Watsco Inc Q2 FY2021 Earnings Call

Good day and welcome to the Watsco Second Quarter 2021 Earnings Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I’d now like to turn the conference over to Mr. Nahmad. Please go ahead.

Good morning, everyone. I hope that everyone is having a safe and good day. Welcome to our second quarter earnings call and what an incredible quarter it was for Watsco. This is Al Nahmad, Chairman and CEO; and with me is A.J. Nahmad, who is our President; and our two Executive Vice Presidents, Paul Johnston and Barry Logan. Now, as we normally do, before we start, I need to read our cautionary statement. The conference call has forward-looking statements, as defined by SEC laws and regulations, that are made pursuant to the Safe Harbor provisions of these various laws. The ultimate results may differ materially from the forward-looking statements. Now on to our report, I am pleased to share that Watsco has delivered an incredible second quarter, achieving new records in virtually every performance metric. Earnings per share jumped 64% to a record $3.71 per share on a 66% increase in net income. This was, by far, our most successful quarter ever. Sales grew 36% or nearly $500 million to a record $1.850 billion in sales for the quarter. Gross profits increased 50% with gross margin expanding 220 basis points. Operating income increased $88 million or 68% to $217 million, and operating margins, this is a big one, operating margins expanded 220 basis points to a record 11.7%. Now, these results are all the more positive when considered against last year's second quarter which had only a modest impact from the COVID-related slowdowns. Now, we have two new companies in our family; TEC and Acme. They perform very well, and we cannot be happier that they are now part of an important part of Watsco. They have a rich and successful history, and we will help them any way we can. Looking ahead, we are engaged in a very fragmented $50 billion North American market. Again, this is a $50 billion North American market. And we hope to find more great companies to join us. The greater scale in this industry provides more capital for us to fund our growth priorities. Also, Watsco’s industry-leading technologies continue to gain traction, and we believe they are helping us gain market share. Here are a few important highlights to mention. First, growth rates among active users of our technologies continues to outpace the growth rates of nonusers. Customers using our technology are simply growing faster. Next, attrition among customers using our technology is meaningfully lower compared to nonusers. The technology enables us to create stickier customer relationships. Also, more customers are using our digital selling platform that are called OnCall Air and CreditForComfort. They help modernize our HVAC solutions that are presented to homeowners. As evidence of the success of OnCall Air and CreditForComfort, the number of digital sales presentations made by our contractor customers to end consumers increased by 84% and helped close over $200 million of sales during the quarter. These tools have also benefited the sale of higher efficiency systems, which we think is an important contributor to the climate change discussion. As owner systems are replaced, our technology can play an important role in helping consumers choose more energy efficient solutions. Our progress is very encouraging. But we believe it is still early in terms of reaching the full potential of our technology investments. Our focus remains in the long term. I think you've heard me say that over and over again. We are long-term players in the industry. Please feel free to schedule a Zoom call with us and we can further explain our technology and its impact. Finally, but very important our balance sheet remains in pristine condition with only a small amount of debt. We have plenty of capacity and even more ambitions to grow our company both organically and through acquisitions. With that, A.J., Paul, Barry and I are happy to answer your questions.

We will now begin the question-and-answer session. Our first question comes from Jeff Hammond from KeyBanc Capital Markets. Please go ahead.

Hey, morning, Al. Morning, guys. So, I just want to hit on the gross margins, they've been kind of exceptional here the last couple of quarters. And I just want to understand what's driving it and how you feel about the sustainability. It just seems like kind of in the last five to seven years, you've been in that 24% to 24.5% and now we're up close to 26%.

Barry?

Good morning, Jeff. Again, gross margin always is a primary component of what we pay for products and what we sell products for. And it's all very decentralized and regional and local and customer specific. And so if there isn't one answer to your question, there's about 16,000 answers to your question as to how it plays out in the marketplace each year. Clearly, high efficiency systems are being sold at a greater rate. Clearly, price increases as they flow through benefit some of the gross margin flow through if you will. Also culturally, we've done a lot with pricing systems and pricing technology and pricing data, pricing software to optimize price. That doesn't mean we necessarily raise price, it means optimize price at markets. And also working closely with all of our OEMs. We have about 600 total manufacturers. They're facing, you know, inflation. They have to decide on their own pricing mechanism into the markets and as we work through that with them, some of those benefits occur. What does the future hold? Well, Paul, maybe you want to comment on it. But there’s still continued pricing actions going on in the market. And we would expect to continue to work with OEMs and customers and flow that dynamic through our business.

