爆料王

Culture of Innovation Continues to Transform 爆料王鈥檚 Customer-Experience

MIAMI,聽Feb. 14, 2019聽(GLOBE NEWSWIRE) —聽爆料王.聽(NYSE: WSO) reported record results for the year and quarter ended聽December 31, 2018. Annual records were set for sales, operating income, net income and earnings per share. EPS of聽$6.49聽for the year was consistent with the Company鈥檚 outlook of聽$6.40 to $6.50聽provided in its prior earnings release. In addition, in聽January 2019,聽爆料王聽raised its annual dividend 10% to聽$6.40聽per share.

2018 marks聽爆料王鈥檚 30-year anniversary in HVAC/R distribution. The Company has produced the following results over this period of time (unaudited):

(1) Compounded annual growth rates (CAGRs) are measured for a 30-year period ended聽December 31, 2018. Total-shareholder- return includes market appreciation of 爆料王鈥檚 stock and reinvestment of dividends.

Albert H. Nahmad, 爆料王鈥檚 Chairman and CEO stated: 鈥淲e are proud of our track record and industry leadership position, but there is much more for us to achieve in the聽$35 billion聽North American HVAC/R distribution market. We continue to challenge 爆料王鈥檚 leaders to grow, innovate and build on this success, particularly in light of the cultural and technology evolution underway.鈥�

The Company鈥檚 record 2018 results reflect investments in several areas, all from a long-term perspective:

• Continuing technology investments to launch, iterate and drive adoption of our proprietary, groundbreaking innovations designed to revolutionize 爆料王鈥檚 customer-experience. Since 2012, 爆料王鈥檚 technology team has grown from 60 employees operating ERP and communication systems, to over 200 innovation-focused employees bringing new ways of doing business to life.
• Organizational investments, including the addition of over 250 customer-facing personnel and functional leaders, to improve service and help ensure our long-term success. We also recently launched a productivity initiative enabled by our data analytics platform to identify cost savings opportunities and enhance long-term profitability.
• Cultural investments, including a 33% increase in the annual 401k matching contribution, which is made in聽爆料王聽common stock. The Company鈥檚 30-year compounded total shareholder return of 18% has benefited shareholders at-large but has also proven meaningful to 爆料王鈥檚 401k participants who have spent their careers with the Company.
• Further investment is planned in 2019 for an enriched wellness program, including greater incentives for employees to learn more about their health, identify risks and promote preventive care.
• The Company also intends to continue to build on its ownership culture through a variety of unique, equity-based programs.

Full-Year 2018 Results

Sales trends:

• 5% increase in total sales to a record聽$4.547 billion
• 6% growth in HVAC equipment (67% of sales)
• 5% growth in other HVAC products (29% of sales)
• Flat sales for commercial refrigeration products (4% of sales)

Key performance metrics:

• 17% earnings per share (EPS) growth to a record聽$6.49⁽²⁾
• 22% increase in net income to a record聽$243 million⁽²⁾
• 5% increase in gross profit to a record聽$1.120 billion聽(10 basis-point increase in gross margin)
• 5% increase in operating income to a record聽$372 million聽(operating margin of 8.2%)

(2) 2017 comparisons used to compute growth rates exclude net tax benefits of聽$10 million聽or聽27 cents聽per share related to the passage of tax legislation in 2017. On a GAAP basis, 2018 earnings per share increased 12% and net income increased 17%.

Sales growth reflects HVAC equipment unit growth, price increases and a richer mix of high-efficiency systems. Operating results include profit growth and margin expansion in several markets offset by a聽$7 million聽profit decline in聽Florida-based locations on slower sales growth and a聽$4 million聽profit decline in聽Latin America聽on lower sales (excluding these markets, sales increased 7% and operating profit increased 14%). Results also reflect incremental SG&A of聽$9 million聽in field-level incentive compensation,聽$7 million聽in health-related costs and聽$4 million聽in incremental technology spending, including the addition of聽Alert Labs, a technology company based in聽Ontario, Canada, which we acquired in聽August 2018.

