Good day, ladies and gentlemen, and welcome to the GE Healthcare First Quarter 2023 Earnings Conference Call. My name is Olivia, and I'll be your conference coordinator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Carolynne Borders, Chief Investor Relations Officer. Please proceed.

Thanks, Olivia. Welcome to GE HealthCare's First Quarter 2023 Earnings Call. I'm joined by our President and CEO, Peter Arduini; and Vice President and CFO, Helmut Zodl. 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.

Thank you, Carolynne, and good morning, everyone. I'm very pleased by the solid performance we delivered in our first quarter as an independent company. The momentum we demonstrated last year has continued, and I'd like to thank our teams across the world for their continued dedication to executing on our precision care strategy. We delivered strong 12% year-over-year organic revenue growth with contributions coming from all of our segments, driven by increased fulfillment, improved pricing and commercial execution. We expanded adjusted EBIT margin year-over-year through price and lean initiatives focused on cost and operational effectiveness and we're on track to achieve our margin expansion goals for the year. We continue to monitor customer prioritization of capital purchases of our products, and we are cautiously optimistic given resilient end market demand. Supply chain challenges are improving, giving us line of sight throughout the remainder of the year. We continue to invest organically to deliver long-term growth, demonstrated by the 13% year-over-year increase in R&D in the first quarter, in line with top line growth. In addition, we acquired Caption Health and IMACTIS, which provide us access to new technologies, markets and clinical capabilities. I also want to highlight today's declaration by our Board of a $0.03 dividend for the first quarter of 2023. This reflects our confidence in the durability of our cash generation, a disciplined capital allocation strategy and our commitment to returning value to shareholders. Overall, the momentum we see in our business gives us confidence in our ability to deliver on our full year 2023 guidance. With that, let me hand the call over to Helmut to walk through our financials and business segment performance.

