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 March 31, 2025

☐	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

WATSCO, INC.

(Exact name of registrant as specified in its charter)


FLORIDA		59-0778222
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2665 South Bayshore Drive, Suite 901 Miami , FL		33133
(Address of principal executive offices)		(Zip Code)

(305)

714-4100

(Registrant’s telephone number, including area code)

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 an 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 May 5, 2025 comprised (i) 34,885,201 shares of Common stock, $0.50 par value per share, excluding 4,066,97

treasury shares and (ii) 5,626,501 shares of Class B common stock, $0.50 par value per share

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 Ended March 31, 2025 and 2024		3
	Condensed Consolidated Unaudited Statements of Comprehensive Income – Quarters Ended March 31, 2025 and 2024		4
	Condensed Consolidated Unaudited Balance Sheets – March 31, 2025 and December 31, 2024		5
	Condensed Consolidated Unaudited Statements of Shareholders’ Equity – Quarters Ended March 31, 2025 and 2024		6
	Condensed Consolidated Unaudited Statements of Cash Flows – Quarters Ended March 31, 2025 and 2024		8
	Notes to Condensed Consolidated Unaudited Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		22
Item 4.	Controls and Procedures		23

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		23
Item 1A.	Risk Factors		23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 5.	Other Information		23
Item 6.	Exhibits		24

SIGNATURE			25

EXHIBITS

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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)


	Quarters Ended March 31,
	2025		2024
Revenues	$	1,531,086	$	1,564,991
Cost of sales		1,101,463		1,134,366

Gross profit		429,623		430,625
Selling, general and administrative expenses		322,581		309,548
Other income		5,146		5,460

Operating income		112,188		126,537
Interest income, net		5,417		2,470

Income before income taxes		117,605		129,007
Income taxes		23,065		24,745

Net income		94,540		104,262
Less: net income attributable to non-controlling interest		14,479		17,258

Net income attributable to Watsco, Inc.	$	80,061	$	87,004

Earnings per share for Common and Class B common stock (collectively “common stock”):
Basic and Diluted	$	1.93	$	2.17

See accompanying notes to condensed consolidated unaudited financial statements.

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WATSCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)


	Quarters Ended March 31,
	2025		2024
Net income	$	94,540	$	104,262
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment		248		(8,000	)

Other comprehensive income (loss)		248		(8,000	)
Comprehensive income		94,788		96,262
Less: comprehensive income attributable to non-controlling interest		14,563		14,797

Comprehensive income attributable to Watsco, Inc.	$	80,225	$	81,465

See accompanying notes to condensed consolidated unaudited financial statements.

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WATSCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED BALANCE SHEETS

(In thousands, except per share data)


	March 31, 2025			December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	431,823		$	526,271
Short-term cash investments		—			255,669
Accounts receivable, net		794,312			877,935
Inventories, net		1,776,090			1,385,436
Other current assets		33,124			34,670

Total current assets		3,035,349			3,079,981
Property and equipment, net		138,113			140,535
Operating lease right-of-use assets		432,692			419,138
Goodwill		454,868			451,858
Intangible assets, net		207,361			208,472
Investment in unconsolidated entity		173,757			168,611
Other assets		12,213			10,928

	$	4,454,353		$	4,479,523

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of lease liabilities	$	113,322		$	110,273
Accounts payable		545,567			490,879
Accrued expenses and other current liabilities		266,250			382,749

Total current liabilities		925,139			983,901

Long-term obligations:
Operating lease liabilities, net of current portion		332,523			321,715
Finance lease liabilities, net of current portion		13,847			15,475

Total long-term obligations		346,370			337,190

Deferred income taxes and other liabilities		94,984			94,194

Commitments and contingencies
Watsco, Inc. shareholders’ equity:
Common stock, $0.50 par value		19,468			19,431
Class B common stock, $0.50 par value		2,808			2,789
Preferred stock, $0.50 par value		—			—
Paid-in capital		1,508,819			1,472,170
Accumulated other comprehensive loss, net of tax		(59,729	)		(59,893	)
Retained earnings		1,266,996			1,295,972
Treasury stock, at cost		(73,312	)		(73,479	)

Total Watsco, Inc. shareholders’ equity		2,665,050			2,656,990
Non-controlling interest		422,810			407,248

Total shareholders’ equity		3,087,860			3,064,238

	$	4,454,353		$	4,479,523

See accompanying notes to condensed consolidated unaudited financial statements.

