Conference Transcript - CARR 2026-02-19

Speaker 4

We are very excited to have Carrier Corporation with us today. We've got Dave Gitlin, who's the CEO, and Patrick Goris, who's the CFO. Dave, as I walk over to you, obviously, you know, you had your investor day almost a year ago now. There's been a little bit of noise, as you know, out there about, you know, a couple end markets. But, you know, I think the highlight of the investor day for me was about carrier promoting accelerating growth, right? and I think you said you would drive that out performance in growth through continuing new product development aftermarket increasing systems related growth so as we start 26 where do you think Kerry is on that journey to increase that performance you know when you look at excuse me three of the four elements that we talked about with our growth algorithm products aftermarket systems we say combined that would be around four or five points of growth and and we feel good about all of them.

Dave Gitlin, CEO

Aftermarket, the Formula Works product, we're introducing new products, we're gaining share, we're surely gaining share in data centers. And systems is this new frontier for us with things like CDUs to build out a quantum leap offering in data centers, carrier energy system level offerings and hems in Europe. So in terms of those three controlling the controllables, we feel great. The issue we've had is this year we're going to face about three to four points of market headwind with our CSA RLC businesses down high single digits and some continued headwind and the residential business in Europe. So had it not been for some of those market headwinds of three to four, which puts the whole company plus about one, even just a couple of points of market headwind would put us in our growth algorithm of six to eight percent. I don't know if we get there in 27, but I can tell you as soon as we get a little bit of short cycle market tailwind, which we would expect, we get back into that six to eight percent Got it.

Speaker 4

Dave, I know you just reported a couple weeks ago, but you were with my peer earlier today. Has anything changed in your outlook? I'm just wondering, anything new that you want to sort of talk about?

Dave Gitlin, CEO

No, the short answer, Andy, is 100 percent nothing new. One Q is what we thought, full year is what we thought, calendarization is what we thought.

Speaker 4

There's nothing new. Easy enough. so 2025 end up being a little bit more challenging as you talked about you know are there any actions you can take to better anticipate potential perturbations and resi HVAC I know it's cyclical you know it's cyclical like what are you doing to sort of make sure you're on top of you know what's going on in the market these days well I think it's a couple things if you look at how we've been talking about the market we're looking at what would be a standard mean, 9 million units per year, and when you're going through a phase where you have multiple years ahead of it, you know, alarm bells should start to indicate that at some point you probably

Dave Gitlin, CEO

will go below the mean. So I think there's a few lenses through which we can look now with the benefit of hindsight that, you know, looking at inventory buildup as we got into, you know, into the end of the second quarter, there were some indications that we look at more now than and perhaps we were a year ago. Two is our channel contacts. We have weekly meetings, not only with Watsco, but all of our independent distributors going super deep on all the early indicators. We're doing a lot more around field inventory management. We said we'd end last year at 30%. We ended January down 32%. Our inventory levels continue to stay low, and we're doing a lot more on keeping field inventory levels low. and then we brought in one of our hyperscaler customers helped us with some of their AI specialists where we not only look at the macros things like existing home sales new home sales consumer confidence interest rates but we also obviously look at movement sell-in and inventory levels but they're also saying you could look at other things like clicks on Zillow or other things like that so between indicators daily weekly communications with distributors and dealers and the macros I think we're incredibly into

Speaker 4

and remember we hadn't missed resi for a number of years so we'll take we'll take we took a lot of medicine last year we've learned a lot from it and I think we've really positioned ourselves well going into this year it's your point and you know Patrick can chime in if he wants to but like you know you set the industry volume decline this year down 10 to 15 percent right and you know I think it seems appropriately conservative but maybe you can comment that in that vein you know I have resi order has been tracking so far early in the year the way you would think well obviously it's still very early it's furnace season just give guidance two weeks ago but anything we're seeing this quarter is consistent with our full year guide including the guide for Q1

