Well, good morning, everyone, and welcome back to day three of Oppenheimer's 21st annual i ndustrial growth conference. Noah Kaye, a managing director in Oppenheimer's Industrial Innovation research practice. We're very happy to welcome back to the conference the management team of Lennox, CEO Alok Maskara, CFO Michael Quenzer. Gentlemen, welcome to you both. Thank you so much for what promises to be a great discussion today.
Thank you, Noah, for having us. Excited to be here and share our story.
You had a, I think, a very in-depth investor day, which we attended, you know, a few months ago, and you really laid out a comprehensive view of the business through the end of the decade. You talked about a $500 million revenue growth target from new initiatives by 2030. We estimated that that represented, you know, just over a quarter of the opportunities you laid out across parts and accessories, emergency replacement, ducted and ductless heat pumps. You talked, I think, about a point of growth this year from those initiatives on your earnings call. I guess the question here is really, which of these growth initiatives do you anticipate hitting their targets earliest? Which might take more time to play out?
Where do you think you've left the most room for upside over the medium term?
Sure. I think from our perspective, just as a reminder, one point was total growth impact this year, so roughly about $50 million is what we baked into the plan across all four initiatives. Over the next three, four years, each of them accelerate, so towards the end of the, you know, planning period, we feel very comfortable with the $500 million number. Think of it's $50 this year, over $100 next year, then it keeps rapidly going up. We like all four of them. I'll tell you the largest opportunity for us is in what I would call the attachment rate. Attachment rate for parts, supplies, services. You know, those are the areas where we have made the two acquisitions so far, and we continue to feel we are well-positioned to win.
We have a right to get more attachment rate, given our 215 distribution outlets, given how loyal our dealers are. We just haven't made it easy for them to buy those products from us. That's where we think the largest opportunity for us is gonna be. Other things, such as the JV with Samsung and Ariston, they're also both very important to us, and I think that's gonna be taking a little longer to play out because our market share is so low, and market share takes a long period to shift. In the short term, to answer your question, Noah, emergency replacement is the one that we are seeing the most traction and will likely have the most impact in 2026 itself. We started on that journey two years ago with a new factory.
We built our sales and distribution position last year, and this is the year we're kind of fully loaded, ready to go forward. That's gonna have the most short-term impact to us with emergency replacement.
That's very helpful. Look, thanks. Maybe to put a finer point on the initiative with Samsung and Ariston. You know, you mentioned solid momentum in the first quarter. I'm curious what solid momentum means, you know, for you and your partners in the context of what was a seasonally softer, you know, quarter for volumes. You know, how we think about both of those initiatives, at least ramping through the balance of this year.
Sure. First of all, I think in a low quarter, percentages look very good, right? From that perspective, that's momentum. That's not what we meant when we said good momentum. What we meant is, for us to succeed in the summer season, we need to be prepared by March, April. We are prepared versus last year we were not ready for things like Samsung. We didn't get full inventory position till, like, June, July, and we had missed the selling season last year. That's the momentum we're talking about. Number of dealer signups, number of dealers who have tried and tested the product and are ready to go. Same on the water heater. You know, we have got warehouses now that have appropriate inventory. We are ready for the summer season.
On Samsung, just to go back to it, last year was a very soft year because, like, you know, products was not there. 410A conversion, we were selling through the old inventory. This year we've had a good solid start to a good selling season, what we hope stands out in Q2 and Q3. We are optimistic on both. Our market share in water heater is clearly zero, so that's an easy one for us to look at and saying, "Hey, we're gonna build up good market share position going forward."
Yeah.
On ductless, if it's 10% of the market, it's way less than 10% of our sales, right? I mean, we are probably 5x underweight in that. I think over the next five, 10 years, we'll get that.
Yeah. Can you talk a little bit about the preparation of the channel? I mean, it's one thing to get inventory, you know, into the right hands. It's another thing to kind of arm, you know, your dealers and your customers really with the information they need to go out and win the business, win the market share. Can you just talk a little bit about the training initiatives that accompanied the rollout?
Sure. First of all, we continue to invest heavily in training. You know, right now we have about 14 different residential training centers. We have couple of commercial, and we are opening a new commercial one here in Dallas, close to our headquarters as well. That continues to be an area of investment. I should mention that a lot of training we do now is online as well. While the physical centers are very important, the online content is very important too. For the Samsung product and for the Ariston, we have set up a whole separate team that focuses on just getting our dealers trained on it, answering technical questions through that, giving them the tech support, and giving them the value proposition training.
