GE HealthCare (GEHC) Q2 2026 Earnings Call Transcript

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DATE

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

CALL PARTICIPANTS

• Chief Investor Relations Officer - Carolynne Borders
• President and Chief Executive Officer - Peter Arduini
• Vice President and Chief Financial Officer - Jay Saccaro
• Controller and Chief Accounting Officer - George Newcomb

TAKEAWAYS

• Total Revenue -- $5.3 billion, representing 5.7% growth compared to the prior year.
• Organic Revenue Growth -- 3.5%, driven by performance in the Pharmaceutical Diagnostics and Advanced Imaging Solutions segments.
• Organic Orders Growth -- 11.1%, representing the highest level since the company's spin-off and reflecting broad-based demand across all three segments.
• Backlog -- $23.9 billion, which increased by $2.6 billion compared to the prior year and $2.1 billion sequentially.
• Book-to-Bill -- 1.15x, indicating strong demand and future revenue visibility.
• Adjusted EBIT Margin -- 14.2%, representing a decline of 40 basis points due to underperformance in the Patient Care Solutions segment and inflationary pressure from memory chips, oil, and freight.
• Adjusted EPS -- $1.13, representing 6.6% growth and benefiting from $0.04 in tariff refunds and a lower tax rate.
• Free Cash Flow -- $68 million, which included $107 million in tariff refunds, partially offset by working capital investments and capital expenditures.
• Advanced Imaging Solutions Organic Revenue -- $3,668 million, representing growth of 5.0% driven by demand for Computed Tomography, Molecular Imaging, and Cardiovascular solutions.
• Advanced Imaging Solutions EBIT Margin -- 13.9%, representing an increase of 90 basis points due to favorable volume and pricing.
• Pharmaceutical Diagnostics Organic Revenue -- $835 million, representing growth of 14.6% due to high global demand for contrast media and radiopharmaceuticals.
• Pharmaceutical Diagnostics EBIT Margin -- 29.6%, representing an increase of 30 basis points due to volume and price gains.
• Patient Care Solutions Organic Revenue -- $673 million, representing a decline of 13.5% due to operational fulfillment challenges and supply chain disruptions.
• Patient Care Solutions EBIT -- Negative $26 million, reflecting a decline from $60 million in the prior year due to volume shortfalls and component shortages.
• Share Repurchases -- $200 million, representing the buyback of 3.3 million shares during the quarter.
• Inflationary Impact -- $250 million, the total expected headwind for the full year 2026 associated with memory chips, oil, and freight.
• Flyrcado Weekly Doses -- 545 doses for the week ending July 24, 2026, representing a 40% increase since April 2026 levels.
• Full-Year 2026 Organic Revenue Guidance -- 3% to 4%, representing steady growth expectations across the imaging and diagnostics portfolios.
• Full-Year 2026 Adjusted EBIT Margin Guidance -- 15.4% to 15.7%, reflecting expected expansion of 10 to 40 basis points.
• Full-Year 2026 Adjusted EPS Guidance -- $4.80 to $5.00, representing growth of 4.6% to 9.0% compared to the prior year.
• Full-Year 2026 Free Cash Flow Guidance -- Approximately $1.6 billion, supported by expected sequential improvements in segment performance.
• Capital Expenditures -- $100 million, focused on capacity expansion and innovation initiatives.
• Research and Development Expense -- $323 million, reflecting continued investment in the company's innovation pipeline and AI-enabled product development.
• Headcount -- Approximately 54,000 employees globally, supporting operations across three reportable segments.
• Cash and Cash Equivalents -- $2.1 billion, providing liquidity alongside access to $3.5 billion in revolving credit facilities.

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RISKS

• Saccaro stated, "year-over-year margin was negatively impacted by the challenging quarter in PCS as well as incremental inflationary costs from memory chips, oil and freight and other components," highlighting the specific margin headwinds faced during the period.
• Arduini noted that "Patient Care Solutions performance remained challenged" and indicated that the company is "actioning improvement initiatives" to address shipment velocity and backlog conversion issues.
• Saccaro indicated that "current market demand is close to outpacing total market supply" in the contrast media market, which necessitates a focus on supply chain resiliency.

SUMMARY

Management of GE HealthCare Technologies Inc. (NASDAQ:GEHC) reported that growth in the Pharmaceutical Diagnostics and Advanced Imaging Solutions segments offset declines in the Patient Care Solutions division. The company stated that record order volume and backlog levels were driven by end-market demand and the introduction of new AI-enabled products. Management indicated that a strategic review of the Patient Care Solutions business is currently underway to assess potential divestitures or other value-enhancing transactions. The company maintained its full-year 2026 financial guidance while navigating inflationary pressures related to commodities and logistics.

• CEO Arduini stated that approximately $500 million in technology modernization agreements with Catholic Health will result in "orders over time."
• CFO Saccaro noted that the equipment revenue secured rate entered the third quarter at "nearly 85%," representing an increase of several percentage points from previous periods.
• Management reported that the comprehensive review of strategic options for the Patient Care Solutions segment is evaluating "continued ownership, a sale and other value-enhancing transactions."
• Saccaro indicated that current global demand for contrast media is "close to outpacing total market supply," with expectations for the market to double in size over the next decade.
• Arduini reported that the Flyrcado ramp reached 545 doses for the week ending July 24, 2026, which represents "approximately a 40% increase over April levels."
• The company expects CE marking for the Photonova Spectra photon-counting CT platform in the second half of 2026, which is intended to expand its market opportunity in Europe.
• Management noted that the restructuring of the Global Markets and Advanced Imaging Solutions divisions was completed in the second quarter to create a more agile organization.

