Q4 2025 Watsco Inc Earnings Call [BACKUP]

We had a big increase in the price of the unit.

I think there's been some hesitancy on the part of Oems when they are talking about 2026 and price increases and maybe not getting the typical increase but.

Beyond that I think last year. There was also some commentary around some of the contractors, maybe not feeling comfortable with the new product et cetera, and the broad question here al as we enter 2026 do you feel like we're in a year of sort of normalization and that the channel is prepared to sell this new technology.

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Completely as opposed to last year, where there was sort of this this hesitancy around the transition.

That's a terrific question I'll led several people here to answer that.

I want to start Barry.

Hello, Good morning, David.

Yeah, well first.

It is now.

The product line is in place there aren't two product lines in place.

There's one set of pricing for our customers not to set the pricing.

So I won't belabor that point other than saying, it's a much more stable channel. This year then.

As we said in our press release almost at any time over the last probably four or five years.

Secondly, I think contractors.

When they have one thing to sell are going to be better at it and more likely.

To sell a product.

If we try to evaluate.

<unk>.

The overall trend of things and where the year ended and tried to sift through the.

The unit decline in 2025.

And parse it out and say where are we now.

We feel better about it first new construction had an impact into that 17%.

Overall, 17% and a decline in 2025 just to level set.

The conversation.

New construction.

<unk> on that percentage.

Clearly in the fourth quarter a year ago.

When we say unit growth in the fourth quarter, a year ago was 20% plus.

That plays a role in 2020 fives analysis.

And in fact that it's about a 7% comp.

<unk> of the 17% just talking about what happened in the fourth quarter of last year.

So if I try to summarize that in some way in other people should chime in on this because it's a critical question.

We think you know.

My Best guess I should say is the aftermarket.

Add on replacement market was down 6% and.

And in 2025.

And parsing out the actual unit online and through those pieces.

Yeah, and so 6% is that disruption of the channel yes. It is.

Is that a weaker consumer yes. It is is.

Is that a contractor who is uncertain themselves doing this stuff yes. It is.

And so it's probably a better starting place.

Again, and we've seen in the last several years time will tell there, but we're not ready to call the season, yet because it's not the season, but.

But I would say that.

Beginning line is in a much better place.

Yes, and I would say.

Hey, Dave contractor has been well trained.

Understand.

<unk> product <unk>.

Try to do the installation now he knows he's got to replace the indoor and outdoor unit.

So I think the training part of it is behind US I think they are they are ready to go in.

And offer consumers a good installation on product. So I don't think theres any issue on that side right now.

Yes, Dave I think you know as well as all of US at the last five years, it's been a wild ride.

There has been macroeconomic issues theres been geopolitical issues, there has been industry specific stuff there.

While supply and demand dynamics, there's been regulatory changes et cetera et cetera.

The World normalization, that's what we're hoping and expecting and obviously, we can't control the macroeconomic or geopolitical, but it doesn't seem like the industry has anything teed up to the effect certainly at a bit over the last five years I mean, the regulatory changes are behind us.

Hopefully there won't be another shortage.

Refrigerant canisters, I mean that kind of thing is behind us.

So we don't have a crystal ball, but we certainly like.

The starting point.

And then we do others all upstairs.

No matter, what the our job is to grow and to make inroads with our customers in this industry.

And control, what we can control and value should be investing and that's what we're focused on is finding ways to win given this environment or any environment.

We're happy with the balance sheet as clean as ours.

Feel very linked.

And then Dave you mentioned pricing.

In the face of all of this and a year ago. When we commented on pricing, we thought that the new product would would end up being 8% to 10% higher in price.

Our price benefit and 25% for the year was 9%.

For the fourth quarter of 11%.

And so pricing is a just a general theme.

And it's of course, it's the mix of the new products.

<unk> for most of that.

That's been a very stable part of our business.

Margin opportunities in flows from that has been yielded and a good result this year.

That maturity didn't stop January one this year it continues into 2026.

