Core Points - Watsco, Inc. will host its third quarter 2025 conference call on October 29, 2025, at 10:00 a.m. EDT, with prepared remarks followed by a Q&A session [1] - The earnings results will be released before the market opens on the same day, and a replay of the conference call will be available on the company's website [2] Company Overview - Watsco is the largest distributor in the $74 billion North American HVAC market, achieving an 18% compounded annual total-shareholder return since entering distribution in 1989 through strong organic growth and over 70 acquisitions [4] - The company has a solid financial position and a culture of innovation, enabling investments in long-term growth and industry-leading technology platforms, engaging over 70,000 contractors, installers, and technicians [5] - Watsco is advancing AI-driven initiatives to leverage extensive data assets, enhancing customer experience and improving efficiencies, positioning the company to capture market share as contractors adopt digital tools and data-driven solutions [5]

Core Insights - Investing in dividend growth stocks is highlighted as one of the easiest and most effective strategies on Wall Street [1] Company Analysis: Watsco - Watsco, the largest HVACR parts distributor in America, has increased its dividend payout by 69% over the past five years, currently offering a yield of 2.8% [4][5] - The company has grown by acquiring over 70 businesses and has no debt on its balance sheet as of June [5] - Watsco is leveraging online applications for contractors, with 70,000 mobile app users facilitating the quote process and ordering parts [6] - Despite a 3% revenue decline in the first half of 2025 due to temperate weather and lower homebuilding activity, Watsco's sales are primarily from repairs and replacements, which may mitigate investor concerns during economic slowdowns [7][8] Company Analysis: Amgen - Amgen, a long-established biotechnology company, has raised its dividend payout by 48% over the past five years, currently offering a yield of 3.4% [10] - The company reported a 34% year-over-year decline in sales of its arthritis treatment Enbrel, amounting to an annualized $2.4 billion, but has invested profits into new drug developments [10] - Amgen's overall sales grew by 9% year over year to $8.8 billion, with double-digit growth in 15 products [11] - The new treatment Imdelltra for small-cell lung cancer has shown promising results, potentially becoming standard care, which could drive future sales growth [12][13]

Group 1 - The residential HVAC market is experiencing significant changes, with various updates from OEMs and industry data indicating cross currents in the market [1] - There is a historical context regarding the transition from refrigerant 410A, which is being phased out, leading to inventory adjustments by distributors to meet customer demand [2]

Summary of Watsco Inc. Conference Call Industry Overview - The HVAC industry is experiencing significant changes, particularly with the transition from 410A refrigerant to newer alternatives like 454, impacting sales and inventory levels [6][41] - Industry shipments were up 22% in July of the previous year, but the current year shows a decline in demand, with units down approximately 10-12% year-to-date [6][12] - The demand structure has shifted, with new housing construction and multifamily projects seeing a decline, particularly in Florida, which constitutes 20% of Watsco's business [18][19] Company Performance - Watsco Inc. reported a 24% increase in inventory while sales were down 4% in the second quarter [25] - The company is focused on managing inventory levels to align with current market demand, aiming to reduce inventory by the end of the year [29] - The average price of products sold has increased by about 12%, contributing to stable margins despite declining unit sales [18][29] Key Challenges - The company faces challenges related to consumer spending, with indications that consumers are less willing to invest in home improvements, leading to a preference for repairs over replacements [21][22] - There is a concern about the cyclical nature of the business, with the current environment suggesting a potential trough in consumer activity [23] Strategic Initiatives - Watsco is working closely with OEM partners to develop strategies for growth, leveraging their market share and capital to support OEMs in expanding their business [28][71] - The company is focused on maintaining price stability and protecting margins while navigating the complexities of inventory management and product transitions [17][20] Future Outlook - The company anticipates a more favorable environment for growth in the upcoming year, contingent on improved economic conditions and consumer confidence [22][71] - Watsco's long history of dividend payments, averaging a 10-11% compounded rate over the last 15 years, is tied more to cash flow than EPS, allowing for flexibility in dividend increases even in a down market [63][69] Additional Insights - The transition from 410A to newer refrigerants has created an artificial writedown risk for distributors holding excess inventory, but Watsco has managed this risk conservatively [41][42] - The light commercial segment remains stable, with potential for growth depending on economic conditions and interest rates [48][50] - Watsco's extensive branch network allows for efficient inventory management, reducing the need for dealers to hold excess stock [52] This summary encapsulates the key points discussed during the conference call, highlighting the current state of the HVAC industry, Watsco's performance, challenges, strategic initiatives, and future outlook.

