GEHC - NASDAQ

Good day, and thank you for standing by. Welcome to the GE HealthCare First Quarter 2025 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] 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. Please go ahead.

Thanks, operator. Good morning and welcome to GE Healthcare's first quarter 2025 earnings call. I'm joined by our President and CEO, Peter Arduini, and Vice President and CFO, Jay Saccaro. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliation 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. With that, I'll hand the call over to Peter.

Thanks, Carolynne. Good morning, and thank you for joining us. Our first quarter results reflect strong execution as we start the year, with revenue and profit growth that exceeded our expectations. Record double-digit orders growth as a standalone company was driven by strength in the U.S. market, where we see customers prioritizing investments in imaging products with a particular focus on cardiology and oncology. Early indications from market data shows that we've gained share in a significant number of markets where we compete, reflected in our strong orders growth. In the quarter, we booked the first Sutter Health orders and continued to strengthen our relationship with many other top [Technical Difficulty] like our recently announced agreement with St. Luke's University Health Network to drive further growth. We saw strong momentum in backlog and continuing strength in book-to-bill in the quarter. Top-line organic performance of 4% was broad-based with growth in each segment, and we delivered healthy margin and earnings per share performance. That being said, we're adjusting 2025 guidance today, reflecting the estimated impact from tariffs on profit and cash. Our sales estimates remain the same, supported by a strong customer demand environment. Let me give a more detailed view on slide four of the current global trade environment. In an effort to be transparent about our view of the environment and its correlation to our business, we're showing on the chart how we expect tariffs to impact our 2025 results, if they stay at the current elevated levels. We have conservatively assumed that the bilateral U.S. and China tariffs continue, accounting for 75% of our total net tariff impact. We've also assumed that U.S. reciprocal tariffs on rest of world announced on April 2 return to pre-pause levels on July 9. And Mexico and Canada tariffs remain in place with U.S. MCA exemptions for all eligible imports. Prior to mitigation, the gross impact of tariffs is estimated to be approximately $1.75 per share. And since we initiated work on tariffs, we've moved swiftly and taken responsible and sustainable actions to mitigate over 50% of our gross exposure. We have a strong funnel of additional opportunities for further offsets, including product and component moves, which take longer to execute. With mitigation actions to-date, we expect approximately $0.80 per share of net incremental impact. This is in addition to the $0.05 we reflected in our February guidance. To be clear, the total impact of tariffs in our adjusted EPS guidance is $0.85. Given the actions we're taking to optimize the supply chain, in 2026, we expect less than $0.85 of adjusted EPS impact from tariffs under the current tariff structure. Operationally, we're strengthening our market presence and we're on track to deliver our pipeline of innovation discussed at our fourth quarter Investor Day, including radiopharmaceuticals, total body PET, photon counting CT, and next generation intervention vascular lab. These are a few of the high impact opportunities we expect to drive growth in 2026. Now I'll turn the call over to Jay to provide more detail on the quarter and guidance for the year. Jay?

