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

Okay. I think we're live. So good afternoon, everyone. For those of you that don't know me, I'm Nicole DeBlase, and I cover the multi-industry and electrical equipment and machinery spaces at DB. Next up on today's presentation schedule is Lennox International, and I'm pleased to introduce Joe Reitmeier, CFO. Joe has served as CFO since 2012, prior to which he was CFO of the company's Commercial Heating & Cooling business. So he's been at Lennox for quite some time. And we also have Michael, who works in Investor Relations, with us on the stage. So we're going to dive right into the fireside chat today. I will open it up to the audience for questions towards the end. So please don't be shy.

So Joe, maybe we could start with what do you think has changed the most at Lennox under Alok's leadership?

I think we've continued our intense focus on North American end markets. One of the first observations Alok made was with our European footprint. Once again, good businesses, but just weren't delivering the benefit that was necessary. So he made the comment that if you just sent more people to Florida, we would make more money. So that started us reevaluating the portfolio. We've got the European footprint on the block now for disposition and are fairly far along in that process. But aside from that, one of the things the Board was looking for when they brought in a new CEO was someone that would preserve the culture. And we felt that the culture at Lennox was something that was unique and differentiated us a bit. So Alok's done a nice job of making sure he preserves and reinforces the culture. And then just the intense focus on North American and then looking at our distribution footprint a little differently than we have historically and fleshing out some opportunities, we think, that are longer term that we could execute on and then just keeping the momentum forward. We have some challenges in our commercial business that we stabilized, and we're now seeing some of the benefits come back into that. And then, once again, it's just about driving the business forward, setting [ Chris Kosel ] objectives, aligning the incentives, and then we're off and running.

Got it. Okay. Very clear. And I guess, I have to ask, any update on how the beginning of the resi HVAC summer selling season is going?

No, it's early innings. So we're entering peak season now. So June and July are really the telltale months. We're part of the way through June. The weather has not been, ultimately, cooperative. But one of the things we use is a litmus test to understand what the end market sentiment is, is the loading programs that take place industry-wide this time of year. With our dealers, the demand remains strong. So that's a strong signal that they're busy, lots of projects taking place there, and there's opportunity once again. We knew that the residential markets would be a little soft this year, driven more by residential new construction that we expected to be down approximately 20% this year. It's actually doing a little bit better, so that'll compensate. And then from a Lennox perspective, Lennox specifically, we had a little bit of a built-in resiliency in our commercial segment. Meaning that even if residential markets were a little softer, we knew there was opportunities on the commercial side, and that's what we're seeing.

Okay. Okay. Good overview. And then, I guess, maybe thinking about the price versus mix dynamics. I think you guys guided to $175 million of pricing benefit for the full year. But you also realized over $50 million of mix benefit in 1Q. Is that the SEER change making its way through? And how should that trend throughout the rest of the year?

Yes, almost exclusively attributable to the minimum efficiency change that took effect at the beginning of the year, where the minimum efficiency change in both commercial and residential fronts, and gave us a mix lift and a margin benefit as well. So that's why we think that will trend consistently through the balance of the year.

Okay. Got it. Any evidence of consumers choosing to repair rather than replace?

Not just yet. We keep our fingers on the pulse of that pretty closely. The end market, once again, dealers remain busy. So there's a lot of things in play that are a little bit different than I would characterize as historical trends in the repair versus replace dynamic. Meaning that the cost of repair are significantly higher than they were historically, incremental costs associated with components that are necessary for the repair, along with the labor and, more importantly, labor availability to do all of that. So it's a situation where there's more parity between the repair versus replace scenario. And we're not at a point now where we're seeing that divergent take place. So the replacement demand remains steady.

Okay. Okay. Got it. With respect to pricing, I think you guys took a pricing increase somewhat recently, but it was more nuanced than it has been in the past. Can you talk a little bit about that and what you're seeing from competitors from a pricing perspective?

