GE HealthCare (GEHC) Q1 2026 Earnings Transcript

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DATE

Wednesday, April 29, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Peter J. Arduini
• Chief Financial Officer — James S. Saccaro
• Head of Investor Relations — Carolynne Borders

TAKEAWAYS

• Revenue -- $5.1 billion, up 2.9% organically year over year, with EMEA and Rest of World growing at double-digit rates, U.S. at mid-single-digits, and China declining as anticipated.
• Backlog -- Record $21.8 billion, an increase of $1.2 billion year over year, with a book-to-bill ratio of 1.07x.
• Service Revenue -- 7.5% growth year over year, driven by high customer capture rates.
• Imaging Segment Revenue -- 3.8% organic growth, with highest demand in CT, especially the Revolution product line in the cardiac exam segment.
• Advanced Visualization Solutions Revenue -- 4.4% organic growth and 120 basis point EBIT margin expansion, led by new product adoption in the U.S. and EMEA.
• Patient Care Solutions Revenue -- 8.1% organic decline, attributed to larger monitoring deals moving to the second half and awaiting U.S. clearance for a new anesthesia product.
• Pharmaceutical Diagnostics Revenue -- 9.7% organic growth driven by global contrast media demand, price execution, and radiopharmaceutical portfolio expansion.
• Adjusted EBIT Margin -- 13.5%, down 150 basis points year over year, with the largest tariff impact expected in the first quarter and future tariff impact projected to decline.
• Adjusted EPS -- $0.99, including approximately $0.16 of tariff impact and $0.05 from a Pharmaceutical Diagnostics supplier recall.
• Free Cash Flow -- $112 million, a year-over-year increase of $13 million due to improved working capital.
• Inflation Impact -- $250 million (memory chips: $100 million, oil/freight: $100 million, metals: $50 million) with more than half expected to be offset by pricing and cost actions; remaining impact reduces adjusted EPS guidance by $0.15 per share.
• Full-Year Adjusted EPS Guidance -- Now $4.80 to $5.00 per share, reflecting 5%-9% growth and a prudent reduction due to inflationary pressures.
• Adjusted EBIT Margin Guidance -- 15.4%-15.7% for the year, representing 10-40 basis points of year-over-year expansion.
• Free Cash Flow Guidance -- $1.6 billion for the full year.
• Orders Growth -- 1.1% in the quarter, cycling against a 10.3% prior-year comparison, signaling resilient capital demand.
• Intelerad Acquisition -- Closed during the quarter; expected to be slightly dilutive to adjusted EPS in 2026 and accretive in 2027.
• Segment Reorganization -- Imaging and Advanced Visualization Solutions merged into Advanced Imaging Solutions (AIS) segment to accelerate innovation and growth.
• New Product Highlights -- Photonova Spectra CT platform received U.S. and Japan regulatory clearance; multiple FDA clearances granted for next-generation MR technology and AI-powered workflow.
• Radiopharmaceuticals (Flyrcado) -- Nearly 80% dose growth since late January, reaching over 390 weekly doses with expansion in customer base and confidence in $500 million annual revenue target by 2028.
• MRI Contrast Agent Innovation -- First patient dosed in Phase II/III study for a gadolinium-free, manganese-based agent with FDA Fast Track designation.
• Shareholder Returns -- $500 million in debt repaid; $100 million in share repurchases; continued dividend payments.

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RISKS

• Chief Financial Officer Saccaro stated, "we are prudently reducing our profit outlook for 2026" due to approximately $250 million in unexpected inflationary costs impacting adjusted EPS guidance by $0.15.
• Patient Care Solutions EBIT Margin -- 500 basis point decline year over year, driven by volume drops and tariff impacts, with segment revenue and margin highly concentrated in second-half monitoring installations; mitigation actions ongoing.
• Chief Executive Officer Arduini said, "we were disappointed by profit performance in the first quarter, which was impacted by a recall associated with a PDx supplier that has since been resolved." This resulted in a $0.05 adjusted EPS impact and sales shortfall for the quarter.
• Management indicated full-year China revenues are expected to be down, and described the market as "still going to be a more challenged year," though sequential improvements and some "green shoots" were noted.

SUMMARY

Management delivered record backlog, growing service revenues, and advanced several new product platforms, notably securing Photon Counting CT approvals and progressing MRI contrast agent innovation. Leadership reduced both adjusted EPS and profit margin guidance for the full year, citing unexpected, material inflationary shocks in semiconductors, freight, and metals that will linger but be partly offset by pricing and internal cost actions. Capital deployment continued with completion of the Intelerad acquisition, debt repayment, and share repurchases aimed at enhancing digital and AI-enabled healthcare capabilities. The reorganization of business segments intends to further streamline R&D and accelerate growth across core imaging and diagnostics businesses. Management maintained sales growth guidance with healthy demand but flagged tariff, commodity, and macro risks as key factors shaping near-term margin and earnings trajectories.

• Chief Financial Officer Saccaro said, "margin step up second half versus first half" is expected, with mitigation initiatives and sales acceleration weighted to the back half of the year.
• Leadership views the recent innovation cycle as the "the strongest innovation cycle we've had in the past decade" with differentiated, higher-margin NPIs entering early commercialization, setting up for 2027+ growth.
• Chief Executive Officer Arduini emphasized that expanded AI and cloud-enabled product integration—enabled by Intelerad and internal R&D—remains a central pillar of the future growth model.
• The company does not expect material benefit from announced tariff policy changes this year, and any tariff refunds are not included in current forecasts.