Thanks, Pete. Let's start with our financial performance on slide five. For the first quarter of 2025, we reported revenues of $4.8 billion with solid organic revenue growth of 4%. We reported growth across each of our segments with particular strength in the U.S., where we delivered high-single-digit growth year-over-year. On a reported basis, service revenue grew 3% and product revenue was up 2%. Organic orders growth was robust, up 10% year-over-year, the highest since our spend. This reflected healthy underlying market demand. Book-to-bill in the quarter was strong at 1.09 times, we also exited the quarter with a record backlog of $20.6 billion, up $1.9 billion year-over-year, and also up $800 million sequentially. We continued to make good progress on our margin acceleration, delivering an adjusted EBIT margin of 15% in the quarter, up 30 basis points year-over-year, due to volume and productivity. With mid-single-digit organic revenue growth, continued margin expansion, and lower interest and tax expense, we delivered first quarter adjusted EPS of $1.01, which was up 12% year-over-year. Free cash flow of $98 million in the quarter was down $175 million from the year ago period, primarily due to timing. I'll cover that later in today's call. This result was ahead of our expectations. Taking a closer look at margin performance in the first quarter on slide six, adjusted gross margin expanded 80 basis points year-over-year, driven by increased volume and benefiting from higher margin new products. On the cost side, we continue to drive productivity initiatives that are positively impacting margin. For instance, our imaging team has implemented a new lean management system to more effectively convert backlog. This project has reduced our past-due backlog by over $25 million, increasing customer satisfaction and improving cash flow. For the first quarter R&D investment was 7% of sales, increasing 6% year-over-year. We remain committed to advancing our innovation initiatives and growing our product leadership positions. We continue to drive operational efficiency in SG&A, while investing strategically in our commercial capabilities, including the launch of our proprietary radiopharmaceutical Flyrcado. Our ongoing optimization work and lean approach contributed to the 30 basis point year-over-year improvement and adjusted EBIT margin. Let's move on to segment performance starting with imaging on slide seven. Organic revenue in the quarter was up 5% year-over-year, driven by strong execution in the U.S. Segment EBIT margin was up 130 basis points year-over-year, driven by productivity, volume, and price. This expansion versus the first quarter of 2024 was achieved while continuing to invest in R&D for new products expected to launch in the coming quarters. We continue to see robust demand in the U.S. and the EMEA markets as we expand into large enterprise accounts. Turning to advanced visualization solutions on slide eight, organic revenue was up 3% year-over-year with strong performance in the U.S. Segment EBIT margin increased by 10 basis points year-over-year, driven by volume and productivity. Our product roadmap is increasingly focused on accelerating recurring revenue with demand for digital and AI across our ultrasound and IGT product portfolios. Moving to patient care solutions on slide nine, organic revenue growth was up 2% versus the prior year, driven by continued growth with improved backlog execution in monitoring solutions in the U.S. EBIT margin declined 450 basis points year-over-year, due to investments, tariff impact, and product mix. The team is focused on delivering new product launches with higher gross margin and driving factory automation and supplier consolidations to improve margin over time. Importantly, we continue to invest in our PCS portfolio, including solutions across digital consumables and services, which is expected to enable increasing recurring revenue. Moving to pharmaceutical diagnostics on slide 10, we delivered another robust quarter globally, generating 8% year-over-year organic growth and an EBIT margin above 32%. We were able to deliver this growth, while continuing to invest in our R&D pipeline and NPIs. In the first quarter, we made significant progress in executing on our radiopharmaceutical strategy. We delivered the first commercial doses of Flyrcado and we saw continued growth of Vizamyl. We also completed the acquisition of the remaining 50% stake in Nihon Medi-Physics, which we expect to add approximately $150 million of inorganic revenue over the remaining three quarters of 2025. Turning to cash on slide 11, we delivered free cash flow of $98 million down year-over-year, primarily due to a shift in the timing of annual employee compensation payments from the second quarter of the year to the first quarter. We also had an inventory bill to support volume growth. We're actively working inventory cycle times and strategically managing our inventory amid the current tariff environment. Our capital allocation priorities remain unchanged. We repaid $250 million of debt in the first quarter of 2025 as we continue to strengthen our capital structure. We're focused on investing in organic growth and pursuing strategic M&A that aligns with our portfolio strategy. Finally, we remain committed to returning cash to shareholders and we're very pleased to announce today a share repurchase program authorization from our Board of Directors of $1 billion. Now, let's turn to our outlook on slide 12. In light of the evolving macroeconomic landscape, we're updating our full-year guidance, which reflects the strength of our operational execution, while incorporating the impact from tariffs as Pete described. For full-year 2025, we expect organic revenue growth in the range of 2% to 3%, which remains unchanged. Our strong first quarter results and solid backlog give us increased confidence in our top-line guidance for the year. Related to China, we continue to take a measured approach. Consistent with our comments in February, we're assuming China's sales performance will be negative in the first-half of 2025 with a sequential improvement in the second-half of the year versus the first-half, leading to a low-single-digit decline for the year. While foreign exchange rates have been volatile based on rates, where rates are today, we expect FX to be neutral to revenue, compared to previous expectations of a 1.5% headwind. We're continually focused on driving cost structure efficiencies that are within our control, though not at the expense of R&D, which is the driver of future innovation. For adjusted EBIT margin, we're now forecasting a range of 14.2% to 14.4% for the full-year compared to our previous guidance of 16.7% to 16.8%. We estimate the incremental tariffs announced since our February guidance will negatively impact adjusted EBIT by approximately $475 million. Our adjusted effective tax rate is expected to be in the range of 21% to 22% for the full-year, compared to 22% to 23% in our prior guidance. On adjusted EPS, we now expect to deliver between $3.90 and $4.10 for the full-year, representing a 9% to 13% decline year-over-year and down versus our prior estimate of $4.61 to $4.75. Guidance for adjusted EPS includes approximately $0.80 of net incremental tariff impact, as compared to the prior guidance. Note, we have not included any potential benefit from share repurchases in our adjusted EPS guidance. Lastly, we now expect to deliver free cash flow of at least $1.2 billion for the full-year, given the impact of tariff payments. This is compared to our prior expectation of at least $1.75 billion. Aligned with the timing of the liquidation of higher-cost inventory in the P&L, we expect a more significant impact from tariffs in the second-half of 2025 versus the first-half. We thought it would also be helpful to provide our view of performance for the second quarter of 2025. We currently expect year-over-year organic revenue growth for the quarter to be in the range of 1% to 2%, including the impact of tariffs. We expect a high-single-digit decline year-over-year on adjusted EPS. Overall, if the global trade environment improves and these tariffs are not in place for the entire year or rates decrease in aggregate, we would see a benefit to adjusted EBIT, adjusted EPS, and free cash flow versus what we've shared today. I want to thank our global teams for continuing to innovate and deliver financial results as we manage through a very dynamic global environment. We have the right plans in place to manage the near-term, and we are focused on delivery and growth for the long-term. With that, I'll turn the call back over to Pete. Pete?

