UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): October 29, 2025 WATSCO, INC. (Exact name of Registrant as Specified in Its Charter) (State or Other Jurisdiction of Incorporation) 2665 South Bayshore Drive Suite 901 Miami, Florida 33133 (Address of Principal Executive Offices) (Zip Code) Florida 1-5581 59-0778222 (Commission File Number) (IR ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Unaudited Financial Statements](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Unaudited%20Financial%20Statements) This section presents Watsco, Inc.'s condensed consolidated unaudited financial statements, including statements of income, comprehensive income, balance sheets, shareholders' equity, and cash flows, along with detailed notes [Condensed Consolidated Unaudited Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Unaudited%20Statements%20of%20Income) Condensed Consolidated Unaudited Statements of Income (Q2 & H1 2025 vs 2024, in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Revenues | $2,062,442 | $2,139,328 | $3,593,528 | $3,704,319 | | Cost of sales | $1,458,954 | $1,559,568 | $2,560,417 | $2,693,934 | | Gross profit | $603,488 | $579,760 | $1,033,111 | $1,010,385 | | Operating income | $271,869 | $268,803 | $384,057 | $395,340 | | Net income | $216,768 | $214,651 | $311,308 | $318,913 | | Net income attributable to Watsco, Inc. | $183,613 | $181,410 | $263,674 | $268,414 | | Basic EPS | $4.53 | $4.50 | $6.52 | $6.71 | | Diluted EPS | $4.52 | $4.49 | $6.50 | $6.69 | [Condensed Consolidated Unaudited Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Unaudited%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Unaudited Statements of Comprehensive Income (Q2 & H1 2025 vs 2024, in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | :------ | :------ | | Net income | $216,768 | $214,651 | $311,308 | $318,913 | | Foreign currency translation adjustment | $15,770 | $(3,336) | $16,018 | $(11,336) | | Comprehensive income | $232,538 | $211,315 | $327,326 | $307,577 | | Comprehensive income attributable to Watsco, Inc. | $193,971 | $179,110 | $274,196 | $260,575 | [Condensed Consolidated Unaudited Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Unaudited%20Balance%20Sheets) Condensed Consolidated Unaudited Balance Sheets (June 30, 2025 vs Dec 31, 2024, in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | **ASSETS** | | | | Cash and cash equivalents | $292,978 | $526,271 | | Short-term cash investments | — | $255,669 | | Accounts receivable, net | $1,015,738 | $877,935 | | Inventories, net | $1,952,842 | $1,385,436 | | Total current assets | $3,299,718 | $3,079,981 | | Total assets | $4,729,513 | $4,479,523 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total current liabilities | $1,070,916 | $983,901 | | Total long-term obligations | $338,669 | $337,190 | | Total Watsco, Inc. shareholders' equity | $2,760,442 | $2,656,990 | | Total shareholders' equity | $3,221,819 | $3,064,238 | [Condensed Consolidated Unaudited Statements of Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Unaudited%20Statements%20of%20Shareholders%27%20Equity) Key Changes in Shareholders' Equity (H1 2025 vs 2024, in thousands) | Metric | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | | Net income | $263,674 | $268,414 | | Other comprehensive income (loss) | $10,522 | $(7,839) | | Dividends declared and paid on common stock | $(230,497) | $(205,568) | | Share-based compensation | $18,900 | $18,857 | | Total Shareholders' Equity (End of Period) | $3,221,819 | $3,044,190 | [Condensed Consolidated Unaudited Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Unaudited%20Statements%20of%20Cash%20Flows) Condensed Consolidated Unaudited Statements of Cash Flows (H1 2025 vs 2024, in thousands) | Metric | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | | 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 and cash equivalents | $(233,293) | $14,742 | | Cash and cash equivalents at end of period | $292,978 | $224,854 | [Notes to Condensed Consolidated Unaudited Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Unaudited%20Financial%20Statements) [1. BASIS OF PRESENTATION](index=10&type=section&id=1.%20BASIS%20OF%20PRESENTATION) Watsco, Inc. is the largest HVAC/R distributor in North America, incorporated in Florida in 1956, with financial statements prepared under U.S. GAAP, reflecting seasonal sales and equity method investments - Watsco, Inc. is the **largest distributor of air conditioning, heating, and refrigeration equipment and related parts and supplies (HVAC/R) in North America**[22](index=22&type=chunk) - The condensed consolidated unaudited financial statements include Watsco and its wholly owned subsidiaries, five U.S. joint ventures (80% controlling interest) and one Canadian joint venture (60% controlling interest) with Carrier Global Corporation, and a 38.4% equity method investment in Russell Sigler, Inc. (RSI)[23](index=23&type=chunk) - Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal, with demand for AC highest in Q2/Q3 and heating equipment in Q1/Q4, influenced by weather patterns[24](index=24&type=chunk) [2. REVENUES](index=11&type=section&id=2.%20REVENUES) Revenues are disaggregated by primary geographical regions and major product lines, with the United States accounting for the majority and HVAC equipment consistently representing 68% of sales Revenues Disaggregated by Region and Product Line (Q2 & H1 2025 vs 2024) | Category | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | **Primary Geographical Regions:** | | | | | | United States | $1,874,385 | $1,926,499 | $3,252,018 | $3,325,185 | | Canada | $93,707 | $95,697 | $170,120 | $175,495 | | Latin America and the Caribbean | $94,350 | $117,132 | $171,390 | $203,639 | | **Major Product Lines (% of Sales):** | | | | | | HVAC equipment | 68% | 70% | 68% | 68% | | Other HVAC products | 28% | 26% | 28% | 28% | | Commercial refrigeration products | 4% | 4% | 4% | 4% | [3. EARNINGS PER SHARE](index=11&type=section&id=3.%20EARNINGS%20PER%20SHARE) Basic and diluted earnings per share calculations are provided for common stock, showing a slight decrease in H1 2025 compared to the prior year Basic and Diluted Earnings Per Share (Q2 & H1 2025 vs 2024) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net income attributable to Watsco, Inc. shareholders | $183,613 | $181,410 | $263,674 | $268,414 | | Weighted-average common shares outstanding - Basic | 37,825,623 | 37,512,105 | 37,789,116 | 37,193,827 | | Basic earnings per share for common stock | $4.53 | $4.50 | $6.52 | $6.71 | | Weighted-average common shares outstanding - Diluted | 37,899,430 | 37,627,637 | 37,876,470 | 37,313,593 | | Diluted earnings per share for common stock | $4.52 | $4.49 | $6.50 | $6.69 | [4. OTHER COMPREHENSIVE INCOME (LOSS)](index=12&type=section&id=4.%20OTHER%20COMPREHENSIVE%20INCOME%20(LOSS)) Other comprehensive income (loss) primarily consists of foreign currency translation adjustments, showing a positive adjustment of **$10,522 thousand** in H1 2025, a significant improvement from the prior year's loss Foreign Currency Translation Adjustment (H1 2025 vs 2024, in thousands) | Metric | H1 2025 | H1 2024 | | :-------------------- | :------ | :------ | | Beginning balance | $(59,893) | $(42,331) | | Current period other comprehensive income (loss) | $10,522 | $(7,839) | | Ending balance | $(49,371) | $(50,170) | [5. ACQUISITIONS](index=12&type=section&id=5.