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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended
June 30,
2024
or
Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Transition Period From
to
Commission file number
1-5581
WATSCO, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-0778222
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2665 South Bayshore Drive 33133
,
Suite 901
Miami
,
FL
(Address of principal executive offices) (Zip Code)
(
305
)
714-4100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Name of each exchange
Symbol(s) on which registered
Common stock, $0.50 par value WSO New York Stock Exchange
Class B common stock, $0.50 par value WSOB New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation
S-T
((s)232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the
definitions of "large accelerated filer," "accelerated filer," "smaller
reporting company," and "emerging growth company" in Rule
12b-2
of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated Smaller reporting company
filer
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined
in Rule
12b-2
of the Exchange Act).YesNo
The registrant's common stock outstanding as of July 30, 2024 comprised (i)
34,789,334
shares of Common stock, $0.50 par value per share, excluding 4,066,984
treasury shares and (ii)
5,549,880
shares of Class B common stock, $0.50 par value per share, excluding 48,263
treasury shares.
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Table of Contents
WATSCO, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM
10-Q
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated 3
Unaudited Financial Statements
Condensed Consolidated Unaudited Statements of Income - 3
Quarters and Six Months Ended June 30, 2024 and 2023
Condensed Consolidated Unaudited Statements of Comprehensive 4
Income - Quarters and Six Months Ended June 30, 2024 and 2023
Condensed Consolidated Unaudited Balance 5
Sheets - June 30, 2024 and December 31, 2023
Condensed Consolidated Unaudited Statements of Shareholders' 6
Equity - Quarters and Six Months Ended June 30, 2024 and 2023
Condensed Consolidated Unaudited Statements of Cash 8
Flows - Six Months Ended June 30, 2024 and 2023
Notes to Condensed Consolidated 9
Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of 15
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative 24
Disclosures about Market Risk
Item 4. Controls and 24
Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity 25
Securities and Use of Proceeds
Item 5. Other Information 25
Item 6. Exhibits 25
SIGNATURE 26
EXHIBITS
2 of 26
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Table of Contents
0.05
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF INCOME
(In thousands, except per share data)
Quarter Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Revenues $ 2,139,328 $ 2,003,084 $ 3,704,319 $ 3,553,725
Cost of sales 1,559,568 1,440,462 2,693,934 2,542,946
Gross profit 579,760 562,622 1,010,385 1,010,779
Selling, general and administrative expenses 319,029 304,155 628,577 591,212
Other income 8,072 7,238 13,532 10,878
Operating income 268,803 265,705 395,340 430,445
Interest (income) expense, net ( ) 3,415 ( ) 4,030
4,913 7,383
Income before income taxes 273,716 262,290 402,723 426,415
Income taxes 59,065 56,887 83,810 90,641
Net income 214,651 205,403 318,913 335,774
Less: net income attributable to 33,241 32,639 50,499 52,937
non-controlling
interest
Net income attributable to Watsco, Inc. $ 181,410 $ 172,764 $ 268,414 $ 282,837
Earnings per share for Common and Class B common stock:
Basic $ 4.50 $ 4.43 $ 6.71 $ 7.27
Diluted $ 4.49 $ 4.42 $ 6.69 $ 7.25
See accompanying notes to condensed consolidated unaudited financial statements.
3 of 26
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Table of Contents
WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Quarter Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Net $ 214,651 $ 205,403 $ 318,913 $ 335,774
income
Other comprehensive (loss) income, net of ( ) 7,115 ( ) 7,375
tax Foreign currency translation adjustment 3,336 11,336
Other comprehensive ( ) 7,115 ( ) 7,375
(loss) income 3,336 11,336
Comprehensive 211,315 212,518 307,577 343,149
income
Less: comprehensive 32,205 34,974 47,002 55,362
income attributable to
non-controlling
interest
Comprehensive income $ 179,110 $ 177,544 $ 260,575 $ 287,787
attributable to Watsco, Inc.
See accompanying notes to condensed consolidated unaudited financial statements.
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WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS
(In thousands, except per share data)
June 30, December 31,
2024 2023
ASSETS
Current assets:
Cash and cash equivalents $ 224,854 $ 210,112
Short-term cash investments 200,000 -
Accounts receivable, net 1,001,329 797,832
Inventories, net 1,573,496 1,347,289
Other current assets 34,718 36,698
Total current assets 3,034,397 2,391,931
Property and equipment, net 138,301 136,230
Operating lease 384,816 368,748
right-of-use
assets
Goodwill 458,353 457,148
Intangible assets, net 211,586 218,146
Investment in unconsolidated entity 156,886 146,238
Other assets 10,985 10,741
$ 4,395,324 $ 3,729,182
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of lease liabilities $ 104,409 $ 100,265
Accounts payable 564,082 369,396
Accrued expenses and other current liabilities 276,676 242,351
Total current liabilities 945,167 712,012
Long-term obligations:
Borrowings under revolving credit agreement - 15,400
Operating lease liabilities, net of current portion 291,434 276,913
Finance lease liabilities, net of current portion 15,684 12,214
Total long-term obligations 307,118 304,527
Deferred income taxes and other liabilities 98,849 96,453
Commitments and contingencies
Watsco, Inc. shareholders' equity:
Common stock, $ 19,427 19,353
0.50
par value
Class B common stock, $ 2,800 2,781
0.50
par value
Preferred stock, $ - -
0.50
par value
Paid-in 1,466,537 1,153,459
capital
Accumulated other comprehensive loss, net of tax ( ) ( )
50,170 42,331
Retained earnings 1,246,053 1,183,207
Treasury stock, at cost ( ) ( )
73,810 86,630
Total Watsco, Inc. shareholders' equity 2,610,837 2,229,839
Non-controlling 433,353 386,351
interest
Total shareholders' equity 3,044,190 2,616,190
$ 4,395,324 $ 3,729,182
See accompanying notes to condensed consolidated unaudited financial statements.
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WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Common Common Paid-In Accumulated Retained Tr
thousands, Stock, Stock, Capital Other Earnings St
except Class Class Comprehensive
share B B Loss
and Common Common
per Stock Stock
share and and
data) Preferred Preferred
Stock Stock
Shares Amount
Balance 39,441,280 $ 22,134 $ 1,153,459 $ ( ) $ 1,183,207 $
at 42,331
December
31,
2023
Net 87,004 17,258 104,262
income
Other ( ) ( ) ( )
comprehensive 5,539 2,461 8,000
(loss)
Issuances 87,660 44 ( ) -
of 44
restricted
shares
of
common
stock
Forfeitures ( ) ( ) 6 -
of 12,064 6
restricted
shares
of
common
stock
Common 20,387 10 8,725 8,735
stock
contribution
to
401(k)
plan
Stock 53,029 27 10,719 10,746
issuances
from
exercise
of
stock
options
and
employee
stock
purchase
plan
Retirement ( ) ( ) ( ) ( )
of 1,425 1 564 565
common
stock
Net 712,000 268,931 12,820 281,751
proceeds
from
the
sale
of
Common
stock
Common 1,904 1 751 752
stock
issued
for
Commercial
Specialists,
Inc.
Share-based 10,467 10,467
compensation
Cash ( ) ( )
dividends 96,765 96,765
declared
and
paid on
Common
and
Class B
common
stock, $
2.45
per
share
Balance 40,302,771 22,209 1,452,450 ( ) 1,173,446
at 47,870
March
31,
2024
Net 181,410 33,241 214,651
income
Other ( ) ( ) ( )
comprehensive 2,300 1,036 3,336
(loss)
Issuances 10,000 5 ( ) -
of 5
restricted
shares
of
common
stock
Forfeitures ( ) ( ) 3 -
of 5,750 3
restricted
shares
of
common
stock
Stock 36,754 18 8,140 8,158
issuances
from
exercise
of
stock
options
and
employee
stock
purchase
plan
Retirement ( ) ( ) ( ) ( )
of 5,279 2 2,442 2,444
common
stock
Share-based 8,390 8,390
compensation
Dividend 4 - 1 - 1
reinvestment
plan
Cash ( ) ( )
dividends 108,803 108,803
declared
and
paid on
Common
and
Class B
common
stock, $
2.70
per
share
Balance 40,338,500 $ 22,227 $ 1,466,537 $ ( ) $ 1,246,053 $
at 50,170
June
30,
2024
easury Non-controlling Total
ock Interest
( ) $ 386,351 $ 2,616,190
86,630
( ) 401,148 2,927,573
73,810
( ) $ 433,353 $ 3,044,190
73,810
Continued on next page.
