality, the specificity, the sensitivity that it brings, and then also, ultimately, the convenience that will bring to people that just can't ultimately have a generator on site. So it has all of those capabilities.

That being said, the process to implement is different. And so the thing that we talked about in our last call, I mentioned it here in the comments, we're consistently delivering the doses as a critical item for us to focus on to provide the best experience because, again, if that doesn't show up that morning, that's a miss patient. So we really throttled back how many patients and customers we would bring on until the what we call OTD, on-time delivery, is at a 95% rate, and we're roughly in that rate. So you heard the numbers that I talked about January, roughly 220 was kind of what the weekly number was, I think we said on January 23rd.

And the important part that is, now that we have that CMO level, we can continue now to be able to increase that level. And so we would expect that the doses will go up each of the following weeks. So I think that's the really important part here and that, that consistency is key. We'll be bringing on more CMOs to go into more geographies. And specifically, to your point, with the [ CVA, CDL ], 2 of the biggest players really in North America here, we're on the go slow to go fast. But I think both of those, we have great relationships. They see the potential. They see the opportunity to continue to expand. And so we feel very good about where we are at this point in time.

Next question coming from the line of Robbie Marcus with JPMorgan.

This is Allen on for Robbie. Just to start off, can you walk through some of your assumptions for China, and how we should think about potential upside when it comes to EPS versus street expectations as well?

Okay. So I think we got 2 questions there, one on China and then EPS, and I think that's related to 2026. The -- from a China standpoint, really, this has evolved broadly in line with our expectations. We previously commented that the second half would be worse than the first half, and we also anticipated that the fourth quarter would be the most challenging quarter of the year, largely driven by prior year growth.

So I would say all of that kind of came in line with our expectations. While we feel very good about the progress that our team is making in China, and we are seeing some improvements in things like VBP win rates, we're also seeing a more robust imaging funnel and some tender wins there. We really wanted to take a cautious approach to China when we put together this guidance. And so in our 3% to 4% total company guidance, we're anticipating decline in China in 2026. We'll watch this as we move throughout the year. But again, we wanted to take a prudent approach at this point. And then let's see how things evolve. Pete, anything to add to this?

I would just say, look, I think it's a good perspective on how we're thinking about China early in the year as this prudent approach. We're seeing improved commercial execution I think Will and his team have pivoted to focus more on how we think about provincial interactions as well as the clinical selling. And so just to kind of give you a little bit of proof point why we feel good about the progress is, Jay mentioned the VBP tender win rates.

I know you've heard from us, you've heard from others that some of the tenders and are being disputed, which lengthens them out before orders are issued. But we have good insights into those ones which we want, which are converted to orders yet. And so we know that our rate in the last 6 months versus the prior 12, we're doing better. And then we would expect, as those orders become issued through those tenders that later Q2 and beyond, we'll start seeing some of that coming through. All that being said, I think what Jay talked about is we're taking a prudent approach when it comes to China. And obviously, if things come through at a stronger level, that will be an upside to us. But as we enter the year, I think we're coming in at the right spot.

And then I think you said -- can you confirm you're asking about 2026 guidance? Is that the question?

EPS.

Yes. Just how you got to the range, why this is the right range to start off the year and how you see upside to the initial targets?

Okay. No, listen, thank you. I just wanted to make sure. So as we think about the EPS guidance for 2026, maybe we pause for a second on 2025. One of the things I think our team was really proud of was the ability to deliver 2% EPS growth despite a $0.43 tariff headwind. And so the result of that is we saw about $0.50 of EPS growth in 2025. We were able -- when tariffs hit, we took action not only to reduce tariff exposure, which is something we spent a lot of energy and effort on, but we also did some self-help cost management across the business. And we saw some performance from our Heartbeat business system help improve our operating margins and reduce waste, cost productivity, et cetera. So all of that was -- all of those things contributed to a solid performance in 2025.

Now moving to '26, we're going to see many of those things resulting in positive impacts in our numbers again without the -- hopeful without the drag of incremental tariffs because now tariffs are neutral to positive to our financial performance. The other thing that happens in 2026, is we start to see some benefit from new products, although that will be more predominant in 2027. But things like Flyrcado, things like some of our AVS launches will impact performance on sales in the second half of the year. And hopefully, we'll see that impact.

So as we think about the growth in EPS in 2026, at the midpoint of the range, it's about $0.45. And as we think about the drivers of it, about $0.30 will come from volume growth, about $0.30 will come from cost and productivity initiatives that we have and then we'll offset that with continued investments in growth. For us, we're very focused on SG&A investments to drive acceleration in sales performance. We did spend in the fourth quarter to start to set that up. We'll spend next year as well, along with R&D. We think these investments are really crucial to the mid- and long-term growth of the company. So we'll continue that. That's really the complexion of how we deliver on the EPS expansion next year.

Our next question coming from the line of Larry Biegelsen with Wells Fargo.

This is Vik in for Larry. Two for me. I guess your organic growth guidance of 3% to 4% implies 3.5% at the midpoint, which is what you did in 2025. Jay, I think you've said before that you expect to grow faster in 2026. So maybe just talk about why the midpoint of the '26 guidance is in line with 2025. And then I have a follow-up.

Yes, Vik, thanks for the question. So on the last earnings call and at JPMorgan conference, we kind of highlighted, we expect to grow sales in 2026 faster than 3%. Now we expected to grow sales in 2025 at 3%, and we did better than that. So we were pleased with that performance. But this is very consistent with what we shared. And we feel good about the guidance to start the year. Remember, at the start of last year, we guided 2% to 3%, and we ultimately did a little bit better than that based on commercial execution and some of the early success in our innovation cycles.

As we start this year, I'll point you back to the $2 billion increase in total backlog. I think that's a great setup to support our sales growth. And a lot of this revenue outlook is built on a strong secured backlog that we have in place. We feel very good about the backlog that we've been able to develop over the last several quarters. We feel very good about the orders funnel that we have in place. So all of that sets us up well as we approach 2026.

And then also, as I just commented, we're taking a pragmatic view on China. We want -- we're watching this market very carefully. We've taken a conservative approach here. Let's see how this plays out. So it's early in the year. I think there's a lot of good momentum that our business is building, and we'll watch things very carefully. Pete, I don't know if you want to add anything.

I think you covered it, Jay, but I mean the way we're set up here is, obviously, depending on when approvals come for some of the new products our ability to convert backlog, the ability ultimately to be able to convert some of the acquisitions that we've had now that we'll start to roll into organic growth, all of those position us well here for the year. So I think, again, as Jay laid out, I think it's the right place to start for the year, and we're going to be leaning in to be able to deliver.

A quick follow-up for me. Can you maybe talk about the timing of both orders and sales for Photon Counting and some of the other NPIs that you've highlighted?

Yes. No, thanks. As I made in my remarks here just a few minutes ago. Timelines for all of those significant launches are on track that we introduced at the RSNA. And we expect those to have the biggest meaningful contributions in '27, mainly because the order cycle typically is 6 to 9 months when you get the order you have many of these have to be installed within a site.

That being said, much of these will have an impact at some point later this year, which we're very excited about. And as we're out with customers and stuff, there's just a lot of buzz about that pipeline that we have out there. And so things like the Allia Moveo, which is our vascular system, that now is fully approved both by the FDA and so it's really our first interventional vascular system of a modern design in quite some time. We're excited about the growth that, that's going to bring forward.

The omni total body PET CE marked with 2 installs within Australia, and we also have a European installation. So great feedback that we're gaining. Our StarGuide GX, which is the advanced system for doing alpha as well as beta imaging is CE marked and we're going to be doing our first installs here quite soon. And then things such as MR, which was the Sprint, Freelium and the Bolt, all of those are under review and making good progress. Christina making good progress as well as CareStation.

On Photonovo, all systems go. I mean, we're lined up. We'll see how the approval time lines ultimately play out for us, but we're in very good shape. Manufacturing teams, getting everything ready to be able to advance that product. But I'm very proud of our engineering and manufacturing teams that have really come together.

When we talk about our business system, we talk about this SQDCI and safety of our folks, safety for patients, quality of the products, getting the delivery commitments, the right cost and gives you the right to bring innovations out to the marketplace. And that's really philosophy that we've put in place here. So feeling quite good about it. This business is so much about innovation. And I think we've got the right seeds in place here to set us up well, not only later this year, but ultimately into '27, '28 for our midterm targets.

Our next question coming from the line of Ryan Zimmerman with BTIG.

And congrats on the year. On that point, Pete, on midterm targets, I guess I'll ask the question now, which is with the midterm targets being mid-single-digit rev growth, high teens to 20% adjusted EBITDA margin, et cetera, just maybe you can kind of bridge us, I think, in terms of the '26 guide to those medium-term targets, and kind of how you see that progressing over the next few years?

Let me take a shot at it. Yes, sure. Look, we feel good about the midterm targets that we put together. I think one of the things that -- this year is a setup. But as we move to next year, you start to see the real benefit from many of the new products we launched at RSNA. We expect those products along with Flyrcado to help drive 1 to 2 points of additional sales growth over the medium term.

And then from a margin expansion standpoint, we're pleased to get back to reasonable margin expansion, 50 to 80 basis points is more reflective of what a normal year should look like. But with Heartbeat helping us to deliver higher-margin NPIs to improve productivity, to optimize SG&A, we expect to deliver on our high teens to 20% plus margin targets over the medium term. So all of this will flow down to EPS, and we'll continue to see this high single-digit to low double-digit growth. So in short, we feel solid. Pete?

Pete, Yes. And Ryan, just to the point, I mean, we're committed to those midterm targets top and bottom, full stop. I think we realize that the tariffs kind of moved us back a year or 2 just based on -- that's why we really started aggressively last year with moves, with changes, things of that nature that would make a significant difference because our goal ultimately is to neutralize as much of that as possible, to move us obviously into that 17% to 20% plus EPS range.

And hopefully, you see from even the guide this year that we've put out there, we've made good progress from what we've done last year. And I think our focus on our -- all our NPIs having higher gross margins than their predicates with the right selling and lift to that, we'll see the benefit as well as the corresponding service revenue that comes with it. All of that together is going to be very important for us, not only for our top line, but also to be able to deliver on our medium-term profit goals as well.

And Pete, it's like you're anticipating my next question here. The RPO and the -- specifically the service RPO was up really well. And I'm just wondering if you can kind of elaborate on kind of the composition of service revenue. And how -- as that becomes more predictable, we can see that start to flow through, particularly in the guide. If I think about the mid -- the 3.5% this year or whatever it may be, I mean if your service revenue and your service IPO is just becoming that much more predictable with Intelerad and other things, I mean, just help us understand kind of what that looks like as a percentage or a composition of your broader revenue and maybe moving away from lumpier capital sales?

Yes. We've talked extensively about our goal to expand recurring revenue. And so we're definitely pleased to see service growth. And then to your point, the Intelerad deal is another example that starts to tilt us more to recurring revenue. Services was a bright spot for us. I have to say, in the fourth quarter and in 2025, we grew sales 6% with growth driven by both price and volume. And the reality is as we continue to expand our enterprise agreements, they typically include a meaningful multiyear service elements.

The other thing that's happening is we have a growing installed base. And because of the complexity and technology embedded in our products and because of advancements that we're making in how our service offering is delivered, things like AI remote fix, we're seeing improved capture rates on our service business, which is a really important metric for us. And so all of that is good.

And then the other thing that's happening, Ryan, is we're seeing utilization based on procedures of our equipment. And when that happens and departments are constrained and equipment is used heavily the need for services there. So I think there's a whole set of dynamics that are supporting continued robust growth in our service business, and our team is ready to support that. Pete?

Yes. And Ryan, I think you alluded to this just off the new products piece. There is a flywheel effect as you bring new products out. You bring new products out that are very sophisticated AI-based cloud the capture rate on the service contracts typically goes up, mainly because they're such a sophisticated product. And a product like total body PET or something like photon counting where the actual price of the product is higher than a lot of the predicate products. So is your service contract with margins that would be at that same level. So that's some of the tailwind that we think ultimately will come along with it. It's a really important part of a sustainable revenue and profit story as well over the long run.

Our next question coming from the line of Anthony Petrone with Mizuho Group.

And maybe I'll stick with some of the inputs into the top line guide to 3% to 4%. And maybe more beyond just how much price is actually in there just considering you have a fair amount of new product introductions this year versus last year. So how do you think about price in 2026? And Pete and Jay both brought up Intelerad, came up on the last question. $270 million, growing low double digits, 30% margin. Maybe just a little bit, timing of that deal closed and just the drivers of that business, like how many sites outpatient are live on day 1? Is opening new sites or just new users, sort of the growth KPI that we should be looking for?

Thank you, Anthony. Look, on price, I think from an order book standpoint with the new products, some of it will show up in mix and for like-for-like product -- like-for-like product price as well. But I think a lot of that will first be seen in the orders book as those new products come out. Relative to this year in revenue, we don't have any significant step-ups in price. We have price advancement this year.

I think based on as the tariffs are settling out, and we see how the global landscape plays, there could be opportunity for more price later this year. That will be something that we'll be taking a look at. But I think as we entered the year, we don't have any major step-ups in it from a like-for-like product. It is important, and I think you're alluding to this, all of the new products that are coming out, when you think about their category that they're in.

We'll have quite a step-up in many cases in price. I think our Vivid Pioneer, which has been quite successful, we launched earlier this year has not only a better cost position, it also has a nice step-up in price, hence, then the translation into better gross margin. So more to come, and we're going to keep an eye on the marketplace to make sure that we appropriately gather the right pricing for the products that we're bringing out. I guess the next question you had was on Intelerad, Jay, maybe you want to kick us off on Intelerad.

Yes, sure. Maybe I'll share some elements and then Pete, you can add. We're very excited about the Intelerad acquisition. We do expect that to close in the first half of the year as planned. There's some really nice elements. The combined company advances our cloud-enabled AI solutions in both radiology and cardiology. So really -- and then also extends our capabilities across the outpatient network. So we feel really nice about this, and we're on track to close it along the lines of our expectations.

As we think about the financial components of the deal, we haven't incorporated that in our guidance. What we've said is it would be slightly dilutive, but we expect to offset that with cost efficiency. So what will happen when we do ultimately close the transaction is we will see an increase in interest expense an increase in EBITDA attached to the company, there will be a revenue impact, but we'll be able to offset to make it neutral for the remainder of the year. So overall, that's really the status on the deal. Pete, anything else you'd like to highlight from a strategy?

I think just the standpoint of these are the type of deals that we think make a lot of sense for the company. relative to a strategic fit for us, the enablement of artificial intelligence to be deployed at an enterprise level, both inpatient and outpatient. We know the future of diagnosis is much more the integration of multimodalities, and how they're read. And so having a critical platform such as this will be super important for us.

And then I just think from a deal complexion standpoint, accretive to top line, accretive to bottom line, fit strategically. These are the type of tuck-in deals that we're obviously looking at, and we're excited to have the Intelerad team, a part of the family. It's a group of great individuals, and we're excited to get this one here closed in the first half.

Our next question coming from Joanne Wuensch with Citi.

I'm sort of asking us of everybody early in the season, which is, can you sort of give a state of the union on medical technology, and what you're seeing? And specifically, if you could share some comments or thoughts on the hospital CapEx environment and any impacts you may be seeing or expect to see on changes to the Affordable Care Act.

