Intuitive Surgical, Inc. (NASDAQ:ISRG) Q4 2022 Earnings Call Transcript

Intuitive Surgical, Inc. (NASDAQ:ISRG) Q4 2022 Earnings Call Transcript January 24, 2023

Operator: Ladies and gentlemen, good afternoon. Thank you for standing by, and welcome to the Intuitive Quarter Four 2022 Earnings Release. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions. And as a reminder, today’s conference is being recorded. At this time, I’d like to turn the conference over to our host, Head of Investor Relations, Mr. Brian King. Please, go ahead.

Brian King: Good afternoon, and welcome to Intuitive’s fourth quarter earnings conference call. With me today, we have Gary Guthart, our CEO; and Jamie Samath, our CFO. Before we begin, I would like to inform you that comments mentioned on today’s call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent Form 10-K filed on February 3, 2022, and Form 10-Q filed on October 21, 2022. Our SEC filings can be found through our website or at the SEC’s website. Investors are cautioned not to place undue reliance on such forward-looking statements.

Please note that this conference call will be available for audio replay on our website at intuitive.com on the Events section under our Investor Relations page. Today’s press release and supplementary financial data tables have been posted to our website. Today’s format will consist of providing you with highlights of our fourth quarter results, as described in our press release announced earlier today, followed by a question-and-answer session. Gary will present the quarter’s business and operational highlights. Jamie will provide a review of our financial results, and I will discuss procedure and clinical highlights and provide our updated financial outlook for 2023. And finally, we will host a question-and-answer session. And with that, I will turn it over to Gary.

Gary Guthart: Thank you for joining us today. The fundamentals of our business were healthy in Q4 and for the full year 2022. Procedure growth for the full year approached pre-pandemic levels. Installed base growth was solid, and customers concurrently increase utilization of existing systems. Our investments in product development extended our multi-port, single-port and flexible robotics ecosystems through new instruments, accessories, digital products and indication expansions. Finally, the fine work of our operations teams and supply partners largely mitigated the supply chain challenges that persisted through the year. Turning first to procedures. We saw 18% procedure growth for the quarter and the full year. Areas of strength included general surgery in the United States, particularly benign procedures such as bariatric surgery, cholecystectomy and hernia repair.

Colon and rectal procedure growth also continued. Strong growth beyond urology outside the US was accretive to our global performance. We attribute this diversification to the value of our ecosystems and our strategic investments in organization, clinical trials, data products and market access. Regionally, the United States, Japan, Europe and India stood out in the quarter and year. Procedure growth in China was hampered by the COVID wave in Q4, with procedures progressively declining starting in November through the end of 2022. Ion procedures showed continued strength, with 218% growth in 2022 compared with 2021, and SP procedures grew 38% over the same period, with the majority of its growth coming from Korea. Global core procedure areas of urology and gynecology moved toward recovery in the year, both exceeding their three-year compound annual growth rates in 2022.

On the capital front, we placed 369 systems in Q4 compared with 385 in Q4 2021. For the full year, we placed 1,264 systems compared with 1,347 in 2021. Our installed base growth rate was 12% for multiport, 149% for Ion and 22% for SP in 2022. Overall, our capital placement trends showed sustained demand for additional capacity in multiport and strong interest in expanding capacity for Ion with several hospitals now operating multiple Ion systems in their programs and variable demand for SP as we continue to pursue our additional indications. System utilization is an important predictor of future demand and utilization grew 5% for multiport in the year and 10% for Ion. Utilization was roughly flat for SP over the year, however, utilization increased by 9% in Q4 measured year-over-year as our organization incorporated learnings.

Touching on our finances, revenue grew 9% in 2022. Revenue was impacted by the strength of the dollar in the year and the decline of the trade-in population of third-generation multiport systems. Our expenses landed at the higher end of our spend guidance reflecting continued R&D investments that support the growth of our platforms and digital products, expansion of our manufacturing and commercial capabilities, and capital amortization driven by expansion of our global footprint. Structurally, we have been increasing our own capital expenditures as we continue to build the company to supply the globe at industrial scale. This is an important investment as several procedures using our systems have become the standard of care in several countries.

We have been vertically integrating key technologies to develop a more robust supply chain and bring important products to market at attractive price points. These investments include increased ownership of our imaging pipelines, strategic instrument and accessory technologies, and software and digital products that allow us to serve our customers. The investments make our business more capital-intensive than years past, in support of industrial dependability, a more robust supply chain, and lower product costs. I’d also like to take a moment to walk through our platform investments. Intuitive starts with the end in mind. Coordinating our efforts to enable our customers’ pursuit of the quadruple aim in specific procedures, for example, those in general surgery.