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(In Common Common Paid-In Accumulated Retained Treasury
thousands, Stock, Stock, Capital Other Earnings Stock
except Class Class Comprehensive
share B B Loss
and Common Common
per Stock Stock
share and and
data) Preferred Preferred
Stock Stock
Shares Amount
Balance 38,749,887 $ 21,811 $ 973,060 $ ( ) $ 1,029,516 $
at 47,710 87,4
December
31,
2022
Net 110,073 20,298 130,371
income
Other 170 90 260
comprehensive
income
Issuances 116,510 58 ( ) -
of 58
restricted
shares
of
common
stock
Forfeitures ( ) ( ) 1 -
of 2,000 1
restricted
shares
of
common
stock
Common 35,533 18 8,844 8,862
stock
contribution
to
401(k)
plan
Stock 75,186 38 12,947 12,985
issuances
from
exercise
of
stock
options
and
employee
stock
purchase
plan
Issuance 632 - 200 200
of
Class
B
common
stock
Retirement ( ( ) ( ) ( )
of 21,702 11 6,441 6,452
common )
stock
Share-based 8,763 8,763
compensation
Cash ( ) ( )
dividends 94,970 94,970
declared
and
paid on
Common
and
Class B
common
stock, $
2.45
per
share
Balance 38,954,046 21,913 997,316 ( ) 1,044,619
at 47,540 87,4
March
31,
2023
Net 172,764 32,639 205,403
income
Other 4,780 2,335 7,115
comprehensive
income
Issuances 38,000 19 ( ) -
of 19
restricted
shares
of
common
stock
Forfeitures ( ) - - -
of 467
restricted
shares
of
common
stock
Stock 30,794 15 5,622 5,637
issuances
from
exercise
of
stock
options
and
employee
stock
purchase
plan
Retirement ( ) ( ) ( ) ( )
of 1,737 1 594 595
common
stock
Share-based 6,828 6,828
compensation
Net 45,000 13,994 810 14,804
proceeds
from
the
sale
of
Common
stock
Cash ( ) ( )
dividends 95,439 95,439
declared
and
paid on
Common
and
Class B
common
stock, $
2.45
per
share
Balance 39,065,636 $ 21,946 $ 1,023,147 $ ( ) $ 1,121,944 $
at 42,760 86,6
June
30,
2023
Non-controlling Total
Interest
( ) $ 359,041 $ 2,248,278
40
( ) 379,429 2,308,297
40
( ) $ 414,403 $ 2,452,050
30
See accompanying notes to condensed consolidated unaudited financial statements.
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WATSCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
2024 2023
Cash flows from operating activities:
Net income $ 318,913 $ 335,774
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 19,893 16,615
Share-based compensation 16,517 13,529
Non-cash 8,735 8,862
contribution to 401(k) plan
Provision for doubtful accounts 1,569 1,405
Deferred income tax provision 3,568 3,442
Other income from investment in unconsolidated entity ( ) ( )
13,532 10,878
Other, net 294 ( )
481
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net ( ) ( )
203,962 243,440
Inventories, net ( ) ( )
225,984 313,634
Accounts payable and other liabilities 233,517 103,442
Other, net 1,913 ( )
3,815
Net cash provided by (used in) operating activities 161,441 ( )
89,179
Cash flows from investing activities:
Purchases of short-term cash investments ( ) -
200,000
Capital expenditures ( ) ( )
12,262 15,831
Business acquisitions, net of cash acquired ( ) ( )
5,173 2,989
Proceeds from sale of property and equipment 120 1,232
Net cash used in investing activities ( ) ( )
217,315 17,588
Cash flows from financing activities:
Net proceeds from the sale of Common stock 281,784 15,179
Net proceeds from issuances of Common stock under employee-related plans 17,103 13,827
Net proceeds from Dividend Reinvestment Plan 1 -
Payment of fees related to revolving credit agreement - ( )
580
Net repayments under prior revolving credit agreement - ( )
56,400
Repurchases of common stock to satisfy employee withholding tax obligations ( ) ( )
1,209 2,254
Net repayments of finance lease liabilities ( ) ( )
2,901 1,795
Net (repayments) proceeds under current revolving credit agreement ( ) 342,900
15,400
Dividends on Common and Class B common stock ( ) ( )
205,568 190,409
Net cash provided by financing activities 73,810 120,468
Effect of foreign exchange rate changes on cash and cash equivalents ( ) 1,320
3,194
Net increase in cash and cash equivalents 14,742 15,021
Cash and cash equivalents at beginning of period 210,112 147,505
Cash and cash equivalents at end of period $ 224,854 $ 162,526
Supplemental cash flow information:
Common stock issued for Commercial Specialists, Inc. $ 752 -
See accompanying notes to condensed consolidated unaudited financial statements.
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WATSCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
June 30, 2024
(In thousands, except share and per share data)
1. BASIS OF PRESENTATION
Basis of Consolidation
Watsco, Inc. (collectively with its subsidiaries, "Watsco," the "Company,"
"we," "us," or "our") was incorporated in Florida in 1956 and is the largest
distributor of air conditioning, heating and refrigeration equipment and
related parts and supplies ("HVAC/R") in the HVAC/R distribution industry in
North America. The accompanying June 30, 2024 interim condensed consolidated
unaudited financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in the annual financial statements prepared
in accordance with U.S. generally accepted accounting principles ("GAAP") have
been condensed or omitted pursuant to those rules and regulations, but we
believe the disclosures made are adequate to make the information presented
not misleading. In the opinion of management, all adjustments, consisting of
normal and recurring adjustments, necessary for a fair presentation have been
included in the condensed consolidated unaudited financial statements included
herein. These statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in our 2023
Annual Report on Form
10-K.
The condensed consolidated unaudited financial statements include the accounts
of Watsco, all of its wholly owned subsidiaries, the accounts of
four
joint ventures with Carrier Global Corporation, which we refer to as Carrier,
in which we have a controlling interest, the accounts of Carrier InterAmerica
Corporation and Carrier (Puerto Rico), Inc., in each of which we have an 80%
controlling interest, and Carrier has a 20%
non-controlling
interest, and our 38.4% investment in Russell Sigler, Inc., which is accounted
for under the equity method of accounting. All significant intercompany
balances and transactions have been eliminated in consolidation.
The results of operations for the quarter and six months ended June 30, 2024
are not necessarily indicative of the results to be expected for the year
ending December 31, 2024. Sales of residential central air conditioners,
heating equipment, and parts and supplies are seasonal. Furthermore,
profitability can be impacted favorably or unfavorably based on weather
patterns, particularly during the Summer and Winter selling seasons. Demand
related to the residential central air conditioning replacement market is
typically highest in the second and third quarters, and demand for heating
equipment is usually highest in the first and fourth quarters. Demand related
to the new construction sectors throughout most of the markets we serve tends
to be fairly evenly distributed throughout the year and depends largely on
housing completions and related weather and economic conditions.
Short-Term Cash Investments
Short-term cash investments consist of a certificate of deposit that matures
in September 2024.
Equity Method Investments
Investments in which we have the ability to exercise significant influence,
but do not control, are accounted for under the equity method of accounting
and are included in investment in unconsolidated entity in our condensed
consolidated unaudited balance sheets. Under this method of accounting, our
proportionate share of the net income or loss of the investee is included in
other income in our condensed consolidated unaudited statements of income. The
excess, if any, of the carrying amount of our investment over our ownership
percentage in the underlying net assets of the investee is attributed to
certain fair value adjustments with the remaining portion recognized as
goodwill.
Use of Estimates
The preparation of condensed consolidated unaudited financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the condensed
consolidated unaudited financial statements and the reported amounts of
revenues and expenses for the reporting period. Significant estimates include
valuation reserves for accounts receivable, net realizable value adjustments
to inventories, income taxes, reserves related to loss contingencies and the
valuation of goodwill, indefinite-lived intangible assets, and long-lived
assets. While we believe that these estimates are reasonable, actual results
could differ from such estimates.
Recently Adopted Accounting Standards
Segment Reporting
In September 2023, the Financial Accounting Standards Board ("FASB") issued
guidance that enhances segment reporting primarily by expanding the
disclosures about significant segment expenses. Under the new standard, an
entity will be required to disclose significant segment expenses that are
regularly provided to the chief operating decision maker ("CODM"), how the
CODM assesses segment performance and decides how to allocate resources, the
title and position of the CODM, and certain other disclosures. This guidance
is effective prospectively and is effective for annual periods beginning after
December 15, 2023 and for interim periods beginning after December 15, 2024.
The adoption of this guidance on January 1, 2024 did not have a material
impact on our consolidated financial statements.
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Recently Issued Accounting Standards Not Yet Adopted
Income Taxes
In December 2023, the FASB issued guidance that enhances annual income tax
disclosures primarily by disaggregating the existing disclosures related to
the effective tax rate reconciliation and income taxes paid. Under the new
guidance, an entity will be required to disclose specific categories in the
rate reconciliation and provide additional information for reconciling items
that meet a quantitative threshold. An entity will also be required to
disclose the amount of income taxes paid disaggregated by federal, state and
foreign, and by individual jurisdictions equal or greater than
five
percent of total income taxes paid. This guidance is effective prospectively
and is effective for annual periods beginning after December 15, 2024. We do
not expect the adoption of this guidance to have a material impact on our
consolidated financial statements.
Climate Disclosures
In March 2024, the Securities and Exchange Commission ("SEC") adopted rules to
enhance and standardize disclosures related to the impacts and risks of
climate-related matters. Under the new rules, an entity will be required to
disclose information about climate-related risks that have materially
impacted, or are likely to have a material impact, on its business strategy,
results of operations, or financial condition. In addition, certain
disclosures related to severe weather events, other natural conditions, and
greenhouse gas emissions will be required in the audited financial statements.