Thanks, Jay. Let's move now to some innovation highlights in our business. I've talked in the past about our evolution from being an imaging and equipment company to a healthcare solutions provider. This evolution is deeply rooted in innovation and as you can see on slide 13, some of the key NPIs launched in the first quarter are helping to enable personalized care and cardiology throughout the patient journey. Recently I attended the American College of Cardiology meeting where we officially launched Flyrcado, our first of its kind pet myocardial perfusion imaging agent to detect coronary artery disease. I'm excited to share that we received CMS pass-through pricing for this novel tracer, and we're on track with our planned rollout. At ACC, we also introduced a dedicated cardiac CT system, Revolution Vibe, focused on a variety of cardiac tests, including coronary CT angiography. These types of exams are expected to increase now that global guidelines and reimbursement levels make it more financially viable. To wrap up on slide 14, we're very pleased with our strong start to the year with record orders and strong top line growth, driven by performance across all of our segments. Customers have a positive sentiment around existing GE Healthcare solutions and are excited with our pipeline of new products. And there's strong demand in many of our markets that we serve. I'm proud of how our teams are executing on our precision care strategy and going above and beyond in dealing with the macro challenges. Our commercial teams are winning and we're making a difference in the eyes of our customers. As we discussed earlier, we have dedicated teams focused across our supply chain executing actions to reduce our tariff impact today and into 2026. Some plans we can implement quickly, others will take months. At the same time, we're carefully managing discretionary expenses across the company, while maintaining long-term innovation investments. We'll continue to focus on what we can control to protect margin, earnings, and cash flow. Before we open up the call for questions, I'd also like to welcome Jeannette Bankes, who is joining us in May as our new CEO of patient care solutions. Jeannette is a well-respected global leader in MedTech, who brings more than 30-years of experience at public companies. We're thrilled to have her as part of the team, and we look forward to her leadership contributions in advancing our Precision Care Strategy. With that, let's open up the call for questions.

Thank you, Peter. I'd like to ask participants to please limit yourself to one question and one follow-up. Operator, can you please open the line?

Thank you. [Operator Instructions] And our first question will come from Larry Biegelsen from Wells Fargo. Your line is open.

Good morning. Thanks for taking the question and congrats on a strong start to the year here. I wanted to ask one on tariffs and one on China. Let me start with the tariffs. Jay, I'd love to hear more about the tariff impact from you. The $0.85 in 2025 is a partial year. It looks like you expect the impact to be lower than $0.85 next year in 2026? How are you achieving that and how would the pharma tariffs impact that? And second, talk about the cadence of the tariffs. I assume the impact is greatest exiting this year given inventory turns? Thanks.

Sure. Larry, as it relates to tariffs, this year we estimate $0.85 of impact, which is predominantly centered in Q2, Q3, and Q4. If the tariffs remain at the elevated levels that they are at today in terms of actual tariff levels in place, our expectation is that next year we will be below $0.85. And really what we've done to-date is a lot of sort of more straightforward mitigation. So duty drawback, USMCA compliance, bonded logistics routes. All of those are more simpler, more straightforward. They require work, but that's the predominant number that we're seeing run through in terms of offsetting impacts in 2025. As we look at 2026, there are a number of incremental moves that we would make. And remember, our company coming out of COVID, you know, we did a lot of work on sourcing and making our products where they're consumed. And we did a lot of work on dual sourcing. We would continue and accelerate some of that. So we would look to shift manufacturer more local for local. There are a number of dual make opportunities for us. And then from a supplier standpoint, we're currently hard at work looking at multi-sourcing our supply. And so those are some of the tactics that allow us to mitigate even further the impacts in 2026. Now you asked the question around cadence of impact. In the first quarter we had a very small impact from tariffs, maybe around $10 million. But as we move into the second quarter and the third and fourth quarter, the impact is more dramatic. In the second quarter of this year, we expect less than $100 million of impact, a little bit less than $100 million. And then in the third and fourth quarters, it's around $200 million of impact. And a lot of that has to do with the timing of when higher cost inventory runs through the P&L. So as we look at 2026, the first quarter of the year will have a similar level of impact to the fourth quarter, but then the mitigations that we're putting in place start to rapidly impact that as it draws down over the course of the rest of the year. So really, that’s -- I think that hits the question in terms of timing of cadence this year, along with impact next year.

That's super helpful, Jay. And then on China, it looks like it improved significantly in Q1. Color on what you're -- you gave the cadence that you expect this year. Just color on what you are seeing there and how you're thinking about the potential impact of VBP. Thank you.

