Watsco (WSO) 10-Q 5 May 23 2023 Q1 Quarterly report Financial data

Cover Page

Cover Page - shares	3 Months Ended
	Mar. 31, 2023	May 01, 2023
Document Information [Line Items]
Document Type	10-Q
Document Period End Date	Mar. 31, 2023
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Current Fiscal Year End Date	--12-31
Amendment Flag	false
Entity Registrant Name	WATSCO, INC.
Entity Central Index Key	0000105016
Entity File Number	1-5581
Entity Incorporation, State or Country Code	FL
Document Quarterly Report	true
Document Transition Report	false
Entity Tax Identification Number	59-0778222
Entity Address, City or Town	Miami
Entity Address, Postal Zip Code	33133
Entity Address, Address Line One	2665 South Bayshore Drive
Entity Address, Address Line Two	Suite 901
Entity Address, State or Province	FL
City Area Code	305
Local Phone Number	714-4100
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Common Stock [Member]
Document Information [Line Items]
Trading Symbol	WSO
Security Exchange Name	NYSE
Title of 12(b) Security	Common stock, $0.50 par value
Entity Common Stock, Shares Outstanding		33,421,892
Common Class B [Member]
Document Information [Line Items]
Trading Symbol	WSOB
Security Exchange Name	NYSE
Title of 12(b) Security	Class B common stock, $0.50 par value
Entity Common Stock, Shares Outstanding		5,533,667

Condensed Consolidated Unaudite

Condensed Consolidated Unaudited Statements of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenues	$ 1,550,641	$ 1,523,570
Cost of sales	1,102,484	1,073,212
Gross profit	448,157	450,358
Selling, general and administrative expenses	287,057	283,354
Other income	3,640	4,045
Operating income	164,740	171,049
Interest expense, net	615	558
Income before income taxes	164,125	170,491
Income taxes	33,754	35,601
Net income	130,371	134,890
Less: net income attributable to non-controlling interest	20,298	21,592
Net income attributable to Watsco, Inc.	$ 110,073	$ 113,298
Earnings per share for Common and Class B common stock:
Basic	$ 2.84	$ 2.91
Diluted	$ 2.83	$ 2.9

Condensed Consolidated Unaudi_2

Condensed Consolidated Unaudited Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Net income	$ 130,371	$ 134,890
Other comprehensive loss, net of tax
Foreign currency translation adjustment	260	4,381
Other comprehensive Income	260	4,381
Comprehensive income	130,631	139,271
Less: comprehensive income attributable to non-controlling interest	20,388	23,038
Comprehensive income attributable to Watsco, Inc.	$ 110,243	$ 116,233

Condensed Consolidated Unaudi_3

Condensed Consolidated Unaudited Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 140,955	$ 147,505
Accounts receivable, net	811,264	747,110
Inventories, net	1,614,294	1,370,173
Other current assets	31,302	33,951
Total current assets	2,597,815	2,298,739
Property and equipment, net	126,582	125,424
Operating lease right-of-use assets	325,878	317,314
Goodwill	430,743	430,711
Intangible assets, net	174,290	175,191
Investment in unconsolidated entity	136,442	132,802
Other assets	8,864	8,033
Total assets	3,800,614	3,488,214
Current liabilities:
Current portion of long-term obligations	92,536	90,597
Borrowings under revolving credit agreement	0	56,400
Accounts payable	593,148	456,128
Accrued expenses and other current liabilities	267,399	303,397
Total current liabilities	953,083	906,522
Long-term obligations:
Borrowings under revolving credit agreement	197,600	0
Operating lease liabilities, net of current portion	239,309	232,144
Finance lease liabilities, net of current portion	11,230	11,388
Total long-term obligations	448,139	243,532
Deferred income taxes and other liabilities	91,095	89,882
Commitments and contingencies
Watsco, Inc. shareholders' equity:
Preferred stock, $0.50 par value	0	0
Paid-in capital	997,316	973,060
Accumulated other comprehensive loss, net of tax	(47,540)	(47,710)
Retained earnings	1,044,619	1,029,516
Treasury stock, at cost	(87,440)	(87,440)
Total Watsco, Inc. shareholders' equity	1,928,868	1,889,237
Non-controlling interest	379,429	359,041
Total shareholders' equity	2,308,297	2,248,278
Total liabilities and shareholders' equity	3,800,614	3,488,214
Common Stock
Watsco, Inc. shareholders' equity:
Common stock	19,122	19,054
Class B Common Stock
Watsco, Inc. shareholders' equity:
Common stock	$ 2,791	$ 2,757

Condensed Consolidated Unaudi_4

Condensed Consolidated Unaudited Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
Preferred stock, par value	$ 0.5	$ 0.5
Common Stock
Common stock, par value	0.5	0.5
Class B Common Stock
Common stock, par value	$ 0.5	$ 0.5