I can agree with you more Barry. I think in the future we've got the right amount of discipline. We've been able to hire people who are in positions now where they’re actually managing and looking at pricing on a daily, moment by moment basis. And I think working with our vendors and with our OEMs, I think we can continue — continuing improving gross profit maybe in a more moderate rate than we've done in the past 18 months. But still we can improve.

Okay. And then just on price, our channel checks were picking up kind of high single-digit price increases with kind of the multiple increases coming through. Can you just talk about how much you're seeing on price or price mix and if there's much variation between pricing traction and equipment versus non-equipment. Thanks.

Paul.

Yeah. The equipment manufacturers, each one of them with the exception of one right now I think have announced that they've got their third price increase of the year going. And each one of them have announced a recent price increase, September, August time frame of anywhere from 4% to 8%. And they’re real price increases. They genuinely need the price increases. We all do because there has been an increase in the component costs. So, on the OEM side, yeah, we've seen price increases three times this year. When you get to the non-equipment piece of it, the parts and the supply side, it's been a pretty continuous stream of price increases that we've been administering, well in excess of roughly 200 price increases, most of them multiple, obviously. So, you know, the industry definitely has seen an upward turn in pricing.

This is A.J. I'll just add to that. As it relates to our total gross profit margins, we are focused on selling and aspire to sell more parts and supplies, which inherently have higher gross profit margin. So, that also contributes.

And are you guys able to quantify what price or price mix was in the quarter?

No, we haven't. You know, it's a — there’s not a regular cadence to it. So, for us, it's making sure that we're getting the price increases into the customers’ hands has been a priority one. They have been coming at us so fast, you know? And, as far as the measurement, yes, we'll do a reconciliation and find out exactly what that is at some point, once the year progresses.

Okay. Thanks, guys.

The next question comes from Jeff Sprague from Vertical Research. Please go ahead.

Hey. Good morning, everyone. Thanks for taking the questions. Two for me, first, just on the multiple price increases. It is interesting, Barry mentioned more high efficiency systems. It doesn't feel like you're bumping up against any elasticity here on pricing. You know, I understand that the consumer generally doesn't know what the stuff cost until a unit breaks and, you know, they find out. But any sign at all that, you know, there's a tilt towards mixing back down a little bit?

What was the question? Any sign of what?

Well, I'm just wondering if you see any mix erosion in response to the escalating price. It didn’t like you did in the quarter, but I just wonder if around the edges we are starting to see any signs of, like, demand disruption.

No.

Okay. That’s interesting.

Well, let me say that we also are aware of the end consumer, and we are now presenting more and more renewals of our financing program so that whatever the cost increase is, is less of a burden for homeowners because of the terms of the that we provide through one of our platforms for financing and particularly equipment. And somebody else want to say something. Go ahead.

Yeah. I don't think there's been much pushback from the consumer at all. You hit it right on the head. The consumer doesn't know what the price is. It's not a frequent purchase for the consumer. And so, to-date, we have not seen a lot of pushback. A lot of it has just been based on availability, being able to satisfy the customers’ need for home comfort, indoor air quality and humidity control.

So, just — what I would add to that is two things. First, what we sell is a component of the consumer's cost. It isn't the consumer's cost. So how a contractor prices and ultimately completes a job and sells the job, and as Al mentioned how we can help them finance the job, it's a relatively layered type of transaction. And we haven't seen any deterioration. In fact, growth rates for high efficiency are well beyond the overall equipment growth rate that you see in the press release at 29%. Second thing I'd say is part of the technology that we have is the presentation software to push and recommend and really help contractors. They will be on paper when they present these different options to homeowners. And so, in the press release, you read about OnCall Air doubling in size in the quarter. That's that piece of software and high efficiency is ruling the day in that environment. And I want to get back to financing. Interest rates everybody knows are low. And so, we're helping our distributors which are our customers with financing. And then, we're helping their customers the homeowners with financing. And we're taking advantage of lower interest rates to help the end consumer and help the distributor.

