Watsco Reports Record Fourth Quarter Sales, Expanded Margins and Record Cash Flow

Boosts Annual Dividend 11% to $12.00 Per Share Entrepreneurial Culture, Transformational Technologies and Debt-Free Balance Sheet Continue to Produce Results and Provide Long-Term Opportunities MIAMI, Feb. 18, 2025 (GLOBE NEWSWIRE) -- Watsco, Inc. (NYSE: WSO) reported fourth quarter and full year 2024 results and provided commentary on current business trends, technology innovation and long-term growth drivers. Watsco also announced today an 11% increase to its annual dividend to $12.00 per share effective with its next regular dividend payment in April 2025. Watsco is the leading distributor in the HVAC/R marketplace, serving over 375,000 contractors, technicians and installers annually from 691 locations across the U.S., Canada and Latin America. Since entering distribution in 1989 through the end of 2024, the compounded annual growth rate (CAGR) of Watsco’s operating profit was 18%, dividends were 21% and total-shareholder-return was 19%, representing strong and consistent performance across most macroeconomic and industry cycles. Watsco continues to invest in technologies that enrich the customer experience, drive growth, gain market share and improve operating efficiency. Watsco’s digital user-community consists of approximately 64,000 contractors and technicians that engage with Watsco through state-of-the-art platforms capable of influencing every aspect of their day. Since launch, Watsco has generated higher sales growth rates among digital customers, achieved meaningful new customer acquisition and reduced attrition. Watsco has also begun to establish pathways for AI-related initiatives and leverage the substantial data streams curated by the Company. Albert H. Nahmad, Watsco’s Chairman and CEO, commented: “Watsco had a terrific fourth quarter, achieving record sales and earnings, improved operating efficiency, expanded margins and record cash flow. Looking ahead, the transition to A2L products is well underway, providing incremental opportunities for growth and share gains as our technology platforms gain more adoption in the marketplace. Our teams continue to lead and innovate, and I am optimistic that our industry-leading scale, entrepreneurial culture, technology advantage and financial strength position us to continue to capture growth and share.” Mr. Nahmad added: “We are pleased to raise our dividend, marking the 51st consecutive year that Watsco has paid dividends. With $782 million in cash and short-term investments along with a debt-free balance sheet, Watsco remains well-positioned to invest in most any-sized growth opportunity to advance its leadership position within the fragmented $74 billion HVAC/R distribution marketplace.” Fourth Quarter Results 9% sales increase to a record $1.75 billion13% gross profit increase to a record $468 million90 basis-point expansion in gross margin to 26.7%8% increase in SG&A expenses (improved 20 basis-points as a percentage of sales)26% growth in operating income to $136 million (operating margin expanded 110 basis-points to 7.8%)31% increase in income before income taxes to a record $143 million17% increase in net income (attributable to Watsco) to $97 million15% increase in EPS to $2.3727% increase in operating cash flow to a record $379 million Sales trends 14% increase in HVAC equipment (69% of sales)Flat sales for other HVAC products (27% of sales)4% increase in commercial refrigeration products (4% of sales) Sales of residential equipment increased 16% during the quarter, reflecting double digit unit growth, new customer acquisition and market share gains, price and mix benefits and accelerated growth in e-commerce sales. Commercial equipment sales remained resilient and increased 9% during the quarter. Growth rates were consistent throughout the quarter and among the various geographies served. Results also reflect the recapture of sales and market share related to one of the Company’s primary OEMs that experienced supply chain issues during 2023. It is important to note that the fourth and first quarters of each calendar year are highly seasonal due to the timing of the replacement of HVAC systems. Results are typically strongest in the second and third quarters, and the Company’s fourth quarter financial results are disproportionately affected by seasonality. Full-Year Results 5% increase in sales to a record $7.62 billion (3% growth on a same-store basis)3% increase in gross profit to a record $2.04 billionGross margin was 26.8% compared to 27.4% last yearSG&A expenses increased 6% to $1.29 billion (4% growth on a same-store basis)Operating income of $782 million (operating margin of 10.3%)Income