Paul Johnston: Certainly. With the price increases that we have, yes, of course. [Multiple Speakers]
Barry Logan: Yes, I want to be really clear about that. So Paul mentioned earlier, if we range it out across really — we sell six OEMs products on the ductive side, probably another six on the ductless side and the range of price consistently across the group is between 4% and 6% as we said earlier. Your question is, do you expect to yield any of that in 2024? And the answer is yes. To what extent time will tell, but we certainly do not see outliers and if there’s a competitive need in the market or customer type or an application, OEMs will always be asked to participate and react to what’s going on in the market. But on whole, on scale, we do expect price capture 410A.
Steve Tusa: And then sorry, I just got one more. The call usually ends early, so hopefully, I’m not taking up anybody’s time here. But the 2.5 million to 3 million units you mentioned, what’s kind of the math on that? And can you just explain that, what you meant by that, the 2.5 million to 3 million units that you’re calculating is being installed at the peak?
Paul Johnston: Well, if you look at 2019 as your baseline at roughly 8.5 million units. And then we zoomed up to [indiscernible] we stayed above 10 million in 2023, the industry shipments fell back down to 2019 a little bit ahead. So if you take a normal, let’s say, 2% or 3% growth rate that the industry historically has had put that against where we were in 2019 and take the delta.
Steve Tusa: Got it. Okay. Great. So that pull forward, you’re saying like kind of the opposite end?
Paul Johnston: Yes, that looked like a pull forward to me. Like I indicated to you, one, we’ve got to look at it geographically because you have longer life spans, obviously, in Michigan than you do in Miami, Florida.
Steve Tusa: Right, right. Okay. Great. Thank you so much.
Operator: The next question comes from Damian Karas with UBS. Please go ahead.
Albert Nahmad: Good morning, Damian.
Damian Karas: Hey, good morning, everyone. I have a follow-up question on inventory. I know you talked about normalizing back to kind of four to five turns over time. Just curious if you’re anticipating though, later this year, maybe having to go in a restocking mode as the 454B equipment becomes available and then basically, you kind of get your last call on getting that 410A? And related to that, I’m just curious if there’s any incremental cost that you might expect just as you’re kind of managing the legacy versus the A2L inventory buckets? Or can you do that pretty efficiently?
Paul Johnston: I think we — each one of our operating units is developing plans for what we call phase in phasing in the A2L products and phasing out the 410 products. We have — and obviously, we have a safeguard that we mentioned earlier with the AIM Act where we can sell the 410A all the way through next year. But each one of our operating units is working on that plan so that — we want to be able to hit our inventory targets. We want to be able to hit the demands of the marketplace and our contractors. And we want to be able to do it in a very logical format so that it’s not disruptive to the business and it’s not creating additional overhead for us.
Damian Karas: Okay. Got it. Thanks. And then kind of a follow-up question to a comment you made, Barry, about you sell six OEM products on the ductive side, six on the ductless side, I mean it does [indiscernible] there’s a lot of kind of newer players trying to make moves in the US market, particularly in key pumps and some of these alternative electric high-efficiency solutions. Would you guys foresee working with more equipment vendors over time or you pretty kind of satisfied and set in your existing relationships and product breadth?
A.J. Nahmad: Are you satisfied?
Barry Logan: It’s like a — I want to give like a half hour answer to that honestly. I mean I don’t think we look at our portfolio of brands and say, do we have enough or too much. I don’t think we can even consider that kind of notion. We look at the markets themselves. So where we’ve acquired great businesses, we’ve acquired a great carrier distributor in Chicago three years ago. We acquired a great green distributor in Louisiana a few years ago. the acquisition campaign is somewhat indifferent to brand. It’s focused on who are the dominant players in markets and over time, building incredible franchises on top of the credible franchise that owners have built, so I would say that from that growth perspective and if you ask me, can Watsco double in size, the answer is yes, and we would do it that way.
And oddly enough, ironically enough, the brands are relatively indifferent to that strategy. because we’re trying to grow share in markets and legacies and that’s what we’ve done, right? I mean we were a $1 billion company 20 years ago. We’re a $7 billion company now, and we know we can double the size of Watsco in that same kind of way of growing over the long term. Now if your question is very short term and kind of the puzzle pieces that we operate today, we’re not going to be satisfied unless market share is well above average end markets. And we’re going to find either build on relationships we have and add brands, with carrier, I don’t think people really appreciate it, but we sell seven, eight different brands that carrier makes and we don’t have all of carrier brands in all of our carrier locations, and that’s an opportunity that we talk about in terms of how to bring more density to those brands and those stores.
And we’ve added — there are niche products and manufacturers that operate in niches that we’ve added to our network. This ductless that we’ve added to our network. We have a private label that’s grown over time. So very interesting question with a very long-tailed answer
A.J. Nahmad: I’ll say this is that we’re never satisfied. That’s part of our culture. We’re very ambitious. We’re always wanting to grow, always want to move up and to the right. It’s an exciting time in the industry as key pumps have gained traction and regulation, frankly, and the changing markets are creating product innovation for the first time I think in a long time, and it’s exciting. And that innovation is not only coming from new entrants, but it’s also coming from our OEM partners with products that they’ve brought to market or that they will bring to market it’s fun and exciting with the improvement and enhancements in the technology that’s coming into the product and it will be fun to take in the market as well.
Damian Karas: Really appreciate the color. Best of luck, guys. And Barry, I’ll make sure I follow up, so you can give you the full 30-minute response.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks.
Albert Nahmad: Thanks for your interest in our company. We much appreciate it. And we believe that we have an enormous future ahead of us, and we hope you’ll be with us along the way. Bye-bye.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