INDUSTRY GLOSSARY

• Photon Counting CT: A next-generation CT technology that directly measures X-ray photon energy for higher resolution and tissue contrast, with clinical applications in cardiology and oncology.
• Contrast Media: Agents injected or ingested to enhance visibility of internal tissues or structures in medical imaging modalities, such as MRI and CT scans.
• CMO (Contract Manufacturing Organization): External organizations contracted to manufacture pharmaceutical or medical imaging agents, referenced in scaling production of radiopharmaceuticals.
• AI-powered Workflow Solution: Software leveraging artificial intelligence to augment image processing, interpretation, or clinical decision support in imaging diagnostics.
• NPI (New Product Introduction): The formal launch or commercialization process for new technologies or products in the market.
• ABS/AVS: Prior company segmentation referring to Advanced Visualization Solutions, now consolidated into AIS in the new structure.
• AIS (Advanced Imaging Solutions): New GE HealthCare business segment combining Imaging and Advanced Visualization platforms to improve operational synergy and strategic focus.
• Flyrcado: GE HealthCare-specific proprietary radiopharmaceutical, with quantified dose ramp referenced as a revenue driver.
• Gadolinium-Free MRI Contrast Agent: Investigational manganese-based imaging agent developed to address retention and safety issues in current MRI contrast agents.

Full Conference Call Transcript

Peter Arduini: Thanks, Carolynne. Good morning, and thank you for joining us. Let me start with our performance in the first quarter of 2026. We were pleased with the top line growth that came in at the high end of our expectations driven by our pharmaceutical diagnostics, advanced visualization solutions and imaging businesses. We also had strong services growth in the quarter. This all reflects disciplined commercial execution and accelerated customer adoption of new products designed to help clinicians enhance diagnostic accuracy and guide more precision treatment decisions across disease states. As we think about the capital equipment backdrop, we're seeing healthy customer demand globally with resilient procedure growth. Aligned to this, we saw solid performance in orders, book-to-bill and backlog.

We delivered double-digit reported growth in EMEA and Rest of World, mid-single-digit growth in U.S. and China sales were in line with our expectations. However, we were disappointed by profit performance in the first quarter, which was impacted by a recall associated with a PDx supplier that has since been resolved. Later in the quarter, we began to see more significant increases in material costs, which we expect will continue for the remainder of the year. We remain confident in our ability to procure supply to meet customer demand. But given the inflationary environment, we're taking a prudent view and reducing our profit and free cash flow guidance for 2026.

Slide 4 shows the inflation impacts to our profit guidance and the offsetting measures we've identified to mitigate. For background, the magnitude of specific input costs changed significantly as we move through the first quarter, primarily related to two dynamics, an approximate $100 million increase in the price of memory chips, which are critical components utilized in many of our products as well as an increase in oil and freight costs of approximately $100 million. Other inflation impacts are expected to total approximately $50 million with metals, such as tungsten as an example. Prior to any mitigation, the gross impact of these costs is approximately $250 million or $0.43 per share.

We expect to offset more than half of the inflation impact in 2026 with price and cost actions. Taking a prudent view for the year, we are reducing our full year adjusted EPS guidance by $0.15 associated with the remaining inflation impact. Including this impact, we will still deliver mid- to high single-digit adjusted EPS growth. Now I'd like to highlight strategic accomplishments that we're advancing our growth strategy. In the first quarter in Precision Care, we advanced our pipeline of innovation with key milestones in CT and MR, our two largest revenue-generating modalities. Regulatory clearances in both the U.S. and Japan market inflection point for Photonova Spectra, our differentiated Photon Counting CT platform.

Customer feedback about the image quality has been extremely positive, including the ultra-high resolution and soft tissue clarity in all modes of scanning. We're actively working with customers on site readiness, and building a strong pipeline for future sales. In MR, we received multiple FDA clearances for next-generation technologies, including a new 3T and reduced Helium platform and state-of-the-art AI-powered workflow solution. Aligned to typical imaging order conversion time lines, we expect revenue contribution from our key imaging NPIs to begin in the first half of 2027. In PDx, we saw growth across contrast media and radiopharmaceuticals, along with growth in our molecular imaging equipment.

This is driven by an aging population, increased chronic diseases and demand for precision care globally. We're pleased to see Flyrcado continuing to ramp with a nearly 80% increase in doses since late January. We delivered over 390 doses for the week ended April 17. We're onboarding new customers, including high-volume sites, and we've seen an acceleration in the average number of doses that customers are ordering each week. We remain focused on delivering high-quality customer experience, while there will always be some week-to-week variability, we're encouraged by our trajectory.

And this reinforces our confidence in our medium-term target of $500 million or more in annual revenue by 2028. growth is also accelerating, supported by the expanding use of disease-modifying Alzheimer's therapies that are driving increased demand for amyloid beta imaging. Looking to the future, one of the most significant research areas we've been focused on is developing our novel gadolinium free MRI contrast agents. If successful, this manganese-based agent would provide a differentiated alternative to Getelinium by addressing retention concerns and reducing reliance on rare developments. We see this as a significant opportunity to expand our role in the current $1.2 billion contrast MR market by overcoming key challenges for both patients and clinicians.

We recently reached a meaningful clinical milestone with the first patient dosed in our Phase II and Phase III study. This innovation is under FDA Fast Track designation granted to drugs that address serious conditions and unmet needs and can accelerate regulatory review. If successful, both the combination trial and Fast Track designation would speed up the time to market. This milestone underscores both the urgency and the promise of our approach and reinforces our conviction that our innovation can significantly advance the MRI contrast plans game. In the area of growth acceleration, we delivered growth across PDx, ABS and imaging business with strong commercial execution.

Our high-margin services business, the large driver of our recurring revenue also did well in the quarter. We also completed the acquisition of Intelerad in the first quarter. This advances our strategy to deliver a fully connected cloud-first enterprise imaging ecosystem that spans hospitals and outpatient settings. We're excited about the opportunity to grow our AI, cloud and software capabilities, leveraging our Intelerad platform. As we focus on continued business optimization, price and cost programs are a top priority as well as executing on our new wave of innovation that will not only drive revenue but also margin growth. Today, we announced that we're combining imaging and ABS to create a new segment, advanced imaging solutions led by Phil Rocklin.

