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

All right. Good afternoon, everybody. I'm Joe O'Dea. I lead the multi-industry effort at Wells, and we're very happy to continue the discussion with Lennox. We have Alok Maskara, who is the CEO; as well as Michael Quenzer, who is the Vice President of Finance. Thank you both so much for being with us this afternoon.

I think to sort of kick things off, let's just talk about sort of current state of the environment, sort of to catch us up. You're about a year into the role, sort of things that you're focused on right now, Alok?

Great. Thanks, Joe. First of all, thanks for having me here. Good to be back here. I lived in Chicago for many years, I did my MBA here at Northwestern. It's always fun to be back in the Windy City. On the current state of environment and LII, yes, I've been a little over a year and it's been a good ride, a good journey, still learning a lot. Nowadays spending a lot of time shadowing our dealers and learning how actually HVAC sales work. And that's because a lot of the early blocking and tackling and heavy lifting is done, and now we are getting ready for setting the next stage for our growth and transformation. On the current state of affairs, nothing has changed from 2023 outlook compared to what we had mentioned in our Analyst Day in December last year. We are still expecting residential sales units to be down mid-single digits. That accounts for any news that you might hear about [ RD ], AHRI, less warm summer or anything else, it's all within our range of, yes, the units are still going to be down mid-single digits for us. On the revenue side, we still hold that the revenue is actually going to be up given the benefit of mix and pricing. And on the commercial side, again, very similar. We are expecting despite the Q1 drop in our volume, our volume is going to be up for the full year. revenue is going to be up probably high single digits to low double digits. Units are going to be up probably low single digits, and none of that has changed, nor is our financial forecast. Overall, from where we look at it, industry continues to behave very rationally. So we are pleased with how the industry is evolving. We are delighted that things such as [ SEER ] change, which were a hot, hot topic last year are barely discussed and mentioned right now. So that's good for us. And it just shows that industry is mature enough to handle these regulatory changes without any significant disruptions. As of Lennox, we continue to have great passion and great confidence around our 2026 targets, which we have talked about as being 18% to 20% ROS for the entire company that's made up of 19% to 21% ROS for each of our segments and 1% corporate cost. So we are steadily marching towards that direction. And we hope to make Lennox to be a boring part of your portfolio with few surprises, and all we would do is meet our numbers both for short term and long term.

Perfect. One of the things that would have been difficult to envision back in December when you were thinking about the guide is what we're going to see in terms of interest rates continuing to go up and what we see in terms of credit tightening. And so since sort of the development of those challenges, what are you hearing from the dealers? What are you hearing from kind of customers out there about risks or pushing out anything?

Sure. Yes, the interest rate environment is challenging from especially people who got used to sort of 0% or very, very low interest rates. Two impacts that it has on us on interest rates. One is willingness of our channels or dealers to hold inventory. That willingness is coming down. So that's why you see destocking. It's not just because of interest rate, of course. A lot of the destocking is because supply chains have improved and lead times have gone down. But dealers and distributors are just less willing to carry inventory. So destocking in some cases maybe more than people had expected. Second is on the consumer sales perspective. As you know, about 1/3 or so of the system sales are financed, financed either by the -- from the dealer to the consumer, but most likely from one of the big providers, which private labels a dealer or a manufacturer financing aspect. In those cases, for the consumer financing, there's been a bit of tightening, but the majority of the impact has been on higher interest rates. And from a manufacturing perspective, typically, these are higher-end units and the manufacturers have all kind of worked towards helping our dealers convey the right value proposition and help them establish programs with direct lenders. So net-net, we haven't seen a decline in approvals or people who are using financing choosing repair versus replacement. We haven't seen that shift. We keep watching out for that, but we are noticing the ability and willingness to hold inventory on the channel has gone down. Hence, the current destocking is probably a little more pronounced than many people expected.

Then I wanted to switch to pricing and to start on the commercial side and then get into the resi side. But I think some efforts to sort of evaluate and then adjust some of your approach to pricing with some success, I think, evident in commercial so far. So maybe if you could start there and just on the commercial side, what you've been doing on the pricing front?

So maybe Michael can start on that and then I'll jump in.