Thanks, Pete. Turning to our financial performance. For the first quarter of 2023, revenues of $4.7 billion increased 8% year-over-year and grew double digits at 12% organically. This was primarily driven by strong product growth across all segments. Adjusted EBIT margin improved year-over-year to 14.1%, growing 150 basis points on a stand-alone basis versus last year. Margin was up to the higher volume, which was partially offset by the mix of products versus services. In addition, we were able to mostly offset inflation and play investments through our pricing and productivity actions. But we are pleased with our margin performance during the quarter. There is room for more improvement. We have lean action plans in place to continue to expand margins further through volume, price and productivity initiatives across the company. Adjusted EPS was $0.85, up 35% on a stand-alone basis, driven by our strong revenue growth as well as margin expansion efforts. Free cash flow of $325 million was down $46 million, as expected based on the spin-related items, which I will discuss shortly. Total company book-to-bill, which, as a reminder, is a calculation of total orders divided by total revenue was 1.01x. This was driven by strong revenue growth across all our segments, led by recurring PDx sales. We continue to see customers invest in solutions that drive better clinical insights and productivity across the U.S., China and Europe. Moving to revenue performance. We grew 12% organically year-over-year. Foreign exchange was a headwind of 4% to revenue growth during the quarter. On a reported basis, product revenue increased 12% year-over-year driven by PDx sales with strong demand from increased procedures. Services revenue grew 1% versus the first quarter of 2022. Our strong product growth will translate to services growth as we go forward. From a regional perspective, we are pleased to see all regions growing with China up double digits. We are pleased with our margin performance this quarter. As we continue to focus on improvements in delivery, price and productivity. We delivered a positive sales price for 4 consecutive quarters with growth in all segments. These efforts combined with our productivity initiatives enabled us to generate year-over-year and sequential gross margin expansion. We also continue to see supply constraint easing with spot price and logistics costs down sequentially and year-over-year. The actions we've taken to broaden our supply base coupled with the continuous application of lean principles has helped us to requalify almost 8,000 parts since COVID began. This has led to the lowest number of red flag parts since the first quarter of 2021, enabling us to deliver for patients and customers, which is our top priority. As we look at our platforming initiatives, we have made good progress in CT with increased standardization of components across the portfolio. We've identified opportunities for simplification in sourcing, purchasing and manufacturing. We are in the process of implementing similar changes in MR. Following our spin-off from GE, we are on track with planned exit of TSAs, with approximately 40 exited to date. We remain focused on reducing G&A costs for example, with real estate expense and IT costs. Moving forward, we see opportunities to expand margins through additional actions for instance, in logistics with greater shift from air to ocean and greater platform standardization. Before I get into the segment commentary, let me remind you that in 2023, approximately $200 million of recurring stand-alone costs will be impacting our segment EBIT margin rates. These costs are generally allocated based on the revenue and did not exist in 2022. Turning to imaging. We saw strong organic revenue growth, up 12% year-over-year. This was led by MR as well as molecular imaging and CT, driven by supply chain fulfillment improvement and growth in revenue from MPIs. We expect continued high growth throughout the first half of 2023 that will normalize throughout the rest of the year. Imaging demand is expected to remain healthy, supporting top line growth. Segment EBIT margin of 7.7% declined 120 basis points year-over-year as planned investments and mix outweighed higher volume. Productivity and pricing initiatives more than offset inflation. We expect sequential margin rate improvement as we move throughout the year. Through lean efforts in imaging, we initiated a rolling 13-week schedule to maximize factory output and customer satisfaction. This will improve fulfillment as well as working capital. Overall, we expect steady growth in demand in 2023 with a number of drivers, including a continuous backlog of procedures, expanding indications for high-end diagnostic exams and new therapies requiring precision imaging. Moving to ultrasound. We saw strong organic revenue growth, up 10% year-over-year, led by cardiovascular, general imaging and women's health products. This was driven by MPIs and improving supply chain fulfillment with few electronic component shortages. While we expect growth to normalize as we move throughout the rest of the year, we continue to see strong customer demand in both hospital and other care settings. Segment EBIT margin of 24.1%, was up 50 basis points year-over-year. We realized benefits from productivity and price initiatives, along with volume growth. This enabled us to offset headwinds from inflation and planned investments, including the Caption Health acquisition. We expect the EBIT margin rate will remain generally in line with the prior year. We continue to focus on patients and customer-centric innovation, especially digital and artificial intelligence solutions. Moving to Patient Care Solutions. Revenue was up 11% organically, driven by volume and price. This resulted from greater backlog fulfillment as supply challenges eased, particularly for electronic components. We benefited from dual site production for highly constrained products. Revenue was also driven by the launch of key MPIs contributing to increased volume, such as CARESCAPE Canvas and the B100 series of acute care monitors. PCS backlog remained strong, which will contribute to revenue growth into the future. We expect quarterly revenue dollars to remain relatively consistent throughout 2023. PCS margins of 14% increased 490 basis points compared to the first quarter of last year, driven by productivity, price and volumes. These are partially offset by inflation as well as planned investments. Productivity in the first quarter was driven by favorable logistics and lower spot price. We expect EBIT margin rate to normalize throughout 2023. Moving to Pharmaceutical Diagnostics. We saw strong organic revenue growth, up 19% year-over-year, driven by price, increased procedures and the stabilization of supply. We expect continued revenue growth for the year based on favorable comparisons in the second quarter and the fourth quarter. Segment EBIT margin of 27.8% declined 70 basis points year-over-year, mainly driven by raw material inflation and planned investments. This was partially offset by price and volume and productivity which also drove full 80 basis points of sequential improvement. We continue to expect this segment to deliver strong EBIT margin performance. As we look ahead, we are investing in capacity to meet future customer demand. Next, I'll walk through our cash performance. During the quarter, we generated $325 million of free cash flow. This was down $46 million year-over-year, impacted by $85 million of incremental post-retirement benefit payments and $42 million of interest payments, which were not in our 2022 actuals. Without these new cost-related items, year-over-year free cash flow would have been positive for the quarter. Working capital improved year-over-year primarily driven by collections and inventory efficiency. We have leveraged lean to implement a daily inventory management system. In the first quarter, we achieved solid results from controlling and better predicting inventory inputs and outputs with shorter lead times and improved revenue conversion cycle. As a result, we saw faster inventory turns and over 100 million of improvement in intra-quarter inventory. Strong cash flow generation will allow us to pay down debt and invest organically and inorganically in our business. We are pleased to initiate a dividend with opportunity for growth over time. Our dividend philosophy is driven by prudent capital planning as well as a strong revenue and earnings growth potential and a robust free cash flow profile. Our balance sheet remains strong with significant financial flexibility. Let's move now to our outlook. For the full year of 2023, we are reaffirming our guidance. We continue to expect year-over-year organic revenue growth in the range of 5% to 7%, with strong organic growth in the first half of the year versus the second half. In line with seasonality, we expect revenue dollars to grow first half to second half. Our current view is a foreign exchange headwind of less than 1 percentage point for the year. We continue to expect full year adjusted EBIT margin to be in the range of 15% to 15.5%. This would represent an expansion of 50 to 100 basis points over the 2022 stand-alone adjusted EBIT margin of 14.5%. We also expect to see an increase in adjusted EBIT margin rate from the first half of the year to the second half, driven by higher volume and productivity benefits. We expect R&D investment to grow at the higher end of the 2023 organic revenue growth range. Our guidance for adjusted effective tax rate remains in the range of 23% to 25%. Our full year 2023 adjusted EPS is unchanged in the range of $3.60 to $3.75, representing 7% to 11% growth. This compares to 2022 stand-alone adjusted EPS of $3.38. We continue to expect free cash flow conversion to be 85% or more for the full year. Our cash flow outlook assumes that the legislation requiring R&D capitalization for tax purposes is repealed or deferred beyond 2023. The free cash flow impact of this legislation would represent up to 10 points of free cash flow conversion for the year. For 2023, we expect capital expenditures to be in the range of $350 million to $400 million. I'd like to add that our second and fourth quarter cash flow will be impacted by interest payments as roughly 75% of our interest expense related to our long-term debt is paid out in these quarters. Given this interest payment timing, we expect lower cash generation in the second quarter versus the first quarter. Cash flow will be substantially higher in the second half of the year relative to the first half due to typical cash seasonality and annual timing of supplier and compensation payments. In closing, it has been a strong start to the year, and we are confident in reaffirming our guidance. Now I'll hand back to Pete.

