Good day. Welcome to the Watsco First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance during that time, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you would like to ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please also note that today this event is being recorded. I would now like to turn the conference over to the Chief Executive Officer, Albert Nahmad. Please go ahead, sir. Good morning, everyone. I hope you all got to see the spaceship Starship launch a few minutes ago. Biggest spaceship in the history of our country or probably in the history of the world to climb from our Earth or orbit. In any event, welcome to our first quarter earnings call. This is Al Nahmad, Chairman and CEO, and with me is A.J. Nahmad, President, Paul Johnston, Barry Logan, and Rick Gomez. Before we start, a cautionary statement. This conference call is forward-looking statements as defined by SEC laws and regulations that are made pursuant to the safe harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. Watsco delivered an exceptional first quarter, especially in light of last year's impressive first quarter. Last year, same-store sales were up 25% and EPS was up 109%. Let me say that again. This quarter compares to last year, last year's sales were up 25% and EPS was up 109%. This quarter, sales grew 2% to a record $1.55 billion. Gross margins of 28.9% reflect our mindset around price and continued progress in our investments in pricing technology to help our leaders in the field optimize margins. You will recall that last year's first quarter gross margins also benefited from OEM pricing actions in response to unprecedented inflation. We are happy with the quarter's result given the reduced level of OEM pricing actions during this first quarter of this year compared to last year. SG&A increased 1%, reflecting early progress with cost containment and gains in operating efficiency that builds on what we started to achieve last quarter. Operating income was $165 million. Operating margins remained in double digits at 10.6%, and earnings per share was $2.83 for the quarter. As for cash flow, this is the time of the year when we build inventory for the upcoming selling season, and we are seeing supply chains ease in certain product segments versus last year. I must say, not all OEMs are over the supply chain problems yet, but they're improving. Cash used during the quarter improved $54 million year-over-year, despite an unprecedented shift in inventory to new higher-cost systems as a result of the change in efficiency standards that took place January 1st. We expect further progress in terms of improved inventory turns and cash flow as the year goes on. All in all, our balance sheet remains strong with almost no debt. This provides us the flexibility to invest in virtually any opportunity as we continue to build scale in a very fragmented $50 billion plus North American market. We continue to look for acquisitions as Watsco is a great home for family businesses. We sustain cultures, invest in people, and provide technology to secure and build on their great legacies. That's something we love doing, building great legacies of companies that we acquire. Looking beyond the short term, our press release today provides critical details that support Watsco's long-term growth trajectory. We have an immense technology advantage, and we're investing to grow that advantage. These technologies are increasing customer engagement, reducing attrition, creating market share gains, and supporting margins. Watsco's broad array of products and brands is a competitive advantage that allows us to serve contractors in most environments. We also have a leading market share position in some build markets that provide stability and higher growth rates. In addition, there are several important regulatory and industry catalysts for growth that will play out in the next few years. 2023 saw the introduction of federally mandated high-efficiency standards for HVAC equipment, which will deliver price benefits in 2023 and beyond. 2025 will also mark the introduction of new refrigerant standards, which historically has made it harder to repair existing systems and favors more demand for replacements. We also see continued movement towards electrification and greater adoption of heat pumps, which generally come at higher prices and higher margins. Sales of heat pumps grew 7% in our company during the first quarter, outpacing overall growth rates. Finally, we also expect new Inflation Reduction Act to provide enhanced tax credits and incentives for efficiency upgrades and electrification in the years ahead. All of these catalysts will benefit the industry in the coming years, and we certainly believe our scale, technology, and financial strength position us to capture the new market share opportunities. Let's go on to questions and answers. We will now begin the question-and-answer session. If you would like to ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If you would like to withdraw your question, again, please press star