Q2 2025 Watsco Inc Earnings Call

Operator: Good day, and welcome to the Watsco Inc. second quarter of 2025 earnings conference call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance today, please signal a 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 a touch-toned phone. To withdraw a question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Albert Nahmad, CEO and Chairman. Please go ahead.

Good day and welcome to the Wasco. Second quarter of 2025 earnings conference call.

All participants will be in a listen-only mode for the duration of the call.

And should you need any assistance today? Please sign 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 1 on a touch tone phone and to withdraw a question please press star then 2

Please also note that this event is being recorded today.

I would now like to turn the conference over to Albert Nahmad, CEO and Chairman. Please go ahead.

Albert Nahmad: Good morning, everyone. Welcome to our second quarter earnings call. This is Albert Nahmad, Chairman and CEO. With me is A.J. Nahmad, President, Paul Johnston, Barry Logan, and Rick Gomez. Before we start our normal cautionary statement, this conference call has forward-looking statements as defined by SEC laws and regulations and are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. Watsco Inc. delivered healthy second-quarter results in soft market conditions. 2025 marks a year of significant product transition to next-generation equipment containing A2L products. The transition affects roughly 55% of our historical product sales. This transition affects our inventories, our supply chain, staffing levels in our branches, and other aspects of our business. Regulatory changes have historically been good for our business and good for our customers.

Good morning, everyone. Welcome to our second quarter earnings call. This is Alma, Chairman and CEO, and with me are AJ9 President Paul Johnston, Barry Logan, and Rick Gomez.

Before we start our normal cautionary statement.

laws and regulations and are made pursuant to the safe harbor, provisions of these various laws, ultimate results May differ, materially from the forward looking statements,

Lots were delivered healthy, second quarter, results in a soft market conditions, I should say, in stock market conditions.

2025 marks a year of significant product transition to Next Generation equipment.

Containing a2l refrigerants.

The transition affects roughly 55% of our historical product sales.

To trick this transition affects our inventories.

Our supply chain.

Staffing levels in our branches and other aspects of our business.

Albert Nahmad: We expect that transition to be no different than has happened in the past. The changes are substantial and complete, and we will look forward to operations as a simpler business in 2026. Let me turn to second quarter highlights. Sales declined 4%, likely double-digit pricing gains for the new equipment offset by lower volumes. We had a late start to the summer season. Sales for residential, new construction, and international markets remain subdued. On the plus side, Watsco Inc. achieved record gross profit margins. Our performance yielded an increase in EBIT and expanded EBIT margins despite lower sales. Our results benefited from OEM pricing actions. Our pricing technology platform, called PriceFX, also contributed. Gross margins remain in focus. There is much potential to improve over time. SG&A increased 6% as we incurred extra costs during the transition. We also added 10 new locations from recent acquisitions.

Regulatory changes have historically been good for our business and good for our customers.

We expect that transition to be no different than what has happened in the past.

The changes are substantial, complete and complete and will look forward to operations of simpler business, in 2026.

Let me turn the second quarter highlights.

Sales declined 4%, like being doubled as pricing gains.

For the new equipment offset by lower volumes.

We had a late start to the summer season.

Sales for residential new construction and international markets, remain subdued.

On the plus side, Watsco achieved record growth profit margins.

Our performance, yielded an increase in ebit and expanded ebit. Margins despite lower sales.

Our results benefited from OEM pricing actions.

Our pricing technology platform.

Called price FX. Also contributed

Gross margins remain in focus; there is much potential to improve over time.

SDNA increased 6%. As we incurred extra costs during the transition.

We also had a 10 new location from recent acquisitions.

Albert Nahmad: Our balance sheet remains solid. We have a strong cash position and no debt. We continue to invest in innovation and technology to separate us from our competitors. Watsco Inc.'s technology journey began 15 years ago, and we have made terrific progress. For example, e-commerce continues to grow and is now a $2.5 billion business, or 34% of our sales. Mobile apps have 70,000 users and grew 17% versus last year. The annual volume of products sold through OnCall Air, which is our digital selling platform for customer contractors, increased 19% to $1.6 billion. It's a great assist to our customers. We're not standing still in terms of ideas and making further investments. We are building on or adding new initiatives to drive growth and to delight our customers. Examples include a new technology-driven sales platform being developed to capture larger national customers. We're talking about national customers here.

Our balance sheet remains solid.

We have a strong cash position and no debt.

We continue to invest in Innovation and Technology to separate us from our competitors.

Wco. Technology, Journey, began 15 years ago, and we have made terrific progress.

Example.

E-commerce continues to grow and is now a 2.5 billion dollar business or 34% of our sales.

Mobile apps. Have now 70,000 users and grew 17% versus last year.

The annual volume of products sold through on call are, which is our digital selling platform for customer contractors.

Increased 19% to 1.6 billion dollars.

It's a great assistance to our customers.

But we're not standing still in terms of ideas and making further Investments.

We are building on or adding new initiatives to drive growth and to Delight. Our customers examples include.

A new technology driven sales platform be developed to capture larger National customer. We're talking about National customers here.

Albert Nahmad: This would be incremental to Watsco Inc's core replacement business and is expected to be launched in 2026. We have accelerated adoption of our pricing platform, PriceFX, is the name of it. Our goal is to reach 30% gross profit margin. We have launched an initiative to grow the parts and supply segment of our business, which today is roughly 30% of sales and can be much larger over time. We launched two AI platforms, one internal and one external, to harness our data. Artificial intelligence offers the potential to further transform our customer experience, improve operating efficiency, and create new data-driven growth strategies. This is an exciting time, and these are just a few of the many initiatives underway. We will expand on these themes at an investor event in Miami, which will occur after the temperatures have dropped a bit. Stay tuned for additional details.

This would be incremental to watch Go's core replacement business and is expected to be launched in 2026.

We have accelerated adoption of our pricing platform. Price FX is the neighborhood.

Our goal is to reach 30%. Growth profit margin.

We have launched an initiative to grow the parts of Supply segment of our business, which today is roughly 30% of sales and can be a much larger can be much larger over time.

And we launched 2 AI platforms, 1 internal and 1 external, to harness our data.

Artificial intelligence offers the potential to further transform our customer experience.

Improve operating efficiency and create new data driven growth strategies.

This is an exciting time and these are just a few of the many initiatives underway

An investor.

Event in Miami.

Which will occur after temperatures have dropped a bit.

Stay tuned for additional details.

Albert Nahmad: Finally, we believe our culture of innovation, along with our scale, entrepreneurial culture, and capacity to invest, are unmatched in our industry. With that, let's turn to Q&A.

Finally, we believe our culture of innovation along with our scale, entrepreneurial culture and capacity to invest or unmatched in our industry.

With that, let's turn to the Q&A.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-toned phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question here will come from Ryan Merkel with William Blair. Please go ahead with your question.

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're using a speakerphone, please pick up your handset before pressing the keys. And if at any time your question has been addressed and you would like to withdraw it, please press star, then 2.

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

And our first question here will come from Orion Merkel with William. Blair, please go have your question.

Rick Gomez: Good morning, Ryan.

A.J. Nahmad: Hey, good morning, everyone.

Rick Gomez: Good morning.

A.J. Nahmad: Hi, Ryan.

Rick Gomez: My first question is, on volumes in the quarter were a little bit worse than I was expecting. I know you mentioned weather, A2L products, new construction. I would just love to hear from you what happened there. Then more importantly, are you seeing trends improve in July?

Hey, good morning everyone. Good morning. All right. So my first question is just, you know, on volumes in the quarter, they were a little bit worse than I was expecting. I know you mentioned weather and new construction, but I'd love to hear from you, you know, what happened there. And then, more importantly, are you seeing trends improve in July?

Albert Nahmad: am going to ask both Paul and Barry to respond to that.

I'm going to ask both Paul and Barry to respond to that.

Paul Johnston: Yeah, revenues were not as strong as we anticipated going into Q2. What we saw was a kind of a lumpy picture in the marketplace where April came in strong. May ended up being very weak, mainly because of the weather patterns in the north. Then in June, they came back again. It was pretty much, you know, RNC is probably down. Our new construction, residential new construction is probably down 15% to 20%. Replacement is still holding fairly strong. We didn't really see a lot of repair in the beginning of the quarter, which we saw towards the end of the quarter and continues into July, but not enough to offset, you know, the unit sales that were certainly down.

Yeah, revenues. Were were uh,

Not as strong as we anticipated going into Q2. You know what? We saw was a kind of a lumpy picture in the uh, in the marketplace. Where

April came in strong May ended up being very weak, mainly, because of the weather patterns in the North and then in June, they came back again.

and uh, it was, uh,

pretty much, uh, you know, RNC is probably down or new construction residential. New construction is probably down 15 to 20%.

Um,

replacement is still holding fairly strong.

We didn't really see a lot of repair in the beginning of the quarter, which we saw towards the end of the quarter and continues into July.

But not enough to offset uh you know the unit sales at uh we're certainly down.

Albert Nahmad: I'm in on international sales.

I mean, on International sales.

Barry Logan: I'll comment on that. Also, on, you know, one of the exposures we talked about in the first quarter that repeated itself in the second quarter was our international, which is Mexico. Mexico is probably the most volatile market. It's a small part of our business, but a big contributor from a margin point of view. Mexico was down, well, let's put it this way, it cost us about $0.10 a share in the quarter, $0.20 a share year to date. In June it grew, and July it's grown since then. So I'll take kind of one market that's been irritating, which seems to be a lot better in the last couple of months. As far as July goes, Ryan, I would say it's better. August is bigger than July in our forward-looking commentary.