We design all our systems to allow for the addition of new functionality over time. For our multiport platform, this design philosophy has enabled us to continuously strengthen our fourth generation da Vinci Xi by adding new regulatory clearances, a new model with the da Vinci X, new instruments and accessories, new imaging capabilities, and new software products. These products include our stapling lot of instruments as well as our advanced energy instruments, which contributed approximately $890 million in revenue in 2022 with revenue growth of 18% in the year and are a key enabler of the general surgery growth discussed a minute ago. We added 65 representative clinical procedure indications in the United States to our fourth-generation multiport platform since its launch.

Our multiport indications now spans six surgical categories and total over 70 procedure indications for multiport platforms in the United States today. We routinely improve our platform operating systems with roughly 10 significant fourth-generation OS releases since launch and dozens of smaller software upgrades. We launched our next-generation Xi visualization, Endoscope Plus, and have been integrating digital products, including virtual reality training Intuitive Hub and the My Intuitive app. We expect to launch additional Gen 4 compatible products and operating system software this year. Concurrently, we invest in new generations of our multiport platform that bring new and significantly enhanced capabilities. For our multi-port system development programs, we prioritize as follows.

Our highest priority is the improvement of core surgical capability targeting improved patient outcomes, often through innovation in robot and instrument precision, imaging and sensing while focusing on dependability and product quality. Next, we designed to improve usability, care team’s skill acquisition and analytic power, including digital products for the operating room, personalized learning for care teams and efficiency analysis and services for surgical programs. Next, we design platforms and their ecosystems that can lower the total cost to treat per patient episode. And finally, we designed with the flexibility to add future capability to systems post launch. Given the time required to design and validate new architectures at any given moment, we’re typically developing more than one system architecture beyond that in the market.

In the current global regulatory environment, core technology changes often require human clinical trials and substantial review. These are multiyear investment cycles, and we’re making good progress. As we start this year, we do not currently expect a new multi-port system launch in 2023. Turning to Ion. Adoption has been healthy based on its ability to meet an unmet clinical need in lung biopsy. We’re focused on improving the manufacturability, cost and robustness of iron products to support its rapid growth in the US. We have also submitted a regulatory dossier for a review in Europe, Korea and in China’s green channel. We expect clearance in Europe in 2023. We don’t have a firm forecast on the time for Ion clearance in China at this time given pandemic related adjustments ongoing in the Chinese health care system.

Ion is also a platform with strong opportunities for future clinical applications. We’re conducting advanced development and clinical research to extend Ion into other indications in the lung. While our Ion flexible robotics offers an opportunity to provide value in the body outside the lung, our focus is on completing what we started for pulmonologists and thoracic surgeons. Our single-port platform, da Vinci SP, has supported strong adoption in Korea and has recently obtained PMDA clearance with broad indications in Japan. We expect first installs of SP in Japan in the coming months. Next, we plan to submit our dossier on da Vinci SP to our notified body in Europe midyear 2023. So far, customer feedback on the clinical utility for SP has been healthy with strong multi-specialty use of SP in Korea.

In the United States, some indications have required prospective clinical trials, and we’re currently conducting IDE trials in colorectal surgery and thoracic surgery. We’re pursuing additional indications for SP beyond these two, and we’ll share more information on these indications in 2023 as the requirements for our regulatory pathway for them are established. We’re continuing to invest significant resources in R&D, where the portfolio we have under development positioned to support leadership in existing categories and expansion into new ones. Our capital investments will increase to support supply chain robustness, product cost reduction and global industrial scale. On the SG&A front, we are making some foundational investments, and we’ll turn to pursue leverage in enabling functions.

Recognizing economic conditions for 2023 are hard to forecast, we’re targeting a deceleration of fixed cost growth rate in 2023 relative to 2022. We expect pro forma operating margins to fluctuate in the next several quarters and then improve over the mid-term. In closing, our priorities for 2023 are as follows; first, increased adoption and focused procedures defined by country through outstanding training, commercial and market access execution; second, pursuit of expanded indications and launches for our new platforms; third, excellent performance in the continuity of supply, product quality and services provision as we emerge from pandemic stresses; and finally, pursuit of increased productivity and our functions that benefit from scale.

I’ll now turn the time over to Jamie, who will take you through our finances in greater detail.

