Q3 2025 Watsco Inc Earnings Call

Speaker #3: To be Latino .

Speaker #4: Music and welcome . Hello . Good day and welcome to the WATSCO INC incorporated Third Quarter Conference call . All participants will be in listen only mode .

Operator: Hello. Good day, and welcome to the Watsco Inc. third quarter conference call. All participants will be in listen-only mode. Should you need assistance, 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-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Albert Nahmad, Chairman and CEO. Please go ahead.

Speaker #4: Should you need assistance , 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 .

Speaker #4: You may press star , then one on a touchtone .

Speaker #5: Phone .

Speaker #4: To withdraw your question . Please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to Albert Nahmad chairman and CEO .

Speaker #4: Please go ahead .

Speaker #3: Good morning everyone . Welcome to our third quarter earnings call . And this is Al Nahmad , chairman and CEO . And with me is A.J.

Albert Nahmad: Good morning, everyone. Welcome to our third quarter earnings call. This is Albert Nahmad, Chairman and CEO, and with me is A.J. Nahmad, President of Watsco Inc., 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 that are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. I am pleased to report that Watsco Inc. generated healthy earnings and recorded cash flow despite a very challenging market environment. As we all know, 2025 is a year of significant transition to next-generation equipment containing A2L refrigerants. The transition affected roughly 55% of products sold and influenced most every aspect of our business. Regulatory changes have historically been good for our business and good for our customers.

Speaker #3: president of Watsco . Paul Johnston . Barry Logan and Rick Gomez . Before we start our normal cautionary statement , this conference call is forward looking statements as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws .

Speaker #3: Ultimate results may differ materially from the forward looking statements . I am pleased to report that WATSCO INC generated healthy earnings and record cash flow , despite a very challenging market environment .

Speaker #3: As we all know , 2025 a year of significant transition to next generation equipment containing a to L refrigerants , the transition affected roughly 55% of products sold and influenced most every aspect of our business .

Speaker #3: Regulatory changes have historically been good for our business and good for our customers . In the long term , we expect this transition to be no different .

Albert Nahmad: In the long term, we expect this transition to be no different. The transition is substantially complete, and we look forward to operating a far simpler business in 2026. Throughout all of the volatility, we are satisfied that our earnings are largely intact, our balance sheet remains strong, and our technology advantages remain immense. We certainly expect the volatility is temporary and will ease as the transition concludes. We operate in a great industry with strong long-term fundamentals and have the industry's most accomplished leadership team, all with long-term focus to keep building on our success. Turning now to our third quarter results. Sales declined 4% in total and 3% in the U.S. While unit volumes remain subdued, we achieved double-digit pricing gains on the new products with growth in sales for both non-equipment and commercial refrigeration products. We again improved gross margins, which expanded 130 basis points to 27.5%.

Speaker #3: The transition is substantially complete and we look forward to operating a far simpler business in 2026 . Throughout all of the volatility , we are satisfied that our earnings or largely intact .

Speaker #3: Our balance sheet remains strong and our technology advantages remain immense . We certainly expect the volatility as temporary and will ease as it transition concludes .

Speaker #3: We are paying a great industry with strong long term fundamentals and have the industry's most accomplished leadership team , all with long term focus to keep building on our success .

Speaker #3: Turning now to our third quarter results . Sales declined 4% in total and 3% in US , while unit volumes remained subdued . We achieved double digit pricing gains on the new products , with growth in sales for both equipment and commercial refrigeration products .

Speaker #3: We again improved gross margins , which expanded 130 basis points to 27.5% . As we have expressed before , we have several ongoing initiatives to enhance growth margins for long term goals of exceeding 30% .

Albert Nahmad: As we have expressed before, we have several ongoing initiatives to enhance gross margins for long-term goals of exceeding 30%. Operating expenses increased 5%, reflecting a measure of ongoing inefficiency tied to the product transition, as well as new and acquired locations. With the product transition largely behind us, we expect SG&A performance to improve from here. We continue to fortify our balance sheet, reducing inventories and overall working capital. We generated a record third-quarter cash flow of $355 million with incremental opportunity in the fourth quarter as we close out the year. We remain fundamentally positive and optimistic about our position in the industry and our ability to generate growth. Our balance sheet has a healthy cash position and no debt, providing us with the opportunity to invest in most any size growth opportunity. This includes the capacity to co-invest with our OEM partners as we head into 2026.

Speaker #3: Operating expenses , increased 5% , reflecting a measure of ongoing inefficiency tied to the product transition . As well as new and acquired locations .

Speaker #3: With the product transition , transition largely behind us . We expect performance to improve from here . We continue to fortify our balance sheet , reducing inventories and overall working capital .

Speaker #3: We generated record third quarter cash flow of $355 million in incremental opportunity in the fourth quarter , as we close out the year .

Speaker #3: We remain fundamentally positive and optimistic about our position in the industry and our ability to generate growth . Our balance sheet has a healthy cash position and no debt , providing us with opportunity to invest in most any size , growth opportunity .

Speaker #3: This includes the capacity to co-invest with our OEM partners as well as heading into 2020 . As we head into 2026 . We also continue to invest in innovation in technology that separates us from our competitors .

Albert Nahmad: We also continue to invest in innovation and technology that separates us from our competitors. We have made terrific progress in driving adoption. For example, e-commerce penetration continues to grow and accounts for 34% of our sales and up to 60% to 70% in certain U.S. markets. Let me say it again. E-commerce penetration continues to grow and accounts for 34% of our sales and up to 60% to 70% in certain U.S. markets. The number of contractors and technicians engaged with our mobile apps now stands at 72,000 users and grew an impressive 18%. That means that 72,000 of our customers are using our technology. The annual run rate of sales through OnCall Air, our digital selling platform for contractors, saw a 19% increase in the gross merchandise value of products sold through the platform, reaching $1.7 billion over the last 12 months.

Speaker #3: We have made long term progress in driving adoption . I should say we have made terrific progress in driving adoption . For example , e-commerce penetration continues to grow and accounts for 30% of our sales in up to 60 to 70% in certain U.S.

Speaker #3: markets . Let me say it again . E-commerce penetration continues to grow and accounts for 30% , 34% . I should say , of our sales add up to 60 to 70% in certain US market .

Speaker #3: The number of contractors and technologists and the number of contractors that technicians engaged with our mobile app now stands at 72,000 users and grew an impressive 18% .

Speaker #3: That means that 72% , I should say 72,000 of our customers are using our technology . The annual run rate of sales through on call air , our digital selling platform for contractors , saw a 19% increase in the gross merchandise value .

Speaker #3: Of products sold through the platform and reaching $1.7 billion over the last 12 months . We are also making next generation investments to enhance our competitive position .

Albert Nahmad: We are also making next-generation investments to enhance our competitive position. For example, we are developing new technology aimed at capturing more sales from the institutional customer. We are accelerating the use of pricing optimization tools to make progress toward our 30% plus gross margin target. We have launched a new initiative to compete and grow sales in the highly fragmented non-equipment market, which today is roughly 30% of our sales. We have begun to harness the power of artificial intelligence, both internally and externally, offering potential to further transition our customer experience, improve operating efficiency, and create new data-driven growth strategies. Our technology investments are making a big difference, and we believe the impact is only going to grow with time. We look forward to sharing more during our upcoming investor meeting in Miami in December. I can't wait to see and meet you all this December.

Speaker #3: For example , we are developing new technology aimed at capturing more sales from the institutional customer . We are accelerating the use of pricing optimization tools to make progress toward 30% plus gross margin target .

Speaker #3: We have launched a new initiative to and grow sales in the highly fragmented equipment non equipment . I should say non equipment market , which today is roughly 30% , 30% of our sales .

Speaker #3: And we have begun to harness the power of artificial intelligence , both internally and externally . Offering potential to further transition our customer experience , improve operating efficiency and create new data driven growth strategies .

Speaker #3: Our technology investments are making a big difference , and we believe the impact is only is only . Excuse me . Clear my throat .

Speaker #3: Rio Negro , with time . I look forward to sharing more during our upcoming investor meeting in Miami in December . I can't wait to see you and meet you all .

Speaker #3: This December . These investments , along with our scale , entrepreneurship , culture and capacity to invest , are unmatched in our industry .

Albert Nahmad: These investments, along with our scale, entrepreneurship culture, and capacity to invest, are unmatched in our industry. With that, let's turn to Q&A.

Speaker #3: With that, let's turn to Q&A.

Speaker #4: We will now begin the question and answer session . To ask a question , you may press star , then one on your touch tone phone .

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone 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 your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Tommy Moll of Stephens. Go ahead, please.

Speaker #4: If you are using a speakerphone , please pick up your handset before pressing the keys . If at any time your question has been addressed and you would like to withdraw your question , please press star then two .

Speaker #4: At this time, we will pause momentarily to assemble our roster. The first question comes from Tommy Mole of Stephens. Go ahead, please.

Speaker #3: Good morning . Tom .

Speaker #6: Good morning . Morning , Alan . Thanks for taking my questions .

[Analyst]: Morning, Tommy. Morning. Morning, Albert. Thanks for taking my questions.

Speaker #3: Of course . .

Albert Nahmad: Of course.

Speaker #6: I want to start with a question on the repair versus replace dynamic. It's been a couple of quarters in a row now where your equipment business trends have been.

[Analyst]: I want to start with a question on the repair versus replace dynamic. It's been a couple of quarters in a row now where your non-equipment business trends have been well ahead of the equipment trends. You've obviously been very disciplined on pricing for the new equipment. I'm curious, is the simplest explanation here just that we're seeing some price elasticity among homeowners, or is there something else you might call out?

