Good morning and welcome to the Watsco Q1 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Al Nahmad, Chairman and CEO. Please go ahead. Thank you. Good morning, everyone. Welcome to our Q1 earnings call, and this is Al Nahmad, Chairman and CEO. With me is A.J. Nahmad, President; Paul Johnston, Barry Logan, and Rick Gomez. Now, before we start, I will state our cautionary statement as usual. 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. Now, on to the performance. Watsco delivered good results despite softer market conditions. As a reminder, the Q1 is traditionally the low season for sales in our industry. Although it is early, we are encouraged by the improved sales trends in April ahead of the summer selling season. We believe our technology, breadth of brands and products, and the expansion of our network have generated market share gains. Our balance sheet strengthened during the quarter through a combination of record cash flow and an equity raise using our ATM program. Once again, we boosted our annual dividends by 10% to $10.80 per share beginning April of 2024. This year marks Watsco's 50th consecutive year of paying dividends. Now, commentary and highlights on the quarter. Although residential equipment unit demand remains slow, our price realization, a richer sales mix of heat pumps as well as high-efficiency products, and new locations contributed to record sales in the quarter. Commercial end markets experienced growth, and our backlog of projects remained healthy. Sales of ductless systems, an increasingly important component of our business, grew and offset declines in the conventional ducted residential business. Gross margins performed well and are consistent with our near-term target of 27%, though we believe higher margins are achievable over time. Turning to expenses, SG&A increased 2% on an adjusted same-store basis. Variable SG&A expenses were lower for the fourth consecutive quarter, and our teams across Watsco have implemented a number of actions to improve efficiency and reduce SG&A. To that end, we have equipped leaders with the necessary tools and data to improve productivity, and most importantly of all, we possess an entrepreneurial culture to execute change in a responsible way. Since the beginning of last year, we expanded our network through three acquisitions with three terrific businesses joining the Watsco family. Collectively, their aggregate sales are approximately $200 million per year, and more importantly, they expand Watsco's reach into new markets. These businesses will retain their culture, their leadership, and teams, and uniqueness in the market, which is consistent with our long-term practice of sustaining great legacies and investing to drive additional growth. Our industry remains highly fragmented, and we will continue to pursue other great companies to grow scale in our $64 billion North American market. Watsco's technology advantage, industry-leading scale, equity culture, and the strength of our balance sheet are all great reasons to join the Watsco family. And finally, before getting into Q&A, as always, I want to emphasize that our focus remains on the long term. Our balance sheet is strong, and we stand ready to invest in the right growth opportunities. We have an immense technology advantage, and we are investing to grow that advantage. Watsco's broad array of products and brands is also a competitive advantage that allows us to serve contractors in most any environment. And we are also fortunate to operate in an industry that benefits from regulation changes and fundamental catalysts that will play out in the years ahead. With that, let's go on to Q&A. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question today is from Jeff Hammond with KeyBanc Capital Markets. Please go ahead. Hey, good morning, guys. How are you, Jeff? How are Jeff? How are you doing? Doing great. Good, good. Well, I'll ask first about this equity raise. Just wondering why now, and does it signal some kind of imminent M&A coming, or what's just the rationale? Well, it's an opportunity that we had from an institution that has a reputation for being a long-term holder, and we wanted to have them engage with us for the long term because that's our reputation. That's all it is. Okay. And then one of the things we were picking up in our channel checks is repair replace, kind of shifting more to repairs as kind of consumers struggle with higher rates, etc., and the increased costs. Just wondering what you're seeing on that end. Yeah, we're really not, excuse me, we're really not seeing a lot of repair pickup in the Q1. We saw a little bit on the motor side, but not on the compressor side. The weather just wasn't there to really institute any real change in the market dynamics right now. Okay. And then just finally, Al, you mentioned April being better. Maybe put a little more context around what you're seeing. I'll let Barry answer that. Morning, Jeff. Yeah, again, it's been a nice pickup, and it's in the, I would characterize it as, the high single-digit range that includes the new branches. If I look at things on a