Jamie Samath: Good afternoon. I will describe the highlights of our performance on a non-GAAP or pro forma basis. I will also summarize our GAAP performance later in my prepared remarks. A reconciliation between our pro forma and GAAP results is posted on our website. Q4 and 2022 revenue and procedures are in line with our preliminary press release of January 11. I will briefly review full year 2022 performance before describing our Q4 results in greater detail. 2022 procedures grew by 18% as compared to 2021, or 15% on a three-year compound annual growth rate basis. During the year, we placed 1,264 systems at customers, down 6% year-over-year, driven by a decline in trading volumes of 165 systems due to the declining population of SIs in the field.

Recurring revenue, which is correlated to ongoing use of our products represented 79% of total revenue and grew 15% over the prior year. Total revenue of $6.2 billion increased 9% year-over-year and grew approximately 12% on a constant currency basis. Pro forma operating margin was 35% of revenue and reflected the impact of several headwinds, FX, supply chain challenges and inflation together adversely impacted 2022 pro forma operating margin by approximately 1 percentage point. During the year, we repurchased $2.6 billion of our stock or approximately 11.2 million shares, and we have a remaining authorization to repurchase our shares of $1.5 billion. Turning to Q4. With respect to capital performance, we placed 369 systems, 4% lower than the 385 systems we placed in the fourth quarter of last year.

There were 110 trading transactions in the quarter, as compared to 117 last year. 51 of the 110 trading transactions were with OUS customers, higher than recent trends primarily driven by customers in Japan and Brazil. As of the end of Q4, there were approximately 620 SIs remaining in the installed base, of which 134 are in the US. Given the continuing decline of older generation systems in the field, we expect trading volumes to decline significantly in 2023. Q4 revenue was $1.66 billion, an increase of 7% from last year. On a constant currency basis, fourth quarter revenue grew approximately 10%. For full year 2022, revenue denominated in non-USD currencies represented 24% of total revenue. The US dollar has weakened recently, and as a result, on a revenue-weighted basis, using current rates, the US dollar is approximately 100 basis points stronger than the average rates realized in 2022.

Photo by National Cancer Institute on Unsplash

Additional revenue statistics and trends are as follows: in the US we placed 181 systems in the fourth quarter, lower than the 235 systems we placed last year, reflecting cautious capital spending by customers, given the macroeconomic environment and a decline of 21 systems associated with trade-in transactions. Average system utilization in the US increased by 6%, reaching an all-time high. Outside the US we placed 188 systems in Q4 compared with 150 systems last year. Current quarter system placements included 70 into Europe, 51 into Japan, and 14 into China compared with 63 into Europe, 37 into Japan, and 14 into China in the fourth quarter of 2021. As of the end of 2022, there were 34 systems remaining under the current quota in China. There are now four local competitors that are registered in China and they’re active in tenders under the existing quota.

Delays in the granting of a new quota in China will constrain our ability to further grow the installed base and limit capacity for procedure growth. Leasing represented 42% of Q4 placements compared with 37% last quarter and last year. The higher lease mix was primarily driven by the mix of customers in the US who prefer to lease and reflected in part an increase in placements acquired under usage-based arrangements. While leasing will fluctuate from quarter-to-quarter, we continue to expect that the proportion of placements under operating leases will increase over time. Q4 system average selling prices were $1.43 million as compared to $1.45 million last year. System ASPs were negatively impacted by FX, partially offset by a favorable regional mix and a higher mix of Xi jewel placements.

We recognized $17 million of lease buyout revenue in the fourth quarter compared with $17 million last quarter and $26 million in Q4 of 2021. da Vinci instrument and accessory revenue per procedure was approximately $1,820 compared with approximately $1,800 last quarter and $1,940 last year. On a year-over-year basis, FX negatively impacted I&A per procedure by approximately $50 and customer ordering patterns had a negative impact of approximately $40 per procedure as customers, particularly in the US and China, reduced their inventory levels. Turning to our Ion platform. In 2022, we tripled procedures to just over 23,000 and double system placements to 192 as compared to 2021. In Q4, we placed 67 Ion systems as compared to 31 in Q4 of 2021.

The installed base of Ion systems is now 321 systems, of which 132 are under operating lease arrangements. Fourth quarter Ion procedures of approximately 7,900 increased 169% as compared to last year. Leveraging previous investments we have made in our da Vinci ecosystem, during the quarter, we commenced the launch of My Intuitive app for Ion users, providing them real-time access and insights to their Ion usage statistics. Moving on to the rest of the P&L, pro forma gross margin for the fourth quarter of 2022 was 68.2% compared with 70.1% for the fourth quarter of 2021 and 69.8% last quarter. As a reminder, last quarter’s gross margin included a one-time benefit of approximately 50 basis points relating to the favorable conclusion of certain indirect tax matters.

