GE HealthCare Technologies Inc. Common Stock Q2 2026 Earnings Call

Good day. Thank you for standing by. Welcome to the GE HealthCare second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carolyn Borders, Chief Investor Relations Officer. Ma'am, please go ahead. Thanks, operator.

Good morning. 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. With that, I'll hand the call over to Peter.

Thanks, Carolyn. Good morning. 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 booked a bill of 1.15 times, all of which were at record levels. We're seeing healthy end market demand in all three 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. 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 the 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 four. 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-focused and digital capabilities, particularly AI. Heartbeat helps us align customer needs, product development, sales, and service capabilities more effectively. 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 Photonov 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 TrueFidelity 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 24th. 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 remain 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 three years. Jay's helped build a strong financial organization, instill 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? Thanks, Pete. I really appreciate the partnership, 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, 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 five. 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, we expect these orders to contribute to revenue more meaningfully in 2027. Book to bill was 1.15 times, also our highest since the spin, 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 one quarter of the sequential increase is in product backlog, while the balance relates to multi-year 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 six. 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 seven. 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 eight. We delivered particularly strong organic revenue growth of 14.6%, with strong volume in 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 nine, 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. 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 continued to pay a dividend. I'll now turn the call back over to Pete to talk more about the full year outlook. Pete? 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. This reflects 3%-4% organic sales growth and 10 to 40 basis points adjusted EBIT margin expansion. That gets us to a range of 15.4%-15.7%. We're maintaining our adjusted EPS guidance in the range of $4.80-$5, approximately 5%-9% growth year-over-year. Free cash flow is expected to be approximately $1.6 billion in 2026. For the third quarter, we expect year-over-year organic revenue growth to be in the range of 3%-4% as well as low double-digit adjusted EPS growth year-over-year.

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 three 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.

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 three 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 roadmap 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. 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 worked 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 two 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 pooled into larger long-term relationships. I'm proud of the AIS and PDx teams for their performance in the quarter. Combined, these two 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.

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

Ladies and gentlemen, as a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourselves to one question and one follow-up. Please stand by while we compile our Q&A roster. Our first question will come from the line of Larry Biegelsen with Wells Fargo. Your line is open. Please go ahead.

Good morning. Thanks for taking the questions. Jay, it was a pleasure working with you, and I wish you nothing but the best of luck going forward.

Thank you, Larry. Of course.

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? You know there are concerns around capital equipment demand in the U.S., given the ACA subsidy cuts. What are you seeing? Thank you.

Larry, thanks for the question. We were delighted with our orders performance in the quarter. I would say, 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 and mid-single-digit revenue, again, which is aligned to our guide. 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. As we've done, I highlighted the addition of enterprise accounts.

I think we had about six enterprise accounts that contributed to some of the growth. 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. I would say there's been a lot of focus by our teams on how we execute. We talk a lot about Heartbeat and the management system, but some of those things get down to how do we improve visibility? We improve visibility, meaning what deals we see to participate around the world in by a couple points this quarter. That translated into a couple points of higher win rate.

Those are some of the actions that you can't always execute each quarter on, but it came together quite well. That's the broader level of it. 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 Jay mention about the performance of the numbers, both radiopharma as well as in contrast. That's a procedure-based. In our vascular and surgical businesses, both represent vascular procedures, ortho procedures, cardiac, all of those continue to do well.

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 onto the right type of therapy and be able to get them out of the system healthy, we typically see an uptick. In many cases with large deals, that's a big part of the discussion. What can we do to improve their overall productivity? Thanks for the question. No, that's very helpful.

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? Thanks for taking the question.

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 two-year stack, over 7% order growth. It really sets us up well heading into the second half. As we think about the first half, 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. As we look into the third quarter, one of the areas that we analyze is this thing called secured rate. How secure is the equipment revenue heading into the quarter?

Our secured rate on equipment, we're at over 80%, nearly 85% secured entering the quarter, which is up several percentage points versus prior quarters. We feel very good about that forecast. Also supporting this second half growth will be CCS stabilization, we'll see a bit of that, and Flyrcado growth and more broadly, radiopharmaceutical growth as well. Really those are the contributors to the second half, which we feel very solid about at this point in the quarter. 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. Historically, we see from the first half to second half about two and a half percentage points of margin improvement.

Now, interestingly, we'll do a little bit better than that this year, 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. Really that's the story of the first half versus the second half, Larry.

Thanks so much. Thank you.

One moment as we move on to our next question. Our next question is going to come from the line of Vijay Kumar with Evercore ISI. Your line is open. Please go ahead.

Hi, guys. Congrats on a nice quarter, and thank you for taking my question. Pete, maybe my first one for you on this Pharmaceutical 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 you thinking about Flyrcado ramp? Are we still good for the half a billion number? Maybe timelines moving here? Vijay, thanks for the question.