Yeah, I I I'll comment on that. Um, also on, you know, 1 of the exposures we talked about in the first quarter that repeated itself in the second quarter was our International, which is Mexico.

Uh, Mexico is probably the um, the most volatile Market. It's a small part of our business, but a, a big contributor from a, a margin point of view.

Of Mexico was down. Um, well, let's put it this way. It cost us about 10 cents a share in the quarter 20 cents, a share a year to date.

And June it grew in July. It's grown since then. So, I'll take kind of 1 1, 1 market, that's been irritating, uh, which seems to be, um, a lot better.

Barry Logan: So if I say that July is better than what we saw in June, that's okay, but it needs to extend itself and extrapolate itself as the year goes on. The good news is that in general, what we can control is margin, pricing, and the wherewithal of our business to support all these new products in the market with our customers. I'm glad we have our balance sheet to do that with because it's been a pretty extraordinary product change this year. You can see the building of inventories. That's a customer-focused effort to help our customers get going in this market. The margin speaks to capturing new pricing on, as we say, over half the products we sold, we sell, we had to capture price inflation since that price and get off on the right track in margins. Needless to say, that's been accomplished.

Uh, in the last couple of months, as far as July goes Ryan, I I would say it's better. It it, uh, August is bigger than July in our if I in our forward-looking commentary,

So if I say that the July is better than what we saw in June, that's okay. But it needs to extend itself and extrapolate itself as the year goes on.

The good news is that.

in general, you know what we can control

Is is margin pricing and and the wherewithal of our business to support all these new products in the market with our customers.

I'm glad we have our balance sheet to do that with.

Because it's been a pretty extraordinary product change this year. You can see that the the building of inventories that's a customer focused effort to help our customers get going in this market.

The margin speaks to capturing new pricing on.

As we say, over half the products we sold, we sell, we had to capture price inflation since that price.

Barry Logan: So we like what we can control. We'll be patient about what we can't control. I think also maybe this is more of a 2026 discussion. But the entire industry, every OEM we sell products for, have been through an extreme product cycle, probably for the last two or three years. At what point does that serenity play itself out in terms of growth and market share development and product expansion, the blocking and tackling that I think is particularly good for us and that we're good at. So maybe that's more of a next-year event, but we're kind of looking forward to it, quite honestly.

And get off on the right track and margins. Needless to say, that's been accomplished.

So we like what we can control? Uh, we'll be patient about what we can't control.

And, I think also maybe this is more of a 2026 discussion.

But you know that the entire industry, every OEM we sell products for, has been through...

an extreme product cycle, probably for the last 2 or 3 years.

Growth and market, share development, and product expansion.

The blocking and tackling that I think, uh, is particularly good for us and that we're good at.

so, maybe that's more of a next year event, but we're kind of looking forward to it quite honestly,

Rick Gomez: Yeah, that's fair. Okay. Since you mentioned gross margin, that was the other metric that was really strong this quarter. My sense is it's both price, cost, and initiatives. My question is, I don't want us to extrapolate that 29% into the back half. Just how sustainable is that? Was Q2 kind of temporary due to price, cost, timing?

Yeah, that's fair. Okay, uh, since you mentioned gross margin not with the other, you know, metric that was really strong in this quarter, my sense is it's both price cost and initiatives. But you know, my question is I don't I don't want us to extrapolate that that 29% into the back half. So just how sustainable that that is that, you know, was too cute kind of temporary due to price cost timing.

Albert Nahmad: Go ahead, Barry.

Barry Logan: Yeah, yeah, I think there is obviously an algebraic benefit to margin when OEMs raise prices. In April and May, we talked last quarter that OEMs had faced some inflationary realities going on with tariffs and raw materials and so on. On top of the like-for-like price increase on the new product, they introduced inflationary pricing early in the quarter. That clearly helped build a bigger margin this quarter. The benefit of that kind of slides off into the third and fourth quarter. I am the one that probably three years ago talked about 27% as a floor, as a benchmark. I, you know, I stand by that, obviously. If I say now 27% plus, I would expect that for, you know, the last half of the year. We will not have the benefit of those pricing actions that you see in the first half of this year.

Go ahead, Barry. Yeah, I think there is obviously an algebraic benefit to margin when OEMs raise prices. In April and May, we talked last quarter that Williams had...

Faced some inflationary, uh, realities going on with tariffs and raw materials, and so on.

Uh, on top of the, like, for like price increase on the new product they introduced.

Uh, inflationary pricing, uh, early in the quarter, uh, that clearly, you know, helped build a bigger margin in this quarter and the benefit of that.

uh, you know, kind of

Uh, slides off into the third and fourth quarter.

but,

I'm the 1 that that that uh probably 3 years ago, talked about 27%, as of as a floor, as a benchmark.

Um and I you know I I stand by that obviously and fights. If I say now 27% Plus

Barry Logan: Somewhere in between would be my conjecture, and the market will play out and determine what it is. I think we have a chance to beat our benchmark but not have the benefit that we saw as extraordinarily this quarter in terms of pricing.

Um, I would expect that for, you know, for you know, the last half of the year, but we won't have the benefit of those pricing actions that you see in in the first half of this year.

so, somewhere in between would be my

My conjecture. And

Uh, the market will play out and determine what it is, but.

Uh, so I think we have.

a chance to beat our benchmark.

And, but not have the benefit that we saw as extraordinarily this quarter in terms of pricing.

Rick Gomez: Well, that's great, and very unexpected. Yeah, so thanks.

Well, that's great as expected, yeah.

A.J. Nahmad: Just want to add, this is A.J. Nahmad, just real quickly. There is the benefit from the OEM price increases, but also the efforts we are making on our price optimization and the leadership of those teams and the pricing teams, that is also working. So it is a combination of both. But we continue to put points on the board in terms of the pricing efforts that we are taking internally.

Just just want to add. I mean, this is AJ just real quickly. I mean, there there is the benefit from the OEM price increases, but also the efforts we're making on our price optimization and, uh, and and the leadership of those teams and the pricing teams, that's also working. So it's a combination of both. Um, but we, we continue to put points on the board in terms of the pricing efforts that we're taking internally

Albert Nahmad: Let me add that. As we move our product mix, which I mentioned in the opening statements, towards parts and supplies, that is what we are focused on with our technology, that by its nature carries a higher margin than equipment sales. So our product mix, hopefully, sometime later this year or into next year, will improve margins too if those parts and supplies carry higher margins.

Yeah, let me add that.

as we move our product mix, which I mentioned in the opening statements,

Towards parts and supplies, and that's what we're focused on with our technology that by its nature carries a higher margin than equipment sales.

So, our product, hopefully sometime later this year into next year, will improve margins too because parts of supply are carrying higher margins.

Rick Gomez: Thank you very much. I will pass it on.

Thank you very much. I'll pass it on.

Operator: Our next question will come from Brett Linzey with Mizuho. Please go ahead.

Albert Nahmad: Hey, good morning. Yeah, maybe just a follow-up on that last point there. So if you could maybe just unpack the year-over-year gross margin contribution, is there any way to delineate that between the pricing optimization tools versus the parts mix versus some of that raw pricing just in the marketplace in the quarter? Well, that's an interesting question. Who wants to deal with that?

And our next question will come from Brett Lindsay with Mizuho. Please go ahead.

Hey, good morning. Yeah. Um, maybe just a, a follow up on that the last point there. So if you could maybe just unpack the year-over-year gross margin contribution. Um, is there any way to delineate that between the the pricing optimization tools versus the parts mix uh versus some of that raw pricing and just in the marketplace in the quarter?

Rick Gomez: Yeah, Brett, I will take a stab at that. This is Rick. This is directional because there is, you know, a lot of art and a lot of science to this as well. It is not all science. When we look at the quarter, there was, and when we look at the year as well, pretty consistent, there is about 50 to 60 basis points of gross margin enhancement that we can attribute to that raw selling margin, which is basically the day-to-day job of a distributor in the market is what are you buying for and what are you selling for? Gross margins would have been in the, you know, high 27s absent any of that inflation. The inflation helps, but it is not something that you can underwrite, you know, perpetually, obviously. That is what it has amounted to. By the way, that has been pretty consistent.

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

Yeah, but I'll take a, I'll take a stab at that. This is Rick. Um, this is, uh, directional because there's, you know, a lot of Art and a lot of science to this as well. And and but, but it's not all science.

um, so when we look at the when we look at the quarter,

Um there was and when we look at the year as well, pretty consistent, there's about 50 to 60 basis points.

of gross margin enhancement that we can attribute to that raw selling margin, which is basically

The the day-to-day job of a distributor in the market is, what are you buying for? And what are you selling for?

um and so gross margins would have been in the you know, High 27s um

Rick Gomez: If I look back maybe two or three years in the data, we have been at that, you know, we can aggregate and say that there has been about 200 basis points of gross margin expansion attributable to this pricing optimization and bringing more technology to how we price. Keep in mind that the complexity of price in the industry is something that generally benefits a distributor. What I mean by that is that virtually every SKU has a different price to every customer. To imagine that we are optimized, it is the opposite. We are far from optimized. That is why we think there is so much, so much room still to go. Oh, by the way, just to finish the thought is that during that period of time, we have also gained market share.

Absent, any of that inflation, and the inflation helps, but it's not something that you can underwrite, you know, perpetually, obviously. So that's what it's amounted to. By the way. That's been pretty consistent if I look back. Um,

Maybe 2 or 3 years in the data.

There's been about 200 basis points of gross margin expansion attributable to this pricing optimization and the incorporation of more technology.

To how we price keep in mind that.

Um, the the the complexity of price in the industry.

