Earnings Call Transcript - GEHC Q2 2024

Operator, Operator

Good day, everyone, and thank you for standing by. Welcome to GE Healthcare's Second Quarter 2024 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. Please be advised that today's conference is being recorded. I will hand the call over to the Chief Investor Relations Officer, Carolynne Borders. You may begin.

Carolynne Borders, Chief Investor Relations Officer

Thanks, operator. Good morning, and welcome to GE Healthcare's second quarter 2024 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. And with that, I'll hand the call over to Peter.

Peter Arduini, President and CEO

Thanks, Carolynne, and thanks to all those joining us today. In the second quarter, we delivered 1% organic revenue and 3% orders growth, with all segments contributing. We also expanded margins despite headwinds in the China market. We saw particular strength in the U.S. given replacement cycles and increased use of imaging across disease stages for diagnostics, and resilience in the ultrasound market. Excluding China, global revenue growth was 4%, and orders growth was 6%. We believe we're gaining market share in each of our segments, and we are continuing to invest in products and services that will accelerate growth in the future. As it relates to China performance, we previously communicated that the region would experience negative sales growth in the first half as we faced a challenging compare. At the time, we expected positive sales growth in the second half. Today, the prolonged timing of the rollout of the new stimulus announced earlier this year is impacting the timing of orders and sales. We expect a continued sales decline in China year-over-year in the second half, and we anticipate that growth in China will be negative for the year. As a result, we're lowering our total company full-year organic revenue growth guidance. It's important to note that despite this revenue reduction, we are maintaining our EPS guidance for the year. Although we're disappointed with the second half reduction in sales growth, this is a temporary challenge, and we expect to see China market orders recovery later in the year. We continue to view this market as an attractive long-term opportunity. While China weighed on orders and revenues, we were encouraged by our margin performance in the quarter. Our team has embraced lean and identified process and product improvements at the end of 2023 and the first half of 2024. We're now seeing those benefits coming through our P&L along with increased customer satisfaction, ultimately resulting in higher win rates in products and services. We're making great progress executing improvements that deliver better value to our customers and patients and eliminating waste, leveraging continuous improvement or Kaizen. We run approximately 400 sessions throughout the year and recently completed our global CEO Kaizen week. During the week, we held 28 events across our sites where my leadership team and I joined colleagues to drive and execute process changes and improvements, which is a key aspect of a good Kaizen. Teams were focused on growth, cost, and working capital improvements, some of which had immediate impact at the end of the week, while others will drive impact later in the year. One of our cost improvement Kaizens, a team consisting of engineering, quality, and sourcing built a plan for a high-running CT platform that will reduce overall costs by 23%, with 15% coming out in the first year. In Waukesha, my team focused on improving our responsiveness to customer demand as well as cost savings for the CT and PET/CT products that we manufacture there. We created a visual management tool called HeiJunka Board that shows plant capacity, system availability, and customer orders. The new tool will help us level-load production, optimize manufacturing flow, and meet customer demand while shrinking the lead time on our critical Omni Legend PET/CT system by 31%, and reduce future costs to create these scanners. It was an energizing week for all. Leveraging our productivity progress this year, we are raising our adjusted EBIT margin guidance, and we're reaffirming our outlook for adjusted EPS and free cash flow. Jay will discuss our outlook in greater detail later in the call. Moving to commercial execution milestones. As I mentioned, we had a strong quarter in the U.S. where we secured more than $800 million of multimodality equipment, software, and service contracts. The U.S. market continues to be robust, particularly in Imaging, IGT, and Ultrasound. We saw strong orders and sales growth in the region and continue to see a healthy pipeline for growth. In July, we made two important announcements to develop proprietary AI tools to help expedite clinical and operational efficiencies. This included our agreement to acquire the AI division of Intelligent Ultrasound, a developer of AI tools for women's health ultrasound products, and a strategic collaboration with Amazon Web Services to build foundation models and generative AI tools to streamline hospital operations and care delivery. Now, I'll pass it to Jay, who will take us through the details of our second-quarter performance.

