Q2 2025 Lennox International Inc Earnings Call
Night.
Please stand by your program is about to begin if you need audio assistance during today's program, please press star zero.
Welcome to the Linux second quarter earnings conference call. All lines are currently in listen-only mode and there will be a question and answer session. At the end of the presentation. You may enter the queue to ask a question by pressing star and 1 on your phone to exit the queue press star and 2. As a reminder, this call is being recorded. I would now like to turn the call over to Chelsea potion from Linux investor relations, Chelsea, please go ahead.
Thank you Margot. Good morning everyone. And thank you for joining us. As we share our 2025 second quarter results. Joining me today is CEO alom mascara, and CFO, Michael quencer.
Each will share their prepared remarks before we move into the Q&A session.
Turning to slide 2 a reminder that during today's call we will be making certain forward-looking statements which are subject to numerous risks and uncertainties as outlined on this page.
We may also refer to certain non-gaap Financial measures that management considers relevant indicators of underlying business performance.
Please refer to our SEC filings available on our investor relations website for additional details, including a Reconciliation of gaap to non-gaap measures.
The earnings release today's presentation and the webcast archive. Link for today's call are available on our investor relations website at investor.gov.
Speaker Change: Thank you, Chelsea. Good morning, everyone.
Speaker Change: Let me begin today's call by highlighting the impressive results we achieved in Q2.
Speaker Change: Results that reflect our team strategic focus and resilience.
Speaker Change: In the face of a challenging external environment, both segments, delivered Revenue, growth and margin expansion.
Speaker Change: This performance was fueled by our continued emphasis on cost discipline.
Speaker Change: Elevating the customer experience and enhancing our go-to Market differentiation.
As we build on this momentum, I want to express my sincere gratitude to our employees for their dedication and to our loyal customers for the continued, trust and partnership.
Speaker Change: Let us turn to slide 3 for an overview of our second quarter of financials.
Speaker Change: Revenue this quarter grew 3%. Our segment, margin was a record 23.6% and increase of 170 basis points.
Speaker Change: Operating cash flow was 87 million.
Speaker Change: Adjusted earnings per share. In the second quarter was $7.82.
Speaker Change: Our team is performing well, despite ongoing challenges including softness, in new construction, demand industry, refrigerant canister, shortages, customer uncertainty, and inflationary pressures.
Speaker Change: In HCS profitability remains strong as we transition into selling, primarily our r454b products.
Speaker Change: These stocking in Q2 was largely in line with expectations though. We anticipate some spill over into Q3 as industry lead times continue to normalize.
Speaker Change: While residential new construction remains subdued, the HCS segment continues to perform well given the broader market conditions.
Speaker Change: In BCS Factory, productivity has improved.
Speaker Change: Helping to mitigate inflationary pressures.
Speaker Change: Emergency replacement wins. Have partially offset, end markets that have been weaker than we anticipated.
Speaker Change: in addition growth from our full life cycle strategy has delivered year-over-year, Revenue, growth and margin expansion,
We are raising our full year outlook to reflect our consistent execution, in a challenging environment and continued progress on our growth initiatives.
Speaker Change: We now expect adjusted earnings per share in the range of 23.25.
Speaker Change: To $4.25.
Speaker Change: And revenue growth of approximately 3%.
Speaker Change: Now, let us move to slide 4 for a brief. Look at how we expanding our portfolio and the value. We bring to our customers through joint ventures with leading Global Partners.
As we continue to execute our transformation plan, we are taking a deliberate approach to building long-term value through strategic Partnerships that strengthen our heat pump portfolio and enhance customer experience.
Our joint ventures with Samsung and a restaurant are clear examples of this strategy in action.
These Partnerships allow us to offer a broader range of products that our customers are already installing.
Speaker Change: Making it easier for them to do more business with us.
Speaker Change: With 75% of our dealers, already selling Mini Splits and 50% offering water heaters.
Speaker Change: These additions are a natural fit that will provide 1-stop shopping convenience to all our customers.
These joint ventures position us. Well for future growth.
Speaker Change: Samsung brings advanced technology, smart things integration and strong brand recognition, that will enhance our portfolio in both HCS and BCS through ductless mini splits and vrf products.
Speaker Change: Ariston, contributes deep expertise in global heat, pump water heating and our North American joint venture strengthens the position of both companies during the ongoing convergence of HVAC and water heating trades.
Speaker Change: These Partnerships aligned with the growth acceleration phase of our transformation strategy and establish the foundation for the expansion phase.
Speaker Change: We expect Samsung to begin contributing meaningfully to growth in 2026, followed by Ariston in 2027.
Speaker Change: Thank you, Luke. Good morning, everyone. Please turn to slide 5 at the local outlined in the second quarter. We operated in a challenging environment shaped by persistent inflationary pressures, industry-wide stocking of r410a equipment and a continued transition to the low gwp r454b products,
Speaker Change: despite these Dynamics, our team delivered record results with a 3%, increase in revenue and 11% growth in segment profit.
Speaker Change: A key driver of this performance was the successful introduction of our new low gwp 454b products. These enhanced products will replace approximately 70% of our Home Comfort Solutions, product portfolio and 40% of our building climate Solutions portfolio.
Speaker Change: During the quarter approximately, 90% of our refrigerant based product sales, contain the new r454b refrigerant driving favorable product mix and contributing meaningfully to both Topline and profit growth.
Speaker Change: Let's now turn to slide 6 to review the performance of our Home Comfort Solutions, segment.
Speaker Change: Home Comfort Solutions to deliver strong financial results. This quarter despite softness and sales volumes.
Speaker Change: Revenue increased 3%, driven by favorable product, mix and pricing which rose by 12% as these initiatives reached full effectiveness.
Speaker Change: Anticipated sales volumes declined, mainly because contractors and Distributors are still selling through their 410A inventory.
Speaker Change: This slowdown was also influenced by continued softness and residential new construction and industry-wide shortages of r454b canisters, which are required for many new system installations.
Speaker Change: The short shortages may have led to an increase in system repairs instead.
Speaker Change: On the cost side inflationary pressures on materials and components persisted. However, we successfully offset part of these impacts through effective tariff, mitigation and improved Factory productivity.
Speaker Change: Distribution costs were higher, this period due to ongoing Investments and expanding and strengthening our Network. These Investments are part of our long-term growth strategy, aimed at improving customer fulfillment, rates, broadening product, availability and making it easier for customers to access the solutions. They need when they need it.
