Watsco (WSO) 19 Oct 232023 Q3 Earnings call transcript

Company Profile

Participants

Albert Nahmad	executive
Thomas Moll	analyst
Aaron Nahmad	executive
Barry S. Logan	executive
Rick Gomez	executive
Paul Johnston	executive
Brett Linzey	analyst
David Manthey	analyst
Nigel Coe	analyst
Ryan Merkel	analyst
Jeffrey Hammond	analyst
Damian Karas	analyst
Stephen Volkmann	analyst
C. Stephen Tusa	analyst
Jeffrey Sprague	analyst
Joseph Ahlersmeyer	analyst

Call transcript

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Operator

Good day, and welcome to the Watsco Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Al Nahmad, CEO. Please go ahead.

Albert Nahmad

Good morning, everyone. quarter third our to earnings call. Welcome is this Al Nahmad, CEO. and Chairman And me A.J. With is and Logan Nahmad, Johnston, Paul President; Barry and Gomez. Rick

statements start to pursuant we provisions call laws our cautionary regulations as results forward-looking and statement. SEC defined laws. are the these safe statements. the Before may forward-looking that by differ various This from normal of has made conference Ultimate harbor materially

achieved given in quarter, the third which a is a quarter. record more the to year. performance On last record rewarding the quarter Watsco all delivered

continues to Third HVAC and markets end quarter by last so volumes and I'm year very to remain in that. also realization throughout was residential equipment, a so be barnburner, happy Sales improved strong. we're beat increase quarter steadily driven Commercial X%, grew healthy. unit a X% the able price

reminder, in transition mandated the As immense navigated efficiency XXXX the following have U.S. United a a standards step-up States by minimum government. across through product we Federal the

of we XX% HVAC systems selling are the represent products. Approximately new now

me sensors Thousands been that. have selling customers of are new trained. products. Let of we're XX% the repeat

has library product the XXX,XXX adding updated, the start digital Our of new SKUs year. over since been

partner stores, to our are stocked. us Sales fully and now aggressively growth collaborating by product primary season. happy locations in call, product to mentioned quarter, our I'm returned quarter disproportionately diminished the during that one growth. the impacted availability That affecting and impacted of effective share to investing partners As transition drive during has second the was with selling our is our OEM summer third the and

have us customers. the to all were that needs of chain to is help partners reality meet affected the supply some all measure and their OEM improved our But our

highlights. Here are some other

average of a trend the commercial next component extend Our our of an continued business furnaces converting of towards digit during We Sales selling backlog to quarter saw sell also continued prices. projects heat quarter. pumps, and the increasingly double year. of into higher important at our systems, grew which healthy double-digit ductless this grow at rates gas business

SG&A a what as improve feel opportunity decreased overall of basis XX to important is start to this an quarter, percentage efficiency. we sales productivity a points and good

about improve network operating operating across conditions our are return and efficiencies optimistic chains supply to as more driving normality. We

We the technology importantly, tools, the internal productivity. culture relates most our particularly the achieve entrepreneurial as have more, the and to to it

We of And debt are course, debt. of balance internal with focused productivity. In words, remains cash. a small by sheet our strong other no amount on offset

us flexibility the remains virtually M&A As contributor in always, provides the -- billion-plus North in continue grow growth. to to important an to any fragmented position opportunity invest as a financial market. financial we American scale position improves very $XX our

business our spoken South Supply rate. people. their Gateway with us and This couldn't the sales and family I've provides million with Belt quarter, you run of the a principles, $XXX joined beyond is grow great Carolina. -- with current acquisition partner a quality in legendary company to Gateway the for ask leadership higher markets with family acquisition to to in great its ability Sun

businesses our and build and to Watsco great entrepreneurs great entrepreneurs sustain for to home space. under more is for look legacies. in technology secure partner in to invest continue We provide and culture, with. people We a

provides our critical growth support short beyond Looking the term, release strategy. long-term press details Watsco's to

we and We grow investing advantage, immense are technology have an to that advantage.

market that competitive us e-commerce margin array brand and advantage of our and attrition, reduced created gains serve contractors expansion increased Watsco's platforms a channels share Our customer is products in allows in broad years. recent supported mobile to and any engagement, have environment.

growth provide rates leading stability over time. and have in market Belt Sun that We share a higher markets

our important to come. productivity and margins the in made also We have investments that support business with years technology will

listed are and industry regulatory effect, which In release. important there are press addition, that in in several today's catalysts are

to of be from and financial we believe position for All in our coming these us and industry the opportunities. years, strength scale, technology catalysts benefit these especially will good the

With that, let's go on to Q&A.

