Watsco (WSO) 13 Feb 242023 Q4 Earnings call transcript

Company Profile

Participants

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

Call transcript

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Operator

Good morning, and welcome to the Watsco Fourth Quarter 2023 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Albert Nahmad, Chairman and CEO. Please go ahead.

Albert Nahmad

Thank you, and good morning, everyone. Welcome to our Fourth Quarter Earnings Call. Chairman Nahmad, Al is and CEO. This is me A.J. With Barry Nahmad, Gomez. Rick and Johnston, Watsco's Paul Logan and President;

Now start, by statements. call to Ultimate has and before results this that safe forward-looking always, we regulations materially these statements our harbor cautionary may provisions as various made differ defined are the in laws as SEC pursuant statement, laws. conference forward-looking from

XXXX. years were results in and Now, despite which after XXXX results, strong year's accomplishments am Reflecting conditions in of somewhat Watsco in two I extraordinary delivered market some inevitable the XXXX delivered. the proud we

market our we long-term start Watsco's a scaled gain we balance gains. sheet quarter achieved inventory We record gains. We product through cash start long-term successful share say, and flow. businesses great generated in We offerings successful productivity serve. We through our had a scale, acquiring platforms. technology markets I further driving and fortified down fourth our expanded network reduction and driving should industry-leading we had by productivity

meaningful change products is higher our was shareholders XX which XXXX. In April And once year for in of is all virtually partners, of receive OEM This new introduced XXXX, in over dividend brands XXth year immense a paying and will systems. Watsco dividends. SKUs increase also of transition consecutive XXXX with to products in equipment Watsco's again, systems. a collaboration new HVAC

to scale speed our Our to market. teams executed and well, and thanks

We share. are that confident we gained

to with refrigerants. begin the updated We spring, will And approximately regulatory SKUs. also our transition XXX,XXX this products and digital pilot trained of with new library lower was new thousands customers products on we GWP two next new

They strong all and stabilized half for value our are for markets good still remain offer Commercial homeowners efficient the of businesses more Watsco's markets. systems that during are across industry positive and volumes, better the for unit although XXXX. Watsco's These upgrade end regulatory to meaningful environment. residential transitions are to and business. second

Our year. products and grow a next at rate, commercial to healthy backlog our business into of well continued extends

the HVAC grew double digits increasingly Sales rental component SG&A on sales in a Ductless and decreased the an more believe innings of year, of driving efficiencies. conventional productivity of are for long-term [ meaningfully business. important and progress across in percentage of basis we company. improve ], overall as in indicating year. declines in a a We offset the opportunity to same-store productivity our [indiscernible] early

and a to and we provided data We tools responsible them in change importantly, implement have to execute most change way. leaders culture entrepreneurial an challenged our and with possess

past around sustaining through Watsco terrific Over million. market, expanded with we leadership network teams, annual the year, our acquisitions $XXX sales their and of practice great long-term our the collectively honoring in retain will are [indiscernible]. their consistent culture, businesses three business a uniqueness These with the family joining

the highly other companies Watsco join industry grow and will $XX are Watsco's sheet family. our Our to reasons technology believe remains market. strength American to of all and the fragmented, scale market-leading balance scale great we advantage continue We great billion to our pursue North in

drive that focus sheet balance Now of as unique before believe the core to will remains and Q&A, want getting culture to quality our scale, our performance. emphasize I continue always, the on growth term. We long to and our long-term

array positively catalysts industry that performers fortunate should any investing to benefit influence in a contractors regulatory serve years environment. that, With to go important We And allows and finally, on us our ahead. and competitive in industry the is Watsco's let's from Q&A. advantage. of also to and that grow we invested advantage have an is technology immense broad brands that products advantage, Watsco's to

Operator

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

Thomas Moll

margins, to gross on no surprise I there. start big wanted

aspirations percentage discussed that was your quarter, quarter recently. fourth the margin long-term gross have little been below Your fourth a bit

then it's really. think a in the the factors quarter? how recovering is So near you there unpack and about And you of is if the just the going any fourth for us you pathway X-part can term, we a of term possible forward towards if aspirations the question define to high One could that or near to maybe start want moving longer-term year, those XXs XX? this there in back art

Albert Nahmad

Very good question.