%20ACQUISITIONS) Watsco completed three acquisitions in the first half of 2025, including Southern Ice Equipment Distributors, Inc., Hawkins HVAC Distributors, Inc., and W.L. Lashley & Associates, Inc., involving cash and common stock consideration and resulting in goodwill recognition - On May 1, 2025, acquired Southern Ice Equipment Distributors, Inc. (SIE) for **$14.25 million cash** and **7,400 shares of Common stock** ($3.413 million fair value), recognizing **$7.832 million in goodwill**[34](index=34&type=chunk) - On April 1, 2025, acquired Hawkins HVAC Distributors, Inc. (Hawkins) for **$2.53 million cash**[35](index=35&type=chunk) - On January 3, 2025, Carrier Enterprise I acquired W.L. Lashley & Associates, Inc. (Lashley) for **$3.662 million cash**, **1,036 shares of Common stock** ($0.493 million fair value), and **$0.838 million for debt repayment**, recognizing **$3.064 million in goodwill**[36](index=36&type=chunk) [6. DERIVATIVES](index=12&type=section&id=6.%20DERIVATIVES) Watsco uses foreign currency forward and option contracts as economic hedges, recognizing a **$(743) thousand loss** in H1 2025 compared to a **$1,596 thousand gain** in H1 2024 - Recognized (losses) gains from foreign currency forward and option contracts not designated as hedging instruments[41](index=41&type=chunk) - Q2 2025: **$(590) thousand loss**[41](index=41&type=chunk) - Q2 2024: **$1,743 thousand gain**[41](index=41&type=chunk) - H1 2025: **$(743) thousand loss**[41](index=41&type=chunk) - H1 2024: **$1,596 thousand gain**[41](index=41&type=chunk) [7. FAIR VALUE MEASUREMENTS](index=13&type=section&id=7.%20FAIR%20VALUE%20MEASUREMENTS) The company measures certain assets and liabilities at fair value, categorizing them into Level 1, Level 2, and Level 3 based on input observability, with private equity securities totaling **$2.906 million** and derivative financial instrument liabilities at **$51 thousand** as of June 30, 2025 Fair Value Measurements at June 30, 2025 (in thousands) | Balance Sheet Location | Total | Level 1 | Level 2 | Level 3 | | :--------------------- | :---- | :------ | :------ | :------ | | **Assets:** | | | | | | Equity securities | $1,714 | $1,714 | — | — | | Private equity securities | $2,906 | — | — | $2,906 | | **Liabilities:** | | | | | | Derivative financial instruments (Accrued expenses & other current liabilities) | $51 | — | $51 | — | [8. SHAREHOLDERS' EQUITY](index=13&type=section&id=8.%20SHAREHOLDERS%27%20EQUITY) Watsco operates a Dividend Reinvestment Plan (DRIP) and an At-the-Market (ATM) Offering Program, with cash dividends of **$3.00 per share** in Q2 2025 and **$5.70 per share** for H1 2025 - Dividend Reinvestment Plan (DRIP) was implemented on March 29, 2024, allowing shareholders to reinvest cash dividends, with **30,495 shares issued** under DRIP during the six months ended June 30, 2025[45](index=45&type=chunk)[47](index=47&type=chunk) - The 2024 At-the-Market (ATM) Program allows for the issuance and sale of Common stock up to **$400.0 million**, with **$400.0 million available** at June 30, 2025[50](index=50&type=chunk) - Cash dividends paid on common stock[51](index=51&type=chunk) - Q2 2025: **$3.00 per share**[51](index=51&type=chunk) - H1 2025: **$5.70 per share**[51](index=51&type=chunk) [9. COMMITMENTS AND CONTINGENCIES](index=14&type=section&id=9.%20COMMITMENTS%20AND%20CONTINGENCIES) Watsco is involved in incidental litigation and maintains self-insurance reserves for casualty and health benefit programs, with reserves totaling **$5.450 million** at June 30, 2025 - Self-insurance reserves for casualty and health benefit programs were **$5.450 million** at June 30, 2025, and **$6.247 million** at December 31, 2024[58](index=58&type=chunk) [10. RELATED PARTY TRANSACTIONS](index=15&type=section&id=10.%20RELATED%20PARTY%20TRANSACTIONS) The company has significant related party transactions, primarily with Carrier and its affiliates, accounting for **59% of inventory purchases** in Q2 2025 and **62% for H1 2025** - Purchases from Carrier and its affiliates comprised **59% of inventory purchases** in Q2 2025 and **62% for H1 2025**[59](index=59&type=chunk) - Sales to Carrier and its affiliates were approximately **$6 million** for Q2 2025 and **$25 million** for H1 2025[59](index=59&type=chunk) - Legal fees paid to Greenberg Traurig, P.A., where a Board member is a Senior Chairman, were **$87 thousand** for Q2 2025 and **$109 thousand** for H1 2025[60](index=60&type=chunk) [11. SEGMENT REPORTING](index=15&type=section&id=11.%20SEGMENT%20REPORTING) Watsco operates as a single operating and reporting segment, focusing exclusively on HVAC/R distribution - Watsco has one operating and reporting segment: **HVAC/R distribution**, focusing exclusively on the distribution of air conditioning, heating, and refrigeration equipment and related parts and supplies[61](index=61&type=chunk) [12. SUBSEQUENT EVENT](index=15&type=section&id=12.%20SUBSEQUENT%20EVENT) The "One Big Beautiful Bill" was signed into law on July 4, 2025, introducing significant federal tax law changes, which Watsco is evaluating for potential impacts - The 'One Big Beautiful Bill' was signed into law on July 4, 2025, including significant changes to federal tax law, such as the permanent extension of certain Tax Cuts and Jobs Act provisions and modifications to the international tax framework[63](index=63&type=chunk) - Watsco is evaluating the provisions of the new law and potential impacts on its consolidated financial statements, but does not expect any material impacts[63](index=63&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Watsco's financial condition and results of operations, including forward-looking statements, company overview, industry and regulatory factors, critical accounting estimates, and a detailed analysis of financial performance and liquidity [Forward-Looking Statements](index=16&type=section&id=Forward-Looking%20Statements) Forward-looking statements are subject to various risks and uncertainties, including economic conditions, competitive factors, supply chain issues, and regulatory changes - Forward-looking statements are subject to risks and uncertainties, including general economic conditions, competitive factors, supplier concentration, commodity costs, consumer spending, housing activity, liquidity access, seasonality, weather patterns, regulatory changes, interest rates, inflation, foreign currency fluctuations, international risks, and cybersecurity[65](index=65&type=chunk)[69](index=69&type=chunk) [Company Overview](index=16&type=section&id=Company%20Overview) Watsco is North America's largest HVAC/R equipment and supplies distributor, operating from 701 locations, with revenues primarily from HVAC/R sales and seasonal demand patterns - Watsco is the **largest distributor of HVAC/R equipment and supplies in North America**, operating from **701 locations** in 43 U.S. States, Canada, Mexico, and Puerto Rico as of June 30, 2025[68](index=68&type=chunk)[85](index=85&type=chunk) - Revenues primarily consist of sales of HVAC/R equipment and related parts and supplies, with selling, general and administrative expenses largely variable and correlating to sales[70](index=70&type=chunk) - Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal, with demand for AC highest in Q2/Q3 and heating equipment in Q1/Q4, influenced by weather and economic conditions[71](index=71&type=chunk) [Industry and Regulatory Factors](index=17&type=section&id=Industry%20and%20Regulatory%20Factors) The company faces inflationary pressures from tariffs and is transitioning to lower-GWP refrigerants due to the AIM Act, while the "One Big Beautiful Bill" eliminated IRA tax credits for HVAC systems after December 31, 2025 - Tariffs on HVAC equipment and components sourced from China and Mexico expose the company to inflationary pressures, mitigated by pricing actions and focus on the replacement market[72](index=72&type=chunk) - The American Innovation and Manufacturing Act of 2020 (AIM Act) mandates an **85% phasedown of HFC refrigerants** over 15 years, restricting high-GWP refrigerants in new HVAC systems after December 31, 2024, prompting Watsco to transition inventory to lower-GWP A2L Systems[76](index=76&type=chunk) - The 'One Big Beautiful Bill,' signed July 4, 2025, eliminated the U.S. Inflation Reduction Act of 2022 (IRA) tax credits for HVAC systems after December 31, 