Yes. So I have a first-hand account of some of the pricing actions we did in commercial. This time last year, I was actually in the commercial segment. I was the segment CFO and quite talk a little bit about some of the pricing actions we did, maybe it helps to go back to this time last year. What we are seeing in commercial this time last year was a wave of cost increase coming into the business very quickly. And the pricing that we were able to get at that point was really pretty fixed. We had national account contract pricing that was locked in for several years. We've built a very large backlog of orders we had taken over 6, 9 months because of production constraints within our factory. So a lot of that backlog hadn't been priced yet. So what happened was cost was coming in, margins were deteriorating. Obviously, that wasn't sustainable in the second half of last year. So what we went out and did is we worked with our national account customers. We worked through some of the pricing changes there as well as we repriced a lot of our backlog. And you started to see that benefit in the second half of last year where the price cost equation got a little closer to neutral. That is carrying over into the first half of this year. And then we're also seeing a benefit as we transition 70% of our products to the new minimum tier efficiency. We're starting to sell that in Q1 of this year. that also has a significant price increase. So definitely making a lot of progress on the price on the commercial side. We still have some ways to go, though.

Sure. Thanks, Michael. And on residential side, again, if you go back 4, 5 years, few things happened. 4, 5 years ago, when we were recovering from the tornado, we signed a lot of national account contracts to protect ourselves from any like the shifts in share as we were struggling with deliveries. And then during COVID and super inflationary environment, we did a lot of what I call brute force pricing increases. All of that now gives us an opportunity kind of starting June 18, when we announced the price increase, probably the end of this year to clean that up and do more sophisticated pricing, more surgical actions to do 2 things. One is we love our national accounts and we just need to bring them up to the national like appropriate margin because they haven't in many cases, been paying fair market pricing given that the contracts did not have price escalators in them. And second, in cases where we did 10% price increase across the board, we need to go back and really see what the results have been. In some cases, maybe the low end has been priced too low and the high end has been priced too high. We need to kind of adjust that together. Net-net, it's really good for both our share and for our margins to be able to make these adjustments. And we expect that we will start 2024 on a much cleaner slate where we would have a majority of the national accounts appropriately priced, and we will have much more sophisticated pricing approach. That will involve more flexibility to our local leaders and branch managers and greater scrutiny over national accounts. The smaller pricing decisions will be decentralized, larger pricing decisions will be more centralized and we are working through that whole transition. But it's a really big opportunity for us and we're excited to kind of bring that forward.

And what kind of overarching tools do you have to help your folks at in the field who will maybe carry a little bit more responsibility and flexibility around pricing to avoid that you don't wind up in a situation where people are undercutting pricing when they show in just sort of those tools that will manage it from the 30,000-foot view?

Sure. So I think pricing and this is I did pricing for a while when I was a consultant, so I know this. First of all, we are very fortunate that our data is very good. We have a single ERP based system. We are a homegrown company, no acquisition, but data has been very, very clean. So we have data of any level, wherever we want, any type of analysis we can do. Where we were lagging was in the expertise. So currently, we have some external forms help us with the expertise and at the same time, we are building internal capabilities. So by end of the year, we'll have the external firms transition out, internal capabilities, including new leadership. So we will have the appropriate processes, the appropriate dashboard and more importantly or perhaps most importantly, the right incentive structure where people in our field are more margin-focused or margin dollar focused versus revenue dollar focused. So that's like a longer transition plan. But we are confident we've got the right data. We have got a short-term boost in expertise and then we are developing our own, and we will adjust the incentive plans for next year going forward.

And then on the price cost side of things, I think it's something that's respected about the HVAC industry is a long sort of legacy of not taking prices down but unprecedented inflation that we've seen as well. So when you think about sort of the prospect of what we see it even in sort of freight costs might be coming down or some raw mats that are coming down, are there parts of your business where you would see sort of price down as a result or where you'd see more pressure from customers?

Highly unlikely, Joe. I think we have to also keep in mind that refrigerant costs are going to go up. If you think about the new design coming up in 2025, we'll have a lot more sensors and component costs are going to go up in there. Also, if you go back and look at our own margins, our residential margins in 2022 were lower compared to sort of '18, '19 time frame despite all the price increases. So we haven't fully passed on inflation, labor materials and putting it all together. I think it's highly unlikely us or the industry will need to bring pricing down. I think it's more likely that the price/cost spread increases to catch up to the right margin level that would be higher than what used to be pre '18, '19 levels. The current commodity inflation going down, copper goes up and down, aluminum goes up and down, but that doesn't really change. The way the consumer buy these products and the dealer sells it to them, there is so much new other things such as labor costs, warranty costs, service costs that goes into the equation, the price of equipment is not a core driver. So I wouldn't expect any pressure there.

