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

All right. Thank you, everybody. I'm super excited to be up here with Lennox. We have the CFO, Michael Quenzer. Then we have the Chief Technology Officer, Prakash Bedapudi. Thank you guys so much for joining us.

Thanks for having us.

There's a lot of -- or maybe several players in the U.S. resi and light commercial HVAC market. And sometimes from us on the outside looking in, it's difficult to identify the differentiation at the business level. So I guess, why do you guys think Lennox is positioned to win?

Sure. Yes, I think that's a great question to start off the discussion here, especially for those of you that aren't that familiar with Lennox. So there's really 2 main competitive advantages we see at Lennox. I'll talk about the first one and then hand it off to Prakash to talk about the second one. But the biggest advantage we have is our direct-to-contractor channel that we offer. Essentially, what that allows us to do is be a manufacturer and a distributor. And that really gives us a few advantages. First, structurally from a profitability perspective, if we perform well, it gives us the opportunity to have a manufacturing and a distributor margin, which is good. We've been a really good manufacturer. We've been spending a lot of time being a better distributor, making a lot of investments in that side of our business. So that's helpful for us. But really, what's important to the contractor is about connecting closely with them, being a great partner with that contractor because when we win market share, we win market share because we help that contractor win in their local market. It's really 3 things that we're focused on helping that contractor win. It's about fulfillment. Several years ago, we were at about a 90% fulfillment. That means 10% of the time, we weren't able to get the product to the contractor when they needed it. And it's critical that we need to get up to 99%. So a lot of focus there. It's also about investing in their technicians around technical support and training. On technical support, we've launched new AI chatbots, helping their technicians become more efficient. And also on training, we have local areas throughout the country where we have technicians come in, we invest, we train their technicians. This is all about making their technicians more efficient. If they're more efficient, they can do more jobs, they can win more market share. And then the last piece of the offering is about having a full product offering to the contractor. And that includes things like water heaters that we've done a new joint venture with. It's also expanding our portfolio in ductless products with Samsung, and it's about parts and accessories. But really, that's kind of the next level of the portfolio. And Prakash has done a really good job designing a good, better, best strategy. Maybe you can share kind of some of the things we do there.

Yes. Thank you, Michael. As Michael alluded to, great products are necessary, but not sufficient to win. We also need to have great distribution, manufacturing, supply chain and e-commerce systems. We invested in all of those over the last couple of decades. And just on the product, if you think about heat pumps, there's been a lot of talk about heat pump. Samsung certainly joint venture fils as a ductless heat pump need. Traditionally, the ducted heat pumps, we've been very strong. We won the DOE cold climate heat pump challenge a couple of years ago for residential. Two days ago, we announced we were the first one to meet DOE cold climate heat pump challenge for 15 tons and above category. That's important to us, investing being a best-of-breed focused HVACR company, all our R&D dollars go into one area, which is HVAC. And we out-innovate our competition. That's very good points on the board. If you look at the product portfolio on the high end, where it's furnace efficiency, air conditioner efficiency, heat pump efficiency, rooftop unit efficiency, we lead across the board because of the work we've done and innovative work. And it doesn't end there, right? As you all know, market is made up of 70%, 80% is entry level. There, we need to be cost competitive. So that's where we sort of operate on the both ends of the spectrum, having the industry-leading products on the high end. At the same time, we are at scale. We have the very competitive manufacturing footprint, and we have the purchase power. So we make very cost-effective entry-level products as well. So we compete on the both ends of the spectrum and mid-tier. Another thing we've strategically decided a dozen years ago is to own our own controls, IP and all the algorithms that make the product differentiate versus competitors and give a better performance. So as we -- for example, not only the system-level controls, unit controls, we've also gone into designing our own people call power electronics, which is variable speed controls to drive the compressor to variable speed as well as indoor motors and outdoor motors. Having brought that technology in-house, we're able to disaggregate the monopoly of some of the component suppliers and buy more commodity motors and compressors using our products, power electronics or variable speed drives to bring the cost down. That's the way you can move the technology down to the middle of the product life cost effectively. So those are the things we've done that differentiates us.

Thank you. I appreciate that. From the outside looking in, one of the things that makes resi HVAC a good business for all of the companies is that dealer network. Can you maybe talk about that? How difficult is it for dealers to switch OEMs? Is it an exclusive relationship? Do they usually sell multiple?

