Lennox International Inc. (LII) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the J.P. Morgan 2020 Industrial Conference fireside chat session with Lennox International. Joining us today are Todd Bluedorn, Chairman and CEO of Lennox International; Steve Harrison, Vice President, Investor Relations; and J.P. Morgan analyst, Steve Tusa, the host of this call. I would now like to turn the call over to Steve Tusa. Please go ahead.

Thanks, operator, and thanks, everybody, for joining us for the second of our call series here over the next few days. Very happy to have the guys from Lennox on the line, including Todd and Steve.

Guys, I want to welcome you to this kind of virtual conference, I guess. But I, obviously, always like to start off -- for you guys, I think it's going to be a little different because I'm not going to ask you about your China exposure and your air travel exposure and luckily, for an HVAC company, the first quarter is really not that important at all. But I do think that you made some comments at a recent conference, just giving a bit of an update or at least Joe did about what you're seeing here so far quarter-to-date. March is an important month, acknowledging that, but maybe just give us a color on the state of the world as you see it so far here early in the year.

And I'm going to put the virus to the side right now. We can talk about that sort of in a different line of questioning. So I'll sort of answer the question as I would have a day or 2 ago. We had pretty tough weather comps in January, February. Degree heating days, which is a measure of how cold it is, were down 15% from normal, down about the same year-over-year. It had a material impact in January, February on our residential business. And sort of compounding the impact was where it hurt us the most were in furnace sales and in parts and supplies to repair furnaces, which is the highest margin business that we have in Lennox. March is half the quarter and March is more -- while still driven by weather, it's more about dealer sentiment and confidence. And up until 2 or 3 days ago, I was feeling that March would sort of pick back up, maybe not where we need it to be, but pick back up. Obviously, things are changing quickly. We're focused on closing the quarter, but the first couple of months were slow.

And when you think about that, I guess, the virus impact, perhaps there's a bit of an impact on the supply chain, maybe as you kind of step back and look at what's going on here. I'm sure you've had a meeting or 2 on this in the last couple of weeks. Any color on what you see as -- it's obvious for some other companies what the impact would be, but maybe for you guys a lot less obvious. What are you seeing out there? And what's the feedback you're getting?

Yes. I mean, I think the relative good news vis-à-vis the virus is compared to a lot of our other corporates in the U.S., I think we're pretty well protected and insulated. So let me sort of expand upon that. I mean, the biggest issue for us or where we focus most to date has been supply chain specifically out of Asia, most specifically out of China, and to a lesser degree, South Korea. We've had no impact. So we have 3PLs for our priority parts that come from Asia. We had weeks of inventory on the continent here in North America to protect us, and then we work through the supply chain. We haven't missed -- we've had no impact on production at all. And I think in Asia, knock on wood, we're sort of on the downhill side of this. Increasingly now, it's been focused on Europe, where we're not really near as exposed. I mean, the China supplier support our U.S. business, which is obviously where we make most of our money. The European suppliers support our European business to a large degree. Specifically, Italy is where we've been focused, and again, so far, so good. Things are still being shipped across the Italian border. I'm not so sure they're supposed to be, but they are, and the materials are arriving. And so from that point of view, things have been fine. From a demand point of view in North America, I don't know yet. I mean when we talk to customers, both large commercial customers and our dealer contractors as recently as yesterday, people are still confident, still comfortable, but I'm sure the shock yesterday, the market will have some impact. We'll just have to see how it plays out. Obviously, the big risk to us would be if it bleeds over the consumer confidence. It hasn't yet, but we'll have to see how it goes.

Right. And when it comes to kind of some of the other near-term dynamics that you're dealing with, maybe I guess, with kind of the slower start to the year, this is a bit of a tough question. But the business that you are doing, and as you kind of try and gain back some of that share from the tornado, I guess, the market kind of influences that a bit. But is there a way to differentiate between kind of what you're trying to gain back and what it would be just kind of a normal flow of business as far as first quarter is going? Or we all throw it into kind of just a weak market?