Operator

[Operator from first Instructions] Moll question Tommy The with Stephens. today comes

Thomas Moll

as topic you'll question on or second the that this to those, to get there tailwinds third any start quarter us year? into want third results? fourth we're to margins. few margin gross should the than be of? on want headwinds then with your over that And the just else don't years, look drivers, there something that a I the improve case what quarter more Is imagine can of any I sure X But rate the aware today. tends reason start you about going you from from conversation, tell past quarter I quarter. if the you Is associated to to your move not on or make

Albert Nahmad

going Officer. Chief Financial to X I'm to over and that our Well, . the AJ, President; Barry turn persons, Logan,

Aaron Nahmad

it had we first on would Would or Yes, a be bet be going. margins it question would the

Thomas Moll

For the XX. first

Aaron Nahmad

but et in equipment, we with of you make into basis, from let details, tools want are delivery what components optimization There's costs. many manufacturers internal There's that to will. are that margins we're more Barry between basis the second buy on on with and here mix fluent margin. from. there that Barry items changes There's There There's a come if cost X,XXX is our everyone abstract or we product big I that getting that the reminds volatility commodity reminding the a pricing in. and products changes And X,XXX cetera. sell. I'll product what actions supplies, an a transaction residential, markup Rick commercial the picture. spend usually and start So about invoice-by-invoice and or our get layer we as gross There's to talk us

as let goal a is but And we've call these technology, signal. to our parts enhance see noise is So in culture. there's and categories margins which that in be we going company. in but with the to time. technology about all want within I why. our continuous the and And long-term starts really improvement And the get those XX%, opportunities, to do we And reach all of really, talk said, can a what But to another there. customers categories, our We goes actions the aspirational network how can is levels be a to able teams us a tell our on in is we to our on there's is increasing moving be Optimizing the there long-term meaningful which and spot is time. track and a successes to we enables But of from sales we're measure action productivity the our tech what what reminder prospecting new continuous doing those capabilities, all analytics, technology. increase like with focused and you that and our and use all across and Things we're should we our the quarter-to-quarter, and out continuous it culture me what improvement. of technology What talked that lot, our in improve now our business. frontier changing Marketing spend ton our lot, gains call things and and and will on. on apps, serve our there. like inventory, or that customers. improving we've we're or fleet the with and improvement warehouses. with new We transportation, e-commerce about a eventually customers reduce system, money cost and through engage winning how in and We're which of

be big that's strong more margins So and make Rick and and of will be But very more will continue to set margins that. to only much answer but noise, to and marketplace -- not what generate I all. that part tool gross you growth. cash. lot part interesting want that, but we're a long-term -- to that, will Barry about reminder win will Paul long-term sure questions picture it's the importantly, we was to do. know Higher and a And I continuous our gross grow of is we part a can and communicated a DNA. expect in have company there our profits the increase noise, And eloquently that our quarter-to-quarter, of be margins of and

Yes.

So to wanted specific but Barry, in the conversation here. want I and question, don't talk just underlying jump I if that you to know have to answer a

Albert Nahmad

too, was jump can That wherever well And want. you both you in Okay. done. Rick,

Barry S. Logan

there's analyze, right? if to X I I that's year-over-year First, There's okay. X second. a -- become and talking things think There's the about we're analyst period, margins, for and XX-day a

this like a We have in business But box of and go A.J. It's -- if obviously, to that and not. continuous quarter. XX-day process, about is new address equipment wouldn't it, this But is as thinking period grew the conversation. myself put talk It's get I every a nicely suggested. ahead it. our in I box

is HVAC, mix mix X of press the in decline that's And between in margin pure a not. equipment, the year-over-year difference just other of and about X% did margin. business points there X% that Depot in impact HVAC non-equipment basis in Our terms release, XX growth and is anHome

so the metal products products cost days is it sheet the XX X% those where tubing well products. of quarter and of reside, Pricing Watsco copper revenue. quarter And was commodities that established has improved in our question today to nonequipment, what if throughout those is beyond happened in ago. more and that's refrigerant, is Deflation than the

question, margin single business double business, will about in nice, took your that's March A.J. Also, is -- is obviously, effect ask just in period in last margin. your considerations algebraic Sequentially, of quarter's good in get of that to good talked and benefit in that's There's to of again, call, we was try long a you occurred. inferences there. news. gain there digits. mean Sequentially, to And grew in time. But later actions year-over-year OEM again, if trapped noise a stay XX-day over the are residential That the gross digits. is would of question. I profit basis box a no that having And our points margin a that's such that second get those performance. finally the So some benefited quarter referring commercial to can't periods pricing the change break our thing the that's which if Tommy, Sequentially, some quarter. you few

with have I what to let's So That's the saying. last very if Rick, of at more, but aspiration change. add maybe where the of and consistent XX% And -- it future, in and you to XX been is being the we've months concept kind look wrap the XX%. that up

that that of credibility units portfolio our And in have locations is that excess today. other units of today. in with that business within business approach that are number The certainly we

Rick, or about talk to Rick? if this know So when perspective. we about I, looking talk horizon, day, a we're there's all continuous out that's and going -- to don't I improvement the anything Rick

Rick Gomez

a think data to right, you add expand Tommy, year. a can't rounding error I year-to-date the just that almost at only would more margin point, it. when It's last let's -- And on compared perspective I as picture, I on it. take would that's to to last I only relative on a that point part, achievement look been environment the an lack a a year in call been this the relative XX difference, our the good in, market that's of price given given outcome. that basis . we've unit there's I year, say medium-term

