Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GE HealthCare Technologies Inc (GEHC, Financial) reported strong growth in backlog, primarily driven by services, which supports recurring revenue with high predictability and accretive margins.
- The company delivered a strong adjusted EBIT margin of 16.3%, up 90 basis points year over year, and raised the low end of its full-year adjusted EBIT margin and adjusted EPS guidance ranges.
- GEHC's pharmaceutical diagnostics segment reported 7% year-over-year organic growth, driven by healthy procedure volumes and a robust EBIT margin of approximately 31%.
- The company secured FDA clearance for a new software tool to standardize and automate radiation dosage measurement during theranostics treatment, enhancing patient access to precision medicine.
- GEHC is investing in AI and cloud-based solutions, such as CareIntellect, to optimize care delivery and reduce operational inefficiencies, which could drive future recurring revenue.
Negative Points
- Organic revenue growth was only 1% for the third quarter, impacted by market headwinds in China, which reduced total company sales growth by approximately 400 basis points.
- China's market recovery has been slow, with stimulus funding coordination taking longer than expected, leading to delayed purchasing and impacting overall growth in the region.
- The advanced visualization solutions segment experienced a 190 basis point decrease in EBIT margin year over year, driven by unfavorable mix despite cost productivity improvements.
- GEHC expects full-year 2024 organic revenue growth to trend towards the lower end of its 1% to 2% guidance due to continued softness in the China market.
- The company faces challenges in expanding its PET system infrastructure to support the anticipated growth from new products like Flyrcado, which could delay revenue ramp-up.
Q & A Highlights
Q: Can you provide insights into the future operating margin expansion and the impact of the separation process?
A: James Saccaro, Vice President and CFO, explained that margins have trended well, with EBIT margin up 70 basis points year-to-date. The company has focused on pricing, productivity initiatives, and cost savings. As they move forward, the completion of transition service agreements will allow for new initiatives, and R&D investments will lead to differentiated products, supporting future margin improvements.
Q: How do you view the forward trajectory of the China market, given its current challenges?
A: Peter Arduini, President and CEO, noted that the China market has been slow to recover, with stimulus funding coordination taking longer than expected. They anticipate limited market improvement through the first half of 2025. However, they view this as a temporary challenge and remain optimistic about China's long-term attractiveness.
Q: What are your thoughts on the pricing strategy for Flyrcado compared to existing alternatives?
A: Peter Arduini stated that while specific pricing details are not yet disclosed, Flyrcado offers better specificity and operational capabilities than existing alternatives, justifying a premium price. The company is working with CMS and other payers to position the product appropriately.
Q: Can you elaborate on the infrastructure needed for Flyrcado to reach its potential revenue contribution?
A: Peter Arduini explained that Flyrcado requires PET scanners, which are primarily used in oncology. Some cardiac centers already have the necessary infrastructure, but others may need to acquire PET systems, which could take 6 to 12 months to install. The company is optimistic about the product's potential once infrastructure is in place.
Q: How do you view the potential for GE HealthCare to gain market share in the systems side, particularly with new AI products?
A: Peter Arduini expressed optimism that Flyrcado and new AI products could drive growth in the systems side. The company has a scalable platform and distinctive capabilities that position it well for future growth, particularly in personalized medicine and theranostics.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