then two. At this time, we will pause just momentarily to assemble our roster. Our first question here will come from Ryan Merkel with William Blair. Please go ahead with your question. Hi, Ryan. Hey, guys. Good morning. Thanks for taking the question. I guess, first off, can you comment on trends so far in April? Just trying to figure out if, you know, things are continuing at this pretty healthy pace. Well, you know, that's just a few days to start, but I'll let Barry provide some... Good morning. ... and answer that. I think the, you know, really the first four months of the year are all pretty consistent in a very in terms of growth rate. There's not volatility, there's not a lot of change. It's been pretty consistent, you know, all four months as we start the year. I would very critically and importantly say that, you know, May and June and the rest of the third quarter is, you know, where the big, you know, seasonal increases. For the quarter, for example, May and June would probably be 80% of the earnings of the quarter. An early read in April, I'll give you some inference, but it's not representative of what, you know, the rest of the season looks like yet. So far so good, if I make it if I say it more simply. Okay. Well, I'll take that and appreciate that, yeah, we're not in the season yet. Then turning to gross margin, was the quarter hurt by inventory profits rolling off year-over-year? I guess really my question is, are inventory profits out of your gross margin at this point? That's a great accounting question, Mr. Logan. Yeah, I mean, it's funny for my 30-year career, it's always been a first quarter question and never a question beyond the first quarter 'cause that's generally the timing of pricing. I'll take a shot at it, Ryan, 'cause it's been anything but normal the last couple of years. A year ago, OEMs had, you know, near double-digit price actions effective January 1st. This year, they did not. This year, the pricing action is in on March 1st, and it's less than double digit. There's clearly a cost, as to use your term, which is really I wouldn't call it a cost. I would say there's clearly an impact in the short term margin this quarter, could be 150 basis points-200 basis points in the quarter, because of that algebra and equation. Obviously, our margins didn't go down by that amount because there are, you know, everything we've been saying now for a year about the entrepreneurial culture, the team, the technology, the culture, working with our OEMs, you know, all the heavy lifting going into the margin and pricing development the last two years, you can see offset some of that short-term cost and margin. That's, you know, that's the difference between short-term and long-term in this. Short-term, yes, there's an algebraic impact in the quarter. Long-term, the benefits you can see and you've been seeing it now for the last two or three quarters in a pretty significant way. Got it. Thanks for that. I'll pass it on. Nice quarter. Thank you. Thank you. Our next question here will come from Dave Manthey with Baird. Please go ahead. Morning, Dave. Hey, good morning, Al. I was wondering if you could talk about the OpEx a little bit here. Is it true to say that your increased investment in driving sales for key OEMs via selling and marketing expenses is being offset by tight cost control at the business operating unit level? Any color you could provide on those offsetting OpEx factors? Well, we certainly hope so, but let me have Barry explain that. Yeah, Dave. Well, again, I like to look at things over a longer timeline just to tell the story, conceptually, you know, more than just short term. The last two years, it's pretty remarkable, I think, that headcount is up about 15%. That's 800 people, say $60 million-$70 million in cost added to our network to serve customers, to deal with the environment we're in, to sell more products, to bring more technology, whatever it might be, and it's a remarkable number. That's part of the investment that we talk about in growing the market, growing the business, the two-way street of economics that we've been looking for to grow the business long term. That's in the numbers. If I dial into the quarter and be, you know, again, more surgical about it. For example, we saw fixed costs increase this quarter high single digits, and that goes with the people and the, you know, the investments that are made. Variable costs, some of the variable selling costs went down double digits in the quarter. That's a little bit of what we expected, right? We're not gonna shut off investments. We're gonna keep investing. Some of the variable or transitory costs of, you know, of what's been going on the last two years, if that eases and as that eases, you know, we would expect cost reduction. Everything I've just said is playing out in 673 locations in very different ways. Culturally, you can see over the last six months there's a big impact going on in SG&A, not just the quarter. Yeah. Okay. Second, at a recent investor conference, Carrier said that they believe they're underrepresented