INDUSTRY GLOSSARY

• Advanced Imaging Solutions (AIS): A reportable segment of GE HealthCare that combines diagnostic imaging technologies like CT, MR, and X-ray with advanced visualization software.
• Amyloid: A protein that can form plaques in the brain, a hallmark of Alzheimer's disease; the company produces imaging agents used to detect these plaques.
• Computed Tomography (CT): A medical imaging technique that uses computer-processed combinations of multiple X-ray measurements taken from different angles to produce cross-sectional images.
• D3 Strategy: The company's framework integrating smart devices and drugs with a disease state focus and digital capabilities like artificial intelligence.
• Heartbeat: The company's global business operating system designed to align customer needs, product development, and commercial execution.
• IEEPA: The International Emergency Economic Powers Act; the company received tariff refunds related to this act.
• Patient Care Solutions (PCS): A reportable segment providing medical devices for patient monitoring, anesthesia, and maternal-infant care.
• Pharmaceutical Diagnostics (PDx): A reportable segment providing diagnostic agents and radiopharmaceuticals used in medical imaging.
• Positron Emission Tomography (PET): An imaging test that helps reveal how tissues and organs are functioning using a radioactive drug (tracer).
• Theranostics: A medical field that combines diagnostic testing with targeted therapy, often used in oncology.
• VBP: Volume-Based Procurement; a central purchasing system used by the Chinese government to procure medical devices and pharmaceuticals in large quantities.

Full Conference Call Transcript

Operator: Good day, and thank you for standing by. Welcome to the GE Healthcare Second Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carolynne Borders, Chief Investor Relations Officer. Ma'am, please go ahead.

Carolynne Borders: Thanks, operator. Good morning, and welcome to GE Healthcare's second quarter 2026 earnings call. I'm joined by our President and CEO, Peter Arduini; Vice President and CFO, Jay Saccaro; and our Controller and Chief Accounting Officer, George Newcomb. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides available on our website. During this call, we'll make forward-looking statements about our performance. These statements are based on how we see things today. As described in our SEC filings, actual results may differ materially due to risks and uncertainties. And with that, I'll hand the call over to Peter.

Peter Arduini: Thanks, Carolynne. Good morning, and thank you for joining us today. We were pleased with our strong performance in the second quarter. Orders increased 11% with strong backlog, which grew $2.6 billion year-over-year and book-to-bill of 1.15x, all of which were at record levels. We're seeing healthy end market demand in all 3 of our segments and across geographies, reflected in the growth of our differentiated products and solutions that improve clinical outcomes and productivity. This sentiment was once again reflected in our most recent survey of top U.S. customers. We're increasingly becoming a key productivity enabler for our customers as they navigate capacity constraints and workflow challenges.

At the same time, the substantial changes that we've made in our commercial organizations and progress on our new innovations, many of which are AI-enabled, strengthen our competitive position and are delivering results. We've launched several new products from our pipeline with more to come, and these products position us well to contribute meaningfully through the balance of the year and beyond. We're also seeing continued traction in our service businesses, strengthening our recurring revenue base and creating additional value for customers. Fundamentally, it's the sum of all of these parts that gives us confidence in the remainder of the year and our medium-term outlook.

Revenue growth in the quarter was led by strength in pharmaceutical diagnostics and advanced imaging solutions. Patient Care Solutions performance remained challenged. We're actioning improvement initiatives via our business system Heartbeat with a focus on increasing shipment velocity and backlog conversion of our monitoring and anesthesia product lines to deliver PCS revenue and margin improvement in the second half. A bright spot in the quarter was strong PCS orders growth, particularly in monitoring, driven by our new platforms and recent sales force realignment.

As we focus on accelerating recovery in this business, a comprehensive review of the strategic options is underway to determine the best path to maximize long-term growth and value, including continued ownership, a sale and other value-enhancing transactions. This is a business with depth and breadth that touches many areas within health systems. We have a healthy pipeline of new products in anesthesia and monitoring as well as digital offerings expected to be introduced this year and in 2027. Moving to Slide 4. Let's look at how we're delivering on our growth strategy, starting with how we enable precision care. D3 brings together smart devices and drugs, a disease state focus and digital capabilities, particularly AI.

Heartbeat helps us align customer needs, product development, sales and service capabilities more effectively. And together, they help us bring innovative products to market faster and strengthen customer relationships while improving the margin profile of the portfolio over time. Our D3 strategy is resonating with customers and their interest in our differentiated solutions is reflected in our strong orders growth in the quarter, including broad-based contributions from ultrasound, MR, CT, patient monitoring, radiopharmaceuticals and interventional labs, among others. This aligns to the global demand backdrop we're seeing for our technologies and underscores how our differentiated innovations and field teams are winning in the market.

In the U.S., we're seeing strong interest in Photonova Spectra, our photon-counting CT platform, and we expect CE marking in the second half of 2026, which will expand our opportunity in Europe. We've also received great customer feedback on True Definition DL, our latest deep learning CT software upgrade that enables nearly double the image resolution across the installed base. Like Air Recon DL, this is another good example of how we are using AI to enhance the clinical value of existing systems while giving customers another pathway to enhance performance. We also offer this as a subscription model, which brings recurring revenue.

Together, these innovations highlight how we're expanding the value of our CT portfolio through new products and software innovations that appeal to customers. In PDx, we had a strong quarter in contrast media and robust growth in U.S. radiopharmaceuticals. This reflects the growing demand for advanced imaging that requires the breadth of our PDx portfolio. As an example, Vizamyl, our amyloid PET imaging agent, had strong double-digit revenue growth in the quarter, reflecting an increase in therapy adoption and an evolving Alzheimer's [ Eco-Care ] system, which includes broader diagnostic capabilities to identify and evaluate at-risk patients. Additionally, we are on track with our Flyrcado ramp. In the quarter, we delivered 545 doses for the week ending July 24.

This is approximately a 40% increase over April levels. We onboarded more customers this quarter, which we expect will lead to increased utilization in the second half of the year. Customer feedback and acceptance remains strong. Looking to the second half, we remain focused on continuing to build momentum and these important indicators of our long-term growth trajectory. We remain confident in our medium-term target of $500 million or more in annual revenues by 2028. Moving to business optimization. We continue to prioritize additional cost and price actions as we navigate a dynamic macro environment.

