Watsco(WSO) - 2024 Q4 - Annual Report

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 product introductions [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 expansion [32]. - Watsco, Inc. reported a revenue increase of 12% year-over-year, reaching $1.5 billion for the latest quarter [157]. - Watsco, Inc. provided an optimistic outlook, projecting a revenue growth of 8-10% for the next fiscal year [157]. - Market expansion efforts include entering three new states, aiming for a 5% market share increase in those regions [157]. Employee and Workforce Management - The voluntary turnover rate for U.S. employees was approximately 18% in 2024, down from 20% in 2022, suggesting improved employee retention strategies [36]. - Watsco employs around 7,295 individuals, with 8% located in Canada and Mexico, and utilizes independent contractors to supplement its workforce [35]. - Watsco's culture promotes employee ownership, with around 4,200 employees holding shares in the company, aligning their interests with long-term shareholder value [41]. - The company has approximately 1,100 salespeople, averaging 11 years of experience in the HVAC/R distribution industry [46]. Product and Service Offerings - The company focuses on expanding its product lines and introducing private-label products to capture market share and enhance service offerings [30]. - HVAC equipment sales accounted for 69% of revenues in both 2024 and 2023, while other HVAC products comprised 27% and commercial refrigeration products accounted for 4% [45]. - The replacement market for residential air conditioning equipment is estimated to account for approximately 85%-90% of industry unit sales in the U.S., expected to increase as older units are replaced [60]. - The company completed the transition of its inventory to higher SEER products during 2023, in line with new efficiency standards effective from 2023 [72]. - The company focuses on customer convenience through mobile applications and e-commerce, allowing 24/7 access to product information and order management [57]. Financial Performance and Shareholder Returns - The company achieved a net income of$ 150 million, reflecting a 10% increase compared to the same quarter last year [157]. - The company has committed to increasing its dividend payout by 5% in the upcoming quarter [157]. - 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 implemented a Dividend Reinvestment Plan (DRIP) on March 29, 2024, allowing shareholders to reinvest dividends into additional shares [107]. Strategic Partnerships and Supplier Relationships - Joint ventures with Carrier represented 54% of revenues in 2024, highlighting the strategic importance of these partnerships [55]. - The company maintains a diverse supplier base, with the top ten suppliers accounting for 85% of purchases, including 62% from Carrier and 9% from Rheem [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 $4.3 billion for state-administered consumer rebate programs [78]. - A strategic focus on sustainability initiatives is expected to reduce operational costs by 3% over the next two years [157]. Risks and Challenges - The company faces risks from cybersecurity threats that could disrupt operations and adversely impact financial performance [91]. - The company maintains a dedicated cybersecurity team to assess and manage risks associated with cybersecurity threats [115]. - The company relies on credit markets for financial commitments, and disruptions in these markets could adversely affect liquidity and operational performance [99]. - The company is subject to various international risks, including changes in local laws and political instability, which could adversely affect operations [100]. Corporate Governance and Compliance - The management evaluated the effectiveness of disclosure controls and procedures, concluding they were effective at a reasonable assurance level as of the end of the reporting period [135][136]. - There were no changes in internal controls over financial reporting during the quarter ended December 31, 2024, that materially affected the internal control [138]. - The company has adopted an insider trading policy to promote compliance with insider trading laws and regulations [148]. - No disagreements with accountants on accounting and financial disclosure were reported [134]. Future Plans and Investments - The company is investing$ 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]. - The company plans to pursue additional acquisitions of complementary businesses, which may require incurring additional debt or issuing shares, potentially diluting existing shareholders [87].