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WATSCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF SHAREHOLDERS’ EQUITY


(In thousands, except share and per share data)	Common Stock, Class B Common Stock and Preferred Stock Shares			Common Stock, Class B Common Stock and Preferred Stock Amount			Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Non- controlling Interest		Total
Balance at December 31, 2024		40,352,263		$	22,220		$	1,472,170		$	(59,893	)	$	1,295,972		$	(73,479	)	$	407,248	$	3,064,238
Net income														80,061						14,479		94,540
Other comprehensive income											164									84		248
Issuances of restricted shares of common stock		52,503			26			(26	)													—
Forfeitures of restricted shares of common stock		(4,000	)		(2	)		2														—
Common stock contribution to 401(k) plan		18,450			9			8,734														8,743
Stock issuances from exercise of stock options and employee stock purchase plan		43,568			22			11,027														11,049
Common stock issued for W.L. Lashley & Associates, Inc. (“Lashley”)		1,036			1			492														493
Investment in Lashley																				999		999
Share-based compensation								9,879														9,879
Dividend reinvestment plan		13,942						6,541									167					6,708
Dividends declared and paid on common stock, $ 2.70 per share														(109,037	)							(109,037	)

Balance at March 31, 2025		40,477,762		$	22,276		$	1,508,819		$	(59,729	)	$	1,266,996		$	(73,312	)	$	422,810	$	3,087,860

Continued on next page.

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(In thousands, except share and per share data)	Common Stock, Class B Common Stock and Preferred Stock Shares			Common Stock, Class B Common Stock and Preferred Stock Amount			Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Non-controlling Interest			Total
Balance at December 31, 2023		39,441,280		$	22,134		$	1,153,459		$	(42,331	)	$	1,183,207		$	(86,630	)	$	386,351		$	2,616,190
Net income														87,004						17,258			104,262
Other comprehensive loss											(5,539	)								(2,461	)		(8,000	)
Issuances of restricted shares of common stock		87,660			44			(44	)														—
Forfeitures of restricted shares of common stock		(12,064	)		(6	)		6															—
Common stock contribution to 401(k) plan		20,387			10			8,725															8,735
Stock issuances from exercise of stock options and employee stock purchase plan		53,029			27			10,719															10,746
Retirement of common stock		(1,425	)		(1	)		(564	)														(565	)
Net proceeds from the sale of Common stock		712,000						268,931									12,820						281,751
Common stock issued for Commercial Specialists, Inc. (“CSI”)		1,904			1			751															752
Share-based compensation								10,467															10,467
Dividends declared and paid on common stock, $ 2.45 per share														(96,765	)								(96,765	)

Balance at March 31, 2024		40,302,771		$	22,209		$	1,452,450		$	(47,870	)	$	1,173,446		$	(73,810	)	$	401,148		$	2,927,573

See accompanying notes to condensed consolidated unaudited financial statements.

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WATSCO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

(In thousands)


	Quarters Ended March 31,
	2025			2024
Cash flows from operating activities:
Net income	$	94,540		$	104,262
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		10,777			9,882
Share-based compensation		8,800			8,127
Non-cash contribution to 401(k) plan		8,743			8,735
Provision for doubtful accounts		840			862
Other income from investment in unconsolidated entity		(5,146	)		(5,460	)
Other, net		811			1,245
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net		83,864			(33,502	)
Inventories, net		(389,990	)		(307,219	)
Accounts payable and other liabilities		8,887			315,087
Other, net		230			1,687

Net cash (used in) provided by operating activities		(177,644	)		103,706

Cash flows from investing activities:
Proceeds from (purchases of) short-term cash investments		255,669			(200,000	)
Proceeds from sale of property and equipment		98			58
Business acquisitions, net of cash acquired		(3,670	)		(5,178	)
Capital expenditures		(7,541	)		(5,845	)