same-store basis, it's in the mid-single digits is how I'd put it, and unit growth thus far in the month. Okay. Thanks so much, guys. Sure. The next question is from Tommy Moll with Stephens Inc. Please go ahead. Good morning, Tommy. Hello, Tommy. Morning, Al. Thank you for taking my questions. Of course. So believe it or not, I'm not going to start on gross margins today. I wanted to focus on SG&A. Well, we hope we haven't let you down on gross margins. No, no. But on the SG&A point, I think even if we strip out the $5 million and change of non-recurring items that you called out, that expense item did grow faster on a same-store basis versus the top line. And I know driving leverage there has been a priority over the past year or so. So what can you tell us about what you saw in the Q1 and how you think that might unfold going forward? Mr. Logan? Good morning, Tommy. Yeah, well, first, it is the Q1, and a lot of actions were taken in terms of streamlining the branch and the headcount. And again, the general conditions that leaders went out and did, they tended to take those actions at the beginning of this year as opposed to before the holidays. So that makes common sense. And again, that's part of the mindset is to start the year with that kind of momentum going on. So much of that played out in February and March, and I would expect the rest of the year, the remainder of the year, to reflect some reductions in some of our major categories. Transportation, freight, logistics were down in the quarter. That's been consistent now for several quarters. On the headcount side, which is the largest of the contributors to SG&A, I think you'll see some results from what was done in the quarter for the remainder of the year. That's helpful. Thank you. I guess a question just on the A2L transition here. What is the state of the union you can offer there in terms of how you're thinking about managing inventory for this year and maybe even into next year where there will be some portion of the market on the 410A still and then another portion on the A2L? Just what can you tell us about the strategy here? Thank you. That's a good one for you, Paul. Okay. Well, it's going to be an interesting time. We're still waiting to hear from the EPA whether or not there's going to be all the sell-through that people anticipate with the old 410A units. Will they be allowed as components? So that's kind of a fly in the ointment right now. Right now, what we're looking at is probably to start incorporating the A2L units probably third and Q4. We'll probably see some sales pickup in the first and Q2 of 2025. I think it's going to be a phase down, phase up between the two product lines. Right now, it's a question mark as far as when each one of the manufacturers that we represent is going to be introducing their A2L products. In the midst of all of that, is it fair to say just from a turns perspective, you may need to run that a little higher than typical as you get into the middle part or back half of this year? Yes. It would be contrary to what Mr. Nahmad would like, but yes, we're probably going to have some lower turns as we transition from the old 410 over to the new A2L product. We're going to see how much of that we can mitigate, but definitely, there's going to be some uptick in inventory. Okay. Thank you very much. I'll turn it back. This is A.J. Just if I can add one more piece of color there. It speaks to our culture a little bit and being a little more conservative. One thing we will not do, which some other maybe smaller independent distributors may do, is speculate and take huge positions either way on the 410A product or the 454 product. Our job is to meet the market and meet the expectations of our customers. We're not trying to speculate for some short-term giant swing one way or the other because we are long-term players. That's a good point. Thank you. I appreciate the context. The next question is from Jeff Sprague with Vertical Research. Please go ahead. Hey, thanks. Good morning, everyone. Hey, I wanted to come back to inventory again if I could. Just from my historical vantage point, it still looks a touch high in Q1 relative to, I guess, my estimate of full-year sales, and maybe that may differ from what you're planning. But anything else going on there? You've got some new distributors, I'm sure, as a rule. It doesn't sound like the 454B stuff is impacting you, but perhaps it is. Just any other color on kind of where your inventories stand today relative to how the year might play out? I'm going to give you a go ahead. Okay, Paul, I was just going to give a big picture and then turn to you. I agree with you that the inventory may be slightly higher, and we're not going to stop until we achieve the goals that we have set for that. In more detail, Paul, you want to deal with that? Yeah. A lot of it is pricing that we're seeing in the marketplace. We had a price increase in April excuse me. We had a price increase in February and another one in March from various manufacturers. We've seen copper go up to $4.50 a pound. So we've seen a lot of upward thrust as far