Joe Kiani: Well, I think the most important and maybe most consequential result that patent holder looks for is an injunction. So if indeed the injunction goes into place, I think will be benefited, no matter what. If we can’t come to a deal with Apple where we can work together for the benefit of their customers, we will do better as a result of having a monopoly over our intellectual property, while that monopoly last, which is not long. It’s got maybe 5, 4 years left in it. So we think it’s very positive, and we hope to share good news regarding either one moment in time or hopefully many moments in time in the future.
Matt Taylor: Great. Thanks, Joe.
Operator: Your next question comes from the line of Jason Bednar with Piper Sandler. Jason, go ahead.
Jason Bednar: Hey, good afternoon. Thanks for taking my questions, guys. Joe and Micah, I want to pick up a bit on Rick’s question, looking at 2024, and really ask about some of the commentary in your release today, some of your remarks, really focusing on the element where you say you’re setting the stage for a strong 2024. Not just revenue, as Rick asked, but what about EPS as well as we consider some of those variable comp items normalizing higher next year. I think you’re also shifting to manufacturing out of Mexico over to Malaysia, Micah, I don’t know if you want to comment on what we should think about for like duplicative costs or what that means for gross margins next year. I’m just trying to understand, does that ‘24 strength extend not just to revenue growing, but also EPS growing year-over-year?
Micah Young: Yes. So Jason, let me kind of step through that. In terms of – we talked about the revenue growth, we’re gaining a lot more confidence going into next year to return to annual growth on the year, barring some of those comps throughout the year. But – if you look at where we’re at today, the opportunity we have in front of us is to drive gross margins, and that’s been something we’re very focused on as we exit this year and move into next year, and we’ve got several initiatives around that, including shifting more volume to Malaysia and some other cost reduction initiatives that we have for certain products. The other thing is our consumable growth that we’re seeing now and carrying into next year, even with – even though capital continues to be suppressed we shouldn’t see some good mix benefits that flow through in gross margins as we move into 2024.
In terms of your comments on your question around operating expenses, I think where we expect to get the margin improvement is going to be mostly through gross margin. We’re trying to do everything we can to offset the add back of variable comp, to try to deliver good bottom line EPS growth. We still have a lot to work through our planning process that we’re going to be wrapping up in December and as we exit the year and provide guidance early next year. But we are trying to take the right expense actions. We have been taking that through the last two quarters to try to offset that add back on variable expenses. I think I referred to last quarter, that we had around $74 million or so of variable comp add back coming back into the P&L. So – but we have also been very diligent on getting after expenses to try to offset some of that.
But where you will see a more outweighed benefit will be through gross margins than it will in OpEx.
Jason Bednar: Okay. So, maybe to put a finer point, I mean the margins expand, EPS grow next year. And then the follow-up would be kind of a separate topic here. When we think about sensor utilization and trying to model that forward, coupled with the massive amount of boards that we have seen placed or installed over the past few years during the pandemic and immediately after the pandemic, what’s the right utilization level we should be considering as board use normalizes? And I guess as I think through those driver shipments over the past few years, you are covering a lot of general ward beds that you weren’t covering before. They have lower utilization per driver presumably. So, does the average consumption per driver actually need to be lower than the 2017 to 2019 trend you are quoting?
I guess I am just trying to figure out kind of how Rick was, like how do we model forward, considering that we are looking at a different Masimo today than we were in like 2018 or 2019?
Micah Young: Yes. So Jason, I would say that through some of the COVID years, we saw a step up in terms of the revenue per driver. I think we are seeing it settle back into kind of the utilization from 2019, but we also believe that we will be able to grow that and improve the revenue per driver back again going forward. So, I think we are seeing a settle back in to kind of what we were seeing back in 2019. But again, as we start to drive additional revenues from these new customer conversions, we have got a lot of equipment installations we have done that we are not fully leveraging at this point. So, we should see improvements moving forward.
Joe Kiani: And as we mentioned earlier on the call, with the launch of the four LED rainbow sensor, which will carry about a 50% premium to our standard two LED set sensor that many customers are all switching to. And hopefully, with the more sales of rainbow hemoglobin sensor, not just to track hemoglobin, but to allow for measurement of oxygen delivery with our cardiac output monitor. We think as Micah said, while the volume of sensors per socket per year might be the same as it used to be in 2019, the revenue per socket will be greater.
Jason Bednar: Okay. I will hop back in the queue guys. Thank you.
Operator: Your next question comes from the line of Marie Thibault with BTIG. Marie, please go ahead.
Marie Thibault: Good evening. Thanks for taking the questions. I wanted to check in on one of the headwinds that you had discussed earlier this year. I think it was, you had a number of large orders that didn’t come through on the time that you had hoped. Where are we with those? Did we see any of those recognized in the quarter, or could we see those in Q4? And then as part of that, can you help me understand exactly why the equipment installation backlog has gotten so bad with the OEMs? Are they short on labor? Is it just sort of too much workload? Is it something the hospitals are telling them? Any more detail on that?
Joe Kiani: Sure, Marie. So, first of all, I just want to say on the hospital installations, the OEMs are loosening and giving us the pieces we need for the installation, but the hospitals nursing shortage, staff shortage is delaying some of our installations. I think your first question was on – large orders, yes. I have already forgotten about those. Yes, the large orders did not come in again in Q3, and we are not projecting them in our Q4 numbers. We haven’t lost them. They are still there, but it’s getting frustrating as quarter-after-quarter, we anticipate them and they don’t come in. So, no, they did not come in.
Marie Thibault: Okay. And just to be clear, are they included in Q4 guide?
Joe Kiani: They are not included in the Q4 guidance. No.
