Q2 2024 Watsco Inc Earnings Call - Q&A
Okay, now I'm going to close it.
Operator: Good day, and welcome to the Watsco second quarter 2024 earnings call. All participants will be in the lesson only mode. Should you need assistance, please signal the conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch phone. 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 Albert Nahmad, CEO and Chairman. Please go ahead.
Speaker Change: Good day and welcome to the Watsco second quarter 2024 earnings call. All participants will be in the listen-only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touch phone.
Speaker Change: To withdraw your questions, please press star, then choose. Please note the event is being recorded. I would now like to turn the conference over to Albert Nahmad, TEO and Chairman. Please go ahead.
Albert H. Nahmad: Good morning, everyone. Welcome to the second quarter earnings call. This is Al Nahmad, Chairman and CEO. And with me is A.J. Nahmad, President, Paul Johnston, Barry Logan, and Rick Gomez.
Albert H. Nahmad: In this call, I've asked these executives to chime in anytime they wish with their thoughts on the so that all of you can get views from multiple people in the company. Before we start, I will state our cautionary statement. This conference call is for forward-looking statements, as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws. However, ultimate results may differ materially from the forward-looking statements. Now, on to the call.
Albert H. Nahmad: Good morning, everyone.
Speaker Change: Welcome to the second quarter earnings call. This is Al Nahmad, Chairman and CEO , and with me is A.J. Nahmad, President, and Paul Johnston, Barry Logan, and Rick Gomez.
Speaker Change: In this call, I've asked these executives to chime in any time they wish with their thoughts.
Speaker Change: All of you can get views from multiple people in the company.
Speaker Change: Before we start, I will state our cautionary statement. This conference call is forward-looking statements as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ maturely from the forward-looking statements.
Albert H. Nahmad: Watsco delivered another strong quarter. We achieved record sales reflecting strengths in both residential and commercial markets. Operating efficiency improved during the quarter as evidenced by lower SG&A as a percentage of sales.
Speaker Change: Watsco delivered another strong quarter.
Speaker Change: We achieve record sales reflecting strengths in both residential and commercial markets.
Speaker Change: Operating efficiency improved during the quarter as evidenced by lower SG&A as a percentage of sales.
Albert H. Nahmad: We generated strong cash flow, and our balance sheet remains in pristine condition to enable most any size investment to grow our business. Simply put, Watsco's entrepreneurial culture, which empowers local leaders to make local decisions, continues to perform well. Technology continues to have an impact, and we are fortunate to serve such a large and growing number of contractors with the industry's most innovative technology. Greater adoption and use of our platforms by a growing number of contractors have produced growth and market share gains. Annualized e-commerce sales now exceed $2.5 billion, and our active users continue to grow faster than non-users. On Call Air, Watsco's consumer-facing sales platform that helps contractors do business, continues to grow and expand.
Speaker Change: We generated strong cash flow and our balance sheet remains in pristine condition to enable most any size investment to grow our business.
Speaker Change: Simply put, Watsco's entrepreneurial culture.
Speaker Change: which empowers local leaders to make local decisions continue to perform well.
Speaker Change: Technology continues to have an impact and we are fortunate to have served such a large and growing number of contractors with the industry's most innovative technologies.
Speaker Change: Greater adoption and use of our platforms by a growing number of contractors has produced growth and market share gains.
Speaker Change: Annualized e-commerce sales now exceeds 2.5 billion dollars.
Speaker Change: And our active users continue to grow faster than non-users.
Speaker Change: On Call Air, Watsco's consumer-facing sales platform that helps contractors do business, continues to grow and expand.
Albert H. Nahmad: Thus far in 2024, contractors presented quotes to approximately 160,000 houses, an 18% increase and generated $743 million in sales for our contractors, a 27% increase over last year. We are actively updating our technology platforms to optimize the launch of the new low GWP A2L system. This presents another important federal regulatory change providing the opportunity for growth in the country. However, other federal regulatory changes continue to influence growth.
Speaker Change: Thus far, in 2024, contractors presented quotes to approximately 160,000 households.
Speaker Change: An 18% increase and generated $743 million of sales for our contractors, a 27% increase over last year.
Speaker Change: We are actively updating our technology platforms to optimize the launch of new low-GWP A2L systems.
Speaker Change: This presents another important federal regulatory change providing the opportunity for growth in the coming years.
Speaker Change: Other federal regulatory changes continue to influence growth.
Albert H. Nahmad: Energy efficiency mandates went into effect last year, providing contractors with the ability to upgrade older systems with higher efficiency systems. The trend towards electrification of fossil fuel heating has driven increased sales of heat pumps, contributing to growth. We are fortunate to be in such a great industry and believe our proven culture, customer-focused technologies, scale, and access to capital provide unique advantages and opportunities. Finally, as always, if you have an interest in early Moore. Please come to Miami and see us. We are transforming an industry, and we would enjoy telling you about it. With that, let's go on to
Speaker Change: Energy efficiency mandates went into effect last year providing contractors the ability to upgrade older systems with higher efficiency systems.
Speaker Change: The trend towards electrification of fossil fuel heating has driven increased sales of heat pumps, contributing to growth.
Speaker Change: We are fortunate to be in such a great industry and believe our proven culture, customer focused technologies, scale and access to capital provide unique advantages and opportunities.
Speaker Change: Finally, as always, if you have interest in early Moore,
Speaker Change: Please come to Miami and see us. We are transforming an industry, and we've enjoyed telling you about it.
Speaker Change: With that, let's go on to Q&A.
Speaker Change: Hello.
Speaker Change: Hello?
Speaker Change: Did we lose the operator?
Operator: Yeah, take the questions, take the questions. The Bulletproof Executive 2013, We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing any key. If at any time your question has been addressed and you'd like to withdraw your question, please press start, then choose. At this time, we'll pause momentarily to assemble a roster. The first question comes from Jeff Hammond from KeyBank Capital Markets, Inc. Please go ahead.
Speaker Change: Hello?
Speaker Change: Yeah, take the questions, take the questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing any key.
Speaker Change: If at any time your question has been addressed and you'd like to withdraw your question, please press star then choose. At this time, we'll pause momentarily to assemble a roster.
Speaker Change: The first question comes from Jeff Hammond from KeyBank Capital Markets Inc. Please go ahead.
Jeffrey David Hammond: Hey, good morning, guys. What's going on?
Jack: Hi, Jack.
Albert H. Nahmad: Well, it's bright and sunny, and I'm happy to hear your voice.
Jeffrey David Hammond: Hey, good morning guys. What's going on?
Speaker Change: Well, it's bright and sunny and happy to hear your voice.
Jeffrey David Hammond: Okay, great. Can we just talk about the moving pieces and gross margin? I know, you know, you're kind of in the level setting people around 27, but it looks like it was down 100 basis points year on year. And I know kind of the price timing, you know, with the price increases, maybe was going to be supportive in the quarter.
Speaker Change: Okay, great.
Speaker Change: Can we just talk about the moving pieces in Gross Margin? I know, you know, you've kind of been level-setting people around 27, but...