The full maturity of the new products alphabetically play out.

So I think pricing and margin discipline and industry discipline and OEM channel partner disciplined across the board has been pretty consistent and good this year.

Thank.

<unk> or stops.

Are you seeing maybe the yield is lower.

Again as things become more normal.

But pricing in general has been a good theme for a while now.

Alright, thanks for all that context I'll pass it on.

Our next question comes from Tommy Moll with Stephens. Please go ahead.

Anytime.

Morning, Al Thanks for taking my questions.

Sure.

I want to start on the dividend increase you announced today another 10% increase.

This has been a key part of the Watsco story for a long long time now over 50 years I think you called out.

My question is if we just look at what was announced today the annualized rate is a little bit above the earnings you just generated in 2025 for the LTM period.

Granted that was an abnormal year, but.

I don't know if you've ever been in this situation before.

Or the outlook for the dividend exceeds that earnings rate from a cash flow standpoint, clearly you can do it without breaking a sweat.

But I just want us wanted to ask what's the message here on on the confidence on the earnings line going forward. Thank you.

Very good question and I'm going to go to my number one adviser on dividends, which as Barry Logan.

Hey, good morning.

2020 by the way is the last year, where.

That kind of ratio if you will earnings earnings per share the dividend was was near 100%.

And I.

I would like for what happened after 2020 to occur again two two.

Two.

Relax people on that theory.

Yeah.

Okay.

The dividend was $7.

<unk> 10 in earnings per share was $7 one point.

So yes.

It has a track record that.

Important and somewhat sacred to us.

Insistency that means you should own watsco forever.

So that's the pretence of.

Well the board discusses and sustaining that.

And you're right cash flow is actually how the dividend is paid.

And cash flow is probably closer to <unk>.

$618 a share today.

And that's.

That's the pool of.

Of capital that we look at it to say I can we can and how much and when and.

We're satisfied with that concept.

And I liked it.

Watsco, not just debt free at.

December 31.

In fact, we didnt borrow a penny every day of 2025.

And we're looking for acquisitions, we are looking for investment we're looking for.

What our imagination can do with Oems to grow our business.

At the same time, the dividend as a critical thinking and we're going to raise it if we feel comfortable and we do so.

So, let's hope earnings you know.

As a reset following this past year time will tell.

Comfortable with cash flow.

And.

And keep the track record on that.

An important part of the Watsco story going.

Thank you Barry you.

You mentioned Oems and for my follow up question I wanted to hit that theme.

If we look back at what carrier communicated to the market regarding their 2026 outlook for resi.

They're calling for industry unit volumes down 10% to 15%, they're calling for their own residential sales down 20% in the first half of the year.

What are we to make of how to translate those kind of comments too.

What you might expect are these reasonable proxies for watsco or are there. Some differences that you want to call out today. Thank you.

Go ahead Barry.

Yes, I think well first there is always and forever a disparity in the timing of.

OEM seasonality versus distributor and contract or seasonality.

And thats, even been more amplified or magnified by.

The fourth and a conversion we're starting at this time last year for for US that had already begun three months before for the Oems. So.

So the channel has not been a.

Easy thing to analyze at anytime.

I think.

My memory is right.

Carriers.

Volumes were down in the 40% range this past quarter.

If you if you look at our math.

We're down in the Twenty's mid twenties.

And a year ago, we were up 20.

No.

It's just a different.

No that's not simple to analyze when there's that type of variation in the spectrum.

But I think if I look forward.

Two things I know is we will sell the exact number of systems.

That contractors are going to install in people's homes or businesses.

We're not selling into inventory or we're not waiting for inventory to clear we're not wondering if inventory is going to clear.

Our business is selling into the contractor channel in real time based on what's being installed.

And Thats comforting, because that's always going to be more stability.

Higher level of stability.

Then otherwise.

Now of course.

With unit volumes down in the fourth quarter. They don't instantly start going up January one we're still working through some of the <unk>.

