GE HealthCare Technologies Inc. — 2023 Q3 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023, compared with the corresponding 2022 periods. The company completed its spin-off from General Electric on January 3, 2023; 2022 results are historical carve-out results and may not represent comparable stand-alone economics.
Business context
GE HealthCare develops medical technology, pharmaceutical diagnostics, and digital healthcare solutions through four reportable segments: Imaging, Ultrasound, Patient Care Solutions, and Pharmaceutical Diagnostics. GE beneficially owned approximately 13.5% of the company at September 30, 2023.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Total revenue | $4,822 million | $4,576 million | $14,346 million | $13,403 million |
| Operating income | $617 million | $605 million | $1,746 million | $1,745 million |
| Operating margin | 12.8% | 13.2% | 12.2% | 13.0% |
| Net income attributable to GE HealthCare | $375 million | $487 million | $1,165 million | $1,362 million |
| Net income margin | 7.8% | 10.6% | 8.1% | 10.2% |
| Diluted EPS attributable to common stockholders | $0.82 | $1.07 | $2.15 | $3.00 |
| Adjusted EBIT | $744 million | $700 million | $2,119 million | $2,017 million |
| Adjusted EBIT margin | 15.4% | 15.3% | 14.8% | 15.0% |
Revenue growth: Q3 revenue increased 5% reported and 6% organically. Nine-month revenue increased 7% reported and 9% organically. Nine-month segment revenue growth was 7% for Imaging, 2% for Ultrasound, 9% for PCS, and 15% for PDx.
Cash flow and liquidity: Nine-month cash flow from operating activities was $1,051 million versus $1,071 million in 2022. Free cash flow, a non-GAAP measure, was $759 million versus $841 million. Capital expenditures were $293 million. Cash, cash equivalents, and restricted cash were $2,418 million at September 30, 2023, or $2,420 million under the cash-flow presentation including long-term restricted cash.
Debt: Total debt was approximately $10,260 million at September 30, 2023 versus $8,250 million at December 31, 2022. The increase primarily reflects the $2,000 million term-loan draw at the spin-off. The weighted-average interest rate on notes and credit facilities was 6.01%. The company had $3,500 million of revolving credit capacity, with no amounts outstanding, and reported compliance with debt covenants.
Balance sheet: Total assets were $32,382 million and total liabilities were $25,079 million. Contract liabilities totaled approximately $2,610 million. Remaining performance obligations were $14,162 million, down 1% from December 31, 2022.
Material changes versus the prior comparable period
- Revenue growth was led by PDx, PCS, and Imaging. Supply-chain fulfillment improvements, pricing, new product introductions, and improved demand were key drivers.
- Operating income was essentially flat for the nine-month period, as higher revenue and productivity were offset by increased SG&A and planned R&D investment associated with operating as a stand-alone company.
- Net income declined 23% in Q3 and 14% for the first nine months. Higher interest expense from the new debt structure and higher income taxes more than offset operating-income growth and pension-related non-operating benefits.
- Adjusted EBIT increased 6% in Q3 and 5% for the first nine months, although the nine-month adjusted EBIT margin declined 20 basis points.
- Free cash flow declined 10%, primarily because of higher capital expenditures and lower operating cash flow.
- The company acquired Caption Health for $127 million of upfront consideration, with additional holdback and contingent consideration, adding AI-guided ultrasound capabilities.
Guidance, outlook, commentary, and risks
The filing text does not provide a clear new quantitative full-year earnings or revenue guidance update. Management stated that existing cash, operating cash generation, capital-market access, and credit facilities should be sufficient for operations, debt service, taxes, and investment needs for at least the next 12 months.
- Management continues to invest in commercial capabilities, research and development, new product introductions, and stand-alone-company infrastructure.
- Restructuring expense was $34 million for the first nine months, compared with $110 million in 2022; approximately $23 million of additional restructuring expense was expected, primarily over the following 12 months.
- A pension-plan amendment produced a non-cash pre-tax curtailment loss of approximately $17 million and reduced accumulated other comprehensive income by approximately $305 million after remeasurement effects.
- The effective tax rate was 39.3% in Q3 and 31.4% for the first nine months, including a $105 million deferred tax provision related to the Tax Matters Agreement with GE and other tax effects.
- Risks include supply-chain disruption, inflation, reimbursement and healthcare-policy changes, foreign-exchange and interest-rate volatility, geopolitical conflicts, cybersecurity, regulatory and compliance matters, product liability, and the challenges of operating independently after the spin-off.
- Russia and Ukraine generated $228 million of revenue during the first nine months. Expanded export-licensing requirements affected the company’s ability to supply Russian customers, and future licensing outcomes are uncertain.
- The company continues to cooperate with SEC and DOJ reviews relating to voluntary FCPA self-disclosures concerning activities in certain Chinese provinces. The duration, outcome, and potential costs were not determinable.
- A pending Anti-Terrorism Act lawsuit involving contracts with Iraq’s Ministry of Health remained active, with a temporary stay in district-court proceedings and Supreme Court-related developments.
Investor verification checklist
- Reconcile GAAP net income and EPS with adjusted EBIT, adjusted net income, adjusted EPS, and free cash flow, particularly the effects of interest expense, pension benefits, spin-off costs, and tax items.
- Assess debt-service capacity, 2024 note maturities, the floating-rate term loan, interest-rate exposure, and compliance with leverage covenants.
- Monitor whether revenue growth and productivity offset stand-alone-company costs, inflation, planned R&D investment, and foreign-currency pressure.
- Evaluate cash conversion, capital expenditures, pension and postretirement funding, dividends, and remaining cash requirements.
- Track the Caption Health integration, restructuring spending, remaining performance obligations, and the decline in free cash flow.
- Follow the SEC/DOJ FCPA matters, Iraq-related litigation, export restrictions, reimbursement changes, and other legal or regulatory contingencies.
- Consider the limited comparability of 2022 carve-out results with 2023 stand-alone results and the continuing financial effects of transition-service and tax agreements with GE.