This change now moves us from 4 distinct segments to 3: AIS, PDx, and PCS, which will allow us to more effectively capitalize on our new wave of innovation, sharpen our disease state focus and accelerate growth. As health care becomes more precise, the need for advanced imaging to confidently diagnose and deliver therapy is increasingly important. There's also a growing demand for connected clinical workflows that drive real-time decisions and outcomes. Structural Heart and cardiology is a clear example. It's one of the fastest-growing areas in health care with a shift to less invasive image-guided therapies. At every stage of the patient journey, procedures depend on advanced imaging, spanning CT, ultrasound and real-time guidance in the cath lab.

Having vertical ownership from investment decisions to integrated supply chain in the segment will better enable us to deliver differentiated technologies while streamlining our business and reducing costs, and we're excited about this next step on our growth path. And Phil has the right focus and expertise to drive this business forward. We also announced a new global markets region led by Katrina Trump that we believe will strengthen how commercial teams build and scale expertise across markets and bring the full portfolio to customers globally to maximize growth in enterprise accounts. Now I'll turn the call over to Jay to discuss financial results. Jay?

James Saccaro: Thanks, Pete. Let's start with a high-level look at our financial performance for the first quarter on Slide 6. We delivered revenue of $5.1 billion, representing 2.9% organic growth year-over-year, coming in at the high end of our expectations. Healthy global demand drove double-digit reported revenue growth in EMEA and the Rest of World and mid-single-digit growth in the U.S. China revenue declined year-over-year, which was in line with our expectations and improved sequentially. On a reported basis, we had strong performance in product and service revenues at 7.3% and 7.5% growth, respectively. Our service business continues to be a key differentiator with growth driven by a healthy capture rate.

Orders grew 1.1% following 10.3% growth in the year ago period. We delivered a solid book-to-bill at 1.07x, and we exited the quarter with a record backlog of $21.8 billion, up $1.2 billion year-over-year. We were disappointed with the adjusted EBIT margin of 13.5% and adjusted EPS of $0.99. Of note, adjusted EPS included approximately $0.16 of tariff impact. Lastly, our free cash flow was $112 million in the quarter. Looking more closely at margin performance on Slide 7. Adjusted EBIT margin was 13.5%, down approximately 150 basis points year-over-year. Recall that we expected to see the largest tariff impact for 2026 in the first quarter, given the timing of the 2025 policy changes.

Year-over-year margin performance was also impacted by declines in PCS and the PDx supplier issue. Commercial execution driving increased volume, strategic pricing and contract settlements were tailwinds to margin in the quarter. Moving to segment performance, starting with Imaging on Slide 8. Organic revenue grew 3.8% year-over-year, with robust growth in the U.S. and EMEA, particularly in CT and X-ray. We're seeing strong customer demand for our CT product line, particularly with our Revolution vibe that is focused on the growing cardiac exam segment. EBIT performance benefited primarily from volume, but declined year-over-year due to tariff expenses. Excluding tariffs, margins would have been accretive year-over-year.

Overall, we're well positioned to capture market demand with the introduction of differentiated new products, including Photonova Spectra. Turning to Advanced Visualization Solutions, on Slide 9, we delivered organic revenue growth of 4.4% year-over-year, with continued strong performance in the U.S. and EMEA, driven by new product adoption across the portfolio. EBIT margin increased by 120 basis points year-over-year, driven by volume and contract settlements, partially offset by tariffs. As we look ahead, we expect continued demand driven by current and future new products across cardiovascular surgery and ultrasound. Moving to Patient Care Solutions on Slide 10. Organic revenue declined 8.1% year-over-year, primarily attributed to select large monitoring installations more concentrated in the second half of the year.

Total segment orders grew in the quarter, and we're expecting U.S. clearance for our new premium anesthesia product in the third quarter of this year. Segment EBIT margin declined 500 basis points year-over-year, primarily reflecting the decline in volume as well as tariff impacts. We're taking specific actions to improve PCS performance, focus on improving backlog conversion, increasing price and optimizing segment cost structure. Moving to Pharmaceutical Diagnostics on Slide 11. We delivered another strong quarter of organic revenue growth at 9.7%, driven by global strength in contrast media, continued price execution, and robust growth in our radiopharmaceutical portfolio.

EBIT margin declined year-over-year primarily due to the discrete supplier issue, planned investments in our radiopharmaceutical pipeline and the Nihon Medi-Physics acquisition. Radiopharmaceutical adoption, including Flyrcado, is progressing well as evidenced by the dose acceleration from late January. Turning to our cash performance on Slide 12. We delivered free cash flow of $112 million, up $13 million year-over-year, supported by working capital improvements. We continue to execute on our capital allocation strategy, including the completion of the Intelerad acquisition, which we expect to strengthen our imaging portfolio and drive total company recurring revenue. In the first quarter, Intelerad's business performance was in line with the expectations we previously shared. We've repaid $500 million of debt in the first quarter.

We also returned capital to shareholders through our dividend and the repurchase of approximately $100 million of our shares. Now turning to our outlook on Slide 13. We're maintaining our top line guidance of 3% to 4% organic sales growth, in line with the healthy customer demand globally and a good start to the year. We continue to factor in a cautious outlook on China and expect limited impact to revenue from the conflict in the Middle East. To note, the Middle East represents approximately 3% of total company revenue. Regarding foreign exchange impacts, while rates have been volatile, we currently anticipate an approximate 100 basis point benefit to revenues this year.

Related to adjusted EBIT, as noted earlier, we expect approximately $250 million of gross inflation impact for the full year. We're taking price and cost actions that are expected to offset more than half of the impact, which will partially benefit this year with larger benefits in 2027. Given these dynamics, we are prudently reducing our profit outlook for 2026. We now expect adjusted EBIT margin to be in the range of 15.4% to 15.7%, reflecting expansion of 10 to 40 basis points year-over-year. We continue to expect tariff impact in 2026 to be lower than '25. Note that we do not expect a material benefit following the tariff policy changes announced earlier this year.