For example, the Samsung products, they work very well with the Lennox Home App on your phone. They are integrated together. We have the same kind of value offering in terms of loyalty rebates, loyalty programs, freight programs that comes with our unitary product. They can call the same tech support number and to be able to connect and work with the tech support. We try and make it very easy for our dealers to work with us. The consumers, they love the connectivity of the Samsung product, they love the industrial design of that, and how quiet that is, which as you know is Lennox's value proposition as well. We try and match that together. On the water heater, something similar. Besides all the loyalty factors I mentioned, this too works with the Lennox home comfort app.
What we try and train our dealers do is when you're down in the utility room, whether it's in the basement or attic, and you're there to change the filter and do the service call, take a look at the water heater. Is it 10 years old? Is it about to leak? Give them a value proposition to give them promotion to say, "Hey, I can send somebody to change it."
By the way, the new one will be more energy efficient. You might get some heat pump rebate, and it's actually digitally connected. Not that many water heaters are digitally connected. That's a training we have gone through it, so we are locked and loaded for the selling season.
It's great color. You know, obviously there is a potential for more convergence, between, you know, the heating and cooling and the water heater industries based off of where regulations are going, but also just based off of labor scarcity, and a fair amount of overlap, frankly, in terms of, you know, functionality in the field. This is something, you know, I used to do with, you know, my family business. I guess, you know, as we see that sort of labor scarcity, you know, playing out in the value proposition here, you know, where do you think that the cross sell can eventually get to on water heaters for your business today?
I know it's zero today, but where do you think it can get to over, say, five to 10 years?
You know, I'll tell you some historical data on this, just from the industry, not from us, then I'll answer your question. We do surveys every three to four years with our dealer base. The most recent survey, which we did on 2025, showed that 50% of our dealers are selling water heaters now. 50, I mean, that's a big number.
Yeah.
If I go back a decade, let's say 12 years ago, it's, you know, three [inaudible], the number was like 15%-20%. That number has like gone up 3x on the number of folks who are actually actively selling water heaters. That's true when we hold Lennox LIVE, our own internal, like, you know, dealer conference. The water heater booth was crowded. There was constant traffic there. We had to, in fact, put more people there because we underestimated the demand there. Now take it forward. I think a decade from now, probably 70%, 80% of our dealers are gonna be doing water heaters. It is about labor scarcity. It is also about labor utilization in the non-peak season. If you look at summer and winter, our dealers are busy.
Spring and fall, they're running promotions on water heaters and service calls, which they can do together. It's obviously less labor intensive to change a water heater versus to install an air conditioning. They both require a plumber's license and electrical license often. I think there's a lot of synergies there. Technology-wise, the heat pump portion of this makes it much more conducive for an HVAC person to install it versus a traditional plumber. The traditional plumber wants to do nothing to do with electronic control, does not wanna program the heat pump, does not wanna get trained on it, versus HVAC guys have been dealing with heat pump for over a decade. Finally, the technology convergence, Europe being the extreme example, where you have one unit which is doing hot water boiling and your home heating. There is technology convergence happening.
Once we go to natural refrigerant, there's a high chances there'll be one unit that's gonna be both heating your home and heating the hot water for your home. I think we are early in the convergence journey, but we believe in that. We believe it's coming, and we are delighted that we'll be prepared with our partnership.
It's a great look into what's coming next. Thank you. You know, I guess going back to your long-term targets, you know, you had an industry volume outlook for resi of 1%-3% CAGR. You know, I understand wanting to sort of be prudent here, given what happened, you know, last year, but did seem conservative to us, again, given that 2025 base. We've seen you already reduce exposure to margin dilutive corners of the market, such as in residential new construction. I guess the question is, if demand winds up being stronger than that 1%-3% CAGR you talked about, you know, how does that impact your approach? Do you use that to further refine your exposure to particular end markets?
Do you just sort of ride the wave of growth?
You know, we definitely wanna ride the wave of growth. We wanna be fully prepared. We wanna make sure we have enough production capacity, enough distribution footprint, enough stock in all open markets. Listen, I'm glad you found it conservative. That was the intent. What we didn't wanna do is defend market growth during Investor Day. We wanted all the focus to be on Lennox differentiated growth initiative. You will make your own market growth assumption anyway, Noah. Why try and come up with a number that you might think is aggressive? We wanted to just take that off the table and say, "Yeah, we're gonna give you a number that nobody would say you're being too aggressive, and let's talk about the Lennox growth initiative." Going back to the lower profitability corners of the market, you know, that's a bit of a short-term phenomena, right?