in their aftermarket. Do you have any idea what they mean by that? No. That's news to me. I've never heard that. Really. I think, this OEM has been looking for an increase in their aftermarket share. It's something that all OEMs are after. Yeah, as time goes on, what we'll find out, you know, how we can, how we can motivate the contractor to do more repair parts than they've done in the past. There's a trade-off to that. Obviously, you want replacement units and parts. I don't think the two necessarily go hand in hand. Dave, I think I don't, I don't know the answer, but I'll, I'll add my editorial to it is, you know, there's a commercial element to that discussion probably that's pretty significant. I don't know market share in the commercial applied aftermarket parts business, but I have a feeling it's a pretty complex machine. My guess is that some of this, you know, long-term development can come there, you know. As Paul said, it's been elusive, I think, for all the OEMs in that sector. All right. Thank you very much, and good luck in the season. Thank you. Our next question here will come from Jeffrey Sprague with Vertical Research Partners. Please go ahead. Hey. Thank you. Good morning, everyone. Morning. You sound a little under the weather, Al. Hope you're feeling okay. It's my spring cold. You know how every spring I have to weather this, the cold. All right. It's just a simple cold, but thank you for asking. Yeah. obviously a lot of crosscurrents going on on the revenue line. I was just wondering if you could unpack that a little bit for us, right? We got carryover price. We got new price. We got the SEER change. I mean, it's clear volumes are down, right? Can you give us a little bit of granular detail on the interplay of, you know, volume, price, and mix? Well, I would say that all the things that you mentioned are positive for us. I don't see anything in front of us other than good things, and we have the scale to take advantage of that. Let's get a little more granular with you and Barry and Paul, anybody else. Rick, if you wanna jump in as well. Sure. Good morning, Jeff. Yeah, I mean, first, units are down in the quarter. We expected that. The industry expected that. It's single, you know, mid-single digits in terms of decline. Pricing was up, you know, very high single digits, which is just more of a mix benefit this quarter. Again, the OEM pricing came later and we'll actually have some carryover benefit into the second quarter. This quarter, you know, pricing and is largely mix and near, you know, near double digits. As far as commercial and that type of thing, commercial is up well into double-digit territory, which is probably two and a half years now of trend. To give you some sense of that, I think, you know, if we look out into the season, you still have a lag in the full market converting to the new higher tier, higher SEER systems. You know, you have the northern part of the market catching up to the Sun Belt with new systems at higher prices. The manufacturers will all be asked for further pricing actions this year. As a group, most were effective March 1st, which carries into the second, third quarter. What Al, you know, what Al's referencing is 2023 is, has really three things going on that are remarkable, too, which is the refrigerant change, the heat pump growth, and tax credits and so on that could play a role and influence this. If I add a fourth one that I think is somewhat unique to Watsco, our ductless business, which is a big business for us, it's not, you know, centric so to speak to the U.S. OEMs, but it's a growing part of the market. There's a lot of growth, a lot of investment, a lot of new territories for us in that market. I think all in all, it's. Once we get past some of this early comparable difficulty that we have, yeah, that's again, that's Al's frame of mind is we're pretty optimistic about the rest of the year. I can add on to that a little bit. You know, the, you know, the impact of 25C with the tax credits coming in for the high, the high efficiency product really wasn't in our mix in the first quarter. We really didn't see a lot of evidence of a lot of tailwind coming from the tax credit. We're looking forward to that second and third quarter as we start seeing more of that. Exactly what Barry's saying, you know, the sell through of the existing heat pumps is still going through, and we really haven't seen the benefit of the high efficiency heat pumps have not yet flowed through into the marketplace. We've got some good upsides, you know, that we're looking at for Q2 and Q3. Maybe just a clarification on refrigeration. Are you saying you think the refrigeration change that happens in 2025 will already have some kind of positive impact on 2023, like in terms of pre-buy or things like that? Or were you kind of referring to something else? No. We're preparing to when the rule comes in. Yeah. That's not gonna impact us until, you know, late 2024. Yeah. Okay. That's what I thought. Thanks. Just wanted to clarify that. Thank you. Our next question will come