Well, what we're doing is, you can imagine I ask just as intently as you do, "Don't b******* me. Is this really the weather or what's going on?" And so we're able to list out dealer by dealer, of dealers who we didn't do business with when we didn't have production or we didn't do business with at all that we have won in the last 6 to 9 months. So we have a list of, and it's hundreds of dealers who we've converted over, who we didn't have before. And then we can track of what they're buying, and what we expected them to buy. And we can tie it to -- yes, they're buying from us, but they're not buying as much as we thought. That's weather driven. We tie it to the map. We know the location. And then we have very large dealers who've been buying with us during the entire time. We know what they bought last year. We know what they bought this year year-to-date. And again, we can track it to the weather. So I'm as comfortable, I think, as you can be that the weather has impacted us, and it's impacted us in the categories that I would expect weather to, furnaces, parts. But the number of dealers we've converted is on track with what we said when we're on -- when we've talked about this, which is about 80% of what we've lost, we've converted back over, and we have visibility of those dealers. We just now need some weather and take-up in the markets, and we'll be well positioned.

So when you think about the -- kind of the -- I think you guys gave some explicit guidance for the first quarter as a percentage of the year.

Yes.

I mean, are we now -- with the -- so far, year-to-date, is there -- we're kind of throwing in the towel on that number? Or we're just saying, "Hey, there's a possibility. There's still a chance we can hit that number with March." What's kind of the bottom line messaging here to move beyond the first quarter?

I'd strike to throw in the towel reference.

Sorry.

Could just -- I mean because we -- you never throw in the towel, right? But what I would say is, to be very crisp about it, is what we said last time when we were public, at least when I was public on the fourth quarter earnings call, we said, historically, first quarter was about 14% of the EBIT. And then we went through a bunch of stuff, tornado related as you recall, around factory productivity and around lower-margin business, and we said it would be more like 11%. Stop, end that paragraph. The new paragraph, when I talk about the tough weather comps, that's in addition to what I just told you. So yes, keeping full year guidance the same, which I am, as I sit here, I'm signaling that we're going to be below 11% of first quarter.

Okay. Got it. From a more medium-term perspective, I don't know if there's anything to maybe update your view on the longer term market, the -- and any extra color that we could dig into on how you guys kind of went about your cycle analysis. I mean at this stage of the game, with kind of the global economy falling apart, whether residential HVAC grows 5% or 2% to 3%, I think, really, at this stage of the game, probably doesn't matter. But maybe any extra color on why you're a little more confident than perhaps others that there's more of an extended cycle, and then equipment age really is kind of more like 15 to 16 years versus what I think most people would have characterized as kind of 13 to 14 prior.

Yes, I mean, our -- I'm consistent with what I've said in the past. I'll say for others on the line. I think you know my answer, which is we've done the analysis. We think that's the life of the product. We've actually done the detailed warranty analysis and the viable analysis and the statistics to understand it. We've been consistent that we think there's another couple of years, 1 to 2 years of this left. Obviously, weather impacts it. If it was a cool summer last year, which it was, and we have a hot summer this year, then you even get more bounce. And so I'm comfortable mid-single digits. Now obviously, consumer confidence in the virus to the side, I saw that -- I think Carrier has a similar viewpoint to us. I don't think we're on an island on this. And so again, I think the bigger point around this is whether it's 3, 4, 5, 6, sort of wherever the number ends up in this year or next year, I think the bigger point would be that when you do the modeling, there's never a cliff that you'd fall off of 15 years from 2008. So there's not 2023 where it falls off a cliff because you're sort of layering in multiple years of replacement cycle. So even sort of at the trough, you're down 1 or 2 points is what the model says, I think that's a rounding error. In fact, I know that's a rounding error on the model. If it's a hot summer, we'll be flat to slightly up. If we're back to gaining 0.5 point of share, which I'm confident we are and will be, like we did before the tornado, that's 3 points of revenue. You get a point of price, which we've consistently done in good markets and bad markets, you're 4% or 5% revenue growth in our resi business, even in a flat market, which is a pretty good model.

Right, right, right. When you think about that dynamic a few years out, you're going to have a pretty significant change around confluence of the SEER standards, the efficiency regulations as well as refrigerant regulations. Carrier has embedded in 2022 a big step-up basically from prebuy. They don't give a 2023 estimate beyond that, which we typically know what happens when a prebuy occurs. What's your take on kind of that -- those dynamics playing through in a couple of years? Maybe just give us an update on where you stand and where you think the industry stands on this big refrigerant changeover.