Speaker Change: Looks like it was down 100 basis points year on year. And I know kind of the price timing, you know, with the price increases maybe was gonna be supportive in the quarter. Thanks.
Speaker Change: Paul or Barry or both? Please answer.
Paul W. Johnston: Sure, Jeff. Good morning.
Paul W. Johnston: Paul or Barry or both? Please answer. Sure, Jeff. Good morning. Well, again, you know, we
Speaker Change: Haha.
Speaker Change: Jeff, good morning. Well, again, you know, we look at things in little bites, little in a quarter, you know, I want to just
Barry S. Logan: Well, again, you know, we look at things little by little in a quarter. But I want to zoom out a bit and look at the first half of the year. We look at the first half of the year at 27% plus, which has been our bogeyman. We've been asked about this now consistently for two and a half years and have kind of said the same thing. And the moving pieces are more, obviously, than just the timing or level of an OEM price increase.
Speaker Change: [inaudible]
Speaker Change: And the moving pieces are more, obviously, than just the timing or level of an OEM price increase.
Barry S. Logan: In fact, the only real price increase that straddled the quarter that's material is the carrier price increase that came in in March, helped the first quarter some, and obviously came into the second quarter as well. But I just don't want to get too obsessed about, you know, short-term discussions when the long-term is working through.
Speaker Change: In fact, the only kind of real price increase that straddled the quarter that's material is the carrier price increase that came in in March, helped the first quarter some, and obviously came into the second quarter as well.
Speaker Change: But I just don't want to get too obsessive about, you know, short-term discussions when the long-term is working through. Having said that, in the quarter you can see that our equipment business grew at, I think, a pretty terrific growth rate.
Barry S. Logan: Having said that, in the quarter, you can see that our equipment business grew at, I think, a pretty terrific growth rate, and our non-equipment business didn't, and obviously there's a big disparity in gross margin between those two families of products. Enough so to account for some of the year-over-year change in margins. Also, mix is a conversation when it comes to price and margins. And we're far more complex in that regard than an OEM. Watsco has a brand mix; we sell multiple OEMs with multiple brands.
Speaker Change: And our non-equipment business didn't, and obviously there's a big disparity and gross margin in those two families of products.
Speaker Change: Enough so to account for some of the year-over-year.
Speaker Change: change in margin.
Speaker Change: Also mix is a conversation when it comes to the price and margin.
Speaker Change: and we're far more complex in that regard than an OEM.
Speaker Change: Watsco has BrandMix. We sell multiple OEMs with multiple brands.
Barry S. Logan: And you know, I won't I won't discuss how much, but there is a variety of margins we make depending on what brands we sell and growth rates that pertain to those. Brands that can affect margin, there was some of that in the quarter in terms of mix. Year over year, working against margin. It's again in basis points. It's not a big material thing, but it's a component. As I mentioned, we also see less inventory being on this quarter. That means purchases have been down, and replenishment has been down.
Speaker Change: And I won't discuss how much, but there is a variety of margins we make depending on what brands we sell and growth rates that pertain to those brands that can affect margin. There was some of that in the quarter in terms of mix.
Speaker Change: We also see less inventory being on this quarter.
Barry S. Logan: There's a little bit of a consequential impact year over year on rebates and discounts, things like that, that are earned in the period, and I could give you like five more basis point conversations about that mixed conversation. But, If I, again, dial it back, look at the big picture, year to date, you know, we're where we said we would be. We're never satisfied where we are, by the way; we still have certainly more potential and, as we've said, long-term, much higher aspirations than this, and I'll let Paul talk or Rick as well. Rick, you have a lot of insight, too.
Speaker Change: And repunishment has been down. There's a little bit of a consequential impact year over year on...
Speaker Change: Rebates and discounts, things like that, that are earned in the period. And I could give you like five more basis point conversations in that mixed conversation.
Speaker Change: and I'll let Paul talk or Rick as well. Rick you have a lot of insight too.
Unknown Executive: Wait a minute, Rick.
Speaker Change: Rick, are you on? Wait a minute. Rick?
Unknown Executive: I don't know what happened to Rick.
Rick Gomez: Can you all hear me? Yep. Now we can. I guess I was muted on the other end; sorry about that.
Speaker Change: I don't know what happened to Rick. Anybody know? I don't know. Can you all hear me? Now we can. Now we can.
Rick Gomez: I guess I was muted on the other end. Sorry about that.
Rick Gomez: Um, yeah, Jeff, good morning. And just to clarify, I think Barry explained it very well. I'll just add two tidbits to it that I think are, are, and, you know, that family of products relative to residential also has, you know, some mixed implications as it relates to gross margin. Second thought I'd share is just, you know, again, if we look ahead a little bit and not backwards, we've got a big product transition coming at the end of the year.
Rick Gomez: Yeah, Jeff, good morning. And just to, I think Barry explained it very well. I'll just add two tidbits to it that I think are
Speaker Change: And, you know, that family of products relative to residential also has, you know, some mixed implication as it relates to gross margin. Second thought I'd share is just, you know, again, if we look ahead a little bit and not backwards.
Speaker Change: We've got a big product transition coming at the end of the year.
Rick Gomez: Those periods of time are usually good opportunities to evaluate margin and act on opportunities. And for us, I think what we're looking forward to is leaning in on some of the technology tools that are now maturing, which can be helpful to margin long-term as we go.
Speaker Change: Those periods of time are usually good opportunities to evaluate margin and act on opportunities.
Speaker Change: And for us, I think what we're looking forward to is leaning in on some of the technology tools that are now maturing that can be helpful to a margin long-term as we go about that regulatory transition.
Jeffrey David Hammond: Okay, great. Thank you. Thank you. Okay. He's satisfied. Let's go. That's a good segue here because I wanted to jump in. It seems like a couple OEMs have kind of, you know, put out last calls for 410A products. Just maybe, you know, your updated thoughts on, you know, how much 410A you want to exit with and any kind of implications around pre-buy, and then just, you know, as you talk to your OEM partners, you know, how are you feeling about, you know, their readiness for the APOL transition and new products?
Speaker Change: Okay, great. Thank you. Thank you.
Speaker Change: Okay.
Speaker Change: You know, as you talk to your OEM partners, you know, how are you feeling about, you know, their readiness for the ATOL transition and new products?
Pablo: Pablo? Yeah, I think, you know, Jeff, everybody is pretty much ready to go with their A2 product. In fact, we're seeing one manufacturer located in Texas that's already putting out their A2L product. So I'm not really concerned about a transition here. It's not much of a transition. It's just putting it in. And a different compressor into the unit. And it's also, you know, putting in a sensor that senses and smells if there's any leakage and then a switch that basically will turn on and off the system.
Speaker Change: Pablo? Yeah, I think, you know, Jeff, everybody is pretty much ready to go with their A2 product. In fact, we're seeing one manufacturer located in Texas that's already putting out their A2L product.
Speaker Change: Bye.
