Q1 2024 Watsco Inc Earnings Call

Good morning, and welcome to the Watsco first quarter 'twenty 'twenty four earnings conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Please note this event is being recorded.

I would now like to turn the conference over to Alan I'm, Ed Chairman and CEO. Please go ahead.

Thank you good morning, everyone.

Welcome to our first quarter earnings call and this is I'm, the chairman and CEO.

With me is a J.

Okay.

Paul Johnston, Barry Logan and Red Goldfish.

Now before we start I.

He will stay to our cautionary statement as usual.

Conference call as forward looking statements as defined by Sec's laws and regulations that are made pursuant to the safe Harbor provisions of these various laws.

Ultimate results may differ materially from the forward looking statements.

To the performance.

Watsco delivered good results despite softer market conditions.

As a reminder, the first quarter is traditionally the low season for sales in our industry.

Although it is early we are encouraged by the improved sales trends in April ahead of the summer selling season.

Yeah.

We believe our technology breadth of brands and products.

And the expansion of our network have generated market share gains.

Our balance sheet strengthened during the quarter through a combination of record cash flow and an equity raise using our ATM program.

And once again, we boosted our annual dividends by 10% to $10 80 per share beginning April.

Up 2024.

This year marks watsco, 15th consecutive year of paying dividends.

Yeah.

Yeah.

Now commentary and highlights on the quarter.

Although residential equipment unit demand remains slow.

Our price realization.

A richer sales mix up heat pumps as well as high efficiency products.

And new locations contributed to record sales in the quarter.

Commercial end markets experienced growth in our backlog of projects remains healthy.

Sales of Ductless systems, and increasingly important component of our business grew and offset declines in the conventional duck that residential business.

Okay.

Gross margin has performed well and can sit and are consistent with our near term target of 27%.

Although we believe higher margins are achievable over time.

Turning to expenses SG&A increased 2% on an adjusted same store basis.

Yeah.

Variable SG&A expenses were lower for the fourth consecutive quarter and our teams across watsco have implemented a number of boxes to improve efficiency and reduce SG&A.

Yeah.

And to that end, we have equipped leaders with the necessary tools and data to improve productivity and most importantly of all we possess an entrepreneurial culture to execute change in a responsible way.

Since the beginning of last year, we expanded our network through acquisition with three direct positions with three terrific businesses.

Joining the logical family.

Collectively their aggregate sales are approximately $200 million per year and more importantly, they expand watsco is reach into new markets.

These businesses will be obtained or culture there.

Their leadership.

And teams and uniqueness in the market and the market, which is consistent with our long term practice of sustaining great legacy and investing to drive additional growth.

Our industry remains highly fragmented and we will continue to pursue other great companies to grow scale in our $64 billion North American market.

Watsco technology advantage industry, leading scale equity culture, and the strength of our balance sheet are all great reasons to join the watsco family.

And finally before getting into Q&A as always all under emphasize that our focus remains on the long term.

Our balance sheet is strong and we stand ready to invest in the right growth opportunity.

We have an immense technology advantage and we are investing their Roe that advantage.

Watsco has broad array of products and brands is also a competitive advantage that allows us to serve contractors in most any environment.

And we are also fortunate to operate in an industry that benefits from regulation change.

Changes and fundamental catalysts that will play out.

In the years ahead with that let's go out to Q&A.

To ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yeah.

Yeah.

Okay.

Our first question today is from Jeff Hammond with Keybanc capital markets. Please go ahead.

Hey, How're you doing doing great well I'll ask first about this this equity raise just wondering you know why now and does it signal.

Jeffrey David Hammond: You know some kind of imminent M&A coming or what's just the the rationale.

Speaker Change: Well, it's an opportunity that we had.

And now instead.

An institution that.

As a reputation for being a long term holder.

And we wanted to have them engaged with us for the long term because that's our reputation that's all it is.

Okay.

Yeah.

And then one of the things we were picking up and our channel checks is repair replace.