Condensed Consolidated Unaudi_5

Condensed Consolidated Unaudited Statements of Shareholders' Equity - USD ($) $ in Thousands	Total	Common Stock, Class B Common Stock and Preferred Stock	Paid-In Capital	Accumulated Other Comprehensive Loss	Retained Earnings	Treasury Stock	Non-controlling Interest
Beginning balance at Dec. 31, 2021	$ 1,997,415	$ 21,836	$ 1,003,932	$ (34,176)	$ 760,796	$ (87,440)	$ 332,467
Beginning balance (in shares) at Dec. 31, 2021		38,799,632
Net income	134,890				113,298		21,592
Other comprehensive income	4,381			2,935			1,446
Issuances of restricted shares of common stock		$ 53	(53)
Issuances of restricted shares of common stock (in shares)		105,882
Common stock contribution to 401(k) plan	6,737	$ 11	6,726
Common stock contribution to 401(k) plan (in shares)		21,532
Stock issuances from exercise of stock options and employee stock purchase plan	4,420	$ 12	4,408
Stock issuances from exercise of stock options and employee stock purchase plan (in shares)		24,850
Share-based compensation	8,667		8,667
Cash dividends declared and paid on Common and Class B common stock	(75,795)				(75,795)
Ending balance at Mar. 31, 2022	2,080,715	$ 21,912	1,023,680	(31,241)	798,299	(87,440)	355,505
Ending balance (in shares) at Mar. 31, 2022		38,951,896
Beginning balance at Dec. 31, 2022	2,248,278	$ 21,811	973,060	(47,710)	1,029,516	(87,440)	359,041
Beginning balance (in shares) at Dec. 31, 2022		38,749,887
Net income	130,371				110,073		20,298
Other comprehensive income	260			170			90
Issuances of restricted shares of common stock		$ 58	(58)
Issuances of restricted shares of common stock (in shares)		116,510
Forfeitures of restricted shares of common stock		$ (1)	1
Forfeitures of restricted shares of common stock (in shares)		(2,000)
Common stock contribution to 401(k) plan	8,862	$ 18	8,844
Common stock contribution to 401(k) plan (in shares)		35,533
Stock issuances from exercise of stock options and employee stock purchase plan	12,985	$ 38	12,947
Stock issuances from exercise of stock options and employee stock purchase plan (in shares)		75,186
Issuance of Class B common stock (in shares)		632
Issuance of Class B common stock	200	$ 0	200
Retirement of common stock	(6,452)	$ (11)	(6,441)
Retirement of common stock (in shares)		(21,702)
Share-based compensation	8,763		8,763
Cash dividends declared and paid on Common and Class B common stock	(94,970)				(94,970)
Ending balance at Mar. 31, 2023	$ 2,308,297	$ 21,913	$ 997,316	$ (47,540)	$ 1,044,619	$ (87,440)	$ 379,429
Ending balance (in shares) at Mar. 31, 2023		38,954,046

Condensed Consolidated Unaudi_6

Condensed Consolidated Unaudited Statements of Shareholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash dividends declared and paid, common stock	$ 2.45	$ 1.95

Condensed Consolidated Unaudi_7

Condensed Consolidated Unaudited Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash flows from operating activities:
Net income	$ 130,371	$ 134,890
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,183	7,593
Share-based compensation	6,701	7,974
Non-cash contribution to 401(k) plan	8,862	6,737
Provision for doubtful accounts	1,043	1,061
Other income from investment in unconsolidated entity	(3,640)	(4,045)
Other, net	1,160	1,417
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	(64,691)	(91,775)
Inventories, net	(240,758)	(273,703)
Accounts payable and other liabilities	101,813	107,755
Other, net	3,535	474
Net cash provided by operating activities	(47,421)	(101,622)
Cash flows from investing activities:
Capital expenditures	(7,505)	(8,324)
Business acquisitions, net of cash acquired	(2,989)	(47)
Proceeds from sale of property and equipment	56	153
Net cash used in investing activities	(10,438)	(8,218)
Cash flows from financing activities:
Dividends on Common and Class B common stock	(94,970)	(75,795)
Net (repayments) proceeds under prior revolving credit agreement	(56,400)	173,500
Repurchases of common stock to satisfy employee withholding tax obligations	(2,216)	0
Net repayments of finance lease liabilities	(880)	(713)
Payment of fees related to revolving credit agreement	(580)	0
Net proceeds from issuances of common stock	8,747	4,420
Net proceeds under current revolving credit agreement	197,600	0
Net cash provided by financing activities	51,301	101,412
Effect of foreign exchange rate changes on cash and cash equivalents	8	767
Net decrease in cash and cash equivalents	(6,550)	(7,661)
Cash and cash equivalents at beginning of period	147,505	118,268
Cash and cash equivalents at end of period	$ 140,955	$ 110,607