Great. So the capital backdrop in the U.S. is solid. Every quarter, we conduct a study of our top 50 U.S. customers to really get a pulse on investment sentiment. It gives us a reasonable picture of investment plans and priorities, and we found that it's a fairly reliable survey that we conduct. What we found after completing the recent study is the U.S. market continues to be robust, driven by customer investment in an aging installed base. So we're seeing continued momentum on the U.S. CapEx side. Some of that is definitely driven by strong procedure trends that we're seeing. We just finished our latest survey. And many of those customers are anticipating investment increases versus what they previously assessed.

As we go over the pond, the European market has continued to improve. Over the past couple of quarters, we've seen orders recover in many European geographies. So that's another robust market. And then emerging markets, really solid trends there. So I think overall, the global backdrop is pretty good. I've commented already on China. But I think it's a decent setup as we look into 2026. Pete?

Yes, Joanne, to your question, I mean, the ACA, obviously, there's challenges for certain subsets of customers based on what the patient mix is or the scenarios. Well, we haven't heard anything that is concerning relative to the capital environment. I think, Jay, as we survey customers, this is a critical part to it, how that's playing out. So we haven't seen anything that stood out on that. I think you had mentioned about technologies in health care.

Again, I do think this is one of the interesting dynamics about us and some of our other peer companies that play in this. In many cases, we are the enabler of so many breakthrough technology, whether it be device or drug. And so with all of the new EP, with all the new cardio, oncology devices and drugs, in many cases, we're either the early screening or planning tool or we are ultimately the helping executor of the therapy delivery.

In the pharmaceutical space, in particular, we play a bigger role of that, which is why in many cases, you see even as a capital environment might be tighter, our equipment typically rises to the top of the list, the priority because it is an enabler for profit growth within the institution. So all signs at this point look quite healthy, and we feel good about as we enter 2026 for sure.

Our next question coming from the line of David Roman with Goldman Sachs.

Maybe I'll just start with -- just trying to put some of the pieces together and Pete's comments around the order growth in Q4 potentially being impacted by the timing of new product announcements, but then why that wouldn't impact performance in 2026, but another way, do you freeze the market in anticipation of some of these new product launches? And then I have one follow-up on China.

Yes, David, it's less about do you freeze the market. But I mean to the point when you introduced a bunch of new products, particularly in a premium area for us, many of those products, particularly just take Photon Counting, we haven't had a predicate product. So yes, there are some higher-end premium ones of customers that may say, "Hey, I may wait until it's available." But a vast majority of those are new ones, but we don't see the order come into the order book until it's approved.

So I mean that's some of the basic dynamics. And I think Jay talked about trailing 12 months in the stack compare, those are interesting ways to take a look at it because we could have multiple quarters where we're significantly higher, and then we could have multiple quarters where we're below. But what's really important is that backlog growth, and then how the sales come out. And again, I think that's an important part of this. And when you saw the sales performance, particularly in imaging and some of the other businesses in the fourth quarter, a lot of that is actually the work that the teams have done relative to on-time delivery and executing that more effectively.

Okay. Very helpful. And maybe I'll switch gears from China to actually ask on Omnipaque and just the PDx business. We did see an acceleration in that franchise in 2020 -- in the fourth quarter, excuse me, it doesn't look like Flyrcado was probably big enough to be the contributor there. So how should we think about Omnipaque? What are you seeing thus far from a competitive standpoint on the ground? And what's kind of reflected in your guidance here?

Yes. No, I would comment and then Jay, maybe you can jump in. I think Vizamyl some of our other molecules as well continue to do along. I think you're correct based on my comments with Flyrcado, not a significant contributor from that standpoint this where we are. Obviously, now that we have higher CMO capabilities, that it will continue to grow.

But the largest part of that business is the contrast media business. We have large customers that have many, many SKU contracts with us. There has been rumor discussion of new entrants coming in the area. I haven't seen anything developing at this point in time. Supply is rather tight within the industry, just based on the players that exist. And so it's been a pretty consistent play. And usually it's highly correlated to procedures growth. And we've seen a pretty healthy procedures growth coming from, again, many other types of procedures in cardiology and oncology continuing to exist. So solid trends across the board there.

Our last questioner will come from the line of Vijay Kumar with Evercore.

My first question is on guidance here, Jay. What does fiscal '26 assuming for Flyrcado? And I know you mentioned China declines, but China Q4 was, I think, down teens. So maybe some noise around there on what is going on in China?

Yes. So on the China story, we're anticipating -- so what I would say is the fourth quarter came in broadly speaking, in line with our expectations. We knew if you look at the growth -- the comparisons to prior year, we knew the fourth quarter was the most difficult comparison year-over-year. So we did anticipate a bit of a deterioration, which was embedded when we said the second half was going to be worse than the first half.

And so to Pete's comments earlier, we're making some good commercial progress in China, but we're just going to take a cautious approach here. We're budgeting China down. I'm not going to get into specifics as to precise amounts down. We're budgeting China down. That's included in our 3% to 4%. And maybe there's a scenario we do better than that, but we really wanted to take a cautious approach on China.

As it relates to Flyrcado, we shared the dose number in terms of what we performed in a week in January. I previously said that was really a critical metric for us. How are we doing at that point. Now we have confidence, and we've started to open up the throttle in terms of bringing on new customers and advancing those customers to higher states of maturity. So we're really excited about the product. We expect weekly dose numbers to grow.

In the first year of launch, we'll periodically share information on doses, but again, given the number of products we have launching in the near term, we're not going to give guidance on any specific product at this point, but we will share some information to help you model this over time. And I can tell you, based on the progress that we've made over the last couple of months, very pleased with the direction that we're going, very pleased with the progress that our team is making.

That's helpful, Jay. And then maybe one clarification on -- by my math, it looks like backlog grew 10% in fiscal '26 and your capital book-to-bill in Q4 was something north of 1.1. Is my math correct?

Vijay, we share a book-to-bill that includes all the elements that we include with both service and PDx. So we don't comment, but I think you've done some good math. And then on the backlog, yes, backlog was up very substantially in the fourth quarter. Really pleased with the growth there and how that sets us up for the multiyear view.

And that concludes our question-and-answer session. Speakers, please proceed with any closing remarks.

Thank you all for joining us today. We look forward to connecting with you all here in the coming weeks at one of our -- ones of our upcoming conferences. Thanks again.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.

Good morning, everyone. I'm Robbie Marcus, the med tech analyst at JPMorgan. Very happy to have our next session led by CEO of GE HealthCare, Pete Arduini. Pete will do a presentation followed by some Q&A. Pete?

I guess it's still good morning, good afternoon for those on the webcast. Great to be out to a sunny JPMorgan. Just kind of kicking off, we'll use, obviously, some forward-looking statements here. A lot of our financials will be Q3 year-to-date, and we'll give our full year and our Q4 results on February 4 when we announce.

So from just a quick overview, if you don't know us super well, GE HealthCare, this is the beginning of year 4 as a separate public company, focus about creating a world where health care has no limits, bold statement about problem solving and working with customers on some of the big longitudinal challenges that exist.

Our strategy is focused on these 3 pillars, precision care, growth acceleration and business optimization. Think of precision care really is what it sounds, is bringing better, more focused individual care and solutions, whether it be in imaging and diagnostics or how it plays out in therapeutics. But our goal is to really move from a world-class imaging company to more of a healthcare solutions company.

On the growth acceleration, we've been very much focused on what our products are. We'll talk more about that specifically to drive faster growth, our solutions and really the markets that we choose to play in, the mix of that.

And then on business optimization, it's a combination of a multitude of things, but building out the company to be more agile, to be more flexible to move quicker, whether that means on inorganic integration into the company to margin expansion plans, which we'll talk about in a little bit more detail as well.

And a focus then on our foundational principles, which we set when we came out separate out of General Electric, which is a focus on servant leadership, lean mindset, which is all about continuous improvement across the board, from growth to -- from the cost standpoint, and entrepreneurial spirit, making sure that as we bring different thinkers into the org that we can keep them and have them bring creative ideas. A common align on future care and bringing changes within the delivery system and then building the right world-class teams that execute together.

So if you think about 2025, I'll touch on some things. I think from a macro standpoint, geopolitical, although there's been a reasonable amount of volatility, we've kind of kept our heads down and focused on what we've needed to do. I think many of you know, we've been on a lean journey as an organization, which is really all about how you create standard work, consistency in our daily management and the ability to just problem solve faster, that cycle time to work through challenges. And I would say on the precision care front, the biggest part is really the new product introductions that we've come out with.

Our biggest trade show, the Radiological Society of North America, beginning of December, we introduced quite a few products I'll talk about. And it's been a culmination of about 4 years of overinvestment to really get to this point where we've closed product gaps we've had with near competitors and move past that into leadership positions. Many of those will be launching this year, and we'll talk about that.

We continue our investments in artificial intelligence. When you look at top FDA list of AI authorizations, we lead really all of med tech with 115 authorizations. And we'll talk about what that means as well. It's an important component of getting more price, more value, ultimately making a difference for patients.

And then this growth that's taking place in nuclear medicine, particularly in the therapeutic side, our role in the diagnostics side and the integration and synthesis of that data and workflow, we're super excited about. All that translates then, as we said, into more expanded top line growth.

We've talked about at our Investor Day a little over a year plus ago where we said these new investments are worth 1 point to 2 points of total growth to the company, and I'll frame up a little bit of that as well as the progress we're making on what we call enterprise deals, which is working with big institutions on multiyear agreements where they have exclusive work with us. We work on bigger problems together. It might be enhancing their electrophysiology practice. It might be working on workflows in different areas. But as you can see, about $7 billion of life cycle value since the spin that we've acquired.

And then on business optimization, moving us from a teens player in margins to something that starts with a 2 fundamentally has been our focus, good progress there as well. The business, we run in 4 segments: Imaging, Advanced Visualization, Patient Care Solutions and Pharmaceutical Diagnostics. These businesses all have interplays together across different disease states used at different areas and points.

The pharmaceutical diagnostic is enabled really in our imaging business with our PET and SPECT business. But you can see the breakouts here of the size of the business, imaging being the largest at about $9.1 billion. I will comment that these numbers are we did as a trailing 12-month, just to kind of give you a view on that as well. You can see the range of the margins on here. And all of these at this point in time, we're pretty optimistic about their potential here for growth in the coming years.

So the one interesting part about this dialogue is that when you start taking a look at where artificial intelligence plays and also our digital strategy, it really is the glue that links together many of these businesses as well as this focus that we have, which we call D3. So when we talk about precision care, we frame it up around this concept of D3, which is smart drugs and devices, smart meaning very much AI-enabled, very much cloud-based, how they integrate into a care pathway or more specifically, in many cases, a disease state, whether it be structured heart or it might be breast cancer, from end-to-end.

And then the last D is on digitization, particularly the cloud enablement, the movement of data and then the use of artificial intelligence to help clinicians drive a better outcome as well as administration drive better productivity capabilities. And if you think of us, we typically play a big enabler for many players within med tech or even pharma to implement their products. What do I mean by that? If you're going to deploy a TAVR, if you're going to be implementing very expensive high-end oncology drugs or other areas, using imaging to actually plan and implement becomes a critical component of that, which is why our growth in our markets, we feel quite good about the health of those.

The next part is, as I just touched on, is we've been on this lean journey. Really as part of General Electric, I've been on a personal lean journey for many years. But as part of GE and as we've separated it out, we've really focused on this. And what -- this is a chart to kind of lay out what we've branded as our proprietary lean management system, which is heartbeat.

And if you think about this, again, in the spirit of continuous improvement, a business system, in this case, is really all about driving better execution, top line growth. It is about how do you focus even more intensely on the customer while also taking waste out of the system. And so for us, we've built a world-class team. We've got everybody in the boat. But even though everyone is in the boat, the ability to row on stroke at speed is really what a management system does for you. And it's a continual way as we bring new people into the company, you're brought into the organization 30, 45 days, really learning how to work within the system.

And I would say we've already seen some really good results from it from our ability even to shorten the time line to get products out once we're building a big backlog to how we're thinking about interactions with customers relative to something like our pharmaceutical diagnostics process to be able to get them up to speed faster or in other areas within the company as well on innovation, big focus on the innovation pipeline. You can see the components of it here on how we take a look at and manage operating metrics, our innovation process, which we've now kind of inculcated across the company, which is driving, I would say, a reasonably high say-do ratio on what we've committed to.

And then areas where we're looking to transform the company and using it again in a very consistent way across 53,000 colleagues around the world. So the big part, I would say, if you think about us is this idea of the new product innovations. As I mentioned at the RSNA, we introduced a significant amount of new products, but there were 9 big items there that are real needle movers for the organization. And so some of these, I'll call out on the page. Our total body PET system, the omni, which is FDA pending, will be in the process for approval and order taking, we believe, later this year is a great product. I think it's going to be a transformative product in the way PET/CT can be used.

Our approach, the crystal and the integrated AI approach we bring really opens up opportunities down the road into screening and other capabilities, and we're very excited about that. Our new Photon Counting system, which is called Photonova Spectra, really the only approach in the industry using deep silicon, which we have pioneered. We've focused on it now for many years.

We think, obviously, the whole industry moving this direction with other players is important for care. But we do believe our approach is going to bring differentiation that others don't. And some of that is around what's called energy discrimination, ultimately helping change of diagnosis or a therapeutic intervention.

A product I'll also call out called StarGuide GX. You may see in the radiopharmaceutical world, there's different energy systems that are used, beta and alpha. There really isn't a machine out there today that can image those together. This is really the first device that can do this and integrate it into one machine, the ability to quickly set it up and change, to ability to manage through that.

And so as nuclear medicine and the hope of radiopharmaceuticals continues to grow, we're really super excited about StarGuide GX as a one-off. And then on our MR business, we have a multitude of launches. But one of the things that's so important in the MR world is it's not been our highest margin component of our business.

We've talked about platforming. We've talked about the things we needed to do to increase our margins within that. This is the first move within that space. And so it brings capabilities and leadership features to the customers. But importantly, it also brings a platforming capability that sets us up to grow our margins within this extremely important modality.

And I'll point out just 2 others on the device side, the Vivid Pioneer, it's our new breakthrough technology within cardiovascular ultrasound. Product has been out now in the market about 6 months, doing tremendously well. Heavy AI integrated into the product, has premium pricing on it, and customers are just super excited about what they see and what it can do differently.

And the Allia Moveo is our first integrated C&C lined up product for peripheral vascular. And if you think about all of the different applications that are taking place in vascular to be in a leadership role within cardio and peripheral vascular is a big deal for us. And so -- and then I'll touch on Flyrcado separately, but this is why we're super excited. We talked about this 4 years ago, what we needed to do to double down on investments in R&D, hit our dates and come out with products that can really drive growth. This portfolio in front of you, all of this around the world will be positioned for sale in the United States and CE marking here within '26. And so this is a really important year for us, getting these products ramped up and positioned and out to the marketplace.

Radiopharma specifically, super exciting area. There's been a lot going on here. Again, I think kudos to the pharmaceutical and therapeutic businesses that have been really driving transformative outcomes, particularly in cancer and other areas. We play that enabler on the diagnostics side with the devices needed, with the diagnostic tracers needed, with the digital integration and the tools to be able to manage that and also the workflow expertise to how to set up a department.

And so you can see some of these keys here, new reimbursement in the U.S. that now pays for the ASP value of the drug where it was kind of packaged in as a supply before, the momentum that's being reached because of therapeutics and diagnostics. And so we're quite bullish on this potential.

One of our major molecules that we've recently launched is called Flyrcado. I'm sure some of you've heard of it for myocardial perfusion imaging. It's really one of the biggest breakthroughs for myocardial perfusion imaging in this space in many, many years and has the potential -- long-term potential will be a $1 billion molecule.