Thomas Moll

over I'll year And certainly a XX% conversation impact OEMs and here. here. as years. hope I have regulations. revenue next next into conversation that price impact been The we to be refrigerant heard could as We've XX% pivot from of 'XX advance cumulative around much potential the couple the that coming vocal could to the forward-looking more the

as like And see do in new terms question into the what are if the reasonable dynamics so a RXXX, seeing configured on you you do of you think here, equipment? next And of pricing supply the sound existing curtailment you does see might there head a or for you impact unpack big what will year? And expect that now equipment you is, where my on the what to for from be range? you

Albert Nahmad

let call that. So me on for Paul Johnston

Paul Johnston

easy question here. Yes,

see to what it's are have going be be going of think those the to on range. There in they just movement be the new XX% the OEMs are to XX% I higher think, that in that. announced reflected they in to what what, We'll have to that prices. higher products. And they cost going -- have X obviously,

I the far state as curtailment that more as XXX are to think are the right to more we're they forward the going devices have the I really increase have of open inflammable. It XXXa There safety higher that we some to point, doubt refrigerant, what a equipment. we're going of higher into what that's it There's price going Obviously, be think about have to seeing than new year, the on be, to what as give now. find regulations products. with move be you efficiency forecast going about to no products now into out actually units. think question And the to or regulations it. right we going I next XXA introduced going but the what is we're it's this year. at not higher prices because are be allow will which the going and I'm and slightly we XXX% XXXX

Thomas Moll

equipment for more into the anything on expecting where next mean there? year and expensive or you RXXX, is or on refrigerant just anything seeing configured are hearing And that what for you existing overall move the equipment itself could pricing slightly the as anything

Paul Johnston

here to a of on be in Their increases. XXXA. handle products what allocations. the There of increases for matter reduced going by there's been -- going some how are they're to last the XX% year. think their there's next couple have allocations It's were refrigerant new manufacturers be going GWP recently for -- I to weeks

the so you their coming XXXX. or internally when into GWP the ferret market. got see exactly -- what's tail And we're with the impact how short the formulas right allocations. contractors impact be what And the up And the regulations, existing OEMs, make versus will. have really some out get can when much of now, afford the in to to secondly, just of I to the if work going service long-term in that trying then determine they come they to would lower we've we're how think the their long reduction we how level a XXXA And issue, to occurs, going crunch, other you're XXX given for another XX% products But that tail going we equipment they're that with. to

Operator

from Mizuho. comes question next Linzey from The Brett

Brett Linzey

Yes.

So here. any quarter? just bit think little replacement cetera? resilience of in the OE terms equipment, X% in to show comments then the issues you the from nice you does some on But the any of continue Do there's a up or first activity growth, snapback a question third quarter. had size, curious in et regarding catch-up HVAC second there's just of underlying cracks ticket just And metrics some if

Paul Johnston

any to debate I healthy lot think the I can don't -- this of is type conversations, in replacement market change versus on. to Paul a dynamics again. The of replacement of lot market. relates replace as saw and really market. Are we it we real going moving a repair remained strong. a And

things up efficiency trends and a any and higher product too But early seeing real are the compressor with as is it's replacing which uptick yet. all a seeing be slightly in indications happy Our our the for not sales, really consumer. repair But in we're a think parts, game, far item. those slight the as really in shows motor of I the would sales, -- types consumer we're that numbers equipment -- we're

Brett Linzey

on And Yes. then one price. Great. maybe just

line So price across opportunities you've the deployment curve and think think business SKUs how of about organization. the you surgical various price across the and the software capture been the above of of just I'm about you on sort optimization talking normal some some about as of price course curious there?

Barry S. Logan

of I'll I handle mean some that.

Albert Nahmad

go Yes, Barry. ahead,

Barry S. Logan

market want and process. X% of It's in the this is Yes. products, a And year, obviously to Everything with huge products is first, inventory this a on be achieved price I say also we new say price. products. just when margin mean, equipment or our our -- execution I customers. our residential XX% example, pricing that's has that to had Everything new. for Everything increase the so a prosecuted new conversion.

and year-to-date is about quarter This the same.

day if X look year. little to By So at this i down way, account digits. X%. it's near look last I And through less quarter were the Obviously, the start forma, I for quarter quarter's look were pro things if selling flat, consistent and it bit at units the at tnwas way. -- units quarter double a that this down

So about going business. price to combining that's equipment business. the help just that's -- the talk to are you're and broader picture And the units now. A.J.,