2025[78](index=78&type=chunk) [Critical Accounting Estimates](index=18&type=section&id=Critical%20Accounting%20Estimates) No significant changes occurred during the quarter ended June 30, 2025, to the critical accounting estimates previously disclosed - No significant changes occurred during the quarter ended June 30, 2025, to the critical accounting estimates disclosed in the 2024 Annual Report on Form 10-K[80](index=80&type=chunk) [New Accounting Standards](index=18&type=section&id=New%20Accounting%20Standards) Refer to Note 1 for a discussion of recently adopted and to be adopted accounting standards - Refer to Note 1 to the condensed consolidated unaudited financial statements for a discussion of recently adopted and to be adopted accounting standards[81](index=81&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Income Statement as a Percentage of Revenues (Q2 & H1 2025 vs 2024) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Revenues | 100.0% | 100.0% | 100.0% | 100.0% | | Cost of sales | 70.7% | 72.9% | 71.3% | 72.7% | | Gross profit | 29.3% | 27.1% | 28.7% | 27.3% | | Selling, general and administrative expenses | 16.4% | 14.9% | 18.4% | 17.0% | | Operating income | 13.2% | 12.6% | 10.7% | 10.7% | | Net income attributable to Watsco, Inc. | 8.9% | 8.5% | 7.3% | 7.2% | [Second Quarter of 2025 Compared to Second Quarter of 2024](index=19&type=section&id=Second%20Quarter%20of%202025%20Compared%20to%20Second%20Quarter%20of%202024) In Q2 2025, revenues decreased by **4% to $2,062.4 million**, with HVAC equipment sales declining **6%** due to temperate weather and A2L product transition impacts, while gross profit improved by **4% to $603.5 million** and net income attributable to Watsco, Inc. increased **1% to $183.6 million** Q2 2025 Revenue Performance (in millions) | Metric | 2025 | 2024 | Change | % Change | | :---------------- | :----- | :----- | :----- | :------- | | Revenues | $2,062.4 | $2,139.3 | $(76.9) | (4%) | | Same-store sales | $2,044.7 | $2,132.2 | $(87.5) | (4%) | - HVAC equipment sales decreased **6%** in Q2 2025, reflecting a **7% decrease in residential products** (6% U.S., 20% international) and a **5% decrease in commercial HVAC equipment** (5% U.S., 4% international)[88](index=88&type=chunk) - Sales of ducted residential compressor-bearing systems decreased **8%**, driven by a **16% decrease in unit volume** and an **8% increase in average selling price**, primarily due to temperate weather, lower home building activity, and A2L product transition impacts[88](index=88&type=chunk) Q2 2025 Gross Profit and SG&A (in millions) | Metric | 2025 | 2024 | Change | % Change | | :------------------------------------ | :----- | :----- | :----- | :------- | | Gross profit | $603.5 | $579.8 | $23.7 | 4% | | Gross margin | 29.3% | 27.1% | | | | Selling, general and administrative expenses | $339.0 | $319.0 | $20.0 | 6% | | SG&A as a percentage of revenues | 16.4% | 14.9% | | | - Net income attributable to Watsco, Inc. for Q2 2025 increased **$2.2 million**, or **1%**, compared to Q2 2024[94](index=94&type=chunk) [First Half of 2025 Compared to First Half of 2024](index=21&type=section&id=First%20Half%20of%202025%20Compared%20to%20First%20Half%20of%202024) For H1 2025, revenues decreased by **3% to $3,593.5 million**, with HVAC equipment sales down **4%**, while gross profit increased **2% to $1,033.1 million** and net income attributable to Watsco, Inc. decreased **2% to $263.7 million** H1 2025 Revenue Performance (in millions) | Metric | 2025 | 2024 | Change | % Change | | :---------------- | :------- | :------- | :------- | :------- | | Revenues | $3,593.5 | $3,704.3 | $(110.8) | (3%) | | Same-store sales | $3,567.4 | $3,691.9 | $(124.5) | (3%) | - HVAC equipment sales decreased **4%** in H1 2025, reflecting a **3% decrease in residential products** (3% U.S., 13% international) and an **8% decrease in commercial HVAC equipment** (7% U.S., 9% international)[96](index=96&type=chunk) - Sales of ducted residential compressor-bearing systems decreased **5%**, reflecting a **12% decrease in unit volume** and a **7% increase in average selling price**[96](index=96&type=chunk) H1 2025 Gross Profit and SG&A (in millions) | Metric | 2025 | 2024 | Change | % Change | | :------------------------------------ | :------- | :------- | :------- | :------- | | Gross profit | $1,033.1 | $1,010.4 | $22.7 | 2% | | Gross margin | 28.7% | 27.3% | | | | Selling, general and administrative expenses | $661.6 | $628.6 | $33.0 | 5% | | SG&A as a percentage of revenues | 18.4% | 17.0% | | | - Net income attributable to Watsco, Inc. for H1 2025 decreased **$4.7 million**, or **2%**, compared to H1 2024[103](index=103&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) Watsco had **$293.0 million** in cash and cash equivalents as of June 30, 2025, with working capital increasing to **$2,228.8 million** due to higher inventory and accounts receivable, while operating cash flow decreased significantly - As of June 30, 2025, Watsco had **$293.0 million in cash and cash equivalents**, with **$94.8 million** held by foreign subsidiaries[106](index=106&type=chunk) - Working capital increased to **$2,228.8 million** at June 30, 2025, from **$2,096.1 million** at December 31, 2024, driven by higher inventory balances (seasonal ramp-up and A2L product transition) and accounts receivable, offset by lower cash and short-term investments[109](index=109&type=chunk) Cash Flow Activity (H1 2025 vs 2024, in millions) | Cash Flow Activity | 2025 | 2024 | Change | | :------------------------------------ | :----- | :----- | :----- | | Operating activities | $(185.1) | $161.4 | $(346.5) | | Investing activities | $222.3 | $(217.3) | $439.6 | | Financing activities | $(274.2) | $73.8 | $(348.0) | - Net cash used in operating activities was higher primarily due to increased inventory balances (seasonal ramp-up and A2L product transition) and timing of vendor payments[111](index=111&type=chunk) - Net cash provided by investing activities increased due to proceeds from matured certificates of deposit[112](index=112&type=chunk) - Net cash used in financing activities increased due to **$281.8 million net proceeds** from Common stock sale in March 2024 (under 2021 ATM Program) and distributions to non-controlling interest in 2025[113](index=113&type=chunk)[117](index=117&type=chunk) - The company maintains an unsecured, five-year **$600.0 million syndicated multicurrency revolving credit agreement**, with no outstanding balance at June 30, 2025[114](index=114&type=chunk)[115](index=115&type=chunk) - The 2024 ATM Program allows for the issuance and sale of Common stock up to **$400.0 million**, with the full amount available at June 30, 2025[118](index=118&type=chunk) - Watsco's joint venture, Carrier Enterprise I, has a **38.4% ownership in RSI**, with the valuation of RSI Shareholders' common stock approximately **$460.0 million** at June 30, 2025, and Carrier Enterprise I having the obligation to purchase these shares under certain conditions[119](index=119&type=chunk)[120](index=120&type=chunk) - Acquisitions in H1 2025 included Southern Ice Equipment Distributors, Inc. (**$14.3 million cash** + 7,400 shares), Hawkins HVAC Distributors, Inc. (**$2.5 million cash**), and W.L. Lashley & Associates, Inc. (**$3.7 million cash** + 1,036 shares + debt repayment)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - Cash dividends of **$5.70 per share** were paid on common stock during the six months ended June 30, 2025, with a quarterly dividend of **$3.00 per share** declared on July 1, 2025[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) There have been no material changes to the information regarding market risk from the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to market risk information compared to the Annual Report on Form 10-K for the year ended December 31, 2024[133](index=133&type=chunk) [Item 4. Controls and Procedures](index=26&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, concluding they were effective, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of June 30, 2025[135](index=135&type=chunk) - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended June 30, 2025[136](index=136&type=chunk) [PART II. OTHER INFORMATION](index=27&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=27&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 9 to the condensed consolidated unaudited financial statements - Information on legal proceedings is incorporated by reference from Note 9 of the financial statements[138](index=138&type=chunk) [Item 1A. Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to risk factors compared to the Annual Report on Form 10-K for the year ended December 31, 2024[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, Watsco issued **7,400 shares of Common stock** as partial consideration for the acquisition of Southern Ice Equipment Distributors, Inc. (SIE), relying on the exemption from registration contained in Section 4(a)(2) of the Securities Act - On May 1, 2025, **7,400 shares of Common stock** were issued to the seller as partial consideration for the acquisition of Southern Ice Equipment Distributors, Inc. (SIE)[140](index=140&type=chunk) - The shares were issued under the exemption from registration in Section 4(a)(2) of the Securities Act, with the seller representing itself as an 'accredited investor' acquiring shares for investment[141](index=141&type=chunk) [Item 5. Other Information](index=27&type=section&id=Item%205.%20Other%20Information) During the quarter ended June 30, 2025, no officers or directors adopted or terminated any Rule 10b5-1 trading arrangements - No officers or directors adopted or terminated any Rule 10b5-1 trading arrangements 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 all exhibits filed with the Form 10-Q, including certifications from the CEO, EVP, and CFO, as well as Inline XBRL documents - Exhibits include certifications (31.1, 31.2, 31.3, 32.1) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[144](index=144&type=chunk) [SIGNATURE](index=29&type=section&id=SIGNATURE) The report is formally signed on behalf of Watsco, Inc. by Ana M. Menendez, Chief Financial Officer, on August 8, 2025 - The report was signed by Ana M. Menendez, Chief Financial Officer, on behalf of Watsco, Inc. on August 8, 2025[146](index=146&type=chunk)

Executive Summary & Company Overview Watsco, the largest North American HVAC distributor, maintains strong financial health and strategic growth, actively managing the A2L transition and advancing AI initiatives [Company Profile and Market Position](index=1&type=section&id=Company%20Profile%20and%20Market%20Position) Watsco, the largest North American HVAC distributor, boasts strong financial health, 18% shareholder return, and 51 consecutive years of dividend increases - Watsco is the largest distributor in the highly-fragmented **$74 billion North American market** for HVAC products[2](index=2&type=chunk) - The company has achieved an **18% compounded annual total-shareholder return** since entering distribution in 1989[2](index=2&type=chunk) Company Profile and Market Position Table | Metric | Value (as of June 30, 2025) | | :----- | :-------------------------- | | Cash | $293 million | | Debt | None | | Shareholders' Equity | $3 billion | - In April 2025, the Company raised its annual dividend by **11% increase** to **$12.00 per share**, marking its **51st consecutive year** of dividends[2](index=2&type=chunk) [Strategic Initiatives and A2L Transition](index=1&type=section&id=Strategic%20Initiatives%20and%20A2L%20Transition) Watsco is managing a nearly $1 billion A2L refrigerant inventory transition while advancing AI-driven initiatives to enhance customer experience and efficiency - The ongoing regulatory transition to A2L refrigerants will ultimately result in the conversion of **nearly $1 billion of inventory** (**55% of all products sold**) across more than 650 locations in the U.S[4](index=4&type=chunk) - Watsco has made substantial investments in customer training, technology enhancements, and new inventory to support customers during the A2L transition[4](index=4&type=chunk) - The Company is advancing AI-driven initiatives to leverage its extensive data assets to enhance the customer experience and improve efficiencies, with more than **70,000 contractors engaging with its platforms**[3](index=3&type=chunk) Financial Performance Highlights Despite revenue declines, Watsco achieved record gross profit margins in Q2 and the first half of 2025, driven by pricing strategies [Second Quarter 2025 Performance](index=1&type=section&id=Second%20Quarter%202025%20Performance) Q2 2025 revenues decreased 4% to $2.06 billion, but gross profit rose 4% to a record $603 million, with margin expanding to 29.3% Second Quarter 2025 Financial Highlights (YoY Comparison) | Metric | Q2 2025 ($ millions) | Q2 2024 ($ millions) | Change (%) | | :----- | :-------------------- | :-------------------- | :--------- | | Revenues | $2,062.4 | $2,139.3 | -4% | | Gross Profit | $603.5 | $579.8 | +4% | | Gross Profit Margin | 29.3% | 27.1% | +220 bps | | Operating Income | $271.9 | $268.8 | +1% | | Diluted EPS | $4.52 | $4.49 | +0.7% | - Sales trends reflect **double-digit pricing realization** primarily attributable to the A2L product transition, offset by lower unit volumes resulting from more temperate weather conditions, lower homebuilding activity, and transition-related impacts[6](index=6&type=chunk) - The sales mix of new A2L equipment sold domestically was approximately **25% during the first quarter** and **60% during the second quarter**[6](index=6&type=chunk) - **Gross profit margin expanded** due to margin increases across several product categories attributable to further scaling of Watsco's pricing technologies and OEM pricing actions[8](index=8&type=chunk) [Six-Month Period Ended June 30, 2025 Performance](index=2&type=section&id=Six-Month%20Period%20Ended%20June%2030%2C%202025%20Performance) Six-month revenues decreased 3% to $3.59 billion, while gross profit increased 2% to $1.03 billion, with margin reaching a record 28.7% Six-Month Period Ended June 30, 2025 Financial Highlights (YoY Comparison) | Metric | 6 Months 2025 ($ millions) | 6 Months 2024 ($ millions) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :--------- |\n| Revenues | $3,593.5 | $3,704.3 | -3% | | Gross Profit | $1,033.1 | $1,010.4 | +2% | | Gross Profit Margin | 28.7% | 27.3% | +140 bps | | Operating Income | $384.1 | $395.3 | -3% | | Diluted EPS | $6.50 | $6.69 | -2.8% | - Domestic markets saw a **2% decline**, while non-U.S. markets experienced a **10% decline** in sales for the six-month period[11](index=11&type=chunk) Innovation & Strategic Technology Initiatives Watsco invests heavily in digital platforms, AI tools, and new sales strategies to enhance customer experience and operational efficiency [Digital Ecosystem and E-commerce](index=2&type=section&id=Digital%20Ecosystem%20and%20E-commerce) Watsco's $250 million tech investment drives a digital ecosystem, with e-commerce sales reaching $2.5 billion and 70,000 authenticated users - Watsco has invested more than **$250 million in technology** over the last five years (an annual current run rate of **$60 million)** and employs close to **300 technologists**[11](index=11&type=chunk) - The authenticated user community of HVAC Pro+ Mobile Apps grew **17% to more than 70,000 users** over the 12-month period ended June 30, 2025[11](index=11&type=chunk) - E-commerce sales totaled approximately **$2.5 billion for the twelve-month period** ended June 30, 2025, comprising **34% of the Company's overall sales**, with some regions **exceeding 60% e-commerce penetration**[11](index=11&type=chunk) - OnCallAir®, Watsco's digital sales platform, generated approximately **$1.6 billion in gross