Kind of conversion activity and pull in the fourth and the first quarter.

But I think that begins to clear on our side of the ledger. If you will some time.

By the second quarter.

So I think it's just always a lag are always are a leading indicator.

Cater or a lagging indicator and.

And it's been impossible for anyone to analyze this and the last.

Now a few years.

But I think the curvature and the spectrum will narrow.

That'd be a little simpler for everyone as the year goes on.

And Tommy I'll add some color to which is not data driven but its culture, driven and focus driven which is.

And this is what we're talking about it internally with our leadership teams is over the last 10 15 years I think it's safe to say what a good job of modernizing its people and its systems its process technology.

And then as I said earlier, the last five years ago.

It's fair to call chaos between all the implications of the pandemic and everything else that's been filled now.

So here we are.

These days, we're all at words, hopefully, reaching some level of normalization and so what is our priority at scale.

Take all this new skill in muscle and have capabilities that we have as a company and focus on taking it to the street driving more customer relationships driving more sales and more products and winning in the marketplace. That's our focus that's where 90% of our conversations are about right now and so in this new environment.

Whatever it may bring.

What we are.

Our priority is sales.

Thank you Bill, let's say Oh, yes. This just a.

Even.

Completely exhausted that.

[laughter].

We have about 15 primary equipment Oems.

And at the start of year, where we can have strategic growth market share driven.

Tactical discussion in our markets about product about how.

How does this market grow.

How do we grow the market.

That's a refreshing.

I can assure you a year ago. It wasn't about that it was about getting the product in and having a panic attack of having.

Over half of our business change and the new products.

Yes, that's done and so now it's about growth.

I hope that was helpful. Our next question comes from Ryan Merkel with William Blair. Please go ahead.

Yes.

Hey, guys. This is Ryan Francis on for Brian.

How are you doing.

Yeah.

I wanted to I wanted to start just asking how January and February were going to date.

Now theres still some some softness on the carrier side of things. So would just love to see how the year is off to or how that youre starting off.

Well Barry you might go to Guy so far [laughter].

Alright.

Answer that but I'd, rather you answer it.

Yes, it's down in the mid single digit range. So it's better than if I want to feel better.

Feel good, but I feel better down 5% or so in the yeah in the first part of the year and I played it very clearly there is very clearly some some severe weather.

Hudson stores that you know.

For now I believe it could have been a bit better than that but it's still not indicative or.

And then frame center the season Watsco becomes a 40% larger business in about 90 days when a sudden receiving hits.

So that's the data but.

I wouldn't try to draw.

Important influence out of it.

And then SG&A nice job on that and <unk>.

Is down 2% for the next couple of quarters, a good assumption or are there any sort of puts and takes that would swing that higher or lower.

<unk>.

Yeah.

Barry.

Yeah, I think it's progress right, so a lot of reduction activities and.

And really taking making taking action happening during the fourth quarter. It didn't start October one it was throughout the quarter.

So I think there's opportunity.

For further reduction, especially out of season.

As we get into season, we will calibrate what we think we need and what we should have and serve customers a proper way and calibrate our SG&A then.

But I do think.

Some of our growth investments new branches new technology.

The investments.

Investments we are making.

Can largely be offset by some other reductions that are in place so time will tell.

What can make it go up.

Be variable expenses like commission bonuses.

That would be driven by volume.

I want <unk> to be higher as a result of that discussion.

Because earnings would be a multiplier against that type of growth.

But in terms of.

Calibrating and starting the year.

We're in a lower place than a year ago and.

Again, we will recalibrate that as we get closer to the season and see.

Alright.

Got it.

How does that a little color there too I mean, our business unit leaders did a good job right sizing the business for.

The current market environment.

And we hope and expect then there are certainly planning using technology and so forth to drive efficiencies for now and forever, our continuous improvement business.

Like various says we're not going to be shy to invest where we see growth opportunities.

Alright ill pass it on thanks, guys.