Jay Saccaro, Vice President and CFO

Thanks, Pete. Let's start with our financial performance on Slide 4. For the second quarter of 2024, revenues of $4.8 billion were up 1% organically year-over-year. Recall this quarter's results compared to 9% growth in the second quarter of 2023 when we experienced easing supply chain constraints. As you can see from our filing this morning, the continued market headwinds in China impacted total company sales growth in the quarter by approximately 300 basis points, meaning global sales growth excluding China was approximately 4%. Organic orders growth was solid, increasing 3% year-over-year, driven by strength in the U.S. and rest of the world. Excluding a 300 basis point impact of China on orders, orders growth would have been 6%. Orders dollars continue to outpace sales leading to a strong total company book-to-bill of 1.06 times versus 1.04 times last year. As a reminder, equipment-only book-to-bill is higher than total company book-to-bill. We exited the second quarter with a healthy backlog of $19 billion, including strong services growth. Adjusted EBIT margin was 15.3%, up 60 basis points year-over-year, driven by continued improvement in gross margin with productivity and price. Second-quarter adjusted EPS was $1, up 9% year-over-year, reflecting adjusted EBIT growth and lower interest expense. Free cash flow was in line with our expectations and was negative due to the timing of certain payments. On Slide 5, let's take a closer look at segment revenue performance for the second quarter. We saw very strong PDx sales growth of 14% organically, aligned to global procedural demand. China market headwinds negatively impacted both our Imaging and Ultrasound segments. Service revenue on a reported basis increased 2%. We continue to make very good progress on margin expansion. Let's walk through this on Slide 6. In the quarter, adjusted gross margin expanded 110 basis points, and adjusted EBIT margin expanded 60 basis points. The team has made significant progress utilizing lean capabilities to focus on margin-accretive actions. As a result of these actions, adjusted gross margin increased 110 basis points and adjusted EBIT margin grew 60 basis points through the first half of 2024. Gross margin was particularly strong in PDx with volume and stabilization of raw material costs, and Imaging gross margin expanded, led by new product introductions. In our PDx segment, we hosted a Kaizen in our court facility in May, which led to over 1.5 million doses of annual capacity improvement and cycle time reduction. This is another great example of how lean enables us to increase our volume and expand margins. In IT, we're focused on permanent cost optimization actions that are resulting in ongoing cost savings. For example, we have consolidated more than 40 vendors supporting our applications to one vendor, as we signed a managed service agreement that has resulted in more than $40 million of annual savings. As we exit TSAs, we're developing solutions specific to GE HealthCare's needs. For example, moving more to the cloud and reducing internal data centers, as well as consolidating the number of devices we use. We expect this to drive an additional $20 million of savings in 2024. On the gross profit side, we drove mid-single-digit variable cost productivity across all segments in the quarter. In the second quarter, we invested more than $300 million in R&D, growing 10% year-over-year while expanding our margin. Recently introduced products with AI are driving higher margins. Now I'll turn to segment performance. Let's start with Imaging on Slide 7, where we had flat organic revenue growth. This was against a difficult comparison to the prior year when sales were up 9%. Growth in this segment was also impacted by China market headwinds. Segment EBIT margin was up 40 basis points year-over-year. We continue to make progress on enhancing gross margins through productivity and price while also investing in R&D. Margin improved sequentially by 130 basis points versus the first quarter of 2024 due to volume leverage. Turning to Ultrasound on Slide 8. Organic revenue was down 1% year-over-year, primarily due to China market headwinds. Segment EBIT margin decreased 120 basis points year-over-year, driven by lower sales in China and inflation. This was partially offset by cost productivity achieved through standardization and new product introductions. We continue to see solid customer demand, especially for our recently launched products. Moving to Patient Care Solutions on Slide 9. Organic revenue was up 1% year-over-year, following 9% growth in the prior year. Segment EBIT margin decreased 90 basis points year-over-year due to product mix, while productivity actions offset inflation, with expected contributions from new product introductions and a healthy backlog, we are well positioned to drive future growth. Moving to Pharmaceutical Diagnostics on Slide 10. We had another strong quarter, generating 14% year-over-year organic growth, driven by volume, pricing, and new product introductions. Segment EBIT margin of 31.2% improved 450 basis points year-over-year, driven by sales volume, productivity, and pricing. We're pleased with the continued margin expansion in this segment. Security of supply remains top of mind for our customers, and we're continuing to make investments to enhance global supply of contrast agents and radiopharmaceuticals to meet increased demand. In particular, we're encouraged by positive developments in the molecular imaging market. We saw continued acceleration of Vizamyl doses delivered in the U.S. in the second quarter. These sales increased three-fold. Turning to Slide 11 on cash flow performance. In the second quarter, free cash flow was negative $182 million due to the normal timing of compensation and interest payments. We continue to expect strong cash generation for the full year. Free cash flow is expected to be substantially higher in the second half of the year relative to the first as a result of seasonality, given higher volumes as well as the timing of certain supplier and compensation payments that occur earlier in the year. Our strong cash flow profile continues to provide us the flexibility to advance our growth strategy while reinvesting in the business and executing a disciplined capital allocation strategy. Now let's turn to our outlook on Slide 12. We're taking a prudent approach and are lowering our full-year 2024 organic revenue growth guidance to be in the range of 1% to 2% due to temporary market headwinds in China. Despite this reduction, we're raising our guidance for adjusted EBIT margin expansion, which we now expect to be 60 basis points to 90 basis points year-over-year, associated with the continued momentum we're seeing on productivity and optimization initiatives, along with contributions from new product introductions. We're reaffirming our expectation for adjusted EPS in the range of $4.20 to $4.35 with growth of 7% to 11% and free cash flow of approximately $1.8 billion. We expect the third-quarter year-over-year organic revenue growth of approximately 1% and adjusted EBIT margin expansion to be relatively similar to the second quarter. We would expect year-over-year organic revenue growth and adjusted EBIT margin in the fourth quarter to be the highest of the year. As you think about the year, I would note that we expect the revenue headwind from foreign exchange to be less than 1% in 2024. Now, I'd like to turn the call back over to Pete.