Speaker #6: Well ahead of the equipment trends . You've obviously been very disciplined on pricing for the new equipment . And so I'm curious , is the simplest explanation here , just that we're seeing some price elasticity among homeowners .

Speaker #6: Or is there something else you might call out?

Speaker #3: I'm going to let Paul Johnson respond to that.

Albert Nahmad: I'm going to let Paul Johnston respond to that.

Speaker #7: Yeah . You know , it's it's not a repair versus replace . It's a repair and replace . I think we said that on the last call .

Paul Johnston: Yeah. You know, it's not a repair versus replace. It's repair and replace. I think we said that on the last call. What we've seen is the larger dealers that have salespeople generally don't sell compressors and motors. They generally sell the equipment side. What we see with the people that don't have an in-home salesperson is they will repair the unit. We see a dichotomy there amongst our customers. Also, there's a geographic spread where, you know, if you're in Illinois or, excuse me, Pennsylvania, and you've got an 11-year-old unit in your house, you're generally going to repair it and not replace it. It's got a 20-year life. In Florida, Texas, where you've got a shorter life, I think generally you're going to replace it with a piece of equipment.

Speaker #7: What we've seen is the larger dealers that have salespeople generally don't sell compressors and motors . They generally sell the equipment side . And what we see with with the people that don't have an in-home sales is they they will repair the unit .

Speaker #7: So we see a dichotomy there amongst our customers . Also , there's a geographic spread where , you know , if you're in Illinois or excuse me , Pennsylvania , and you've got an 11 year old unit in your house , you're generally going to repair it and not replace it .

Speaker #7: It's got a 20 year life in Florida , Texas , where you've got a shorter life . I think generally you're going to replace it with a a piece of equipment .

Speaker #7: So it's it's really it's really difficult to put your finger exactly on , you know , where and who is creating a repair versus replace market .

Paul Johnston: It's really difficult to put your finger exactly on where and who is creating a repair versus replace market.

Speaker #8: And just , just some data some data behind that . We you know , when we say non equipment , there are really two , two things that are not equipment parts and supplies .

Albert Nahmad: Just some data behind that. When we say non-equipment, there are really two things that are not equipment: parts and supplies. That's maybe a more direct way of calling that category something, parts and supplies. Parts basically is 8% of Watsco Inc.'s revenues, parts. Supplies, everything else, is over 20% of Watsco Inc.'s revenues. In the scope of the bandwidth of that discussion, parts will never substitute what's happening in the replacement market in that discussion. The data just isn't there to support that. At the end of the day, it's the consumer that's spending $8,000, $10,000, $12,000 on a pair of new machines for their home. As Paul's suggesting, and where we see in the Sunbelt, that's a more frequent purchase and a more ordinary purchase and a more necessity purchase. We do see some differences as we go north of the Sunbelt. We do like it that Watsco Inc.

Speaker #8: That's maybe be a more direct way of calling that category something parts and supplies . So parts basically is 8% of Watsco's revenues .

Speaker #8: Parts and supply is everything else is over 20% of Watsco's revenues . So just in the scope of of , you know , the bandwidth of that discussion , parts is we'll never substitute what's happening in the replacement market in that , in that discussion , the data just doesn't isn't there to support that .

Speaker #8: So at the end of the day , it's the consumer that's spending eight , ten , $12,000 on on a pair of new machines for their home .

Speaker #8: As Paul suggesting where we see in the Sunbelt , that's a more frequent purchase and a more ordinary purchase and a more necessity purchase .

Speaker #8: And we do see some differences as we go north of the Sunbelt . So we do like it that Watsco's , you know , 75% in the Sunbelt in that respect .

Albert Nahmad: is 75% in the Sunbelt in that respect. It's really, I think, more of the crux of the answer is built on what are consumers spending on their homes right now. That's probably the bigger orientation to this than whether we're selling more compressors or not versus the replacement market.

Speaker #8: But it's really , I think , more the crux of the answer is , is built on what are consumers spending on their homes right now .

Speaker #8: And , and that's , that's the probably the bigger the bigger orientation to this than whether we're selling more compressors or not versus the replacement market .

Speaker #6: Yep . As a follow up , maybe we'll address the elephant in the room here . Maybe just take it on directly . Yesterday carrier mentioned that there October distributor movement was down 30% and that they expect something like down mid 20s for November and December .

[Analyst]: As a follow-up, maybe we'll address the elephant in the room here. Maybe just take it on directly. Yesterday, Carrier mentioned that their October distributor movement was down 30% and that they expect something like down mid-20% for November and December. Does all that sound reasonable enough in terms of what you have seen or expect to see for your equipment business this quarter? Should we think of that in terms of volumes or sales?

Speaker #6: Does all that sound reasonable enough in terms of what you have seen or expect to see for your equipment business this quarter ? And should we think of that in terms of volumes or sales ?

Speaker #3: Well , that's a very good question . And I don't think we're out of the woods yet . So there's some merit to that .

Albert Nahmad: That's a very good question. I don't think we're out of the woods yet, so there's some merit to that. Who wants to add more to that? Is it you, Paul, or A.J., or Barry?

Speaker #3: Who wants to add more to that ? Is it you , Paul , or AJ ? Yeah , we .

Speaker #7: You know , I think it's pretty much in line . You got to remember that the shipment data that you're seeing was up last year as a lot of the OEMs were shipping all that for ten in .

Paul Johnston: Yeah. I think it's pretty much in line. You know, you got to remember that the shipment data that you're seeing was up last year as a lot of the OEMs were shipping all that 410 in. The shipment data coming out of HRI really isn't going to be indicative of what's going on in the market. When you look at the actual unit sales, you know, without the price increase, yeah, I think they're pretty much in line with what the market is showing. Now, that's going to vary from region to region. Once again, we're seeing some real strength in certain parts of the country, and we're seeing definite weaknesses in others. You know, it's not across the board.

Speaker #7: So the shipment data coming out of re really isn't going to be indicative of what's going on in the market . But when you look at the the actual unit sales , you know , without the price increase , I think they're pretty much in line with what the market is showing now .

Speaker #7: That's going to vary from region to region . Once again , we're we're seeing some real strength in certain parts of the country .

Speaker #7: And we're seeing definite weaknesses in others , you know ? And so it's it's not across the board .

Speaker #3: That in aggregate , we are not seeing increase in demand . Know in the fourth quarter in aggregate , it's still below this time last year .

Albert Nahmad: In aggregate, we are not seeing an increase in demand in the fourth quarter. In aggregate, it's still below this time last year. This time last year, it was an extraordinary quarter. Nevertheless, we're seeing that, and we're dealing with it. We're getting more productive in our operations and more efficient given the lower volumes that temporarily are lower. We are adjusting to the circumstances.

Speaker #3: Now this time last year , it was an extraordinary quarter . But nevertheless we're seeing that and we're dealing with it . We're getting more productive in our operations and more efficient given the lower volumes that temporarily are lower and we are adjusting to the circumstances .

Speaker #8: Just .

[Analyst]: Just to clarify one aspect of that, Tommy, the 20 to 30% is unit volumes, not sales dollars. I want to be clear about that.

Speaker #9: Just to clarify , one , Tommy , just to clarify , one aspect of that is that the the , the 20 to 30% is , is unit volumes , not sales dollars .

Speaker #9: I want to be clear about that .

Speaker #6: You read my mind .

Speaker #8: And I , I mean , let me just now a little bit of therapy about it just to be again very direct about it .

Albert Nahmad: Yeah. Let me just now do a little bit of therapy about it just to be, again, very direct about it. So we're clear. A year ago, fourth quarter unit volumes for Watsco Inc. were up almost 20%, right, between 15% and 20%. A year later, the variance is going to be, you know, exposed to that comparable, right? After the fourth quarter is when things started to become, I would say, less extreme in that regard. I think the fourth quarter a year ago is still in the context of the transition started. The 410A availability was at its peak. The contractors, builders, national accounts, whomever it was, was drawing on distribution for 410A because they could get it. It's really the last of the cyclical things in this discussion, I think, about the transition is the fourth quarter. Now, it's the smallest quarter of the year.

Speaker #8: So so we're clear a year ago , fourth quarter unit volumes , unit volumes for Watsco were up almost 20% between 15 and 20% .

Speaker #8: And a year later the variance is going to be , you know , exposed to that that comparable right . And then after the after the fourth quarter is when things started to become , I would say , less extreme in that , in that , in that regard .

Speaker #8: So I think the fourth quarter a year ago is still in the context of the transition started the fourth TNA availability was at its peak , be it contractors , builders , National accounts , whomever it was was drawing on distribution for for ten A because they could get it .

Speaker #8: And it's really the last of the cyclical things in this discussion. I think about the transition is the fourth quarter. Now it's the smallest quarter of the year.

Speaker #8: It's off season and it'll be either there obviously is noise in the fourth quarter this year , but it really doesn't bear a resemblance as we go forward into next year as a consequential trend , I would say it's more about the comp of a year ago than than whether the market has changed any at all .

Albert Nahmad: It's off-season, and there obviously is noise in the fourth quarter this year. It really doesn't bear a resemblance as we go forward into next year as a consequential trend, I would say. It's more about the comp a year ago than whether the market has changed any at all in the last, you know, 20 days.

Speaker #8: In the last , you know , 20 days .

Speaker #6: Sure .

Speaker #8: I think . that last that last sentence .