We lead the industry in bringing AI to customers, and we're also equally focused on using AI inside the company to improve productivity, simplify work and strengthen our supply chain so teams can spend more time on activities that create the greatest value for our customers. Since implementing the operational changes to create AIS in Global Markets, we have significantly increased our customer focus with channel changes that were completed in the second quarter. The AIS structure allows us to be a more nimble and agile organization.

Before I turn the call over to Jay to review our financial results, I'd like to take a moment to thank him for his partnership and contributions to GE Healthcare over the past 3 years. Jay has helped build a strong financial organization and still greater financial discipline across the company and has been an important partner as we've executed our strategy. We're grateful for his leadership and impact that he's had on the business, and we wish you all the best in your next endeavor. During this transition, I have full confidence in George Newcomb, our incoming interim CFO, who has extensive experience. With that, I'll turn the call over to Jay to review our financial results. Jay?

James Saccaro: Thanks, Pete. I really appreciate the partnership, and it's been a privilege to work alongside you in such a talented organization. I'm also proud of all that we've accomplished together, and I have great confidence in the team and the strong foundation we've built to continue executing on the strategy, delivering for patients, customers and shareholders. With that, I'll turn to our second quarter financial performance on Slide 5. We delivered revenue of $5.3 billion, representing 3.5% organic growth year-over-year, in line with our expectations. On a reported basis, we saw revenue growth across all regions. We had solid performance in product and service revenues at 4.7% and 7.7% growth, respectively.

Service growth benefited from operational performance as well as contributions from the recent Intelerad acquisition. Organic orders growth was robust, up 11.1% year-over-year, the highest since our spin. We saw orders growth across all of our segments, with particular strength in several of our longer-cycle products in radiology, which represents our former imaging business. These products have longer sales conversion cycles, and we expect these orders to contribute to revenue more meaningfully in 2027. Book-to-bill was 1.15x, also our highest since the spin, and we exited the quarter with a record backlog of $23.9 billion, up $2.6 billion year-over-year and $2.1 billion sequentially.

Approximately 1/4 of the sequential increase is in product backlog, while the balance relates to multiyear service agreements that convert to revenue over time. Adjusted EBIT of $750 million included $23 million in recognized refunds from IEEPA tariffs incurred in the first quarter of 2026. Adjusted EBIT margin of 14.2% was down 40 basis points year-over-year. We delivered adjusted EPS of $1.13 in the quarter, up 6.6% year-over-year. Adjusted EPS benefited from $0.04 of tariff refunds and $0.02 due to a lower tax rate year-over-year. Even when adjusting for these contributions, performance exceeded our expectations. Lastly, our free cash flow was $68 million in the quarter, which includes tariff refunds of $107 million.

For this quarter, given macro dynamics, we thought it would be helpful to include additional details on our margin performance on Slide 6. Adjusted EBIT margin was 14.2%, down 40 basis points year-over-year. Let's walk through the drivers. First, year-over-year margin was negatively impacted by the challenging quarter in PCS as well as incremental inflationary costs from memory chips, oil and freight and other components. Despite these challenges, strong commercial execution drove volume growth, providing a margin tailwind year-over-year. Heartbeat is helping us better connect our product and commercial teams as we bring our latest innovations to market, supporting both growth and margin expansion.

A great example is our Vivid Pioneer ultrasound, which leverages a platform approach to achieve a lower manufactured cost, coupled with differentiated AI capabilities that drive higher pricing. This product is performing better than we expected and has allowed us to deliver a significantly higher gross margin than the prior platform. This development model is replicated across all of our products in our new wave of innovation. Meanwhile, we're focusing on daily management to enable incremental price and cost actions to help offset inflation impacts in 2026.

We started to see these improvements take hold in the second quarter and expect this to contribute more meaningfully to margin in the second half of the year and in 2027, even net of investments that we continue to make in the business. Lastly, the year-over-year impact of tariffs was neutral when including the benefit of refunds. Let's move to segment performance, starting with Advanced Imaging Solutions on Slide 7. As a reminder, this is our first quarter reporting the combined business that were formerly known as Imaging and Advanced Visualization Solutions, and we are providing a recast of prior period financials on our website.

Organic revenue grew 5% year-over-year, driven by strength in Cardiovascular and Interventional Solutions, CT and Molecular Imaging. EBIT margin increased 90 basis points year-over-year, driven by volume and price, partially offset by inflation. We expect the combination of higher-margin AI-enabled NPIs like those in MR and CT, along with elevated clinical and commercial expertise to continue to drive growth. Moving to Pharmaceutical Diagnostics on Slide 8. We delivered particularly strong organic revenue growth of 14.6%, with strong volume and pricing in contrast media as well as robust growth in our U.S. radiopharmaceutical business. This was driven by increased adoption of disease-specific tracers across the portfolio.

EBIT margin of 29.6% grew 30 basis points year-over-year, benefiting from volume and price, partially offset by planned investments in new products and our innovation pipeline. For example, we're making progress in our ongoing Phase II and III clinical trial for a non-gadolinium-based contrast agent, which we believe has the potential to significantly advance the MR contrast landscape. Looking ahead, we continue to expect growth driven by global contrast demand and scaling of our U.S. radiopharmaceutical business. As a reminder, current market demand is close to outpacing total market supply. We're a leader in contrast media where we win through our focus on supply chain resiliency and delivering the diversity of SKUs our customers require.

Moving to Patient Care Solutions on Slide 9. Organic revenue declined 13.5% and segment EBIT was negative. We had operational fulfillment challenges in the quarter. As Pete mentioned, we've implemented several changes to strengthen supply and manufacturing capabilities that will address these issues. We expect to see supply improvement, which will benefit both sales and margin in the second half of the year. July has started well in this regard. On a positive note, PCS had strong first half orders growth, driven by monitoring as well as demand for our premium anesthesia product internationally. Backlog is well positioned.

