Knowles (NYSE:KN) Q3 2025 Earnings Call October 23, 2025 04:30 PM ET Speaker0Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 twenty twenty five Knowles Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.Thank you. I would now like to turn the call over to Sarah Cook. Please go ahead.S ...

Financial Data and Key Metrics Changes - Watsco reported a strong first quarter with a 10% increase in sales for the core HVAC replacement business driven by higher volumes and a richer mix of high-efficiency systems [6][9] - Gross margins improved following the launch of new systems, with the company aiming for a long-term gross profit margin goal of 30% [34][9] - The company has $430 million in cash, no debt, and over $3 billion in equity, indicating a strong balance sheet [9] Business Line Data and Key Metrics Changes - The core HVAC replacement business saw a 10% increase, while the commercial products segment experienced a decline of around 10% due to the transition from 410A to 454B refrigerants [6][71] - The residential new construction market was noted to be softer year-over-year, but the company believes it has not lost market share in this segment [30][26] Market Data and Key Metrics Changes - Domestic sales accounted for 91% of first-quarter sales, with mid-single-digit growth observed in the domestic market [58] - International sales, which represent 9% of total sales, were noted to be weaker, with greater uncertainty in Canada and Latin America [11] Company Strategy and Development Direction - Watsco is transitioning to the new A2L refrigerant systems, which are expected to impact around 55% of total sales and are seen as beneficial for business in the long term [4][5] - The company emphasizes its scale, technology, and relationships with OEM partners to adapt quickly to changing market conditions [12][11] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the upcoming selling season, expecting benefits from the new A2L products to materialize in the stronger second and third quarters [9][4] - The company is closely monitoring the potential impact of proposed tariffs and is collaborating with OEM partners on pricing actions [11][9] Other Important Information - Watsco raised its annual dividend by 11% to $12 per share, marking the 51st consecutive year of dividend payments [10] - The company is actively training customers and updating technology platforms to support the transition to new refrigerant systems [5] Q&A Session Summary Question: Insights on residential sales growth - Management indicated that most of the first-quarter growth was from 410A, with a transition to A2L products expected in the second quarter [18][19] Question: Impact of price increases on gross margin - Management noted that the first quarter saw clean pricing without significant price increases, with gross margin improvements primarily due to a favorable segment mix [22][21] Question: International sales performance - Management acknowledged that international sales were weak but not significant enough to impact overall performance, attributing some of the softness to fewer selling days in the quarter [27][28] Question: Transition to A2L refrigerants - Management confirmed that there were no significant delays in the transition to A2L products and that the market is adapting well [80][81] Question: Price increase mechanisms - Management clarified that most pricing actions are price increases rather than surcharges, indicating a stable pricing environment [138][135] Question: Supply chain issues with refrigerants - Management acknowledged shortages of 454B refrigerant due to container issues but emphasized that there is no shortage of the refrigerant itself [96][97] Question: Consumer behavior regarding repairs versus replacements - Management indicated that both repair and replacement markets are expected to grow, with a positive outlook on energy-efficient product sales [105][110]