Watsco, Inc.

Good morning, and welcome to the Wattsco Third Quarter 2021 Earnings 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 your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Albert Nahmad, CEO. Please go ahead.

Good morning, everyone. Welcome to our third quarter earnings call. First, I hope everyone is safe and healthy, given the virus that's going on. But this is Al Nahmad, Chairman and CEO, and with me is A.J. Nahmad, President, our two Executive Vice Presidents, Paul Johnston and Barry Logan, and Rick Gomez, Vice President. 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. Open-end results may differ materially from the forward-looking statements. Now, I am pleased to share that Wattsco delivered another record quarter New records were achieved in virtually every performance metric. Earnings per share jumped 31% to a record $3.62 per share on a 32% increase in net income. Sales grew 16%, or nearly $250 million during the quarter, to a record $1,780,000,000. Gross profit increased 29% with growth margins expanding 280 basis points. Operating income increased 50 million or 32% to a record $207 million. Operating margins expanded 100 basis points to a record 11.6%. And cash flow for the quarter was a record $238 million. Today's results are all the more positive when considered against last year's record results and in light of the industry-wide supply challenges that are still going on. Our teams throughout all of Wattsco are doing an extraordinary job taking care of customers, and that has made a big difference. I want to say thanks to all of you. We also ended the quarter with a strong balance sheet with virtually no debt and cash for $137 million. This financial strength provides us the flexibility to invest in most any size opportunity. Our press release summarizes important fundamentals that are critical to understand as we continue to invest and build further scale in what is a very fragmented $50 billion North American market. An important fundamental is Wasco's geographic coverage and our large number of locations across many markets. The diversity of markets we serve reduces volatility and provides stability during a difficult operating environment, such as the one we are witnessing. Also, our large and growing customer base is increasingly equipped with our state-of-the-art technology that helps our customers grow their business and purchase more from us. Another advantage now and in the future is our offerings of the broadest variety of products and brands in the industry. The depth and diversity of our product offerings should continue to serve us well. We're optimistic about current market conditions. Let me say that again. Optimistic about current market conditions and recent trends. And market demand remains strong. And we see signs of improvement in our OEM's ability to help us fulfill that demand. Looking ahead, the industry will experience more change in the years to come as minimum SEER standards rise, that's normally done by the federal government, by the way, and refrigerant changes that take shape in the coming years. And with changes come opportunities. We believe that our long-term focus, our scale, speed to market, relationship with OEMs, Technology offerings position us better than anyone to capitalize on these upcoming changes. We are living in unusual times, but could not be more positive and excited about the future of the industry and our role in it. Now let's go on to our Q&A.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, Please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Nigel Coe with Wolf Research. Please go ahead. Morning, Nigel. Mr. Coe, your line is open on our end. I do. Thank you. Okay, moving on. Our first question is coming from Tommy Mall with Stevens. Please go ahead.