Peter Arduini, President and CEO

Thanks, Jay. Building on my comments from earlier in the call, our lean culture has allowed us to create a strong pipeline of innovation and accelerate our ability to bring differentiated solutions to market for patients and customers. We'll dive deeper into some of what you see on the slide at Investor Day. But today, I'd like to focus on growth in PDx and Imaging. We're encouraged by the recent CMS reimbursement proposal that has potential to benefit patients in the U.S. who are facing cancer, cardiovascular, and neurological diseases. This step is expected to unlock the value of our radiopharmaceuticals and PET and SPECT scanners, ultimately enabling more precise diagnostic and treatment planning for patients. To give you some perspective, for the last decade, these molecular imaging agents were treated as a supply with limited reimbursement, which prevented broad-scale use. Assuming the new rule goes into effect on January 1, 2025, we expect CMS will begin paying market value for these agents, some of which have an average sale price of thousands of dollars. The change will give hospitals the needed reimbursement to cover their costs better, which has been a long-standing challenge in this space. This comes at a time when we continue to see momentum with existing radiopharmaceuticals, including DaTscan, Vizamyl, and Cerianna and the promise of future molecules such as Flurpiridaz for cardiovascular disease. We expect each of these products will benefit from the new reimbursement rule. As Jay mentioned, Vizamyl doses continued to grow in the second quarter in the U.S. with the recent FDA approval of donanemab. We anticipate an even further uptick of our diagnostic amyloid PET agent. This is still a small contributor to sales growth but gives us optimism about its sales potential over the next few years. On the equipment side of PET imaging, we expanded our upgradable Omni Legend platform by introducing a smaller detector providing upgradability and value so customers can adopt the scanner to meet the evolving needs of their patients. We also introduced MINItrace Magni, a small, low-cost cyclotron for in-house production of tracers and radioisotopes. This will help regional hospitals with limited access to commercial distribution or larger hospitals with siting issues that prevent them from building the infrastructure needed to accommodate a traditional-size cyclotron. Turning to Slide 14. We're aligning our ultrasound and image-guided therapies business to better position ourselves for how clinicians use these two modalities in high-growth settings. For example, you can see how multiple products work in conjunction inside an electrophysiology suite and when integrated into the workflow, create a better experience for our customers and patients. These two businesses combined unlock more value than they do separately. We are looking forward to sharing more about this at Investor Day. We also made strategic leadership appointments aligned to these changes. As of July 1, Roland Rott, our previous Head of Ultrasound, is leading Imaging; and Phil Rackliffe, Head of Image Guided Therapies, is leading Ultrasound and IGT. Roland and Phil have deep industry knowledge, a global mindset, and significant expertise with our products and operations, and they're well-positioned to lead our two largest businesses and are off to a great start. Before turning to Q&A on Slide 15, I want to thank our team for their commitment to delivering for our customers. In particular, I'd like to thank our government affairs and policy team who advocated for multiple years the proposed CMS hospital outpatient rule for the benefit of patients. As I look ahead, I'm optimistic for a few reasons. One, we have a strong backlog at $19 billion. And with a prudent approach to our revenue guidance, we feel confident that we can deliver on our outlook. We're encouraged by overall capital equipment spent, particularly in the U.S. We delivered solid orders growth in the quarter at 3% or 6% excluding China. Our funnel of productivity opportunities is strong, and we were able to raise our adjusted EBIT margin guidance due to our progress on these initiatives, and there's still much more to do here. We're excited about the pipeline of innovation that solves customer challenges, enables improved patient care, and sets us up well for growth in the years to come. More about this in November at our Investor Day. And lastly, given these factors, we're confident that we can deliver on our medium-term goals. With that, we'd like to open up for questions.