And in the second half of the year, we expect to deliver sequential improvement driven by daily focus and weekly execution plans to drive volume and margin recovery. We expect FDA clearance for our premium anesthesia device in the second half of 2026. As we reflect on overall results in the quarter, while PCS continued to be challenged, we're very pleased with the performance in the remainder of our business. Turning to cash on Slide 10. We delivered free cash flow of $68 million. Year-over-year cash flow increased primarily due to tariff refunds, partially offset by working capital investments and CapEx to support growth.

We returned capital to shareholders through the repurchase of approximately $200 million worth of shares and continue to pay a dividend. I'll now turn the call back over to Pete to talk more about the full year outlook. Pete?

Peter Arduini: Thanks, Jay. As noted throughout the call, we're pleased with the momentum in our business, reflecting healthy end market demand and continued commercial execution, which gives us confidence in our full year outlook. We're maintaining full year guidance, and this reflects 3% to 4% organic sales growth and 10 to 40 basis points adjusted EBIT margin expansion that gets us to a range of 15.4% to 15.7%. We're maintaining our adjusted EPS guidance in the range of $4.80 to $5. Approximately, we expect year-over-year organic revenue growth to be in the range of 3% to 4% as well as low double-digit adjusted EPS growth year-over-year.

Now I'll turn to Slide 12, which highlights the strategic value of creating AIS and how our team, our differentiated portfolio and these unique advantages are advancing our growth strategy. We're in the early stages of our new wave of innovation, which is already driving strong results as reflected in our orders growth in the quarter, while also delivering higher gross margins as these products scale. Today, we have stronger commercial alignment with our customers, which includes 3 areas that we hear differentiate GE Healthcare. One, deeper clinical expertise. Our field teams with their business alignment create an agile team of experts able to address clinical and technical challenges.

Two, our expanded service capabilities, which includes equipment maintenance and also a growing set of SaaS and software AI-enabled offerings brings a broad toolkit to customers; and three, GE Healthcare brings enterprise problem solving to all levels in the integrated delivery network globally. We hear from customers that our teams are collaborative, creative and relentlessly focused on helping them solve their toughest challenges. These 3 areas allow us to get closer to our customers and help them solve increasingly complex clinical and operational challenges. Lastly, Heartbeat strengthens how we execute. It enables repeatable processes and a culture of accountability and connects our teams more closely with customers.

While we're still early in our Heartbeat journey, we're already seeing the benefits a global business system can bring. This focus is helping us win opportunities with leading institutions like the examples you'll see on the next slide. Catholic Health in New York wanted to expand their structural heart and electrophysiology programs and improve productivity and consistency across care settings. Working with their team, we jointly built a road map for technology modernization and services support to address their needs. This includes our latest cardiovascular ultrasound Vivid Pioneer, our interventional platform, Allia and comprehensive digital tools to create a disease state integrated solution, which strengthens Catholic Health's position in the market. Technology was an enabler, not a starting point.

The result was an approximately $500 million agreement for equipment, service and process expertise that will result in orders over time. We saw a similar dynamic with the University Hospital Essen in Germany, where the focus was oncology and theranostics. By aligning technology goals and targeted outcomes, we work together to provide a fully integrated nuclear medicine solution that includes cyclotrons for tracer production, our new Total Body PET and SPECT/CT systems and MIM software for AI-enabled imaging analysis and therapy planning. These 2 examples show how we bring together our portfolio around disease states, not just products, underscoring the value of D3 and Heartbeat to deliver for customers. In summary, we've made meaningful progress with our innovation pipeline.

New products are gaining traction. Our commercial changes are demonstrating results and our recent customer agreements show how those innovations are being pulled into larger long-term relationships. I'm proud of the AIS and PDx teams for their performance in the quarter. Combined, these 2 businesses grew approximately 6.5% and expanded margin 100 basis points year-over-year. We remain confident in the fundamentals of our business, and I'm proud of our team's commitment to delivering value for patients and customers worldwide. With that, we'll open up the call for Q&A.

Carolynne Borders: Operator, we'll go ahead and take questions. Operator, can you please open the line?

Operator: Our first question will come from the line of Larry Biegelsen with Wells Fargo.

Larry Biegelsen: Jay, it was a pleasure working with you, and I wish you nothing but the best of luck going forward. So for my first question, Pete, I'd love to hear more color on what drove the strength in orders in Q2. Was there anything one-time? And how sustainable is that? And you know there are concerns around capital equipment demand in the U.S. given the ACA subsidy cuts. What are you seeing?

Peter Arduini: Yes, Larry, thanks for the question. Look, I mean, we were delighted with our orders performance in the quarter. I would say, look, I mean, 11% is an outstanding number. We've always talked about that being in the mid-single-digit range with orders is quite critical. I think we feel good about that as we go into the second half as well. And that converts that mid-single digit to mid-single-digit revenue, again, which is aligned to our guide. So this is quite good. There really weren't any particular one-timers or any type of business coming in from Q3. It was just really good execution at a street level with our teams with the vast majority of it being our legacy portfolio.

That complemented with some of the new products helping to deliver. And then as we've done and I highlighted the addition of enterprise accounts. I think we had about 6 enterprise accounts that contributed to some of the growth. But again, there weren't any items that were significantly big ones that were outliers. It was broad-based, and it was pretty consistent. I think if you look across molecular imaging, ultrasound, MR, CT, our vascular labs, the ultrasound whole portfolio, we talk a lot about cardiac, but point of care, general, women's health, everyone did well. And I would say there's been a lot of focus by our teams on how we execute.