BASIS OF PRESENTATION

BASIS OF PRESENTATION	3 Months Ended
	Mar. 31, 2023
BASIS OF PRESENTATION	1. BASIS OF PRESENTATION Basis of Consolidation Watsco, Inc. (collectively with its subsidiaries, “Watsco,” “we,” “us,” or “our”) was incorporated in Florida in 1956 and is the largest distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. The accompanying March 31, 2023 interim condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated unaudited financial statements included herein. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2022 Annual Report on Form 10-K. The condensed consolidated unaudited financial statements include the accounts of Watsco, all of its wholly owned subsidiaries, the accounts of four joint ventures with Carrier Global Corporation, which we refer to as Carrier, the accounts of Carrier InterAmerica Corporation, of which we have an 80% controlling interest, and Carrier has a 20% non-controlling The results of operations for the quarter ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023. Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal. Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to the new construction sectors throughout most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions. Equity Method Investments Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in investment in unconsolidated entity in our condensed consolidated unaudited balance sheets. Under this method of accounting, our proportionate share of the net income or loss of the investee is included in other income in our condensed consolidated unaudited statements of income. The excess, if any, of the carrying amount of our investment over our ownership percentage in the underlying net assets of the investee is attributed to certain fair value adjustments with the remaining portion recognized as goodwill. Use of Estimates The preparation of condensed consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, net realizable value adjustments to inventories, income taxes, reserves related to loss contingencies and the valuation of goodwill, indefinite-lived intangible assets, and long-lived assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.

REVENUES

REVENUES	3 Months Ended
	Mar. 31, 2023
REVENUES	2. REVENUES Disaggregation of Revenues The following table presents our revenues disaggregated by primary geographical regions and major product lines within our single reporting segment: Quarters Ended March 31, 2023 2022 Primary Geographical Regions: United States $ 1,395,004 $ 1,371,340 Canada 81,263 89,423 Latin America and the Caribbean 74,374 62,807 $ 1,550,641 $ 1,523,570 Major Product Lines: HVAC equipment 68 % 67 % Other HVAC products 28 % 29 % Commercial refrigeration products 4 % 4 % 100 % 100 %

EARNINGS PER SHARE

EARNINGS PER SHARE	3 Months Ended
	Mar. 31, 2023
EARNINGS PER SHARE	3. EARNINGS PER SHARE The following table presents the calculation of basic and diluted earnings per share for our Common and Class B common stock: Quarters Ended March 31, 2023 2022 Basic Earnings per Share: Net income attributable to Watsco, Inc. shareholders $ 110,073 $ 113,298 Less: distributed and undistributed earnings allocated to restricted common stock 7,414 10,311 Earnings allocated to Watsco, Inc. shareholders $ 102,659 $ 102,987 Weighted-average common shares outstanding – Basic 36,192,597 35,348,977 Basic earnings per share for Common and Class B common stock $ 2.84 $ 2.91 Allocation of earnings for Basic: Common stock $ 93,489 $ 95,521 Class B common stock 9,170 7,466 $ 102,659 $ 102,987 Diluted Earnings per Share: Net income attributable to Watsco, Inc. shareholders $ 110,073 $ 113,298 Less: distributed and undistributed earnings allocated to restricted common stock 7,411 10,297 Earnings allocated to Watsco, Inc. shareholders $ 102,662 $ 103,001 Weighted-average common shares outstanding – Basic 36,192,597 35,348,977 Effect of dilutive stock options 109,231 155,403 Weighted-average common shares outstanding – Diluted 36,301,828 35,504,380 Diluted earnings per share for Common and Class B common stock $ 2.83 $ 2.90 Anti-dilutive stock options not included above 169,916 143,372 Diluted earnings per share for our Common stock assumes the conversion of all of our Class B common stock into Common stock as of the beginning of the fiscal year; therefore, no allocation of earnings to Class B common stock is required. At March 31, 2023 and 2022, our outstanding Class B common stock was convertible into 3,232,844, and 2,562,448 shares of our Common stock, respectively.