Thank you, Helmut. Before turning to Q&A, I want to provide an update on some exciting focus areas in our business. In Imaging, we're energized about the developmental advancements we're making with photon counting CT technology for improved spectral and spatial resolution, reduce radiation and enhanced contrast to noise ratio of tissue at a molecular level. This step change in technology will help provide clinicians with more capabilities to significantly increase imaging performance across a variety of care pathways. We believe we're on the right path towards the industry's second generation of photon counting technology with a deep silicon approach for even better resolution and clinical results. This technology will expand our imaging capability into high pitch helical and gated cardiac imaging, which are just a few of our important milestones in development. During the quarter, we also announced our acquisition of Caption Health, which expands access to Artificial Intelligence powered ultrasound imaging guidance for novice users. We're utilizing AI to provide real-time expert guidance to the user, and this helps us obtain diagnostic images providing advancements for patient care outside the typical hospital-only setting. And while we'll be starting with cardiac care pathway, we expect to extend this to other specialties in the future through continued R&D investment. In our Patient Care Solutions business, we announced the FDA 510(k) clearance of our CARESCAPE Canvas monitoring platform. This interoperable solution can flex based on individual patients' needs for precise care. And the platform also offers continuous upgrade capability, so hospitals can adopt new technologies at their own pace for efficient fleet management across the different care pathways they serve. This series of MPIs represent initial steps towards realizing mission-critical infrastructure transformation that leverages the Edison platform and enables artificial intelligence in patient monitoring. In neurology, we've been watching the emergence of disease-modifying therapies for Alzheimer's and the positive impact on patients. With the success of these advancements, we anticipate the need for more imaging. GE Healthcare is one of the only companies that has a full suite of products and solutions to support the entire Alzheimer's patient journey. And this includes our Vizamyl diagnostic agent and PET scanners, which can be used to confirm diagnosis and the MRI systems to monitor throughout the therapy. I'm also pleased with the initial progress that we've made since forming our science and technology operations led by Dr. Taha Kass-Hout, our Chief Technology Officer. Specifically, we're driving cloud adoption to deliver on our digital innovation strategy and also building out these capabilities into our device portfolio. Last week, we met with many customers and collaborators at the Healthcare Information and Management Systems Society, the HIMSS Meeting, where we featured our growing portfolio of digital and AI innovations to help increase operational efficiencies, improve diagnostic confidence and support early interventions. In closing, I want to reiterate that we're encouraged by the strong results we delivered in the first quarter. Our margin improvement initiatives are taking hold, and we see ongoing opportunities to drive productivity and growth. Our backlog remains solid, and we're confident that we are investing in the right areas to drive long-term innovation. And with reaffirmation of our guidance to the year, we're demonstrating our commitment to delivering for customers and shareholders. Lastly, our team continues to be passionate about making a difference for patients. We recently held our first Patient Care Week. Our employees had the opportunity to experience the real impact of our products, solutions and services and how they're driving and delivering better outcomes for patients and also access to care. This is a great example of the cultural transformation taking place at GE Healthcare. With that, we'd like to open it up for questions.

Olivia, we're ready to open for questions.

[Operator Instructions] And our first question coming from the line of Ryan Zimmerman with BTIG.

Sorry, I was on mute there. Congrats guys. And just want to start off. So the book-to-bill ratio came in at 1.01. I think orders were down, if I'm not mistaken, from last year by about 3% -- 2.7%. But just correct me if I'm wrong on that, Helmut, because it's just a summation number in the GE deck from last year? And then how do you think about kind of the seasonality of this dynamic, the book-to-build ratio as we progress through the year?

Yes. Ryan, I think, let me probably remind you the calculation of the book-to-bill is orders over revenue. So our first quarter book-to-bill at 1.01 is really reflecting our 12% revenue growth. So with improved fulfillment and especially our PDx sales. In PDx, we have a 1:1 ratio of book-to-bill. The backlog, maybe if I'll cover that a little bit, grew sequentially. So our RPO is now at around $14.5 billion, which is up 1%, and we saw positive orders growth. We don't disclose order growth in details, but we saw positive order growth in the quarter. And our total backlog is close to $19 billion in this. Again, this was a very strong quarter in delivering top line revenue growth. At the same time, our RPO is slightly up on a year-to-year basis.

And Ryan, I would just add, I think we had a strong quarter in Q1 of last year. The numbers came in this year right on track. We'll expect that to continue to grow. And again, just to emphasize Helmut's point, when you have a high performance on something like a flowable product like PDx and stuff, it fundamentally is kind of a net neutral one-to-one transfer through. But the team delivered what we needed to deliver, and we're on track here to what we believe we need for orders to grow throughout the year.