So we talk a lot about Heartbeat and the management system, but some of those things get down to how do we improve visibility. And we improve visibility, meaning what deals we see to participate around the world in by a couple of points this quarter. That translated into a couple of points of higher win rate. And those are some of the actions that you can't always execute each quarter on, but it came together quite well. So that's the broader level of it. And again, relative to a beat on the orders, that's the way we'd like to see it. It was broad-based and consistent across the board.

The other aspect, I think you mentioned was how the markets are doing. From a procedure standpoint, I know there's been various news in the marketplace. Our best procedures view is really how PDx is doing and then actually how we would see some of the equipment that goes into procedure-based areas like cath labs. Both of those are doing very well. Our contrast agent business is doing extremely well. You heard that Jay mention about the performance of the numbers, both radiopharma as well as in contrast. And so that's a procedure based. And then in our vascular and surgical businesses, both represent vascular procedures, ortho procedures, cardiac, all of those continue to do well.

And we haven't really seen any pullback from surveys that we've done out there. I would remind you, though, that we are a type of business that when any type of challenge comes to the hospital, the ability to have an imaging study that can get to a diagnosis very quickly and move a patient on to the right type of therapy and be able to get them out of the system healthy we typically see an uptick. And in many cases, with large deals, that's a big part of the discussion. What can we do to improve their overall productivity. So thanks for the question.

Larry Biegelsen: That's very helpful. And just for my follow-up, Pete, we heard the Q3 guidance that you gave. The comps get tougher in the second half. Help bridge the second half implied acceleration on a comp-adjusted basis embedded in the guidance. What are the drivers?

James Saccaro: Sure, Larry. Maybe I'll start on this one. I think a lot of this comes down to the robust orders performance that Pete talked to, 11% on a quarter basis. If you look at it on a 2-year stack, over 7% order growth, it really sets us up well heading into the second half. As we think about the first half to second half split over the last few years, we've seen roughly 48% of our revenue in the first half and 52% in the second half. Our 2026 outlook is basically in line with this historic trend.

And as we look into the third quarter, one of the areas that we analyze is the thing called secured rate, how secure is the equipment revenue heading into the quarter. And our secured rate on equipment, we're about over 80%, nearly 85% secured entering the quarter, which is up several percentage points versus prior quarters. So we feel very good about that forecast. Also supporting the second half growth will be PCS stabilization. We'll see a bit of that and Flyrcado growth and more broadly, radiopharmaceutical growth as well. So really, those are the contributors to the second half, which we feel very solid about at this point in the quarter.

And from a bottom line standpoint, look, our seasonality is such that we have more profit in the second half than the first half, we typically do. Historically, it's 55% roughly in the second half, 45% in the first half. And historically, we see from the first half to second half, about 2.5 percentage points of margin improvement. Now interestingly, we'll do a little bit better than that this year.

And what it's going to come down to is really all the price and cost actions that we implemented in the second quarter that will carry us through into the second half, driving us over 300 basis points of expansion from the first half to the second half, with the other notable point being the new products that are coming in that are higher margins really help the mix as we approach the second half. So really, that's the story of the first half versus the second half, Larry.

Operator: Our next question is going to come from the line of Vijay Kumar with Evercore ISI.

Vijay Kumar: Pete, maybe my first one for you on the Pharma Diagnostics, another solid mid-teens. You gave the Flyrcado numbers. Can you just talk about what's driving it? It looks like the base business ex-Flyrcado is doing really well. What's driving that? And how are we thinking about Flyrcado ramp? Are we still good for the $0.5 billion number? Maybe time lines are moving here?

Peter Arduini: Yes, Vijay, thanks for the question. Maybe I'll start at PDx and just kind of flow down through it to that point. So again, we did have a very strong quarter, and it was contrast and it was broad-based in radiopharma. And again, I think this is right on pace to many of the trends that we're seeing out there. We've said in the past, we expect the business to grow high single-digit range. I think that's kind of the expectation. This was obviously a little bit higher performance within the given quarter. But it was a broad-based. I think I mentioned Vizamyl, that was up significantly.

And again, it's highly tied to the amyloid beta therapy adoption doing well there. Our product DaTscan for Parkinson's disease was up quite a bit, Cerianna in breast cancer. And then obviously, Flyrcado is kind of our premier product within that area, and we're pleased with the progress. I think this won't obviously be linear. There's going to be bigger spikes at different points in time. But at this point, the 545 doses, which again is about 40% increase -- the other aspect I mentioned on -- in the prepared remarks was the fact that we brought on quite a few new customers as well, pretty much about that same ratio.

And they will -- when you bring them on, I think we've talked about this in the past, first 60 days, they're minimally productive. And then past that, they start increasing the amount of doses. And so we're in a really good spot here to ramp this up as we go into Q3 and Q4. The longer-term opportunity of $0.5 billion annually by 2028 is fully intact. I mean, again, remind people, if you think of the perfusion studies that are out there in the pet world, you get about 10% of those studies overall. That's roughly about $500 million in revenue.

So we think we -- as we've always talked about, we have much -- a very good chance to do better than that, but we're focused on the $0.5 billion here by 2028.

Vijay Kumar: That's very helpful, Pete. Jay, one for you. Look, there's never an ideal time for transition. It seemed a bit abrupt for us. Maybe talk about why now and where are we in the CFO search process?

James Saccaro: Vijay, obviously, it's very difficult to leave. We've made such tremendous progress at the company on the innovation pipeline, really setting up processes, establishing the Heartbeat operating system. I feel so good about where the business currently sits and where it's heading. And so makes it very hard to leave. Also, the partnership with Pete and our leadership team has been a remarkable one. I have nothing but respect for that team. And I believe we have a world-class finance function that I've been privileged to work with. So all of that makes it difficult. For me, what this came down to is a very unique opportunity at a great company to expand my role beyond finance.

So that's what really this came down to. It's never an opportune time. But what I would say is I really do believe we've put the building blocks in place that have set the company up going forward in the right direction. Pete, maybe you could talk a little bit about the search.