OTHER COMPREHENSIVE INCOME

OTHER COMPREHENSIVE INCOME	3 Months Ended
	Mar. 31, 2023
OTHER COMPREHENSIVE LOSS	4. OTHER COMPREHENSIVE INCOME Other comprehensive income consists of the foreign currency translation adjustment associated with our Canadian operations’ use of the Canadian dollar as their functional currency. The change in accumulated other comprehensive loss, net of tax, was as follows: Quarters Ended March 31, 2023 2022 Foreign currency translation adjustment: Beginning balance $ (47,710 ) $ (34,176 ) Current period other comprehensive income 170 2,935 Ending balance $ (47,540 ) $ (31,241 )

ACQUISITION

ACQUISITION	3 Months Ended
	Mar. 31, 2023
ACQUISITION	5. ACQUISITION Capitol District Supply Co., Inc. On March 3, 2023, one of our wholly owned subsidiaries acquired Capitol District Supply Co., Inc., a distributor of air conditioning and heating products with annual sales of approximately $13,000, operating from three locations in New York. Consideration for the purchase consisted of The results of operations of this acquisition have been included in the condensed consolidated unaudited financial statements from its date of acquisition. The pro forma effect of this acquisition was not deemed significant to the condensed consolidated unaudited financial statements.

DEBT

DEBT	3 Months Ended
	Mar. 31, 2023
DEBT	6. DEBT On March 16, 2023, we entered into an unsecured, five-year $600,000 syndicated multicurrency revolving credit agreement, which replaced in its entirety our prior five-year $560,000 unsecured revolving credit agreement that was nearing maturity. Proceeds from the new facility were used to repay the revolving revolving Borrowings under the re volving ancin ( At March 31, 2023, $197,600 was outstanding under the revolving credit agreement. The revolving credit agreement contains customary affirmative and negative covenants, including financial covenants with respect to consolidated leverage and interest coverage ratios, and other customary restrictions. We believe we were in compliance with all covenants at March 31, 2023.

DERIVATIVES

DERIVATIVES	3 Months Ended
	Mar. 31, 2023
DERIVATIVES	7. DERIVATIVES We enter into foreign currency forward and option contracts to offset the earnings impact that foreign exchange rate fluctuations would otherwise have on certain monetary liabilities that are denominated in nonfunctional currencies. Derivatives Not Designated as Hedging Instruments We have entered into foreign currency forward and option contracts that are either not designated as hedges or did not qualify for hedge accounting. These derivative instruments were effective economic hedges for all of the periods presented. The fair value gains and losses on these contracts are recognized in earnings as a component of selling, general and administrative expenses. The total notional value of our foreign currency exchange contracts not designated as hedging instruments at March 31, 2023 was $14,100, and such contracts expired in April 2023. We recognized losses of $394 and $323 from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the quarters ended March 31, 2023 and 2022, respectively. The following table summarizes the fair value of derivative instruments, which consist solely of foreign exchange contracts, included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets. See Note 8. Asset Derivatives Liability Derivatives March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 Derivatives designated as hedging instruments $ — $ — $ — $ — Derivatives not designated as hedging instruments — — 35 — Total derivative instruments $ — $ — $ 35 $ —

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS	3 Months Ended
	Mar. 31, 2023
FAIR VALUE MEASUREMENTS	8. FAIR VALUE MEASUREMENTS The following tables present our assets and liabilities carried at fair value that are measured on a recurring basis: Fair Value Measurements Balance Sheet Location Total Level 1 Level 2 Level 3 Assets: Equity securities Other assets $ 678 $ 678 — — Private equities Other assets $ 1,000 — — $ 1,000 Liabilities: Derivative financial instruments Accrued expenses and other current liabilities $ 35 — $ 35 — Fair Value Measurements Balance Sheet Location Total Level 1 Level 2 Level 3 Assets: Equity securities Other assets $ 678 $ 678 — — Private equities Other assets $ 1,000 — — $ 1,000 The following is a description of the valuation techniques used for these assets and liabilities, as well as the level of input used to measure fair value: Equity securities Private equities Derivative financial instruments

SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY	3 Months Ended
	Mar. 31, 2023
SHAREHOLDERS' EQUITY	9. SHAREHOLDERS’ EQUITY At-the-Market On February 25, 2022, we entered into an amended and restated sales agreement with Robert W. Baird & Co. Inc. and Goldman Sachs & Co. LLC, which enables the Company to issue and sell shares of Common stock in one or more negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), for a maximum aggregate offering amount of up to $300,000 (the “ATM Program”). The offer and sale of our Common stock pursuant to the ATM Program has been registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form S-3 No. 333-260758). Common Stock Dividends We paid cash dividends of $2.45 and $1.95 per share o n Restricted Stock During the quarter ended March 31, 2023, a total of Exercise of Stock Options Cash received from the exercise of stock options during the quarters ended March 31, 2023 and 2022 was $8,168 and $3,955, respectively. During quarter ended March 31, 2023, a tot al of Employee Stock Purchase Plan During the quarters ended March 31, 2023 and 2022, we received net proceeds of $579 and $465, respectively, for shares of our Common stock purchased under our employee stock purchase plan.