Well, I think the refrigerant changeover -- I think it will be straightforward in the sense of technically. I don't think there's anything that's challenging to do here. There's a couple of refrigerant options that we're analyzing. We're preparing -- doing the analysis on both of them. We're working with our compressor suppliers to be able to support either one. And so technically, it's a straightforward put. In terms of the prebuy, I'm not so confident I would build a model for 2022 on the prebuy. I mean, all the rules of the road haven't been set yet on how all this is going to be implemented. And I know historically, depending on the transition, when we went from -- as an industry went from 10 SEER to 13 SEER, there was a huge prebuy because it was so dramatically different for what everyone was doing. Post the transition, the dealers are still going to have 410A in the marketplace, the current refrigerant, because they have the whole -- all the product that's already in the field. So they're going to be comfortable handling it, comfortable working on it, comfortable recharging it, and so it's not sort of the switchover that's going to take place. So I don't know how much prebuy there'll be for refrigerant change. And then the changes in efficiency, those are still being finalized some time mid-decade. So I guess, I'm not -- I didn't see Carrier's model for 2022. I don't. I would be skeptical -- a right question then, if there was too much of a bump because I'm not sure there's going to be a huge prebuy because of a refrigerant.

Yes. It's in their slide deck. They have a pretty flattish or low single-digit growth for the next 2 years, and then it steps up in 2022 pretty meaningfully. So -- and that's how they explained it was this prebuy dynamic. On the side of technology, we've also been hearing a decent amount about ductless kind of ducted hybrid products that Daikin has come out with a product that they think they can attack the replacement market with a ductless product. What's your kind of -- remind us of what your strategy is. I know that you have the Midea JV and a lot of people think about this as more of a commercial -- a VRF commercial type of product. But maybe on the residential side, how are you guys -- remind us how you guys are approaching kind of ductless and what your take is on these hybrid products.

We view many splits, technology and development. I wouldn't use -- commodity is too harsh a word, but I would just make the point that we think there's lots of suppliers in China and Asia who can provide us product, and we do that. And we, from year-to-year, from multiyear agreements, switch from one supplier to another. We brand it in the marketplace Lennox. So we sell many splits, duct-free splits for residential. Order of magnitude, $50 million to $100 million, $75 million or so of the product that we sell and have our dealers install. I think and I continue to believe even with this sort of new Daikin product for replacement, which is 80% of the market and the duct works already in the home, and we can do zoning that precisely cools room by room, we just have a huge cost advantage on the installed side. And then when we're selling our 26-year unit, we'll go toe to toe on efficiency. So VRF's different for a commercial application because that's new build, and that's a big part of the market. But for residential, we have the product, we sell it when we need to. We package it when we need to. But I mean, many splits have been viewed as a risk to the North America residential market for the last 35 years, and there's a reason that it hasn't made many inroads, and I just gave you the reason, because the cost is so much.

Right. And on the VRF side, how big is that business for you guys now on the commercial side?

Yes. We haven't gotten to the $100 million. It's more like $30 million, $35 million for us heading north. And so it hasn't grown like we thought it would. It's profitable for us, and we're growing 15% or so a year. In fact, we're going more than that, 25% a year because we're going with the market and gaining some share. And again, it's all incremental to us. But again, I don't -- I'm less bullish on VRF than I was 3 or 4 years ago. I still think we're going to have it, and it's important for us to have it around our product line. But I think it's been blunt. The growth has been blunted somewhat in North America.

Right. And the blunting of that growth in North America, what do you think has been the driver of that? It's just a -- the applications just aren't there relative to the traditional products?

I think on the unitary side, we've been aggressive with controlling and zoning with our rooftops and so we can compete against certain applications. And then I think the big applied guys have gotten their costs down and can sell product and -- to compete. And it always comes down to -- better stated, a large part of the new build jobs are tied to specifying engineers. And the North American players, although they sell VRF, they much rather sell applied because they get the parts stream and the repair -- or maintenance stream. And they control the engineers, and they've done a good job of continuing to drive the traditional applied product in North America. I mean where we see VRF is it's a package deal, where we're selling a large portion of the bill of materials rooftop, and then there's a portion that's VRF, then we package it together and sell it. And there are some jobs that are pure VRF, but we see it more increasingly as part of the package, too.

Right. When you think about kind of the cost side of the equation, pricing has held up pretty well. Commodities have come off a bit here. How do you think about that equation for this year? Any changes in view on kind of the price/cost dynamic? And any signs out there that there's maybe a little bit less discipline in the last couple of years? I mean, I know Goodman has their plant kind of up and running now. Carrier's a public company, they'll probably be a little bit more careful around price. But anything you're seeing out there that kind of changes the dynamic on resi? And then on a commodity side, any of these market movements that will maybe provide a bit more tailwind this year on price/cost?