Peter Arduini: Yes, I'll take the search. I mean, obviously, Vijay, we just kicked it off. We're going to move quite quickly as we dig into it. I think we're blessed with our market recognition, people understanding what we're doing with AI, how we're in the interesting seat to transform healthcare. So we've got a lot of interest that's out there. And so I would expect we'll be able to talk more about it here in the coming months about how we're making progress against it.

In the meantime, George, who's been with us over 38 years in many different roles, deeply involved in all of our operations over the past years, at least since I've been here and beyond, is going to be a great partner here for me.

Operator: Our next question comes from the line of Rick Wise with Stifel.

Frederick Wise: Pete, a question for you and then a question for Jay. You obviously talked about the new wave of innovation. And stepping back, just are you seeing the impact from that wave of innovation broadly speaking? Is that broadly at a higher level, we're seeing drive orders? Should we expect to see that broad portfolio drive accelerated order growth as you look ahead for the next several years? How are you thinking about it? And most specifically, talk about the impact that having Photonova Spectra now launched is having broadly on the full portfolio pull-through?

Peter Arduini: Yes, Rick, thanks for the question. Again, I think particularly if you look at this quarter, we really had all the things kind of come together. I mean we've had some growth here from some of the new products. But again, in the spectrum of all the products that we've talked about, it's still under 20% of the value, meaning it's still a smaller contributor. I'll talk about Photonova in a minute, but Photonova was a minimal contributor to the orders book. That's all still in front of us. What really drove CT was our breadth of our core product line.

So you've got really good products that we've been able to raise some level of price, fair amount of price on them and new products that actually have better cost positions and slightly higher price. That's in that book. But I think some of these changes we just talked about, we mentioned Global Markets and AIS, our ability to actually just execute better in front of the customer to be able to describe why us versus someone else, be able to focus on their problem and how to bring our products together to solve their problems. We've been focused on this quite a bit.

And so that's a rising impact, and I give a lot of credit to our field teams, both sales and service for that aspect of it. And then the piece relative to enterprise, there are more and more enterprise deals increasing. But I mean, just to get -- put in perspective, I talked about Catholic Health, which is a great partner. Only about 1/5 of those orders are actually a part of what went in the second quarter. So there's still much in front of us. So it was broad-based and consistent. And then I think when you look at MR, MR is an area for us that we have talked about investing in to increase margins.

We talked about increasing and changing the profile. The team has done quite well, the Bolt 3T, the new fully integrated user experience, which we updated just a few months ago. It's the first change in probably 25 years in our MR platform, widely viewed as probably the best UI now in the marketplace, making a big difference. The whole portfolio that's playing out in molecular imaging, our PET platform, what's happening there doing well. PCS, as we mentioned, actually on the orders front, actually doing quite well with monitoring for the new platforms that are out there. And then in the AI and specifically in ultrasound and interventional, we're doing very well.

And those products, as Phil mentioned as well, have a faster turn. So they will contribute more to a revenue conversion in the second half. The traditional imaging products will be probably more so early in 2027, mainly because they have a room build-out. But we're in very good shape there. And to your Photonova question, things are on track. I had mentioned we need CE marking. That's going to be in the second half of the year. It's a little bit later than we initially communicated, but all in good shape there. We had really very good step-ups in the funnel.

I mean this is preorder, but this is prospects that were qualified and ready to step into an order phase. So we're in quite good shape there. And again, that will be a significant growth driver here as we get late to this year and into next year. And so at this point in time, it's not a major driver within the orders book, but will be in the future.

Frederick Wise: Got you. And Jay, wishing you all the best in your next job, new role. But you're leaving Pete, you're leaving your successor and you're leaving us with the medium-term '26, '28 outlook goals and targets, the mid-single-digit organic growth, high teens to 20% adjusted EBIT margin, high single-digit to low double-digit EPS growth, 90% free cash flow conversion. Sorry to recite it all, but what's your comfort as you're leaving, or Pete, what's your comfort with the medium-term targets now?

Peter Arduini: So Rick, while we're here live, I'll let Jay here as -- make his comment, and then I'll jump in. Jay, maybe you want to hit it quickly.

James Saccaro: Yes. Rick, we feel very good about the midterm story. And for us, what we always knew was that the midterm story would be unlocked by 2 things: One, the innovation cycle, and I'm so proud that we've been able to deliver on this. And now it's about executing commercialization that's going to drive that. And two is implementation of an operating system. We call it Heartbeat to drive rigor around commercial and the operational aspects of what we need to do. And so those 2 ingredients are going to be the things that unlock this midterm story. And I have to say both have been put in place and serve as an incredibly solid foundation. Pete?

Peter Arduini: Yes. No, look, I think, Rick, we feel quite bullish about where we stand with our midterm targets. Jay hit it. I mean, look, it all starts with do you have the right demand in the marketplace? Which is matched up with the right sales and service teams, but it comes with the right products. We believe we've got the right portfolio coming out. And that portfolio is yet to really deliver the type of results. I just mentioned the Photonova ramp that we expect. All of those products have the opportunity for higher price.

There's not been one product that we introduced that hasn't come out at a higher value than its predicate and customers are willing to pay for it. Why? Because it has a lot of embedded features that makes them more productive, whether they're AI or just how they're built into it. And we've leveraged this platform approach where we've been able to come up with, I think, better reliability, but also better cost because of the reuse and leverage of different chassis. So the combination of those is faster growth and better gross margin. So there's a big chunk there.

Jay hit on Heartbeat, which, again, I think you're going to hear more and more about what that does for consistency and better execution. And then this point I made on the prepared remarks about AI inside, we see a significant opportunity to increase our own productivity with the use of AI inside so that as we grow, we can grow with a lower G&A based on a higher base. And a lot of that is with the use of agents and tools that can help us be more consistent. So we're locked in. We feel very good about our midterm targets. And honestly, this was a great quarter here to demonstrate that we're well positioned to deliver on it.