Hey Larry, it's Pete. Look, I think as we said in the prepared remarks, China hasn't materially changed from what we've laid out from our expectations, even back to as we've talked about in Q4 and I think kind of confirmed in the first quarter discussion. We still expect mid-single-digit decline in the first-half. We would expect probably Q2 to be one of the more tougher quarters just relative to how we look at the compares and the challenges and then sequentially improve in the second-half. And there's no indications that we've seen market-wise that that's changed. I know others have reported you know potential rebounds different messaging in the marketplace. I think we've been rather consistent here and we watch a lot of how the tender money is being released that we judge that on. So I think that is how we see that playing out. You ask about VBP, you know, part of our strategy and plans this year were to factor that in. Again, VBP obviously is a very specific item on this value-based procurement, but we've seen bulk tender buys over the years. These just become more intense bulk tender buys by province. We have specific configurations that we offer in those type of constructs. Our distribution network and the cost of go-to-market is different when we enter into those deals. So I would say at this point in time, it's pretty much aligned to what we had assumed relative to 2025 China.

All right. Perfect. Thanks so much.

Thanks, Larry.

Thank you. And our next question will come from Jason Bednar from Piper Sandler. Your line is open.

Good morning. Yes, nice quarter everyone. And I appreciate all the details you provided here today on the tariff dynamics. Like Larry, I want to focus first on that topic and the mitigation efforts that are now contemplated in today's guidance. You already had cost saving efforts in motion for this year and obviously planned for future years? Are the actions you're taking to mitigate tariffs, these are probably more in the 26 variety than some of the immediate things you're doing here, but are these a pull forward of actions that were contemplated in your LRP, I guess more directly on a long-term basis, like how should we be thinking about the net effects of tariffs and mitigation efforts in the context of the LRP that you provided at the Investor Day back in November?

Yes, Jason. Well, look, I mean, it's obviously early. There's a lot of variables that are out there, but our views on the medium term here, we laid out investor day, have not changed, just to be clear about it. I think the pathway might be slightly different. Obviously, as we lay out strategies and plans, this wasn't fully laid out maybe a year ago, but we have many levers that we can pull to be able to deliver on this. This business has tremendous margin and growth potential, so nothing has changed from that. And so, you know, look, we're taking a prudent view of the current trade environment and the impact on the business. I think you've seen the numbers we've laid out. We've basically said that the numbers we're discussing stay at these elevated levels, rest of world China throughout this whole time period. So as we move into these scenarios, even if those rates come down, we're going to be quite aggressive on what we can do to make local for local and different marketplaces move aggressively, as Jay said, on dual supply scenarios and also how we take a look at our overall configuration constructs, the better position as we go forward. But I feel quite good about our margin potential of this business and ultimately over the long-term what that means from how we view the profit capability, as well as the growth capabilities of GE Healthcare.

All right, very clear. Thank you. And then for my follow-up, a lot of other changes implemented by the current administration beyond just tariffs, including budget cuts and headcount reductions of key healthcare agencies. Have you seen any downstream impacts on your business from these actions? Have your interactions with the FDA changed at all? And maybe sorry to pack in a couple here, but really interested to hear how you're thinking about the photon counting CT submission that's planned for later this year, and if that submission timing is still on track in light of all the changes at the FDA?

Yes, Jason, thanks. I would say in short, we haven't seen any impacts from any of the administrative changes at this point, whether they be on the cost or other items at this point in time. Obviously, there's a lot of concern. I think the NIH funding discussions hit many of the academics. Could there be changes there? I suppose there could, but we haven't seen anything specifically that has come through from that. And from the FDA standpoint, at this point in time, you know, there were some bigger cuts. There actually were employees brought back in. From our submissions on 510 (k) primarily and what we're counting on, we currently don't see any delays from that standpoint. Now, obviously, those things could change just based on how that plays out. But at this point in time, we, as far as speaking for our plans of new product approvals, how we see the market and how our customer base is prioritizing their spend, we haven't seen any specific impact that would be notable, I'd say, at this point in time.

All right. Very helpful. Thank you, Pete.

Thanks.

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Your line is open.

Hey, guys. Good morning, and thank you for taking my question. Maybe my first one on sort of related to China in tariffs. Jay, helpful comments there on your 75% of tariff headwinds being related to China and U.S. What is -- what portion of that is U.S. to China versus China to U.S.? I think there was some talks maybe of exemptions from China. Any update on that? I think from China to U.S. What products are you importing? I think there was talk of exemptions under Annex 2 for radiopharm. And if these tariffs were some of these headwinds were to be rolled back, what is the upside to guidance here?