I mean, when you make no margin, we don't wanna sell into it. These things go into RFPs every two years, sometimes even every year. I think as those large accounts get experience working with somebody else and see our differentiated value proposition, I'm optimistic that they will see the value of our value proposition, and they will look at why, like, you know, it is better to work with us even if we are $0.01 more expensive. I think that's kind of where we are gonna focus on. You know, we provide better service. We are manufacturer direct. We provide better support. Honestly, we train the dealers and spend a lot of money training those dealers.
From that perspective, like, you know, I remain convinced that we have a stronger value proposition, and I feel confident that if not all, many of those customers will realize that and will give us an opportunity again.
You would intend to rebid, you know, for the next round of RFPs, but with terms that are more attractive to you?
Yeah. We'll stick to our margin discipline, but yes, we will.
Very helpful. What about for BCS? You know, you laid out these vectors for secular market outperformance. You talked about the emergency replacement traction, which we're already seeing this year, and then the parts and service attach rate. 1Q, again, healthy initial proof point. You're guiding to substantially stronger performance versus peers in light commercial this year. Does that magnitude of outperformance hold if broader industry volumes continue to exceed expectations for the year?
Sure. Michael, do you wanna start on that?
Sure. We're really pleased with the start of the year within that segment. We had a little bit of an easier comp last year, that's some of our performance. Overall, as you mentioned, there's really two big growth factors we're focused on the BCS. First is emergency replacement, it's a bit of a more of a seasonal product. Think of the second and third quarter, we saw some really good traction, record improvement on emergency replacement within the quarter. The bigger growth factor has really been around national accounts and our ability to get back into that vertical with the health of our factory now in Arkansas to start winning back share. The stickiness that comes with that revenue and national accounts is that we can build custom equipment for them. We install it through our service offering.
We do preventative maintenance with them. We do monitoring. We do end of life recycling and reclamation. We're really pleased with that light commercial business and the stickiness in national accounts to go back on offensive. We're off to a good start. We saw the industry up a little bit in February, so that was another good indicator after being down for 15 months to see the industry starting to come back. Really it's similar to what Alok said. It's kind of riding the wave of the industry coming back and continuing our two growth vertical vector market share wins on both emergency replacement. National accounts are off to a good start, and we expect that to continue through the second quarter into the thirdrd.
You know, you mentioned Stuttgart, the health of the factory. It's been transitioned to primarily configure to order facility, right? For the national accounts.
Right.
You know, and you also have been investing, if I recall correctly, in some testing chambers in R&D, and you know that those are all sure helpful to, you know, product development and conversion. Can you talk a little bit about the uplift you get off of a configure to order unit in terms of profitability versus, you know, kind of the larger, standardized product that you're doing now in Saltillo?
Michael, you want to continue?
Sure, yeah. From a margin perspective, the overall margins are actually very similar from an equipment perspective, from a margin percentage on a national account. The average sale price is significantly higher on a configured order, but the margins are very similar to emergency replacement. We like both businesses. Neither one is really more or less attractive. We think we can continue to expand margins on both. Really that improvement within the test chambers, what that's gonna allow us to do to really speed up our innovation cycle. There's a lot of focus on big national accounts moving to electrification, hybrid units for both electrified product as well as some gas. We're moving to a bit of a hybrid heat pump product with the national accounts.
We're excited within that channel to get those new products launched with the national accounts and those test chambers, which are part of our $100 million extra CapEx this year will definitely support us there.
I think, Noah, I'll just add to that, like, you know, in a way, we felt bad last year. We built a new factory, and the market went down, right? I think that goes down to my history. Every time we build a new factory, we should think of the market going down. What we are very excited is as the market comes back, we are no longer capacity constrained. We have worked through all the kinks of a new factory startup, and now it's time for us to use our plenty or abundant capacity to go get new share. The team excited. Q1 is just kind of the beginning of that journey. Some of the win back on the national account have exceeded our expectations as Stuttgart became so focused and has got improved lead time. We are down to like our best lead times ever.
We're super excited about the market recovering. No, it compounds our growth. It doesn't change our differentiated growth initiatives.
It's a really interesting dynamic to watch, you know, going forward. I want to ask you about distribution, which was a major focus at Investor Day, and we had the opportunity to, you know, tour your new facility. After completing the physical build-out, what are the priorities for driving that improvement in fill rate? How do we think about scaling up the distribution centers and the automation investment that you need to, you know, kind of have at the end of this cycle?