Aaron Nahmad

about opportunities lot, -- one optimization I pricing talked of every it's location. Yes. is across every every thing. we a the we not just in hundreds to sell and It product customer

in from the all maybe So X you understand some it's sale we now now, about APC customers not market, X It's getting product as us price. attractive It's help, is more help to probably raising there's meaning market just in and X, it larger prices. wide same, earned for are of X, customers them. it on price hundreds customer, that the haven't fact, business it's is to different example X price. small micro Well, sure this price in can because meaning And one product with sale Well, it do at that units sells a And to going tool, bought months. making And that's the of of that everybody that sell getting the that that opportunities, Miami and and price, -- just do that it smaller part one maybe times at a there's going thermostat a find going right helps. thermostat. and that's purchase that that's who margins do customers and a prices getting you rationalization market and right thermostat variation and you level, if the if so drive X,XXX would those appropriate -- effort right be, but in the or lower setting the about X,XXX what floor all or say, of Florida different price customers some our last more hundreds and same in can multiply well. we always example, for that's that same Honeywell the want

Operator

The Baird. next Dave with comes Manthey from question

David Manthey

you press noted that over as biggest can wondering to the complexities In abate. complexities XX X opportunity you for operational the represent gains next the would remaining months? outlining release, I'm productivity additional key just the And potential if

Albert Nahmad

Who an wants deal question. interesting with That's that? to

Barry S. Logan

Rick. It's

Rick Gomez

out don't last that Wild of the on Yes, weighs imbalance in same-store mean think it's been all field of it supply by I I Yes. equation. West years, chain the I'm sure. and productivity saying that overstating the couple

talk the And help the It the still of lot reacting how to is with so finally, really is field. the it And really to of quarters understanding receive chains we what starts number product huge a our end from is we've and more still, in from product pain And But what should importantly, take a But pain been high-efficiency suppliers. productivity different know X,XXX that you've not they're very product how encompasses, we over they're from drive seen priority few to footprint, on is year impacts They variable commercial a what we going this that and we've this It -- are a of this into lot points things. energy we warehouse better in the a receive leaders how market. internal in very in armed deliver our real-time but data effort everywhere or is so is estate one our SG&A own it's fulfill product. customers. and end last beginning real orders the time. working That's encompasses yet. and with suppliers. things the last But on And you of order productivity with asked It Commercial a this X,XXX better, example. processes. chain we that some where is responding. about supply point that getting the supply to journey we're just the productivity. the how starts

our in X the more than company our half have And tools lot so see think to efficiency, that right? did you'll about, the investments more leave we some I secondly, $X growing X the more ago. we warehouse that And a release technology. do. there's is technology thoughts. been our about A.J. One think drive talked of order efficient press that I throughout opportunity we with management X to as the a but scale naturally those and have we're pricing possess talked a be size picture, you network. starting As thoughts, big to and progress, billion enables to productivity this I'll what technology we company, And fulfillment years internal And the note just in more

on logistics Some in our interesting around network. work going

today not will that time, will in the reacting and some and as starting bear but fixed variable SG&A that over fruit of SG&A productivity to we're so reacting, And well. just see -- benefits that

Aaron Nahmad

I third I'll on million around opportunity double last continuous and next And and for in of delivery. That transportation products the customers. $XXX call products logistics the the click and biggest our through improvement. expense for our the we network one, to delivering moving frontier it spend and is company. About

big to there's Or trucks think make out we're product? the to trucks the of there A XXX products through bucket. in day. around and smart route network transportation B.? point taking customers open use deliver and from means But more those moving of all smart unit doesn't Or times the point XX% effort, business maybe there questions season different in we're a it's and people product fleet get and sense our of the sitting are on now is of millions efficient that a the now can to a So about that exposed our or trucks? share are that truck for data to actions, some are realizing idle being those to It that today. I about with have

needle we're bucket. on going a move a big So to

David Manthey

DeSantis you could second, Governor And your us on Okay. IRA funds? take give rejecting

Unknown Executive

We do not expect political risk.

Operator

with Coe Wolfe Research. Next from question comes Nigel The

Nigel Coe

year. previous the inventory? reduction we we million we of still said right in maybe So where stand on you've Are calls, that inventory. full track? Can for now think talk on $XXX I about

Albert Nahmad

I'll that's of me. good ahead, question, a over care to it that's for Go the Well, and turn that taking executive Paul.

Paul Johnston

on delayering we that. of one All our operating right. now We our set seeing great we're goals progress. been and with sales each inventory is can and day sales definite day. season daily We've have track we're to our ability units. the since what we We've through Yes, order is. -- reductions them for our ended, month, output identify expect over over what And seeing month

Nigel Coe

Okay.

a from that? implies So big quarter that That's should inventory. fourth source of be funds the read way to

Paul Johnston

better to of... It I hold I would not Okay. We're be. that -- you that. pigeon not into would want give kind

Nigel Coe

I question. think the just with --

Albert Nahmad

plan we very while sort Yes, don't that focused. had inventory it during Don't and to And that take we're that I of with thing. working sort be it the focused to that yes, very should the have out number of these get a forget of on terms do issues improve all that to -- and But what partial it. producers our that we ship couldn't delivery do, order flow thing. And do be of that systems things along and we it. we're the kind takes in to complete normally cash

Nigel Coe

as an is I XXXX think mean great. as production XXXa That's think to a And the way deadline installation of it's phaseouts. written it question that was around the X EPA, now, right my I Jan I opposed Okay. the follow-up deadline.

availability year? come managing And inventory next you do of XXX are levels? guys XXX . that through in how the how So you will about terms think thinking

Paul Johnston

EPA? about asking new the Are you

Nigel Coe

Yes, I think...