So a lot of work going on in this area, and we're quite excited for what this can do for patient care really around the world.

Next is inorganic growth. We have been a company that's been set up well to invest organically, but also fill in gaps and add tuck-ins into our portfolio. And we announced this deal here in the fourth quarter with Intelerad. And Intelerad is a very exciting fit for us. It is actually a picture arc -- PAC system, archiving-based system. But really, what it is, is ultimately, it creates a cloud-first AI enablement for imaging in an ecosystem.

If you look out in the marketplace today, there's inpatient solutions, there's outpatient. But when you think about an integrated enterprise approach, there really isn't a full solution today and a platform then that can orchestrate and execute artificial intelligence applications that are not made by GE. They could be made by us. They could be developed in-house. They could be actually third-party applications and that the workflow is then enhanced.

And that's a super exciting part for us that we think this is going to be a great fit and an important part of our precision care journey. And then we've been super disciplined on the M&A. This is a great tuck-in fit. We have a right to win in the space, accretive to the top line, accretive to the bottom line. EPS will be able to offset with other efficiencies in the near term, and then it's quite accretive over the long run. But it does bring recurring revenues, and it does bring this capability strategically to continue to grow in our AI journey. So very excited about this. This will be a deal that we believe will get closed here within the first half.

And then on the optimization side, lots of things going on, and we've been focused on this as we've separated out from GE, but I mentioned platforming. And again, platforming is how do you leverage common componentry, how do you get scale and scope that allows speed to bring new products to market, but also leverages cost advantages that will show up in better value for customers, but also margin that will translate into value for investors.

And so our MR business is one that we talk a lot about, but every business that we have is going down a platforming journey. Jay, our CFO, we've got a mantra. You're going to get money for new product investments. Your gross margin has to be higher than the predicate product or you're not going to get funded. Outside of a safety and quality issue, you're not going to get the money. And so it's a super important headset to think about the differences of it. And just simple examples, in past, in certain modalities like CT, where we might have had 15 -- 16 different types of products and configurations, we might have had 10 different table platforms. Now we have 3, short one, long one, bariatric, all coming from the same areas. You quadruple the amount of volume into that given supplier, the ability to get lower cost and value that we can pass on to both investors and profit or we can pass on to customers and values there. That's the concept that we're executing across the board.

Variable cost productivity as well in the world of tariffs and challenges that are out there every year finding a way to get better cost into your products as much as about a headset as process. This is a critical part of how we run the company. And then we've been looking across the whole board around organizational simplification and structural optimization, playing into multiple aspects of that, either on how we run the company for speed and agility and also how we think about footprint, how we think about using AI inside.

We have quite a bit of work going on about how we can optimize the organization with artificial intelligence inside as well. So stay tuned on that. And all of this fits into this new heartbeat management system on how we run it, how we think about daily execution, weekly management and monthly problem solving and how we manage the metrics and data around that.

So from a capital allocation standpoint, probably one of the most important things that we do, very much focused on making sure that we optimize our allocation. First, organic investments have been the biggest focus. I think Exhibit A would be the new products that we have coming out. It's super critical for investments. We've increased them quite a bit since the beginning of the spin and we'll continue to increase at a steady rate in the line with sales or slightly higher.

Strategic M&A is another area. And particularly in this case, it's really about tuck-ins to fill in the gaps in our portfolio. I think the Intelerad is a great example of that. We have a very disciplined team and a disciplined structure about what we need to hit when we achieve that, including ROICs at least high single digit or high single-digit plus by year 5, but how we look at the strategic mix and how it fits into the businesses. We've done about 8 acquisitions here since we've spun.

Turning cash to shareholders, obviously important. We have a quarterly dividend. We've also been opportunistic about buybacks and then maintaining a strong balance sheet. Jay and the team, we've paid down about $1.5 billion of debt since spin. We're in a good position now with the balance sheet and feel very good about our positioning here as we look into the next 2, 3 years.

So midterm financial framework. This is the same framework that we've shared. Honestly, before challenges that we've seen in different markets around the world or even some of the challenges of tariffs. And we feel very good about this midterm look between '26 and '28 of mid-single-digit revenue growth, high teens to 20% plus adjusted EBIT, high single digits to low double digit on EPS and 90% plus free cash flow. A lot of that, again, ties back to what I've just spoken about, the innovation pipeline bringing 1 to 2 points of growth, better execution with our management system has actually been bringing growth with the current platforms that we have.

And then the EBIT levers that we have in place, whether it be the structural components, the gross margin components, we feel quite good about what that can do to increase our profitability. And I'll make a plug out to our operating team and to Jay and groups just relative to managing tariffs. When they hit, we were probably one of the hardest hit companies within the industry just because of our global footprint, and we jumped in very aggressively. It was about a gross $1 billion, got it down to about $0.5 billion. By the end of the year, it was running in the $250 million, $260 million.

But really, we're on this mode to say we are going to do everything we can with our suppliers, with our operation base, with any types of smart locations and planning to be able to say, as we go into 2026, our tax burden will be lower, tariff burden will be lower than in '25, even though we'll have a full year versus 9 months, and we're on track to that. And I think many others within our industry may not be in that same situation. We feel quite fortunate that we could move very aggressively. And honestly, that sets us up quite well as we start '26 and '27 and beyond.

And so just to kind of wrap up, and we'll jump into Q&A. Look, we're on a path to accelerate shareholder value. That's been the goal. That's why we separate this company out. We have a really terrific focused Board from that Board down to the management team, everyone aligned, is aligned on those aspects. How do we optimize for our customers and patients and how do we deliver high value for shareholders.

The differentiated portfolio is obviously a key part of it. How we run the company and execute and do that consistently is obviously a very important part of it. The other aspect is our capital allocation strategy, which, again, we remain very disciplined in how we do it.

So with that, I'll stop there and invite Jay, I think and Robbie up, and we'll do Q&A.

And everybody, Jay Saccaro, CFO, joining for questions. Pete, maybe we could start with that last slide you had up, accelerating shareholder value creation. And you were spun out of GE a couple of years ago. There was a lot of wood chopping initially right out of the gate. Fast forward to where we are today, you've had a huge acceleration in new product introductions. You've had a very impressive operating margin expansion improvement. Where do you think you are in sort of -- if we take it in 2 different sections. One, the initial wood chopping coming out of GE and then part 2, to your slide up there, creating shareholder value.

Yes. It's a good question, Robbie. I mean, look, I think we're still early in the journey. I think we've made very good progress in getting the core business set up, simplifying how we run the business. Obviously, we're on this next journey of even shifting into a higher gear about how we run the company with our lean management system.

And I think I've got -- with getting the right people in the right roles that understand how to run this type of a complex business, I think we've got the right capabilities in place. A big part of this has been, as we talked about, and you talked about the wood shopping, some of that was to create oxygen to fund innovation.

So right, there's no secret answer here relative to that. We squeezed a lot of costs. We looked at IT systems. We looked at many of those things so that we could move our R&D up a couple of points as a percentage of sales to be able to be at this point to introduce those products. And so I think we're in good spots for that.

But the next level, this is to continue to fund at this level is to continue to have the follow-on set of products after we get these out as well as really think about the company from an inside out differently. I think Jay has been leading this, but the AI inside opportunity to how we grow faster, how we run the company more effectively, we think there's big opportunities as well. And that will be an important part of the margin story as we go forward.

Maybe to follow on to that, you talked about capital allocation, and capital allocation, we've seen a number of deals just even last quarter. How are you thinking about internal versus external innovation? And do you feel comfortable with the portfolio and pipeline you have internally? And what's the need to continue to invest externally?

Yes. Well, I think we have the luxury of both. The interesting part about us as a company is when you think about an MR or CT or even a [ vascular], we touch many different disease states. And if you think of yourself as just that device, then you probably don't have a lot of opportunities outside. If you think about yourself as a facilitator amongst that disease state, it opens the lens up to a lot of different plays that can get into it.

And so as I mentioned, we're interested in tools right or left, further into diagnostics, further into therapies that we can play a significant role in or we have a right to play in. And so that's how we think about it. We obviously are biased towards how data flows amongst that and our ability to help enable that. That is an important part.

But I would say, look, with all the innovation we have coming out, humbly stated, this gets us in a great position to win and grow, but it's not the destination. We need to continue to invest our own internal side. I think if you were to quiz some of my team here and you said, "GE, could you use a couple of extra million dollars and what products you come out, you have some great ideas. " We have some great ideas. And so we're going to continue to fund those. But there's always interesting inorganic opportunities that you can plug what we're doing plus another device together, 1 plus 1 is something north of 2. And that's -- Intelerad, honestly, is a great example of that.

I think everybody in health care would love to have AI attached to their story, just given how much hype and market cap that's created outside of health care. A lot of people talk about it. You actually enact it, you monetize it. It's been with GE HealthCare for many years now. How important is AI to GE HealthCare and competitive differentiation? And how well are you monetizing it today?

I don't think we're monetizing as effective today as we could. I think what has been super important for us is it's really helping build the foundation for future monetization. What do I mean by that? There isn't really a product that we make right now that doesn't come out, that doesn't have some type of AI incorporated into it, whether it be machine learning, first elements of large language model capabilities.

And we capture that in if this product does something productivity-wise, more effectively than others, we capture it more price and ultimately more margin that comes through because the value is seen by the customer.

The next step is how do these things work together, multimodal to actually help drive a diagnosis or to fundamentally change the workflow around a given disease state. And in that level, and we're beginning to launch some of those products actually this year. We have one on our platform, which we call CareIntellect, which is a family of deployment capabilities for artificial intelligence that you bring multiproducts and multi-capabilities together.

At that point, that becomes more of a SaaS model, becomes more of a separate revenue-generating capability. And I think we're now entering into that phase with the company. I'll come back to Intelerad. Again, one of the interesting parts, if you think about a reading system, obviously, you don't deploy reading tools specifically for a given modality. You may incorporate AI to facilitate that machine. But where it all comes together and how you're going to deploy many of these productivity tools is in a common reading and viewing system.

And that was one of the other reasons that we viewed AI deployment in what traditionally was thought as a PAC system becomes super important for orchestration of many different applications that are going to be out there.

Jay, on the last earnings call, you talked about how you're excited for 2026 and commented that growth can accelerate. Any thoughts or comments on how 2025 ended up? And what are some of the reasons to be excited about accelerating growth when you sit there today for 2026?

Sure. No comments on how 2025 ended. We'll save those for February. But what we said on the call is, listen, we expect 2025 to grow 3%, and we expect to see acceleration into 2026. Now here's the interesting thing. That statement was based on all of the solid commercial performance that we've put in place over the last quarters and months and years. And what that resulted in is incredibly robust backlog and a lot of that backlog is targeted for 2026 delivery.

Furthermore, incredibly robust order growth over the last 4 quarters, very strong book-to-bill ratio. So all of the dynamics around commercial execution, the partnerships that we're putting in place situated us very well and allowed me to make the statement, we expect 2026 to grow faster than the 3%.

Now the interesting thing is, I think one of the things that we collectively are most proud of is the progress that we've made on innovation at our company. Pete walked you through that in detail during this presentation. But the most interesting aspect of that is that's really not going to benefit sales in 2026 that much. It starts to accrue much more to the benefit of 2027 as you see whole body PET, as you see Photon Counting, the MR suite of products, those will start to accelerate performance in 2027. And so what happens in '26 is all the good work we've done yields and allows us to accelerate.

And then as we aspire to this higher end of mid-single or we start to get healthily into that mid-single-digit range in 2027, '28 according to our expectations, all of that becomes supported by that great innovation investment we've made.

So one of the areas that has held back performance in the past few years has been China. You've done really well in the U.S. and rest of world ex China, outside the U.S. Any change to your view on China as it relates to market growth in GE HealthCare's performance there?

Robbie, I mean, we've talked about this pretty openly. I mean the last 2 years have been tough for pretty much all players within China, right? Different either government policies or whatever the scenarios, the market had slowed down across many sectors.

At the same time, when we look out into the future, it is a market that is going to continue to improve and perform better. I think for someone that's been involved in China businesses for many, many years, we're all used to 10%, 15% type growth. I don't -- we don't think those days are necessarily what the future will hold. But in the mid-single-digit range as a market and with a market as big as it is, with 1.4 billion individuals, you could argue, is there 1 billion or 800 million, how many people need increased care. There's going to be room for local players, multinational players to continue to support that kind of growth. It's just a significant market that's out there.

And the last thing I would say is we aren't counting on heroic turnaround within that marketplace when we even talk about the numbers Jay presented. We're being very pragmatic that the turnaround and the time could take some time to ultimately get there. If it happens faster, that's a benefit from us. But as we're calculating our plans, we're being rather conservative about how we think the marketplace will recover.

You talked about a number of new products launching at RSNA in November. You launched your Photon Counting CT. This gives you an entry into a market that's been primarily dominated by one of your competitors. Maybe speak to the competitive profile of your offering. You talked about maybe more '27 impact. I imagine it's probably a decade-long impact here. But how should we think about GE HealthCare versus the competition and the impact to the P&L?

Yes. No, look, I think like most of these evolving technologies, this is the first change in how CT's image has been fundamentally made since Hounsfield EMI started the system in the U.K. So this is a pretty transformative change.

Obviously, one of our competitors has been out in the market for about 4 years with a particular design. And there's been a lot of great work from it, from the standpoint of how these systems can be used and such. We've taken a different route by using, again, as opposed to a detector that's made out of a CZT or derivatives thereof, we've taken this deeper silicon approach. And part of that has been the research that we have been doing really over the past 15 to 20 years prior to the processing speeds being strong enough to do it.

And the reason we went this route is a CT scanner in many cases, is the Swiss Army knife in the hospital. It can pretty much do anything you needed to do to diagnose. And so as you start bringing on something like Photon Counting, the more specialized it is, the more limited it will be for a particular application. And so our approach is many of the systems that are being discussed today on the other platforms you want extra high resolution, you have to be in a high-resolution mode. If you want wide coverage, you have to be in a certain mode.

There's other aspects, which are about energy discrimination. And that's the part that is really exciting to us that we believe we're going to have a differentiation on. And what that means is in a given set of tissue, you actually get added information that can help you determine what's going on there, which can determine a different therapeutic outcome. Just take a coronary artery that may have soft plaque. It's at 60%, 70%. Question is with FFR or some other, do you actually stent it? Or can you actually determine is what's inside of that has the potential to break away. That's the power of having that added information.

And in our approach, you don't have to determine the mode upfront that you want to go into. It's a standard mode across the board. And so again, I think there's going to be rising tide will lift all ships. I think there's plenty of room for everyone to grow. We've got very strong competitors and folks that are going to help build the category. And to your point, Robbie, I think this is a 10-year journey of turning over full installed bases into these technologies over time.

Maybe staying on growth drivers, radiopharmaceutical diagnostics, you're a leader there, Flyrcado, I think, is top of mind for everyone. You launched this in 2025 and have, I think, $500 million target out there over the end of the long-range plan. How do you feel about the first year of launch and your progress towards that end goal?

Yes. We're very excited about Flyrcado. As we said on the third quarter call, one of the things that we're seeing is nearly universally positive feedback from our customers regarding diagnostic image quality. I mean it's a really -- it's a step change in terms of improvements there. So we're seeing actually broad-based interest, be it from hospitals, freestanding imaging centers, cardiology clinics, people who use SPECT, people who use PET, huge interest in this product area. And we paid that off with a couple of really substantial partnerships that we put in place with CDL, which is about 1/3 of the PET NPI. And then later in the year, we added a partnership with CVA, incredibly excited that after their pilot with our technology, they chose to roll this out across their network and give clinics the opportunity to embrace this. So we're very excited about that.