Speaker Change: By enhancing our distribution capabilities. We are make working to deliver a more seamless and responsive customer experience.
Speaker Change: Moving on to slide 7.
After a slow start to the year the building climate Solutions, settling delivered, a strong Rebound in the second quarter as customers. Regain confidence since q1.
Speaker Change: The segment achieved a 5% increase in Revenue driven by an 8% benefit from favorable product mix and pricing which more than offset volume declines.
Speaker Change: Light commercial HVAC, which accounts for approximately 50% of BCS Revenue, continue to face, pressure from soft and market demand with industry. Shipment volumes down double digits. However, our segment sales volumes decline, just 3% supported by growth in emergency replacement products and continued strength in our refrigeration and service offerings.
Speaker Change: On the cost side material inflation remained elevated. Encouragingly for the first time in several quarters, we delivered year-over-year Factory productivity gains as the ramp up of our new facility nears completion.
Turning to slide 8.
Speaker Change: Let's review cash flow and capital deployment.
From a free cash flow perspective. We remain on track to retrieve our full year, guidance of 650 million, to 800 million dollars,
Speaker Change: Well, we made temporary inventory Investments to support. A smooth transition to the new r454b products. We expect inventory levels to normalize in the second half of the year.
Speaker Change: We're also strategically investing in inventory to strengthen our position in the commercial, emergency replacement segment and to support the launch of our new Samsung ductless product line.
Speaker Change: On Capital deployment, we have repurchased 300 million in shares here to date. And the second quarter, we also received authorization for an additional 1 billion dollars in future share repurchases.
Speaker Change: Reflecting our strong earnings and cash flow Outlook. We increased our quarterly dividend by approximately 15% in May.
Speaker Change: Lastly we continue to take a disciplined approach to m&a, actively evaluating attractive bolt-on opportunities. That enhance our distribution capabilities, expand our product portfolio and integrate Smart Technologies.
Speaker Change: If you will now turn to slide 9, I'll review our full year of 2025 guidance.
Let me walk you through the updates to our 2025 Financial guidance, which reflect a strong, first half and improved visibility into the second half of the year.
Speaks to the strength of our execution and the confidence. We have in our Outlook.
Speaker Change: Starting with revenant.
Speaker Change: We now expect full year Revenue to grow by 3% up from our previous guidance of 2%.
Speaker Change: This modest Improvement reflects a slightly more optimistic view on sales volumes, which are now, projected to decline 6% compared to our prior estimate of down 9%. This includes the impact of prey and temporary share gain.
Speaker Change: On mix and pricing. We now expect to combine benefit of 9% slightly below our previous estimate of 11%.
Speaker Change: This adjustment reflects lower than anticipated, material tariff inflation.
Speaker Change: As noted in q1.
Speaker Change: Our pricing strategies designed to flex with input cost Trends, which have moderated.
In line with this, we now expect cost inflation to increase the total cost by 6% down from our prior estimate of 9%. This Improvement is primarily driven by successful tariff mitigation efforts.
Speaker Change: Looking at other key items, we now expect interest expense, to be approximately 30 million and our tax rate to fall between 19% and 20%.
And finally, on earnings. We are raising our EPS guidance to a range of 2325 to 24/25 up from our previous range of 23. 202 225 to 2350.
Speaker Change: Overall these updates reflect strong execution across the business, and confidence in our ability to deliver on our commitments. For the remainder of the year with that, please turn to slide 10 and I'll turn it back over to Logan.
Logan: Thanks Michael.
Logan: Let me take a moment to provide a view of how we are positioned for growth and how we see the market evolving across both of our segments.
Logan: The smooth transition to a low gwp refrigerant, maintained our exceptional, track record and deepen trust with our customers.
Logan: We are now selling mostly our 454b product with limited, r410a remaining in the channel.
Logan: While the transition was well, executed by Lennox dealer confidence, has been impacted by concerns around our 454b canister availability.
Logan: This may have led to a partial reversal of last year's temporary share gain.
Logan: We are beginning to see that more homeowners are using repair versus replace and trading down as inflation and government incentives. Continue to influence some consumer Behavior.
Logan: While the broader environment remains challenging our internal momentum continues to accelerate.
Logan: Equipment inventories in the channel are moving towards more. Typical levels and the availability of r454b canisters is expected to continue improving.
Logan: This will enhance our ability to support dealers and meet customer demand in a timely manner.
Logan: In a building climate solution segment. We are beginning to see early signs of demand stabilization following prolonged industry softness.
Logan: Additionally, our strategic Investments are generating positive results.
Auto rates and backlog, remain healthy, given steady replacement demand as aging systems approach, end of life.
Logan: Our operational execution has been strong, and we now have the necessary capacity to meet demand.
Logan: Margins, have sequentially recovered as Factory productivity improved, which helps offset inflationary pressures on materials and components.
Logan: Demand is also increasing for comprehensive rtu life, cycle. Solutions as national account customers are placing greater value on Partners who can support them across the entire value chain.
From equipment and installation to service and long-term preventative maintenance.
Logan: Our ability to deliver across the Spectrum sets us apart.
Logan: We're also seeing growing Traction in emergency replacement.
Where our brand quality availability and responsiveness have proven to be a success.
Looking ahead, we see opportunities to expand our product and service portfolio. Through growth initiatives that strengthen our ability to serve customers and deepen our relationships.
Logan: Now, let's turn to slide 11 and why Lennox continues to be well positioned for sustained growth and margin expansion.
Logan: We remain focused on executing the Lennox transformation strategy, introduced in 2022 and advancing into our next phase of strategic expansion.
Logan: Across Digital customer experience, Douglas technology commercial capacity and parts and services.
We continue to expand resilient margins through productivity and pricing Excellence while investing in distribution to further enhance customer experience and availability.
Logan: We are also scaling digital capabilities across products and customer interactions while leveraging proprietary data and expanding our intelligent product lineups,
Logan: All of this is powered by a high-performing team and a culture grounded in accountability and results.
Logan: I am confident in our strategy encouraged by our progress and focused on delivering value for our customers, our employees, and our shareholders.
Logan: As I look forward.
Logan: Our best days are ahead of us.
Logan: Thank you. We will be happy to answer your questions now. Margo. Let's go to Q&A.
Speaker Change: Thank you at this time. If you'd like to ask a question, please. Press the star 1 on your telephone keypad. You may remove yourself from the Queue at any time by pressing star 2 once again that is star 1 to ask a question, we'll take our first question from Jeff Hammond with keybanc capital markets. Please go ahead.
