Vice President & Chief Financial Officer at General Electric
Thanks Pete. Let's start with our financial performance on slide four. For the fourth quarter of 2023, revenues of $5.2 billion, increased 5% year-over-year and grew 5% organically. This was driven by sales in pharmaceutical diagnostics, imaging, and patient care solutions. Recall that this 5% organic growth was on top of the 13% we delivered in the fourth quarter of 2022, which benefited from easing supply chain. Organic orders increased 3% year-over-year. Order dollars continued to outpace sales, leading to a total company book-to-bill of 1.05 times, up sequentially from 1.03 times due to healthy product orders, including equipment. We exited the year with a record backlog of $19.1 billion, up $700 million sequentially. This performance gives us continued confidence in our expectations for 2024.
Fourth quarter adjusted EBIT margin was 16.1%. Sequentially margin improved 70 basis points supported by seasonally higher volume while we expanded our investment in future innovation. Year-over-year standalone adjusted EBIT margin was flat as benefits from productivity and price were offset primarily by investments. The lean methodologies is at the foundation of our productivity, yielding strong performance in the fourth quarter with improvements in logistics, sourcing and services. Our teams came together to increase on time delivery to our customers by 11% year-over-year with lean actions, improving demand forecast accuracy, supplier planning and lead times. We also saw a path due backlog efficiency, with greater than 50% improvement year-over-year in imaging alone. For the fourth quarter, we delivered adjusted EPS of $1.18, up 11% on a standalone basis. Free cash flow of $956 million was down slightly year-over-year. This was impacted by approximately $330 million of spin related items such as interest and post retirement benefit payments.
Turning to our full-year results on slide five. For 2023, revenues of $19.6 billion, grew 8% organically versus last year. All of our regions and segments saw positive revenue growth. Also important to note, recurring revenue, which drives revenue predictability and higher margin, was greater than 45% of total revenues for the year. Organic orders grew 3% year-over-year and book-to-bill was 1.03 times. On a standalone basis, 2023 adjusted EBIT margin was up 60 basis points. Adjusted EPS of $3.93, exceeded our guidance and represented standalone growth of 16%. Free cash flow was more than $1.7 billion and translated into a strong conversion rate of 95%, which was ahead of our guidance for the year. This was driven by the solid progress we made in working capital associated with multiple initiatives focused on inventory and collections processes.
On slide six, let's take a closer look at segment revenue performance for the year. For full-year '23, we delivered strong year-over-year organic growth of 8% for revenues. This was led by PDx with 18% growth, PCS at 8% and imaging at 7%, driven by both volume and price. Ultrasound organic revenue increased 2%. Recall that in 2022 we had multiple quarters of strong ultrasound results as supply chain constraints eased. I'd also note that all segments delivered positive price in the year, reflecting our continued pricing discipline. Looking ahead, we believe all of our segments are well positioned as we move into 2024 from both an innovation and operational perspective. I'll walk through more details on this for each segment shortly.
Turning to the progress we made in 2023 on margin initiatives on slide seven. As we moved through the year, we drove sequential improvements in adjusted EBIT margin driven by volume, commercial execution and productivity. For the year, we increased adjusted gross margin by 120 basis points versus 2022 and delivered more than 3% in positive sales price for the year, ahead of our expectations. In 2024, we expect one to two percentage points of positive price as we deliver increasing value to our customers. We're also starting to see margin expansion from improving volumes and higher margin NPIs given our continued R&D investment. For the year, we invested more than $1 billion in R&D, equating to over 6% of sales, all while expanding margins. In 2024, we expect to be in the same range as a percent of sales or slightly higher, supporting our innovative shin pipeline.
Our productivity initiatives have also gained traction as logistics costs continued to improve, spot buys decreased and as we implemented cost efficient design changes. We have also experienced improved labor productivity driven by greater proportion of remote fixed and the application of digital tools. Relative to G&A, we're optimizing our spend by right sizing our real estate footprint and IT infrastructure to generate additional efficiencies. We made solid progress in exiting TSAs in 2023, with nearly 280 completed through the end of 4Q. We're on track to exit the vast majority of the remaining TSAs in 2024, which gives us confidence in our G&A optimization plans, an important part of reaching medium term margin goals. Given our progress across the organization, we have solid visibility to deliver on our high teens to 20% adjusted EBIT margin target over the medium term.
Now I'll turn to our segments. As a reminder, in 2023, we incurred approximately $200 million of recurring standalone costs that impact our segment EBIT margin rates. We did not have these expenses in 2022. These costs were allocated based on revenue and equated to approximately 100 basis points of margin headwind for each segment. Going forward, these costs will be in our run rate, but serve as an opportunity to operate more efficiently in the future.