Got it. Very helpful. And I just want to ask about -- we've heard some comments about the diagnostic pipeline improving and then driving the procedural environment. We heard that from some of the med tech peers last week. And Pete, I'd love to get your perspective on the environment, particularly from a diagnostics perspective, I mean, you're seeing it probably through some of the imaging volume and just kind of how you think about the balance of the year from a diagnostic screening perspective?

Yes, Ryan, it's a really interesting question. And obviously, we have a certain lens into it. But I think if you step back when I'm out on the road talking to customers, and I've been with quite a few recently, you're just seeing that almost any type of therapy, whether it be in the musculoskeletal, whether it be in the cardiac, oncology, everything is heavily gated by some level of diagnostic to choose a better decision whether it be an implant, some type of interventional device to precisely fit that patient. And so particularly in the imaging world, we're still seeing significant demand and procedures for customers, meaning that their backlogs are still quite long. And again, we don't think this is necessarily a blip. We think that with the rise of many new therapies whether it be TAVR or whether it be pharmaceuticals that require more follow-up and measurement, just the need for what we do to make sure that you're getting the optimization and outcome, but also managing cost is there. So we see it quite strong. And it's interesting, it's not just a U.S. phenomena. I mean, we're seeing this in most markets around the world. Helmut, I don't know if you want to add anything to that.

Yes, maybe I'll add a little bit. I think we're spending a lot of time with our customers, especially devices and digital solutions, we were just at HIMSS in the last week, a lot of discussions, how our devices can really help drive productivity to reduce that, I would say, challenge on the backlog and the shortages on personnel that some of our customers are having. That's really a key focus of our customer, which drives demand.

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

Congrats on a strong first quarter here. Maybe, Pete, a couple for you here. I'll just pick off where Ryan left off here. Maybe rounding out just the discussions with hospital customers, what are you hearing on the capital spending front? We've heard some, in certain cases, still very bullish outlook, certainly for imaging, but on certain high-ticket items, there seems to be a little bit of friction. So maybe just your thoughts on the CapEx environment. And then I'll have a couple of follow-ups.

Yes, Anthony. I would say not a lot has changed since we reported even in our fourth quarter from that standpoint. I think we're encouraged by kind of the steady recovery of the global procedures, which is really the underpinning of this, which says, if you have a lot of patients that need procedures, they need planning, they need evaluation done and you don't have enough equipment that drives demand. And again, it's not always new sockets. It may be software and upgrades to your fleet to bring new capabilities. So we see that happening. And if I just go around the world, China has strong growth. Obviously, COVID for a couple of years, things opened up, a lot of demand there. Our intercontinental markets, Southeast Asia and LatAm were seeing actually similar strong growth as specific countries and areas, Indonesia, different areas in Southeast Asia and Latin America, investing. Western Europe is quite stable. I think the continuation of some of the sick funds investments that took place coming out of COVID really just starting to deliver on that equipment. And the U.S. is, look, since COVID, people have been prioritizing capital. I mean, so that's no new news for us. But again, what we keep an eye on is what they're deciding to put it against. And I think with nursing costs starting to flatten out, you're seeing a little bit more of, I would say, positivity on that spend. That being said, we think we're going to be in a capital prioritization kind of focus throughout this year, which is why we're cautiously optimistic.

That's helpful. And then follow-up, one for you, Pete, and a quick one for Helmut on margin. Intrigued by the comments on Alzheimer's disease and maybe just a little bit of a description is, is that something that is driving demand now? And when you look out, how long do you think that tailwind to the business can be with just new drug therapies coming to market? And then quickly for Helmut on margin, when we think about the $200 million of stand-alone costs, just sort of the outlook on when you can perhaps see leverage on those new costs that were brought into the business.

Yes, Anthony. Look, on the Alzheimer's point, no, I don't think we're really seeing any impact on demand to date. But when you look at what can come, what the pipeline looks like we think there's going to be larger demand. I'll even pull the lens back a little bit further. It ties into part of Ryan's question as well. I think, look, bigger picture, imaging capabilities and diagnostics used to kind of manage how devices are executed, but probably even more importantly, expensive pharmaceutical injectable therapeutics, how they're utilized, how they're titrated, how they may be dosed and the follow-ups on potential complications really seems to be a potential kind of norm in the future. So if you think about this case, neurosciences, if you think about in oncology with theranostics, if you think in cardiology with different follow-ups for structured heart or heart failure, we see that happening. And so we'll see how that plays out. But like in our case, where we make the actual tracer, Vizamyl for amyloid-beta plaque detection and quantification, really the only one that has that type of product that actually even colors that and separates it out. It hasn't been reimbursed. And so we believe once the therapies get reimbursement like in other therapy areas, the companion diagnostics also do, that's what will enable some of the growth. And so I'm optimistic, like most things, it will take a little bit of time. But over the next few years, I think there's going to be some interesting growth opportunities associated with that match up. Helmut, do you want to take the margin question?