These rules are effective prospectively and are effective for annual periods
beginning with the year ending December 31, 2025. On April 4, 2024, the SEC
announced that it will stay implementation of its final rules pending the
results of a legal challenge. We will continue to assess the impact of these
rules on our consolidated financial statements while the stay is in place.
2. REVENUES
Disaggregation of Revenues
The following table presents our revenues disaggregated by primary
geographical regions and major product lines within our single reportable
segment:
Quarter Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Primary Geographical Regions:
United States $ 1,926,499 $ 1,799,031 $ 3,325,185 $ 3,194,035
Canada 95,697 107,360 175,495 188,623
Latin America and the Caribbean 117,132 96,693 203,639 171,067
$ 2,139,328 $ 2,003,084 $ 3,704,319 $ 3,553,725
Major Product Lines:
HVAC equipment 70 % 69 % 68 % 69 %
Other HVAC products 26 % 27 % 28 % 27 %
Commercial refrigeration products 4 % 4 % 4 % 4 %
100 % 100 % 100 % 100 %
3. EARNINGS PER SHARE
The following table presents the calculation of basic and diluted earnings per
share for our Common and Class B common stock:
Quarter Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Basic Earnings
per Share:
Net income attributable to $ 181,410 $ 172,764 $ 268,414 $ 282,837
Watsco, Inc. shareholders
Less: distributed and undistributed earnings 12,623 11,933 18,802 19,341
allocated to restricted common stock
Earnings allocated to $ 168,787 $ 160,831 $ 249,612 $ 263,496
Watsco, Inc. shareholders
37,512,105 36,304,824 37,193,827 36,249,021
Weighted-average common
shares outstanding - Basic
Basic earnings per share for $ 4.50 $ 4.43 $ 6.71 $ 7.27
Common and Class B common stock
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Quarter Ended Six Months Ended
June 30, June 30,
2024 2023 2024 2023
Allocation of
earnings for Basic:
Common $ 154,282 $ 146,511 $ 227,977 $ 239,999
stock
Class B 14,505 14,320 21,635 23,497
common stock
$ 168,787 $ 160,831 $ 249,612 $ 263,496
Diluted Earnings
per Share:
Net income attributable to $ 181,410 $ 172,764 $ 268,414 $ 282,837
Watsco, Inc. shareholders
Less: distributed and undistributed earnings 12,608 11,916 18,788 19,322
allocated to restricted common stock
Earnings allocated to $ 168,802 $ 160,848 $ 249,626 $ 263,515
Watsco, Inc. shareholders
Weighted-average common 37,512,105 36,304,824 37,193,827 36,249,021
shares outstanding - Basic
Effect of dilutive 115,532 125,113 119,766 117,216
stock options
Weighted-average common 37,627,637 36,429,937 37,313,593 36,366,237
shares outstanding - Diluted
Diluted earnings per share for $ 4.49 $ 4.42 $ 6.69 $ 7.25
Common and Class B common stock
Anti-dilutive stock options 25,421 24,328 27,455 79,271
not included above
Diluted earnings per share for our Common stock assumes the conversion of
all our Class B common stock into Common stock as of the beginning of the
fiscal year; therefore, no allocation of earnings to Class B common stock is
required. At June 30, 2024 and 2023, our outstanding Class B common stock was
convertible into
3,223,761
and
3,232,419
shares of our Common stock, respectively.
4. OTHER COMPREHENSIVE (LOSS) INCOME
Other comprehensive (loss) income consists of the foreign currency translation
adjustment associated with our Canadian
operations
' use of the Canadian dollar as their functional currency.
The change in accumulated other comprehensive loss, net of tax, was as follows:
Six Months Ended June 30, 2024 2023
Foreign currency translation adjustment:
Beginning balance $ ( ) $ ( )
42,331 47,710
Current period other comprehensive (loss) income ( ) 4,950
7,839
Ending balance $ ( ) $ ( )
50,170 42,760
5. ACQUISITIONS
Commercial Specialists, Inc.
On February 1, 2024, one of our wholly owned subsidiaries acquired Commercial
Specialists, Inc. ("CSI"), a distributor of HVAC products with annual sales of
approximately $
13,000
, operating from two locations in Kentucky and Ohio. Consideration for the
purchase consisted of $
6,037
in cash,
1,904
shares of Common stock having a fair value of $
752
, and $
562
for repayment of indebtedness, net of cash acquired of $
1,426
. The preliminary purchase price resulted in the recognition of $
2,469
in goodwill. The tax basis of such goodwill is deductible for income tax
purposes over
15
years.
Gateway Supply Company, Inc.
On September 1, 2023, we acquired substantially all the assets and assumed
certain of the liabilities of Gateway Supply Company, Inc. ("GWS"), a plumbing
and HVAC distributor with annual sales of approximately $
180,000
, operating from
15
locations in South Carolina and
one
location in Charlotte, North Carolina. We formed a new, wholly owned
subsidiary, Gateway Supply LLC, that operates this business. Consideration for
the net purchase price consisted of $
4,000
in cash, net of cash acquired of $
3,102
, and
280,215
shares of Common stock having a fair value of $
101,645
, net of a discount for lack of marketability. Of the
280,215
shares of Common stock issued,
21,228
shares are subject to a contractual restriction that generally prohibits the
sale or other transfer of such shares by GWS and its permitted transferees for
a period of one year following the closing date with respect to half of such
shares, and
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two years following the closing date with respect to the other half of such
shares. The
preliminary
purchase price resulted in the recognition of $
69,086
in goodwill and intangibles. The fair value of the identified intangible
assets was $
44,000
and consisted of $
18,600
in trade names and distribution rights, and $
25,400
in customer relationships to be amortized over an
18
-year
period. The tax basis of the acquired goodwill recognized is not deductible
for income tax purposes.
The table below presents the allocation of the total consideration to tangible
and intangible assets acquired and liabilities assumed from the acquisition of
GWS based on their respective fair values as of September 1, 2023:
Accounts receivable $ 21,159
Inventories 37,098
Other current assets 319
Property and equipment 3,213
Operating lease ROU assets 15,737
Goodwill 25,086
Intangibles 44,000
Other assets 86
Current portion of long-term liabilities ( )
3,633
Accounts payable ( )
8,306
Accrued expenses and other current liabilities ( )
4,934
Operating lease liabilities, net of current portion ( )
12,434
Finance lease liabilities, net of current portion ( )
1,431
Other liabilities ( )
13,417
Total $ 102,543
Capitol District Supply Co., Inc.
On March 3, 2023, one of our wholly owned subsidiaries acquired Capitol
District Supply Co., In
c
.,
a distributor of plumbing and air conditioning and heating products with
annual sales of approximately $
13,000
, operating from three locations in New York. Consideration for the purchase
consisted of $
1,217
in cash, net of cash acquired of $
144
, and $
1,851
for repayment of indebtedness. The purchase price resulted in the recognition
of $
1,055
in goodwill and intangibles. The fair value of the identified intangible
assets was $
606
and consisted of $
430
in trade names and distribution rights, and $
176
in customer relationships to be amortized over an
18
-year
period. The tax basis of such goodwill is deductible for income tax purposes
over
15
years.
The results of operations of these acquisitions have been included in the
condensed consolidated unaudited financial statements from their respective
dates of acquisition. The pro forma effect of these acquisitions was not
deemed significant to our condensed consolidated unaudited financial
statements.
6. DERIVATIVES
We enter into foreign currency forward and option contracts to offset the
earnings impact that foreign exchange rate fluctuations would otherwise have
on certain monetary liabilities that are denominated in nonfunctional
currencies.
Derivatives Not Designated as Hedging Instruments
We have entered into foreign currency forward and option contracts that are
either not designated as hedges or did not qualify for hedge accounting. These
derivative instruments were effective economic hedges for all of the periods
presented. The fair value gains and losses on these contracts are recognized
in earnings as a component of selling, general and administrative expenses. We
had only one foreign currency exchange contract not designated as a hedging
instrument at June 30, 2024, the total notional value of which was $
25,600
. Such contract expired in
July 2024
.
We recognized gains (losses) of $
1,743
and $(
1,658
) from foreign currency forward and option contracts not designated as hedging
instruments in our condensed consolidated unaudited statements of income for
the quarters ended June 30, 2024 and 2023, respectively. We recognized gains
(losses) of $
1,596
and $(
2,052
) from foreign currency forward and option contracts not designated as hedging
instruments in our condensed consolidated unaudited statements of income for
the six months ended June 30, 2024 and 2023, respectively.
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7. FAIR VALUE MEASUREMENTS
The following tables present our assets and liabilities carried at fair value
that are measured on a recurring basis:
Total Fair Value
Measurements
at June 30,
2024 Using
Balance Sheet Level 1 Level 2 Level 3
Location
Assets:
Certificate Short-term cash $ 200,000 - $ 200,000 -
of deposit investments
Derivative financial Other current $ 119 - $ 119 -
instruments assets
Equity Other $ 946 $ 946 - -
securities assets
Private Other $ 1,500 - - $ 1,500
equities assets
Total Fair Value
Measurements
at December 31,
2023 Using
Balance Sheet Level 1 Level 2 Level 3
Location
Assets:
Derivative financial Other current $ 5 - $ 5 -
instruments assets
Equity Other $ 1,044 $ 1,044 - -
securities assets
Private Other $ 1,500 - - $ 1,500
equities assets
The following is a description of the valuation techniques used for these
assets and liabilities, as well as the level of input used to measure fair
value:
Short-term cash investments
- these investments consist of a certificate of deposit that matures in
September 2024.
