All of those then turn around into faster growth in a faster-growing market but also winning some share. So that’s — those are the pieces that give us confidence. But again, I think when you look at our backlog compared to what we need to deliver on mid-single-digit growth, we’ve got plenty of gas in the tank on that just over the next couple of years. But we would expect to see our orders growth pick up. And my expectation here is in the second half, we’re going to start seeing that pick up in that mid-single-digit range. And again, not every quarter will be consistent but how that will play out over multiple quarters will be in that range.
Craig Bijou: Great. And if I could follow up on the hospital CapEx sentiment. You mentioned that it’s still pretty good. So are you hear — I know you guys — you survey your customers often. So are you hearing any concern given that the interest rate environment, it looks like we’re not going to see many more cuts. And then just on top of that, maybe just talk about how the pricing, your ability to get that price that Jay mentioned in one of the previous calls. How does that get impacted in — if there’s some concern or hesitation on capital spending by hospitals?
Peter Arduini: Yes. Let me start and then, Jay, you can kind of fill in some of the gaps on this. I think again, if you compare it to over a year ago, you’re taking a look at an environment where hospitals were primarily in the red, heavily tied to labor cost. We’re seeing that moderate and most of our customers, particularly our big important IDNs back in the black. So I think that’s a quarterly. Relative to rates, it’s obviously out there. It’s a topic. We haven’t really seen it come up in a major discussion that’s limiting how things are playing out. I still think the underlying play here is that demand for procedures is just still on continuing to grow. So if you think about some of our peer group of the device companies that are showing very high growth rates in their implants, we’re showing that same kind of growth in our PDx business because we see that day-to-day.
The effect of that on equipment isn’t in that same quarter. The effect on the equipment is usually 3 to 4 quarters out. Why is that? Because you’re using current equipment and then you start adding capacity constraints and you need to buy upgrades or new equipment. And so that’s what also gives us confidence that we’re going to see that pick up in later quarters. But at this point in time, backlogs to get an MR scan or a PET still are much longer than they were pre-COVID. And that brings high-value procedures with into an institution. And again, that’s what gives us confidence we’re going to continue to see investments that take place, particularly in the United States. Jay, I don’t know the price.
Jay Saccaro: That’s exactly right. I think — and we do a survey each quarter. Pete’s comments are very reflective of what we heard from our customers, continued procedure volume demand, staffing shortages, ease, good economics for the hospitals. Interest rates really have played a less prominent role in some of those discussions and survey results. So we feel quite good about that. From a pricing standpoint, as I said, we’ve talked about — we’re talking about low single digit, 1%, 2% price increases. And what we’re finding is that’s not the difference between buying and not buying. It’s not really — the decisions aren’t that sensitive. And so as we continue to emphasize this focus on pricing discipline across the organization, we’ve been able to see that driving a positive impact for the company.
Operator: Our next question coming from the line of Larry Biegelsen with Wells Fargo.
Larry Biegelsen: A follow-up on China. So sales were down about 11% in Q1 in China. What are the expectations for the rest of the year? Does the new stimulus represent potential upside to the prior guidance? And I had one follow-up.
Jay Saccaro: Yes. I think it will depend upon when the details of the stimulus package are laid out. Because as Pete said earlier, we did see some hesitancy amongst customers as they wait clarity on the stimulus rules before submitting orders and that makes complete sense to me. We’ve seen that continue in the second quarter of the year. And so from our standpoint, the stimulus package, Larry, we view that as a good long-term catalyst for the market. Exactly when that shapes up with respect to 2024 is something that we’re watching. To the extent that we get clarity sooner, then it certainly could be a positive catalyst versus guidance previous to the extent that we’re still waiting and there’s still hesitancy amongst customers with respect to orders, it could be a sort of a negative in the short term. But again, I think from our standpoint, we’re very pleased to learn about this. And long term, it’s a very positive development for the overall market.
Peter Arduini: Yes. I mean, Larry, the only thing I would add is from our guide, not a lot has changed. The first half, we guided would be negative. The second half will be positive. I think in the second half, the STEM is going to have an effect of probably having a bigger step up in Q4 than Q3 just because of the delivery time to ship equipment. If it gets more clarified within Q2 and you could actually have a little bit sooner. But I think those are the dynamics. I think the good part is, even if it’s later, that then benefits a Q1 ’25 or Q2 ’25 but we’re expecting that there’s going to be clarity here before we get into the half and we’ll see how that plays out. So fundamentally, our guidance doesn’t change but stimulus could have a benefit to it. But at this point in time, we need to see more of the cards be unveiled.
Larry Biegelsen: That’s helpful. Pete, you’ve been very active on the business development front but mostly very small deals. Is that what we should expect going forward? And maybe just refresh us on areas of interest and if you think robotics is — would fit within GE Healthcare?
Peter Arduini: Yes. Look, Larry, I would just say on your last point on robotics, it’s not a — from a surgical standpoint, it’s not a top priority focus for us. I think from a broader standpoint of robotics and AI. And I mentioned our Allia IGS is actually a robot that actually comes into position and how it’s used, it’s one of the only that’s actually used within the cath lab from that standpoint. But tuck-in deals of the right size that have a strategic fit into a core business that enable us to connect different parts of our portfolio to bring more differentiated capability. That’s what we’re looking at, both in partnership and in acquisitions. So I think that’s what you should stay focused on that, that is our primary target.