Patrick Goris, CFO

and frankly this is the quarter where our distributors would start to build inventory for the season and that's what we would expect and therefore we would see we would expect to see increasing volumes as the quarter progresses as we typically see every year and so distributor inventory will be up sequentially but still down significantly year over year by the end of the quarter God that's helpful and then maybe one more resume related question given the cost and productivity actions you took in 25 and as you're navigating the America's Resi challenge how are you thinking about operating leverage and increment the margins in your America's business in the second half of 26 and into 27 if Resi does start to come back yeah so what we've seen unfortunately in the second half of last year is how painful it is if that business contracts significantly in a short period of time so we've seen significant decrementals Obviously, that also means that as the business improves and we see growth year over year, we expect to see very attractive incrementals. And so for the second half of this year, the incrementals in CSA will be attractive because of Resi will be up double digits second half of the year in sales, given the absence of destocking. So the incrementals should be in a 40-plus percent range. Yeah, very nice.

Speaker 4

And then maybe, Dave, just staying within your America's business, like commercial sales, as you know, we're down 20% in Q4 for the year. But you also did know that field inventory is down materially, with late commercial distributed inventory is down 25%. But you still expect a high single-digit decline in that portion of the business at 26%. So, you know, what's the outlook for that business? Like, how are you feeling about that right now?

Dave Gitlin, CEO

You know, I'll give you a few pieces of good news. is orders up 70% in 4Q, even though an easier compare because it was down 20% in 4Q of the prior year. Field inventory down 25%, as you said. We're introducing a lot of new products, which is in the past and continues to be a lot of tailwind for us because we are quite differentiated with our rooftop units. So I think the thing that's hard to gauge will be the 35% of that business that's plan replacements, probably under a little bit of pressure with the small and medium business owners. And then nearly half is a replacement business. There's going to be some pent-up demand for full replacements. We'll have to see exactly when that kicks in. So the team's doing a nice job to set ourselves up for this year. We guided down high single digits. We'll have to see how the year evolves.

Speaker 4

Dave, I was with one of your competitors yesterday, and they talked about retail maybe getting a little better.

Dave Gitlin, CEO

Like, I don't know if I should get excited about that, what do you think about different end markets you know within you know when we look at the end markets i would say retail hasn't shown a market improvement from an industry but our share has had significant improvements in retail you know we we go direct in that business to some of our national account customers and our win rate with new national account customers major national national account customers has been very very high so retail for us has been very very strong i think for the industry it's probably still a bit muted k through 12 was very soft last year it is showing signs of life to start this year which we had thought it was going to be a little bit better because a lot of that esser funding was going to shift over into state bonds which we're now starting to see being released a little bit so you know a couple of the verticals do look promising. We'll have to see how 1Q, 2Q play out, but I think we've set the bar at a conservative level and the team's certainly grinding to do better than that.

Speaker 4

Dave, to your point, there's no unitary markets that's, I mean, you know, K3-12 is already pretty bad. Is anyone still going in the wrong direction, you think? Like, you know, I know your god is still Dow, but...

Dave Gitlin, CEO

No, it's hard to say. I think that there's nothing that is trending worse this year than it was last year I mean some of the warehouse has been you know soft dish commercial real estate has been soft frankly despite the ABI numbers that's even been showing signs of life over the last couple of months frankly surprising to us that's actually gone a bit well so nothing that's terribly off the rails we just have to watch some of the small medium business owners to see their confidence level to start releasing some capex for plan replacement got it and then obviously America's commercial HVAC has been a highlight for you guys Q4 orders up over 80% you know you doubled your data center business you're

Speaker 4

gonna do another 50% in 26 so you know given the significant focus you have you talk about how you're differentiating right now in the world of data centers you know what are you doing yeah I think a lot of it has to do with how we are introducing new products there that are right in the sweet spot of what our customers want.