[Analyst]: Sure. I think that last sentence summarizes it very well. The pacing, our pacing and the industry pacing is roughly the same. The comp changes in Q4. Thank you all for the insight. I'll turn it back.

Speaker #10: Summarizes that the pacing, or pacing and the industry pacing, is roughly the same. The COP changes in Q4.

Speaker #6: Thank you all for the insight . I'll turn it back .

Speaker #3: Rick . Is there something you want to add to the work you've done ?

Albert Nahmad: Rick, is there something you want to add to the work you've done?

Speaker #9: Yeah , I think I mean , it's obviously it's been a fluid market and one of the one of the noisiest year in years in our industry in recent memory .

[Analyst]: Yeah. I think, I mean, it's obviously been a fluid market and one of the noisiest years in our industry in recent memory. By the way, with all that noise, our earnings are largely intact. I think that says a lot about the resiliency of our business model and of distribution in general. If we step back, let's examine kind of the big macro factors. We don't have influence over interest rates. We can't influence consumer sentiment or new housing completions or existing home sales. These are all things that impact the unit movement numbers that everyone is focused on. We have control and we have influence over many other things. We have control over how many customers we serve, and that's been growing steadily over time. We have influence over our margins, and that too has steadily improved with more upside to go, we think.

Speaker #9: And by the way , with all that noise , our earnings are largely intact . And , and I think that that says a lot about the resiliency of , of our business model and of distribution in general .

Speaker #9: But but if we step back , you know , let's an examine kind of the big macro factors . We don't have influence over interest rates .

Speaker #9: We we can't influence consumer sentiment or new housing completions or existing home sales . These are all things that impact , you know , the unit movement numbers that everyone is is focused on .

Speaker #9: But we have control, and we have influence over many other things. We have control over how many customers we serve, and that's been growing steadily over time.

Speaker #9: We have influence over our margins . And that too has steadily improved with more upside to go . We think we have control over our expenses , and we're taking steps to improve efficiencies with the product transition now largely behind us , we control our inventory and as you can see , we made great progress to improve working capital and cash flow in the quarter .

[Analyst]: We have control over our expenses, and we're taking steps to improve efficiencies with the product transition now largely behind us. We control our inventory, and as you can see, we made great progress to improve working capital and cash flow in the quarter. We have influence on how we partner with OEMs, and we're right now developing aggressive growth strategies with our key partners for next year. We control our balance sheet, and of course, it's never been stronger. We control our technology, which is, I think, the most important competitive advantage we have, with more innovation being introduced right now in real time to help future growth. Even as we navigate this, admittedly, fluid industry dynamic, I think we've done a great job of acting on the things within our control, and we will continue to do so. Thank you all. I'll turn it back.

Speaker #9: We have influence on how we partner with OEMs , and we're right now developing aggressive growth strategies with our key partners for next year .

Speaker #9: We control our balance sheet . It's and of course , it's never been stronger . And we control our technology , which is I think the the most important competitive advantage we have .

Speaker #9: And with more innovation being introduced right now in real time to help future growth . So even as we navigate this admittedly fluid industry dynamic , I think we've done a great job of acting on the things within our control , and we will continue to do so .

Speaker #6: Thank you all . I'll turn it back .

Speaker #4: The next question comes from Ryan Merkel of William Blair . Go ahead , please .

Operator: The next question comes from Ryan Merkel of William Blair. Go ahead, please.

Speaker #3: Morning , Ryan .

Speaker #11: Yeah . Hey , hey . Morning , all . I want to follow up on the fourth quarter . Could you just comment on what you've seen ?

Albert Nahmad: Morning, Ryan.

[Analyst]: Yeah. Hey, morning all. I want to follow up on the fourth quarter. Could you just comment on what you've seen quarter to date in terms of total sales?

Speaker #11: Quarter to date in terms of total sales ?

Speaker #3: It's soft .

Albert Nahmad: It's soft.

Speaker #11: Okay . Gotcha . So yeah , it sounds like your biggest supplier is talking about units down 30% . It sounds like we're not totally disagree with that .

[Analyst]: Okay. Gotcha. It sounds like your biggest supplier is talking about units down 30%. It sounds like you don't totally disagree with that.

Speaker #3: No , no we're not we're not in that arena of softness . Not even close . It's single digit . You know , it's probably mid single digit so far in revenue .

Albert Nahmad: No, we're not. We're not in that arena of softness. Not even close. We're single-digit. It's probably mid-single-digit so far in revenue.

Speaker #3: Okay .

[Analyst]: Okay. That's helpful. Okay, so mid-single-digit decline, and then I'm curious.

Speaker #11: That's that's helpful okay . So mid-single digit decline . And then I'm .

Speaker #3: Single digit in the single digit . Now . And maybe a little bit higher in the start of the quarter I would say more accurately is it a very what is it 510% in that area .

Albert Nahmad: In the single-digit now, and maybe a little bit higher in the start of the quarter, I would say more accurately, is it a very, what is it, 5, 10% in that area? Yeah. I would give that a range. It's October. It's not the rest of the year. In that 5 to 10% range decline in dollars is how I'd characterize it.

Speaker #8: Yeah I would give that a range . It's October . It's not the rest of the year . But in that 5 to 10% range decline in dollars is how I'd characterize it .

Speaker #11: Okay . All right . That that's not too different than I think most of us are expecting . And then I'm curious if you talk about the third quarter , the shape of the quarter , it sounded like July started off kind of flat , right year over year .

[Analyst]: Okay. All right. That's not too different than I think most of us were expecting. I'm curious, if you talk about the third quarter, the shape of the quarter, it sounded like July started off kind of flat, right, year over year. From what I heard, August was really rough. September was also tough. A two-part question, is that what you saw? What do you think the reason is that, you know, the unit volume just fell off so much in August and September?

Speaker #11: And then from what I heard , August was really rough . September was also tough . So two two part question , is that what you saw ?

Speaker #11: And then what do you think the reason is that the unit volume just fell off so much in August and September .

Speaker #3: Very well. Paul, do you want to deal with that?

Albert Nahmad: Barry, Paul, you want to deal with that?

Speaker #7: Oh , Barry , do you want to grab that one ? I .

[Analyst]: I don't know. Barry, do you want to grab that one?

Speaker #8: Because contractors installed fewer systems .

Paul Johnston: Because contractors installed fewer systems.

Speaker #7: I don't know what . Yeah .

[Analyst]: I don't know what.

Speaker #3: Yeah .

Paul Johnston: Yeah. I mean, again, if we consider the number of units that did decline, put it in, you know, a unit number, and then ask the question, what makes up the, what are the components of the unit decline? New construction is the largest component of that discussion. We can see it in, we can see our customers. We can see the special pricing we give. We can count the number of units we sell into new construction. It was down as a percentage, down the most in that overall discussion. I don't know offhand if that got worse in August and September. That's a little granular for my brain this morning. Right. That's the largest component of the discussion.

Speaker #8: Yeah I mean . Again , if we if we consider the number of units that did decline , put it in a unit number and then ask the question , what makes up what makes up the what are the components of the unit decline ?

Speaker #8: New construction is the largest component of that discussion . We can see it in . We can see our customers . We can see the special pricing we give .

Speaker #8: We can count the number of units we sell into new construction, and it was down as a percentage, down the most. And that overall discussion, and I don't know offhand if that got worse.

Speaker #8: And in August and September , that's a little granular for my brain this morning .

Speaker #7: Right .

Speaker #8: But that's the largest component of the discussion . So if interest rates or home building activity or existing home sales get generated in the forward period over the next 12 months , that's an opportunity because that is the largest component of both the quarter and the year to date decline in units .

Paul Johnston: If interest rates or home building activity or existing home sales get generated in the forward period over the next 12 months, that's an opportunity because that is the largest component of both the quarter and the year-to-date decline in units. In terms of the replacement market and everything else, there's always a measure of consumer discretion, always, when a contractor walks in and says, "This thing will cost you $10,000, $12,000." To the extent the consumer is either tighter or worried or credit crunched or more paralyzed in some way about spending $10,000, $12,000 or more on something, it's going to affect. Now, did that get worse in August and September? It looks like it. Is it permanent or temporary? Is it long-term or short-term? We'll see. At least in our industry's history, it's never long-term. It's always a short-term dynamic. Anyways, that's just some big-picture thoughts on that.

Speaker #8: And on the terms of the replacement market and everything else, there's always a measure of consumer discretion. Always when a contractor walks in and says this thing will cost you $10,000, $12,000.

Speaker #8: And to the extent that the consumer is either tighter or worried, or credit-crunched, or more paralyzed in some way about spending $10,000 or $12,000 or more on something, it's kind of sect.

Speaker #8: Did that get worse in August and September ? It looks like it is . It permanent or temporary ? Is it long term or short term ?

Speaker #8: We'll see . At least in our industry's history , it's never long term . It's always a short term dynamic . And but anyways , that's just some big picture .

Speaker #8: Thoughts on that .

Speaker #11: Okay , I appreciate it . I know that's kind of a hard question to answer , so appreciate you entertaining it . I'll pass it on .

[Analyst]: Okay. I appreciate it. I know that's kind of a hard question to answer, so I appreciate you entertaining it. I'll pass it on. Thanks.

Speaker #11: Thanks .

Speaker #4: The next question comes from David Manthey of Baird . Go ahead please .

Operator: The next question comes from David Manthey of Baird. Go ahead, please.

Speaker #3: Morning , David .

Albert Nahmad: Morning, David.

Speaker #12: Morning , al . Thank you . I feel like I'm in a parallel universe here . In 25 years , covering Watsco . This is a closest I've come to hearing guidance .

