Q1 2024 Modine Manufacturing Company Earnings Call
We shall officer, who will be using slides with today's presentation, which can be accessed either through the webcast link or by accessing the PDF file posted in the Investor Relations section of our website Modine Dot com.
Slide three as I notice regarding forward looking statements. This call will contain forward looking statements as outlined in our earnings release as well as in our company's filings with the Securities and Exchange Commission with that it's my pleasure to turn the call over to Neil.
Thank you Kathy and good morning, everyone.
This has been an exciting quarter for ammonia.
First we delivered another record quarter with 15% topline growth and adjusted EBITDA of $80 4 million, an increase of 91% from the prior year.
Second we completed our first acquisition since announcing our transformation strategy with the addition of <unk> technology and adjusting brand to our product portfolio in early July .
I am excited to welcome <unk>, President Sam Neal and his team to <unk> and look forward to continuing to manufacture this great product at their facility among the taxes.
This acquisition is directly in line with our growth strategy, which is focused on differentiated technologies and systems that address real world needs.
Most importantly, this acquisition demonstrates our commitment to responsibly investing in key verticals, where our objective is to grow faster than the market.
As a result, we're making great progress towards our financial targets and planting the seeds for future growth.
But this doesn't mean that we're reaching the end of the journey in fact, I would say we're still in the early stages of this transformation.
There is an additional opportunity for incremental revenue and margin growth as a greater percentage of our business portfolio shifts to the growth column and as we further simplify and rationalize low margin products.
Please turn to slide five.
The climate solutions segment delivered another strong performance this quarter with revenue up 11% from the prior year and an adjusted EBITDA margin of 18, 3%.
500 basis points from the prior year.
In climate solutions, we are well along in our 80 20, Jeremy and have proved out the effectiveness of this approach we stabilized the business by providing leadership resources and strategies necessary to improve our operating margins and accelerate top line growth.
Often said the data centers is the tip of the spear and its leading the way in both revenue growth and margin improvement in the first quarter data center sales more than doubled from the prior year at margins above our segment targets.
This is the result of a dedicated focus and strategy to grow invest in capital and resources as we've never done before.
We will provide more detail in a minute, but we're raising our outlook for data center revenue growth. This year now targeting at $60 to 70% increase which would equate to over $270 million of data center revenue. This fiscal year up from 174 last year.
This large change in our forecast is primarily due to higher than expected orders in Q1, which will positively impact the back half of the year.
We have a strong backlog, including both Hyperscale and Colocation customers. In addition, we have a pipeline of new products to new customers that we're confident will fuel above market growth in the future.
I often get questions about our next generation technology and data Center arena, particularly as it relates to high performance computing supporting AI and machine learning in other applications that require more advanced cooling technologies to deal with a higher heat load.
This technology is still developing and it's an area that we're very interested in and we've done some R&D here in the past.
We will continue to develop this technology organically inorganically or both and are actively monitoring and assessing the landscape. We see this as a great opportunity for us to add to our portfolio of data center cooling products.
One 7% from the prior year. Despite this decline margins actually improved due to lower material and freight costs and greater labor efficiency.
When demand started to change we quickly shifted our efforts to operational improvements leading to solid performance.
Please turn to slide six.
Performance Technologies segment also delivered strong results this quarter with revenue up 18% from the prior year and an adjusted EBIT margin of 11, 2% an improvement of 560 basis points. In fact, the margin is exactly double the prior year.
Much of this gain is due to the hard work the team has put into improving commercial terms and our long term contracts, helping to recapture margin and lost a material labor and overhead inflation over the past several years.
In many cases, we benefited from these adjustments earlier than expected leading to our quarterly performance exceeding our expectations.
The important thing to understand is that our teams are focused on the value that we deliver to our customers and they are negotiating agreements that are fair to both parties.
In addition, we are winning incremental business in targeted markets with accretive margins.
Much of this is due to the 80 20 work that we've done so far and Pete in the PT segment.
We are evaluating our business using a data driven approach and are simplifying improving wherever possible.
For example, in our liquid cooling applications business, we've eliminated 73, skus representing over $20 million of annual revenue that was at negative gross margins.
In some cases, we're getting favorable commercial terms as we negotiated exits a non strategic product lines.
As the business wind down we plan to replace it with higher margin opportunities.
An example of this is the Gen set business, which I've mentioned before.