Shifting more to a players kind of consumers.

You know struggle with higher rates et cetera, and the increased costs, just wondering what you're seeing on that end.

Oh, Yeah, we're really not excuse me and we're really not seeing a lot of repair pick up in the first quarter.

Yeah, we saw a little bit on the motor side, but not on the compressor side yeah.

The weather just wasn't there to to really institute any any real change in the market dynamics right now.

Okay, and then and then just finally.

Al You mentioned April being better or maybe put a little more context.

Around what you're seeing.

I'll, let Barry answer that.

Morning, Jeff.

Again.

It's been a nice pick up and it's in a.

I would call it characterize it as the high single digit range that includes some new branches when I look at things on a same store basis, it's in the mid single digits.

I'd put it.

And and.

And unit growth, thus far in the month.

Okay. Thanks, so much guys.

Speaker Change: Sure.

The next question is from Tommy Moll with Stephens, Inc. Please go ahead.

Good morning, Tommy.

Of course.

So believe it or not I'm not going to start on gross margins today I wanted to focus on that.

[laughter] well, we hope you have let you down on gross margin.

No no.

But on the SG&A point I think even if we.

We strip out the $5 million and change of nonrecurring items that you called out.

That expense item did grow faster on a same store basis versus the top line.

Speaker Change: I know driving leverage there has been a priority over.

Over the past year or so.

So what can you tell us about what you saw in the first quarter and how do you think that might unfold going forward.

Mr. Logan.

Good morning, Tommy Yeah, well first it is the first quarter and added a lot of actions were taken.

And in terms of streamlining the branch and head count EM and.

And again, the general conditions that leaders went out and did they they tended to take those actions at the beginning of this year.

As opposed to before the holidays.

Speaker Change: So that makes common sense and again, that's part of the.

The mindset is to start the year with that kind of momentum going on so much of that played out in February and March.

And I would expect the rest of the year the remainder of the year to reflect.

You know some some reductions and some of our major categories transfer.

Transportation freight logistics were down in the quarter, that's been consistent now for several quarters.

Oh on the head count side, which is the largest of the.

Of the you know contributors to SG&A.

I think you'll see some results from what was done for remainder of the year.

That's helpful. Thank you.

And I guess a question.

Just on the eighth well transition here what is the state of the Union you can offer there in terms of how you're thinking about managing inventory for.

For this year and maybe even into next year, where you know there'll be some portion of the market on the 410 as still and then another portion on the a two well just what can you tell us about the strategy here. Thank you.

That's a good one for you Paul.

Okay, well you know it's a.

It can be an interesting time or if we're still waiting to hear you know on the E. P a whether or not there's going to be all of the sell through that people anticipate with the old four tena units will they be allowed as components. So that's kind of a fly in the ointment right now right.

Speaker Change: Right now what we're looking at is probably.

Probably just start.

Starting cooperating.

Now the a two well units probably third and fourth quarter, we'll probably see.

It's gonna be a phased down phase up.

Between the two product lines.

You know right now it's a it's a question mark as far as you know.

When each one of the manufacturers that we represent and that's going to be introduced she there to our products.

Yeah.

And then in the midst of all of that is it is it fair to say just from a turns perspective, you may need to run.

Isn't that a little higher than typical as you get into the middle or back half middle part or back half of this year.

Yes, it would be contrary to what a Mr. Nam it would like but yes, there's probably going to happen.

Some lower turns as we transition you know from the all four turn over to the new a two hour product.

We're gonna see you know how much of that we can mitigate but definitely there is going to be some uptick in inventory.

Okay. Thank.

Speaker Change: Thank you very much I'll turn it back.

This is a J I just if I can add one more piece of color there speaks to our culture, a little bit and being.

I'm more conservative one thing, we will not do which some other maybe smaller independent distributors may do is speculate.

And take huge positions.