Sure. We got handily with price increases as does most in the industry. We identified some opportunities as we became more sophisticated with some of our pricing tools and techniques and analysis that enable us to flesh out some opportunities in our residential segment. So we announced a price increase, an additional price increase effective June 18. And it's more of a rifle shot pricing approach versus a broad price increase. That will give us an opportunity, once again, to flesh out some opportunities in the back half of the year. And that's why we changed our guide. We're initially at a range from $150 million to $175 million, and we really clapped it down at $175 million and believe there may be more opportunity above and beyond that as we get through this. But it was an opportunity for us to correct some inefficiencies that we saw where we had zone pricing and/or certain product tiers may be underpriced in certain markets. That's an opportunity for us to go ahead and correct that.

Okay. Got it. And do you think that we're at this stage now with commodities being less of an issue, at least, incrementally, than they were last year, where pricing in the industry is starting to kind of normalize to what you would see annually?

Yes. Once again, I think we've had multiple price increases over the last several years, always just because of the volatility of input costs. But that stabilized a little bit. Component costs will be up this year, but our initial price increase covered that. So it was a situation where we had that addressed. And yes, I think it is more normal going forward, but costs will dictate what we do with price going forward.

Sure. And is there any risk -- I get this from investors a lot. Like, okay, historically, HVAC doesn't -- resi HVAC doesn't tend to give back price. But the inflation has been unprecedented over the past few years. So is there a risk that the industry could get a bit more competitive from a pricing perspective from you guys?

Yes, I think the industry itself remains disciplined when it comes to pricing. I think we all realize that competing on price is not going to help any of us. So it's a situation where other things are areas where you compete more heavily, whether it's on tools and techniques to make the dealer more effective in their local markets is usually the mission. But once again, we're -- and if you look at the industry as a whole, no OEM's margins have exploded. So there's been no situation where there's been huge price increases that weren't unnecessary. It's really just keeping pace with inflation and the continued cost challenges, along with the disruptions that are created by the supply chain.

Okay. Makes sense. With respect to costs, so I think copper costs are off a little bit. Steel has come down from recent highs. How soon could a reduction in commodity costs help your P&L?

I think that would be more of a 2024 story. We're locked with certain costs. We hedge copper and aluminum. Near term, we're hedged about 80% [indiscernible] 18 months, which is what we do. Copper and aluminum is probably less than 10%. So any benefits associated with easing of commodities would be more significantly benefiting 2024 and beyond.

Okay. Okay. Makes sense. Let's talk about resi HVAC volumes, another popular topic. So I think you guys have guided for volumes down mid-single digits for the full year. What does that incorporate from inventory destocking, if at all?

Yes. Once again, it's a situation where, when we came into the year, we knew in the 2-step channel there was excess inventory that needed to be addressed. And that's being addressed currently. We think the destocking really started in the fourth quarter of 2022. We think it will continue, at least, through the second quarter. And once again, depending on weather and what demand looks like for the replacement side, maybe a little bit longer in the third quarter, but certainly, should be flushed out by the end of the year.

Okay.

And then from our own inventory levels, we entered the year with higher inventory levels than historically we've been at. But it was an opportunity for us to go out and buffer the supply chain a little bit and then rightsize our inventory, both with inventory levels and the right inventory mix. Ever since the tornado, we've been challenged with product availability. That was perpetuated somewhat through the pandemic. We really didn't get healthy with inventory until the end of last year. And that really limited our ability to go out and chase new business. So now that we've got the inventory right, we're chasing new business and market share, and that's the mission going forward.

Okay. Understood. And just thinking about the cadence of where the HVAC volumes, I mean, the comps get much easier in the back half of the year. Is it possible that volumes actually return to year-on-year growth at some point in the second half?

No, I think some will be contingent upon the dynamic on residential new construction. So it will be a situation we'll keep our finger close on the pulse of that. But we expected residential new construction to be down about 20% this year. It's doing better than that so far, so hopefully, it hangs in there.

Yes.