as our cost is concerned. As far as the number of units that we have, outdoor units that we have in inventory, that's actually down year over year. So we feel like we're managing our inventory. It's a little bit tough out there right now with the price increases. Yeah. I'll add there was some, I guess, on the margins, opportunistic buying that our business units took advantage of. As a result, and as a result of, I'd say, some smoothing out of supply chain, which has been chaotic for the last three years and COVID, I believe our business units feel that they are very well prepared for the busy summer selling season as far as inventory goes. They've got the right mix of products, and they've got a healthy quality of inventory. So the expectation is that as the selling season begins and runs its course, we should be well positioned to take care of our customers and move product. Yeah. I'll just say this. I think a year ago in this call, we lamented one of our major vendors and not being in a strong inventory position for the season and lamented about lost sales and so on. Obviously, a year later, the channel for that particular vendor is filled in a very good competitive condition. It grew nicely in the early stages of the year here, and there's a lot more work to do. That's also an inventory position if you look at a year-over-year basis that contributes to some of our current position. On just price, OEM price, obviously, on 454B, there's going to be a different price regime. On kind of like-for-like product, do you see kind of a bias for kind of OEMs to be looking for more than one increase during the year? As you noted, copper's moving up, or we've kind of gotten to something a little bit more normal on kind of like-for-like units in terms of what's going on with OEM price increases. Well, we're just starting to see the prices roll in from the OEMs on the new A2L products. So I would say we're going to see one price increase on the A2L products, and then I think that's going to be probably it for the year. I'm hoping. Yeah. I mean, the like-for-like products are going away, right? I mean, the 410A products will not be sold to us again next year. Right. Yeah. And just one other one from me. These kind of Oxbox-branded products, could you just address how significant, if at all, this is to your strategy in particular and the interest in the channel in these products and how they're selling through? Well, like every market, there's a good, better, best selection of products out there. And Oxbox generally fits the value portion of that market. So that's where I think Trane has got that product positioned right now. We've got a number of other products such as Payne, some of our ICP products, some of our private label products that compete in that marketplace. And it's a market segment. Yeah. I was going to emphasize that. It's a crowded space, the value segment. There are a lot of brands that are sold in the market. Watsco itself sells probably 6 brands in that segment. And so it's a crowded space, and it is a way for an OEM to diversify its price points in the market. But again, it's a crowded space. Okay. Great. Thank you for the color. I appreciate it. The next question is from Dave Manthey with Baird. Please go ahead. Morning, Dave. Thank you. Good morning, Al. Hi, everyone. Thank you. Have a cold. Yeah. First question is on the non-recurring SG&A, just what was that? And then second, on the 27% gross margin, anything about that that makes you more or less positive about hitting 27% for the full year? Wow. Okay, Barry, you're the numbers guy. First, on the gross profit side, I think I chimed in on that probably 2.5 years ago when we said what we thought the long term would look like, and it's held up pretty well. So I'll sustain my opinion and what our capabilities are in the near term and for this year. Obviously, there's always 10-15 variables in coming up with that that are subject to change, but I don't think our conviction has changed at all for this year, if that answers your question. On the non-recurring side, yeah, we mentioned all of our stores, all of our leadership across Watsco, in a responsible way, reduce headcount in the Q1. There's obviously some costs incurred in making those decisions and in those reductions. So that would be a component of that, probably the major component of the number. As far as other things, there's no one item that stands out. It's probably 4 or 5 $500,000 items that are just, in our minds, clearly something that is behind us and not a recurring item. Okay. And second, it looks like Florida is now going to accept the IRA funding to the tune of about $346 million. And some of our contacts are saying in different states that that might start to benefit in maybe the Q4 this year or something. Can you give us a read, anything you're seeing in terms of when consumers might start to see that help from the Inflation Reduction Act? Yeah. I think you're correct. In probably the Q3, Q4, depends on what part of the country. Right now, New York is the one that's been funded. And so we're hoping to see what sort of impulse