Operator: Our next question will come from the line of Travis Steed with BofA Securities.

Travis Steed: Jay, we'll miss working with you and best of luck in your new role. I wanted to ask about inflation impact on margins. Anything you'd kind of call out or quantify this quarter. If you look at the different buckets you gave last quarter, memory, oil and [ all-in ] freight costs and other inflation buckets, how those are trending versus 3 months ago and how you kind of think about the go-forward there?

James Saccaro: So yes, overall, from an inflation standpoint, what I would say is we saw a very volatile macro environment to start the year. We had the memory chip phenomena. We had the war in the Middle East impact logistics and freight in certain other metals. But -- so last quarter, we had to take an approach to adjust the guidance. What I would say is since then, things are broadly speaking, tracking in line with our expectations. Memory chips have continued to increase, but much more modestly. So we're seeing -- we've seen a little bit of increase since the first quarter call, but nothing notable.

And oil, while it remains elevated, it is down a bit from the previous peak. And so the $250 million assumption, which included some cushion in it when we put it together is still the appropriate amount for where we sit today. In the second quarter, inflation was about 120 basis point headwind, which was in line with our expectations. And I think for me, the most important aspect is in conjunction with that gross inflation, we put in place a series of mechanisms to offset it, both in terms of cost and price.

And we've made really good progress on both of those initiatives, which will support growth into the second half of the year, but then also into 2027.

Travis Steed: Great. And then kind of follow-up on the PCS business and the decline this quarter, any more color you'd give on that and when that business starts to stabilize? And then the PCS strategic review, how that's tracking and what you do with extra cash if you got cash from that strategic review?

Peter Arduini: Yes, Travis, thanks for the question. Look, I think, again, the first bright spot on PCS was we saw orders growth, particularly in the monitoring world that hasn't performed at that level in quite some months. That's heavily tied to, I think we refocused the sales organization in the quarter that was completed as well as some of the new products. So that's a super important point that needs to be out there. But the reality of it is, look, we had operational fulfillment challenges in the quarter. What do those mean? Short on supply of some critical components, things of that nature. Ultimately, that results in our inability to fulfill.

Some of those specific orders, obviously, will move out into the second half. We feel good at this point in time with the new focus that the team has in place that we'll be able to fulfill those and correct those. But ultimately, it's about shoring up our supply chain and our ability to deliver consistency and consistently. And so Jeannette and the team have a daily, weekly focus on this. I'd say we've really got into the details to be able to get the business aligned and feel good about what we can do to be able to address those.

As we mentioned as well, I will expect that we will see improvement here within the second half quarter-over-quarter, I think both on top line and bottom line. This is a business that is heavily tied to its volume from its profitability standpoint. So as we move velocity, particularly in monitoring anesthesia through those facilities, you'll see the corresponding profit increase. Look, on the strategic review, Travis, to your question, you would expect us to be taking a look at this business in many different ways to say, how do we have this be a contributor, whether it's a contributor for us or someone else that needs to be addressed. That's job one.

And again, I think over the coming quarters, the efforts that we have to improve its profitability, improve its growth profile, we feel quite good about the level of actions that we have in place. That being said, we're looking at multiple alternatives here. And so we have many different products that are in this portfolio. Do all of those fit? That's a fundamental question. The constructs of the geography of where we compete with that business, the construct of what our overall SG&A levels, those are all of the aspects there, obviously, to the full extreme of is this business better parked with someone else.

So over the coming quarters, it will be about improvement of the business while simultaneously looking at those options. To your point on if you were to do something, would you do with the cash? I think it's obviously too early to discuss anything like that at this point. But our capital allocation priorities wouldn't change in either case, right? So we've been very clear about that, Jay and I in the past, that won't change going forward. Our focus on our organic investments is some of the highest returns. We've talked about those. You're seeing that play through in our orders growth.

We believe that inorganic, the right level of tuck-in deals can make a lot of sense for this business to continue to grow it. And then we have other vehicles to distribute cash back, share buyback and stuff. We've done some in the quarter. Most likely, as in all things, it's not one lever. It's the right combination based on time.

Operator: And our next question will come from the line of Robbie Marcus with JPMorgan.

Unknown Analyst: This is [ Henry ] on for Robbie. I'll just ask both of them upfront. So first, on the generic Omnipaque, could you just talk a little bit about what you're seeing today in terms of the AB-rated approvals? And a little more importantly, what you expect the impact to be in the second half of '26 and 2027? And then second question on the EPS guide. The prior guide didn't include a rebate. So today, why did you choose not to raise the EPS guidance given the tariff refund and lower taxes that benefited second quarter relative to the prior expectations?

Peter Arduini: Jay, do you want to take the first one and then maybe I'll take the guide?

James Saccaro: Sure. So on Amneal, we haven't seen any impact at this point at all. What I would say is that the current contrast market demand is very close to outpacing total market supply. So it's a very tight market as we sit here today. And then as we forecast the market going forward, our expectation is based on increased procedure volumes in places like Cath labs, we expect the market to double in size over the next decade. So we're really talking about incredibly robust growth. With this growth, there have been periods of tight supply over the years. So we believe there's room for incremental supply on the market.

The other thing I would say is like generic competition is not new in these contrast media markets and we've successfully navigated through multiple market cycles. And the way we do it, it comes down to being a trusted and consistent supplier. It comes down to having the full portfolio of products available and really being there when your customers need them. So listen, we never underestimate competition at all. We haven't seen an impact to date. We think that this market is going to be a tight one going forward. But then also, we do believe that there are aspects that differentiate our offering relative to others. And then, Pete, maybe on the guidance.

Peter Arduini: Yes, I'll take the guidance question. So your question was with some of the tariff cash benefit, how come you didn't raise. Look, I think we recognized $0.04 of adjusted EPS related to the '26 tariffs within the P&L. I think others have taken more at a $0.04 level, this being halfway through the year and multiple cost items tied to oil, chips still somewhat in flux. We just thought it made sense to kind of stay where we're at. Obviously, if those stay at lower levels, we'll have upside within our guide. I think we have the appropriate cushion here to meet and potentially exceed.