Sure, Vijay, as we said in the prepared remarks, total tariff impact, you know, around $500 million for the full-year. And the bilateral China tariffs are the most significant impact for us at around $375 million, that's roughly $0.65 of the $0.85 of impact that we're experiencing. And it really goes both ways. We do ship a fair amount of product from U.S. to China and vice-versa. We have not included any unplanned exemptions and we're not really seeing a positive impact from exemptions nor are we counting on that. But I mean, you know, just to frame it for you and I'm not suggesting that we think this is a likely scenario, but in one hypothetical scenario, if the U.S.-China agreement, let's say that went into effect on May 1 and you had both sides improve 100 points, So China goes from the 145 today to 45 and China exports go to 25 from 125 today. We estimate that this would be a benefit to EPS of approximately $0.40 for the year. So it's a big number for us. These are large tariff numbers that we have in place. So we'll watch very closely the scenario and how this plays out. Maybe Pete, if you would add something.

Yes, I'd say Vijay, I mean we're a big exporter from the United States into China. I mean we've been doing this for a long period of time. Some of our higher technology and x-ray generation, some of our componentry in MRI and stuff. And so that's a big part of the number that we actually export into that. And so that gets hit by the, as Jay said, the 125 tariff. And then there are select components in areas that we pull out of China that feeds other plants around the world. And so even though we may manufacture the whole product in the United States or other areas, you may have 20% of the components coming from one of these countries with the high tariff areas. And so that's why the concentration exists. And obviously if there's changes that take place in there, that'll have a bigger benefit. If it doesn't, we have opportunities and plans to do much more local for local and actually work our supply base across our 43 plants to feed that. And when I talk about it takes months to get there, those are the things I'm referring to, but we have all those levers in front of us if we need to go there. And that's part of our plan to be able to execute on that.

Yes. That's helpful, Pete. And maybe my follow-up here on free cash, it was lowered by maybe $0.5 billion. Is that all cash impact, I think you said tariff was $0.5 billion head or anything else going on in the free cash flow?

Yes, thanks Vijay. Just as an aside, we were pleased with the free cash flow in the first quarter and was really nice start to the year. We did lower to at least $1.2 billion and this was exclusively due to tariff payments. Basically, it's the P&L impact that I described. There's some benefit from cash tax impact from -- that we pay. But then the offset is the higher costs and tariffs impact inventory and cash flow first before they're liquidated to the P&L. So what we're seeing is the buildup in this year, and that's what causes this $550 million reduction that we've highlighted. At this point there's no other changes to free cash flow. We're continuing to stay very vigilant. We think the business is a very strong cash generator and we're still driving operational working capital improvements, but you know this tariff impact is something that we're working through.

Understood. Thank you, guys.

Thank you. Our next question will come from Robbie Marcus from JPMorgan. Your line is open.

Oh, great. Congrats on a good 1Q, two for me, you know, wanted to ask first on Flyrcado and how that's going? And then I'll ask second here, just sort of the environment in China, we saw the anti-dumping allegations get announced, not against the health care specifically, but just on the industry? How are you viewing that? Any expected change? How do you think you fit in there? And just a quick clarification on whether the pharmaceutical diagnostics are included or excluded in tariffs here? I think you touched on it, but I just wanted to get a firm answer. Thanks a lot. Appreciate it.

Yes, Robbie, thanks for the questions. Maybe I'll start out with Flyrcado and then we'll talk a little bit about the next components that you had. So look, on Flyrcado, we're feeling quite good about it. I think as we mentioned in the comments, we're pleased with the progress. We've talked about launch in April. We've hit that. We're on track. You know, we've talked about roughly $30 million of revenue in 2025 and we're well aligned up to that. It takes time to ramp these again as we bring up sites and because it is a radiopharmaceutical manufacturer local to the relationship of where it's consumed. And so we're expanding our CMO, Contract Manufacturing Organization throughout the U.S. I'd say that is right on track to where we are. We're north of a dozen sites and that'll double by the end of the year. But the feedback has been good. Clinically, the image quality is superior to really anything out there on the myocardial perfusion front. Ultimately, the specificity sensitivity to detect disease will come through based on that. There's benefits of the half-life and distribution versus the predicate product, so to speak, today, rubidium and the generator. So all the scenarios that we've laid out look good. I'd say, you know, the couple big things. We've done the first dosing here in mid-February, it's gone well. Commercial launch, as I mentioned, at the American College of Cardiology, a lot of interest there. And then this pass-through status from CMS on reimbursements, big deal, and that was approved on April 1. So we're off and running and things look good. There's a lot of interest within the product. Your next question was on…

Yes. So there was a question on the China market and some of the anti-dumping?