Sure. I'll start by just reminding ourself and everybody that at the end of the day, our goal is to make manufacturer's margin plus distribution margin. Like we need that plus in between. We have delivered 300 basis points-400 basis point margin growth over the past four years, and we think we are, like, you know, still a lot more room to go to get to the final math. It's been a long journey. Glad you had the opportunity to look at our new distribution center, which makes it truly more of a hub and spoke versus the, I would say, a random walk through our distribution centers that we used to have. The payback on that investment is very quick. You know, Michael and I were just reviewing that recently, and we are pleased with the payback on that large investment.
You won't even notice it in our PNL in a negative way. I think that's positive. There's a lot more to be done. AI is playing a very critical role in how we take this forward. Now that you've kind of got the physical infrastructure, a lot of this is purely around demand planning, inventory deployment, and making it easier for our contractors to order parts and accessories as part of the overall purchase. We can put a whole kit, including cord and adapter from AES. The next big two or three phases is continue to build out our regional network, which is not done yet. From both residential and commercial, we are still working through the cascading the hub and spoke into different areas. Like, we just did something new with Sacramento, got more capacity. We're doing something new in Florida.
Region by region, I gotta get the right capacity in there. Add on Samsung and Ariston to the distribution network so they are additive to it. On commercial, continue opening local stocking points to be able to make that work. We still think we are early in the journey, but we're being very disciplined, very thoughtful, and it's working as we intended and the payback has been very good. I wouldn't think of any big capital investment required there because an autonomous truck is pretty straightforward and a better forklift is pretty these are not millions in capital. Like, you know, they are smaller within a regular CapEx budget. The big CapEx is what Michael and I called out, which is gonna be around our true testing facilities, R&D, and innovation, we've called that out already.
Yeah. I guess, on the competitive landscape and distribution, it includes large public peers. There's active PE players. You know, The Home Depot subsidiary recently entered the market. You know, how do you see competitive dynamics in distribution evolving? What do you need to focus on to grow your share and achieve your target margins?
Sure. You know, in a quite a few way, we welcome the professional distribution approach that's happening with SRS and The Home Depot entering that market. We have seen Watsco has put a lot of technology investments in there. We welcome that because our industry needs more efficiency, needs more larger player. As the product gets more sophisticated, to get the product information management cascaded through the channel is the right thing for the industry to do. A, we welcome that, right? B, it makes it appropriate for us to challenge ourself to up our game.
You know? I mean, going back a few years, we were at 75% fill rate. I mean, just terrible, right?
These folks will all fill, so we have to get to 98%, 99%. We closed last year at over 90%, so we made huge improvement and we will continue to do that. Good news is with everybody making investment, there's no shortage of vendors, whether for automation or demand planning, and everybody helps the, like, you know, manufacturers and distributors like us to go through it. I welcome the opportunity there. You have to realize, though, distributors don't often switch brands. If you think about it, there's one distributor, Johnstone, very much Daikin favor. Watsco Carrier until they do acquisition, which is kind of non-Carrier. Ferguson, us and Trane kind of are the owning our own. That remains.
I think in future what you will see is every manufacturer will need to excel in distribution to continue winning market share. Folks who own their own distribution, like us and to a large extent Trane, we'll just have an easier time doing that because there's no friction cost of dealing with a third party in between.
Yeah. You can also, I think align your offerings and the way in which you know, are sort of tailoring the product suite, you know, to the end customer, right? You can probably also get an advantage around just the information that you're getting back through the system, the visibility. Maybe that's where some of these sort of AI tools play in. Can you talk about that a little bit? How you've improved visibility into kind of the customer's real time, you know, needs, both from a product fit and availability standpoint?
Absolutely. I mean, let's start with the most basic thing, like thermostats. If you look at thermostats, in the olden days, none of them were connected. There were little mercury dials on the top, right? Now, almost all of them are connected. Among the manufacturers, we sell the most thermostats that are smart thermostats, our own brand through our own stores, and we have launched now lower price point thermostats to get even more mass market. That data is extremely valuable to us for multiple ways. One is for our own product. We can see warranty issues way before it happens, for example. You know. I think that's one information for us. We can talk about runtime versus pending demand or replacement versus this. We just get a lot of intelligence out of that.