before income taxes increased 2% to $803 millionNet income (attributable to Watsco) was $536 million, flat with last yearEPS of $13.30 versus $13.67 last year38% increase in operating cash flow to a record $773 million Sales trends (excluding acquisitions) 5% increase in HVAC equipment (70% of sales)2% decline in other HVAC products (26% of sales)1% increase in commercial refrigeration products (4% of sales) Culture of Innovation Watsco continues to scale its industry-leading technology platforms, both externally to more contractors and internally across its entire network of locations. Highlights for 2024 included: Customer-Facing E-commerce sales growth rates outpaced overall sales growth increasing 8% to $2.6 billion for the year (35% of annual sales) and grew 16% during the fourth quarter.Watsco’s product information management (PIM) platform expanded to more than 930,000 SKUs.Watsco’s authenticated user community for HVAC Pro+ Mobile Apps expanded to approximately 64,000 users, up 15% from the prior year.The gross merchandise value of products sold through OnCallAir®, Watsco’s proprietary digital sales platform for contractors, increased 25% to approximately $1.5 billion in 2024 with quotes to homeowners increasing 22% to approximately 313,000 households. Operations-Focused Pricing optimization tools to provide analytics and insights on more than 200,000 SKUs sold with the goal of modernizing existing processes, enhancing competitiveness and improving margins.Proprietary warehouse management and order fulfillment systems to enable faster, more reliable customer service, accelerate the fulfillment of orders, and enhance warehouse efficiency.Transportation management systems to improve efficiency and productivity of transportation spend.Demand planning and inventory optimization tools to improve fulfillment rates and inventory turns. A.J. Nahmad, Watsco’s President, commented: “Our ongoing investments in Watsco’s industry-leading technology platforms have been producing terrific results with clear evidence that our customers are winning with more frequency while becoming more loyal, long-term customers.” A.J. Nahmad added: “We have also opened two pathways for AI-related initiatives to leverage the substantial data streams that we have curated over the years related to products, technical know-how, customer information and a wealth of transactional data. The first path is focused on how to bring technical know-how and service to our contractor community faster, more completely and more productively, whether assisted by our technical support staff or through self-service. The second path is internally focused to derive more productive content creation across a variety of disciplines in our business. It is early stage, but we are excited and already witnessing productivity gains and an expansion of our historical capabilities.” Cash Flow and DividendsWatsco produced record operating cash flow in 2024, which increased 38% to $773 million, or 122% of net income. Since 2019, Watsco has generated $3.1 billion of net income along with $3.1 billion of operating cash flow. Over this same period, the Company invested $353 million to acquire distributors with annual dividend payments increasing 75% to $423 million. The Company’s philosophy is to share increasing amounts of cash flow through higher dividends while maintaining a conservative financial position with continued capacity to build its distribution network. The Company raised its annual dividend rate 11% to $12.00 per share, which will become effective in April 2025. Future dividend increases will be considered in light of investment opportunities, general economic conditions and the Company’s overall financial position. Long-Term Growth DriversWatsco believes that various company and industry specific catalysts will contribute to growth and profitability in the years ahead. We believe these catalysts – coupled with Watsco’s scale, technologies, OEM relationships and entrepreneurial culture – provide competitive advantages that position us favorably over the long-term. Buy and Build Acquisition Strategy - Watsco has acquired 70 companies since 1989, contributing to sales growth, scale and, most importantly, its community of seasoned leaders. Since 2019, Watsco has acquired ten companies that today represent approximately $1.6 billion in annualized sales from 111 locations. Watsco’s buy-and-build strategy perpetuates long-standing legacies and builds scale through investment in new locations, new products and by leveraging Watsco’s technology platforms. The HVAC/R distribution landscape in North America remains highly fragmented with more than 2,100 independent distributors. Technology Investments - Watsco is investing to enhance its technology advantage in the HVAC/R distribution industry. Active users of our technology and e-commerce platforms produce higher growth rates and exhibit approximately 60% less attrition. Consequently, the Company believes that increased adoption by more contractors will aid future growth and profitability and will lower the overall cost to serve customers. Growth of Ductless HVAC Systems - the growing acceptance of ductless HVAC systems in both residential and commercial applications is also a long-term growth driver. Watsco is the leading independent distributor of ductless products in North America, representing approximately 20 brands manufactured by several leading OEMs around the world. In 2024, sales growth of ductless products once again exceeded the sales growth of conventional ducted HVAC systems, consistent with recent trends. Scale and Product Depth - Watsco possesses the broadest and deepest assortment of products in the industry with approximately $1.4 billion in inventory across 200,000 SKUs produced by more than 20 equipment OEMs and 1,500 non-equipment vendors. Our scale and reach, coupled with our growing digital presence, is a key differentiator given the fragmented nature of our industry and allows Watsco to compete effectively in any macroeconomic environment. Use of Non-GAAP Financial Information This release discloses certain performance measures on a “same-store basis”, which are non-GAAP and exclude the effects of locations closed, acquired or opened, in each case during the immediately preceding 12 months, unless such locations are within close geographical proximity to existing locations. The Company believes this information provides greater comparability regarding its ongoing operating performance. These measures should not be considered an alternative to measurements presented in accordance with U.S. GAAP. Earnings Conference Call InformationDate and time: February 18, 2025 at 10:00 a.m. (ET)Webcast: http://investors.watsco.com (a replay will be available on the Company’s website)Dial-in number: United States (844) 883-3908 / International (412) 317-9254 About WatscoWatsco is the largest distributor of heating, air conditioning and refrigeration (HVAC/R) products with locations in the United States, Canada, Mexico, and Puerto Rico, and on an export basis to Latin America and the Caribbean. The Company’s focus is on the replacement market, which has increased in size and importance as a result of the aging of installed systems, the introduction of higher energy efficient models and the necessity of HVAC products in homes and businesses. According to data published in March 2023 by the Energy Information Administration, there are approximately 102 million HVAC systems installed in the United States that have been in service for more than 10 years, most of which operate well below current minimum efficiency standards. Accordingly, Watsco has the opportunity to be a significant and important contributor toward climate change as it plays an important role to lower CO2e emissions. According to the Department of Energy, HVAC systems account for roughly half of U.S. household energy consumption. As such, replacing older systems at higher efficiency levels is a critical means for homeowners to reduce electricity consumption and their carbon footprint. Based on estimates validated by independent sources, Watsco averted an estimated 22.8 million metric tons of CO2e emissions from January 1, 2020 to December 31, 2024 through the sale of replacement HVAC systems at higher-efficiency standards, an equivalent of eliminating 5.3 million gas powered vehicles off the road annually. More information, including sources and assumptions used to support the Company’s estimates, can be found at www.watsco.com. Forward-Looking StatementsThis document includes certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may address, among other things, our expected financial and operational results and the related assumptions underlying our expected results. These forward-looking statements are distinguished by use of words such as “will,” “would,” “anticipate,” “expect,” “believe,” “designed,” “plan,” or “intend,” the negative of these terms, and similar references to future periods. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive market, new housing starts and completions, capital spending in commercial construction, consumer spending and debt levels, regulatory and other factors, including, without limitation, the effects of supplier concentration, competitive conditions within Watsco’s industry, the seasonal nature of sales of Watsco’s products, the ability of the Company to expand its business, insurance coverage risks and final GAAP adjustments. Detailed information about these factors and additional important factors can be found in the documents that Watsco files with the Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements speak only as of the date the statements were made. Watsco assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except as required by applicable law. WATSCO, INC.Condensed Consolidated Results of Operations(In thousands, except per share data)(Unaudited) Quarter Ended December 31, Year Ended December 31, 2024 2023 2024 2023 Revenues$1,753,962 $1,603,197 $7,618,317 $7,283,767 Cost of sales 1,285,878 1,188,781 5,573,604 5,291,627 Gross profit 468,084 414,416 2,044,713 1,992,140 Gross profit margin 26.7% 25.8% 26.8% 27.4% SG&A expenses 338,489 312,461 1,293,439 1,223,507 Other income 6,593 5,793 30,501 26,177 Operating income 136,188 107,748 781,775 794,810 Operating margin 7.8% 6.7% 10.3% 10.9% Interest (income) expense, net (6,713) (1,000) (20,869) 4,920 Income before income taxes 142,901 108,748 802,644 789,890 Income taxes 27,721 11,007 166,904 155,751 Net income 115,180 97,741 635,740 634,139 Less: net income attributable to non-controlling interest 18,339 15,194 99,454 97,802 Net income attributable to Watsco$96,841 $82,547 $536,286 $536,337 Diluted earnings per share: Net income attributable to Watsco shareholders$96,841 $82,547 $536,286 $536,337 Less: distributed and undistributed earnings allocated to restricted common stock 7,578 6,707 37,369 36,932 Earnings allocated to Watsco shareholders$89,263 $75,840 $498,917 $499,405 Weighted-average Common and Class B common shares and equivalent shares used to calculate diluted earnings per share 37,738,113 36,809,454 37,510,332 36,531,683 Diluted earnings per share for Common and Class B common stock$2.37 $2.06 $13.30 $13.67 WATSCO, INC.Condensed Consolidated Balance Sheets (Unaudited, in thousands) December 31, December 31, 2024 2023 Cash and cash equivalents$526,271 $210,112 Short-term cash investments 255,669 - Accounts receivable, net 877,935 797,832 Inventories, net 1,385,436 1,347,289 Other 34,670 36,698 Total current assets 3,079,981 2,391,931 Property and equipment, net 140,535 136,230 Operating lease right-of-use assets 419,138 368,748 Goodwill, intangibles, net and other 839,869 832,273 Total assets$4,479,523 $3,729,182 Accounts payable and accrued expenses$873,628 $611,747 Current portion of lease liabilities 110,273 100,265 Total current liabilities 983,901 712,012 Borrowings under revolving credit agreement - 15,400 Operating lease liabilities, net of current portion 321,715 276,913 Deferred income taxes and other liabilities 109,669 108,667 Total liabilities 1,415,285 1,112,992 Watsco's shareholders’ equity 2,656,990 2,229,839 Non-controlling interest 407,248 386,351 Shareholders’ equity 3,064,238 2,616,190 Total liabilities and shareholders’ equity$4,479,523 $3,729,182 WATSCO, INC.Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) Year Ended December 31, 2024 2023 Cash flows from operating activities: Net income$635,740 $634,139 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 40,822 35,090 Share-based compensation 35,022 30,000 Non-cash contribution to 401(k) plan 8,735 8,862 Provision for doubtful accounts 4,285 7,158 Other income from investment in unconsolidated entity (30,501) (26,177) Other, net 765 (7,322) Changes in working capital, net of effects of acquisitions Accounts receivable, net (85,555) (36,035) Inventories, net (41,678) 64,620 Accounts payable and other liabilities 197,765 (162,042) Other, net 7,702 13,661 Net cash provided by operating activities 773,102 561,954 Cash flows from investing activities: Purchases of short-term cash investments (255,669) - Capital expenditures, net (29,828) (34,172) Business acquisitions, net of cash acquired (5,173) (3,822) Other, net - (3,349) Net cash used in investing activities (290,670) (41,343) Cash flows from financing activities: Net proceeds from the sale of Common stock 281,784 15,179 Net repayments under revolving credit agreement (15,400) (41,000) Dividends on Common and Class B Common stock (423,521) (382,646) Other, net (1,393) (51,609) Net cash used in financing activities (158,530) (460,076) Effect of foreign exchange rate changes on cash and cash equivalents (7,743) 2,072 Net increase in cash and cash equivalents 316,159 62,607 Cash and cash equivalents at beginning of period 210,112 147,505 Cash and cash equivalents at end of period$526,271 $210,112 Barry S. LoganWatsco, Inc.Executive Vice President(305) 714-4102e-mail: blogan@watsco.com

Watsco Reports Record Fourth Quarter Sales, Expanded Margins and Record Cash Flow

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