Jeff Hammond: Hey, good morning, guys.
Jeff Hammond: Hey, so the um, you know, the the the gap between price and cost was was pretty stunning. And obviously, you know, showed through in the margin. I'm just wondering
Jeff Hammond: What you're seeing with, you know, the a2l manufacturing costs, given that there are some added costs related to that equipment and then tariffs.
Jeff Hammond: You know, if they can't really showed up or came into 2q or or do they step up into the second half just just trying to understand that price cost Gap better as we go forward.
Jeff Hammond: Sure. So on the a2l conversion both are cost and price are very close to our expectations and our previous communication Jeff so there's been no change as what we have been able to do is get more Factory productivity and we have done significant. Uh headcount retrenchment as like you know we finally were able to get out of some of the factory inefficiencies.
That came into play during the e2l conversion. So I think as expected and mostly driven by productivity not price, in that case both.
Jeff Hammond: Price and mix 1 as expected and it's holding just fine in Jeff, your question on tariffs and the second half, we do have terrorists increasing a little bit in the second half but that's all built in the guide. Both businesses are still reflecting margin expansion in the second half of the Year demonstrating our good parts cost uh excellence.
Speaker Change: okay, and then um can you walk through kind of
Jeff Hammond: what your volume assumptions are for the second half looks like you.
Jeff Hammond: You bumped it up a little bit or or it's less bad. And and and uh, HCS.
Jeff Hammond: um, and then, um,
Jeff Hammond: you know, should we expect price mix to be similar to 2q? And as in the second half as, as as it wasn't, too cute. Thanks.
Jeff Hammond: Yeah, implied in the guidance, for the HCS segment is the balance of the Year volumes including the dto and just overall volumes are down about 8% that compares to about down 6% year to date. So a little bit more decline in the second half than the first half and then on price mix, it's that implies about up 10% in the second half in line with where we saw the first half.
Jeff Hammond: And then BCS down volumes in the second half of about 4% compared to down 6% year to date and then balance of the Year price mixed similar to what we saw in the first half it up 6%, 6 or 7%.
Okay, that's helpful. Thanks so much. Yep.
Jeff Hammond: Thank you, we'll take our next question. From, Julian Mitchell with Barkley's, please go ahead.
Julian Mitchell: Hi, good morning. Um just wanted to Circle back to the um margin um Outlook there for a second. Um just wanted to confirm the the sort of full year EPS guide is that embedding kind of 50, 60 bit of operating margin expansion um that that type of rate and when we're thinking about kind of third versus fourth quarter, you know, anything to call out there in terms of moving Parts, um, maybe as kind of the the Tariff affect comes in for that 6% cost inflation number um any more color around that please?
Speaker Change: And the BTS will be closer to Flat with the the volume reduction that we just took, but both businesses will show margin expansion in the second half, a little bit more margin expansion in BCS is that factory productivity kicks in?
Speaker Change: And Julian, I think there's lots of moving pieces here but overall, this is consistent with our journey as we're looking to make margins both as a manufacturer and distributor. And if you just go back, 3 years, we can see that our margins in Q2 have expanded. 600 bass 680 basis points over the past 3 years. So we don't think of this current margin expansion of anything, but just part of our overall trajectory to earn margins, both as a manufacturer and a distributor.
Speaker Change: That's helpful and um, just to to follow up on that. Um, so understand the sort of margin increase first half second half year on year is a pretty similar. Um,
Speaker Change: Delta um but I suppose the the sort of first versus second quarter was quite a big difference and and just trying to understand, you know would you argue that the the second quarter represents a more natural performance given where we are in the a2l cycle and and plant productivity whereas q1 you're obviously dragged down by the early phase of a2l plus the Mexican plant issues
Speaker Change: Yeah, I think you're right. Julie and q1 was uh tainted by significant inefficiencies in our manufacturing. Both as we transition, our BCS factories into a2l products, we obviously at an air pocket that we talked about both from sales and production perspective and yes, overall like you know in Q2 we saw makeshift more towards 454 versus 410A.
Speaker Change: So, just q1 inefficiencies and then more normal mix for the year. Both makes us confident that Q2 is a better
Speaker Change: gauge of our margin versus what abnormal q1 margins look like.
Thank you, did Michael. I don't know if you mentioned sort of anything on Q3 versus Q4, maybe I missed it.
Speaker Change: You know we we don't get the quarterly guys, but what I will say is the second half, you will have more of that comp issue in uh in the fourth quarter as we had 125 million dollars in the second half of last year for prebiotics have re share again, so that will weigh a little bit more in the fourth quarter.
Speaker Change: Makes sense. Thank you.
Speaker Change: Yep.
Damian Cross: Next, we'll go to Damian cross with UBS. Please go ahead.
Hey, good morning, everyone.
Speaker Change: Morning, morning, Damian.
Speaker Change: I actually wanted to ask you about the uh the Ariston partnership uh obviously interesting uh move to get involved in water, heaters a little could you maybe share some of the early feedback you've gotten from your dealers um on on the water heater business and and what's a reasonable expectation? For the pace that you could start to see some of those sales showing up in your results.
Speaker Change: Sure um great question. So only feedback from our dealer and overall from our channel has been very positive you know as we mentioned in our script 50% of our current dealers or contractors are already selling water heaters. So for them to be able to buy from us, would significantly change the kind of logistics hurdles that they have to go through. We can consolidate shipments and a more of a tech Advanced dealers are excited about the fact that we can integrate the controls and they can provide a common service.
Speaker Change: Option. So if they're going twice a year to change filters, they can also flush the water heaters while they are going there. So the dealer reaction has been very positive. You know, we're going to launch the product uh in kind of q1 next year, which means for practical perspective, we will see meaningful growth starting in 2027. So I think 26 is going to be
Of a launch here.
Speaker Change: And we'll work through all the like, you know, large pieces at this stage, it's kind of early to give you numbers, but I think over the long term, we see this convergence between the 2 continue to play out and positions is really well as a lot of the water heaters have to make the transition to heat pump at that point. The overlap and the growth will go up even higher.
And that as you know, happens in 2029 when all electric water heaters over 35 gal need to be heat pump based. So we think a lot of acceleration will happen at that point but we would be very well positioned by then.
Speaker Change: That's really helpful. Thank you.
