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

All right. Great. We're excited for our next session. We're here with Alok Maskara, the CEO of Lennox. Alok, thanks so much for being here today.

Thanks, Joe.

I'm sure we have a lot to talk about. But Alok, I think you have -- you want to start with some prepared comments, and then we'll dig in.

Sounds good. Thanks, Joe, for having us over. Good morning, everyone. I have a few slides. I'm going to cover that in less than 10 minutes, so we have plenty of time for Q&A. Again, if I haven't met you before, I'm Alok Maskara. I'm the CEO of Lennox. I've been with Lennox for about 3.5 years. And I'll tell you this before I start is, I see more potential for Lennox going forward than what I saw 3.5 years ago. And let's just talk about why. For those who are not familiar with Lennox, let me just quickly ground you on where Lennox is. We have 2 business segments, BCS and HCS, Think of them as building climate as commercial, home comfort as residential. That has shifted significantly over the past few years. BCS used to be single-digit ROS. Now it's higher ROS than HCS. And we have boosted the portfolio through acquisitions, partnerships. And one thing we're very proud of in this chart is our ROIC. Our ROIC, which is probably the highest in the industry, just speaks to the disciplined capital allocation philosophy that the company has followed for many years, and I can promise you, we'll continue following in the future as well. The other thing I'll point out on this slide is from an adjusted profit margin perspective, the same slide, if you had looked at it about 3, 4 years ago, the number was around 15% versus 20%. So we have delivered good profit growth along with better-than-industry growth on the revenue side. Our growth algorithm going forward is while there's lots of noise and questions around the industry, our differentiated factors are going to be 4 growth initiatives, and those are around heat pumps being #1. We are undersized and underpenetrated in heat pumps compared to the industry. Just to give you some numbers, our heat pump sales are less than 20%. Industry heat pump sales are close to 1/3 of the total. So we have incremental opportunity. The reason we had not penetrated fully is we just didn't have enough products to cover the entire range. And we have launched some products. We are launching some more, and we think this is going to be -- continue to be a differentiated growth performer for us. Emergency replacement, number two. This is one where we just didn't have capacity. We are putting up a new factory in commercial. We put in a new sales team. Early signs in 2025 are very good, and we see this as a long-term growth contributor, a differentiated growth contributor for Lennox. Third for us is the 2 acquisitions we have done, only 2, relatively small bolt-on, one on the parts space, one on the service space. And both of those will continue increasing our attachment rate. Again, our attachment rate right now is in the teens, and it should be 30%, 35%. So a huge growth opportunity. And finally, we have been expanding our total addressable market through JVs: Samsung JV, which we launched products this year and will have a meaningful growth impact next year; and then the Ariston JV on water heater that we are going to launch next year and will have a meaningful growth impact in 2027. Each of these, if they contribute 50 basis points of differentiated growth each, that's what our growth algorithm looks like, and that's what we like to target. I already touched on parts and accessories, but if you just focus on the recent acquisition, we are very excited about this acquisition. We bought this business at what we believe is a fair and attractive price. We think the potential of this business to continue being accretive to our margin, accretive to our growth rate and accretive on an EPS perspective remains very strong. There is no reason this business margin would not expand even further as we integrate the business, substantially reduce the number of locations and look at truly leveraging the sourcing benefits of being part of a much bigger corporation. Super excited about this acquisition. And if I were to wrap up the prepared comments by just saying, we believe we have a framework that's about growth acceleration because our end markets remain attractive irrespective of where 2025 is headed given the regulatory transition. Our margins remain resilient. And you saw in the Q3 results, even in a declining market, we were able to eke out margin growth. And we believe the opportunity to grow margin remains so that we can earn manufacturer's margin and distributor margins. Our execution is strong, has been strong and will remain strong as we work through all differentiated different factors. And finally, we have a direct-to-dealer network, whereas technology grows, as more digital penetration happens, as controls become a bigger part, as AI drives greater penetration, we are naturally advantaged compared to others. And finally, what sets us apart compared to anybody else is our talent and our culture. 130 years old, I'm only the eighth CEO in this history of this company. We'll be around for a long period of time. And the culture that we have about putting our dealer first continuously improving our customer experience is what separates us apart. So thank you for allowing a few moments for prepared remarks.

Yes, that's helpful, Alok. thank you for going through that. So let's get all the resi questions out of the way. And then we'll talk about some of those things as well. So like this year, clearly a transition year, hard to call the market. What are maybe kind of some of the things that you think about the past year that you could have foreseen? And then also as you're thinking about the market for next year, like what's your base case?