Speaker Change: So I'm not really concerned about a transition here. It's not much of a transition. It's putting in
Speaker Change: You know, a different compressor into the unit and it's also, you know, putting in a sensor that senses and smells if there's any leakage and then a switch that basically will turn on and off the system.
Pablo: So there's not a big change in the product. When you get to the 4.10, you know, how much 4.10 are we going to carry forward? We have put in our final final orders now pretty much across the board. We think we're going to have enough product to go perhaps into the first quarter, but probably no further than that.
Speaker Change: So there's not a big change in the product.
Speaker Change: When you get to the 4.10, you know, how much 4.10 are we going to carry forward? We put in our final orders now pretty much across the board. We think we're going to have enough product to go perhaps into the first quarter, but probably no further than that.
Speaker Change: Okay, thanks guys.
Operator: The next question comes from Tommy Moll on behalf of Stephen Sink. Please, go ahead.
Speaker Change: The next question comes from Tommy Moll from Stephen Sink. Please go ahead.
Thomas Allen Moll: Good morning, Al. Thank you for taking my questions. Of course.
Tom: Morning, Tom.
Tommy Moe: Good morning, Al. Thank you for taking my questions.
Albert H. Nahmad: I wanted to talk about some of the trends for the residential business. You called out 6% growth in ducted units year over year. Can you walk us through how the selling season progressed through the second quarter, and are you able to give us an update on how July is faring?
Albert H. Nahmad: Of course.
Tommy Moe: I wanted to talk about some of the trends for the residential business. You called out 6% growth in ducted units year-over-year.
Speaker Change: Can you walk us through how the selling season progressed through second quarter and are you able to give us an update on how July paced?
Barry S. Logan: All right, well...
Speaker Change: All right, well.
Barry S. Logan: Yeah, good morning, Tommy. Well, first, I mean, things did progress in terms of stronger growth rates during the quarter. And A weird item, and just to speak in algebra for a second, is that we actually had two more days in April and two less days in June. And in some weird way, I would have rather it been the reverse, because our business is much bigger in June than in April. It's probably $20 million a headwind in a quarter, by the way, to be a trivia question, give you the trivia answer for that algebra.
Speaker Change: Barry
Barry S. Logan: Good morning, Tommy. Well, first, I mean, things did progress in terms of stronger growth rates during the quarter, and
Speaker Change: Kind of a weird item and and just to speak in algebra for a second is we had actually had two more days in April And two less days in June
Speaker Change: And in some weird way, I would have rather it had been the reverse.
Speaker Change: Because our business is much bigger in June than in April . It's probably $20 million a headwind in the quarter, by the way.
Speaker Change: Just to give you the trivia of that algebra.
Barry S. Logan: But if I look at average sales per day during the quarter, it progressed, and June certainly was, The Stronger of the Three Months, if I look at, again, average sales per day. Certainly north of our overall growth rate for the quarter, up into..., you know, high single digits on a same store basis. For July, the only thing strange about July is that we have our largest market probably in the country and the Texas coast getting influenced by some hurricane activity, some closed stores.
Speaker Change: But if I look at average sales per day during the quarter, it progressed, and June certainly was.
Speaker Change: The Stronger of the Three Months, if I look at, again, average sales per day.
Speaker Change: Certainly north of our overall growth rate for the quarter, up into...
Speaker Change: You know, hyphenal digits.
Speaker Change: On the same store basis. For July , the only thing strange in July is we have our largest market probably in the country and the Texas coast getting influenced by some hurricane activity, some closed stores.
Barry S. Logan: If I look past that, there's the same kind of growth rate in July that you see for the quarter. But it's early, and it's strange, and August is as big as July. And so in terms of a trend, you know, I don't want to get happy or sad about July; August is just as big, and we'll be at full all cylinders as we get through the summer, which wasn't the case throughout part of July.
Speaker Change: If I look past that, there's the same kind of growth rate in July that you see for the quarter.
Speaker Change: But it's early, and it's strange, and August is as big as July .
Speaker Change: And so in terms of a trend, you know, I don't want to get happy or sad on July . August is just as big and we'll be at full all cylinders.
Speaker Change: as we get through the summer, which wasn't the case throughout part of July .
Thomas Allen Moll: Thank you. As a follow-up, I wanted to ask about the OPEX leverage that you showed this quarter. It's been a theme that's come up for some time now, and I think you grew same-store OPEX at about half the rate of sales, so it showed up, clearly leveraging that expense line this quarter. What are some of the drivers there that you can unpack for us, and how are you feeling about the initiative that's been in place for some time now to continue to drive leverage there? Thank you.
Speaker Change: Thank you. As a follow-up, I wanted to ask about the...
Speaker Change: The OPEX leverage that you showed this quarter, it's been a theme that's come up for some time now. And I think you grew Same Store OPEX at about half the rate of sales, so showed up.
Speaker Change: clearly leveraging that expense line this quarter. What are some of the drivers there that you can unpack for us? And how are you feeling about the initiative that's been in place for some time now to continue to drive leverage there? Thank you.
Barry S. Logan: I think, yeah, I think first, you know, going back in time a little, then I'll do what Rick does, which is go forward in time. Going back in time, you know, in COVID, it was a circus act to get product to get everyone served, and its DNA had to be built and incurred to serve businesses and serve our customers in a difficult environment. So two years later, how do you evaluate that? Look back and... And, you know, set expectations or communicate the data to our field so they can act on it? So,
Rick Gomez: I think, yeah, I think first, you know, going back in time some, then I'll do what Rick does, which is go forward in time. I go back in time, you know, in COVID, it was a circus act to get product, to get everyone served, and SG&A had to be built.
Rick Gomez: and incurred to serve businesses and to serve our customers in a difficult environment. So two years later
Speaker Change: How do you evaluate that, look back and, you know, set expectations or communicate the data to our field to act on it?
Barry S. Logan: I would say beginning last fall, as it was a more aggressive campaign to act on SG&A. More of it, and more actions occurred in the first quarter. And this is the first quarter where I think there's more evidence of everything I've just said, with more opportunities and more actions and more results to come. Um, and I looked at SG&A right before the call, actually. The only thing peculiar, for example, is that healthcare is up seven million dollars year to date.
Speaker Change: I would say beginning last fall it was a more aggressive campaign to act on
Speaker Change: SG&A. More of it, more actions occurred in the first quarter and this is the first quarter where I think
Speaker Change: There's more evidence of everything I've just said, with more opportunities and more actions and more results to come.
Speaker Change: I looked at SG&A right before the call, actually. The only thing peculiar, for example, is...
Barry S. Logan: That's the only outlier in the whole list of how we look at it. And we improved our benefit plan, we improved our medical plan with intention, and there's some bottom line impact to that reality for our employees, which is a which is a long-term perspective. But that's the only thing that stands out amongst a long list of things. And so I think the teams in the field have acted, have reacted, and have more to do, and I think you'll see the results of that. And it's all a database. None of this is emotion or reactionary. It's all in the numbers.
Speaker Change: Healthcare is up 7 million dollars year to date. That's the only outlier in the whole list of how we look at it.