Speaker Change: Momentum momentum, uh, in in emergency replacement. Uh, but on the residential side of the market,
Speaker Change: Are, are you still expecting to to more or less? Give back all of the, uh, share gains from last year, or has your view changed at all there. Based on what you're seeing,
You know, it's too early to say, I think we did expect to give back some of that shared. Uh, we think we might have given back some in Q2 already because of the r454b canister shortages and that's kind of guided our view of the rest of the year. But overall, we are pleased on where we stand. Uh, we are pleased with, uh, how we've been able to renew most of our contracts and continue to improve.
Our availability and subtract more dealers so, but yeah, I think we are not banking on keeping all that share. We'll give back quite a bit or partially that share back.
Speaker Change: Yeah, got it. Got it. Thanks a lot. Good luck out there.
Speaker Change: Thanks.
We'll go next to Ryan, Merkel with William Blair, please go ahead.
Ryan Merkel: Hey everyone, thanks for the question. Um, I had a 2-part on BCS to start you, you lower the, the volume to Mid single digits, uh, for the year. Could you just talk about why that was, you know, is it? You know, I think you mentioned industry softness but if you could expand on that and then and then what do you mean by commercial is nearing a bottom? I'm just
Ryan Merkel: Sure. So I think they're related. I mean we were expecting, BCS industry volume to start hitting Bottom by the end of q1 and it turned out it kept declining as the industry volume all throughout Q2. But now we are seeing signs of stabilization and we do expect things to kind of, you know, bounce along the bottom for a bit before the uptick back to more normal levels starting maybe like, you know, late in the second half. So that's the reason we brought our overall. Uh, BCS volume guide Down based on what we saw in Q2. But at the same time, we do see signs of stabilization and hence we called out that like, you know, we kind of bouncing along the bottom at this stage, you never know how long this would last, but things are no longer getting worse.
Ryan Merkel: Okay, got it. That's helpful.
Speaker Change: And then just a question on whether, you know, people were worried about the mild weather. You didn't mention whether as a headwind in the script. So just curious if if you thought it was a headwind and and maybe just comments on the shape of the quarter, did you see, you know, better Trends as he got into late June July, just giving the Heatwave.
Speaker Change: Yeah. That's part of my rule, right? And I think you and I have talked about it. I don't think we should ever blame whether for our numbers, so we shouldn't talk about that. But obviously, you know, we have seen over the past many years that there's been late, start to the summer. And that seems to be continuing this year. May was very soft and towards the end of June. We saw much stronger sales. So, yes, there's clearly a pattern that's related to whether, uh, but that June strength continues. As we look at it, you know, first few weeks of July as well. So from our perspective, there's some anecdotal data about me being the
Speaker Change: coldest May in the past, whatever 20 years plus or so.
Speaker Change: But for us like, you know, as we look at the replacement demand and we look at where consumer confidence and r454b canister shortages. Those all probably played an equal amount of role into the software q24 HCS. But yeah, there's definitely was a weather impact that got better throughout the quarter.
Speaker Change: Got it. All right, thanks. Congrats to the quarter. Pass it on.
Speaker Change: Thanks Ryan.
Speaker Change: Thank you. And next, we'll go to Stephen Volkman with Jeffrey's please. Go ahead.
Stephen Volkman: Hi, uh, Greg. Good morning, everybody. Um, I wanted to dig in a little bit, uh, into the price. Mix question. Uh, maybe Michael. I'm curious it sounded like from lok's comments that maybe the mix was negative. So it was price, like a little stronger and, and mixed perhaps a little bit negative. Did I read that, right?
Stephen Volkman: Now it's the opposite so we've had very strong mix and also continued price we Blended the 2 together just because of this point, we started the year with a 10% increase for mix on on the 454 B product and Then followed on with 2 price increases. So it's it's a bit challenging to spike out, the difference between mix and price. But overall the mix is still achieving, what we believe is that 10% increase that we began the year with
Just kind of price, push back in the sense that affordability is just getting tough for some people. And, um, therefore, they're perhaps looking to trade down or, or repair versus replace is, is that a dynamic or is it all in your mind? More just canister related.
Stephen Volkman: You know, there's hard to be extremely precise with this Steve but I think the way we've looked at it. Not for 54, big canister shortage. It impacted the dealer confidence, and they are the ones who typically do a great job, convincing the consumer on the benefits of replace versus repair and benefit of upgrading. So, I think that was a primary on secondary Factor. Yeah, we have seen consumers trade down but, you know, the entire industry has moved to 70% as the minimum C or equipment and that continues to like, you know, beat a case for many years. So I do see that trade down Trend continues, we have not seen any impact of kind of, you know, consumer
Stephen Volkman: price elasticity or anything like that. It remains a necessary purchase but we do see consumers getting
2 to 3 quotes, if earlier, they were getting 1 to 2 codes. So, I think there's a lot more consumers who are like, you know, able to get multiple codes versus during Co. They were delighted if they just got 1 code and somebody willing right and availability to do that. So we do see some more
Stephen Volkman: Consumer the looking to get deals and I think that puts uh like you know multiple dealers into play at any given time. So we are watching all those Trends but nothing unusual. This quarter compared to what we had seen earlier except the 454 B canister was unusual. That's why we call that out.
Got it. Okay, thank you so much. I'll pass it on.
Speaker Change: Thank you. We'll take our next question from Jeffrey with vertical research Partners. Please go ahead.
Jeffrey: Hey, thank you. Good morning everyone. Uh, just to put a clarification before I get to my question, just on the the inflation number, you're giving us the 6%, that's on total, cogs in total sgna. Um, and then investments in productivity numbers, you gave us are separate and apart from that.
Jeffrey: Yeah, that that's correct. So it would be on the total cost both the cost of goods sold and sgna. And then from there, then you add on top of it, any Investments and subtract productivity.
Speaker Change: I wonder if you could uh thank you for that. Um can we just maybe address?
Speaker Change: Kind of uh, managing price mix. I think we've kind of, you know, tiptoed around a little bit in some of the earlier questions but um you know it does sound like you're seeing some, you know some in a you know price elasticity come into play. Um,
Speaker Change: It also looks to me like you, you know, you're quote unquote getting, you know more price than you need and congratulations if you can do that. But you know as you try to toggle you know price you need versus price, you can get and the impact that it has, you know, on the consumer, uh, buying decision. Is there some clear trade-off there in your view in terms of, you know, making sure price is not at a level that it, you know, negatively impacts mix and then has other ramifications on, you know, the whole repair versus replaced dynamic.