Sure. I'll tell you from an investor perspective, I wish we had not increased guidance after Q2 results because at the end, we land up where we had started the year. We beat Q2 and we raised guidance and that kind of hurt us. But we actually had fairly good insights going into the year, and I wish we had not done that. But let's talk about operations side, which matters more. The whole canister shortage issue, we should have done a better job with it. I mean we are direct to dealer. We should have had better forecasting. We should have seen through that because that is the single biggest reason on why there was more repair versus replacement across the industry. Our dealers just didn't have enough confidence, and we should have trained our dealers better so that, that wouldn't have happened. The third thing is I think we overplayed the 454 versus R-32. It's just a technical engineering thing. That caused investors some heartburn, that caused our contractors some heartburn. We should have just talked about they are both really good refrigerant and moved on. What we did very well as an industry and as a company is made a safe transition, did better than the R-22. So it all comes down to is I look at this as any other crisis, which is a good way for us to look at lessons learned and do it better in the future.

Can you expand on that last comment? Just when you say overplay it, what does that mean exactly?

Our industry over analyzes everything. And I think part of it is they're both good refrigerants. One company chose one, others chose the other one based on just their own supply chain and how it looked at it. They both meet the regulatory requirements. Each of us will talk about why it's a better solution. And I don't think that just helps the contractor who gets confused with all the different marketing pitches. I just -- now, our salespeople will continue pitching why 454 is better than R-32. I just don't think it helps the industry having that differentiation.

Got it. Okay. That's helpful. And then I guess as you're kind of thinking about next year, right, what's baked into your guide for the fourth quarter is about, call it, mid-20s type volume declines in 4Q. How has that trended relative to your expectations? And then how do you feel about like inventory levels heading into next year?

Yes. Sure. I think from a sell-through perspective, it's been as we had been expected. Sell-in is hard to call out at this point in the quarter because with year-end rebates and all of those things, it could make an impact. A lot of our distributors are not going to earn the year-end rebate that they do. So the 2-step might be a little softer than what we would have expected. But that's often artificial because everybody has growth rebates and things like that, that are baked into it. Net-net, not meaningful enough to make any difference on as we think of '26. A softer Q4 probably will work towards a better 2026. But at this stage, it's all about stock up, stock down, stocking, destocking versus the underlying demand, which I would say I'm pleased with. I mean the underlying demand, some doomsday scenario think like it's just catering and it's not. So that's the part that gives us a lot of confidence.

So let's talk about that, right? So this year, if you take like the AHRI shipments, you're going to probably net out somewhere around that 7.5 million unit level. As you think about like 2026 and then just where units have gone over the last 20 years -- I mean, I have a hypothesis, but like in 2026, like is the base case that we kind of stay at these levels and then get back to normal? Or like how are you kind of -- how are you thinking about it?

Sure. I'll tell you, so AHRI -- and you already know this, AHRI units are about sell-in versus sell-through, right? So we know sell-through is higher than sell-in. So everybody would agree. Now whether that number is 8 million or 8.5 million, it just depends on how we analyze, but we know it's higher. Let's just say for today's purposes, we think it's 8 million or a little higher. That part will remain the same next year. If anything, that will grow because this year, the 454 transition caused some dealer to lose confidence, and I think that changes, right? Along with then, you make assumptions on new home construction, existing home sales. And that's what we focus on because 70% of our sales are in that number. So I see the 7.5 million to be growing next year. And just the lack of destocking makes that positive, right? So that's the way where we stand. Now with -- if you talk to 5 companies, you'll get 5 different views. Everybody's views are shaped by their own experience. Because we are more focused on selling to contractors, we probably have a more positive outlook on it. But I see next year numbers to be growing compared to the 7.5 million number this year.

Okay. Can you talk about that whole dynamic on the conference call that you're like, well, inventory levels are not going to normalize really until the second quarter. And some of that -- the big reason for that is the dynamic that we're kind of shifting into the shoulder season, right? So how much did this like hot versus cold or cold versus hot dynamic really impact that statement? And then ultimately, when we get to the second quarter of next year, how do we think about like the margin impact, things like excess inventory at the OEM level?