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES	3 Months Ended
	Mar. 31, 2023
COMMITMENTS AND CONTINGENCIES	10. COMMITMENTS AND CONTINGENCIES Litigation, Claims, and Assessments We are involved in litigation incidental to the operation of our business. We vigorously defend all matters in which we or our subsidiaries are named defendants and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect us. Although the adequacy of existing insurance coverage and the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, we do not believe the ultimate liability associated with any known claims or litigation will have a material adverse effect on our financial condition or results of operations. Self-Insurance Self-insurance reserves are maintained relative to company-wide casualty insurance and health benefit programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the self-insurance liabilities and related reserves, management considers several factors, which include historical claims experience, demographic factors, severity factors, and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occur and exceed these estimates, additional reserves may be required. Reserves in the amounts of $12,590 and $12,256 at March 31, 2023 and December 31, 2022, respectively, were established related to such programs and are included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets.

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS	3 Months Ended
	Mar. 31, 2023
RELATED PARTY TRANSACTIONS	11. RELATED PARTY TRANSACTIONS Purchases from Carrier and its affiliates comprised 62% and 56% of all inventory purchases made during the quarters ended March 31, 2023 and 2022, respectively. At March 31, 2023 and December 31, 2022, approximately $205,000 and $88,000, respectively, was payable to Carrier and its affiliates, net of receivables. We also sell HVAC products to Carrier and its affiliates. Revenues in our condensed consolidated unaudited statements of income for the quarters ended March 31, 2023 and 2022 included approximately $22,000 and $21,000, respectively, of sales to Carrier and its affiliates. We believe these transactions are conducted on terms equivalent to an arm’s-length A member of our Board of Directors is the Senior Chairman of Greenberg Traurig, P.A., which serves as our principal outside counsel for compliance and acquisition-related legal services. During the quarters ended March 31, 2023 and 2022, fees for services performed were $13 and $32, respectively, and $4 and $1 was payable at March 31, 2023 and December 31, 2022, respectively.

BASIS OF PRESENTATION (Policies

BASIS OF PRESENTATION (Policies)	3 Months Ended
	Mar. 31, 2023
Basis of Consolidation	Basis of Consolidation Watsco, Inc. (collectively with its subsidiaries, “Watsco,” “we,” “us,” or “our”) was incorporated in Florida in 1956 and is the largest distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. The accompanying March 31, 2023 interim condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated unaudited financial statements included herein. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2022 Annual Report on Form 10-K. The condensed consolidated unaudited financial statements include the accounts of Watsco, all of its wholly owned subsidiaries, the accounts of four joint ventures with Carrier Global Corporation, which we refer to as Carrier, the accounts of Carrier InterAmerica Corporation, of which we have an 80% controlling interest, and Carrier has a 20% non-controlling The results of operations for the quarter ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023. Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal. Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to the new construction sectors throughout most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions.
Equity Method Investments	Equity Method Investments Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in investment in unconsolidated entity in our condensed consolidated unaudited balance sheets. Under this method of accounting, our proportionate share of the net income or loss of the investee is included in other income in our condensed consolidated unaudited statements of income. The excess, if any, of the carrying amount of our investment over our ownership percentage in the underlying net assets of the investee is attributed to certain fair value adjustments with the remaining portion recognized as goodwill.
Use of Estimates	Use of Estimates The preparation of condensed consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, net realizable value adjustments to inventories, income taxes, reserves related to loss contingencies and the valuation of goodwill, indefinite-lived intangible assets, and long-lived assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.

REVENUES (Tables)

REVENUES (Tables)	3 Months Ended
	Mar. 31, 2023
Summary of Disaggregated Revenue	The following table presents our revenues disaggregated by primary geographical regions and major product lines within our single reporting segment: Quarters Ended March 31, 2023 2022 Primary Geographical Regions: United States $ 1,395,004 $ 1,371,340 Canada 81,263 89,423 Latin America and the Caribbean 74,374 62,807 $ 1,550,641 $ 1,523,570 Major Product Lines: HVAC equipment 68 % 67 % Other HVAC products 28 % 29 % Commercial refrigeration products 4 % 4 % 100 % 100 %

EARNINGS PER SHARE (Tables)