Speaker Change: Sure, you know, as you know, you never get pricing. Exactly right. You know you're always going to be a tad too high or a tad too low and I think pricing Excellence remains uh, overall a very core Initiative for us. We often find that we may be underpriced in certain markets and maybe overpriced in certain other markets and I'm talking geographically within us because each region and each local zip code has its own pricing. So we continuously on a daily basis manage that and have now started using some really good tools, AI based tools and a lot of data to make those decisions. And that's probably behind when we talk about, why our pricing has, uh, yielded good results. But overall, we remain very sensitive to the trade-off between pricing and share. Our pricing versus consumer.
Speaker Change: Uh, like, you know, price elasticity, but keep in mind, the consumer price. Elasticity depends on dealers. Selling to Consumers, not us selling to dealers, and there's a significant markup because of Labor, installation, permits and supplies that happens between when we sell to a dealer versus a dealer sells to consumer.
Speaker Change: so, net, net, you know, I don't
Not lower. So we remain focused on making sure we price fairly and we price competitively in the marketplace.
Speaker Change: Great. Thank you for that. And then I'm sorry, I was missed the first 5 minutes of the call but, um, has the, the the line length, um, increase on OEM units, going out. The door hasn't fully addressed kind of the issue of the canister shortage. Or, um, do you think we're going to be done talking about canister shortages here? You know, as we move through the third quarter,
Speaker Change: Yeah, I hope we had done talking about the canister shot. It is so the line length issue and we all have done that right, gone to 30 ft line, length and that has addressed the concerns from our dealer. Unfortunately, a lot of that inventory, hit the sales are our warehouses only in June. So we started to see some of that impact where dealers concerns were less. Towards the end of June versus beginning of May
Speaker Change: But I think all of us now have inventory with 30 ft line. Length pre-charge.
Speaker Change: and that plus there are more canisters available than they were 2 months ago, so overall
Speaker Change: I sincerely hope that we won't be talking about this when we talk about Q3 earnings and we're talking about in a more positive way.
Right, thank you for that color.
Speaker Change: Thank you and next, we'll go to Noah K with Oppenheimer. Please go ahead.
Noah K: Uh, thanks for taking the questions. Uh, want to ask about the, uh, inventory. Build you provided some color, but was hoping to maybe unpack a little bit further. What drove the sequential build between, uh, you know, just just more build of 4504, B versus the channel, being able to take that. And you had Samsung in a couple of other things that you called out. And to put a bow on it, how we should think about kind of the Cadence of inventory reduction and where you expect to be at year end.
Noah K: Sure um yeah just to add some clarity so we always wanted to make sure we did a successful transition to the new 454b product. And within that we thought there might be this air pocket coming in the second quarter. But we wanted to have sufficient inventory for the season. In case that air pocket didn't come in it, became in a bit as as expected. So what we're going to do is the second half of the year, is the decelerate, some of that inventory and, and drive it down to more normal levels, they'll still be a growth year-over-year at the end of the year, mostly for these Investments for Samsung and the emergency replacement, but it will normalize in the second half of the year. And that's all built into our free cash guide.
Speaker Change: Okay, just a quick. Follow up on that. That, that inventory that you built. Uh, and that you expect to come down. There's most of that kind of remix towards the longer line length. And that we were just talking about in the prior question.
Yeah, for residential. That would be true. So and I think that puts us all in a really good position, but we also have some of the older line length as well. So I think it's a good mix but uh the most of the 1 we built recently for the longer line at
Yeah, I think people just want to understand like any risk around strange inventory, it sounds like that's not an issue. Um, last question uh you know 25 you mentioned it a little no no no.
Speaker Change: Yeah, yeah. Yeah. Uh, you, you mentioned a little bit about the 25c expiration. Uh, of course, that's that's eligible, uh, through the end of the year to claim. Uh, any anticipation in the guide of a demand pulled forward around that, or are you driving any initiatives with dealers to kind of try to get the credit monetized before it expires?
Speaker Change: I don't expect a significant demand for, as, you know, it was only in single digits that, uh, units are compared to units. So that took advantage of the 25c credits. I think it's a small amount.
Speaker Change: 1026, maybe the mix would be slightly. I mean, again it's only 67% of the units were impacted but no at this stage, I don't expect any demand, pull forward because of that.
Speaker Change: It's perfect. Thank you.
Bret Lindsay: And we'll go next to Bret Lindsay with mizuho. Please go ahead.
Bret Lindsay: Hey, good morning. I appreciate all the detail.
Bret Lindsay: Morning Brad. Um yeah what wanted to start with commercial. So you noted, the manufacturing productivity continues to ramp in in the Mexico facility I guess as as that capacity gets gets stood up and you're you're back in the emergency replacement Market. Do you have any updated thinking on Factory output and how that might ramp? Uh, over the coming quarters as you're as you're filling it out and driving more Revenue there,
Bret Lindsay: Focused on standard product for emergency replacement non-conference and the 1 in us and start guard, very focused on configured products, mostly for key accounts, and other applications. So, I think that balance is going very well for us. We have scaled back, uh, our labor force. And if the factories as our inventory has come to a good level,
Bret Lindsay: Uh mostly through attrition and otherwise and we will continue to kind of balance demand across both.
It to make sure that we serve the customers in the most appropriate way.
Bret Lindsay: And get the right Financial outcome. So I think we just pleased with that balance and that flexibility we have which we have never had before. So I do expect our productivity run that started in Q2 to continue for the next multiple quarters. As we continue balancing those 2.
Speaker Change: That's great. And then just wanted to follow up on the repair, verse replace discussion. You you, noted the trade down, I guess is, is there any data you can share on the rate of growth, uh, in the parts categories versus equipment or something? Um, you know, fundamental in the in the second quarter, you know, driving that that sentiment and then I guess how do we think about that Dynamic and the context of, you know, the raise in the guide for the for the segment against some pretty tough comps here in the back half.
Speaker Change: Sure, so I'll take it 1 at a time, right on the repair versus replace, you know, we are underweight in Parts as you know. So I mean, I'm actually interested to see when all those declare the results to see if they have noticed an uptick. But if there was a big uptick in repair parts, we won't necessarily see that. But no output sales were pretty normal in Q2, so no evidence. But this is more based on just talking with dealers talking with our key accounts and looking at like no other industry Trends. This was a comment based on that, but no numerical evidence to support that.
