Operator: Please standby for the next question. The next question comes from Josh Pokrzywinski with Morgan Stanley. Your line is now open.
Josh Pokrzywinski: Hi, good morning guys. Congrats on the deal. Dave, so I know there’s been a lot of stimulus and REPowerEU and elements like that that are encouraging the electrification of heat chartered by European IRA where does the product portfolio fit into that? I got to imagine it’s on the virtuous side of it, but anything in particular that you’re excited about in terms of their lineup that captures something that is going to be a policy target?
David Gitlin: Well, if you think about — there’s really — with all the different legislation throughout Europe either at an EU level or within the countries there’s really two aspects to it whether it’s the European Green Deal Fit for 55 or REPowerEU, it all really comes down to two things. One is the rapid adoption of renewables, and two is the rapid deployment of heat pumps. And Viessmann is the only one that’s well-positioned in both of those. So what’s really exciting is if you overlay that with the regulations that these 17 countries are passing, it’s literally a once in a generation opportunity. You do not see markets where they’re basically forcing you to transition from legacy, fossil fuel boilers to heat pumps and you’re going to be charging about up to 4x the price for that replacement.
That’s a mix up that is unlike any other industry in the world that’s anywhere close to our space. So — it’s why it is such a unique phenomenon and such an attractive and compelling reason to want to get in. And put Max’s credit, they were the first to see the truly value add that you can create for the homeowner by interconnecting these systems I mentioned that your energy bill can be 80% less if you buy all of these systems together, which is a huge, huge number. And then you add on to it this existential risk with a year ago half of the gas for Europe coming from Russia. So the imperative to become energy independent and rapidly transition to heat pumps and renewables, it’s not a nice to have it’s a must-have for Europe. And we all know Europe dashed a bit of a bullet this past year because it was a fairly mild winter, but the clock is ticking on energy independence in Europe, so countries are pushing it and there is no one better positioned to lead in that transition than Viessmann.
Josh Pokrzywinski: Got it. That’s helpful. And then just a follow-up on the pricing comment. I think from Deane’s question. I think in the US, there aren’t a lot of markets out there that have I’ll call it lack of transparency to the end consumer the way resi HVAC does in a good way in terms of not a lot of pushback, not a lot of context what these things should cost. How does that work in Europe for the Viessmann product? Is it just, hey, a list price this is what you pay, or is there a little bit of configuration and extra costs that maybe cloud that a bit?
David Gitlin: Yeah. I mean these are highly configured systems. So I think the dynamic is very much what you see in the United States. Even — I’ll just take a small example of battery. You can have different size home with different sized demands and that’s why they have Viessmann innovated a modular design because every home is slightly different. So they are typically customized highly configured, highly technical and the price is really something that’s between the homeowner and the installer. So there is a lot of variability and not as much I guess ubiquitous transparency.
Josh Pokrzywinski: Got it. Congrats again.
David Gitlin: Thanks, Josh.
Operator: Please stand-by for the next question. The next question comes from Brett Linzey with Mizuho Group. Your line is now open.
Brett Linzey: Good morning and congratulations.
David Gitlin: Thanks, Brett.
Brett Linzey: I wanted to just come back to the revenue synergies. I understand, you’re not contemplating in the deal framework, but are you able to maybe dimension what the potential revenue synergies could look like as you propagate some of the legacy technologies in the different markets?
David Gitlin: Yes. Internally Brett, we have some numbers that we put on it, but I think it’s early days. We need to let the team get in there and really and drive them. And then as we get traction, we’ll start to put more meat on the bone on dimensionalizing those. But if you think about it, their channel with the 75,000 installers that they have these intimate relationship with, that we could clearly introduce a second brand into their channel, whether it’s Carrier Toshiba, that would be a very, very exciting opportunity. You think about their digital connectivity, they have a whole bunch of, I would say world-class digital solutions, they have smart thermostat that we could really use very much, throughout Europe but outside of Europe.
We could bring that into North America. We could bring that into Asia. Because one of the things we’ve been working on is digital connectivity with our distributor and dealer network, but also potentially with the homeowner as well. So, as we bring their technology outside into our channel, we bring some of our brands into their channel and then we leverage our respective underlying technologies. I think the revenue synergies will end up being far more exciting when we look back five years from now, we will have gotten — truthfully will have exceeded our cost synergies, because that’s what we do. What we will end up being more excited about, is the revenue synergies.
Brett Linzey: Yes. No, that makes sense. Maybe just one on the quarter. HVAC orders were up double digits organically, commercial backlog up. I guess, as you think about the HVAC commercial business, I mean, are you seeing any cracks from the bank turmoil. And then I guess secondarily, with the supply chain is improving and the shipments out of backlog improving, where do you see backlog landing at the end of the year in the commercial business?
David Gitlin: Well, look backlog, when we look at commercial HVAC, backlog was up 20% organically. We had very strong orders in the quarter for commercial HVAC, what we’re seeing is continued growth across the globe frankly. We saw sales up mid-teens in the quarter. Aftermarket was up just under 20%. Controls was up just under 20% and commercial applied was up in the mid-teens. So, when we look at orders, we’re very pleased with what we’re seeing, especially North America. China orders were a bit down in the quarter, but we think that is timing. We think, we’re very bullish on what we’re going to see for China orders this year, because as that country starts to come back. And I’ll tell you interestingly, in the middle of all the banking issues that we were all watching, March was the first month since September of last year, where the Architectural Billing Index was north of 50.
So, I think, we all have — we’re all watching, whether or not that could create some constraints on demand. We’ve seen none of it in the underlying business.
Brett Linzey: Okay. Great. I’ll leave it there. Thanks.
David Gitlin: Thanks, Brett.
Operator: Please stand-by for the next question. The next question comes from Andrew Obin with Bank of America. Your line is now open.
Andrew Obin: Hey guys. Good morning and congratulations.
David Gitlin: Thanks, Andrew.