And then like I said, our gauge on sentiment of end market demand on the replacement side remains strong. So putting that together on the residential side, it is a good story so far. And then as I -- as we discussed at our Analyst Day, we had some built-in resiliency should residential markets be softer, that there would be more opportunities on the commercial side of the house. And that's exactly what we're seeing play out here early innings in 2023.

Okay. 2024, so I think we're already getting questions about this, and we're not even halfway through.

It didn't take long at all.

Exactly. Exactly. But there's obviously this thesis about COVID pull-forward of replacement demand. Is there a scenario in which 2024 could be another down year for resi HVAC volume because of that dynamic?

I don't think so. I don't think there was a lot of pull forward from the COVID. I think we saw folks using their systems more and, really, that's continued. So it wasn't this artificial pull forward of demand replacement on the residential side. I think it's -- when you look back over history, there's never been 2 years in a row that residential volumes have been down. So once again, that could change. I learned during COVID that nothing is permanent. So it's a situation where we think -- very resilient residential end markets. And if you think about the residential replacement dynamic, it's really due to a catastrophic failure. So it's very difficult for homeowners to pull forward demand. Most folks don't wake up on a Sunday morning and say, "Honey, let's go shop for some HVAC equipment." I wish they would, but that's just not the way it works. So it's typically a catastrophic failure or something that leads to the replacement. And once again, if you look back over history, and that would not be an indication that, that would be the case.

Okay. Okay. Fair enough. Let's talk about the refrigerant standard change that was coming in 2025. How should we think about the potential impact of that? And I mean that from the lens of could we see a prebuy in '24?

Yes. Michael insisted that all refrigerant questions [indiscernible] to him.

Yes, I'm the pre-buy expert. So I think what we're going to watch is the refrigerant transition will take over January 1, 2025. In the past, there has been some pre-buy when these transitions have happened. But as we look at it right now, the additional cost to increase to the new refrigerant standard is going to be some, but it may not be as significant to have a large pre-buy. But obviously, it's a bit of a game theory. You kind of want to see what competition and other contractors are doing to see if they pre-buy and build up. We'll continue to watch it and monitor it. But there'll probably be some pre-buy, but maybe not to the degree it was during the last refrigerant transition.

Yes, I think in certain instances, what you see is there's a difficulty -- if you go back, I'm going to go back to the '10 to '13 SEER transition. A little different, of course, but that was just an example of a 30% price increase in equipment leading to a large pre-buy. I don't think that dynamic plays out here in 2025. And it really hasn't for the last minimum efficiency changes either. So I think it's a situation where we just really kind of power through it.

Okay. Okay. Got it. And when do you think we'll know a little bit more about the incremental cost of the new refrigerant? Like soon?

Yes. We're learning more every day. And once again, it's working very closely with the component manufacturers as they develop the components that are necessary for the new refrigerant, along with our system design. So I think we're pretty close now. Michael mentioned that it's not going to be a significant incremental step-up in cost. So I think that is pretty much where it will land.

Okay. And you guys, I assume, with your product line, feel pretty ready for this.

Yes. Once again, it's a pretty intrusive change because it requires you to go in and redesign almost all of your products, which we've done. So we're in a good position. I think most competitors are in the same place. Historically, what happens with these, the smaller competitors stumble a little bit. So typically, it will create some opportunity, but we'll have to wait and see how things play out. But as far as Lennox goes, we're ready to roll.

Okay. Okay. Got it. All right. So let's move on to heat pumps.

Okay.

So I think you guys have acknowledged that you're maybe a little bit behind from a heat pump perspective when you think about the product line. So what's the plan for addressing that?

I don't think we're behind on the product line. I think we're under scale because of where we're geographically positioned. So we grew up in the Midwest.

Yes.

Heat pumps are not ideal in colder environments or colder climates. But we did go out with and participate in a cold climate heat pump challenge, which Lennox won. So it was a situation where we had -- apparently, I blew up my microphone. So they didn't want to hear about heat pumps, Nicole.

