All right. Good morning, everyone. I'm Larry Biegelsen, the Medical Device Analyst at Wells Fargo. Welcome to day two of our 2023 Healthcare Conference. It's my pleasure to introduce the management team from GE HealthCare. With us, we have Jay Saccaro, the CFO, and Carolynne Borders, the head of Investor Relations. In terms of format, it's going to be a fireside chat. I think this is Jay's first fireside chat as CFO of GE HealthCare, if I'm not mistaken. That's right. So, it's a real thrill to host this session this morning. If anybody has a question, please raise your hand, we'll come around with the mic. Jay and Carolynne, thanks so much for being here. Thank you. So, Jay, I think, before jumping into Q&A, I think you wanted to make some opening remarks. Oh, sure. Well, first of all, thank you for the invitation, Larry. I think we've been together in this venue now for probably seven or eight years. Not in this venue, but in Boston generally. And so it's nice to be here with you today. Very excited about the opportunities at GE HealthCare. I think from our perspective, you know, we were really pleased with the first half of the year performance, really the first half as an independent public company. Importantly, we saw very solid sales growth with 11% sales growth, which was a testament not only to commercial execution, but also our ability to get through some supply chain challenges that we faced last year. We also had very solid order growth in the first half of the year, capping off with 6% order growth in the second quarter. Very healthy backlog, $18 billion in committed backlog or backlog, I should say, generally. And I think, you know, as we look at that, it really is an important stage setter, for our long-term performance. As we move down the P&L, we had, you know, protected investment in R&D, so I was very pleased to see R&D growth. In particular, in the second quarter, you had double-digit R&D growth, which is a testament to our commitment to investment in new products and innovative new therapies. And we were able to deliver a solid bottom line, which allowed us to, you know, raise guidance in the second quarter as we looked at the full year projection. So, good performance there. And then, you know, overall, I think, you know, we continue to make progress in terms of operational excellence. We're coming off TSAs. We've removed about 100 TSAs, and as I look at that, that's a real opportunity for us to enhance margin and performance over time. It starts with getting off the TSAs and becoming independent. So really good performance there, and then an intense focus in our manufacturing facilities on operational excellence initiatives. So I think that's another important stage setter as we think about this midterm concept of really enhancing the margin of the company. It starts today, so good start to the year. That's great to hear. So, Jay, you recently joined GE HealthCare from Baxter. What attracted you to GE HealthCare, and what changes can we expect in the metrics you focus on, like free cash flow or how you report or guide? Sure. I was, you know, obviously hard to leave Baxter. It's a tremendous company with tremendous opportunities. For me, I had previously worked with Pete, so I had a lot of experience with him and was excited to talk to him about the opportunity. But then as I looked under the covers a little bit more, I saw very solid and durable businesses. You know, these are, these are medically essential. Hospital systems are built around the products that we provide, so really essential products that we sell. One element, I also saw this idea of innovation and innovative tailwinds. What I mean by that is, you know, a lot of interesting new products like photon counting CT machines, like handheld ultrasound and advancements, advancements there, but also in addition to that, digital and data supporting. So artificial intelligence, supporting the products that we provide, putting a layer on top of that became very interesting to me. And then also, as we think about this idea of very high-priced, specific therapies for patients and the needs that those therapies have, in terms of targeting, I think GE plays a very interesting and unique role. And, you know, The most prominent example of that today is Alzheimer's, where we're talking about scans and MR exams during the you know, during the course of treatment, really enhancing outcomes for patients and really a necessary catalyst. But I think that's just one example of many. We call this, concept care pathways, where we're looking at patients across a care continuum, providing support for that. So I got very excited about that aspect as well. And then I would finally say, you know, this is an early public company, and I felt like there would be real opportunity to enhance margin, enhance operational performance, and I have had some experience with that at Baxter, so I was hopeful that I could help on the journey here. So those, those are why I ultimately chose to join. As far as metrics, I think you mentioned... Did you mention free cash flow? I did. I did. You know, that's, as you know, that's a really important area that I've always been focused on and will continue to that focus. So I don't... You know, as far as free cash flow, I think we've been pleased with the conversion expectations in terms of free cash flow, and I think, you know, it's going to be a continued area of emphasis for