And as we’ve always said, a larger deal came up, it actually was a really good fit for us, we would obviously take a look at it. But our 85%, 90% target range is the type of deals like the MIM deal that we did that are just really good fits into one, our priorities, right, growing our care pathway within Oncology, linking our products to make them more differentiated on how they actually work together. And we just have a very good funnel of opportunities like those.
Operator: Our next question coming from the line of Ryan Zimmerman with BTIG.
Ryan Zimmerman: A lot has been asked. I want to ask two separate questions. One, [indiscernible] numbers were off to, I think, a strong start for Biogen, at least, that’s what it seemed like. And so just curious how the conversation around Alzheimer’s has changed at all? Or the trajectory that you’re expecting, I think, for the uptake and kind of patient adoption? And then I have a second one on margins.
Peter Arduini: Yes, Ryan. So you heard Jay’s comments probably on the call. Relatively, we saw some slight upticks here for Vizamyl. I would just again remind everyone what we said is our expectation was that we’ll start seeing some uptick more in the second half of the year. I think that’s pretty much in line with what we’re expecting. I think since we gave guidance, there’s been some discussions that the Lilly drug might be a little bit delayed coming out. But when the combination of all of those from a diagnostic standpoint which is what our role is, we expect to see some of that picking up in the second half of the year. Now relative to any type of major material moves, this is not a ’24 play as far as we see it right now.
I think we think that, again, in the ’25, ’26, ’27range based on the adoption of both molecules, that’s when you’re going to see an uptick. There is reimbursement now for the agent in the outpatient center. That’s still being worked through an inpatient. And I think as that gets more cleared up, that’s also going to drive more need for the product. But we were encouraged to see on a ratio standpoint, the numbers are up significantly from an actual dose standpoint. But we would view that as positive and on track to what we’ve already communicated on what the ramp should look like during the year.
Ryan Zimmerman: Okay. And then, Jay, we spend a little — go ahead, sorry.
Peter Arduini: No. I would say go ahead and ask your next question, Ryan.
Ryan Zimmerman: Just, Jay, on gross margins for a bit here. You got some segments kind of down, you got some segments up, in terms of EBIT margin. Pricing, I think we all understand those dynamics but there are still, I think, a lot of TSAs left. And just help us understand kind of the trajectory of gross margin as you see it today and kind of what you’re tackling to get that higher outside of maybe price pickup?
Jay Saccaro: Yes. Overall, I think we were very pleased with the first quarter margin performance. And gross margin, in particular, we expanded 120 basis points, really driven by pricing and productivity. Now there’s an element that has not yet featured in our numbers which is related to some of the new products that Pete referenced in his discussion. We’ll see benefits from some of the new imaging and some of the new ultrasound products that will also support gross margin expansion. But in the first quarter, it was really about pricing. I discussed that and productivity. In my prepared remarks, I talked a little bit about some of the lean initiatives and what we call the variable cost productivity initiatives that we have in place.
And it’s safe to say we’re off to a great start from a productivity standpoint. We delivered, I think, mid-single digits in each of our businesses, more than offsetting inflation and allowing us to drive this gross margin going forward. And so as we look at things on a full year basis, we will continue to see solid margin — gross margin performance, supporting the EBIT expansion that we’ve laid out, 50 to 80 basis points of EBIT expansion. But really nice to see in the face of flat sales, the 50 basis points of expansion that we saw in the first quarter. Now you referenced another comment which relates to TSAs and we’re making good progress there. A lot of great support from GE but also a lot of good work on our team side. We’ve eliminated, we’ve removed roughly 330 [ph] — we’re on a path to completing virtually all of the TSAs by year-end.
And what will happen as a result of this, I would say, it predominantly impacts SG&A over time. It will allow us to optimize our structure, optimize our IT systems for the needs of our organizations or really a gating factor to get at all of that is coming off the TSA. So we’ve seen a little bit of benefit in terms of SG&A and G&A savings this year, we’ll expect to see more next year as we stand on our own 2 feet as an independent company. So overall, that’s really the story on margin. Pete, anything to add?
Peter Arduini: Ryan, I would just say and again, just to remind everyone, I mean our focus on the increased R&D dollars is obviously new products. But a really important part of it is kind of doing this gross margin triple which is getting price out of a new product, increased volume because of differentiated features and reducing the actual cost of that product because of platforming. And so when you do that, obviously, if you can get the growth in the lift because of people want it’s differentiated, you get more price at lower cost. We have this focus as we mentioned, that any new product comes out at a higher gross margin. And again, that’s something we drive across the whole portfolio.
Operator: Our next question coming from the line of Graham Doyle with UBS.
Graham Doyle: Can I just ask one, again, it’s on China but just to get context for things that we go through a year. So firstly, just on revenues. The comps do get — I think the comps get a bit easier on the revenue side. But am I correct in saying you did grow revenues in H2? And are you assuming a sort of catch-up now in the numbers that you flagged earlier in the year, that H2 would grow enough to offset this sort of H1 weakness? And then just one question on order intake. I know you’ve gone to sort of great lengths to explain how the growth sort of algorithm should work through the year on order intake. But what sort of number are we looking for? Because it seems like mid-single-digit growth, when you combine what’s happened over the last sort of 12, 18 months, it wouldn’t make me super bullish that you could do high single-digit growth in revenue terms next year.
But is there something we missed in terms of how you can translate, say, 5% to 6% growth for the next 3 quarters into better revenue growth for 2025?