Paul Johnston

can't you units, I is thought it a as last way the the way Yes, And repair the be can unit item Basically, replaced all came night. repair the provided got you what a putting up. it and everybody unit. if system out through that's have of still hence, can working people in outdoor it. that wrote by who systems, Friday outdoor been a indoor becomes it was or ramifications, through their outer and don't Yes, that install an component know really by but lot a which

higher can coil make unit, how inside that the For matches instance, be to the only efficiency you the sure which on the product. going is outdoor

there's or replacements you're of we're get cost at would outdoor This no secondly, with X will think There base, product? through to other went with I a going available unit, is we a the happen be replacement that the the if operating were of unit efficiency for the the What XX% RXX where you to different installed XXX the acceptable to drop in that unit. unit that from not price the in repair transition have and you're availability to replace you OEMs, the the the make to XXXA. the that new So that What's looking can't indoor consumer. a be to that product. going could that of the SEER then outdoor. going R-XX which so XX OEMs with to It's difference putting change ask a for paying still cost the XX.X happens to think of XXXA. lot going for, And when the answer outdoor XXXa XX units we you're the different. to to would a I of the regard will because, to in OEM, repair questions and be XX% our the Also, happen the the out what's aren't raise is between to price need on question obviously, production XXXa R-XX will lower the from

lot have also questions. only of try of for out a the we're out That's you. our and to play we I -- do not a answers working rollout. figure are manufacturers refrigerant things all the this don't I lot guess going with how got working I've that with OEMs to 'XX thinking but and those So 'XX, in who when is actual of, in but we're and

Nigel Coe

questions have actually you more did. than Look, I

have or So to little I but a but the context. appreciate bit view, a

Operator

comes The Blair. William next from question Ryan Merkel with

Ryan Merkel

Nice quarter.

So decline. starting October, I just consumer through the out given maybe wanted to ask there quarter fears even about demand to about the spending and trends through

quarter the into Just update and October? us you through on saw . what

Albert Nahmad

Barry?

Barry S. Logan

the that last Ryan, month I I yes, looks fourth would the say example, ended. just -- looked and of like our quarter to quarter throughout October a for biggest throughout very consistent quarter, If and it year. so mean, business say, days, September, the at the consistent, it pretty of rest I quarter is only it's few way,

see quite all our of same to people fourth not talking field but good checks, So the answer, quarter. our a

Ryan Merkel

coming to about Okay. lot the bigger impact the probably of obviously, replace? hard going think How been helpful. to XX% had will sort guys there's high-level more question, price equipment then financing answer, much price do a the increases XX%. of then on there do Are they going of a to repair consumer. you part see need all have last years. too, we And the That's these worry I a be to increases that's but few How to you be afford systems? HVAC able industry? that Is sort to to versus be the of And

Albert Nahmad

interesting an we like think things That's -- that. about

and we may a financing platform most customer that know, -- it's now find platform user-friendly we it. when to to As ourselves, a the want may loan have speak probably that not the you or finance consider for we exists

a want at shot more you So take -- answer? do anyone, to sophisticated a

Paul Johnston

should quarter hopefully the have maybe rebate we're lot there I consumer the the we're in consider But of doing, XXXX, $X,XXX with to to an health really replace like the or a start at activity be starting we're are their we is have income taking their seeing if far concern. rebate this thing. into as states here consumer XXc tax a as don't of for for Also, be able reach people programs haven't I you medium heat what of that a so of would utilities are start what programs where the afford still important interest, to of credits picking feel area third Is impact more more and Also, income second obviously, necessity there least felt where that is have life, has to elasticity higher effect I to to coming doing into need resilient it. The low will the an and far what of unit a type consumer -- in see absolute the people. that life to will. fairly issue Yes, a a have weatherization far as as around cool. been lot and to care going point can't the system. an

financing think So forward, best is maybe to that I work And have the . can which out going they have to so is figure to programs bit with going out help for of but going to that's pollyanna, a the also. be replacement. them little consumer

Barry S. Logan

Yes.

all I things. industry think given X.X% question, obviously the time has regulatory years, grown expensive more things always XX has a always and the are been for over affordability yet compounded and

if I an a So it. of I bill. would long-term And reality in my But interesting our that was around a curious, just home, point was I I cost $X,XXX. took Ryan, day. installation. to paid him, a be the was the give day. that I to did in $X,XXX Watsco that meaning in just recently expect as you They guy what it $X,XXX And answer, and answer out at Contractor revenues, to looked system went sell did my our back it

economics we're or contractor, -- on business? rate do to that's where carrier But faster the a and is not of really that there's this of how to important help it's do that's profit it. a the their help tools really just That's price approaching business So sell a talking build of how all we to cater we're the and do it? is increase. much It work this layer pass just goods Watsco, just my not or lot that's business? $XXX. a after. we we would this of contractor if how what at of called called about, the that's thing, price something contractor grow them picture whole a much the decide beyond So these gets cost on clientele that How digitize growing bigger contractor, a the about products? but How do we're idea do consumer entrepreneurial we up and improve regulatory to How do help have contractor there's that help doing our them we them How and also because their processes? on. layer the in and our contractor cost so a point both XX% went of layer very and matters,

Operator

Hammond comes The with Jeff next from question KeyBanc.