that generates so that we can find out what the impact of it's going to be. Then from there, I think it's going to be California. We'll probably be in second place. So it's going to be a gradual spreading of the wealth throughout the U.S. as this thing rolls forward. So it's going to be interesting to see what the first two states lay out before we really jump in and say it's going to be a big deal. Yeah. I was going to say something similar, Paul, that it should be a good thing, but how good and when, we don't know. Yeah. Yeah. But I will say this. Absent a benefit right now in the Q1, for example, and we'll see how this plays out in the trend in the summer, but at least the Q1, if I look at heat pump growth versus everything else, it's remarkably better. If that's one of the promises of incentives and so on, we're seeing improved heat pump sales, period, without necessarily a benefit coming. And the second is part of the recalibration of all the new products last year was essentially a reinvention of all the higher efficiency products that the industry makes. So '16s here, '17s here, and above are new products, essentially, this year. And again, growth rates in that higher mix category grew nicely in the quarter. So those are just good things without a regulatory incentive. I'll accept it as good things. And again, it needs to play out for the full year. And if the incentives can add to that, that's a good thing. But right now, it's been nice to see the mix improving in the early part of the year and could be good for the rest of the year if it continues. Sounds good. Thanks a lot, guys. The next question is from Ryan Merkel with William Blair. Please go ahead. Morning, Ryan. Hey, everyone. Hey, good morning. I wanted to start on gross margin, and I'm curious if the Q2 will see a sequential lift from the Q1. My thinking is some of the OEM pricing came a little later this year. Is that the right way to think about it? Gosh. You have a fortune ball there, Barry. Who knows? I mean, you can take a shot at it if you wish. Yeah, Ryan, there are pricing actions that came in later. You're right. And obviously, it's a better market, but it's still not a strong market. So I will always handicap some conservatism just because of what the market is doing. And if I'm wrong, it'll be hopefully on the upside of that discussion. So I want to change the tune this early in the season. We'll be conservative about our commentary, and the market will educate us over the next six months of really what's going on. Yeah. And like you said earlier, like you said earlier, Barry, there's, I don't know, half a dozen, a dozen different things that make up gross margin. So that's an important one, but it's not alone. Okay. No, thank you for that. It's helpful. And then I wanted to ask about the A2L pricing. I think you mentioned you're starting to get some of the letters from the OEMs. Just what range are we seeing? I think 10%-15% is what we've heard. And then the other question ahead is, do you expect to get the full list price increase because it's a transition to new equipment? Because sometimes you don't get full list if it's just a normal increase. I don't know if that's hard to answer, but I was curious. Yeah. That's really tough. But the initial ones we've gotten in are in the 10%-15% range. And in fact, they're right in the middle. And so that pretty much held true. I didn't think that would vary. Are we going to see a variance on that price as we move into the season? If we do, it's going to be, like I say, very late this year, early next year before we really see an adjustment to that. I think we're going to have 410 units to sell right through, and then we'll start seeing some of the A2L units moving into the marketplace probably in the Q3, Q4. And then, just one last, yeah. But I'll just ask quickly. I mean, with our advanced pricing systems, which are relatively new to the company still, we do expect to capture price increases at a rate, a more complete rate than previously, if that makes sense. Yeah, it does. Yeah. And then, just quickly, one of your competitors is forecasting that A2L next year will be 50%-65% of the market. Does that seem fair to you? Boy, it'd be great if it would. I don't think anybody's got a crystal ball that's going to allow them to see exactly what the impact of the A2L product's going to be next year. I would say it would be somewhere between 50% and 60%. Okay. Great. Passing on. Have a good luck. It's a positive move. All these are major moves that are positive. What's a little difficult is to summarize on the timing of it all. Long term, it's all good. Thank you. The next question is from Patrick Baumann with JP Morgan. Please go ahead. Good morning. Thanks for letting me in here. A couple of quick ones. What you saw in the quarter in terms of the HVAC equipment sales being down 1% on the same store basis, any way to give us more color on the residential equipment unit volumes versus the average selling prices year-over-year in the quarter? Yeah, Patrick. This is Rick. Good Good morning. On the residential side, we saw unit declines of mid-single