Second part of that is we make it very valuable to our contractor. They have a dashboard, which the penetration is increasing, that they can see service issues. Before they spend $250 on a truck roll, they know what part to take there and what needs to be fixed. I think that's something we highly encourage. Finally, for the homeowner, the connected home experience, hopefully they have a Lennox water heater, a Lennox HVAC, a Samsung piece, and hopefully they have Samsung SmartThings in their home, so their TVs and all, everything connects together. We make it easier for them to connect through that.
AI, which we used to call machine learning earlier, plays a role in each of them. For homeowners, we can do geofencing with the phone, so it automatically turns it on and off depending on how your phone is far away or detects audio and adjusts things. We are very proud of our sensors that you can put. You can have on each side of your bed two different sensors that kind of control temperature accordingly. There's just a lot of cool things we are doing with AI for the homeowner. Same for the dealer. We can do predictive and preventive maintenance, which is huge for them. If they can route optimize their truck and they know that the motor is vibrating and they need to change it within the next two months, it's just a lot better for that, right?
For us, it's a goldmine of information. Just a goldmine of information that we use across. Because we are homegrown and haven't done tons of acquisition, we have, like, data going back 100 years, and we put on a data lake, we use it all together. When a dealer goes to a contractor goes to LennoxPros, we can actually tell them what's your purchase behavior, here are the accessories you should add on, here's a compatible unit that matches AHRI, and make it really easy for them to do business with us. All throughout the network, AI is becoming like software, right? I mean, every software that we use now is AI -enabled.
It's a great example of, you know, some of the channel strength that you have. You know, I just wanna turn to more general demand questions. You know, obviously the 1Q volumes, you know, were down in resi, you know, as expected. You know, you previously talked about, you know, these deliberate RNC exits being a two- points volume headwind to HCS. You know, you've talked about just in this discussion how that might moderate in future years. Does it sort of moderate sequentially as we move into coming quarters, or is it pretty ratable throughout the year?
The RNC exits are pretty ratable throughout the year because, again, they are kind of annual contracts in that. We do obviously see that impact no more than what we had called out. It might be even less than what we had called out, given some of the earlier dynamics we talked about, especially with some of these Section 232 tariffs, you know, that contracts become a little messy to work with. I think from that perspective, it's no worse than what we had called out. What we are excited about is just the overall momentum.
Lots happening in the case where we remain convinced that the biggest issue last year was too much inventory in the channel, which is corrected, and our contractors lagging confidence in the new product. There is some impact of consumer, but that's like a tertiary impact, not a primary and secondary. We feel good about where we are, and you saw despite building in the price increase impact of Section 232 derivative tariff, like, you know, we kept our volume commitment the same. It's a bit of a seasonal business, so it's easy for me to do all this. I mean, June is when it's really starts making a difference.
Yeah. Well, to that, I think, you know, the housing starts were up over 10% in March. Yeah, at this point, are you seeing any signs of sustained improvements into the quarter? You know, and just sort of how much lag you would expect between housing starts and an uptick in your own revenue.
Housing starts typically have a six months delay. Like, you know, six months later, they bring the indoor units. Nine to 12 months, they bring the outdoor units. That we can see in a very predictable fashion. As you know, there are big builders, small builders, medium builders, so we still have good opportunity to continue growing through that. What we're also seeing is from a consumer perspective, right? You know, new existing home sales are also good opportunities for us because that's when people think about renovation, changes, modifications. General, the repair versus replacement demand. I think we are going back to the more traditional where consumers make the right economic decisions, and that's replacement for a unit that's 10-12 years old.
I wouldn't change anything, but saying continue to have the same confidence we had when we, like, you know, talked about Q1 earnings.
Yeah.
In much more stabilizing phase versus continuously declining phase than we were last year.
Well, certainly the dealers are more familiar with the new refrigerant. We've also seen, you know, HELOC and home equity loan rates come down, you know, year to date. You know, curious how sort of a financing and affordability are maybe translating here to some of the improved repair versus replace dynamics you're seeing.
Clearly plays a role. Clearly plays a positive impact, I think. As you know, you can't really finance repairs. If you couldn't finance replacement either, they were at equal footing. Now you can go back to financing replacement at a reasonable level, replacement goes up, right? Yeah, I think that's making positive impact.
For existing home replacement, you know, how often and how typically is this just financed via, you know, one of those types of mechanisms versus, you know, outright cash? Do you happen to have that data?
About half these days. Used to be 30%, 40% finance. It's running at about half finance. It's not always through us. Some of the financing is through an HELOC. Some of the financing is through third party. I would say about half, and half of that half, so quarter, a little more than quarter would be through our partners, because we do partner with financing companies and offer financing to our contractors.