Carolynne Borders, Chief Investor Relations Officer

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, Operator

Thank you. Our first question is from Joanne Wuensch with Citi. Please proceed.

Joanne Wuensch, Analyst

Good morning and thank you for taking the question. I think I want to spend my question on China, and trying to understand how you think about the pace of opening up new orders from the stimulus program. When do you anticipate it arriving and how as we put our 2025 models together, you think about this rolling into next year? Thank you.

Peter Arduini, President and CEO

Hey, Joanne. It's Peter. Thanks for the question. So as I mentioned in my prepared remarks, the stimulus program rollout and the details of those plans are taking longer than we estimated, I think, than many people estimated. Just some background, in 2022, when there was a previous rollout from the central government, it came out pretty quickly. I think it was around under six months from announcement to rollout; that was kind of the predicate we based our assumptions on. In '24, the rollout is taking longer, mainly because it's a combination of each of the 31 provinces and the central government working together, and so that's taking longer to roll it out. We believe that this is going to be well into late '24 before it begins driving growth. So we've fundamentally taken that out of our numbers. We ultimately expect that this is going to be a positive catalyst for the China market, and we believe it could have a positive impact on orders starting in late '24, but we view this as a limited sales impact just on the time between tenders, orders, and sales to take place. Taking it out of our numbers for the year, we viewed as prudent. But again, we would expect to see the benefit of the stimulus having an impact in '25, and obviously, when it does come forward, we'll take advantage of it. Jay, you may want to add a few comments.

Jay Saccaro, Vice President and CFO

Sure. Let me provide some more detail on this adjustment. Last quarter, we estimated a decline in sales of around $50 million for the second quarter, but it turned out to be closer to $100 million. So far this year, our disclosures indicate a decline of about 15%, and we believe there will be no significant impact from sales driven by China's stimulus for the rest of the year. We anticipate facing a difficult market moving forward. Regarding our guidance adjustment for 2024, at the midpoint of the 1% to 2% range, it represents approximately a $500 million impact in China compared to our previous expectations. When China's stimulus begins to be implemented, it will be a positive development, but we are not trying to predict the timing of that package, so we've removed it from our projections. On a positive note, we believe we are well-positioned to benefit when the stimulus does come through, as Pete mentioned. Overall, we see the market as an attractive long-term opportunity, but this year is certainly challenging. Historically, China has accounted for around 14% of our business, but we expect that to decrease to the 11% to 12% range based on our current modeling.

Joanne Wuensch, Analyst

Thank you.

Peter Arduini, President and CEO

Thank you.

Operator, Operator

Our next question comes from the line of Larry Biegelsen with Wells Fargo. Please proceed.

Larry Biegelsen, Analyst

Good morning. Thanks for taking the question. I wanted to start with the '24 guidance. Jay, as you mentioned, you lowered revenues by about $500 million, but maintain margins, actually increased margins a little bit and maintained EPS. So my question is, how are you able to maintain margins and EPS given the revenue reduction? I did have one follow-up.

Jay Saccaro, Vice President and CFO

Great. Thanks, Larry. So look, I think you heard in our prepared remarks, a lot of emphasis on Kaizen, lean culture, and cost initiatives. I mean we're really proud of that. And I would say that, that is the thing that has exceeded our expectations as we look at the bottom line throughout the year. We delivered 60 basis points of margin in the first half of the year against very low revenue growth. In fact, we had a really good gross margin contribution year-over-year, 120 basis points in the first half of the year. And in the second quarter, the formula that we've talked about historically is one that we really delivered on. We had roughly one point of positive impact in price exactly where we hope to be. Notably, our variable cost productivity initiatives, and we talked a little bit about that more than offset inflation. You saw highlights from some of the G&A initiatives, really proud of the work that our IT team is undertaking. Some of those initiatives also contributed in the second quarter. So what happens in the back half of the year is more of the same. In the third quarter, we'll see similar margin expansion to what we saw in Q2. In the fourth quarter, at the midpoint of the range, there is some tick-up in margin expansion, and it's going to come through continued price. Some of these productivity initiatives offsetting inflation and these cost initiatives that we had success with. Also, I would note that in the fourth quarter of last year, we had around 40 basis points of one-time R&D items we don't expect to repeat. So really, that's the contours of the year as we think about margin improvement. At the beginning of the year, we were cautious and we did risk-adjust some of these productivity initiatives and cost containment initiatives. The question of how do you offset $500 million is real execution against these initiatives, delivering incremental profit versus our expectations. I think it's a company-wide effort, highlighted by things like kaizen initiative week that we had last week. Overall, I feel very good about the margin trajectory.