Yes. So Anthony, I think around this $200 million of stand-alone costs, in 2023, we expect an estimated $200 million of those recurring incremental expenses. Those are primarily for support functions, so it's IT, treasury, IR and so forth. And these costs, they are not in our segment margins. They were not in our segment margins in 2022. We're allocating them in 2023 based on the revenue very generally. So I want to be sure that, that is well understood. And to your question, when we will see leverage against those one, to me, this is really dependent on how quickly we are exiting our TSAs. You saw me speak, we exited 40 TSAs in the first in the quarter. Here, we have more TSAs to exit that will take us into 2024. So I expect we'll see leverage against this $200 million of incremental recurring spin costs as we go into 2025 and '26, as we have fully exited on the TSA side and can really build our own infrastructure.

And our next question coming from the line of Jason Bednar with Piper Sandler.

Congrats on a very nice start to the year. Maybe I'll start with organic growth. Just as we peel apart the components of the 1Q organic growth, are you able to quantify how much of that 12% may have come from pure price? It looks like you're calling out pricing tailwinds in each of the 4 segments. I'm just curious if we should be thinking in the area of 1% to 2%, 2% to 3%, et cetera, when we think at the corporate level? And then is that a sustainable figure as we look to future quarters? Or would you point us to maybe upward or downward bias in the pricing?

Yes, Jason, it's Pete. I'll comment and see if Helmut wants to add anything to it. I think so it's a really great result. All 4 of our segments delivering quite nicely for us. And so from an overall growth standpoint, we clearly saw volume as the key driver here and our ability to kind of move on our backlog as well as some sell and install business as well that was taking place in our -- and particularly our ultrasound business and then the flow with that's taking place in PDx and the Injectable business. I'd say we're in the 2% to 3% range relative to price coming through, and the vast majority of the rest of it is in pure volume and uplift.

Yes. Maybe I'll add a little bit of comment on that as well, Jason. What Pete said, this is our fourth quarter in a row now that we are seeing positive sales price. And as Pete said, 2% to 3% accretion we expect in 2023. And in the outer years, that might flatten out a little bit to 1% to 2%. But what's really most important is the value we are providing our customers in -- with those products. And we are not only focused on price, but also really focused on the gross margin expansion because as we see new MPIs, we're looking very carefully what's the price accretion but also what happens in around margin accretion with those products. And lots of initiatives in place around BCP and platforming that will help and support that.

All right. Very helpful. And I wanted to ask a follow-up just actually on Portrait Mobile. I think it was introduced almost a year ago. It's still pending 510(k), but you were showing it at HIMSS here recently. Can you discuss where you're at with the FDA in securing the approval? And then what early feedback can you share on Portrait Mobile for the markets in which it's available?

Yes, Jason. So we're in with the agency. We would expect here in the first half of this year to be able to move through unless there's other follow-up questions and stuff. We're actually on the market in -- outside the United States, primarily EU. And if you think of the focus on Portrait Mobile, it really takes us into new territory. We haven't really been award-based monitoring company. And so that's really our first entree into the area. We've already had some really good feedback from different customers on enabling continuous monitoring the award. I think one of the bets that we're making is coming out of COVID, there tended to be more continuous O2, CO2, respiratory monitoring. And with the shortage of staff and stuff being able to instead of episodically, but constantly manage a patient, there's a big opportunity to manage your labor better by directly sending a message directly to a caregiver to check on that patient as opposed to just spot checking. So it's often running. We'll talk more about it here in coming quarters, but we feel quite good about that as well. And then that's complemented with this introduction that we just received prove on, which is the CARESCAPE Canvas. And the CARESCAPE is a platform that actually has more ubiquitous use that can be used in acute care but also step down. And what customers have told us is the challenge they have is you have to buy a different box from everybody for the different areas. And CARESCAPE is one of those first platforms that enables you based on the acuity of the patient to add on more parameters. But it's also designed for a future where you can actually gather the data on the patient and be able to apply artificial intelligence against it to actually predict when that patient is going to have issues. And so that's kind of our vision of why we're so excited about monitoring is this potential in the future to be able to track constant patient -- constantly the patient as well as predict when there might be an issue. So both of those are 2 new platforms for us the first in many, many years, and we would expect that to be 2 of the horses in the monitoring group here that we'll be growing our business on.

And our next question coming from the line of Edward Ridley-Day with Redburn. Edward Ridley-Day: Congratulations on the strong quarter. Firstly, on Imaging, great start to the year. If you could perhaps help us with the phasing on the margin. I appreciate a lot of investment, some of which you've spoken to today, given the opportunity. But if there's more color you can give us on the phasing of the Imaging margins for the year and where we should end up, that would be helpful? And I also had a follow-up question on Patient Care. Obviously, a very positive start to the year. You've mentioned some of them, but where were the particular strength in the product lines driving that growth? And also, if you can, can you give us an idea of how much of the growth in the first quarter was sort of backlog pull through?