from Nigel Coe with Wolfe Research. Please go ahead with your question. Morning, Nigel. I think the answer is yes. Yeah. Good morning, Al. Sorry, I was on, I was on mute there. Hope you feel better soon. Thank you. Quick question on inventory. you know, a much bigger build in inventory than what we'd expected. I'm just wondering, you know, was that magnitude of inventory build intentional? Are there any other factors we need to bear in mind? Well, part of it, as I suggested in previous calls, is the supply chain issues that we would get in a system, just part of one system, and we'd have to inventory that till we get the rest of the system. That still lingers. We still have inventory of that sort. It's good inventory. Eventually, we'll get into the pipeline and into the market. I do believe we have more inventory at the moment than I'd like to see. We're going into the season, so it's not a bad problem to have. As I said earlier, some OEMs are still having issues with supplying the product that we need. It's good inventory, and eventually, I think we'll get it right size and we'll increase turns. That improves cash flow even beyond where we are today. As you know, our cash flow has performed pretty well to date. Any commentary from the team? Well, this is A.J. I'll just add that, while year-over-year inventory looks up in U.S. dollars, there is inflation in those numbers. If you look at units, we're actually down. There are supply chain issues that keep us in, if you will, at a higher inventory position than ideal. It certainly weighs on those numbers. I agree with what was just said is that here comes a season and we should be in pretty good shape to sell through what we've got. Yeah. Okay. That's helpful. Maybe Barry, could I just go back to your comments on the gross margin? Obviously the price increase came through later in the quarter than normal. As we then trip into 2Q, does that mean the 2Q gross margin should be maybe a little bit higher than we would expect to see normally? Any color on, you know, how we should expect gross margin to kind of, I guess, trend, you know, for the balance of the year would be helpful. Thanks. Yeah. Again, we're speaking in basis points here, not percentages, so don't get carried away with it. Yes, there is a benefit that will flow into the second quarter that is, you know, can benefit gross profit because of the timing of the price increases. It's in basis points. It's not a. I wouldn't get carried away with the analysis. Two things. Yeah, I'll. Sorry. Sorry. Please go ahead. Sorry, I was just gonna add that yes, it's true the price increase came later than usual. It's also more moderate than usual or at least than last year. It's only on our equipment business, right? The price increases on all the other thousands of SKUs that we sell have tampered relative to the last two years. That's fair. Sorry, just one more clarification. Do you think 20%+ is a good, you know, a good number to use for second quarter and beyond? You mean gross margin? Yes. Oh my goodness. Of course you think. You hear the question? I. Go ahead, Barry. No, I didn't hear. I think he said, do you think we'll do 20% or better in the second quarter in gross margin? I think he said that. 28%. Oh, 28%? Oh, I'm sorry. I didn't hear that right. Well, you wanna speculate on that, Barry? I wouldn't want to. Yeah. I'm gonna stick to what we've said now. Exactly. A year ago, we were asked, you know, what are you looking at for gross margin improving? We said 27% as a target and as a baseline. Obviously, we've been exceeding that the last six months, especially. Nigel, I'm gonna stick to that until we can see the real seasonal impact of everything. We're a 30%, 40% larger business, you know, 90 days from now, just out of pure seasonality. You know, let's be conservative and thoughtful, and we'll change our mind when we have more data. Thanks, Barry. You know, Barry, last time you set us up for 27% last time, Barry, and we did pretty well against that goal. Maybe you should raise the bar. Okay. Thanks, guys. Thank you. Sure. Our next question will come from Josh Pokrzywinski with Morgan Stanley. Please go ahead. Morning, Josh. [crosstalk] Morning, Al. Just wanna follow up on the gross margin comment. Obviously, when you see numbers that big, you know, everyone's trying to figure out where that looks like going forward. You know, Barry, you mentioned that the 150, 200 basis points, I think. You know, any other factors that we should keep in mind in there? You know, you mentioned selling price, but anything on the freight side? I guess, maybe just specifically on selling price, do you think of that as more doing better on the buying side or doing better on kind of the customer, you know, selling side? Obviously, both have the impact. You brought a good point on freight. Barry, you go ahead and answer that. First, you know, the parts of cost of sales that don't relate to the cost of the product, like freight in, shrinkage, inter-branch freight, things that, you know, are costs of, within cost of sales. Over the last