Either way on the fourth in a product or the 454 product where our job is to meet the market and meet the expectations of our customers, where we're not trying to speculate for some short term.

Yep giant swing, one way or the other so because we are long term players.

Speaker Change: Yeah good point.

Thank you I appreciate the context.

The next question is from Jeff Sprague with vertical research. Please go ahead.

Hey, Thanks, Good morning, everyone, Hey, I want I want to come back to us to inventory again, if I could.

Jeffrey Todd Sprague: Just from my historical vantage point, it still looks a touch high in Q1 relative to I guess my estimate of full year sales that maybe that may differ from what you're planning but.

Anything else going on there you've got some new distributors I'm sure has a role it doesn't sound like the $4 50 for beef stuff is impacting you, but perhaps it has.

Just any other color on kind of where your inventories stand today relative to how the year might play out.

Jeffrey Todd Sprague: Oh.

Go ahead, Okay. Paul I was just going to give a big picture and then turn to you.

I agree with you that the inventory may be slightly higher and we're not going to stop until we.

Achieved the goals that we.

We have said for that market.

And more detailed Paul you want to deal with it.

Paul: Yeah. It's a you know a lot of it is pricing.

That we're seeing in the marketplace and we had a price increase in April.

We had a price increase in February and another one in March.

You know from various manufacturers with the clean copper go up to $4 50, a pound.

Paul: So we've seen a lot of a lot of upward crushed as far as our cost is concerned as far as the number of units that we have you know outdoor units that we have in inventory.

Paul: That's actually down year over year.

So you know we.

We feel like we're managing our inventory.

A little bit tough out there right now with the with the price increases.

Yeah.

And all of that are.

They're there.

Or it was some I guess on the margin opportunistic buying that our business took advantage of.

So that and as a result, and as a result of I'd say, some smoothing out of the supply chain, which has been chaotic for the last three years and Covid.

I believe our business and feel that they are very well prepared for the busy summer selling season as far as inventory goes they've got the right mix of products.

Its course, we should be well positioned to do that.

Take care of our customers and good news product.

Yeah, I'll, just say that I think a year ago and this call. We will I mentioned, one of our major vendors and not not being a strong inventory position for the season.

And lamented about loss sales and so on and obviously a year later the channel it for that particular vendor is filled in.

And a very good competitive condition it.

It grew nicely in the early stage of the year here.

There's a lot more work to do but that's all a sudden inventory position. If you look at a year over year basis. So you know that.

Paul: Some of our current position.

And then on just a price OEM price, obviously on $4 54, b theres going to be a different price regime, but but on kind of like for like product do you see a kind of a bias for kind of Oems to be looking for more than one increase during the year as you noted koppers.

Moving up or we've kind of got into something like a little bit more normal on kind of like for like units in terms of what's going on with OEM price increases.

Well, we're just starting to see the the prices roll in.

Now from the Oems on the on the new way to oil products.

So I would say, we're gonna see one price increase on the.

On the H O L products, and then I think that's gonna be probably it for the year.

I'm, hoping.

Yeah, but I mean, the like for like products or going away right I mean, the ports and they've products will not be sold to us again next year.

Right.

Yeah.

And just one other one for me.

These are kind of ox box branded products.

Just to address you know how significant if at all this is you know to your strategy in particular and the interested in the channel in these products and.

Paul: How they're selling through.

Yeah.

Well.

Paul: There's no like like to every market, there's a good better best selection of our products out there.

Yeah, and Xbox generally sets the the value portion of that market.

So that's where I think trane as Scott had product our position right now.

Yeah.

Got a number of other products such as pain.

Some of our IC products under our private label products that compete in that marketplace.

And it's a it's a market segment.

Yes.

I'm going to emphasize that that's a it's a crowded space. The value segment. There are a lot of there are a lot of brands that are sold on the market watsco itself cells, you know probably a half a dozen brands.

In that segment and you know so it is a crowded space and it's it is a way for an OEM to diversify its price points in the market.