And you're doing that to third-party or you're bringing list on your balance sheet more or less on your balance sheet?

Well, we do sometimes with extended terms of our own. But it's a combination of that and using third party when it goes out several years.

Thank you. And my second question and I appreciate all the detail on the first one. Just on the issue of availability. Just looking at your inventories, you’re a little lower than I might have guessed given the pace of demand. Would you characterize things as still tight in the channel? Or are we kind of getting caught up here within demand?

Well, first, let me say that the OEMs we deal with have really worked hard to meet demand. They're doing the best they can. Their suppliers on the other hand are sometimes letting them down or sometimes they're overwhelmed. But we do believe that they're getting better at it. We believe we could have sold more in the second quarter had we had more particularly equipment. But it's a matter of time, demand will catch up with supply. And in the meantime, we’re doing the best we can as the numbers show. But everybody’s got some — every OEM has one particular, two particular items or a number of particular items that they're short on because they don't control the manufacturing of it.

I'll just add that I have to say that our teams in the field have been working tirelessly to meet their customers’ demands and expectations. They've moved a lot of product around and household. And we're grateful and appreciate their hard work too.

Great. Thank you.

The next question comes from Nigel Coe from Wolfe Research. Please go ahead.

Good morning, Al. Good morning everyone. It's been a long time since I've been on Watsco. It's good to get a question. It's a great quarter, obviously very strong. I just want to pick up on Jeff’s question on sort of the supply chain and port availability. Obviously, it sounds pretty prevalent. All OEMs have got some form of product shortages. I'm just wondering how your tools are helping you mitigate these pressures. And I'm wondering if you've managed to gain some share as a result of that and maybe just talk about any share shifts you're seeing because of your ability to manage that better than perhaps from your competitors.

Who wants that question?

I'll take a stab at it. We manage — we've got one of the best technology platforms available to manage our inventory. And we have constant update meetings with each one of our OEMs as well as some of our key suppliers who don't make finished goods inventory. And what we're working with them on is making sure that we have our complete visibility to what our needs are, what our forecasts are, and what our order reliability from them has been. And I think what it's done is it's brought us a lot closer, communication wise, with the OEMs and made us, I wouldn't say a favorite nation, but it would certainly make us easier to do business with than most of the channel. So, I think it has helped us. Have we gained market share? I think we've gained market share because of our inventory management systems.

Great. Okay. That's a lot to turn and drive up the share gain. And then just on the regional variations, I mean we have — there’s extreme heat on the West Coast, Pacific Northwest in June. Just wondering if we saw, you know, outsized growth in those areas relative to the 9%.

Barry?

Hi, Nigel, Barry here. Good morning. Well, the West Coast for us if you look at the branch count in our filings is actually a relatively small marketplace for us where we're not in the Pacific Northwest at all at zero. And as Western markets again from a contribution point of view, did well in the quarter but it didn't contribute to the overall results materially. So, we do want to be actually much bigger out there. In relative terms, it's not very material.

Okay. Thanks, guys.

The next question comes from Tommy Moll from Stephens. Please go ahead.

You’ve talked about gross margins and price costs a little bit. If we step back, as you think about on a multiyear basis potentially or even just through an inflationary cycle. In your mind, is that is that a net benefit, net neutral, net headwind for you as a distributor? Just smooth it all out.

Well, we don’t like to be in an inflationary environment like any other business. I don’t think it’s something that's good for the consumer or anyone else in the distribution chain. But sometimes, things happen, and we do the best we can. And I keep referring to the way we can assist the distributor and his customer is by providing especially opportunistic financing given the lower rates to offset some of that. But generally speaking, wherever the inflation is, we'll adjust to it one way or the other. And I think we're gaining share by the things that we do. Anybody else want to add something to it, Barry or Paul or A.J.? Yeah. I think the only thing I would add is we do operate a business with 655 locations and it's different areas. And to the extent there are — as an element of fixed cost, we do benefit in terms of profitability and inflationary environment if those fixed costs are not growing or inflationary as well. So, there's always some pressure on cost in this environment. And if not always proportionate to the overall inflationary rate, it's an opportunity to have some profitability growth. But, again, I wouldn't say it's a huge material amount. It's just an opportunity for us.