Net cash provided by (used in) investing activities		244,556			(210,965	)

Cash flows from financing activities:
Dividends on common stock		(109,037	)		(96,765	)
Distributions to non-controlling interest		(69,829	)		—
Net repayments of finance lease liabilities		(1,569	)		(1,399	)
Net repayments under revolving credit agreement		—			(15,400	)
Repurchases of common stock to satisfy employee withholding tax obligations		—			(442	)
Net proceeds from the sale of Common stock		—			281,784
Proceeds from non-controlling interest for investment in Lashley		999			—
Proceeds from Dividend Reinvestment Plan		6,708			—
Proceeds from issuances of Common stock under employee related plans		11,049			10,623

Net cash (used in) provided by financing activities		(161,679	)		178,401

Effect of foreign exchange rate changes on cash and cash equivalents		319			(2,390	)

Net (decrease) increase in cash and cash equivalents		(94,448	)		68,752
Cash and cash equivalents at beginning of period		526,271			210,112

Cash and cash equivalents at end of period	$	431,823		$	278,864

Supplemental cash flow information:
Common stock issued for Lashley	$	493		$	—
Common stock issued for CSI	$	—		$	752

See accompanying notes to condensed consolidated unaudited financial statements.

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WATSCO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

March 31, 2025

(In thousands, except share and per share data)

1.	BASIS OF PRESENTATION

Basis of Consolidation

Watsco, Inc. (collectively with its subsidiaries, “Watsco,” the “Company,” “we,” “us,” or “our”) was incorporated in Florida in 1956 and is the largest distributor of air conditioning, heating and refrigeration equipment and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. The accompanying March 31, 2025 interim condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, but we believe the disclosures made are adequate to make the information presented not misleading. In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation have been included in the condensed consolidated unaudited financial statements included herein. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2024 Annual Report on Form

10-K.

The condensed consolidated unaudited financial statements include (i) the accounts of Watsco and its wholly owned subsidiaries, (ii) the accounts of five U.S. joint ventures and their subsidiaries with Carrier Global Corporation, which we refer to as Carrier, in which we have an 80% controlling interest and Carrier has a 20%

non-controlling

interest, (iii) the accounts of a Canadian joint venture with Carrier, in which we have a 60% controlling interest and Carrier has a 40%

non-controlling

interest, and (iv) a 38.4% investment in Russell Sigler, Inc. (“RSI”), owned by one of the Carrier joint ventures that is accounted for under the equity method of accounting. All significant intercompany balances and transactions have been eliminated in consolidation.

The results of operations for the quarter ended March 31, 2025 are not necessarily indicative of the results to be expected for the year ending December 31, 2025. Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal. Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to new construction throughout most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions.

Equity Method Investments

Investments in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting and are included in investment in unconsolidated entity in our condensed consolidated unaudited balance sheets. Under this method of accounting, our proportionate share of the net income or loss of the investee is included in other income in our condensed consolidated unaudited statements of income. The excess, if any, of the carrying amount of our investment over our ownership percentage in the underlying net assets of the investee is attributed to certain fair value adjustments with the remaining portion recognized as goodwill.

Use of Estimates

The preparation of condensed consolidated unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements and the reported amounts of revenues and expenses for the reporting period. Significant estimates include valuation reserves for accounts receivable, net realizable value adjustments to inventories, income taxes, reserves related to loss contingencies and the valuation of goodwill, indefinite-lived intangible assets, and long-lived assets. While we believe that these estimates are reasonable, actual results could differ from such estimates.

Recently Adopted Accounting Standards

Income Taxes

In December 2023, the Financial Accounting Standards Board (“FASB”) issued guidance that enhances annual income tax disclosures primarily by disaggregating the existing disclosures related to the effective tax rate reconciliation and income taxes paid. Under the new guidance, an entity will be required to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. An entity will also be required to disclose the amount of income taxes paid disaggregated by federal, state, and foreign, and by individual jurisdictions equal to or greater than five percent of total income taxes paid. This guidance is effective prospectively and is effective for annual periods beginning after December 15, 2024. The disaggregated income tax disclosures will be included in our consolidated financial statements for the year ending December 31, 2025.