I've go. XX%, is know, a our to As aspiration you eventually, ways we stated have earlier and that

current going I'm Logan Johnston and events. to So with Paul to ask Barry deal

Barry S. Logan

of We've gross pieces ago also X moving aspiration the with -- was said so said short-term some all year years the aspiration long profit or with XX%. and now,

second moving that a business to the focus it's off just impact sustain talked for the of some I better be to million in those the that term. and at at the it ago, years the and a as was about margin, XX pieces place -- address years in and look a historically, I'll looking quarter obviously, and than higher perspective, ago, season, the short for which then perspective. If is in in X And X just we we've it's the drive the quarter, lot look perspective. we of shorter-term variables are the day at have greater year a if performance in year's fourth year, the the $XX.X obviously, so And time But the on achieved. what is grounded important things was year's

short in So what's try about bias quarter and the that benefits first talk of days so of pieces moving off-season term. I a are the we're some business because would ago, XX to about is the acute be of year my fourth in much more happening talking would not

that unpack is year of be gains, from quarter. roughly weighted cost million the define in So pricing the gains, from about gains, $XX inflationary it, to you bit points average benefit about abstract however have prior XXX which if it, as we ago year quite in from want and not basis I a

in refrigerant, copper going of like non-equipment that XX of other steel year like later, probably inflation equipment is product lines benefits not and those products a equipment, our lot are not products on Some some is a tubing, was where year like a there there. of proportion greater as ago

year look of products, instead third from larger material of $XX expect And kind million material not now. second forward And as is it's just numbers months, that's if to the I be months, would I basis points. the quarter, let's are those if look of in there consequence. don't in a headwind It's I acuteness million say, a XX That's those one to of fourth So that a months, be more back the to or XX quarter. as fourth quarter. higher, that $XX to XX things forward XXX

you in a year-over-year biggest the things than in some margin which on have There lower gross other is are about. quarter pieces, if look probably talked at that the non-equipment impact products. a products fact, we've that's equipment One basis. So moving

in equipment, So of which down. quarter, was growth which the you pretty rate a flat. Non-equipment, see difference between was mix the

So quarter margins in that that would basis say. algebra affects XX by the XX, the points, I

less a XX some there's look by. And water, gains more months, smaller dynamic. volatility to kind other -- The in of smoother would And the next in through. this aren't that much of going we bigger terms less idea come inventory ago. occurred is there of I expect worth inflationary With inflation, much this picture if things a that are year gains less

I I the quarter this forward to that look you greater feeling say But versus get seeing stability beyond to the volatility would been think if I see XX that need you've Paul, that? first anything clearly months. the next a would of to year. add we

Paul Johnston

January the as going the Obviously, lot season those Too be early into covered yet in some to some XX% there's of ground the to got quarter, expected. a really should to yes. the obviously, uptick in changes pricing as price allocations those We have of really we there, in You've start especially refrigerant going commodities, refrigerant. coming in we've first reduction that we're see are but in X. seeing effect seen some

Secondly, we're We're that the some products some steel. recovery also seeing other sell. in some we of seeing recovery in

still year price demand to year. during as the occurring perhaps are in up the and and those picks of business, grow non-equipment So side stabilize a we expect increases the the

Thomas Moll

for Thank answers. you both helpful those

a it try won't guidance, As a HVAC look conversation material this that the provides we for to your systems X% you I and give year abnormal follow-up, knowing frame provided, morning way unitary If type volume I'll at in the concluded, to trends a pivot for it discussion. a think that in was just we trend. you wanted I that's down, in think to constructive an that I agree would you

like curious, environment see base worth anything so out anything feel off that year? if now? does it from kind look lower you you a abnormal last there is just normal I'm XXXX, Or to calling of that more And

Albert Nahmad

pleased quarter. better that. the OEMs, of in the And XX% that it's a great volume fourth of largely take question. than hell do a we're unit to we're the lot a drop way, some a want doing shot? you By particularly now Paul, And

Paul Johnston

the -- Yes. room each product, XX% a price OEMs the is in is implementation which being a is has among transition going fast the to in obviously in the schedule. perhaps of one elephant discussed AXL how be to OEMs lift the and the obvious goes or to different the a XX% a -- increase

beyond. in, on year quarter start going going in full see So coming going see We're it's we're not to second to that. that to a and be implementation some the

going that's an think be to drive I So going one increase. to of the things that's

Secondly, obviously, a reduction always in helps. rates mortgage

the homes when an where is existing do existing within the days system, buying replace really after don't the a prime to air although acquiring they're they People to would conditioning at that's they XXX period replacement XX first intend home.

some out exactly into going there's think positive But there's some forecast I as So the goes year think to can't -- I out year. things to We on. seeing be entire there. the that that's overlay I good don't going how we're news

Albert Nahmad

Generally.

