Good day and welcome to GE HealthCare’s Fourth Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Carolynne Borders, Chief Investor Relations Officer. Please go ahead.

Thank you. Good morning and welcome to GE HealthCare’s fourth quarter 2023 earnings call. I am joined by our President and CEO, Peter Arduini; and our 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 will make forward-looking statements about our performance. These statements are based on how we see things today. As described in our SEC filings, actual results may differ materially due to risks and uncertainties. And with that, I’ll hand the call over to Peter.

Thanks, Carolynne. Let me start by providing a few highlights from a successful first year as a public company. I am proud of how our teams executed to deliver robust financial results with performance that all met or exceeded guidance. In fact, our execution throughout the year allowed us to raise guidance twice. We have continued to increase our R&D investment, launching over 40 new innovations tied to our care pathway and digital strategy. As a result of our investments, we estimate that we have gained global market share in equipment in 2023. And once again, we topped the FDA’s list of AI-enabled device authorizations with 58, more than any other medtech company. Backlog remains robust led by an improved capital equipment landscape. And we significantly strengthened our balance sheet as we paid down $1 billion in debt since the beginning of the fourth quarter. Our financial flexibility enables us to drive both organic and inorganic investment such as the Caption Health and IMACTIS acquisitions completed in 2023. More recently, we announced our plans to acquire MIM Software, which I’ll discuss in greater detail later in the call. We continue to build our position as a trusted partner. And here are a few highlights from throughout the year. On the commercial side, we secured multiyear enterprise deals globally with contract values totaling approximately $2.5 billion in 2023, fueling our growth. We also expanded our 4-year relationship with the University of Wisconsin-Madison by entering a 10-year strategic collaboration that goes beyond medical imaging to new frontiers and digital technologies and disease-focused solutions. Separately, the Bill & Melinda Gates Foundation and BARDA, a division within the U.S. Department of Health and Services, are funding programs totaling over $80 million that will allow us to develop new AI applications for ultrasound, benefit patients in low and middle income countries and patients with lung pathologies and traumatic injuries. We also announced a collaboration with Novo Nordisk to advance the clinical and product development of peripheral-focused ultrasound. We’ve assembled a strong world class leadership team. Jay Saccaro joined us last year and has had an immediate impact. He has had the opportunity to assess our organizational needs, forecasting models, financial systems and processes and is adding significant strategic and operational value. Similarly, Taha joined us as Chief Technology Officer more than a year ago. And he has been charting our digital future and strategy while building a high-performing team of top healthcare technology experts. In 2023, we published our inaugural sustainability report, highlighting our progress and commitment to corporate responsibility and risk management. Lastly, we introduced 2024 guidance today, which Jay will discuss in greater detail. Our outlook reflects an improved capital equipment landscape. It also reflects continued strength on top of 2 consecutive years of high single-digit organic sales growth. Similar to last quarter, we conducted a survey of a broad set of U.S. customers, which supports our forecast for 2024. Our latest survey showed improved financial optimism and capital budget outlook versus the last survey in October. Global procedures remain strong, which we believe all of this points to a constructive setup for the year. Now, I will pass the call on to Jay to take us through the financials and our business performance. And I’ll conclude the call with a discussion around our R&D commitments and the innovation we are delivering for customers. Jay?