Great. That's helpful. If I could follow up on technology, it's good to see a continued momentum for adoption on a lot of the key platforms, as you highlighted in the release and in your remarks. And, as you think about the path forward, is now a time when you lean in even more and increase that investment given — in addition to the momentum with adoption — just the macro environment?

That's the favorite question of the President of the company.

Yeah. I was going to say, I'm not sure — we are — we don't consider ourselves constrained in technology investments. This is a technology company that just happens to sell heating and air conditioning. And, you know, when we say technology, that's really a big broad umbrella term that we're using to define our culture, really, which is a continuous improvement, a continuous learning and continuous ways to find ways to help our customers grow their businesses which is, at the end of the day, that's our mission. Our customers are small- and medium-sized entrepreneurial-led businesses, and we can bring tools and technology to them to help them grow. We could make ourselves better to help them grow. So, that is our ethos, you know? So, we call that technology for short, but that's really what we're in the business of doing and we'll continue to invest, yes.

Thank you. I'll turn it back.

And the next question comes from David Manthey from Baird. Please go ahead.

Hey. Good morning, Al. My question is back to gross margin, if I look at the 10-year averages, the first quarter was close to 100 basis points above that. And, this quarter, it was about 200 basis points. And I understand the mix and some pricing dynamics and kind of those rebates or whatever in there. Could you talk about it — do you see some portion of that gross margin overage as being transitory versus structurally sound going forward?

You mean, in terms of the gross profit margin increases or a flattening or declining and that sort of thing?

Well, yeah, the gross margin percentage. If you've been sort of moving along in a range and you popped 200 basis points above that range this quarter. I'm just can you just step back and see.

I think I understand. But we’re very focused on our gross margin percent. And we mentioned some technology we bought in with pricing effects. And we’ve mentioned other ways that we're trying to achieve that. That's not going to stop. I don't know where the end will be. But that's what we're going to continue to seek to improve in a number of ways. So, that's an ongoing goal of ours and we've had successes with it as you say in the first half of this year. And we're going to continue to focus on that in the second half. And don't forget, we're trying to change the supplies business in terms of the margins of the parts and supplies that are generally higher than equipment. So, we're emphasizing to our branches sales of those goods. And so, that's something that could continue to increase the mix of our products — more parts and supplies in the mix of the overall sales picture.

As well as high efficiency equipment too, which is again…

So, we're not having hesitation because high efficiency equipment we believe contributes to the climate change issue that's on there. You have to start with a premise that in homeowners' electrical bills half of it is due to heating and cooling. If you have a higher efficiency cooling and heating system you’re going to use less electricity which in turn you'll use less power production and which in turn minimizes the release of CO2 gases. So, it’s very well connected and we have a very clear eye about what we can do which is encourage the adoption and make it easier and help with financing high efficiency equipment because not only does it help us as a corporation, but it also helps the climate change issue which we're trying to figure out in many different ways how to help that particular issue.

Okay. And on the parts and supplies, I'm thinking more from a growth perspective. The last couple of calls you've sort of hinted at some initiatives you may be working on there. Are you willing to share anything at this time regarding how you're able to accelerate the growth in parts and supplies from here forward?

You mean you want us to tell the competition how we’re doing this?

I’m sure they have an idea.

Well, maybe it is better to give you data on how productive have we been in the effort. I think we can share growth rates and parts and supplies, Barry, Paul?

Yeah. David, it shouldn’t be lost on anyone that you're looking at a quarter for example or even let's look at the half for maybe even better. Growth rate of residential products is up 24% in the half, first half of the year. Parts and supplies is up 19% and accelerated in the second quarter to closer to 25% parts and supplies. Historically, there’s some inversion in those two numbers, because as equipment grows, parts and supplies, generally, will grow at the same rate because people are replacing systems. So, this is a change the last six months. And it is a sales force, it is a culture, it is incentive system, it is many things, simply to bring energy and data and technology and e-commerce systems, and it's, again, it's 15 things. It's not one or two things.

E-commerce is a major contributor because it's so efficient.