Larry Biegelsen, Analyst

That's helpful. And Pete or Jay, I heard Pete, your comments about confidence in the medium-term goals. Any high-level thoughts right now on 2025? Do you expect some catch-up from China next year? And are you still confident in the mid-single-digit growth outlook? Thank you.

Peter Arduini, President and CEO

Thank you for the question, Larry. As I mentioned earlier, we are confident in our medium-term goals regarding both revenue and profit, which Jay has explained. On the growth side, we cannot predict the value China will bring in 2025, but it may exceed our earlier expectations. We will have to see how that develops, and it's too early for guidance on that front. I believe the focus should be on the significant internal changes we've implemented. Our success in commercializing large integrated deals, our ability to deliver more value, achieve better pricing, and introduce new products with unique capabilities gives me confidence as we wrap up this year and look towards 2025 and beyond. I also want to mention that our upcoming Investor Day in November will be our first as an independent company, where we aim to showcase the products we've been developing with increased R&D investment. We've raised our R&D spending over the past few years across various areas, including MR, CT, PET/CT, monitoring, ultrasound, and our pharmaceutical diagnostics, with new molecules in the pipeline. We want to share that progress, and overall, I feel optimistic about our position as we prepare to execute our plans for the year and continue our growth over the next few years.

Larry Biegelsen, Analyst

Thanks a lot.

Operator, Operator

Thank you. Our next question comes from the line of Anthony Petrone with Mizuho Group.

Anthony Petrone, Analyst

Thanks. Maybe a two-part question here. One is going to be on orders and bookings, and then the second will be on Alzheimer's disease. So the order number, plus 3% and book-to-bill 1.06, come in despite the headwinds in China, and I think a lot of that has to do with just state of the U.S. market. Maybe just a little bit on the U.S. market as it relates to funnel, specifically in the Imaging and Ultrasound segments. How much visibility is there and can this feasibly extend into 2025? The second question is, for Alzheimer's disease, there are a couple of blood-based tests that had results out recently. Clearly, Vizamyl is at least in the early innings here, a preferred imaging solution to onboard Alzheimer's disease patients. So how does Alzheimer's disease play out from the PET/CT side when we consider new tests potentially coming in? Thanks.

Jay Saccaro, Vice President and CFO

Maybe I'll start with that and then turn it over to Pete for some additional color on orders and the Alzheimer's question. Look, the 3% orders growth in the face of a decline in China, I thought it was a really good result. Orders excluding China were 6%, and the book-to-bill, as you point out, actually the book-to-bill for the quarter of 1.06 was the highest since we've spun off. In the U.S., we had a very strong quarter; we saw strong orders and sales growth. Frankly, in each of the segments, orders growth outpaced sales growth in the U.S. So really, really nice market there. The market continues to be robust. We're seeing PDx putting very solid numbers up in line with procedure growth. As you know, we do a quarterly survey. We also do work looking at all the surveys out there, particularly with respect to the U.S. Many of our customers are telling us in those surveys that they plan to spend more on capital investments in the second half. So I think that's a really good backdrop as we look to deliver on the guidance that we've just shared. We're seeing growth in the equipment market in the U.S. and we feel very good about the share position that we have. We launched a number of new products in Ultrasound. We're seeing a real receptivity to some of the new products that we have in place. Overall, we feel quite good about the U.S. market. We feel good about the orders backdrop. The other point I would note is backlog is up sequentially, $300 million in that range at $19 billion. So we're keeping the backlog at the level that we'd like to as we continue to grow the business. Pete, what would you add to that?