six months, again, no great variation as a basis point impact. We would hope at some point, actually freight would be a contributor to gross profit, as it's been a higher cost over the last couple of years. As a trend, those line items have had no impact on what you've seen and the results the last months. Result comes from, again, taking 100,000, 200,000 SKUs and going through a pricing margin optimization program. It also goes to the branch level, leadership, incentivizing them or culturally giving them tools they didn't have two years ago. It is also, as I've said, more generically working with OEMs over the last two or three years. I think, Josh, that there's not much to report or volatility or one, you know, big impact items. It's all been pretty consistent, I think, for the last, you know, several quarters now. The only variable that changes has been the level of pricing actions like we're articulating, carefully today. Yes, it had a cost, but the other things had a benefit. To the extent that levels out, the OEM pricing actions levels out, the benefits will be there, and that's how we look at it. Hope that makes sense. Got it. That. Yep, certainly does. Then, you know, I know 2025 is kind of a long way off, especially with a little more macro uncertainty, but, you know, just trying to put in context that higher cost of repair, that I think you guys mentioned earlier. I mean, did we see, you know, sort of a step function change, I guess, entering COVID? I know, you know, with the higher replacement rates and just the market strength over the past two, three years, you know, a lot of, you know, kind of Monday morning quarterbacking on, oh, is it supply chain? Oh, is it, you know, people operating units more, which, you know, probably doesn't make a ton of sense, but, you know, all sorts of factors that people are trying to figure out as to why replacement has been better. Is repair just getting a lot more expensive even today before we get to 2025 that, you know, this is just kind of the new normal on that front? You know, if I can take a cut at that, it's not scientific, we don't have any data yet on being able to answer that quantifiably. Yes, repair probably is going up. The cost of labor has gone up. As you know, labor is not included in a warranty calculation. Consumers are being hit with a, with a higher price to do warranty than they were in the past. The other side of it is obviously things like refrigerant and some of the commodities that aren't covered by a warranty, also are adding to the cost of being able to do a warranty. Warranty is not free in our world. Warranty has a definite cost to it, and it also has a timing to it that it takes longer to do a repair or replacement of a compressor than it does to replace the entire system. There's a lot of kind of very subjective things that go into the repair versus replace that I think we've tried to explain away in the past, you know, with some fairly simplistic concepts that now I think we need to dig deeper and find out more detail as far as what really does drive that. Great. Appreciate the detail. Best of luck, guys. Our next question will come from Tommy Moll with Stephens. Please go ahead with your question. Morning, Tommy. Morning. Appreciate you taking the questions. Sure. Al, you mentioned that the OEMs moved a little bit later this year on their pricing initiatives. vis-a-vis your distributor competitors, are you seeing any emerging signs of price-based competition? If not, on a like-for-like basis, do you think pricing could actually be up again this year across the industry? It's a very good question. I'm gonna go to my two guys, Paul and Barry. You know, regionally and with certain customers, yes, there is still is price competition going on. There always will be price competition existing in our industry among the OEMs and among distribution. I think with the changeover in products and with a lot of the other aspects that we've been talking about, it probably hasn't been as significant as perhaps it's been in the past. Still it's there. It's always gonna be there. Yeah. It's a very competitive industry. Paul, I mean, one thing that sticks out. I agree it's regionally and it's, you know, kind of noise, not the signal. We heard from one of our northern businesses yesterday that they're later in the transition to the M1 product, the new products, that some of the old products are being moved in their region at lower prices. You know, that'd be an example of kind of a regional... Yeah. ...Effect, if you will, but temporary and not material, I think, in the end of the day. Right. Hopefully transitory. Transitory. Right. That's right. Yeah. The whole offering at M1 is more expensive than what they're replacing. Right. That's just new in the market now, beginning this first quarter. Yeah. we should see this impact, yeah. Right. That's the big story. The other stories are just noise, is my point. Right. Yeah. Right. Paul. Maybe to put a finer point on it, do any of these dynamics feel like they've accelerated or moderated this year in