We have been in this business for a long time, but it was never a strategic focus now we're working with existing and new potential customers to support the conversion from copper brass to aluminum heat exchangers similar to what the vehicular OE did decades ago.
Has both the cost and performance advantage and we have the technology and global footprint to deliver in region.
There are great drivers for the growth in this business as data centers hospitals and other critical applications secured backup power to guarantee continuity of energy supply.
This was about a $50 million business for us last year, and we expect this business could have a 30% CAGR over the next few years.
Only in the grow account.
As for the commercial funnel, we are up to 25 programs, including two wins for our fuel cell products.
This pushes our awarded revenue at peak annual production to over $150 million.
Again, I'd like to reiterate that we are just getting going on 80 20 in the PT business, but are seeing remarkable early results. We are investing in those businesses that have the right growth drivers and addressing low margin business in different ways throughout the segment.
We've simplified our product offering and are negotiating favorable exits while also working to improve commercial terms to recapture the value that we provide to our customers all while further investing in the technology of the future.
I am very proud of the work being done in both segments and the results. We have delivered this quarter now I'd like to turn the call over to Nick who will review our results for the quarter and provide segment financial updates.
Thanks, Neal and good morning, everyone. Please turn to slide seven to review the segment results.
Climate solutions had another great quarter with improved earnings on higher sales.
Segment revenue was up 11% driven by our data center vertical with sales up 124% or $38 million. The datacenter increases fantastic given it supports one of our most attractive markets and its quickly becoming a very large portion of <unk> total revenue.
A significant piece of the increase is related to North American chiller sales as we ramp up production at our new plant in Virginia, we entered the year with a strong backlog and realize some of the sales much earlier in the year than originally planned which added to our stronger than anticipated first quarter.
Order.
<unk> sales were down a modest 2% or $1 million driven by lower sales of heating products, partially offset by higher indoor air quality sales, which were up 40%.
The heating market remains down largely due to higher field inventories.
And lower pre season stocking sales.
Sales of heat transfer products decreased 7% or $9 million as anticipated.
Some market softness with commercial refrigeration customers and in various residential related markets and we are also continuing 80 20 product rationalization activities.
We're pleased with the very strong earnings conversion as adjusted EBITDA increased 53%, resulting in a 500 basis point margin improvement to 18, 3%.
The earnings and margin improvements were primarily driven by higher sales volume and benefits from 80 20 initiatives.
The climate solutions segment continues to perform very well and is off to a strong start to the year the.
The growth in data center sales is driven by our robust backlog, which is continuing to grow.
With regards to heating and heat transfer products, we're maintaining a cautious outlook for the second half of the year, which has been incorporated into our revised guidance.
Given these factors, we believe we're likely to see more level loaded quarters or less seasonality than in previous years.
Please turn to slide eight.
Performance technologies also had another great quarter with sales up a very strong 18% or $55 million.
Revenue benefited from both volume and commercial improvements many of which were realized earlier than expected.
Sales volume accounted for $37 million or 12% revenue growth.
Advanced solution sales were up 31% or $10 million with continued growth of our <unk> systems and components sales.
Liquid cooled application sales increased 21% and $24 million due to higher sales across all end markets.
Lastly, air cooled application sales increased 13% or $20 million.
Primarily due to continued strong demand from off highway customers with a higher sales in gen set our stationary power applications.
We see as a significant growth area.
Performance technologies converted the higher revenue to an extremely high level of earnings adjusted EBITDA was up 135%, resulting in an 11, 2% margin and a 560 basis point improvement.
As Neil mentioned the performance technologies segment has worked hard at modifying long term contracts and in some cases, we benefited from these adjustments earlier than expected.
While we are making great progress towards our margin targets I want to point out that will be difficult to sequentially match. This Q1 result.
As we entered the year the team had a long list of projects to execute and we believe the results would ramp over the year consistent with most of last year.
As I just mentioned, we're pleased that some of our commercial negotiations were completed earlier than expected.
And we're also able to capture some retroactive commercial benefits during the quarter.
Lastly, as previously discussed the team is pursuing multiple 80 20 product rationalization strategies, which could result in some reduced revenue.
I want to be clear that these are planned actions and relate to business that cannot meet our margin objectives.
Based on all of these factors and as we look to the balance of the year, our full year outlook for this segment has improved and we now see more even results over each of the four quarters.
Now let's review the total company results, please turn to slide nine.
First quarter sales were up 15% or $81 million.