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Recently Issued Accounting Standards Not Yet

Adopted

Expense Disaggregation

In November 2024, the FASB issued guidance that requires entities to disclose additional information about certain expenses in the notes to the financial statements. This guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, with early adoption permitted. We are evaluating the impact of adopting this new guidance on our consolidated financial statements.

REVENUES

Disaggregation of Revenues

The following table presents our revenues disaggregated by primary geographical regions and major product lines within our single reportable segment:


Quarters Ended March 31,	2025			2024
Primary Geographical Regions:
United States	$	1,377,633		$	1,398,686
Canada		76,413			79,798
Latin America and the Caribbean		77,040			86,507

	$	1,531,086		$	1,564,991

Major Product Lines:
HVAC equipment		67	%		67	%
Other HVAC products		29	%		29	%
Commercial refrigeration products		4	%		4	%

		100	%		100	%

3.	EARNINGS PER SHARE

The following table presents the calculation of basic and diluted earnings per share for our common stock:


Quarters Ended March 31,	2025		2024
Basic Earnings per Share:
Net income attributable to Watsco, Inc. shareholders	$	80,061	$	87,004
Less: distributed and undistributed earnings allocated to restricted common stock		7,172		6,836

Earnings allocated to Watsco, Inc. shareholders	$	72,889	$	80,168

Weighted-average common shares outstanding – Basic		37,752,203		36,875,549
Basic earnings per share for common stock	$	1.93	$	2.17
Allocation of earnings for Basic:
Common stock	$	66,469	$	73,166
Class B common stock		6,420		7,002

	$	72,889	$	80,168

Diluted Earnings per Share:
Net income attributable to Watsco, Inc. shareholders	$	80,061	$	87,004
Less: distributed and undistributed earnings allocated to restricted common stock		7,172		6,836

Earnings allocated to Watsco, Inc. shareholders	$	72,889	$	80,168

Weighted-average common shares outstanding – Basic		37,752,203		36,875,549
Effect of dilutive stock options		101,052		123,999

Weighted-average common shares outstanding – Diluted		37,853,255		36,999,548

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Quarters Ended March 31,	2025		2024
Diluted earnings per share for common stock	$	1.93	$	2.17
Anti-dilutive stock options not included above		21,807		46,456

Diluted earnings per share for our Common stock assumes the conversion of all our Class B common stock into Common stock as of the beginning of the fiscal year; therefore, no allocation of earnings to Class B common stock is required. At March 31, 2025 and 2024, our outstanding Class

common stock was convertible into 3,325,027 and 3,220,567 shares of our Common stock, respectively.

4.	OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) consists of the foreign currency translation adjustment associated with our Canadian operations’ use of the Canadian dollar as their functional currency.

The change in accumulated other comprehensive loss, net of tax, was as follows:


Quarters Ended March 31,	2025			2024
Foreign currency translation adjustment:
Beginning balance	$	(59,893	)	$	(42,331	)
Current period other comprehensive income (loss)		164			(5,539	)

Ending balance	$	(59,729	)	$	(47,870	)

5.	ACQUISITIONS

W.L. Lashley & Associates, Inc.

On January 3, 2025, Carrier Enterprise I acquired Lashley, a distributor of commercial HVAC supplies with annual sales of approximately $8,000, operating from one location in Houston, Texas. Consideration for the purchase consisted of $3,662 in cash, 1,036 shares of Common stock having a fair value of $493, and $838 for repayment of

indebtedness, net of cash acquired of $830. Carrier

contributed $999 cash to Carrier Enterprise I in connection with the acquisition of Lashley. The preliminary purchase price resulted in the recognition of $3,103 in goodwill. The tax basis of such goodwill is deductible for income tax purposes over 15 years.

Commercial Specialists, Inc.