Derivative financial instruments
- these derivatives are foreign currency forward and option contracts. See
Note 6. Fair value is based on observable market inputs, such as forward rates
in active markets; therefore, we classify these derivatives within Level 2 of
the valuation hierarchy.
Equity securities
- these investments are exchange-traded equity securities. Fair values for
these investments are based on closing stock prices from active markets and
are therefore classified within Level 1 of the fair value hierarchy.
Private equities
- other investments in which fair value inputs are unobservable and are
therefore classified within Level 3 of the fair value hierarchy.
8. SHAREHOLDERS' EQUITY
Dividend Reinvestment Plan
On March 29, 2024, we implemented the Watsco, Inc. Dividend Reinvestment Plan
(the "Plan"), under which existing shareholders may, in accordance with the
Plan, acquire shares of the Company's Common stock or Class B common stock, as
applicable (collectively "common stock"), by reinvesting all or a portion of
the cash dividends paid on such shareholders' shares of common stock. The Plan
has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to our automatically effective shelf registration
statement on Form
S-3
(File
No. 333-260758).
During the quarter and six months ended June 30, 2024, we issued
four
shares of Common stock under the Plan.
At-the-Market
Offering Program
On August 6, 2021, we executed
a sales agreement with Robert W. Baird & Co. Inc. ("Baird"), which enable
d
the Company to issue and sell shares of Common stock in one or more negotiated
transactions or transactions that are deemed to be "at the market" offerings
as defined in Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"),
for
a maximum aggregate offering amount of up to $
300,000
(the "
2021
ATM Program").
During the quarter ended March 31, 2024, we issued and sold
712,000
shares of Common stock under the 2021 ATM Program for net proceeds of $
281,784
. Direct costs of $
33
incurred in connection with the offering were charged against the proceeds
from the sale of Common stock and reflected as a reduction of
paid-in
capital. Cumulatively, $
298,455
of Common stock was sold under the 2021 ATM Program.
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On May 3, 2024, we executed an amended and restated sales agreement with Baird
(the "2024 ATM Program"), which enables the further issuance of up to $
400,000
of Common stock. At June 30, 2024, $
400,000
was available for sale under the 2024 ATM Program. The offer and sale of
shares under the 2024 ATM Program were registered under the Securities Act
pursuant to our automatically effective shelf registration statement on Form
S-3
(File
No. 333-260758).
Common Stock Dividends
We paid cash dividends of $
2.70
, $
2.45
, $
5.15
, and $
4.90
per share on both Common and Class B common stock during the quarters and six
months ended June 30, 2024 and 2023, respectively.
Restricted Stock
During the quarter and six months ended June 30, 2024, a total of
1,706
shares of Class B common stock with an aggregate fair market value of $
759
, and a total of
2,705
shares of Class B common stock with an aggregate fair market value of $
1,150
, respectively, were withheld as payment in lieu of cash to satisfy tax
withholding obligations in connection with the vesting of restricted stock.
These shares were retired upon delivery. During the six months ended June 30,
2023, a total of
6,047
shares of Common and Class B common stock with an aggregate fair market value
of $
1,664
were withheld as payment in lieu of cash to satisfy tax withholding
obligations in connection with the vesting of restricted stock. These shares
were retired upon delivery.
Exercise of Stock Options
Cash received from Common stock issued
upon the exercise
of stock options during the quarters and six months ended June 30, 2024 and
2023, was $
5,912
, $
4,526
, $
15,952
, and $
12,694
, respectively.
During the quarter and six months ended June 30, 2024,
3,573
shares of Common stock with an aggregate fair market value of $
1,685
, and
3,999
shares of Common stock with an aggregate fair market value of $
1,860
, respectively, were withheld as payment in lieu of cash for stock option
exercises and related tax withholdings. These shares were retired upon
delivery. During the quarter and six months ended June 30, 2023,
1,737
shares of Common stock with an aggregate fair market value of $
595
, and
17,392
shares of Common stock with an aggregate fair market value of $
5,383
, respectively, were withheld as payment in lieu of cash for stock option
exercises. These shares were retired upon delivery.
Employee Stock Purchase Plan
During the quarters ended June 30, 2024 and 2023, we received proceeds of $
568
and $
554
, respectively, for shares of our Common stock purchased under our employee
stock purchase plan. During the six months ended June 30, 2024 and 2023, we
received proceeds of $
1,151
and $
1,133
, respectively, for shares of our Common stock purchased under our employee
stock purchase plan.
9. COMMITMENTS AND CONTINGENCIES
Litigation, Claims, and Assessments
We are involved in litigation incidental to the operation of our business. We
vigorously defend all matters in which we or our subsidiaries are named
defendants and, for insurable losses, maintain significant levels of insurance
to protect against adverse judgments, claims or assessments that may affect
us. Although the adequacy of existing insurance coverage and the outcome of
any legal proceedings cannot be predicted with certainty, based on the current
information available, we do not believe the ultimate liability associated
with any known claims or litigation will have a material adverse effect on our
financial condition or results of operations.
Self-Insurance
Self-insurance reserves are maintained relative to company-wide casualty
insurance and health benefit programs. The level of exposure from catastrophic
events is limited by the purchase of stop-loss and aggregate liability
reinsurance coverage. When estimating the self-insurance liabilities and
related reserves, management considers several factors, which include
historical claims experience, demographic factors, severity factors, and
valuations provided by independent third-party actuaries. Management reviews
its assumptions with its independent third-party actuaries to evaluate whether
the self-insurance reserves are adequate. If actual claims or adverse
development of loss reserves occur and exceed these estimates, additional
reserves may be required. Reserves in the amounts of $
9,531
and $
9,747
at June 30, 2024 and December 31, 2023, respectively, were established related
to such programs and are included in accrued expenses and other current
liabilities in our condensed consolidated unaudited balance sheets.
10. RELATED PARTY TRANSACTIONS
Purchases from Carrier and its affiliates comprised
66
% of all inventory purchases made during
both
the quarters ended June 30, 2024 and 2023. Purchases from Carrier and its
affiliates comprised
62
% and
65
% of all inventory purchases made during the six months ended June 30, 2024
and 2023, respectively. At June 30, 2024 and December 31, 2023, approximately $
136,000
and $
100,000
, respectively, was payable to Carrier and its affiliates, net of receivables.
We also sell HVAC products to Carrier and its affiliates. Revenues in our
condensed consolidated unaudited statements of income for the quarters and six
months ended June 30, 2024 and 2023 included approximately $
22,000
, $
32,000
, $
40,000
, and $
54,000
, respectively, of sales to Carrier and its affiliates. We believe these
transactions are conducted on terms equivalent to an
arm's-length
basis in the ordinary course of business.
A member of our Board of Directors is
a
Senior Chairman of Greenberg Traurig, P.A., which serves as our principal
outside counsel for compliance and acquisition-related legal services. During
the quarters and six months ended June 30, 2024 and 2023, fees for services
performed were $
126
, $
58
, $
201
and $
71
, respectively, and $
28
and $
3
was payable at June 30, 2024 and December 31, 2023, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form
10-Q
contains or incorporates by reference statements that are not historical in
nature and that are intended to be, and are hereby identified as,
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Statements which are not historical in nature, including
the words "anticipate," "estimate," "could," "should," "may," "plan," "seek,"
"expect," "believe," "intend," "target," "will," "project," "focused,"
"outlook," "goal," "designed," and variations of these words and negatives
thereof and similar expressions are intended to identify forward-looking
statements, including statements regarding, among others, (i) economic
conditions, (ii) business and acquisition strategies, (iii) potential
acquisitions and/or joint ventures and investments in unconsolidated entities,
(iv) financing plans, and (v) industry, demographic and other trends affecting
our financial condition or results of operations. These forward-looking
statements are based on management's current expectations, are not guarantees
of future performance and are subject to a number of risks, uncertainties, and
changes in circumstances, certain of which are beyond our control. Actual
results could differ materially from these forward-looking statements as a
result of several factors, including, but not limited to:
. general economic conditions, both in the United States and in the international markets we serve;
. competitive factors within the HVAC/R industry;
. effects of supplier concentration, including conditions that impact the supply chain;
. fluctuations in certain commodity costs;
. consumer spending;
. consumer debt levels;
. new housing starts and completions;
. capital spending in the commercial construction market;
. access to liquidity needed for operations;
. seasonal nature of product sales;
. weather patterns and conditions;
. insurance coverage risks;
. federal, state, and local regulations impacting our industry and products;
. prevailing interest rates;
. the effect of inflation;
. foreign currency exchange rate fluctuations;
. international risk;
. cybersecurity risk; and
. the continued viability of our business strategy.