us. But, you know, we're, we're still learning, as a company, the best way to communicate with our investors, other stakeholders, and shareholders. In the second quarter of the year, you would have seen us introduce a new metric. In the first quarter, we reported this concept of book- to- bill, which is, you know, a helpful metric, but it also has a lot of different moving pieces related to it. In the second quarter, based on some feedback that we've received and some discussions that we had, we introduced the concept of order growth or organic order growth, and I think, you know, from my standpoint, it really is a better metric as we look at the long-term health of the business. And there's less ambiguity around it. So we'll look to continue to refine how we report, what we report, and so on. But I think, things like continued focus on free cash flow, continued focus on margin expansion, all of those things are, you know, core to what we do. I won't show up to a meeting with you without a cash flow statement, Jay. Thank you. I appreciate that, Larry. So, so Jay, switching gears, what, what's your view of the hospital, you know, capital equipment environment today? Yeah, our view is, it's, you know, we're encouraged by the environment. I think, hospitals are seeing a return to procedures generally. Hospitals are prioritizing investments in CapEx that support productivity and patient care. They're investing in modalities where they can enhance growth, and I think a lot of what we do is targeted to those areas. Many of the products that we sell are prioritized as a result of that. Listen, since COVID, it's been a cautious capital environment, with investments really targeted to those areas that enhance the hospital in some specific way, and I think we've been fortunate that, you know, we have the right products to support that. That's helpful. So no real change? No. That's good. Let's talk about the Alzheimer's opportunity that you mentioned. How is GE HealthCare positioned to capitalize on the opportunities in Alzheimer's, given, you know, the FDA's recent approval of LEQEMBI? Yeah, we're first of all, it's so exciting to live in a world where we're talking about Alzheimer's treatments. I know all of us have or perhaps will be impacted by someone close having Alzheimer's, and so it's such an exciting world, right? And so there are some great new therapies out there, but I think we play an essential role in terms of supporting the successful delivery of those therapies. The way it works is, LEQEMBI removes amyloid beta plaque, and it starts with having a PET scan to identify, do you actually have plaque that should be removed? Throughout treatment, a patient would undergo a series of MR exams to ensure that there are not negative reactions to the therapy. Then perhaps, at the conclusion, there would be another PET scan to identify that the plaque had been removed. So we play a crucial role in terms of supporting successful therapy along the way, identifying who is best, and then in addition to that, ensuring that the therapy is being adopted successfully. This is... Like I said, at the onset here, this is probably the best example that we have at this point of this idea of a care pathway, which is: How can we support a patient through the entirety of their treatment? The interesting thing for us is we are talking to IDNs, and we're enhancing our thinking around how can we. This is new ground for all hospitals, right? And so the question that a hospital asks is: Do I have the right capacity to support this? Do I have the right capability? And we can play a role in terms of supporting them through that journey. And so that's, we're enhancing that right now. What I would say is, the other interesting aspect is the contrast agent that's used for this. We're one of the suppliers of that. So with the PET scans that take place, there is an agent called Vizamyl, which is used to detect the plaque in the brain, and we're one of the few suppliers of that. So that's another great opportunity. This is, it's admittedly really early days. I know there's a lot of optimism around adoption rates here, and we're certainly excited about that for many different reasons. But, it's an area that we'll watch carefully, as we move forward here. I think, from my standpoint, this could be a, you know, a big outcome for our company, but also for society at large. So there was an article in the Wall Street Journal where GE HealthCare estimated this could translate into a billion-dollar annual market opportunity. How, what's behind those assumptions? Not the nitty-gritty, but broad strokes, and how much do you think GE HealthCare can capture? Look, I think we have the right to play and win in this space. I really do. I think because as the only person who has PET scan, plus imaging agent, plus MR, plus real expertise in all of these, you know, we can and should play a crucial role in terms of supporting this. A lot of this comes down to the pace of uptake, right? And so how these drugs do early on is something that we are keenly watching. There have been a number of surveys of physicians, and many of them are very optimistic about prescribing rates and so on. I think, you know, it's early days. What's important from my perspective is I want to make sure that we have, to the extent that an upside case emerges, we have Vizamyl capacity to support that. We're ready with incremental PET machines