[Analyst]: Morning, Al. Thank you. I feel like I'm in a parallel universe here. In 25 years covering Watsco Inc., this is the closest I've come to hearing guidance. It's pretty amazing. As long as we're talking about it, the minus 5% to 10% revenue declines in the fourth quarter, we're talking about equipment only there, correct?

Speaker #12: It's pretty amazing . But as long as we're talking about it , the -5 to 10% revenue declines in the fourth quarter , we're talking about equipment only there .

Speaker #12: Correct ?

Speaker #8: No , we did not give guidance . We did not give guidance . We we gave a we gave a percentage of what we see thus far in the quarter in October .

Paul Johnston: No, we did not give guidance. We did not give guidance. We gave a % of what we see thus far in the quarter in October.

Speaker #12: But in equipment . Barry . Right .

[Analyst]: In equipment, Barry, right?

Speaker #3: No overall .

Paul Johnston: No, that's overall revenue. No, that's overall.

Speaker #8: No . That's overall total . Yeah .

[Analyst]: Total. Yeah, overall. Okay. Fair. Okay. All right. If you believe in this, the normalization theme here, you have a lot of cash, no debt, you have a healthy dividend. You've always invested organically as needed. The stock seems to be on sale here. Is there a thought about allocating some of your cash hoard to more aggressive share repurchase at these levels?

Speaker #12: Overall okay . Fair fair okay . All right . And then you know if you believe in this the normalization theme here , you have a lot of cash .

Speaker #12: No debt . You have healthy dividend . You've always invested organically as needed . The stock seems to be on sale here . Is there a thought about allocating some of your cash hoard to more aggressive share repurchase at these levels ?

Speaker #3: That's an excellent question . And I've thought about it . We've thought about it . But on the other hand , the softness in the industry creates perhaps opportunities for us to do more acquisitions because I would say when we compare our financial strength to others , we're at the top of the heap .

Albert Nahmad: That's an excellent question. I've thought about it. We've thought about it. On the other hand, the softness in the industry creates perhaps opportunities for us to do more acquisitions. I would say when we compare our financial strength to others, we're at the top of the heap. There may be some distributors that finally want to venture with us, either as a joint venture or sell to us altogether. We don't know, but we have to remain open to the possibility that we may be able to step up our acquisition activity. I don't know that it's going to happen, but we have to be ready to do that. We will use our capital to acquire more distributors if we have that opportunity.

Speaker #3: And it may be some distributors that finally want to venture with us . Either as a joint venture or sell to us altogether .

Speaker #3: We don't know , but we have to remain open to the possibility that we may be able to step up our acquisition activity .

Speaker #3: I don't know that it's going to happen , but we have to be ready to do that and we will . We will use our capital to acquire more distributors .

Speaker #3: If we Yeah .

Speaker #3: have that opportunity .

[Analyst]: Yeah, I appreciate that, Al. Okay, thank you.

Speaker #12: I appreciate that, Al. Okay. Thank you.

Speaker #4: The next question comes from Jeffrey Sprague of Vertical Research Partners . Go ahead please .

Operator: The next question comes from Jeffrey Sprague of Vertical Research Partners. Go ahead, please.

Speaker #3: Morning , Jeffrey .

Albert Nahmad: Morning, Jeffrey.

Speaker #13: Hey . Hey . Good morning al . Good morning everyone . I just wanted to come back to to inventories . It was nice to see that sequential step down in Q3 .

[Analyst]: Hey, good morning, Al. Good morning, everyone. I just want to come back to inventories. It was nice to see that sequential step down in Q3. I just want to think about where we end the year. Obviously, a lot of that depends on things that you said you can't control, like end demand and the consumer and all those sorts of things. What is your view at this point in time of sort of how you end the year, how close to normal inventories you might be? As you obviously then start to pivot to focus into 2026.

Speaker #13: Just want to think about where we end the year . Obviously , a lot of that depends on things . You said you can't control , like end demand in the consumer and all and all those sorts of things .

Speaker #13: But what is your view at this point in time of sort of how you end the year , how close to normal inventories you might be ?

Speaker #13: You know, as you obviously then start to pivot to focus into 2026.

Speaker #3: Well , I would say that maybe a general reply as distinct from a , a specific fourth quarter reply , we want to increase our inventory turns , and that effort will continue into the fourth quarter .

Albert Nahmad: I would say that maybe a general reply, as I was thinking about a specific fourth quarter reply. We want to increase our inventory turns, and that effort will continue into the fourth quarter and in the future. We're going to get better at inventory turns, and that's our goal. I think I've answered your question. That is a focus, and we certainly have the capability with our technology to do something about it. We're doing it, as you can tell. The inventory is coming down, and it's coming down again in the fourth quarter, and the turns are slightly increasing. Now, turns create more cash for us, and we like that.

Speaker #3: And in the future, we're going to get better at inventory turns, and that's our goal. So I think I've answered your question.

Speaker #3: That is that is a focus . And we certainly have the capability with our technology to do something about it . And we're doing it as you can tell , the inventory is coming down and it's coming down again in the fourth quarter .

Speaker #3: And the turns are slightly increasing . Create more , more cash for us . And we like that .

Speaker #8: I mean .

Speaker #13: I like more cash to .

[Analyst]: Yeah, I mean, I like more cash too.

Speaker #8: Yeah , there's there's really two , two curiosities and the one you're asking about is will our distribution channel at Watsco be in a more conventional position .

Paul Johnston: Yeah, there's really two curiosities. The one you're asking about is, will our distribution channel, Watsco Inc., be in a more conventional position, right? That's your, and that's really almost an OEM orientation that then asks the question, you know, does the inventory been reset in line with some kind of, you know, so that you understand what I'm saying?

Speaker #8: Right . That's your and that's really almost an OEM orientation that that then asks the question does as the inventory been reset in line with some kind of you know , so that you understand what I'm saying .

Speaker #8: And so and so yeah , there's there's a lot of progress in in the third quarter , more progress in the fourth . And you could you could look analytically , where are we today versus history .

[Analyst]: Yes, absolutely.

Paul Johnston: Yeah, there's a lot of progress in the third quarter, more progress in the fourth. You could look analytically, where are we today versus history, and answer the question, and I can help you with that. What Al's saying is, how does inventory affect us looking forward? You know, what if we had five inventory turns instead of four? What would that do to our return on invested capital? What would that do to our real estate? What would that do to our cash flow? What would it do to the overall handling and load that we carry in our stores if we had less, you know, less inventory and better turns? What if we had better technology with our OEM partners to replenish our stock every day? Those are the bigger things we are focused on while trying to reduce inventory by the end of the year.

Speaker #8: And answer the question . And I can help you with that . But what else is saying is , is how does inventory affect us .

Speaker #8: Looking forward ? You know what if we had five inventory turns instead of four , what would that do to our return on invested capital ?

Speaker #8: What would that do to our real estate? What would it do to our cash flow? What would it do to the overall handling and load that we carry in our stores?

Speaker #8: If we had less , you know , less inventory and better turns ? What if we had better technology with our OEMs to replenish our stock every day ?

Speaker #8: Those are the bigger those are the things we are focused on . While trying to reduce inventory . By the end of the year .

Speaker #8: And you can you can understand that it's a a longer term perspective from our from our point of view . And while we're just trying to get the the year end inventory in line to have an frankly , a strong , a strong hand , a strong capital base to flow into next year .

Paul Johnston: You can understand that it's a longer-term perspective from our point of view. While we're just trying to get the year-end inventory in line to have, frankly, a strong hand, a strong capital base to flow into next year. I think we said last quarter we were targeting $500 million of reductions by year-end. Second quarter or third quarter was $350 million of that. I think we can improve on the $500 million target. It's a slower time of year to say that. By the end of the year, I think inventories will be near historical levels versus the size of our company.

Speaker #8: And so I think we said last quarter , we were targeting $500 million of reductions by year end and second quarter or third quarter was 350 million of that .

Speaker #8: I think we can improve on the $500 million target . It's a slower time of year to say that . But by the by the end of the year , I think inventories will be near historical levels versus the size of our company .

Speaker #3: Let me say again , yeah , the when we say inventory turns , we are presently at about 3.6 , 3.7 . We want to be a lot better than that very use of numbers that he was just throwing numbers out there .

Albert Nahmad: Let me say, when we say inventory turns, we are presently at about 3.6, 3.7. We want to be a lot better than that. Very useful numbers, but he was just throwing numbers out there. I'm giving you more specific numbers. We have an opportunity to significantly improve inventory turns, which also significantly increases our cash flow and becomes a more productive part of our business with higher inventory turns. We have the ability to get our manufacturers to participate in that because generally, we're their largest customer, and we have the largest impact on the market. That's what we're doing with them and with our own technology to do better with what we have to achieve the higher turns. I like it. I like higher turns, and I like higher cash flow. I mean, we're at $600 million in cash flow right now in the bank.

Speaker #3: I'm giving you more specific numbers . So we have we have an opportunity to significantly improve inventory turns , which also significantly increases our cash flow .

Speaker #3: And becomes a more productive part of our business with with higher inventory turns . And we have the ability to get our contract or manufacturer to participate in that , because generally we're the largest customer and we have the largest impact on the market .

Speaker #3: And that's what we're doing with them and with our own technology to to do better with what we have to achieve . The higher turns .

Speaker #3: But I like it . I like higher turns and I like higher cash flow . I mean , we at 600 million in cash flow right now in the bank .