Thanks, Pete. Let’s start with our financial performance on Slide 4. For the fourth quarter of 2023, revenues of $5.2 billion increased 5% year-over-year and grew 5% organically. This was driven by sales in Pharmaceutical Diagnostics, Imaging and Patient Care Solutions. Recall that this 5% organic growth was on top of the 13% we delivered in the fourth quarter of 2022, which benefited from easing supply chain. Organic orders increased 3% year-over-year. Order dollars continue to outpace sales, leading to a total company book-to-bill of 1.05x, up sequentially from 1.03x due to healthy product orders, including equipment. We exited the year with a record backlog of $19.1 billion, up $700 million sequentially. This performance gives us continued confidence in our expectations for 2024. Fourth quarter adjusted EBIT margin was 16.1%. Sequentially, margin improved 70 basis points, supported by seasonally higher volume while we expanded our investments in future innovation. Year-over-year, standalone adjusted EBIT margin was flat as benefits from productivity and price were offset primarily by investments. The lean methodology is at the foundation of our productivity, yielding strong performance in the fourth quarter with improvements in logistics, sourcing and services. Our teams came together to increase on-time delivery to our customers by 11% year-over-year with lean actions improving demand forecast accuracy, supplier planning and lead times. We also saw past-due backlog efficiency with a greater than 50% improvement year-over-year in Imaging alone. For the fourth quarter, we delivered adjusted EPS of $1.18, up 11% on a standalone basis. Free cash flow of $956 million was down slightly year-over-year. This was impacted by approximately $330 million of spin-related items, such as interest and post-retirement benefit payments. Turning to our full year results on Slide 5. For 2023, revenues of $19.6 billion grew 8% organically versus last year. All of our regions and segments saw positive revenue growth. Also important to note, recurring revenue, which drives revenue predictability and higher margin, was greater than 45% of total revenues for the year. Organic orders grew 3% year-over-year and book-to-bill was 1.03x. On a standalone basis, 2023 adjusted EBIT margin was up 60 basis points. Adjusted EPS of $3.93 exceeded our guidance and represented standalone growth of 16%. Free cash flow was more than $1.7 billion and translated into a strong conversion rate of 95%, which was ahead of our guidance for the year. This was driven by the solid progress we made in working capital associated with multiple initiatives focused on inventory and collections processes. On Slide 6, let’s take a closer look at segment revenue performance for the year. For full year ‘23, we delivered strong year-over-year organic growth of 8% for revenues. This was led by PDx with 18% growth, PCS at 8% and Imaging at 7% driven by both volume and price. Ultrasound organic revenue increased 2%. Recall that in 2022, we had multiple quarters of strong Ultrasound results as supply chain constraints eased. I’d also note that all segments delivered positive price in the year, reflecting our continued pricing discipline. Looking ahead, we believe all of our segments are well positioned as we move into 2024 from both an innovation and operational perspective. I’ll walk through more details on this for each segment shortly. Turning to the progress we made in 2023 on margin initiatives on Slide 7. As we move through the year, we drove sequential improvements in adjusted EBIT margin driven by volume, commercial execution and productivity. For the year, we increased adjusted gross margin by 120 basis points versus 2022 and delivered more than 3% in positive sales price for the year, ahead of our expectations. In 2024, we expect 1 to 2 percentage points of positive price as we deliver increasing value to our customers. We are also starting to see margin expansion from improving volumes and higher margin NPIs given our continued R&D investment. For the year, we invested more than $1 billion in R&D, equating to over 6% of sales, all while expanding margins. In 2024, we expect to be in the same range as a percent of sales or slightly higher, supporting our innovative shin pipeline. Our productivity initiatives have also gained traction as logistics costs continue to improve, spot buys decrease. And as we implemented cost-efficient design changes, we have also experienced improved labor productivity driven by a greater proportion of remote fix and the application of digital tools. Relative to G&A, we are optimizing our spend by rightsizing our real estate footprint and IT infrastructure to generate additional efficiencies. We made solid progress in exiting TSAs in 2023 with nearly 280 completed through the end of 4Q. We are on track to exit the vast majority of the remaining TSAs in 2024, which gives us confidence in our G&A optimization plans, an important part of reaching medium-term margin goals. Given our progress across the organization, we have solid visibility to deliver on our high teens to 20% adjusted EBIT margin target over the medium term. Now I’ll turn to our segments. As a reminder, in 2023, we incurred approximately $200 million of recurring standalone costs that impact our segment EBIT margin rates. We did not have these expenses in 2022. These costs were allocated based on revenue and equated to approximately 100 basis points of margin headwind for each segment. Going forward, these costs will be in our run-rate but serve as an opportunity to operate more efficiently in the future. Let’s start with our Imaging segment on Slide 8, where we generated organic revenue growth of 4% year-over-year. This was driven by improved backlog conversion and price. Growth was up against fourth quarter sales that experienced a strong double-digit increase in 2022. Segment EBIT margin was up 10 basis points year-over-year as we made progress on enhancing gross margin. Imaging equipment growth outpaced service growth in the quarter and for the year, which impacted margin mix as we build our installed base with future service growth opportunity. We saw strong progress in our product platforming initiatives across several modalities, including CT and MR. Customer demand for our imaging product remains healthy and our growing backlog is driven by new product introductions. Turning to Ultrasound on Slide 9. Organic revenue was down 2% year-over-year due to the impact of lower volume tied to a challenging comparison for the same period last year. We continue to have a positive outlook for this segment as we enter 2024. Segment EBIT margin declined year-over-year due to investments such as the Caption Health artificial intelligence integration. This year-over-year margin decline was partially mitigated by cost productivity as we drove standardization and commonality across our platforms. As we exited the year, we saw opportunities for Ultrasound equipment based on a combination of our commercial efforts and improving market conditions. With recent customer commitments and interest in new products enhanced by AI technology, we are well positioned as we enter 2024. Moving to Patient Care Solutions on Slide 10. Organic revenue was up 4% driven by progress on price and operational process improvements. Revenue increased as we fulfill more backlog in addition to contribution from NPIs. Similar to Imaging, recall that sales growth in the fourth quarter last year increased double digits due to easing supply chain environment. PCS margin decreased 320 basis points compared to last year driven by investments and onetime favorability that we experienced in the prior year. During the quarter, the team delivered on improved supplier lead times and lower inventory. As we look ahead, we’re excited about recent product launches that should contribute to future growth. Finally, moving to Pharmaceutical Diagnostics on Slide 11. We have another solid quarter, generating 23% year-over-year organic growth associated with an easier year-over-year comparison and pricing. Segment EBIT margin of 24.4% improved 140 basis points year-over-year driven by price, volume and productivity actions. We’re encouraged by the continuing strength of global imaging procedures, which drives the need for imaging agents. We are executing on our innovation strategy through investments in our pipeline across care areas, including the in-licensing of FAPI assets, which we believe will play a key role in targeting this protein to detect certain types of cancer. This is an area of significant potential for the nuclear medicine and oncology communities. Turning to Slide 12, I’ll walk through our cash flow performance. We exited the year with an improved financial profile, including a stronger balance sheet and enhanced financial flexibility to support our future growth. We generated free cash flow of $956 million during the fourth quarter, down $31 million year-over-year with standalone cash outflows. Inventory turns improved in the quarter, the highest they have been since the beginning of 2021. This is the result of our lean supply chain actions. We saw operational improvements, including lead time reductions and greater inventory turns in all segments. Our aged inventory balance decreased, and we have stronger input controls in place, including safety stock reduction and optimized stock planning. In addition, our collections improved as a result of our focused daily management system. For the year, we delivered strong free cash flow of over $1.7 billion. This equates to 95% free cash flow conversion. We also strengthened our balance sheet by paying down $1 billion of debt since the start of the fourth quarter. With a strong balance sheet and a balanced capital allocation strategy, we’ll continue to focus on organic and inorganic investment, deleveraging and paying a dividend. Now let’s turn to our outlook on Slide 13. For 2024, we expect organic revenue growth to be approximately 4%. This compares to strong growth of 8% in ‘23 that was driven by easing supply chains and price gains. I would note that we expect a foreign exchange headwind to revenue of less than 1% in 2024. We expect full year adjusted EBIT margin to be in the range of 15.6% to 15.9%, representing expansion of 50 to 80 basis points, given the progress we’re making with volume, commercial execution and optimization. We assume an adjusted effective tax rate in the range of 23% to 25%. The Pillar 2 global minimum tax is not anticipated to have a significant impact on our tax expense in 2024. On adjusted EPS, we expect to deliver between $4.20 and $4.35 for the full year, representing growth in the range of 7% to 11% versus 2023. Lastly, we expect to deliver free cash flow of approximately $1.8 billion for the full year. While we don’t give quarterly guidance, it’s important to note that given the seasonal nature of our business, the fourth quarter is typically the strongest period for orders, sales dollars and adjusted EBIT margin. We expect year-over-year organic revenue growth and adjusted EBIT margin in the first quarter to be the lowest of the year. Also remember that organic sales growth in the first half of 2023 was very strong at 11%. As a result, organic revenue growth is expected to be stronger in the second half of the year versus the first half in 2024. To wrap up, we’re entering 2024 from a position of strength as we executed well in 2023. Our solid backlog, order intake and adjusted EBIT margin progress gives us confidence in our ability to deliver on our guidance for 2024. Now I’ll hand the call back over to Pete.