Is something that that generally benefits a distributor?

What I mean by that? Is that virtually every SKU?

Has a different price to every customer.

And and and so to to imagine that we are optimized. Well it's it's the opposite we're far from optimized and that's why we think there's so much so much room still to go. Um, and oh, by the way, just to just to finish the thought is that

During that period of time. We've also gained market share

Rick Gomez: We have about 200 to 250 basis points of incremental market share over that three-year period, if I measure it. That is mainly attributable to all the technology. My point there is that everything that we are doing on the technology side with margin has not borrowed from customer acquisition and market growth at the end.

We've had we we have about 2 to 250 basis points of incremental market. Share over the over that 3 year. Period. Um, if I measure it, so

That's mainly attributable to all the technology, and my point there is that, um, everything that we're doing on the technology side with margin has not borrowed from customer acquisition and market growth at the end.

Albert Nahmad: That's very helpful. Appreciate that. Then just a follow-up on the cylinder shortage. Sounds like you guys think it abates by the second half. I know some of the peers think it does persist into the second half. So maybe what was the impact, do you think, in the quarter from the shortage situation? Then are you assuming that some of that does carry into H2?

No, that's very helpful. Um, you know, appreciate that. Um, and then just a follow-up on on the cylinder shortage. Um, sounds like, you guys think it abates by the second half? I, I know some of the peers, you know, think it does persist into the second half. So, so maybe what was the impact you think in the core?

Order uh from the from the shortage situation and then are you assuming that some of that does carry into H2?

Paul Johnston: Yeah, I think, you know, as Paul, what we had was we had an allocation situation where we were being allocated refrigerant. What the OEMs did was they came through and did an overcharge in the unit so that they didn't require as much, you know, field installation type refrigerant. So it's become less and less of a concern as time goes on, as our allocations continue to increase. We feel good that sometime in August we should be off of allocation. I think it was very irritating. It was very disturbing that we had to go through that. But I don't think that really is the total cause of why the market was slower than what it was.

Yeah. I think you know what, there's Paul. What we had was we had an allocation situation where we were being allocated refrigerant.

um, what the oems did was they came through and and did an overcharge in the unit so that they didn't require as much you know, field installation type um refrigerant

and so, it was

It's become less and less of a concern as time goes on as our allocations. Continue to increase.

Um we feel good that uh sometime in August we should be off of allocation and I think it's uh it it was very irritating. It was very uh disturbing that we had to go through that.

Um, but I don't think that really is the total cause of why the market was slower than what it was.

Albert Nahmad: Thanks for the color.

Thanks for the color.

Barry Logan: Yeah, just an editorial on that. I, you know, the like-for-like SKUs that we're selling now, A2L versus the prior, is the 10% difference in price. A speed bump on the canisters of refrigerant is that, a speed bump. So the transition itself, if we look forward again to that word serenity I used earlier, we're looking forward to it.

Yeah, I just uh, editorial on that. I you know, the like for like skus that were selling. Now a2l versus the prior is is is the 10%

Difference in price.

and a speed bump on on the canister is a refrigerant is is that a speed bump and

So the transition itself if we look forward again to that, that word serenity, I used earlier. We're looking forward to it.

Albert Nahmad: Thanks, Barry.

Thanks Mary.

Operator: Our next question will come from Tommy Moll with Stephens. Please go ahead with your question.

And our next question will come from Tommy molt with Stevens. Please, go ahead with your question.

Albert Nahmad: Morning, Tom.

Speaker 9: Morning, Alan. Thanks for taking my questions.

Morning time.

Albert Nahmad: Of course.

Morning Allen. Thanks for taking my question.

All right.

Speaker 9: I wanted to start on inventory. Maybe you could characterize for us the investment there versus what you would have expected to need for the transition. Just in dollar terms, is it about what you would have soft-circled or maybe a little elevated? Anything you can do to frame that for us? Also, how you think it might trend over the next couple of quarters?

I wanted to start on the inventory. Maybe you could characterize for us.

The investment there versus what you would have expected to need for the transition, just in dollar terms, is it about...

What you would have soft circled, or maybe a little elevated? Anything you can do to frame that for us and then also how you think it might Trend over the next couple quarters.

Albert Nahmad: The honest answer is that it is more than we had hoped for. Some of that is because we expected not to have the unusual demand, industry demand, the lower industry demand. We peaked at about $2 billion. We are now very focused on what to do about it. We have lost, in terms of inventory investment, $200 million so far in the third quarter. We are down to $1.8 billion. Plus this transition of product, you have to have the old and you have to have the new on the equipment side. We will transition out of the old before the end of the year. That will help reduce the inventory investment. That is a very good question. I am very dedicated to increasing our inventory turns. It has been a rough time to do that.

well, the honest answer is that if more than

We had hoped for and some of that is because we expected not to have the unusual. Demand industry demand that we the lower industry demand. So we we peaked at about 2 billion dollars.

But we are now very focused on.

What to do about it? And, uh, we've lost...

A in terms of inventory investment dollars so far in the third quarter, we're down to 1 1.8 billion.

And plus this transition of product, you have to have the.

The old, and you have to have the new on the equipment side.

And, uh, we'll transition out of the old before the end of the year, and that will help reduce the human interaction. That's a very good question. I am very dedicated to increasing our inventory turns.

uh,

and it's been a rough time to do that, but I think that

Paul Johnston: Yeah.

No.

Albert Nahmad: Are you still?

Speaker 9: Oh, go ahead.

Go ahead.

Paul Johnston: On a raw number basis, we had double inventory. We had about 5% of the total inventory was 410, and then we had the more expensive A2L product in there. So we probably had a 15% rise just between what we had in 410 left over and what we experienced when we had price increase. The balance of it is exactly what Al said. The demand just wasn't there to be able to take the inventory back down. That you are going to see come down at the end of the third quarter.

We had about 5% of the total inventory, which was 410, and then we had the more expensive A2L product in there. So we probably had a 15% rise just between what we had and the 410 left over.

And what we, uh, what we experienced and we have price increase the balance of it is exactly what Al said, you know, the demand just wasn't there to be able to, to take the inventory back down that you're going to see come down at the end of the third quarter.

Speaker 9: Thank you both. As a follow-up, I wanted to ask about the M&A environment and pipeline. It hasn't gotten a ton of airtime lately, but how can you characterize that for us?

Thank you both as a follow-up. I wanted to ask about the m&a environment and pipeline hasn't gotten a ton of air time lately. But how can you characterize that for us?

Albert Nahmad: That's a very good question. We are eager, eager to see what owners of distribution businesses and HVAC are going to do with this existing very soft market. They may do nothing. They may continue, or they may say, now it's time to do something in terms of an M&A. Of course, we have a great reputation with independent distributors because of the way we treat sellers. We're very careful about relationship-built continuing post-acquisition with the existing leadership of a business acquired. I can't say it's going to happen, but I'm sure hoping. We have a very, very strong balance sheet that can take advantage of opportunities as they come. I cannot, I can only tell you that, I can't disclose it, but there is one that we think for without misclassifying much more than that, that is upsized. We'll see how that turns out. It's still under study.

That's a very good question. We are eager.

Eager.

To see what owners of this distribution. Businesses and HVAC are going to do with this, uh, existing, uh, very soft Market.

Uh, they may do nothing, they may continue or they may say, well now it's time to do something.

Uh, in terms of an m&a and of course, we have a great reputation with independent Distributors because of where we treat.

Sellers, we're very careful about relationships. We build continuing post-acquisition efforts with the existing...

Uh, leadership of a, of a business acquired.

So, I can't say it's going to happen, but I'm sure hoping we have a very, very strong balance sheet. We could take advantage of opportunities as they come.

And I cannot.

I can only tell you that.

Well, I can't disclose it, but there is one that I think for, uh,

For that disclosing much, much more than that.

That uh, is of size and we'll see how that turns out. It's still a

under under study.

A.J. Nahmad: Yeah, I would say rest assured we're having as many of those conversations as we can. We're super ambitious, and we have the balance sheet to support anything we want we can manage to muster up. So hopefully, it can be an exciting period in M&A.

Yeah, I would say rest assured, we're having as many of those conversations as, as we can. We're super ambitious and you have to balance sheet to support anything we want. We can manage to muster up, so,

hopefully, it can be an exciting period and I'm not

Rick Gomez: Thank you both. I'll turn it back.

Thank you both. I'll turn it back.

Operator: Our next question will come from David Manthey with Baird. Please go ahead.

In our next question, won't come from David manty with beard. Please go ahead.

Albert Nahmad: Morning, David. Hey, Al, good morning. I was wondering if you had any thoughts on consumer preference during this product transition. Are you continuing to see a premium on the R410 systems? As people are buying the A2L products, are they gravitating to one end or the other of the good, better, best tier? That is an interesting question. I wonder who in our team can respond to that. Are you the one, Paul? You always are.

Are David?

Hey, uh, good morning. Um, I was wondering if you had any thoughts on consumer preference during this product transition, like, uh, are you continuing to see a premium on the R-410 systems? And then, as people are buying the A2L, are they gravitating to one end or the other of the good, better, best tier?

That's an interesting question.

Paul Johnston: The industry really hasn't popped as far as high-efficiency product. It is still at the entry level. We are, basically using the old CEER rating, at above 15 CEER for minimum efficiency. So it is high-efficiency product. We really haven't seen a change in the direction of the industry. It is still very, very much sliding along the idea that it is going to be whatever the minimum efficiency is. That represents probably 85% of the market. That has not changed. When you get into the brands that we are selling, the brands have been consistent throughout the year. They continue to hold steady. We are seeing the Carrier brand and the Rheem brand, and the Goodman brands all doing their job and holding up their share of the business. We are not seeing a migration to a lower branded product, no.