Speaker #3: I'd like to see that number get larger because I'd like to have the ability to do almost any transaction that comes our way .

Albert Nahmad: I'd like to see that number get larger because I'd like to have the ability to do almost any transaction that comes our way. I don't like going into debt for it. I'd like to have the capacity to do what we need to do with the cash we have.

Speaker #3: And I don't like going into debt for it . I'd like to have it the capacity to do what we need to do with the cash .

Speaker #3: We have .

Speaker #13: Great . Well , thank you for that very thorough answer . I'll pass the baton and give somebody else an opportunity . Appreciate it .

[Analyst]: Great. Thank you for that very thorough answer. I'll pass the baton and give somebody else an opportunity. Appreciate it. See you in December.

Speaker #13: See you . In December .

Speaker #3: Good. I'm glad you're coming.

Albert Nahmad: Good. I'm glad you're coming.

Speaker #4: Our next question comes from Chris Snyder of Morgan Stanley . Go ahead . Please .

Operator: Our next question comes from Chris Snyder of Morgan Stanley. Go ahead, please.

Speaker #3: Hello , Chris .

Albert Nahmad: Hello, Chris.

Speaker #14: Thank you . Hey . Good morning . Thank you guys I wanted to follow up on some of that inventory conversation . It seems like you guys believe you'll be at a roughly more normalized level to exit the year , but I guess my question is , should we expect the normal kind of typical ramp in inventories from year end into Q2 that we've seen you guys do historically ?

Paul Johnston: Thank you. Good morning. Thank you, guys. I wanted to follow up on some of that inventory conversation. It seems like you guys believe you'll be at a roughly more normalized level to exit the year. My question is, should we expect the normal, kind of typical ramp in inventories from year-end into Q2 that we've seen you guys do historically, or could that be more muted, just given the inventory backdrop? Thank you.

Speaker #14: Or could that be more muted , you know , just kind of given the the , the inventory backdrop ? Thank you .

Speaker #3: Well , that's an interesting question . And I can only say that we're trying to we're trying to get better in the management of our inventory .

Albert Nahmad: That's an interesting question. I can only say that we're trying to get better in the management of our inventory. History is not dependable for what we're going to do as we go forward this year. I think whatever we've done in the past, we'll do better. Go ahead, Paul.

Speaker #3: So I . History . History does not is not dependable . What we're going to do as we go forward this year , I think I think whatever we've done in the past , we'll do we'll do better .

Speaker #3: But go ahead , Paul .

Speaker #7: Yeah , think about the last five , six years in our industry . We've had we had the change in industry standards on efficiency , and we had to in refrigerant come at us .

Paul Johnston: Yeah. Think about the last, you know, five, six years in our industry. We've had the change in industry standards on efficiency. Then we had the change in refrigerant come at us. Then we had the pandemic. It hasn't been normal on a lead time basis with our OEM partners for the last four, five, six years. For us to get back to normal again, as Barry was talking about, means that we order something and we get it within four to six weeks. We don't have lead times that extend out beyond that and that the manufacturers can go ahead and supply us in a timely manner. That's how you adapt your inventory to get to a five-turn.

Speaker #7: Then we had , you know , we had the pandemic . It hasn't been normal on a lead time basis with our OEMs for the last 4 or 5 , six years .

Speaker #7: So for us to get back to normal again is Barry was talking about means that we order something and we get it within 4 to 6 weeks , and we don't have lead times that extend out beyond that , and that the , the manufacturers can go ahead and supply us in a timely manner .

Speaker #7: And that's how you adapt your inventory to get to a five-turn.

Speaker #3: And we're trying to get cooperation from the manufacturer to do better in deliveries . Right . To do whatever they have to do to deliver much quicker with less lead time .

Albert Nahmad: We are trying to get cooperation from the manufacturer to do better in deliveries, to do whatever they have to do to deliver it much quicker with less lead time. That is part of the effort. Because of who we are and our size, they listen to us. I hope. I'm hoping. I think they will.

Speaker #3: And that's part of the effort . And because of who we are and our size , they listen to us . I hope I'm hoping .

Speaker #7: But .

Speaker #3: But , but but I think they will .

Speaker #14: Thank you . I appreciate that . Maybe to to follow up on price , you know , the OEMs that have reported so far , you know , talked about an expectation of incremental price in 26 .

Paul Johnston: Thank you. I appreciate that. Maybe to follow up on price, you know, the OEMs that have reported so far, you know, talked about an expectation of incremental price in 2026. You know, maybe a bit of a surprise given it.

Speaker #14: You know , maybe a bit of a surprise given what seems like affordability challenges and just overall headwinds facing the consumer . You know , I guess , you know , what is your thoughts on that ?

[Company Representative]: seems like affordability challenges and just overall headwinds facing the consumer. What is your thoughts on that? Do you feel like just given the balance sheet and maybe the absorption headwinds that they're facing, do you feel like that gives you guys better ability to push back or negotiate than years past? Thank you.

Speaker #14: And do you feel like just given the balance sheet and maybe the absorption headwinds that they're facing , do you feel like that gives you guys better ability to push back or negotiate than years past ?

Speaker #14: Thank you .

Speaker #3: Well, I wouldn't know how to begin to answer that question. We.

Paul Johnston: I didn't get how to begin to answer that question.

Speaker #7: A tough question .

Operator: That's a tough question.

Speaker #3: We were a good customer of our manufacturers, and I like to think that we can listen to them, and they will listen to us.

Paul Johnston: We're a good customer of our manufacturers. I like to think that we can, they will listen, and we will listen to them. We like to get along with our manufacturers. I don't know how to answer that any better than that.

Speaker #3: And that we'd like to get along with our manufacturers and and I don't know how to answer that any better than that .

Speaker #7: Yeah , bottom line though , when you look at the average transaction out there , you know , our our value content to the contractor is generally about 30 to 40% .

[Company Representative]: Yeah. Bottom line, though, when you look at the average transaction out there, our value content to the contractor is generally about 30% to 40%. If it's a $12,000 installation, the amount of product that we're selling is going to be in the, let's say, $3,000 to $4,000 range. A price increase at that point is going to increase, let's say they go up, pick a number. If they go up $100, it's not going to be a major transaction haul to the consumer. I really don't know what we're facing from the OEMs yet. Until we do, we can't react to it.

Speaker #7: So if it's a $12,000 installation , you know , the amount of product that we're selling is going to be in the , let's say , 3 to $4000 range .

Speaker #7: So a price increase at that point is going to increase . Let's say they go up , you know , pick a number .

Speaker #7: If they go up $100 , you know , it's not going to be a major transaction halt to the to the consumer . So I really don't know what what we're facing from the OEMs yet .

Speaker #7: And until we do , you know , we we can't react to it .

Speaker #14: Thank you . I appreciate that perspective .

Operator: Thank you. I appreciate that perspective.

Speaker #4: The next question comes from Mitch Moore of KeyBanc Capital Markets . Go ahead , please .

Operator: The next question comes from Mitch Moore of KeyBanc Capital Markets. Go ahead, please.

Speaker #15: Hey everyone . Good morning .

Albert Nahmad: Hey, everyone. Good morning.

Speaker #3: Good morning .

Paul Johnston: Good morning.

Speaker #15: I know most of the industry is already in those entry level . You know , baseline products , but just wondering if you could talk about mix in the quarter .

Albert Nahmad: I know most of the industry is already in those entry-level, you know, baseline tier products, but I was just wondering if you could talk about mix in the quarter, just maybe if you could flesh out if you're seeing consumers trade down to lower-tier products.

Speaker #15: Maybe if you could flesh out if you're seeing consumers trade down to lower tier products .

Speaker #7: Yeah , that's been occurring . Yeah . All year long . You know , anytime you have a a change in product , everything always has migrated to the to the base model .

[Company Representative]: Yeah, that's been occurring all year long. Anytime you have a change in product, everything always has migrated to the base model. The base model today is 15.3 SEER. In the South, that's a very efficient piece of equipment that I wouldn't call base anymore. I'd call it almost high efficiency. It's been pretty steady. The data we have only covers two quarters on the industry. First and second quarter, we're fairly flat as far as the SEER ratings. It's always higher on heat pumps than it is on straight cool.

Speaker #7: The base model today is 15.3 seater in the south . That's that's a very efficient piece of equipment that I wouldn't call base anymore .

Speaker #7: I'd call it almost high efficiency . So , you know , it's been pretty steady . The data we have only covers two quarters on the industry , you know .

Speaker #7: So first and second quarter , we're fairly flat . You know , as far as the this ratings , it's always higher on heat pumps .

Speaker #7: Than it is on straight cool .

Speaker #10: And the exception and the and exciting thing going on in our business is that we can help our customers sell up , particularly through on call air .

Albert Nahmad: The exception and the exciting thing going on in our business is that we can help our customers sell up, particularly through OnCall Air. We're approaching, not I think, we are approaching close to $2 billion of our customers' sales going through that tool. The most amazing statistic is that over 70% of the sales that occur are more or higher than the minimum efficiency standard. Where the rest of the industry is selling 80%, 85% minimum standard, on OnCall Air, it's over 70% above minimum standard. The more of that we can do, the better for everybody in the channel.

Speaker #10: I think we're approaching not I think we are approaching close to $2 billion of our customer sales going through that tool . And the most amazing statistic is that over 70% of the sales that occur are more , are higher than the minimum efficiency standard .

Speaker #10: So, where the rest of the industry is selling 80%, 85% minimum standard on all call air, it's over 70% above minimum standard.

Speaker #10: The more that we can do , the better for everybody in the channel .

