Steven Downing: Yes. I think on the — in order for — we kept that range — you’re right. I mean, if you look at the implied math, the bottom end of that range is really focused on if something more drastic happens in the second half of this year due to some of the labor disputes. We know from 2019, what that looked like for us from a loss revenue perspective. And then what that would mean from an overhead standpoint. I wouldn’t estimate that anything that happens there would have that drastic of an impact, but you’re always a little worried about product mix and which OEMs are impacted and what that means to your total product portfolio and book of business. On the high end, what we would need to do to get there is we’re going to have to continue to see if some cost recoveries and operate at these levels of revenue, because it really helps on the overhead side.
And that’s where the margin expansion is really coming from right now is lower over time, but better throughput and better manufacturing overhead leverage due to higher sales levels.
John Murphy: And just a follow-up then on the 35% to 36% target by the end of ’24. I mean if we exit this year on the high end of what you’re implying for the second half of 34% — I mean, 35% to 36% with upside, assuming the industry is growing as expected and maybe even better than expected. Those seem like — they seem like potentially conservative numbers just on operating leverage. If you think about the cost actions, the exit — assuming the exit rate is 34%, may cost actions, what you’re counting on to drive that 100 to 200 basis point expansion? I mean, what kind of incremental gross margin you’re going to drive from those cost actions? So maybe we could think about them separately from operating leverage and other sort of raw and labor inflation costs.
Steven Downing: Yes. So when you look at the exit velocity this year heading into next year, you’re exactly right. I mean part of that gross margin expansion is going to be driven by the sales growth in the business. And the same factors we just talked about for so far this year and the second half of this year, the higher level of revenue helps the manufacturing overhead. Internally, we’ve got some cost things we have to control better. So get with the newer employees and the rate we’ve been running, we can focus on scrap costs, over time, yield and throughput. And so those are all opportunities that we’ve targeted and have in place as part of our goals for the back half of this year heading into next year. And then Neil’s point, a lot of things we’re working on the VAVE side to get the bill materials lower on a per product basis is going to be part of that growth and expansion in the gross margin for next year.
A lot of the bill materials initiatives that Neil is looking at are going to last beyond 2024 and really push into 2025 and beyond before we get the full benefit of product redesigns that are focused on cost savings instead of just trying to get redesigns done to be able to ship anything. So we’re really talking about it more even than the end of 2024 trajectory. There may be some upside to those numbers if we hit all the things perfectly. I think the thing we’re a little focused on to is that there’ll probably be some more headwinds that we haven’t accounted for. And so those estimates might be a little conservative. But we’re also looking at a larger book of business and not everything inside that book of business and some of the new features are going to be above average gross margins.
So we know that with the expansion and growth in the business, there’s going to be a natural headwind to some of those products and what the profitability of those products look like.