Uh I wonder who in our organ who in our team can respond to that. Well, are you the 1? You always are yeah, the industry, the industry really hasn't popped as far as high efficiency product

You know, it's still at the entry level. I mean, we're at, uh, you know, basically using the old Seer rating. We're at we're at above 15 here, for minimum efficiency. So it's, it's high efficiency product.

so, we really haven't seen a change in the, uh,

In the direction of the industry. It's still very uh very much sliding along the idea that it's going to be whatever the minimum efficiency is and that represents probably 85% of the market that has not changed.

And then when you get into, uh, the brands that we're selling, the brands have been consistent throughout the year.

And they continue to hold steady, you know, we're seeing the carrier brand and the Rheem brand.

You know, and the, uh, the Goodman Brands. All all doing their job and, and, uh, holding up their share of the business.

Um, we're not seeing a migration to a lower branded product. No.

Barry Logan: Dave, I would just add to that for the fun of it, if I look at brands, products, markets, customers, geography, north and south, east and west, and we are selling close to 20 brands, the first half of the year is very consistent amongst that collection of data points. So nothing stands out, Dave, and I do not think this has been disruptive to what kind of the baseline products being sold is going on.

Just to add to that for the fun of it. Um,

If I look at brands, products, markets, customers, geographies—north, south, east, and west.

uh,

And we're selling, you know, close to 20 brands.

Uh, first half of the year is, is very consistent amongst, you know that collection of data points.

so nothing, nothing stands out, Dave, and I, I don't think this is been disruptive to what

Kind of the, the, uh, the Baseline products being sold is, is, is is going on.

A.J. Nahmad: Yeah, the exciting anomaly though, and I think it is in our press release, is OnCall Air. When our customers are using the tool that we have created for them, which we call a sales engine, they are selling high-efficiency systems at a much higher rate, like the inverse amount, meaning I think it is like 70% or 75% of the time a contractor is selling using OnCall Air, they are selling high-efficiency systems. So when we can help influence that through that tool, that is powerful because the consumer gets a better product, the contractor makes a bigger ticket, as do we. So it is a win-win-win.

Yeah, the the exciting anomaly, though, and I think it's in our press releases on. Call are when our customers are using the tool that we've created for them, which we call a sales engine. They are selling high efficiency systems at a much higher rate like the inverse amount meaning. I think it's like 70 or 75% of the time. A contractor is selling using on call are they're selling high efficiency systems.

That's powerful because the consumer gets a better product. The contractor makes a bigger ticket as do we. So it's a win-win-win.

Albert Nahmad: That sounds good. Thanks for all the color there. My follow-up, it's the first time we've seen other do better than the equipment in a long time. As Paul Johnston said, the residential new construction is not helping. I assume all the ductwork and thermostats and things in the other category. Should we not read into this that there's a stronger fix versus replace trend this quarter, or is it, I don't know, commodities? I'm just making this up. Any thoughts on that?

Paul Johnston: It is pretty small. When you take a look at the entire marketplace, if you just take compressors, the normal demand for compressors in the U.S. is about 1.2 million to 1.3 million. The balance of them go warranty because you have a 5-year and a 10-year warranty on most of the equipment. You take a look at the equipment side, it is 7 million to 8 million units. So for the offset of a down market on the unit side through additional parts, yes, it is going to help our gross margin, but no, it is not going to help the top line. It is not going to help your revenue line. The ratio is just too great between what parts represent versus equipment. Are we seeing an uptick?

It sounds good. Thanks for all the color there. Um, my follow-up. Um, it's the first time we've seen other do better than the equipment in uh in a long time. And as Paul said, the the residential new construction is not helping. I assume all the duct work and and thermostats and things in the other category. So should we not read into this that there's a a stronger fix versus replace Trend, this quarter or or is it? I don't know Commodities or I'm just making this up. But any thoughts on that? Yeah, that's

That's pretty small. You know when when you take a look at the entire Marketplace, you know if you just take compressors, you know the the normal demand for compressors in the US was about a million 2 to a million 3.

And the balance of them go uh warranty because you have a 5 and a 10 year warranty on most of the equipment.

You take a look at the equipment side. It's

It's 7 to 8 million units.

So for the offset of a Down Market on the unit side, through additional Parts, yes. It's going to help our gross margin. But no, it's not going to help the Top Line. It's not going to help your Revenue line. Uh, the ratio is just too great between what parts represent versus equipment.

Paul Johnston: Yes, we started seeing an uptick in June, which historically is the month in which you are going to see that up. It has continued into July, but we really have not seen a radical increase in units. We have seen an an increase in dollars more than we have units.

Are we seeing an uptick? Yes. We started seeing an uptick in June, uh, which historically is the month in which you're going to see that up.

Um, it's continued into July, but we really haven't seen a radical increase in units. We've seen an increase in dollars more than we have units.

Albert Nahmad: Let's not mislead either. Our sales in the new quarter are not, they're pretty flat-ish, small incremental low-digit increase. It's nothing that does not signify a major double-digit increase yet.

Now, let's not mislead either our sales in the new quarter.

Are are not uh they're pretty flattish. Small incremental, low digit increase, they're not, it's nothing.

To.

That's not signify a a major double digit increase yet.

Paul Johnston: No.

No.

Albert Nahmad: Thanks very much.

Barry Logan: When we talked about unit growth of compressors and coils, things like that, year to date is single-digit. It is not, you know, it was not an avalanche of transition to that. It could be us just selling more compressors in the market. I think you heard Carrier talk yesterday very directly about that. They are talking to, you know, 150 independent distributors when they are answering your question to that. So it is obviously an opportunity to sell more parts, but the wholesale trend is not something that I think is quite in the numbers yet.

Thanks very much. We talked about you. Yeah. When we talk about unit growth of compressors and coils, things like that year-to-date as single digits, it's not, you know, it was not an avalanche of transition to that.

It could be us just selling more compressors in the market. Um,

and I think you heard carrier talk yesterday, very directly about that. And they're talking to

You know, uh, 150 independent distributors, when they're answering your question to that. So.

It's obviously an opportunity to sell more parts, but...

Um, the wholesale trend is not something that I think is quite in the numbers yet.

Rick Gomez: Thanks, Barry.

Albert Nahmad: As somebody mentioned earlier, the M&A, we are very eager to do more M&A. Sometimes opportunities arise when you have these kinds of markets. I am sure hoping for it. Are we shut down again?

Yeah, thanks Barry. Well, as somebody mentioned earlier, the m&a we're very eager to do more m&a and sometimes opportunities arise. When you have these kind of markets, I'm sure hoping for it

We shut down again.

Operator: Our next question will come from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Our next question will come from Jeff Hammond with keybanc capital markets. Please go ahead.

Paul Johnston: Hey, good morning, everyone. Is this real Al or AI Al?

Hey, good morning, everyone.

um,

is this real out or or, or AI l?

Albert Nahmad: It's a combination. You have to figure it out.

Combination. You, you, you have to, you have to

Paul Johnston: I know it's the real Albert Nahmad.

Albert Nahmad: Yeah, that's a good one.

Paul Johnston: Yeah, just to clarify on the flat-ish sales comment, was that parts for July or is that overall?

You have configured that just clarify. Yeah, just to clarify on the on the flattish sales comment was that parts for July or is that overall?

Albert Nahmad: Overall.

Paul Johnston: Okay.

Overall.

Albert Nahmad: Overall.

Paul Johnston: On inventories, can you just, maybe talk about where you want to ultimately get your turns to? I know you were kind of running 4.5 turns a year pre-COVID and pre all these regulatory changes, and now you're kind of 3 to 3.5. Where do you see that happening and over what timeframe?

Okay. Overall, um,

And then just on inventory back to inventories. Can you just you know, maybe talk about

Albert Nahmad: First of all, let me compliment you on the day you write about those turns. I'm not going to put a time limit on this, but I'd like to get to five. At some point in time, given all the technology we're investing in, I'd like to get to five.

You know where you want to ultimately get your turns to, I know you were kind of running 4 and a half turns a year, you know, preco and pre all these regulatory changes and now you're kind of 3 to 3 and a half and you know kind of where you see that happening over and over what time frame.

Well first of all, let me compliment you on the day or you're right about those turns. Uh I like I don't I'm not I'm not going to put a time limit on this but I'd like to get to 5.

at some point in time, giving all the

The technology. We're investing in it. I'd like to get the 5.

Paul Johnston: If you can think about it pre-COVID, we were at four and a half. We did not have the technology investment in inventory systems and the management systems that we currently have. As we come out of it, I think Albert Nahmad's goal of five is very attainable.

I'm not going to think about it.

Yeah, free cash flow was at $4.5 million. We didn't have the technology investment in inventory systems and the management systems that we currently have. So,

As we come out of it, I think Al's goal of 5 is.

Sustainable.

Albert Nahmad: We have what we call the dream plan. We may have mentioned it before. Actually, dream plan two, because dream plan one was achieved after three years of effort. Dream plan two is new, and it may take three years to do that. Dream plan two is $10 billion in revenue, 30% in gross profit margin, and five times on the inventory turn. Those are the targets that we are focused on.

We have we have what we call a dream plan. We may have mentioned it before.

Actually dream plan too because deep dream plan 1 was achieved. Uh after 3 years of effort and dream plan 2 is, is a new and it may take 3 years to do that. Dream plan 2 is 10 billion in Revenue. 30%, in gross profit margin and 5 times on the inventory turn.

and that's the

Those are the targets that we're focused on.