and MR machines as necessary to support rollout. We want to make sure that we're watching this very closely as adoption takes on, but it's still really early days. Maybe just to add one point on that, Jay. This is why I think it's so critical to the point that Jay made a moment ago about us getting out and meeting with the customers to help them plan their fleet strategy, as well as their imaging agent strategy, so that we're proactively getting the customers thinking about what their needs will be in the coming years. That makes sense. And some investors have been worried about, you know, blood tests for Alzheimer's disease, eliminating the need for MRI and PET scans. What's your view? We'll watch. I mean, I think we're a few years away from relevant blood tests, and I think there are real benefits to sophisticated PET scans, at the outset and at the end of treatment. We believe that, but we'll watch this very carefully. And then along the way, MR is not so much about a plaque question, but the MR exam is about inflammation and how is the patient tolerating treatment. So I think there's going to be a role for imaging in all of this, and a really important one. But, you know, we'll watch the evolution of these blood tests as things move forward. That's helpful. Jay, switching gears to China. You guys put up, you know, strong 16% growth in China in the first half of the year, I believe. It's an important, very important market for you, 14%-15% of sales. A lot of crosscurrents there, procedure recovery, which has been good this year. Macro headwinds that we read about, the anti-corruption initiatives that we're reading about. What's your latest thinking on the outlook in China? And I think people are in general, but I think people are really interested in the anti-corruption initiatives and how that might impact med tech companies like yours. Sure. China is a really important market for us. As to your point, it's like around 15% of sales. We've been there for 30 years. You know, we've had a successful VBP participation for our PDx business a couple of years ago. So continued with our contrast agents in China. We have, you know, we have announced a partnership that we'll be pursuing for the non-premium segment. And so as we think about things like Made in China, about 60% of our sales in imaging and ultrasound are made in China for China. China is also an important supplier to the rest of the world in a number of different areas. So, we are very much, you know, i t's been an important area of our operations and will continue to be. As it relates to anti-corruption, you know, we've said limited short-term impact, a little bit of disruption, but nothing substantial. And I think long term, having a higher bar for compliance, I think that's a good thing. And I think, you know, we will be prepared and are prepared to support execution in that environment because compliance is so important to us. In the short term, you know, there have been some tender delays. We've pointed to that. We've seen... But we haven't seen it impact the procedural volumes or anything like that, and don't expect a substantial impact either to our second half performance or as we move to next year. It may impact some of the cadence of next year in terms of like first half versus second half, but nothing material as we think about, you know, an overall impact from this initiative. At the end of the day, patients need to be treated, and I think, you know, that will continue to happen in China. The government's shown a real commitment to supporting that. To put a finer point on that, the back half, the mid-single digit growth in the back half that you talked about on... I mean, that's been implied for the guidance, but you also talked about mid-single digit on the Q2 call. I know the anti-corruption initiative came after, you know, your Q2 call. The mid-single digit growth in the second half of the year, it sounds like that's still intact. Yeah, we're not changing guidance. We don't really give updates during the quarter, as I've told you in the past. But when this initiative came out, we just we characterized it as a limited short-term impact. And what gives you the confidence that it's limited and short term? We have hundreds of employees in China that are working every day in terms of delivering our business and very focused on that. So, you know, it's on that basis. Got it. And maybe switching gears then to the P&L. You know, Jay, you talked about the margin opportunity, you know, high teens to 20% adjusted EBIT margin, you know, over the near term. How should we be thinking about, which is, I think, 3-5 years, how should we be thinking about, you know, the, the ramp there? Is like 17% and 25%, you know, 20% and 27%. Are those the right, you know, ways to think about it? I might stop short of giving annual parameters on it, but maybe take a step back. I think we have a real margin opportunity at the company, and I've personally spent a lot of time validating the plans, bolstering the plans in my first few months. You know, it really comes down to a few different things. One, you know, continued commercial execution. You know, we've seen ability to price our products and a real focus on that. You know, we'll continue that. Number two, new products. The new products that we're launching carry higher margins, bring incremental value to our customers, and so this innovation pipeline is an