<unk>.

Our next question comes from Brett Linzey with Mizuho. Please go ahead.

Hey, good morning, all.

Wanted to come back to gross profit margins, so up 40 bps in the quarter for the full year I was hoping maybe you could give us some of the building blocks to get to the 28, how much was the pricing optimization versus maybe mix on parts versus equipment and then do you think this 28% as the new <unk>.

Off point as we look into 2026 year on gross margins.

Hey, Brian it's Rick.

Yeah I.

I can take I can take a stab at that yeah, I think first of all the.

The importance of margin I think really shows over the course of the year and so.

So youre right that we should focus on that as being.

The starting point for what comes next it's not a floor it's not.

We're not saying that 28 is the new 27, we're seeing.

We've done good at many things over the course of the year to help improve margins.

Yes, OEM price increases springtime last year helps.

Yes, we made more progress on all the pricing technology.

We're very excited about it because it's not yet touching every customer every branch every SKU theres still more to go there.

And then the third component that I think is exciting is.

We talked at our Investor day about our new initiatives that were affectionately calling VCR and that has to do with.

Getting smarter and more strategic about Peru.

Purchasing within the non equipment space and not just purchase purchasing really about how we bring it in and how we redistributed across our network.

We think that's ultimately margin enhancing at the end of the day and that initiative is early days, but.

Good progress so far.

So I think the controllable margin that we are that are within our portfolio, let's say, we feel relatively good about.

And if this is a year, where you could have conventional OEM pricing.

I think that that also is favorable to margin so.

So no no flashing red I think there is there is good optimism and.

And also just a well thought out strategy to grind at this over the next several years to get to our.

Our ambition of 30% and we don't want to swing for the fences on this.

We want to do it responsibly and we want to do it in a measured and Mei.

I'd love to be able to say.

We grew extra why every year for the next Y number of years, and we'll get to 30%.

So it's not that linear but.

That's what we're aiming for is is progress along the way and someday will tell you we got to 30%.

And then the gold over 30%.

Yes.

No appreciate that and then maybe just a follow up on inventory and more watsco inventory.

From an equipment standpoint, where do you think you guys are on units as you enter 2026 and exit last year.

From a positioning standpoint, do you think there's more right sizing that needs to take place or do you think you are in pretty good shape.

Yes, there is always going to be right sizing taking place in our inventory.

There are there are things that we need to do to further improve the quality of our inventory, which we're constantly working with our subsidiaries on.

However, when you look at the number of.

If you just take residential units residential units ended the year down.

Dollars ended up.

Pretty close to what they were last year.

At this point and I would say our inventory's in great shape.

Paired to where it was a year ago.

A year ago, we were we were in the transition period.

Now we're out of the transition period.

Much through with the ports and we've got some left that needs to be moved.

But I think overall our inventories.

And in a great position right now to face the market.

And Paul why don't you say also that our Oems in a nice position.

Through all the noise of the regulatory changes and so forth and getting back to some level of normalization in terms of lead time.

Et cetera.

I think that provides a good base on top of which we can.

Further optimize our turns in EMR.

DMR business in that regard.

Can you guys hear me.

Yeah, why don't element.

To help tell us tell everyone. What our dream plan goal is in terms of inventory turns.

And where we are now where we like to be.

Our game plan, which is very well.

Populated amongst our business unit to get to a total of five turns.

We used to operate pre pandemic around four.

That dropped into the low threes given all the.

And we're going to climb up that ladder and when we do that you guys can do the math.

Ill turn of inventory what that means in terms of free cash flow, which can then be used to reinvest in the business.

I appreciate all the detail.

Yes, just to add one thing analytical thought to it you know units units are down double digits at the end of this year.

Equipment units were down double digits. So that's okay.

The progress we've made.

But if you look at it analytically I think in the ending inventory now is around 18, 19% of prior 12 month sales just use that as an index.

And if you looked at 10 years, that's the average.

So I think they're at the beginning at the beginning.