Sure. I think the difference between ending at end of this year versus ending in Q2 is probably 1 month because of the hot versus cold as you talked about, right? But just to go back to what we said is that on the sell-through or a one-step channel, destocking ends at the end of this year. On 2-step, it will end at Q2. We still stick with that. And by the way, the way we got to it is not based on opinions, but based on data where we looked at our own sales date versus warranty registration date when we know the units got installed, analyze it 10 years worth of data on that and then use AI models to kind of predict it. So all I'm saying like this is not Alok's view made up on thin air, but it's really driven by registration data, sell-through data and [indiscernible]. Now I wouldn't overanalyze our statement versus somebody else's statement because they're both probably true based on what they look at it. Remember, our 2-step channel are typically smaller independent contractors. Others may not have that kind of a split. They might be focused on different type of 2-step distributors. So I think we all probably say the thing that we've analyzed and understood very well. But to answer your question is, it isn't hot and cold driven, shoulder season driven. And still the difference between end of this year and Q2 is probably 1 month of sales, not 4 months of sales.

Got it. That's helpful. So then the last question I asked you was around margins and like the margin impact for 2Q. So because you did run your factories in the third quarter, there's a view that this is going to have like a margin impact in the second quarter of next year. Like how would you respond to that?

Yes. So I'll tell you, this year, we built more than we sold. Next year, we'll sell more than we build. There's an absorption impact. Good news about our industry is majority of our costs are variable. We're not a heavy fixed cost industry. I'll just give you an exact number. Under absorption will have a $10 million impact per quarter, so Q4 and Q1. And by Q2, we would have caught up. So there will be no impact on Q2. Now keep in mind -- so this was baked into our Q4 guidance, so no new surprise. On Q1, remember, we stubbed our toes pretty badly in '22...

LIFO?

Exactly. And the BCS where we had the impact of Saltillo start-up and all that. I think it starts washing out. So it's not a big number. But yes, it's a number, and we are cognizant of that. We still feel we are doing exactly the right thing by level loading production versus trying to jerk and start up and stop production just to meet some artificial year-end numbers. So...

Yes. And I guess I should have clarified this earlier, but like the buildup in inventories in the third quarter was predominantly in the residential channel. Correct?

That's right.

Okay. So the $10 million impact basically is a wash with the LIFO impact that you had a year ago in the fiscal.

And we had inefficiencies for our R-454B conversion as well, which we called out because that's the time we were converting lines still one at a time. So...

Yes. Not to get the nitty-gritty of the first quarter, but I'm sure many people are listening. The -- there's also the benefit that you have from the inefficiencies that you had in BCS, which was, I think, like a $7 million impact in the first quarter of last year and that's...

That's right.

Okay. So that should be...

And keep in mind, we'll have carryover on price mix that will benefit Q1 the most.

Got it. So I know we've started going down the path on some early thinking on 2026. Some of the breadcrumbs are out there. Any other thoughts that you want to give across the portfolio on early 2026?

Yes. I'll just tell you, listen, there's lots of uncertainty this year. There's obviously carryover uncertainty going on next year. Our goal would be to deliver 2026 where our revenue is higher than 2025, number of units sold higher than 2025 and our margin ROS higher than 2025. Now we got to give all of this into a package thing. We'll do it when we announce Q4. But our planning assumption are those 3 that I just shared. So we'll try and break it down more in January when we announce full year results.

And are those comments on higher ROS for both segments? It's easy to see the case for BCS. It's maybe a little bit tougher to see the case for HCS?

Right now, it's for both segments. And if you go back and look at our Q3 results, despite significant volume challenges, we did okay on margin. Remember, starting next year, we are redoing our distribution network and footprint, and we'll have some benefits on how we manage our logistics and transportation costs that goes live in Q1. So I do think some of that's baked into this statement as well.

How do we think about the price mix into next year? Because you're definitely going to get some carryover benefit from the transition to 454B and you saw pricing step up or price mix step up as the year progressed. So what's kind of like the initial expectation for pricing? And then will you continue list pricing next year, even given the fact that like you saw a pretty substantial increase in pricing across the business this year?

Yes, I'll start with the last one. Yes, we fully intend to have a price increase. The cost of metal has gone up compared to what -- where we were just a few months ago. Our health care costs continue to go up. We do see secondary impact of tariff impacting many of our cost. So I do fully expect our price -- list price increase to happen across both segments. We have seen some competition already announced on the commercial side. I expect others will do the same. But we are facing genuine inflation. I mean inflation has not gone away. And I think that would be reflected in the price. The other piece of that is, yes, there's a price/mix carryover. There's kind of multiple chunks to it, right? I mean one is the 454B versus 410A, then the tariff-related pricing, and we do fully expect that carryover benefits to continue in 2026. Just by definition, you will see more of that in the first half and second half, you start lapping yourself. So...