On February 1, 2024, one of our wholly owned subsidiaries acquired C

, a distributor of HVAC products with annual sales of approximately $13,000, operating from two locations in Kentucky and Ohio. Consideration for the purchase consisted of $6,037 in cash, 1,904 shares of Common stock having a fair value of $752, and $562 for repayment of indebtedness, net of cash acquired of $1,426. The purchase price resulted in the recognition of $2,469 in goodwill. The tax basis of such goodwill is deductible for income tax purposes over 15 years.

The results of operations of these acquisitions have been included in the condensed consolidated unaudited financial statements from their respective dates of acquisition. The pro forma effect of these acquisitions was not deemed significant to our condensed consolidated unaudited financial statements.

6.	DERIVATIVES

We enter into foreign currency forward and option contracts to offset the earnings impact that foreign exchange rate fluctuations would otherwise have on certain monetary liabilities that are denominated in nonfunctional currencies.

Derivatives Not Designated as Hedging Instruments

We have entered into foreign currency forward and option contracts that are either not designated as hedges or did not qualify for hedge accounting. These derivative instruments were effective economic hedges for all of the periods presented. The fair value gains and losses on these contracts are recognized in earnings as a component of selling, general and administrative expenses. We had only one foreign currency exchange contract not designated as a hedging instrument at March 31, 2025, the total notional value of which was $5,800. Such contract expired in April 2025.

We recognized losses of $153 and $147 from foreign currency forward and option contracts not designated as hedging instruments in our condensed consolidated unaudited statements of income for the quarters ended March 31, 2025 and 2024, respectively.

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7.	FAIR VALUE MEASUREMENTS

The following tables present our assets and liabilities carried at fair value that are measured on a recurring basis:


		Total		Fair Value Measurements at March 31, 2025 Using
	Balance Sheet Location	Total		Level 1		Level 2		Level 3
Assets:
Equity securities	Other assets	$	1,171	$	1,171		—		—
Private equities	Other assets	$	2,906		—		—	$	2,906
Liabilities:
Derivative financial instruments	Accrued expenses & other current liabilities	$	7		—	$	7		—

		Total		Fair Value Measurements at December 31, 2024 Using
	Balance Sheet Location	Total		Level 1		Level 2		Level 3
Assets:
Certificates of deposit	Short-term cash investments	$	255,669		—	$	255,669		—
Derivative financial instruments	Other current assets	$	6		—	$	6		—
Equity securities	Other assets	$	1,078	$	1,078		—		—
Private equities	Other assets	$	1,500		—		—	$	1,500

The following is a description of the valuation techniques used for these assets and liabilities, as well as the level of input used to measure fair value:

Equity securities

– these investments are exchange-traded equity securities. Fair values for these investments are based on closing stock prices from active markets and are therefore classified within Level 1 of the fair value hierarchy.

Private equities

– other investments in which fair value inputs are unobservable and are therefore classified within Level 3 of the fair value hierarchy.

Derivative financial instruments

– these derivatives are foreign currency forward and option contracts. See Note 6. Fair value is based on observable market inputs, such as forward rates in active markets; therefore, we classify these derivatives within Level 2 of the valuation hierarchy.

Certificates of deposit

– these investments consist of certificates of deposit that had varying maturities through March 2025. We classify these investments within Level 2 of the valuation hierarchy because fair value is based on indirectly observable market inputs.

8.	SHAREHOLDERS’ EQUITY

Dividend Reinvestment Plan

On March 29, 2024, we implemented the Watsco, Inc. Dividend Reinvestment Plan (the “DRIP”), under which existing shareholders may, in accordance with the DRIP, acquire up to 300,000

shares of each

Common and Class B common stock, as applicable, by reinvesting all or a portion of the cash dividends paid on such shareholders’ shares of common stock. The DRIP has been registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to our automatically effective shelf registration statement on Form

S-3

(File

No. 333-282975).

During the quarter ended March 31, 2025,

13,942 shares of common stock

were

issued under the DRIP.