Company Overview - Watsco operates the largest distribution network for heating, air conditioning, and refrigeration (HVAC/R) products across the U.S., Canada, Mexico, and Puerto Rico, with exports to Latin America and the Caribbean [2] - The company has 701 locations that serve over 375,000 contractors, technicians, and installers annually [2] Market Focus - Watsco focuses on the replacement market, which is growing due to aging systems, the introduction of energy-efficient models, and the essential nature of HVAC products in homes and businesses [3] - Approximately 102 million HVAC systems in the U.S. are over 10 years old and operate below current efficiency standards, presenting a significant opportunity for Watsco [3] Environmental Impact - Watsco has contributed to reducing CO2e emissions by an estimated 24.5 million metric tons from January 1, 2020, to June 30, 2025, through the sale of higher-efficiency replacement HVAC systems [4] - This reduction is equivalent to removing 5.7 million gas-powered vehicles from the road annually [4] Upcoming Events - Barry S. Logan, Executive Vice President of Watsco, is scheduled to present at the 13th Annual Morgan Stanley Laguna Conference on September 11, 2025 [1]

Group 1: PepsiCo - PepsiCo is considered undervalued with a forward price-to-earnings (P/E) ratio of 18.5, significantly lower than its historical median P/E of 26.2 [5] - Activist investor Elliott Investment Management has acquired a $4 billion stake in PepsiCo, representing approximately 2% ownership, indicating confidence in the company's potential [4] - Despite the potential, PepsiCo's stock has underperformed, gaining little over the past five years compared to the consumer staples sector and Coca-Cola [6][9] - The company has a strong dividend yield of 3.8% and has increased its payout for 53 consecutive years, making it attractive for dividend investors [11] Group 2: ConocoPhillips - ConocoPhillips has seen a stock decline of about 13% over the past year, attributed to a 10.7% drop in oil prices, presenting a buying opportunity for investors seeking passive income [12][13] - Management projects strong free cash flow of approximately $8 billion for 2025, supported by tax benefits and lower capital requirements [14] - The company has maintained a conservative payout ratio of 42.3% over the past five years, ensuring financial stability while rewarding shareholders [15] - ConocoPhillips offers a forward dividend yield of 3.2%, making it an appealing option for income-focused investors [12] Group 3: Watsco - Watsco's stock has declined by 16.6% year-to-date, primarily due to weak conditions in the HVACR market and challenges in the new residential construction sector [17][19] - The company has a successful business model focused on acquiring smaller distributors, which enhances its geographic reach and operational scale [18] - Current challenges are expected to be temporary, and Watsco is well-positioned to strengthen its market position as conditions improve [20]

Core Insights - Watsco's international revenue performance is crucial for assessing its financial resilience and growth prospects [1][2][3] Group 1: International Revenue Performance - In the last quarter, Watsco's total revenue was $2.06 billion, a decline of 3.6% year-over-year [4] - Canada contributed $93.71 million, representing 4.5% of total revenue, which was a surprise of -3.83% compared to the consensus estimate [5] - Latin America and the Caribbean generated $94.35 million, accounting for 4.6% of total revenue, with a surprise of -16.51% against projections [6] Group 2: Future Revenue Projections - Analysts expect Watsco to report $2.21 billion in total revenue for the current fiscal quarter, an increase of 2.3% year-over-year [7] - For the full year, total revenue is projected at $7.64 billion, reflecting a 0.3% increase from the previous year [8] - Expected contributions from Canada and Latin America and the Caribbean for the full year are $370.31 million (4.9%) and $404.53 million (5.3%), respectively [8] Group 3: Market Dynamics and Stock Performance - Watsco's reliance on foreign markets presents both opportunities and challenges, necessitating close monitoring of international revenue trends [9] - The company's stock has underperformed, losing 12.6% over the past month compared to a 2.7% increase in the S&P 500 [14] - Over the past three months, Watsco's shares declined 16.5%, while the S&P 500 rose by 13.2% [14]