And then I wanted to ask one on company culture. You were speaking recently and you talked about some cultural shifts underway, and hopefully, you could sort of elaborate on that a little bit more in terms of sort of what your vision is for where culture is going at Lennox?

Sure. We have a good culture, and we were always a good company. What happened is our competitors and the industry got better, and we remain good. We just didn't change. And somewhat of a complacency set in, we lost the, I would say, the aggressiveness to win because we were beaten down after the tornado, COVID, CEO transition, so many different factors. With all these changes, we lost the energy and the momentum to win. And that's a cultural change we are doing. So we have launched 9 guiding behaviors, which are basically totally consistent and is actually driven by our 3 core values. And our 3 core values have been announced since the company was founded. Some of those, for example, is customer experience. We have lost passion for serving our dealers who is our main customer. And how do we make them win better in the marketplace? How do we make the dealer experience better? So today, 40% of our sales comes through e-commerce. I mean, that's huge. We are not trained or we haven't fully thought through how do you make that experience better. We are still trained to take doughnuts to the dealer shop on every Wednesday, right? We do that, but how do you make that along with the other pieces. Another one is accountability. A few times that in the beginning I would ask question, I would get answered like, well, we lost market share because of COVID. Why? Did competition not have COVID? I mean how did we lose because of COVID? I think we were so beaten down. So like entangled in our own changes, we lost focus. So that's the change we are going through. This takes time, as you all know, it doesn't happen overnight. Early signs are very positive. Michael and the finance team have helped us put a balanced score card-based operating process, very similar to what you would have expected from a company like Danaher, except we do a lot more on talent and a lot more on growth focus. And we are using those operating systems to drive accountability, a company culture change, and the results are going to be very good.

I think digital doughnuts could be a cost saving exercise. I wanted to switch to sort of the labor side. I think Stuttgart was sort of the epicenter of some of the challenges. Just talk about kind of where you are at this point in the effort there and sort of getting just regard to the operating condition that you want. We continue to hear about labor constraints in the market, I'm not sure the degree to which that's sort of filtering through the organization.

Michael, do you want to take that?

Sure. Yes. So I'll speak to the situation at Stuttgart. So again, this time last year, we're having production issues in that factory predominantly because we couldn't get enough headcount to support the production. Since then, we've done significant wage increases as well as just structural changes to make it more of a career based within that factory. And we've seen good results. We now have the right level of people in the factory. We've changed the leadership. So really no concerns from leadership or people within that factory. Really, it's still about supply chain challenges that we're seeing within the commercial space. Some key components continue to be disruptive, limiting our impact. But we are seeing production to improve since Q1. And as Alok said, by the end of this year, we should see sales volumes positive within commercial.

And beyond commercial on a labor sense, Joe, we are fairly stable. One place that's becoming more challenging now is Mexico is everybody is now reshoring or near shoring or doing something and people are putting a lot of emphasis in Mexico. So that's the only place where there's a bit of a yellow in our retention and getting talent. But generally, we are green across the board. We pay people well. We are a good company to work for. Many of our employees are like second, third-generation Lennox employees, things that you wouldn't like you find in other companies. So internally, I think that's beyond us.

And what is nearshoring meant for you? Has there been a lot of effort on the supply chain to bring things closer and sort of where are you on that journey?

One reason we suffered more during the COVID supply chain crisis than others is because we had a lot more suppliers from overseas, especially China, as part of our material cost reduction efforts. And at one point, it was over 30% of our components were coming from China. That number now is closer to 10%, a little higher than 10%. Our goal is to get it to 10% by another 6 to 12 months from now. And we have made a huge amount of difference in dual sourcing and nearshoring that. In addition, Mexico has always been a big manufacturing hub for us. That continues, but most of our production is in U.S. So when it gets to a majority of our production is in U.S. But Mexico, we used to make some of our very standard, high-volume, high labor content products as well. But nearshoring for us, the most beneficial impact would be reducing the dependence on suppliers from China, which often get hit by tariffs and their significant lead time issues.

