Company's Q3 2025 Earnings Call: Contradictions Emerge on China Market Recovery, Photon Counting, Flyrcado Launch, and Gross Margin Strategies

Date of Call: October 29, 2025

Financials Results

• Revenue: $5.1B, up 4% organic YOY (service +6% YOY; product +5% YOY); book-to-bill 1.06x; backlog $21.2B
• EPS: $1.07 adjusted EPS, down 6% YOY; included approx $0.16 tariff impact (ex-tariff would be up high single digits)
• Gross Margin: Adjusted gross margin down 300 bps YOY (≈180 bps due to tariffs; ~60 bps from R&D→COGS reclassification, ≈$30M)
• Operating Margin: Adjusted EBIT margin 14.8%, down 150 bps YOY; excluding ~180 bps tariff impact, margin would have expanded ~30 bps

Guidance:

• Full-year 2025 organic revenue growth expected to be ~3%.
• FX expected to be a ~50 bps tailwind to revenue for 2025.
• Full-year adjusted EBIT margin unchanged at 15.2%–15.4%.
• Adjusted EPS raised to $4.51–$4.63 for full-year 2025.
• Adjusted effective tax rate expected 20%–21%.
• Free cash flow expected to be at least $1.4B for 2025 (includes tariff payments).
• Tariffs expected to be a smaller headwind in 2026 and become a tailwind to earnings as mitigations take effect.

Business Commentary:

* Revenue and Orders Growth: - GE HealthCare reported organic revenue growth of 4% in Q3, with robust orders growth at 6% year-over-year. - The growth was driven by solid customer demand for innovative solutions, a healthy capital equipment environment, and effective commercial execution.

• Product Innovation and R&D Investment:
• The company has invested over $3 billion in R&D since 2022 to deliver differentiated products, leading to increased sales and margin improvement in segments like Advanced Visualization Solutions (AVS).

• The focus on AI-powered systems and lean operations is enabling accelerated growth and margin expansion.

• Segment Performance Variability:

• Imaging segment reported 4% organic revenue growth with strong commercial execution, while Patient Care Solutions (PCS) saw a 7% decline due to a product hold.

• The latter is being addressed through new leadership and focus on commercial execution and product launches.

• Tariff Mitigation and Margin Optimization:

• GE HealthCare is mitigating approximately 50% of its 2025 gross exposure to tariffs, aiming for a lower net tariff impact in 2026.
• Efforts to improve margin include sourcing from lower-cost regions, value engineering initiatives, and price increases, contributing to a 30 basis points adjusted EBIT margin improvement.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described a 'solid' quarter with 'organic revenue grew 4%,' 'robust orders growth of 6%,' raised adjusted EPS guidance to $4.51–$4.63, and emphasized product momentum (AVS, Flyrcado, photon-counting) and operational mitigations (50% tariff exposure mitigated), supporting a constructive tone on growth and margins.

Q&A:

• Question from Larry Biegelsen (Wells Fargo): Any additional color on China — what you're seeing this year/next year, long-term view of the China business, and ways to mitigate risk/exposure?
  Response: Tender activity and stimulus-driven demand are improving; recovery is ongoing; invested in market-access and clinical selling; no structural impediment to long-term China growth; portfolio/country fit is continually assessed.

• Question from Larry Biegelsen (Wells Fargo): Are you still confident in the '26–'28 mid-single-digit organic revenue target, how much do you need China to recover, and is mid-single-digit growth on the table for next year?
  Response: Remain confident in mid-single-digit medium-term growth; if China is roughly flat the targets are intact; currently planning indicates 2026 growth should be faster than this year's ~3%.

• Question from Travis Steed (BofA Securities): Q3 strength — why reiterate full-year revenue guidance and not allow more flow-through into Q4?
  Response: Q3 outperformance concentrated in AVS and EMEA; Q4 modeled conservatively at 3–4% with a historical Q3→Q4 step-up assumed at midpoint and ~80% of equipment secured, so guidance unchanged but confidence in the 3% full-year has increased.

• Question from Travis Steed (BofA Securities): Is Flyrcado on track for $30M this year and how should we think about ramp into 2026/2027?
  Response: Will miss the $30M target in 2025 by design to ensure customer experience; addressing supply yields and site workflows, expecting meaningful ramp in Q4 and into 2026 with long-term target of $0.5B by 2028.

