Charles Tusa: Yes. Can you just give us maybe a little — I know you kind of — you haven’t done this before, but like you’ve mentioned these 4 verticals in every slide presentation for like the last several years. Obviously, you guys are doing a great job there. Can you just give us — given it’s so important now, I mean, commercial HVAC 65% of your revenue base. Can you just give us some sort of color on how much those 4 verticals represent now? I mean, is that like 50% of your portfolio? Like just roughly how much those growth verticals represent?
Christopher Kuehn: They’re strong, Steve, is what I would answer. We track about 14 verticals in the Americas. And certainly, office and warehousing would be areas, retail, that’d be a little bit weaker today. I know the office vertical has a number of things kind of buried in it today. We’ve been lobbying to try to break that out, just given demand on warehouse and data centers. But I won’t dial it in specifically but we like our positioning here. And what I think is, again, most important with the direct sales force is their ability that if a vertical is slower like office, the ability to pivot into another vertical is really…
David Regnery: That’s exactly where I was going to go, Chris. I mean, these verticals, we track 14. You could even get 18 if you do a little subdividing there. But there’s oftentimes when 1 vertical is stronger than another vertical for an extended period of time, I’ll use warehousing as an example. Two years ago, 3 years ago, warehousing was extremely strong. We pivot our sales force to focus on warehousing. We develop programs for them, and they go capture share in those particular verticals. Right now, the strength in data centers, I don’t see that going away in the near term. High tech, we have all the mega projects that are really in front of us. And education, education has been strong. Obviously, ESSER funding is helping that. I think ESSER funding is probably in the fifth or sixth inning, but we’ve been extremely strong in education for an extended period of time.
Charles Tusa: One last 1 for you. Your peers have talked about this refrigerant change in resi driving some pretty nice price mix, 10% to 15% or something like that over the next couple of years, perhaps a bit more back-end loaded into ’25, given the change comes then. Can you just give us your latest and greatest lens on price and mix from that transition and what potentially you could see in ’24 and ’25 on that front for resi?
David Regnery: Yes. The short answer is we’re dialing it in. But I mean, if you think about the whole refrigerant change, right, we’ve been leading with refrigerant change really the industry, I think we’ve been at it since about 2013 with next-generation refrigerants. So we’re more than ready for this transition away from 410 to, in our case, 454B. Our designs are complete, our manufacturing is ready to go. We’re going to start up production here in early Q2. So all systems goes there. There are some definitions, Steve, that we’re still working with the EPA to make sure our interpretation is correct. And then really our focus is going to shift to the channel. I’m sure we have a clean phase in, phase out of inventory. We will be manufacturing both 410 product and 454 product in 2024 and probably even into 2025, at least our interpretation right now, what we’re seeing with the EPA.
As far as price, we’re still dialing that in. The 454 product is going to be more expensive. Obviously, it’s a slightly flammable refrigerant so you’re going to have to put different sensing equipment around the union. So we’ll get more data on that in the coming weeks here, and we’ll update everyone on our fourth quarter call.
Operator: Your next question is from Jeff Sprague of Vertical Research Partners.
Jeffrey Sprague: Not as good as you guys but doing well. I wonder if we could just dig a little bit more into just customer behavior and backlogs. As big as the backlogs are versus history, right, if I think about 90% of $6 billion, maybe it’s $6 billion-plus, right, but that would be, call it, my math, roughly half of your 2024 commercial revenues are in backlog. I mean, that’s a good healthy number. But given the size and scope of some of these projects, maybe goes back a little bit to one of the earlier questions. I’m not sure why backlog would really go down much from here. Do you actually see customers just kind of changing their order patterns or there’s kind of something else that would suggest that backlogs really do need to kind of go back down towards where they were historically?
Christopher Kuehn: Jeff, I’ll start. I mean, I think the lead times are still a bit extended in applied systems, getting better certainly from where we were beginning of the year. Same in unitary, getting better. So I think as the lead times come in a bit, you may see where the backlog contracts a bit over time. It is elevated today. You’re right, 90% of the backlog would relate to our global commercial HVAC business. And when you think about our commercial businesses, including Thermo King, it’s over 95%. So it gives us a lot of visibility into what we think 2024 would be with some healthy growth. But let’s see how the policy stacking effects that continue to positively affect us and order rates. Mega projects, as Dave said, are ahead of us here in terms of bookings. And applied, these are long-cycle kind of projects. Let’s see how this plays out. We think it can be elevated for longer, but it will start to normalize at some point.
David Regnery: Yes. I think the only thing I would add to that, Jeff, is I’ll go back to data centers again, and kind of our strategy was to work with the data center engineers and develop solutions that are optimal for them. Once we do that, they do tend to lock in for an extended period of time with you. So they’ll provide orders beyond your lead times just to ensure that they have slots available and we don’t disappoint missing a shipment.
Jeffrey Sprague: And can you gauge in any way what percent of this forward project pipeline is tied to various stimulus programs, be they IRA, CHIPS, other things and what’s coming down through the state promulgations?
Christopher Kuehn: Jeff, I would say from an IRA perspective, that’s really all in front of us. I don’t think that’s necessarily in the backlog today. But from an ESSER funding for several years now, we’ve had projects and making sure that over the summer months when schools are open, we’re ready to service and upgrade equipment. So I think that’s certainly been the backlog for a while. Data centers continues to elevate and we see it as a long-term tail. But CHIPS and Science Act, we don’t have that dialed in but that would be one where I guess you could specifically say this is driving this demand. But in the data center, there’s no — that’s more about just pure demand for data centers right now.