Yes. Shares don't shift a lot in our industry. There's a lot of investments that I just talked about, both from either the OEM or the distributor into the contractor. So there's normally a longer-term relationship that exists. But most contractors will have primary and secondary brands. A lot of times, if there's a supply disruption, we've had a tornado in some other instances where some competitors have had issues on regulatory changes where you see a supply shift and you see some of those contractors move to another provider. But in general, it's really about that long-term stickiness of working with that contractor and helping them win in that local market. That's really what drives share within our industry.

Maybe moving towards the market and specifically resi HVAC. I think it's been maybe a bit of an eventful week for resi HVAC. July AHRI was under pressure. A couple of your key competitors are talking about more pressure. I think there was a pressure expected in Q3. It seems to be coming through sharper. I guess like what are you guys seeing in the market?

Yes. So overall, we have, on the residential side, 75% of what we do goes direct to the contractor. We consider that sell-through. 25% sell-in. So there's a little difference between sell-in and sell-through. There's obviously a lot more volatility historically on the sell-in versus sell-through. And we've seen some of that compression on the sell-in. And we've known coming into this year that it was going to be a bit of a noisy year going through this regulatory challenge. We knew there was going to be destocking. And as we went into the year, all of a sudden, tariffs came in, and then we had to navigate tariffs. The weather was cold. We had a 454B canister shortage. New construction houses started, existing home sales were soft. So you have all of these variables kind of hitting at the same time. I mean, in general, we feel that there's a bit of a temporary inflection here in the industry, nothing structurally different. There's a lot of distributors that have 410A inventory that they need to sell through by the end of the year because the regulatory change would make that obsolescence and of no value. So near term, we see some of those challenges. We think longer term, though, structurally, the industry is still very disciplined in how we all go to market, and we're looking forward to getting into next year.

Yes. No, I appreciate it. I think everyone can appreciate some of the challenges on sell-in. Obviously, some of the numbers from a year ago were incredibly strong. But can you talk about what you're seeing on that -- on the sell-through side of the house?

Yes. It's really all those variables I just talked about. It's like definitely new construction is down. That's about 25% of what we're doing. If you look at the industry, maybe 10% of the industry is planned replacement on the residential side for existing home sales, that is down. So you have 25% to 30% of the industry on a sell-through that's down. And then you take some macroeconomic conditions in there on just the homeowner electing to maybe do some more repairs in the short term that will eventually turn into a system replace. But near term, we think you have a little bit of challenge on the sell-through. But long term, structurally, our industry is still well disciplined and ready to grow.

When you kind of think about that homeowner, there's obviously a lot of uncertainty facing the consumer today, and that could lift and improve and rates could support that as well. So kind of how do you think about that more of a transitory headwind versus potential risk that the level of price being pushed, obviously, because of cost inflation, tariffs, metal is just destructing demand that could maybe have longer duration behind it.

Yes. I think the good thing is that demand destruction is either in our industry, you don't have to repair to replace it. When you repair it, eventually, you're going to have to replace it. So it's not like there's a great substitute for HVAC unless people don't want to have heating and air condition. So I think that's a good catalyst. But overall, we also see some variables, we think, megatrends where the average life of the system continues to get stressed and shorter. And as you do these repairs, they're not going to last as long and the cost of the legacy gas, the 410A gas is going to put more pressure on the cost of repairs as well as electricity usage and cost. If electricity costs continue to go up, there's going to be a better return on investment for homeowners to do a new system where they'll get a 10-year warranty, they'll get some energy savings. And so we see that cycle just reverting back to normal.

Yes. No. And then maybe switching over to light commercial. It seems like you guys on Q2, and I think a couple of others as well, took a bit more of a positive tone on light commercial versus maybe the prior year. I think the industry data, Dodge is starting to get it better, maybe it's a little momentum. I guess what are you seeing there? What gives you guys confidence that maybe the first half of the year was the bottom?

Yes. Now I don't know if we hit bottom. We've had 11 months consecutive in AHRI shipments being down. But what we've seen on our side is some good share recovery, especially on the emergency replacement initiative. So very positive trajectory there as well as us getting back on the offensive on the national account side. For several years, we've been supply constrained. We now have a new second factory up and running. That's allowed us to get back and attack these 2 different verticals, large national accounts with custom equipment and emergency replacement with the new product coming out of Mexico. So we're really pleased with some of the progress we're making on attacking some of those channels. And as we talk with large national accounts, they have a lot of initiatives for the next several years to refresh all of their units. So we see a multiyear refresh happening on that side of the business as well as a multiyear share gain on emergency replacement.