We're still at the same place we were. So we're calling a net benefit of price of $30 million. Commodities will be a $20 million tailwind. Freight will be a $10 million tailwind. Tariffs will be a $5 million headwind. And then we're going to get, as we often differ every year, we do $25 million of sourcing and engineering-led cost reductions. In terms of pricing, even with sort of all the doom and gloom that I intentionally painted for January, February around weather, I actually looked at the pricing numbers yesterday -- or pricing data yesterday. Pricing is coming in where we expected it to. So we're not capitulating on price. I don't think that's what's driving the impact in the market. I think it's weather. So price is hanging in there. And in terms of commodities, I think any movement on steel now would help us in 2020. If copper continues to go down, it will help us somewhat second half of the year, but we're hedged out enough that it's going to be more of a 2021 benefit.

Got it. When you -- and any other -- any changes there on the bridge items relative to what you guys had talked about on the call or in December? Anything else kind of stands out?

We're steady as we go. And again, I would underline what you said earlier for others listening on the call. I think you used the phrase, "First quarter that doesn't matter in an HVAC business." And I would underline that. I mean I'm signaling that first quarter is going to be a bit rocky, but we still, virus aside, we're going to have to see how that plays out a little bit. But our dealers are still confident. Our customers are still confident. We're still confident. It's just we've had some weak weather.

Right. On the initiatives, think about PartsPlus, maybe just a little bit of an update there. And just remind us how that business model works over time and what kind of benefits you get as you open each store? Any changes as you -- relative to what you were doing before the pause and now kind of as you ramp up, any timing dynamics that are going to influence the year?

No. I mean, it's sort of what we said back in December. We ended the year at about 225, 226 stores. We're going to add, at a minimum, 20 new ones in 2020, and that's still the case. The economics of these things remain very good. We get to operational breakeven in a year, 2 or 3 years into it, where 3 -- the $4 million of revenue, about half of that's incremental. The margins are good. It's a great strategy for us. And at 250 stores or so, we're covering about 1/3 of the market when you look at being a half hour drive from a dealer's location, which is how we define the marketplace. And so there's still a lot of room to grow here, and we're going to continue to do that. And as you've heard me say, I'll say it for others, what sort of makes the strategy work and continue to work is we're blessed that our competitors are smarter than us. They built out their distribution decades ago. And so as we build out our distribution, it's really hard for them to react because they're already in these markets. We come in. We gain share. We're able to grow, and it's really hard for them to respond in kind.

Right. I've had a few discussions with people saying that you have a much higher margin entitlement than where you are today, given that you do have 80% through distribution, and so they kind of look at where -- what Watsco's margin is and they look at what -- more of a pure OEM margin is, and they talk about how you guys should be capturing more of that. Can you maybe -- what is -- why do you guys not show a higher margin in that resi business, acknowledging that there is upside. But what are the key differences of just taking standard OEM plus Watsco equals Lennox? Or is that the equation we should think about?

I think we've been pretty clear that we continue to have growth opportunities in our residential margins. I mean it wasn't so long ago, we were -- or I guess now it's been 7, 8 years, we were 7%, 8% operating margins. Now we're 17%, 18%, and we've said that we're going to get to 20%. And that's an intermediate target, and we'll continue to grow it. So if there are investors who think our margins should be low 20s, I don't disagree with them, and we're driving and making it happen and our strategy is in place to do that. I think part of the reason you sort of have it, we're making significant or we continue to make strong investments in the business. You invest in these stores. It takes a year or 2 to sort of pay back. You have some hangover from that. We continue to invest significant CapEx to build out the infrastructure to support the distribution strategy, which is really about warehouse management, inventory management, digitization of the business. And so I think we're balancing all the levers of the business to continue to drive margins in resi 100 basis points or so a year before the tornado and now after the tornado, we'll get back on that track. But I don't disagree that this could be a 20-plus margin operating business for us.

And when you think about the differences between maybe a Watsco and your distribution asset, are there any -- obviously, they're operating not as an arm of the company, for a lack of a better term. I mean, what are some of the differences between their business and yours that stand out to you?