Higher sales volume drove approximately $62 million of incremental sales are 11% growth.
Commercial pricing added another $19 million to the top line.
The gross margin improved 520 basis points, primarily driven by the factors I reviewed for climate solutions and performance technologies.
SG&A increased 5 million, primarily due to higher employee and incentive compensation expenses.
However, SG&A as a percentage of sales was 50 basis points lower than the prior year.
I'm happy to report that adjusted EBITDA was very strong in the quarter with an increase of 91% or $38 million.
This equates to an adjusted EBITDA margin of 12, 9%.
We're a 510 basis point improvement from the prior year.
This also represents the sixth consecutive quarter of year over year margin improvement.
Adjusted earnings per share was <unk> 85, and.
An increase of 53 or 166% from the prior year.
Before moving to the balance sheet I'd like to reiterate that the quarter was clearly stronger than expected. We now see a more level loaded year for several reasons.
Second performance technologies is achieving 80 20 benefits earlier than expected, including the settlement of new commercial agreements and some retroactive adjustments that will not carry through to future quarters.
Third.
Raw material costs have been below our previous projections, which is favorable to modine until we pass on the lower costs through our material pass through agreements over the next few quarters.
As a result of <unk>.
Portion of the strong Q1 earnings was due to timing and the accelerated benefit from some of these items.
In a few minutes I'll further discuss how we're rolling these impacts and the strong operating performance into our full year outlook.
Now moving to the cash flow metrics, please turn to slide 10.
We generated $27 million of free cash flow in the quarter, which is a significant improvement over the first quarter of fiscal 'twenty three.
This was primarily driven by higher operating earnings, partially offset by higher working capital and higher payments for incentive compensation.
Net debt of $265 million decreased $20 million this quarter.
Net debt coupled with strong earnings resulted in a leverage ratio of one one.
This fiscal year, we expect continued growth in free cash flow driven by higher earnings and a continued focus on working capital we.
We anticipate the full year free cash flow will fall in our target range of 3% to 5% of sales.
<unk> balance sheet remains quite strong ready to support both organic growth and acquisition initiatives.
As was demonstrated by the acquisition of Naps technology that we announced in early July .
Now, let's turn to our fiscal 'twenty four outlook on slide 11.
As announced in the press release, we're raising our sales and earnings outlook for fiscal 'twenty four.
Before I discuss the updated guidance I want to review some modifications to how we report product group sales.
First.
As part of $80 20, we're continuing to align our product groups and manufacturing with each of our general managers.
As a result, we've recast revenue for fiscal 'twenty three to be consistent with how the product groups are now reported in fiscal 'twenty four.
There are no changes within performance technologies, but we made some minor revenue changes between data centers HVA CNR.
And heat transfer products within climate solutions.
We've provided a summary table of the recast numbers in the appendix to this slide presentation.
For the prior fiscal year, the recast resulted in a $20 million increase in data center revenue.
A $5 million increase in HVA CNR.
<unk> set by a reduction in revenue for heat transfer products to be clear. There is no change to total climate solutions revenue, rather just minor classification changes between the three product groups.
As I previously mentioned, our first quarter exceeded our expectations for several reasons and this was certainly a factor leading to our improved outlook for the year.
In the climate solutions segment, we now expect data center revenue to grow 60% to 70%.
A significant increase from our previous guidance and we now anticipate data center revenue to be more than $270 million.
Moving to <unk>, we expect revenues to grow in the low single digits and have lowered the top end of this range as we remain cautious about ongoing weakness in the heating market.
However, we anticipate this should be offset by very strong sales growth in school ventilation products.
With regards to the heat transfer products, we now anticipate a sales decline in the low single digits, which is a reduction from our previous guidance. This was primarily due to concerns over a general economic slowdown, especially in residential and commercial refrigeration applications.
Also within heat transfer products, we're adjusting our projected ramp up for sales to heat pump customers in Europe due to changes in regulations and incentives.
We still anticipate this to be a high growth market for us, but at a somewhat slower ramp rate.
Moving to performance technologies, we expect continued momentum from relatively stable markets and benefits from our 80 20 rollout.
We expect advanced solutions growth to be in the 25% to 35% range, which did not change from last quarter.
This growth is driven by program launches and continued demand for <unk> systems and components.
We expect lower growth for liquid and air cooled products as we rollout 80 20 throughout the segment market growth is expected to be somewhat offset by product rationalization as we continue to deemphasize lower margin business.
