Watsco(US:WSO)2024-02-23 21:52Financial Performance and Growth - Watsco's revenues in HVAC/R distribution increased from $64.1 million in 1989 to $7.3 billion in 2023, reflecting a significant growth strategy through acquisitions and product introductions[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 valued at approximately $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, a slight increase from 68% in 2022[45] - The joint ventures with Carrier represented 55% of total revenues in 2023[54] - 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[58] Operations and Workforce - As of December 31, 2023, Watsco operated from 690 locations across 42 U.S. States, Canada, Mexico, and Puerto Rico, serving over 125,000 active contractors and dealers[16] - Watsco employed approximately 7,425 employees as of December 31, 2023, with a voluntary turnover rate of about 19%[35][36] - The company has approximately 1,200 salespeople with an average of 11 years of experience in the HVAC/R distribution industry[46] - 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 company has 821 ground transport vehicles, of which 596 are leased, indicating a significant investment in logistics[114] Innovation and Technology - The company has invested in approximately 300 technology employees to modernize and digitize its business operations[25] - The company maintains a culture of innovation, focusing on customer service, product expansion, and technology implementation to enhance service capabilities[27] - Watsco's strategy includes expanding product lines and introducing private-label products to capture market share and grow revenues[29] - The company completed the transition of its inventory to higher SEER products in 2023, with new minimum efficiency levels established[69] - The company plans to transition its inventory to comply with new refrigerant standards, anticipating higher sales prices for environmentally friendly units[70] Environmental and Regulatory Compliance - The AIM Act mandates an 85% phasedown of HFC production and consumption over 15 years starting January 1, 2022, with HVAC equipment required to use refrigerants with less than 750 GWP by January 1, 2025[70] - The company estimates it has averted approximately 19.2 million metric tons of CO2e emissions from January 1, 2020, to December 31, 2023, 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 high-efficiency products, with $4.3 billion allocated for state-administered consumer rebate programs for energy savings[75] Supplier and Customer Relations - The top ten suppliers accounted for 86% of purchases, with 65% from Carrier and 8% from Rheem[59] - The company maintains trade name and distribution agreements with major manufacturers, including Carrier, Rheem, and Mitsubishi, providing exclusive distribution rights in specified territories[60] - The company serves over 125,000 active contractors and dealers, with no single customer representing more than 2% of consolidated revenues[56] Financial Management and Shareholder Information - Directors and executive officers own 1% of the outstanding shares of Common stock and 89% of Class B common stock, representing 55% of the combined voting power[102] - The company repurchased 505 shares of Class B common stock during November 2023 to satisfy tax withholding obligations[125] - Cumulative total shareholder return for Watsco, Inc. Class B common stock increased from 100.00 in 2018 to 369.56 by December 31, 2023[124] - The company has repurchased a total of 6,370,913 shares of Common and Class B common stock at a cost of $114.4 million since the inception of the repurchase plan[126] - The company’s Class B common stock is entitled to ten votes per share, compared to one vote for Common stock, providing significant control to Class B shareholders[103] - The company’s ability to pay dividends is subject to cash flow, profitability, and legal restrictions under Florida law[106] - The market price of the company’s common stock may be highly volatile, influenced by various unpredictable factors[105] Internal Controls and Compliance - There were no changes in internal controls over financial reporting during the quarter ended December 31, 2023, that materially affected internal control[134] - 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 report includes consents from independent registered public accounting firms, Deloitte & Touche LLP and KPMG LLP[149] - The report includes various exhibits and documents filed with the SEC, ensuring transparency and compliance[149]