We don't directly play a role besides enabling them to, like, you know, connect with appropriate providers.
Just to level set, just remind us what you embedded in the guide, you know, the volume guide, assuming on new home construction versus existing home sales.
Yeah. Yeah. Generally flat. Not a significant improvement year-over-year.
For both existing home sales?
Correct.
And home construction? Okay.
Yeah.
Very helpful. There were some questions we got after earnings on the sequential inventory build, although honestly, it was pretty modest versus the prior year. Just maybe give us some color on your inventory management and how that might tie to growth initiatives. We know not all inventory is necessarily, you know, the same, and it might be for end markets, or SKUs that investors might not fully appreciate. Can you talk about that a little bit?
Michael?
Sure. Yeah, we're actually in a really good spot with inventory going into the season. After the last two quarters, we've taken some significant production reductions out to make sure that we've got our inventory in a really healthy position. We did add some inventory in the first quarter, predominantly around parts and accessories as we try to win some growth within that section. It's about better improved fulfillment. We're definitely working on making sure we have better fulfillment on parts and accessories. Even with our traditional equipment, we found that one of our biggest issues when we hear back from our contractors is our fulfillment scores, and that we need to make investments in finished goods to win that.
Now, what we're trying to do is offset that with raw materials and accounts payable and better accounts receivable to help fund that finished goods inventory. It is a tool to help us help our contractors win in their local markets, and we're making the right investments in the right spots. We launched a new distribution center that eventually over time will give us some more inventory turn improvement. Initially, it's about getting that inventory to help our contractors win.
You know, trying to reduce, you know, raw's exposure, in inventory, just plays right into what I want to talk about next, which is, you know, management of inflation and tariffs. Can you talk a little bit about, you know, that effort to, you know, reduce raw's inventory and how it relates to price cost management for the year?
Sure, yeah. I mean, overall, it's a very complex environment, as you can imagine, with the tariffs right now. What we like is the flexibility we've built within our network. We have five U.S. factories. We have some in Mexico. We have a lot of flexibility to try to navigate this complexity. We'll continue to work the supply chain to reduce some of the headwinds that we see. Specifically on raw materials, a lot of it's also just working with vendors and cost sharing and figuring out what we can do to optimize our overall cost position in the tariff environments that we're in.
We're in a healthy position on raw, and we think the supply chain's generally in a good shape on almost all components that we're seeing, and we'll just continue to navigate through some of the near-term challenges with Section 232 tariffs.
You'd raised cost inflation expectations by 2.5 points, largely offset by price.
Right.
Just how much of the cost increase is tariff related versus commodity related?
Sure. It's for this year, it's approximately 80% of that additional cost increase that we did, which is about $100 million. Second half of the year is related to 232's . The rest is related to more core input costs that aren't hedged. As you get into next year, we still have opportunity to continue to mitigate and reduce some of that 2 32 exposure. Some of these longer term programs that Alok talked about, getting engineers on these initiatives to keep reducing that tariff exposure. We'll continue to reduce that into next year, and hopefully we'll see some reduction in the raw material cost too as we enter next year as well.
Well, could you give us a little bit of early color on those strategies around mitigation? You know, maybe where vertical integration unlocks more opportunities?
Sure
You know, versus peers?
Yeah, sure. I can jump in to help. I think a lot of the new Section 232 derivative tariffs depends on the origin of the metal that is being used, right? If we make products in Mexico that are made using 100% U.S. steel, they have much lower tariff rate than they do otherwise. Now we are better off using Mexican steel in U.S. and U.S. steel in Mexico. Just moving those around, you'll see a lot more goods truck loaded with steel just crossing the border back and forth. Some of that's as simple as that. Others is just leveraging our dual source. Four years earlier in Investor Day, we talked about dual sourcing and how that was critical. This year we didn't talk about it because we've done that.
Every time we are dual source, we can now move vendors around and components around to force them to do the same thing. Is, "Hey, You have compressors made of U.S. steel, let's do this. If your motor's made of U.S." Those are the things we are doing on each of those opportunities, so.
Very helpful. Well, I know we're just about at time here. You know, as always, I really appreciate the discussion. You know, we're around for the rest of the day if anyone wants to follow up, and look forward to some of the meetings as well. Alok, Michael, thank you both for the time.
Thank you.
Thank you, Noah, for having us. Take care.
All right.