We're also reducing our adjusted EPS guidance to a range of $4.80 to $5 per share, which represents approximately 5% to 9% growth year-over-year. In the wake of the current inflationary environment, we believe this is the right thing to do. With the change in profit outlook, we now expect free cash flow of approximately $1.6 billion in 2026. Intelerad acquisition is expected to have a minimal impact to adjusted EBIT margin and adjusted EPS in 2026. For the second quarter, we expect year-over-year organic revenue growth to be in the range of 3% to 4% and adjusted EPS performance to decline in the low single digits year-over-year.

Note that we will provide a recasted financials for the new AIS segment with our second quarter 2026 reporting. With that, I'll turn the call back over to Pete. Pete?

Peter Arduini: Thanks, Jay. Turning to Slide 14. This chart demonstrates the clear progress we're making to deliver on our new wave of innovation. The majority of our latest NPIs have moved from regulatory clearance to early commercial orders, which is an important step towards enabling more meaningful revenue beginning in 2027. You may recall, all of these innovations are differentiated because of a unique design or AI capabilities and have higher margins than our predicate products. Several of these time lines are earlier than expected, and we feel good about the team's high CD ratio and how we're tracking to deliver on our pipeline.

In summary, we continue to view 2026 as a pivotal year with the strongest innovation cycle we've had in the past decade that we believe will accelerate revenue and margin growth. At the same time, we're working to manage through a dynamic macro environment with operational rigor. The fundamentals of the business remain strong. We're making meaningful progress advancing our precision care strategy and unlocking value for customers, patients and shareholders. With that, we'll open up the call for Q&A.

Carolynne Borders: Thank you, Peter. I'd like to ask participants to please limit yourself to one question and one followup. Operator, can you please open the line?

Operator: [Operator Instructions] Our first question is from the line of Vijay Kumar with Evercore ISI.

Vijay Kumar: I guess my first one is on maybe when you look at the organic cadence. Back half does imply a step up. And when I look at your order growth and book-to-bill, it looks like your capital book-to-bill was well north of 1.1. Just talk about this back half revenue acceleration, just given you had some noise around PCS, would your orders are coming in well above what gets back half to be close to that mid-single range given we're starting the year at 3%?

Peter Arduini: Vijay, thanks for the question. You're right that book-to-bill came in at 1.07 all in, and so if you strip things out, I think the equipment obviously doing better. Look, as I said in my prepared remarks, the overall capital equipment market is healthy. That's super critical, and we're doing well. We're winning at a higher rate. The U.S. market, particularly has strong procedures growth. And I've mentioned on the call that EMEA and the Rest of World is actually doing quite well. It was actually up double digits, which is very good to see. So mid-single U.S. and Rest of World at double digit as well as China kind of aligning to where we are.

I think that, coupled with the products that we have that I just went through on the last page, the structure piece, which actually, in some ways, will help us be even more focused. It gives us much more technical and clinical focus specifically on these new products, like how do you differentiate our photon counting versus the other guys. So we feel quite good about that. And we're well positioned with this to continue to accelerate both orders and sales here as we go through the year. Jay, I don't know if you want to add anything else to do that?

James Saccaro: Sure. Vijay, remember 1% orders growth in the first quarter against the 10% comp, really, really good start to the year, an illustrative of a healthy capital environment. The backlog sits at a record level. So we think from a plan standpoint, the year has shaped up on the top line consistent with what we originally expected. The other thing I would add is the key NPIs, some of the ones that we've seen in our ABS business, like Vivid Pioneer are performing very well. And we're also seeing some benefit in our area of imaging, too. So really good start on those. Those will support acceleration in the second half.

And then the other thing is we are expecting some improvement in PCS in the second half attributable to some monitoring deals that are earmarked for delivery in the second half along with the new product. So really, that's the story as we look at the second half of the year.

Vijay Kumar: Understood. And maybe, Jay, my second one on the inflation assumptions around EPS. Talk about the $250 million number that you quoted. What does it assume? Is it assuming current inflation trends? Does it have some cushion if things worsen? And how should we think about the cadence of that inflation impact rate? Obviously, you noted second quarter EPS would be down. Does it assume an outsized inflation impact and then it gets better in the back half?

James Saccaro: Yes. So Vijay, just maybe taking a second on the overall guidance. No change to sales guidance, which we feel good about, as I mentioned earlier. The issue for us really relates to some dramatic changes to certain input costs that we saw during the first quarter of the year. And what it really comes down to is memory chips and then the geopolitical events impacting things like oil, freight and certain other commodity costs. What we have assumed for the rest of the year is that these commodity costs remain at elevated levels, the elevated levels they're at today, and we haven't included some level of cushion against that.

And so we've included that as the working assumption in this guidance. We have offset measures in place. We talked about implementing price changes, but that's really primarily on new orders. We've talked about evaluating modes of transportation to impact freight exposure, and we are taking some measured cost actions. But the things like price will have a more prominent impact on the second half of this year and into next year than they do in the second quarter because a lot of our -- the sales that are represented in the second quarter as an example, are in the backlog today. I think we've taken a prudent approach here. We obviously are disappointed that we had to lower guidance.

We don't like that at all, but it's the right thing to do under the circumstances. And I think the actions that we're putting in place will benefit more in the second half of the year, but then into next year as well.

Operator: Our next question comes from the line of Joan Wuensch with Citi.

Joanne Wuensch: Can you hear me okay?

Peter Arduini: We can, Joan.

Joanne Wuensch: Wonderful. I'm just trying to sort of pull apart the first quarter a little bit more, particularly in the Miss and PCS. And I'm just curious if you can detail that a little bit better? And how do you think about this on a go-forward basis?

James Saccaro: Sure. So -- so listen, as we think about the first quarter relative to our expectations, the impact was really about a supplier quality issue we encountered in our PDx business. It was roughly $0.05 of impact. It came about late in the first quarter. It led to a write-off of some product, but also a sales shortfall or not for this issue, we would have achieved the quarter. So obviously, not pleased with the performance in the first quarter, but it was really isolated to this PDx supplier issue. PCS decline, but that was generally speaking, in line with our expectations. Pete, maybe you talk about PCS performance.

