About Watsco

Watsco, Inc. and its subsidiaries (Watsco) operate as a distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (HVAC/R) in the HVAC/R distribution industry in North America. As of December 31, 2023, the company operated locations in 42 U.S. States, Canada, Mexico and Puerto Rico with additional market coverage on an export basis to portions of Latin America and the Caribbean, through which it serves more than 125,000 active contractors and dealers that service the replacement and new construction markets. Additionally, the company sells a variety of non-equipment products, including parts, ductwork, air movement products, insulation, tools, installation supplies, thermostats, and air quality products. The company distributes products manufactured by Flexible Technologies, Inc. (Flexible Technologies), Resideo Technologies, Inc. (Resideo), Southwark Metal Mfg. Co. (Southwark), Johns Manville (Johns Manville), and Owens Corning Insulating Systems, LLC (Owens Corning), among others. The company also sells products to the commercial refrigeration market. These products include condensing units, compressors, evaporators, valves, refrigerant, walk-in coolers, and ice machines for industrial and commercial applications. The company distributes products manufactured by Copeland Corporation, LLC, a subsidiary of Emerson Electric Co. (Emerson), The Chemours Company (Chemours), Mueller Industries, Inc. (Mueller), and Welbilt, Inc. (Welbilt), among others. Products The company sells an expansive line of products and maintain a diverse mix of inventory to meet its customers' immediate needs, and it seeks to provide products a contractor would generally require when installing or repairing a central air conditioner, furnace, or refrigeration system on short notice. The products the company distributes consist of equipment, including residential ducted and ductless air conditioners ranging from 1 to 5 tons, gas, electric, and oil furnaces ranging from 50,000 to 150,000 BTUs, commercial air conditioning and heating equipment systems ranging from 1-1/2 to 25 tons, and other specialized equipment; parts, including replacement compressors, evaporator coils, motors, and other component parts; supplies, including thermostats, insulation material, refrigerants, ductwork, grills, registers, sheet metal, tools, copper tubing, concrete pads, tape, adhesives, and other ancillary supplies; and plumbing and bathroom remodeling supplies in a limited number of stores. Sales of HVAC equipment, which the company sources from approximately 20 vendors, accounted for 69% of its revenues in 2023. Sales of other HVAC products, which the company sources from approximately 1,400 vendors, consisted 27% of its revenues in 2023. Sales of commercial refrigeration products, which the company sources from approximately 150 vendors, accounted for 4% of its revenues in both 2023. Distribution and Sales As of December 31, 2023, the company operated from 690 locations, a vast majority of which are located in regions that have demographic trends favorable to its business. The company maintains large inventories at each of its warehouse locations and either deliver products to customers using its trucks or third-party logistics providers, or it makes products available for pick-up at the location nearest to the particular customer. The largest market the company serves is the United States, in which the most significant markets for HVAC/R products are in the Sun Belt states. Accordingly, most of the company's distribution locations are in the Sun Belt, with the highest concentration in Florida and Texas. Joint Ventures with Carrier Global Corporation In 2009, the company formed a joint venture with Carrier, which it refers to as Carrier Enterprise I, in which Carrier contributed company-owned locations in the Sun Belt states and Puerto Rico, and its export division in Miami, Florida, and it contributed certain locations that distributed Carrier products. The company has an 80% controlling interest in Carrier Enterprise I, and Carrier has a 20% non-controlling interest. In 2019, Carrier Enterprise I acquired substantially all of the HVAC assets and assumed certain of the liabilities of Peirce-Phelps, Inc., an HVAC distributor operating in Pennsylvania, New Jersey, and Delaware. The export division, Carrier InterAmerica Corporation (CIAC), redomesticated from the U.S. Virgin Islands to Delaware in 2019, following which CIAC became a separate operating entity in which the company has an 80% controlling interest and Carrier has a 20% non-controlling interest. Carrier Enterprise I has a 38.4% ownership interest in Russell Sigler, Inc. (RSI), an HVAC distributor operating from 34 locations