The product rationalization and associated lower revenue could result from negotiated program exits or from select divestitures.
Let's move to adjusted EBITDA.
Again, the first quarter was much stronger than we anticipated based on many factors, including sales volume material margins and operational improvements based on the recent results and market trends, we are raising our adjusted EBITDA outlook for the year. We now expect our fiscal 'twenty for adjusted EBITDA to be in the range.
Of 280 to 295 million up from $240 million to $260 million and representing an increase of 32% to 39% versus the prior year.
Also when looking at the mid points.
Of the earnings ranges, our new outlook represents a nearly $38 million increase.
Again much of this change is due to the performance in the first quarter.
And some of the Q1 benefits won't necessarily repeat in subsequent quarters, including the realization of retroactive commercial adjustments.
Based on this and our higher full year outlook. We now anticipate that the next three quarters will hover around $70 million versus the previous plan for a more backend loaded year.
The second and third quarters could be somewhat below the $70 million quarterly average with Q4 potentially above the average.
Now that I've covered the very strong Q1 and associated sequential trends I want to reiterate that our outlook assumes ongoing and very strong year over year improvement for the balance of the year.
We anticipate that free cash flow will improve with the higher earnings outlook with capital expenditures expected to be around $70 million.
Our assumptions, including interest expense taxes, depreciation and amortization are all included in the appendices attached to this presentation and our press release.
To wrap up we're extremely pleased with our first quarter results and how we have started fiscal 'twenty four.
Our outlook remains strong, we're making progress towards our financial targets and in many cases, we're trending well ahead of our initial transformation timeline and goals.
Pleased to say that we're firmly on track with our transformation, but as Neil said, we're still in the early stages. This was a great quarter, but we still have plenty of work ahead of us and we're quite confident in the entire <unk> team with that Neil and I will take your questions.
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From the Q2.
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And one moment, please while we poll for questions.
Our first question comes from the line of Matt Summerville with D. A Davidson.
We'll see with your question.
Thanks, Scott Good morning, obviously, a great quarter.
Couple couple thoughts with respect to performance type can you maybe quantify to the extent you can how much retroactive benefit that would be kind of.
More one time in nature that you saw in the quarter that you would not.
Expect to repeat necessarily looking forward.
Yeah, Hey, Matt It's Nick here Good morning, Yes in total so the total company. We estimate there is at least $10 million in the quarter of pull ahead things we got earlier than.
And then we thought would happen.
Some retroactive adjustments for that.
And Thats for the total company as I look at it between PT and CFS.
We estimate that it's about two thirds, one third about two thirds that coming in <unk> and a third of that and climate solutions.
Okay, and then a follow up.
Data Center business, obviously, you had a pretty amazing first quarter here I want to understand a little bit more about how you're approaching the high performance computing market. The liquid corn strategy. Realizing you may have concurrent development paths going on here, but I guess from from a timing standpoint, when should we expect modine.
And to be able to address that.
<unk> section of the market head on and then could you give a little bit more.
Granularity around what incoming orders and backlog might look like specifically to data center either year on year sequentially. Just whatever color you are willing to provide thank you.
Yes. Good question, Matt. Thank you this is Neil.
Sure we've seen.
A very healthy pipeline within data centers right.
And when we continue to build out our customer base and broaden our customer base, particularly around the co location side. These these orders potential orders that are in the pipeline when they break they make large swings right. So we don't we typically don't predict.
Some of these larger orders until they actually cut over to pose and Thats, where youre starting to see some of that adjustment is this funnel continues to grow.
More and more is transitioning through the Colgate process into purchase orders. So we.
<unk> been close to this we're going to remain close to this this has been something that.
Modine has participated in for over a decade.
We.
We understand the shift in the technology, but we also understand that there isn't there isn't a clear technology winter weather that is going to be immersion cooling or liquid on chip cooling.
Within climate and performance. Thank you.
Yes. Good question, Matt This is Neil so in climate solutions were.
We're halfway through the first game of a five game series.
And in performance technologies, we're just getting started so the teams are they're organized appropriately they have they pick the markets that they want to grow and they understand the strategic initiatives and objectives and we put in the right leadership team in order to execute on those objectives. So as you know we saw.
Turning to climate solutions, a year had a performance technologies deliberately.
And they are tracking right in line with what our expectations were with the financial targets that we put in place in New York last year.
Got it thanks guys.
Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.