Peter Arduini: Yes. I think, Joan, to your question, and I think Jay delineated. We had built in some cushion relative to what we expected PCS to do, and it was relatively to that area. And at that point, we weren't happy with how the results were. But just to reinforce the points we made on the call is, the two areas where a lot of the larger monitoring deals, which fundamentally that revenue carries a vast majority of the margin are more second half loaded. And so that puts more pressure on the first half from the margins on that. The second area is the new anesthesia product. It's really our first new premium anesthesia product in many, many years.

I think it's going to be a very good product. Some customers are obviously waiting to kind of see that come out. We feel pretty good that the clearances and stuff will be on track for Q3. And as I mentioned, a little bit later in that period. So those are both orders and sales drivers. The backlog piece on the monitoring are deals that we have with well-established customers and they'll get executed. Having said that, look, I'm not pleased with the decline in this magnitude, and we're heavily focused on mitigation actions. Jay mentioned some of them for the business, but backlog conversion, pricing in this business, in particular, and we're looking at the overall structure.

With PCS being more of a stand-alone segment really in the future, we have the opportunity to do more of a strategic assessment of the portfolio in all the parts as pieces. But ultimately, we'll address the underperformance.

Operator: Our next question is from Travis Steed with Bank of America Securities.

Travis Steed: First, I'd like to start out on Takato progress, almost double the run rate in April versus January. But so far from the $500 million target. So just curious how that trended over the last kind of 3 months and kind of where you see that business going forward?

Peter Arduini: Yes, Travis, thanks for the question. Look, step by step here, I would say. It was a great quarter for the radiopharmaceutical team in general, but particularly for the molecule to your point, we're pleased with the acceleration. The ramp has gone pretty much in line with what we have thought. I think if you think about some of our previous discussions, the weekly volumes have continued to increase throughout the quarter. Really, as we thought, I think, reflecting the customer demand that's out there and just the way we see new customers versus existing customers adding on. We're also hearing more positive commentary from users, which is a really important part.

This becomes kind of a network of users talking to other users. And so that buzz is out there. As we stated, the week ending April 17, we had 390 doses. We have about 31 now active CMOs. You may recall in the first quarter, we talked about the performance of those needed to improve. All of those are performing well, which sets us up for continued growth. And we're also expanding the customer base. I think that's -- the base has grown probably close to the same amount as the molecule growth during that same time period. So we're on track. Price is obviously holding as well. Clinically, the integration of the workflows is progressing.

We talked about that in the past. I think the workflow is relative to cardiology and stuff are on track. So again, all in all, I feel quite good about where it's at. We've got still a lot of work in front of us. But as we mentioned, this gives us confidence here of what we've talked about, about $0.5 billion sales molecule by 2028.

Travis Steed: Great. And maybe a follow-up question on China. You mentioned a cautious outlook on China kind of baked into the guidance. Curious what you're seeing there? If you're seeing any green shoots or things changing on the margin? And what all is kind of baked in from a market standpoint and from a competition standpoint?

Peter Arduini: Yes. Look, China performance was in line with our expectations for Q1 and it improved sequentially, which is important because, obviously, in the previous quarters, it's been more challenged. We were intentional in setting a conscious outlook for '26 and still expect the China sales to be down year-over-year. But it's also important that we are seeing some level of green shoots here in the marketplace. I think, look, we aren't satisfied where the China performance is at this point in time. But as I mentioned, under Will's leadership and honestly, the market, we're starting to see some more promising commentary. And I'd say things like improving market predictability is super important.

A few of our operational changes that the team has put in place have enabled us to be able to be more clear and accountable strengthening our commercial organization. We've done some things to optimize that with our distributor network, and we're seeing the benefit of that. Being more clinical, particularly in certain geographic areas has helped us out win at a higher rate and just be more nimble. So I think those are important aspects as well as we're getting better traction with our JV, which -- that we have a Sinopharm on DBPs in certain tenders.

So Phil and I literally just came back, I think it's a week today from China where we met with customers and leaders and our team and had an opportunity to spend some time into the marketplace and talking. And I think relative to the acceptance of our products, the excitement about the pipeline coming and the changes that we're making. Again, it's still going to be a more challenged year, but I think we're starting to get more stabilization in the China market.

Operator: And our next question is from Robbie Marcus with JPM.

Robert Marcus: Great. Two for me. Maybe the first one, just to circle back on guidance, Jay. We've seen some negative revisions over the past few years. A lot of it has been from unintended global events. But how are you thinking about the amount of cushion you've put in here, especially given you've been reduced -- offsetting a lot of these costs the past few years. How much is legitimate offsets versus perhaps under investment? And how much cushion is there?

James Saccaro: Sure. So Robbie, with this reduction, we've tried to provide adequate cushion in the guidance that we have and also adequate offsets in terms of pricing cost measures. I think importantly for us, you see about $0.23 of offsets that we're reflecting in our guidance. Now importantly, much of that is in Q3 and Q4 versus Q2, which is why you see a decline in earnings in Q2 before you start to see some acceleration in the back half of the year. But that's really related to when the mitigation actions were able to kick in.

Now as it relates to underinvestment in the business, one thing we've been intensely focused on is ensuring that we have adequate R&D spending in place and also adequate commercial investments in place to support all of the great progress that we're making on the pipeline. So we've done all of that. But as far as discretionary spending areas outside of that, we're intensely focused on mitigating those and managing those areas. So I think the answer is, I believe we have adequate contingency and I believe that we're continuing to invest in the right way in the business.

Peter Arduini: Yes. I think, Robbie, as we've said, look, our growth were set up well for the rest of the year. Look, we've taken this hard decision with some of these hyperinflation items, but now it's up from here. We're not counting on hope on these plans. We've got strong operational plans to make sure that we can do the reset and be able to actually move from here upward.