For us, as we ramp, we have to ensure that we have the right workflow at the customers in place. So we're hard at work supporting that. And in addition, we need to have incredibly high support rates from our radiopharmacy network. We put the network in place last year, and then it became about helping them optimize production, so that you can have 95% plus. What we've said is we feel very good about a $500 million -- excess of $500 million in 2028. And then longer term, in fact, if you converted simply 25% of PET NPI, it's a $1 billion opportunity, and we're excited to get after that.

And I would just add, too, Robbie, I think just to kind of geek out a little bit, proprietary molecule out beyond 2030 for us. First major breakthrough in myocardial perfusion imaging. Again, myocardial perfusion imaging is where is the blood and the actual tissue going versus in a cath or a CT, how are the 3 pipes that are feeding that tissue. And so both of those areas become super important.

And of the total amount of the procedures done today, less than 20% are done with PET. If we get 25% of just the PET volume, it's $1 billion a year. So it's a super interesting and exciting opportunity, and it's a field that has a lot of tailwinds, not just because of cardiology, because what's happening in oncology, what's happening in neuro. So it's a major topic for customers. And this tends to be a big topic in our enterprise discussions, value we can bring to customers and how to set up their operations.

I think it's also a big area of focus for investors just given how big the opportunity is and the margins that come with it. Is the goal to provide guidance for Flyrcado in 2026, like 2025?

Stay tuned. We'll talk about that on our earnings call.

All right. Well, I hope everybody dials in for that. We're just about out of time. Pete and Jay, thanks so much for a great discussion. Thanks, everybody, for joining today.

Thanks, Robbie.

Thanks, Robbie.

Thanks for joining us here at the Jefferies Global Healthcare Conference, the JPMorgan of the East. So I'm Matt Taylor, the U.S. Medical supplies and devices analyst here at Jefferies, and I'm joined by the management team from GE Healthcare. Today, we have Jay Saccaro, the CFO; and Carolynne Borders, who runs Investor Relations for the company. And we'll have about 25 minutes for a fireside chat.

So I'll kick things off here, Jay. Maybe I know a lot of these meetings, there are some newer investors in the room, and so it makes sense to start a little bit high level.

Can you talk about the evolution of GE as you've spun out? And maybe give us a sense for your portfolio across imaging and the other divisions and how they fit together and give you the right to win in your markets?

Great. Matt, first of all, thank you for the invitation to the conference. It's great to see you on this side of the Atlantic, and thanks to those for joining us to those new to the story, I appreciate your interest in our company, and we do see some familiar faces here as well. To your point, we spun off a couple of years ago, and we spun out with the mission to create a world where health care has no limits. And I have to say we've been incredibly excited about the progress that we've made over the last several years, really a durable financial profile with margin expansion, with durable sales growth. And then with the promise of an investment in innovation, which we've been hard at work at setting us up to unlock future growth. And so I would say, over the last several years, we've made tremendous progress advancing our portfolio across all 4 of our business segments, and we're now in a really interesting spot as we look to the future.

So what do I mean? We start with -- we start as one of the leaders in imaging in the world. We're one of the largest imaging companies in the world, CT, MR. We have tremendous offerings in our existing product portfolio, but also a lot of exciting innovation, which we will talk more about. In our AVS business, which is our ultrasound along with our surgical business, we have a tremendous product offering, and we've started refreshing this already. If you look at our third quarter sales growth, you would have seen our AVS business grow 6% in the quarter. one of the faster growth rates that we've seen in a number of quarters. And what that really comes down to is a lot of the innovation investments that we've made over the last several years, refreshing our ultrasound platform, launching a next-generation cath lab.

So a lot of great progress underpins that growth rate. In our PDx business, so excited to bring to market our Flyrcado product. We just recently announced another partnership as of yesterday in the U.S. and this represents a game change in myocardial perfusion imaging, which we're excited about to pay dividends for patients for years to come. And then finally, our PCS business. Listen, this business had some challenges in the third quarter. We saw a decline in sales really related to a product hold that we had, which we resolved. So we'll see that business resume a little bit more of a normal profile in the fourth quarter. But on the back of a number of important innovations in anesthesia and monitoring, we'll start to see an acceleration into the future. So it's a really durable broad-based portfolio of products that we sell, underpinned by favorable long-term dynamics and innovation that's going to lead us into the future.

Maybe we could start just by talking further about the CapEx environment. We get a lot of questions about this. And earlier in the year, there were some tariff concerns. There's sort of always some concerns that hospitals may be constrained. Can you talk about how that's impacting your demand, the customer appetite for your solutions? Do you see a healthy CapEx environment going forward? And because you're a global company, maybe highlight some differences between the U.S., EMEA and China.

Sure. Overall, the market has been robust and look no further than our order growth. While I think we performed well, it was in the context of a constructive market backdrop for imaging and other aspects of our equipment. We delivered 6% orders growth. Our backlog sits at a near record level. And our book-to-bill was 1.06x in the quarter, which these are all really healthy indicators about where the market currently sits. But here's the other interesting thing. Every quarter, we do a series of surveys of our primary customers. And we talked to them throughout the quarter, but formally, we look at this at the end of the quarter. And the market is robust. We've seen a real interest in radiology equipment. It's incredibly -- it's a real area of focus for hospitals today. We expect that to continue.

Radiology departments in many hospitals are constrained today. They're also a very durable source of profits for hospitals. So having the latest equipment, having that equipment work well is crucially important. And so we're seeing interest in that in all markets. The U.S., it's been a very constructive environment. Interestingly, we're seeing tender activity in Europe pick up. We also had reported very strong growth in the quarter in EMEA, which was a nice turning point for us. We've seen some really good momentum in the EMEA markets. And again, the backdrop is constructive. And then in China, we are seeing tender activity pick up. I've said that. We said that on the call and the recovery is ongoing. That's been the most challenging market. And then developing markets outside of China, again, a lot of interest in expanding access to care, a lot of interest in adding capacity in radiology and areas like that. So we're seeing a very good environment there. Overall, the capital environment is a constructive one right now.

Great. And you mentioned the near record backlog, the trailing 12 order growth of about 6%. And I think that should give us some confidence you're moving towards your mid-single-digit goal. You've already committed to some acceleration next year off of the 3%. So maybe just talk about how the backlog could convert over the next 4 to 6 quarters from the trailing orders that you've seen?

No, that's exactly right. For us, we have said over the midterm, we expect to be a mid-single-digit growth company. So that means over the next several years, you're compounding 4% to 6% growth. Now last year was a disappointment. We had a China market challenge. So we grew 1% last year. This year, we'll grow 3%. But we are seeing very robust orders performance. And by the way, it's important not to overreact to a single quarter. Third quarter was -- second quarter was 3%; third quarter was 6%. We look at things over a trailing 4-quarter basis. I think that's a good way to kind of study the market. And what we see over that period of time is we're sitting at 6% trailing orders growth. which is exactly -- it's a great number for us to be at to support future revenue growth.

And so normally, we don't comment on a third quarter call about future performance. But as we sit here today with the robust backlog that we have in place -- and by the way, with the robust backlog with dates to convert, a lot of the dates to convert are in the next 12 months, we feel very good about an acceleration versus this year's growth of 3%, which it's all supported by that. Then as we move forward, here's the interesting thing. At RSNA, we're going to talk about our product portfolio in detail. And everybody in the room is invited to join us in Chicago, Illinois in a few weeks. And what you will see at RSNA is a whole new set of products across our portfolio. We'll talk about a photon counting. We'll talk about whole body PET. We'll talk about a number of AVS launches, a next-generation MR device.

We've been hard at work investing in R&D and also delivering on our time lines so that we can have the successful show, but more than that, start selling those products and see the impact next year. Now the reality is most of the impact from an order standpoint will be in the second half of the year, and the sales impact from this will start to accrue to 2027 versus '26. So we'll start to see an acceleration even beyond next year from these new products. But as we sit here looking at 2026, we were able to say we expect an acceleration on the back of the strong backlog and the performance that we've seen to date.

Great. And a big part of the story, I think, for investors on the margin side of things. And I guess I wanted you to talk a little bit about that. Q3 margins were down, but ex tariffs, they were up. And you continue to make progress on all the Kaizen initiatives that you like to talk about. There's a lot of productivity opportunity and innovation and pricing opportunities. So maybe you can unpack that and give us some flavor for how margins could ride alongside some of that growth improvement you're hoping for.

Sure. Going hand-in-hand with revenue acceleration is margin. I think from a company standpoint, we're focused really on 3 things: revenue growth, margin expansion and free cash flow conversion. All 3 of those are crucial metrics to us, and we intend to deliver on all aspects of that. From a sales standpoint, we've talked about getting to this mid-single digit over time. From a margin standpoint, we've talked about 17% to 20% plus in the midterm, which means we have a fair amount of work to do to get there. 2025 would have been a good year were it not for tariffs. Excluding tariffs, we'll see about 30 basis points of margin expansion this year. But obviously, this year, we were so focused on addressing tariffs and setting us up for tariff improvement next year.

What do I mean by that? Well, in 2025, we experienced about $260 million, $265 million of tariff impact to our financials. Now the gross impact was roughly twice that. But through things like USMCA certification, through things like working with our suppliers to think about alternate sources of supply, using free trade zones and thinking carefully about where we supply different markets from what factory and facility, through all of those mechanisms, we were able to cut the impact in half from gross to net. As we move to next year, what you would normally expect to see is an increase in tariffs because this year, there's only really when you consider FIFO, approximately 2.5 quarters of impact in our numbers, something along those lines.

So most folks would point to an increase next year. We expect tariff down next year because we will have more of the mechanisms that we've put in place. We will benefit from more of them. We'll think further about what we can do to improve our supply chain in the face of tariffs. So for all of these reasons, we'll see an enhancement next year and a reduction in tariff expense year-over-year. So not only -- so tariffs will be a source of earnings tailwind as it declines year-over-year. Now taking a step back, this idea of continued margin improvement even at an increasing rate relative to 30 basis points, that's really important to us. And so we look at every single lever.

First of all, the new products that we're launching typically come at a higher price and lower cost than the predicate. And so the result of that is you have a natural margin uplift from new product launches. But even given the existing portfolio, we are intensely -- you talked about Kaizen. We are intensely focused on improving the productivity of our manufacturing facilities and our supply chain network to drive gross margin improvements through those initiatives, through pricing initiatives and then also generally through thinking carefully about SG&A spending. And I didn't say R&D because we'll continue to invest in R&D, hopefully at accelerated rates. But from an SG&A standpoint, we are very deliberate around SG&A spending, how we control this, use of AI to become more efficient. All of those things will come to bear on the SG&A line. So as we go forward, very compelled by the margin opportunity. And also as tariffs abate, that will be another accelerant.

And Matt, if I could just add, prior to the April tariffs that came into play, we did have a track record of delivering more than 100 basis points of margin expansion in each of the 2 years after we spun.

Maybe one just follow-up on the margins because you have so many new products coming out, and we didn't even talk about Flyrcado or the PDx growth path yet, which are also accretive. Could you talk about how mix could affect the margins in the next 2 years?

Yes. So that's exactly right. Mix to new products is absolutely helpful to the overall margin story. When we swap a version of the product that we sell today for a new product, typically, in some cases, not always, but typically, you have a higher price because it's a new product with new features and oftentimes, you have a lower cost, too. And so that mix shift will be an important aspect of what we do. The other thing, when we're launching new products, we've been very focused on simplification of platforms. It used to be that we would have many different CT platforms, many different MR platforms. And the result of that is higher cost simply. As we launch these new products, we're consolidating the number of platforms, leading to an enhanced cost position in that regard. So another driver related to mix and kind of R&D impact on margin.

And maybe we'll shift then to PDx, which has been a hot topic. I'd love to talk a little bit more about Flyrcado. You've talked a lot about this $500 million goal in 2028. And it was nice to see another announcement yesterday with a new partnership with a large cardiology group. So maybe talk about how you're setting up the infrastructure and these partnerships to be able to achieve and hopefully overachieve that goal.

We're very excited about the Flyrcado opportunity. And you see it in the partnerships that we've set up. I think now we're talking about 300,000 images with the partners that we've talked about specifically, which is a really exciting place to be. The one that we announced yesterday with Cardiovascular Associates followed a pilot study that they did. We worked very closely with them to assess the product -- to support them in their assessment of the product. They then sort of work through their internal mechanisms before they decided to roll out. So we were so thrilled with their assessment of not only the product, but our ability to help them as a customer deliver this to their patients and then roll it out. We sit here with a very compelling long-term opportunity.

We've talked about if you converted 25% of the PET NPIs today, it's like -- it's a $1 billion opportunity. That's not even talking about SPECT conversion. That's PET only. And so for us, we're not limiting ourselves in any regard on this. But what's been very important in the rollout is being very measured in how we work with customers because it's one thing to say, we really like the image quality. But that's not the only thing that we do when we support a customer. If it was just about images, that would be very straightforward. It's how do we supply the customers consistently with the radiopharmaceutical -- radiopharmacy network that we set up. How do we support our customers in terms of optimizing workflow so that they can be efficient with this new model.

And finally, how can we support them in their reimbursement. It's one thing to say, oh, we have reimbursement in place. It's quite another thing to actually have patients at this clinic get reimbursed for Flyrcado. And so we've worked very hard with our customers on all of those aspects and more. And I think that the recent partnerships that we've announced, which are reflective of successful pilot studies really are an indication of all that hard work that we've put in place that now sets us up to capitalize on this very attractive long-term growth opportunity.

Maybe just to try to put a finer point on it. I guess, does slightly missing or missing the $30 million goal at all change your view about whether you can do $500 million? And is the message really that now that you've signed these partnerships and have a better view of the funnel that you're even more confident in that?

Yes. I think what we said on the call is we're more confident today than we certainly were like 6, 9 months ago about the long-term opportunity. Look no further than the 2 partnerships that we put in place, look no further than the momentum. If you talk to -- and I think you did some very nice work on this and others do as well in terms of surveying doctors, they're very excited about this product offering and what we bring to bear and the quality of the images -- so from a -- I think the most important thing is, is the demand there? It absolutely is. Okay, once you have that, let's make sure we optimize supply and delivery to capitalize on this. And I would say that we're more excited about the demand side perhaps than we previously were.

Great. And maybe just to address this issue because it's come up in the last week or so, some discussion about a new generic entrant into the contrast space. And I would love for you to just talk about the outlook for contrast generally, how do you expect that underlying business to grow? And then maybe address the impact of the new entrant. I know you said it was not material, but be helpful, I think, for investors to understand how you've been able to defend in this market over time with all your other franchises.

Sure. So this area is -- has been an important and durable business for us for many years. And contrast agents are crucially important to our hospital systems, to our health care systems and folks have valued a lot of what we bring to bear, most notably consistency of supply. Because at the end of the day, sometimes these markets are very tightly constrained. Sometimes they're in shortage mode. And all of that creates a real premium on consistency of supply. We've seen that over the last several years. Over the last years, this has been a great and durable growth business for us, and we expect that to continue.

Now what I would tell you is these are generic markets today in the sense that I think there are 3 or 4 competitors for our OmniPay product on the market today. We sell against them on a day in, day out basis. And they all enjoy some level of success. But what we're able to do is we have a broad portfolio of products, and this is included in that. We're able to -- we have a track record with consistency of supply, which is extremely important. We've been doing this for a long time. So we've climbed the experience curve in terms of getting product manufactured and to market. So for all of those reasons, despite the fact that we had 3 competitors and now we have 4 competitors, we've been able to succeed in this market, which we will expect to continue to do. We did have a competitor launch a generic version of Omnipaque that came out on Friday.