Yes. I guess following on that, that emergency replacement, any way to, I guess, frame how much of an impact on that opportunity is coming through this year? And then on that multiyear, like what is the 3-year, 5-year opportunity as you look out?

Yes. We're seeing some really good traction this year. We didn't quite hit the full season. It's a bit of a seasonal product, so we'll see some more of it next year. But it's really -- we have all the structural pieces in place. We have the quote within 2 hours. We can ship the next day. We've hired 30 salespeople. Really, it's about now retraining the sales force to be -- basically to go out and be hunters and attack on this. In the past, they've been a bit defensive trying to explain to customers on why we don't have product. Now it's just about transitioning the organization to be on offensive and winning back that confidence that we can deliver, and we're seeing good traction on it.

How has it been more -- you guys obviously brought capacity online to be able to serve that market. Has it been more difficult driving utilization of that capacity just given that the trends there are so soft?

No. I think our goal there was really about redundancy. We had a single factory that couldn't supply enough, and we needed to get redundancy. And at the same time, it's going to add a bit of cost productivity as we get into next year. So redundancy cost productivity were a big initiatives. And it also gave us about 20% more output initially to start to win back market share. We have enough size there to more than double our output, but we're going to do that linearly as we continue to win share. But right now, we feel really good. I mean that was a really complex operation to stand up the new factory, and it's gone very well.

Maybe just to add on, we designed a product to go after the installed base of the emergency replacement, we call it Raider that fits on one of our competitors' footprint. We gained very good traction. Then the COVID happened and we had labor issues in our factory. We walked away from the business completely. Now with the second factory capacity, we added people, as Michael said. We also put some technology to make it easy to buy those units, right? We bought a business called AES a couple of years ago. They make roof curbs. Now we can quote roof curbs, units, emergency replacement units, everything that they need to finish the job quickly. through one app, they can quote, they can get it delivered. They know where it's available with the pricing. It's speed win in the market, emergency replacement.

And maybe following up on some tech-related questions for you, Prakash. Now that we're nearing the completion of that A2L transition, can you talk about new product introductions that Lennox is planning?

We thought this -- after the big wave of A2L conversions, our engineers are going to be taking --catching a breath no. We have a very full pipeline of product innovation ideas. Let's talk about residential. We commercialized the on the very high-end cold climate heat pumps now taking the technology, optimizing it, cost optimizing to proliferate down to middle of the product line, mid-tier, maybe eventually entry tier to get to the cold climate heat pump, better integrating Samsung JV, mini splits, right, along. So on the electronics integration on the back end, we're doing cloud-to-cloud integration so that a homeowner who has appliances, Samsung appliances, Lennox split systems, they add on a mini split, all of them can be managed, interfaced with one app, unified app, that's what we're doing. We plan to do the same thing with Ariston JV for the water heaters, so that homeowner and the dealer, talk about dealer. Dealer installs mini split, they install split systems, they install a water heater. They don't want to go to 3 different accounts to order that, 3 different invoices, 3 different warranty experiences. And they don't want to deal with train the homeowner and train the technicians to deal with 3 different apps. So we have 1 unified app, one unified service dashboard through our e-commerce platform so they can look at all the assets they install. We can troubleshoot -- they can troubleshoot diagnose find the repair parts, all of those. It's about making it easy to do business with us. Those are the innovations we're working on, on the HCS side. The commercial side, again, we just won the cold famate heat pump challenge. There's a whole host of ideas, whether hot gas reheat or dehumidification solutions, sort of dedicated outdoor air solutions, some of those products we don't have in our portfolio. We're working on all of those.

Anything on AI that the company is doing to help win?