I don't know if this is the answer you're looking for, but I'm going to answer it this way is, I think the big advantage we have is we own our own distribution. And so I think we're able to coordinate, if you will, strategy seamlessly. And what I mean by that is, it is a large part of our digitization strategy. And so we're able to provide prognostics and diagnostics along with the e-commerce aspects of doing the transaction with the dealer and supporting on the warranty and providing them leads. And so Watsco is enabled to do prognostics and diagnostics because they don't own the equipment. And Carrier, while they can provide tools to a Watsco, Watsco is really going to own the investments in e-commerce in a way that we own them ourselves. And so we're able to provide all these tools seamlessly to our dealers. It all comes together in one user interface on our LennoxPRO site, and I think that increasingly gives us an advantage. And one of the reasons that we feel that owning distribution is such a powerful weapon for us.

Right. And does that allow you -- I mean, I know everybody has kind of gotten a decent amount of price. But I guess, does the ownership of your distribution allow you to kind of hold on to more price in kind of a deflating raw material environment? I mean I know that a lot of the other OEMs have kind of seen that benefit as well. So maybe that's not like a differentiator. But is that one of the positive aspects of owning your own distribution?

Yes. I mean if I learned anything in business school, right, it's better to have tens of thousands of very small customers than one customer who's headquartered in Miami, right? So I like our model. I mean, when I hear Watsco in your conference calls talk about pricing pressure, I just assume that's public negotiations with their largest supplier. And so we don't have to put up with that. We sell to tens of thousands of dealers. We set the price, and we work through it.

Does your distribution business, do the margins there look similar to Watsco's when you kind of carve it out?

I'll be honest with you, Steve. I don't even think about it that way. I mean, I understand the question. But I haven't spent a whole lot of time thinking about it that way. Same way I don't sort of think about what's the profit of our factory or what's the profit of our marketing department. I mean our distribution is an arm of the whole channel that brings product to marketplace. And I think what we do is we benchmark when we look at other competitors, Watsco and other distributors, we benchmark our delivery characteristics. What's our same-day delivery? What's our stock-out metrics? What's our inventory churn metrics? What are our cost to serve metrics? What are our freight and distribution costs per dollar of revenue? All those things we benchmark and make sure we're competitive. And then the other thing that we look at is when we put new stores in place, we -- for that individual SIC area or sort of local area, we measure how much share we gained and we pay back the investment we made on putting a store location in place. And so we think about it that way. I don't think about it as a separate business with its own P&L. We don't manage it that way. It's part of a larger Lennox branded residential business and it's part of our weapon on how we gain share.

Got it. We're getting a question coming through on e-mail here. Relative -- just kind of stepping back and peeling back what happened in the second half of 2019. You guys had some pretty good growth for your residential business versus the market. How much was that do you think -- how much of that was driven by kind of your targeted efforts at rebates and the incentives to get customers back versus customers kind of naturally coming back to you as products became available? And then how sticky are you finding these customers are as they come back to you following the tornado?

We found them to be sticky. I mean, again, it's early, right?

Yes.

So ask me a year from now. But if they left and then come back, almost by definition, they've chosen us to come back to us. And so we feel good about it. But again, I don't want to mislead people or better status to explain -- continue to explain the business. I mean we do business with tens of thousands of dealers, right? And so every year, there's a churn. Every year, we lose some. We gain -- we lose hundreds, we gain hundreds. We gain share of wallet from some we have. We lose share of wallet from some we have. And all that gets boiled into our calculations of new business and market share gains. We track all that very rigorously, all the different elements I talked about. So it's sort of not a news flash that we lose a deal or it's not a news flash that we gain a deal or it's sort of stacking them all up in a way that we gain market share.

Were there any that you didn't have before that came back? I mean I'm sure you've obviously prioritized guys you had before that didn't have the product.

No. I mean what we did, and I think I've talked about it, is sort of when the tornado hit -- well, better stated, we have a new business engine. So we have dedicated people who focus on driving conversion of new dealers, identifying them, prioritizing them, working with the local field team to win their business, making strategies or making decisions around where we put the PartsPlus stores in to have the biggest bang on converting new dealers, and then ramping them up. And we call that our new business initiative, and we're pretty good at it. And when the tornado hit, we put all -- we laid down our weapons in new business development because it hardly makes sense to convert new dealers if you can't give a product. And so they went about supporting the existing business. And then we focused through -- really through the first half of last year, 2019, of going out to all of the dealers we had lost and converting them back to Lennox. And about midway through the year, July, August time period, we reached -- and I've talked about this, we reached diminishing returns. And so then we turned that new business machine back on, and our focus was no longer trying to convert dealers who we had lost because we sort of roughly had 80% of them back. And our whole focus was on converting new dealers who we hadn't done business with in the past. And that's the tailwind that we've built in the second half of '19 that will help drive the market share gain in 2020. It's really winning these new dealers.

