GE HealthCare Technologies Inc. Common Stock 2026 Q3 Earnings Call

Please go ahead. Thanks, operator.

Good morning and welcome to GE HealthCare's third quarter 2026 earnings call. I am joined by our President and CEO, Peter Arduini, CFO, Bill Grogan, and Controller and Chief Accounting Officer, George Newcomb. 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. With that, I will hand the call over to Peter.

Thanks, Carolyn. Good morning and thank you for joining us today. Before I review highlights from the quarter, I want to take a moment to welcome Bill. He brings tremendous experience and a strong track record, and I am looking forward to partnering with him as we execute against our strategy and deliver on our priorities. Looking at our third quarter results on slide 3, we delivered strong top-line growth and margin expansion across all segments. Broad-based demand in Advanced Imaging Solutions and Pharmaceutical Diagnostics supported healthy orders, book-to-bill, and backlog. Heartbeat is strengthening how we run the company and helping our teams deliver on commercial and operational simplification. A great example of performance driven by Heartbeat this quarter is Patient Care Solutions. The team identified root causes of prior supply challenges and implemented standard work and daily management to drive ongoing improvements. This drove backlog conversion and stronger operational performance.

Taken together, momentum in our business has enabled us to raise our full year 2026 guidance, which Bill will cover later in the call. Turning to slide 4, let's look at how we are advancing our growth strategy. We reached key regulatory milestones in the quarter on two imaging platforms with market-differentiating features. We received CE marking for Photonova Spectra, our photon-counting CT system, and StarGuide GX, our SPECT/CT system, is pending FDA clearance. This broadens our ability to commercialize in more markets. We also expanded our ultrasound platforms in cardiovascular, women's health, and general imaging with the launch of several new products to meet the growing demand for non-invasive imaging. We continue to see general imaging ultrasound as an attractive market where we are investing for the long term. With growing demand, staffing constraints, and more distributed care, ultrasound's versatility across a broad range of exams is increasingly valuable.

PDX delivered another excellent quarter with growth in contrast media and radiopharmaceuticals, including proprietary tracers aligned to disease states. This was supported by momentum in precision medicine and growing demand for targeted diagnostics in oncology, cardiology, and neuro. Earlier this month, we announced our plans to acquire SOFIE Biosciences. Upon close, this will establish a final mile footprint of U.S. PET radiopharmaceutical supply. It will also strengthen our pipeline through FAPI-74, a phase III PET tracer with the potential to help diagnose and treat a range of cancers and other diseases. Heartbeat is driving improvements in execution across the company, keeping our teams focused on SQDCI: safety, quality, delivery, cost, and innovation, in that order. In services, standardized digital support is helping our field engineers resolve more issues on the first visit.

We expect this to save approximately 10,000 hours of field time across CT, MR, and X-ray in the U.S. and get customers back up faster. In AIS, stronger standard work and operating rigor around variable cost productivity delivered incremental cost reductions, helping partially offset inflation. We recently entered multi-year strategic agreements with several leading technology partners to secure memory chips to strengthen the resiliency and predictability of our supply chain amid growing cross-industry demand for advanced computing components. We continue to pursue agreements to position us for the future. Lastly, before I hand the call over to Bill, today, we announced that Jeannette Bankes, who leads our PCS business, will be leaving for a CEO role at a non-competitive, publicly traded company. We thank her for her contributions and wish her the best.

Leveraging our strong succession pipeline, I am excited to announce that Neal Sandy, currently head of product strategy and management for PCS, will become the CEO of the business. I have tremendous confidence in Neal's capabilities given his current role and more than 30 years of experience in the industry. We remain focused on building on the progress the team achieved in the quarter, and we are also evaluating strategic options for this business. With that, Bill will walk through the financials and guide.

Bill? Thanks, Pete. Let me start by saying how excited I am to have joined GE HealthCare.

I have been impressed by the talent and commitment of the team, and I look forward to helping to build on the existing foundation as we execute on the significant opportunities ahead. Now let us turn to our third quarter financial results on slide 5. We are pleased with our strong performance on both the top and bottom line, and with growth ahead of expectations. Revenue of $5.5 billion increased 6.2% organically, with growth across all segments. On a reported basis, we had strong performance in both product and service revenues at 6.7% and 8.1% growth respectively. Organic orders grew 4%. As a reminder, orders growth in the third quarter of last year was 5.7%, so we are growing mid-single digits on a strong baseline. On a trailing 12-month basis, organic orders growth was 4.6%.

Book-to-bill was 1.03 times, and we exited the quarter with a backlog of $23.7 billion, up $2.5 billion or 12% year-over-year. We made progress on margin expansion this quarter, delivering adjusted EBIT margin of 16.6%, up 180 basis points. I'll discuss the operational drivers in more detail on the next slide. With our strong execution in the quarter, we delivered adjusted EPS of $1.34, up 25.1%. Lastly, our free cash flow was $793 million, up $310 million versus the prior year. On slide 6, we'll look at the drivers of margin expansion in the quarter. Our commercial execution helps us grow profitably, as volume provided a healthy tailwind to margin. Additionally, the price and cost mitigation actions we've been taking across the business are starting to deliver a more meaningful benefit. Tariff expense was also lower than the prior year.

Margin was negatively impacted by inflationary costs for memory chips, as well as the impact of higher oil prices across our supply chain. As we think about our margin expansion framework, it is built around two key areas underpinned by Heartbeat: commercial execution and operational simplification. Starting with commercial execution, our focus is on driving high-quality, profitable growth. This includes capturing strategic pricing opportunities, standardizing our product launch playbook, and bringing new products to market at higher gross margins. As I've been coming up to speed on our business, a strong example is our Vivid cardiovascular platform, where differentiated AI-enabled capabilities supported premium pricing while a simplified design reduced manufacturing costs. On the operational side, we are simplifying how we run the business and reducing complexity across the organization.

This includes advancing product platforming, optimizing our structural cost base, streamlining internal processes to eliminate rework, and the VCP examples Pete mentioned earlier. Together, these actions are helping us improve efficiency and create a more scalable operating model while supporting margin expansion. Let's move to our consolidated segment performance on slide 7. Starting with Advanced Imaging Solutions, organic revenue grew 4.5%, driven by strength in CT, cardiovascular and interventional solutions, and surgical innovations. EBIT margin expanded 130 basis points year-over-year, driven by volume, reduced tariff expense and price. This was partially offset by inflation. Demand for our cardiology solutions also increased, which was reflected in demand for our AI-enabled CT solutions, MR upgrades, and cardiovascular ultrasound. Moving to Pharmaceutical Diagnostics, we delivered robust organic revenue growth of 13.8%, with contributions from contrast media and radiopharmaceutical products.

Segment EBIT margin expanded 50 basis points to 29.9%, driven by volume and price, partially offset by planned investments in new products and our innovation pipeline. As mentioned, we also announced the planned acquisition of SOFIE Biosciences. SOFIE's revenue will add approximately 1% of total company revenue on an annualized basis. In the full year of ownership, revenue is expected to grow in low double digits with accretive adjusted EBIT margin and adjusted EPS. Patient Care Solutions delivered significant sequential improvement in the quarter, and year-over-year organic revenue grew 8.8%, driven by improved operational performance, including better product fulfillment in monitoring solutions and maternal infant care. Backlog continues to grow alongside revenue. Segment EBIT margin expanded 480 basis points year-over-year, primarily driven by higher volume and cost productivity.