Hey, good morning, guys. Thanks for taking a couple of questions.
Maybe just big picture on pricing I know that you guys have raised prices aggressively over the past year or so up until at least recently you talked about still being underpriced in many areas. Just wondering is that still the case.
There are specific areas that you could talk to there.
Hey, Chris This is Neal good question, Yeah. We continue we go out and evaluate the marketplace in terms of where we're positioned with price as you know with in this inflationary environment.
And increases in metals and other commodities were often and regularly reassessing that and then having conversations with not only our customers, but our supply chain as well.
To improve those positions. So this is part of our business cycle part of our business system.
It's how we operate so frequently is the would be to answer that question.
Got it helpful.
So my understanding is that.
Auto Oems have.
Multiple vendor relationships with suppliers like Modine, however, they often sole source a given platform. So assuming that's accurate do you see situations, where the OEM is might be reluctant to allocate the internal engineering.
Of course as necessary to get another vendor specced in even though your pricing is picking up.
Yeah. It's a good question, Chris I think Oems have.
All the Oems have different strategies that could have dual supply chain single supply chain triple.
It depends on how they want to balance the strategic or supply chain risk. If there is any whether thats an issue where the factory output production or it's an issue with logistics or maybe even price.
I think they all have their own unique strategy, but there is a.
And as we look at opportunities on the internal combustion engine side and maybe there is adjustments to their commercially that are made.
I think you also have to consider whether or not.
It's worth the time and effort and energy.
In order to maybe find additional suppliers to provide that product knowing that the platform is going to end and that's going to convert to <unk> anyway.
Got it very helpful. Maybe just last one from me on so it sounds like the 25 EV program wins $150 million.
What timeframe or are you kind of looking at that.
Yes, it's Mick.
It's going to be a significant ramp so.
And we last year, its about $50 million or so in EV business, and we estimate that that will grow at a 40% 50% compound growth rate. So you kind of extend that out you get a feel for when you think of when we think we'll be hitting that that run rate.
Got it very helpful. I'll leave it there guys.
Yeah.
Yeah.
Our next question comes from the line of Jeff Van <unk> with B Riley Securities. Please proceed with your question.
Hi, Good morning, everyone and let me add my congratulations on the strong metrics and overall progress.
If we could circle back to the data set our segment for a minute just wondering how fast that segment could grow in other words, how much capacity do you have to meet demand if it happens to exceed your internal plan.
Kind of ahead of expectations.
Hey, Jeff. Good question. This is Neil thanks for that.
We're.
The U K.
Out of one facility and since then we've expanded to two facilities in the UK.
Retooled and existing manufacturing facility in Spain to support data center growth for Continental Europe , we have.
Built in.
We've modified our facility in Virginia.
Produce our Chillers for North America. So we added additional capacity there and then we're adding capacity in Mississippi as well so we're across five different footprints.
We have the capacity to continue to grow at the rate we have more capacity than the actual stated.
Percentage of growth year over year, so I'm not concerned about capacity.
It's just a matter of being able to transition the conversations that we have with our customers and provide the products and the engineering solutions.
The capacity in terms of the factory.
We're in a good position.
Okay, Great to hear and then maybe if you could delve a little bit more into what youre seeing in the school market for indoor Air quality, just did a little bit of an update there yes.
Yes, that's a great business for US we continue to we continue to.
<unk> share there in that space.
<unk>.
We're working on the process of actually dedicating a facility to that there is enough volume now that we can we can dedicated an entire facility to that so we're getting that positioned and ready to grow we see this this outlook of growth at this rate for the next couple of years as well.
The funding is continuing to flow through into the schools, they're making the decisions, they're upgrading the infrastructure and we put ourselves in a pretty good positions with our reps and distributors to.
Fill the needs of the customers.
Okay great.
And then sort of.
P&L question on the gross margin that came in substantially better than we expected.
Which we know it's been a focus during the current phase of transformation.
Can you maybe speak to whether you believe.
Gross margin we saw in Q1 is sustainable I know that you mentioned some of the maybe a little bit of a non linear progression over the next quarter.
I mentioned to Matt's question, we estimate at least about $10 million in Q1 of the good things that are more.
Network pull ahead, if we look at having a in average the next few quarters around $70 million plus or minus <unk>.
It's about.
Probably about a point of margin. So I think the pressure the gross margin is driving the earnings we talked about that 80 20 is going to come through at the gross profit line. It wasn't an SG&A story, and we expect that to remain elevated but going like from Q1 forward I would say it.