Pro forma gross margin was lower than last year, primarily due to increased fixed costs relative to revenue, the stronger US dollar and higher component pricing. The supply chain environment was challenging in Q4 and indicators of supply and inventory health did not improve as compared to last quarter. Higher fixed costs relative to revenue reflect a combination of manufacturing related inefficiencies given the environment and investments for future growth. Fourth quarter pro forma operating expenses increased 19% compared with last year, driven by increased headcount, higher travel costs, increased customer training activities and higher R&D related project costs. Fourth quarter 2021 operating expenses included a $30 million contribution to the Intuitive Foundation, which can support their efforts for the next couple of years and did not repeat in 2022.

The pace at which we are increasing headcount continued to moderate in Q4 with net additions of about 330 employees in the quarter compared to a net increase of approximately 530 employees last quarter. More than half of the employees we added in Q4 were production staff in our instrument factory in Mexico to support procedure growth. While we are slowing our hiring pace and pursuing leverage in our enabling functions, we are planning for balanced growth in operating expenses in 2023 given the opportunity to advance our next-generation robotics capabilities and the relatively earlier stage of our investments in Ion, SP and digital. In 2023, we expect a significant increase in expenses related to clinical trials. Brian will provide our outlook for operating expenses later in this call.

As we look forward to our growth plans over the next several years, we are planning to make significant capital expenditures. Capital expenditures for 2022 were $532 million, and we expect 2023 capital expenditures in a range of $800 million to $1 billion, of which approximately two-thirds will be for facilities to expand our manufacturing capacity. Our manufacturing investment plans include advanced proprietary facilities for production of new products and the Ion platform in California and da Vinci systems in Georgia. Internationally, we are increasing our product development capacity in Germany, building a new low-cost endoscope manufacturing facility in Bulgaria and establishing manufacturing capacity for domestic Xi production in China.

We will also be expanding the footprint of our high-volume, low-cost instrument site in Mexico to support procedure growth across all of our platforms. These investments allow us to consolidate our manufacturing into larger centralized hubs, such as our headquarter campus in Sunnyvale, California and our East Coast hub just outside of Atlanta, while we will co-locate surgeon training, technology development and manufacturing capacity. These are multiyear investments. And as a result, we expect depreciation expense to increase in 2023 and increase more significantly in 2024. Pro forma other income was $21.8 million for Q4, higher than $7.2 million in the prior quarter, primarily due to lower foreign exchange losses from remeasurement of the balance sheet and higher interest income.

Our pro forma effective tax rate for the fourth quarter was 18.2%, lower than prior quarters, primarily as a result of a more favorable geographical earnings mix and a discrete tax benefit of $7 million associated with the foreign tax matter. Fourth quarter 2022 pro forma net income was $439 million, or $1.23 per share compared with $473 million or $1.29 per share for the fourth quarter of last year. I will now summarize our GAAP results. GAAP net income was $325 million or $0.91 per share for the fourth quarter of 2022 compared with GAAP net income of $381 million or $1.04 per share for the fourth quarter of 2021. The adjustments between pro forma and GAAP net income are outlined and quantified on our website and include excess tax benefits associated with employee stock awards, employee stock-based compensation, amortization of intangibles, litigation charges and gains and losses on strategic investments.

We ended the year with cash and investments of $6.7 billion compared with $7.4 billion at the end of Q3. The sequential reduction in cash and investments reflected share repurchases of $1 billion and capital expenditures, partially offset by cash from operating activities. And with that, I would like to turn it over to Brian, who will discuss clinical highlights and provide our outlook for 2023.

Brian King: Thank you, Jamie. Overall procedure growth for the full year 2022 was 18% and increased 15% on a three-year compound annual growth basis. Overall procedure growth was comprised of 16% growth in the US and 22% growth outside of the US. In the US, fourth quarter 2022 procedures grew 18% year-over-year, compared to 16% for the fourth quarter of 2021 and 18% last quarter. The US procedure growth rate reflected a favorable comparison to the quarter a year ago, given the impact of the Omicron variant in December of last year. On a three-year compound annual growth basis, US procedure growth was 13%. Outside of the US, fourth quarter procedure volume grew approximately 18% year-over-year, compared to 28% for the fourth quarter of 2021 and 24% last quarter.