Excited about heat pump.

Yes.

I think we're having a technical issue.

That's okay.

Oh, boy. Well, surprise, surprise. Need a better air quality system.

A better quality system. So we're going to be selling more filters in New York, yes? But it's a situation with heat pumps, where we're traditionally strong is in the Midwest. More of the strength in heat pumps is in the South and the Southeast. So technology, we have the technology. Everyone really has the technology. It's about, once again, we're geographically positioned. And we're developing capabilities where we can sell our new technologies in places where, once again, it's undersized from a heat pump perspective. But really, once again, we're competitive with heat pumps. It's just a matter of us getting back to where we need to be.

Okay. Okay. Got it. And I guess maybe that means, though, that you feel good about the product. How do you go about gaining share in a market where everyone is going at this at once?

Well, part of it's educating the dealers. So the dealers are the front lines selling the equipment. And there are some incentives in place from the government. It's funded by the federal government but administered by the states. And all of that is sort of flushing itself out. So I think we'll see more of a heat pump lift as we get into '24 and '25 when more of the dealers are more educated and prepared to sell the heat pump, not only heat pump, but heat pump benefits that are funded by the federal government and the subsidies that exist there.

And you haven't really seen the IRA benefits kick in, right? We're all just kind of waiting to see how this will go.

No, I think some on the periphery, but I think the big lift will come '24, '25 and beyond. It's a situation, too, where these benefits are going to be a little bit longer in duration. It's a 10-year program versus something shorter 2, 3, 4, 5 years.

Right.

So -- and that should benefit as well.

Okay. Okay. Understood. Resi HVAC margins started off very strong in the first quarter despite the 8% volume decline. So if I kind of model the rest of the year in line with normal seasonality, you can get to like 20% plus segment margins in resi HVAC. I guess, just from your perspective, any pushback to that or reasons why normal margin seasonality would not prevail this year?

No. Once again, I think it's all predicated on an underlying demand. Once again, if the markets are better, once again, I think our margins will be better as well. We do expect to have margins up across all businesses this year, even in residential, where we expect unit volumes to be down. Once again, that's buoyed a little bit by the minimum efficiency change. So that's helping combat there a little bit more price. And then we continue to drive productivity initiatives across the enterprise, where we're on a mission to continue to drive out some of the inefficiencies that we've had to incur due to COVID-related events and/or the supply chain disruptions. That will be an opportunity that will probably be more opportunistic as we get into '24 and '25. Or we're going to see some of that as we get into the back half of this year.

Okay.

Do you want to comment anything on resi margins, Michael? Or...

No, I think it makes sense. Yes, the seasonality is probably going to be more similar to kind of 2017, 2018 before the tornado. But yes, as volumes come through, you'll see margins. You'll also see more mix kind of come through as we get 100% of the new minimum SEER product transition by the end of Q3.

Okay. Okay. Got it. And just one thing you mentioned, Joe, about how things are changing as Alok has become CEO is how -- like rethinking the way you go to market and distribution, optimizing that. What exactly is changing there?

I think when we started our distribution strategy, it was to sell HVAC equipment. So it was residential and light commercial HVAC equipment, more residential through that distribution footprint. But as we make investments in distribution, now we've got 250 stores. So it's not necessarily about the next 10 or 15 stores, it's about what we do with that 250. And as we look and benchmark ourselves against other distributors that distribute similar products, their attachment rate is closer to 40 -- 35% to 40%. Ours is 15% to 20%. So when you look at the distribution footprint and our opportunity to continue to optimize that, it's to open the envelope of what we offer through that distribution footprint and then just getting more velocity or volume across those assets. And that's the opportunity. So I'll use other equipment, maybe stuff that we don't make as an illustrative example, water heaters as an example. Most of our dealers do more than just HVAC. So they're going to do HVAC. They may do plumbing. They may do electrical. We serve them from a pure HVAC perspective and the things that they would need to do to install HVAC equipment. But they have other needs that we might be able to serve with this existing footprint. So as we rethink that strategy and have more conversations with our dealers and understand this a little bit more, it's an opportunity for us to drive additional volume and create additional value for shareholders by leveraging that distribution footprint.