digits, and that mirrors sort of what's happening with broader industry trends and sell-in to the channel. Actually, I think we're outperforming that trend a little bit. And price was positive. Not hugely positive, but it was positive. And commercial continues to do better than residential. The backlog there is still very healthy and a lot of strength in Latin America to support that. So that's the color we would give. Yeah. I mean, they're helpful. I mean, all right, Barry. Sorry. Yeah. We provided a little bit of data on top of this, so just to be helpful. So kind of the unitary product, ducted product, that is, the US OEM-type product, price to end mix was up around 3% for the quarter. I use the word mix, price-end mix, purposely in that. And as we've said routinely now, those pricing actions happen ultimately later in the quarter as opposed to early. So that gives you some read of it. Our ductless products, which is part of our unit discussion, pricing there is a bit more flat. But in that case, our largest vendor this year decided to have April 1 pricing action. So that kind of makes sense. And on commercial, as Rick said, it's outperformed. It grew in the quarter and is in a steady state, I think, at this point of, call it mid-single-digit growth. The comment on Resi, I mean, I'm sorry, on units trending up in April, that applies to Resi as well? Yes. That's only Resi when I say that. Yep. Okay. I know HVAC products is a bunch of different things going on in that subsegment. Is there any color you can give on the sales decline you saw in the quarter? Was it volumes or price or maybe any color on what you're seeing in commodity products like refrigerants? Sure. I'll give the color. It's probably our Q3 where we've had essentially commodity deflation going on and average selling price just being simply a headwind during a quarter. And when we use the word commodities, that's refrigerant, copper tubing, and sheet metal products as a category. It's around between 5%-6% of Watsco total sales, to give it context, but it does have a bigger imputation of reality in that non-equipment products category. The good news is that margins and pricing have stabilized. The good news is copper's increasing in price. And the better news is that we're kind of getting through this year-over-year cycle and expect less impact, if in fact, no impact, and perhaps even positive impact as we get into the rest of this year. So this seems to be the end of the line with some of that discussion. I'm hoping so and expect so based on kind of what we're seeing as we look into the springtime here. Super helpful. And then last one for me just on the same-store SG&A side. I think last time we talked, you were thinking maybe flat to down slightly for the year. Is that still a reasonable expectation on the same-store basis? Well, it's a good aspiration and goal, and it's not a dictate. That's not how we manage Watsco. We manage it through our leadership who, if they want to find investments or do something that's important for a market or a customer, they'll do it. But I think from a mindset, from a cultural point of view, it's what we've been after. But again, carrying that out in a market, if there's sales generation going on to the extent that there is today, let's say variable costs are going to increase, and we'll probably violate that concept of flat SG&A, which is not a bad thing. Variable expenses would go along with sales growth. So it's early days. I'm glad there's growth going on. Time will tell. There was some noise in the Q1 SG&A that we've quantified to an extent, and I would expect better performance as the year goes on. Super helpful. Thanks so much. Best of luck. The next question is from Damian Karas with UBS. Please go ahead. Good morning, Damian. Hey. Good morning. How y'all doing? Great. Good. Good. So I'd say really encouraging to hear about the pickup in demand you're seeing in April. You mentioned, I think, mid-single digit same-store sales growth. Do you happen to have the comparable for last year in April, what the same-store sales growth was in April 2023? And could you just remind us kind of in the Q2 what the seasonal shaping looks like, April, May, June? I know. That's a lot of forecasting, which we don't like to engage with because of the nature of the industry. I don't know if anybody wants to take a shot from Watsco's side. We're going to pass on that. I don't think we break out months. Yeah. I don't think we break out months like that. Yeah. Yeah. Yeah. We're not going to do that. Okay. The comp from last year for April, though, you don't happen to have that? The what? We have it, but it's not something we'd like to talk about this quarter. Yeah. We're just not going to actually give you a monthly. Okay. Fair enough. Totally understand. Well, maybe I could just ask you about so you guys have put your pricing through, I think, from your OEMs, March and April. One thing that we've heard is that maybe some of the contractors are struggling to pass on some of the price increases. I just wanted to hear your thoughts on whether you agree with that. You've