Thanks, Jay. Through an emphasis on R&D, we continue to innovate across our four segments. Our new product vitality index, which measures new products contributing to orders in the year, was healthy at 26%. We launched more than 40 new innovations in 2023 as I noted before, many of which are AI and digitally enabled, bringing more opportunity to increase gross margin with these enhanced capabilities. Earlier, I mentioned our plans to acquire MIM Software, a leader in AI-enabled image analysis and workflow tools across multiple care areas. Once integrated post close, MIM is expected to drive accretive top line growth. And we expect the transaction to be neutral to adjusted EBIT in year 1 and accretive thereafter. One of the dilemmas our customers face is integrating the variety of multi-vendor AI applications into their workflows. Our new App Orchestrator is a solution that simplifies the AI selection, integration and workflow process for healthcare professionals. By providing easy access to prevalidated apps, we’re helping reduce the pressure that often comes with the overhead of evaluating, acquiring and implementing solutions from many companies. We’re in the process of developing the subscription-based application for the cloud. Our high-growth, high-margin AI solutions are designed to increase productivity, efficiency and diagnostic confidence. Customers have the option to purchase new AI-equipped devices or as an upgrade to existing equipment. We’re actively pursuing AI across our product portfolio with a focused effort to expedite product development in 2024. Moving to molecular imaging on Slide 15 and the role of MIM Software to enhance our precision care strategy. For starters, our unique portfolio of PET/MR, PET/CT and multi-head SPECT/CT, radio tracers and digital offers providers a comprehensive solution to deliver on this growing field of diagnostics and therapeutics. As novel therapies become more widely available, our tracers play an increasingly important role, putting us at the center of this transformation of care that will help enable better patient outcomes across many care pathways as functional imaging expands. This chart illustrates the diversity of our pharmaceutical portfolio, both existing and in the pipeline, and the diseases that each one uniquely targets. We see growth opportunities with our existing products like Vizamyl for patients with suspected Alzheimer’s disease as new therapies ramp up and Cerianna for metastatic breast cancer, which are used both in conjunction with PET systems for diagnosis. Flurpiridaz, a pipeline product for diagnosing and assessing coronary artery disease, is expected to significantly advance PET/CT imaging. Cardiologists say it shows promise for a variety of reasons. First, it has the potential to offer more sensitivity and specificity than SPECT and technetium, which is the standard of care. Its longer half-life may allow doses to be ordered and transported longer distances unlike other products on the market, which require on-site production which can be a limiting factor for smaller hospitals and cardiac imaging centers. One of the most exciting advancements in molecular and functional imaging is Theranostics. There is a motto for this rapidly growing field that allows you to see what you treat and treat what you see. Theranostics combines diagnostic imaging equipment, radiopharmaceuticals, both diagnostics and therapeutic, with the goal of eliminating cancer cells without affecting healthy tissues. And this has fewer side effects for patients. This approach can bring significant improvements for many cancer types and one of the reasons why molecular imaging has a very promising future. To give you some perspective, currently, the overall Theranostics market, which includes equipment, tracers and therapies, is approximately $9 billion and is expected to grow to $40 billion by 2032. Today, Theranostics is primarily used in thyroid, neuroendocrine and prostate cancer. However, a growing pipeline of drugs across the industry for future applications include breast, ovarian, pancreatic and lung cancers show even more promise to potentially extend the length and quality of life for more patients. We expect to play an important role in the delivery of these new therapies. In the next 3 years, we plan to significantly increase our current Theranostics franchise through a combination of organic and inorganic expansions. And we’re excited about the opportunity to be a trusted partner, helping our customers navigate this important and growing field of medical imaging. This mission to improve outcomes across care pathways will be enabled by our announced intention to acquire MIM. After close, we plan to integrate these new capabilities into GE HealthCare’s devices to enhance imaging fusion, multimodal inputs for diagnostics, therapy planning and monitoring. And by leveraging these new tools across various care areas, we can differentiate our solutions for the benefit of patients and healthcare systems worldwide, particularly around Theranostics. In closing, we’re excited about the growth potential of molecular imaging and Theranostics as well as our pipeline pharmaceuticals and the collective opportunity for these innovations to enable precision care. To summarize on Slide 16, I’m extremely proud of our team’s execution in 2023 and our focus on patients and customers as well as the progress we’ve made as a standalone company. We achieved or exceeded our financial and operational objectives we laid out at the beginning of the year. And we’re making significant progress on the innovation front, including digital and artificial intelligence launches. We have a strong balance sheet that allows us to invest in new capabilities organically and inorganically. And we’re excited about our momentum as we enter 2024. We remain on track to deliver on our medium-term targets. With that, I’d like to open up the call for questions.