Yes. That makes sense. And it's fair to say -- I don't want to put words in your mouth, but you should be able to price above inflation for next year?

The industry has always done that. So that would be our goal.

Great. I'm going to open it up to the audience in a second. But let's just talk about repair/replace. So you had -- you had already made some comments around the canister issue really influencing what happened this year from a repair/replace perspective. How has that continued throughout the quarter? Any other comments you want to make on the dynamic there?

Sure. First of all, I'd say over the long-term trend, whether it's 10 years or 20 years, replacements are more than repair. And I think that trend. This year, that didn't happen. So let's talk about that. The biggest factor was contractor confidence in the conversion. I mean they didn't have canister. We're not really sure about 454B. They just repair 410A for now. So I think that was one. Consumer confidence also played a big role. And the consumer confidence was around: I may not be in the home for many years; I'm not sure about my job, maybe I'll have to move; yes, let's just repair it even if it's uneconomic decision. So those both factors played a role. The contractor confidence, we are pretty certain will go away and has already gone away. People are now -- 100% of the units are -- close to 100% are 454B and the canister shortage is behind us and the training has gotten better. The consumer confidence we're going to watch out for. We'll be looking for, obviously, published index, existing home sales and other factors to see where we are. So I do see what happened this year. This is not where we have scientific data, I can tell you monthly trend, right? A lot of this is anecdotal. A lot of it's in our parts and supplies sales. So I can't have like month-by-month trend. But I'm pretty confident that this is a blip on a long journey and the long journey is about more replacement versus repair. And that's because the labor required to repair is much more skilled, much more scarce and much more expensive.

What's your take on the fact that systems have just gotten way too expensive over the last few years. And I've even had some people tell me that ducted homes are going to move to like air conditioning systems that are either hanging-in windows or mini split units. Like what's your take on this whole dynamic?

Yes. Well, the window shakers, as we call them, the window units or the mini splits, they have also gone up in price. So if I think about it, they haven't remained [ same price ]. But if you come back and look at, yes, the units have gone up in price. So let's acknowledge that. A large part of what the consumer is saying is not the price from the OEM to the distributor or distributor to contractor. What they're seeing is the contractor to the consumer. And we are seeing quite a few dynamics there. Let's just call a few of them out, right? Post-COVID, average quote per job was like 1.2, which means if you gave a quote, you had 80% chance of winning that quote. That number historically was close to 2 to 3 quotes and the win rate was 30%, 40%. We are seeing a trend back to normalization there, which usually also means that the dealer channel has to give up margin. No different than car dealers and others that had similar. During scarcity, their margins are the one that increased the most. So I do see the consumer pricing coming down. I think a lot of that's going to come from competition at the different levels, not from OEM, whose margins have actually not expanded substantially over the period from COVID to now. It's more the inflation side. At the same time, we are arming our contractors to talk about the benefit of replacement versus repair, promotional things such as warranty, especially around higher-end unit. So we are arming our contractors to do better. Now the fear of ducted home going to ductless, it's unreasonable. I just don't think that can happen practically. Will you see more hybrid systems? Yes. And I think a lot of that's driven by site discharge units, homes in California and other pieces. But net-net, that works better for the industry. You can't get mini-split installed in $1,000 either. So mini splits -- and we are very big on that now with learning through with Samsung. Those are pretty expensive as well.

I agree with your comment on ducted versus ductless for what it's worth. I'll open it up to the audience. Any questions from the audience? All right. I'll keep going. Since we're talking about HCS, and let's say, in an environment, I know that you've said this already that your expectation is that margins will grow. If we're in a flat to modestly declining environment, are those expectations that you still will get margin expansion in HCS?

Yes. And I think the reason it's qualified, yes, it's kind of flat to decline depends on how much decline, right? I mean at some point, we might run out of it. But if we're talking about 1 or 2 points decline, yes. I mean I think our potential to make manufacturers margin plus distributor margin has not changed. And we are in a fairly long-term trajectory to continue improving that. So we have made good improvements over the past 3, 4 years, and I think that trend continues. It's not just due to pricing. A lot of it is due to productivity, material cost reductions, which we couldn't focus enough on during because of A2L conversion, that's back in play. And our manufacturing productivity has also lagged behind as we converted these lines. So I do think extra focus on productivity is what we are putting together, including on SG&A. So the answer is yes.