We believe these forward-looking statements are reasonable; however, you
should not place undue reliance on any forward-looking statements, which are
based on current expectations. For additional information regarding important
factors that may affect our operations and could cause actual results to vary
materially from those anticipated in the forward-looking statements, please
see Item 1A "Risk Factors" of our Annual Report on Form
10-K
for the year ended December 31, 2023, as well as the other documents and
reports that we file with the SEC. Forward-looking statements speak only as of
the date the statements were made. We assume no
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obligation to update forward-looking information or the discussion of such
risks and uncertainties to reflect actual results, changes in assumptions, or
changes in other factors affecting forward-looking information, except as
required by applicable law. We qualify any and all of our forward-looking
statements by these cautionary factors.
The following information should be read in conjunction with the condensed
consolidated unaudited financial statements, including the notes thereto,
included under Part I, Item 1 of this Quarterly Report on Form
10-Q.
In addition, reference should be made to our audited consolidated financial
statements and notes thereto, and related Management's Discussion and Analysis
of Financial Condition and Results of Operations included in our Annual Report
on Form
10-K
for the year ended December 31, 2023.
Company Overview
Watsco, Inc. was incorporated in Florida in 1956, and, together with its
subsidiaries (collectively, "Watsco," the "Company," or "we," "us," or "our")
is the largest distributor of air conditioning, heating, and refrigeration
equipment, and related parts and supplies ("HVAC/R") in the HVAC/R
distribution industry in North America. At June 30, 2024, we operated from 691
locations in 43 U.S. States, Canada, Mexico, and Puerto Rico with additional
market coverage on an export basis to portions of Latin America and the
Caribbean.
Revenues primarily consist of sales of air conditioning, heating, and
refrigeration equipment, and related parts and supplies. Selling, general and
administrative expenses primarily consist of selling expenses, the largest
components of which are salaries, commissions, and marketing expenses that are
variable and correlate to changes in sales. Other significant selling, general
and administrative expenses relate to the operation of warehouse facilities,
including a fleet of trucks and forklifts, and facility rent, a majority of
which we operate under
non-cancelable
operating leases.
Sales of residential central air conditioners, heating equipment, and parts
and supplies are seasonal. Furthermore, profitability can be impacted
favorably or unfavorably based on weather patterns, particularly during the
Summer and Winter selling seasons. Demand related to the residential central
air conditioning replacement market is typically highest in the second and
third quarters, and demand for heating equipment is usually highest in the
first and fourth quarters. Demand related to the new construction sectors
throughout most of the markets we serve tends to be fairly evenly distributed
throughout the year and depends largely on housing completions and related
weather and economic conditions.
Climate Change and Reductions in CO
2
e Emissions
We believe that our business plays an important and significant role in the
drive to lower CO
2
e emissions. According to the United States Department of Energy, heating and
air conditioning accounts for roughly half of household energy consumption in
the United States. As such, replacing older, less efficient HVAC systems with
higher efficiency systems is one of the most meaningful steps homeowners can
take to reduce their electricity costs and carbon footprints.
The overwhelming majority of new HVAC systems that we sell replace systems
that likely operate below current minimum efficiency standards in the United
States and may use more harmful refrigerants that have been, or are being,
phased-out. As
consumers replace HVAC systems with new, higher-efficiency systems, homeowners
will consume less energy, save costs, and reduce their carbon footprints.
The sale of high-efficiency systems has long been a focus of ours, and we have
invested in tools and technology intended to capture an increasingly richer
sales mix over time. In addition, regulatory mandates will likely periodically
increase the required minimum Seasonal Energy Efficiency Ratio rating,
referred to as SEER, thus providing a catalyst for greater sales of
higher-efficiency systems. Recently enacted regulations increased the current
minimum SEER beginning in 2023 (generally, to 14 SEER from 13 SEER in the
Northern U.S. and to 15 SEER from 14 SEER for the Southern U.S.).
Additionally, the American Innovation and Manufacturing Act of 2020 granted
the U.S. Environmental Protection Agency the authority to regulate
hydrofluorocarbon ("HFC") refrigerants. Although HFCs were introduced as
alternatives to
ozone-depleting
substances like chlorofluorocarbons and hydrochlorofluorocarbons, they are now
recognized as potent greenhouse gases due to their high global warming
potential ("GWP"). Consequently, a phasedown of HFC production and consumption
by 85% over a
15-year
period commenced on January 1, 2022, and regulations were established
requiring HVAC systems to use refrigerants with a GWP under 750 by January 1,
2025. In response to these regulations, OEMs have begun the transition to new
refrigerants. These regulations advance product innovation, improve homeowner
energy efficiency, reduce the carbon footprint of
end-users
and increase average selling prices over time. We offer a broad variety of
systems that operate above the minimum SEER standards, ranging from base-level
efficiency to systems that exceed 20 SEER. Based on estimates validated by
independent sources, we averted an estimated 20.9 million metric tons of CO
2
e emissions from January 1, 2020 to June 30, 2024 through the sale of
replacement residential HVAC systems at higher-efficiency standards.
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Federal Tax Credits and State Incentives
Demand for higher-efficiency products, such as variable-speed systems and heat
pumps, is expected to increase due to the passage of the U.S. Inflation
Reduction Act of 2022 (the "IRA") in August 2022. This legislation is
intended, in part, to promote the replacement of existing systems in favor of
high-efficiency heat pump systems that reduce greenhouse gas emissions, as
compared to older systems, and thereby combat climate change. Programs under
the IRA include enhanced tax credits for homeowners who install qualifying
HVAC equipment and tax deductions for owners of commercial buildings that are
upgraded to achieve defined energy savings. The IRA also sets aside $4.3
billion for state-administered consumer rebate programs designed to promote
energy savings for low and medium-income households, including HVAC systems.
Further details, including qualifying products, specific programs, states
participating, and other regulatory requirements contemplated by the IRA are
still being finalized.
Critical Accounting Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon the condensed consolidated unaudited financial
statements included in this Quarterly Report on Form
10-Q,
which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these condensed consolidated unaudited
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the condensed consolidated
unaudited financial statements, and the reported amount of revenues and
expenses during the reporting period. Actual results may differ from these
estimates under different assumptions or conditions. At least quarterly,
management reevaluates its judgments and estimates, which are based on
historical experience, current trends, and various other assumptions that are
believed to be reasonable under the circumstances.
Our critical accounting estimates are included in our Annual Report on Form
10-K
for the year ended December 31, 2023, as filed with the SEC on February 23,
2024. We believe that there have been no significant changes during the
quarter ended June 30, 2024 to the critical accounting estimates disclosed in
our Annual Report on Form
10-K
for the year ended December 31, 2023.
New Accounting Standards
Refer to Note 1 to our condensed consolidated unaudited financial statements
included in this Quarterly Report on Form
10-Q
for a discussion of recently adopted, and to be adopted, accounting standards.
Results of Operations
The following table summarizes information derived from our condensed
consolidated unaudited statements of income, expressed as a percentage of
revenues, for the quarters and six months ended June 30, 2024 and 2023:
Quarter Six Months
Ended June 30, Ended June 30,
2024 2023 2024 2023
Revenues 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 72.9 71.9 72.7 71.6
Gross profit 27.1 28.1 27.3 28.4
Selling, general and administrative expenses 14.9 15.2 17.0 16.6
Other income 0.4 0.4 0.4 0.3
Operating income 12.6 13.3 10.7 12.1
Interest (income) expense, net (0.2 ) 0.2 (0.2 ) 0.1
Income before income taxes 12.8 13.1 10.9 12.0
Income taxes 2.8 2.8 2.3 2.6
Net income 10.0 10.3 8.6 9.4
Less: net income attributable to 1.6 1.6 1.4 1.5
non-controlling
interest
Net income attributable to Watsco, Inc. 8.5 % 8.6 % 7.2 % 8.0 %
Note: Due to rounding, percentages may not total 100.
The following narratives reflect our acquisitions of Commercial Specialists,
Inc. ("CSI") in February 2024, Gateway Supply Company, Inc. ("GWS") in
September 2023, and Capitol District Supply Co., Inc. ("Capitol") in March
2023. We did not acquire any businesses during the quarter ended June 30, 2024.
In the following narratives, computations and other information referring to
"same-store basis" exclude the effects of locations closed, acquired, or
locations opened, in each case during the immediately preceding 12 months,
unless such locations are within close geographical proximity to existing
locations. At June 30, 2024 and 2023, three and four locations, respectively,
that we opened during the immediately preceding 12 months were near existing
locations and were therefore included in "same-store basis" information.
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The table below summarizes the changes in our locations for the 12 months
ended June 30, 2024:
Number of
Locations
June 30, 2023 673
Opened 3
Acquired 16
Closed (2 )
December 31, 2023 690
Opened 3
Acquired 2
Closed (4 )
June 30, 2024 691
Second Quarter of 2024 Compared to Second Quarter of 2023
Revenues
Quarter Ended June 30,
(in millions) 2024 2023 Change
Revenues $ 2,139.3 $ 2,003.1 $ 136.2 7 %
The increase in revenues for the second quarter of 2024 included $56.1 million
attributable to new locations acquired and $4.1 million from other locations
opened during the preceding 12 months, offset by $2.0 million from locations
closed.