But again, it's a crowded space.

Okay, great. Thank you for the color appreciate it.

The next question is from Dave Manthey with Baird. Please go ahead.

Morning, Dave.

Thank you good morning, Yeah, Hi, hi, everyone. Thank you I have a cold wet.

Yeah.

Yes. The first question is on the nonrecurring SG&A just what was that and then second on the 27% gross margin anything about that that makes you more or less positive about hitting 27% for the full year.

Wow.

Okay, Barry here the numbers Guy.

[laughter].

The.

The first.

First on the gross profit side.

I think we I think I chimed in on that probably two and a half years ago. When we said what we thought the long term would look like and it's held up pretty well so I'll sustain my.

My opinion and what our capabilities are in the near term and for this year.

Obviously, theres always 10, 15 variables and coming up with that.

That are subject to change, but I don't think our convictions changed at all for that for this year.

If that answers your question on the.

Nonrecurring side.

Yeah, we we mentioned.

Paul: All of our stores all of our leadership across watsco in a responsible way reduce head count in the first quarter.

There's obviously some costs incurred and in making those decisions in and that we're in those reduction so.

Paul: That would be a component of that.

The major component of the number.

And as far as no other other things there's no no one item.

It's probably.

For four or five and half million dollar items that are just.

And our and our minds are clearly something that is behind us and not a recurring item.

Okay.

And second.

It looks like Florida is now going to accept the IRA funding.

About $346 million and some of our contacts are saying in different states that that might start to benefit in maybe the fourth quarter of this year or something can you give us a read anything youre seeing in terms of when consumers might start to see that.

<unk> help from the inflation reduction Act.

Yes, I think yes, I think youre correct in probably the third quarter fourth quarter depends on what part of the country.

Right now New York is one that's that's been funded.

And so we're hoping to to see what that you.

You know what sort of impulse that that generates so that we can find out you know what the impact of it is going to be.

Paul: Then from there I think it's gonna be California.

We'll probably be in second place.

So it's gonna be a gradual spreading of the.

The world throughout the U S. As this thing rolls forward.

So it's going to be interesting to see you know what the first two states lay out before we really jump in and say, it's going be a big deal.

Yeah, I was going to say something similar fall that it should be a good thing, but how good and when we don't we don't know.

Yeah, but.

I will I will say that's absent a benefit right now in the first quarter for example, and we'll see how this plays out and the trend in the summer, but at least the first quarter, if I look at heat pump growth versus everything else.

Arguably better if that's one of the promises of the incentives and so on where we're seeing.

Improve heat pump sales period without necessarily a benefit coming.

And the second is part of.

The recalibration of all the new products last year was.

Yes.

Sensually, a reinvention of all the higher efficiency products that the industry makes the 16th or 17th Seer and above.

Our new products essentially this year.

And again growth rates and that higher mix category grew nicely in the quarter.

So so those are just good things without a regulatory incentives.

I'll I'll accept it as good things and again it needs to play out for the full year.

And then the incentives can add to that that's a good thing, but right now it's been nice to see.

The mix are improving and are in the early part of the year end and it could be good for the rest of the year. If it continues.

Okay.

Sounds good thanks, a lot guys.

The next question is from Ryan Merkel with William Blair. Please go ahead.

Arnie Ryan everyone, Hey, good morning.

I wanted to start on gross margin and I'm I'm curious if the second quarter, we'll see a sequential lift from the first quarter. My thinking is some of the OEM pricing came a little later this year is that the right way to think about it.

Gosh, you have a point of fortune ball there Barry.

Who knows I mean, you can take a shot at it if you wish.

Yeah, Ryan I there are probably there are pricing actions that came in later and you're right and obviously, it's still it's a better market, but it's still not a strong market. So.

We'll always handicap some some conservatism.

Just because of what the market is doing and.

I'm wrong, it'll be you know hopefully on the upside of that discussion so I'm not.

I want to change the 10 this early in the season.