Speaker Change: And we improved our benefit plan, we improved our medical plan with intention, and there's some bottom-line impact to that reality for our employees, which is a long-term perspective.
Speaker Change: But that's the only thing that stands out amongst a long list of things and so I think the teams in the field
Speaker Change: have acted, have reacted, and have more to do, and I think you'll see the results of that.
Speaker Change: And it's all database. None of this is emotion or reactionary. It's all in the numbers and looking at the data.
Albert H. Nahmad: This is AJ. I was going to go to the same place Barry was. It's intentional. This is a continuous improvement culture that we have at Watsco. When we talk about technology, it's really become a buzzword. But really, what it also means is looking at processes and systems and opportunities to be more efficient with our time and our people and getting orders processed and filled, et cetera, et cetera. So there's certainly been work to continually improve everything we do.
Speaker Change: This is AJ. I was going to go to the same place Barry were.
Speaker Change: It's intentional. This is a continuous improvement culture that we have at Watsco.
Speaker Change: When we talk about technology, it's really become a buzzword, but really what it means, what it also means is...
Speaker Change: Looking at processes and systems and opportunities to be more efficient with our time and our people and getting orders processed and filled, etc, etc. So there's certainly been work.
Speaker Change: to continually improve everything we do.
Thomas Allen Moll: Thank you both; I'll turn it back.
Speaker Change: Thank you both. I'll turn it back.
Operator: The next question comes from Ryan Merkel on behalf of William Blair. Please go ahead. Good morning.
Speaker Change: The next question comes from Ryan Merkel from William Blair. Please go ahead.
Ryan James Merkel: Hey, good morning. Hey, good morning, everyone.
Ryan James Merkel: Good morning. Hey, good morning everyone. Thanks for taking the questions.
Ryan James Merkel: Thanks for taking the questions. Can we talk about the other HVAC products, parts, and supplies? Why was it a little bit weaker than the equipment? Is there anything that stands out?
Ryan James Merkel: Can we talk about the other HVAC products, the parts and supplies? Why was it a little bit weaker than equipment? Is there anything that stands out?
Paul W. Johnston: Go ahead, Paul. Yeah, there's nothing I can really think of that was odd or unusual about others. You know, it was down, it was down a bit, but there really wasn't anything in there that was very strange.
Ryan James Merkel: Go ahead Paul. Yeah there's nothing I can really think of that was that was odd or unusual about other you know if it was down it was down a bit but there really isn't anything in there that was very strange, no.
Barry S. Logan: I mean, just to be helpful with something we've talked about in the past, and because Ryan, I think it's a good question, is You know, if we say it's 21, 25% of our business, then in a quarter it was a $500 million business, right? And there are probably 60 different product groups. You know, three or 400 different vendors. It's a hodgepodge of a variety of stuff, right
Ryan James Merkel: Okay.
Ryan James Merkel: Just to be helpful with something we've talked about in the past, because Ryan, I think it's a good question.
Ryan James Merkel: You know, if we say it's 25% of our business, then in a quarter it was a $500 million business, right?
Ryan James Merkel: And there's probably 60 different product groups.
Ryan James Merkel: [inaudible]
Barry S. Logan: We have talked about commodities, and we really only have three that we consider commodities. That's copper tubing, sheet metal products, and refrigerant.
Barry S. Logan: And again, that component of our revenue is closer to $100 million in a quarter, 100 out of $500 million. And there we have seen stability in price, cost, and margins. That's one of those more volatile variables we were seeing a year ago. A year later, it's much more stable, and the bandwidth of volatility is much less. But the dollars are less because the pricing is less. So a little bit ahead when still in revenue, but not on margin and not in general business conditions from a materiality point of view. I got it.
Ryan James Merkel: And again, that component.
Speaker Change: of our revenue is closer to $100 million in a quarter, 100 out of the 500 million.
Ryan James Merkel: And there we have seen stability in price and cost and margin.
Ryan James Merkel: That's one of those more volatile variables we were seeing a year ago. A year later, it's much more, the bandwidth of volatility is much less.
Ryan James Merkel: But the dollars are less because the pricing is less, so a little bit ahead when still in revenue, but not on margin and not in general business conditions from a materiality point of view.
Ryan James Merkel: Okay, that's helpful. And then, as it relates to product mix, are you seeing the higher-seer stuff grow, or are you seeing people trade down to base systems? Transcribed by https://otter.ai You know, we've got a minimum efficiency now, which is at a point where the higher share product really doesn't have as much impact as it used to. So what we're seeing is the industry is tracking at, I would say close to 90% at the standard efficiency level. So definitely, you're seeing a downward trend.
Speaker Change: Got it, okay, that's helpful. And then as it relates to product mix, are you seeing the higher-tier stuff grow or are you seeing people trade down to base systems?
Speaker Change: I think it's basically trending towards the basic product. We've got a minimum efficiency now, which is at a point where the higher share product really doesn't have as much impact as it used to.
Speaker Change: So what we're seeing is the industry is tracking at, I would say, close to 90% at the standard efficiency level.
Speaker Change: So definitely you're seeing a trend down.
Barry S. Logan: Great. Thank you. I mean, the one trend I'll add to that, the one trend that is Consistent and consistently good for business, good for the industry, is heat pumps. Heat pumps are certainly growing at a faster rate than underlying furnace demand. And that's in our numbers.
Speaker Change: Okay.
Speaker Change: Great, thank you. I mean the one trend, I'll add to that, the one trend that is consistent and consistently, you know, good for business, good for the industry is heat pumps.
Speaker Change: Heat pumps are certainly growing at a faster rate.
Barry S. Logan: And that's a, you know, a mixed benefit to the selling price. Needless to say, and also, I would say high efficiency heat pumps have grown at a decent rate. Relative to the underlying so the heat pump would I would carve out a little bit in that conversation and say, "You know, there's some good trends there." Thanks, Barry.
Speaker Change: Underlying Furnace Demand
Speaker Change: And that's in our numbers, and that's a, you know, a mixed benefit to selling price.
Speaker Change: Needless to say. And also, I would say high-efficiency heat pumps have grown at decent rates relative to the underlying. So the heat pump, I would carve out a little bit in that conversation and say,
Speaker Change: You know, there's some good trends there.
Albert H. Nahmad: And I think, as Rick said, A2L is going to basically, the A2L products, if you think about it, they're going to replace basically, probably 55% of what we sell, you know, company-wide. And it's all new equipment, all new efficiencies, all new opportunities, all new discussions, all new training, all new inventory. But it's a nice chance to kind of refresh. The opportunity that's in front of us, and we kind of like those changes because it puts us in a position to do that.
Barry S. Logan: Thanks, Barry.
Barry S. Logan: And I think as Rick said...
Speaker Change: A2L is going to basic, the A2L products, if you think about it, it's gonna replace basically probably 55% of what we sell company-wide.
Speaker Change: And it's all new equipment, all new efficiencies, all new opportunities, all new discussions, all new training, all new inventory.
Speaker Change: But it's a nice chance to kind of refresh.
Speaker Change: The opportunity that's in front and we kind of like those changes because it puts us in a position to do that.