important unlocker of this long-term margin expansion. And then finally, you know, we have this whole efficiency aspect. And I think, you know, this kind of features in a number of different ways. First, from a manufacturing standpoint, tremendous opportunities for us to enhance operations. I've been very pleased with the intense focus on operational excellence at the company. But then you have also this aspect of, you know, we're a newly independent public company, and we were a division of a larger company, and we are not optimized yet for being a standalone company, and there are real opportunities. One of the things I've discussed previously is this idea that, you know, our IT cost percent of sales are way too high. And the reason is because it's optimized for a division of a much larger company. We have a new CIO in, and the entire team is galvanized around driving this down, while at the same time, improving the support that we provide. And things like moving servers to the cloud, that's, you know, millions of dollars of opportunity for us, and we have lists of opportunities that go down, and this is not confined to IT. For each of the functions that we have, we have those kinds of opportunities in place. So I'm very heartened by those opportunities that exist, while at the same time, we'll make sure that we continue to invest in R&D, because that innovation aspect that I characterized a little bit earlier is a crucially important long-term sustainable margin driver. So Larry, maybe some of the nearer term opportunities will be driven by what Jay referred to, pricing, adding more innovation to the devices that, that we put out, adding more digital software, artificial intelligence. And then some of the longer tail things that are getting us closer to that 20%, if you will, will be some of the things that take a bit longer, like platforming, getting more efficient in our operating base, exiting some of those longer TSAs, like IT, that take a little bit longer to get done, reducing sites where they are redundant. We've identified 100 sites across the globe that we can reduce. So those are some of the things that are maybe on the longer end. Got it. Jay, you know, the long-term margin guidance was given before you got there. Nothing... It doesn't sound like there's anything you've seen or basically, maybe another way to ask it, now that you've been there for a little while, you know, how are you thinking... You feel confident in these margin goals? You see a lot of opportunity, it sounds like. Yeah, I feel, and I said this on the call, I feel good about the margin plans that we've put together. How do you drive a margin transformation? You do it by having a whole set of initiatives, and then you have to put the operational framework on top of that to ensure successful execution on that. And so I was prepared to come in and say, "Hey, we gotta set up a margin transformation program," but I was so pleased to see that the program already exists. The team is in place. We have several times a quarter, we have a review of all of the initiatives, like the one that I just described for IT, with accountabilities, senior leadership led. I think that's a real catalyst for driving margin expansion. You know, it's been very easy for me to get up to speed on the plan. You know, I have different ideas in certain areas, but generally speaking, we feel very good about, you know, what we have there. That's helpful. Jay, you touched... I wasn't going to ask about 2024, but you mentioned it earlier, so I feel compelled to ask. This is our annual rite of passage here, right? And this is why you come to this meeting. But in all seriousness, what are some of the, you know, potential, you know, tailwinds and headwinds to think about for 2024? So we'll stop, as we always do, short of giving guidance for 2024. I think for us, what we're really focused on is... I was heartened by the order growth rate in the second quarter. 6%, important number for us. I was also pleased with the robustness and richness of the backlog in place at $18 billion. As we go through the coming months here, we're intensely focused on that. Because while we are a capital business and there is, you know, attendant volatility associated with that, the backlog and the order growth are real indicators of, you know, future revenue performance. And so really focused on, you know, those particular drivers. You know, as we move to 2024, we'll continue to watch the robustness of the capital environment, which, as I said earlier, at this point, is okay. We'll continue to watch things like China. You know, does that evolve in a way? We'll watch that very carefully. We'll watch Russia as well. On the other side of the coin, we will continue to watch things like, how is the Alzheimer's uptake going? Vizamyl could be a real opportunity for us in 2024. So we have a lot of work to do in terms of refining the perspective on 2024, but I think those are a few of the things that we're going to watch very carefully. I was curious on China, you said it could impact the cadence in 2024, but you talked about it having a short-term impact. I would imagine it was more short-term, meaning 2023. Yeah. Why would it impact the cadence in 2024? Well, if it's a Q1 versus a Q2 or Q3- Right. Again, we'll watch this very carefully. And I think, you know, we'll talk more about it probably on our upcoming earnings call. But, you know, we just want