At-the-Market

Offering Program

On August 6, 2021, we entered into a sales agreement with Robert W. Baird & Co. Inc. (“Baird”), which enabled the Company to issue and sell shares of Common stock in one or more negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act, for a maximum aggregate offering amount of up to $300,000 (the “2021 ATM Program”).

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During the quarter ended March 31, 2024, we issued and sold 712,000 shares of Common stock under the

2021

ATM Program for net proceeds of $281,784. Direct costs of $33 incurred in connection with the offering were charged against the proceeds from the sale of Common stock and reflected as a reduction of

paid-in

capital. In aggregate, we issued and sold $298,455 of Common stock under the 2021 ATM Program.

On May 3, 2024, we entered into an amended and restated sales agreement with Baird (the “2024 ATM Program”), which enables the further issuance and sale of Common stock for a maximum aggregate offering

amount

of up to $

400,000

. At March 31, 2025, $

400,000 was available for sale under the 2024 ATM Program. The offer and sale of shares under the 2024 ATM Program

have been

registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form

S-3

(File

No. 333-282975).

Common Stock Dividends

We paid cash dividends of $2.70 and $2.45

per share on common stock during the three months ended March 31, 2025 and 2024, respectively.

Restricted Stock

During the quarter ended March 31, 2024, a total of 999 shares of Class B common stock with an aggregate fair market value of $390 were withheld as payment in lieu of cash to satisfy tax withholding obligations in connection with the vesting of restricted stock. These shares were retired upon delivery.

Exercise of Stock Options

Cash received from Common stock issued as a result of stock options exercised during the quarters ended March 31, 2025 and 2024 was $10,398 and $10,040, respectively.

During the quarter ended March 31, 2024, a total of 426 shares of Common stock with an aggregate fair market value of $175 were withheld as payment in lieu of cash for stock option exercises and related tax withholdings. These shares were retired upon delivery.

Employee Stock Purchase Plan

During the quarters ended March 31, 2025 and 2024, we received proceeds of $651 and $583, respectively, for shares of our Common stock purchased and reinvested under our employee stock purchase plan.

9.	COMMITMENTS AND CONTINGENCIES

Litigation, Claims, and Assessments

We are involved in litigation incidental to the operation of our business. We vigorously defend all matters in which we or our subsidiaries are named defendants and, for insurable losses, maintain significant levels of insurance to protect against adverse judgments, claims or assessments that may affect us. Although the adequacy of existing insurance coverage and the outcome of any legal proceedings cannot be predicted with certainty, based on the current information available, we do not believe the ultimate liability associated with any known claims or litigation will have a material adverse effect on our financial condition or results of operations.

Self-Insurance

Self-insurance reserves are maintained relative to company-wide casualty insurance and health benefit programs. The level of exposure from catastrophic events is limited by the purchase of stop-loss and aggregate liability reinsurance coverage. When estimating the self-insurance liabilities and related reserves, management considers several factors, which include historical claims experience, demographic factors, severity factors, and valuations provided by independent third-party actuaries. Management reviews its assumptions with its independent third-party actuaries to evaluate whether the self-insurance reserves are adequate. If actual claims or adverse development of loss reserves occur and exceed these estimates, additional reserves may be required. Reserves in the amounts of $6,724 and $6,247 at March 31, 2025 and December 31, 2024, respectively, were established related to such programs and are included in accrued expenses and other current liabilities in our condensed consolidated unaudited balance sheets.

10.	RELATED PARTY TRANSACTIONS

Purchases from Carrier and its affiliates comprised 65% and 58% of all inventory purchases made during the quarters ended March 31, 2025 and 2024, respectively. At March 31, 2025 and December 31, 2024, approximately $192,000 and $204,000, respectively, was payable to Carrier and its affiliates, net of receivables. We also sell HVAC products to Carrier and its affiliates. Revenues in our condensed consolidated unaudited statements of income for the quarters ended March 31, 2025 and 2024 included approximately $19,000 and $18,000, respectively, of sales to Carrier and its affiliates. We believe these transactions are conducted on terms equivalent to an

arm’s-length

basis in the ordinary course of business.