On a three-year compound annual growth basis, procedure growth was 19%. Turning to Europe. Procedure growth in the quarter was led by strong growth in UK, Germany and Italy. In the regions noted, procedure growth outside of urology was strong in general surgery and gynecology categories. Specifically in the UK, we experienced strong early-stage growth in colorectal surgery and continued strong growth in hysterectomy. Turning to Asia. Growth outside of China continued to be solid, with notable strength in capital and procedure growth in Japan. Procedure growth in Korea was healthy and India and Taiwan continue to experience strong early-stage growth. In Japan, as Jamie noted earlier, 51 systems were placed in the country, the most in a single quarter.

Overall procedure growth in Japan for the quarter was led by general surgery, with strong early stage growth in colon resection and hysterectomy and also in urology with newly reimbursed nephrectomy procedures. In China, midway through the fourth quarter, we observed the decline in procedures. Towards the end of the quarter, we saw a significant decline in procedure volume as hospitals were dealing with increase in COVID cases once the Zero-COVID policy was removed. As a result, China procedures experienced a modest year-over-year decline in Q4. Now turning to the clinical side of our business. Each quarter on these calls, we highlight certain recently published studies that we deem to be notable. However, to gain a more complete understanding of the body of evidence, we encourage all stakeholders to thoroughly review the extensive detail of scientific studies that have been published over the years.

While still in the early stages of adoption in the US, robotic-assisted bariatric surgery has been one of the fastest-growing procedures in general surgery for Intuitive. In October 2022, the American Society for Metabolic and Bariatric Surgery and International Federation for the Surgery of Obesity and Metabolic Disorders released major updates to the 1991 National Institute of Health guidelines that recommended lowering the BMI for metabolic and bariatric surgery, or MBS, from 40 to 35, regardless of the presence, absence or severity of comorbidities. These guidelines note that, ‘MBS is now preferably performed using minimally invasive surgical approaches, laparoscopical robotic’. And that ‘MBS is the most effective evidence-based treatment for obesity across all BMI classes.’ In another bariatric analysis, Dr. Wayne Barley from St. Luke’s University Hospital in Bethlehem, Pennsylvania, recently published a descriptive analysis from the NBA SIP database identifying the proportion of MBS procedures in the US performed between 2015 and 2020.

Using a robotic or laparoscopic approach and found up to a threefold difference in the proportion of various robotic-assisted MBS cases per year. We believe our investments in advanced instruments and surgeon training are helping to drive adoption of robotic-assisted surgery in bariatrics. We look forward to continuing to support surgeons and their care teams as they provide high-quality robotic minimally invasive care for an even greater portion of the population under the new guidelines. A recent rectal cancer study by Dr. Fang from Fudan University in Shanghai and on behalf of the RealStudy Group, published short-term outcomes from a multicenter randomized controlled trial in the Lancet. This study impaired robotic-assisted and laparoscopic approaches performed by experienced surgeons for middle and low rectal cancer across 11 hospitals in China, with approximately 580 cases included in each approach.

With respect to very operative outcomes, the rate of patients with a positive circumferential margin was 3.2% lower in the robotic-assisted group as well as a 3.6% higher rate of complete macroscopic resection. Furthermore, patient laparoscopic arm experienced a 2.2% higher rate of conversion to open. A 3.3% higher rate of intraoperative complications was also reported in the laparoscopic group. Notably, 5.8% less abdominal perineal resections were performed in the robotic group. Postoperatively, patients in the robotic-assisted arm also had a faster gastrointestinal recovery postoperatively as well as a one-day shorter length of stay an approximately 7% lower rate of postoperative complications with the Clavien-Dindo of 2 or higher. In summary, the authors concluded that short-term outcomes suggests that for middle and low rectal cancer, Robotic surgery by experienced surgeons resulted in better quality resection than conventional laparoscopic surgery with less surgical trauma and better postoperative recovery.

I will now turn to our financial outlook for 2023. Starting with procedures. For 2023, we anticipate full year procedure growth within a range of 12% to 16%. The low end of the range assumes continued choppiness with COVID hospitalizations and staffing pressure at hospitals globally throughout the year. In addition, it assumes ongoing staffing, significant challenges with COVID in China and uncertainty with the timing of the new capital quota. At the high end of the range, we assume no new significant impact from COVID throughout 2023, and assume continued growth in general surgery in the US and diversified growth beyond urology outside of the US. The range does not reflect significant material, supply chain disruptions or hospital capacity constraints similar to what we experienced at the start of the pandemic.