Two areas, primarily we're leveraging the technology. Number one is to improve the customer experience on our e-commerce platform, for example, hyperpersonalization. When the dealer logs in, AI can anticipate seasonally what they need based on their purchase patterns in the 10 years -- for the last 10 years. We can pre-populate their cards. They know exact. So make it easy for them, matchups, AHRI matchups, taking away all the laborious work they have to do, we can pretty much deliver at their fingertips without a lot of work for them, right? Technician app, for example, Michael mentioned, right? We launched that. There are 7,000 dealers engage with us using that agentic AI app, so they can get troubleshooting information, parts look up, step-by-step repair procedures, 24/7, wherever they are, right? They don't need to call and wait for a tech support technician to help them. Similarly, consumer on AI to improve the customer experience, they can come to lennox.com, look up warranty, find troubleshooting information, error code information if the thermostat displays something. any number of things that they would be dependent on calling an agent on the call center, now they can self-serve, right? That's on the customer experience. Within the enterprise, lots of productivity, internal productivity, every business process, whether it's SIOP, sales inventory ops planning, whether it's distribution planning, network optimization, lots of areas where we see sales price optimization, right? -- we're looking at so many use cases. It's exciting.

Outside of technology, another place the company has been investing in is M&A and specifically the aftermarket. You guys recently announced that you purchased the HVAC division of NSI Industries, a parts supplier. I guess why is that a good business? Why is it important for Lennox? And how do you create value?

Yes. So we're really excited with this acquisition. And a couple of things. First, it's met our strategic goal of being a better distributor back to servicing to the contractor. We want to give a whole offering of products, which includes parts and accessories. When you look at other large distributors, 40% of their sales, HVAC distributors, 40% of their sales are parts and accessories. It's only about 20% of what we do. So it's an underserved market. It's something we've looked at wanting to do for a while. We've been doing organic investments internally to drive this. And then now we're going to be able to accelerate some of this with the inorganic opportunity with like the opportunity from synergies. We think there's some cost synergies with 50% of the product being manufactured. We're going to be able to help kind of drive that as well as combining their distribution network into ours. They have a single point that can deploy A items into our stores, B items within the next day, we can ship and then C items within 2 days. So a lot of work on the distribution side of joining our existing parts and accessories with this business. This acquisition gets us nearly to $1 billion in parts sales with it and has a really good potential for ROIC at the multiple that we've bought it at.

Is there anything you can provide on any end market where NSI has outside exposure? And I guess, kind of anything you could share on how the business has grown in the last few years.

No. I think overall, they continue to have both a commercial and a residential presence, a little bit more on the new construction side, which we think is good. It gives us, again, that opportunity to move into a bit of that vertical for the parts and new construction. But really no specific vertical that is outsized. What we just like so much about it is that we have a lot of parts that are complementary or similar parts in our stores that we'll be able to replace with Supco or Duro Dyne parts. So we'll get some synergies from that side of it and then also be able to hopefully leverage the brand through our channels and have other products that we can extend that brand through and sell more parts with that brand.

I appreciate that. Should we expect more M&A on the aftermarket? Is that still a focus? Or do you feel like $1 billion is a good scale we definitely want to grow more.

No. We definitely want to grow more. We want to get to that 40% of our sales, either organically or inorganically. I think right now, we'll digest this. We'll combine both that organic initiative that I talked about, we've been growing with this inorganic, have a very focused internal parts and distribution business. What's great about this, too, that we inherited through this acquisition, a culture that knows how to sell parts and accessories. Traditionally, we've been a very good HVAC manufacturer and even an HVAC distributor on the system, but the parts and accessories is a much different culture, training people and getting people excited to sell $10 parts versus $2,000 systems. So that's a big piece of what we're doing here. And once we get that internal structure and foundation set, I think it's a great platform that we can use M&A to further bolt on to it where we see good deals.

Yes. No. Maybe kind of just turning back to the market. There's obviously been a lot of choppiness, both in the macro, but then I think with you guys with all the channel dynamics as well in resi HVAC. Has there been any rate of change on share, whether it's the big players we know about or also potentially from smaller foreign low-cost players. The U.S. does import HVAC from China. I imagine that business is pressured.

No, we haven't seen a big share shift. And it's hard to tell exactly, but it seems like when I read all the industry articles, everyone is kind of navigating through this temporary near-term shortage the same way. There isn't one big winner in the situation from the Asian imports. There is ductless products that are growing, but we think that's more of a complementary addition to the overall installed base where you might have a lot of rooms that need a new ductless system more than a displacement of a ductless to a ducted system. We think the ducted system still is the most cost-efficient system the way the U.S. has designed homes, and we think that will continue to prevail. But at the same time, ductless systems are 10% of the industry. It's only about 2% of our sales. We are really excited that now we've aligned away from a previous China manufacturer to Samsung. It has a really good brand recognition. Our dealers are really excited to sell this product next year. We kind of missed the market a little bit this year because we transitioned in with the new R32 gas. Most of the market was selling to 410A, but we're ready next year to really get some good sales through that Samsung. Anything you'd like to add on?