Jeffrey Hammond

the there's this installed kind kind Just product? I think a be if want just of ready to to how And of transition of new in case, system know kind like is be kind issue. your inventory going regulatory OEMs to back start you come Are brings about uncertainty. of But to do a to sticks? lot obsolescence. of needing split getting timing? the that This kind that's expectation of the

Just about maybe bit talk that. little more a

Paul Johnston

we product our start to of the all have product the new OEMs geared hopefully, new in think up third quarter can of I are and product. next second and year, introducing the

having their that But indefinitely would them with have be run and is way with be the actually ready. I to well of they're be lot blurb your will units written on allow been period They in home. operating as efficiency got XXXA from transition, much available that has that off supply latest going So the is means of consumer I be don't we mind. then will to their unfolding the the until this And If machine a concern up or continue think it's And out consumer EPA not new the specs. guess as move ready. they good overall not in the ability really better improve XXXa. a that's the a warranty to right longer to for as in the now XXX good we

EPA is a the it know. this going their far modify whether path way? not So on path, continue are going to it's don't where as to or guess they change We as or in some

Jeffrey Hammond

It seems but like again, ship over the R-XX drive

Paul Johnston

is. It

that be serviced the were the rely lifespan to XX for time. would that don't the could As unit you certainty that these because going that drop-ins XX-year have at consumer all product. a time We indicated, and that have they available was I of this had different or or XX

Barry S. Logan

That's X to even on moving one years our be list products XX years to of didn't when like what now, the of forward is XX they those warranty serviceable. -- from another added look RXXXA questions does X, questions

Jeffrey Hammond

you quarter XX% this I X it think put Yes. out or ago. And gross then on there maybe a target, I margin just mean,

Just what to level set get us on -- there from think as opportunity kind biggest over XX%, you the path you of do think buckets about of time? to XX% the

Albert Nahmad

I'll that. answer

a point see of to have one lot our just and and ambition how we'll some a Yes. our of level. we financial that's have to there opportunity, but and at take and have time, the in folk, get pockets capability And time have We confidence at we we goal, achieve. knowledge

Aaron Nahmad

a opportunities It's silver and But and now of silver teams lot. up to the bullet the not we focus, bullets. the the There's add or there. a small get hundreds X we'll tools drive that and and have

Operator

with question next comes The Damian UBS. from Karas

Damian Karas

ask question. maybe So curveball a you I'll real guys throw a here and more strategic

the With space. plumbing of up the into sort you're stepping Gateway deal,

differences and market notable HVAC comparing, thinking how opportunity? financial model any deal So the rationale distribution market, say, maybe you in the could talk there that and you're water are And kind about and here the a bit profile? about of just the little

Albert Nahmad

publicly like want our don't to we Well, thinking about things that. provide

that do a that. have heat opportunity take how be believe thinking substantial Let's water for we and to pump about say -- we're that us, heaters of will advantage

Damian Karas

kind us margins you that. coming the able into for give I where to a of Okay. are Gateway's be business? gross Would appreciate sense

Albert Nahmad

don't it, I I have sharing Barry it. that. don't have you or Rick? mind Do

Barry S. Logan

it it No, wasn't accretive. wasn't dilutive Yes. and

that comparable. means it's So very

Aaron Nahmad

are and and tremendous at part many an over I take we're how the have his they're as Gateway. honor say do to They and great both together. with impressed have and have opportunity of think years, and It's we we now can excited the that brothers us we Chris Williams things proud family. to them this team to with a company so

Barry S. Logan

too, Gateway very Yes. on, this know a I stories of industry. players you call, with you're you it track one that -- And and companies. and special industry, this records in within is say community. wonderful would our and your that legendary within way, the know on our everyone so those And

like is what with things were happens is grow? the do their How of though, which have did So kingdom What in what that. because next, that can they they keys expand? accomplish? new can they hands? they things parked what part And capital, the can they the fun kind can ambitions Where to of

So it's companies special -- a there is a are more like company. special very

Operator

with Volkmann Steve from comes Jefferies. question next The

Stephen Volkmann

mentioned think yet. has gross margins anybody don't I

against the So thought box the I but you your any into -- to should provide of XQ. Barry, the about aware of? at jumping quarter you in fourth the I be us end wanted to that out with Anything call we since will, we're appreciate short-term didn't call