Paul Johnston: I remember when it was 10% growth and 10% margins for $100.

Albert Nahmad: That's it.

Paul Johnston: You guys blew through that one.

I remember when it was 10% growth and and 10% margins for a hundred dollars. Wow, you guys lose you that 1

A.J. Nahmad: Believe it or not, that was 20 years ago.

Believe it or not.

Paul Johnston: Boy, that's a hell of a history lesson here.

A.J. Nahmad: Jeff, I was pretty impressed.

Barry Logan: Yeah, I am so impressed. For those 20-something-year-olds listening to us, Jeff is right. We have a call, 10 and 10 equals 100. It was called 10 and 10 equals 100. We got our management team together and rallied around that. Many of them thought Al was out of his mind. Obviously, we have blown past that some time ago. So we reinstituted that cultural concept about six months ago, actually a year ago, and got everyone together. Some of the initiatives that you are not asking about today that you will ask about as we develop them is built on that dream plan two concept. If we had 75 other WATSCO Inc. core managers on this call, you would be able to ask them about it, not just ask us. Just know that culturally, those kind of things go on and we have fun with it.

Boy that's that's a hell of a history lesson here today and for those for those 20, something year old listing to us, Jeff is, right? We called 10 and 10 acres 100.

It's called 10 and 10 equals 100. We got our manage management team together and rallied around that.

Many of them thought I was out of his mind.

and obviously we've blown past that, you know,

uh, you know, sometime ago. So we we, we were instituted that that cultural

Uh, you know, kind of concept about 6 months ago, actually, a year ago, and got everyone together and.

some of the initiatives that you're not asking about today that you will ask about as we develop them.

is is uh is built on that that dream plan to concept and

If we got had 75 other Wasco core managers on this call, you would be able to ask them about it. Not just ask us.

A.J. Nahmad: Yeah, and culturally, I mean, really the takeaway is that we're super ambitious. That's why we're investing in these big goals that we expect to hit in time.

So just know that culturally those kinds of things go on, and we have fun with it.

Yeah, and culturally, I mean really takeaways that we're super ambitious.

And, and that's why we're investing in this in these big goals that we expect to hit in time.

Albert Nahmad: The truth is that we also have an equity culture that really inspires people to achieve and to meet the goals set by senior management, which means what is the equity culture? Many, many employees own Watsco Inc shares, either through a 401(k) or through the different stock plans. We like that. We like the ownership culture to be spread out throughout the organization. It is very unique and it is very extensive. That ownership culture drives their desire to meet goals, I think. I have always used it and it has been working. I expect it to continue working.

And the truth is that we also have an equity culture that really inspires people to achieve and to meet the goals set by Senior Management which means what is the equity culture.

Many, many employees.

Only watch School shares.

Either 30401, K or through.

The different.

Stock plans.

And we like that we like oh the ownership culture to be spread throughout the organization. It's very unique.

And it's very extensive.

And so that ownership culture drives their desire to make goals. I think.

And I've always used it and it's been working and I expected to continue working.

Paul Johnston: Great. Thanks for the time, guys.

Great, thanks for the time, guys.

Operator: Our next question will come from Patrick Baumann with JPMorgan. Please go ahead.

And our next question.

Bowman with JP Morgan. Please go ahead.

Paul Johnston: Good morning.

Good morning.

Albert Nahmad: Morning.

Morning.

Paul Johnston: Thanks for taking my questions. I was just curious if you could provide some examples of the large enterprise institutional customers that you cite as offering emerging opportunities for growth, and what exactly are you doing to go after them?

Um, thanks for taking my questions. Um,

Maybe I was just curious. If you could provide some examples of the large Enterprise institutional customers that you cite as offering emerging opportunities for growth like and and what exactly are you doing to go after them?

Albert Nahmad: Sure. Barry?

Sure.

All right.

Barry Logan: Go ahead, I would have A.J. Nahmad answer that.

Rick Gomez: Yeah, yeah, so I will jump in first. You know, we teased some of this in our press release and also teased that we want you guys to come down to Miami and spend time with us and see it and hear it and feel it more succinctly. There are macro trends going on in our industry, including private equity trying to buy up and consolidate contractors. Between that and home warranty companies and other institutional type customers, there are emerging and have emerged, I would call it multi-location contractors who may have some business in Florida, some in Texas, some in Tennessee, you name it. With our size and scale, we should be able to, we should be their preferred vendor. We should be the most exciting place for them to buy product.

Go ahead. I would I would AJ. Yeah. So I I

jump in first and, uh, and you know,

We we we tease some of this in our press release and, and also tease that we want you guys to come down to Miami and spend time with us and and see it and hear it and feel it more succinctly. But it's uh, there are macro Trends going on on our industry, including private Equity, uh, trying to, to buy up and consolidate. Um,

Contractors.

And between that and Home Warranty companies and other institutional type customers, there are emerging and have emerged. I would call it multi-location.

Contractors who may have some some business in Florida, some in Texas, some in Tennessee, you name it.

Uh, and with our size and scale.

Rick Gomez: But we do not necessarily have a unified experience for them to take advantage of our whole offering and our whole scale. That is what we are building. We call it Watsco One. It will be exactly that. It will be one interface for these large institutional type contractors to buy and secure the products that they need from any of our locations whenever they need it.

We should be able to, we should be their preferred vendor. We should be the most exciting place for them to buy products, but we don't necessarily have a unified

experience for them to take advantage of our whole offering and our whole, uh,

Scale. And that's what, that's what we're building, we call it wco 1 and it will be a

They need from any of our locations, um, whenever they need it.

Paul Johnston: Interesting.

Albert Nahmad: It doesn't, I mean, this is a huge, huge undertaking. It doesn't sound that way just using words. We are a very, very decentralized system. To aggregate our inventories, our pricing systems, and all our support systems to meet the needs of a large national customer, that is, it takes a lot of initiative. We are investing to prepare all those tools to do that. It should have a very significant impact once we have accomplished it because no one else has these capabilities.

Interesting. Um, it doesn't, but it's, I mean, this is a huge, huge undertaking. It doesn't sound that way, just using words, but we are a very, very decentralized.

system.

And to aggregate.

to meet to aggregate our, our inventories and our price systems and

All the support systems to meet.

The needs of.

a large national customer that takes a lot of

A lot of initiative, and we're investing to compare all those tools to do that, but it should have a very significant impact.

Once we've accomplished it, there's no 1 else has these capabilities.

Paul Johnston: A follow-up to that, would you see selling to a larger national account contractor any different than I guess you said it is, but in terms of their buying capacity, is that something that you would see as a headwind for your gross margin over time?

Um, a follow-up to that. Would you see selling to like a larger national account? Contractor, any any different than

I guess she said it is, but like, in terms of like, um, they're buying, um, uh, capacity, is that something that you would see as a headwind for your for, your gross margin over time?

Albert Nahmad: Of course. That's one of the elements.

Of course.

A.J. Nahmad: I would say yes, but we can also, we also have the opportunity to sell them a lot more parts and supplies, which, as we discussed earlier, have a higher gross margin profile.

as 1 of the 1 of the elements,

I would say yes, but we can also, we also have the opportunity to sell them a lot more parts and supplies. But as much as we discussed earlier, we have a higher gross margin profile.

Rick Gomez: Right. That is why I think it is not so, the answer is not so linear, Pat, is it is because today when we look at those big institutional type accounts, we are largely selling them equipment, and we are selling them equipment in bulk. So to broaden that offering means we are taking all else equal, we are taking a customer and broadening the mix of products we sell them, and that is generally accreted to margin at the end of the day.

Right. That's why I think it's not. So the the answer is not, so linear. Pat is it's because today, when we look at those big institutional type accounts, we're largely selling them equipment and we're selling them equipment in bulk. Um, and so, to broaden, that offering means we're taking all those SQL.

We're taking a customer and broadening the mix of products we sell them, and that's generally a creative approach to margin at the end of the day.

Paul Johnston: That makes sense. Okay.

That makes sense.

Barry Logan: I was going to say this again for the more for the fun of it. A great home services business you could invest in the last 50 years is Rollins. If you do not know the company, look it up. Technology deployed at Rollins yielded 10% higher EBIT margins for their business over time. The question is, in our partnership with any customer of any size, do we have a business model, an ecosystem that can help them grow, help them price products, help them operate their business 24/7? Part of the visibility of what we have done for most smaller contractors, the question is, is that a pliable technology for larger accounts and larger contractors? It is not about just selling more stuff. It is about helping any kind of size customer operate their business more profitably through us.

Okay, yeah, I I just just Pat I'm just going to say this again, for the more for the fun of it. I mean, a great home service is business. You could invest in the last 50 years, as Rollins, if you don't know, the company, look it up.

I mean, technology, you know, deployed at Rollins.

You know, yielded, 10% higher, even margins for their business over time, right?

So the question is in our partnership with any customer of any size.

Uh, do we have a business model? An ecosystem that can help them grow. Help them price products. Help them

You know, operate their business, 24/7, you know?

so, part of the visibility of what we've done for

Most smaller contractors. The question is is that a pliable?

Technology for larger accounts and larger contractors.

And it's not about just selling more stuff. It's about.

helping any kind of size customer operate their business more profitably through us.

Barry Logan: Our products just happen to be the ones they will scale with to do that with. This is as much of a technology play as it is a product or any other kind of label you might put on it.

And our products just happen to be the ones, they'll they'll scale with to do that with.

So this is a as much of a technology play as it is a a product or any other, you know, any other kind of label you might put on it.