Or be conservative about our commentary in the market well will educate us.

Over the next six months of really what's going on.

And like you said earlier like I said earlier very there's a.

Half a dozen that dozen different things that make up gross margin. So that's a that's an important one but it's not alone.

Okay.

Thank you for that that's helpful. And then I wanted to ask about the Hol pricing I think you'd mentioned, you're starting to get some of the letters from the Oems just what what range are we seeing you know I think 10 to 15 is what we've heard and then the.

The other question I had is do you expect to get the full list price increase.

Was it the transition to new equipment, because sometimes you don't get full list. If its just a normal increase I don't know if that's hard to answer but.

That's really tough.

But yeah. The initial ones, we've gotten in a 10% to 15% range.

In fact, they're right in the middle and so you know that that's pretty much held true I didn't think that would would vary.

Or are we going to see a variance on that price as we move into this season.

You know if we do it's going to be like I say very late this year early next year before we really see an adjustment to that.

I think we're gonna have Oh, you know for 10 units to sell right through.

And then we'll start seeing some of the Ito units you know moving into the marketplace, probably in the third quarter fourth quarter.

And then just one more.

Yeah.

I'll just add quickly I mean, what what are.

Our our advanced pricing systems, which are relatively new to the company. So yeah, we do expect to capture.

Price increases at a rate more complete rate than previously.

Previously if that makes sense.

Yeah. It does yeah, just and then just quickly one of your competitors is is forecasting that H well next year will be 50, 65% of the market that can fair to you.

Yeah.

Oh boy it'd be great. If it was.

I don't think anybody who's got a crystal ball its going to allow them to see and know exactly what the impact of the.

Of the two well products going to be next year I would I would say it would be you know somewhere between 50 and 60%.

Okay, Great I'll pass it on it means a lot and it's a part it's a positive move all of these are major boost.

Positive, but it's a little bit because it's too.

To summarize on the timing of it all.

Long term its all good.

Thank you.

The next question is from Patrick Baumann with Jpmorgan. Please go ahead.

Unknown Executive: Good morning, Thanks for letting me in here a couple a couple of quick ones.

The what you saw in the quarter in terms of.

The HVAC equipment sales being down 1% on a same store basis any way to give us more color on that.

The residential equipment unit volumes versus the average selling prices year over year in the quarter.

Yeah.

Hum.

Hmm.

Yeah, Patrick this is Rick good morning.

On the residential side, we saw you know unit declines of mid single digits.

Unknown Executive: And you know that's that mirrors sort of what's what's happening with broader industry trends and sell in to the channel.

Unknown Executive: Actually I think we're outperforming that trend a little bit and price was positive.

Not hugely positive, but it was positive and.

And in commercial continues to do better than than residential the backlog there is still a very healthy and.

Unknown Executive: And a lot of strength in Latin America to.

To support that so that's the color we would guess.

Yes.

Speaker Change: I mean, all right Barry sorry.

We provided a little bit of data.

Top of that so it'd just be helpful.

So kind of a unitary product deducted product that is the OEM U S OEM type product.

Price and mix was up around 3% four for the quarter.

I use the word the word mix price and mix purposefully in that.

And as we've said.

Routinely now you know those pricing actions happen.

Ultimately later order as opposed to early so.

That gives you some read of it.

Our ductless products, which is part of our unit or unit.

This discussion pricing.

Pricing there is a bit more flat.

But in that case, our largest vendor.

This year decided to have April one pricing action, so that kind of makes sense.

And on commercial you know as Rick said.

It's outperformed it it grew in the quarter and is in a steady state I think at this point.

You know call it call it mid single digit growth.

And the comment on Rajeev, I mean, I'm, sorry on units trending up.

In April that that applies to <unk> as well.

Yes, that's the only reason I say that.

Yep Okay.

And then I know HVAC products as a bunch of different things going on in that.

Subsegment.