Clearly, there's change. And the benefits are there for the company. And it started — this all started last year in terms of our raw energy flowing into this, and it's something over time that should benefit gross margin because gross margin is, in fact, considerably higher in that part of the business.

Great. All right.

Yeah. And what’s our e-commerce platform sales for the first half, Barry?

Our run rate is about $1.8 billion for the last 12 months. So, it’d be close to $1 billion, I think, for a six-month period.

That's about a third of our business now.

Okay. Yeah. Thank you for the details. I appreciate it.

The next question comes from Steve Volkmann from Jefferies. Please go ahead.

Hey. Good morning, guys. Thanks for taking my question. I have a couple of long-term questions because I heard that's how you manage the company. Serious, how big do you think — you've mentioned financing several times. How big do you think financing could ultimately be for you, I don't know, as a percentage of stuff you'd sell or however you like to frame it?

Well, that's a very good question because we haven't got an answer to that yet. For example, should we be in the financing business? Should we partner with somebody in the financing business? You know, these are big issues that we haven't resolved yet. But I don't see any reason why not to one way or the other figure out how to extend and increase the support we provide our distributors and their customers, the homeowners, financial assistance. I particularly like the interest rate feel that we can take advantage of something like that. And even when the rates go back up, there will always be ways to tweak that to help our customers. So, we like the financing thing. We haven't figured it all out. If you've got a good company, we can buy that and accelerate it. We'd be happy to talk to them. It is a pillar of our growth, financing. But it’s probably not going to run very fast in terms of development — more of the same until we figure out the big picture by somebody or become part of somebody or, you know, that sort of thing.

Okay.

If you're looking for a headline number though, the products that we sell at wholesale level get resold at the retail level for $80 billion or $90 billion. And some portion of that is and will be finance.

It sounds like a big opportunity. Second unrelated question kind of more on the M&A front. And I'm just trying to think back, I know you guys have seen lots of different end market environments. Is this the type of environment where you see more of the independents that are willing to sell their businesses because it feels like everything is so good it can only kind of go one direction from here? Or is this the type of environment where these guys are doing so well that they don't want to sell and it's tougher to continue?

Well, I think maybe you should go out and tell them, this is the time to do so. Look, we are engaged with distributors, and that's a part of our culture, always to be engaged with great companies. I don't think we have an answer to that. I think they may be concerned about the capital gains tax, for example, going up. But, in the end, what they want to do, the family businesses especially, is connect with a company that's going to preserve their own names and culture, and that's what we specialize in. These two companies that we recently bought, for example, at TEC, their culture is so strong. All we do — we act at a support level, you know? We're not — we're going to feed them whatever they want; capital or equity for their key executives, technology. That's our style and there'll be people that want to get engaged with that because of that reason. In terms of the atmosphere about the taxes going up and all of that, do you see any trend in that, Barry, one way or the other?

Yeah. I mean, I would say, it always helps, quantitatively, the confidence of doing something when things are going well. It helps our confidence and it helps the sellers’ mindset of optimizing valuation and not feeling like they're doing something ahead of time, and the taxes matter, too. But what really matters is none of that. What really matters is that it’s an emotional process. These are families that have owned businesses for 70, 80 years, third and fourth generation, and I wish it was just that — I wish it was just a financial process, but it's entirely, at times, an emotional process. So, that's the part where I feel like we've been successful as dealing with that emotion going forward for another generation or two, and it's why TEC and another company, a year before, after 90 years, 80 years of owning their business only talk to us and we completed it and it’s moving forward. So, I think you’re right. It helps the discussion to do well. It doesn’t necessarily help the completion process because that's still an emotional one for these guys.

Yeah. It’s really their family joining our family, right? That's an emotional decision more than anything else.

So, one big happy family. Thank you. I'll pass it on.

That's right.

The next question comes from Steve Tusa from JPMorgan. Please go ahead.

I like the use of the term blowout in the press release.

Are we getting better in those press releases?

Yeah. Yeah. Yeah. I think you need to be more clear on how you feel about the results.

Well, I did ask Barry to put in more color.

That was a good one. I’m not sure we’re allowed to say that a little bit compliance around here. But, obviously, a very strong result. I didn’t — I might have not caught this in the beginning, but can you guys just say how much price you booked in the quarter year-over-year?