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Table of Contents

A member of our Board of Directors is a Senior Chairman of Greenberg Traurig, P.A., which serves as our principal outside counsel for compliance and acquisition-related legal services. During the quarters ended March 31, 2025 and 2024, fees for services performed were $22 and $75, respectively, and $35 and $32 was payable at March 31, 2025 and December 31, 2024, respectively.

11.	SEGMENT REPORTING

We have one operating and reporting segment: HVAC/R distribution. This sole line of business focuses exclusively on the distribution of air conditioning, heating, and refrigeration equipment and related parts and supplies. Our single reportable segment entity is managed on a consolidated basis, with the CEO serving as the chief operating decision maker (the “CODM”). On a monthly basis, the CODM reviews financial information presented on a consolidated basis, as reported in the consolidated statements of income, and uses consolidated operating income and net income to assess performance and allocate resources.

Significant expenses within operating income and net income include cost of sales and selling, general and administrative expenses, which are each separately presented in the consolidated statements of income. Other segment items within net income include interest and income taxes. See Note 2 for revenues disaggregated by geographical regions and major product line.

12.	SUBSEQUENT EVENT S

On April 1, 2025, one of our wholly owned subsidiaries acquired Hawkins HVAC Distributors, Inc., a distributor of

residential

HVAC

equipment and

supplies with annual sales of approximately $9,000, operating from two locations in North Carolina and South Carolina. Consideration for the purchase consisted of $2,530 in cash.

On May 1, 2025, one of our wholly owned subsidiaries acquired Southern Ice Equipment Distributors, Inc., a distributor of food service and ice machine equipment, parts and supplies with annual sales of approximately $30,000 operating from seven locations in Arizona, Arkansas, Louisiana, Mississippi, New Mexico, and Texas. Consideration for the purchase consisted of $14,250 in cash and 7,400 shares of Common stock having a fair value of $3,413.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains or incorporates by reference statements that are not historical in nature and that are intended to be, and are hereby identified as, “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Statements which are not historical in nature, including the words “anticipate,” “estimate,” “could,” “should,” “may,” “plan,” “seek,” “expect,” “believe,” “intend,” “target,” “will,” “project,” “focused,” “outlook,” “goal,” “designed,” and variations of these words and negatives thereof and similar expressions are intended to identify forward-looking statements, including statements regarding, among other things, (i) economic conditions, (ii) business and acquisition strategies, (iii) potential acquisitions and/or joint ventures and investments in unconsolidated entities, (iv) financing plans, and (v) industry, demographic, regulatory, and other trends affecting our financial condition or results of operations. These forward-looking statements are based on management’s current expectations, are not guarantees of future performance and are subject to a number of risks, uncertainties, and changes in circumstances, certain of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of several factors, including, but not limited to:

•

general economic conditions, both in the United States and in the international markets we serve;

•

competitive factors within the HVAC/R industry;

•

effects of supplier concentration, including conditions that impact the supply chain;

•

fluctuations in certain commodity costs;

•

consumer spending;

•

consumer debt levels;

•

new housing starts and completions;

•

capital spending in the commercial construction market;

•

access to liquidity needed for operations;

•

seasonal nature of product sales;

•

weather patterns and conditions;

•

insurance coverage risks;

•

federal, state, and local regulations impacting our industry and products;

•

prevailing interest rates;

•

the effect of inflation;

•

foreign currency exchange rate fluctuations;

•

international risk, including related to changes in trade policies and tariffs;

•

cybersecurity risk; and

•

the continued viability of our business strategy.

We believe these forward-looking statements are reasonable; however, you should not place undue reliance on any forward-looking statements, which are based on current expectations. For additional information regarding important factors that may affect our operations and could cause actual results to vary materially from those anticipated in the forward-looking statements, please see Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024, as well as the other documents and reports that we file with the SEC. Forward-looking statements speak only as of the date the statements were made. We assume no obligation to update forward-looking information or the discussion of such risks and uncertainties to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except as required by applicable law. We qualify any and all of our forward-looking statements by these cautionary factors.