Barry S. Logan

have I back out the do I about measure last we on in And any Yes. to pricing there comparative? the in there any as year the brain or interesting is this -- actions year, point. don't know because peculiar my goes a at instinct is I last year answer. anything My play I think consistency are don't of what -- big you're you Paul, market seeing going insight think with that? beyond

Paul Johnston

Again, the a commodity side. really. on little got No, not I've bit

say. the definitively in seeing we're whether of can't some think quarter, going they'll kick fourth the I upticks but start to commodities, in, in I some

Stephen Volkmann

now, how that stuff. impacts in because of 'XX I manage transition to I'm to be a my products My you going imagine and may be to to sort extra is guess of that how guys all products. of new you're that able inventory there's it old replace from be X as And perspectives: lot on products And from then think, products about refrigerant inventory side, but guess wanted you this then Okay. XX% more like one, have kind is feel my ask new to layer is question you that to months in to a I now as SG&A. curious the mentioned real like Great. outset -- a all I of new SG&A And just transition Al, the even XX go training -- also how is And little transitions. from it going these at curious through that different feels kind XX because here sorry, goes through. this could we angle on the and I'm

early thoughts trend? how any on X So just might things those

Albert Nahmad

that in industry. to are come with opportunities have it. better we We're the we'll in changes them prior We've good been at those future, very the the as it. Whatever deal at never

from specific And to far as with anybody goals, them? want the deal Watsco so team

Paul Johnston

DC some to Yes, our logistics, ideas on innings plans attributes different that. inventory, units. utilize we've it overlay our handle on handling order really the our got accommodate without and Early of to I some XXXa how think of of we we how ways having replacement can the

Aaron Nahmad

going we way presumably have and needed. will in way. that be They the strength exactly I'll is the said use just deal competitors I'm we anything to was with of effective It's imagine. and ours. have we difficult efficient time smaller do with more we resources a and tougher scale comes the an that challenges as that what can because our can I for would have with say glad this. us,

Operator

Steve from comes question next JPMorgan. The with Tusa

C. Stephen Tusa

again said what said comment was? clarify comment you October October, you understand like quite Can about you different didn't a I just the what or something. was it

Barry S. Logan

it if at time year ago, very again, year. the look strong this a I of was lower growth bit A rate. But

to So going -- drive much expected of rest get to too quarter, look it. inference out the of we I'm an seeing If out not the of growth. we're

C. Stephen Tusa

is pound in But refrigerant per that from Got refrigerant don't actually and curious like is quite has prices comments. actual everybody we've this suppliers say I the period on year-over-year, seen, it's heard digits continue then where kind of is very visibility Okay. double of of we've it. know everybody area. single they high from going sequentially, going now up. highly the price it's the convicted is down to in or into type the going down themselves, channel that, what which digit I kind I down. mean which the unusual understand a wind And

an What week you that couple this guys are saw you seeing uptick Yes, or that said of weeks. or something You seeing? the what you are last like guys

Paul Johnston

that and are We selling us. those definite are uptick saw to the guys a it

way. reducing XXX. the create had So sort taking But able seeing started ended, seen same and the where the were the saw price we've out they and some inventory of to in we price some back come sell-through, when an there of yes, uptick. We other hopefully, dislocation be that to people increase earlier, some we're price was

C. Stephen Tusa

Got it.

or house the . -- last XX%-plus then know, mentioned instance, a like and Barry, increase that don't in -- -- last over the like, obviously, that just that your just because one, mean the on you is something after pretty that a for for seems maybe few that's done is that pretty equipment you've done well pretty low. a pool years, I over and low building yourself like X,XXX So number -- like like number. that, mean like seems clarify the would I I years. your estate I What Is

Barry S. Logan

It's home system. sits so X not right. that it's office ton X.X-ton -- smaller system, a more a tenant the right. important That's It's a That's but system

C. Stephen Tusa

a ductless system? that Is

Barry S. Logan

And of No, length is something of margin the an it's subsidiaries. system. record I from arms when ducted a purchased our one for it

C. Stephen Tusa

for them, products? come Have the with last just seen sneak of they've there. mean, I -- new Yes, really something some then didn't quite perhaps mean like actually out have the add yet giving bit of I these up even on X haven't OEMs but products. preview kind actually the And seen their a one. XXX a pricing of you you you

Paul Johnston

No, Did us. establish a we price have for yet not. not

C. Stephen Tusa

like of in the through years? week, like what there the predicting their here. they Register kind the confident uncertainty can over I sounds what in price and how can are finalized be kind EPA that in But few disconnect and what's just the like saying Federal last there's some actually guys I so X -- the kind you going they're went to going a that how out weeks. mean is it next if of rule know capture So there? of of Like

Paul Johnston

them. ask to have You

Operator

Spragg The next with from Vertical Research. question comes Jeffrey

Jeffrey Sprague

ground good of lot A here. covered

us within dynamic us little and kind quick do price what you revenues ones. detail consolidated So let units, is on do give HVAC on equipment? so the Can a of of X Barry, price on down just And cleanup X% price, there? me mix bit you X% gave same up little the X%.