kind of experienced that in your customer base. And if so, is that pretty much just kind of a short-term demand-related issue right now, and the summer's going to end up resolving that? Or is that maybe kind of a cumulative byproduct of just all of the inflation that there's been in equipment and wages over the last few years? I mean, that is a tremendous question looking into the future, and I don't think we have even a need to respond to that because things will have to happen as they happen. So we're going to pass on the question. Okay. Thanks for your time, guys. Again, if you have a question, please press star, then one. The next question is a follow-up from Jeff Sprague with Vertical Research. Please go ahead. Hi, Jeff. Hey. Just sort of a follow-up. I don't know. Maybe it rhymes with Damian's question there. But, Al, you said a couple of times you'd hope not to see any more price increases this year. So I'm wondering if that is an indication that you're seeing some stress out there in terms of the ability to just handle this stuff. You noted that the repair versus replace dynamics have not eroded, but is this something that's just kind of on your radar screen as a watch item, or are you seeing some maybe early signs that maybe that is happening? No. I mean, the market does what the market does. I mean, what's happening is the market pricing has gone up. And now we're waiting for the A2L pricing to come in. That was the only insinuation that we had there. Yeah. I mean, I've got to chime in on this because it's an important backbone to what we've talked about already. I want to emphasize it first. If we've said earlier that higher-priced heat pumps are outperforming everything else, that's a statement about what's going on in the market with contractors installing higher-priced systems, right? Secondly, I've said in the call that the mix of higher efficiency is also increasing remarkably. That, too, is an early stage, at least an early stage, indicator of what's going on in the market. And again, I'd rather be October and report on how it went, but I like to see the early signs of what's going on. And third of all. Yeah. That's very clear. Third of all, no one ever asks, ever, about credit quality, about what's going on with our contractor. It's never a question. It's remarkable to me. And so I feel like I have to talk about it or bring it up. If you look at the bad debt expense for the quarter versus a year ago, it's less. And overall, credit quality and how our contractors are behaving with us when they pay us $7 billion or more a year is very healthy. So that's an April view. It's not an October view. But I really don't look at this as a binary thing of on or off. It's the subtlety of what's going on in the market, obviously. And the contractors, at the end of the day, are going to do the best job they can to get the job. If they have to discount their services or go to a lower brand or go to a product that they need, I know we're going to have it. There's not a location in Watsco that doesn't have multiple brands in it to serve that local market. We have very few competitors who do have the same variety of brands across markets. In a softer market or a trickier market, I like our competitive position even more if I kind of round out the conversation. That's great additional perspective. I appreciate it. Thanks a lot, guys. I loved your answer there, Barry, and I'll build on it. I love our competitive position on the whole. We talked about. We have high-quality inventory deployed in the field. We've got best-in-class technology that our competitors can't match. We've got a balance sheet that's strong and ready to invest in any size opportunity. We've got, like Barry said, we've got every product that a contractor could need. I just think that we're very well positioned here in the market, and I expect a good year and expect a good tenure. The next question is from Nigel Coe with Wolfe Research. Please go ahead. Thanks. Good morning, guys. Good morning, Nigel. Okay. Morning. So sorry, I was late joining. So I apologize if you've addressed this already, but on the ATM drawdown, I'd be really curious on the timing of that, Al. You obviously got the cash in the balance sheet. You've got a lot of optionality, etc. But why do that in March unless you've got a line of sight on kind of options out there? But I'd just be curious on the timing, and I've got a follow-up question as well, please. I'm sorry. Why do what in March? The ATM draw, the equity issue. Oh. As I said earlier, we didn't do it. Somebody wanted it, and the opportunity came up, and we took it because of who we believe the holder would be if we supplied him the shares. And we believe he's a high-quality holder, long-term holder, and we wanted to meet what he wanted at that time. We did decide to do that. Okay. Okay. That's fair. And then on the opportunity set out there to deploy the capital, and I'm sure you're not in a rush or anything, but I'd be curious, the line of sight you have to take in full control of Russell Sigler or maybe taking up some of the equity within the Carrier Enterprise, I