Dave Gitlin, CEO

You know we saw it with water cool chillers where we introduced these 18 to 20 megawatt mag lab bearing chillers on the water cooled side and our share went from 10 to close to 40 percent and we're doing the same playbook on the air cooled side so we've been working with our hyperscaler and colo customers they wanted two megawatt three megawatt mag lab bearing we've been introducing those but with the specific requirements they want in in terms of free cooling, quick restart. So as we've iterated with our customers between the interplay between air-cooled and water-cooled chillers, with a point design that's very specific to what they're trying to accomplish with their data centers, we've seen significant share gains in data centers. So I don't think on air-cooled we'll have the same 10 to 40%, but we are gonna de facto gain significant share. And, you know, if you look at this business, Andy, when we spun, especially in the Americas where the team has done a phenomenal job, we were mid-single-digit ROS and kind of a distant third. We've come so far by investing in capacity in North America. We invested in the product portfolio, in technicians, in sales, in the sales force, in spec engineers, in design engineers. Hats off to the team because that's been a complete turnaround, margins now in the mid-teens. our data center orders in 4q for the applied business was up 400 percent you know we were up 5x so we had great orders last quarter orders this year in the first quarter are going to be good so we're differentiating and we're gaining share.

Speaker 4

Dave as you know the technology changes really fast right so how do you ensure that you're sort of keeping up with it obviously there was when you know Jensen Wong came out and talked about you know maybe using warmer water things So, like, you know, how spectant are you? How do you think about that technology evolution?

Dave Gitlin, CEO

Yeah, you know, we think that the game ultimately gets won at a systems level. So we're investing a lot in our traditional chillers. And I think that if you look at what I believe Jensen Wang was saying is that the input temperature, 45 degrees C, is the same for the Blackwell and the Vera Rubin chips. So you're gonna get more power effectiveness, power usage effectiveness out of the same chip, but the cooling needs are fundamentally gonna be the same. It'll just be a more efficient chip. So we will have chillers going forward. You will see the chiller market continue to grow 20-25% a year. We've been growing more than that because of share gains. And liquid cooling will grow 2x traditional chiller so we've invested in our own CD use a new one megawatt we have a three and a five coming out later this year and we're spending a lot to leverage our BMS business because we've become one of the top couple of players in our ALC building controls business so having our own liquid cooling especially through the CD use having our BMS having our traditional cooling and then using things like AI and digital twins to look at system level differentiation.

Speaker 4

Dave similar question around capacity because you've talked about it you know you need to really jam on the capacity metal you know pedal so how are you still staying ahead could you've gotten more orders like how do you think about that over the next couple years?

Dave Gitlin, CEO

Yeah I think we've invested a fair amount I think we're in a good place now you know we've expanded our Charlotte facility we took a facility in Mexico that was doing controls we've outsourced those controls and we repurposed that entire facility to chillers the size of multiple football fields so we've added the capacity in our four walls and I think we now have that footprint we're now ramping our suppliers we want to dual source as much as possible for contingency planning purposes so we feel really good about the capacity for North America God let me ask you about commercial HVAC outside of data centers like any markets that also are surprising on the positive side and or the negative side well South when we you look in, excuse me, Asia, we've seen great growth in India for data centers. We're seeing it in the Middle East, places like the UAE and Saudi. And then we're going to start to see a lot more data center growth. We were in Japan recently. We're going to see good data center growth in Japan and Southeast Asia and places like Singapore and Malaysia. And then Europe, you know, what's happening in Europe is you can look at fairly lumpy sales so we're bidding on some very major colo type bids that we feel very confident in and it's well you can't exactly time when they're gonna land they will land Europe will grow over time on the commercial HVAC side significantly this year we've said mid single digits over time we're very well positioned there's a lot of growth in in Western Europe in particular I can't resist asking you because one of your peers who's on stage with me like all of had a big influx of European orders I would imagine significant thermal management so have you seen more activity though like are you more confident in that starting to be a new part of the cycle yes we're seeing a lot of bidding activity we're very well positioned especially on some of the major like you know you're talking about facilities are in the one gigawatt range so we see a lot of bidding activity we're in advanced stages on those and we'll see how those play out but Europe is showing signs of data center growth here as we look over these next couple years so maybe just focusing on Europe for a second can you remind us of the relative mix today in Europe of commercial HVAC versus resin like commercial heat pumps and resi like commercial boilers yeah so you look at Europe think of it as 5 billion it's about 75% RLC 25% commercial and then within the RLC side it's about 30 30 40 It's about 30% heat pump, 30% boilers, and then 40% all other. And that all other category includes aftermarket, which is margin accretive, and then it's got stuff like solar, PV, and battery, which is a little bit below the margins of heat pump and boiler. When we look at Europe, in terms of that controlling the controllables, you look at our growth algorithm, point of price, couple points of aftermarket, we need market instead of being headwind to come back which ultimately it will this year we've said it'll be down five to ten and then that big bucket of initiatives we feel very good about things like air conditioning sales system sales the one to watch that I'll tell you that I think could be the most important is new product introduction and later this year as we have a new offering that's coming in below that premium you know kind of in that mid to upper mid tier range that's a game changer. And we can't wait for that to come out. Viesmann branded, targeted at new installers converting over to us and even a second tier offering for our existing installers and for new customers. That one we're very excited about.

