GE HealthCare Technologies Inc. Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to GE HealthCare Technologies Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone. You will then hear an automated message advising your hand is raised. 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 Technologies Inc.'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 US and EMEA remained strong. In our recent US 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 seven-year agreement with the University of Rochester Medical Center to advance diagnostics and precision medicine. This collaboration crosses every aspect of our enterprise. From AI-enabled imaging equipment and radiopharmaceutical production to system-wide patient monitoring solutions and services. In November, we announced the planned acquisition of IntelliRed. 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 IntelliRed 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.

Thanks, Pete. Let's start with our financial performance for the fourth quarter on Slide six. 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. We delivered a book-to-bill ratio of 1.06 times. 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 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.

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, resilient end markets, a record backlog, and are accelerating innovation both organically and inorganically. We also see a 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.

Hi. Thanks for taking the question. 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 twelve-month orders in 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?

Sure. 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 three different areas. We look at book-to-bill, which was 1.06 times in the fourth quarter, 1.07 times on a trailing twelve-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 twelve-month as you pointed out, solidly in the mid-single digits. And we also look at a kind of two-year comparison, two-year compounded growth or stacked growth to eliminate some anomalies there. And, again, this 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 gonna 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. 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 gonna see a bit of an acceleration as we approach the second half of the year, versus early in the year. We think this is a really good setup for '26. But, you know, as we think about sales impact, we start to see a great sales impact in 2027.

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

Yeah. No. Look. I think, you know, broadly, as I mentioned in the prepared remarks, we feel really good about where we are with Arcado. The feedback, what's always so important here is how do clinicians feel about this product and making a difference in the diagnosis of a 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 it 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 you know, 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 missed patient. So we really, you know, throttle 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 know, you heard the numbers that I talked about. You know, January, you know, roughly 220 was kind of what the weekly number was. I think we said on January 23. The important part then 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 in that that consistency is key. We'll be bringing on more CMOs to go into more geographies. And specifically to your point, you know, with the CVA, CDL, two 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.

Okay. So I think we got two questions here. One on China and then EPS. And I think that's related to 2026. The you know, from a 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 kinda 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. You know, 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 a decline in China in 2026. You know, we'll watch this as we move throughout the year. But, again, we wanted to take a prudent approach at this point.

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 kinda give you a little bit proof point why we feel good about the progress is, Jay mentioned the VVP tender win rates. I know, you 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 we want. Which aren't converted to orders yet. And so we know that our rate in the last six months versus the prior twelve 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.

Understood. Thank you, guys.

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

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