Watsco, Inc.

Good morning, everyone. I hope everyone is having a safe and good day.

Welcome to our second quarter earnings call, and what an incredible quarter it was for Wattsco. This is Al Nahmad, Chairman and CEO, and with me is A.J. Nahmad, who is our President, and our two Executive Vice Presidents, Paul Johnston and Barry Logan. Now, as we normally do, before we start, we need to read our cautionary statement. The conference call has four looking statements as I am pleased to share that Wasco has delivered an incredible second quarter, achieving new records in virtually every performance metric. Earnings per share jumped 64% to a record $3.71 per share on a 66% increase in net income. This was by far our most successful quarter ever. Sales grew 36% or nearly $500 million to a record $1,850,000,000 in sales for the quarter. Gross profits increased 50% with growth margins expanding 220 basis points. Operating income increased $88 million, or 68%, to $217 million. And operating margins, this is a big one, operating margins expanded 220 basis points to a record 11.7%. Now, these results are all the more positive when considered against last year's second quarter, which had only a modest impact from the COVID-related slowdown. Now, we have two new companies in our family, TEC and Acme. They perform very well, and we cannot be happier that they are now part of an important part of Wasco. They have a rich and successful history, and we will help them any way we can. Looking ahead, we are engaged in a very fragmented $50 billion North American market. Again, this is a $50 billion North American market, and we hope to find more great companies to join us. Greater scale in this industry provides more capital for us to fund our growth priorities. Also, Wattsco's industry-leading technologies continue to gain traction, and we believe they are helping us gain market share. Here are a few important highlights to mention. First, growth rates among active users of our technologies continues to outpace the growth rates of non-users. Customers using our technology are simply growing faster. Next, attrition among customers using our technology is meaningfully lower compared to non-users. The technology enables us to create stickier customer relationships. Also, more customers are using our digital selling platforms that are called On Call Air and Credit for Comfort. They help and modernize how HP solutions are presented to homeowners. As evidence of the success of On Call Air and Credit for Comfort, the number of digital sales presentations made by our contractor customers to end consumers increased by 84% and helped close over $200 million in sales during the quarter. These tools have also benefited the sale of higher efficiency systems, which we think is an important contributor to the climate change discussion. As solar systems are replaced, our technology can play an important role in helping consumers choose more energy-efficient solutions. Our progress is very encouraging, but we believe it is still early in terms of reaching the full potential of our technology investments. Our focus remains in the long term. I think you've heard me say that over and over again. We are long-term players in the industry. Please feel free to schedule a Zoom call with us, and we can further explain our technology and its impact. Finally, but very important, our balance sheet remains in pristine condition with only a small amount of debt. We have plenty of capacity and even more ambitions to grow our company both organically and through acquisitions. With that, AJ, Paul, Barry, and I are happy to answer your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Jeff Hammond from KeyBank Capital Markets. Please go ahead.