Thank you, Peter. [Operator Instructions] Operator, can you please open the line?

Thank you. [Operator Instructions] And that will come from the line of Craig Bijou with Bank of America. Your line is open.

Good morning, Craig.

Good morning, guys. Thanks for taking the questions. So Jay, appreciate the comments on Q1. And I did want to dive a little bit deeper there. Can you guys still grow revenues in Q1, given that you do have a pretty strong year-over-year comp? And then on the margin side, should we still expect margin expansion in Q1, but maybe it’s at a rate a little bit lower than what you’re expecting for the full year?

Craig, that’s right. Overall, as I said in my prepared remarks, the first half will be lower than the second half. And the first quarter will be lower than the second quarter. And really what this comes down to is the challenging comp that we saw in Q1 of last year. I believe we had 12% revenue growth, which was really a great performance in that quarter. Having said that, we still expect revenue growth in the first quarter and some level of margin expansion, albeit both of those lower than the full year rates.

Got it. That’s helpful. And as a follow-up, I did want to touch on China and the Anti-Corruption Act. And basically, I want to get your sense for what’s going on there? And did you grow sales and orders in China in Q4? And how should we think about that in the early parts of ‘24?

Hey, Craig, it’s Pete. Well, look, as you know, there is a lot of moving parts within China. We’ve talked a lot about this in the past. I think there is three things. I mean there is clearly a focus by the government to expand capabilities in medical coverage. And a lot of that comes down to our equipment, ultrasound CT as a first part. The second thing is there was a stimulus funding from last year, which was in Q4 and affected in Q1, where we did actually very, very well from a share and a growth standpoint. And then we have anti-corruption. What we’ve seen on the ground is it’s not that consistent in many different ways, meaning that certain provinces, there may be less. In fact, other provinces there may be more. I think that’s going to play out and throughout the coming year. We believe overall that the approach to drive better compliance in a very large country is a good thing and that there isn’t necessarily an end date as much as it’s a new policy approach about how you do business. And for a company like us, it’s kind of how we do business every country around the world. I think that lays it out that way. That being said, last year for us in China in the first half, we had a very strong first half. We grew over 20% organic in the first half of 2023. So we’re actually expecting our growth to be negative year-over-year. That’s contemplated in our guidance in the first half and then in the second half, resuming to growth. And so that’s kind of how we profiled it, and that’s part of our 4% guidance that we’ve laid out. Longer-term, we believe China, again, with 1.4 billion people, 400 million getting quality services today and 1 billion that need it is going to continue to be a growth market out into the future. But we’ve taken, I think, a prudent approach on how we take a look at no growth in the first half and then growth resuming in the second half.

Thanks, guys.

Thank you.

Thank you. [Operator Instructions] And that will come from the line of Vijay Kumar with Evercore ISI. Your line is open.

Hi, Vijay.

Hi, Pete. Congrats on a nice [indiscernible]. Very good morning to you. My first, high level on the guidance here, Pete. 4% organic seems reasonable, given the tougher comps. Curious what is the guide assuming for pricing? And the book-to-bill in Q4, 1.06, it kind of implies that capital book for bill was perhaps 1.08, 1.09. What is the relationship between – when I look at those optical numbers of 1.08, 1.09 capital versus revenues, right? Is there a timing element? Could perhaps 4% – just looking at the book-to-bill, the 4% seems, it looks like it has some cushion.