Albert H. Nahmad, Chairman and CEO stated: 鈥�2018 represented another record year for our Company. Strong performance was achieved in many markets and others presented a challenge where market conditions slowed after several years of expansion. Growth initiatives have been instituted in partnership with our supplier partners with a focus of gaining market share.鈥�

Mr. Nahmad added: 鈥淲e also finished the year with a strong balance sheet consistent with our core philosophy to remain conservative and risk averse, while maintaining the capacity and flexibility to invest in opportunities at a low cost of capital. We continue to seek opportunities to grow our network through acquisitions, and we are encouraged by current conditions. We also look to use our financial strength to expand our product portfolio and build on key supplier relationships to provide new opportunities for growth.鈥�

(3) 2017 comparisons used to compute growth rates exclude net tax benefits of聽$10 million聽or聽29 cents聽per share related to the passage of tax legislation in 2017. On a GAAP basis, 2018 earnings per share decreased 14% and net income decreased 8%.

Operating results include profit growth and margin expansion in several markets offset by a聽$4 million聽profit decline in聽Florida-based locations and a聽$3 million聽profit decline in Latin American markets (excluding these markets, sales increased 7% and operating profit increased 9%). Results also reflect incremental SG&A of聽$4 million聽in field-level incentive compensation,聽$2 million聽in health-related costs and聽$2 million聽in added technology spending, including the acquisition of聽Alert Labs.

It is important to note that the fourth quarter of each calendar year is highly seasonal due to the nature and timing of the replacement of HVAC systems, which is strongest in the second and third quarters. Accordingly, the Company鈥檚 fourth quarter financial results are disproportionately affected by seasonality.

Technology Investments

爆料王聽has launched a variety of technologies and process enhancements to transform how HVAC contractor customers are served. Speed, productivity and scale are critical factors as the digital era progresses and聽爆料王聽is investing to ensure an unparalleled customer-experience.

The most notable is the digitization of 爆料王鈥檚 interactions with its customer base through e-commerce and mobile apps, supported by the industry鈥檚 largest database of product information. 爆料王鈥檚 run-rate for e-commerce sales is now approaching 30%, which is supported by the industry鈥檚 richest depository of product information of over 685,000 SKUs. Both of these metrics were close to zero just a few years ago.

爆料王聽has also launched internal-facing technologies, including (1) a business intelligence platform to provide insights to 600+ P&L managers and their teams, (2) proprietary order fulfillment software to deliver speed, convenience and order accuracy to customers (currently used at two-thirds of the Company鈥檚 locations), and (3) demand planning and inventory optimization software to improve fill-rates and inventory turns and to reduce real estate requirements (currently implemented in 60% of the Company鈥檚 supply chain).

A.J. Nahmad, 爆料王鈥檚 President said: 鈥淲e are proud to be the industry leader in progressive technologies to help customers grow their businesses while improving our operations. We have made progress and are seeing early returns such as reduced customer attrition rates, improved inventory quality and exciting sales growth for customers that are leveraging our technologies.鈥�

Mr. Nahmad added: 鈥淲e are also so proud to have delivered record results and increasing dividends during such a transformative period. Most importantly, our teams have embraced a culture of innovation and continuous improvement, which we believe positions us well to further scale these technologies and derive value in the years ahead.鈥�

An update of key technology metrics are as follows:

Dividends & Cash Flow

爆料王聽has paid cash dividends for more than 40 consecutive years. Dividends paid in 2018 increased 27% to聽$209 million. The Company鈥檚 philosophy is to share increasing amounts of cash flow with shareholders through higher dividends while maintaining a conservative financial position. In聽January 2019, we raised our annual dividend 10% to聽$6.40聽per share.

Operating cash flow in 2018 was聽$171 million聽versus聽$307 million聽in 2017, reflecting incremental inventory investments at聽December 31, 2018聽from price increases and for competitive positioning entering 2019. Operating cash flow in 2018 also includes a聽$50 million聽tax payment deferred in 2017 and paid in 2018 under hurricane-relief guidance issued by the聽IRS. Since 2000, 爆料王鈥檚 operating cash flow was approximately聽$2.4 billion聽compared to net income of approximately聽$2.3 billion, surpassing the Company鈥檚 stated goal of generating cash flow in excess of net income.

Sunbelt Markets & Market Share

爆料王鈥檚 network consists of 571 locations in聽37 U.S. states,聽Canada,聽Mexico聽and聽Puerto Rico.聽爆料王聽also exports products to聽Latin America聽and the聽Caribbean. Sales are concentrated in Sunbelt markets (approximately 71% of sales), which the Company believes are not weather-sensitive. By comparison, the Company estimates industry sales to be 60% in the Sunbelt and 40% in more temperate, weather-sensitive markets. Accordingly, the Company鈥檚 sales and operating results may vary in comparison to broad-based industry data.