the weakness us have don't and If Let at I'm they our very market me their opportunity leveraged I've keep see else Go times. highly capital partnership wonderful an culture excited there with tools and for with We to opportunity be decline. generally opportunity well, with provide that as sheet are not tougher deal -- have just if are I looking distributors them their Paul. industry no so more to the as don't balance distributors in bring one -- provide We also to and that do have -- would that an seen companies us. say there -- ahead, business, to data obviously the organization we -- happens, it culture. to join sort us. industry I'm perhaps of insisted that has join

Barry S. Logan

I the worse? or better of question That the was just and asking I to way unit question. going to be listened we about would add data. the simple feel Do I myself asked about question, that units. my

down, were think down I in units And the it's XXXX units And first -- think, so the the of half X%. or I teams. year, half of second are X%

think feel So than worse. about I better we units

crystal play being volatile. think ball September is size. business again to to stable season Of opposed But selling things speaking, April course, to next out in multiplies needs the as more I when seem in -- our generally

Operator

Ryan The next question comes William from Blair. Merkel with

Ryan Merkel

My What price given you first in question on contribute outlook from the what you've for will do 'XX. OEMs? and price seen was think the

Albert Nahmad

Paul? Barry, information. that have We

Paul Johnston

seen announced in equipment, year they price Yes, to existing the and we've X% increases from range on already X%. basically the

again prices indicated equipment AXL already the the by in going They're supplemented with to further the have I question, the as been introduction, last introduction. be So announced.

probably we're lift And to see additional there. some going so

nobody that's lift A has have a think outside their lot how of that XX%. of to around going wide so I really range to disclosed of that heard anything speculation all you price XX% on be, anticipated big

year. being as a to I seeing, other think going the still prices think all we also all we're to? seeing second of AXL. softness on copper like some will any that the total and question sell, be I now a the I to as percentage the be little for quarter a degradation the stabilized that products products products is sort what it's that bit in much to as XXXX. add increased On the appear some sales, pretty products to metal are up sell insulation start going price rollout able How last those and indicated, products mark and against not of of against look clear as we that in it prices should all the seeing have put we we far of much start experienced we Those of

Ryan Merkel

on Okay. Got then And ask to it. SG&A. I wanted

'XX aspiration terms kind You've growth Anything either of taken in can actions way? quantify is some is us your what much coming there. you 'XX for or of SG&A in in for out how

Barry S. Logan

Well, just say reducing first, through terms again, there's in And business our terms opportunities about of had stores, finding And reduced it's wildness in driven the also the through equation. field, our I plans, leaders through been XXXX when for unit SG&A, in productivity the performance all out they're our after cutting SG&A again and business SG&A. all of it's X to that X regions, of Talk sides through -- it's 'XX -- their growth. not what of SG&A, 'XX. years being

also was of It to was very going what a adding serve unproductive on. period SG&A

So on. what to terms and operate normalized some branches a to more and bit simply looking back we're the that's conditions to improve little of so in get extent, how

still like XX%, down but costs composite inflation fixed So two declines for this variable kind there's of is in things. inflation a single-digit cost example. of recent rent, you're it's moderating, quarters, coming seeing, In fixed expenses XX% Ryan, that

better a few the is daily last it's few better expectation. from the in restructuring that. you've to is, is improving leave it been last seeing in the daily our we've what slow in So from the I'll probably the have quarters? grind again, seeing kind progress of corporation. improvement at productivity. been This what But that expenses, not of quarters This

Operator

from David The question comes next with Manthey Baird.

Mr. open. line with go your question. your Please Manthey, ahead is

David Manthey

Got it. hear you now? me Yes. Can

Operator

sir. Please go ahead, Yes.

David Manthey

then the Or going saying looking you the on that forward, fourth year? there looking topic, I'm or margin I a that So quarter adjustments comparison? comparison in back to Barry, kind gross that the be margin you're margin that was now, affect this gross of quarter year might hard. this and in gross year-over-year something in give can that hit if Were disproportionately take, from will the there here. range implying stay it are was unusual fourth the

Barry S. Logan

a new or from no a from talk to opportunity year completely from I important that out. a again, stands material year adjustments Well, are products I even about that even There be question. quarter margin or talk that have good of really that this would out being call as hit a to about, we'll expect year different funk now. would a Yes, now, blend to immaterial nothing or now.

get pricing going back pocket. the and season, into again, So as in algebra we the our and yes, of think I to I on, and seasonality have price so inflation actions would expect we

to opportunity continuance quarter, I from introduced. important. I of We that far penalized that we've there's particular And way margin. as have a improve be new that products being improve would the as And again, now technology say, a quarter using been but margin, an in a would to nothing year and fourth this next think