• Question from Joanne Wuensch (Citigroup): Update on timing and ramp for Photon Counting; and how will PCS reaccelerate from down high-single-digits?
  Response: Photon-counting program is on plan with FDA submission/timing intact and more detail expected at RSNA; PCS decline was mainly a product hold (~5ppt of sales decline), hold resolved and shipments resumed — expect meaningful sequential revenue and margin improvement in Q4 and continued recovery into 2026.

• Question from David Roman (Goldman Sachs): In AVS, what opportunity do you see as procedures like EP move into ASCs?
  Response: AVS is well positioned for EP/ASC growth with leadership systems (Allia Pulse, Vivid Pioneer, AltiX) and device partnerships; new reimbursement and smaller-footprint solutions create a strong ASC opportunity.

• Question from David Roman (Goldman Sachs): How long will the R&D→COGS transition persist and what does it mean for gross-margin trajectory?
  Response: R&D-to-COGS reclassification (~60bps, ~$30M this quarter) reflects programs nearing commercialization; it's net-neutral to adjusted EPS, will continue into Q4/next year, and underlying gross margins should expand excluding tariffs.

• Question from Patrick Wood (Morgan Stanley): Any implications from a peer's FDA issues in ultrasound and competitive effects?
  Response: No material Q3 impact observed; AVS strength driven by field execution and new product launches (Vivid Pioneer, Venue, LOGIQ).

• Question from Patrick Wood (Morgan Stanley): With MUSE market share in ECG, any longer-term interest in cardiac telemetry/solutions?
  Response: We already integrate portable ECG (AliveCor) into MUSE for post-procedure monitoring; CareIntellect departmental solutions (starting with perinatal) will expand similar connected offerings into cardiology in 2026.

• Question from Vijay Kumar (Evercore ISI): CDL distribution for Flyrcado — does CDL cover a large portion of U.S. market, have they started shipping, and can they support logistics?
  Response: CDL/CardioNavix covers a large portion of the U.S. PET market and is a key partner; roll-out just beginning (typical 60–90 day onboarding) with customer enthusiasm; partnership should accelerate conversions.

• Question from Vijay Kumar (Evercore ISI): On equipment book-to-bill and orders into '26 — any unusual delivery timing or cancellation trends?
  Response: Equipment book-to-bill and backlog are strong, trailing 4-quarter orders growth solid; cancellations at normal levels; planning suggests faster growth in 2026 versus ~3% in 2025.

• Question from Matthew Miksic (Barclays): For midyear/end-year launches (photon-counting, total body), how does order capture and pipeline development typically shape up?
  Response: Launch timing depends on regulatory approvals and geography; RSNA is a key milestone to convert interest to firm plans; product designs minimize site disruption to enable quicker deployments once announced.

• Question from Matthew Miksic (Barclays): How is AI investment translating into growth, account defense, or deeper penetration?
  Response: AI-enabled features are driving higher win rates, pricing and margin (notably in AVS); digital revenue targets (from $1.2B to $1.8B by 2028) are on track and AI is a key differentiator and growth lever.

• Question from Robert Marcus (JPMorgan): One year after Analyst Day, are you on track vs the long-range plan and any key puts/takes on growth and margins?
  Response: We are on track with Analyst Day objectives—confident in mid-single-digit revenue and 17–20%+ EBIT margin medium-term; portfolio launches and commercial execution support those targets.

• Question from Robert Marcus (JPMorgan): On Flyrcado, what can GE do to streamline workflow conversion and can you be back on track in 2026?
  Response: We have operational playbooks (manufacturing yields, billing/workflow support and distribution partners) to accelerate customer conversion; confident to be back on track in 2026.

• Question from Anthony Petrone (Mizuho): How much of the PET backlog is driven by Flyrcado and can the installed PET base support $1B Flyrcado without new scanners?
  Response: Converting ~25% of the existing PET MPI market would generate roughly $1B in Flyrcado revenue without adding scanners; PET install base growth (oncology and cardiology) further supports upside.