merchandise value (GMV)** for the 12-month period ended June 30, 2025, with GMV **increasing 19% to $886 million** in the first half of 2025[13](index=13&type=chunk) [AI-Driven Initiatives](index=3&type=section&id=AI-Driven%20Initiatives) Watsco leverages 15 years of data with AI tools like 'Ask.Watsco' and 'AL.watsco' to boost internal productivity and customer expertise - Watsco's AI platform is anchored by 'Ask.Watsco,' an internally-focused AI engine designed to enhance productivity, decision-making, and customer service for **over 2,100 current internal users**[13](index=13&type=chunk) - Complementing its internal platform, Watsco has developed 'AL.watsco,' a customer-facing AI model that delivers HVAC expertise directly to customers and partners, trained on extensive data pools[13](index=13&type=chunk) - These AI tools leverage Watsco's industry-leading data sets around customers, products, and vendors that have been curated over the **last 15 years**[13](index=13&type=chunk) [Non-Equipment Sales & Institutional Channel Strategies](index=3&type=section&id=Non-Equipment%20Sales%20%26%20Institutional%20Channel%20Strategies) Watsco is expanding non-equipment sales, optimizing sourcing, and launching 'Project WatscoOne' for institutional customers in 2026 - The Company estimates that **nearly half of the HVAC/R products** sold in its marketplace represent non-equipment products[13](index=13&type=chunk) - Watsco is leveraging its product and pricing data to optimize and streamline sourcing of non-equipment products across its supplier network[13](index=13&type=chunk) - Watsco expects to begin offering enterprise-wide solutions to institutional customers (termed Project 'WatscoOne') in **early 2026**[13](index=13&type=chunk) Growth Strategies & Financial Strength Watsco pursues a "buy and build" acquisition strategy while maintaining a strong balance sheet and consistent dividend growth [Buy & Build Acquisition Strategy](index=4&type=section&id=Buy%20%26%20Build%20Acquisition%20Strategy) Watsco's "buy and build" strategy added three distributors in 2025, contributing to $1.6 billion in annualized sales from 12 acquisitions since 2019 - Thus far in 2025, the Company has acquired **three distributors** in key Sunbelt markets[14](index=14&type=chunk) - Since 2019, Watsco has acquired **12 companies** that today represent approximately **$1.6 billion in annualized sales** and **120 locations**[14](index=14&type=chunk) - The HVAC/R distribution landscape in North America, estimated to be **$74 billion, remains highly fragmented with approximately 2,100 independent distributors**[14](index=14&type=chunk) [Cash Flow, Financial Strength & Liquidity](index=4&type=section&id=Cash%20Flow%2C%20Financial%20Strength%20%26%20Liquidity) Watsco maintains a strong balance sheet, with operating cash flow impacted by A2L inventory, and increased its annual dividend by 11% to $12.00 per share - Operating cash flow was a use of cash totaling **$185 million** for the six-months ended June 30, 2025, resulting from new A2L inventory investments and peak seasonal inventory buildup[16](index=16&type=chunk)[28](index=28&type=chunk) - In April 2025, Watsco announced an **11% increase** to its annual dividend to **$12.00 per share**[17](index=17&type=chunk) - The Company's objective is to maintain a healthy balance sheet that allows for access to low-cost capital to fund strategic investments in new growth opportunities[15](index=15&type=chunk) Additional Information This section provides company background, forward-looking statement disclaimers, and condensed consolidated financial statements [About Watsco](index=4&type=section&id=About%20Watsco) Watsco operates North America's largest HVAC/R distribution network, focusing on the replacement market and contributing to CO2e emission reduction - Watsco operates the largest distribution network for heating, air conditioning, and refrigeration (HVAC/R) products with **701 locations** in the U.S., Canada, Mexico, and Puerto Rico, serving over **375,000 contractors**[18](index=18&type=chunk) - The company focuses on the replacement market, which has increased in size and importance due to the aging of installed systems and the introduction of energy-efficient models[19](index=19&type=chunk) - Watsco averted an estimated **24.5 million metric tons of CO2e emissions** from January 1, 2020, to June 30, 2025, through the sale of replacement HVAC systems at higher-efficiency standards[20](index=20&type=chunk) [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This section outlines forward-looking statements, noting that actual results may differ due to various economic, regulatory, and competitive factors - The document includes forward-looking statements regarding expected financial and operational results, which are subject to uncertainty and changes in circumstances[21](index=21&type=chunk)[22](index=22&type=chunk) - Actual results may differ materially due to changes in economic, business, competitive market, regulatory, and other factors, including those detailed in Watsco's SEC filings[22](index=22&type=chunk) [Condensed Consolidated Financial Statements](index=6&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including results of operations, balance sheets, and cash flows [Condensed Consolidated Results of Operations](index=6&type=section&id=Condensed%20Consolidated%20Results%20of%20Operations) This section details unaudited condensed consolidated results of operations for Q2 and six-month periods ended June 30, 2025 and 2024 Condensed Consolidated Results of Operations (Unaudited, in thousands, except share and per share data) | Metric | Quarter Ended June 30, 2025 | Quarter Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :-------------------------- | :-------------------------- | :----------------------------- | :----------------------------- | | Revenues | $2,062,442 | $2,139,328 | $3,593,528 | $3,704,319 | | Cost of sales | 1,458,954 | 1,559,568 | 2,560,417 | 2,693,934 | | Gross profit | 603,488 | 579,760 | 1,033,111 | 1,010,385 | | Gross profit margin | 29.3% | 27.1% | 28.7% | 27.3% | | SG&A expenses | 339,001 | 319,029 | 661,582 | 628,577 | | Operating income | 271,869 | 268,803 | 384,057 | 395,340 | | Operating margin | 13.2% | 12.6% | 10.7% | 10.7% | | Net income attributable to Watsco | $183,613 | $181,410 | $263,674 | $268,414 | | Diluted earnings per share | $4.52 | $4.49 | $6.50 | $6.69 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited condensed consolidated balance sheets as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (Unaudited, in thousands) | Asset/Liability/Equity | June 30, 2025 | December 31, 2024 | | :--------------------- | :------------ | :---------------- | | Cash and cash equivalents | $292,978 | $526,271 | | Accounts receivable, net | 1,015,738 | 877,935 | | Inventories, net | 1,952,842 | 1,385,436 | | Total current assets | 3,299,718 | 3,079,981 | | Total assets | $4,729,513 | $4,479,523 | | Accounts payable and accrued expenses | $955,499 | $873,628 | | Total current liabilities | 1,070,916 | 983,901 | | Total liabilities | 1,507,694 | 1,415,285 | | Watsco's shareholders' equity | 2,760,442 | 2,656,990 | | Total liabilities and shareholders' equity | $4,729,513 | $4,479,523 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the unaudited condensed consolidated statements of cash flows for the six-month periods ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------- | :----------------------------- | :----------------------------- | | Net income | $311,308 | $318,913 | | 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 and cash equivalents | (233,293) | 14,742 | | Cash and cash equivalents at end of period | $292,978 | $224,854 |

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 March 31, 2025 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) (State or other jurisdiction of incorporation or organization) 2665 ...