I see. Okay. Makes sense. Any questions in the audience? I am going to move on to the commercial side of the business. Okay. So let's move on to commercial. How confident are you in the guidance for high single-digit volume growth in commercial in 2023 since you started the year off with 6% growth in volume?

Yes. Well, it was 6% growth in revenue, but I think volumes were actually down in the first quarter. And the reason that it was down is because of the changeover due to the minimum efficiency. So as we get into Q2, Q3, Q4, we should see volume pick up, which we will. And we're seeing that already, and then margins sequentially continue to improve. So not just year-over-year but sequentially throughout the year. Michael, do you want add anything?

Yes. So it's high single-digit revenue growth. So it's going to be a combination of price mix. And by the end of the year, we should see volumes up slightly positive after being down 6% in Q1.

Correct.

Okay. Okay. Thanks for clarifying that. Commercial HVAC margins also started the year off extremely strong. So I guess how do we think about -- same question that I asked on resi, normal seasonal progression, how you're thinking about margins for the rest of the year in this business?

Michael?

Yes, I think we're going to see in the first half -- you're going to see a disproportionate...

Mics are killing us right now.

Shall I keep going?

Keep going.

A disproportionate amount of price mix you're going to see in the first half. Last year, in the second half, we realized a lot of pricing gains with national account contractors. That's going to kind of carry over in the first half. But in the second half, you'll continue to see more favorable mix as we transition to the new minimum SEER product 100% by Q3. Sequentially, margins will improve, though.

So this should be further evidence that we're used to combating challenges.

You guys are doing well despite this adverse situation. Okay. So let's see. Let's talk about -- the mics are back, great. So you noted that you can drive more than your original guidance for $100 million of cost savings within commercial HVAC over time. Any help with the magnitude of how much more you can get?

Not numerically, but qualitatively, yes, I'd be happy to go through that. But it's a situation where we've changed our leadership in that business. We've intensified the focus, and we just got more traction sooner rather than later. And the biggest linchpin is just product coming out of the factory. So product availability is the key. So if we can make it, we can sell it. So once again, the mission is to get as much product out of that factory as we can until we can get our second factory stood up, and then we'll shift the strategy a little bit, where the Stuttgart facility will tailor to a more configure-to-order product. Our new facility in Saltillo, will make the stockable units that will serve the emergency replacement market. But once again, I think leadership was a key catalyst in what you're seeing today, having more effective influence sooner rather than later. And once again, the end markets are cooperating. So that helps as well. But we've got a great product. We've got a great brand. We did stumble a little bit. We're getting our legs back under us, and we've got a lot of momentum behind us.

Okay. Got it. And I think you kind of answered this already, but do you see further upside beyond the target for low 20s margins in the segment in 2024?

I think it's a situation where we have long-term margin targets of 19% to 21%. And depending on how markets behave, we may be higher or lower in that range. I think the way that we're tracking right now, I would suggest that we'll be higher in that range versus towards the bottom half.

Okay. Okay. Understood. Any questions from the audience? Okay. Keep going. So you've been adding new salespeople to the organization. Is there more to come on this front? Or are you feeling pretty good about where you're at today? And so how should we think about the SG&A line over the next several years?