Point is a good beginning point.

What are the terms come is is trying to.

Spike inventory you know.

As we go through the year working with our Oems count on lead times of dependable lead times.

Punished to what we're selling and then you have a much.

Again simpler curve, you're managing throughout the year for inventory.

And it may take a year or two to have that full confidence in.

And lead times and dependability of lead times.

But that's that's what we're up to and that's how it can happen won't happen in one quarter all at once.

But over the next couple of years is the simplicity is now in place that's the big opportunity.

Thank you.

Okay.

Our next question comes from Jeff Hammond with Keybanc capital markets. Please go ahead.

Hey, good morning, guys.

Just back on gross margins, so I understand that the 30% target and can you continue to drive for that but you know it.

It seemed like the second half you were kind of getting back down kind of low 20 Sevens and you had some maybe temporary goodness in the first half so I'm just trying to level set.

And if we take out that.

Maybe pricing arbitrage and in <unk>.

Are we looking at.

Gross margins flat.

Flat down 50 basis points or just level set us a little more given the benefit last year.

Well the reason that you see that variation in GBM is the seasonality a bit.

And then product mix that goes along with that seasonality.

Anybody else want add something to that.

Yes, Rick why don't you.

You and I had a good chat in earlier.

Yes, I think that the.

But what I will just said is correct, Jeff you have to look at this firstly on a seasonal basis.

The preference for then looking at the overall year to smooth that out.

28% is great progress versus last year.

If your question is did the OEM price increases earlier in the year.

Distort that in some way that would be a headwind going forward. The answer is not really.

Yes.

If if that round of.

Spring time, OEM price increases amounted to mid single digits, that's been exactly what's what's been announced so far.

Coming in a little bit later in the season. So so nothing that I think would distort or that we need to tell you about as a watch item on gross margin.

Under mentally what drives gross margin.

As a member of the the.

Pricing and inflation and all of that that that is not something we control and that's really a function of timing at the end of the day.

What really drives the gross margin is that transactional margin.

At which we sell to customers 130000 of them out in the field and 700 locations.

That will be over a longer period of time, the more important ingredient to whether we can sustain and grow gross margins.

And as I said earlier I think there is there is optimism in an upward bias to that because that technology is still proliferating and still scaling as we go.

The other.

Again just.

Component to that I think is underappreciated in margin is the importance of the mix between your equipment and your non equipment.

Alright. So obviously, we saw just a relative difference there and sales trends.

And that is good for margin, what we want to do forget about 25.

Whatever the market grows on equipment, great, let's do better than that.

But the whole point of ECR is not just to get smarter about purchasing and redistribution, it's about growing the non equipment base up to $2 billion segment of our business and $1 5 billion in purchases.

If were.

Some percentage there are bigger going forward that will be helpful to margin along just just from a from a growth and volume standpoint. In addition to.

All of the purchasing and redistribution benefits, we gain along the way.

So that transactional margin.

The pricing technology.

And the success of VCR is what really will I think governor in our long term success on gross margin.

I also think whenever we have this conversation is important to reiterate that.

Mission to expand gross margin does not necessarily mean raise prices across the board and suffer the consequences of.

Uh huh.

Higher prices, meaning lower sales that does not the mission that is not the approach. The approach is to match the right price for the right products for the right customer given that market dynamics and our products dynamics in that for that customer's purchasing behavior with us.

And because we have such scale across so many different geographies.

<unk> products.

There's a lot of detail around that a lot of complexity.

That analysis, and so what our tools and our teams are able to do more than ever and by the way AI is helping with US now is identify opportunities.

At the right price for the right product for the right customer.

And let me do that at scale, if a lot of places at the Apple then add up over time, but it's not just drive price and suffer the consequences of elasticity.

Okay, Great and then.

Barry maybe you can give <unk>, what international and commercial was and then just speak to.

What trends Youre seeing or what the outlook is I think international was particularly challenging last year and maybe.