Quarter Ended June 30,
(in millions) 2024 2023 Change
Same-store sales $ 2,079.1 $ 2,001.1 $ 78.0 4 %
The following table presents our revenues (excluding acquisitions) for the
second quarter of 2024, as a percentage of sales, by major product lines and
the related percentage change in revenues from the prior period:
% of Sales
2024 2023 % Change
HVAC equipment 71 % 69 % 8 %
Other HVAC products 25 % 27 % (1 %)
Commercial refrigeration products 4 % 4 % 1 %
HVAC equipment sales reflect an 8% increase in residential products, which is
composed of unitary compressor-bearing systems, furnaces, and other indoor
components (8% increase in U.S. markets and a 3% increase in international
markets), and an 8% increase in sales of commercial HVAC equipment (7%
increase in U.S. markets and a 12% increase in international markets). The
majority component of residential unitary compressor-bearing systems represent
"ducted" systems produced by a variety of OEMs. Sales of ducted residential
compressor-bearing systems increased 9% during the second quarter of 2024,
reflecting a 6% increase in unit volume and a 3% increase in average selling
price. Domestic sales of residential unitary compressor-bearing systems
increased 8%, reflecting a 7% increase in units and a 1% increase in average
selling price.
Gross Profit
Quarter Ended June 30,
(in millions) 2024 2023 Change
Gross profit $ 579.8 $ 562.6 $ 17.2 3 %
Gross margin 27.1 % 28.1 %
Gross profit margin declined 100 basis-points primarily due to the impact of
pricing and sales mix for HVAC equipment in 2024 as compared to the same
period in 2023.
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Selling, General and Administrative Expenses
Quarter Ended June 30,
(in millions) 2024 2023 Change
Selling, general and administrative expenses $ 319.0 $ 304.2 $ 14.8 5 %
Selling, general and administrative expenses as a percentage of revenues 14.9 % 15.2 %
Selling, general and administrative expenses for the second quarter of 2024
increased primarily due to newly acquired locations and higher revenues. On a
same-store basis, selling, general and administrative expenses increased 2% as
compared to 2023 primarily due to higher revenues.
Other Income
Other income of $8.1 million and $7.2 million for the second quarters of 2024
and 2023, respectively, represented our share of the net income of Russell
Sigler, Inc. ("RSI"), in which we have a 38.4% equity interest.
Interest Income, Net
Interest income, net for the second quarter of 2024 increased $8.3 million, or
244%, primarily due to interest earned on cash and short-term investments and
lower average borrowings under our revolving credit facility for the 2024
period as compared to the same period in 2023.
Income Taxes
Quarter Ended June 30,
(in millions) 2024 2023 Change
Income taxes $ 59.1 $ 56.9 $ 2.2 4 %
Effective income tax rate 24.3 % 24.6 %
Income taxes represent a composite of the income taxes attributable to our
wholly owned operations and income taxes attributable to our joint ventures
with Carrier Global Corporation ("Carrier"), which are primarily taxed as
partnerships for income tax purposes; therefore, Carrier is responsible for
its proportionate share of income taxes attributable to its share of earnings
from these joint ventures. The decrease in the effective income tax rate was
primarily due to higher share-based compensation deductions in 2024 as
compared to the same period in 2023.
Net Income Attributable to Watsco, Inc.
Net income attributable to Watsco for the quarter ended June 30, 2024
increased $8.6 million, or 5%, compared to the same period in 2023. The
increase was primarily driven by higher revenues, gross profit and interest
income, partially offset by higher selling, general and administrative
expenses.
First Half of 2024 Compared to First Half of 2023
Revenues
Six Months Ended June 30,
(in millions) 2024 2023 Change
Revenues $ 3,704.3 $ 3,553.7 $ 150.6 4 %
The increase in revenues for the first half of 2024 included $107.6 million
attributable to new locations acquired and $5.1 million from other locations
opened during the preceding 12 months, offset by $2.9 million from locations
closed.
Six Months Ended June 30,
(in millions) 2024 2023 Change
Same-store sales $ 3,591.6 $ 3,550.8 $ 40.8 1 %
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The following table presents our revenues (excluding acquisitions) for the six
months ended June 30, 2024 as a percentage of sales, by major product lines
and the related percentage change in revenues from the prior period:
% of Sales
2024 2023 % Change
HVAC equipment 70 % 69 % 4 %
Other HVAC products 26 % 27 % (3 %)
Commercial refrigeration products 4 % 4 % 2 %
HVAC equipment sales reflect a 3% increase in residential products, which is
composed of unitary compressor-bearing systems, furnaces, and other indoor
components, (3% increase in U.S. markets and a 4% increase in international
markets) and a 5% increase in sales of commercial HVAC equipment (4% increase
in U.S. markets and an 11% increase in international markets). The majority
component of residential unitary compressor-bearing systems represent "ducted"
systems produced by a variety of OEMs. Sales of ducted residential
compressor-bearing systems increased 4% during the first half of 2024,
reflecting a 1% increase in unit volume and a 3% increase in average selling
price. Domestic sales of residential unitary compressor-bearing systems
increased 3%, reflecting a 2% increase in units and a 1% increase in average
selling price.
Gross Profit
Six Months Ended June 30,
(in millions) 2024 2023 Change
Gross profit $ 1,010.4 $ 1,010.8 $ (0.4 ) 0 %
Gross margin 27.3 % 28.4 %
Gross profit margin declined 110 basis-points primarily due to the impact of
pricing and sales mix for HVAC equipment in 2024 as compared to the same
period in 2023.
Selling, General and Administrative Expenses
Six Months Ended June 30,
(in millions) 2024 2023 Change
Selling, general and administrative expenses $ 628.6 $ 591.2 $ 37.4 6 %
Selling, general and administrative expenses as a percentage of revenues 17.0 % 16.6 %
Selling, general and administrative expenses for the first half of 2024
increased primarily due to newly acquired locations. On a same store basis,
selling, general and administrative expenses increased 3% as compared to the
same period in 2023 and, as a percentage of sales increased to 16.9% versus
16.6% in 2023, primarily due to increases in fixed costs and $5.3 million in
nonrecurring items.
Other Income
Other income of $13.5 million and $10.9 million for the first half of 2024 and
2023, respectively, represents our share of the net income of RSI, in which we
have a 38.4% equity interest.
Interest Income, Net
Interest income, net for the first half of 2024 increased $11.4 million, or
283%, primarily due to interest earned on cash and short-term investments and
lower average borrowings under our revolving credit facility for the 2024
period as compared to the same period in 2023.
Income Taxes
Six Months Ended June 30,
(in millions) 2024 2023 Change
Income taxes $ 83.8 $ 90.6 $ (6.8 ) (8 %)
Effective income tax rate 23.5 % 24.1 %
Income taxes represent a composite of the income taxes attributable to our
wholly owned operations and income taxes attributable to our joint ventures
with Carrier, which are primarily taxed as partnerships for income tax
purposes; therefore, Carrier is responsible for its proportionate share of
income taxes attributable to its share of earnings from these joint ventures.
The decrease in the effective income tax rate was primarily due to higher
share-based compensation deductions combined with lower earnings in 2024 as
compared to the same period in 2023.
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Net Income Attributable to Watsco, Inc.
Net income attributable to Watsco, Inc. for the first half of 2024 decreased
$14.4 million, or 5%, compared to the same period in 2023. The decrease was
primarily driven by higher selling, general and administrative expenses,
partially offset by higher interest income, a reduction in income taxes, and a
decrease in net income attributable to the
non-controlling
interest.
Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to execute
our business strategy and fund operating and investing activities, taking into
consideration the seasonal demand for HVAC/R products, which peaks in the
months of May through August. Significant factors that could affect our
liquidity include the following:
. cash needed to fund our business (primarily working capital requirements);
. borrowing capacity under our revolving credit facility;
. the timing and extent of sales of Common stock under our
at-the-market
offering program;
. the ability to attract long-term capital with satisfactory terms;
. acquisitions, including joint ventures and investments in unconsolidated entities;
. dividend payments;
. capital expenditures; and
. the timing and extent of common stock repurchases.
Sources and Uses of Cash
We rely on cash flows from operations and borrowing capacity under our
revolving credit agreement to fund seasonal working capital needs and for
other general corporate purposes in the short-term and the long-term,
including dividend payments (if and as declared by our Board of Directors),
capital expenditures, business acquisitions, and development of our long-term
operating and technology strategies. Additionally, we may also generate cash
through the issuance and sale of our Common stock.
We believe that the combination of our operating cash flows, cash on hand,
short-term cash investments, available borrowings under our revolving credit
agreement, and funds available from sales of our Common stock under our 2024
ATM Program, each of which is described below, will be sufficient to meet our
liquidity needs for the foreseeable future. However, there can be no assurance
that our current sources of available funds will be sufficient to meet our
cash requirements.
As of June 30, 2024, we had $224.9 million of cash and cash equivalents, of
which $95.0 million was held by foreign subsidiaries. The repatriation of cash
balances from our foreign subsidiaries could have adverse tax impacts or be
subject to capital controls; however, these balances are generally available
to fund the ordinary business operations of our foreign subsidiaries without
legal restrictions. We also had $200.0 million of short-term cash investments
consisting of a certificate of deposit that matures in September 2024.
Our access to funds under our revolving credit agreement depends on the
ability of the syndicate banks to meet their respective funding commitments.