Okay. Great. Let's talk about some of the things you started us off with. And specifically, I want to talk about the Duro Dyne-Supco acquisition. So interesting to lay out the parts opportunity. Just maybe kind of help us level set how big your parts business is today, where it could potentially go, the strategic rationale of the deal and how to think about like the potential accretion from it?

If you think of overall across Lennox, parts are a little over 10%. So just think of its teens in revenue, right? If you were to look at a good distributor, they're probably 30% to 40% parts. So we have a significant gap between where we are versus that. A lot of that in this comes down to is having the right part at the right place, the fastest shipment. A contractor is not going to wait for us to find parts for 2 days. They need it when they need it. So going back to some of the improvements we are making on our distribution network, that applies to parts as well. We just didn't have enough scale or the expertise or the mindset that comes from Duro Dyne-Supco acquisition, where they are fanatic about saving the contractor 5 minutes on install time by having a different type of a screw, a different type of a hangar, a different type of a connector. Equipment manufacturers like us don't think like that. That's not how our salespeople are trained to. So that's the one we're excited about using Duro Dyne-Supco and their DNA to manage our overall parts business while investing in distribution, while investing in that. That business, again, margin accretive when we bought it, should be close to a 30% margin business when we are done. Overall, as we grow from this teens to over multiple years to our entitlement, which at minimum is 30%. I think that's a great journey for us to continue focusing on. Our 250 stores used to be called Parts Plus for a reason. Now is the time we can actually deliver on that promise of it being Parts Plus to sell more parts through that. But that involves a lot of changes and investments that we've already made, including planograms at store, training our salespeople, having a dedicated parts and supplies sales team because given a choice, our salesperson will sell a $1,000 condenser versus a $20 capacitor. So how do we have the right kind of training mechanism and people who are incentivized to sell that $20 capacitor and sell 50 of those. I mean that's what we have to work through. So lots of hard work ahead, but I'm excited about the potential.

Great. And you made a comment saying that this was a lot of investments that you already made. Are there additional investments that you need to make with this acquisition to fulfill the dream of increasing from 10% to something much higher going forward?

Not from an SG&A perspective that we'll see. Yes, we'll have to invest a little bit more in like inventory dollars. But given that I'm carrying so much more finished goods inventory, you won't notice it. I mean it's within that range of that. So yes, we'll do some of those. But remember, at the same time, this is a business where we also have 8 to 10 points of margin expansion opportunity. So any investment we make will be much, much smaller compared to the margin improvement opportunity we have here.

So you mentioned that kind of like their DNA is to be fanatical about helping the contractor. What do they have from an asset base today that actually helps you bridge the gap between 10% and 30%?

So from an asset-based perspective, first of all, they have really good brand loyalty. Duro Dyne, very, very well known on the commercial side, whether you are hanging ducts in here. Since we made the acquisition -- by the way, we already look at ducks and how they hang it and what kind of different connectors we put together. And Supco from just pure brand recognition. Imagine those products now in every Lennox store displayed well, sold well, our salespeople trained well and the sales reps and the salespeople who truly know how to sell parts, along with good fulfillment capabilities. We can only enhance all of that while bringing the sourcing savings because we actually buy more motors than they buy just because you're a big OEM, we buy more capacitors than they buy, we buy more switches. So it's a winning combination. Now the only thing is it's a smaller acquisition, which helps us go through the integration properly and leaves room for more. we have more in the pipeline for us to expand in that category.

Can you talk about one of the other initiatives, the emergency replacement business? I know you've ramped up Saltillo at a time when like, look, the light commercial markets haven't been great this year, right? So how do we kind of think about the contribution going forward now that you're -- I think you're fully ramped up, the share gain opportunities? And like what kind of volume environment do you need in light Commercial to really kind of see the traction that you want to see?

Sure. So first of all, let's take a step back, and you've known this longer than I've been here, Joe. If you think about our Commercial Rooftop business, we lost share pretty steadily from like 2018 time frame until 2023. '24, we evened out. '25 for the first time, we will have a really meaningful positive share gain. '24, we eked out share gain and a large part of it is driven by emergency replacement, but also driven of some key account win back because we now have capacity. We delivered growth despite the industry being down in Q3, and we'll do the same thing for full year. So we'll obviously continue that trend, realizing that we were not live on this initiative until middle of the year. So we are still ramping up on that. We're doing it by region by region, Chicago, then Minneapolis, then Denver, then Atlanta because we want to do it appropriately. We can't disappoint our contractor. So I remain bullish. And we've talked about emergency replacement. Let's say it's about 40% of the market. It was only single digits for our sales. So we have a long way to catch up for that. And I think this tailwind continues for us for many years. The good news for us is the same contractor who does residential often also does commercial. And we let them down for past year, and they are really excited about now having a full portfolio. And that also strengthens our residential business and makes our market share more sticky. So lots of benefits here.