Speaker Change: Is there any color you can give on the sales decline you saw in the quarter was it was it volumes or price or maybe any color on like what youre seeing in commodity project products like refrigerants.

Sure I can give the color, it's probably our third quarter, where we've had.

It's essentially a commodity deflation going on in average selling price.

Speaker Change: Being simply a headwind during the quarter.

And like we use the word commodities, that's refrigerant copper tubing and sheet metal products as a category, it's around between five and 6% of Watsco total sales.

To give the context.

But it does have a bigger imputation of you know reality in that non equipment products category.

The good news is that margins and pricing have stabilized. The good news is copper is increasing in price.

And the better news is that we're kind of getting through this this year over year cycle N and expect a less impact if it if in fact no impact.

And perhaps even positive impact as we get into the rest of this year. So.

This seems to be the end of the line with some of that discussion I'm, hoping so.

And expect so based on kind of what we're seeing as we look into the spring the springtime here.

Speaker Change: On the same store SG&A side.

I think last time, we talked you were thinking maybe flat to down slightly for the year is that still a reasonable expectation on a same store basis.

Yeah.

Well, it's a good aspirational goal N and its not a dictate that's not how we manage watsco, we manage it through our leadership to if they want to find investments or do something that's important for a market or a customer they'll do it.

But I think from a mindset from a cultural point of view.

It's what we've been after but again carrying that out in the market if their sales generation going on.

To the extent that there is today, let's say.

Variable costs are going to increase and will probably violate that concept are flattish.

Which is not a bad thing variable.

Variable expenses will drive you know what.

Would grow along with the sales growth. So it's early days I'm glad there's growth during that time will tell.

There was some noise in the first quarter SG&A that we've quantified to an extent.

And I would expect better performance as the year goes on.

Super helpful. Thanks, So much best of luck.

Yeah.

The next question is from Damien Caris with UBS. Please go ahead.

Good morning, David.

Hey, good morning, how are you all doing.

Right right.

Good so I'd say really encouraging to hear about the pickup in demand you're seeing in April you mentioned I think mid single digit same store sales growth.

Do you have enough have.

Comparable for last year in April like what the same store sales growth was in April 2023, and could you just remind us kind of like in the second quarter.

What the you know like what the seasonal shaping looks like you know April May June.

Yeah.

I know.

That's a lot of our.

Forecasting and which we don't like to.

To engage with because of the nature of the industry.

I don't know if anybody who wants to take a shot.

Three months ago sorry.

Well, we're going to kind of break out months, Yeah, I don't think we break out.

We're not going to do that.

Okay, but the comp from last year for April, though you don't have a lot of that.

Good luck.

We have it.

We'd like to talk about at this point yeah.

Speaker Change: Maybe a month.

Okay fair enough totally understand well, maybe I could just ask you about.

So you guys have put your pricing thriller.

I think from your Oems March and April one thing that we heard is that maybe some of the contractors are struggling too.

Pass on some of the price increases.

Just wanted to hear your thoughts on like weather.

I agree with that and you just kind of.

You know experienced that in your customer base and if so is that pretty much just kind of a short term demand related issue right now and if someone was going to end up resolving that or is that you know maybe it kind of accumulated a byproduct of just like all of the inflation that you would be you know theres been a nameplate minimum wages over the last few years.

I mean that is a darn good question would look looking at the future and I don't think we.

Have you even.

Need to respond to that because things will have to happen as they happen. So all paths, we're going to pass on the question.

Okay. Thanks for your time guys.

Again, if you have a question. Please press Star then one the next question is a follow up from Jeff Sprague with vertical research. Please go ahead.

Yeah.

Hey, just sort of a follow up I.

I don't know maybe it rhymes with Damien's question there.

Speaker Change: But.

Al You said a couple of times.

Hope not to see any more price increases this year.

So I am wondering if you know that is an indication that you're you know you're seeing some stress out there in terms of the ability to just handle the stuff. You noted that you know the repair versus replace dynamics, if not eroded but is.