Barry?

We didn't — we were asked and answered that we’re not going to tell you exactly how much price was booked in the quarter. There obviously is positive price with, you know, again 29% same-store sales growth. You can imagine most of that is entirely unit growth plus prices of components, Steve. But we — it's not something we've reported.

Got it. And then, when you think about the gross profit improvement, which is obviously very strong, was there a big difference in the year-over-year on that? I think it was up like 40% or something on a same-store basis. Was there any difference between the parts and the equipment?

The more mix goes to parts and supplies, the higher corporate gross profit margin will be.

Right. But I guess like-for-like just if you think about the performance of the year-over-year performance simply let's put it this way. What was the year-over-year gross profit performance for the parts business? Was it meaningfully better than the up 40% you saw for the total company?

Oh, if I can tell. You’ll deal with that Barry.

Yeah, Steve. There's really not much of a distinction in the performance. If I look at product groups and markets and product categories things like that it's pretty consistent across the company. There's no one bias or one pocket or one bubble if that’s kind of what you're asking. That's there. It’s pretty much across the board.

Yeah. I'm just trying to discern like what the like there's some timing dynamics around your suppliers and you guys when it comes to pricing I would assume. And so, I'm trying to discern how much of that is kind of on the part side versus the equipment side.

Well, inventory turns which would matter in that algebra that you're talking about is consistent across products.

Okay.

So, again there's no distinction related in that kind of concept. Again, margins pretty much behave the same across products and markets.

Got it. And then one final one, I guess Paul mentioned I think was Paul or maybe it was Barry, you know, talking about, you know, kind of this anomaly where, you know, you're not seeing the trade-off between equipment and non-equipment, but the growth is kind of strong in tandem. So, whatever's happening, you know, stuff is breaking and it may be a faster rate over the last year or so than what folks would have expected. Maybe think about how that rolls out in your own results. Would your expectation then be volume has more kind of room to normalize than mix or the consumer confidence is so high, the mix is also high, and maybe that also has new room to step down. Like, which one of those do you feel like is sort of the bigger surprise and maybe has the long-term average to get back to that’s a little lower?

Who wants that one? Barry, Paul, A.J.? And good luck with it.

I don’t even understand it. I can’t tell if there’s a lot of nuances in that or not, but I'll give it a shot. Well, first on mix and high efficiency and so on, 70% of our business is equipment. And it's been 11 straight years, 44 quarters where mix has improved. And there's — I don't think there's a reason to think that changes. And I think it's still far from any long-term average that goes back more than 10 years ago. And, again, our technology platform that we're witnessing, our sales platform, is at another level even than just what the market is doing. So, I'll take those fundamentals to mean that the ability to sell increasing efficiency is something that can continue. And we're investing a great deal with our customers to help it continue. And, obviously, there's some regulatory things in the horizon that will mandate that it continues. So, I think that's how I would feel about it. Parts and supplies, again, is nuanced. There are probably 600 vendors, over 100 different product lines in that conversation. And my earlier comment where we see culturally a lot of growth, a lot of energy, a lot of salesmanship, a lot of data and technology, pushing those products. And I think that’s for us to enjoy not necessarily analyze against the marketplace. And I don’t think replacement parts are growing in the market. I know our business is and part of that is internal more so than what the market is doing.

The easy way to think of that one — an easy way to think of that one is that our customers sometimes have to go to our competitors to buy products, HVAC/R products. We can and should have those products available at a competitive price for our customers. And that's the kind of focus and effort that we can bring.

A market like Miami where we might have 6 or 7 major equipment distribution competitors, for parts and supplies we may have 15 or 20 in Miami. And so, that's the ground game where I think we're making some progress and growing our business.

And we’re working — okay. We're coming up with better measurement systems, Josh as far as be able to identify if we're actually making a better penetration, looking at attachment rates on equipment, looking at that normal business cycles, looking at warranty rates and warranty population against what the industry has out there. So, we're doing an awful lot of analytic work on this to be able to measure and determine how we can continue to grow in that area.

