Andrew Kaplowitz: Got it. Thanks guys.
Charles McLaughlin: Thanks, Andy.
Operator: Your next question comes from the line of Joe Giordano from TD Cowen. Please go ahead.
Joseph Giordano: Hey guys, thanks for taking my questions. I wanted to start on AHS. Like I think if I look back, right, like going back to 2018, the average growth is something like high 2% range, and this year is going to be kind of maybe a little bit below that. So I know there’s a lot of different things and you’re certainly not the only people that get kind of surprised to what’s going on in health care now. I mean, that’s pretty much everybody. But like what makes us really confident modeling forward that the entitlement is like mid-single digits-plus and that’s really only happened 1 time since 2018 despite portfolio changes there?
James Lico: Well, I think embedded in what the comment Chuck just had about consumables is number one, obviously a little bit of noise, but we had COVID for several years, and that certainly created a lot of noise given the fact that it was a regional situation, we were kind of behind in the U.S. for a while and then China and all that. I won’t reiterate all that. You know it. I think where we stand today and what Chuck just described is as you sort of look through kind of these onetime channel situation, which we really believe was the right thing to do strategically, we’re seeing that growth now. And I think the 200 basis points of margin expansion in the third quarter in the segment really speaks to the fact that ASP’s margins are starting to get up better because the rest of the margins in the segment are very strong.
So we feel good about the launch point relative to how we’ve just described it. And 2024, as I said earlier in the year, 2023, the health care market would be a little bit better. It wouldn’t be great but it would be better and 2024 would be better than 2023 and 2025 would be better than 2024. So we continue to think that — we continue to see that. So that’s what gives us the confidence. And again, I understand, given the fact that this inventory situation in the third quarter was a little bit more than we anticipated, but — and so obviously, that puts some skepticism in the nature of the question. But I think as we stand here today with what we’ve got going, we saw good equipment growth, high-growth markets. Growth in the quarter was 10%.
So I think we’ve got other parts of the world in better shape, and now we’ve got — we needed to get North America in a better shape. That’s really been the drag on the business in the last few years. And we feel that we needed to do the channel change in order to make that happen. And that’s now behind us, and we walk into the fourth quarter and into 2024 with a number of those things behind us.
Joseph Giordano: Fair enough. And then just last for me on the hardware backlog that you talked about. I think you said like what, it was 350 or so last quarter, probably ending around 150-ish, give or take, at the end of the year. So I guess, rough numbers we’re talking like orders under revenue by like $100 million a quarter right now? And then we exit the year as a pretty small percentage of like the total business there. So like we need to — when does dollars have to — like dollars of orders rather than percentage of orders have to start inflecting before like the revenue catches down to the orders?
James Lico: Yes. Yes, a couple of things. Number one is just remember, we created about we’ve created $300 million over — that $330 million is an excess backlog number, not a backlog number. So in a couple of years, we created $330 million just to — and we said then we naturally deplete — under normal circumstances, we would deplete backlog in the second half of the year. That’s pretty natural. We had said that was likely to get us from $330 million to $200 million. We now think that’s about $125-ish million, call it, $100 million to $150 million, maybe because I don’t think we can be super precise here. And so it’s call that about somewhere in the neighborhood of $50 million to $100 million difference. We think some of that already got pushed into 2024 and some of it probably is inventory corrections mostly in China.
And it’s really the Sensing story that I talked about earlier in the call. So hopefully, that reconciles a little bit of that for you from a numbers perspective.
Joseph Giordano: Thank you.
James Lico: Thank you.
Operator: Your next question comes from the line of Joe O’Dea from Wells Fargo. Please go ahead.
Joseph O’Dea: Hi, thanks for taking my questions. I wanted to start on the just kind of inventory rationalization. And could you explain a little bit more kind of the differences between Fluke versus Tek and Sensing? And so what — I think you’re seeing it in Fluke as well, but it seems like you’re seeing it in ways which it isn’t surprising. And so whether that’s a function of there were longer lead times in Tek and Sensing that led to more forward buying, whether that’s more tied to the end mark they’re serving? Just trying to understand why they might be marching down a little bit of different paths in terms of managing through some of the destock effect.