Paul Johnston: Thanks for the call. It sounds interesting and exciting. Maybe just switching gears, my next question on the operating cost side. I think you cite something in the release about targeting cost efficiencies for the rest of the year. Could you provide any color on, I guess, one, the 6% growth rate in the second quarter of SG&A expense? You mentioned costs of the A2L products transition. I do not know how that kind of made it to 20th SG&A, but if you could give color on that. Then can you bend that growth rate in the second half with some of the cost efficiencies you are targeting?

Thanks. Thanks for the caller. Sounds interesting and exciting. Um, maybe just switching gears on my next question on the operating cost side. I think you cite something in the release about, um, targeting cost efficiencies for the rest of the year.

Um could you provide any color on I guess 1 um the 6% growth rate in the in the second quarter of sgna expense. You mentioned cost of the 82l transition. I don't, I don't know how that, um, kind of made it made its way to sgna, but if you give color on that and then can you bend that growth rate in the second half with some of the cost efficiencies you're targeting?

Rick Gomez: Sure, Pat, I can. I'll take a stab at that. First, let's start with the 6%. We said in the release that we made some acquisitions, we've opened some new locations. About 25% of that 6% is attributable to that. You can think of core SG&A growth, if we call it that, more in the 4.5% range, which is still higher than it should be in a down quarter. That's kind of our starting point as we think about it. When you think about just the day-to-day life in a branch during a transition, if we have more inventory, it means that we've received more inventory. It means you need more people receiving that inventory. It means that you have more trucks coming to your locations. It means that you're not optimizing what you have.

Sure, Pat I can. Um I'll take a stab at the so first. Let's let's take, let's start with the 6% and we we set in the release at

We made some Acquisitions. We've opened some new locations. So about 25% of that 6% is attributable to that. So you can think of, you know, core as GNA growth, if we call it that more in the, in the 4 and a half percent range,

Uh, which is still, you know, higher than it should be in a down quarter, but that's kind of our starting point as we think about it.

and then, when you think about just the the, the real, the the day-to-day life in a branch during a transition,

Rick Gomez: It's not business as usual in the day-to-day life of a branch during such a large-scale transition. To underscore something we said earlier and mentioned in the release, this impacted every domestic location we have in the U.S., about 650 of them. That's where there was some inefficiency, as I would say, in the labor and the logistics side. Do we think we can bring that down and bring it more into balance at the end of the year? The answer is yes. Our leaders are working on that right now. One of the things that should naturally help that is that when we look at our inventory today, about 5% to 7% of that inventory is 410A product, which means we've largely received all the new product we're going to get, and we've largely worked out of all the old stuff.

Um, you know, you're you're not optimizing, you know what you have, it's not business as usual in the day-to-day of a in the day-to-day life of a branch.

during such a large scale transition and to underscore something we we said earlier and mentioned in the release this impacted

every domestic location we have in the US about 650 of them.

So, so that's where there was some inefficiency, as I would say in the, you know, the labor and the logistics side and and do we think we can bring that down and and bring it more into balance in the end of the year, the answer is yes. Um, our leaders are working on that right now.

1 of the things that should naturally help that, is that

um, when when, when, when we look at our inventory today,

Rick Gomez: That means that the branch can get back to kind of its routine and should be a little bit more efficient in the back half of the year.

About 5% to 7% of that inventory is $410 a product, which means we've largely received all the new product we're going to get. And we've largely worked out of all the old stuff. And that means that the branch can't get back to kind of its.

It's its, uh, routine and should be a little bit more efficient in the back half of the year.

A.J. Nahmad: Just to say it a little my way, as we sell through 410A products, we need to make sure that we have system matchups that are selling in locations. So there is a lot of transferring product within our network to make sure that we have the right systems in place that are sellable in a market where they are selling, if that makes sense. So there is some extra cost that is gone into that as well.

Yeah, just just to say it a little my way you know, as we sell through, 410 a products, we need to make sure that we have system match ups that are selling and locations. So there's a lot of transferring product within our Network to make sure that we have the right systems in place that are sellable.

In a market where they are selling.

If that makes sense. So, there's some extra cost that's gone into that as well.

Paul Johnston: That makes a lot of sense. Thanks a lot. I really appreciate the call.

That makes a lot of sense. Um, thank thanks a lot, I really appreciate the call.

Operator: Our next question will come from Damien Karras with UBS. Please go ahead.

And our next question will come from Damian cos with UBS. Please go ahead.

Rick Gomez: Hi, good morning, gentlemen.

Hi, good morning, gentlemen.

Albert Nahmad: Good morning.

Good morning.

Rick Gomez: Morning. I am curious how you are thinking about pricing through the rest of the year. On the equipment side, our price is pretty much set for the rest of the year, and you are just going to continue to get that benefit of the higher value mix flowing through top line. Do you foresee any changes on your parts and commodity supplies with respect to price and just thinking about further metals inflation and tariffs?

Morning.

I'm curious how you're thinking about pricing.

Through the rest of the year.

On the equipment side, you know, our prices is pretty much uh, set um for the rest of the year. And you're just going to continue to get that benefit of the the the higher value Nicks flowing through Topline.

And do you foresee any changes in your parts in commodity supplies with respect to price? I'm just thinking about, you know, further metals inflation and tariffs.

Paul Johnston: Yeah.

Albert Nahmad: I do not think on the equipment side, we are going to see a lot of price increases going forward. On the non-equipment side, Friday is Copper Day, 50% tariff start on copper. We have already seen about a 10% increase on some of those products that are heavily endowed with copper. So, it is just a matter of wait and see on some of the non-equipment type product. I think equipment is pretty much in place, though.

I don't think on the equipment side we're going to see a lot of price increases going forward. On the non-equipment side, you know? Yeah.

Friday is uh copper day, 50% tariffs start on copper. We've already seen about a 10% increase on some of those products that are heavily uh heavily endowed with copper.

So, uh, you know, it's just, it's just a matter of wait and see on some of the uh, the non-equipment type product.

I think equipment is pretty much in place, though.

Rick Gomez: Understood.

A.J. Nahmad: Let's just make sure, when we, I think what we are talking about is cost. We are getting costing, the cost of our products and our equipment products. I do not think we are expecting much change from our OEM partners. But on price, meaning our price to our customers, that is a cost. That is what the tooling and the technology enables. It is because every different customer has a different price on every product we sell in every region and every market. That complexity is opportunity because with our tooling, we can study where there are trends and patterns and anomalies and outliers and segments that should be priced appropriately. We run different, I call them plays, where we can measure and track when we make a change in a customer's price or a customer segmentation price or a cohort of customers pricing on different products.

Understood. Yeah, I would just say, let's just make sure, you know, when we...

I think what we're talking about is costs. We're getting cost in, you know, the, the cost of our products and our equipment products. I don't think we're expecting much change from our OEM Partners but on price, meaning our price to our customers.

That that's a, that's what the tooling and the technology enables is because every different customer has a different price on every product we sell and every region and every Market that that complexity is opportunity because we with our tooling, we can study, where there are Trends and patterns, and anomalies and outliers and segments, that should be priced appropriately. Um, and so we run different, I call them plays.

A.J. Nahmad: We can take that to market, we can measure and track, and we can see the impacts and either double down or go on to the next play. Pricing will always be opportunity, just to clarify that costing versus pricing.

Where we can measure and track when we make a change and and our customers price or our customer segmentation price or a cohort of customers pricing on different products. We can we can take that to Market. We can measure and track and we can see the impacts and uh, and either double down or or go onto the next slide. So pricing will always be opportunity. Uh, just just to clarify that costing versus pricing.

Rick Gomez: Got it. Got it. That is helpful. I know this is never an easy task, but if you had to guesstimate, if you will, how much of a headwind to volumes in the second quarter do you think are attributable to weather and the canister shortage versus weaker housing and underlying market demand? I am just trying to get a sense for what underlying demand might look like as you move past these more transient issues.

Got it. Got it. That's helpful.

and I know this is never an easy task, but if you had to guesstimate if you will,

You know how much of a headwind to volumes in the second quarter? Do you think

Albert Nahmad: Yeah, I don't think the canister issue has anything to do with sales in the second half of the year, you know, as far as the refrigerant we receive. I think it's going to be what the consumer feels like, what the weather patterns are going to be like, how we're able to react and meet the inventory demands that the consumer needs or that the contractor needs to handle the consumer. I think it's just going to be blocking and tackling in the second half.

Our contribution to web or attributable to weather, uh, and the canister shortage, you know, versus weaker housing and underlying, um, market demand. You know, I'm just trying to get a sense for what underlying demand might look like as you move past these more transient issues.

Yeah.

I I don't I don't know if we can I don't think the canister any anything to do with with sales in the second half of the year.

Uh, I think it's going to be what the consumer feels like. What the weather patterns are going to be like how how we're able to react and and meet the inventory demands that the the consumer need or that the contractor needs to handle the consumer.

Um, I think it's just going to be blocking and tackling in the second half.

A.J. Nahmad: Yeah, I mean, I think it has all been said, but this has got to be the noisiest year in HVAC ever between the tariffs and the weather and consumer confidence and the canister shortages and the home building changes and interest rates and trading homes is not happening as frequently. There are just so many things going on at macro levels, most of which are out of our control. So it is a lot of noise in the industry, and our job is to win in any environment and emerge bigger and stronger and more profitable and take more share from our competitors. That is, I like where we sit in that equation because of our scale, because of our balance sheet, because of our willingness and ability to invest in technology. I am very, very pleased to be Watsco Inc given all this noise.

Yeah, I mean I I I think real it's all been said but this has got to be the noisiest year in HVAC ever between the tariffs and the weather and consumer confidence and the canister shortages and the Home. Building changes and interest rates and trading homes isn't happening as frequently. I mean, there's just so many

Things going on at at macro levels, most of which are out of our control.