PART I. FINANCIAL INFORMATION [Item 1. Condensed Consolidated Unaudited Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Unaudited%20Financial%20Statements) The financial statements for Q2 and H1 2025 show mixed revenue and net income trends, with increased assets driven by inventory and negative operating cash flow in H1 [Condensed Consolidated Unaudited Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Unaudited%20Statements%20of%20Income) Q2 2025 revenues decreased 3.6% to **$2.06 billion** with net income up 1.2%, while H1 2025 revenues fell 3.0% to **$3.59 billion** with net income down 1.8% Consolidated Statements of Income Highlights (In thousands, except per share data) | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | YoY Change | H1 2025 (in thousands) | H1 2024 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $2,062,442 | $2,139,328 | -3.6% | $3,593,528 | $3,704,319 | -3.0% | | **Gross Profit** | $603,488 | $579,760 | +4.1% | $1,033,111 | $1,010,385 | +2.2% | | **Operating Income** | $271,869 | $268,803 | +1.1% | $384,057 | $395,340 | -2.9% | | **Net Income Attributable to Watsco, Inc.** | $183,613 | $181,410 | +1.2% | $263,674 | $268,414 | -1.8% | | **Diluted EPS** | $4.52 | $4.49 | +0.7% | $6.50 | $6.69 | -2.8% | [Condensed Consolidated Unaudited Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Unaudited%20Balance%20Sheets) Total assets increased to **$4.73 billion** by June 30, 2025, primarily due to a significant rise in inventories to **$1.95 billion** Balance Sheet Summary (In thousands) | Account | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--- | :--- | :--- | | **Total Current Assets** | $3,299,718 | $3,079,981 | | Cash and cash equivalents | $292,978 | $526,271 | | Inventories, net | $1,952,842 | $1,385,436 | | **Total Assets** | **$4,729,513** | **$4,479,523** | | **Total Current Liabilities** | $1,070,916 | $983,901 | | **Total Liabilities** | $1,507,694 | $1,415,285 | | **Total Shareholders' Equity** | $3,221,819 | $3,064,238 | [Condensed Consolidated Unaudited Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Unaudited%20Statements%20of%20Cash%20Flows) H1 2025 saw a **$185.1 million** net cash outflow from operations, primarily due to increased inventories, contrasting with a prior year inflow Cash Flow Summary - Six Months Ended June 30 (In thousands) | Cash Flow Category | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(185,090) | $161,441 | | Net cash provided by (used in) investing activities | $222,252 | $(217,315) | | Net cash (used in) provided by financing activities | $(274,233) | $73,810 | | **Net (decrease) increase in cash** | **$(233,293)** | **$14,742** | [Notes to Condensed Consolidated Unaudited Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Unaudited%20Financial%20Statements) Notes detail presentation, revenue disaggregation (primarily U.S. and HVAC), recent acquisitions (SIE, Hawkins, Lashley), and significant related party inventory purchases from Carrier - The company operates as the **largest distributor** of HVAC/R equipment in North America and consolidates several joint ventures with Carrier Global Corporation[22](index=22&type=chunk)[23](index=23&type=chunk) Revenue by Geography - Six Months Ended June 30 (In thousands) | Region | 2025 (in thousands) | 2024 (in thousands) | | :--- | :--- | :--- | | United States | $3,252,018 | $3,325,185 | | Canada | $170,120 | $175,495 | | Latin America and the Caribbean | $171,390 | $203,639 | | **Total** | **$3,593,528** | **$3,704,319** | - In the first half of 2025, the company acquired **Southern Ice Equipment Distributors, Inc. (SIE)**, **Hawkins HVAC Distributors, Inc.**, and **W.L. Lashley & Associates, Inc.**[34](index=34&type=chunk)[35](index=35&type=chunk)[36](index=36&type=chunk) - Purchases from Carrier and its affiliates constituted **62%** of all inventory purchases during the first six months of 2025[59](index=59&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Q2 2025 revenue declined 4% due to lower HVAC unit volumes, yet gross margin improved by 220 basis points, while H1 2025 operating cash flow was significantly impacted by inventory build for the A2L transition [Company Overview and Market Trends](index=16&type=section&id=Company%20Overview%20and%20Market%20Trends) Watsco, North America's largest HVAC/R distributor, manages seasonal demand, trade policies, and the regulatory transition to A2L refrigerants, while promoting energy-efficient systems - Watsco is the **largest distributor** of HVAC/R products in North America, operating from **701 locations** across the U.S., Canada, Mexico, and Puerto Rico as of June 30, 2025[68](index=68&type=chunk) - The company is managing the phasedown of HFC refrigerants, transitioning its inventory to new lower-GWP **A2L Systems** while continuing to sell existing **410A Systems** as permitted by regulations through 2025[76](index=76&type=chunk) - A new law signed on July 4, 2025, **eliminated the IRA's tax credits** for HVAC systems, making them unavailable after **December 31, 2025**[78](index=78&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Q2 2025 revenues decreased 4% to **$2.06 billion** with gross margin expanding **220 basis points**, while H1 2025 revenues fell 3% to **$3.59 billion** with gross margin up **140 basis points** Q2 2025 vs Q2 2024 Performance (in millions) | Metric | Q2 2025 (in millions) | Q2 2024 (in millions) | Change (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $2,062.4 | $2,139.3 | $(76.9) | -4% | | **Gross Profit** | $603.5 | $579.8 | $23.7 | 4% | | Gross Margin | 29.3% | 27.1% | +220 bps | - | | **SG&A** | $339.0 | $319.0 | $20.0 | 6% | - Q2 2025 HVAC equipment sales decreased **6%**, reflecting a **7%** drop in residential products and a **5%** drop in commercial products[88](index=88&type=chunk) - Sales of ducted residential systems fell **8%**, driven by a **16%** decrease in unit volume, partially offset by an **8%** increase in average selling price[88](index=88&type=chunk) H1 2025 vs H1 2024 Performance (in millions) | Metric | H1 2025 (in millions) | H1 2024 (in millions) | Change (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $3,593.5 | $3,704.3 | $(110.8) | -3% | | **Gross Profit** | $1,033.1 | $1,010.4 | $22.7 | 2% | | Gross Margin | 28.7% | 27.3% | +140 bps | - | | **SG&A** | $661.6 | $628.6 | $33.0 | 5% | [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is strong with **$293.0 million** cash and an undrawn **$600 million** credit facility, despite increased working capital due to inventory build for seasonal demand and A2L transition - Primary sources of liquidity are cash from operations and a **$600 million** revolving credit agreement, which had no outstanding balance at June 30, 2025[104](index=104&type=chunk)[115](index=115&type=chunk) Cash Flow Summary - Six Months Ended June 30 (in millions) | Cash Flow Category | 2025 (in millions) | 2024 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Operating Activities | $(185.1) | $161.4 | $(346.5) | | Investing Activities | $222.3 | $(217.3) | $439.6 | | Financing Activities | $(274.2) | $73.8 | $(348.0) | - The company maintains an At-the-Market (ATM) offering program, with **$400 million** available for sale under the 2024 ATM Program as of June 30, 2025[118](index=118&type=chunk) - Cash dividends of **$5.70 per share** were paid during the six months ended June 30, 2025, compared to **$5.15** in the same period of 2024[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) No material changes to market risk disclosures were reported compared to the 2024 Annual Report on Form 10-K - There were no material changes to market risk disclosures during the quarter[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[135](index=135&type=chunk) - No changes occurred in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[136](index=136&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in incidental litigation but does not anticipate a material adverse effect on its financial condition or operations, as detailed in Note 9 - The company refers to Note 9 of its financial statements for information on legal proceedings, stating that it does not expect any material adverse effect from current litigation[138](index=138&type=chunk)[56](index=56&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported compared to the company's 2024 Annual Report on Form 10-K - Risk factors for the quarter ended June 30, 2025, do not differ materially from those in the 2024 Annual Report on Form 10-K[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=27&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) On May 1, 2025, **7,400 shares** of unregistered Common stock were issued as partial consideration for the SIE acquisition, exempt under Section 4(a)(2) of the Securities Act - On May 1, 2025, Watsco issued **7,400 shares** of unregistered Common stock as part of the consideration for the acquisition of SIE[140](index=140&type=chunk) - The issuance was exempt from registration under Section 4(a)(2) of the Securities Act, as the seller was an accredited investor acquiring the shares for investment purposes[141](index=141&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) No officers or directors adopted or terminated Rule 10b5-1 trading plans or other non-Rule 10b5-1 arrangements during Q2 2025 - No officers or directors adopted or terminated any Rule 10b5-1 trading plans during the quarter ended June 30, 2025[142](index=142&type=chunk) [Item 6. Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - The report includes certifications from the CEO, EVP, and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act[144](index=144&type=chunk)