So maybe I’ll talk first about the sales growth for the year and then talk a little bit about pricing because I think both of those were embedded in the question. Listen, we were very pleased with the performance to close out 2023. On a full year basis, we delivered 8% at the high end of the range, in fact, a little bit in excess of our expectations for the fourth quarter. And a lot of that came down to execution in terms of translating backlog into sales, which was a testament to all the work in many of our teams. And so as we look at 2024, we think roughly 4% is a solid number. If we think about it, we feel really good about 2023. We think the setup is solid. We think the business has proven it’s pretty durable amidst a lot of macroeconomic volatility in 2023. Our business performed pretty well. And so as a result, we did put on some incremental orders in the fourth quarter in the last couple of months of 2023, which was ahead of our expectations. So as I said. And so it’s early in the year. There is a lot of macro dynamics in play. Pete talked about one, but frankly, it’s a volatile world that we’re living in. And we set the 4% up. It’s a really challenging comp, but it’s set out with a very solid backlog, a solid book-to-bill ratio. And so hopefully, things cooperate and we move through the year nicely. Pete, why don’t you add to that and then we can talk about price?

Yes. No, I would just – I think you covered it, Jay, other than the fact to say that, look, we were super pleased with the order book performance. There is been obviously a reasonable amount of questions over this year about order and the translation to revenue, putting up strong orders growth in the fourth quarter, both service and equipment. And again, when you think about our orders book now being over $19 billion, that obviously sets us up for more gas in the tank in – later in Q – in the second half of 2024. But it’s also a business that we have for multiyear deals that gives us visibility into ‘25 as well. And I think that’s an important aspect here. I mentioned $2.5 billion of multiyear enterprise deals, which we’ve been really ramping up our capability on. Not only does that help you in the current year, but it typically gives you 2 to 3 years’ visibility out of business that you’re going to get that you don’t need to win each year. And I think – so for over the period of time here, I just feel very good. And again, I’m just very satisfied with the work that the team has done and the setup that we’ve had. And to Jay’s point, we tried to take into consideration all the different challenges that may be helping in the world and making sure that we’ve had the appropriate call to be able to deal with whatever parameters come our way.

Vijay, as it relates to price, like I said, we were pleased with price in ‘23. We delivered around 3% of price. And a lot of that comes down to a cultural focus at our company in terms of selling value and appreciation of our customers of the value that we’re bringing to the table. We are trying to innovate. You saw the R&D growth number in the quarter. We really are trying to accelerate innovation, and that translates to new and unique products. And so from our standpoint, that’s unlocked a lot of our pricing opportunity. What we expect, consistent with the midterm plans that we’ve laid out, is roughly 1% to 2% pricing in 2024, and we will continue that going forward. So I think this is about culture. It’s about new products, and that’s what’s really – and discipline in terms of how you construct your deals. That’s really what’s enabled this.

And I’d just support that by, again, obviously, new products aren’t in the price calculation. They are in mix. But with a focus on having those come out at higher gross margins. When you have a vitality index of 26%, over 25% of your products are coming out that have a higher gross margin than the predicate ones. And ultimately, that will be the dynamic even more so than like-for-like products, which will help drive margin.

That’s extremely helpful, Pete. And one quick follow-up here. The margin expansion guide was really impressive, 50 to 80 basis points. How much of that is coming from gross margins versus operating leverage?

Sure. And just a word on 2023 margin. We expanded 60 basis points standalone, but we did that with a dramatic increase in R&D expansion. And so that’s the template that we really, really like to see. And so as we look at 2024, the vast majority of the expansion will come from gross margin. I used some words in my prepared remarks regarding the lean focus at the company, and that’s real. What we call variable cost productivity initiatives are reshaping how we operate the manufacturing and distribution operations of the company. So that’s one key element. Pricing is another key element impacting gross margin. So in 2024, majority comes from gross margin expansion. You’ll actually see R&D grow as a percentage of sales, not to the extent that it did in prior years, but it will increase as a percentage of sales as we continue to grow R&D faster. And then there will be a little bit of savings from SG&A. That’s really the construct behind the 50 to 80 basis points.

Fantastic. Thanks, guys.

Thank you.

Thank you. [Operator Instructions] And that will come from the line of Matt Taylor with Jefferies. Your line is open.

Good morning, Matt.

Hey, good morning. Thank you for taking the question. So I had a follow-up. You talked a little bit about the phasing with China. And I guess I was wondering if you could comment also on other geographies and how that phase through the year, is that growth expected to be more linear in the 4% assumption? And then the other part of that question is you mentioned the customer survey that you did recently. You thought was a little bit more positive. I was wondering if you could unpack that a little bit and talk about how much that went into your forecast.

Jay?

Sure.

You want to take the first part and I’ll take...

