Not only does that help you in the current year, but it typically gives you 2 to 3 years’ visibility out of business that you’re going to get that you don’t need to win each year. And I think – so for over the period of time here, I just feel very good. And again, I’m just very satisfied with the work that the team has done and the setup that we’ve had. And to Jay’s point, we tried to take into consideration all the different challenges that may be helping in the world and making sure that we’ve had the appropriate call to be able to deal with whatever parameters come our way.
Jay Saccaro: Vijay, as it relates to price, like I said, we were pleased with price in ‘23. We delivered around 3% of price. And a lot of that comes down to a cultural focus at our company in terms of selling value and appreciation of our customers of the value that we’re bringing to the table. We are trying to innovate. You saw the R&D growth number in the quarter. We really are trying to accelerate innovation, and that translates to new and unique products. And so from our standpoint, that’s unlocked a lot of our pricing opportunity. What we expect, consistent with the midterm plans that we’ve laid out, is roughly 1% to 2% pricing in 2024, and we will continue that going forward. So I think this is about culture. It’s about new products, and that’s what’s really – and discipline in terms of how you construct your deals. That’s really what’s enabled this.
Peter Arduini: And I’d just support that by, again, obviously, new products aren’t in the price calculation. They are in mix. But with a focus on having those come out at higher gross margins. When you have a vitality index of 26%, over 25% of your products are coming out that have a higher gross margin than the predicate ones. And ultimately, that will be the dynamic even more so than like-for-like products, which will help drive margin.
Vijay Kumar: That’s extremely helpful, Pete. And one quick follow-up here. The margin expansion guide was really impressive, 50 to 80 basis points. How much of that is coming from gross margins versus operating leverage?
Jay Saccaro: Sure. And just a word on 2023 margin. We expanded 60 basis points standalone, but we did that with a dramatic increase in R&D expansion. And so that’s the template that we really, really like to see. And so as we look at 2024, the vast majority of the expansion will come from gross margin. I used some words in my prepared remarks regarding the lean focus at the company, and that’s real. What we call variable cost productivity initiatives are reshaping how we operate the manufacturing and distribution operations of the company. So that’s one key element. Pricing is another key element impacting gross margin. So in 2024, majority comes from gross margin expansion. You’ll actually see R&D grow as a percentage of sales, not to the extent that it did in prior years, but it will increase as a percentage of sales as we continue to grow R&D faster.
And then there will be a little bit of savings from SG&A. That’s really the construct behind the 50 to 80 basis points.
Vijay Kumar: Fantastic. Thanks, guys.
Peter Arduini: Thank you.
Operator: Thank you. [Operator Instructions] And that will come from the line of Matt Taylor with Jefferies. Your line is open.
Peter Arduini: Good morning, Matt.
Matt Taylor: Hey, good morning. Thank you for taking the question. So I had a follow-up. You talked a little bit about the phasing with China. And I guess I was wondering if you could comment also on other geographies and how that phase through the year, is that growth expected to be more linear in the 4% assumption? And then the other part of that question is you mentioned the customer survey that you did recently. You thought was a little bit more positive. I was wondering if you could unpack that a little bit and talk about how much that went into your forecast.
Peter Arduini: Jay?
Jay Saccaro: Sure.
Peter Arduini: You want to take the first part and I’ll take…
Jay Saccaro: Yes, I think that – I think China is – listen, China is not a huge piece of our business, right? It’s about 15% overall. And so the dynamic that Pete described is one that we’re working through, and I think presents a nice opportunity for the second half of the year and beyond. As far as other geographies go, they do generally follow some of the same patterns that we – that I described as a company overall. We’re seeing – and really, it’s not about health of market or buying decision time frames, but rather it’s about the comparators that we’re dealing with. Q1, Q2, you’re talking about a blended 10% ish revenue growth. Q3, Q4, a little bit more normal. So really, it comes down to that in terms of why the growth is going to be the way it is for us in 2024.