Maybe I'll start at PDx and just kind of flow down through it to that point. Again, we did have a very strong quarter, and it was contrast, and it was broad-based in radiopharma. 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 base. 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, Serena Bright in breast cancer.

Obviously, Flyrcado is kind of our premier product within that area, and we're pleased with the progress. I think this won't all obviously be linear. There's going to be bigger spikes at different points in time. At this point, the 545 doses, which again, it's about 40% increase. The other aspect I mentioned in the prepared remarks was the fact that we brought on quite a few new customers as well, pretty much about that same ratio. 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. We're in a really good spot here, to ramp this up as we go into Q3 and Q4. The longer-term opportunity of a half billion USD annually by 2028 is fully intact.

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. We think as we've always talked about, we have a very good chance to do better than that, but we're focused on the half a billion USD here by 2028.

That's very helpful, Pete. Jay, one for you. Look, this is never an ideal time for a transition. Seemed a bit abrupt for us, maybe talk with why now and where are we in the CFO search process?

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. 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. I believe we have a world-class finance function that I've been privileged to work with. 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. 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 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.

Yeah, I'll take the search. 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. We've got a lot of interest that's out there. 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 X years, at least since I've been here and beyond, is going to be a great partner here for me.

Understood. Wishing you the best as you transition, Jay.

Thanks, Vijay. Thank you. One moment for our next question.

Our next question comes from the line of Rick Wise with Stifel. Your line is open. Please go ahead.

Good morning, Pete. Hi, Jay. Pete, a question for you, then a question for Jay. You obviously talked about the new wave of innovation. Stepping back, just are you seeing the impact from that wave of innovation? Broadly speaking, is that what 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? Most specifically, talk about the impact that having Photonov Spectra now launched is having broadly on the full portfolio pull-through.

Yeah, 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. 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 Photonov in a minute, but Photonov 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. 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. I think some of these changes we just talked about when 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, 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. Then the piece relative to enterprise, there are more and more enterprise deals increasing. Just to put it in perspective, I talked about Catholic Health, which is a great partner. Only about a fifth of those orders are actually a part of what went in the second quarter, so there's still much in front of us.

It was broad-based and consistent. I think when you look at MR is an area for us that we have talked about investing in to increase margins. We've talked about increasing and changing the profile. The team's 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. In the AI, and specifically in ultrasound and interventional, we're doing very well.

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 run build-out. We're in very good shape there. To your Photonov 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. This is pre-order, but this is prospects that are qualified and ready to step into an order phase. We're in quite good shape there. Again, that will be a significant growth driver here as we get late to this year and into next year.

At this point in time, it's not a major driver within the orders book, will be in the future.

Got you. Thank you. Jay, wishing you all the best in your next job, new role. You're leaving Pete, you're leaving your successor, and you're leaving us with the medium-term 2026, 2028 outlook goals and targets, the mid-single digit organic growth, high teens to 20% adjusted EBIT margin, high single digits to low double-digit EPS growth, 90% free cash flow conversion. Sorry to recite it all, what's your comfort as you're leaving, or Pete, what's your comfort with the medium-term targets now? Thank you so much. Rick, while we're here live, I'll let Jay make his comment, and then I'll jump in.

Jay, maybe you want to hit it quickly.

Yeah, Rick, we feel very good about the midterm story. For us, what we always knew was that the midterm story would be unlocked by two 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. 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. Those two ingredients are going to be the things that unlock this midterm story. I have to say, though, both have been put in place and serve as an incredibly solid foundation. Pete? Yeah. Now look, I think, Rick, we feel quite bullish about where we stand with our midterm targets.

Jay hit it. 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 Photonov Spectra ramp that we expect. All of those products have the opportunity for higher price. There's not been one product that we've 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.

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. The combination of those is faster growth and better gross margin. 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. 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. A lot of that is with the use of agents and tools that can help us be more consistent. We're locked in. We feel very good about our midterm targets.

Honestly, this is a great quarter here to demonstrate that we're well-positioned to deliver on it.

Thanks to you both. Thank you.

One moment for our next question. Our next question will come from the line of Travis Steed with BofA Securities. Your line is open. Please go ahead.

Hey, thanks for taking the question. 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 call out or quantify this quarter? If you look at the different buckets you gave last quarter, memory, oil and freight costs, and other inflation buckets, how those are trending versus three months ago, and how you think about the go-forward there.

Yeah, 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 and certain other metals. 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. We've seen a little bit of increase since the first quarter call, but nothing notable. Oil, while it remains elevated, it is down a bit from the previous peak. 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 points headwind, which was in line with our expectations. 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. 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.

Great. Thank you. Follow up on the PCS business, the decline this quarter, any more color you'd give on that and when that business starts to stabilize? The PCS strategic review, how that's tracking and what you'd do with extra cash, if you got cash from that strategic review.

Yeah, 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 the quarter that was completed, as well as some of the new products. That's a super important point that needs to be out there. 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, we'll 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. Ultimately, it's about shoring up our supply chain and our ability to deliver consistency, and consistently. 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.