That's super helpful. And great to see the traction in the recent quarters. One of the questions that we get as well because of the disruption that A2L caused this past year is you've had one competitor who didn't have the canister issues who's gained some share. And so the question we get is like, well, is that competitor going to be potentially disruptive to the industry going forward with additional share gains? And how do you respond to that?

Yes. First of all, let's -- last year, we called out temporary share gain for us and everybody else, right? And this year, we would acknowledge that the temporary share gain is no longer there for within practical reason. That's because in our industry, shares don't just shift much. Remember, this is an industry where every player gained share every year, which means nobody gains share every year, right? I mean it just like a flattish share market and the channel loyalty is very strong. A Lennox dealer who's a multigenerational Lennox dealer, is not going to switch. I mean, it just doesn't happen. So from that perspective, I'm not concerned. That competition brings a lot of good things to the table. One of it is they're very price disciplined. One of the things is they're very focused on using technology as a differentiation. And we like that about the industry. That's true for pretty much any competition that you talk about in our industry is let's use technology as a differentiation. Let's use our controls, our warranty as a differentiation. Let's not get into a price war. So we like that.

So I'm actually curious, you bring up your -- the stability of the Lennox dealers. There had to be some frustration this year, I would guess, with your dealer network, just given the demand environment, the canister. So you're saying that you didn't see a lot of like your dealer network going outside of like the Lennox offering to other brands this past year. Is that a fair statement?

I think that's really a fair statement because the canister shortage was not a Lennox issue. The canister shortage was -- everybody who dealt with 454B had the canister shortage, right? So I don't think that impacted anybody more or less than us.

You all just felt it the same?

We all felt it the same. And that's why the only person who probably gained share was the one who did not have it. But they suffered something else last year. So it kind of normalized it out. I think the frustration with our dealers was probably more around training their workforce, having them the confidence. And every time we talked about the industry not doing well, they get worried, too. So as an industry, we just owe it to our contractor base to train them more, educate them more, give them the confidence that, "Hey, industry goes through ups and swing, but it's a solid industry." And I think that's what we're all doing right now.

Got it. So my last question is really just around free cash flow because you've had some odd inventory dynamics this year. You had to take down your free cash flow guidance for the year. As you think about 2026, it would seem that working capital should be a tailwind, but how are you thinking about the benefit that you could potentially see in free cash next year?

Yes. I mean, listen, the excess inventory that we have, we will clearly convert that into cash next year. We'll give you full detailed guidance on that. But yes, I mean, we fully expect to convert that extra inventory into that. We will invest some inventory in parts that I mentioned earlier, like there will be some offsetting pieces in that, there'll be some offsetting on emergency replacement as we ramp up, there's going to be some. But net-net, yes, your statement is accurate. And we'll balance all of this out and give you guys a walk in January. And we remain confident in our capital deployment strategy overall. And this year, the reason we're going to end up with higher inventory, it's just better for our shareholders to have a steady production over the next 6 months, which to do a big restructuring and then try and ramp up again next year. So that's the way we are looking at it.

Makes sense. Look, any other closing comments you'd like to make?

No, I'll just come back and say the 2 or 3 things that haven't changed despite 2025 is, believe it or not, this refrigerant transition went better for the industry than the last one, which is R-22 to 410A. All of us kind of saw it coming. It was a little maybe worse than we expected. As Lennox, when we held our Investor Day, we refused to talk about 2025 guidance because we said it's going to be a messy year. It turns out it's more messy than that. But for us, the second portion is we remain confident in the industry remaining a very attractive industry. I think the fears about a price war are overblown. I think the fears about repair versus replacement being a long-term trends are overblown. I think it's a nondiscretionary spend remains the case. The fact that the average life of units has continued to come down, that remains positive. The fact that Lennox has a direct-to-dealer model that's only going to get stronger as there's more digital penetration, as there's more AI-driven thermostats, as consumers are getting more brand aware, all of it puts us in a very solid space, both as an industry as a company. And I wish all our competitors, everybody trade at a high multiple, but it is a very attractive industry. So thank you.

Alok, thanks for being with us here today.

Thank you, Joe. Appreciate it.