Got it. Okay. And then on your kind of the competitive environment and availability it seems like you guys between, you know, maybe a better kind of internal sourcing and supply chain practice, and just being more the 100-pound gorilla from an industry perspective probably aren't having as many stock out issues or availability issues as some smaller folks. Do you guys think that's giving you sort of a wider aperture on pricing right now? If you, you know, if you guys can step in when maybe someone else can or a customer that's more of a mercenary-type customer rather than Watsco dedicated, you know, wants product. Is that sort of giving you a little bit more boost on the pricing side?

Okay. I'll take that — I'll cut at that. I don't believe that, Josh. Yes, we are big. We're very effective as far as being able to provide our OEMs with the data that they required to put their order plans together, their build plans together to be able to survive. But I don't think we've been benefited in any way, in any special way compared to the other distributors that those OEMs felt it.

No. I mean to your — to customers. So, to the extent that someone else just doesn't have kind of the process rigor that, you know, regardless of whether or not you're purchasing things cheaper that you can price to a customer maybe a little bit better because they can only get it from you.

I would say I think that part of that dynamic is why we believe we're taking share. I don't think we're using it opportunistically to take advantage of customers and get an extra few dollars along the way. That's not how we approach our customer base. You know, we talk about the company. Our relationships with our customers are also long term. This is not a consumer transactional business. This is a B2B relationships and help our customers grow their long-term business.

I totally agree with you, A.J. on that.

Okay. Thank you.

The next question is a follow up from Steve Tusa from JPMorgan.

Hey, guys. I’m not sure anybody asked. So, I’ll just try and see if you guys can give some color. I mean what do you see for kind of second half growth? And are you seeing anything in kind of July here that you'd want to comment on? Just trying to kind of get the best crystal ball view at this stage.

Barry?

Yes, Steve. I'll speak about I think the last half of the year rather than, you know, the first 16 business days of July. And how this morning went, right? No, I mean you can expect moderation in residential equipment just because that's common sense. You know, it's not going to grow 29% from here on, right? So, there will be moderation and how it plays out over the season versus into next year. There'll be some moderation. There has to be. At the same time, you know, there's absolute strength in commercial, absolute strength in our international markets which were in more of a comp a year ago. We've talked about price and margin outlook for the next several months. And we've talked about our acquisition additions that we've made to add to growth rates going forward. And then, you can imagine already looking into next year and beyond with our community having the same conversation about a growth in share going forward. So, it is several moving pieces. And you know, that's how I would approach the answer there. But the way to look at it is what we’ve done... Year-over-year, we’ve been at this for a few years, and you can see what the record is. We always manage, in most cases, we always manage to grow, sometimes at a higher rate of growth than others. But some of it's internally because we do things better internally, and some of it is because the industry is doing something.

Can same-store sales be — you said moderating, obviously. Can same-store sales be up 5% to 10% in the second half for resi equipment?

Who said they’re moderating? We're not.

Well, so, then, you're going to be up 30% in the second half for resi equipment?

We have that conversation with our leaders, and the challenge to them that they put on themselves is, well, how are we going to grow while things slow, which inevitably at some point can't grow for 30% forever. So, they are creating programs, and they're doing what they need to do now to continue to grow regardless of industry conditions.

Got it. And I guess last, one more to ask is that, do you think the industry will be down at any time in the second half?

No. I don’t think so. Paul, you have a better handle on this.

Yeah. It probably will. We'll probably see some shipment changes. But I don’t know if the movement demand will change.

Yeah. I said no, and you said yes.

I don't know about it. You asked for my guess, and my guess would be you'll probably see maybe some — there's a difference between what the shipment demand and there's a movement demand. And, I think, the movement right now is going to remain strong and maybe shipments will slow down a little bit, and that may not be because of orders. It may be because of the other supply issues that some of the OEMs are having.

Right. So, AHRI could be down at certain points, and your sell-through is, you know, it continues to grow but at a slower rate than the 30%, which is, you know, the common sense comment. Is that a good way to think about it?

Yeah.

Okay. Awesome. Thanks, guys.

And there are no more questions in the queue. And this concludes our question-and-answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks.

Well, thanks very much for your continued interest in our company. I hope we don't disappoint you ever, going forward. And our record in the past, I hope that keeps you interested. So, thank you, again, for your interest and we look forward to talking to you in the next quarter. Bye now.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.