Speaker #3: Well said . Can you explain on caller .

Paul Johnston: Can you explain OnCall Air?

Speaker #10: Yes . Caller .

Albert Nahmad: Yes. OnCall Air.

Speaker #3: There may be some new people on this call . Yeah .

Paul Johnston: There may be some new people on this call.

Speaker #10: Sure . Uncle . There is a technology initiative . It's actually a business . We created in our venture subsidiary , and it has created a piece of software that's really a sales engine for our contractors or our customers .

Albert Nahmad: Sure. OnCall Air is a technology initiative. It's actually a business we created in our Watsco Ventures subsidiary, and it has created a piece of software that's really a sales engine for our contractors or our customers. A customer like AJCD and Cooling would be an OnCall Air customer and use our software to sell in the kitchen house. It's loaded up with all of our data about all the products we sell, our customers' pricing, our inventory, everything you could ever want in terms of creating a world-class, professional, sophisticated proposal or proposals for homeowners as contractors or building owners as contractors attempt to sell their wares. Our customers that use it are winning more jobs. They're higher ticket jobs. They're higher margin jobs. Like I just said, they're more often than not selling higher efficiency systems than the base tier as well. It's growing. It's growing fast.

Speaker #10: So a customer like AJ's Heating and Cooling would be on call air customer and use our software to sell in kitchen house . And it's loaded up with all of our data about all the products we sell our customers pricing , our inventory , everything you could ever want in terms of creating a world class professional , sophisticated proposal or proposals for homeowners as a contractor or building owners as contractors , attempt to sell their wares .

Speaker #10: Our customers that use it are winning more jobs . They're higher ticket jobs , they're higher margin jobs . And like I just said , they're more often than not selling higher efficiency systems than the base tier as well .

Speaker #10: So it's growing . It's growing fast . And it's it's just a win win win for everybody in the channel .

Albert Nahmad: It's just a win, win, win for everybody in the channel.

Speaker #3: Very good .

Paul Johnston: Very good.

Speaker #15: Great . That's super helpful . And then obviously , you know , record gross margins here in the third quarter . Just wondering if you could unpack the moving pieces within that .

Operator: Great. That's super helpful. Obviously, you know, record gross margins here in the third quarter. Just wondering if you could unpack the moving pieces within that. Maybe just how much was mix benefits from the other HVAC products versus some carryover OEM pricing? Thanks.

Speaker #15: Maybe just how much was mixed benefits from the other HVAC products versus some carryover OEM pricing. Thanks.

Speaker #9: Mitch , this is Rick . I can yeah , this is Rick . I can help you with that answer a little bit .

Albert Nahmad: Yeah, Mitch, this is Rick. I can help you with that answer a little bit. There are two or three contributors there that help and that feel, you know, good and sustainable. The first is we had growth in non-equipment. As a category, as a basket, that non-equipment business has higher gross margins. That is a mixed benefit in our gross margin. There was some carryover benefit from, you know, springtime OEM pricing actions. The third, most structural, most interesting aspect of it is that we've talked about the pricing optimization tools that are maturing and getting better every day in the field. AI is making that even better today. Transactional margins were very resilient in a down market and actually slightly up. We take some comfort in that. It feels somewhat permanent and structural, whatever word you want to use. Those are the large contributors to the margin expansion.

Speaker #9: There's 2 or 3 contributors there that that help and that feel , you know , good and sustainable . The first is we had growth in non equipment .

Speaker #9: And as a as a category as a basket that non equipment business has higher gross margins . So that is a mixed benefit in our gross margin .

Speaker #9: There was some some carryover benefit from you know springtime OEM pricing actions . And then the third most structural most interesting aspect of it is that we've talked about the pricing optimization tools that are maturing and getting better every day in the field .

Speaker #9: AI is making that even better today . And transactional margins were were were very resilient in a down market and actually slightly up .

Speaker #9: So we take some comfort in that . And feeling and being somewhat or to us feels somewhat permanent and structural . Whatever word you want to use .

Speaker #9: And those are the large contributors to to the margin expansion . .

Speaker #3: By the way , let me just say this . We don't want to provide information to our competitors that can use for us .

Operator: I mean, I just got to.

Paul Johnston: Let me just say this. We don't want to provide information to our competitors they can use against us. Be careful with how much detail we answer these things. Go ahead, A.J.

Speaker #3: So be careful with how much detail we answer these things . Go ahead . AJ .

Speaker #10: I was just going to say , you know , the way you said that , Rick , and what you said earlier about controlling what we can control , it's important to reiterate that we're a long term company .

Albert Nahmad: I was just going to say, you know, the way you said that, Rick, and what you said earlier about controlling what we can control, it's important to reiterate that we're a long-term company. I mean, I know this is a third-quarter call, but our job is to invest and to steer the business for the long-term health and continuous improvement of this business. You heard us talk about that in our inventory, right? We've talked a little bit about what it means in this quarter and next quarter, but really, we're talking about how do we get to five turns. What does that mean for our business in the medium and long term? The pricing, there's noise, there's OEM changes and so forth. What are we doing to improve our paradigm as a selling organization to structurally increase our margins over the long term?

Speaker #10: I mean , I know this is a third quarter call , but our job is to invest and to steer the business for the long term health and continuous improvement of this business .

Speaker #10: You heard us talk about that in our inventory , we talked a little bit about what it means in this quarter and next quarter .

Speaker #10: But really we're talking about how do we get to five turns . What does that mean for our business in the medium and long term ?

Speaker #10: The pricing there's noise . There's there's OEM changes and so forth . But what are we doing to improve our paradigm as a selling organization to structurally increase our our margins over the long term ?

Speaker #10: It's true of our technology initiatives helping our customers digitize their businesses so they can be more efficient as well as we can be more efficient , and we can all move the efficient frontier out into the right .

Albert Nahmad: It's true of our technology initiatives, helping our customers digitize their businesses so they can be more efficient as well as we can be more efficient, and we can all move the efficient frontier out and to the right. You know, I understand these questions are very much focused on this quarter and next quarter, but our business is focused on the long term as well as the short term.

Speaker #10: So , you know , I understand these questions are very much focused on this quarter and next quarter . But our business is focused on the long term as well as the short term .

Speaker #3: Well said .

Paul Johnston: Well said.

Speaker #15: Great . Thanks guys .

Operator: Great. Thanks, guys.

Speaker #4: Our next question comes from Steve Tusa of J.P. Morgan . Go ahead please .

Operator: Our next question comes from Steve Tusa of J.P. Morgan. Go ahead, please.

Speaker #3: David .

[Analyst]: Steven.

Speaker #16: Good morning .

[Analyst]: Good morning.

Speaker #3: As I say , Miami Como estas ?

[Analyst]: As I say in Miami, ¿cómo estás?

Speaker #16: Molto bene .

[Analyst]: Molto bene.

Speaker #3: That's very good .

[Analyst]: That's very good.

Speaker #16: I don't know , I was in Italy this summer , so just I was .

[Analyst]: I don't know. I was in Italy this summer, I was.

Speaker #3: I could tell I could tell .

[Analyst]: I could tell. I could tell.

Speaker #16: Yeah . And net net never real language guy . Unfortunately .

[Analyst]: Yeah, never a real language guy, unfortunately.

Speaker #3: You did good .

[Analyst]: You did good. You did good.

Speaker #16: But I do talk HVAC . I talk the HVAC language . So I'm just curious when you survey your contractors , what are they saying about , like , what their volumes are down or are they ?

[Analyst]: I do talk HVAC. I talk the HVAC language. I'm just curious, when you survey your contractors, what are they saying about what their volumes are down? I would assume they're down if this is kind of what you guys are seeing. What is the actual activity for the contractors at the ground level?

Speaker #16: I mean , I would assume they're down if this is what kind of like what you guys are seeing . But like , what is the actual like ?

Speaker #16: I don't know what you call it . Like like activity for , for the contractors , like at the ground level .

Speaker #3: I'm not sure . I understand your question .

[Analyst]: I'm not sure I understand your question.

Speaker #16: Well , you know , like , are your contractor customer sales down or are they like like , you know , is it because Lennox mentioned something about contractors having inventory ?

[Analyst]: Are your contractor customer sales down, or are they, like, is it because Lennox mentioned something about contractors having inventory? I think Carrier kind of reinforced that yesterday. There is this kind of narrative that there was some inventory sitting at contractors. Should we assume that your sales are kind of in line with what they're seeing on the ground level?

Speaker #16: I think carrier kind of reinforced that yesterday . So there's this kind of narrative that there's there was some inventory sitting at contractors .

Speaker #16: Or should we assume that your sales are kind of in line with what they're seeing on the ground level?

Speaker #7: I think , you know , some , some contractors may have inventory , but , you know , that's going to be a very large contractor .

[Company Representative]: I think some contractors may have inventory, but that's going to be a very large contractor who's got a warehouse. We sell to almost 100,000 different contractors across the country. If you're talking to the large contractor, yeah, they could have inventory, but I don't think it's ever going to be a meaningful amount of inventory.

Speaker #7: Got a warehouse . You know , we sell to almost a hundred thousand different contractors across the country . So it's , you know , if you're talking to the large contractor .

Speaker #7: Yeah, they could have inventory, but I don't think it's ever going to be a meaningful amount of inventory.

Speaker #10: I mean , Steve , I've talked to contractors in northeast that are of size , and they're doing great . I've talked to small ones in Texas that are closing up shop .