So, it’s a lot of noise in the industry, and our job is to win in any environment and emerge bigger, stronger, and more profitable. We aim to take more share from our competitors, and that’s the goal.

I like where we sit in that equation because of our scale because of our balance sheet because of our willingness and ability to invest in technology.

You know, I I I'm very, I'm very pleased to be Wasco given all this noise.

Rick Gomez: Really appreciate your thoughts. Good luck out there.

Really appreciate your thoughts. Good luck out there.

A.J. Nahmad: Thank you.

Thank you.

Operator: Our next question will come from Nigel Coe with Wolf Research. Please go ahead.

And our next question will come from Nigel Coe with Wolf Research. Please go ahead.

Paul Johnston: Hi, good morning, guys. Appreciate all the color. Hi, Al. I think you mentioned 410A was 50% or thereabouts for the quarter. I am just curious how that trended or maybe where that is trending right now, real time. Are there any concerns that you are holding too much 410A inventory, just given the demand weakness? Are you confident you will be done with that transition this quarter?

Albert Nahmad: I'm chuckling because that's very much on my mind. Yes, we're doing something about it so that we don't have that risk. Paul Johnston, you can answer in some detail if you'd like.

Paul Johnston: No, it's less than 5% of our inventory at the present time. You know, we're really working our butts off to be able to get the right combinations that A.J. Nahmad mentioned before. You have to have an indoor unit to go with the outdoor unit. As you sell the inventory down, the pond gets lower. You end up with an indoor unit sitting in one city, and you end up with the outdoor unit in another. So we're putting those pieces together, which is going to be a drag on SG&A with freight for a period of time here. I think each one of our companies hears about it continuously that we need to reduce it. We need to keep the focus on 410, get rid of it, and focus then on being able to sell the A2L products that we have.

Hi, good morning, guys, appreciate all the color. Hi Al um, so just I think I think you mentioned, uh, 410A was 60% or thereabouts for the call. So I'm just curious how that trend is or maybe where that's trending, you know, right. You know right now real time and any concerns that you're holding too much for 10 in 3, uh just given the demand weakness and uh, you know, or do you, are you confident, you'll be done with that transition, you know, this quarter, I'm I'm chuckling because that's very much on my mind. And yes, we're doing something about it, so that we don't have that risk. But Paul, you can answer in some detail if you like. No, it's it's less than 5% of our inventory. It's a pleasant time. You know where, where we're where we're really, uh, you know, working our butts off is to be able to get the right combinations at AJ mentioned before you've got to have an indoor unit to go with the outdoor unit.

And as you sell the inventory, down the pond gets lower. You end up with an indoor unit sitting in uh, 1 City and you end up with the outdoor unit in another. So we're putting those pieces together which is going to is going to be a drag on, on, uh, sgna, you know with Freight, you know, for a period of time here, but I I think, uh, each 1 of our companies hear about it.

Continuously that we need to reduce it. We need to keep the focus on 410, get rid of it and focused in on being able to sell the a2l product that we've got

Operator: Does that mean though that you, sorry, does that mean you are incentivizing that sell-through of that? Sorry for cutting off there. But does that mean you are incentivizing that process to make that happen?

Albert Nahmad: That's not how we work. We deal with markets on a decentralized basis. Those are local decisions made by the local entities that we have.

Does that mean though that you, you sorry, does that mean you're incentivizing? You know, that sell through of that? Sorry. Sorry for for, for cutting off that but and, and does that mean you incentivizing that process to to, to make that happen?

That's not how we work. We deal with the markets on a decentralized basis. Those are local decisions made by the local entities over there, right?

Rick Gomez: Okay. And Nigel, I would just add to that. Sorry. Just to add very quickly in terms of the progression of A2L products, it is progressing very, very well. We ended, we exited the quarter in June with more than 80% sell-through of the A2L product. That is a function of obviously diminishing inventory of 410A. It is also a function of contractors transitioning and adapting well to the product. So at this point, it is greater than 80% of our sell-through, as you would expect.

Okay, and Nigel, I would just add that, just very quickly, in terms of the progression of A2L, um, it's...

It's it's progressing. Very very well. I mean we ended the we exited the quarter in June with more than 80% sell through.

Uh the a2l product. And so that's a function of obviously diminishing inventory of 410A. It's also a function of contractors transitioning and adapting well to the product.

So, at this point, it's greater than 80% of our sell-through, as you'd expect.

Operator: Okay. That is great to tell us. My follow-up is, what we have seen from you and from your suppliers is tremendously strong prices holding, which is good news, but obviously volumes are incredibly weak. What are you hearing from your contractors? Are they asking for some incentives here to try and stimulate some movements, or are they content to just wait for rates to turn and perhaps demand picks up? Are you starting to get more imbalance on price reductions or discounts or incentives?

Okay, that that's great color and then my follow-up. Is, you know what we've seen from from you and from from, from your, your suppliers is

Tremendously strong price prices holding uh which is good news but obviously boardings are incredibly weak. Um, what are you hearing from your contractors? Are they, are they asking for, you know, some incentives here to try and stimulate some movements, um, or are they consent to just wait for rates to, uh, to turn and perhaps uh, demand picks up? Are you starting to get more inbounds on price, reductions or discounts or incentives?

Paul Johnston: I do not think we are really getting a lot of feedback on getting lower prices in the market. There is not elasticity to this market. If we drop the price 2% or 3%, it is going to stimulate a 10% or 12% increase in volume. It is not going to happen. I think the contractor always wants the lowest price, the best price in the marketplace so that they can compete fairly. But I do not think we are getting a lot of pushback right now from most of the contractors on the price. Okay.

I don't think we're really getting a lot of feedback on on getting lower prices in the market. There's not a elasticity to this Market. If we drop the price 2 or 3%, it's going to, it's going to stimulate a 10 or 12% increase in in volume, it ain't going to happen.

So, you know, I think the contractor always wants the lowest price, the best price in the marketplace, so that they can compete fairly.

The contractors on the price.

Operator: Makes sense. Thanks, guys. Appreciate it.

Okay, makes sense. Thanks guys. Appreciate it.

Operator: Our next question will come from Sam Schneider with North Coast Research. Please go ahead.

And our next question will come from Sam Schneider with North Coast Research. Please go ahead.

Albert Nahmad: Hey, looking forward to morning. How are you?

Hey, all right, looking forward to morning. How are you?

Operator: Good. Looking forward for an excuse to come down to Miami, paid for by my mother. So thank you. Thank you.

Operator: You heard it. You did hear it loud and clear, right?

Operator: Oh, yeah.

Operator: Let's wait until it closes now. That was good. We will welcome you when you are coming.

Good looking, looking forward to an excuse to come down to Miami, uh, paid for by my employer. So, thank you. Thank you. So, you heard it? You did hear loud and clear, right? Yeah. Oh, yeah. Let's wait until it closes. That was great. You're welcome. You and your company.

Albert Nahmad: Oh, yeah. No, thank you. So, look, just focusing on the mix shift, which seemed to benefit margin on parts, was wondering if the shift was, in part, due to the canister shortage where you had people do more repairs for the time being.

Oh yeah, no, thank you. Um, so, uh, look just, uh, focusing on the makeshift, uh, which seemed to benefit margin.

On Parts was wondering, if the, the shift was, you know, in part, at all, due to the canister shortage where you, you know, you had people do more repairs uh for the time being.

Rick Gomez: Most of the canister shortage occurred in the first and the second quarter. It was something that we worked our way through. We made it through it. As I said, we are seeing a lot more inventory coming in. It is going out as quickly as it comes in. I see it stopping sometime in early August. Early August is, what, two weeks away? I do not think it is really playing on demand right now as heavily as it was before. I do not see any bubble capping on repair versus replace because of canisters.

You know, most of the canister shortage occurred.

In the first, in the first uh, in in the second quarter.

And it was something that we worked our way through. We made it through it. Now, as I said, we're seeing a lot more inventory coming in; it's going out as quickly as it comes in. I see it stopping sometime in early August.

Early. August is uh, what 2 weeks away.

So I don't think it's really plain On Demand right now. It is not as heavily utilized as it was before. I don't see any bubble happening on repair versus replacement because of canisters.

Albert Nahmad: Got it. Okay. Then just a real quick follow-up sort of on the same topic, but any sort of sizable shift to R32-based systems? If so, is that a temporary thing or more permanent in your view?

Rick Gomez: That is only one manufacturer. Daikin, which we represent very proudly with our Goodman and Amanda lines, is R32. The rest of the industry is 454. What we have seen is we have seen excellent response from Daikin to be able to help us with the 32. There has not been a shortage of 32. When you get into the 454, it has been Carrier, Rheem, American Standard. All of them sell 454 units. I would remind everybody that 454 is roughly 70% R32. It is a blend of 32 plus 1234 YF.

Got it. Okay. And then just, uh, a real quick follow-up sort of on the same topic, but any sort of uh sizable shift to R32-based systems? And, you know, if so, is that a temporary thing or more permanent in your view?

Well, that's the only one manufacturer.

Uh, Daikin, which we represent very proudly with our Goodman and a man of lines, is R32. The rest of the industry is 410A.

So, what we've seen is we've seen.

You know, excellent response from Daikin to be able to help us with the 32. There hasn't been a shortage of 32

You know, when you get into the 4:54, it's been carrier Rheem American Standard, um, all of them sell 4504 units.

And I would remind everybody that 4:54 is roughly 70% of our 32. It's a blend.

Of 32 + 1234 YF.