I wouldn’t point to other geographic factors other than that comp. Now as it relates to the hospital capital surveys, overall, we survey each quarter. And we go to our main customers. We talk to them. We have discussions in an organized manner using the specific tool that we have in place. And what we said in the third quarter is we were seeing some signs of optimism from that group. And then as we did our most recent survey, I would actually point to a couple of different things. First, we did see increased buying and ordering patterns in the fourth quarter of the year. As we closed out in particular, in December, there was a buoyancy to the markets, in particular, the U.S. market that sort of supported some of the things that we saw in the survey.
The second thing is our internal surveys continued in terms of commentary on positive expectations for growth in 2024 and which I think that was a great piece of data as well. And then third, as we looked at general external information, there were a few things that came our way. First of all, hospital profitability is robust. We saw good reports from a number of providers, a number of indices, which report on general hospital health. All of those things were good. Second, sentiment surveys that other people conducted were also – we use words like constructive setup into 2024. We are not sitting here saying it’s going to be an unbelievable market. But we think it’s going to be a solid market as we approach 2024. Of course, we are watching Fed rate decisions because that will have another element as people look at installing capital and making ultrasound purchases.
But by and large, we feel good about how we are thinking about 2024. Pete, do you want to add anything in terms of customer discussions?
Peter Arduini: I think you covered it. I mean the only point, look, the balance sheets are getting better, Matt, less travelers, nursing and stuff. So, their costs are going down. And so you have seen in some of the reports, profit going up, which is what we are hearing, so that’s there. At the same time, demand is strong, meaning the procedures of patients coming in, either from orthopedic, cardiovascular, neuro, I mean across the board. And so as you have heard us say as well as others, the more that those procedures grow and new innovations come out, they typically are always supported by much of the equipment that we do. We talk about Alzheimer’s when – new therapies are going to come out. And as they do grow, they are going to require our equipment to image and manage safety.
As new implants come out in orthopedics and move to an outpatient center, you are going to need an OECC arm to be able to do that procedure backed up with ultrasound. So, that’s the part that we watch is that customers’ health, particularly in the United States is improving and the procedures growth is on the rise.
Matt Taylor: Thanks Pete. Thanks Jay.
Peter Arduini: Thank you.
Operator: Thank you. One moment for our next question. And that will come from the line of Larry Biegelsen with Wells Fargo. Your line is open.
Peter Arduini: Hi Larry.
Larry Biegelsen: Good morning. Hey. Good morning Pete. Good morning Jay. Thanks for taking the question. I am going to ask two pipeline questions. First, Pete, the slide say, you filed Flurpiridaz. You talked about it in your prepared remarks. Are you expecting approval in 2024? And there are about 9 million myocardial perfusion imaging tests in the U.S. each year, do you think Flurpiridaz can capture a significant portion of the NPI market over time? And I have one follow-up.
Peter Arduini: Yes. Larry, look, we are – I won’t give my estimate of when the agency approvals would be. But the normative rates would say at some point here in the later second half of the year based on what the normal dates would be for an NDA that we should be in the process for an approval. Look, it’s a very exciting drug. And I mean you know, you have written on it as well. The standard of care forever, as I mentioned in my prepared remarks, is a SPECT camera and technetium. Many of us here, I think on the call listening in know if you go to any type of hospital [Technical Difficulty] test to see how your heart is functioning, which then directly translates into how is the pumping [ph], or your vessels doing, and how is the electrical system doing, and it’s a very efficient test.
The challenge is the current products just actually don’t have the level of specificity or sensitivity, meaning that they can’t always point to a direct interventional action. And the early data, again, to be substantiated with the right approval is that a product like Flurpiridaz can greatly increase the specificity and sensitivity. To your point, it’s not a product that’s used on a SPECT camera. It’s a product that’s used on PET/CT. PET/CT is not widely used in cardiology. If this product were to take off and capture a larger percentage of it, which we believe over time will be the case, it’s going to acquire more PET/CT systems in cardiology or in cooperation with radiology. And so we are quite excited about. I think it’s a great support for cardiovascular care.
I know cardiologists have looked at, have been very impressed with it. But we will see how that plays out. We are not counting on any significant ramp right now in our mid-term views. We have, I would say, a reasonable numbers that in some future date post approval, we will talk about. But to your point, with the size of the opportunity, there could be some scenarios where this could end up being a larger piece of the business over time.