Operator: The next question comes from... Brett Linzey from New Zealand. Please go ahead.
Speaker Change: The next question comes from...
Speaker Change: Brett Linzey from Missouri. Please go ahead.
Peter Costa: Hey guys, how are you? My name is Peter Costa. I'm here for Brett Linzey.
Peter Costa: I just wanted to ask you about inventory levels in 2Q. You guys took them down sequentially, and historically, I think it tends to increase. Is there anything to read into there, or is that more of a function of the build in Q1?
Peter Kosta: Hey guys, how are you? My name is Peter Kosta. I'm for Brett Linzey. I just wanted to ask around inventory levels in 2Q. You guys took them down sequentially, and historically I think it tends to increase. Is there anything to read into there? Or is that more of a function of the build in Q1? And then how would you characterize inventory levels just relative to what you're seeing in the market? Thanks.
Albert H. Nahmad: I'll make a brief statement on that. First of all, we're very focused, as we've been saying quarter after quarter, on the inventory asset, which is our largest asset. And we've been applying a considerable amount of technology and science to it. So we're getting more efficient on inventory terms. And Barry, you can follow that up with whatever you want.
Speaker Change: I'll make a brief statement on that. First of all, we're very focused, as we've been saying quarter after quarter, on the inventory asset, which is our largest asset.
Speaker Change: And we've been applying a considerable amount of technology and science to it. So we're getting more efficient on inventory turns.
Barry S. Logan: Yeah, I think, again, it's a... A.J. mentioned the term continuous improvement, and heaven knows after COVID challenges, inventory remained high, you know, even post COVID, and inventory turns if you look at today versus any historical period. We are looking to improve terms; obviously, we must take care of customers in the season, and we're doing that; that's evidenced by the growth rates. But I would say inventory is still a working process, also.
Speaker Change: And Barry, you can follow that up with whatever you want.
Barry S. Logan: Yeah, I think, again, it's a...
Barry S. Logan: A.J. mentioned the term continuous improvement, and heaven knows, after
Barry S. Logan: The COVID challenges, inventory remained high, you know, even post-COVID and inventory turns if you look at today, do the math today versus any historical period.
Speaker Change: We are looking to improve terms. We obviously must...
Speaker Change: Take care of customers in season, and we're doing that. That's evidence in the growth rates.
Barry S. Logan: It's still a matter of continuous improvement. [inaudible] I think that process takes time. Because of the A2L transition coming in front of us, and there's another huge transition occurring, but if you talk to us two years from now or three years from now, I would expect inventory turns and, to be more historical, closer to five than today, closer to four. I wouldn't read into it; there's no science or message in the sequential chain.
Speaker Change: But I would say inventory is still a working process also. It's still a matter of continuous improvement.
Speaker Change: to really get the inventory turns in the, you know, back in the closer to five times instead of today, it's closer to four times.
Speaker Change: I think that process takes time.
Speaker Change: because of the A2L transition coming in front of us, and there's another huge transition occurring.
Speaker Change: But if you talk to us two years from now or three years from now, I would expect inventory turns and...
Speaker Change: To be more historical, closer to five than today, closer to four.
Speaker Change: I wouldn't read into the, there's no science or message in the sequential change.
Barry S. Logan: If IMSROI was built in the first quarter, that was in order to be in a good position for growth, which has occurred, and how we react to what's going on for the rest of the year. I wouldn't read into that, and there's certainly no message behind it.
Speaker Change: If inventory was built in the first quarter, that was in order to be in a good position for growth, which occurred.
Speaker Change: And I will react to what's going on, you know, for the rest of the year. I wouldn't read into that, and there's certainly no message behind it.
Damian Karas: Thanks. Damian, could you just walk us through what you're seeing more broadly from the consumer affordability side? Are you guys worried about any sort of pushback or erosion there?
Speaker Change: Thanks. Damian, could you just walk us through what you're seeing more broadly from the consumer affordability side? Are you guys worried about any sort of pushback or erosion there?
Damian Karas: And we look at how prices have gone up over the last, gosh, it's been five years now that we've seen prices continue to move up. We expected the consumer to start pushing back on price, but we have not seen that as yet.
Speaker Change: We really, you know, and we look at what the prices have gone up over the last, gosh, it's been five years now.
Speaker Change: We've seen prices continue to move up. We've expected the consumer to start pushing back on price. We have not seen that as of yet. As we indicated in the release, our residential sales were actually up in units.
Damian Karas: You know, as we indicated in the release, our residential sales were actually up in units for the quarter, which is a strong indication that consumers are out there, and they're still buying the product at the price that we're off. Secondly, you know, we are seeing some moderate increases on the repair side, where we've been seeing, you know, high single-digit increases in compressors, motors, the type of things that you would repair a unit with.
Speaker Change: You know for the quarter, which is a strong indication that the Consumers out there, and they're still buying the product at the price that we're offering
Speaker Change: Secondly, you know, we are seeing some moderate increase in in the repair side.
Speaker Change: where it's...
Speaker Change: We've been seeing, you know...
Speaker Change: High single-digit increases in compressors, motors, the type of things that you would repair a unit with, those continue to remain strong.
Damian Karas: So it's kind of like we have the best of both worlds going right now, where we have a consumer that is willing to purchase it at the price that we offer, and at the same time, people are repairing them.
Speaker Change: So, it's kind of like we have the best of both worlds going right now where we have a consumer that is willing to purchase it at the price that we offer and at the same time people are repairing.
Paul W. Johnston: And just to add to that, Paul, I think what we don't talk a lot about, the industry doesn't talk too much about is the Douglas side of it, the Douglas side of the market. We represent multiple OEMs on the Douglas side. Unit growth rates for ductless actually exceeded the ducted product this quarter. I'm here today.
Speaker Change: And just to add to that, Paul, I think what we don't talk a lot about, the industry doesn't talk too much about it, is the Douglas side of it, the Douglas side of the market. We represent
Paul W. Johnston: Multiple OEMs on the Douglas side.
Paul W. Johnston: Unit growth rates for ductless actually exceeded the ducted product this quarter.
Paul W. Johnston: That's a solution that contractors are offering more often. They're comfortable offering, and that will work in cold, cold, you know, cold climates now where they're all high efficiency; they're all heat pumps. And it's both international and domestic, so that is a product that fits somewhere in that conversation. Affordability. When you look at the traditional ducted systems versus repair, Duck List does fit somewhere in that discussion, and we're certainly seeing growth rates, and DUP was, and has been for some time now.
Paul W. Johnston: and year-to-date.
Paul W. Johnston: That's a solution that contractors are offering more often.
Paul W. Johnston: They're a comfortable offering and that will work in cold climates now where they're all high efficiency, they're all heat pumps.
Paul W. Johnston: And it's both international and domestic. So that is a product that fits somewhere in that conversation of affordability.
Paul W. Johnston: When you look at the traditional ducted systems versus repair,
Paul W. Johnston: Douglas does fit somewhere in that in that discussion and and we're certainly seeing growth rates and Douglas
Paul W. Johnston: and have for some time now.