Financial Data and Key Metrics Changes - Sales declined by 4% despite double-digit pricing gains for new equipment, offset by lower volumes [6][7] - Gross profit margins reached record levels, leading to an increase in EBIT and expanded EBIT margins [7][8] - SG&A expenses increased by 6% due to transition costs and the addition of 10 new locations from recent acquisitions [8][9] - The company maintains a strong cash position with no debt [9] Business Line Data and Key Metrics Changes - Residential new construction and international markets remain subdued, with residential new construction down by 15% to 20% [19] - E-commerce sales grew to $2.5 billion, representing 34% of total sales, with mobile app users increasing by 17% year-over-year [9][10] - The annual volume of products sold through OnCallAir increased by 19% to $1.6 billion [10] Market Data and Key Metrics Changes - International sales, particularly in Mexico, were volatile and negatively impacted earnings by approximately $0.10 per share in the quarter [22] - The company expects improvements in July and August, indicating a better market outlook [23] Company Strategy and Development Direction - The company is focused on transitioning to next-generation equipment with A2L refrigerants, affecting about 55% of historical product sales [5][6] - A new technology-driven sales platform is being developed to capture larger national customers, expected to launch in 2026 [10][11] - The company aims to grow the parts and supply segment, which currently represents about 30% of sales [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledges a soft market but remains optimistic about future growth and market share development [25][26] - The company is focused on improving gross margins and inventory turns, with a goal of reaching 30% gross profit margin [11][84] - Management emphasizes the importance of innovation and technology in maintaining competitive advantage [12][93] Other Important Information - The company is actively pursuing M&A opportunities, leveraging its strong balance sheet [55][56] - Management is committed to improving inventory management and reducing excess inventory levels [50][53] Q&A Session Summary Question: What happened to volumes in the quarter? - Management noted that volumes were weaker than expected due to weather patterns and a decline in residential new construction, but saw improvements in July [19][20] Question: How sustainable are the gross margins? - Management indicated that while the current gross margin of 29% is strong, it may not be sustainable in the second half of the year due to the absence of pricing benefits seen in the first half [27][28] Question: What is the impact of the canister shortage? - Management stated that the canister shortage was less of a concern now and that they expect to be off allocation by August [40][41] Question: How is the inventory investment trending? - The company reported a significant inventory investment due to the transition, but is focused on improving inventory turns moving forward [50][52] Question: What are the thoughts on consumer preferences during the product transition? - Management observed that the market remains focused on minimum efficiency products, with no significant shift towards high-efficiency systems [61][62] Question: Are there any incentives being requested by contractors? - Management indicated that contractors are not pushing for lower prices, as there is no elasticity in the market [146]