In our commercial started the year better and then and then soften, but but maybe just update us.

I mean commercial was.

For the quarter Jack <unk>.

Yes commercial for the product was down single digits.

High single digits, and and obviously not no giant influence there the way that residential was influenced by the <unk> change.

So a little better result in the fourth quarter with with with light commercial.

And.

And that includes a weaker international business. So first of all let's call it 9%.

International again, we have to be clear, we have really two international businesses, Canada.

And Latin America, including Mexico.

And and Canada did have a better a better quarter and.

Our Latin American business, which it's kind of been weak all year was kind of the same kind of quarter.

The planning.

The programming for next year is better in both markets.

But.

Again, we said the word geopolitical earlier on the call.

Those are two markets that certainly has some influence with geopolitical.

Issues and tariffs and the like.

That's not necessarily much better, but not certainly not worse.

As we close out this year.

Okay. Thanks.

Yes.

Okay.

Our next question comes from Steve Tusa with Jpmorgan. Please go ahead.

Good morning, Steve.

Good morning, how are you.

Good.

Yeah.

Good.

The can you just parse out the resi performance a bit.

Was there like on the ductless side, how did that perform versus kind of the traditional <unk> products.

Well they were affected by Fortunately on May 12 wells too so I'm not sure if there's any real divergence and the result in the quarter.

And for the year as well.

For the year.

When you look at the quarter.

Yeah.

For the year.

Kind of as it showed a ductless has been outgrowing no I'm, sorry [laughter] no.

It's exactly the same.

Okay.

Minor decline in Dr. Douglas is identical.

And as far as the like the parts and the repairs and things like that.

Was there any any sort of like trade down in that channel that you're seeing at all I mean, we're just trying to kind of gauge what the what the appetite is.

From an inflationary perspective from your customers really across a range of products not just the boxes.

Was there any sign of like a trade down on that front at all.

Well, if you looked like more price sensitivity from the contractor.

Just on the box side.

I don't think there was price sensitivity I think if you look at the yes.

<unk> compressors and motors really represent the bulk of our.

Of our parts sales not our supply sales, but our current sales.

And if you look at that overall they are up for the year.

Sales were up double digits.

But for the quarter, they were actually flat to down.

It only represents about a fourth quarter only represents about 18% of the of the annual sales of parts and parts business.

So it's not a significant quarter.

And then just one final one I'm not sure anybody asked but.

The kind of prevailing consensus from your Oems or from the Oems out there is.

For them a down unit market, so far again like that may be conservatism.

What is your market call kind of for this year for the industry.

But I think trains down here to five Lennox down <unk> to five and then I mean carrier put out like a down 15 or something like that or down to 10 to 15, what is kind of your call on on sell through volumes. This year, we just kind of like starting at flat or do you think you can grow.

Oh, that's likely the most the best luck there Matt.

Okay.

Our Crystal ball question of Raw, Stephen I've never I've never answered that you answered it in normal years in February.

Do you have the answer.

Yeah.

And so we're just not going to tell you.

Yeah.

Alright, well I guess I guess I would ask [laughter]. Thanks, a lot.

That'd be very will be there.

Better information in 90 days I want to take one of those like April remember, the eight ball, whom youre getting you shake it and it gives you an answer.

It's early to tell.

68 ball its going to say too early to tell [laughter], well I've got a broken clock in my in my room and it sits right.

Twice a day, so that's what I'm shooting for it thanks guys.

But again I'll, just say that it's just to have a little bit of fun with this I wanted to understand are they are data not hardy data not only M data now to get your idea or data.

So I went back to 2018, so how many units we sell in the United States, a compounded that a 3% through 25.

I added up the numbers and said we should have sold X number of units.

And then I glanced over an eight 3% compounding which is less than the 2030 year long term average unit growth rate in this industry I use 3% just to pick a number.

That was more conservative than that the long term average.

So then I said, how many did we sell the last eight years.

And it's within 1% if not a half a percent.