Is this something that's just kind of on your radar screen as a watch item or you know are you seeing some maybe early signs that that maybe that is happening.

No I mean, it's.

The market does what the market does I mean, what what what's happening as the market the market pricing has gone up.

And now we're waiting for the a two well price for them to come in that was the only insinuation that we've had there.

Yes.

Speaker Change: And then I've got a chime in on this because it's an important.

Backbone to what we've talked about already and I want emphasize it first.

If we said earlier that the higher priced heat pumps are outperforming everything else. That's a statement about what's going on in the market with contractors installing higher priced systems right.

Speaker Change: Secondly.

Is as I've said in the call that the mix of higher efficiency is also increasing remarkably that.

That too is an early stage at least an early stage indicator of what's going on in the market.

And again I'd, rather I'd, rather be October and report on how it went but I liked.

So the early signs of what's going on.

And third of all right yeah.

And third of all we no one ever as ever.

Credit quality about what's going on with our contractor. It's never a question it's remarkable to me.

And so I feel like I have to talk about it or bring it up.

If you look at the bad debt expense for the quarter versus a year ago, it's less.

Yeah, and overall credit quality and how our contractors are behaving with us when they pay us $7 billion or more a year.

It is very healthy so so.

So that's that's an April view, it's not an October view.

But I I really you know I don't look at this is like you know a binary thing of on or off.

The subtlety of what's going on in the market, obviously and.

Contractors at the end of the day are going to do the best job they can to get the job.

They have to discount their services or go to a lower brand.

Or go to a you know a product that they need I know, we're gonna have it there's not a location in watsco that doesn't have multiple brands in it to serve that local market.

And we have very few competitors, who do have.

The same variety of brands across markets. So.

So in a softer market or a trickier market.

I like our competitive position, even more if I kind of round out the conversation.

That's great additional perspective I appreciate it thanks, a lot guys.

I just have to.

Your answer there Barry and I'll build on it I I love, our competitive position on the whole.

Talked about they had a high quality inventory deployed in the field. We've got best in class technology that our competitors can't match, they've got a balance sheet, that's strong and ready to invest in any size opportunity.

Speaker Change: We've got various ideas that we've got every product that a contractor a need.

I, just think that we're very well positioned here.

And the market an accident I expect a good year.

And I expect a good 10 years.

Speaker Change: [laughter].

Yeah.

The next question is from Nigel Coe with Wolfe Research. Please go ahead.

Thanks.

Okay.

Morning.

So I'm sorry, I was late joining so I apologize if you've addressed this already but on.

The ATM drawdown.

Really curious on the timing of events Uh Huh Al are you know you obviously got the cash the balance sheet, optionality et cetera, but why do that in March.

Unless you got a line of sight on the on kind of options out there, but I think he was on the timing and I've got a follow up question as well please.

What I'm, saying why do what in March.

The ATM draw the XD.

The equity issue.

Well as I said earlier, we didn't do it and somebody wanted it and the opportunity came up and we took it because of the.

Who we believe the holder is would be if we supplied him. The shares that we believe is a high quality holder long term holder and where we wanted to meet what he wanted at that time, we did decide that.

Okay. Okay. That's fair and then on the opportunity set out there to deploy the capital that I'm sure you're not in a rush or anything but I'd be curious you know the living in fact, you have to taken full control and personal seigler well, maybe taken up some some of the X T within the carrier enterprises I mean.

Are there any sort of change that they see to deploy that capital.

If we did we would tell you.

Okay.

So you just keep the cash and bacci.

Alright.

So you just keep the cash.

Yeah.

What would you like for us to of course, we're going to keep what would you like it.

I don't understand the question.

We told you we do we took it because we had an opportunity.

To bring in a significant and important investor.

We do that we have a long term goal of the expansion in new programs or the capital would be very useful.

Great. Thank you very much for your time.

Okay.

The next question is from Steve Tusa with J P. Morgan. Please go ahead.