So Helmut, you want to start maybe with a comment on Imaging and then we'll jump on...

So I'll start with Imaging margins. So obviously, we are very focused on expanding the EBIT margins in the high teens in the medium term for Imaging. And if you look at in the first quarter, our margins were at 7.0% or 8% for imaging both were slightly lower than what we saw in the fourth quarter, but there was a clear reason because we were shipping a higher and a component of hardware versus services in the quarter. But as we expect the services pull-through, we expect those margins to improve. And what we also still were impacted in the quarter was, I would say, the cost for inflation. So what we have seen of inventory that was sitting on the balance sheet for Imaging specifically, both bringing down that margin. And the last comment I want to make in this is also that our Imaging margins as well as the other segments were impacted by the segment recurring spin costs. So those $200 million, I just talked a little bit earlier, were roughly 100 basis points, which is impacting basically each of the segments. But we have confidence that the Imaging margins, as we go throughout the year, will improve accordingly as inflation is getting less and less.

Yes. I mean in the other aspect, as you could imagine, many of the Imaging products are much more sophisticated components, a lot more chips and stuff. And so some of those are burdened with, I'd say, higher cost items that we bought last year to make sure we could deliver through for customers. And as that inventory moves through, which we think will, as we move into the second half of the year, we'll see some margin lift from better productivities just from our sourcing standpoint. To your question on PCS, yes, we were quite happy with the performance overall. It was reasonably a wide scale kind of success in the quarter. I mean, our Monitoring business was double digits. Our MIC business, which is into the neonatal area, was quite well and also our Anesthesia business. And I would highlight Anesthesia because actually, at the end of -- in last year, we actually received PMA for title control, which is actually kind of a management of kind of parameters of oxygen and capturing of the agents in a much more effective way, and we are able to -- be able to capture more growth because of that upgradability, but also some more value. So it's a good start to the year for our PCS business.

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

I don't think there's been a question on farm diagnostics yet. That was extremely strong. Pete, help us understand how much that benefited from the comps year-over-year from the contract shortage. But even when I look at that business on a sequential basis, it was up a lot. So how -- what happened there? What went well? And how to think about it from here? And I had a follow-up.

Yes, Larry, the real impact from a comp standpoint will be more in Q2. There really wasn't a negative effect last year. There was a little noise in it just relative to COVID coming out. But this is really about procedures growth and the need to do contrast-based imaging. If you think about particularly in CT in the vascular world, any type of intervention you're going to do intervascular, you're going to evaluate. You need to have a contrast agent, whether it'd be the brain throughout the body. And so it's showing that robustness there. We also have taken some, I would say, appropriate price increases to deal with escalating costs of things such as iodine. And so the combination in there is that procedures growth, which is driving our volume, but then also the pricing that we've taken place in PDx. And so we would expect that, that business is going to continue to put up strong numbers, both top and bottom the rest of the year. Helmut, would you add anything?

Yes. Maybe I'll just add, because you may actually remember, Larry, in second quarter, where we had supply challenges in our factory in Shanghai. So there will be a higher growth in the second quarter. And then in the fourth quarter, we also had last year a small impact from inventory in the U.S. So there is also going to be higher growth during that quarter. So -- but overall, as Peter said, we're very happy, I think, with that business, I suppose the volume growth and also price is a strong contributor for the growth and margins, as you've seen, are quite strong and will continue to improve here.

And Pete, obviously, we've seen immediate speculation on M&A involving GE Healthcare. And I know you won't comment on that specific asset. But can you comment on your thoughts on M&A in terms of deal size, areas of interest and financial criteria?

Yes, Larry. Look, I mean we always are, as I've always mentioned, looking at M&A, I think it's a really important part of our DNA as a company, both to be really attentive to what's happening in our ecosystem and understanding where many of those deals will go. It's something that I started here, we do a weekly rhythm of looking at that whole atmosphere. And if you think about IMACTIS and Caption are probably emblematic really what we look at. So again, to emphasize, with IMACTIS, it brought interventional biopsy capabilities into CT. We didn't have the best offering. This is going to give us a leadership offering to really fill out the capabilities to grow our business. I talked about capturing bringing artificial intelligence into point of care ultrasound to start, to make it more usable into populations of non-sonographers, which we think is a huge opportunity. And so we look for technologies, both channel enablement as well as capabilities to enhance our overall strategy. And for the most part, they're typically tied into -- deep into our plans that we have already laid out. They help enhance, grow some of our businesses. And we have programs going on in all of our businesses, in Imaging, in Ultrasound, PCS as well as PDx. And I'd say one of the encouraging things are is there's a lot of interest out there, and we'll be disciplined in our approaches about how we look at them, but I think it's an important part of our growth strategy over the next 3 to 5 years.

Our next question coming from the line of Veronika Dubajova with Citi.

