WSO
#The first place, I think we are going to become better inventory managers.
We have used inventory which is using our balance sheet to help develop market share.
I think that has been successful.
I think now our focus will be to continue that but to increase the multiple turns of the inventory which will thereby increase the cash flow.
And in terms of using that cash flow, we will always, Sam, I think you are asking are we going to make any deals.
We haven't made a deal in three years and we are still growing at record levels.
But if they come along we will certainly have the balance sheet to finance almost anything we want.
I mean this Company has been growing at 20% for the last five years and most of that time was without any deals.
<UNK>.
There's a lot of things that go into our non-equipment sales as you recognize.
This is where we have the 900+ vendors and a lot of small buckets of sales that we do.
And basically it was a little bit of a mixed bag.
We had some good upticks as far as pricing on refrigerant but demand was slow in refrigerant.
We had good demand on copper and copper products but the price went down.
So when you wrap it all up, there is parts of it that were growing nicely and parts of it that just didn't grow and the balance was almost a flat quarter.
But also in the end, our business is primarily the replacement business.
We have a very small part of it in new construction.
New construction takes a lot of that non-equipment supply.
So it is a combination of those two things.
That is correct.
Well, who wants to take that, <UNK> or <UNK>.
I'm going to give you a quick yes but let them explain it.
We have a very simple cost of sales.
I mean for the most part it is product cost versus what we can sell it for, so commission programs, technology investments, discipline, the ability to get price for service, things like that have always been the blocking and tackling that can keep going.
There is no reason to say that it shouldn't keep going.
On the technology side, that is where I think we are still very young in carrying out strategies to improve it further.
And young meaning some of the investments have just been made and deployed into the field.
So we certainly think there is the ability to keep going and it has been a great record over the last three or four years, not just the quarter.
This is <UNK>.
We had what we consider to be an expected sellthrough of a lot of our 13 SEER product.
We still have some inventory obviously left but pretty much everything went fortunately in this case, the way everybody had planned it to go.
As of yet we have seen the price of the 14 SEER holding its own and not compressing the 13 SEER.
We have taken a wait-and-see attitude on that as people start depleting their 13 SEER inventory.
At that point we may or may not see some compression.
But as of right now, none.
We do not see ---+ let me put it a different way.
We feel good about our 20% expectations.
I mean we feel good about our guidance.
I mean the guidance is between 16 and 20 and we wouldn't put it out there unless we felt good about it and July is strong, the start of July is strong.
This whole 13 SEER thing is such a short-term thing that I don't focus on it too much and so I can't answer that but maybe <UNK> can.
I don't think we spent a lot of time looking at the psychology of why the 13 SEER has gone to plan.
It pretty much has rolled out as we see a lot of contractors are moving up and stepping up and adopting the 14 SEER and just going with it and forgoing a little bit of this 13 SEER.
It is very short term.
We sell more equipment than anybody in the industry and we have what they need or want whether it is 13, 14, whatever SEER they want, we have it.
That is our advantage.
We are not a factory, we buy it and we sell it.
The factories have to think more about what you are referring to.
I assume he does.
I assume they do.
It is a very short-term story.
Well, let's say that ---+ probably I am guessing now what percentage of our employees in Miami speak Spanish but I would say it is over 50% and they would be delighted.
But like you said, 11 million inhabitants of Cuba versus I think we serve 550 million through the Americas, it is nice and if the government allows us, we will be there.
It is a good product.
We like it a lot and we are very active in it.
Because we are the largest distributor in the Americas, the manufacturers of these products come from Asia and they come here because we can give them more bang for the buck.
Perhaps <UNK> can fill you in on some of the important details of that.
It is not only VRF, <UNK>, but it is also the ductless version of it, the multi-split that we are starting to see move into a lot of other applications.
For the first half, it continues a torrid growth, I just wish it was a larger percentage of the total sales of Watsco.
It will be.
At some point it is going to be material and we're going to spend more time talking about VRF and our duct free splits than we talked about today on this 13 SEER versus 14 SEER issue.
Are the duct free splits.
Actually with Watsco, it is fairly close.
Our split is more on the duct free than it is on the VRF but the VRF is growing at a faster rate than the duct free.
My response here is going to be more philosophic than it is going to be factual.
Yes, I think it has been evolutionary but it has been a rapid evolution as you know in the last several years and of course my hope and dream is that there is a tipping point where it starts accelerating even faster.
But also you have to remember all of the major US OEMs have, with the exception of one, have associated themselves with an Asian manufacturer to bring those products into the United States.
It will have growing attention in the US market.
Yes, it is well over 50% of our business.
It should be because the 13 SEER in the majority of our markets is phased out.
The only place where we will have access to 13 SEER is going to be in the upper Midwest and the Northeast right now.
Naturally it is going to increase with us.
Dave, I would have to do the math on that.
That is a great question, Dave, and I would say that we are at the beginning.
We now have provided apps to our contractor customers which they can use to be very efficient in their work, they can determine what models look like, what their bill of materials are, what their use it for diagnostic purposes, order what they need on their smartphone from us.
And those apps are being revisited and improved constantly.
We have what we call business intelligence, internal use of data.
We now have real-time data in hand of many, many people in our organization so they can see how they are doing, how they can do better.
We also have e-commerce.
It is just emerging all the way across hopefully to cover our 577 locations because e-commerce is a wonderful way for our customers to do business with us.
Then we also have sites that we are experimenting with consumers to see what their appetite is for air-conditioning on consumer sites.
But this is all just beginning.
As I say, I don't think our investment is going to get any less.
I think it is going to grow and I think that is good for the shareholders long-term.
We have the scale to be able to do this and so far we have been able to do that and still report record performance.
We have that data but we are not ready to provide that.
The first part of the question is it is all of those things.
And secondly, we will be particularly in the technology area as we find talented people, we will be adding them and I expect our talent in technology will grow.
As I said, I still think it is beginning.
We have 150 more or less in that world and that should grow.
I'm not going to get into that detail.
I can just tell you revenues got stronger toward the end of June and they are continuing in July.
Yes, we had one of those.
Well, <UNK>, I'm going to give you the long ---+ look, over the last 25 years, our total shareholder return compounded growth rate was 20%.
25 years at 20% while we have been in the distribution business.
The last five years has been 20% and I don't believe that we have to be buying any companies to continue that growth rate.
Now that doesn't mean that if a large one doesn't come along and we like the business that we won't pursue it.
We have demonstrated that we can grow for 25 years at a very high rate.
So I am not one to ---+ and I know you do, you feel that we have to be making deals to keep our growth rate up and I don't believe that.
I believe you demonstrated just the opposite.
I know you like Lennox, I don't see what they are buying that bumped up their earnings, they are doing it internally.
You are asking me are we getting growth from our geographic position versus our technology.
I think it is both.
Yes, I think we are gaining share, market growth and gaining share.
We are pretty good at gaining share.
<UNK>, I would just add to that, I would say our markets, the markets we participate in and do so well in add to the stability of the Company.
Being in the Sun Belt year after year is a great place to be from a stability point of view but we still have very demanding intense customers with intense competition.
So the only way there can be outside growth is through market share gains.
So I think the markets give stability performance give the market share that is what we have been doing so well at.
If I can add one more thing to that and that is in the last three to five years, we have been able to state that we have gain market share because we had confidence that we were gaining market share.
This year we haven't mentioned market share only from the viewpoint that there is so many unusual activities going on in the market share with the 13, 14 SEER transition that it has been hard for us to get a read on industry numbers.
So we feel good about our performance but we only state what we know.
Terrific.
Thanks for listening and I look forward to the next conference call.
Bye.