And what I will say is they launched with 2 SKUs, which are a very, very small portion of our total PDx sales and a very trivial amount of the total company sales. So we don't expect a big impact from that. Now will they add incremental SKUs? Perhaps I expect that they would if you talk to them. But despite that, our view is we'll have our agreements in place. We'll emphasize what we do well. This is not -- these are not simple products to provide to the market. We will continue to do that with excellence and stand behind our product and our commitments there. So we don't expect this to be a large impact to our 2026 expectations or anything beyond that.

Maybe pivoting, we have a few minutes left. I did want to ask you a little bit about AI and software. And I think this is one of the first real and important use cases for AI in med tech really to see you've now got 100, I think, or so FDA-approved AI modules. Could you talk a little bit about the ones that are getting traction? Maybe give a few examples of how AI is really adding value to your portfolio. And investors ask a lot about sort of the size of that business or how do you monetize that? How does that really add to the recurring and high-margin opportunities that you have in the future?

Great. So we're incredibly excited about the impact of AI on our business. I think some aspects of AI will be table stakes for winning in imaging and ultrasound in the future. I think other aspects represent a real opportunity for us to differentiate our product offering. Look no further than AIR Recon DL. AIR Recon DL is essentially AI used to improve the signal-to-noise ratio of your standard MRI. And what it does is it improves image quality and it also reduces imaging time. And as you think about the constraints on hospitals today, suite utilization is one of them. To the extent that you can get people through an MRI faster, it's a really big and positive development for the hospital.

So it's no wonder that we are selling a large number of AIR Recon DL software add-ons to our existing installed base and also even our new magnets. And what we're also seeing is this AI, people are choosing our product because of offerings like this. And so that's a great example of, I think around 30% of our installed base has AIR Recon DL attached to it today. So a great example of AI in the real world, driving better outcomes and also creating incremental economic value for us. Now I would say that across our product portfolio, we have very real and tangible examples beyond this. So for example, in our ultrasound business, we did a deal with a company called Caption Health. We acquired them a few years ago. And what Caption Health does is it uses artificial intelligence to help guide sonographers to more effectively, efficiently get ultrasounds performed.

And interestingly, it actually does it in a way that allows them to an untrained sonographer to take an ultrasound. So incredibly exciting offering. We've incorporated this into our latest generation of a number of our products, and it's incredibly well received. As we think about all of the data in our PCS business, another rich area to use artificial intelligence to assess signal to identify opportunity for intervention or taking care of patients in different ways. I think artificial intelligence is crucially important for imaging companies. We've invested. Part of the reason why we've grown our R&D spending so much is investments in artificial intelligence. And I'm proud that we did have 100 FDA approvals of AI-enabled devices. We're going to continue to have more.

Great. I think we could talk for a long time, but we have to end there. But thank you so much for your time, and thanks, everybody, for your interest in GE.

Good day, everyone, and welcome to GE Healthcare Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

Now it's my pleasure to turn the call over to the Investor Relations Officer, Carolynne Borders.

Please proceed.

Thanks, operator. Good morning, and welcome to GE Healthcare's Third Quarter 2025 Earnings Call. I'm joined by our President and CEO, Peter Arduini; and Vice President and CFO, Jay Saccarod. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides available on our website. During this call, we'll make forward-looking statements about our performance. These statements are based on how we see things today. As described in our SEC filings, actual results may differ materially due to risks and uncertainties.

With that, I'll hand the call over to Peter.

Thanks, Carolynne.

Good morning, and thank you for joining us today. We delivered another quarter of solid results, and we're focused on executing our Precision Care strategy. In the third quarter, organic revenue grew 4%. We delivered robust orders growth of 6% with growth across all segments. This reflects solid customer demand for our innovative solutions, a healthy capital equipment environment and our strong commercial execution. We're now entering a new wave of innovation as a result of our increased R&D investments over the past few years. When you couple this with our focus on lean, we expect to accelerate future top and bottom line growth.

Solid backlog demonstrates that our customers are investing in our new products and solutions. For instance, we're seeing robust growth in contrast media and nuclear medicine, where we're uniquely positioned to deliver end-to-end solutions for our customers. Our synergistic portfolio of diagnostic imaging equipment radiopharmaceuticals, AI cloud and software help drive efficiencies for our customers and creates a competitive advantage for the company.

Looking at commercial execution. We continue to see momentum across our business as we secured multiple large system deals in the quarter, totaling nearly $0.5 billion in future revenue. Earlier this month, we announced a 14-year Care Alliance with UC San Diego Health focused on early detection and advancing cancer care with imaging solutions and novel therapies such as theranostics. Collaborations like these exemplify our ability to leverage our broad portfolio and service capabilities to deepen relationships with customers, creating predictable revenue streams.

To support this, we've strategically invested in capabilities that accelerate growth and expand margins while enhancing operational efficiency across the health care ecosystem. In addition to organic investment, our disciplined capital allocation approach has strengthened our portfolio. For example, our planned acquisition of ICO metric includes digital tools to help clinicians detect and quantify potential high-risk side effects in patients undergoing Alzheimer's therapies.

Global approvals of these therapies are increasing and demand for more frequent MRI exams -- our PET amyloid agent, [ Visma, ] are also growing. With the integration of Icometrics technologies into our MR systems, we will strengthen our unique and comprehensive portfolio to support the full Alzheimer's care pathway. This is a great example of our D3 strategy at work, smart devices and imaging and drugs in PDX enabled by AI to create meaningful value for our customers and patients while driving sustainable growth for the company.

As we continue to navigate a dynamic global environment, our teams remain agile and focused on operational improvements and actions to reduce tariff impact. We've mitigated approximately 50% of our 2025 gross exposure, and we're on track with our goal of delivering a lower net tariff impact in 2026 versus 2025 based on currently enacted tariffs. As a result of our strong performance year-to-date and the healthy capital environment trends we're observing, we're pleased to raise our adjusted EPS guidance, which Jay will expand on later in the call.

Above all, we're intensely focused on delivering for our customers and shareholders. With that, I'll hand the call over to Jay.

Jay?

Thanks, Pete. Let's start with our financial performance on Slide 4. We're pleased with our solid operational performance across the business in the quarter. Revenues of [indiscernible] billion increased 4% year-over-year organically, ahead of our expectations. Revenue growth was driven by strength in our imaging, ABS and PDX businesses. We saw particular strength across EMEA and the U.S. On a reported basis, service revenue was strong, growing 6% year-over-year, driven by new and existing customer agreements. Product revenue was up 5% year-over-year reflecting healthy customer demand and procedure volumes. We delivered robust organic orders growth in the quarter, up 6% year-over-year. On a trailing 4-quarter average Orders growth was also up 6%.

We delivered strong book-to-bill at 1.06x, and we exited the quarter with a solid backlog at $21.2 billion. Taken together, we believe these metrics as well as our success with multiyear enterprise deals and high-margin innovations are good indicators of future growth. Adjusted EBIT margin was 14.8%, down 150 basis points year-over-year. We delivered adjusted EPS of $1.07 per share down 6% year-over-year. This included approximately $0.16 of tariff impact. Excluding this impact, adjusted EPS would have been up in the high single digits year-over-year. Lastly, our free cash flow was $483 million in the quarter. Looking closer at margin performance in the third quarter on Slide 5 and adjusted EBIT margin of 14.8% was down due to the impact of tariffs, which was approximately $95 million and was partially offset by favorable volume and pricing.

Excluding the tariff impact of 180 basis points, adjusted EBIT margin would have expanded approximately 30 basis points. Adjusted gross margin declined 300 basis points year-over-year, primarily due to tariff impact and investments. Strong volume growth and sustained pricing momentum have helped to partially offset broader macroeconomic margin pressures. Related to investments. Similar to last quarter, we had certain costs move from R&D to cost of goods sold as products move closer to commercialization, including in MR and PET, without this shift, R&D expense would be up year-over-year, reflecting our continued commitment to innovation investment.

We have a number of strategic programs underway to drive operational margin expansion. These include sourcing from lower-cost regions, developing second sources, implementing value engineering initiatives, executing targeted site transfers and achieving price increases. These efforts are not only designed to improve our margin, but also strategically reduce our exposure to high tariff trade flows, further strengthening our global supply chain resilience and margin profile. Taken together, these initiatives contributed to the 30 basis points of adjusted EBIT margin improvement, excluding the impact of tariffs, and we mitigated nearly half of the gross tariff impact.

We're also driving greater efficiency in SG&A while making targeted investments in commercial capabilities, such as with Florcado to strengthen our go-to-market approach and support long-term growth. These actions reflect our commitment to margin expansion and delivering sustainable value. Moving to segment performance, starting with imaging on Slide 6. Organic revenue in the quarter was up 4% versus the prior year, driven by strong commercial execution in EMEA and the U.S. as imaging equipment remains a top investment priority for customers.

Segment EBIT margin declined 260 basis points year-over-year, largely driven by tariff pressures. We're pleased that sequentially, both imaging revenue and margin increased. We're focused on disciplined price management as well as operational efficiency and platforming improvements. Overall, we saw robust growth in the U.S. as customers continue to upgrade an aging installed base in areas such as radiology and cardiology. Turning to Advanced Visualization Solutions on Slide 7. Organic revenue was up 6% year-over-year with strong performance in the U.S. and demand for new products. Segment EBIT margin increased by 180 basis points year-over-year, driven by volume growth and cost productivity.

We had strong execution in new products and commercial investments that are delivering faster growth and higher margins. This was the fourth consecutive quarter of year-over-year sales and margin growth for AVS. Our pipeline continues to focus on growing many clinical areas, including our cardiovascular ultrasound market leadership. Examples of this include our most recent Vivid pioneer launch, which has been well received by customers and other key products for radiology and cardiology interventional procedures. In addition, AI-enabled products launched earlier in the year are contributing significantly to our revenue growth and margin expansion.

Turning to Patient Care Solutions on Slide 8. Orders growth in the third quarter was healthy. However, organic revenue was down 7% versus the prior year, primarily due to a product hold. This hold has now been resolved and shipments for the impacted products have resumed, positioning us for a sequential sales step-up in the fourth quarter. Segment EBIT margin declined by 680 basis points year-over-year. primarily driven by the product hold unfavorable product mix and tariffs. With expected volume improvements and continued productivity actions, we anticipate a meaningful sequential improvement in EBIT margin in the fourth quarter.

Earlier this year, we brought [ Gannett Bancasson ] as our PCS leader, and we're seeing progress around her efforts with the goal to improve growth and margin performance. She's working to drive commercial execution for recent product launches and setting the business up for sustainable growth. She brings a new perspective and her top priorities are accelerating growth driving variable cost productivity and optimizing our cost structure. We're confident these actions will yield meaningful results. We're also excited about new product launches and AI-driven software solutions in PCS. These build on our clinical capabilities and are expected to drive faster growth and higher margins.

Moving to pharmaceutical diagnostics on Slide 9. We delivered a strong quarter with sales growing 10% organically year-over-year. This was driven by solid performance in our contrast media and radiopharmaceutical portfolios, both of which contribute to our growing recurring revenue profile. EBIT grew 14% while margins declined 150 basis points year-over-year due to planned investments in NPIs such as Florcado as well as the Nihan metaphysic acquisition. We're very encouraged by the growth in our U.S. Radiopharmaceuticals business and in our molecular imaging equipment, Imaging and PDX work in concert. And when enabled by AI and services, we're uniquely positioned to bring value in new ways for our customers.

Let's look at cash performance on Slide 10. We delivered free cash flow of $483 million with a 99% free cash flow conversion. This was down $168 million year-over-year primarily due to higher receivables attributable to revenue growth as well as higher tariff payments of approximately $95 million. As it relates to our capital allocation strategy, our priority is to drive organic growth while evaluating a rich M&A pipeline focused on tuck-in opportunities. We'll maintain a disciplined approach that aligns with the key metrics we've discussed in the past. During the third quarter, we repurchased approximately $100 million of our shares reflecting our confidence in our growth prospects.

Our strong balance sheet, coupled with an attractive leverage profile positions us well to execute on our capital allocation strategy. Now let's turn to our outlook on Slide 11. Given the strong performance year-to-date and healthy capital investment trends, we're updating our guidance for full year 2025. We continue to expect full year organic revenue growth of approximately 3%. Based on where our rates are today, we expect FX to be a 50 basis point tailwind to revenue. Adjusted EBIT margin for the full year is unchanged in the range of 15.2% to 15.4%. We remain focused on innovation, productivity and G&A optimization to drive long-term margin expansion. We expect our adjusted effective tax rate to be in the range of 20% to 21% for the full year. For adjusted EPS, we're raising the lower end of our guidance range and now expect to deliver between $4.51 and $4.63 per share for the full year.

Based on the current environment, we continue to expect tariffs in 2025 to impact adjusted EPS by approximately $0.45 for the year. Finally, we expect to deliver free cash flow of at least $1.4 billion for the full year, which includes the tariff payments. With that, I'll turn the call over to Pete.

Pete?

Thanks, Jay. Turning to innovation. We've invested more than $3 billion in R&D since 2022 to deliver differentiated products and solutions that exceed customer expectations. Our R&D and go-to-market execution is enabling accelerated growth and margin improvement. A great example of this is in ABS. In 2024, we launched AI-powered systems across the entire segment. We've had strong customer adoption for these products. For example, in image-guided solutions, we redesigned our Interventional Cardiology system, [ Alia, ] with a more powerful tube reduced footprint and onboard AI capabilities. It's ideal for ambulatory surgical centers and office-based labs, allowing us to partner with customers and win new deals in a rapidly growing ASC setting.

In addition, our Ultrasound portfolio underwent a complete refresh. We integrated advanced technology like Caption AI and are upgrading our entire fleet of our clinical subsystems into common platforms, which has increased the margins of these new products compared to prior models. All of these are driving revenue growth and margin accretion now, and we expect that to continue in 2026 and beyond. Moving to the middle row on the chart, where we featured several products that are commercially available in 2025 and PCS, we're excited about 3 new products. a completely refreshed anesthesia delivery system, a monitoring platform that allows us to compete in new ways outside the U.S. and Care Intellect for perinatal, a SaaS offering designed with clinicians to provide real-time insights in labor and delivery.

It's the first of many clinical and operational applications that we expect to deliver faster growth, higher margins and recurring revenue for PCS. Feedback on [indiscernible] is strong with exceptional image quality, half-life benefits, healthy reimbursement and new global guidelines to increase clinical confidence. As a result, our prospect list is expanding and we're going slow to go fast, so that customers get the best experience as this pharmaceutical has many years of strong growth opportunity in front of us. In September, we signed an agreement to distribute Vocado through CDL and an outpatient cardiology leader accounting for about 1/3 of the current U.S. pet procedures.

Our commercial and clinical teams are working closely with their CDL counterparts to begin transitioning their customer volume in the coming quarters. We're also encouraged by the strong backlog of new pet systems that will support imaging tracer growth. In imaging, it's great to see the pipeline coming together after 4 years of investment. The new products will bring unique capabilities to the market and be key enablers for our sales teams to drive faster growth and higher margins in the imaging portfolio. We're entering a new wave of innovation across the enterprise, and these are some of our boldest ideas yet. We're confident that we have the right innovations across all of our segments, a strong commercial strategy and a clear path to accelerate revenue growth from these new products over the medium term.

