Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated
filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2022

☐	Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Transition Period From

Commission file number

1-5581

I.R.S. Employer Identification Number

59-0778222

WATSCO, INC.

(a Florida Corporation)

2665 South Bayshore Drive, Suite 901

Miami, Florida 33133

Telephone:

(305) 714-4100

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered










Common stock, $0.50 par value	WSO	New York Stock Exchange
Class B common stock, $0.50 par value	WSOB	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange

Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the

Exchange Act). Yes ☐ No

☒

The registrant’s common stock outstanding as of October 31, 2022 comprised (i) 33,263,057

ares of Common stock, $0.50 par value per share, excluding 4,823,988 treasury shares and (ii) 5,473,122

shares of Class B common stock, $0.50 par value per share, excluding 48,263 treasury shares.

Table of Contents

WATSCO, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM

10-Q

TABLE OF CONTENTS


		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Unaudited Financial Statements

	Condensed Consolidated Unaudited Statements of Income – Quarters and Nine Months Ended September 30, 2022 and 2021		3

	Condensed Consolidated Unaudited Statements of Comprehensive Income – Quarters and Nine Months Ended September 30, 2022 and 2021		4

	Condensed Consolidated Unaudited Balance Sheets – September 30, 2022 and December 31, 2021		5

	Condensed Consolidated Unaudited Statements of Shareholders’ Equity – Quarters and Nine Months Ended September 30, 2022 and 2021		6

	Condensed Consolidated Unaudited Statements of Cash Flows – Nine Months Ended September 30, 2022 and 2021		8

	Notes to Condensed Consolidated Unaudited Financial Statements		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		25

Item 4.	Controls and Procedures		25

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		26

Item 1A.	Risk Factors		26

Item 6.	Exhibits		26

SIGNATURE			27

EXHIBITS

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Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

WATSCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF INCOME

(In thousands, except per share data)


	Quarter Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues	$	2,035,796	$	1,782,569	$	5,693,121	$	4,768,327
Cost of sales		1,484,948		1,299,905		4,096,382		3,512,901

Gross profit		550,848		482,664		1,596,739		1,255,426
Selling, general and administrative expenses		321,522		281,922		919,629		766,231
Other income		6,927		6,057		17,289		16,267

Operating income		236,253		206,799		694,399		505,462
Interest expense, net		483		221		2,151		757

Income before income taxes		235,770		206,578		692,248		504,705
Income taxes		49,600		41,734		145,682		101,601

Net income		186,170		164,844		546,566		403,104
Less: net income attributable to non-controlling interest		28,529		23,979		83,070		63,045

Net income attributable to Watsco, Inc.	$	157,641	$	140,865	$	463,496	$	340,059

Earnings per share for Common and Class B common stock:
Basic	$	4.04	$	3.64	$	11.90	$	8.80

Diluted	$	4.03	$	3.62	$	11.86	$	8.75

See accompanying notes to condensed consolidated unaudited financial statements.

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Table of Contents

WATSCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


	Quarter Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net income	$	186,170		$	164,844		$	546,566		$	403,104
Other comprehensive loss, net of tax
Foreign currency translation adjustment		(19,091	)		(8,219	)		(24,091	)		(746	)
Unrealized gain on cash flow hedging instruments		—			—			—			70
Reclassification of loss on cash flow hedging instruments into earnings		—			—			—			221

Other comprehensive loss		(19,091	)		(8,219	)		(24,091	)		(455	)

Comprehensive income		167,079			156,625			522,475			402,649
Less: comprehensive income attributable to non-controlling interest		22,040			21,114			74,911			62,821

Comprehensive income attributable to Watsco, Inc.	$	145,039		$	135,511		$	447,564		$	339,828

See accompanying notes to condensed consolidated unaudited financial statements.

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Table of Contents

WATSCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS

(In thousands, except per share data)


	September 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	130,228	$	118,268
Accounts receivable, net		859,581		698,456
Inventories, net		1,385,191		1,115,469
Other current assets		34,876		29,207

Total current assets		2,409,876		1,961,400
Property and equipment, net		121,678		111,019
Operating lease right-of-use assets		312,397		268,528
Goodwill		430,231		434,019
Intangible assets, net		174,978		186,896
Investment in unconsolidated entity		127,420		114,808
Other assets		8,007		9,191

	$	3,584,587	$	3,085,861

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term obligations	$	89,238	$	84,501
Accounts payable		474,268		364,185
Accrued expenses and other current liabilities		376,016		278,036

SEC Form 10-Q filed by Watsco Inc.