Kevin Nash: I think he was asking on OpEx.
Steven Downing: Oh, OpEx, sorry. I thought you talked about CapEx still. Well, I’ll finish CapEx and we’ll get to OpEx. But if you look at the CapEx plan at these levels of revenue, we are going to be needing additional facilities, not just equipment. And then on the OpEx side, really this OpEx should, once we get through this year, if we hit these numbers — and there’s a lot of ifs in that statement because it’s requiring us to find a lot of talent, and the talent is difficult to locate and acquire. If we do get to these levels by the end of the year, I think the OpEx growth rate should roughly track in line with sales growth rates. It’s what we try to target to. And there’s a little bit of a leading indicator, obviously, of OpEx sometimes expands ahead of a sales growth splurge.
But one of the things that we always try to focus on over a long period of time is trying to make sure that, that OpEx growth rate is roughly in line of sales growth rate, if not slightly below it, so you get a little bit of leverage through the bottom half of the income statement.
Operator: And our next question is going to come from the line of Ryan Brinkman with JPM.
Ryan Brinkman: Can you help us a little bit more with the addressable market of the consumer retail fire safety protection and talk about your strength in the commercial fire protection market and how that might translate over into retail, what sort of the early discussions have been around like go-to-market strategy for retail and any partners that you might have brought onboard or expect to bring onboard and how big this business ultimately could be over what time frame?
Steven Downing: Sure. So thanks for asking that question. It was a very exciting part of the CES show was showing the new PLACE product. We have our first customer already onboard and is ready for the product once we have the engineering work completed hopefully mid this year. And so that will be kind of our SOP timing for that first customer. Beyond that, our next go-to-market philosophy is really focused on how do we get engaged with direct-to-builder. One of the things we know is the DIY market is interesting. However, we believe that the maximum upside of this product will be focused on trying to get it installed at construction or remodel. We believe, a, we know it’s a lot easier of an install at that point in time. And it’s easier to convince a homeowner of the significant benefits without having to rewire or redo electrical work.
And our product is designed to be able to upscale. So once you have a base unit, it’s easy to upgrade that unit into one of the more advanced featured rooms that Neil referenced in his prepared comments. So that’s kind of the current plan for go-to-market. In terms of overall size estimates, it’s a little early to kind of indicate that. Our targets, when we started developing this product, is we’ve got about a $20 million, $25 million book of business in the commercial side of fire protection currently. We believe that, that plus the new PLACE product, our goal is in the next 7- to 10-year period to have $100 million-or-so book of business focused on residential fire protection.
Operator: And our next question is going to come from the line of David Whiston with Morningstar.
David Whiston: You called out in the press release three main drivers to get to the gross margin target by the year-end of reducing bill of materials, throughput and overtime scrap cost reductions. I’m just curious, what’s the rough breakout among those three buckets for the contribution?
Kevin Nash: Probably 70% of it is bill of material reductions with an equal split with the other two items probably would be a fair assumption.
David Whiston: Okay. And on both the chip shortage and just general supply chain issues unrelated to chips, just how bad or good is everything right now? Is the chip shortage mostly behind you?
Neil Boehm: Yes, I think in general, the component shortages, you still have a component shortage pop up once in a while. But in general, the big constraints that we’ve seen and experienced are behind. And I think as we’ve kind of mentioned before, we’re in the stage of redesign, kicking off redesigns to start pulling cost out of the bill of materials.
Operator: [Operator Instructions]. And our next question comes from the line of Ron Jewsikow with Guggenheim Securities.
Ronald Jewsikow: Just a follow-up on some of the next-generation product discussions. In ’24/’25, how much of kind of the revenue growth is assumed to be coming from new products? I assume that’s heavily weighted towards driver monitoring.
Steven Downing: Yes, I would say — I mean, if you consider new products, it depends on do you mean — do you consider FDM growth to be a new product or a legacy product?
Ronald Jewsikow: Yes, I probably shouldn’t call it legacy at this point. But this is more focused, I would say, on DMS and other stuff.
Steven Downing: Yes, if you look at that, I’d say probably about half of the growth is going to be driven — half of the incremental growth rate will be driven by new technology.
Ronald Jewsikow: That includes FDM then though, right?
Neil Boehm: Yes, included in it, yes.
Ronald Jewsikow: If we exclude FDM, is it closer to like 1% or just trying to…
Steven Downing: No, I’d say about 1/4 of it would be then from things outside of FDM that are new products.