Of the linear compounding of 3% for eight years.

Now it took this year's.

Unit decline of 17%.

For that algebra to come in line. It took the correction of this year for the data to work.

Where are they beginning part beginning point.

Seems where it should be.

But then if I say.

Say the rest of the sentence.

Have no idea if that will if its right, but intellectually I feel a lot better.

Looking at our data.

Kind of that kind of projection.

I don't feel intellectually worse I feel better.

So it's so so its normal so youre at kind of a normal.

You were at a normal level is the point.

Yeah, and normal meaning that.

If there was an oversold market and our markets coming into the end of 'twenty five.

This year's correction helps that equation for sure.

There are other variables than just the ones I'm thinking out but.

I would say I don't like the word normal I think that's a more conventional starting place. This year then after this year this past year's correction.

The data suggests that but we don't know it until we see it play out.

And so youre, making at IAA.

Steve Steve, Yes, which is it feels more normal I'm not sure. It actually is normal yet, but it is it does feel more normal and again the balance of the season will kind of tell us if that theory holds or not.

And sorry, one more for you on this front do you finally kind of have visibility into like what.

The actual number for pre buy do you think any industry wise is that what you're saying basically it's like 7% or or lesser now like like what what are you looking back what do you now think the pre buy was last year.

Yeah.

It's not no one no one pre bought them, we sold we sold them and be installed them.

Okay.

Our comp for you guys right.

So <unk> and <unk>.

Last year in the fourth quarter.

Our guess is we sold.

<unk> systems as we closed out the year, 20% unit growth was the metric that we gave you this quarter.

It happened a year ago.

And if we do.

Do the algebra on saying what would have been normal a year ago and project that into this year. There was a 7% change in actual unit actual unit change a 17% got it okay alright. Thank you very much.

Oh, I'm, sorry, I can't help myself here I have to make a point in which quarter.

[laughter].

<unk>.

These are these are the right questions and the conversation, but what we're here for is not Q1 or Q2, or even 2026, our northstar, our guiding light and long term long term long term so.

We certainly do our best each quarter each day each month each in year, but our decision, making our investments are our leadership philosophy is all about the long term, we will never from long term for some short term benefit so.

No thats at the core of <unk> culture.

Loud and clear Hey man.

Well said Mr President.

Alright, I'll be done.

Okay.

Our next question comes from Chris Snyder with Morgan Stanley. Please go ahead.

Thank you guys.

I think earlier you talked about.

Consumers are homeowners, having to buy two units now with the <unk>.

<unk> can I guess fully in the rearview at this point and I think that that comment was was tied to the $4 54 transition.

So I guess the question is I guess I understand that that's positive would be positive for your volumes.

The homeowner to units more so now than in the past, we're selling them one but do you also think it could just keep the homeowner in repair mode for longer because it feels like the replace bill in that example would be effectively doubles.

And it will just be a wider delta versus the repair.

Any way you can help me think through that thank you.

Yeah.

Say two units, we mean youre going to have your outdoor unit and then youre going to have to install a separate coil on the inside.

The $4 54 in the 30 to a product that we sell it's powering these units now.

Slightly flammable. So it has to have a detector on the inside in the event of a leak.

The gas has been dispersed by a blower fan switch that goes on in the coil. So there is that two units you have to buy it just you have to buy the entire system you can't just replace the outdoor unit.

Okay.

Chris I think it's important definitions.

The AHRI data that is published.

Those are the outdoor units that have a compressor on it that's the definition of a unit in the industry as a compressor bearing in it.

And all the Oems and AHRI and our comparison data.

When we talk about unit, that's what we're talking about so it doesn't necessarily consistent.

And what will happen is as distributors run out of 410, a indoor and outdoor systems.

Where it maybe a band aid could have been put in place to sustain an existing system longer.

Maybe my indoor unit is fine my outdoor unit is as is.

Condemned.

A year ago, I could fix that buy only replacing the outdoor system.