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, it needs to be addressed. That's job one. Again, I think over the coming quarters, the efforts that we have to improve its profitability, improve its growth profile, feel quite good about the level of actions that we have in place. That being said, we're looking at multiple alternatives here. We have many different products that are in this portfolio. Do all of those fit? That's a fundamental question. There's constructs of the geography of where we compete with that business, the construct of what our overall SG&A level is.

Those are all of the aspects there, obviously, to the full extreme of, is this business better parked with someone else? 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, what 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? We've been very clear about that, Jay and I in the past, that won't change going forward. Our focus on our organic investment is some of the highest returns. We 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. 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.

Thank you. One moment as we move on to our next question. Our next question will come from the line of Robbie Marcus with JPMorgan. Your line is open. Please go ahead.

Hi, this is Henry on for Robbie. Thank you for taking the questions. I'll just ask both of them up front. 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? A little more importantly, what you expect the impact to be in the second half of 2026 and 2027. Second question on the EPS guide. The prior guide didn't include a rebate. 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? Thanks. Jay, do you want to take the first one then maybe I'll take the guide?

Sure. 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. It's a very tight market as we sit here today. 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. We're really talking about incredibly robust growth. With this growth, there have been periods of tight supply over the years, we believe there's room for incremental supply on the market. The other thing I would say is generic competition is not new in these contrast media markets, we've successfully navigated through multiple market cycles.

The way we do 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. 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. We do believe that there are aspects that differentiate our offering relative to others. Pete, maybe on the guidance question.

Yeah, I'll take the guidance question. 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 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 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, it just made sense at this point in time to hold where we're at.

Thank you. One moment as we move on to our next question. Our next question will come from the line of Joanne Wuensch with Citi. Your line is open. Please go ahead.

Good morning, thank you for taking the question. 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. Thank you. Hey, Joanne. Thanks for the question.

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. We had expected that China over time will continue to expand VBP constructs. Over the past couple of years, we've seen in other industries that way. It makes sense. It aligns to their strategy on anti-corruption because they tend to be more transparent than non-BBVs. From that standpoint, we haven't seen anything out of the ordinary. We were pleased with our China performance in Q2, which I 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 VBP, which again, based on the recent headline news, are going to continue to grow. I think we view it from that standpoint. I also think 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. 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.

Thank you so much. Best of luck, Jay.

Thank you. Thank you. One moment for our next question.

Our next question will be from the line of Vik Chopra with BMO. Your line is open. Please go ahead.

Hey, good morning, and thanks for taking the questions. Jay, thanks for all your help over the years. It was a pleasure working with you. Maybe the first question, you highlighted strong orders and growth and initiatives to improve shipping 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 these supply chain issues in the second quarter?

Yeah, Vik, I'm not going to get into hypotheticals to lay that out. 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. Again, much of that is specifically tied to velocity. We have a fixed cost structure. Without that velocity going through it has a disproportionate effect on profit. Once we get velocity back, I think you can look to previous year rates, and that's what we'd expect to be getting back to.

Okay, got it. You referenced this new product cycle, the back half of 2026 and into 2027 with new products across all modalities, call it over the next six to 18 months. I'm just curious, Pete, which two or three NPIs do you view as the highest margin and the highest share gain opportunities? Thank you. Vik, it's tough to choose between all of your children, which ones you like the most.

Look, I think the team has done a very good job of many of them having big contributions. Obviously, there are certain segments that disproportionately are bigger use models within a hospital. Our MR growth will have a disproportionate benefit from a profit and growth standpoint as we roll new products out. Our Photonov Spectra, will fall in the same way. Ultrasound across the board, because what Phil and team have been able to do is leverage that platform approach across all of them. I would say things such as 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 U.S. that have done better.

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. That would be how I would frame that up. 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 number 1 or number 2 position with all of our products, and that they're greatly enhanced with artificial intelligence tools that change the productivity paradigm for customers. That's what we're seeing. Early days yet, but we feel quite good about the receptivity at this point.

Thank you. One moment. Our last question is going to come from the line of Matt Taylor with Jefferies. Your line is open. Please go ahead.

Hi, Thanks for. Hey, Matt.

the question. Hey, Jay. Good luck in your next role. It's been great working with you for 20 years almost.

Wow. Thanks, Matt. Thanks, Jay.

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's 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?

Yeah, 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 the cost side, there will be a natural lift in gross margins based on all of that, but in particular, the price aspects. 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, obviously that will continue into the beginning of 2027. I don't know, Jay, if you want to add anything else to it.

Yeah, 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 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.

Basis points, right. A really remarkable story.

You can expect to see more of that as we go into the future. With the PCS business stabilizing, that too serves as a catalyst. 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.

Okay, great. Thank you, guys.

Thanks, Matt. Thanks. Thank you.

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

Thanks, operator. 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. This concludes today's conference call.

Thank you for participating, and you may now disconnect. Everyone, have a great day.