Speaker Change: on the second piece as we look at it, when we gave the
Speaker Change: Guide for 2025, at the end of q1. Our view were shaped by a potential impending recession. Our view was shaped by potentially tariffs leading to a lot of inflation and that inflation leading to a lot of demand pullback and consumer. Uh, uncertainty things have just become more stable for the US economy as you know, since then. So that's primarily the reason for change in our guide is just more stable. Consumer demand more stable consumer confidence
the new home construction is the 1 area that remains weak just like existing home sales and we did take that into account um
Speaker Change: As we came back with the guide, but that's the piece that continues to be weak.
Speaker Change: Okay, great. Appreciate the detail.
Speaker Change: Thank you, next, we'll go to Tommy mall with Stevens, please. Go ahead.
Speaker Change: Good morning, and thank you for taking my questions.
Speaker Change: Morning, Tommy.
Speaker Change: Loco, when is the start on tariffs and Associated, sir charges or price increases, whatever we want to call them.
Speaker Change: um, I heard you earlier say that you ended up removing all or a substantial portion of the S charge
Speaker Change: That was, uh, I guess announced in.
Speaker Change: Second half of April, just as the Tariff picture improved.
Speaker Change: So, if you could walk us through any any of the details there, I think it would help to clarify for folks. And then as we look forward, what are some of the potential changes in the Tariff landscape where you you would have to think about potentially needing to come back for another surcharge or
Speaker Change: Um you know it could go the other way as well. There's there's a lot of influx so maybe just frame for us. What are you watching over the next couple quarters?
Speaker Change: Sure, let me start by giving you where we are on the overall tariff landscape, right? I mean, when we give our q1 guidance, we talked about about 250 million dollars, in tariff impact to us.
Speaker Change: If you were to ask for the same question again, now we will say the impact is going to be less than half of that.
Speaker Change: And that's because our teams have done a really good job of mitigating, tariffs by switching suppliers and others. And as you know some of the tariffs have been changed or lower. So putting that like an overall impact is much lower to offset. The impact we had always talked about, we're going to focus heavily on productivity, focus on cost control which we did and we did pretty effectively and then we relied on pricing. We had done 1 price, increase and 1 search charge related to tariffs and eventually we did withdraw. I would say all but majority of the S charge given that the China tariffs came down substantially from 145, some to a lower number. But the first piece uh continues and that continues to offset
Speaker Change: We are still facing and that impact is as said, less than before going forward. Uh, you know, there's a lot of uncertainty you and I have both wish, we knew what's going to happen on tariffs tomorrow, but we don't, but we remain concerned about Paris coming from South Korea. We remain concerned about some of the August 1st tariff deadlines, and we remain concerned about like, you know, the future of the US Mexico, uh, usmca production and exemption, so we continue to watch out for those.
Speaker Change: But our goal is always be to provide our dealers and contractors a certain level of certainty and a certain level of confidence. Which I think we have managed to do successfully by being very disciplined with our tariff versus cost and cost versus price approach.
Speaker Change: Thank you Luke as a follow-up. I wanted to uh address the EPS guidance, which you raised today and maybe stepping back from some of the numbers and just talking philosophically here. If if we can do that on earnings today, I don't know if that's possible but I think where a lot of the questions are coming from today, are you raised largely on pushing through the the beat and the second quarter? And given some of the recent
Speaker Change: Price cost of Trends, where, you know, your incremental margins were pretty impressive this quarter. It might suggest a bigger raise would be appropriate for the year. Maybe there's some conservatism
Speaker Change: Embedded in the second half. Maybe there are some other factors that haven't come out in the questions today.
Speaker Change: Um, but anything you can do to help us understand your philosophy here. Would be helpful. Thank you.
Speaker Change: Sure, I read a McKenzie article once which said that uh, successful companies, 80% of them have an aggressive CEO, but they are balanced by having a conservative CFO. So apparently, those 2 make a good pair, so maybe I'll let Michael answer the question. But listen, at the end of the day, there's a lot of uncertainty that still remains in the market. There's lots of funds to be around tariffs. There's all the pieces we mentioned about r454b. Uh, residential, new construction remains weak. And so, we think our range, we kept the range of eps guide to be 1 dollar. Normally we would have narrowed that range at this stage but given the uncertainty we kept that range to be 1 dollars and we feel like we appropriately. Neither conservative nor aggressive with the new range that we have given out but Michael anything you want to add to that here, I'll just add. I mean our goal is to have confidence to make sure that we meet our commitments. And I think we've done this with the guidance that we've laid out, but there is a bit of some conservative in in some of the assumptions.
Speaker Change: It's maybe around some of that cost inflation around 6%. I mean a half Point difference. There can make a difference in the in the EPS but with the inflation and uncertainty, you know, around that, I think it still makes sense to hold it at 6%, but we'll keep watching that.
Thank you both. I'll turn it back.
Speaker Change: Next, we'll go to Chris Schneider with Morgan Stanley. Please go ahead.
Chris Schneider: Thank you. Um, I wanted to ask about the backhand volume outlook for the resi business in Q2 um going through online percent and 1 um in the back half. Um, you know, it's calling for volumes mostly, maybe a little bit worse than that 9% but but the comp goes from 1% in Q2 to a plus 16% in the back half.
Chris Schneider: So you know I guess you know in that context like you know, why are you guys confident that volumes will will be mostly stable here? Um, you know, given those comps is it that, you know, the dto came through in Q2 and is now over, is it, the canister issue getting sorted itself out? Uh, any color there would be appreciated
Speaker Change: All right, so may well be its first clarify, the number. So the balance of the year we have volumes down in ACS about 8%. So it's a little bit more than the year to date 6% that we saw. And just recall, that we will have the comp issue in the second, um, half of of SE of basically the fourth quarter. So that's kind of built in there. But then we have 10% increase in price. Mix also on that. So we are building in a little bit.
Speaker Change: More decline in volumes in the second half than what we saw in the first half.
Speaker Change: I I appreciate that. I was kind of asking more about the second half versus Q2. I think Q2 volumes were down 9 and the comp was plus 1. And now it's, you know, minus 8 plus 16.
Speaker Change: Yeah. And I think a lot of that obviously is we talked about destocking? Well you can never get the exact numbers. We think like you know, the stocking is largely behind us after Q2 and we talked a little bit about the canister shortage and how that impacted us especially before the 3 0 t.
Speaker Change: Talk to someone and we ended the quarter with much better sales rate than we did during the middle of the quarter. It's never a perfect science, Chris as, you know,
Speaker Change: But we feel like we have a problem and given a fair set of numbers to the best of our visibility at this stage.