And I'll open up for questions. Just raise your hand if you'd like to ask a question. Otherwise, I can shift to the regulatory front. So let's first start on SEER and sort of minimum efficiency and kind of the mix impact that, that has on pricing. How much of that is in sort of what we see in revenue? What is the time line sort of having that impact fully in the P&L?

Yes. See, if you look at our Q1 results, we did have favorable mix. Revenue is up about 5% for the enterprise, both residential and commercial contributed to that favorable mix. And most of that favorable mix was related to selling of the new minimum SEER product. In Residential, we sold about 65% of our equipment to the new minimum efficiency standard. We still have about 35% in Q1 that will transition over the next quarter or 2. In Commercial, it's a little less than 50% in Q1. Again, that will also transition to about 100% over the next couple of quarters. So absence of all other variables within mix, we should see that continued mix grow from Q1 on.

And then also on the regulatory front, when we think about the refrigerant change coming in 2025, just walk us through some of the key steps between now and then for Lennox.

Yes. So six months ago, I was a lot more concerned about the refrigerant change. And since then, there's more clarity and there's less concern, we are pretty ready. Yes, we have to go through testing and nearly 100% of our product need to be tested and recertified. When I say 100% of excluding furnaces, right, things that make a difference here. So need to be certified and retested. But we've got the design down. I think we got like understanding of the refrigerant supply chain, which is looking better than what I had expected 6 months ago. So at this stage, I don't expect it to be a big disruptive change for us or for the industry. Now obviously, people who execute well are going to gain. People who don't execute well are going to lose. But beyond that, this is not what fear mongery would have led us to believe 6 months ago. I think there's going to be pretty seamless. Large players are going to execute it very well. Refrigerant is not going to be in short supply. And by the way, these things are really not flammable. If you take a match stick or a lighter and blow the new refrigerant on it, it extinguishes. It doesn't light on fire. I mean those kind of tests with our dealers and all is going to give everybody comfort that let's just go through it seamless. Let's not have a massive prebuy or a supply chain disruption, nor should we have any delay. Now some of it could be just me being the optimistic CEO that I am, I think my peers and others are all now coming to the same conclusion that this would be less disruptive than we all envisioned 6 months ago.

And what is the additional investment and I guess sort of run rate cost consideration around this, if you think about any sort of CapEx that's planned around sort of serving the new refrigerant and then how you think about higher unit costs related to the new refrigerant?

Sure. The capital cost for the transition is all baked into this year guide, some may spill over. The total amount maybe not change, but I think it's all baked into this year's extra CapEx guide. And it's mostly around refrigerant storage, refrigerant testing and sensors in our facilities. Unit cost is a little early to give a number. But it's not going to be significant. It's not going to go up like 20%, 30%. I mean it's going to be a smaller change. Some of it just comes down to the final cost of all the components, compressors that are not finalized yet. But again, I don't expect it to be a step change. I think it's going to be more of an incremental change.

And this is generally the kind of thing that could see a prebuy ahead of the unknown around a new refrigerants, who knows what kind of propaganda is out there on things catching on fire. What are you thinking as sort of a pre-buy setup?

We don't know. 6 months from now I'll be more clear. But at this stage, a lot of the prebuy gets driven by cost versus emotion. And the 2025 units, if they are not much more expensive than 2024 units, which is what we believe right now, then I think the prebuy would be limited. And it's good for the supply chain and for our suppliers and everything else if we just have more of a [indiscernible] transition. There was not a heavy prebuy as we went into the SEER transition either. So I do think in this case, the prebuy is likely to be limited to nonexistent. We'll see.

And then if we switch over to kind of the just resi HVAC side of the business, and if we think about sort of the outlook for the year, you started in December, talk about sort of down mid-single-digit kind of volume here we are. What additional information have you gotten? What were the big uncertainties at that time that maybe don't seem to be playing out. I think the AHRI data last week maybe came out as a little bit of surprise to some folks down '24, kind of how you view that?