Robert Marcus: Great. Maybe a quick follow-up. There are coming generics in the diagnostics business -- pharmaceutical diagnostics, sorry. It seems more like a 2027 issue than a '26 issue. How are you positioning and thinking about generic impact into the end of the year and into 2027? Are there any measures you could do to help mute any competitive impact and anything else we should be thinking about there?

Peter Arduini: Robbie, look, we haven't seen any impact from any of the entrants at this point in time. Obviously, we take all competitors very seriously. And the reality of it is the market today is a generic market. There's branded generic products that are out there, but there's already 6, 7 different players within the marketplace. Customers look for a full SKU lineup. The more you mix SKUs, the more the probability of mistakes, resiliency in the supply chain, that product breadth and convenience, different sizes that integrate into injectors, things of that nature. So those are all of the different pieces that are out there.

Obviously, to your point, we have contracting options about how we integrate products to fully offer the wide spectrum that an IDN needs and all of those things that we're constantly looking at. But just to be clear, at this point in time, we're not really seeing any impact from any new entrants into the marketplace.

Robert Marcus: Peter, maybe if I could just ask a little clarification. I believe these are AB -- they're able to be switched at the pharmacy level versus branded generics. So does that change the strategy at all?

Peter Arduini: No. I mean there's some different contracting positioning, but it also can mean that anybody within the group, any of the folks that are making products if they're challenged on delivery or that, that those products can be reasonably substituted. And so we deal with that today, right? If we were short or one of our competitors today, we're short, one of us could step in. And I think that dynamic we're dealing with today. So that would be a similar type of competitive issue or challenge that the team is used to dealing with.

Operator: Our next question comes from David Roman with Goldman Sachs.

David Roman: Maybe I'll start just on Photon Counting CT. Could you just elaborate a little bit further on the commercial strategy here? And maybe help us think through market segmentation especially in the context of your primary competitor here, I believe, having kind of a 2-tiered product and pricing structure?

Peter Arduini: Yes, Dave, thanks for the question. I would first start out just to say with we're actually doing quite well in the CT market around the world without even having our Photon Counting system on the marketplace. And the question is why is that? Well, there is a growing need for CT of different types throughout the world. This product that we introduced just about a year ago is dedicated to cardiology and it's just taken off tremendously. It's actually one of the biggest drivers for what's taking place in Europe and international marketplaces. So we have allocated more dedicated resources and focus into the field into CT.

Some of the changes we announced are about having more specialized reps, people that can go in and talk head-to-head clinical, technical and ultimately, productivity differences to customers. I think that's super important as opposed to having more of a generic discussion. We also are big believers that artificial intelligence breakthroughs are also going to change traditional CT. So we have a list of different things that are going to be coming out that are going to increase resolution and capabilities in our traditional CT range and will be significantly more cost-effective for someone who wants more resolution and maybe going to Photon Counting. So there's an interesting mix that's out there.

All that being said, we're super excited about our Photon Counting approach. I think when customers look at our resolution, they look at our contrast capabilities in what's called spectral imaging or being able to see tissue differentiation, they're seeing a system that doesn't have trade-offs compared to maybe what's available in the market. You have this high-resolution all-in capability upfront that you don't have to make these trade-offs. So we're going to come in at the ultra-high end. There's a lot of customers who've been waiting for us for some time. Typically, this will start with the conversion of our installed base. It will then move to broader tenders on competitive targets.

We just had the approval, as you know, at the end of March, beginning of April. We've got a solid funnel of opportunities over $100 million of that. And the way to think about this is that between you getting approval, it's many times 4 to 6 months that customers have to do the assessment, they have to look at. That then builds a bigger order funnel. And then it's 5 to 8 months after that, pending on the customer have the room ready or are they building out that the sales transfers take place. But I think we feel quite good about where we are with approvals, where we are builds and the timing to sales conversion.

But the most important thing is we think we chose well on our technology approach.

David Roman: That's very helpful perspective. And then maybe, Jay, just a follow-up here on some of the input cost dynamics. Could you maybe help us understand a little bit more detail just on the phasing and impact of some of these considerations do you cause? I guess I would have expected you to have some amount of raw material on hand right now given your inventory turns that would enable you to buffer kind of the impact in the immediate term and then potentially see the impact build throughout the year, but maybe help us break down a little bit the timing of some of the cost headwinds, what gets realized now?

And then what's kind of just deferred given the natural dynamics in your business from the timing of acquisition raw material through final finished goods and sale?

James Saccaro: Yes. Good comment, David. And really, as we think about the impact of these incremental inflationary costs, there was limited impact in the first quarter, if any, because of what we call FIFO rolling out in future quarters the impact of higher-priced raw materials. And so we saw very little impact in the first quarter. The second quarter is really the first quarter where we see a real impact from inflation. And some of it, the logistics attaches to our product at the very end in many cases. And so we see some of those more immediate impacts. And then with our faster flow items faster turn businesses, we're starting to see an impact in the second quarter.

The largest impact will be in the third quarter in fourth quarter. But the good news for us is much of the offsets that we have in place start to benefit the second half of the year. So the $0.23, we're not really able to impact the second quarter in terms of those areas very much at all. But really, that benefits the second half of the year. So that's really the overview.

Operator: Our next question comes from Larry Biegelsen with Wells Fargo.

Larry Biegelsen: Jay, I wanted to start with Intelerad, and how that's impacting the guidance in 2026, particularly margins and interest expense? And I imagine the interest expense goes up starting in the second quarter. And I thought this was a relatively high-margin business. And do you expect the deal to be accretive to both sales -- organic sales growth and EPS next year? And I have one follow-up.

James Saccaro: Sure. So first, just as a reminder, Intelerad really was about extending our cloud capabilities and outpatient networks and the efficiency of care teams and helping us deliver precision care for patients globally. So really excited about that transaction. And we were also very pleased to report closing it in the first quarter. So that came in, in line with our expectations, perhaps a little bit better. But overall, good start. And the momentum is continuing in a good way. We previously said double-digit sales growth is what we expect, and we expect to accelerate that a little bit over time. And we also talked about margin accretion. We talked about an EBITDA margin north of 30%.