David Manthey

the said But first don't us of to I I also about this kind fourth And were would the basis a all items have and indulging mentioned, on were quarter, in yes, in you the that Barry, to think put in then points appreciate you conversation, what, we range if historically talking and we quarter year-to-year a the Okay. you first of hundred all you the which XX% comparison, year-to-year done that XX.X%, here. range. quarterly the through again look down of you we would get us need couple because quarter

there relative Just think that the comments, again, to of moving Is trying unusual there we a parts quarter Barry? knowing about cadence, to understand in first there's anything should lot there. your the

Barry S. Logan

Yes.

can the of are into So I the first comment. think pushed you can I year? things of comment early the second quarter, to bit last that out actions in quarter, late comparatively modeling, consider at the look OEMs read pricing a into terms if you little

the of the think, to comment versus ago, pricing first year So describing. quarter there're we're that certainly better my some again, consider to of be margin have about a timing you sequentially, in going I actions the

Paul Johnston

January a everybody X good Barry, X, went X. increase, point, That's because a March of instead most price February

little lag point. So bit it's a Barry's a of to

Barry S. Logan

January top X. A instead of X that XX went April vendor

benefit XXXX will the this January simply X. a later of bit some little So -- than push into

Operator

with question comes Brett next from Linzey The Mizuho.

Brett Linzey

to back to come inventory. want Just the

of little the you How $XXX thinking to bit to as was maybe inventory levels initial I So we just of are you the you could need that plan. about your move believe actions that more selling Are season? ahead system. took million a taken, to assessment into your there another be that? speak largely of out begin But complete?

Albert Nahmad

Well, big we I'll a higher we'll that do turns. work give you picture it of want is and on inventory

the long process, it produce But as eventually, science see And we you'll So It's expect have I more very I to inventory when a is investment to that and higher use returns inventory turns. expected. sales. what being longer is that, our do lower to flow is than compared do in implemented. cash

Paul Johnston

Yes. obviously, disruption, everybody supply Absolutely. got turn X-plus a This during team in the And the low is lost Paul. mid- Historically, industry. the it's to and is pandemic been Xs.

as we strive much pretty improve, better going a lead that coming inventory. And as in stock OEMs times not have those X obviously, the cooperation out seeing Right times and to reduction much turns, have And lead to of position so inventory. board. now, better now obviously, to we're us to to the gives better back we're a get as across our

that's happening. So that's one thing

Secondly, on of each has our inventory. got in units operating an manages Watsco inventory one position unusual

what identify we hand, the it by inventory, us in the order, we it have to so -- the operating management pandemic. It we big gives We So central putting in by new what vendors, need their district, gets against one Watsco on functioning invested during stock have by one headquarter that before takes systems. there's management smaller Plus branch. actually each manage not daily in region, they inventory can inventory. blocks into and with have units what manage directive inventory. the to in heavily technology that much invested reviews We on of

a find So visibility than distribution more in lot a normal you'd company.

Brett Linzey

shifting Is That's a the mix half being early in watching I high meaningful then efficiency year? guess there's well replacement little or down the things the to And on the in in internally great. better as terms there non-equipment the consumer second a it metrics anything equipment side. trends you're that 'XX of suggest a as Yes. in there's first retrenchment step half. here doesn't suggest just versus credit would or in that than

Paul Johnston

indicated we we -- there government, the and XX% around Take equipment a be And side. ago, the minimums minimum to a a on regulated went of expected we that efficiency the the around the were by from compression year stab as product. The to entry-level up XX%. higher around to products went efficiency we

coming bit So It's we've minimum had towards little as product than out. high higher-efficient efficiency. to efficiency has we but industry what the it opposed definitely a seen product more distorted before, the

Barry S. Logan

a credit. And question enough, good It's not it's on often asked frankly.

average we and about receivable contractor contractor accounts -- a our credit a So obviously, essentially. credit the $XX,XXX giving line represents month

cash at you the statement, press debt about actually down And is is so XX% if look our which this release, bad in you'll flow year. see published

no XX position. you XX, peer any portfolio. the find, of basis kind points or distribution a of it's other compare can It's quality roughly So that debt change there's in again, model in any the indication favorable obvious of very and against of bad

view. a how point we and So credit risk. we're is again, so something far, serve of an so customers economic from good not It's seeing

Operator

comes Research. Sprague with from Vertical question Next Jeffrey

Jeffrey Sprague

back price. of on kind Just

kind anything, we Is about? not make you of a game the Just something wonder Is here in or price you think? there thinking later going be of the at there theory the of of same fatigue of sort OEMs a if of should time. and do message market what, kind kind

