Watsco, Inc.

Good day and welcome to the Wattsco second quarter 2022 earnings conference call. All participants will be in a 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 touchtone phone. And 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 Mr. Albert Named. Chairman and CEO, please go ahead, sir.

Morning, everyone. Welcome from rainy, cloudy Miami, Florida. This is our second quarter earnings call. And this is Al Namid, Chairman and CEO. And with me is A.J. Namid, who is the company's president, Paul Johnson, 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. On to our information. Watsco delivered another exceptional quarter. Records were set for virtually every measure of performance. Earnings per share jumped 33% to a record 4.1%. to a record $4.93 per share. That's a record $4.93 per share for the quarter. Sales grew 15% to a record $2.13 billion, which is our first $2 billion quarter. Operating income increased 32% to a record $287 million, with margins expanding 180 basis places. to a record 13.5%. We are particularly pleased with these results given the strong comparisons against the second quarter last year. Now, that was a heck of a quarter last year. Same-store sales were up 29%, and earnings per share was up 64%. That's the comparison that we're up against this last quarter, the second quarter of this year. Now, for the first half of this year, earnings per share is up 53%, on the record $7.83 on a 22% increase in sales. Looking at current trends so far in July, we see meaningful unit growth and additional price capture as inflation remains a reality in our industry. For the year, we expect 2022 will be another year of record performance. Then looking to 2023, higher interest rates and perhaps an economic slowdown is what we think about. We will react in creative ways to take advantage of our scale, product diversity, and technology leadership to sustain growth and build upon our growing market share no matter what comes in 2023. We have also asked our teams to focus on productivity and operating efficiencies, which have been more difficult to achieve the last two years, given the unprecedented supply chain, transportation, and business disruptions that have impacted all businesses, not just ours. We are also engaged with our OEM partners and working together to develop forward-looking growth initiatives. Wattsco has deep relationships with virtually every domestic and international OEM, and we possess the best, most diverse brand portfolio of any distributor in our industry. More fundamentally, there are numerous reasons to be optimistic about our business and our industry in the medium and long term. This morning's press release provides a number of additional data points that we feel support Wattsco's growth trajectory. We have immense technology advantage in our marketplace, and we are investing to grow that advantage, to grow with that advantage. Our technology investments are paying dividends in the form of higher customer engagement, reduced attrition, and substantial market share gains. We have a market advantage in the breadth and diversity of products we sell across dozens of brands. Sorry, let me say that again. Our market advantage is the breadth and diversity of products we sell across dozens of brands and hundreds of product categories. This diversity allows us to offer the full variety of price points required in a market in most any economic environment. In addition, we have a concentrated position in the Sunbelt markets. where both population migration is greatest and the necessity of HVAC products is the most absolute. Now turning to something that's very important, that's the regulatory front. We have several important federal regulatory changes coming to provide opportunities for growth. The minimum federal SEER standards will increase in 2023 across the entire United States. The price points associated with these new products will be higher and should benefit 2023 results. Another very important regulatory change will occur in 2025 as the industry transforms or transitions to new refrigerants. Federal mandates are now in place to phase out the current high DWP, which means global warning potential, And again, GWP, global warning potential refrigerants, used in millions of systems. OEMs are developing new products to incorporate the lower GWP refrigerant. To sum it up, there is significant opportunity for homeowners and businesses to upgrade systems that will, over time, be both efficient and environmentally friendly. We believe our scale matters. Technology and financial strength position us extremely well to capture these new market opportunities. Finally, we're always concerned ourselves with our balance sheet so that we are in a position of financial strength. Today's balance sheet remains in pristine condition with a small amount of debt and we can continue to funding investments to grow our business. We are fortunate to be the leader in such a key industry. As we mentioned, we feel there are and will be several important drivers for growth in our company in years ahead. As always, we have presented only a small portion of our technology story in today's release. If you have any interest in learning more, let us know and we will schedule time with AJ and his team. We are always happy to share more about our progress. But with that, let's go on to questions and answers.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two.