Yes, look, I think across the globe, I think from a standpoint of sentiments with us or American companies and stuff, we haven't seen any negative effects or anything relative to market as we mentioned. We've seen that aligned. You know, this point about this anti-dumping discussion, yes, there was a communication. It stemmed from a complaint from a private company that named a significant amount of multinational companies from around the world and included, you know, not just again, obviously us. I think that's really important. It didn't originate from the government. It originated from a complaint of a private company. And so, we don't believe this investigation is material risk to our business in China. Back on, I'd say, just in April 6 early us, among other companies, had a meeting with the Ministry of Commerce and it underscores kind of the discussions about fair treatment and there were positive comments expressed about us obviously not being targeted. We've had numerous discussions obviously with many officials since the tariffs and things have taken off as well and have seen support to be able to have us continue to be obviously an important player within that marketplace. So again, I don't see anything that comes out of there of a course of normal business relative to things that happen in different marketplaces. And your last point, I think, Robbie, was on pharma and the tariff discussion. Jay, do you want to hit that?

Sure. So, Robbie, we haven't included any potential 232 tariff impacts in the guidance. Our approach is to include tariffs that have been announced and are quantifiable. Our PDX business has products that are principally used in tandem with imaging equipment, so it's not clear at this point where that would fall and whether these products would be in scope of potential 232 tariffs. Our PDX business has positive pricing dynamics, so we'll have to watch that. So we'll watch this as it evolves and address it appropriately.

I appreciate it. I think we're all trying to figure out some of the nuances here. So if you don't know, I'm pretty sure we don't know either. Thanks a lot.

Thank you. Our next question will come from David Roman from Goldman Sachs. Your line is open.

Thank you. Good morning. I wanted just to start on tariffs, I feel like I know we've covered this extensively, but there are a lot of moving parts here. I mean, some of it is clearly just math, and some of it is operational. So can you help us kind of understand the magnitude of mitigation actions that are already in place versus those that need to be implemented, and in that same context, how you're thinking about sustaining investment in the business in SG&A and R&D, then I have a follow-up on the strategic side?

Sure, so first as it relates to SG&A and R&D, we're obviously very focused in this environment on controlling spending. So things like travel, headcount, we're very disciplined on these areas. And furthermore, with respect to our productivity initiatives, we are continuing an intense focus on those areas. At the same time, we're protecting key investments in R&D in terms of the pipeline and how this is going. And we're also protecting critical investments in sales and marketing to support some of these great launches that we have. So that's the philosophy on SG&A and R&D and spending controls. I would say that's really what we have in place. The only thing I would add is we are earmarking a portion of money for the fact that there will be spending that takes place this year that supports incremental mitigation efforts next year in terms of tariff offset. So we've allocated some money to that in the second-half of the year. Now, as it relates to your question on mitigation and tariffs, you know, we've done a significant amount of work and we have a very clear line of sight to essentially all of the savings that we've earmarked for this year. And so that includes things like duty drawback, completed USMCA, tariff code exemptions. We spelled out some of it on the slide, but it's safe to say we have a very long project plan that supports this. And then as we go to next year, we have a very long funnel of opportunities, but some of the implementation will depend upon the final nature of the tariff agreements that are in place. And so we have to wait and see a bit how things settle out before we lock in on all of those. But as I said, we have a very solid funnel that's outlined to support the achievement of next year's number. Pete, what would you add?

Yes, David, I mean, I think, Jay, you covered it well, but just to give some more examples here is we obviously want to see how the tariff matrix plays out around the world, because you don't want to initiate a move until you actually understand what that rate may look like where you would move to another country. There's some no regret moves. Jay touched on those. But the three orders of things are we make a lot of the same products in the same country. So you can actually throttle down one plant, throttle up another. We're already in the midst of doing that. I think in our vascular business, in our molecular imaging business, in our CT business, we have the potential to do all of those type things. The next is we source and make components in many different places. These are from our own four plants. And so where we might be making something in the U.S. to go to another area or some other country to come to Western Europe or the U.S., we can actually change the mix of that. And so in some cases that the exact product might not be there and a transfer is pretty straightforward, because all the core competencies exist to do that. And the third would be we have a big supply base. And many of our suppliers are global suppliers and they are making it in this country versus that country, we can have them switch and ramp that up. All those are the games in play and they take multiple months to move, but that's why we have confidence in second-half of this year and going into ‘26 that we can have significantly larger mitigation efforts.

Appreciate all the color. Maybe just a follow-up here. Considering what looks obviously broader market dislocation here, how are you thinking about M&A? Isn't this a prime environment to kind of accelerate those efforts? So, whether short-term disruptions create some obviously noise around what you guys might otherwise consider long-term structural winners in categories like monitoring or diagnostics?

Yes, David, I think you're right on. I mean, we've been very clear about our capital allocation strategy is, you know, organic investments and then finding the right types of tuck in M&A. We obviously announced other levers that we're executing on, but M&A is a critical one for us. We've got a strategy we've talked about, about expanding our top line growth, as well as growing our margins. So as we look at opportunities to bring into the portfolio, that's absolutely right. And I think in this window of time, we might be able to find some interesting components to plug into our structure. I would say we're most interested right now in finding assets that are going to bring additional growth. It's been a big part of our discussion of being a consistent mid-single-digit grower moving to the higher end of that range. And so we have a really nice portfolio of opportunities. You know, you never know how they'll play out, but plugging those into the system to drive faster growth is what we're looking for.