Yes, I think that – I think China is – listen, China is not a huge piece of our business, right? It’s about 15% overall. And so the dynamic that Pete described is one that we’re working through, and I think presents a nice opportunity for the second half of the year and beyond. As far as other geographies go, they do generally follow some of the same patterns that we – that I described as a company overall. We’re seeing – and really, it’s not about health of market or buying decision time frames, but rather it’s about the comparators that we’re dealing with. Q1, Q2, you’re talking about a blended 10% ish revenue growth. Q3, Q4, a little bit more normal. So really, it comes down to that in terms of why the growth is going to be the way it is for us in 2024. I wouldn’t point to other geographic factors other than that comp. Now as it relates to the hospital capital surveys, overall, we survey each quarter. And we go to our main customers. We talk to them. We have discussions in an organized manner using the specific tool that we have in place. And what we said in the third quarter is we were seeing some signs of optimism from that group. And then as we did our most recent survey, I would actually point to a couple of different things. First, we did see increased buying and ordering patterns in the fourth quarter of the year. As we closed out in particular, in December, there was a buoyancy to the markets, in particular, the U.S. market that sort of supported some of the things that we saw in the survey. The second thing is our internal surveys continued in terms of commentary on positive expectations for growth in 2024 and which I think that was a great piece of data as well. And then third, as we looked at general external information, there were a few things that came our way. First of all, hospital profitability is robust. We saw good reports from a number of providers, a number of indices, which report on general hospital health. All of those things were good. Second, sentiment surveys that other people conducted were also – we use words like constructive setup into 2024. We are not sitting here saying it’s going to be an unbelievable market. But we think it’s going to be a solid market as we approach 2024. Of course, we are watching Fed rate decisions because that will have another element as people look at installing capital and making ultrasound purchases. But by and large, we feel good about how we are thinking about 2024. Pete, do you want to add anything in terms of customer discussions?

I think you covered it. I mean the only point, look, the balance sheets are getting better, Matt, less travelers, nursing and stuff. So, their costs are going down. And so you have seen in some of the reports, profit going up, which is what we are hearing, so that’s there. At the same time, demand is strong, meaning the procedures of patients coming in, either from orthopedic, cardiovascular, neuro, I mean across the board. And so as you have heard us say as well as others, the more that those procedures grow and new innovations come out, they typically are always supported by much of the equipment that we do. We talk about Alzheimer’s when – new therapies are going to come out. And as they do grow, they are going to require our equipment to image and manage safety. As new implants come out in orthopedics and move to an outpatient center, you are going to need an OECC arm to be able to do that procedure backed up with ultrasound. So, that’s the part that we watch is that customers’ health, particularly in the United States is improving and the procedures growth is on the rise.

Thanks Pete. Thanks Jay.

Thank you.

Thank you. One moment for our next question. And that will come from the line of Larry Biegelsen with Wells Fargo. Your line is open.

Hi Larry.

Good morning. Hey. Good morning Pete. Good morning Jay. Thanks for taking the question. I am going to ask two pipeline questions. First, Pete, the slide say, you filed Flurpiridaz. You talked about it in your prepared remarks. Are you expecting approval in 2024? And there are about 9 million myocardial perfusion imaging tests in the U.S. each year, do you think Flurpiridaz can capture a significant portion of the NPI market over time? And I have one follow-up.

Yes. Larry, look, we are – I won’t give my estimate of when the agency approvals would be. But the normative rates would say at some point here in the later second half of the year based on what the normal dates would be for an NDA that we should be in the process for an approval. Look, it’s a very exciting drug. And I mean you know, you have written on it as well. The standard of care forever, as I mentioned in my prepared remarks, is a SPECT camera and technetium. Many of us here, I think on the call listening in know if you go to any type of hospital [Technical Difficulty] test to see how your heart is functioning, which then directly translates into how is the pumping [ph], or your vessels doing, and how is the electrical system doing, and it’s a very efficient test. The challenge is the current products just actually don’t have the level of specificity or sensitivity, meaning that they can’t always point to a direct interventional action. And the early data, again, to be substantiated with the right approval is that a product like Flurpiridaz can greatly increase the specificity and sensitivity. To your point, it’s not a product that’s used on a SPECT camera. It’s a product that’s used on PET/CT. PET/CT is not widely used in cardiology. If this product were to take off and capture a larger percentage of it, which we believe over time will be the case, it’s going to acquire more PET/CT systems in cardiology or in cooperation with radiology. And so we are quite excited about. I think it’s a great support for cardiovascular care. I know cardiologists have looked at, have been very impressed with it. But we will see how that plays out. We are not counting on any significant ramp right now in our mid-term views. We have, I would say, a reasonable numbers that in some future date post approval, we will talk about. But to your point, with the size of the opportunity, there could be some scenarios where this could end up being a larger piece of the business over time.

That’s very helpful. And Pete, I would love to get an update on your progress with the photon counting CT technology. What are the next steps and milestones in the process to bring this to the market in the U.S. and outside the U.S.? Thank you.

Yes. Larry thanks. Yes, photon counting, obviously, very exciting technology for CT, really probably the biggest transformation to come to CT in the last 30-some years beyond multi-slice. And it has that opportunity to bring better resolution, reduce dose, but also bring functional capabilities within the CT world, which typically is a great anatomical imager, but doesn’t show what’s happening more to cellular or an organ level. And photon has that capability. There is obviously some other players in the marketplace currently. We have beta sites that are actually running where we are actually doing a lot of work currently. We believe our technology approach, which is the use of a deep silicone is unique in a lot of different ways. But I would just say for the whole broader sector, all of us that are playing in it, I think this is going to be a strong revolution for the whole industry mainly because CT’s ability to be installed in many different places and it’s just ubiquitous use for so many different diagnoses. So, stand by, more to come, we will be talking more about it throughout the year, but we are making good progress on the platform. So, thanks for the question.