No, I think the product portfolio is really competitive. Our dealers really like both brand as well as the product differentiation Samsung product brings. And we're also integrating, like I said earlier, easy to integrate for the dealers and homeowners having a unified app that they can see if their Samsung SmartThings app or a Lennox Home app, iComfort app, they can see all the systems in their house seamlessly without having to switch between -- and the dealer dashboard. Dealer can install Samsung Mini Split and our ducted split in the home. And all of them can be ordered through one invoice, get delivered, warranty experience, the same between both. And with the service dashboard, they can remotely diagnose both the equipment. So all of that makes it easy for them.

Appreciate that. And with maybe like share trends somewhat stable in the market, you guys, it seems like are more comfortable with a better growth outlook, at least for resi relative to some of the other peers. Is that just the sell-in, sell-through delta versus some of the other competitors that you talked about earlier? Or is there anything else like Lennox specific that is just causing a potentially better trajectory?

No, I think some of that, but I think it's also just about our increased focus on the customer and that contract. And back to how I started is that if we help that contractor win in the local markets, we win. And we have been very focused on listening to that contractor and doing everything we can on fulfillment, inventory availability, mobile app, all of these services, technical training, these are the things that help us grow better. But it's real hard in the near term to really judge what's happening. Long term, though, we feel that structurally puts us at an advantage to grow faster.

Yes. My -- we published, I think I asked this on the last conference call. My caution was that I think your guys, the resi business in Q2, I think it was down 9% on a plus 1 comp. And in the back half of the year, the comps turned quite more difficult, and it's a roughly similar volume expansion. Like what am I missing in that?

Yes. I think it's challenging within our industry to sell-through. It's not like we have a backlog. So we make some assumptions out there. Normally, what we do is we go through a quarter. We still have September. It's a big month. We'll go through September. We'll see how it all plays out. Lots of puts and takes within our guide, both from tariff costs and tariff mitigations, price cost dynamics, the growth rates on the commercial side. So we'll go through. We'll take a look at everything after we close the quarter. We'll come out and see if we need to make any changes to the guide, but there's always puts and takes on all variables.

Thank you. I appreciate that perspective. Anything on the latest 232 tariff increases? Does that have any impact on the gross exposure?

Yes, I think that kind of leans into that comment I just made on the guide that we are seeing a little bit of cost increase on the 232, but we're also doing a really good job mitigating costs, both on the tariff side as well as taking some SG&A cost actions. So lots of cost efforts to mitigate costs where we can. And Prakash, do you want to add some stuff you're doing?

No. I mean on the same lines, we're sourcing commodities differently but negotiating incumbents, moving the volume, rebalancing the factories, moving some product lines back and forth, all of the above to mitigate tariff impact as much as possible. And overall, with all the puts and takes, more or less our tariff exposure remains the same even with the 32 expansion.

Yes. I appreciate that. And maybe just kind of on the tariff policy. The USMCA is coming up for review in 2026. You guys and just the whole industry is obviously very tied to Mexico. Is that something that you guys are thinking about or planning for that perhaps there is changes to that a year from now?

It's hard to scenario plan for that. I mean right now, what we have is a diverse manufacturing base. We have already existing 5 factories in the U.S., more than 50% of what we do in the U.S. You're already getting tariff a lot of that cost through Mexico that's superseding the USMCA. And I think what we've learned and others have too, that the complication of the intricacies between Mexico, Canada and the U.S. are very well mid's been trillions of investment across that network. So I think a big disruption there would cause a lot of problems. But it's hard to see how it would play out. We'll tackle that issue, I think, if it comes.

Yes. No. I appreciate that. The industry and Lennox obviously included has really just a fantastic track record of price. Do you -- how do you see price shaping up here? Just kind of you talked about earlier, we are and maybe this transitional period of pressure? Are you confident that the industry will continue to act rational through that?

Yes. I think so far, we've seen very rational pricing from all the OEMs. A lot of these OEMs have the same input costs as we did. They're seeing the same tariff pressures. They're seeing the same investments they had to make to switch to the new refrigerant products. So very disciplined on the industry right now pushing price. I expect price and cost to continue to go up. I mean I don't think inflation is going to stop there. think the next level will be early next year when we all come out and announce our next level of price increases. But for the balance of the year, I think we're pretty well set from a price perspective. But next year, we'll do our annual price increase. And just like we always do, we expect similar results by others.