Great. Thanks so much for taking the questions.

All right. Thank you.

Thank you. Our next question will come from Joanne Wuensch from Citi. Your line is open.

Good morning and thank you for taking the question and for giving us all this information. I have two questions. I'll just put them up front. The CapEx environment, particularly in the hospital, has raised some questions this season. I'd love to get your view on what you're seeing in the United States, as well as outside the United States? And then my second question has to do on so photon counting sounds like that's still on track for 2025 submission and 2026 approval? How do we think about that product once it comes to market and accelerating revenue. Thanks.

Sure. So we were very pleased with the performance in the first quarter as it relates to the hospital capital environment. We saw very robust demand coming from the United States and also interestingly we saw really robust demand in Europe, that's an area that, you know, if you look over the last year, 1.5, the growth rate had slowed a little bit, but as we looked at the order book in the first quarter in Europe, we did see some acceleration there as well. So we were definitely pleased with the environment and that showed up in a 10% order growth in the book-to-bill that we reported. Now as you know, we also supplement with our customer survey that we do internally, and we look at external surveys as well. And what I would say is we continue to see a very constructive demand environment at this point. You know, customer budgets, a lot of them were set earlier in the year, and we haven't observed any significant cancellations or deferrals in response to the global trade environment. And we're continuing to see areas like imaging sit as a priority with respect to our hospital customers. So I think the environment's good. We've got a record backlog, which increased quite substantially year-over-year. So that was a great start to the year with very solid book-to-bill. So I think the environment is constructive at this point.

Yes, and I think just to add some additional points, as I talk to a lot of big IDNs here in the U.S., I just spent some time with Ministries of Health around the world. You know, the idea about imaging and much of our critical care equipment being an indisputable kind of tool to actually drive productivity in the face of shorter or less resources is a big deal. Now, you can do a scan on ultrasound or CT and reduce the time to diagnosis significantly. And when you look at the value we represent with some of the reimbursement scenarios or the cost to serve, you know, most of these products pay for themselves in a year or 1.5. And so, you know, with a life of six to seven years, it's a really strong economic deal. And so, you know, when you see CapEx surveys come up, we typically rise to the top of the list, heavily tied to that point.

And I think, Joanne, you had a question on photon counting. Yes, we're well on track to our submission times. We're on track to what we communicated relative to the introduction windows as well. So we feel quite good about it. Again, we have a differentiating approach on how we're looking at our photon counting. There's obviously a lot of people talking about bringing out technologies. Most of the technologies that they're bringing out are kind of me too with the existing product on the marketplace and that detector technology. We believe the focus on deep silicone and spectral imaging is really the game changer here, which is this idea to see molecular changes and what's happening at a cellular level in CT imaging, which to-date has not been really demonstrated, and then bring all the other benefits as well, higher spatial resolution and dose efficiencies as well. So, feel good about our technology and our platform and to the point, these are the kind of programs that through all of the challenges that are happy macro, we're making sure we protect, because these are the launches that are going to have a strong impact for us here in ‘26 and beyond. So, thank you.

Thank you.

Thank you. Our next question will come from Craig Bijou from BofA Securities. Your line is open.

Good morning guys. Thanks for taking the questions. I wanted to go back to China for my first question. Appreciate the comments on the anti-dumping. There's also the rare element exportation limitation. So, and I know your PDX, many of your PDX products use rare elements. So I wanted to understand what risk do you see from that potential? And then maybe just broadly, Pete, you sound like you're pretty confident that there's no disruption to the overall business in China or your business in China from these potential trade wars. But just wanted to understand how you see that playing out maybe a little bit longer term and if there is any impact?

Yes, Craig, thanks for the questions. Look, on the first one on the rare earth elements, we don't see an ultimately long-term bigger issue. You know, we've had some contrast agent components, GAD and stuff that we have supplied from multiple locations, but obviously over time our ability to kind of shift and manage that will deal with that. We typically carry in that case from an API standpoint a significantly longer window of supply over a year. We've traditionally done that. So I don't see any specific issues in the long run there. We do have, and we've talked about it our Investor Day, we actually have a new product that is in clinical development right now that actually would we think actually transform imaging within the contrast space for MRI, this manganese product. And then on -- there are certain components and detectors and things of that nature, but there are other sources. And in the spirit of, you know, longer term multi-sourcing scenarios, those all fit into that to make sure we could secure it. But at this point, we aren't concerned specifically about that. I think your second question was relative to kind of the sentiment in China and the market and the ability to compete. Is that your question?

Yes, that's it, Pete.