Financial Performance - Revenues decreased 2% to $1.53 billion compared to $1.56 billion in the prior year[15] - Net income for Q1 2025 decreased to $94,540 from $104,262 in Q1 2024, representing a decline of approximately 9%[30] - Dividends on Common and Class B Common stock increased to $(109,037) in Q1 2025 from $(96,765) in Q1 2024, reflecting a rise of approximately 12.5%[30] Profitability and Margins - Gross profit margin improved by 60 basis points to 28.1% from 27.5% in the previous year[15] Market and Sales Growth - Core U.S. market for residential replacement sales increased by 10% (12% on a same-day basis) due to new customer acquisition and improved product mix[6] - The transition to new A2L products affects approximately 55% of Watsco's sales and will convert nearly $1 billion of inventory over the year[5] - The company has acquired 11 companies since 2019, contributing to $1.6 billion in annualized sales[16] Cash Flow and Investments - Operating cash flow was a use of cash totaling $178 million, reflecting inventory investments in new products[12] - Cash flows from investing activities showed a net inflow of $244,556 in Q1 2025, contrasting with a net outflow of $(210,965) in Q1 2024[30] - Capital expenditures netted $(7,443) in Q1 2025, compared to $(5,787) in Q1 2024, indicating increased investment in capital assets[30] Balance Sheet and Liquidity - The company has a debt-free balance sheet with $432 million in cash and $3 billion in shareholders' equity[3] - Cash and cash equivalents at the end of Q1 2025 were $431,823, up from $278,864 at the end of Q1 2024, marking an increase of about 55%[30] - Accounts receivable increased significantly to $83,864 in Q1 2025 from $(33,502) in Q1 2024, indicating a substantial change in working capital[30] - Inventories netted $(389,990) in Q1 2025, compared to $(307,219) in Q1 2024, showing an increase in inventory levels[30] Technology and User Engagement - Watsco's technology platforms have resulted in approximately 60% less attrition among active users, aiding future growth[14] Foreign Exchange Impact - The effect of foreign exchange rate changes on cash and cash equivalents resulted in a positive adjustment of $319 in Q1 2025, compared to a negative adjustment of $(2,390) in Q1 2024[30] Provision for Doubtful Accounts - The company reported a provision for doubtful accounts of $840 in Q1 2025, slightly down from $862 in Q1 2024[30]

Revenue Growth and Market Expansion - Watsco's revenues in HVAC/R distribution increased from $64.1 million in 1989 to $7.6 billion in 2024, reflecting a significant growth strategy through acquisitions and market expansion[17]. - The HVAC/R distribution industry in the U.S. has an estimated annual market size of $74.0 billion, with residential HVAC/R products valued at approximately $134.0 billion[19]. - The company has acquired 70 HVAC/R distribution businesses since 1989, contributing to substantial sales and earnings growth through strategic acquisitions and market share expansion[32]. - Watsco, Inc. reported a revenue increase of 12% year-over-year, reaching $1.5 billion for the latest quarter[157]. - Watsco, Inc. provided an optimistic outlook, projecting a revenue growth of 8-10% for the next fiscal year[157]. - Market expansion efforts include entering three new states, aiming for a 5% market share increase in those regions[157]. Employee and Workforce Management - The voluntary turnover rate for U.S. employees was approximately 18% in 2024, down from 20% in 2022, suggesting improved employee retention strategies[36]. - Watsco employs approximately 7,295 individuals, with 8% located in Canada and Mexico, and utilizes independent contractors to supplement its workforce[35]. - Watsco's culture promotes employee ownership, with around 4,200 employees holding shares in the company through various stock-based equity plans[41]. - The company has committed to increasing its workforce by 10% to support growth and expansion efforts[157]. Product and Technology Development - The company focuses on expanding its product line and introducing private-label products to capture market share and grow revenues[30]. - The company has invested in approximately 300 technology employees to enhance digital capabilities and improve customer service[26]. - The company is investing $50 million in new product development and technology enhancements[157]. - The company plans to implement a new customer relationship management system to improve user engagement and retention[157]. Market Trends and Customer Base - Approximately 102 million central air conditioning and heating systems in the U.S. have been in service for over 10 years, indicating a growing replacement market due to aging units[21]. - The replacement market for residential air conditioning equipment is estimated to be 85%-90% of industry unit sales in the U.S., expected to increase as older units are replaced[60]. - The company serves over 130,000 active contractors, with no single customer representing more than 2% of consolidated revenues in 2024[57]. - User data showed a 15% growth in active customers, totaling 1.2 million users[157]. Financial Performance and Risks - The company achieved a net income of $150 million, reflecting a 10% increase compared to the same quarter last year[157]. - The company relies on credit markets for financial commitments, and disruptions in these markets could adversely affect liquidity and operational performance[99]. - Future dividends will depend on cash flow, profitability, and financial condition, with the Board of Directors having sole discretion over declarations[111]. - The market price of the common stock has been highly volatile, influenced by operating results and general market conditions[108]. Strategic Partnerships and Supplier Relationships - Joint ventures with Carrier represented 54% of revenues in 2024, with Carrier contributing significant assets and the company holding controlling interests in these ventures[55]. - The top ten suppliers accounted for 85% of purchases, with 62% from Carrier and 9% from Rheem, indicating a high supplier concentration risk[61]. - The company maintains trade name and distribution agreements with Carrier and Rheem, providing exclusive distribution rights in specified territories[85]. Sustainability and Environmental Impact - The company estimates it has averted approximately 22.8 million metric tons of CO2e emissions from January 1, 2020, to December 31, 2024, equivalent to nearly 5.3 million gas-powered vehicles driven for one year[77]. - Demand for higher-efficiency products is expected to increase due to the U.S. Inflation Reduction Act of 2022, which includes $4.3 billion for state-administered consumer rebate programs[78]. - A strategic focus on sustainability initiatives is expected to reduce operational costs by 3% over the next two years[157]. Corporate Governance and Shareholder Matters - The Class B common stock represents 90% of the outstanding shares of Class B common stock, giving directors and executive officers significant voting power[105]. - The cumulative total shareholder return for Watsco, Inc. common stock increased from 100.00 to 305.64 from December 31, 2019, to December 31, 2024[129]. - The company is not restricted from issuing additional shares of common stock, which may result in dilution for existing shareholders[107]. - Since the inception of the repurchase plan in September 1999, 6,370,913 shares have been repurchased at a total cost of $114.4 million[130]. Operational Infrastructure - As of December 31, 2024, the company operated 690 locations, with 90% of revenues generated from the United States, 5% from Canada, and 5% from Latin America and the Caribbean[47][46]. - The company operated 690 warehousing and distribution facilities across 43 U.S. states, Canada, Mexico, and Puerto Rico, totaling approximately 16.5 million square feet of space[118]. - The company has 783 ground transport vehicles, with 611 leased and the remainder owned, indicating a robust logistics capability[120]. Cybersecurity and Risk Management - The company has established security policies to protect against cybersecurity threats, but risks remain that could impact financial condition and operations[91]. - The company maintains effective disclosure controls and procedures as evaluated by the CEO, EVP, and CFO[135][136]. - The company has established security practices and safeguards to manage cybersecurity risks, including engaging third-party vendors for specialized functions[114].