Beyond the uncertainty with COVID in China, we expect similar seasonal timing of procedures in 2023 as we have experienced before the pandemic, with the first quarter being the seasonally weakest quarter as patient deductibles are reset. With respect to revenue, as we have mentioned previously, capital sales are ultimately driven by procedure demand, catalyzing hospitals to establish or expand robotic system capacity. Capital sales can vary substantially from period to period based upon many factors, including national health care policies, hospital capital spending cycles, reimbursement and government quotas, product cycles, economic cycles and competitive factors. Turning to gross profit. Our full year 2022 pro forma gross profit margin was 69.2%.

In 2023, we expect our pro forma gross profit margin to be within 68% and 69% of net revenue. The lower estimate of pro forma gross profit margin in 2023 reflects the impact of higher infrastructure investment costs, higher supply chain costs, and a greater mix of new products, in particular, from our Ion platform. Our actual gross profit margin will vary quarter-to-quarter depending largely on product, regional and trade-in mix, procedure mix and volumes, fluctuations in foreign currency rates and the potential impact of competitive pricing. Turning to operating expenses. In 2022, our pro forma operating expenses grew 23%. In 2023, we expect pro forma operating expense growth to be between 9% and 13%. The operating expense growth reflects investments to advance our platform capabilities, digital products, along with continued expansion into markets outside of the US and spending to support regulatory clearances and clinical trials.

We expect our non-cash stock compensation expense to range between $610 million to $640 million in 2023. We expect other income, which is comprised mostly of interest income to total between $140 million and $160 million in 2023. With regard to income tax, in 2022, our pro forma income tax rate was 21.8%. As we look forward, we estimate our 2023 pro forma tax rate to be between 22% and 24% of pre-tax income. That concludes our prepared comments. We will now open the call to your questions.

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Q&A Session

Operator: Our first question today comes from Robbie Marcus, representing JPMorgan. Please go ahead.

Robbie Marcus: Great. Appreciate it. Thanks for taking the questions. Maybe to start, the OpEx guide came in a lot better than expected, but balance that with taking it longer to get through the regulatory cycles and bring to market with a new robot. So maybe you could talk about what exactly is taking longer? Are there certain trials that maybe had to be done in the past that are now being required? And is this global regulatory lengthening of time, or are there specific markets that are taking longer to come with a new robot?

Gary Guthart: All right. Thanks, Robbie. I think, we’ve been sharing with you over several quarters now. In terms of new technologies and new indications, we’ve seen in many of the core markets, not every single one, but many of them, additional data requirements. That changed probably four years ago, but has been playing all the way through. So it’s not so much that the environment has changed over that period, just the implications of that. And you see that in things like SP, our SP trials, five or six years ago would have come to market differently and they’re requiring some prospective human clinical work. That’s not unique to SP. It really has to do with what the underlying technologies are and what new indications might be.

So I think that is playing through relative to prior iterations of systems and features. That’s true. Certainly in the United States, we’ve seen with the European regulatory changes over the years, increased data requirements in Europe and then it kind of varies by country from there. In terms of OpEx, perhaps I’ll let you ask a follow-up question for Jamie on that one.

Robbie Marcus: Yes. And Jamie, maybe to follow up on the OpEx and I’ll tie in CapEx here, because there is a good investment there for the future. Maybe talk to where you’re seeing the decrease in OpEx, SG&A versus R&D? And where the lower spending growth rate year-over-year is coming from? Thanks.

Jamie Samath: Yes. It’s fair, Robbie, that we’re investing differentially across the areas of investment and the functions within the company. Our priorities for 2023 with respect to operating expenses to drive growth in the areas of focus, and we’re being focused there. We’re looking to execute some opportunities to expand markets by gaining additional clinical indications and geographical clearances. And obviously, we want to advance our technology. Within SG&A, what you see in subsets of the G&A functions is us looking to pursue leverage as we’ve described. And generally, from an R&D perspective, there are some investments that, as Gary has previously referenced were sequencing, and that’s partly motivated by the way in which headcount has expanded over, let’s say, the last year or two, and we’ve moderated our headcount growth as described, and that gives us the opportunity to absorb some of that headcount.

So there’s differential investment within SG&A and R&D. If I look at R&D and SG&A kind of in aggregate, they’re likely to grow at relatively similar rates next year.

Robbie Marcus: Great. I appreciate you taking the questions.

Operator: Then we’ll go to the line of Larry Biegelsen with Wells Fargo. Please, go ahead.