Robert Marcus: Congrats on a good quarter. Maybe I could start on margins. If I take the third quarter and fourth quarter commentary that you provided, I have a little trouble getting to the high end of the range. So maybe just speak to some of the pluses and minuses there and what you need to get to the top of the range? And then second question, I’ll just throw in as well. You have a big gross margin benefit from currency in ’23. There’s a pretty wide range of operating margin expansion next year or contraction on The Street. Any early thoughts into how we should be thinking about your ability to grow operating margins next year?
Suketu Upadhyay: Sure, Robbie. Great to talk to you. So one of the biggest drivers in the overall profile in the back half of the year, by the way, we do believe operating margin in the back half will be modestly better than what you saw in the first half. That’s largely going to be driven by better revenue, mostly coming from the fourth quarter. Fourth quarter is always our strongest from a dollar perspective, from sales view. The second thing is you’re likely going to see a step down in overall operating expenses from the second quarter. That was sort of our high watermark as we were dealing with a number of inflationary pressures. But quite frankly, also investing pretty handsomely against things like R&D, which was up like 19% in the quarter, investing against commercial infrastructure in places like sports and upper extremities to continue to specialize that sales force as well as ASCs. So the two common combined things of higher revenue, lower OpEx as we move into the back end of the year is what’s going to drive that margin expansion improvement versus the first half.
As we look into 2024, you’re right, we did talk about some FX hedge gains this year, which we sized at about 50 basis points on the full year that won’t repeat into next year. That will be a headwind, but we’re still confident that we can grow operating margins into 2024. It may not be at the same level of 100 basis points that you’re seeing this year. But we do believe, as I said earlier, that we can take this sort of high watermark that we are in operating margins that continue to enhance that as we move into 2024. What are some of the building blocks? One, pricing is still a headwind, but we’re seeing really great performance. It’s not the headwind that it used to be for the company. And what’s even more exciting about that is we’re truly seeing very strong mix benefit inside the company, and that’s coming from our new products and the innovation into the marketplace, which is helping to offset that price erosion.
So we think that, that can be a tailwind for us. Secondly, we continue to work aggressively on our site optimization in manufacturing and supply chain, which we think can generate some tailwind in cost of goods as we move forward. And then as you move through the rest of the P&L into SG&A, there’s still ample opportunity with our Global Business Services agenda that we just started a few short years ago. We’ve got a completely different culture and mentality when we think about go-to-market and market profitability. Where at one time, it was revenue growth at all costs. And now it’s all about revenue growth at the right profitability level and with earnings growing faster. And so there’s just those cultural shifts and that discipline is also driving some really nice margin expansion both in the U.S. as well as outside.
So these are just a few levers that quite frankly, we’ve been pulling on already. There’s still room to go and why we feel confident that we can take this high watermark for 2023 and grow it into 2024.
Operator: We’ll go next to Rick Wise with Stifel.