Financial Performance - Revenues for Q3 2024 were $2,160.0 million, a 2% increase from $2,126.8 million in Q3 2023, with $37.5 million attributed to new acquisitions[73] - Same-store sales for Q3 2024 were $2,119.8 million, a slight decrease of $4.5 million compared to $2,124.3 million in Q3 2023[73] - Revenues for the nine months ended September 30, 2024, were $5,864.4 million, an increase of $183.8 million or 3% from $5,680.6 million in 2023[79] - Same-store sales for the nine months ended September 30, 2024, increased by $36.3 million or 1% compared to the same period in 2023[79] Profitability Metrics - Gross profit margin for Q3 2024 was 26.2%, a decrease from 26.7% in Q3 2023, while operating income margin fell to 11.6% from 12.1%[69] - Net income attributable to Watsco, Inc. for Q3 2024 was 7.9%, down from 8.0% in Q3 2023[69] - Gross profit for the quarter ended September 30, 2024, was $566.2 million, a slight decrease of $0.7 million or 0% compared to $566.9 million in the same period of 2023[75] - Gross profit for the nine months ended September 30, 2024, was $1,576.6 million, a decrease of $1.1 million or 0% from $1,577.7 million in 2023[81] Cost and Expenses - Cost of sales for Q3 2024 was 73.8%, slightly higher than 73.3% in Q3 2023, indicating increased costs relative to revenues[69] - Selling, general and administrative expenses increased by 2% to $326.4 million for the third quarter of 2024, compared to $319.8 million in 2023[76] - Selling, general and administrative expenses for the nine months ended September 30, 2024, increased by $44.0 million or 5% to $955.0 million compared to $911.0 million in 2023[82] Operational Metrics - The company operates 689 locations as of September 30, 2024, down from 691 locations a year earlier, with 7 new openings and 10 closures during the year[72] - Working capital increased to $2,199.8 million as of September 30, 2024, from $1,679.9 million at December 31, 2023, due to higher inventory and accounts receivable[92] - As of September 30, 2024, there was no outstanding balance under the revolving credit agreement, compared to $15.4 million outstanding as of December 31, 2023[98] Acquisitions and Investments - The company acquired CSI, a distributor of HVAC products, for a total consideration of $6.0 million in cash, 1,904 shares of Common stock valued at $0.8 million, and $0.6 million for repayment of indebtedness[108] - The acquisition of GWS, a plumbing and HVAC distributor, involved a net purchase price of $4.0 million in cash and 280,215 shares of Common stock valued at $101.6 million[109] Shareholder Returns - Cash dividends paid were $7.85 per share for the nine months ended September 30, 2024, compared to $7.35 per share for the same period in 2023[113] - The company has a remaining authorization to repurchase 1,129,087 shares under its share repurchase program, with a total of 6,370,913 shares repurchased at a cost of $114.4 million since inception[116] Market and Regulatory Environment - The U.S. Inflation Reduction Act of 2022 is expected to increase demand for higher-efficiency products, with $4.3 billion allocated for state-administered consumer rebate programs[64] - The company experienced minimal impact from Hurricane Helene in September 2024 and is currently assessing the effects of Hurricane Milton[65] Future Plans and Financial Instruments - The company executed an amended sales agreement for the 2024 ATM Program, allowing for the issuance of up to $400.0 million of Common stock, with the full amount available for sale as of September 30, 2024[101] - The company plans to file a replacement automatically effective shelf registration statement on Form S-3 immediately following the filing of the Quarterly Report on Form 10-Q[101]

Financial Performance - Watsco's Q3 2024 sales reached a record $2.16 billion, a 2% increase year-over-year, with flat same-store sales[7] - For the nine-month period ended September 30, 2024, sales increased 3% to a record $5.9 billion, with a 1% increase on a same-store basis[8] - Revenues for the quarter ended September 30, 2024, were $2,160,036, compared to $2,126,845 for the same period in 2023, representing a growth of 1.6%[16] - Net income attributable to Watsco shareholders for the nine months ended September 30, 2024, was $439,445, down from $453,790 in the same period of 2023, a decline of 3.2%[16] - Operating income for the nine months ended September 30, 2024, was $645,587, compared to $687,062 for the same period in 2023, a decrease of 6.0%[16] - Diluted earnings per share for the quarter ended September 30, 2024, was $4.22, down from $4.35 in the same quarter of 2023[16] Cash Flow and Assets - Operating cash flow improved by 50% to a record $394 million for the nine-month period[7] - Net cash provided by operating activities for the nine months ended September 30, 2024, was $394,205, significantly higher than $263,340 for the same period in 2023, an increase of 49.7%[18] - Total current assets increased to $3,132,992 as of September 30, 2024, from $2,391,931 at the end of 2023, reflecting a growth of 30.9%[17] - Cash and cash equivalents rose to $294,354 as of September 30, 2024, compared to $210,112 at the end of 2023, an increase of 40.1%[17] Profitability and Margins - Gross profit for Q3 2024 was $566 million, resulting in a gross margin of 26.2%[7] - Gross profit margin decreased to 26.2% in Q3 2024 from 26.7% in Q3 2023[16] - The company estimates that ongoing investments to regain market share have diluted gross margins by approximately 30 basis points for the nine-month period[6] Inventory and Liabilities - The company reported a significant increase in inventories, which rose to $1,596,795 as of September 30, 2024, from $1,347,289 at the end of 2023, an increase of 18.5%[17] - Total liabilities increased to $1,355,605 as of September 30, 2024, from $1,112,992 at the end of 2023, a rise of 21.8%[17] Digital Engagement and E-commerce - Approximately 61,000 contractor businesses and technicians engaged with Watsco digitally, a 14% increase year-over-year[10] - E-commerce sales grew by 5% during the nine-month period, accounting for 35% of total sales[10] - The annualized gross merchandise value (GMV) of products sold through Watsco's OnCallAir® platform was approximately $1.4 billion for the 12-month period[10] Dividends and Financial Position - Watsco's annual dividend rate was increased by 10% to $10.80 per share effective April 2024[11] - The company has a debt-free balance sheet with $550 million in cash and short-term investments as of September 30, 2024[7]