Operator: Keep tuning out. Did everybody tune out or is that just me?

Operator: Yeah, I think there's a pause there.

Keep tuning out. Everybody tune out. Is that just me? Yeah, I think I don't know. Pause there.

Rick Gomez: A big one.

Operator: I'm afraid there isn't.

A big 1.

Operator: There's him three times already.

That's happened. 3 times already.

Operator: Yeah. It paused him. Are you there?

Operator: Yeah.

Operator: Go?

Yeah, it was there. Yeah.

Operator: Yeah, I'm here.

Yeah, I'm here.

Operator: Not too sure.

Rick Gomez: Not you, Barry Logan, the operator. Operator.

The Operator, Operator.

Operator: Yes, I am here.

Yes, I'm here.

Operator: Why are we tuning out?

Is it? Why are you tuning out?

Operator: We can go to the next question.

Operator: Shall we go on to the next question? Our next question will come from Chris Danker with Loop Capital Markets. Please go ahead.

We can go to the shall we go on to the next question? Okay, yes.

Our next question will come from Chris danker with loop capital markets. Please go ahead.

A.J. Nahmad: Hey, morning, guys. Thanks for taking the question. I guess circling back to Watsco Inc, you guys sound excited and found this is a pretty big opportunity. Is there any way to get a bigger than a breadbox sense here? I mean, are we talking about serving 500 customer locations, 5,000, or is it too early to kind of get into that type of scaling?

Hey morning guys. Thanks for taking the question.

Um, I guess circling back to Watsco 1, you guys found excited about this. It's a pretty big opportunity. Is there any way to get a bigger than a bread box sense here? I mean, are we talking about serving 500 customer locations, 5,000, or is it too early to kind of get into that type of upscaling?

Operator: Maybe a better way to approach it is what is our existing sales of parts and supplies? What do we think we can provide? I don't want to speculate too much. What kind of margin improvement do we think we can get from that? It's a very big chunk of our business, 30%. 30% of $7.5 billion. How much of that could we improve our margins on? I'm not going to speculate, but there will be an improvement on it. You take any percent of that number and it's meaningful.

Well, maybe maybe a better way approach. Is what is our existing sales of parts and supplies?

and,

What do we think? We can pro? I don't want to speculate too much. What kind of margin improvement do we think we can get from this?

That's a very big chunk of our business, 30%.

30% of $7.5 billion.

How much of that could we improve our margins on? I'm not going to spend it, but there will be an improvement.

Right. But you take any percentage of that number, and it's meaningful?

A.J. Nahmad: Makes sense. Makes sense. Well, thanks for that. I guess maybe just to touch on the A.I. a little bit here, can you give us maybe some examples for what the use cases are for Ask Watsco internally? I mean, how is this kind of helping your associates? Is this inventory positioning? Is it warranty data? What's the real use case here?

Real use case here.

Operator: Oh, my gosh. There are so many. How much time do we have? It is helping marketing folks design content and publish content. It is helping our software engineers write code and publish and push more technology faster. It is helping our business unit leaders and their teams sort through data and understand trends and patterns and anomalies. It is helping our customer service folks get through more cases more quickly with more accurate answers and therefore helping our customers at a greater scale or greater rate and increasing customer satisfaction. I can go on and on and on. Like I think we said in the press release, there are about 2,100 people a week internally who are using these tools or the tool, and the ways that they are using it are more and more creative and vast.

Oh my gosh, there are so many. How? How much time do we have? Uh, it is.

it is, it is

It's helping, uh, marketing folks design content and publish content. It's helping our software engineers, uh, write code and publish and push more technology faster. Uh, it's helping our business unit leaders, um, and their teams sort through data and understand trends and patterns and anomalies. Uh, it's helping our customer service folks get to more.

Um, uh, get through more cases, more quickly with more accurate answers and, and therefore helping our customers at a greater scale or greater rate and increasing customer satisfaction, um, I I can go on and on, and on, and like, I could be said in the, in the press release, there's about 2100 people a week internally, who are using these tools or the tool.

Uh and the the ways that they're using, it are more and more creative and fast.

A.J. Nahmad: It really is holistic then. Got it. Well, thank you so much for that, A.J. And thank you all for the time.

So I mean it really is holistic then got it. Well thank you so much for that AJ and and thank you all for for the time.

Operator: Thank you.

Thank you.

Operator: Our next question will come from Chris Snyder with Morgan Stanley. Please go ahead.

Chris Snider with Morgan Stanley. Please go ahead.

Paul Johnston: Thank you. I wanted to follow up on the 410A inventory. I think you guys said it was less than 5% of your inventory. Do you have any sense, you know, for what that number could look like across your distributor competitors?

Um, thank you. So I wanted to follow up on the 4108 inventory. I think you guys have less than 5% of your inventory. Do you have any sense, um, you know, for what that number could look like across your distributor competitors?

Rick Gomez: No. I don't think we really have any good intelligence on that.

No.

I don't think we really have any good intelligence on that.

Operator: We try not to figure that. That's irrelevant.

Rick Gomez: No.

Operator: is being phased out. We do not really care.

Rick Gomez: Fair enough.

Operator: We are doing too.

Rick Gomez: Yeah. Chris, there's a couple of data points. I mean, I think, one peer of ours that also distributes their product gave a data point on that in terms of what their sell-through is, and it was pretty high. The other data point, these are all anecdotal. This is not science. It's aggregating anecdotes, is, when we are talking to M&A targets, what do they tell us about their philosophy and their positioning? As a reminder, most of this stuff was built prior to December 31st and shipped in the first quarter. So someone would have to make a pretty big bet on inventory and would have to really leverage their balance sheet to do that. Our sense, just by having these conversations in the channel with the M&A targets, is that they're largely phasing out of 410A at about the same pace we are.

And we try not to figure that that's irrelevant, but it's game phase that we don't really care. Yeah, Chris, there's ...

A couple data points. I mean, I I I think, you know, 1 1, peer of ours that that that uh also distributes their product gave a data point on that, um, in terms of what their sell through is and it was pretty high. The other data point. These are all anecdotal, this is not science, it's it's aggregating. Anecdotes

is you know when when we are talking to m&a targets what what do they tell us about their

you know, their philosophy and and their positioning and and

Um, you know as a reminder most of the stuff was built prior to December 31st and shipped in the first quarter. So

Someone would have to make a pretty big bet on inventory and would have to really leverage their balance sheet.

To to to um, to to, to do that. And so our sense just by having

these conversations in the channel with the M&A targets.

Is that they're largely you know, phasing out of 410. A uh at about the same Pace we are

Paul Johnston: Thank you. I appreciate that. I will get, you know, maybe follow up on a different sort of inventory question. You know, I guess it is kind of surprising that volumes remain down materially, it seems like, in July, you know, with the weather picking up. You know, does that change the way you guys think about how much inventory is downstream at your customers? You know, could they have been holding extra stock and perhaps that is why, you know, the sell-through has been softer? Thank you.

Thank you, I appreciate that.

Reference sort of inventory. Question, you know, I guess it's kind of surprising, um, that volume remained down materially. It seems like in July, um, you know, with, with, with the weather picking up. Yeah. Does that change the way? You guys think about how much inventory is Downstream at your customers? Um, you know, could they have been holding extra stock and perhaps, that's why, uh, you know, the, the sell through has been softer. Thank you.

Rick Gomez: I would say some of the bigger contractors may have some inventory. Inventory at the contractor level is not really material to our industry. It is being held at the distribution point, not at the contractor point. I do not think it is a big deal with the contractor. I would also remember that in Florida, it is either hot or hotter. It is not just hot all the time, it is hot. So we have not had a cold summer down here. We have not had a cold summer in Texas. The weather really impacts us up north where you have a chance out of every third year that you are going to have a hotter than normal summer or a normal summer or a lower than normal summer. We are definitely seeing a lot of regional differences in the volume based on weather.

I would say, some of the bigger contractors may have some inventory inventory at the uh, the contractor level is not

Not really material to our industry. It's, it's being held at the uh, at the distribution Point. Not at the contractor point.

So I don't think it's a big deal, you know, with the contractor. And I would always also remember that, you know, in Florida.

Rick Gomez: But in the south, we are not really seeing much movement because it is hot in Florida or hot in Texas. It is always hot.

It's either hot or hotter, it's not, it's not just hot, you know, all the time at the top. So we we've not had a cold summer down here. We've not had a cold summer in Texas, where the weather really impacts us is up north where we've got, uh, you know where it's you've got a, a chance out of every third year that you're going to have a hotter than normal summer or a normal summer or lower than normal summer. And so, we are definitely seeing a lot of regional differences in the volume based on whether but in the South, we're not really seeing much movement, uh, because it's hot in Florida or hot in Texas.

It's always hot.

Paul Johnston: Thank you. I appreciate that perspective.

Thank you. I appreciate that perspective.

Operator: This concludes the question and answer session. I would like to turn the call back over to Albert Nahmad for any closing remarks.

And this concludes the question-and-answer session. I'd like to turn the call back over to Albert Nahmad for any closing remarks.

Operator: Well, thank you for your interest. I love the questions, and that shows a lot of interest. I hope we've answered your questions fully. If not, please, please contact us on your own, and we'll respond to whatever questions you may still have. Other than that, I look forward to having you visit us in the cold months that are coming. We'll give you more detail. Thank you. Bye-bye.

and and it shows a lot of interest and I hope we've answered

Your questions at bully and if if not please please contact us on your own uh and we'll we'll respond to whatever questions you may still have.

And other than that, look forward to having you visit us in the in in the cold months that are coming.

We'll give you more more detail.

Thank you. Bye bye.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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