Speaker 4

So again I can't resist Dave, so what does a game changer mean? Like you know 27 sales, you know how broad is the product offering? How do you think about that?

Dave Gitlin, CEO

Well it hits a much bigger class. So what's happening in Europe is as you see uncertainty around subsidy levels those have been swinging our whole mantra has been we're gonna win and grow regardless of what governments do if we have a business model that relies on what the Italian and German governments do that's not a sustainable business model so we have said that we're going to introduce products to make sure that we can win and grow independent of subsidy levels I would not be surprised in Germany of subsidy levels come down our guide assumed that in fact that happens so one of the reasons this in product is so important is it's not only lower price lower cost on the OEM level from an installation perspective the indoor units a fraction of the size the digital capabilities are significantly advanced so it's a it's a product that's gonna bring the cost of the system installation down so we think it's significant so I feel like the kid in the backseat of the car asking you if we're there yet but like you know you mentioned subsidies kind of swinging around like what do you think it's going to take for the German market to sort of bottom and start to improve I think a couple factors number one is we do need certainty on what's going to happen not only with subsidy levels but the heating law so I think the ambiguity and certainty around that has caused a bit of a paralyzing effect in Germany. I think we've taken a whole lot of medicine. You know, we talk about the overage in the United States and now we're in that underage. That's been happening in Europe. Germany averaging 800,000. We were north of a million units. Now last year we were at 600,000. So I think in terms of absorbing that overage, we've done that. It does feel in Germany and other parts, fiscal stimulus is positive. So there's some sense that optimism is too strong a word but having spent the week in Europe last week with our installers there is a sense that this market will start to recover I asked to a person all of our installers if subsidies come down heating law goes away does customers go back to boilers the sense is that train has left the station the transition to heat pumps is happening so we'll get that mixed benefit with heat pumps up double digits boilers down low to mid single digits we've gotten some of that noise around floor standing boilers fundamentally behind us a little bit of market tailwind and we're really well positioned there yeah i agree i'm going to open it up to the

Patrick Goris, CFO

audience in a second but i want to ask you one follow-up on european commercial hvac we already talked about data centers but you know anything else leading to a little bit of optimism there any other markets helping out generally speaking for commercial age vac is hospitality higher education that's where we see some activity as well and our overall guide is for growth of course in data centers and non-data centers to be up low single digits or so for the year okay yeah so we see some activity there in some verticals any questions question one more time can you talk to the residential market in the U.S. in terms of the conditions you're seeing, either by region

Speaker 1

or by different end categories?

