Financial Performance and Growth - Watsco's HVAC/R distribution revenues increased from $64.1 million in 1989 to $7.3 billion in 2023, reflecting a significant growth strategy through acquisitions and market expansion[16] - The HVAC/R distribution industry in the U.S. has an estimated annual market size of $64.0 billion, with residential HVAC/R products estimated at $126.0 billion[18] - The company has acquired 69 HVAC/R distribution businesses since 1989, enhancing its market presence and operational capabilities[31] - HVAC equipment sales accounted for 69% of revenues in 2023, down from 68% in 2022; other HVAC products made up 27% in 2023, down from 28% in 2022[45] - The company expects to transition its inventory to HVAC equipment with refrigerants that comply with the new EPA standards, benefiting from higher sales prices for environmentally friendly units[70] Market Presence and Operations - As of December 31, 2023, Watsco operated 690 locations across 42 U.S. states, Canada, Mexico, and Puerto Rico, serving over 125,000 active contractors and dealers[16] - The company operated 690 warehousing and distribution facilities across 42 U.S. states, Canada, Mexico, and Puerto Rico, totaling approximately 16.4 million square feet, with 16.2 million square feet leased[113] - The largest market is the United States, particularly in the Sun Belt states, which have seen significant population growth and demand for HVAC products[47] - Joint ventures with Carrier represented 55% of revenues in 2023, with Carrier being the largest supplier, accounting for 65% of purchases[54][59] - The company serves over 125,000 active contractors and dealers, with no single customer representing more than 2% of consolidated revenues[56] Employee and Corporate Culture - Watsco employs approximately 7,425 individuals, with a voluntary turnover rate of about 19% in 2023, consistent with industry standards[35][36] - Watsco's culture promotes employee ownership through stock-based equity plans, with around 130 employees receiving equity awards in 2023[40] - The company has invested in approximately 300 technology employees to enhance digital capabilities and customer service[25] Environmental and Regulatory Factors - An estimated 19.2 million metric tons of CO2e emissions were averted from January 1, 2020, to December 31, 2023, through the sale of higher-efficiency residential HVAC systems, equivalent to nearly 4.3 million gas-powered vehicles driven for one year[74] - 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 to promote energy savings[75] - The company completed the transition of its inventory to higher SEER products in 2023, aligning with new efficiency standards[69] Financial Management and Risks - The company relies on credit markets for financial commitments, and disruptions in these markets could adversely affect liquidity and operational performance[94] - The company plans to pursue additional acquisitions of complementary businesses, which may involve incurring additional debt and diluting existing shareholders' ownership[83] - The market price of the company's common stock may be highly volatile, influenced by various unpredictable factors[105] Governance and Compliance - The company’s management, including the CEO, EVP, and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of the end of the reporting period[132] - The report was signed by the Chief Executive Officer and Chief Financial Officer on February 23, 2024, indicating compliance with SEC requirements[151] - The company has established security practices and safeguards to protect against cybersecurity threats, with a dedicated management team overseeing these efforts[109][110] - The report includes various exhibits and documents filed with the SEC, ensuring transparency and compliance[149]
Watsco(WSO_B) - 2023 Q4 - Annual Report