Right. Right. Okay. Maybe one last one for me, and then we'll open it up for a few minutes to questions, if there are any out there. But just on kind of the consolidation question. I know you say the same thing every time with a bit more interesting color and commentary. Any update there as these companies break away and start to participate as a stand-alone publicly traded companies? And has your view on consolidation changed at all?

No. I mean, I'll do it in the order you asked. I don't -- I think you said it earlier about Carrier being a public company. And I -- you mentioned in the context of pricing, I would mention it more broadly. I mean they were pretty well-run before. I think they'll continue to be pretty well run. I think one advantage that we've had and we'll continue to have is we're a focused HVAC residential business -- HVAC refrigeration business, primarily in North America, and that's where we live and die and fight and everyone knows the business very well. Almost by any definition, other than UTC, Carrier remains an industrial conglomerate with [indiscernible] security, global businesses as well as the businesses we compete with them. And I think that continues to give us an advantage of speed and understanding the business. I think Trane, to a lesser degree, that's true. I mean, they have transport refrigeration and they have a global business. And so they compete with us, but they also do a lot of other things. In terms of industry consolidation, my answer remains consistent. I'll say it for others who maybe haven't heard it is, I think value could be created in the industry through consolidation. We would look to participate in that, and we think we could create value. But people are going to have to decide. There are assets that they don't want or businesses that they don't want and are willing to sell them, and that may take a shake out to the market a little bit for that to become available.

Right. Right. And as far as the competitive dynamics go, I mean, Trane has been one that has stepped up a bit here from a -- on a -- at least how they report it on a growth rate basis and joined you pre-tornado, is kind of the -- among the industry leaders when it comes to outgrowing the market. Anything you're seeing that they've done differently in the channel to help that growth rate?

No. I mean I think Trane's -- well, I don't think, Trane's always had a very good brand, and they've always historically been a pretty well-run company. They had some stumbles, but it doesn't surprise us that they're doing a nice job in the marketplace. But there's no major changes. I mean that's not how the -- as you know, that's not how this business works. I think they continue to invest in product, but they haven't made any changes in distribution strategy in any meaningful way. And even on the product side, our sense is a lot of investment in the applied side of the business, we still think our rooftop product line goes toe to toe with them and does very, very well. And on the residential side, we think we have the best premium product and we think we can compete with costs on the entry-level with anybody with our Mexico facility.

Great. Operator, we have about 5 minutes left. Can we open it up -- open up the lines for questions?

Absolutely. [Operator Instructions] There are no questions at this time.

I got 4 minutes left, and you know I'd love to talk about HVAC. So I'll finish up with a couple here. On the commercial front, any changes in the market that you've seen so far year-to-date there? Again, I know it's kind of early, and it's a relatively weak seasonal quarter. But any changes in view on the commercial front demand-wise?

We had a strong fourth quarter, as you know, and we were up, I'm looking at Steve, make sure that I don't...

11%.

Up 11%, so a strong fourth quarter. Backlog as of yesterday, for second quarter delivery, up double digits. And so we should have strong backlog, not only to close out the quarter this quarter, but also going in the second quarter. I think we're going to have to see what the ripple effect is of the stock market downturn and the virus impact. But as of last week, the business still felt very solid, and we'll have to see how it plays out.

Right. And on the refrigeration front, any update there on your positioning now with a bit of a smaller footprint in the industry? What you're seeing fundamentally there?

Yes. I mean we're -- now, North America and Europe, those are better businesses for us. The North America business has been a very profitable business for us over the years, and we continue to invest and focus there. Europe, we had nice growth in our refrigeration business in Europe last year and in our HVAC business. And again, I think Europe right now is still trying to sort through what the virus impact will have on them. We have -- our largest markets in Europe in order are Italy, Spain -- excuse me, not Italy, France, Spain, Poland, Italy, Germany. And at least, Italy is going to be impacted. We'll see how much the other countries are impacted in Europe.

Right. Okay. I think that's all we have. Anything else that you wanted to touch on?

No, I appreciate it. And as always, thanks for the time, and hopefully, everyone stays healthy.

Yes, thanks for being flexible and working with us to set up the call. And I guess we're onto the next one here. Thanks again, Steve and Todd.

Thank you.

Thanks. Bye.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.