Yes, I think the SG&A line is going to be consistent with our philosophy historically that we're going to grow that slower than the top line. But the dynamic is going to be a little bit different, where we're going to look for opportunities to drive efficiency in the G&A aspect of that and invest more heavily in the sales side of that. So things that touch the customer, whether it be e-commerce initiatives, more feet on the street, et cetera. Those are the things that we'll make heavier investment in. We've made -- we've hired 50 people to once again go out and drive more volume. And it's an opportunity for us to fill some gaps and, once again, go chase market share. One of the biggest challenges we have with -- had with new business was product availability. And like I said, that really wasn't solved until we got to the end of last year. Now that we've got the right level of inventory with the right mix of inventory, we're adding the salespeople, there's no excuse. So we should be back on our share gain initiative. Historically, we used to target between 30 and 50 basis points of share, and now we're back on that trajectory once again. That's going to be further benefited by the destocking that's taking place in the indirect channel. So we go direct to dealer. So when the 2-step channel was stocking up, we lost share by virtue of that. Now that, that channel is destocking, we're getting some tailwinds at our back from a share perspective.

Okay. Makes sense. And you triggered a question that I should have asked, and it's not on this list. And that's supply chain.

Sure.

Where are you guys standing with respect to normalization of supply chain as of today?

No, I don't want -- I'm not even sure what a normal supply chain looks like anymore, to be honest with you. But it's a situation where it continues to get better. It's not optimal. But once again, we continue to look for opportunities to defend against some of those things that we are combating in the past. So it's gotten better. It's not optimal yet. It remains a little bit more challenged on the commercial side only because there's no electronical components, more integrated circuits. And some things are just naturally different there. So it's a situation where that -- I mean, it's a bigger challenge, but things continue to improve.

Okay. Okay. Understood. So we talked a little bit about distribution optimization earlier. Should we expect the pace of Lennox store openings to slow from here? Like where are you guys at with the Lennox store strategy?

No, I think over the course of the last 2 years, that's changed a little bit. During the pandemic, we had less foot traffic through the stores. But we had elevated levels of revenue, meaning folks that were using our e-commerce capabilities more. We now have more than $1 billion of revenue going through that e-commerce platform for our residential business. So I'm not certainly sure we add more -- significantly more brick-and-mortar. There may be more virtual type of distribution points that we'll create. We're going through and optimizing that now. If you were to ask me that question a year or 2 ago, I would have used Watsco as a proxy with 500 or 600 locations, us with 250, and I would have said we're halfway there. Now with the changes that we've experienced through the COVID experience, it's a situation where I think that dynamic has changed a little bit. So we're leveraging the technology to the extent we can. We may add -- most likely, we'll add more stores, but it may be a different strategy going forward.

You might not need to get to the Watsco level, basically.

Correct.

Okay. Okay. Got it. Can we get an update on the progress with the European refrigeration divestiture? I know there's probably not a lot you can say, but I have to ask the question.

No, certainly get the question, but whoever thought we would be in the process we'll have that wrapped up by the end of the year, most likely. But where we need to be, we've got a few suitors that are going through final due diligence processes now. And we'll go through and hopefully have more to talk about, maybe not necessarily in the second quarter call but certainly on the third quarter call.

Okay. Fantastic. More on the topic of portfolio M&A, do you see the potential for resi HVAC industry consolidation in the near term? I feel like some of that debate has died down a little bit. But would love to get your perspective and whether or not Lennox would be a participant.

Yes. I think we still feel there's maybe 1 or 2 moves that are opportunistic in North American light commercial and residential HVAC. So there's some opportunities that are out there, but it takes 2 to tango. So it's a situation where we're going to continue with our organic initiatives. There may be some bolt-on acquisitions that we'll look at that may reinforce our strategies, whether it be with our distribution strategy or some other things that we can do on the periphery, maybe with commercial service remains an opportunity, maybe exploring some things on the refrigeration service side. But there's opportunities out there for M&A. But as far as the large consolidation in North America, like I said, I think there's probably 1 or 2 moves that might be out there and available. And we feel, given our track record of solid execution, that we would be a good consolidator.

Okay. Okay. Got it. Any questions from the audience? I will ask one more time before we wrap up the session. So free cash flow conversion is a challenge. And I think for you guys, you have a situation of CapEx is slightly elevated because of things that you're doing internally, and then everyone is facing this issue of excess inventory as well. So how should we think about the path to recovery of free cash flow conversion back to that 100% level?