to make sure that we are finely tuned into all of the dynamics, and we'll reflect it in this year's numbers. But, you know, when we give guidance in February of next year, we'll make sure we have... You know, that's a key factor that we will have watched. Carolyn, correct me if I'm wrong, but the long-term, you know, organic growth for the company when you spun out was mid-single digit growth. That's right. Is there... Jay, is there anything, like, the comps are really tough, right? In the first half of the year. But they will be in the first half of next year, right? Because you have such a strong- Mm-hmm first half of this year. Is there anything that, besides the China, you know, the, the China, you know, comments earlier, anything else that creates a headwind for mid-single digit growth next year? Again, you know, we'll have to wait and see in terms of what... For me, it comes down to how are we doing on order growth, how does the backlog look? That's just such an important driver. And the quarterly cadence, I think these are all things that we'll have to work through and watch carefully. Is there anything going through the P&L right now that you're aware of that, you know, could impact margins next year? You know, I don't have any specific comments to make on, on -specific items. For us, the margin of the company represents a real opportunity, and we want to get after it year after year. I think we've got robust plans in place, so you know, stay tuned on that front. Okay, fair enough. And switching gears, Jay, on capital allocation, what are your thoughts on M&A in terms of deal size, you know, areas of interest, you know, financial criteria, et cetera? Sure. I think M&A represents a very interesting opportunity for us. We did a deal this year called Caption Health. Really, what Caption Health is about is it's about artificial intelligence and technology that supports ultrasound. And what it specifically does is it allows somebody who is a perhaps not highly trained sonographer to have guidance that allows them to put together an ultrasound. And if you are a trained sonographer, you can move through your exams more expeditiously as a result of this technology. It's a great example of a technology that directly relates to a product area that we have, and allows us to more effectively deliver our offering. And so that's the kind of deal that we love to see. We are the logical owner of that asset. We can drive a differential value based on the other products that we provide. A couple of years ago, we did a deal called BK Medical, which is similar. It's about ultrasound therapy, you know, in terms of supporting cardiac intervention and using ultrasound to do that, another technology offering. As I think about M&A going forward, clearly our wheelhouse will be in those areas where we have a strategic gap, where we think it's more appropriate to close it inorganically. There will be numerous opportunities like that. You know, we're spending time. Pete and I meet with the BD team every single week, reviewing the pipeline, reviewing the strategies and the gaps, and how these products will help close those gaps. Very excited about the idea of bolt-on. When we do, we're very focused on ROI in years three, four, five, and six. We want to have a very robust return on the investment. And then, you know, we don't rule out larger deals, but it's just that, you know, there's given that our the strategies that we have in place, there are a lot more smaller targets that represent opportunities for us than, you know, the big large deals. So I would expect, over time, you'll see a hopefully steady stream of these kinds of acquisitions that bolster our offering. From a capital allocation standpoint, we, you know, as you know, we spun out with some debt, also some unfunded pension liabilities. And so I think one of our priorities in the near term is to use some of this free cash flow that we're generating in 2023, along with 2024, and start to pay down some of that, some of the debt. And, you know, as we rehabilitate that, we'll be able to open up the aperture on other vehicles to return capital to shareholders, along with business development. But I think in the short term, call it the next 18 months or so, a priority is some of that debt paydown. That's helpful. ROIC, the goal, the target is what for you guys in, like, year five? We've said, we've said cost of capital, historically, and I think, you know, there's a lot that goes into that, and there's a lot of other factors in addition to that, that we need to look at. Strategic fit, accretion, growth, all of those aspects become quite important in addition to ROI, and not only in year five, but also, how does it look in year three, four, and five? Because if it's 1% going to 10% from year four to five, there's probably some risk in that pro forma that you need to be mindful of. Cost of capital, high single digit, low double digit? That's... I think that's what we've said. You can see that. That's helpful. So you talked about, you know, photon counting CT technology as an opportunity. What's the progress there? Good progress. We're a few years away from the launch of this important platform. I think, what it allows for is, you know, more detail in terms of characterizing tumors for oncology. And we think that, you know, the silicon technology that we use really allows for, a depth of analysis and insight, and we're hopeful that, you know, this comes to market and then becomes a great product for us that differentiates our CT offering. When can we expect to see, you know, something from you guys? A few years. We haven't... I don't know if we've been more specific than that. What did we say? We haven't. We've just said we're several years out. Okay. I think GE still owns, you know, about 20% of GE HealthCare. You know, what timeframe do you expect GE to exit its remaining stake in GE HealthCare? I think they own around 13%. 