Peter Arduini, President and CEO

I believe you covered it, Jay, but I want to highlight that our U.S. team had an outstanding quarter. It's not just about products; we've made significant improvements with our team, talent enhancements, and new sales practices, along with our enterprise value proposition aimed at major integrated delivery networks. We achieved several large victories, including new product areas such as the vascular lab sector, where we've seen growth in the IGT business and gained market share that we haven't seen in recent years. The existing installed base in the U.S. presents a strong replacement opportunity moving forward. Feedback from our customers, especially CFOs, indicates they are optimistic about investments. When there is substantial growth in various med-tech segments like catheters and related pharmaceuticals, it increases the demand for more equipment because more patients are being treated. There have been some delays, but we remain confident about the U.S. market. Regarding your question about the radiopharmaceutical sector, we anticipate many new diagnostics will emerge in different phases; however, their acceptance and integration into practices are yet to be determined. In terms of Alzheimer's, the initial tests were based on PET scans that assess amyloid beta and its elimination. We believe this will remain crucial for these products. Depending on the market acceptance of those therapies, there will be significant opportunities for growth with multiple products. It's worth noting the recent changes made by CMS; previously, scans for radiopharmaceutical diagnostics received minimal reimbursement, but now they will receive reimbursement closer to the actual list price, which could be thousands of dollars. This improved economic model encourages healthcare providers to transition into this area, especially if they have a larger distribution network for various products. We're excited about these prospects, with Alzheimer's being just one aspect, alongside breast cancer, Parkinson's disease, and cardiovascular disease in the future. With these changes, we are optimistic about the growth potential.

Anthony Petrone, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Vijay Kumar with Evercore ISI.

Vijay Kumar, Analyst

Hi, guys. Good morning, and thank you for taking my questions. Jay, my first question was on guidance. Revenues cut by 250 basis points. I think operating margins tweaked up 10 basis points. It doesn't really explain the EPS, right? Any below-the-line assumptions change tax expense, other income?

Jay Saccaro, Vice President and CFO

No, broadly speaking, the below-the-line assumptions remain the same. We are experiencing a revenue reduction that is backed by our current projections. The EPS range continues to be fairly wide, largely due to the uncertainty we observe in China. While there aren't any significant changes below the line, we are optimistic, especially considering the strong performance in the first half and the ongoing visibility into additional productivity initiatives. We are confident in our ability to achieve this range.

Vijay Kumar, Analyst

Understood. And Pete, one for you. I know you've spoken about new product momentum, NPI. You talked about some of these new products that you're launching and about to launch. I think you've had a bunch of software on the side as well. Maybe list them out and what is incremental share as we look at back half into the medium term?

Peter Arduini, President and CEO

We have several updates and upgrades across our product line that will enhance the value of our recently introduced MR products, along with a significant number of upgrades. A major driver of growth, especially in MR, comes from enhancements to our deep learning module, as well as upgrades to our installed base. In the Ultrasound area, particularly General Imaging, we've launched several new versions of that product line, which have performed well. In women's healthcare, we are seeing our performance meeting or exceeding expectations. While our revenue in Ultrasound was slightly lower this quarter, we anticipate improvement in the second half, as our orders have been positive. Our surgical C-arm OEC business is also performing well, aided by new software applications that integrate Cath Lab-like features into a mobile C-arm. Our Allia platform is gaining market share, and we are seeing encouraging results from our in-room monitoring systems. Looking ahead, we are excited to discuss our plans for the years 2025 to 2027, including advancements in Photon Counting, next-generation MRI, and expanded PET/CT imaging capabilities, which reflect our significant investments in recent years. These topics will be a highlight at our Investor Day in November.

Vijay Kumar, Analyst

That’s helpful. Thank you, guys.

Peter Arduini, President and CEO

Thanks, Vijay.

Operator, Operator

Thank you. Our next question comes from the line of David Roman with Goldman Sachs. Please proceed.

David Roman, Analyst

Thank you and good morning, everybody. I wanted to dig into China a little bit further. Understanding that the stimulus is a bit of an unknown. Maybe we could just take a step back and you could talk a little bit about just underlying drivers in China because as you look at some of the third-party data, it looks like the vast majority of the installed base across Ultrasound, CT, and MR has been refreshed in the past four years. So how should we think about the medium-term underlying growth in China? Is it more than just stimulus impacting the outlook here?

Jay Saccaro, Vice President and CFO

Yeah, David. Good question. As we look at China, historically, we've seen this as a very robust growth market. Previously at our Investor Day, we talked about China growth of 6% to 8%. We feel good long-term about the growth dynamics in China. We had a very solid year last year with double-digit growth, and then we see a decline this year. But our decline this year is not related to age of installed base as we see it. Our decline this year is very much related to limited buying activity by hospitals as they await clarity on the stimulus. As it pertains to your specific comment on age of installed base, one thing I would note about your comment is that a lot of the recent purchases in the timeframe you referenced and the refreshed equipment were at lower end or county hospitals versus major institutions where we have a higher presence. As we look at age of our installed base in areas like Ultrasound and Imaging, it is above the numbers that you've described and is consistent, broadly speaking, with global averages. So I do think there is a dynamic of the tier of hospital in play. Overall, we think this will continue to be a really nice market for us long-term. Pete, I don't know if you'd add anything.