Thank you.

Thank you. [Operator Instructions] And that will come from the line of Joanne Wuensch with Citi. Your line is open.

Good morning Joanne.

Good morning and thank you for taking my question. As you move more and more into AI-enabled technology, could you comment on your thoughts and how to translate that to dollars and plans. Is it a subscription model, is it Software-as-a-Service, how do we think about that?

Yes, Joanne, it’s a great question. And I would say our strategies are evolving. And it will be, in many ways, multi-facet. So, just to give an example, in today’s world, where we have a product like AIR Recon DL, which again is this new way of actually how an MRI actually creates an imaging using artificial intelligence and the corresponding upgrades that we can take to our installed base. Today, those fundamentally result in a higher price value proposition, higher gross margins for an acquisition in that space. And I think there is still going to be plenty of those opportunities to say this product by itself and this product plus AI is actually 4 points, 5 points, 10 points higher in gross margin because of what it actually does. And that will still account for a reasonable part of our growth. The second part then is actually bringing certain capabilities via a SaaS model as their pure standalone software capability. So, take in my prepared remarks, I talked about the App Orchestrator. There is a great example of a product that will be cloud-based, can fit on many different pack systems and work with multi-vendor equipment. And customers may decide that at one hospital or their whole network, they want it. And so they could pay for one on-site capability of SaaS, they could pay for multiple. And then riding upon that will be applications from other third-parties. And we will have an opportunity to say, you will get 70%, we will take 30% as an enabler into our broader installed base in others. And so there is a multifaceted way. I would say in 2024, one of our big operating priorities or big priorities we have is really building out this go-to-market and monetization model. But it’s going to evolve everything from more value to a piece of hardware, which we can actually attain more value for all the way through different – almost down to buy the use capabilities. That – again, that’s going to expand over multiple years, but that’s how we are thinking about it and putting in place the right type of SaaS backbone for the whole company.

Thank you very much.

Thank you. One moment for our next question. And that will come from the line of Graham Doyle with UBS. Your line is open.

Hi Graham.

Good morning guys. Thanks for taking my questions. Can we just touch on China again, just to clarify one of the statements earlier? You said you are expecting no growth, but also negative growth in the first half. And just is it negative or no growth, i.e., flat? And just for the full year, are you expecting China to grow? And then just a quick clarification one after that on the order book. Thank you.

Sure. On China, we expect a decline in the first half. But remember, in Q1 of 2023 and Q2 of 2023, we had around 20% growth. So, we have always kind of modeled the decline in the first half, growth in the second half. And as a result, we are expecting growth for the year.

Perfect. That’s super clear. And then just on the orders, I think you mentioned quite a sizable multiyear contract win. Does that get all booked in the Q4 ‘23 as well then?

Yes. Graham, what I actually, I think referenced was over the year, multiple enterprise deals that we won that amount to over $2.5 billion. Our current process is as we bring in significant amounts of orders, we typically don’t book out beyond a 2-year window of our orders. So, we have something that’s captured for 5 years, 6 years, 10 years. We aren’t actually booking years seven – excuse me, 3 years and beyond in our current order book. That’s not our approach that we implement. So, the order we put in the 3% growth are very near-term orders that we won in the fourth quarter that will see play out in ‘24 and in ‘25.

Perfect. And really quick one on that and photon came to you – you brought up earlier. Is it your expectation that on – I don’t know, like call it, a 5-year view, this becomes kind of the standard of care within CT more broadly as it becomes economic, and we should expect that this – most CTs in Europe and certainly the U.S. become photon counting?

I think 5 years is a little bit optimistic. I mean I think I have heard what others have said as well. I think in the 10-year window, that’s probably more realistic. Keep in mind, 85% of all CTs in the world tend to be more mid-tier value-based products. Some of them sell for $200,000, $300,000 in different parts of the world. So, it’s a wide community of what’s in a CT. To your point is on the premium end and stuff, I think in the 5-year window, yes, you are going to see a significant higher percentage of photon counting.

Perfect. Thank you very much guys. I will jump in the queue.

Thank you.

Thank you. One moment for our next question. And that will come from the line of Anthony Petrone with Mizuho. Your line is open.

Good morning Anthony.

Good morning Pete. How are you? Good morning Jay. Congrats on a solid year and your post-spin. Maybe I will start, Pete, with just a question on Theranostics. You have it in the slide deck here. Obviously, GE HealthCare, well positioned on the diagnostics side. You mentioned growth organically and inorganically. Just wondering how you are thinking about the other pieces of Theranostics. You have therapeutics and supply chain. You can grow more in diagnostics. So, just maybe your thoughts on how that space is consolidating and where GE can play specifically? And I will have a follow-up for Jay on capital allocation.