13%, right. We had a successful secondary offering in June that our team supported. And so that reduced the stake from 20% to around 13%. As far as their plans, I think that's probably best a question for them. I don't really have the ability to answer that, but we're here to support that. You know, whenever they choose to do it, we'll be here to support it. And I think, you know, thanks to you for picking up coverage of our company. We've had a lot of analysts do that, a lot of real interest in what we're trying to achieve. So, I think, you know, I'm hopeful that it'll be an opportunity for new investors to come into the stock. Jay, you talked about AI as being another exciting area for GE HealthCare. Where do you expect to see the greatest impact? That, that's a really, that's a really interesting question, and I think it's, it's kind of core to our strategy. We, we actually have seen a substantial impact from AI already. We launched a product a couple of years ago called AIR Recon DL. And some of the earliest, usage, uses of AI relates to image enhancement and image matching, and things of that nature. What AIR Recon DL does is it basically takes an old MR machine, adds software to it that enhances the image quality and reduces the time to conduct an exam. It's, it's a huge improvement. And so we've been selling that product already, and it's, it's been very well received. And a lot of our new machines, in addition to old machines, are including AIR Recon DL, because folks like how much it enhances images, and so on. And so that's one example. But taking a step back, I think this idea of digital at large and helping hospitals manage how they're going to address Alzheimer's, with not only a technology hardware offering, but also a software offering that sits on top of that. We've made substantial investments in this area in building out a team. And the team is hard at work in terms of putting together artificial intelligence, yes, but also basic data and digital aspects that allow us to support more effective management of the products that we offer and what hospitals are trying to solve with them. So, it's a little, and I recognize right away that that's a bit of an amorphous answer, but you can expect to see continued investments in this area. We'll talk at RSNA about some of the products that we're offering related to the Edison platform and some of the enhancements that we're doing there. So very excited about what this will mean in the future for our company. That, that's helpful. And one- Sorry, maybe just quickly on Edison. Sure. We're working with third-party app developers that are creating apps or tiles, if you will, that are very specific to disease care pathways. So those... The intention is that we'll sell those on a SaaS model, and you can offer to the hospital different types of very specific disease state care pathways to add on. So that's early stage, because today, total digital for us rolls up to just north of $1 billion. But the goal is that this is hopefully going to be a big growth opportunity as we move forward. That's helpful. Thank you. Jay, another, you know, unique aspect of GE HealthCare is pricing. You've talked about 2%-3% positive pricing in 2023, and 1%-2% going forward. You know, how confident are you in those assumptions? We feel, we feel good about those assumptions. I think, this year, you know, we talked about 2%-3%. A lot of that was on extraordinary inflationary impacts that we saw last year. But we are now... You know, it comes down to, how much pricing are you seeing in your orders, right? That's, that's a key aspect. And, you know, we feel good about, you know, this idea of 1%-2% longer term. I think what I've been really impressed with is the intensity of focus on margin and pricing from all of our sales teams. And so I think, you know, there needs to be a discipline around that aspect, and, you know, the organization has it. We're really trying to put forth a comprehensive product offering that our customers value. And so I think we've been successful so far, and we'll look to continue that. Jay, we've got a minute and a half left. We covered a lot of ground. I wanted to give you a chance to close and leave people with any key messages. No, and again, thank you for the interest in our company and picking up coverage. We appreciate that. We're a new company. We have great opportunities in terms of innovation and the role that we play in terms of healthcare. I'm incredibly excited and compelled by that. And underlying that, you know, we've laid out a long-term aspiration and vision. At the same time, we're a new public company. We have lots of great opportunities there, too. So I'm really excited about what the future holds in store for GE HealthCare. I'm thrilled to be there and appreciate everybody's interest in joining us today. So thank you all very much. All right. Thank you, Jay. Thank you, Carolynne. Thank you.