Speaker Change: Thank you. I, I appreciate that and then maybe just on price, you know, obviously the industry is a really great track record of pushing price and holding that, um, you know, I guess it, it feels like here. Um, you know, price, you know, across, I imagine it's across the industry. Seems to be running a bit ahead of cost following the D escalation, um,
Speaker Change: Do you are you confident you know that the industry you know will be able to retain all of this price as you look out over the next 6 to 12 months, just kind of giving some of the earlier comments that, you know, there is a little bit more repair versus replace maybe some trading down in the market. Thank you.
Speaker Change: Yeah, listen. I mean, our industry still makes less money than some of the other Industries like water heaters. And if you think about all the Investments that are needed over the past few years, I mean, if you spend hundreds of millions of dollars in capital to get to the r454b transition, we are spending hundreds of millions to get better distribution. So we can deliver products the same day and give quotes back uh within 2 hours. I mean, all of those Investments are not made by just Lennox. Every other player is making that investment as well. And to recoup those Investments, I mean, we do need the price impact and a cost.
Speaker Change: 4454, B units are higher and we are facing other inflation such as refrigerants and other news that we have looked at it. So I can't speak for others. But if histories of any guide us and other players will continue to be priced disciplined. So we can invest in delivering a safe products to our customer support them appropriately, and make sure we live up to our quality and warranty standards.
Speaker Change: Thank you, I really appreciate that. Makes sense.
Speaker Change: Next, we'll go to Dean Dre with RBC Capital markets.
Dean Dre: Thank you. Good morning everyone.
Speaker Change: My name is hoping you give us, uh, progress report on the emergency replacement initiative. Um, I saw that you had added some inventory. So, it, um, you know, you, you got to start there to have it. Ready on that 24-hour, notice kind of thing but just, uh, give us an update there, please.
Speaker Change: Sure didn't, uh, when we talked in q1, we were talking about 1 or 2 pilot markets on where we learned and kind of got our approach finalized since then we have expanded and we are now up to about 5 or 6 of those markets. And that's what you start seeing in Q2. But clearly there's more room for us to continue expanding through that, uh, very soon in the future, you will also see our commercial products, even in our residential stores things that we have never done before.
Speaker Change: As we look at like, you know, using our distribution Footprints, more effectively and placing that inventory and the most convenient location for our contractors. So overall early Innings, but we are pleased with the progress that we have. Seen our Pilots have gone. Well, our initial rollout has gone well, but there's still a lot of room for us to continue taking this forward. So we going to be disciplined about it. We are going to be aggressive in our approach and we are going to continue to make a dent in this as, you know, the overall, bogey, here is much larger that we are seeing in any quarter. So we think this is a good Tailwind for next couple of years, plus more.
Speaker Change: Really good to hear. Um, and then second question, a look on page 10 of the deck. You gave some hints about the opportunity to expand product and services. Um, the in the portfolio, I know you're not going to give a lot of detail here and we can rule out International, but just the idea of where and how are these growth levers? Is it more JVS, um, more on the distribution side, you know, anything about the timing of, where we would see further initiatives, you know, kind of like along the lines. We saw with water heaters
Speaker Change: So, highly underutilized distribution Network as a 250 stores could add a lot more products uh compared to what we are selling today without adding that much fixed cost. So we will continue looking at that From m&a perspective.
Speaker Change: And on the GVS, we only did that because we had a like, you know, companies which had well established products, well, established reputation that could allow us a faster entry into those markets. So stay tuned, definitely more to come.
Speaker Change: Great. Thank you.
Joe Day: And we'll go next to Joe day with Wells Fargo. Please go ahead.
Joe Day: Hi, good morning. Um, 1 1 is to just touch on on dto and market, share a little bit more. And so a look, I I think the way you framed it is that, you know, your view is the the dto headwind. You talked about is largely played out so that 125 million. Thank you. Saw it in BCS and q1 and it sounds like you think you saw most of the HCS impact in in, Q2 obviously, back after the year comps. But just in terms of what that downdraft would have been in the first half of the year and so largely done there and then um just also to add market share to the question. How how many points a share do? Do you think you gained last year and and within the guide you know how much are you giving back this year in HCS
Joe Day: Yeah. So the first 1, I would say. Yes, all of those statements are largely true, right? And you realize that 100 million 125. These are large. Approximate numbers, right? We don't
Joe Day: We don't have precise accurate math behind it. But in general, it's fair to say that at this stage, the 125 million in destocking that we talked about is essentially done. There might be some bleed through in Q3, but, you know, I think it's going to be small, the comps obviously remain difficult, right? So I think that's the first we are watch out for, and that we embedded in our guide going forward to make sure like, you know, that's been very clear to that regarding market, share, you know, I mean it's a moving piece. Remember, we look at both Hardy and Ahri because 70% of our sales go directly to dealer.
Joe Day: And with stock up and, uh, stocking. And D stocking, those numbers often have large error bars when we go into this season, but I would say that we ended. I'm not going to give a number, but I will say that in 2024. We ended up uh, having the largest market share. We have ever had in the history of Lennox when it came to residential and even if you give some back this year as we expected and as we had broadcast, we'll probably still land up in 2025 at very healthy and a large market share. That's better than what we had in the past.
Speaker Change: Got it for a second. I thought you might actually give the number um but appreciate the color there and then um, on uh Michael just thinking about the 25.3% margin in in Q2 and HCS as we think about the that as a jumping off point in the bridge, into the back half of the year. And what's embedded within guidance is is there anything from a mix shift on, you know, the trade down, you guys have talked about any cost impact with, you know, tariffs or copper like anything that just changes uh within the complexion of that 25.3 or it's just like normal seasonality from there.
Speaker Change: Yeah, I think what we built in is a little bit more cost, escalation. The second half is the terrorists come back in. Um, but still overall, we feel confident that margins are going to increase in the the second half of this year. Um at least 50 basis points in in HCS. And that's with you know, volumes down 8%, you know up maybe 70 basis points for the full year. We'll see where inflation comes. Hopefully, it comes in a little bit lower and we could maybe do a little better than that. But, uh,
Speaker Change: Or we feel good on price cost management at the moment.
Great. Thanks very much.
Speaker Change: Yep.
Speaker Change: We'll take our next question from Steve tuso with JP Morgan. Please go ahead.
Steve Tuso: Uh hey, good morning.
Speaker Change: Hi, Steve. Uh, congrats on the execution and, uh, pretty, you know, choppy environment there
Speaker Change: I think that means a lot, especially coming from use.