Peter Arduini, President and CEO

Yeah, I think you covered it, Jay, but just a couple of facts. As you know, David, the China population is 1.4 billion, about 400 million have pretty good access. There's 1 billion people that don't. We have a partnership with Sinopharm with broader distributor capabilities to reach into that untapped market. That will continue to be a growth area. It's probably also going to be part of some of the investments that the government is making. Another tidbit is that used equipment isn't actually allowed to be sold within China. There really isn't a recycling of used equipment around. It ends up being all new equipment coming in. That actually has a higher effect on growth than in other markets, particularly in the United States, where we have quite a bit of upgrades and movement around equipment, that doesn't exist in China. When we look at the numbers, I think we feel pretty good about what the longer-term growth potential is based on those facts.

David Roman, Analyst

That's super helpful. Maybe just a follow-up on some of your comments about the U.S. We've now heard a couple of companies talk about operating rooms and other parts of the hospital facing capacity constraints. You called out EP as an area of growth focus for you. How should we think about kind of your tethering to some of these higher-growth attractive end markets for structural heart or EP? Do we see that in your Interventional Imaging segment? How should we think about the contribution to GE? Does that change any of your strategic thoughts here from a business development standpoint on areas of interest, as you sit around the periphery of a lot of these procedures going more into the implantable device or sort of inside the body side of things?

Peter Arduini, President and CEO

Yeah, David. It's a really good question. Obviously, we'll spend more time in some strategic settings on this. But at a high level, we have the strategy we focus on, which we articulated D3, smart integrated connected devices that work together around a given disease state or care pathway, and enable us to drive more productivity or better outcomes with digital AI features. If you take the EP example, the first part is having world-class electrophysiology labs that we can win the hardware. The reality is, a few years ago, we probably didn't have all the right features. We do now. We think from a standpoint of winning those labs, we're going to win at a higher rate than we did in the past. On the disease stage side of electrophysiology itself, we have folks primarily focused on that to say how does ultrasound, how does the EP devices, how does the actual data systems work together so we can come up with a better solution. We are working on that. It's one of the main reasons that we created the IGT ultrasound alignment because there's a lot more cardiovascular benefits in everything from channels to the development side. To your broader point, when you start thinking about disease states, it opens your lens up to say, well, should I partner with this company more because if we do, we could solve this customer problem or should I buy this asset because together, these four things create more value? So to answer your question, absolutely, we’re expanding our horizons to think about what should be part of GE HealthCare.

David Roman, Analyst

Terrific. Thanks so much and look forward to seeing you in November.

Peter Arduini, President and CEO

Thank you.

Operator, Operator

Thank you. Our last question comes from the line of Matt Taylor with Jefferies.

Matt Taylor, Analyst

Thank you for taking my question. I have a query regarding the PDx business. You mentioned the Medicare changes, which are certainly a significant advantage for that area. I'm curious if those changes affect your outlook on the long-term potential or growth rate for the contrast media molecular imaging markets you're involved in. Additionally, you’ve mentioned Vizamyl several times in recent calls due to its impressive growth. Could you provide more details on its potential or on Flurpiridaz to help us understand their current contributions and your expectations for them, particularly as you prepare to launch Flurpiridaz next year?

Jay Saccaro, Vice President and CFO

Sure. Maybe I'll start with a few comments and then turn it over to Pete as well. Overall, the PDx business has been growing really well. We saw 14% in the second quarter. A lot of that relates to volume, about 10% of that relates to volume, with a couple of points of price and new products also contributing. We talked about Vizamyl volumes tripling in the U.S. Based on the new CMS along with the new approval, we're really optimistic about this particular product long-term. If I think about areas that are changing relative to the prior Investor Day and prior investor expectations, this whole area is one that we have more optimism on. Vizamyl sales at this point are still very small. So we're still talking a few million dollars. As we see the uptake of the Alzheimer's therapies, we're seeing continued interest and implementation of programs to support diagnostics in this area. We expect to see continued growth throughout the year. The CMS ruling could unlock accelerated growth next year, both in Vizamyl, Flurpiridaz and some of the other products that we're working on. Pete, I don't know if you'd like to add to that.