Will remain elevated but probably about a point or so below where we were in Q1, obviously in all my comments I think ramping towards the latter part of the year as Neil said, we're still early phases of 80 20, so super hard to repeat all the one timer.
The benefits we got in Q1, but then.
Ramping again later in the year and I would say about a bottom point, probably lower for the next couple of quarters.
Okay. That's helpful.
Thanks for taking my questions I'll take the rest offline and please keep up the fantastic work.
Our next question comes from the line of Jim Moore with EFI.
Thanks, and are reiterating our very impressive rates for the quarter.
I was going to throw off the data centers into other analyst beat me to it and most of my questions, but just maybe following up with one more question on data centers given the increased guidance.
Sales growth coming in maybe.
Four times, what you expected.
Just back there on the capacity you explain that I plan to visit the Virginia site next week for your plant to work.
Are you getting enough labor there and for the co location center projects I mean, how much lead time do you need on that end.
<unk>.
Given the rapid growth of it this year.
Do you think that pulls in a little bit of the sales growth from next year or is this incremental market share when do you think.
Yes, good questions. Thanks for that Tim.
We have a we have a pretty broad labor force and BV as you know the Rockbridge facility work.
We produced the Chillers.
We've been able to secure the amount of good work in assembly workers there.
<unk> to help us with that we also have a facility in a factory that employs several hundred people thats 10 miles away.
And we can flex labor back and forth. So of heating volumes were down you could arguably flex the workforce.
The second question was.
<unk> ability.
Sales acquisition goal have you've seen for your climate solutions acquisition pipeline, the asking prices become more reasonable over the last few months or are they still are pretty locked.
By the sellers.
No. That's a good question it depends on the technology it depends in terms of what the technology that they have to offer.
What level of adoption rate it is or if its specified respect into the product that's being consumed today by the end users. So certainly there is some hot markets as we grow out our inorganic pipeline and I'll tell you I'm really pleased with what the team's been able to do there.
We've got multiple opportunities at different levels and different gates.
We're going to be cautious and we're going to do the right things for the business as long as it aligns with the strategy, but certainly we're starting to see some some areas like you just described and indoor air quality, where do you see some of these elevated rates.
Great that's helpful and that's it for my questions. Thank you.
I apologize if you touched on this but just back to the data center side of things are you seeing pretty similar growth in both co location and Hyperscale markets and.
Are you still on the Hyperscale scale side, just doing business with the one large player and do you think towards maybe opening to some of the other hyper scaler.
100% gas stores will be opening to other hyper scaler.
Healthy on both sides. So we're seeing the growth in co location and we're seeing that.
Growth with our with our Hyperscale customer as well so.
That.
That combination of the two is why we're we're increasing our our year over year objectives and targets and data centers.
And then I think I can't remember, which one you guys mentioned that but I thought I heard that out of the five growth opportunities you guys talked about a lot of EV batteries data Center indoor Air Gen sets and then European heat pump.
I would like that the growth rate on the ladder might be decelerating a bit more as in some of the others. It sounds like and maybe accelerating so what's driving the pace of the rate of change on the European heat pump side of things and does that give you pause with some of the capacity position you've been undertaking there now.
So we're going to continue to grow.
Our Serbia facility in factory with Capex, and we're going to continue to install machines and dedicate lines to the heat pump growth.
<unk> targets that we expect so.
We're going to continue to invest in Serbia.
The thing that gives us a little bit of a pauses.
Turmoil in the European market relative to what the priority is on regulation as you know there's was strong movement and there was a lot of followership behind moving away from natural gas in Europe , and there was regulations and incentives that were deployed to do just that but recently we.
<unk> seen a different priority that's got some traction in Europe around reducing <unk>.
WP.
And in order to do that you have to use a different refrigerant and a lot of the heat pump manufacturers arent there yet to move at the same rate. So it's almost like we slammed the accelerator to move forward to deploy heat pumps.
Key pump adoption that we had predicted but for now because there seems to be a little bit of conflict.
Between the two agencies there we're watching this and observing.
Got it thanks Neel.
Hearing no further questions at this time I would now like to turn the conference back to Kathy powers for closing remarks.
Thank you and thanks to everybody for joining us this morning.
And this concludes today's conference you may disconnect. Your line at this time. Thank you for your participation.
Yes.
Okay.
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