in the Western U.S. RSI is Carrier's second largest independent North American distributor. In 2011, the company formed a second joint venture with Carrier, which it refers to as Carrier Enterprise II, in which Carrier contributed company-owned locations in the Northeast U.S., and it contributed certain locations operating as Homans Associates LLC (Homans), a Watsco subsidiary, in the Northeast U.S. Subsequently, Carrier Enterprise II purchased Carrier's distribution operations in Mexico. The company has an 80% controlling interest in Carrier Enterprise II, and Carrier has a 20% non-controlling interest. In 2019, the company repurchased the 20% ownership interest in Homans from Carrier Enterprise II and has since solely owned and operated Homans. In 2012, the company formed a third joint venture with Carrier, which it refers to as Carrier Enterprise III, to which Carrier contributed company-owned locations in Canada. The company has a 60% controlling interest in Carrier Enterprise III, and Carrier has a 40% non-controlling interest. In 2021, the company acquired certain assets and assumed certain liabilities comprising the HVAC distribution business of Temperature Equipment Corporation, one of Carrier's independent distributors with locations in Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri and Wisconsin. The company formed a new joint venture with Carrier, TEC Distribution LLC (TEC) that owns and operates this business. The company has an 80% controlling interest in TEC, and Carrier has a 20% non-controlling interest. Customers and Customer Service The company serves more than 125,000 active contractors and dealers who service the replacement and new construction markets for residential and commercial central air conditioning, heating, and refrigeration systems. The company focuses on providing products where and when the customer needs them, technical support by phone or on site as required, and quick and efficient service at its locations. Key Supplier Relationships Given its leadership position, Watsco represents a strategic business relationship to many of the leading manufacturers in the company's industry. Significant relationships with HVAC/R equipment manufacturers include Carrier, Rheem, Daikin, Mitsubishi, Gree Electric Appliances, Inc., Welbilt, Bosch Global, Trane, Lennox, and Midea Group. In addition, the company has substantial relationships with manufacturers of non-equipment HVAC/R products, including Mueller, Flexible Technologies, Southwark, Resideo, DiversiTech Corp., Emerson, Johns Manville, Chemours, and Owens Corning. The company's top ten suppliers accounted for 86% of its purchases, including 65% from Carrier, and 8% from Rheem. Distribution Agreements The company maintains trade name and distribution agreements with Carrier, Rheem, and Mitsubishi that provide it distribution rights on an exclusive basis in specified territories and are not subject to a stated term or expiration date. The company also maintains distribution agreements with various other suppliers, either on an exclusive or non-exclusive basis, for various terms ranging from one to ten years. Seasonality Demand related to the new construction sectors throughout most of the markets the company serves tends to be fairly evenly distributed throughout the year (year ended December 31, 2023) and depends largely on housing completions and related weather and economic conditions. Government Regulations, Environmental, and Health and Safety Matters The company's business is subject to federal, state and local laws, and regulations relating to the storage, handling, transportation, and release of hazardous materials into the environment. These laws and regulations include the Clean Air Act, relating to minimum energy efficiency standards of HVAC systems, and the production, servicing, and disposal of more environmentally friendly refrigerants used in such systems, including those established by the Kigali Amendment to the Montreal Protocol concerning the phase-down of the production of HFC-based refrigerants for use in new equipment. The company is also subject to regulations concerning the transport of hazardous materials, including regulations adopted pursuant to the Motor Carrier Safety Act of 1990. The company's operations are also subject to health and safety requirements, including but not limited to, the Occupational, Safety and Health Act. The company's industry and business are also subject to United States Department of Energy (DOE) standards related to the minimum required efficiency levels of residential central air conditioning systems and heat pumps. History Watsco, Inc. was founded in 1925. The company was incorporated in Florida in 1956.