In summary, we feel good about our third quarter performance and the disciplined execution that has helped us effectively navigate a dynamic environment. I'm proud of our teams as they work to offset costs and manage through macro challenges. We're pleased that despite a $0.45 tariff headwind, we expect to deliver adjusted EPS growth for the year. We remain fully committed to our total company medium-term targets shared at Investor Day and feel good about the underpinnings that support that growth. The fundamentals of our business remain strong. Globally, we continue to see a healthy capital equipment market and tenders are improving in China with the recovery ongoing. While PCS had a challenging quarter, with new leadership and fresh eyes on the portfolio, we expect to see significant improvements in this segment.

Lastly, as planned, we will introduce a significant number of new AI-enabled products, solutions and services at RSNA. As we discussed at our last investor conference, these new products are expected to drive significant growth over the medium term and play a key role in margin expansion, plan to join us in Chicago on December 1 and 2.

Now let's open up the call for questions.

Thank you, Peter. [Operator Instructions]

Operator, can you please open the line.

[Operator Instructions]. One moment for our first question. And it comes from the line of Lawrence Biegelsen with Wells Fargo.

Congrats on a nice quarter here. I wanted to start on China. I heard your comments earlier on tenders improving in China. Any additional color on what you're seeing, how you're thinking about growth there this year and next year? And I know you won't comment on media reports, but can you comment on how you're thinking about your business in China long term? And if you'd consider ways to mitigate the risk or exposure to that market? And I had one follow-up.

Yes, Larry. As I said in the prepared comments, we're seeing the stimulus kind of tender activity improve and the recovery in the market is ongoing. I think that's kind of the headline. Last quarter, I spoke about our second half China sales being lower than the first half, and that's playing out as we expected. Our new leader in the role there, Will, is doing a really nice job. He's been focused on making investments in market access capabilities and renewing our focus on clinical selling. And where we've implemented those changes, which we're going to be going across the whole country with them, we've seen positive progress both in ultrasound and imaging.

And so look, the market has been challenged over the past 2 years due to stimulus as well as the anticorruption campaign. That said, we don't see any structural reason to prevent China market returning from growth. Look, to your last point that you made, look, we like the China business. It's one of the largest health care markets in the world, a significant portion of the population needing better access to care. We're optimistic about its long-term potential. I would say we constantly look at our segments, our countries, our products and assess their growth, their margin and ultimately, they're fit in the portfolio. It's just kind of how we run our business, is what we do.

That's super helpful. Pete, for my follow-up, the press release, the slides and talk about revenue growth acceleration. It sounds like you're still confident in achieving your $26 to $28 million revenue growth target of mid-single-digit organic growth. I just want to confirm that. And how much do you need China to recover to hit that goal? And is mid-single-digit growth on the table for next year?

Yes. Look, I would just say, over the medium term, we feel good about mid-single digit. Our views are the mid-single opportunity hasn't changed for us. Since we spun in 2023, we've invested, as we mentioned, significant amount in R&D. And it takes time for that to pay off. I think the example that we gave with ABS is a great example of how that's paying off. New products that have a faster growth profile because of leadership features, a better cost position, so it has higher profitability. And that same model will apply to imaging and also PCS.

So we're excited about RSNA coming up because you're going to see a lot of these new products coming out that will treat that capability that we just mentioned. So I think that's the broader point. But relative to China, consistent with what I've said in the past, if China remains roughly flat and stable market, all of our goals relative to mid-single digit are intact. Jay, you may...

Just Larry, [indiscernible] we're in our operating planning process right now. So a lot of work to be done there. But I think it's safe to say this year, our expectation is to grow approximately 3%. We pointed to record backlogs, outstanding book-to-bill order growth at 6% for the last 4 quarters. So we feel very good about the commercial momentum and the innovation momentum and so as we look at 26%, our expectation would be to grow faster than 3%. So stay tuned for our earnings call in February. But at this point in time, we feel very good about the progress that we've made.

Our next question is from Travis Steed with Bank of America Securities.

Congrats on a good quarter. Maybe the first question I have is maybe talk about some of the strength in Q3 and why it reiterate the full year revenue guidance and not let more of that flow through for Q4?

Thanks, Travis. We were definitely pleased with the commercial performance in the third quarter, and it's evidence of all the good progress that we're making both from innovation and also a go-to-market standpoint. We previously said 2% to 3% in the third quarter. We delivered 4%. And I would say a lot of that comes from our ABS business [indiscernible] seeing the dividends of all the innovation investment pay out, along with some great work in the field. We did see some particular strength across EMEA and U-Scan really driven by a healthy CapEx environment and the procedural trends there.

So overall, definitely pleased with the third quarter. As we look at the fourth quarter, our current expectation is 3% to 4% growth, very much aligned to our expectations in July. There's a bit of a benefit from the PCS, some of that coming back in the fourth quarter, that product hold. But as we did the analysis, historically, we've seen about a 9% step-up from Q3 to Q4. We're modeling at the midpoint, that 9% step-up. The other thing we look at when we do revenue forecasting is we look at this idea of secured rate. Remember, about half of our business is recurring and the other half is equipment related. And for the equipment related, we have a portion of that business that has delivery dates in the quarter.

And so at this point in the quarter, we have about 80% of the 50% secured. So we feel very good about where that sits relative to historic levels. It's consistent with that. Having said all of that, what I would say is our confidence in achieving the 3% has clearly increased based on the strong performance that we saw in the third quarter.

That's very helpful, Pete. And then Flacado, just make sure you're on track for the $30 million in this year and how you should think about some of the puts and takes as that ramps over 2026 and 2027?

Yes, Travis -- look, we're excited about this opportunity with Vical. Things -- opportunities like this only come around every once in a while. I mean the customer feedback on Vocado has been great, exceptional image quality over any other type of perfusion capabilities, the longer half-life unit dose model all this kind of making a significant game-changing innovation for nuclear cardiology. And as I said in the prepared remarks, we're going slow to go fast. So for us, it's crucially important at this stage of the launch. -- customers have an excellent experience and are getting their processes and capabilities in place that they can convert a majority of their patients are flacado over a reasonable time period.

So in 2025, we're going to be short of the $30 million, but with the progress we're making, we're really excited about the opportunity in '26 and beyond. So obviously, the question is, so why slower ramp in 2025? Look, we made a deliberate decision to prioritize the customer experience rather than short-term revenue. And look, we've slowed the launch for 2 reasons. One is on the supply side, remember, each of these products is delivered by a local contract manufacturing operation. And we're working to achieve a consistent 95% plus yield, which will deliver that exceptional experience to customers. It's taken some time to get to that level. but we're close to achieving that consistently now, which is a very good point.

Second, we're working with our customers on their workflow, which is a combination of their billing and patient processes at site. And so where we sit today, we're seeing week-over-week improvement on the number of patients treated with [indiscernible], and we expect that ramp considerably to move forward faster in the fourth quarter. So look, with significant interest building, our opportunity funnel is actually exceeding what we initially laid out. We expect [indiscernible] to have a significant meaningful impact over time. And this positions us really well on our midterm expectations for $0.5 billion by 2028.

If we were able to take 25% of the PET myocardia perfusion market and converted to [indiscernible] that would lead to roughly $1 billion a year. And so hence, why this launch taking it at the right pace, we believe is super critical.

Our next question is from Joanne Wuensch with Citibank.

I have 2. I'm just going to put them up front. Could you please give us an update on the timing for Photon counting and how we should think about that ramping? And then the second question has to do with the patient care solutions franchise. How do we think about going from down high single digits this quarter to reaccelerating over the next couple of quarters?

Thanks, Tian, for the question. Yes, on Photon County, we remain on track to our plans that we have laid out. As you've seen on the slide that I referenced in our deck with the new wave of innovation, we actually have it there listed on the page. I think it's no surprise that we're ramping up here to be able to talk about it at our biggest radiological show here in the near future. So all of our plans relative to FDA submission our plan is to be able to communicate and talk about it in more detail are on track. And again, I would just say, I'm, again, very excited about our approach. We are the most unique approach within the marketplace. It's the reason that we went this direction is not to follow the crowd, but to bring something that's going to have a significant impact in the marketplace, not just on the image quality changes, but actually how CT is used. And that's where we believe our deep silicon approach is going to make a significant difference in what's called spectral imaging.

So that's where we are, and we hope we'll see at the RSNA to see more of these technologies that I mentioned here on the page. Jay, maybe you can talk a little bit about PCS.

We were disappointed with PCS performance in the third quarter. And really, this comes down to a product hold. We did take quick action to be ready to ship units as soon as possible. our regulatory team did a great job navigating the pathway here. And the good news is that we're back in the market shipping we'll recover some of this in the fourth quarter. Some will bleed to next year. But overall, we feel good with the product back on the market. Of the 7% sales decline in the quarter, about $5 million of that was tied to the product hold. And the margin was also significantly impacted. In fact, about half of the margin decline year-over-year related to this product hold, we had a big tariff impact as well of about a couple of hundred basis points.

So as Pete said or I said in my prepared remarks, we're really excited to have [indiscernible] onboard a seasoned leader, and she's looking carefully at the portfolio, the opportunities to drive growth and enhance margin. That will start to pay dividends in the fourth quarter, so we will see a meaningful improvement here. And then we'll also continue to pay dividends as we migrate into next year.

Our next question is from David Roman with Goldman Sachs.

Appreciate all the detail on some of the new products here. Maybe first, we could go into ABS. And specifically, talk about some of the opportunities as we see procedure volumes like in EP potentially start to move into the ASC. I think in your earnings presentation from last year in the second quarter, you laid out all the key products that GE provides to support an EP lab. But maybe what are you seeing specifically on the opportunity in the ASC setting for EP?

Yes,Dav, -- thanks for the question. I would say, look, part of this started with this discussion when we talk about D3, it's not just a slogan. It's about how we operate, which again is this whole part of leadership products that can plug and play across the disease state. -- focus on a disease state. So again, cardiology is a broader area, but a specific disease state might be electrical issues with the heart to your point and how they're addressed and then how digital and tools can bring that together. And so for the first part for us was having a lab that wasn't just competitive, but was leadership. And I would argue this is really our first [indiscernible] lab in a long, long time, that is a leadership position. And so we're seeing the uptick of that.

So Look, when it comes to electrophysiology, we see the opportunity that's out there, pulse field ablation, all the excitement that's in the marketplace. We want to be the partner of choice. It's a one-stop shop to be able to make that happen. And so Phil and the team, I think, have done a really nice job. We're uniquely positioned with the [ Alia Pulse, ] its small footprint, its ability to play in the Vivid Pioneer, our brand-new cardiovascular ultrasound platform does a lot of early assessment, esophageal work while the procedure is going on. And then our Mac Lab new version, which is the [indiscernible], which is the recorder for all of this during the EP procedure. Those all work together. And then we have partner relationships with many of the device companies that their products were more integrated with ours. So you couple that with the new reimbursement that's coming out that fundamentally takes what was 80% of the acute care reimbursement and makes it available in the ASC, we're really set up well to take advantage of that growth.

And again, we want to be able to come to an institution and say, you want to really grow your EP business work with us, whoever used on the device side, we can make it easy for you to stand up. And in many cases, that's really what we're starting to see come through. So that's kind of how we look at electrophysiology. I would say structured heart has a similar framework to it as well.

Very helpful. And maybe, Jay, just on the margin side, trying to understand how long this transition between R&D and COGS takes place? And maybe if you could just unpack a little more operationally what's happening. I think on the last call, you started talking about this, it sounded kind of like an accounting dynamic, but I think it's actually more of an operational dynamic. So how long does this kind of transition last? And how should we think about the trajectory of underlying gross margins in R&D going forward?

Sure. Maybe maybe let's just talk overall about the gross margin, and then we can get into the specifics of this aspect of it. Overall, in the third quarter, our gross margin was down 300 basis points year-over-year. About 180 basis points of that relates to tariff expenses. And then we had 60 basis points of really reclass or movement between R&D and cost of goods in the quarter, and that's about a little over $30 million. Now overall, this is good news because from our standpoint, as products move closer to commercialization, we start to report those projects through -- those product expenses as cost of goods versus R&D. And so it's net neutral to adjusted EPS.

We actually have about 12 products, material programs that are moving very close to commercialization stage. Pete talked about that extensively during his remarks, you'll see that on full display at RSNA. And remember, about 70% of our total engineering and product program spend sits within R&D. The remaining aspect of 30 sits in COGS. And so overall, I think it's important to note, R&D spending or project spending was up for the quarter, but we did see this dynamic. This dynamic will continue somewhat in the fourth quarter, and there will be some impact of this next year as well. But it's safe to say we will see margin expansion in the fourth quarter sequentially, north of 50 basis points of gross margin at the midpoint and we'll also see -- remember the third quarter also did have an impact from the product hold at a company level, that was about 20 basis points.

So overall, the team is intensely focused on margin expansion and gross margin expansion, in particular this particular item does sort of cloud, what I think is a solid overall story. If you point to the bottom line, we saw 30 basis points of margin expansion in the quarter, excluding tariffs, we'll see more than that in the fourth quarter on our way to achieving the full year expectation.

Our next question is from Patrick Wood with Morgan Stanley.

Beautiful. -- first 1 is really on the ultrasound side of things. Obviously, 1 of your peers has vice fund with the FDA. I think we all [indiscernible] through this before with Cleveland and CT. Any implications for you when you think about the competitive market on that side and how that could evolve?

Patrick, I -- we just saw the information as well. So I don't really have any comment. And there's really no effect in third quarter -- the strength of our ABS in Q3 was really about really strong go-to-market execution in our field teams. And then products that we mentioned, the Vivid Pioneer and the venue point of care and logic, all of those new products.

Got you. Makes sense. The other 1 is actually your Muse platform has like a 50% market share, if I'm right, on the ECG side of things. And I know you guys have -- you've got a partnership with Live Core and a few other bits, but is there any interest on the longer-term cardiac termitary market, there's a lot of the perhaps players outside of things? Because that strength on the ECG side on the software and feels like that would pair well. Is that something you ever thought about?

Yes. So Patrick, I think uses to your point, it's the significant position relative to recording of all EKG data really around the world, and we have this a live core mode, which is portable handheld device that individuals would use, and that can be recorded in the base. Today, we have customers that actually after an EP procedure when you use their sent home, they'll be sent home with the live core device. And they do spot checks on themselves to make sure how effective the ablation actually was. That data all connects directly back into our system. So that's there today. But I think that where you're going with this is exactly a big part of when we talk about care intellect the perinatal example is one of those where we're connecting all this information and serving it up in a way that makes it very easy to use for that caregiver.

So in the case you brought up would be in the cardiology world, perinatal play is obviously in labor and delivery. But I think you're going to see more and more of these departmental solutions come out from us here in '26 under the branding of Care Intellect. So thanks for the question.

Our next question is from Vijay Kumar with Evercore ISI.

Congrats on the next gen here. Keith, maybe my first 1 for you, and I saw you guys signed a distribution agreement with CDL on your pharma diagnostics side for to -- is -- my understanding was CDL represents maybe or serves half the U.S. market. Is that the right assumption -- have they started shipping this product and do they have the capability to ship this on a weekend. So I'm curious on how the partnership is evolving?