Yes. For us -- let me just go to the key factors that impact our resi volume guide. So the overall guide of mid-single digit unit change has not changed for us, it remains the same. I would say new home construction is a little better than we expected. We expected new home construction to be down more. I think the replacement demand is holding as steady as we expected. So there's been no change in that. Destocking is kind of about where we thought it would be maybe a shade worse but not noticeable yet, and it's too early. I think destocking continues into Q3. So I don't want to get too much emphasis on one month of data. And then finally, the weather is my favorite question. I mean, yes, whether it's a little colder this time, but it could be a little hotter tomorrow, right, we don't know. But even if weather has some negative impact on this year unit, it will still be overall in the same range of mid-single-digit decline in units. And on weather, I always like to say, in 2026, when we are hitting our numbers, nobody would remember whether May of 2023 was a warm weather or a cold weather. But yes, there is some weather fact, which is likely to be negative this year because last year was also unseasonably warm.

And then what did you -- what about from a cycle perspective? Because if we look at the unit volume strength in resi from sort of 2020 to 2022, I think their concerns that they're still sort of more to give back from some of that strength. And so down mid-single digits really would be much more benign than some of the concerns that are out there. So as you think sort of bigger picture and cycle, just how are you thinking about the underlying support for the kind of demand you're seeing this year?

Yes. We could always be wrong, but we don't see a replacement cliff coming anytime soon. And we have done the math. Remember, we have one of the best visibilities because 70% of our sales are direct to dealer and [ cardi-type ] data, 30% are indirect, I think AHRI data and we have real data that we can calculate based on units and we can monitor and we do monitor run time of units that we have sold or are installed in the field, but they're still running more than they were doing in the pre-COVID. Putting it all together, I don't -- I'll be very surprised if there is a replacement cliff coming. Remember, what you saw extra sale in '21 and '22, a lot of that was just extra stocking that's coming back down right now. You're going to see that big impact over 6, 9 months' time frame. At the end of the day, for the industry, remember, replacement cycles are getting shorter, industry for the past 10 years has grown between 4% to 6% per year in unit terms. Remember that as units run longer and weather gets more extreme, replacement cycles will get even more short. And finally, as heat pumps and other technologies come in, that also reduces the average life of the unit. If you take a growing population, weather extremes rising, replacement life shortening and the extra stocking that happened in the past 2 years. you would see that there is no replacement curve. So we have done this model with lots of sensitivities, lots of data, models as good in excel as they can be. So I can't tell you with 100% confidence, but we don't see a replacement cliff coming.

And then I wanted to pivot over to heat pumps. And I think what you've talked about is roughly 10% to 15% of revenue and something that you expect to be at sort of 25%, 30% of revenue around 2026. So a pretty rapid mix shift. I think you also have a cold-climate heat pump that you're going to be launching. So can you just talk about kind of drivers of that mix shift, maybe cadence of seeing that happen, visibility into that sort of 25% to 30%?

Sure. Yes, on heat pumps, we are underleverage. So our competition sells more heat pumps as a percentage of revenue than we do. And it's purely driven by geographic mix. Our market share in the Midwest is higher than our market share in the Southeast. And that's where the kind of the heat pump differences lie. So markets in Florida is much lower than our market share in Minnesota and Wisconsin and heat pump penetration in Florida is much, much higher than they are. So that's kind of where our heat pump penetration is lower. All we need is the technology to catch up and cold-climate heat pumps to start penetrating the Midwest and other regions and heat pump will become a greater portion of our sales. What we like about heat pumps is it's more technologically advanced. We have superior technology when it comes to cold-climate heat pump. We like the fact that the replacement cycles are shorter. We like the fact that it's a more technical sale. So our dealers who are more advanced and are more sophisticated, have an edge up. So the long term, it's good for our share. We are excited about it. We are leading in the cold-climate heat pump technology, and I think the product is going to be launched along with the new refrigerants in 2025 or right around that time. So that's going to be sort of the big step change in heat pump technology that's going on.

Got it. And so next year may be more modest, but then it would be '25, '26 is when you could see much better gains there. Got you. And then I also wanted to ask on remote monitoring. And you touched about this a little bit in terms of modeling kind of replacement. But what percent of units sold today are remote monitoring capable? And then what percent of those are actually activated in the field?