If I can just revert back to one of the themes that's come up and Pete, I just was hoping you could maybe talk a little bit in terms of the order dynamics that you're seeing, each of the 4 businesses are seeing the strongest order growth and maybe the type of products that you're seeing those most tractions for as you look at across that hospital CapEx landscape? Is it a premium? Is it low end? And kind of how you're thinking about that? And then maybe just to circle back to China and whether that stimulus program that you had talked about in prior quarters has now come to an end? And is that something that would have helped Q1? Or do you think it continues into Q2? And any comments you have on the competitive dynamics in China, in particular, in Imaging would be helpful as well.

Veronika, it was a little hard to hear, but I think the first question was around orders growth, different modalities, what's growing. And the second part was about China and some of the dynamics.

That's correct, yes.

Okay. So look, I think from an order standpoint and business growth, we're actually seeing nice growth and planning on it throughout the year. As you know, there are certain quarters in certain cyclical plays that, that promote others more or less. But I think from a standpoint of a lot of our bigger traditional diagnostic Imaging equipment, whether it would be MR, our molecular imaging portfolio between PET/CT, PET/MR, our new med cameras, we're seeing actually strong demand as well as CT and those tend to be the 3 big items. I would say within our interventional world, particularly our surgery business with C-arms, with the growth of ambulatory surgical centers, those are strong growers. And then our Ultrasound business across the board has multiple opportunities. Our handheld business, in particular, women's health. And we would expect throughout the year, we had a strong cardiovascular quarter last quarter. We would expect that with the new launch of the Vivid product last year, the new Voluson product last year, all of those have 2 to 3 years until peak year sales that we'll continue to see that. And I think you heard me mention around PCS, we actually, with fulfillment, we also have more sell and install opportunities as well. And I think the new monitoring platforms are going to drive growth and also the new anesthesia platform. So we see some pretty broad capabilities relative to our overall product. And then again, I'll just pull in PDx. But obviously, that's driven as a flow product tied to procedures. So we're seeing pretty broad strength across the board.

And Veronika, I can cover the China question here. So we really saw strong growth in China was up double digit in the first quarter. And we expect that demand to continue. We see good momentum going to the second quarter. And really, I think China is really back, so the manufacturing sites are all operating, COVID, it has basically disappeared. So we're quite happy with the overall performance of our teams delivering for customers and patients. And then the stimulus, the market will remain strong, whether there is a stimulus, and I belief still out there, and we feel quite optimistic about the rest of the year for our China market.

Yes. And we've -- to your competitive question, I think dynamics, as we've been competing in China for many, many years, I don't think anything has fundamentally changed from that standpoint. We've really, as a multinational, led the pace of making sure that we have local content to be able to compete in tenders, making sure that we have local content to be able to have the cost positions to compete, and we believe we're in good shape to be able to do that. But as Helmut said, the bigger point here is after 2 years of COVID lockdowns, just like in the rest of the world, we would expect that there's some pent-up demand for procedures maybe latent disease, things of that nature that are going to drive the need for our products.

And our next question coming from the line of Vijay Kumar with Evercore ISI.

Congratulations on the Q1 print. Maybe my first one is here on the guidance here. Looks like Q1 off to a very strong start, perhaps coming in slightly above expectations, but the 5% to 7% was reiterated on the top line. Can you just talk about why the guidance perhaps the low end wasn't tweaked up? And clearly, that 12% in Q1, we've seen the backlog being worked through, component supplies getting better. How much of that back orders has been flushed out of the system? And how much is remaining? Perhaps some comment on how we should think about this guidance in back orders would be helpful.

Yes. Vijay, look, I think a good question. So first, it starts off, we're super happy and excited about our first quarter results. I think if -- how we expected it to play out, it really landed where we had hoped. And so that's a great result. I would say the big part here is what this does with a strong first quarter as it helps really derisk the back half of the year. We had quite a few questions talking about the ramp-up and how we thought about that profile. But that really helps derisk the backside of the year. I think we're going to have better insights into kind of the macro discussions, where capital isn't items. As I've mentioned, we're cautiously optimistic right now. But with our first quarter as a stand-alone company, to get a few more months under our belt, and then we'll reevaluate it here as we finish second quarter and take a new look at how that is. But at this point in time, again, we're cautiously optimistic that we're on track. And again, I think of it as, in many cases, kind of reducing that type of ramp that we already had within our initial plan.

And Vijay, to your question around the backlog, obviously, delivering for patients and customers is really our top priority. So reducing the backlog is key. And in the quarter, we have an RPO of around $14.5 billion. It was very slightly up on a quarter-to-quarter basis. So despite the strong shipments and revenue delivery of 12%, the backlog actually was up sequentially. And as I've commented before, we have on top of the RPO, we also have other backlog that is cancelable, where we have -- we see never really any major cancellations. So the total backlog is around $19 billion exiting the first quarter, which we are quite happy with, because this is going to take us well into '23. Some of these orders also go into '24. So we're quite happy where the backlog is at this stage.