mean, are there any sort of big opportunities out there you see to deploy that capital? If we did, we would tell you. Okay. So you just keep the cash in the balance sheet? Sorry? You just keep the cash? What would you like for us to do? Of course, we're going to keep the cash. What would you like for me to do? I don't understand the question. We told you we took it because we had an opportunity to bring in a significant, important investor. We have a long-term goal of expansion in this program so the capital would be very useful. Great. Thank you very much for your time. The next question is from Steve Tusa with JP Morgan. Please go ahead. Where's Dave? Hey, guys. Good morning. Sorry. Just wanted to follow up on Pat's question, and I was on another call, so wanted to join and say hi first and foremost. Hi. So just on these pricing dynamics and mix, I mean, would you so you would expect pricing to obviously accelerate over the course of the year given the timing of the increase? I mean, I thought the Carrier increase was early March, not exactly April 1st. So maybe just some color on how you would expect that to play out. Yeah. The March increase we had from Carrier was on the 410A equipment. And then subsequent to that, we've also received pricing on what they're going to be what we're going to see on the new A2L products. But we have not received any of the A2L products yet, no. Got it. You will be taking those. At what point do you expect to be kind of filling those products in the warehouses? Well, we'll probably. Excuse me. Depending on what the operating units will do, it would probably be Q3, Q4 before we see any significant amount of A2L product. Got it. Okay. And then just on this inventory question, I mean, I guess there's a bunch of ways you can really cut it. I mean, do you think your inventories are now normal, or you took on a little bit extra ahead of the pre-buy? They're lean. How would you kind of characterize your inventories now relative to demand? I think we're a little bit ahead, don't you? Sorry? I think we're a little bit ahead of inventory right now. We've got some pre-buys that came in on the 410A products, and we also had some additional products that we purchased. Okay. And then just one last one, just from an end-market demand perspective and putting weather aside, are you seeing anything on repair versus replace, any kind of change up there? Nope. Not yet. It's still too early. There just hasn't been any. If you put weather aside, there is nothing. Yeah. Okay. Thanks, as always, for the color. Appreciate it. You bet. The next question is from Chris Dankert with Loop Capital. Please go ahead. Hey. Good morning, guys. Just one quick question for you here, I guess. Explicit technology spending in the quarter, is that still kind of running at about a $14 million run rate? And is there anything that you'd kind of be teasing us with or anything explicit worth highlighting in the quarter on the technology side beyond OnCall Air or just anything else on that technology front? I'm not sure I understand the question. Do you, A.J.? Are there new things to talk about on the technology side? Is that the question? Yeah. Just the spending run rate, and then is there anything new you're introducing or would call out here? No. Well, if we're going to introduce it, we'll introduce it. We're not going to. I mean, we're constantly introducing new ideas. As far as the pure SG&A, if that's your question, there's not much change in the technology spend this quarter sequentially from last quarter, if that's your question. It was. Thank you. Well, thanks, fellas. Appreciate it. You can expect us to keep innovating on the technology side, though, for sure. The next question is from Stephen Volkmann with Jefferies. Please go ahead. Morning, Stephen. Great. Thanks for fitting me, and good morning, everybody. Barry, I wanted to ask you about credit quality, if that's okay. I think that. Very good. It took 30 years, Barry, but you got the question. I mean, all seriousness aside, I was curious. I know that you. I'm grateful for that commentary, but I know you guys also do sort of some origination, I don't know, brokering, how you want to think about it, for the end customer financing as well. I think that's available through some of your platforms. I'm curious if you have visibility into how that credit quality looks. Well, we don't hold. Right. Yeah. Go ahead, A.J. I was going to say the same thing. So it's not origination. It's really matchmaking between our customers and their, well, I should say, our customer's customers and financing sources. We do a small amount of that, and it's pretty stable, I would say. But once we make that matchmaking, we are out of the picture and don't have visibility, frankly, into the performance of those loans. Okay. Got it. Thanks. That's all ahead. This concludes our question-and-answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks. Once again, thanks very much for your interest in our company. We look forward to conversing with you as time goes on. Bye-bye. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.