EARNINGS PER SHARE (Tables)	3 Months Ended
	Mar. 31, 2023
Schedule of Basic and Diluted Earnings Per Common Share	The following table presents the calculation of basic and diluted earnings per share for our Common and Class B common stock: Quarters Ended March 31, 2023 2022 Basic Earnings per Share: Net income attributable to Watsco, Inc. shareholders $ 110,073 $ 113,298 Less: distributed and undistributed earnings allocated to restricted common stock 7,414 10,311 Earnings allocated to Watsco, Inc. shareholders $ 102,659 $ 102,987 Weighted-average common shares outstanding – Basic 36,192,597 35,348,977 Basic earnings per share for Common and Class B common stock $ 2.84 $ 2.91 Allocation of earnings for Basic: Common stock $ 93,489 $ 95,521 Class B common stock 9,170 7,466 $ 102,659 $ 102,987 Diluted Earnings per Share: Net income attributable to Watsco, Inc. shareholders $ 110,073 $ 113,298 Less: distributed and undistributed earnings allocated to restricted common stock 7,411 10,297 Earnings allocated to Watsco, Inc. shareholders $ 102,662 $ 103,001 Weighted-average common shares outstanding – Basic 36,192,597 35,348,977 Effect of dilutive stock options 109,231 155,403 Weighted-average common shares outstanding – Diluted 36,301,828 35,504,380 Diluted earnings per share for Common and Class B common stock $ 2.83 $ 2.90 Anti-dilutive stock options not included above 169,916 143,372

OTHER COMPREHENSIVE INCOME (Tab

OTHER COMPREHENSIVE INCOME (Tables)	3 Months Ended
	Mar. 31, 2023
Schedule of Accumulated Other Comprehensive Loss	The change in accumulated other comprehensive loss, net of tax, was as follows: Quarters Ended March 31, 2023 2022 Foreign currency translation adjustment: Beginning balance $ (47,710 ) $ (34,176 ) Current period other comprehensive income 170 2,935 Ending balance $ (47,540 ) $ (31,241 )

DERIVATIVES (Tables)

DERIVATIVES (Tables)	3 Months Ended
	Mar. 31, 2023
Fair Value of Derivative Instruments and Location in the Balance Sheets	The following table summarizes the fair value of derivative instruments, which consist solely of foreign exchange contracts, included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets. See Note 8. Asset Derivatives Liability Derivatives March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 Derivatives designated as hedging instruments $ — $ — $ — $ — Derivatives not designated as hedging instruments — — 35 — Total derivative instruments $ — $ — $ 35 $ —

FAIR VALUE MEASUREMENTS (Tables

FAIR VALUE MEASUREMENTS (Tables)	3 Months Ended
	Mar. 31, 2023
Assets and Liabilities Measured at Fair Value on Recurring Basis	Fair Value Measurements Balance Sheet Location Total Level 1 Level 2 Level 3 Assets: Equity securities Other assets $ 678 $ 678 — — Private equities Other assets $ 1,000 — — $ 1,000

Basis of Presentation - Additio

Basis of Presentation - Additional Information (Detail)	Mar. 31, 2023 Entity
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of Joint Ventures	4

Revenues - Summary of Disaggreg

Revenues - Summary of Disaggregated Revenue (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Disaggregation of Revenue [Line Items]
Revenues from product lines, percentage	100%	100%
Revenues	$ 1,550,641	$ 1,523,570
United States
Disaggregation of Revenue [Line Items]
Revenues	1,395,004	1,371,340
Canada
Disaggregation of Revenue [Line Items]
Revenues	81,263	89,423
Latin America and the Caribbean
Disaggregation of Revenue [Line Items]
Revenues	$ 74,374	$ 62,807
HVAC Equipment
Disaggregation of Revenue [Line Items]
Revenues from product lines, percentage	68%	67%
Other HVAC Products
Disaggregation of Revenue [Line Items]
Revenues from product lines, percentage	28%	29%
Commercial Refrigeration Products
Disaggregation of Revenue [Line Items]
Revenues from product lines, percentage	4%	4%

Earnings Per Share - Schedule o

Earnings Per Share - Schedule of Basic and Diluted Earnings per Common Share (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Basic Earnings per Share:
Net income attributable to Watsco, Inc. shareholders	$ 110,073	$ 113,298
Basic earnings per share for Common and Class B common stock	$ 2.84	$ 2.91
Diluted Earnings per Share:
Net income attributable to Watsco, Inc. shareholders	$ 110,073	$ 113,298
Diluted earnings per share for Common and Class B common stock	$ 2.83	$ 2.9
Class B Common Stock
Basic Earnings per Share:
Earnings allocated to Watsco, Inc. shareholders - Basic	$ 9,170	$ 7,466
Common Stock
Basic Earnings per Share:
Earnings allocated to Watsco, Inc. shareholders - Basic	93,489	95,521
Common Stock | Class B Common Stock
Basic Earnings per Share:
Net income attributable to Watsco, Inc. shareholders	110,073	113,298
Less: distributed and undistributed earnings allocated to restricted common stock	7,414	10,311
Earnings allocated to Watsco, Inc. shareholders - Basic	$ 102,659	$ 102,987
Weighted-average common shares outstanding - Basic	36,192,597	35,348,977
Basic earnings per share for Common and Class B common stock	$ 2.84	$ 2.91
Diluted Earnings per Share:
Net income attributable to Watsco, Inc. shareholders	$ 110,073	$ 113,298
Less: distributed and undistributed earnings allocated to restricted common stock	7,411	10,297
Earnings allocated to Watsco, Inc. shareholders - Diluted	$ 102,662	$ 103,001
Weighted-average common shares outstanding - Basic	36,192,597	35,348,977
Effect of dilutive stock options	109,231	155,403
Weighted-average common shares outstanding - Diluted	36,301,828	35,504,380
Diluted earnings per share for Common and Class B common stock	$ 2.83	$ 2.9
Anti-dilutive stock options not included above	169,916	143,372