Albert Nahmad: I mean, Steve, I've talked to contractors in the Northeast that are of size, and they're doing great. I've talked to small ones in Texas that are closing up shop. It is all over the map, which, as you imagine, since like Paul said, we have such scale with 100,000 customers across the company. Right? It's not, there's not, there's not one story. There's thousands.

Speaker #10: I mean , it is all over the map and which , as you imagine , since , like Paul said , we're have such scale with 100,000 customers across the company .

Speaker #10: Right? It's not that there's not one story; there are thousands.

Speaker #16: Okay . And as far .

[Analyst]: Okay.

Albert Nahmad: Honestly, I would say the industry overall is down.

Speaker #10: As the industry overall is down.

Speaker #16: As far as this institutional channel , which is I think the large contractors , how big is that now as a percentage of the market , if like housing and home builders are like , you know , 20% ish , like , is that institutional channel ?

[Analyst]: As far as this institutional channel, which is I think the large contractors, how big is that now as a percentage of the market? If like housing and home builders are like, you know, 20%-ish, is that institutional channel, how big is that now, the consolidators on the contractor side?

Speaker #16: How big is that? Now, the consolidators on the contractor side.

Speaker #7: It would be a guess on our part . Yeah .

[Company Representative]: It would be a guess on our part. Yeah.

Speaker #3: No , but .

Speaker #7: It would be a guess on our part . Yeah .

Paul Johnston: We have a guess on our part.

Speaker #3: Barry , what do you have there ? I think you estimated that for me once . Yeah . I mean .

[Analyst]: Barry, what do you have there? I think you estimated that for me once.

[Company Representative]: Yeah.

[Analyst]: Which is $7 million.

Speaker #8: It's just two separate conversations . Steve . There's there's the contractors that do work for the builder community , and that is not necessarily a consolidator or some kind of what what we're targeting as institutional .

[Company Representative]: It's two separate conversations, Steve. There's the contractors that do work for the builder community, and that is not necessarily a consolidator or some kind of what we're targeting as institutional. If housing is 10%, 15% of the market, I'll believe those contractors are 10%, 15% of the market. The focus of what we're talking about is mega contractors that are primarily replacement-driven, that have a multitude of locations throughout the U.S. Their fragmentation of who they buy from is extreme. We're trying to develop the thought of how to bring productivity and scale to that relationship. I certainly think that segment is under 10% of the market, but it is growing. This isn't just cooked up in a lab. This is customers coming to us and asking if we can help them with this.

Speaker #8: And if housing is ten , 15% of of the market , I'll believe those contractors are ten , 15% of the market . But the focus of what we're talking about is mega contractors that are that are primarily replacement driven , that have a multitude of locations throughout the US , and they're fragmentation of who they buy from .

Speaker #8: Is extreme . So we're trying to to develop the thought of how to bring productivity and scale to that relationship . And I certainly think that segment is is under 10% of the market .

Speaker #8: But it is growing . And this isn't just cooked up in a lab . This is customers coming to us and asking and asking if we can help them with this .

Speaker #16: Right .

Speaker #10: I think you said that right , Barry . It's under 10% , but it's an important and growing segment . They are buying .

Albert Nahmad: Right. I think you said that right, Barry. It's under 10%, but it's an important growing segment. Their buying is fragmented, including amongst the Watsco companies fragmented. What we're developing is a single solution for them to buy all their needs from all of our businesses. That's under development now and will come to market early next year. The conversations we have with those institutional-type contractors and the consolidators of what the prospect of this thing is, is very exciting to them and therefore very exciting to us.

Speaker #10: They're buying is fragmented , including amongst the watco companies fragmented . So what we're developing is a single solution for them to buy all their needs from all of our businesses .

Speaker #10: That's under development now and will come to market early next year . But the conversations we have with those institutional type contractors and the consolidators of what , what , what the prospect of this thing is , is very exciting to them and therefore very exciting to us .

Speaker #16: Got it . And then just one last one for you on on pricing . Anything on the , in the environment that you're seeing where , you know , maybe there's an OEM that's trying to get rid of some inventory or something , any , any kind of like late season rebate activity .

[Analyst]: Got it. Just one last one for you on pricing. Anything in the environment that you're seeing where maybe there's an OEM that's trying to get rid of some inventory or something? Any kind of late-season rebate activity or discounting activity you're seeing on a like-for-like basis price-wise?

Speaker #16: That or you know , discounting activity you're seeing on a like for like basis price wise .

Speaker #3: Whatever, whatever we're seeing is not material.

[Analyst]: Whatever we're seeing is not material.

Speaker #7: No , it's not .

Speaker #16: Okay . Okay . Thanks a lot .

[Company Representative]: No, it's not.

[Analyst]: Okay. Thanks a lot.

Speaker #7: All right .

[Company Representative]: All right.

Speaker #4: The next question comes from Nigel Coe of Wolfe Research . Go ahead please .

Operator: The next question comes from Nigel Coe of Wolfe Research. Go ahead, please.

Speaker #3: Good morning .

Speaker #17: Thanks . Good morning . Good morning . Please don't test my language skills . I my Spanish isn't very good , by the way .

[Analyst]: Morning, Nigel.

[Analyst]: Thanks. Good morning. Please don't test my language skills. I find that my Spanish is very good. By the way, I think this is the first time you guys have done a formal investor event. This is one we can't miss. Looking forward to that, guys.

Speaker #17: I think this is the first time you guys have done a formal investor event . So this is one we cannot miss . So looking forward to that .

Speaker #17: Guys .

Speaker #3: Where are you coming from, Nigel?

[Analyst]: Where are you coming from, Nigel?

Speaker #17: New York yeah . So don't be fooled by the accent . It's it's a it's .

[Analyst]: New York. Yeah, don't be fooled by the accent. It's a short one.

Speaker #3: You had me . You did have me for . I was gonna . I was gonna guess . I was gonna guess Ireland .

[Analyst]: You had me fooled. I was going to guess Ireland.

Speaker #17: Ireland . Well , yeah . Yeah . No , I'm actually Welsh , but close enough .

[Analyst]: I'm actually Welsh, but close enough. Okay. I want to go back to I'd really love to get your perspective on, you know, the customer behavior and why it changed so dramatically. You know, it seems to me a coincidence or maybe not a coincidence that it's happening at the time where we're seeing this A2L transition. I'm just wondering if the kind of the cost of a full replacement system versus a partial is a factor that contractors are highlighting to you. Within that question, I'm just wondering if you're seeing the same sorts of trends for the R32 products, you know, Daikin or Goodman. Are those kind of sell-through dynamics better than what we're seeing for 454B?

Speaker #3: Okay . so .

Speaker #17: I want to go back. I'd really love to get your perspective on, you know, the customer behavior and why it changed so dramatically.

Speaker #17: And you know , it seems to me a coincidence or maybe not a coincidence that it's happening at the time , but we're seeing this a to L transition , and I'm just wondering if the kind of the cost of a full replacement system versus a partial is a factor that contractors are highlighting to you .

Speaker #17: And and within that question , I'm just wondering if you've seen the same sorts of trends for the for the R 32 products .

Speaker #17: Douglas or Goodman , those kind of sell through dynamics better than what we're seeing for for five for B .

Speaker #7: Yeah , it's it's Paul . Yes you are . You are seeing a difference . You know as far as performance the whole product you've got you've got to replace the coil inside as well as the outdoor unit .

[Company Representative]: Yeah. Paul, yes, you are seeing a difference as far as performance. The A2L product, you've got to replace the coil inside as well as the outdoor unit. You can't just replace the outdoor unit because you have to have the sniffing device to be able to tell if there's a leak, and then you have to have the switch to turn on the blower fan. That brought the price up, but it also increased the cost to the consumer to replace an entire system. When you look at ductless products, ductless products continue to grow. There are some new products out there that are side discharge, and they have a tendency to get into the higher efficiency levels with a coil inside, and they're ducted. We've seen some changes in the duct-free market, which have enhanced our sales there.

Speaker #7: You can't just replace the outdoor unit because you have to have the the sniffing device to be able to tell if there's a leak .

Speaker #7: And then you have to have the the switch to turn on the blower fan . So that brought the price up . But it also increased the cost of the consumer to , replace an entire system .

Speaker #7: When you look at Ductless products , Ductless products , you know , continue to to grow , you know , there's new products out there that are side discharge and , you know , they have a tendency to get into the higher efficiency levels with a with a coil inside .

Speaker #7: And they're ducted . So yeah , we've we've seen some changes in the , in the duct free market which have enhanced our sales .

Speaker #7: There .

Speaker #10: But Nigel all that . Yes . The price of the two machines or equipment or solutions are higher . But I don't I don't believe that's the full reason that there's a slowdown in the industry .

Albert Nahmad: The price of the A2L machines or equipment or solutions are higher, but I don't believe that's the full reason that there's a slowdown in the industry. I think that's much more about the record, or I believe close to record, lows in consumer confidence, record lows in the trading of homes and building of new homes. The tariffs are creating uncertainty for many homeowners of what their cost of living is going to be. I just think there's less activity in terms of people investing in their homes, HVAC included, especially coming off a period where they invested a lot in their homes when they were living at home all day long during the COVID times. While yes, it's true that there's more price in the machines, I just don't believe it's that clear of an elasticity conversation. I think much more macro influences are having an impact.

Speaker #10: I think that's much more about the record or I believe , close to record lows and consumer confidence , record lows in the trading of homes and building of new homes .

Speaker #10: The tariffs are creating, I would say, uncertainty for many homeowners regarding what their cost of living is going to be. So I just think there's less activity in terms of people investing in their homes.

