Eric Starkloff: Yes. Rob, I’ll just comment for you to follow-up. We’ve been really pleased, as we’ve shared with you before, our ability to kind of capture price. We’ve been, I think, more and more sophisticated about how we’ve gone about those changes the ability to capture it has been strong in our expectations as we come into 2023 are predicated on changes we’ve already made on pricing.
Rob Mason: And Eric, as the price capture price realization, has that been even across your various SBUs or has it favored one area or the other? I’m just curious how that’s plays down?
Eric Starkloff: Yes. No, it’s a good question. And it’s not necessarily that it varies so much by BU, but I will characterize we are surgical about it, right? So we’re – there’s a couple of factors that contribute. One is, as we deliver more and more systems capability, it’s – we’re delivering value that’s greater than the sum of the parts. And so that’s definitely been favorable. The second factor is we’ve just gotten is more sophisticated ourselves, and how we’ve done this is our efficacy of targeting price changes, selling the value through our channel, credit to our teams. We’ve got more and more effective at that. And then I’d say the last element I’ve been quite pleased with is that we’ve been able to maintain that also through the channel as we introduce distribution channel, our ability to get good pricing to the channel has been strong.
And so those factors together have led to the results that we saw, which were very, very good in 2022 and an expectation of continued efficacy in that area in ’23.
Rob Mason: I see. Just as a follow-up, can you walk through the sequential decline in your adjusted operating expenses, I mean, your operating expenses came in but down sequentially and frankly, better than I was expecting. And I’m just – I’m curious where the source of that was given that revenue was actually higher sequentially.
Eric Starkloff: Yes, Karen, take this question?
Karen Rapp: Yes, so we continue doing – as you know, we’ve been early on in the year in 2022. We took some actions to get ahead of what we saw coming from a macro environment and knowing that the semi cycle doesn’t always stay up. So we got ahead of that early in 2022, continued that in – all the way through Q4 because, as you know, at the end of Q3, we started seeing that come on even stronger. So we stayed incredibly disciplined in Q4, the entire team just stepped up. And as you know, we’ve also been increasing the percent of our costs that are variable as we go through the year and as we continue to move forward, we continue to drive that flexibility and variability, and we pulled that lever in Q4 as we saw the macro — the PMI is below 50% now and the semi cycle really take a hit in Q4.
So really – just the whole point of aligning expenses with revenue has become something that we live on a regular basis and taking that forward and we demonstrated that, I thought pretty clearly in Q4.
Rob Mason: And the, yes?
Eric Starkloff: Yes sorry you bring up a good point, and I just wanted to point out, build all the things Karen said. That’s one thing we’re really proud of our ability to hit that, the 25% non-GAAP operating income and Q4 is a record, as you know. And then as we come into — you’ve heard the guy from Dan in Q1, that’s approximately 23% operating income. So that’s about 500 basis points above Q1 of ’22. So again, we’re really seeing the leverage of the changes that we’ve made and the transformation that we’ve done and the work we’ve done on cost structure and variability, we’re seeing that really starting to come through. You saw in Q4, we’re expecting it in Q1. So we think that sets us up in a real strong position. Go ahead, to get a little more follow-up.
Rob Mason: Just around the restructuring that you announced $20 million charge, what would you expect in terms of savings to fall from that?
Eric Starkloff: So we’re not being specific about what the savings are. We just said that we’ll see a positive impact from that starting really in Q2. And a little of that is, we’re going to be selective about areas for investment as well. So I wouldn’t necessarily try to draw a straight line from just the restructuring.
Rob Mason: I see. I’ll hop back in queue. Thank you.
Eric Starkloff: Thanks Rob.
Operator: Thank you. One moment please. Our next question comes from the line of Meta Marshall of Morgan Stanley. Your line is open.
Meta Marshall: Great, thanks. Maybe first question, just on noting that some of the headcount reduction was due to SG&A or what’s going to be — SG&A was going to be most impacted. Does that change kind of how you think about more going through the channel? Or is it just kind of trimming around the edges? Just trying to get a sense of if there’s any change to the sales cycle or to the sales structure? And then maybe as a second question, it did look like transportation was obviously very strong this quarter after a strong year, is that primarily coming from acquired businesses or existing businesses, just a little bit more context, that would be helpful. Thanks.
Eric Starkloff: Yes, I can take that. Yes, no problem. So on the restructuring, first of all, just as Dan said, like we’re super mindful as we went through this process. On balancing our ability to achieve efficiency and scale, but also making some of the right investments for growth. I’ll just say at the highest level, it’s very consistent with some of the structural changes that we announced at the end of last year, which were about strengthening to be used, consolidating our core operations, and then this leaner sort of leaner sales and marketing team. And as you noted, they are primarily in SG&A. To your specific question, yes, it’s got multiple factors. I mean there’s just some areas for us to be a bit more efficient. There’s areas that are really about the transformation.
As I’ve said before, as we’ve gone to this tiered model, we achieve efficiency at both ends of the model. So at the top end of our account structure, we’re getting really tremendous growth at average order size and account size in those large accounts. And so we’re able to scale that revenue certainly faster than our expenses. And so we’re realizing efficiency and scale there. At the Tier 3 level, the move to distribution of digital has been effective. It’s exceeded our expectations as we’ve gone through the year. I gave some quantification of how much we go through the channel. So yes, as that grows, that also gives us an opportunity for some more efficiency there in the way that we’re serving our accounts. So I think when you take those together, along with just some natural continuous improvement in the way that we sort of run the business, that’s how I’d characterize those, but highly consistent with the strategy that we have.
To your second question about transportation. First of all, we’re really excited about that business. I mean 40% growth for the year. It’s been a really, really good performance. And it really is good performance across the board. So you take, first of all, on electrification, which has been the primary area where we’ve done the acquisitions, those companies added critical capability that was highly complementary to existing software and measurement capability that NI already had organically. And what we’ve seen is that those businesses were growing and they’ve continued to grow part of our business that serves electric vehicles that was organic, has been pulled off to a very high growth rate as well. And then we’re seeing reasonably good growth in the other parts of the business, certainly in active safety, which is a focus area, but we’re actually seeing an uptick in the rest of the vehicle as well where we’re testing all of the electronics of a vehicle.
And part of that is just we’ve really grown our account relationships and the value that we can deliver to these automotive accounts, the shift to EV and autonomy has created a lot more opportunity in the OEMs in addition to the Tier 1s, which were our primary customers prior to our focus in that area. So I think things are — to use the automotive analogy, things are hitting on all cylinders in that area. I guess that’s a bad analogies. These vehicles don’t have cylinders as much anymore, but you get to get the point. So all three of those factors are contributing to a high degree of growth and an optimism in our outlook and the pipeline that we have in those accounts.
