Watsco Inc. (NYSE:WSO.B) Q4 2016 Earnings Conference Call - Final Transcript

Feb 14, 2017 • 10:00 am ET


Watsco Inc. (NYSE:WSO.B) Q4 2016 Earnings Conference Call - Final Transcript


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Good day, and welcome to the Watsco, Inc. Fourth Quarter 2016 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Albert Nahmad. Please go ahead.

Albert H. Nahmad

Good morning. This is Albert Nahmad, Chairman and CEO. And with me is A.J. Nahmad, President; Paul Johnston, Executive Vice President; and Barry Logan, Senior Vice President.

As always, first, the cautionary statement. This 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. Ultimate results may differ materially from the forward-looking statements.

Now, before I discuss performance, let me first say that we are very pleased to have completed yesterday 10% increase in our ownership of the Carrier Enterprise Northeast joint venture. This adds to the 10% purchase we made in November of last year and raises our ownership stake to 80%, which is the same ownership that we have with the original Sunbelt joint venture. More important of the additional 20% ownership stake provides added earnings and cash flow, and over the long-term will provide us with more value for the technology investments that we are making every day.

Now on to performance. Watsco delivered another record year and a record quarter. We achieved record sales, earnings, earnings per share and cash flow, while continuing to make significant technology investments. Now, the growth rates were slightly below our long-term averages due to seasonal variability in some of our regional US markets and declines in international operations, which were impacted by the stronger US dollar.

In 2016, we produced record cash flow of $8.52 per share. That is an increase of 25% to $278 million, and also exceeded net income. Fourth quarter cash flow was also a record. As a result of this cash flow performance, we have reduced debt, paid 30% higher dividends, and have used cash to help pay for the additional investments we've made in Carrier Northeast joint venture.

Now, we continue to invest in several innovative technologies to transform our business and that of our customers into the digital age. I think you guys have heard me say this several times. The annual run rate for tech spending is approximately $23 million and increased 17% over 2015. Now, it will take a while to get our customers and employees to adopt and become fully immersed in what are really new technologies for our industry. For example, we have 88,000 contractor customers, and if you add all the different technicians that they employ, you're talking about probably 200,000, 300,000 people that we have to get adopted here. So we are excited about our progress.

Now, as a reminder, we have launched three primary technology platforms: number one, e-commerce and apps, using the industry's most data-rich catalogue of product information; number two, business intelligence to enable more insightful decision -- excuse me, I have a sore throat, can you