Let's start with our Imaging segment on slide eight, where we generated organic revenue growth of 4% year-over-year. This was driven by improved backlog conversion and price. Growth was up against fourth quarter sales that experienced a strong double digiting increase in 2022. Segment EBIT margin was up 10 basis points year-over-year as we made progress on enhancing gross margin. Imaging equipment growth outpaced service growth in the quarter and for the year, which impacted margin mix as we build our installed base with future service growth opportunity. We saw strong progress in our product platforming initiatives across several modalities including CT and MR. Customer demand for our Imaging product remains healthy and our growing backlog is driven by new product introductions.
Turning to Ultrasound on slide nine. Organic revenue was down 2% year-over-year due to the impact of lower volume tied to a challenging comparison for the same period last year. We continue to have a positive outlook for this segment as we enter 2024. Segment EBIT margin declined year-over-year due to investments such as the Caption Health artificial intelligence integration. This year-over-year margin decline was partially mitigated by cost productivity as we drove standardization and commonality across our platforms. As we exited the year, we saw opportunities for Ultrasound equipment based on a combination of our commercial efforts and improving market conditions, with recent customer commitments and interest in new products enhanced by AI technology, we're well positioned as we enter 2024.
Moving to Patient Care Solutions on slide 10. Organic revenue was up 4%, driven by progress on price and operational process improvements. Revenue increased as we fulfilled more backlog in addition to contribution from MPIs. Similar to Imaging, recall that sales growth in the fourth quarter last year increased double digits due to an easing supply chain environment. PCS margin decreased 320 basis points compared to last year, driven by investments and onetime favorability that we experienced in the prior year. During the quarter, the team delivered on improved supplier lead times and lower inventory. As we look ahead, we're excited about recent product launches that should contribute to future growth.
Finally, moving to Pharmaceutical Diagnostics on slide 11. We have another solid quarter generating 23% year-over-year organic growth associated with an easier year-over-year comparison and pricing. Segment EBIT margin of 24.4% improved 140 basis points year-over-year driven by price, volume and productivity actions. We're encouraged by the continuing strength of global imaging procedures, which drives the need for imaging agents. We are executing our innovation strategy through investments in our pipeline across care areas, including the in-licensing of FAPI assets, which we believe will play a key role in targeting this protein to detect certain types of cancer. This is an area of significant potential for the nuclear medicine and oncology communities.
Turning to slide 12, I'll walk through our cash flow performance. We exited the year with an improved financial profile, including a stronger balance sheet and enhanced financial flexibility to support our future growth. We generated free cash flow of $956 million during the fourth quarter, down $31 million year-over-year with standalone cash outflows. Inventory turns improved in the quarter, the highest they have been since the beginning of 2021. This is the result of our lean supply chain actions. We saw operational improvements, including lead time reductions and greater inventory turns in all segments. Our aged inventory balance decreased and we have stronger input controls in place, including safety stock reduction and optimized stock planning. In addition, our collections improved as a result of our focused daily management system.
For the year, we delivered strong free cash flow of over $1.7 billion. This equates to 95% free cash flow conversion. We also strengthened our balance sheet by paying down $1 billion of debt since the start of the fourth quarter. With a strong balance sheet and a balanced capital allocation strategy, we'll continue to focus on organic and inorganic investment, deleveraging and paying a dividend.
Now let's turn to our outlook on slide 13. For 2024, we expect organic revenue growth to be approximately 4%. This compares to strong growth of 8% in '23 that was driven by easing supply chains and price gains. I would note that we expect foreign exchange headwind to revenue of less than 1% in 2024. We expect full year adjusted EBIT margin to be in the range of 15.6% to 15.9%, representing expansion of 50 basis points to 80 basis points. Given the progress we're making with volume, commercial execution, and optimization. We assume an adjusted effective tax rate in the range of 23% to 25%. The pillar two global minimum tax is not anticipated to have a significant impact on our tax expense in 2024. On adjusted EPS, we expect to deliver between $4.20 and $4.35 for the full year, representing growth in the range of 7% to 11% versus 2023. Lastly, we expect to deliver free cash flow of approximately $1.8 billion for the full year.
While we don't give quarterly guidance, it's important to note that given the seasonal nature of our business, the fourth quarter is typically the strongest period for orders, sales dollars and adjusted EBIT margin. We expect year-over-year organic revenue growth and adjusted EBIT margin in the first quarter to be the lowest of the year. Also remember that organic sales growth in the first half of 2023 was very strong at 11%. As a result, organic revenue growth is expected to be stronger in the second half of the year versus the first half in 2024.
To wrap up, we're entering 2024 from a position of strength as we executed well in 2023. Our solid backlog, order intake, and adjusted EBIT margin progress gives us confidence in our ability to deliver on our guidance for 2024.
Now I'll hand the call back over to Pete.