Paul Johnston

it's think diabolical. don't that I

on you the they just that progression new AXL of natural their intend their product putting the they to out and public the on do has how out roll and introduction out times and the their I variety think if plants goes engineering listen of you a OEMs it one think manufacturing all to during are I rolling at each broadcast, their different more to it's into each products a that, find product. that And with different year. of

Jeffrey Sprague

do of back your sense. couple of math the against kind and after kind at right XX-year asked to Yes, demographic in life old We're another inevitability interesting. all on could you're obliquely kind replacement of wonder talked into different So I the opening, and question about kind XXXX thoughts that in And replace. echoing that Makes Al, seeing of kind that replacement then a here. ways. whole of just you year school that a versus [indiscernible] go back was If like now, we of repair argument. I of year. right? replacement soft to what least just XXXX argue the for just your

Albert Nahmad

is our Paul Well, and that Johnson. guru

Paul Johnston

when going Oh on quarter, It's my repair God. with you're going replace. versus there. of a repair see is first the out the Start which is lot to fourth quarter, not time

furnaces, don't your lower have conditioners your gas pumps and heat air a have furnaces gas You which your you repair working, item. your are generally

the So there's we've we're when we'll temperature it trends any able wait replace. that up, and been and not repair out. see occur versus to goes to that find and date, identify Will declaring

The question what? other your of part was

Jeffrey Sprague

Just age health of and kind based replacement on of of the where installed base. base demand of installed the the is the sort underlying

Paul Johnston

is mix lifetime. is generally since is a The long obviously, ever the the base Gas time. which installed a probably changing. I've been it's of around, than age have installed been base But of newer furnaces the

summertime Heat make And can it's lifetime. are they're a as generally a don't years. as think total Remember, in operating gas cool a also. percentage those not the XX, just unit, furnace growing something last XX that long years, pumps I around whereas said, XX they're the the has straight are in XX, operating You of business. industry wintertime, have a the

being installed right got base going there the equipment. to of What do that that's out on overall of to more to you've piece So packed hours now. mix

perhaps was so. we replacements? the I to Was to pulled that X.X were to look North year going able figured the equipment. million south? pandemic. perhaps we'll were of needs answer X that's prematurely, to up get But troughing replacement I million think to data pull think They Where to units be data were that some be up, one what probably those Paul, people or installed I in, that next at geography not. actually probably had Trying you questions it the said see be lot a something? that the coming it was around A to that data of question of lot or of replacing analyzed in properly.

Aaron Nahmad

On of period with and I these probably there. This pointing OEMs XX this is going for Watsco times, the positioned. this in coming dynamic very of supply products there's different think change your many are of all AXL in the say In so creates in a the years paradigm inventory the outs industry today, space a noise. inflation, out. and going well to I again have A.J. change as the which things different industry, is all between I is There's -- ever different change been mean rates chain, different to pricing, the But between and the that to on pricing going in questions up the changing the lot

up of been the right I that fundamental or block margin for left direction think our margin there the lot it's Barry, going of down. has covered lower and What inventory you damaged has The inventory come gone Our and excess inventory. Pricing. it. far think I as in our slow you a XXXX. quality out structural key as as was transaction written is

more I momentum XXXX. around in that think there's

I think good job. we're a doing

expenses the and are all good balance the sheet. doing managing a our the in job given field the and craziness space Our leaders teams in

any comes The being well balance our debt positioned sheet for any way. that opportunity without

I I about sit the I So I optimistic in guess industry my is a our then time, we performance, very like and and year future. where a point and crazy in like the remain crazy

Jeffrey Sprague

the Thank you perspective. for

Albert Nahmad

that's I've I And what think said.

Operator

The next with Joe question comes Ahlersmeyer from Bank. Deutsche

Joseph Ahlersmeyer

EPA right last rule Act after the transition? impact the around on was think it just by you if that dates of have call. AIM There the as rule wondering any to thoughts your the relates the interpreting a I

Paul Johnston

had really with the selling All end dates building and talking was the a about this of debt then sell-through X-year now. EPA has the year, that what the year. is change XXXA with The The out XX-month the for product anymore you're doesn't did a XXXX. out produced any be It transition. in and the sell-through. Originally, units change see and and it of have The that at you Aim Yes. manufactured date indicated December process. there's Act to XX sell-through came of to

Joseph Ahlersmeyer

think taking. Understood. then over also picture, if things that And they're which the could taking actually thoughts and actually charged actions had time on that. apply frame around wondered like to field, And I you the does some there was over manufacturing are if consternation the the that in what any constituted were bigger though, -- that this change OEMs