Yes. No. Look, CDL and their group, CardioNavax is a large part of the U.S. pet market, and they actually have a full distribution reach into individual cardiology offices typically with Robidium. But our strategy is working along with them is to obviously convert many of those customers over into Picado we're just getting started. As you know, we announced earlier this quarter. It typically takes a 60-, 90-day window cycle to move through -- but all of the customers that have seen it on their side are very excited about it. I think the economics, the clinical capabilities, all of those play out to be a really positive opportunity. And so a higher percentage of that conversion of that group moves us very close along our goals that we've laid out over the medium term of $0.5 billion. And so they're a key part of it and starting out quite well.

Understood. And then just my related question on -- if I just look at your equipment book-to-bill, capital book-to-bill, if you will. Last 7 quarters, you've ranged it around 1.12. And I know fiscal '25, some of the revenue recognition was impacted by timing of delivery, which was pushed out. So when you look at '26, Pete, is there anything unusual about delivery dates on these orders? Any change in cancellation trends or cancellation trends been stable?

Yes, Vijay, we're definitely happy with the performance in terms of equipment book-to-bill in terms of overall book-to-bill in terms of record level of backlog. And then importantly, this trailing 4 quarters orders growth, which we think is perhaps a better indicator of performance than looking at on a quarterly basis. And so as we approach 2026, we think the setup is pretty good. We guided to approximately 3% this year. we will -- there's a lot of work to be done to finalize our plan, but our expectation is we'll grow faster than that next year. And a lot of that comes down to the strength of the capital book that we currently sit on today.

And just sorry, on cancellations here?

Cancellations is normal levels. We haven't seen any major changes in those in cancellation rates, Vijay.

Our next question is from Matt Miksic with Barclays.

So 1 follow-up on the sort of rollout of some of these new systems next year proton accounting and total body -- just wondering if you could -- I know it's a '26 question, but talk a little bit about for launches like that in midyear and end of year. What does that look like in terms of capturing orders, capturing interest, building a pipeline -- is that ahead of that understanding that your customers are where these are coming also. And just what's the shape of that? And then I have 1 quick follow-up.

Yes, Matt. Obviously, each of the products is unique based on their regulatory approval files. Some might be approved in Europe first, some might be in the U.S. So there's a little bit of mix of that. But the first part is to be able to make the announcement and get customers understanding when it's coming. To your point, there are certain products like full body pet and Photon County, we've been more transplant that are coming. And so a big part of this is when they come out is if they already have an order for an existing system and they want to upgrade to the other, how can you do that?

Many of our design features have been done so that the footprint matches the predicate product the best it can. So there's minimal site disruption that can help with faster turnaround. In most cases, we've done that with our products that we're coming out -- but we typically have a fleet discussion with our big customers about what products do you have, how are you evolving your products. This is a big part of what our field teams do a very good job with and having customers be thinking about what budgetary dollars that they need to be having, thinking about which products are probably need to be upgraded based on age, but also based on what you want to do. I think back to the question about EP, if that's a focused plan for you, what are you going to be doing with your fleet.

So in many cases, customers have been already thinking about that. But until we actually announce it and give dates on availability, which RSNA for us tends to be 1 of those milestones in radiology. -- that's when people really then start doing the final planning.

Got it. Okay. So for at least maybe 1 of these that might be next year at RSNA and then that kind of makes it official from you're saying that sounds like -- and then thing go ahead. I'm sorry.

This year or today, we're going to talk a lot about all of our big launches. So I would say expect to hear a good dozen of high-impact products that we'll be talking about at RSA.

That's great. Look forward to it. And just I know AI is sort of 1 of these big broad topics that sort of means a lot and nothing sometimes at the same time. But just really admire. I think a lot of folks are rogue how much work you've done on sort of approved the software's device applications and roll out an investment in this area. In the results that you're printing and the growth that you're showing where and when and how do you think this is playing through your growth and engagement with your customers? Is it growth? Is it in -- is it in, I don't know, defensive ability to defend accounts, to go deeper in accounts, just as general, where do you see the value that you've invested playing out in the economic returns growth in your business?

Yes, Matt, I'll just give you 2 quick examples. One is AVS this quarter, you're seeing it. It's loaded all of these products with different official intelligence capabilities that result in superior performance versus competition. So we actually are getting better price and higher capture rate. So if you look at this quarter, we were actually up in margin as well. That's also due to the redesign that we've had to leverage what we've called platforming. So the combination of those 2 together has been able to enable that. The second phase -- and then all of these new products, like the ones I mentioned for RSNA are going to have that same type of AI inside this care Intellect platform is a big deal for us because this is where we start actually having a departmental solution that starts connecting multiple modalities or multiple data flows to bring kind of longitudinal solutions.

And so we're just entering into that phase. This labor and delivery is the first one. But I would argue relative to broader SaaS and stand-alone applications, that's really our first wave that we're going to see bigger capabilities coming out there. And again, price and added capture rate where we're winning share, Typically, it comes back to a really good device. But honestly, the AI and the software components of it, making the differentiation in the IC customers I don't know, Jay, if you got anything.

Yes, sure. At the Investor Day, Matt, we talked about digital revenue expanding from $1.2 billion to $1.8 billion by '28, and we're well on track with respect to that. It remains an important growth engine. And I would say implementations going really well. Notably, we went from 85 AI-enabled FDA device authorization last year to 100 -- so we're pleased with where we sit with AI-enabled devices. It's an important unlocker. But what we're seeing is, as Pete said, a lot of this is just a great way to differentiate our portfolio of products.

Our next question is from Robert Marcus with JPMorgan.

Great. Two for me. First, I want to start with the high-level question. It's about a year since you gave the long-range plan at the Analyst Day last November. Just wondering on year in, how you think you're stacking up versus it? Do you feel like you're still on track? And any puts and takes you want to highlight as we just think about the outlook on growth and margins.

Rob, thanks for the question. Look, I think relative to mid-single-digit growth is as I've mentioned before, we feel quite good about the ability to be able to achieve that. this year, there's been added complexities with tariffs and things that we're navigating through, but we're navigating that well. And so from a margin standpoint, to be in the 17% to 20% plus range, we also feel very good about. I think the underpinning of that is what we're being able to do within the fill with our commercial teams. I think our go-to-market execution has been very good, both in large enterprise deals and individually at the street level. Some of that then comes back to this product portfolio. what we said and when we would launch products, we're right on to those dates, whether it be on the pharmaceutical side or be on the device side. All those are lining up as we laid out in that Investor Day back in November.

So again, it's 1 of the reasons that we're very excited about this RSNA, big radiological meeting in Chicago, December 1 and 2, because that's going to showcase many of the products where we had some honestly, gaps in the portfolio. And secondly, how those gaps are not only filled but we come with a product that's actually significantly different than what competition has. So that's kind of where we stand there, and we feel quite good about it.

Great. Really helpful. One quick follow-up on Flerpato. It sounds like it's going a little slower this year, still confident in the long run. Maybe you could just give us a little more on what GE Healthcare can do to help streamline the workflow conversion. There's obviously a change at the hospital level on what they need to do and how to source it. So maybe just help us on what investments you're doing to help advance that. And do you think you could be back on track to your goals in 2026?

So the short answer is absolutely back on track to our goals in 2026. And it starts with the opportunity funnel, meaning people that want to buy and convert to Vocado is much larger than we initially envisioned. So that's point one. And again, why is that? That comes back to anyone that sees this product sets from an image quality standpoint, and its ability to aid diagnosis is second to none. So it starts with that. I think the economics now are clear on the private pay side as well as on the Medicare piece. And as far as how the models work, they actually work quite well for customers. So all of those things are in place. And as I previously mentioned, getting the CMOs running, we have the recipe. But now the recipe is kicking in place to have 95% plus Between now and the end of the year, we're going to ramp that at the right level of speed.

So again, what does that mean? Well, you get a customer, new customer and they might be only doing 1 to 2 patients. You want to have those 1 to 2 patients have great, great experience. And then maybe 60 days in, they move to 12 to 15 patients. And that ramp can happen very, very quickly once they have their process in place. The processes, Ravi, are no different than what you would think in other areas. -- when you have a new product you bring in and a drug, you want to do your first billing to your private payers, do you get the billing back, that process is working well, your flow about how you actually do the reads -- so your cardiologist in your department referring for these procedures, the right software on the systems. Those are the things that we now have a really tight structure in place to bring people up.

In the case of like CDL, they have all that in place. So their ramp is actually a much faster capability than someone lets to say that's new to the area or had an oncology practice and now you're bringing up as a cardiology brand. So we're very confident that our ability to ramp this. And again, the most important thing is do customers look at this and say, it's a game changer. And so I think that's the key. And then lastly is the cardiology ACC came out with guidelines that basically say this is the best direction to go for myocardial perfusion. So we've got all of those tailwinds. And again, the conversion factor here, I think, will ramp up rather quickly. But we wanted to obviously kind of lay out where we actually are for the year and talk about why it's so important to do this the right way and be deliberate because in the long run, this has clearly the potential to be a $1 billion drug at some point over in the future.

And our last question comes from the line of Anthony Petrone with Mizuho Americas.

Congrats on the quarter here. I'll stick with Florcadoand 1 on tariffs. Maybe, Pete, to expand, you mentioned a larger pet and maybe possibly pet CTM backlog. Maybe how much of that is being driven by Flurcado -- does the existing installed base within GE of PET CT systems, does that support this getting to $1 billion? Or do you need some of that on the capital side to be released in order to sort of let [indiscernible] flourish here a little bit? And then quickly on tariffs, it stood at a net negative $0.45 headwind for this year. all else equal, the company was talking about mitigation efforts into '26. How much of the negative $45 million can be offset into 2026.

I'll take the Vocado piece, and then maybe, Jay, you can touch on the second part on the tariffs. I think, look, without adding any more pet systems, I think I mentioned this prior is that if we were to just take 25% of the current pet myocardia perfusion market, just 25% of it that's roughly $1 billion of Vocado revenue without 1 other scanner at it. And those are already in cardiology. To your other point, though, we are seeing the amount of pet systems increasing -- now some of that is in cardiology for sure, but some of it's also in -- across the board in oncology, because of the new molecules that are coming up some of the new diagnostics capabilities that we actually have as well. So we're seeing both of those.

But I think to your point, it's super important to understand just with 1/4 of the conversion of the PET MPI today away from rubidium to Vocado that gets you to $1 billion, which, again, why it's so important that you manage the ramp appropriate and customers have a world-class experience when they do, the ability to convert a higher percentage of their patients over can happen rather quickly.

Sure. Quickly on tariffs, overall, as you noted, we're $265 million in tariff impact this year. We expect less than that next year. We're going through our planning processes right now to get the fine-tuned answer in terms of what the impact will be. But it's safe to say it will be a tailwind. We're looking at things like structural changes to supply chain, continuing to work on U.S. MCA certification using free trade zones and then, of course, some selective pricing. But working together we expect tariffs to be a tailwind next year to earnings growth.

And that concludes our Q&A session for today. Please proceed with any closing remarks.

Just thanks, everyone, for joining today, and we look forward to connecting with you those that will be attending the RSNA or one of our upcoming conferences.

And this concludes our conference. Thank you for participating, and you may now disconnect.

Hello, everyone. Thank you so much for joining. It's Patrick Andrew, U.S. Medtech Team.

Firstly, disclaimers. So morganstanley.com/research research disclosures, which is a great website. I recommend you all go there for fun. But much more excited to have GE today. We've got Peter, CEO; and Carolynne, who's the Head of Strategy side of things. And great to have you guys here.

Great to be here.

I appreciate you coming to the conference. There's a lot going on in radiology. I think we could start kind of almost anywhere, but I don't know, it's quite topical at the moment we were just chatting about it. Maybe we can start within core imaging business and some of the fastest-growing areas cardiac CT. Then CT is a great market for you guys globally. Would love to get a sense how things are going, how cardiac has sort of grown in the U.S. and elsewhere and just in general for CT.

Yes. I mean, look, first of all, again, thanks for having us. It's been a robust procedures market really around the world, which I think is one of the interesting things to your point about it's being good to be in radiology or even cardiology broadly, aging population and also just the amount of devices from our cousins, so to speak, in the device world that are fundamentally tied to an imaging procedure. So as many of the imaging companies, we've all benefited from it. To your point about what's really doing well. I think CT obviously, is booming across the board.

In many ways, it's kind of the Swiss Army knife of diagnosis. Even the labor shortages that are out there, move to drive a market like that because in 2 minutes, you can understand what the issue is with someone as opposed to 3 or 4 visits. And as much as that kind of methodology in the past where you'd see a primary care and then we see specialist before you got imaging, it's happening a lot earlier. And to your point on cardiac CT, it's happening even more. And I've been involved in CT for many years, but way back when, when the first scanners could do kind of the triple rule out of a pulmonary emboli or aortic dissection or a coronary blockage, it's evolved so much more.

And this idea of doing virtual FFR being able to make a decision relative before you intervene, obviously, all the early screening, we're seeing definitely strong growth in that area. And I think Photon Counting is only going to continue to help drive that to the next level. We don't have ours out, but stay tuned for more news here in the near future. I'd say we're on track to all the dates we spoke of. But that's super exciting. And then the other area, Patrick, is in Nuclear Medicine, which has been a little bit of a sleepy area for many years. There hasn't been a lot going on. And now that's just exploding. And it's exploding because of new agents, both therapeutic as well as diagnostic driving that space, in particular, PET, so we're seeing lots of growth in there, and I'm sure we'll come back to talk more about that.

And then MR. I think MR is just one of those great modalities that's continuing. It's always been this gold standard in contrast and capabilities for soft tissue. But now it's also doing so much more even with resolution, no radiation. So obviously, all comers can utilize the technology. But we just see robust markets, and again, driven by aging population, procedures that are needed to assist in actually delivery of devices. And then this idea of when it's tight for labor, do you want someone having 4 visits when you don't have enough people, or do you want to go definitively to diagnosis early. And we're seeing more of that happening, in really health care systems around the world.

It's -- you mentioned MR. Actually, we chat before this about a really interesting company in Cytek that have a great platform. But one of the things that hold them and many other companies back is that just scanner time access, speaking neurologists and basically, it's just time on the MR. Particularly in the U.S., I guess, globally, how tight is -- I mean, it feels like the installed base is quite heavily utilized. Are we at a point where we need to see a little bit of acceleration of that replacement cycle to broaden out the installed base? It feels like block time is pretty limited.

Yes. It's an interesting phenomenon. Around the world, you just have wait times that are significantly longer than they were pre-COVID. So there's lots of theories on why that is. I think they come back to the points that I just previously made. But particularly in MR, where the historical slots were a 1-hour slide, maybe 45 minutes. We've advanced the space. Others have as well, but we kind of led with this Air Recon DL which, again, is using deep learning to kind of fundamentally change how an MR produces an image. The result is better image quality, but the bigger result for productivity is, you can do a 20-minute exam on most capabilities. And so having -- helping providers get their slots down so that they can fundamentally double their capabilities is a big part of it.

But the fleet in the United States for most imaging equipment, most, is 8 to 10 years. If you look around the world, it's probably 6 to 7. And some of that was during COVID, nobody wanted you in their hospital doing a big installation, right? It just didn't happen. So you have that build up and then the growth of ambulatory surgical and outpatient centers that are doing more sophisticated procedures, hips, knees, cardio procedures, all of those need that additional equipment. So it's one of the reasons when we see tight capital questions coming up and say, "Gee, I may have to make a decision on my capital, where do we usually end up on the scale." Sometimes something like monitoring might be a second or third priority, but you typically always see the big imaging as a first priority because it is a core generator of revenue, and it's an enabler of productivity.

And PET is another area where we would expect to see capacity constraints over time, especially as more of these molecules are being adopted for drug therapy and diagnosis.