Earnings Per Share - Additional

Earnings Per Share - Additional Information (Detail) - shares	Mar. 31, 2023	Mar. 31, 2022
Earnings Per Share [Line Items]
Class B common stock conversion, number of shares	3,232,844	2,562,448

Other comprehensive Income - Sc

Other comprehensive Income - Schedule of Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ (47,710)
Ending balance	(47,540)
Foreign Currency Translation Adjustment
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(47,710)	$ (34,176)
Current period other comprehensive (loss) income	170	2,935
Ending balance	$ (47,540)	$ (31,241)

Debt - Additional Information (

Debt - Additional Information (Detail) - USD ($) $ in Thousands		3 Months Ended
	Mar. 16, 2023	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Debt Instrument [Line Items]
Payment of fees related to revolving credit agreement		$ 580	$ 0
Borrowings under revolving credit agreement		$ 197,600		$ 0
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Revolving credit agreement, maturity date		Mar. 16, 2028
Payment of fees related to revolving credit agreement		$ 580
Borrowings under revolving credit agreement		$ 197,600
Maximum capacity under revolving credit agreement	$ 600,000
Seasonal discretionary maximum borrowing capacity under revolving credit agreement	500,000
Unused commitment fee percentage		12.50%
Line of credit facility term		5 years
Revolving Credit Facility [Member] | Swingline Subfacility [Member]
Debt Instrument [Line Items]
Maximum capacity under revolving credit agreement	125,000
Revolving Credit Facility [Member] | Letter of Credit [Member]
Debt Instrument [Line Items]
Maximum capacity under revolving credit agreement	10,000
Revolving Credit Facility [Member] | Alternative Currency Sublimit [Member]
Debt Instrument [Line Items]
Maximum capacity under revolving credit agreement	75,000
Revolving Credit Facility [Member] | Mexican Borrowing Sublimit [Member]
Debt Instrument [Line Items]
Maximum capacity under revolving credit agreement	10,000
Revolving Credit Facility [Member] | Prior Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Maximum capacity under revolving credit agreement	560,000
Repayment under prior revolving credit agreement	$ 235,500
Revolving Credit Facility [Member] | Maximum [Member] | Unused Commitment Fee [Member]
Debt Instrument [Line Items]
Unused commitment fee percentage		27.50%
Revolving Credit Facility [Member] | Minimum [Member] | Unused Commitment Fee [Member]
Debt Instrument [Line Items]
Unused commitment fee percentage		12.50%
Prime Rate | Revolving Credit Facility [Member] | Additional Variable Interest Rate Spread One [Member]
Debt Instrument [Line Items]
Basis spread		1%
Prime Rate | Revolving Credit Facility [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis spread		50%
Prime Rate | Revolving Credit Facility [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread		0%
Federal Funds Effective Rate [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Basis spread		0.50%
Federal Funds Effective Rate [Member] | Revolving Credit Facility [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis spread		50%
Federal Funds Effective Rate [Member] | Revolving Credit Facility [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread		0%
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Basis spread		1%
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Revolving Credit Facility [Member] | Additional Variable Interest Rate Spread One [Member]
Debt Instrument [Line Items]
Basis spread		0.10%
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Revolving Credit Facility [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis spread		137.50%
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Revolving Credit Facility [Member] | Maximum [Member] | Additional Variable Interest Rate Spread One [Member]
Debt Instrument [Line Items]
Basis spread		50%
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Revolving Credit Facility [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread		100%
Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | Revolving Credit Facility [Member] | Minimum [Member] | Additional Variable Interest Rate Spread One [Member]
Debt Instrument [Line Items]
Basis spread		0%
Daily Simple SOFR [Member] | Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Basis spread		100%
Daily Simple SOFR [Member] | Revolving Credit Facility [Member] | Additional Variable Interest Rate Spread One [Member]
Debt Instrument [Line Items]
Basis spread		0.10%
Daily Simple SOFR [Member] | Revolving Credit Facility [Member] | Maximum [Member]
Debt Instrument [Line Items]
Basis spread		137.50%
Daily Simple SOFR [Member] | Revolving Credit Facility [Member] | Minimum [Member]
Debt Instrument [Line Items]
Basis spread		100%

