Peter Arduini: Yeah. I think look it’s what’s becoming and as you know in this industry there are very few kind of brand-new customers to imaging, right? If you just take imaging and even take monitoring or anesthesia out of it. And so there tends to be a much larger fleet discussion that takes place. You don’t need state-of-the-art everywhere but you need workforce systems in certain parts, whereas you may need certain really cutting-edge capabilities in other areas. I mean, this whole Alzheimer’s discussion that we’re kind of helping sure for certain customers through on their fleet is where do you need the PET capabilities at? Where do you need the certain MR capabilities? How is that tied to infusion center? There’s a lot more of that discussion going on.
And it tends to be a little bit more of a heterogeneous installed base based on needs. But again, that’s how we can demonstrate how do you match up what you’re trying to achieve this through customer with which products that you need. And so this idea of a multisite fleet strategy is becoming more and more part of what we do both domestically, as well as big markets around the world.
Patrick Wood: Awesome. Thank you for taking the questions.
Peter Arduini: Thank you, Patrick.
Operator: Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. Your line is open.
Peter Arduini: Good morning, Larry.
Larry Biegelsen: Thanks for taking the – hey, good morning, Pete and Jay. Sorry one more on orders. I continue to get e-mails from people on this. So I’m going to ask you originally expected mid-single-digit order growth in 2023. Is that still the case? And if not just help us understand how you can grow revenues mid-single digits in 2024, if order growth is below that, or how does order growth translate? Why doesn’t it translate into revenue growth the following year? And I had one follow-up on margins.
Jay Saccaro: Sure. So Larry in terms of order growth, I think one of the key things to consider is the book-to-bill ratio. We are still in excess orders in excess of sales by a margin of 1.03 times, this quarter. And we expect over time that’s something that we’ve seen for essentially the last seven or even more quarters. We’ve seen very robust book-to-bill ratio. And what that does is it allows us to set up a backlog, which can allow for successful execution on sales in future years. So, I think for us there’s always volatility in a given quarter on orders. We’ve discussed that as it relates to this particular quarter. But overall we feel quite good about what we’ve been able to execute on from both an order standpoint, from a book-to-bill standpoint, and then also a high-quality backlog standpoint.
I think those are the three ingredients all of which that we have to look at in conjunction with one another when we look at the health of the portfolio and the revenue projections that we have in place. So, I think really that’s the overall story. We don’t really give orders guidance per se. It’s something that we target over time. But we feel good about the setup. And furthermore as we think about how customers are feeling the surveys that we’ve done and also the customer reports that we’re seeing indicate that the backdrop should be pretty good going into next year. So I don’t know those would be a few comments that I’d make. Pete I don’t know if you want to add anything.
Peter Arduini: Yes, I think you hit it. I think the key here is that the backlog is very healthy and that we exit the year with really the same level if not larger backlog than how we started. So, we’re in that same range again which gives us confidence going forward. I would point out PDx continues to be strong as well which actually isn’t a backlog business but that’s a continual contract business as well as service growth. I mean we talked about last year gaining some share continuing to do so as we started this year. And the benefit of that is once the warranty period rolls off 113 you move into contracts. And so that’s beginning to drive more service growth which has higher margins. It also has multiyear continuum to it. So, about half of our revenues are capital so to speak on a win basis on of the week whereas the rest of the business is actually recurring. So, we feel good Larry about the position of where we’re at right now all things considered in the world.
Larry Biegelsen: That’s super helpful. And on the margins the company talked about getting to high teens to 20% adjusted EBIT margin over the medium term which I think you guys defined is three to five years from 2022 or 2023. And before we initiated coverage Jay the company defined that I think is about 17% in 2025 20% in 2027. Has anything changed? Are those still the goals? And is there any reason margins shouldn’t increase next year? Thanks.
Jay Saccaro: Sure. I think as I’ve spent a lot of time on margin since joining the company a few months ago. And what I would say is we feel quite good about the margin plan. It starts with this culture of lean at the company. I’ve been really impressed with this idea the lean mindset and how we’re driving operational execution improvements across the board. And so that’s culturally an important backdrop. We’ve previously outlined three drivers of margin enhancements and I think all of them are intact. First, commercial execution. We’ve talked a lot about pricing today. It’s a real area of focus for us in all of our business reviews and we’ve seen dividends this year and we expect continued pricing impact. The second area of focus is innovation.
New products being introduced with higher margins. Pete talked about that earlier today. And we’ve seen that across the board and we talked about that extensively during the prepared remarks. And then finally this idea of optimization. And optimization comes in a lot of different ways productivity variable cost productivity initiatives that we have in place managing spot buys managing logistics costs managing G&A costs as well. Those are all clear areas of focus for us. And what I would say is on a year-to-date basis, we feel quite good. The third quarter was up 120 basis points over the prior year. We were able to execute on a few different areas of margin enhancement. And by the way Larry we were able to grow R&D a very significant amount.
So, what we’re trying to do is drive productivity and efficiency at the company while at the same time protecting dollars for investment in growth in areas like R&D. So far so good and we look forward to continuing to on that path as we move forward.
Larry Biegelsen: Thanks guys.
Operator: Thank you. Our next question comes from Ryan Zimmerman with BTIG. Your line is open.
Ryan Zimmerman: Good morning. Thanks for taking the questions. Just a couple of clarifying questions first for me. Did China actually grow because if I look at comments from Philips United Imaging Mind Ray, I mean all saw very meaningful declines. And I’m just trying to get a sense of what is happening in China and whether you guys are winning some share there or if the market is down as much as some of the others have suggested?
Peter Arduini: Ryan, we were up. So — and we were up over where we were the previous year. Obviously, could we’ve done better if we didn’t have the anticorruption most likely, but the team did a very nice job on it. I think when you think about many of the different businesses, we have different cycles. I would say that if you’re heavily predominantly a sell and install business, meaning you take an order in the quarter and you ship in the quarter, the anticorruption early effect could have had a strong effect on you. If you have more of a backlog and there’s not a transaction, it’s actually delivering it and shipping it for revenue. I think it could have a less effect on you. And we tend to have a larger backlog-based business.