Yes, at this point, I mean we're well positioned to obviously deliver upon our commitments. And again, if the year shapes up better, meaning that the macro environment improves and we get some better insights into how that plays out, particularly in markets like the United States, I think we're in very good shape to do better. But at this point in time, it's kind of prudent first quarter as a public company to kind of stay where we're at, and we're quite happy with the results.

Absolutely. That makes sense. And then one follow-up on the margins here. Clearly, Q1 coming in, I thought Q1 margin performance was quite pleasing despite the spot buys. Can you comment on what the pricing versus inflation spot buy dynamics was in Q1? And when you think about that EPS guidance for the year, what has been assumed for FX for the year and the margin range of 50 to 100 basis points, perhaps should we be thinking about the higher end of the range?

Yes, I can cover that your question here. So price and productivity was more than offsetting what we saw as inflation and our investment. So we were quite happy what we saw on price. Pete was commenting a little bit earlier, we typically see 2%, 3% in price, and we expect that it will lead to be delivered in 2023. So that was quite positive. In terms of currency, we saw a 4 percentage points impact on currency in the first quarter. For the full year, we're looking now at less than 1 percentage points of impact on currency to the top line. So it clearly has gotten slightly better. But as Peter said earlier, this is quite early in the year. This is our first quarter out here, and we're committed to the 50 basis points to 100 basis points of margin expansion for the full year.

And I think, Vijay, we've talked about it and consistently is we expect our margin rate to be higher in the second half, given seasonality, but also productivity initiatives. And -- so we've got good progress on variable cost productivity, everything from logistics to other cost reductions. The thing we don't know is how that will play out with other cost of goods labor increases and items that are out there playing out. We think we've got very good plans to be able to deliver what we committed. If those were to improve, obviously, that would be a benefit that would come through in the P&L. But as Helmut said, it's still early in the year and we're on track to what we committed to.

And our last question coming from the line of Patrick Wood with Morgan Stanley.

I've got 2 quick ones, which hopefully should be pretty easy. I guess the first is on counting. When you're thinking about that, the initial clinical data from some of your peers has been, I would argue, very strong versus base CT systems. So how do you view this technology? Do you view this as like marketing expansive and that you can get a good incremental price kicker on the back of these systems? Or do you view it as really a way to sort of increase barriers to entry and, I guess, consolidate share even more tightly amongst the top 2 providers relative to the broader pool? How are you thinking about that opportunity? And are you thinking about it? Is this -- are we talking commercialization within a year or 2 years? Or is it a longer time frame on that for you?

Yes. Look, good question. I would say the first answer is how we're thinking about is what it's going to do to help with diagnosis, patients and how it can change the game. I think we all think that photon counting has the potential to be a game changer. And the point being is it brings some of the capabilities of MR tissue characteristics and things of that nature that today, you don't get on a CT scanner. So I think at a high level, part of this is taking a look at and saying, the technology we're delivering on has the possibility to have many more, I'd say, energy separation levels, which actually can give you much more insights into what's actually happening at a molecular level, more so than the first-generation products, which are based on [ CAD Tong ] state for the most part. So that's part of it. I think, look, what we think is, over time, all scanners most likely will move to that direction. Is that 5 years, 10 years, I think that will be the adoption question. And a lot of that is about the cost curve. And our approach with deep silicone is based on the fact that we can actually ride a cost curve, we believe, more effectively than a rare element approach. And so that's how we think about that it will expand greatly. Obviously, as these products first come out over the next few years, they tend to be more elite, higher-priced products at select institutions, but we're thinking ahead about how we can bring this to more of the broader masses. So that's kind of it. We're very excited about it. I think it's a very interesting opportunity. If you think back to this whole point about characterization of diagnostics for drugs and things, photon counting will play a key role, we believe, in the future of that as well.

And then time frame on commercialization, any indication of that for us?

Yes. We haven't communicated yet specifically what we're thinking about. We'll talk about that in upcoming meetings.

Sure. Totally understand. And then last one for me, I guess, more around the kind of Q1 and the recent trends you've seen. You've said earlier on the call, but any sense of how the demand is looking split by sort of new sockets versus replacement? Are you seeing a lot of new sockets come online? Or is it more of a replacement market in the current environment?

Yes, it's a great question. And I would say it's a pretty good mix between the two. Certain geographies have different characteristics. As you could imagine, in an inland growing China market, it's heavy on new sockets. In Europe, believe it or not, we're trying to see a little bit more new than old because there's more outpatients opening up centers. In the United States, it's probably a combination of 60-40 installed base or fleet renewals with new growth. And the new growth typically is tied to probably more of an outpatient imaging or tied to an ambulatory surgical center type environment.

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

Thank you. So look, in closing, we're very pleased with the strong start to the year, and we see significant opportunities ahead of us as we continue to innovate and solve some of these big challenges that we've talked about that our customers face in delivering high-quality care in and outside the hospital in a very cost-effective way. And we look forward to keeping you updated on our progress. Thank you for joining our call today, and I'm sure we'll see many of you at some upcoming conferences. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.