Speaker Change: Numbers the right comparables or um you know I think I'm missing maybe something productivity wise in between those but I guess out of the 240, I guess. Simple question is how much have you kind of booked year to date?
Speaker Change: Yeah. Steve, I think what you want to do is look at the product cost and the other combined, so the inflation's on our total cost perspective. Those combined are bought up 80 million in the first half and applies about 180 million kind of in the in the second half.
Speaker Change: Okay. So 180 million in the second half of that of that cost.
Speaker Change: Flowing through.
Right. Yeah to to get to get to that, okay? Oh no sorry sir 180 on the full year on on on the full year. Okay.
Speaker Change: Alright, so that is that, yeah. So that includes that like that, that that productivity. And you know, the the other numbers above the line on on product cost, okay? That uh that that that makes some sense. And then I guess just from a uh pricing perspective um what what have you have? You guys like a booked? Is this kind of a, a normal now? Run rate here or are you guys have did? Did that price get uh, booked kind of mid Midway through the quarter or is that something that's now kind of fully embedded in a run rate of the second quarter?
I would say it got booked Midway through the quarter uh the a2l pricing as you know, depends on the mix as well. And then mix shifted much more towards 454b to the end of the quarter and the Tariff pricing, the way the announcement worked. We probably had 2/3 of the quarter or where the Tariff pricing was in effect on that. So
Speaker Change: Okay. All right. That makes a lot of sense. Thank you.
Margo: Margo Joseph. Your line is open. Please go ahead.
Speaker Change: Uh hey guys, this is uh this is Joe, I didn't I didn't hear the operator. Um,
Speaker Change: So uh, look for the corner, uh, a couple of quick questions and I'm sorry if I missed this earlier but we you take a look at the the the residential volumes down, uh, 9% this quarter.
Speaker Change: What what, what is your independent distribution?
Versus.
Speaker Change: Whatever.
Speaker Change: Yeah. What we saw is on the 2-Step total revenue was up about 10% the 1 Step total revenue was about flat so that's with volume at Price mix.
Speaker Change: That's with volume and price. Mix okay. Um okay got it and then just basically it's got got it, okay? And then and then just kind of like the volume assumptions then in the second half of the year. I know that the 125 million is in a totally precise number, but it implies like basically like a 6 to 7% volume headwind in the second half. So like really what you're expecting out of your residential volumes excluding that that 1-time impact from the pre-b buy last year is really kind of like down, you know, call it like 1 to 2%. Am I thinking about it the right way?
Speaker Change: Yeah, I think roughly that's about right, you know, I think I haven't done an exact match, but yeah, that's a great way to think about it.
Speaker Change: Okay, all right.
Speaker Change: Here is, is, I know some of the earlier asked about pricing and call it like the inelasticity of pricing, uh, into next year. I'm actually curious on the search charge because it isn't fully, you know, implemented for for being this year. And so it seemed to me that you should um, I'm sorry the service charge but I'm at um, on the mix side you should you should improve on mix in the second in in 2026 as well because you'll have, you'll be telling all for 54 days the right way to think about it. So even though
Speaker Change: Miss is very positive in 2025. There should be some improvement on next in 2026 as well.
Speaker Change: Yeah, I think that's right. Joe we talked earlier about in 2025
Speaker Change: 60% of our product was going to be 454 and 40% was going to be 410 a in 2026. It'll be 100 454 and 0410 a. So yes, we do expect mixed to improve and you'll see year-over-year will be better in, like, q1 and Q2 by Q3 Q4. I think it'll start in normalizing more, but I think that's a fair way to think about it for 2026.
Speaker Change: Okay, that's great. All right guys, thanks so much.
Appreciate it. And our and our last question comes from, Nigel. Co with wolf research. Please go ahead.
Nigel Co: Appreciate you going, uh, going along here, uh, to put us all in. Um, just wanted to follow up, um, on the, uh, direct versus indirect. Um, I think you said, um, 2 Step Up, 10%, uh, all-in revenues. And then, um, direct flat. If we saw the, uh, the dock happening in 2q, I'd, I'd expect that to be expressed more than 2 Step channel. So just just a little bit little bit confused there. Maybe. Maybe I'm thinking about the wrong way, but any thoughts on that?
Nigel Co: You know, the first of all, I think our exposure to 2 Step is much smaller than others. So I wouldn't read too much into that from a overall industry perspective. I think, 1 thing to keep in mind is, uh, in the 2-Step Channel there because of tariffs and because of the R4 54 B's uncertainty and all of that people continue to, like, you know, maintain high levels of inventory. And that's 1 thing. We refer to seeing some of this might bleed into Q3 as we look at Distributors and how much inventory they have on the 1 Step, as we looked at it, come back we did we did talk about even 1 Step is not immune to holding any inventory during transition, there was some inventory 1 Step was holding as well.
Nigel Co: But net net, as you put together, I put that within the overall fluctuations and the uncertainty that we experience but Michael what is the thing I'll add to is the 2-Step doesn't have the RNC. Exposure is the 1 Step does as well.
Speaker Change: Yeah, because that's right. Michael, that's a good reminder.
Speaker Change: Yeah, that's, that's, that's a great color. And then a quick follow on. Um, you know, just kind of on, on the, on the notion of inventory. Um, your inventories, uh, stepped up, uh, pretty meaningfully, uh, from 1 key to 2. And normally we see inventory bleed down, um, in the second quarter. Um, so I I know we got higher unit costs with 454 B and I know that we've got some build with, ER, but, but any any more color in terms of, you know, how you see imagery. Uh, well, first of all why, why Mt is so high. And then and then, how do you see that progressing through the year?
Speaker Change: Yeah, we wanted to play it safe during the 4:54 week transition. And given the industry uncertainty, as you know, in the number 1, complaint from our dealers over the past 5, 6 years has always been around availability of our product. So we wanted to address that fully so I think we did that and yes some of it was also the seasonality of having a slow start to the summer.
Speaker Change: A net net. Uh, as you know, we would generate most of our cash in the second half and uh, we have
Speaker Change: Good confidence on a overall cash Outlook. And we will bring the inventory. You deplete it down over the next several months.
So it's we look at it internally and say it's a little bit more than we thought. Yeah, but you know, we are confident that it's the right thing to do, and we'll bleed it down before the end of the year.
Speaker Change: Okay, that's great. Thanks a lot.
Speaker Change: Thank you for joining us today since there are no further questions. This will conclude Linux is 2025 second quarter conference call, you may disconnect your lines at this time.