Yes. I think, yes, this year, we have a little bit higher capital expenditures. We're going to invest about $250 million in capital expenditures this year, $100 million for the new factory for commercial in Mexico and then another $50 million for refrigerant change in 2025. We'll see that capital expenditure kind of drift down back closer to the normal $100 million next year. And then by 2025, we should be back to the 90% to 100% of free cash conversion. So we have clear line of sight to that. It's definitely objective, and we're focused on it. So it will be a bit of a journey between now and 2025, but we're focused on getting back there.

And have you guys talked about the potential like quantify the savings related to opening the facility in Mexico or how large that facility is, if you could talk about that a little bit?

Yes. There will be some savings, but it was really more about capacity play than it was cost savings. There will be some cost savings. There's some labor arbitrage that we'll benefit from. But part of that gets consumed by logistics cost of moving that equipment back to the United States and Canada. So it's not necessarily about cost savings, although there is some, but it's more about capacity and then remissioning our manufacturing strategy in commercial. So the factory in Stuttgart will make configure-to-order product. The factory that will stand up in Mexico will support emergency replacement. And that will help us reinflate that area of the business as we get into late 2024 and '25.

Okay. Okay. Understood. I don't think you guys did any share buybacks in the first quarter. You're guiding for just $100 million to $200 million this year. Is there room to take that up over time, particularly as CapEx comes back to a more normal level?

Yes. We use that as a lever. Historically, what we've talked about is our leverage being between 1.5 and 2. As we've gone through and reassess things and as the cost of debt has gotten more expensive, we're rationing that down to a range of 1 to 1.5. So what we'll use is priorities will remain, number one, to invest in the business to drive profitable growth and share gain. But we'll use some for capital investment. Once again, we're spending $250 million this year. Hundreds, usually, are our normal capital spend. We've got an incremental $150 million this year, and then we'll increase the dividend steady with earnings as we've historically done. And then we'll use the share repurchases as the governor to achieve our desired leverage targets.

Okay. Perfect. Any questions from the audience? Okay. Well, I mean, we still have 5 minutes left, and I've gotten through this entire list. Joe, you're remarkably efficient. So I guess maybe the last thing I'll ask is, is there anything I didn't ask that we should talk about or any message that you want to leave the audience with?

No, I think as we entered this year, once again, there were some questions around the uncertainty around residential end markets. And one of the things that we talked about at our Analyst Day in December was some built-in resiliency in the commercial side of the house. And once again, that's what we're seeing play out now. So if I was going to leave you with anything, it would be a few things. One, we've pulled the curtain down on the chaos. So the tornado and the pandemic are all behind us. Those are no longer excuses going forward. We're healthier with inventory than we've ever been on the residential side. We still have some opportunities on the commercial side, but we're addressing that with additional capacity that we're building. But it's more about profitable growth and going out and attacking share the way that we used to before the tornado, and we're back on that trajectory. And you should see that. You saw some of that in the first quarter results. You'll see more of that in the second quarter and throughout the balance of the year. So we're really excited about what we have in front of us.

And when you think about share gain, you just reminded me of another question, are we going to go back to this more smooth like 30 to 50 basis points a year? Or could there be a bit of a step change to regain what you have lost because of all of these exogenous issues?

I don't know if I would attribute it to that. I think there's opportunity for us to get share gain, largely because we had to stall a lot of our business development initiatives simply because we didn't have product available. So it's difficult to sign up a new customer and then have to explain to them that we have limited supply. So we had to stall a lot of our corporate or business development opportunities for new business simply because of product availability. And we've solved that. So once again, what we have in front of us is really exciting. There's a lot of excitement, anticipation. Even with challenging markets in residential, we feel that we have a lot of momentum this year that we think will continue to propel us forward.

Excellent. Well, Joe, Michael, thank you so much for being here. Appreciate the support.

Thanks, Nicole. Appreciate it.

Thank you.