Operator: The next question comes from Patrick Baumann from J.P. Morgan. Please go ahead.
Paul W. Johnston: The next question comes from Patrick Baumann from J.P. Morgan. Please go ahead.
Patrick Michael Baumann: Patrick, como estas?
Patrick Michael Baumann: Bien, bien. Thanks for taking my call.
Patrick Michael Baumann: Patrick, como estas, as they say in Miami? Bien, bien. Thanks for taking my call.
Patrick Michael Baumann: First question is on the Texas manufacturer that has made the decision to move to A2L, maybe quicker than others. Are you seeing any or do you expect to see any short-term
Unknown Executive: The first question is on the Texas manufacturer that has made the decision to move to A2L, maybe quicker than others. Are you seeing any, or do you expect to see any short-term Share impacts for the other OEMs that have maintained supply, steady supply of their 410A product? And then, if so, what kind of impact would that have on their business? I really don't see a big impact on market share coming from that one manufacturer that's introducing their A2L product.
Speaker Change: You know, share impacts for the other OEMs that have, you know, maintained supply, you know, steady supply of their 410A product, and then if so, what kind of impact would that have on their business?
Speaker Change: Don't see a big impact in market share coming from that one manufacturer that's introducing their A2L product. I think it's more of an availability issue on their part, you know, to be able to provide product that...
Unknown Executive: I think it's more of an availability issue on their part, you know, to be able to provide a product that is going to be available in 2025. They decided to come out early, and they got a unique design to it. And hence, they feel that they've got an opportunity to try to step in and at least lead the way on a to But I don't see it as a, as a big change, you know, in the marketplace as far as share is concerned.
Speaker Change: The product is going to be available in 2025. They've decided to come out early. They've got a unique design to it, and hence they feel that they've got an opportunity to try to step in and at least lead the way on A2L.
Speaker Change: But I don't see it as a...
Speaker Change: As a big change, you know, in the marketplace as far as share market for them.
Albert H. Nahmad: I'll just add one other note on X-Files, this is AJ again. We got a question earlier about pre-buys, and I want to make sure that it's clear we're not speculating on pre-buys or how the transition will play out and trying to make a special bet. What we're trying to do is have a functioning harmonious. And a seamless transition to the new brands. And we will have, or not new brands, new products. And we will have new stuff, I'm sorry, we'll have a year to sell through the old stuff as well. So we expect it to be pretty smooth.
Speaker Change: I'll just add one other note, I'm going to close with Deja again, because we got a question earlier about pre-buys, and I want to make sure that it's clear, we're not speculating on pre-buys or
Speaker Change: How the transitional play out and try to make a special bet what we're trying to do is is have a functional harmonious
Speaker Change: And seamless transition to the new brands and we will have, or not new brands, new products. And we will have new, I'm sorry, we'll have a year to sell through the old stuff as well. So we expect it to be pretty smooth.
Patrick Michael Baumann: And what type of initial pricing are you seeing for the new technology versus the current generation or the 410i? Sorry, I'm not sure.
Speaker Change: And what type of initial pricing are you seeing for the new technology versus the current generation, or the 410i, I'm sorry?
Unknown Executive: We're seeing the 10% increases that were indicated by, I think, every OEM probably a dozen times here in the last year.
Speaker Change: We're seeing the 10%.
Speaker Change: You know, increases that were indicated by, I think, every OEM probably a dozen times here in the last year.
Patrick Michael Baumann: Yeah, okay, just wanted to check that. And so basically, so 55% times the 10% is the way to think about your mixed impact for next year from selling this new product. Maybe that's a Barry question, I don't know.
Speaker Change: Yeah, okay, just wanted to check that, and so...
Speaker Change: So we take basically, so 55% times the 10% is the way to think about your mixed impact for next year from selling this new product, maybe that's a Barry question, I don't know.
Barry S. Logan: Yeah, Patrick, the only reality, right, is it's not 100% new product, 0% old. There's a blend, there's a blend that's going to play out into next year, too, a blend into next year. It's not all next year.
Speaker Change: Yeah, Patrick, the only reality, right, is it's not 100%, you know, new product, 0% old. There's a blend, there's a blend that's going to play out into next year, too.
Speaker Change: It's a...
Speaker Change: A blend into next year. It's not all of next year.
Unknown Executive: Plus, we have to wait for the Department of Energy, which has still not pronounced what constitutes a replacement unit. You know, the current write-up that we've been provided by the government indicates that you can sell a unit, a 410 unit, if it's repairing a system. It would be a component, and there's a lot of debate in the industry right now about whether or not that will really hold true, you know, going forward into 2020. So we really need to wait to find out what the DOE decides, which hopefully will happen soon.
Speaker Change: Plus, we have to wait for the Department of Energy still has not pronounced what represents a replacement unit.
Speaker Change: The current write-up that we've been provided by the government indicates that you can sell a unit, a 410 unit, if it's repairing a system.
Speaker Change: It would be a component.
Speaker Change: And there's a lot of debate in the industry right now about whether or not that will really hold true, you know, going forward into 2025.
Speaker Change: So we really need to wait to find out what the DOE decides, which hopefully will happen soon.
Barry S. Logan: Yeah, no, we're waiting to hear that as well. Okay, then maybe one quick one for Barry, if I could, on gross margin, you know, normal seasonality, or whatever, however, you want to talk about it through the rest of the year, is that Is there anything unusual we should think about versus normal seasonality for gross margin for the rest of the year? No, I think we stick to the... The big picture for the year at the 27% level, and the third quarter will tell us how we're progressing, and I would keep the you know, I think we're keeping to the goal and the notion of 27% for the
Speaker Change: Yeah, no, we're waiting to hear that as well. Okay, then maybe one quick one for Barry, if I could, on gross margin, you know, normal seasonality or however you want to talk to it through the rest of the year, is that...
Barry S. Logan: Is there anything unusual we should think about versus normal seasonality for gross margin for the rest of the year? No, I think we stick to the...
Barry S. Logan: You know, the big picture for the year at the 27% level and...
Barry S. Logan: 3rd quarter will tell us the progress and I would keep the, you know, I think we're keeping to the
Barry S. Logan: The goal and the notion of 27% for the year.
Patrick Michael Baumann: Thanks a lot. Thanks a lot. Thanks a lot. You know, this is what it is over the third and fourth quarter. You can look at the historical trend of that and make your own assumptions.
Barry S. Logan: Thanks a lot. Thanks a lot. The seasonality, you know, is what it is over the third and fourth quarter.
Barry S. Logan: You can look at the historical trend of that and make your own assumptions.
Patrick Michael Baumann: Yep, it makes sense. Will do. Thanks a lot.
Speaker Change: Yep, makes sense. Will do. Thanks a lot.
Operator: Once again, if you have a question, please press star and 1. The next question comes from David Manthey from Baird. Please go ahead.
Speaker Change: Once again, if you have a question, please press star and 1. The next question comes from David Manhey from Baird. Please, go ahead.