Just there? any thoughts

Paul Johnston

years. No, it for really have doesn't several last manufacturers change. The had plan to this the transition for

through. that upon to their get plant, in They based vendors to did manufacturing They change There their get flow processes that way real not change up. it to direction in this they're their no had was going the So had lined ruling. order. change

to at stop year. the manufacturing have They XXXA still end of the all units

as to with the the were year. unit outdoor That yet. replaced. what was indoor can There's do hence, repair I still had in a or a and still some is fuzziness you outdoor question more has to sell-through period, still That component component so was little that XXX bit component? that been clarified it install not unit a to the around up a think you unit be subsequent what referring could

Joseph Ahlersmeyer

on I don't to I can any I if sales Understood. relative were heard have year-over-year you ahead? commercial HVAC go where commercial your And in residential may, what earlier the Okay. if think thoughts -- year and

Albert Nahmad

at then and anything commercial strong, very least a Barry Paul? Can that or you backlog is add comment to did I we have for that, more year.

Barry S. Logan

for the up in the commercial I year, mean was teams.

long. fourth that's think The leave it was down a been I quarter bit. and little double at digits trend that, residential So all year the near

Joseph Ahlersmeyer

And looking forward?

Barry S. Logan

you And choose adjust you to in day the quarter, we to. selling going had of I for the was quarter, less the say, can if for the one and so sake that algebra, for

what Sorry, question? was your

Joseph Ahlersmeyer

Just the commercial? for outlook

Barry S. Logan

proportions measure like backlog the large Again, commercial we think, the we is strong. quantities release to in OEM the same backlog make still commentary, but don't of large said, or in I the in as the

much trend. seen variation haven't We in

not a will so And reason that to think be. there

Paul Johnston

Yes. a unitary once. replacement And most demand. of go at products commercial our It's

no is there So backlog.

Barry S. Logan

remember always XX% we perspective, about Between commercial is and in I XX% us put do. XX% for of what we to what do of it

Operator

The next Jeff Inc. Markets comes KeyBanc Hammond question Capital with from

Jeffrey Hammond

direction. So like I I to things sounds back on bunch transaction heard different come to a gross It margin. that. the margin in right of wanted moving

carry headwinds You over of that got maybe XQ, kind these XQ.

on maybe Just doable? a Or margins run pieces? XX% the kind you that given moving level that Is kind of margin XXXX. of set below how do bit we of mean gross about us little some for think

Albert Nahmad

you Paul, deal and want Barry that? with to do

Barry S. Logan

so Yes. and get it. go diminish I in terms basis gains I average XXXX in gain, margin the importantly A.J. think to Yes, In transaction mentioned back about to which of want want that, in year, all to Well, that margin. it's the to year, about so year really as the speak I'll year. headwind that the that's for points. was first, And points. XXXX. The the handle important I emphasize the what selling greatly, we noise expect XXX into and XX was inflation weighted on. headwind basis That cost to and margin this about we gain the

we in to did margin that do the that So and pricing, we make XXXX. transactional margin relative improving price improving by -- improve everything

is largely the then diminishes, other say, has continue? diminished. XXXX that noise that for And Can the can continue? of I would some So question trend

to to good So selling XX% goal other stick of to margin the for for some answer your out. momentum as we it's think these have there's -- stand play discussions going XXXX. second, especially will think some with we're where in third out quarter, for And next of But action in and to that today. I question, we're having play we the the pricing

Aaron Nahmad

Including the see the plays be transition -- how as market that the out well. products, have will in that to to AXL

Jeffrey Hammond

copper there you some X, around negative in And clarify, it just refrigerant were price actually or the whether have to where down non-equipment did be disinflation steel? real there

Paul Johnston

yes, don't I go ahead.

Barry S. Logan

Paul. ahead, Go

You got it.

Paul Johnston

Yes, saw stabilized price demand. there. was couple it overall see had on product just we of a degradation, those just it in that areas think products. some But I -- did don't we came the was much and think of but we back. a occurring And slowdown a deflation I way there of demand really where was

Jeffrey Hammond

last just one. then And Okay.

of On later you got kind kind pricing of talked a down bit kind about the merchant you've little also being inventory. and Barry, a you're managing dry -- of but

we of as into merchant kind you about lower buying price inventories think season? So increases to go versus the a should ahead of managing selling be how

Barry S. Logan

beating what that is and increase not the mean not a question scale. more to, whether practice buying -- we and in but for we Ford it so direct terms do I going price on entertain publicly way some again, say of I'm it's we're on. Yes. in competing

in by I think thing that buy do market. say, to At at at a "Let's We that there. a do and market sense. company is at look responsible Ford we no look And Watsco as it's time it it ." not here we really look and scaled something

it, it nothing So I remarkable, consider scale and Jeff. certain brands consider we we that think markets in would be on but

Aaron Nahmad

bet ranch, emerging, we I don't risk-adjusted would a we take we say and to approach the Yes, but [indiscernible]. are

Paul Johnston

Plus, into phase-out phase-in, Jeff, AXL got the of XXX, think out phasing be product. you've I phasing to we're going the of

that So need we'll I buy we'll when now, think buy need we a right product it. we

Operator

follow-up, a Hammond? there Was Mr.