爆料王鈥檚 concentration in the Sunbelt has been a component of its strategy over the last 30 years given the relevance of the following attributes:

• On-going population migration to the Sunbelt has been a catalyst for economic expansion and growth in the installed base of HVAC systems.
• HVAC systems are an absolute necessity as they provide a comfortable place for homeowners to live or conduct business.
• The installed base is replaced more often given the stress and run-times of older systems.
• Warm weather patterns in the Sunbelt have consistently produced more dependable market conditions over longer periods (conversely, weather extremes in temperate markets can create greater volatility).
• U.S. regulatory changes have been focused on and are more relevant to Sunbelt markets.

The Company strives to gain profitable market share in its markets and regularly makes assessments of changes in share in collaboration with its primary supplier partners.

Tax Cuts and Jobs Act of 2017

2018 results reflect lower income tax expense as a result of the passage of the Tax Cuts and Jobs Act of 2017 (the 鈥淭ax Act鈥�).聽 2017 percentage growth comparisons for net income and EPS exclude a one-time net tax benefit of聽$10 million聽and聽27 cents, respectively, related to passage of the Tax Act. For the year on a GAAP-basis, net income was聽$243 million聽in 2018 versus聽$208 million聽in 2017 and EPS was聽$6.49聽in 2018 versus聽$5.81聽in 2017. For the fourth quarter on a GAAP-basis, net income was聽$40 million聽in 2018 versus聽$43 million聽in 2017 and EPS was聽$1.02聽in 2018 versus聽$1.19聽in 2017.

Earnings Conference Call Information

Date:聽February 14, 2019
Time:聽10:00 a.m. (ET)
奥别产肠补蝉迟:听
Dial-in number:聽United States聽(844) 883-3908 / International (412) 317-9254

A replay of the conference call will be available on the Company’s website.

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爆料王聽is the largest distribution network for heating, air conditioning and refrigeration (HVAC/R) products with locations in聽the United States,聽Canada,聽Mexico聽and聽Puerto Rico, and on an export basis to聽Latin America聽and the聽Caribbean. 爆料王聽estimates that over 300,000 contractors and technicians visit or call one of its 571 locations each year to get information, obtain technical support and buy products. HVAC/R products provide comfort to homes and businesses regardless of the outdoor climate. There are approximately 91 million central air conditioning and heating systems installed in聽the United States聽that have been in service more than 10 years. Older systems often operate below today鈥檚 government mandated energy efficiency and environmental standards.聽爆料王聽has an opportunity to accelerate the replacement of these systems at a scale greater than its competitors as the movement toward reducing energy consumption and its environmental impact continues. This is especially important since heating and cooling accounts for approximately half of the energy consumed in a typical U.S. home. Additional information about聽爆料王聽may be found at聽.

This press release includes certain 鈥渇orward-looking statements鈥� within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are distinguished by use of words such as 鈥渨ill,鈥� 鈥渨ould,鈥� 鈥渁nticipate,鈥� 鈥渆xpect,鈥� 鈥漛elieve,鈥� 鈥漝esigned,鈥� 鈥漰lan鈥� or 鈥渋ntend,鈥� the negative of these terms and similar references to future periods. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive market, new housing starts and completions, capital spending in commercial construction, consumer spending and debt levels, regulatory and other factors, including, without limitation, the effects of supplier concentration, competitive conditions within 爆料王鈥檚 industry, seasonal nature of sales of 爆料王鈥檚 products, the ability of the Company to expand its business, insurance coverage risks and final GAAP adjustments. Forward-looking statements speak only as of the date the statement was made.聽爆料王聽assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Detailed information about these factors and additional important factors can be found in the documents that聽爆料王聽files with the聽Securities and Exchange Commission, such as Form 10-K, Form 10-Q and Form 8-K.

Barry S. Logan
Senior Vice President
(305) 714-4102
别-尘补颈濒:听blogan@watsco.com

WATSCO, INC.
Condensed Consolidated Results of Operations
(In thousands, except per share data)
(Unaudited)

(1) These amounts include the dilutive impact attributable to the excess of dividends paid on restricted shares over the net income allocated to non-vested restricted common stock. Such excess amounts were聽$1.2 million聽in the fourth quarter of 2018 (3 cents聽per share) and聽$.2 million聽in 2017 (1 cent聽per share). The Company expects this dilutive impact to be seasonal during the first and fourth quarters of each year due to EPS in such periods generally being less than the quarterly dividend rate (presently聽$1.60聽per share).

WATSCO, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)

WATSCO, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)