David John Manthey: Hi Dave. Yeah, hi. Good morning, everyone. First off, Barry, in the release, you mentioned that the average selling price of ducted residential units was up about 3%. I was hoping maybe you could zoom out and talk about the overall price mix impact on both equipment as well as other HVAC products in general.
David John Manthey: Hi, Dave. Yeah, hi. Good morning, everyone.
David John Manthey: First off, Barry, in the release, you mentioned that ducted residential units' average selling price was up about 3%. I was hoping maybe you could zoom out and talk about the overall price-mix impact on
David John Manthey: both equipment as well as other HVAC products in general.
Barry S. Logan: Well, the second part first, on other HVAC products, honestly, I don't count how many rolls of duct tape we've sold and understand, you know, unit versus price on duct tape. And there are 80, you know, as I said, there's probably 80 product lines in that that I'm not sure we have. I'm sure we have insight, but I don't know the insight.
Speaker Change: Well, the second part first, on other HVAC products, honestly, I don't count how many rolls of duct tape we sold and understand, you know, unit versus price on duct tape. And there's 80, you know, as I said, there's probably 80 product lines in that, that.
Speaker Change: I'm not sure we have, I'm sure we have insight, I don't know the insight.
Barry S. Logan: What I did comment on on the commodity side is stability, and what had been, you know, volatile pricing on commodities has become very stable. And so from that perspective, from what I can tell on the HVAC and non-equipment, I don't think there's anything remarkable in the pricing units in that equation.
Speaker Change: What I did comment on, on the commodity side, is stability and what had been
Speaker Change: volatile pricing on commodities has become very stable. And so from that perspective,
Speaker Change: From what I can tell on the...
Speaker Change: HVAC and non-equipment. I don't think there's anything remarkable in
Barry S. Logan: On the equipment side, again, when we use the word average selling price, that's a composite of actual price and mix, and mix can be geographic mix, product mix, brand mix, vendor mix, and customer mix. It starts to broaden out into Snowflake.
Speaker Change: Price and Units in that equation.
Speaker Change: On the equipment side, again,
Speaker Change: When we use the word average selling price, that's a composite of actual price.
Speaker Change: Mix, and mix can be geographic mix.
Speaker Change: Product Mix, Brand Mix, Vendor Mix
Speaker Change: Customer Mix. It starts to broaden out into Snowflake, so...
Barry S. Logan: I couldn't give you the components of all that, but I can tell you that. The OEM pricing actions, year to date, have flowed through, and you don't see much variation in equipment margin for us, year-to-date, if you look at the full six months. And I would say, you know, so far, so good with the pricing actions, I think. As Paul suggested, if we look at the mix within brands, within products, within markets, there is a conservatism in the market that I think is there. It still means we're replacing systems,
Speaker Change: I couldn't give you the components of all that. I can tell you that the OEM pricing actions, year-to-date,
Speaker Change: flowed through and you don't see much variation in equipment margin for us.
Speaker Change: year-to-date, if you look at the full six months.
Speaker Change: And I would say, you know, so far so good with the pricing actions, I think.
Speaker Change: As Paul suggested, if we look at mix within brands, within products, within markets,
Speaker Change: There is a conservatism in the market that I think is there. It still means we're replacing systems.
Barry S. Logan: And I think it's an important, extremely important concept that every single Watsco location, all 700 have multiple brands of products, multiple price points, and if one market is tighter than another. We have brands to sell and sustain margins, and sustain the replacement market. Not all competitors, in fact, very few competitors, sell more than one brand. And that would include the OEM, the OEM networks that sell single brands. And so we like the diversity; it's helpful to market share, it's helpful to margin, and it's helpful competitively. And it lets us react to what's going on in individual markets in a very, very effective way.
Speaker Change: And I think it's an important, extremely important concept that every single Watsco location
Speaker Change: All 700 have multiple brands of products, multiple price points.
Speaker Change: And if one market is tighter than another, we have brands to sell and sustain margins, sustain the replacement market.
Speaker Change: Not all competitors, in fact very few competitors, sell more than one brand.
Speaker Change: And that would include the OEM, the OEM networks that sell single brands.
Speaker Change: And so we like the diversity, it's helpful to market share, it's helpful to margin.
Speaker Change: It's helpful competitively.
Speaker Change: And it lets us react to what's going on in individual markets in a very, very good way.
Barry S. Logan: Okay, thanks, Barry. And just to clarify your statement on the commodity product, when you say it's stable, are you referring to it being stable today relative to what it was a month or two ago? Or are you talking about year over year? We should be thinking that that's sort of flat today.
Speaker Change: Okay, thanks Barry. And just to clarify your statement on the commodity product, when you say it's stable, are you referring to it's stable today relative to what it was a month or two ago? Or are you talking about a year over year? We should be thinking that that's sort of a flatness today.
Barry S. Logan: Yeah, I would say if I look at the first quarter of 2024 and the second quarter of 2024, price, margin, and, you know, really, the quality of gross profit is sound this year, where last year it was highly volatile, it would go up and down, you know, quarter to quarter, and it's much, much more stable and, I would say, in a very narrow range and acceptable margins for those products this year.
Speaker Change: Yeah, I would say if I look at the first quarter of 2024 and the second quarter of 2024,
Speaker Change: Price, Margin, and, you know,
Speaker Change: Really, the quality of gross profit is...
Speaker Change: is sound this year, where last year it was highly volatile. It would go up and down, you know, quarter to quarter.
Speaker Change: And it's much, much more stable and...
Speaker Change: I would say in a very narrow range and acceptable margins for those products this year.
David John Manthey: Okay. All right.
Speaker Change: Okay.
Speaker Change: All right, and one more on acquisitions, is there any update on the Gateway acquisition? And then given the timing of that, I think it was September of 2023.
Rick Gomez: And one more on acquisitions. Is there any update on the Gateway acquisition? And then given the timing of that, I think it was September of 2023, the rollover effect from acquisitions in the third quarter, I'm coming up with about $40 million in revenues. Does that sound right to you?
Speaker Change: The rollover effect from acquisitions in the third quarter, I'm coming up with about $40 million in revenues. Does that sound right to you?
Rick Gomez: Jeff, Rick, I can speak to that a little bit. First, we are more than delighted with how Gateway is doing. It's a terrific team. It's a terrific market. We will be there actually, you know, pretty soon to have a... I would say that they are exceeding expectations up to this point when we look at the numbers relative to what we invested in, and what they were doing last year when we made that investment.
Speaker Change: Jeff, Rick, I can speak to that a little bit. First, we are more than delighted with how Gateway is doing.
Jeffrey David Hammond: It's a terrific team. It's a terrific market.
Speaker Change: We will be there actually, you know, pretty soon to have a...
Speaker Change: How well with those folks and I would say that they are exceeding expectations up to this point when we look at the numbers
Speaker Change: Relative to what we
Rick Gomez: So very pleased with how that is unfolding. You are in the ballpark as it relates to third quarter contribution, and I think September 1st is the anniversary of that, so we'll uh, we will lap that here, starting the third quarter all right.