Jeffrey Hammond

No.

Operator

question with JPMorgan comes next The Tusa from Steve

C. Stephen Tusa

year, and on get roughly XX% that like stuff. X%, kind resi the unit of sell-through, we if to down down it math down the the that including just the units? looks resi, parse between light of kind was was commercial? resi for So It commercial

Barry S. Logan

don't discussion, Steve, -- unit really residential. I mean, volume our we don't commercial include and We

C. Stephen Tusa

just and And guess, us did give you between mentioned us the Okay. just about XQ this what what wide this gross you are price you last might quarter. -- flavor any give where and construct? later. Can for like mean, coming first a little that you land gross a thinking whole bit I in such On margin, margin? just there's Can quarter great. did just gulf the I That's you increases

Barry S. Logan

sequentially I than volatility without looking better think earlier, I is the It tried some would year something of say to quarter, which start things fourth official out. than say at more the constituting takes year-over-year. I guidance, it ago sequentially

quarter. you this sequentially the So from first what into saw quarter an improvement

C. Stephen Tusa

Right.

but than So better something not up the fourth quarter? year-over-year,

Barry S. Logan

That's correct.

C. Stephen Tusa

Yes.

are sell. making AXL what of on mean price? market to Are like non-AXL get Okay. on the OEMs in whole of prepared you degree channel, pricing, you your share That's ask on to you're lift on the pushback sound maintain will you of helpful. like I non-AXL or you price the there is discussion kind guess those? kind of you gain assuming this it get price I some equipment? And this depend that assuming the help then kind that products guys in you And product are if secondarily, with you some

Paul Johnston

we'll questions of are the our ready sort marketplace. in vein of to to what we'll our OEMs Those judgment that And all make be our great be are either. certainly kind some lose we not with if. that not OEMs, be any contact in keep to a is competitive competitiveness. -- going and We're required of of Obviously,

the if them So unusual, we XXXA out yes, we'll the X X introduced transition over be that. thing R-XX. was or working XXXA makes of AXL to years on you R-XX, we from remember One introduction the to with went that transitioned the before when

X-year we period a had going inserted over basis have time, before transition. This was implemented you to that So the gradually not actually price we're that. that

lower, so that said I if a how up set. too think to answer. there's the go too -- be high? it I so be will So question And And around of marks a that's enough will I'm or exactly lot can price not be this smart guess price what will

Aaron Nahmad

Yes.

customer shake not all happen than adopt will it's it's because We will know prices not in if more new a as to and the the transpires different I this out think products when, segments others QX. sooner going think and of and I that.

And market. so really works see summer how the that it in we'll out the

C. Stephen Tusa

you of lift on on -- you capture the older is are the AXLs? assuming Or price the are assuming price the from -- most capture non-AXL? But

Paul Johnston

to far don't the able there's up that anybody think AXL. price got be XXX. captured so We've of the that assumed not we're the is the XXX. have price against be a the anticipated going we're It's price sort I on for assuming to going to increase that that. spread not We There's that going. be going to

C. Stephen Tusa

price was saying in the AXL you on 'XX the just do AXL. year-over-year if assume capture I'm Against like non-AXL, wasn't relative year-over-year type for like-for-like the happening where capture to XXXA the would assume product? you

Paul Johnston

Certainly.

increases that the yes, course. of we With price have,

C. Stephen Tusa

Yes.

Aaron Nahmad

to What year. coming this was referred as later

Barry S. Logan

really to I clear about that. want Yes, be

OEMs out and sell -- products X% X consistently as another the on really ductless mentioned range group it probably earlier, side X% said So if on side, across across we the we we earlier. between ductless Paul the price X range and the of is

XXXX? the Your yes. if do certainly tell, to of need is question any you we but see time expect extent And do competitive what in a is, that To answer there's will outliers not yield OEMs and participate the what's an XXXA. in market. or always the price do and market customer be on we or scale, asked application, going expect capture in type to whole, react on to will But on

C. Stephen Tusa

time is hopefully, usually you And that, meant that? just million that on got The you the calculating I'm so to up units the by being to explain call not I million at math can X And peak? the more. just installed what mentioned, here. ends you're one early, X you taking X.X that, units sorry, of anybody's then X.X kind But what's the

Paul Johnston

$X.XX, the fell units. little we zoomed at XXXX Well, And up XXXX, bit we ahead. down baseline industry $XX if your roughly shipments X.X a as stayed to above XXXX back million you look at million to ] then [ in

had you against the were XXXX if delta. where growth X% take rate that a take X% let's that we So and normal, say, industry historically in has the put or

C. Stephen Tusa

Got it.