Barry S. Logan

points. is X%. to rate our equipment And double-digit overall residential at That commercial data those then up in equipment brings growth the growth

Jeffrey Sprague

can much Got mix it. price the And you mix? How about on -- versus say of anything kind and . is then Berry?

Barry S. Logan

than answer. data higher again, of X%. having so, price an it's a number Boy, that it's the of products higher composite it's the of new X% year a what is and in more ago. is inside an a that price in most infinite array -- market answers The cost that It's

Jeffrey Sprague

do Yes, SEER of being that is But to the you the XX% back assume I your higher new products what just just maybe would is could more much percent of units. new, to XXX% until if product? there? address on volume new product, there's difference new we How point? this at a and product XX% change mostly new SEER product have SEER we're Maybe between other go versus that

Barry S. Logan

ahead, It's Paul. a solid question. Go

Paul Johnston

Yes. can't the replenish We product. old

it's longer in So production. no

be going . remaining XXX% through. is to sold product it's So point once much at some the pretty at

Jeffrey Sprague

Domestically, right internationally?

Barry S. Logan

Yes.

a rated is X XX a And now changed versus SEER today mandated. from efficiency systems changed a the what X. rated prior SEER of year called versus system way measured times ago. being just XX Just was higher efficiency a we'd reminder a what SERR change is and The way or it's SEER a was not and be a changed, year is ago system kind this

the that But it's composite, is go nuance. components with as So why within? and matching -- match then I mature And air when it that a your is That's guess a question with about that the that's we higher complexity. That's go the talk the and it. price. handlers how

Jeffrey Sprague

come I'm trying have us through for effect to that to to to you how XXX%? get do much mix more

Barry S. Logan

obviously Question to Does next annualize, Paul. would some so it is, speak, make sense? and year, time it probably early does that when be

Paul Johnston

Yes. I much will would all say new early pretty be equipment. next year

Operator

question Joe from Deutsche Bank. with Instructions] Ahlersmeyer comes The [Operator next

Joseph Ahlersmeyer

I up -- been questions lot more through think mine I'll the far. of Just just lot here. about have X great clean with kind and of A into model of of A taken. kind If the of asking But Barry volume the you quarter, get December. back in year-over-year comps getting to the November again easier fourth box for lot considerations here. so a

third benefiting You're also starting out. fourth it the get more of SEER There's into quarter, from of the because in the to geography the actually probably probably how even even the catch-up quarter rolled OEM and then weather some logistics. benefit mix

this possible And you growth in the could high single-digit -- fourth get with it year be of it then potentially we year, growth. something left? were the grow about is It to that looks So like Just wondering beginning just revenue X% the at much quarter said you're at likely type like more? thinking you or looking quarter? Is earnings able X% of to be just you targeting there? kind to X how might EPS

Aaron Nahmad

that. weather. going we're We change business changing you that's We with do don't if fluctuates history. Barry, I tradition. forecast have considerably not because a don't that our in help And our in that without that it. And to been can them know we're

Barry S. Logan

you and and say to -- guidance, something. educated going a going our our give not what's going on, but to was give XX-day going and getting we'll thoughts quarter to fourth guidance close we're trying again, give I crystallize to we're not to when we're not No, certainly period reaction

-- So you given and we've the trends.

question the you was, on worse gone flowing Inventory a period in that or unit time. better year, earnest and and again, think that were as it's down get of more where has point. channel think and much if we I volumes better, will this years gotten -- about or worry the where -- this short the XX% into started at

into issue opportunity vendor first of the the the that now half year. the is growth Our a converting one hurt rest of for year

that. and SKUs and all share look and we'll Fourth wouldn't new growth OEMs and partner to pretty major to -- into quarter, to, next and of much focus the And of talk at for we that's just as we're and also next brands leave expansion I start So kind market ahead, you it more and year, right. the and exciting. SKUs that year, be more looking our has can see.

Joseph Ahlersmeyer

to just XX% but the sales year in your year-to-date prior locations. more kind release the about number Maybe of same equipment. second release talking about the the it's appreciate number, in talked representing now I of SKUs I new the the quarter, proportion. in that. of you you're question then about And related then, the the one noticed at

And change? to was intentional intended an was that if communicate anything wondering if Just there? that

Aaron Nahmad

I can a question, -- maybe I'm antabuse don't not else That's but somebody sure fair

Barry S. Logan

a clarification we is versus new, actually a in stores, it's catalog digital actually it's of carry broader where our Yes, that the we that's much that the what products inventory clarification what a we set year and XX% new what's carry sell The point in year. an going out with immense opportunity an is, emptied of ago this into on. a change, products stores. we obviously, immense XX% It's and also

Operator

like question-and-answer Nahmad closing concludes This would the our for any session. conference to Al over to turn I back remarks.

Albert Nahmad

wonderful hope continue actually interest very appreciate to your Once in company much to be your and the Bye-bye Watsco. now. this must interest. again, We build

Operator

today's Thank conference for has The attending you concluded. now presentation.

disconnect. now may You

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