Yes, Look, again, as we look at that marketplace, particularly in China, you know, we play as a local player as much as possible. We again source a significant amount of local product just to be sold within that marketplace. We made a lot of those changes in the last year. We have relationships with big players that are actually indigenous into the market. And so in some cases we actually go to market under those names and the JVs. And I think, you know, as the markets evolve, our strategy to actually be more local probably will play out that way to be successful. We're not seeing, you know, sentiment at this point in time that says, for against GE Healthcare, that, you know, we wouldn't buy you for X, Y, or

Appreciate it, Pete. And just as a follow-up, obviously the strong order of growth in Q1, strong imaging revenue. I mean, was any of this potentially a pull forward for some of the mitigation actions that you have been working on the tariff side or anything else maybe one time to call out during the quarter?

Understand. Thanks for taking the question.

Thank you. And our last question will come from Anthony Petrone from Mizuho Financial Group. Your line is open.

Thanks for taking the question. Congratulations to the team. You know, we're counting $550 billion, I guess, of all said here. And so Jay, Pete, and the rest of the team, I'm sure this was a lot of work so obviously congratulations on all of that. Sticking with tariffs and then on Flyrcado, so on tariffs there's a lot on semiconductors, you know, just going back and forth between U.S. and China. So what is -- I'm assuming semiconductor impacts are reflected in your net $0.85 impact. So that would be the first question, just where do semiconductors sit in all this? And you're calling out less of an impact in 2026. I know it's early days. You have a lot of offsets here, pricing, OpEx. There's other funnel initiatives in 2026. Is there any early estimate as to maybe where that can go? Is it safe to assume maybe it gets cut by a third, cut by a half, and then I'll have one quick follow-up on Flyrcado.

Sure. Maybe I'll start. As it relates to semiconductors, it's not one of the most significant import items, but we do use related products in some of our devices, so we'll continue to watch this area. We've reflected it appropriately. As it relates to what we can achieve next year, we are working feverishly on reductions of tariff impacts. And I hope you can see that in the material that we shared today. At this point, we see a pathway to below $0.85. We're going to update this every quarter when we talk to all of you, because it is such a substantial driver for us and it's not clear yet what we'll be able to achieve in the final analysis, but we feel very good about holding the impact at the 2025 level or better at this stage. Pete?

Yes, I think to the point, you know, we're obviously doing lots of things, talking to administration, talking on many sides of the world relative to rates, particularly with the concentration that we have. The component moves and the supply piece, I hit the three areas where we're going hard on that in all accounts. And so that's the biggest component of offset is the physical changes and the moves. And Jay has talked on this before. I mean, G&A, more in cost and things like that we're going to be responsible with, but we're also making sure that we fund the heavy growth. We have room in a large company like that to be able to manage that and with price. At this point, we haven't built a lot of price offset in here. We are a positive price player. We've had positive price in the first quarter, even with VBP and pressure within China, we've put up positive price. So we have that lever to do more. But candidly, we're trying to offset as much as we can with costs, so that from effect to our customers, it's managed to offset as much as we can. But as things go on longer, obviously, price will have to be a key factor that we'll have to take a look at if tariffs exist at a high rate for a longer period of time.

That's helpful. And for Cato, the estimates that the company has out there, $30 million for 2025 and $500 million for 2028, maybe just to refresh on those assumptions. And when you think about potential upside to that, is that more contingent on just rate of adoption at the nuclear medicine level or do you have a capital component to that, that needs to be unleashed, i.e., more PET-CT scanners out there in the marketplace? Thanks.

Yes, Anthony, I think it's more so about just the adoption and the conversion. I think in the cardiology space, as you know, there's clearly an opportunity for more systems to go out there, but we don't see that as a gating factor of the uptake. A lot of this is, you know, there's multiple steps on how you run a radiopharmaceutical department. We have success-type managers. We're adding folks of that nature that can help convert it. So we're optimistic that that can step up. But look, it comes back to a couple of things. One is, is the reimbursement positive. I mentioned pass-through, that's there. Is the product differentiated? We believe so. Better image quality, be able to see false positives, false negatives more effectively than the predicate products that are out there and a real need for a product like this. At the same time, because of the nature of it, you need to grow the business in certain geographical pods, because you make it and deliver it in a short period of time. And so that will take a little bit longer to ramp. And then once you start building up that critical mass, I think the question is, you know, can it ramp at a significantly faster level? There's clearly scenarios where that can take place. It's probably a little bit too early for us to comment on that, but I'm super excited about how Kevin and Eric and his team have delivered at this point in time, and we're right on track to what we've laid out to the marketplace.

Thanks again.

Thank you. And that does conclude our question-and-answer session for today's conference. And I'd like to turn the call back over to Peter Arduini for any closing remarks.

So thank you all for joining us today. I really appreciate the insightful questions. We look forward to connecting with you here in the coming days at one of our upcoming conferences. Thank you very much. That concludes our conference call today.