Yes. No, it’s a good question. I mean obviously, at the baseline level, as these therapies take off, PET/CT is a critical product. I mean for all practical purposes, it’s a limited world of folks that manufacture a PET/CT and PET/MR. We are one of them. We think to do this effectively, you have to have a multi-head SPECT/CT. We have a 12-head system called the StarGuide. None of our major competitors really have that product. Why is that important, if you have a traditional two-head, it’s an hour to do the study versus you can do it in 15 minutes or less. You can’t run an effective Theranostics department if you don’t have a multi-head camera. So, that’s kind of a stick [ph]. The next thing is you need to integrate those images and look at them together to diagnose, look at radiation dose. Patient might have had external beam radiation. They get radiation from the drug itself. You need to look at both of those. MIM Software is really the best in the world. They are going to be part of us post close. That’s going to bring a missing link. It’s also a capability that really nobody else in the industry has when you couple that with those products. And then on the tracer side, we are the only company who has the equipment and manufacturers of tracers. Others distribute, but there is a big difference between just shipping it around and making it. And so we have the logistics capability. We also have the manufacturing capability. And we also make the cyclotrons, which, again, are particle accelerators that actually help create many of these. So, there is multiple opportunities here either working with some of the pharmaceutical companies directly, playing a leadership role with customers on how you deliver these doses. And I just remind everybody, unlike other drugs where you can just deliver in any center, these products have a half-life, which means the moment you make them, they are degrading. And so how you actually take an order and get it to a patient that day for the right potency is one of the things we have expertise in. So, again, as these grow and what we are excited about is the impact they are going to have on patients, effectiveness and low side effects. We have got most of the capabilities to play different roles throughout the growth of this and that’s what we are planning to do.

Helpful. And Jay, real quick on capital allocation, uses of cash for this year. Is M&A more of the priority? You did $1 billion debt pay down and then just free cash flow conversion, that would be helpful. Thanks.

Sure. Thanks for the question. I think 2023 was really a great case study in terms of how we think about capital allocation. It starts, to your point, with free cash flow. We were able to deliver 95% conversion, which we were very proud of. We did a lot of work on the balance sheet on working capital balances and collections on inventory turns, which I commented on in my prepared remarks. And the result was we exceeded our cash flow expectations by a good margin. And we set up 2024 with another solid 90% conversion rate and free cash flow growth. And so then the question is, how do you deploy that, well, in 2023, the first thing we like to do is reinvest in the business to accelerate growth. And so what we were able to do is drive EBIT expansion of 60 basis points despite 20%-ish growth in R&D. And we also significantly expanded CapEx investments. So, point one, reinvest in the business. The second thing we like to do is strategic M&A. Over the course of 2023, we announced three deals, IMACTIS, Caption and MIM. All of them have the profile of deals that we like, strategically relevant, accretive to our business, really solid ROIs over time. And so all of them hit the profile and made us a bit more competitive in the marketplace with more offerings for our customers. Also in 2023, we made a number of minority investments that allow us to learn about new areas in a sort of experimental manner. So, we don’t talk too much about all of those investments, but we make quite a few in 2023. And over time, we expect these to yield dividends. We also like to focus on the balance sheet, so we paid down $1 billion in debt in 2023, significantly enhancing the financial flexibility going forward. And finally, we paid a dividend. So, I guess the way I think about it, everything was on display in 2023 in terms of how we think about a disciplined capital allocation strategy. And as we move forward, I would expect to see more of the same. All of that, though, as I have said at the beginning of this was – is unlocked by cash flow generation, which is a real area of focus for us.

Thank you very much.

Thanks Anthony.

Thank you. We do have time for one final question, and that will come from the line of Patrick Wood with Morgan Stanley. Your line is open.

Hi Patrick. Thank you.

Hey. I will keep it to one, just given the timing. I will make it a short one. Thank you for the detail on the pricing side. Just kind of curious like how that’s flowing through on the service book. Obviously, you get the 1-year warranty, but where you are re-signing service agreements, are you seeing a similar kind of price uplift to what you are getting on the hardware side so that, that traditional ratio between the two is remaining relatively constant? Just curious what you are seeing there. Thanks.

Patrick, we have benefited from multiyear contracts, been able to actually have escalators on not only just on upfront, but then actually have escalators through the years. And then also, we have parts, significant large parts business as well as time and material. And then the other aspect of it is different services that we offer. It might be asset tracking tools, things of that nature. But I would say we have had the good fortune across the board to be able to get some price across all those different vehicles in service. I would say the other thing, and it’s kind of a given point, but it’s important to note that when services are really one of our highest margin offerings that we have. When you are gaining share, as I mentioned earlier on the call, ultimately, to your point, when you get to month 13, that becomes a service contract. And that higher mix of service over time also is an important driver of our future business. Thanks for that question.

Thank you.

Thank you. And Mr. Arduini, I will turn the call back over to you for any closing remarks.

Thank you. Thank you. Look, I would just like to close by saying thank you so much to our colleagues here at GE HealthCare. It’s been a great year. There has been a lot of great work and tireless efforts to go into the first year as a public company. But importantly, with all of that, the focus on our patients and customers to deliver safe, high-quality products that make a difference. It’s at the core of our lean mindset is customers first. We delivered on all of our commitments that we set to deliver in 2023 and as Jay and as we spoke about, really sets us up well for 2024. Investments we made in R&D are coming out. We have a full pipeline of new products and new clinical indications. With that, I would just like to say thank you for joining the call today. And we look forward to connecting with you at one of our upcoming conferences. Thank you so much.

This concludes today’s program. Thank you all for participating. You may now disconnect.