Disruptions in the credit and capital markets could adversely affect our
ability to draw on our revolving credit agreement and may also adversely
affect the determination of interest rates, particularly rates based on the
Secured Overnight Financing Rate ("SOFR"), which is one of the base rates
under our revolving credit agreement. SOFR has limited historical data and is
a secured lending rate, whereas our revolving credit agreement is unsecured
and had primarily used LIBOR, an unsecured lending rate, as a base rate prior
to the discontinuation of LIBOR in 2023. The use of SOFR as a base rate under
our revolving credit agreement could give rise to uncertainties and volatility
in the benchmark rates. Additionally, disruptions in the credit and capital
markets could also result in increased borrowing costs or reduced borrowing
capacity under our revolving credit agreement.
Working Capital
Working capital increased to $2,089.2 million at June 30, 2024 from $1,679.9
million at December 31, 2023 due to: (i) higher inventory balances driven by
the seasonal
ramp-up
in inventories in connection with our selling season; (ii) higher accounts
receivable consistent with the seasonal increase in sales; and (iii) $200.0
million of short-term cash investments, which were offset by an increase in
accounts payable consistent with the change in inventory.
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Cash Flows
The following table summarizes our cash flow activity for the six months ended
June 30, 2024 and 2023 (in millions):
2024 2023 Change
Cash flows provided by (used in) operating activities $ 161.4 $ (89.2 ) $ 250.6
Cash flows used in investing activities $ (217.3 ) $ (17.6 ) $ (199.7 )
Cash flows provided by financing activities $ 73.8 $ 120.5 $ (46.7 )
The individual items contributing to cash flow changes for the periods
presented are detailed in the condensed consolidated unaudited statements of
cash flows contained in this Quarterly Report on Form
10-Q.
Operating Activities
Net cash provided by operating activities in 2024 as compared to 2023 was
higher primarily due to the timing of vendor payments and a lower increase in
inventory.
Investing Activities
Net cash used in investing activities increased primarily due to the purchase
of $200.0 million of short-term cash investments in 2024.
Financing Activities
Net cash provided by financing activities decreased primarily due to
repayments under our revolving credit agreement and an increase in dividends
paid in 2024, partially offset by higher net proceeds from the sale of Common
stock under our 2021 ATM Program (as defined below), a portion of which was
used for short-term cash investments.
Revolving Credit Agreement
We maintain an unsecured, five-year $600.0 million syndicated multicurrency
revolving credit agreement, which may be used for, among other things, funding
seasonal working capital needs and for other general corporate purposes,
including acquisitions, dividends (if and as declared by our Board of
Directors), capital expenditures, stock repurchases, and issuances of letters
of credit. The revolving credit facility has a seasonal component from October
1 to March 31, during which the borrowing capacity may be reduced to $500.0
million at our discretion (which effectively reduces fees payable in respect
of the unused portion of the commitment). Included in the revolving credit
facility are a $125.0 million swingline loan sublimit, a $10.0 million letter
of credit sublimit, a $75.0 million alternative currency borrowing sublimit,
and an $10.0 million Mexican borrowing subfacility. The revolving credit
agreement matures on March 16, 2028.
At June 30, 2024, there was no outstanding balance under the revolving credit
agreement. At December 31, 2023, $15.4 million was outstanding under the
revolving credit agreement. The revolving credit agreement contains customary
affirmative and negative covenants, including financial covenants with respect
to consolidated leverage and interest coverage ratios, and other customary
restrictions. We believe we were in compliance with all covenants at June 30,
2024.
At-the-Market
Offering Program
On August 6, 2021, we executed a sales agreement with Robert W. Baird & Co.
Inc. ("Baird"), which enabled the Company to issue and sell shares of Common
stock in one or more negotiated transactions or transactions that are deemed
to be "at the market" offerings as defined in Rule 415 under the Securities
Act of 1933, as amended (the "Securities Act"), for a maximum aggregate
offering amount of up to $300.0 million (the "2021 ATM Program").
During the quarter ended March 31, 2024, we issued and sold 712,000 shares of
Common stock under the 2021 ATM Program for net proceeds of $281.8 million. We
used the proceeds to pay off outstanding debt under our revolving credit
agreement and purchased short-term cash investments with the remainder. In
aggregate, $298.5 million of Common stock was sold under the 2021 ATM Program.
On May 3, 2024, we executed an amended and restated sales agreement with Baird
(the "2024 ATM Program"), which enables the further issuance of up to $400.0
million of Common stock. At June 30, 2024, $400.0 million was available for
sale under the 2024 ATM Program. The offer and sale of shares under the 2024
ATM Program were registered under the Securities Act pursuant to our
automatically effective shelf registration statement on Form
S-3
(File
No. 333-260758).
Investment in Unconsolidated Entity
Carrier Enterprise I, one of our joint ventures with Carrier, in which we have
an 80% controlling interest, has a 38.4% ownership interest in RSI, an HVAC
distributor operating from 34 locations in the Western U.S. Our proportionate
share of the net income of RSI is included in other income in our condensed
consolidated unaudited statements of income.
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Carrier Enterprise I is a party to a shareholders' agreement (the
"Shareholders' Agreement") with RSI and its shareholders, consisting of five
Sigler second generation family siblings and their affiliates, who
collectively own 55.4% of RSI (the "RSI Majority Holders") and certain
next-generation Sigler family members and an employee, who collectively own
6.2% of RSI (the "RSI Minority Holders" and, together with the RSI Majority
Holders, the "RSI Shareholders"). Pursuant to the Shareholders' Agreement, the
RSI Shareholders have the right to sell, and Carrier Enterprise I has the
obligation to purchase, their respective shares of RSI for a purchase price
determined based on the higher of book value or a multiple of EBIT, the latter
of which Carrier Enterprise I used to calculate the price for its 38.4%
investment held in RSI. The RSI Shareholders may transfer their respective
shares of RSI common stock only to members of the Sigler family or to Carrier
Enterprise I, and, at any time from and after the date on which Carrier
Enterprise I owns 85% or more of RSI's outstanding common stock, it has the
right, but not the obligation, to purchase from the RSI Shareholders the
remaining outstanding shares of RSI common stock. At June 30, 2024, using the
criteria set forth in the Shareholders' Agreement, the valuation of the RSI
Shareholders' RSI common stock was approximately $457.0 million.
On July 28, 2023, Watsco, Carrier Enterprise I, and the RSI Majority Holders
entered into an agreement that (1) provides Carrier Enterprise I the
discretion, but not the obligation, to fund up to 80% of any purchase from the
RSI Majority Holders of their RSI common stock, as required under the
Shareholders' Agreement, using Watsco Common stock (the "Offered Shares"), (2)
provides that any Offered Shares actually issued would be valued based on the
average volume-weighted average price of Watsco's Common stock for the ten
trading days immediately preceding the payment date for the applicable RSI
shares, and (3) limits the amount of RSI shares that may be collectively sold
by the RSI Majority Holders to Carrier Enterprise I under the Shareholders'
Agreement to $125.0 million during any rolling
12-month
period. We have not issued or sold any Offered Shares, and there is no
assurance that we will issue and sell any Offered Shares, nor is the number of
Offered Shares that may be issued and sold currently determinable.
We believe that our operating cash flows, cash on hand, short-term cash
investments or funds available for borrowing under our revolving credit
agreement, or use of the 2024 ATM Program would be sufficient to purchase any
additional ownership interests in RSI for cash pursuant to the agreement
described in the preceding paragraph.
Acquisitions
On February 1, 2024, one of our wholly owned subsidiaries acquired CSI, a
distributor of HVAC products with annual sales of approximately $13.0 million,
operating from two locations in Kentucky and Ohio. Consideration for the
purchase consisted of $6.0 million in cash, 1,904 shares of Common stock
having a fair value of $0.8 million, and $0.6 million for repayment of
indebtedness, net of cash acquired of $1.4 million.
On September 1, 2023, we acquired substantially all the assets and assumed
certain of the liabilities of GWS, a plumbing and HVAC distributor with annual
sales of approximately $180.0 million, operating from 16 locations in South
Carolina and North Carolina. Consideration for the net purchase price
consisted of $4.0 million in cash, net of cash acquired of $3.1 million, and
280,215 shares of Common stock having a fair value of $101.6 million, net of a
discount for lack of marketability.
On March 3, 2023, one of our wholly owned subsidiaries acquired Capitol, a
distributor of plumbing and air conditioning and heating products with annual
sales of approximately $13.0 million, operating from three locations in New
York. Consideration for the purchase consisted of $1.2 million in cash, net of
cash acquired of $0.1 million, and $1.9 million for repayment of indebtedness.
We continually evaluate potential acquisitions and/or joint ventures and
investments in unconsolidated entities. We routinely hold discussions with
several acquisition candidates. Should suitable acquisition opportunities
arise that would require additional financing, we believe our financial
position and earnings history provide a sufficient basis for us to either
obtain additional debt financing at competitive rates and on reasonable terms
or raise capital through the issuance of equity securities.
Common Stock Dividends
We paid cash dividends of $5.15 and $4.90 per share on both Common and Class B
common stock during the six months ended June 30, 2024 and 2023, respectively.