And so it just made sense at this point in time to kind of hold where we're at.

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

Joanne Wuensch: I want to pause on China and think about what is going on in that region in terms of provincial budgets, VBP, pricing and anything else you can share geographically?

Peter Arduini: Joanne, thanks for the question. Yes, look, there's always evolving dynamics in China. I would just say for us that when we look at China, the changes, the evolution are not new or I would say, out of the ordinary of what we're expecting. I mean we have expected that China over time will continue to expand VBP constructs. We've seen over the past couple of years, we've seen in other industries that way. It makes sense. It aligns to their strategy on anticorruption because they tend to be more transparent than non-VBP do. So from that standpoint, we haven't seen anything out of the ordinary.

We were pleased with our China performance in Q2, which I would describe as in line with expectations. And we're making good progress in the most recent quarters. I think under Will's leadership, we've strengthened the portfolio. We've focused on clinical value propositions as well as we've stood up a provincial government affairs group that's been very helpful in how we think about properly positioning and strategic alignment on these VBPs, which, again, based on the recent headline news are going to continue to grow. So I think we view it from that standpoint.

I also think it's -- our view on the dynamics of the region haven't greatly improved at this point, but we feel it's prudent to continue to assume kind of a year-over-year decline in 2026. That's what we've built into our plan, and there hasn't been any change there. Obviously, if that improves, that would be upside. But fundamentally in line with what our current expectations are. And I'd say we're getting better at making the right configuration decisions getting the right clinical discussions happening to be able to perform at a better level.

Operator: Our next question will be from the line of Vik Chopra with BMO.

Vikramjeet Chopra: Jay, thanks for all your help over the years. It was a pleasure working with you. So maybe the first question, you've ordered -- you highlighted strong orders and growth and initiatives to ship -- to improve shipment velocity and backlog conversion in PCS. I'm just wondering what level of margin recovery you expect from fixing these challenges alone? And how much would PCS have grown if you didn't have the supply chain issues in the second quarter?

Peter Arduini: Vik, we're not -- I'm not going to get into hypotheticals to kind of play that out. But I would say, if you looked at our historical performance, when we had minimal challenges, we would expect to be back to that level. That's how I would frame it up. And again, much of that is specifically tied to velocity. We have a fixed cost structure without that velocity going through it. It has a disproportionate effect on profit. So once we get velocity back, I think you can look at previous year rates, and that's what we'd expect to be getting back to.

Vikramjeet Chopra: Okay. Got it. And you referenced this new product cycle, the back half of '26 and into 2027 with new products across all modalities, call it, over the next 6 to 18 months. I'm just curious, Pete, which 2 or 3 NPIs do you view as the highest margin and the highest share gain opportunities?

Peter Arduini: Vik, it's tough to choose between all of your children, which ones you like the most. But look, I think the team has done a very good job of many of them having big contributions. Now obviously, there are certain segments that disproportionately are bigger use models within a hospital. So our MR growth will have a disproportionate benefit from a profit and growth standpoint as we roll new products out. Our Photon-counting system, Photonova Spectra all in the same way and ultrasound across the board because what Phil and team have been able to do is leverage that platform approach across all of them. But I would say things such as like our vascular labs are very interesting.

And that's a combination of we haven't traditionally performed as well there. We've had other competitors from outside the United States that have done better. And I think as we've talked about, we think we actually have probably the best system out there today that will come in multiple configurations. For us, that opens up competitive account doors that we haven't been able to compete in. So that would be how I would frame that up. But again, even in our mammography platform, we're doing quite well because now we have a very competitive image quality and performance capabilities, our core X-ray platform.

Again, this has been just a maniacal focus to make sure that we're in a #1 or #2 position with all of our products and that they're greatly enhanced with artificial intelligence tools that change the productivity paradigm for customers. And that's what we're seeing. So early days yet, but we feel quite good about the receptivity at this point.

Operator: Our last question is going to come from the line of Matt Taylor with Jefferies.

Matthew Taylor: Jay, good luck in your next role. It's been great working with you for 20 years almost. So I just wanted to ask more about the outlook for costs. You talked about the levels versus your prior guide for this year. Could you talk a little bit about next year and how you're planning for the potential for increases in memory costs and oil is in flux, but if oil goes higher, how would you be able to hedge against that with some of the mitigation actions and the pricing that you've implemented?

Peter Arduini: Yes, Matt, it's Pete. Look, I think the short answer is we have to be able to get adequate price to be able to offset those types of changes in the marketplace. All of our new products, we've been heavily focused on, on the cost side. And so there will be a natural lift in gross margins based on all of that. But in particular, the price aspects. And if you recall, we talked about raising prices and taking price actions in the first half. We will see more of an uplift of price here in the second half. And then obviously, that will continue into the beginning of 2027.

So I don't know, Jay, if you want to add anything else to it.

James Saccaro: Yes. The only thing I would add, Matt, is if you look at -- the story in the quarter really related to a PCS challenge driving down overall margin for the company. Despite very, very high inflation in the quarter, some of the highest that we've seen in years in a specific quarter, we still expanded margin, excluding PCS, by, I think, around 100 basis points, so a really remarkable story. You can expect to see more of that as we go into the future. And with the PCS business stabilizing, that too serves as a catalyst.

So I think the playbook that we put in place this year, notably cost management and price to offset inflation, while there is a lag, and we saw that in the second quarter, the lag does benefit Q3, Q4 and all the way into next year.

Operator: This concludes the question-and-answer session, and I will hand the call back to Peter for his closing remarks.

Peter Arduini: Thanks, operator, and thanks, everyone, for your interest in GE Healthcare. We look forward to connecting with many of you here in upcoming discussions or some of our investor events in the near term. Thank you.

Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

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