And so all of that is holding true. Of course, you have things like integration costs and so on. But in the first year, we're expecting this to be slightly dilutive, but we've kind of sort of covered that in the forecast as we add EBIT but then include the incremental interest expense. So what I would say is it's fairly neutral from a bottom line standpoint in the first year. As we move to 2027, we'll see a little bit of positive contribution on the bottom line, but then also as an accelerant to sales growth. So we're pleased with this one.

I think the strategic logic of it as we closed it and now are studying it even further is more intact and the financial profile is continuing as we expected, which is just great to see.

Larry Biegelsen: Jay, one follow-up maybe on the cadence. I think you've addressed sales, but on margins, in EPS in '26. Your comments on the call imply margins and EPS should be up pretty significantly in the second half of the year. And do you now expect gross margin to be down year-over-year because of inflation?

James Saccaro: We do expect margins to improve in the second half of the year. A lot of that benefits from some acceleration in sales in the second half of the year, the new product contribution in the second half of the year. And then those self-help initiatives I described earlier, which benefit the second half of the year. So we will see a margin step up second half versus first half. Now I would say that we typically see that in normal years, but we will definitely see it this year. And then secondly, from a gross margin standpoint, I would say it's going to be relatively neutral year-over-year.

A lot of the activities that we're putting in place will offset the inflation. And so relatively neutral year-over-year from a gross margin standpoint.

Operator: Our next question comes from Matt Taylor with Jeffries.

Matthew Taylor: I wanted to double-click on some of the commentary you made on the PDx, which had a good quarter. So good to see the progress of Flyrcado. I guess, could you help us understand what the gating factors are there to drive more production because it does seem like there's demand in the market? And I also wanted to ask about the MRI contrast agent. You mentioned some progress on that program. Could you talk about when that could actually launch? What's the time line to get through Phase II, Phase III?

James Saccaro: Sure. Maybe I'll start on Flyrcado. We were really pleased with the progress on Flyrcado. The run rate -- the annual run rate went from roughly $25 million or so to $46 million in April, and we're continuing to work to accelerate that. Now as we've said historically, it's an equation that involves supply and our ability of customers to modify workflow to incorporate and sort of deliver doses at higher levels. We're incorporating new customers, but we also want them to climb ramp up from low levels to higher levels of dose utilization. And so it really comes down to continuing to manage the CMO network.

We're intensely focused on very high levels of delivery rate, over 95% is our target. We'll continue to migrate and add some new CMOs, but also ensure the right delivery rate is in place. And then add new customers and ensure that they're comfortable ramping their own utilization of the product. But we were very pleased with the progress in the quarter. I think all of the positive feedback we're getting in terms of the benefits of this particular product are coming true. So it's a good start. Pete, do you want to talk about the other products?

Peter Arduini: Yes. I'll just comment on Flyrcado as well. I think as we've talked about previously, customer reimbursement constructs, customers are getting that worked out both privately and through the health system structure, which is important. The workflows are, I think, our algorithm operationally, how we go to a customer and help them set up, that's definitely getting to be a more well-oiled machine. And then as Jay said, too, with the CMOs, they're how to make the product has improved. So those are all critical items. And so as we bring on more customers, the ability to scale from I'm doing 2 to 3 patients a day, so I'm doing 10 or 12, increases as we go out the year.

And so we're optimistic about that. We still are going slow to go fast because again, we think this has a long-term potential being a $1 billion molecule. And so again, excited about how the team has been leading this and where we're doing going. So your second question you asked was about the new MRI imaging agent that we have in clinical studies. This is super exciting. I think if you follow the MRI imaging in general, you would say the future of imaging heavily hangs towards MRI.

It's radiation-free, very friendly for children, older adults and the technology with things like air recon DL are moving from where it used to be 45, 50 minute exams down to 10 to 15. So the modality is going to continue to grow. Oil limitations has been the contrast agents available. Forever, it's been catalydium. Catalydium has been a great workhorse, but it has challenges. It has retention challenges in the body. It really can't be used with pediatrics. It comes from sources only one part of the world to rare earth element. And so it's been limiting about what one can do.

And there's been other attempts that have been challenged over the years to come out with different agents, but we really think we've got a winner here. Obviously, we need to be able to make it through our studies successfully. We had a successful Phase I, which is where a lot of these products in the past have failed relative to tox studies and overall adverse events, but we've done quite well through Phase I. This is now in a Phase II, Phase III combined study, which is around dose optimization to image quality. And you might have seen some work that actually took place earlier at the Mayo Clinic that we feel very good about.

This is a manganese-based product. There have been other folks that have worked on manganese in the past. I think the difference is all about your formulation which we have a very proprietary focused approach here that enables the molecule to be able to provide high-quality imaging comparable to GAD but be able to remove from the body in an effective way. That's really the key here. And obviously, if we're successful of achieving that bringing a proprietary first-to-market molecule into this market where there hasn't been anything in decades, we think is a really big opportunity.

Not only to grow and obviously have a high-performing, highly profitable product but it really fundamentally changes how we think about how MRI imaging for vascular imaging can be done on all types of population. So this is super exciting. The fast track and the dueling speed up this a product like this that didn't have those capabilities might be out in the 2030 range with fast tracking and the combined studies, if successful, this could be a 2029 type molecule introduction to the marketplace.

Operator: Our next question is from Ryan Zimmerman with BTIG.

Ryan Zimmerman: Pete, with the changes in the organizational structure with imaging and AVS, you talked about the rationale for it to some degree. But I'm wondering how you think about the benefits of it? If there is increased business capture, does the growth profile of that business collectively change or move higher from what may have been maybe a mid-single digit to maybe the high end of the mid-single-digit range. I'm just wondering if you could kind of articulate how you think about the downstream implications of those changes from an order standpoint that we may see in kind of this new segment?