On July 1, 2024, our Board of Directors declared a regular quarterly cash
dividend of $2.70 per share on both Common and Class B common stock that was
paid on July 31, 2024 to shareholders of record as of July 16, 2024. Future
dividends and/or changes in dividend rates are at the sole discretion of the
Board of Directors and depend upon factors including, but not limited to, cash
flow generated by operations, profitability, financial condition, cash
requirements, prospects, and other factors deemed relevant by our Board of
Directors.
Dividend Reinvestment Plan
On March 29, 2024, we implemented the Watsco, Inc. Dividend Reinvestment Plan
(the "Plan"), under which existing shareholders may, in accordance with the
Plan, acquire shares of Common stock or Class B common stock, as applicable
(collectively "common stock"), by reinvesting all or a portion of the cash
dividends paid on such shareholders' shares of common stock. The Plan has been
registered under the Securities Act pursuant to our automatically effective
shelf registration statement on Form
S-3
(File
No. 333-260758).
During the quarter and six months ended June 30, 2024, we issued four shares
of Common stock under the Plan.
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Company Share Repurchase Program
In September 1999, our Board of Directors authorized the repurchase, at
management's discretion, of up to 7,500,000 shares of common stock in the open
market or via private transactions. Shares repurchased under the program are
accounted for using the cost method and result in a reduction of shareholders'
equity. We last repurchased shares under this plan in 2008. In aggregate,
6,370,913 shares of Common and Class B common stock have been repurchased at a
cost of $114.4 million since the inception of the program. At June 30, 2024,
there were 1,129,087 shares remaining authorized for repurchase under the
program. In considering any further stock repurchases under our repurchase
program, we intend to evaluate the impact of the 1% excise tax on stock
repurchases that became effective on January 1, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the information regarding market risk
provided in Item 7A, Quantitative and Qualitative Disclosures about Market
Risk, of our Annual Report on Form
10-K
for the year ended December 31, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule
13a-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
that are, among other things, designed to ensure that information required to
be disclosed by us under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer ("CEO"), Executive Vice
President ("EVP"), and Chief Financial Officer ("CFO"), to allow for timely
decisions regarding required disclosure and appropriate SEC filings.
Our management, with the participation of our CEO, EVP and CFO, evaluated the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this report, and, based on that evaluation, our CEO, EVP and
CFO concluded that our disclosure controls and procedures were effective, at a
reasonable assurance level, at and as of such date.
Changes in Internal Control over Financial Reporting
We continuously seek to improve the efficiency and effectiveness of our
internal controls. This results in refinements to processes throughout the
Company. However, there were no changes in our internal controls over
financial reporting (as such term is defined in Rules
13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended June 30, 2024, that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
In accordance with the SEC's guidance that an assessment of the internal
controls of a recently acquired business may be omitted from the scope of
management's assessment of internal control over financial reporting in the
year of acquisition, we have not yet assessed the internal control over
financial reporting of GWS, which represented approximately 3% of our total
consolidated assets at June 30, 2024 and approximately 3% of our total
consolidated revenues for the quarter ended June 30, 2024. From the
acquisition date of September 1, 2023 to June 30, 2024, the processes and
systems of GWS did not impact the internal controls over financial reporting
for our other consolidated subsidiaries.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information with respect to this item may be found in Note 9 to our condensed
consolidated unaudited financial statements contained in this Quarterly Report
on Form
10-Q
under the caption "Litigation, Claims, and Assessments," which information is
incorporated by reference in this Item 1 of Part II of this Quarterly Report
on Form
10-Q.
ITEM 1A. RISK FACTORS
Information about risk factors for the quarter ended June 30, 2024 does not
differ materially from that set forth in Part I, Item 1A of our Annual Report
on Form
10-K
for the year ended December 31, 2023.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
Period Total Number of Average Price Paid Total Number of Maximum Dollar
Shares Purchased per Share Shares Purchased as Value that May Yet
Part of Publicly Be Purchased Under
Announced Plans or the Plans or
Programs Programs
April 1, 2024 to April 30, 2024 - $ - - $ -
May 1, 2024 to May 31, 2024 (1) 1,706 445.15 - -
June 1, 2024 to June 30, 2024 - - - -
Total 1,706 $ 445.15 - $ -
(1) During the quarter ended June 30, 2024, we purchased an aggregate of 1,706 shares of our Class B common
stock to satisfy the tax withholding obligations in connection with the vesting of restricted stock.
ITEM 5. OTHER INFORMATION
During the quarter ended June 30, 2024, none of our officers or directors
adopted or terminated any contract, instruction or written plan for the
purchase or sale of our securities that was intended to satisfy the
affirmative defense conditions of Rule
10b5-1(c)
under the Exchange Act or any
"non-Rule
10b5-1
trading arrangement", as defined in Item 408 of Regulation
S-K.
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
10.1 Third Amended and Restated Sales Agreement dated May 3, 2024 by and between Watsco, Inc. and
Robert W. Baird & Co. Incorporated (filed as Exhibit 10.1 to the Quarterly Report on Form
10-Q
for the quarter ended March 31, 2024
and incorporated herein by reference).
31.1 # Certification of Chief Executive Officer
pursuant to Securities Exchange Act Rules
13a-
15(e) and
15d-15(e)
as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 # Certification of Executive Vice President
pursuant to Securities Exchange Act Rules
13a-15(e)
and
15d-15(e)
as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.3 # Certification of Chief Financial Officer
pursuant to Securities Exchange Act Rules
13a-
15(e) and
15d-15(e)
as adopted pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 + Certification of Chief Executive Officer, Executive Vice President, and Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
101.INS # Inline XBRL Instance Document - the instance document does not appear in the Interactive
Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH # Inline XBRL Taxonomy
Extension Schema Document.
101.CAL # Inline XBRL Taxonomy Extension
Calculation Linkbase Document.
101.DEF # Inline XBRL Taxonomy Extension
Definition Linkbase Document.
101.LAB # Inline XBRL Taxonomy Extension
Label Linkbase Document.
101.PRE # Inline XBRL Taxonomy Extension
Presentation Linkbase Document.
104 The cover page from the Company's
Quarterly Report on Form
10-Q
for the quarter ended June 30,
2024, formatted in Inline XBRL.
# filed herewith.
+ furnished herewith.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATSCO, INC.
(Registrant)
Date: August 2, 2024 By: /s/ Ana M. Menendez
Ana M. Menendez
Chief Financial Officer (on behalf of the Registrant and as Principal Financial Officer)
26 of 26
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Albert H. Nahmad, certify that:
1. I have reviewed this Quarterly Report on Form
10-Q
of Watsco, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state amaterial fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report,fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing
and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial
reporting (as defined in Exchange ActRules
13a-15(f)
and
15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to bedesigned under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report isbeing prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financialreporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accountingprinciples;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in thisreport our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting
thatoccurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internalcontrol over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation ofinternal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control overfinancial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role inthe registrant's internal control over financial reporting.
Date: August 2, 2024
/s/ Albert H. Nahmad
Albert H. Nahmad
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Barry S. Logan, certify that:
1. I have reviewed this Quarterly Report on Form
10-Q
of Watsco, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state amaterial fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report,fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing
and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial
reporting (as defined in Exchange ActRules
13a-15(f)
and
15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to bedesigned under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report isbeing prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financialreporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accountingprinciples;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in thisreport our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting
thatoccurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internalcontrol over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation ofinternal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control overfinancial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role inthe registrant's internal control over financial reporting.
Date: August 2, 2024
/s/ Barry S. Logan
Barry S. Logan
Executive Vice President
Exhibit 31.3
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ana M. Menendez, certify that:
1. I have reviewed this Quarterly Report on Form
10-Q
of Watsco, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state amaterial fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report,fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing
and maintainingdisclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial
reporting (as defined in Exchange ActRules
13a-15(f)
and
15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to bedesigned under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this report isbeing prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financialreporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accountingprinciples;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in thisreport our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting
thatoccurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internalcontrol over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation ofinternal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control overfinancial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role inthe registrant's internal control over financial reporting.
Date: August 2, 2024
/s/ Ana M. Menendez
Ana M. Menendez
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form
10-Q
of Watsco, Inc. ("Watsco") for the quarter and sixmonths ended June 30, 2024,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Albert H. Nahmad, as Chief Executive Officer of Watsco, Barry S.
Logan, as Executive Vice President of Watsco and AnaM. Menendez, as Chief
Financial Officer of Watsco, each hereby certifies, pursuant to 18 U.S.C. (s)
1350, as adopted pursuant to (s) 906 of the Sarbanes-Oxley Act of 2002, that,
to our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Actof 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition andresults of operations of Watsco.
/s/ Albert H. Nahmad
Albert H. Nahmad
Chief Executive Officer
August 2, 2024
/s/ Barry S. Logan
Barry S. Logan
Executive Vice President
August 2, 2024
/s/ Ana M. Menendez
Ana M. Menendez
Chief Financial Officer
August 2, 2024
A signed original of this written statement required by Section 906 has been
provided to Watsco and will beretained by Watsco and furnished to the
Securities and Exchange Commission or its staff upon request.
This certification accompanies the Report pursuantto Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by Watsco for purposes of Section
18 of the Securities Exchange Act of 1934, as amended.
{graphic omitted}
{graphic omitted}
{graphic omitted}