Speaker #10: HVAC included , especially coming off a period where they invested a lot in their homes when they were living at home all day long during the Covid times .

Speaker #10: So while yes, it's true that there's more price in the machines, I just don't believe it's that clear of a less conversation.

Speaker #10: I think much more macro influences are having an impact.

Speaker #17: Okay , okay . That's , that's that's great . Thanks guys .

[Analyst]: Okay. That's great color. Thanks, guys.

Speaker #8: I just want to add something for everyone's sake . And this because I think part of this , part of this discussion is , you know , where is the contractor in this and how are their businesses doing .

[Company Representative]: I just want to add something for everyone's sake in this because I think part of this discussion is, you know, where is the contractor in this and how are their businesses doing? Someone asked, you know, is there a correlation between what a contractor would feel and what we're feeling and so on? I've said this many quarters through my career, no one ever asks about credit. We give contractors $800 million in accounts receivable, and we know the credit quality every second of the day. In the recession, for example, we had 10% of that portfolio over 90 days past due. Today, it's 1.2%. Last year, at this time, it was 1.2%. Credit quality has not changed at all. It's not, you know, that 1.2% is as low as any year in the last 10 years.

Speaker #8: Someone asked , you know , is there a correlation between what we're contractor would feel and what we're feeling and so on . And I said this many quarters through my career , no one ever asked about credit .

Speaker #8: You know , we give contractors $800 million in accounts receivable . And we know the credit quality , you know , every , every second of the day and the recession , for example , we had 10% of that portfolio over 90 days past due today .

Speaker #8: It's it's 1.2% . Last year at this time , it was 1.2% . Credit quality has not changed at all . It's not , you know , it's that 1.2% as as low as any year in the last ten years .

Speaker #8: So if I look at , you know , the pure credit quality of of our customer as maybe as maybe a leading indicator of some kind , the quality is very high .

[Company Representative]: If I look at the pure credit quality of our customer, as maybe a leading indicator of some kind, the quality is very high.

Speaker #17: Okay . That's great color . And then my follow up and I know we're running out of time here , but my follow up is , you know , everyone tracks the Hardy data intra quarter .

[Analyst]: Okay. That's great color. My follow-up is, you know, everyone tracks the Hardy data interquartile, and it just seems very disconnected from, it is very disconnected from what we're seeing from you and obviously your OEM partners. Any perspective on that would be helpful?

Speaker #17: And it just seems very disconnected from well , it doesn't seem it is very disconnected from what we're seeing from you and and obviously your OEM partners , any perspective on that would be would be helpful ?

Speaker #7: Yeah . I think there's a great deal of difference there . You know , one , if you take a look at the OEMs themselves who don't report to Hardy , you've got , what , 50% of train sales goes through their company owned stores , 70% of Lennox , 70% of Goodman carrier pushes what , over 40 , 45% of their sales through Watsco ?

[Company Representative]: Yeah. I think there's a great deal of difference there. You know, one, if you take a look at the OEMs themselves who don't report to Hardy, you've got, what, 50% of Trane sales go through their company-owned stores, 70% of Lennox, 70% of Goodman. Carrier pushes, what, over 40%, 45% of their sales through Watsco Inc. We don't report to that. It's a different reporting group. I think it's going to be a little bit more commercial refrigeration. I think it's going to be a little bit more on the repair side, perhaps. Excuse me. It tends to be generally more of a northern-based report than the south. Geographically, I don't know how it's spread. I don't know if they have a consistency every month or quarter as far as who's reporting to it. The only index that we really can use is the HRI data.

Speaker #7: We don't report to that . So , you know , it's a different reporting group . I think it's going to be a little bit more commercial refrigeration .

Speaker #7: I think it's going to be a little bit more on the on the repair side , perhaps . Excuse me . And it tends to be generally more of a northern based report than , than the South .

Speaker #7: So, geographically, I don't know how it spread. And I don't know if they have a consistency every month or quarter as far as who's reporting to it.

Speaker #7: So the only index that we really can use is the Ari data .

Speaker #3: Paul , why don't you comment also , should we generally do not comment , but the weather this this season .

Paul Johnston: Paul, why don't you comment also, which we generally do not comment, about the weather this season?

Speaker #7: Yeah , the weather was yeah , it was it was hot in Florida like it always is . And it was hot in Texas .

[Company Representative]: Yeah. The weather was, yeah, it was hot in Florida like it always is, and it was hot in Texas like it generally is, but we had the recooling days that were not really on target for the entire year, especially the peak part of the year, which is May and June, when people are thinking about putting in a new air conditioner. If the weather doesn't get hot, they don't. It's been just an odd year. I wish I could put both arms around it and explain it better, but it's a very difficult situation to explain.

Speaker #7: Like it generally is . But you know , we had degree cooling days that were not really on target , you know , for the the entire year , especially the peak part of the year , which is , you know , May and June , you know , when people are thinking about putting in a new air conditioner .

Speaker #7: But if the weather doesn't get hot , they don't . So it's it's it's been just an odd year . I just I wish I wish I could put both arms around it and explain it better , but it's it's a very difficult situation to explain .

Speaker #7: .

Speaker #10: Very settled on last quarter's call . We look forward to getting back to some harmony , hopefully in 2026 .

Albert Nahmad: Very excited on last quarter's, Paul. We look forward to getting back to some harmony, hopefully in 2026.

Speaker #7: Yeah .

[Company Representative]: Amen.

Speaker #18: All right guys , appreciate it . Thanks a lot .

[Analyst]: All right, guys. Appreciate the comment. Thanks a lot.

Speaker #19: And it .

Speaker #8: And the word was the word was serenity by the way .

[Company Representative]: The word was serenity, by the way.

Speaker #10: Serenity . Yeah . Thank you . It's better better word serenity .

Albert Nahmad: Serenity. Yeah, thank you. Better word. Serenity now.

Speaker #12: Now .

Speaker #3: But in the meantime we're getting stronger . Our balance sheets getting stronger . The technology capabilities are getting better . We're not . We're not feeling sorry for ourselves .

Paul Johnston: In the meantime, we're getting stronger. Our balance sheet is getting stronger. Our technology capabilities are getting better. We're not feeling sorry for ourselves that the industry has slowed down. We're doing something about it. We're getting stronger.

Speaker #3: The industry has slowed down. We're doing something about it. We're getting stronger.

Speaker #19: Good point .

Albert Nahmad: Good point.

Speaker #4: Our next question comes from Steve Tusa of J.P. Morgan . Go ahead please .

Operator: Our next question comes from Steve Tusa of J.P. Morgan. Go ahead, please.

Speaker #16: Hey guys . Sorry .

[Analyst]: Hey, guys. Sorry.

Speaker #3: Sorry. We're very proud.

Paul Johnston: Twice around, Paul. We're very proud.

Speaker #20: I , I , I believe .

[Analyst]: I believe the term is serenity now and sanity later. I believe that's what they say. Sorry. On that point about this year being an unusual year, as you kind of stand today, I know the crystal ball is pretty clouded, but do you view this as kind of like abnormally low and then next year you bounce from a sell-through perspective, or there's just not enough visibility to kind of call that as you move into next year?

Speaker #7: Twice .

Speaker #20: I believe the term is serenity now and .

Speaker #16: Sanity later . I believe that's that that's what they say . It's . Sorry on on that point about this year being an unusual year .

Speaker #16: So so as you kind of stand today , I know the crystal ball is pretty clouded . But like , do you view this as kind of like abnormally low ?

Speaker #16: And then next year you , you bounce from a sell through perspective or you know , there's just not enough visibility to , to kind of call that as you move into next year .

Speaker #3: Do we think this year's been unusual ? Yes . The man is unusual . Do we think we'll get normal next year ? I would like to think so .

Paul Johnston: Do we think this year has been unusual? Yes. Demand is unusual. Do we think we'll get normal next year? I would like to think so, but who am I to predict what the weather is going to do and the other circumstances that create demand? That's an unknown. Are we stronger now and will we be stronger next year? Yes. All I can do is control what we do. We're going to get stronger and better no matter what's going on with demand because that's who we are. We're going to build up our capabilities to do much more things that our competitors can do, innovating in technology and building our past position to perhaps do more M&A. I'd like to do more M&A. Whatever comes, comes. We'll be ready for it.

Speaker #3: But who am I to predict what the weather's going to do? And the other circumstances that they create demand. So that's an unknown.

Speaker #3: But are we stronger now ? And will we be stronger next year ? Yes . All I can do is control what we do .

Speaker #3: We're going to get stronger and better no matter what's going on with demand , because that's who we are . We're going to get we're going to we're going to build up our capabilities to do much more things that our competitors can do , innovating in technology and building our cash position to perhaps do more M&A .

Speaker #3: I'd like to do more M&A . So whatever comes , comes , we'll be ready for it .

Speaker #16: Yep . Control to control . Thank you .

[Analyst]: Yep. Control the control wheels. Thank you.

Speaker #4: This concludes our question and answer session . I would like to turn the conference back over to Albert Nahmad for any closing remarks .

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

Speaker #3: Well this was fun today . I enjoyed it . We have a great team here in Watsco in Miami , and I certainly hope as many of you can come to Miami in December , please do .

Paul Johnston: This was fun today. I enjoyed it. We have a great team here in Watsco Inc. in Miami, and I certainly hope as many of you can come to Miami in December, please do. We'll welcome you with open arms. Thanks for your interest in Watsco Inc. Bye-bye now.

Speaker #3: We will welcome you with open arms and any of it . Thanks for your interest in Watsco . Bye bye . Now .

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