Dave Gitlin, CEO

Sure. The question's around resi in the U.S., what we're seeing. You know, in the first six weeks of this year, we're seeing what we kind of thought we would be seeing. The way we've kind of positioned the year is that unit volumes in the industry would be down 10 to 15. We'd be down high single digits because we get a bit of benefit of the absence of destocking in the second half we get you know a couple of points of price in terms of the start to the year was a colder start to the year benefits furnaces at the margin but the truth is we won't really know until we get what drives our business is splits we won't really know until we get into the cooling season as we get into that March April builder you know our channel partners will start to build in anticipation of the season and then we'll have to see how movement plays out so I would say start to the year no surprises certainly no bad news and we're gonna have to see how the first couple of months play out over these next few months any other questions I was thinking about you as my furnace was running all out like you know is there any potential for I mean you got to replace these things right and the OEM does it so but you can't really see it yet if you're is that what you kind of furnaces were a higher than we thought I'm saying it's not a needle mover you know we have so much of our sales are split so was there a bit of upside to start the year in furnaces yes does it change our 1q forecast no I think the key is gonna be underlying demand as we get into the season we don't want to discuss the weather we just want to see that you know existing home sales hit like a 20-year low there's some discussion in the marketplace that existing home sales will start to improve we'd love to see the 30 years start with the five we'd love to see a little bit of upside in single-family new home construction which is flattish maybe up a point or so I'd like to see a little bit of upside on that so I think we've calibrated this year where we've assumed that all the badness we saw in the second half continues through this year if any of those factors get better then things would be better we're gonna have to see how things play out though any other questions from the audience so let me ask you dave about csame i know it's a little bit smaller portion of the business but it's a bit more difficult maybe for us to get a read on you know it was down the high single digits in q4 so maybe talk about the puts and takes that's impacting that business yeah think about the business as three and a half billion it's half china uh half everything else and then within china it's about half commercial half residential Outside of China, we've said up high single digits, and there are some great growth opportunities outside of China in Asia and the Middle East. Japan grew 8% last year. We've had a good start to the year. India, we're adding a new facility in India because of the demand that we're seeing there the middle east between saudi and the uae is is very encouraging southeast asia 4q thailand was a bit lower than we thought but in general we're seeing nice demand in places like singapore thailand malaysia so outside of china we feel good now we've guided china to be down high single digits with the residential business down about 20 and maybe flat to up a little bit up a couple points on the commercial side residential is hard to say we've actually introduced some new product offerings with Toshiba branded so that should give us a little bit of lift but that market's been tough for a long time and it's hard to find bottom there commercial HVAC we have an opportunity like batteries are being shipped around the world out of China so that that piece is quite good EVs quite good data centers quite good so we'll have to see how ch vac plays out but overall that has the potential to be over any kind of sustained period one of our better growth trajectory regions to that point dave like i don't know whether we have a trade deal with japan or not but like you mentioned a couple times japan like i feel like carrier would benefit if that happens right is that something that you've talked about yeah i mean we're very the toshiba brand is very strong uh in japan we're very well positioned we have modular chillers that are perfectly sized for some of the commercial growth but especially for data centers i i actually think japan is going to surprise the world to the upside on data center investments it could be 18 gigawatts over time especially along maybe 12 of that along the eastern part of the country so we're well positioned in japan i think investments are going to increase especially in our sweet spot we've gotten margins up uh up into the mid-teen range from basically flat when we purchased the business so the the team

Patrick Goris, CFO

in Japan is doing well so I think you've got transport relatively flattish for the year but you know there's obviously a couple different pieces of the business maybe talk about the puts and takes in that business sure one business that has done really well within transport is container yeah at an exceptional year last year started out this year very strong as well at the same time global truck and trailer has been weaker and there is a margin differential between the two with truck and trailer having generally higher margins especially in North America and so we've seen growth but from a margin point of view we have not seen the full benefit of that the first half of this year our guide assumes that container continues to be really strong as I mentioned that's what we've seen so far this year and we would expect truck and failure to pick up a little bit in the second half of the year, whereas container will have tougher comps. So we'd expect margin to improve a little bit in the second half of the year from where we have been last year.

Speaker 4

Got it, got it. And then I did want to ask you about the aftermarket. It's something that I know is near and dear to your heart. I think you've said maybe you've missed equally, maybe not, double digit forever.

Dave Gitlin, CEO

But maybe talk about how it's preceded versus sort of when you first came in you obviously came from the aerospace world so is it easier harder to capture install base here like how do you think about you know your aftermarket progression I think the opportunity is the same the issue is that to drive an effective aftermarket business it has to be in the DNA of how you run the business from everything from how you design the product how you support your customers how you price the product how you think about your relationships with your channel partners and your suppliers. So we've done a lot to change the entire nature of how we run the business and how we run the aftermarket business. So we said, well, you need your devices to be connected. We used to have 17,000 a few years ago. Now we have over 70,000. We said that we need more long-term agreements. We used to have something like 40 or 50,000 of our chillers under service agreements, and now we have 110,000. So we had to change the nature of how we work with our channel partners in terms of how they buy spares from us so that's a work in process but what we did in the United States is we started with a single branch and we said what is good look like and we optimize that branch with Salesforce service max how we look at productivity of our technicians how we support our technicians how we get parts onto vans into a job site what are the key KPIs we look at both leading and lagging we we said we're gonna make this branch in the United States the absolute model of what we want and then we cascaded that across every branch across America North America and now we're