• Question from Anthony Petrone (Mizuho): Tariff headwind of $0.45 this year — how much can be offset in 2026?
  Response: Tariff impact was ~$265M in 2025; expecting a smaller impact in 2026 with mitigation (supply‑chain shifts, free-trade-zone certifications, selective pricing) and tariffs should be a tailwind to earnings next year once actions take effect.

Contradiction Point 1

China Market Recovery and Growth Expectations

It involves differing perspectives on the recovery of the China market and its impact on the company's growth expectations, which are critical for investor forecasts.

What is your strategy for China's market recovery and how do you manage business exposure to China? - Larry Biegelsen(Wells Fargo Securities, LLC, Research Division)

2025Q3: China's market is showing improvement, particularly in tender activity due to recovery efforts. The new leader in China, Will, is focusing on market access and clinical selling. The company sees no structural reason preventing a return to growth in China, which remains one of the largest healthcare markets with significant potential. - Peter Arduini(CEO)

Can you update on the China order environment and provide insights into provincial stimulus stages? - Craig Bijou(BofA Securities)

2024Q4: Fundamentally, market improvements in China align with expectations. Orders grew in Q4. Anticorruption processes and stimulus progress are on track. Long-term market view is positive. - Peter Arduini(CEO)

Contradiction Point 2

Photon Counting Technology and Market Impact

It pertains to the timing and market impact of the Photon Counting technology, which is crucial for the company's competitive positioning and revenue expectations.

Can you update on Photon Counting's timing and how we should view its ramping? - Joanne Wuensch(Citigroup Inc., Research Division)

2025Q3: All plans for Photon Counting are on track for release and communication at the upcoming RSNA conference. GE's approach leverages deep silicon for spectral imaging, which is positioned to disrupt the marketplace. - Peter Arduini(CEO)

Can you provide an update on the Photon Counting product introduction and its impact on the 2025 margin line? - Matthew Taylor(Jefferies)

2024Q4: We stay on track for the commercial release of multiple QCT systems with Photon Counting in the second half of 2025. - Peter Arduini(CEO)

Contradiction Point 3

Flyrcado Launch and Ramp Expectations

It involves differing expectations regarding the launch and ramp of the Flyrcado product, which is critical for the company's growth trajectory.

Can you update us on Flyrcado’s launch and ramp expectations? - Travis Steed(BofA Securities, Research Division)

2025Q3: The launch is deliberate to prioritize customer experience over immediate revenue. Supply and customer workflow improvements are ongoing. Flyrcado's funnel exceeds initial expectations, and significant interest is building. The company is confident in achieving midterm expectations of $0.5 billion by 2028. - Peter Arduini(CEO)

What are your 2025 growth expectations for each segment, especially the PDx segment? - Matthew Taylor(Jefferies)

2024Q4: We have secured contracts with customers to provide 124 installations of the photo orangery equipment, which is the base product to the Flyrcado product. - James Saccaro(CFO)

Contradiction Point 4

Gross Margin Impact and Strategies

It involves differing explanations of the gross margin impact and strategies to mitigate it, revealing potential contradictions in financial management and strategic focus.

How do R&D and COGS transitions affect gross margins? Can you explain the operational impact? - David Roman(Goldman Sachs Group, Inc., Research Division)

2025Q3: R&D cost shifts to COGS due to product commercialization. This net-neutral shift to COGS facilitates margin expansion. - James Saccaro(CFO)

Can you provide an update on gross margins? What impact did tariffs have on gross margins? - Joanne Wuensch(Citigroup Inc., Research Division)

2025Q2: Gross margin impacted by tariffs (80-90 basis points) and reclassification. Service business mix also a factor. - James Saccaro(CFO)

Contradiction Point 5

Impact of Tariffs on China

It highlights differing perspectives on the impact of tariffs on the company's business in China, which could affect strategic planning and financial expectations.

Can you elaborate on China's market recovery and your strategy in the region? - Larry Biegelsen(Wells Fargo Securities, LLC, Research Division)

2025Q3: China's market is showing improvement, particularly in tender activity due to recovery efforts. - Peter Arduini(CEO)

What is your outlook for the China market and VBP's impact? - Larry Biegelsen(Wells Fargo)

2025Q1: The current state of China continues to be a slow burn, in which we're managing through a series of tendering activities. - Peter Arduini(CEO)