Today with the new systems.

Choices as to repair or maybe I can't repair and maybe it's chronically broken.

This coming year, we are contracted to must.

Both indoor and outdoor.

And I can tell you I'm, even more certainty next year 'twenty seven.

Distributors will not be.

Really carrying any product that can sustain the old system, if it's chronically failed.

So think ration its a progression.

But that gives you some color on it.

Thank you that's really really helpful and.

And then I guess do you have any idea as to how often the contractor repairs the entire system versus say a year ago, just repairing the outdoor unit and because it does feel like we are.

In your example, if your indoor units still fine they have to replace both so the replacement bill is going up materially versus a year ago. I was just trying to get a sense for like how common is that you you know maybe a year ago. When only just replace one of the two that you got to remember a unit has a warranty to it at war.

<unk> on the compressor and motor goes for five years and in most cases it moves to 10 years.

So it's the average lifespan of a product, let's say in the in the entire U S is 14% to 15 to 16 years.

You've only got a window of a five to six years, where the consumer is going to be paying for.

For the replacement.

Of the motor.

Motor.

Thank you so yes, it really.

A lot of probably 50% of the compressors that we move we'll go to warranty 50% will be sold.

Yes, I don't think we would have data to answer how many chronic failures were replaced by half a system I don't think we have that data [laughter] no.

But what we but what we know is as as we move away from for today availability, which is near zero today and will be at zero soon.

That capability.

Moves away.

And contractors preference is to is to upgrade our system not put a band aid on it because if there is a warranty issue on a repair.

It's his warranty issue.

And so you know youre right.

The affordability and consumer capability of paying for things that are still important.

But as we move away from <unk> 10, a availability the choices become less not not more.

Thank you for all that color really helpful.

Our next question comes from Patrick Baumann with Jpmorgan. Please go ahead.

Oh, hi, Thanks for good morning, Thanks for let me sneak in here Steve.

<unk> earlier, but I appreciate you let me hop on.

A quick one on the volume for the year. The 17% can you give us any information on the disparity youre seeing in some of your major Dr. Oems there.

I'm really just trying to understand if.

<unk> seen.

Volumes recover for.

The non carrier.

Vendors.

Obviously, some issues at thinking good name with the transition I think in 'twenty four and then.

As well with <unk>.

Just curious if those OEM volumes.

Recovering our if theres more room to go to kind of normalize there sure.

Yeah the.

The opportunity for Dream.

Titan.

Performing very very well for us right now.

Were they able to.

Did they grow their volumes last year.

I'm not going to get into that now.

Okay.

And then last one for me on the HVAC products.

Segment side can you remind us.

What the commodity related product exposure, there as a percentage of the total.

You've historically talked about like copper tube, and ductwork, and refrigerants and things like that as being more commodity sensitive.

And then just curious what youre seeing in terms of inflation driven price there currently.

Okay, [laughter] copper goes up and goes down daily.

And copper is a hard one to attracting are today, it's down to 5% down to $5 72, it's been as high as $6 a pound.

Refrigerant has been holding its pricing and shop and increasing yet.

So we really haven't seen a lot of fluctuation on the refrigerant side.

Hey, Pat in the aggregate just to just to Dimensionalize. It in the aggregate, it's about 5% of total volume. So it's really not material not significant and we very deliberately keep.

We count inventory in days and weeks not months, there because we don't want any of that.

Price volatility to creep in the sales and margin. So it's very conservatively manage then it's only 5% of the business.

Understood. Thanks for the color on the granting of some volatility across four quarters. This past year and Theres, none I mean, it's a.

As Rick is suggesting a bit of a real time.

Inventory turns for those products in.

There is.

Precisely 5% of overall revenue.

Well, let's probe on Barry let's move on.

Thanks, a lot guys.

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

I appreciate your interest in <unk>.

I'm, a little bit with us for decades and I appreciate that.

So thank you very much for your interest and we'll speak to you next quarter Bye now.

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

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