Okay. Great.

of forward, kind the saying opposite like pull that you're So end?

Paul Johnston

to because longer look Like we've do you you, forward lag I Yes. you in to obviously, Yes. to That one, it geographically in at indicated Michigan have me. looked Miami, Florida. than got spans, like a pull

Operator

The next UBS. Karas with comes question from Damian

Damian Karas

I you turns about normalizing a time. follow-up I X to over talked have question of kind back know on X inventory. to

anticipating incremental any restocking as might to if kind get I'm buckets? though, having you maybe of you legacy the Just just year, of curious getting curious becomes XXXA if just go managing that last the that, basically, the and call there's inventory that XXXB you're equipment you're mode do pretty versus efficiently? related then cost can available you on later as in to that and expect this your AXL Or a kind

Paul Johnston

products is operating developing out I the phasing our call for phasing think phase we XXX -- AXL each what plans one the and in units of we in products.

all we one we and be that with that through targets. Act to be the each a so so -- the hit on We And our earlier us. But that the overhead be for contractors. and additional it's want our our of a have can of business have next Aim able sell plan where units XXXA safeguard it's We the operating to very we mentioned it inventory want able way obviously, not to to to working the format not disruptive we creating hit in and the do to -- we year. marketplace is able demands to logical that want

Damian Karas

to lot of I to per in pretty electric OEM does you of over And the X in moves set it alternative are U.S. the on There's sell it. and kind you Barry, pumps product your comment you make off. and solutions. vendors guys a and a trying particularly working side Or players high-efficiency market, existing ductless Got equipment you X ductless with relationships Would mean a breadth? the some follow-up time? key foresee satisfied of on these made, products question then newer Okay. of of about kind side, kind in more

Aaron Nahmad

Are you satisfied?

Barry S. Logan

to can want don't half markets and that look consider at I at do I honestly. have -- enough think our much. answer of or that a I We look brands don't even like give the we to like we portfolio of mean think say, themselves. notion. It's I we a hour too kind

So carrier Chicago X distributor where in we've we've years acquired ago. a acquired great great businesses,

green franchises somewhat growth We that me, distributor that in perspective brand. owners that it a from building the I built, we acquisition to markets the in Watsco say years so indifferent campaign and players answer credible franchise is of do if few size, would and who great top acquired yes, in over are double you can and time, a on have the that is way. ask would incredible the It's ago. dominant focused on Louisiana

$X that that's ironically in billion company XX same brands that double can markets company a enough, are right? relatively and indifferent grow we enough, I billion the the legacies of to oddly share in mean know were and years now, trying term. kind we of we've growing ago. And long done, we way size we're what We're Watsco because a to the over of and $X strategy.

today, question the if kind of end markets. is share very market operate going less and Now and that we is to well be above pieces average satisfied not puzzle we're term your short

more that's Carrier And add have we're going of that to and find of think really it, don't products This niches our And bring we different we to in added we've Carrier, stores. density those we that there either in added Carrier how brands and about our X, appreciate build network. terms and added we've but ductless talk on people that have opportunity we've our that makes with to relationships locations, we network. an all operate all manufacturers X those brands that of sell to and niche brands and I to and brands, are Carrier -- don't

have We time. over that's a grown private label

answer long-tailed very a with question interesting very So

Aaron Nahmad

We're grow, as the in this an and say time We're pumps to key creating up changing and and move product frankly, long the It's traction time, for are I'll that the of industry always exciting. and wanting a culture. regulation, satisfied. I think That's exciting the always to in it's ambitious. part have our first innovation markets we're want is very never right. to time gained

improvement our the technology from coming and to from will will OEM is to it only brought that's but bring to in also in products they or and the product be fun and the entrants, that as innovation they've well. that new it's that into market coming it's partners enhancements not fun And the exciting market take with market coming with

Damian Karas

full make luck, Really And give I guys. you can so color. of sure Best you up, the the Barry, XX-minute I'll appreciate follow response.

Operator

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

Albert Nahmad

of that believe in enormous along interest your future We much hope for an our have it. the with way. Bye-bye. And Thanks us, us and we appreciate ahead be you'll company. we we

Operator

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

disconnect. now may You

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