Peter Arduini, President and CEO

Yeah. I just think we haven't framed up what all the longer-term growth yet will be on the molecules. But needless to say, we're more optimistic today than we were prior to the approval. What we're working through right now and framing this up is just take an example of a product that the hospital might be paying a couple of thousand dollars for, but they're getting reimbursed $200 for. Now in the future, they'll get reimbursed at what they're paying for it. To be able to detail that and have a discussion with an institution about how to build out a program that's going to be a value creator for them, and our confidence that the outcome capabilities for the patient is higher is very strong. Think about Cerianna for metastatic breast cancer; it's actually on many of the guidance documents now, but it’s economically challenging for someone to implement it on a day-to-day process. Tomorrow, the situation changes. The other aspect is probably even less about what we do on diagnostics and more about what pharmaceutical companies are doing with therapies. The more therapies that come out in the space, the more you need someone like GE HealthCare that has the equipment, the data integration, the distribution capabilities, and the diagnostic molecules to help kind of solve the equation. We'll obviously spend more time on this with investors, but this is a very positive direction, and it's quite helpful for our growth strategies in the coming years.

Matt Taylor, Analyst

Thanks, guys. Can I ask a follow-up about China? I'm trying to understand your comments in relation to some of your competitors. They seem to suggest that orders are beginning to return in the second half of the year. Are you being more cautious with your China guidance due to the uncertainty there, or do you believe your outlook aligns with that of others?

Jay Saccaro, Vice President and CFO

Sure. Just to start, I'll turn it over to Pete. We experienced a 15% decline in sales in the first half. When we examine the market and orders, considering market activity rather than share-related issues, we believe it's prudent to adjust the midpoint figure down by $500 million, which suggests a high teens decline for the second half of the year. We have factored out the positive effects of stimulus on sales and anticipate declines in a challenging market environment. This perspective is not unique to us; it reflects a broad view of the market.

Matt Taylor, Analyst

All right. Helpful color.

Peter Arduini, President and CEO

Yeah. Thank you.

Operator, Operator

Thank you. Our last question comes from the line of Graham Doyle with UBS.

Graham Doyle, Analyst

Good morning. Thank you for taking my question. I have a follow-up regarding China. Jay, you mentioned the actual number, and it seems like there's a 40% decrease expected in the second half compared to your original assumption, which is a significant change. This prompts me to wonder about the confidence in your midterm targets starting next year, especially given the volatility in that market. As Matt pointed out, I spoke with both Siemens and Philips today, and it appears they are not anticipating such a large decline in their revenue from China in the second half. Is this just a more cautious approach on your part, or is there something specific in the patient monitoring market that others might not be observing? I would appreciate any insights you can provide. Thank you.

Peter Arduini, President and CEO

Yeah, Graham. I know I can start. For our business in China, it's primarily an imaging ultrasound story. All of us have different mixes of products. So there's not a one-to-one match. But I’ll tell you what we did. Our sales force pulled out to all 31 of the provinces, all our big customers, and asked the questions, when you're going to buy, what you're going to buy, what that's going to look like, and we roll that up for each 31 provinces, trying to understand from what they're saying, what the timing would look like. Based on that, we understand how long it takes a tender, how long it takes to get to order, and how much time then to actually do an install based on the mix. We do believe there's going to be orders coming but we don’t think there's enough time on the clock from a sales standpoint. We might be wrong, but we're not trying to guess, so we thought it prudent to take it out.

Graham Doyle, Analyst

Okay. Just to the context of the question, why was it in there in the first place? Like at what point did you put stimulus into the guidance? At the start of this year, was it Q1 because it didn't seem like something that was that uncertain to start. So I'm just trying to figure out how much more will you have taken down?

Peter Arduini, President and CEO

Yeah. Fair. Look, a very fair question. Keep in mind, in 2022, when the stimulus came, it ran incredibly quickly. As we started the year, it wasn't super clear if there was going to be stimulus or not. But as we got closer to Q2, the question was, if it follows the same ramp, it’s probably going to be within this year. What's new is the fact that when it is slower and someone's deciding to buy, if you buy something now, you may not get the 30%, 40%, 50% value from the government to support your sale. Naturally, you're going to wait to make a decision to see what stimulus is. That’s the difference here in the calculation that I don't think anybody saw, that it would take that much longer.

Jay Saccaro, Vice President and CFO

I mean the only thing to add is, this is not even like so, we're seeing a depressed level of demand relative to normal as people await clarity. We think the stimulus is a good positive thing long-term. But in the market, as we saw it in Q2, as we see Q3 quarter-to-date, it is depressing activity in the market thus far. That’s why we made the assumption. It was the right thing to do.

Graham Doyle, Analyst

Okay. Fair enough. Thank you. Thanks a lot, guys.

Peter Arduini, President and CEO

Yeah. Thank you.

Operator, Operator

Thank you. Thank you all who participated in today's conference, and you may now disconnect.