Speaker 4

doing the same in Europe and Asia so it's in the DNA we've said double digit forever we only capture about 25% of our own aftermarket which you could say is a shame but you can look at it and say it's an enormous opportunity and we look at it as the latter so I think to that point you close to 60% in the Americas right so like you know is there something you can take from the Americas it's just a different market in these other places you can't get as much or like how do you think about that just America is a 60 the world is 25 so where's the better opportunity is it in the Americas there's a capturing the rest of the world do you think oh it's it's it's both from an overall company

Patrick Goris, CFO

point of view yeah clearly it's both been within the Americas we benefit from a huge installed base, for example, with carrier energy and home energy management systems. I think it puts us in a unique position to work with utilities and to go after the HEMS opportunity with the integrated home heat pump and battery system.

Dave Gitlin, CEO

At the same time, our opportunity outside of the U.S., clearly from a market point of view, our market share is not as strong as it is in the U.S., so it's an and, it's not an or and I think our investments reflects reflect that David's a good opportunity to ask you about AI and how you're gonna infuse it in the after market you know it has a chance to I think augment right but also disrupt so how do you think about it yeah we want to use AI to play offense and grow the business what you'll find is there's in general not just in our industry there's a lot of data out there that is being underutilized so we launched a new platform that's it's called tell me more and we get data through our abound digital platform we get data from our technicians that gets logged into things like service max we get data from our channel partners we're get aggregating the data that we get from various inputs into a concentrated data lake and then we're using AI to drive solutions for our customers so for example as you're getting that data, we're looking for patterns to say this would be an indication either because of the thermal or vibratory condition that this unit is going to fail and you should take a preventative action. So we're very excited about using AI to help our technicians, whether it's residential or commercial out in the field, and also to drive more stickiness with our customers. We're of course using it on the productivity side. You think about the complexity of warranty management on the residential side so we're using uh ai there patrick's using it within the finance department and elsewhere so we think we're in the early innings but in addition to productivity the one that excites me is using it to drive growth and customer stickiness patrick you mentioned hem so i just wanted to ask you about it i mean i think you're rolling it out into the americas in 26 right so maybe give us more color on you know the business model you know as you roll it out in the revenue opportunity as we think about it over the next couple years yeah and so you may recall that last year we started pilots in homes of some of our employees those pilots have shown

Patrick Goris, CFO

that during peak hours of demand on the grid that we're able to power the hvac system of those homes through the battery and then recharge the battery during off-peak hours so there is a lot of interest in utility companies to kind of validate that so that is going well this year we expect the first revenue to hit our books the one thing that we're still working through is exactly how that model will look like and it is more likely than not that we will have different models in different parts of the country because of different utilities and different regulators but the the premise is that or the objective is is that for us we don't our objective is not to have the homeowner pay anything more out of pocket than for a heat pump meaning the homeowner replaces their heat pump or replace their ac system buys a heat pump we attach to that heat pump a battery so It's an integrated heat pump with a battery. So the homeowner is not more out of pocket. The utility companies have a benefit because they don't have to fire up expensive power during peak hours. And so they're willing to share some of that benefit with us. And so how that model between the utility companies and us looks like, that is still under discussion with the different parties. Some of that could be a mix of upfront with overtime payments to us. Some of it could be all over time. That's what we're going through now.

Speaker 4

Helpful. So maybe just a question on pricing and price versus cost. You mentioned, I think, $60 million of net headwind from steel, copper, and aluminum for $26 million. You're offsetting that headwind with approximately one point of price. But maybe talk about the steps that you can take if costs drift on you on that side. I think you said you're 50% blocked for the year, but do you have any other protections?