It's Dave.

Guys. Good morning, sorry, I just wanted to follow up on on Pat's question and I was on another call. So I wanted to wanted to join and say hi, first and foremost.

Hi.

So just on this this these pricing dynamics.

And mix I mean would you say you would expect.

Pricing do obviously accelerate over the course of the year given the timing of the increase I mean, I thought I thought the carrier increase was like early March not not exactly you know April 1st so.

Maybe just some color on how you would expect that to play out.

Okay.

Yeah Mark.

The increase we had from carrier.

He's on the 410 a equipment.

And then subsequent to that we've also received pricing on what theyre going to be.

What we're going to see on the on the new <unk> products.

But we have not received any of the a two well products here now.

Got it.

And you will be taking those like.

What what point do you expect to be kind of filling those products and you're in the warehouses.

We are probably [noise] excuse me, depending on what what you know the operating units, we'll do it would probably be third quarter fourth quarter before we see any any significant amount of each oil product.

Got it Okay and then just on this inventory question I mean, I guess, there's a bunch of ways. You can you can really cut it I mean do you do you think your inventories are now normal or you took on a little bit of extra ahead of the ahead of the pre buy their lean how would you kind of characterize your inventories now.

Relative to demand.

I think we're a little bit ahead don't you.

So I think we're a little bit ahead of inventory right now we've got some pre buys that came in on the 410 eight products and we also had some some additional products that we purchased.

Okay.

And then just one last one just on from an end market demand perspective, I'm, putting weather aside.

Or are you seeing anything on on repair versus replace any kind of a you know change change up there.

Nope not yet.

Okay too early there just hasn't been any.

If you put weather aside you know that there is nothing.

Yeah. Okay. Thanks, Thanks as always for the color I appreciate it.

You bet.

The next question is from Chris Dankert with loop capital. Please go ahead.

Hey, good morning, guys.

Just one quick question for you here I guess.

We're supposed to technology spending in the quarter is that still kind of running at about a 40 million dollar run rate and is there anything that you'd kind of be teasing us with or anything explicit worth highlighting in the quarter on the <unk>.

Technology side beyond Oncall air or just anything else on that technology front.

That's where I understand the question do you a J.

Is there are there new things to talk about on the technology side is that the question.

Yeah, just the spending run rate and then is there anything new you're introducing or would call out here.

Okay.

Well, if we're going to introduce it will introduce it we're not going to.

I mean, we're constantly introducing new ideas.

As far as far as the pure SG&A. If that's your question there's not much change in the technology spend this quarter sequentially from last quarter.

That's your question.

It was thank you well well well thanks Fellows appreciate it.

You can expect us to keep innovating on the technology side, though for sure.

Your next question is from Stephen Volkmann with Jefferies. Please go ahead.

Great. Thanks for fitting me in good morning, everybody Barry I wanted to ask you about credit quality if that's okay.

[laughter].

Hey, good.

[laughter].

Yeah, I mean, it all all seriousness aside I was curious I know that you you got I am health are grateful for that commentary, but I know you guys also do sort of some origination I dunno brokering how're you want to think about it for the end customer financing as well I think that's available through some of your platforms and I'm curious.

If you have visibility into how that credit quality looks.

Yeah.

Speaker Change: Well, we don't hold right. Yeah. Yeah go ahead I was going to say the same thing. So it's not a it's not origination that's really matchmaking.

It's been our customers and their wash that our customers' customers and our financing sources.

A small amount of that and that's it's pretty stable I would say, but we do not once we make that matchmaking. We are out of the picture and don't have visibility frankly into the performance of those loans.

Okay got it thanks, that's all I had.

Yeah.

This concludes our question and answer session I would like to turn the conference back over to Alan The man for any closing remarks.

Once again, thanks very much for your interest in our company, we look forward to come.

Conversing with you.

And it goes on.

Bye bye.

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

Okay.

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Okay.

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