Yes. No. I appreciate that. Q2 was really good margins. You guys very strong incrementals despite obvious cost inflation in the market. Can you kind of maybe talk about some of the drivers there? Was price cost favorable? Was it some of the productivity actions that Prakash and the team have been driving coming through?

Yes, I think it's a combination of all of it. Yes, we saw both price cost and the mix benefit for the new products really drop through, and we had really good factory productivity, and we've been able to hold off tariffs either through negotiations with vendors. And we continue to do that. We think tariff costs will elevate a little bit in the second half. It's kind of built within the guide. But the team is really focused on cost mitigation and maintaining that price/cost dynamic, maybe not to the exact degree we did in the second quarter, but overall price/cost positive is our goal.

I appreciate that. You guys talked earlier about some of the JVs that are going on, Samsung on mini splits, also the water heater JV. I think you guys talked about Samsung having an impact in '26, water heaters '27. Any way to frame how big those opportunities could be? And why does the water heater come through a year later?

Sure. Yes, the opportunity on the ductless side is it's 10% of the industry. It's only 2% of what we sell. And we really see some good traction, especially on the brands. Like we -- our dealers are really excited on that brand. So we think there's a lot of opportunity to get to that 10% of our sales through the ductless. And then on the water heaters, really, what we're going to do is just launch that early next year. The reason we haven't talked about it being a big impact because it's coming from a dollar 0. We don't sell a single water heater now. But we think over time, it's going to be a good growth vector for our organization, especially as these technologies continue to converge. At some point, we're going to see both the HVAC and the water heater system converging that I'm sure Prakash can explain better than me.

Yes. And with the electrification megatrend, when we move from gas heat furnaces to heat pump technology to heat the homes, same concept applies to the water heaters today, predominantly, they're in the resistance heaters, which is terrible we have to heat the water or the gas heat going to a refrigerant paper compression cycle, heat pump cycle, that's the right way to heat the water in the future. It may start out as a stand-alone heat pump cycle to heat the domestic hot water. And eventually, you can see the convergence where you have a refrigerant circuit for heating the home there, and you can combine that with the hot water heating with one condensing unit, essentially doing both.

I guess on the resi side, how does the company kind of educate the market on this? Because it feels like there's obviously a lot of efficiency that you guys are investing and bringing to the market. But I imagine the average homeowner has no idea and might care about the upfront cost, not the ROI over time. So how do you make them understand or the dealers just this -- how important this can be?

That's part of the uniqueness we have with the one-step distribution. where we know the dealers. We've had generational relationship with them. We invest as much, if not more, on the training, how to sell new technology, how to lead with new technology, not just as much as with the product, right? So when we did the SunSource product or whatever, the new furnace, new heat pump technology, we invest -- our territory managers are spending as much time training them on how to do that sales. Do the sales pitch of the kitchen counter. With energy costs going up, electrification happening, I think the efficiency of a heat pump significantly better than a gas burning furnace on a water heater. So those are -- that's part of what we excel at training the dealers so that they can have that conversation.

And also, we do a really good job with the utilization of identifying rebates and tax credit and having that part of the selling to buy down that cost of that system. So we identify all that for them so they can sell to the homeowner.

I appreciate that. Almost every company at this conference is talking to macro uncertainty and just difficulty -- not a ton of visibility, hard to call things in the market. You guys have to deal with that, but then there's also the channel and then there's also the refrigerant changeover that's going on. So I guess what do you guys do to try to gain market insight? And when you go out and talk to the dealers, how do they sound? What's their sentiment through this transitional period, as you called it?

Yes. I think overall, the dealers are also calm and discipline. They understand there's a lot of noise in the channel right now. We have these Lennox Live dealerships where we invest several times in the year. We bring in all the dealers. We have forms. We have roundtables like this where they can talk with other contractors and we hear the stories. In general, I think they see the home where they'd like to see a lot more -- less stress because of interest rates coming down. But I also know that they know this is a bit of a near-term challenge that the industry is fighting through to get rid of all the 410 inventory. And long term, it's still a product that's going to be necessary. And this repair versus replace dynamic, if there is one, is short term and -- but all feel generally confident as we go into next year.

Well, we're up on time. I appreciate the conversation. Thank you.

Thank you so much.