particular, just given that industry-wide volumes may be pressured? Do you still think that net-net across the industry, pricing does in fact move higher through this year? Well, I hope. It's hard to predict, but. Yeah. ...We've had a pricing action that takes place now, just starting, and it's more moderate than it has been. It's hard for us to advise you that we expect no changes in pricing. I just don't think that that's something that we have a good. We would know if that comes from the OEM. Paul, I'm looking at you. Yeah. I think I agree with Al completely. I mean, until we start seeing a normal supply chain, until we start seeing where, you know, where the weather goes and what the consumer dynamic is, you know, making a prediction like that, you know, in April would be, yeah, would be a wild guess on our part. Just to add a layer to that, I think this is just important educationally. You know, we have a store in Miami here that sells more than $50 million of equipment. That's more than a Home Depot sells, right? We're selling to a couple thousand customers at different prices. You know, our pricing to the market, to our customers has variability, it has customization, it has competitive, you know, thinking to it. It has technology around it now. What's really not well known is we're buying from our manufacturers at different prices to match and closely, you know, manage margin as we sell products in Miami. Now let's extrapolate that to 90,000 customers and 670 locations. It's a mammoth, you know, math and science equation where pricing is that granular across that many markets and customers. Okay. Two points to that is there's a lot of fluidity in how we can manage margin no matter what a local market is doing or how another OEM might be behaving. It's an immense equation that is very fluid. The good news is, I'll say it again, third time in this call, there's now technology in place to look at all of that, to manage that, to prosecute that strategy in a way we didn't have it two or three years ago. Appreciate the context. If I could ask one on market share. Just starting from the construct of industry volumes down, let's just say somewhere in the mid-single digits this year. In recent years, you've taken significant share. I presume you'll plan to repeat that again this year, but could that net to Watsco volumes flat or even up on the year, do you think? You mean in units or in U.S. dollars? In units. Well, we certainly hope so. Given it a shot. That's our research. You know, we've never set a goal to not increase market share in a year. That just isn't something that fits in the Watsco DNA. I think he's referring to the environment, and we're gonna have the environment to grow share. Right. The variables to that is, you know, if you get hot weather, it doesn't matter what we wanna do, the demand's gonna be there because heat creates demand. Hot weather creates demand. Well, also, I think this year what we're looking at is slicing the market into different segments. You know, not just looking at market share in split systems, but looking at market share in heat pumps versus straight cool versus versus the mini splits for the ductless type product. I think it's gonna become a more complicated equation than we've looked at in the past. It's also gonna be probably more important that that we're looking at market share in the markets that we think have got the longest legs and the longest future. That obviously is the ductless product and the heat pump product. Appreciate the insight. I'll turn it back. The nation in right now in terms of share. I think that's a correct statement. Of those products. Our next question here will come from Jeff Hammond with KeyBanc Capital Markets. Please go ahead with your question. Hi, Jeff. Hey, guys. Good morning. This is Mitch Moore on for Jeff. It seems like the supply chain for residential equipment's pretty close to normal here. I was just wondering if there's any areas where within residential where lead times are still an issue. Yes. We're not gonna identify it, but we have an issue with the equipment still. The issues are more serious with in different places and different brands. Yes, we still are overcoming shortages of equipment itself. No question about it. Okay. That's helpful. Just on inventory, I was wondering maybe what's a realistic source of cash from inventory kind of this year? What would I like, or what do we think is gonna happen? I mentioned before, I'd like to get another $200 million out of our inventory and cash flow. You know, we'll see what happens. We're better prepared for that because of the first, the supply chain, as it improves, we improve our turn because if that's it, equipment that isn't matched right now will be matched, and we will be freer to sell it. And just our technology's got a lot better so that we can obviously improve the turn. That's what our goal is. So I gave you a number. It's a, it's a, it's a goal. It's not a projection. Okay. Thanks, guys. Again, if you have a question, you may press star one to join the queue. Our next question