Albert H. Nahmad, Watsco’s Chairman and CEO stated, “While softer market conditions persisted during what is essentially the low-season for product sales, we are currently experiencing growth in end-market demand as we enter the summer selling season. We believe market share gains are continuing, and we are proud to have added three new companies to our family since the beginning of last year. Finally, and most gratifying, we further strengthened our balance sheet and generated record cash flow during a period that typically requires working capital investment ahead of the selling season.”

First quarter results

• Revenues increased 1% to a record $1.56 billion (a 2% decline on a same-store basis)
• Gross profit of $431 million (27.5% gross margin)
• SG&A expenses increased 8%, including 18 new locations (a 4% increase on a same-store basis)
• Operating income of $127 million (operating margin of 8.1%)
• Earnings per share of $2.17 versus $2.83 last year
• Record first quarter operating cash flow of $104 million
• Equity-raise of $282 million through the Company’s at-the-market (ATM) offering program

Sales trends (excluding acquisitions)

• 1% decline in HVAC equipment (68% of sales)
• 6% decline in other HVAC products (28% of sales)
• 2% increase in commercial refrigeration products (4% of sales)

First quarter operating results reflect stabilizing end-market demand, on-going realization of OEM pricing actions, progress in scaling Watsco’s industry-leading technology platforms and continued investments designed to drive long-term growth. Additionally, comparative results were impacted by approximately $5.3 million of non-recurring SG&A items. It is also important to note that the first and fourth quarters are highly seasonal as demand for replacement HVAC systems is typically highest in the second and third calendar quarters. Accordingly, the Company’s first quarter results are disproportionately affected by this seasonality.

Technology transformation

Watsco continues to lead and innovate through customer-focused technologies designed to transform the customer experience and reshape how our industry operates. Watsco’s ecosystem of technology tools and platforms makes it easier for HVAC contractors to do business and, in turn, improve their speed and efficiency, as well as provide future growth potential with new and existing customers. Updates to our various technology initiatives include:

• Product Information Management (PIM), Watsco’s repository of rich product information, is delivered seamlessly through its mobile apps and e-commerce platform. Watsco’s PIM database contains more than 1.5 million SKUs accessible to more than 375,000 contractors and technicians annually.
• HVAC Pro+ Mobile Apps provide customers with real-time access to critical information that improves speed and productivity. This includes real-time technical support, product details, inventory availability, warranty look-up and processing, certified system matchups, e-commerce, and more. The authenticated user community (users linked to an e-commerce account) over the 12-month period ended March 31, 2024 grew 6% to more than 57,000 users compared to the same period a year ago.
• E-commerce sales continue to outpace overall sales growth rates in the first quarter and accounted for 33% of total sales, inclusive of revenues from recently acquired businesses that are now adopting Watsco’s technology platforms.
• OnCallAir®, Watsco’s digital sales platform, has increased penetration among HVAC contractors as digital engagement with homeowners expands. The annualized gross merchandise value (GMV) of products sold by customers through OnCallAir® was approximately $1.3 billion as of the end of the first quarter. During the first quarter of 2024, OnCallAir® presented quotes to approximately 61,000 households, a 15% increase, and generated $269 million GMV, a 22% increase over last year.

A.J. Nahmad, Watsco’s President, commented, “Our journey to drive technology adoption at scale has yielded terrific results, but we are even more excited at the opportunities that lay ahead. Our tools and capabilities, which are unique in our industry, are designed to help HVAC contractors of any size grow faster and become more efficient. These investments have driven higher market share and higher growth rates with technology-enabled customers. We believe we are just scratching the surface on the internal technology deployed to enhance margins and operating efficiencies. We remain committed to doing more and transform how our industry operates.”