Financial Performance - Revenues for the second quarter of 2024 were $2,139.3 million, an increase of 7% compared to $2,003.1 million in the second quarter of 2023[63] - Same-store sales for the second quarter of 2024 reached $2,079.1 million, reflecting a 4% increase from $2,001.1 million in the same period last year[63] - Gross profit for Q2 2024 was $579.8 million, an increase of $17.2 million or 3% compared to Q2 2023, with a gross margin decline of 100 basis points to 27.1% due to pricing and sales mix impacts[64] - Revenues for the first half of 2024 were $3,704.3 million, a 4% increase from $3,553.7 million in the first half of 2023, with same-store sales increasing by 1%[67] - Net income attributable to Watsco for Q2 2024 increased by $8.6 million or 5% compared to Q2 2023, driven by higher revenues and interest income[67] Sales and Operations - HVAC equipment sales accounted for 71% of total sales in 2024, with an 8% increase in residential products and a 8% increase in commercial HVAC equipment sales[63] - The company operated 691 locations as of June 30, 2024, with a net increase of 18 locations over the past 12 months[62] Profitability and Expenses - Gross profit margin for the second quarter of 2024 was 27.1%, down from 28.1% in the second quarter of 2023[61] - Selling, general and administrative expenses for Q2 2024 were $319.0 million, up $14.8 million or 5% from Q2 2023, with expenses as a percentage of revenues decreasing to 14.9% from 15.2%[64] - Selling, general and administrative expenses as a percentage of revenues decreased to 14.9% in the second quarter of 2024 from 15.2% in the prior year[61] Environmental Impact - The company averted an estimated 20.9 million metric tons of CO2e emissions from January 1, 2020, to June 30, 2024, through the sale of higher-efficiency HVAC systems[56] - The U.S. Inflation Reduction Act of 2022 is expected to increase demand for higher-efficiency products, with $4.3 billion allocated for state-administered consumer rebate programs[57] - The company has invested in tools and technology to capture a richer sales mix over time, focusing on high-efficiency HVAC systems[55] Cash Flow and Capital Management - Cash flows provided by operating activities for the first half of 2024 were $161.4 million, a significant increase of $250.6 million compared to $(89.2) million in 2023[81] - Working capital increased to $2,089.2 million as of June 30, 2024, from $1,679.9 million at December 31, 2023, driven by higher inventory and accounts receivable[81] - The company had $224.9 million in cash and cash equivalents as of June 30, 2024, with $200.0 million in short-term cash investments[79] Shareholder Returns and Equity - Cash dividends paid were $5.15 per share for the six months ended June 30, 2024, compared to $4.90 per share for the same period in 2023[92] - The company implemented a Dividend Reinvestment Plan, allowing shareholders to reinvest dividends into Common stock[93] - Since the inception of the share repurchase program, 6,370,913 shares have been repurchased at a cost of $114.4 million, with 1,129,087 shares remaining authorized for repurchase[93] Investments and Acquisitions - The company acquired CSI for $6.0 million in cash and 1,904 shares valued at $0.8 million, with CSI having annual sales of approximately $13.0 million[90] - The acquisition of GWS was completed for a net purchase price of $4.0 million in cash and 280,215 shares valued at $101.6 million, with GWS having annual sales of approximately $180.0 million[90] - The company's investment in Carrier Enterprise I, which holds a 38.4% interest in RSI, has a valuation of approximately $457.0 million as of June 30, 2024[87] Financing Activities - The company executed a sales agreement under the 2021 ATM Program, issuing 712,000 shares for net proceeds of $281.8 million, with a total of $298.5 million sold under this program[85] - An amended sales agreement under the 2024 ATM Program allows for the issuance of up to $400.0 million of Common stock, fully available as of June 30, 2024[86] Tax and Regulatory - The effective income tax rate for the first half of 2024 was 23.5%, down from 24.1% in the same period of 2023, primarily due to higher share-based compensation deductions[75] - There have been no material changes to market risk disclosures since the last annual report[94] Interest and Other Income - Interest income, net for Q2 2024 increased by $8.3 million or 244% due to interest earned on cash and short-term investments[66] - Other income for Q2 2024 was $8.1 million, up from $7.2 million in Q2 2023, reflecting the company's share of net income from Russell Sigler, Inc.[65]

Financial Performance - Revenue increased 7% to a record $2.1 billion, with a 4% increase on a same-store basis[7] - Gross profit rose 3% to $580 million, resulting in a gross margin of 27.1%[4] - Operating income reached $269 million, with an operating margin of 12.6%[7] - For the six months ended June 30, 2024, net income was $318.9 million, compared to $335.8 million for the same period in 2023, reflecting a decrease of approximately 5.2%[37] Cash Flow and Investments - Operating cash flow improved by $250 million compared to last year, totaling $161 million in 2024[9] - Cash provided by operating activities for the six months ended June 30, 2024, was $161.4 million, a significant improvement compared to a cash used of $89.2 million in the same period of 2023[37] - The company had $425 million in cash and short-term investments with no borrowings under its $600 million credit facility[14] Sales and Market Growth - Sales of heat pump HVAC systems exceeded $1.2 billion, outpacing growth rates for conventional HVAC systems[12] - E-commerce sales grew 13% during the quarter, accounting for 36% of total sales[24] - The annualized gross merchandise value (GMV) of products sold through OnCallAir® was approximately $1.4 billion for the twelve-month period ended June 30, 2024[24] Acquisitions and Business Expansion - Watsco completed 69 acquisitions, generating approximately $1 billion in annual sales from the last eight acquired businesses[6] Expenses and Profitability - SG&A expenses increased by 5%, improving 30 basis points as a percentage of sales[22] Assets and Liabilities - Total current assets increased to $3.03 billion as of June 30, 2024, from $2.39 billion at the end of 2023, representing an increase of approximately 26.8%[38] - Accounts receivable, net, rose to $1.00 billion as of June 30, 2024, compared to $797.8 million at the end of 2023, indicating a growth of about 25.4%[38] - Inventories, net, increased to $1.57 billion as of June 30, 2024, from $1.35 billion at the end of 2023, reflecting a rise of approximately 16.7%[38] - Total liabilities increased to $1.35 billion as of June 30, 2024, compared to $1.11 billion at the end of 2023, marking an increase of about 21.4%[38] - Watsco's shareholders' equity grew to $2.61 billion as of June 30, 2024, from $2.23 billion at the end of 2023, representing an increase of approximately 15.5%[38] Market Focus and Sustainability - The company focuses on the replacement market, with approximately 102 million HVAC systems in the U.S. over 10 years old, most operating below current efficiency standards[33] - Watsco aims to contribute to climate change mitigation by promoting higher efficiency HVAC systems, which are critical for reducing energy consumption and carbon footprint[29] Dividends - Watsco has paid dividends for 50 consecutive years and increased its annual dividend rate by 10% to $10.80 per share effective April 2024[28]