Acquisition - Additional Inform

Acquisition - Additional Information (Detail) - Capitol District Supply Co Inc [Member] $ in Thousands	Mar. 03, 2023 USD ($)
Business Acquisition [Line Items]
Cash consideration for Business Acquisition	$ 1,282
Cash acquired	144
Repayment of indebtedness	1,851
Annual sales	$ 13,000

Derivatives - Fair Value of Der

Derivatives - Fair Value of Derivative Instruments and Location in the Balance Sheets (Detail) - Foreign Exchange Forward And Option Contracts [Member] - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Derivatives, Fair Value [Line Items]
Derivative instruments, assets derivatives	$ 0	$ 0
Derivative instruments, liabilities derivatives	35	0
Derivatives Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Derivative instruments, assets derivatives	0	0
Derivative instruments, liabilities derivatives	0	0
Derivatives Not Designated as Hedging Instruments [Member]
Derivatives, Fair Value [Line Items]
Derivative instruments, assets derivatives	0	0
Derivative instruments, liabilities derivatives	$ 35	$ 0

Derivatives - Additional Inform

Derivatives - Additional Information (Detail) - Foreign Exchange Forward And Option Contracts and Not Designated As Hedging Instrument Economic Hedge [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Notional value of derivatives	$ 14,100
Contract expiring terms	2023-04
Loss from foreign currency forward and option contracts not designated as hedging instruments	$ (394)	$ (323)

Fair Value Measurements - Asset

Fair Value Measurements - Assets and Liabilities Carried at Fair Value Measured on Recurring Basis (Detail) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Other assets
Assets:
Equity securities	$ 678	$ 678
Private equities	1,000	1,000
Accrued expenses and other current liabilities
Liabilities:
Derivative financial instruments	35
Fair Value Measurements, Level 1 | Other assets
Assets:
Equity securities	678	678
Fair Value Measurements, Level 2 | Accrued expenses and other current liabilities
Liabilities:
Derivative financial instruments	35
Fair Value Measurements, Level 3 | Other assets
Assets:
Private equities	$ 1,000	$ 1,000

Shareholders' Equity - Addition

Shareholders' Equity - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
	Feb. 25, 2022	Mar. 31, 2023	Mar. 31, 2022
Stockholders Equity Note [Line Items]
Shares withheld as payment for tax withholdings related to share based compensation, market value		$ 2,216	$ 0
ATM Program [Member]
Stockholders Equity Note [Line Items]
Maximum aggregate offering amount of stock	$ 300,000
Number of shares sold under atm		0
Common and Class B Common Stock
Stockholders Equity Note [Line Items]
Cash dividends paid per share of Common and Class B common stock		$ 2.45	$ 1.95
Common and Class B Common Stock | Restricted Stock
Stockholders Equity Note [Line Items]
Shares withheld as payment for tax withholdings related to share based compensation, shares		6,047
Shares withheld as payment for tax withholdings related to share based compensation, market value		$ 1,664
Common Stock | Stock Option
Stockholders Equity Note [Line Items]
Net proceeds from the sale of Common stock		$ 8,168	$ 3,955
Shares withheld as payment for tax withholdings related to share based compensation, shares		15,655
Shares withheld as payment for tax withholdings related to share based compensation, market value		$ 4,788
Common Stock | Employee Stock Purchase Plan [Member]
Stockholders Equity Note [Line Items]
Net proceeds from shares purchased under ESPP		$ 579	$ 465

Commitments and Contingencies -

Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Thousands	Mar. 31, 2023	Dec. 31, 2022
Commitments and Contingencies Disclosure [Line Items]
Self-insurance reserves	$ 12,590	$ 12,256

Related Party Transactions - Ad

Related Party Transactions - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Greenberg Traurig, P.A. | Customary Fees for Legal Services
Related Party Transaction [Line Items]
Fees for related party transaction	$ 13	$ 32
Amount payable to related party	4		$ 1
Carrier and Its Affiliates | Supplier Concentration Risk
Related Party Transaction [Line Items]
Amount payable to Carrier and its affiliates, net of receivables	205,000		$ 88,000
Revenues from sales to Carrier and its affiliates	$ 22,000	$ 21,000
Carrier and Its Affiliates | Supplier Concentration Risk | Cost of Goods, Total
Related Party Transaction [Line Items]
Percentage of purchases from key suppliers	62%	56%