Joe, that's a huge opportunity for us. So first of all, even the attachment rate of our thermostats to our unit is very low, embarrassingly low. So I'm not going to give you a name, right? Now within that, if you think of how many of those are actually capable of remote monitoring? It's all of them, but how many of those active? It's also a very small number. We're not talking about a small tier of people who have the thermostats that's capable of remote monitoring, attached to our system and then those who activate it. You're talking in single-digit percentage by the time we come to that. To us, that's a huge opportunity because we don't have the friction between a manufacturing and a distribution that goes to a dealer. Part of the thing is that over the past 3, 4 years, our highest in units were in the more supply chain crisis, semiconductor shortage, Marshalltown tornado, that's where all of these units are built. So we just haven't put enough focus on selling more of these units, promoting more of these units and training the dealer. So going forward, and we haven't given a public goal, so we resist the temptation to do that now, but we have an internal target to increase that penetration of thermostats with the unit, thermostat data remote monitoring capable and are being used to grow that. What it does, it gives the dealer a significantly sustainable advantage over other dealers because they can see before going to the house, what's wrong, what spare part they might need so they can put that on the truck before they get there, bring in filter change alerts, which is a big business for them, done the right way. But they actually have a filter change alert that goes to the homeowner and to the dealer. And at the same time, sometimes even do preventive maintenance saying, "Hey, we think your motor is making too much noise. We'd like to come and look at this from a warranty perspective." So it's very untapped. It's like our e-commerce web business. We were not putting a bunch of focus putting there hovering at 10% and during COVID it just jump. Now we have like 40% of our sales coming through e-commerce. So I see a similar ramp-up here. We just need time that we have now to focus on the product that we didn't have to be available now. Very excited about our S40 thermostat. That's a game changer because every room can have monitor solution, both from indoor air quality and temperature that we can do.

And does it need to be your thermostat in order to have that remote capability?

Yes, it does.

Okay.

And that's the network externalities we like. And honestly, that's only which is technically feasible and the advantage we bring in by not going to a distributor.

And then switching over to the commercial side and starting on emergency replacement. I think as recently, I think at the December Investor Day, you're still in a position where you really weren't able to serve that market. And so if you could just kind of walk us through where things stand now? I think historically, it was 30% or so of the mix. And so what the timing is of getting back to that?

Yes. So if you go back and historically look at all the reported lost sales volume that we've had almost all of it is exclusively in this emergency replacement space. We specifically exit out here to protect our national account business, which we did very successfully. Over the next couple of years, we're going to be moving back into it. Right now, we believe we have less than a 5% share of what we see as the 40% of the market from urgency replacement. And as we get our factory #2 online, this new factory commercial in the middle of next year, kind of late next year, it's going to be exclusively focused to build products for us to move back in emergency replacement, where we can win back that share that we've lost over the past couple of years.

And what's the strategy for sort of getting there? Is there going to be a period of time where you want to do some of that out of Stuttgart? Or does it make more sense to sort of keep that dedicated to national account and wait for Mexico to go into emergency replacement a bigger one?

Yes. Later this year. So we're going to start to do some test markets as we get a little more healthy in our factory in Stuttgart. We'll forward deploy some inventory out into some local markets this year, build back that capability so that next year when we can produce at full scale, we'll be able to be back in that and gain share faster.

And I think we also have to retool our sales force to do that in 4, 5 years is a long time. I mean we have -- some of sales people have forgotten how to do this and there are so many new people. In parallel to all those test marketing that Michael is mentioning, we've got to retool our sales people to make sure we have the capabilities and the skill sets, the tools, the brochures, the price points, everything else to reenter the market. So we're going to be making significant investments in that to be offset with backroom efficiency that we'll drive.

And then on the margin side of things, you've talked about $100 million of EBIT opportunity over a few years to kind of drive you back to the margin structure you wanted. I think you've talked about being halfway there. So achieving halfway there, a lot faster than envisioned. What's the other $50 million? What sort of makes that up? What's the time line to be thinking about it?

Sure. Yes. So we measure we're about $50 million to $60 million into the $100 million challenge. The remaining $40 million is going to be a combination of continued price cost benefit. We're still not back to parity on the price cost equation. We also have a lot of high cost to serve. We're doing everything we can to get the product to our customers as fast as possible. A lot of manufacturing efficiencies to produce as much as we can right now. So as we bring out some of those costs over the next couple of years, we'll generate the remaining $40 million of profit, close out the $100 million. At this point, we're really more focused on the 19% to 21% long-range operating targets that we're going to try to execute towards.

I mean at this stage, given the run rate, we should be done with $100 million by the end of the year and then focus on the 19% to 21% long-term targets.

Yes. I think that brings us to the end of the time. So thank you both very much. Really appreciate you being here.

Thanks, Joe. Appreciate being here.