Patrick Goris, CFO

Well, as a rule of thumb, irrespective of what material prices do, we drive a lot of productivity. Material productivity, we redesign our products. We take a lot of overhead costs out as we do every year. We look at warehousing and logistics. And so in the current circumstances, we see some headwinds from copper and aluminum particularly our blocking policy helps because basically it helps us delay the impact of that that gives us a little bit more time to take some more cost out of the system but at this point the head went in is that 50 to 100 million dollar range net of the blocking we've seen some of the prices come down a little bit in recent i think it was last week but our approach is the same irrespective of what input costs do we try and offset it with additional productivity and of course there is a price lever as well and this year as you heard us say we expect low single-digit price realization when you say prices come down here to about the commodity prices yeah yeah and Patrick you do have usually like a stockpile of productivity projects like how is that stockpile like you know you know the last several years I think we've made tremendous progress on that it used to be that at the beginning of the year I think shortly after the spin probably less than half of the productivity of the year was identified that's completely switched now and so well over half the productivity is identified as we start the year and it's basically an engine that I think is running well for this year we've added to that the extra overhead savings that we implemented last year as we saw the slowdown You may recall starting summer last year, we took out additional costs, and this year we'll benefit from $100 million overhead savings in addition to call it the regular cost out, materials, logistics, warehousing, and everything else.

Speaker 4

So, Dave, obviously a lot of portfolio transformation over the last few years. Maybe give us an update on how you're thinking about capital deployment going forward, potential for meaningful buybacks as you've been doing, maybe versus incremental tuck in M&A or other investment priorities?

Dave Gitlin, CEO

We talked about a billion and a half of buyback this year. We certainly plan to do that. Look, we will continue to make our priority investing in organic growth and to grow the business. So we continue to invest in R&D and CapEx to drive growth. We'll be very targeted on the M&A side. We are not looking at the big transformational, multi-billion dollar type things right now. We're in a phase of heads down execution. We have a boatload going on with data center activity. Obviously, we see huge opportunities around some of the system level offerings. The aftermarket opportunity is tremendous. We have our shorter cycle residential and truck trailer type businesses that we want to make sure that we're prepared for when they eventually do ramp, that we can support that recovery. So we'll do some smaller type M&A here and there, but right now our priority is not doing the big multi-billion dollar type deals.

Speaker 4

And you feel like you have the technologies you need. You know, like one of your peers bought something last night in terms of dealing with data centers and all that kind of stuff.

Dave Gitlin, CEO

Yeah, obviously we looked at the same thing. I think that when it comes to things like liquid cooling, um what we're looking at is what does it take to win what do we have and what is the most cost effective way to get to fill any gaps on what it takes to win so we said you know what to win we need a cdu and we could have gone and bought someone for hundreds of millions but we said it's a lot more cost effective to do it bottoms up so we've now developed our own one soon to be three and five megawatt cdus and they're extremely competitive in the marketplace place. You know, the one you're referencing is a cold plate technology. Do we need it ourselves? Do we need to partner? Do we need to buy it? So we need to figure out what do we need to win? And then when it comes to those things, if we have a gap, what's the best way to acquire? We have an investment, a company called Zutercore that is a two-phase solution. They, of course, have access to things like CDUs and cold plates. So we have a lot of ways to fill whatever perceived gaps that we think we have to make sure that we can win in the marketplace.

Speaker 4

That's helpful, Dave. And last question, what are the top two or three innovations and structural changes affecting your company over the next five years? Are there any emerging industry trends that are perhaps being overlooked in the current discourse?

Dave Gitlin, CEO

I think a lot of the differentiation is going to take place at the systems level. If you look at North America, we would tell you that our products are quite differentiated, but I would bet you if you had our peers on stage, they would say the same. So in places where we don't have that degree of differentiation at a product level, the differentiation will be at a systems level. What Patrick was describing for HEMS is the new frontier. If you had a battery electric solution in every carrier home and building, that would alleviate 13% of the demand that's put on the grid during peak hours. Our Our solution will win there, and our solution on Quantum Leap for data centers, we are incredibly encouraged about because we believe that integrating traditional cooling, liquid cooling, data server management, and the building management system, that we believe is where the game is won, and we think we have a unique portfolio to win there.

Speaker 4

Awesome. Well, Dave, Patrick, thank you very much. Appreciate it.