Peter Arduini: Yes, Ryan, really good question. Look, as we thought about AIS at the highest level, it's all about what can we do to drive a higher growth profile organization. Yes, there will be some cost benefits that will help margin, but the #1 priority was that. The predicate model was realistically the model that Phil was running prior to this, which you may recall, ABS was taking ultrasound and image-guided solutions to put them together. And we saw an opportunity by putting them together on the way we articulate the technology story to customers to be winning at a higher level, candidly, by doing it that way.

But on the back end, on the R&D side, finding new ways faster to come up with differentiated products. And fundamentally, AIS is a bigger version of that. So we would expect at the street level, starting rather quickly to be able to see us being able to bring solutions and articulate differentiated value faster with this model. But I think on the upstream side, meaning on the R&D side, when you think about a cardiac pathway or an oncology pathway, all the products needed to work together now fit into that AIS construct.

And so as far as allocation of R&D dollars, faster moving to get something done, two less meetings to me to make a decision, all of that gets much more streamlined. And so that's -- we would expect we'll see some benefits in this year, but obviously, more benefits come in the following years as you start thinking about how you're building products and framing that to customers.

Ryan Zimmerman: Yes. Understood. And then for Jay, cash -- free cash flow has ticked up a little bit versus last year. In the face of these inflationary pressures, you guys bought back shares, about $100 million or so. You have dividends. It's been a very balanced, I would say, capital deployment strategy thus far. Does your prioritization of capital deployment change in the face of some of these inflationary pressures, meaning more to share repurchases, less M&A? Just take us through kind of your thought process, I guess, Jay, as you think about what you do with that cash, again, in the face of some of these changing input costs and so forth?

James Saccaro: Great. Thanks for the question. really good progress on cash flow in the quarter. I think we did a particularly nice job with respect to working capital balances. And this business generates a lot of cash, and so we have the opportunity to deploy it. We will first continue to invest in the business organically. To Robbie's question earlier around R&D levels and so on, we'll continue to ensure appropriate investment so that we can drive this business forward. We'll also do disciplined M&A. I think from our standpoint, the quarter was a great example of that, closing the Intelerad deal. That's a very good ROIC deal over time. It's strategically and economically accretive to the company.

So that's exactly the kind of M&A we will continue to do. And then we will look to see when the shares sell off and we look at them relative to the intrinsic value, we will evaluate buyback. We felt very good about the buy that we did last quarter, and we did so because we feel very strongly about the long-term prospects of the business. As we think about some of the mechanisms we're putting in place now like pricing, which will benefit next year, like the new product momentum that will benefit next year, we feel very good about the share buyback program, and we'll look to continue to do that as a supplement to M&A.

Operator: We'll now take our last question from Anthony Petrone of Mizuho.

Anthony Petrone: Maybe one for Jay and then one for Peter and Jay. Just, Jay, on the tariff impact, you're calling out $90 million to $100 million quarterly at the margin, in the presentation material quarterly, it seems like that level is holding. So what do you actually have baked in there from a tariff impact for 2026? And if you do get a reimbursement decision later this year, do you get roughly $100 million back at the margin? And I'll have one quick follow-up on AIS.

James Saccaro: Sure. So basically, we said tariff impact in 2026 will be less than 2025. So that's less than $250 million or so is what we expect to see. And based on the mitigation activities that we've put in place, the first quarter will be the biggest impact of the year, and that will trail down through the rest of the year. We have not seen windfall as a result of the IEPA Supreme Court ruling as those tariffs were replaced. And we've assumed those tariffs remain in effect for the rest of the year though there is a tariff impact for the rest of the year. So we've assumed that in the guidance that we've put forward.

So that might be an opportunity. As far as refunds, we will be submitting as many companies will for refunds related to the tariffs that we paid last year. We're hopeful that we'll be successful in terms of recovering that. We haven't determined how we will report that or account for that in terms of adjusted EPS or anything like that. That's not included in the forecast that we put forth today.

Anthony Petrone: And just on AIS, and I don't know if this is across the portfolio or in AI specifically. But when you think about AI-enabled platforms, you have Intelerad in there, it's coming in as a Software-as-a-Service model, but we count 7 AI-enabled assets across the portfolio at this point, various different programs. So will it all show up as Software-as-a-Service? What are the milestones we should look for, for AI-enabled capabilities? What does the economic model look like over time?

Peter Arduini: Anthony, yes, great question. Look, I think a big part of our growth algorithm is really this combination of new wave of innovation. It's about better commercial execution, both on equipment as well as service. And you saw some of that throughout the call here in the first quarter. I think we're going to be able to highlight that and accelerate our growth here as we go through the year. Relative to AI, it comes in 2 flavors today. One is it's the AI inside. It's why things like Vivid Pioneer are growing at a very high rate right now because of 4, 5 algorithms that make this product better than its competition.

So we get a higher price for it. We get multiple hundred points -- basis points improvement in margin, which is a combination of its cost, but it's really about its value. So that's really the first piece. All of those products that I had on the page in the deck all have embedded AI. Some of them have a couple of algorithms. Some of them had 4 or 5. And so that's piece one. The other part you hit on, which is, again, we're doing more and more, which is actually having SaaS-based capabilities for specific features.

So part of our vision is to be able to sell the hardware, have it more standardized of what that feature set is and then have a wide menu of other SaaS cloud-enabled applications that customers can customize by that individual scanner or by their fleet. And so CT is kind of our first modality as well as ultrasound that leads in that. I think you're going to see more and more of that continue to grow. And we're in a good spot now. Back to Intelerad, why is that important?

Because not only in outpatient, but an inpatient, the more that we integrate those tools, that will be the reading interface, not only for the diagnosis, but also, in many cases, deploying the AI tools. And that's all well thought through of how we continue to leverage that. So again, thanks for the question.

Operator: Thank you. And this concludes our question-and-answer session. Please proceed with any closing remarks.

Peter Arduini: Thanks for your interest in GE HealthCare. And again, we look forward to connecting and chatting with many, if not all of you here in some upcoming conferences. Thanks again.

Operator: And this concludes our conference. Thank you for participating, and you may now disconnect.

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