Financial Data and Key Metrics Changes - Sales declined by 4%, with double-digit pricing gains for new equipment offset by lower volumes [5][6] - Record gross profit margins were achieved, leading to an increase in EBIT and expanded EBIT margins despite lower sales [6][7] - SG&A expenses increased by 6% due to additional costs during the product transition and the addition of 10 new locations from recent acquisitions [7][8] - The company maintains a strong cash position with no debt [8] Business Line Data and Key Metrics Changes - Residential new construction and international markets remain subdued, with residential new construction down by 15% to 20% [18] - The annual volume of products sold through OnCallAir, the digital selling platform, increased by 19% to $1.6 billion [9] - Parts and supply segment, currently about 30% of sales, is expected to grow significantly over time [10] Market Data and Key Metrics Changes - International sales, particularly in Mexico, were volatile and negatively impacted earnings by approximately $0.10 per share for the quarter [21] - The company experienced a late start to the summer season, affecting overall market performance [5] Company Strategy and Development Direction - The company is transitioning to next-generation equipment using A2L refrigerants, affecting about 55% of historical product sales [4] - A new technology-driven sales platform is being developed to capture larger national customers, expected to launch in 2026 [10] - The company aims for a gross profit margin of 30% and is focusing on growing the parts and supply segment [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, noting that the transition to new products will simplify operations by 2026 [4] - The company is focused on controlling margins and pricing, despite external market challenges [23] - Management acknowledged the current market noise due to various macroeconomic factors but remains confident in the company's ability to grow and take market share [125] Other Important Information - E-commerce sales have grown to $2.5 billion, representing 34% of total sales [8] - The company has launched two AI platforms to enhance data utilization and improve customer experience [11] Q&A Session Summary Question: What happened to volumes in the quarter? - Management noted that April was strong, May was weak due to weather, and June rebounded. Residential new construction was down 15% to 20%, but replacement sales remained strong [18] Question: How sustainable are the gross margins? - Management indicated that while the current gross margin of 29% is strong, it may not be sustainable in the second half due to the absence of pricing benefits seen in the first half [26][28] Question: What is the impact of the cylinder shortage? - Management stated that the refrigerant allocation issue is becoming less of a concern, with expectations to be off allocation by August [40] Question: How is inventory being managed during the transition? - The company has invested more in inventory than anticipated due to lower industry demand, but is focused on improving inventory turnover [48][52] Question: What is the outlook for M&A activity? - Management expressed eagerness for potential M&A opportunities in the current soft market, highlighting a strong balance sheet to support acquisitions [53][55] Question: How are consumer preferences changing during the product transition? - Management noted that the market remains focused on minimum efficiency products, with no significant shift towards high-efficiency systems [60] Question: What are the expectations for pricing in the second half? - Management does not anticipate significant price increases on equipment but expects some inflationary pressures on non-equipment products due to tariffs [118]