Yes. And to that point, this -- what's happening with Flyrcado, our newest agent in the diagnostic space for myocardial perfusion is pretty exciting. I think there's going to be -- that's going to be a game changer from the standpoint of what you can do with perfusion. And we talked about cardiac CT. There's different tools, obviously, for coronary assessment. But for perfusion of the heart muscle and ischemic disease, it's -- this is really going to change the gold standard from what's been done in SPECT for years. So lots happening there. And ultimately, that's going to drive cardiac practices to want to have their own dedicated systems.

es, it's a good point on the patent SPECT side of things. Why do we use Flyrcado given it's come up. A lot of success, good partnerships now. Maybe to level set the room for people who might be less familiar around Rubidium and what Flyrcado brings to the table and the half-life benefits from that side, just to paint the picture so people can understand within perfusion, the opportunity set for Flyrcado.

Yes. So even just bigger picture, right, forever a SPECT camera, which is a basic 2-head nuclear med camera, you might go in, you get a study at rest, you have a study at stress. It could be 2, 3 hours, you're laying there on the table to get the study after you've gone through that. And that study would tell you if you have certain parts of your heart are not actually getting proper perfusion, right? So PET comes along in the space. And the only agent fundamentally was ammonia or rubidium, which has a half-life of about 90 seconds in that window, which means you have to make it right there next to the bed because it's gone in 90 seconds, it drops off.

And so there's -- organizations have done quite well with rubidium, with the generator, but there's costs and limitations of what that means to move into the SPECT world. And SPECT has, I think, 5,000, 6,000 some procedures that are done in that area. And if you look at the PET version of it, it's still a very small percentage of it. And the question is, well, why? Well, with a product like Flyrcado that's come out, it does a couple of things. One is you can take that 20, 30 or 2-, 3-hour study and just like with rubidium, take that down to, say, 20 to 30 minutes, but not have to have a generator. You can actually have a drug shipped to your department on demand.

The resolution of these is significantly better, meaning you have false positives and sensitivity specificity that is significantly better than what's out there in the marketplace. And then the other area is radiation dose. It's a lower dose to the patient and also works better on larger patients. And obviously, we have a challenge from 20 years ago to have larger patients. So it really kind of brings all of that together. So there's a lot of excitement about bringing that into the portfolio. On top of the hope of more molecules coming in the pipeline that might be in oncology and other areas. So the dialogue at the top of the house in a health system is we need to really think about our PET strategy relative to how it plays out for diagnosis, but also then how it supplements therapeutic delivery.

Within PDx in general, there's obviously been a big fee change into how it's reimbursed being expanded, not really a cost line anymore. Now it's actually getting paid for, I would argue, properly. What are you seeing in terms of that? How are the customers responding? It takes a bit of time for people to get familiar with the fact that there's been changes. But what have been the changes on the customer level?

Yes. So it's -- to your point, Patrick, it's slow to kind of all these reimbursement things typically don't happen overnight, but it's a huge deal. So a PET study that you got $200 for FDG because it was like a supply forever. Now a product that costs $4,500, you get reimbursed at $4,500 and you get the reimbursement for the scan separately. All of a sudden, the study in the old reimbursement -- and again, this is the United States model with CMS. It wouldn't be economical to do so. Now not only is it economical, it actually makes sense that in the spectrum of how you set this up, that it can be an area that you can drive a reasonable profit.

So we ultimately think this is going to really be important. It's a key part of how we speak with customers to help educate them, obviously, about the drug, about how you think about payment structures, how you think about process. And that becomes a really important part of this because unlike a drug that comes into a vial and you can stock it, this is made every day for you, for that patient. And if it's not used, it has a half-life, it means it expires. And so how you set that up in a proprietary way that works for a customer becomes very important for them, but it also creates a really interesting stickiness to a company like GE Healthcare that this may not be the only molecule you buy from it, you might buy many. And so again, we think this is a really nice franchise that we're going to obviously continue to grow.

It's one of the things I never really got about, Peter, like what happens when the patient doesn't turn up? If the half-life is there and expires, is that like built into your pricing agreements with the customers? Or is it just kind of they just eat it? Like how does that work?

It varies by customer. But as you ramp up, I mean, let's just start how this is. When you go, you're making these in CMOs geographically, and let's just say there might be 40 doses in a given cyclotron batch and you only have 5 patients that day, right, 35 get thrown out, and that just hits your gross margin. So the more that actually those are consumed and as you start out any new molecule, the margins are going to be lower and they're going to rise.

For the customer, when they start out and they only have a couple of patients, typically, it is a loss. As you have a larger patient pool, you obviously can substitute doses around and manage within your own departments. And so part of that would be we would work with them on services if they've had a big fallout rate, how do you -- what do you need to do process-wise? And like other visits, this is one you want to make sure people don't miss. So there's a lot of techniques to make sure that they don't do that. But again, partnering with someone who can help you administer process change, not just sell you a product, we believe in this space is a big differentiator.

We were doing a dog call the other day, and I was a little surprised because I have deep in-built cynicism on Alzheimer's. I was there originally Biogen and Life Healthcare, I'm sure of doing that whole thing. But they were specifically calling out the big increase in Vizamyl demand. So I'd just like -- I'd be curious to see how you guys are seeing demand on that side. And maybe for the audience who's less familiar kind of flag Vizamyl, the opportunity there?

Yes. So again, back to PET imaging, but now moving from the heart to the brain for Alzheimer's. And as we all know, amolide beta plaque is one of the indicators that can be a leading cause play into the Alzheimer's space, not fully definitive, but highly suspect. And so a product that we make called Vizamyl actually lights up the amount of amolide beta in the brain to the level that you can quantify and understand what that is. You need to be able to have that type of diagnosis to be able to then go on one of the actual therapies that Patrick had actually mentioned.

And then after each of the administrations thereof, the drug, you need to actually do an MRI follow-up because one of the side effects potentially from the therapies is potentially swelling potentially some micro bleeds. And so you can see how then imaging for diagnosis to see what you need therapy and follow-up every injection afterwards, you need to actually do a follow-up MRI. And so the diagnostic part of this becomes very, very important. And again, as much as saying side effect potential for microbleeds and swellings seems rather challenging. We all know when there is no really other alternative for Alzheimer's at this point in time, it becomes a real viable risk to take. So we are seeing good uptake in that space. I think the opportunity for tools added into the portfolio as well to help the clinicians manage those patients, the changes in those patients, all of that is a big part of it.

Carolynne, I don't know if you'd agree with this, but I feel like in all the meetings that I have on GE, the one division that literally never comes up is patient monitoring. But you made a big hire with Jeannette, that surprised a lot of people, very well regarded as a hire. And then you also have some interesting ventures stakes in companies like LifeCore and things like that. So it clearly matters to you guys in a way that sometimes maybe the market isn't asking about as much. So I guess, are you surprised you didn't get asked about it? How do you feel about, obviously, Jeannette joining? And what should we be thinking of when we think of patient monitoring?

Yes. So Jeannette Bankes, who joined us from Alcon previously 15 years with Boston Scientific, a lot of different things that she's done. One is a super good operator and someone who also has a pretty good digital background. If you look at that business, it's a collection of different businesses, but the one common thread that they have is they have a great opportunity to be enabled on how we deliver with digital capabilities. So we have a leading position in anesthesia, just brought out a new platform first in 20 years. We have a leading position, one of the top 2 in monitoring globally, also in the whole baby prenatal care area as well in some diagnostic cardiology.

The one interesting comment about all of those is they play a big monitoring role, and they also have a lot of data that's shared across those. In that portfolio as well is where we'll bring to market things like Command Center and what we call CareIntellect, which are new digital AI tools that are focused on not just a product, but how products work in a department and maybe perinatal care or particularly in a diagnostic cardiology area where you take a look at our MUSE database, which is the largest EKG database in the world and how that information can flow through cardiology. So that's what you're going to see there.

But again, what is interesting and there are a lot of interesting small tuck-in plays that can fit into that business to connect. She's got a great background there. And then we talked about this at our Investor Day. One of the big opportunities is to really transform monitoring to be a modality that just gives you a spot reading primarily in critical care into one that actually looks at your longitudinal data and can actually help predict when a patient may be in trouble. And why is that important? Well, if you don't have enough nurses in critical care or even the ward, it's difficult to cover all these patients.

If the device can say, hey, Patrick may be having an issue and it's going to -- you need to go to see him within 20 minutes on their handheld device because the algorithm can predict if that's happening, that's a big game changer in monitoring. And then ultimately, in alternate sites and ultimately home. So we have lots of aspirations in that area. You'll hear more about launches coming in the future. There are some opportunities to tidy up the portfolio. But in general, we like the product lines and the businesses there. And I think the digital unlock is the margin unlock. It's also the growth vehicle capabilities for PCOs.

For the record, Patrick is always having issues. So it seems that accurate. There's been a few who try that kind of integrated care on the predictive analytics. And like what do you see as some of the challenges of doing that? Is it the data is siloed or that you have a certain number of steps, but then there's another manufacturer who's in the patient value chain there. Do you need to plug it all together? I know it sounds very vague, but we've heard from some companies trying to do this before and they've occasionally struggled to kind of end-to-end that patient.

Yes. I think, look, there's multiple levels. But at the first level becomes one is the customers migrating to the cloud is probably one of the biggest unlocks. So as we know, even pre-COVID, the amount of customers that even had the majority of their data in a cloud provider. And outside the United States, it's even a much smaller population. That's a big deal and the reliability of it. The second thing is the standards. I think FHIR now upgrading from HL7 is playing a big role within that. And then I would say companies like ours that are looking more longitudinally and can be someone that can integrate even other people that we don't compete with.

So I think we've spent a lot of time on AI inside. So as you've probably seen, I mean, we have the largest amount of FDA-approved integrated AI tools in our products. The next move is how do you bring more of that connected across ours and other products in a given department. How do you make that process in that given area more predictable, safer, better outcomes. And so there is partnering that has to take place. There has to be trust with some of the relationships. But I think the enablement of cloud, some of the standards that are out there and really where the evolution of some of the large language models and what can be integrated. And there's a lot of things happening right now that are going to enable that.

I mean on the topic of AI in general, how do you separate the developments that are a requirement to compete with your peers versus the ones you get distinctively paid for? Because we've seen some that have been quite rapidly sort of commoditized. But by contrast, we've also seen some that like clinics have been really willing to pay for it very quickly. Like how do you think about strategically because AI is treated as this big monolith, but like where to put your time and attention?

I mean, simply for us, it's about what solves the biggest customer problem. If you can solve a big customer problem that has patient issues and financial and your solution has a better answer for the patient and solves a cost issue for the customer, it's usually a winner. And at least from that standpoint, you can really kind of have an end-to-end discussion. I think what's limited us, and I'll say us in many cases, device or even broader pharma is you come in with a point solution. And the problem is the savings are either downstream or upstream or the benefits there are.

And so being able to have the C-suite discussion, which does lead into why do we have -- you hear more about enterprise deals, multiyear kind of enterprise relationships. Or in many cases, we have these discussions that, look, here's what we can help you do in cardiology. Here's what we can help you with a breast cancer strategy. And the discussion really is about how you could bring more patients in, how you bring better value during that, how do you actually take cost out of the structure.

So to me, that's the area, which is why we've really doubled down on how do you optimize to make the best device by itself with using AI? Because at the end of the day, if it really does a lot different, I can get more price or more value just for the box. I'm not having to sell the AI separately. But when you move into the realm of this is a SaaS product or tool, you need to be able to talk their language, which is in this care pathway, in this value chain, how can you drive it? And I would say stay tuned. I think '26 for us will be a first year where we start introducing more of those capabilities.

Would you guys be open to AI software solutions that spread? And I think you actually do some of those but spread, modality -- not modality-agnostic, vendor agnostic in the sense that because one of the challenges is an independent company with these software solutions can be applicable to any of the installed base. But even though you guys are massive in some of the modalities, you're still 1/3, let's call it, roughly.

Yes.

Would you be open to an open architecture?

100%. I think it depends -- so there's areas where -- like just take something like Air Recon DL MR. We're using not pixel data. We're actually using reconstruction proprietary GE data. And we can do things there at faster capabilities that you could. And that's always going to be stayed there. When you move into the reading world, I think one has to do that because no one has an exclusive installed base of just our equipment or company A, B or C. So that's clearly a part of it. And I think when you start thinking about let's move into monitoring or even, MIC, infant care, you're connecting with other things that have to follow a standard. And so we think that makes sense. Obviously, the debate on how you get there. This is an industry that started DICOM and many interchanges that are out there. But I do think there's going to be aspects of both depending on where you are in the value chain.

On ultrasound specifically, I think anyone who's had a kid knows that the scan takes a fraction of the time and then the incredibly tedious rollable measuring of the spine takes like 2/3 of the entire meeting. How -- yes, clearly, we're very early on in the stage of like automatic image interpretation, management, those kind of things. Do you think you guys can get paid for that? Because you save the system a lot of time. I'm using just one example, particularly with ultrasound, which is skill.

Yes. No, ultrasound is one of those modalities that I mean we're a leader in we just launched actually just a couple of weeks ago, the first new big cardiology platform, if anybody has introduced in quite some time. And Patrick, to your point, embedded in it are multiple, multiple different AI tools. To the point that if you're looking in cardiology, the old days for the cardiologists that know this or folks who have used it to do a left ventricle kind of ejection fraction, you would actually drop points, you would do all this, you have to get the vintage at the heart. Now fundamentally, I simplify, but getting the heart image capture the actual device itself will get the right views. It will automatically do the outline.

And you automatically move from what used to be a tedious outlining, getting all these views and you're trying to then get an ejection fraction number, which is what you want, the device itself can move right from all that to a number. And I do think this is one of the interesting evolutions of quantification in radiology and cardiology. We don't think about it much, but in EKG, a lot of people don't spend the time reading the waveform. The algorithms are so good and it gives you a number or it gives you, yes, there is an issue or yes, there is not. That's also the progress that's going to be happening on all these devices.

But suffice to say, in OB/GYN on our Voluson product, the image quality you get of your child now rivals what used to look like a CT many years ago. And I think that's only going to continue to rise because we're finding new ways with algorithms, particularly driven by AI to be able to optimize them even more. And then when you add a suite of cloud-based capabilities that you can take this now in a handheld in Sub-Saharan Africa or intercity area to check for someone who may need a heart valve or has peripheral artery disease, there's just a lot that's happening in that space. And so we're super excited about that. And also the integration ultrasound will play with other modalities like we were chatting earlier in the cath lab or in the MR area.

Just quickly back to Vivid Pioneer. That's a great example of one of the NPIs we talked about at Investor Day that we expect this will help drive us towards that 1 to 2 percentage points of growth over the medium term.

Yes. So to that point, we talked about for us, one of the big focus areas since we became public 3 years ago was a big influx of R&D funds. And so we've close to doubled the amount of R&D investment we've made since 2018 and the goal, what did you do with the money? Part of that is how do we actually make sure we're at parity or leadership across all the major areas. And the first area coming out, proofpoint is this new cardiovascular ultrasound platform. And then you're going to hear more about things like Photon Counting.

You're going to hear about whole-body PET, vascular suites, what's happening in monitoring. So we have a really strong cycle of launches that will be coming out later this year into '26, which will be strong growth for our orders portfolio in '26, starting to then really drive more even faster revenue backside, but really the '27, '28 window as we articulated then. is full of some great and exciting products. And I think, Patrick, the part that I'm excited about alongside that, we're also advancing this departmental view of AI tools. So we feel good about it, and the teams have done a really fantastic job executing on the programs.