Speaker Change: What we invested in what they were doing last year when we made that investment. So very pleased with how that is unfolding You are in the ballpark as it relates to third quarter contribution
Speaker Change: And I think September 1st is the anniversary of that, so we will lap that here starting in the third quarter.
Rick Gomez: All right. Thanks, Rick. Thanks, everyone.
Speaker Change: All right, thanks Rick. Thanks everyone.
Operator: The next question comes from Nigel Coe from Wolf Research. Please go ahead.
Speaker Change: The next question comes from Nigel Coe from Wolf Research. Please go ahead.
Nigel Edward Coe: Thanks. Thanks. Thanks, everyone. Sir, you mentioned that 454B is not a... Sorry, is that me or you? Okay. Background noise, please.
Speaker Change: Thanks. Thanks, everyone.
Nigel Cole: Just, uh, you mentioned, uh, I know, I know 454B is not a...
Nigel Edward Coe: So I know 44 B is not a huge deal, but he did mention that there are a handful of distributors out there, and customers are out there accepting products. I'm just curious, kind of what you're seeing in terms of customer acceptance, and well, you know, the price on 44 B is, is sticking, you know, are you seeing that sort of 10 15% uplift on next? Thanks.
Nigel Cole: Okay.
Nigel Edward Coe: Background noise, please. So listen, I know the 44 B is not a huge fact, but he did mention that
Speaker Change #101: There's a handful of distributors out there, customers out there accepting products.
Speaker Change #102: Customer acceptance and whether the price on the 434B is sticking, are you seeing that 10-15% uplift or mix? Thanks.
Unknown Executive: Well, it's way too early to be able to give you any sort of prediction on how the customers are accepting it. We just... I think we just had our first delivery of 100 units to a particular customer. So we'll find out quickly, you know, what the reaction has been. We obviously have done a tremendous amount of training, and we'll continue to add to that and add more training to it to make sure that the customer understands, you know, what the tools are that they have to have and what the... How they're going to install it. There are some variances that will occur, but it's way too early to be able to really gauge price and acceptance of the product. I have no doubt in my mind that it's going to be accepted.
Speaker Change #103: Well, it's way early to be able to give you any sort of prediction on how the customers are accepting it.
Speaker Change #104: We just...
Speaker Change #105: I think we just had our first delivery of 100 units to a particular customer, so we'll find out quickly what the reaction has been.
Speaker Change #105: We obviously have done a tremendous amount of training and we'll continue to add to that and add more training to it to make sure that the customer understands, you know, what the tools are that they have to have and what the
Speaker Change #105: How they're going to install it. There are some variances that will occur, but way too early to be able to really gauge, you know, price and acceptance of the product. I have no doubt in my mind that it's going to be accepted.
Nigel Edward Coe: Yeah, I mean, it's actually earlier than I expected, so sorry for the question. I thought maybe it was a bit more impactful than that. And then, you know, you mentioned share gains, and I'm just curious how your view of the market in the second quarter versus the 4% same sort of sales. So just if there's any color there.
Speaker Change #109: Yeah, it's actually earlier than I expected, so sorry for the question, I thought maybe it was a bit more impactful than that.
Speaker Change #107: And then, you know, you mentioned share gains, and I'm just curious how the...
Paul W. Johnston: And then inventory, I know you built a fair amount of inventory in one queue; you worked that down in two queues. Normally, you'd work out the inventory in the second quarter. And the spirit of the question is really that, you know, it feels like this is a year when inventory is moving higher, not lower. So just curious, your perspectives on inventory on the back of it.
Speaker Change #106: How do you view the market in the second quarter versus the 4% same-source sales? Is there any colour there?
Speaker Change #108: And then inventory, I know you built a fair amount of inventory in 1Q, you worked that down in 2Q. Normally, you'd work out the inventory in the second quarter and the spirit of the question is really that, you know, it feels like this is a year when inventory is moving higher, not lower. So just curious, your perspectives on inventory over the back half of the year.
Paul W. Johnston: Paul, let me deal with the first part. All right. Earlier, I stated that we're very focused on using our tools to improve inventory terms, and we are succeeding, that we certainly have enough inventory to meet demand, and hopefully, the turns will increase, and we'll carry it less.
Speaker Change #108: Paul, let me deal with the first part. All right. I've earlier stated that we're very focused on
Paul W. Johnston: using our tools.
Paul W. Johnston: to improve inventory turns, and we are succeeding.
Speaker Change #110: that we have certainly enough inventory to meet demand and hopefully the terms will increase and we'll carry less inventory.
Paul W. Johnston: I would say, you know, as we go through the year, I see our inventory actually trailing downwards and continuing to move down as it does because of one seasonality and two because of the transition to the new A2L refrigerator. And then we'll probably see in the first quarter an overlap of inventory where we're going to have 410 and we're going to have A2L, which perhaps will cause a bump in the inventory, which would be normal anyway, just based on the season.
Speaker Change #112: And so need the mail.
Speaker Change #111: I would say you know as we go through the year I see our inventory actually trailing downwards and continuing to move down as it does because one seasonality and two because the transition to the new A2L refrigerants.
Speaker Change #111: And then we'll probably see in the first quarter, we'll probably see an overlap of inventory where we're going to have 410 and we're going to have A2L, which perhaps will cause a bump in the inventory, which would be normal anyway, just based on the season.
Paul W. Johnston: So it's going to, it's going to be, It's going to be an unusual ride, I think, as we go through this transition to the new product. A lot of the product information that we have right now indicates that it should go smoothly, and knock on wood that it does.
Speaker Change #111: So it's going to be...
Speaker Change #111: It's going to be an unusual ride, I think, as we go through this transition to the new product.
Speaker Change #111: A lot of the product information that we have right now indicates that it should go smoothly and knock on wood that it does.
Nigel Edward Coe: So what you're saying loud and clear here is no pre-buy, or no material pre-buy. No material pre-buy, no. Okay, thanks guys.
Speaker Change #113: So what you're saying loud and clear here is no pre-buy, or no material pre-buy? No material pre-buy, no.
Speaker Change #114: Okay. Thanks, guys.
Albert H. Nahmad: Please conclude your question and answer session. I would like to turn the conference back over to Albert Nahmad for closing remarks.
Speaker Change #114: Please conclude your question and answer session.
Speaker Change #114: I would like to turn the conference back over to Albert Nahmad for closing remarks.
Albert H. Nahmad: As always, thank you for your interest in our company. We very much appreciate it, and we're very sincere in asking you to come visit if you want to learn more about what we do, especially in the technology field. You're always welcome. All it takes is a phone call. And to that end, we look forward to catching up with you in the next course. Thanks for your interest and for your support.
Albert H. Nahmad: As always, thank you for your interest in our company. We very much appreciate it, and we're very sincere in asking you to come visit if you want to learn more about what we do, especially in the technology field.
Albert H. Nahmad: You're always welcome. All it takes is a phone call. And to that end, we look forward to catching up with you in the next quarter.
Albert H. Nahmad: Thanks for your interest and for your support.
Albert H. Nahmad: Bye now.
Speaker Change #115: Bye-bye now.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change #116: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.