here will come from Patrick Baumann with JP Morgan. Please go ahead with your question. Morning, Patrick. Good morning, Al. How's it going? I hope you feel better. It's just a cold. It's just a cold. Thank you, though. Good. Good. I had a quick one, a few actually. In the press release, you mentioned that unit volumes are adjusting to more conventional run rates. What was meant by that comment? Maybe that's a Barry question. Barry and Paul. Patrick, may I suggest that you come visit us. We always wanna have you guys come visit, and you know, hope you'll be able to do that soon. Yeah. We are, we are. We'll be coming down there soon. We will. Thank you for that. Okay, guys, you wanna answer that? Yeah. Yeah, Patrick, I mean, if you look at, you know, 20, 30 years of data, the growth rate of the industry is right around 3% of, you know, unit growth. It's been closer to 7%, 8% the last two or three years. My, you know, the comment really is that some adjustment is going on, obviously, the last few quarters, and I think the realignment towards that longer-term growth rate is probably what we'll see at some point. It's just a reset. It's not meant to tell you what we think unit growth will be short term, but it's part of the reset that's obviously has been in the cards now for, you know, probably the last year, kind of taking place. Makes sense. Switching gears on HVAC products sales, you know, can you talk through what you're seeing there? The decline in the first quarter was modest, but just kinda curious if you could parse that out a little bit, whether it's volume or price or however you wanna talk about it. I know there's a lot of stuff, you know, within that subset of sales. Just kinda curious if you could talk about that subset. Yeah. Patrick, I didn't hear your question. Yeah. Oh. Other HVAC products. Yeah. Just wanna talk a little bit about HVAC product sales. you know, not the equipment side, the product subset of sales. it was down 2%, down 2% in the quarter. Anything you could talk about whether, you know, whether it's volume or price or specific product categories, however you can talk to what's going on in that segment? You know, it's about 1,000 vendors, about 80 different product lines and anything from duct tapes to refrigerants to replacement parts to copper tubing and so on. No great inference on any one thing. It's a bark, it's a basket. Where a year ago, again, 25%+, I think, same store sales a year ago. I think that's just a reality a year later of a very tough comparable. Patrick, remember, what we do, we participate in a very stable market. We're not involved that much with new constructions. It's about, I don't know, about 10%, maybe as much as 15 sometimes. We're in the business of helping air conditioning and heating continue operating, 12 months a year. That's what we support. That's not gonna. It's just nice to be in that sort of a business where it's pretty stable. Sometimes it goes a little faster than others, it's stable. With the millions and millions of homes and businesses that are using HVAC products, it's just something that, shall we say, essential. You gotta cool homes, you gotta heat homes, that's not gonna be that affected with economic trends to a large extent. Where we think we can also help is financing if things get too expensive in terms of interest rates and inflation on the product. We are focused on helping the consumer with financing that we have designed, probably industry-leading technology to help the contractor help the consumer with financing these products. Understood. thanks for that color. The last one is just on the M&A pipeline. Like what, maybe if you could talk about how you guys are feeling about, the M&A, space these days, you know, seller expectations, you know, maybe hold that, maybe market uncertainty holds that back a bit. I don't know, any color you can give on that? Well, I wanna say that I think our reputation for our culture is our best selling point. Private equity entered the industry. I don't know the impact of higher rates is gonna have on private equity as competitors to make acquisitions, but we're a different kind of a buyer from private equity. We're in for the long term. We like building the legacies of people that created a business. We're very unique in that position. Yes, we're always active in M&A. We think of that as a strategic way for us to expand our footprint throughout North America, and I don't think that that's ever gonna change. Will private equity come and go? We'll see. Remember, there are over 1,000 distributors out there. It doesn't mean that we're not gonna be active in it. We always will be active in it. Okay. Thanks so much. Best of luck this season. We'll see you guys soon. Good. That concludes our question and answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks. Thanks, Joe, for a good job, and thank you all listeners for your interest in our company, and we look forward to having another one of these calls at the end of this quarter. Bye bye now. The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.