The following information should be read in conjunction with the condensed consolidated unaudited financial statements, including the notes thereto, included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited consolidated financial statements and notes thereto, and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2024.

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Company Overview

Watsco, Inc. was incorporated in Florida in 1956, and, together with its subsidiaries (collectively, “Watsco,” the “Company,” or “we,” “us,” or “our”) is the largest distributor of air conditioning, heating, and refrigeration equipment, and related parts and supplies (“HVAC/R”) in the HVAC/R distribution industry in North America. At March 31, 2025, we operated from 693 locations in 43 U.S. States, Canada, Mexico, and Puerto Rico with additional market coverage on an export basis to portions of Latin America and the Caribbean.

Revenues primarily consist of sales of air conditioning, heating, and refrigeration equipment, and related parts and supplies. Selling, general and administrative expenses primarily consist of selling expenses, the largest components of which are salaries, commissions, and marketing expenses that are variable and correlate to changes in sales. Other significant selling, general and administrative expenses relate to the operation of warehouse facilities, including a fleet of trucks and forklifts, and facility rent, a majority of which we operate under non-cancelable operating leases.

Sales of residential central air conditioners, heating equipment, and parts and supplies are seasonal. Furthermore, profitability can be impacted favorably or unfavorably based on weather patterns, particularly during the Summer and Winter selling seasons. Demand related to the residential central air conditioning replacement market is typically highest in the second and third quarters, and demand for heating equipment is usually highest in the first and fourth quarters. Demand related to the new construction sectors throughout most of the markets we serve tends to be fairly evenly distributed throughout the year and depends largely on housing completions and related weather and economic conditions.

Tariffs

In April 2025, the U.S. enacted and proposed to enact significant new tariffs, to which certain countries have responded by imposing retaliatory tariffs on U.S. imports. Escalated geopolitical tensions resulting from such changes in trade policies and tariffs have disrupted the markets and increased the risk of an economic recession or slowdown. We continue to monitor macroeconomic trends and uncertainties related to these tariffs. Many HVAC equipment and component manufacturers, including Carrier and Rheem, source component parts from China and Mexico or assemble a significant number of products for residential and light-commercial applications in Mexico. In response to these uncertainties, our OEM partners and suppliers continue to assess the impacts of tariffs along with other inflationary impacts and have recently announced varying levels of pricing actions. Consequently, we have implemented pricing actions to our customers by leveraging our technology platforms as an efficient means to capture the changes in conditions. Although the extent and duration of tariff-related impacts are uncertain, we have long-considered our primary focus on the HVAC replacement market to be a stabilizing factor given the necessity of these products in providing comfort and healthy environments to homeowners and businesses. However, if significant additional restrictions, including as a result of overall trade relations or a potential increase in tariffs (including those enacted or proposed to be enacted by the U.S.), are imposed on our products sourced from, or assembled in, Mexico and China, including as a result of amendments to existing trade agreements, and our product costs consequently increase, then we would be required to raise our prices, which may result in reduced sales, the loss of customers, and harm to our business.

Climate Change and Reductions in CO₂e Emissions

We believe that our business plays an important and significant role in the drive to lower CO₂e emissions. According to the U.S. Department of Energy (“DOE”), heating and air conditioning accounts for roughly half of household energy consumption in the U.S. As such, replacing older, less efficient HVAC systems with higher efficiency systems is one of the most meaningful steps homeowners can take to reduce their electricity costs and carbon footprints.

The overwhelming majority of new HVAC systems that we sell replace systems that likely operate below current minimum efficiency standards in the U.S. and may use more harmful refrigerants that have been, or are being, phased-out. As consumers replace HVAC systems with new, higher-efficiency systems, homeowners will consume less energy, save costs, and reduce their carbon footprints.

The sale of high-efficiency systems has long been a focus of ours, and we have invested in tools and technology intended to capture an increasingly richer sales mix over time. In addition, regulatory mandates will likely periodically increase the required minimum Seasonal Energy Efficiency Ratio rating, referred to as SEER, thus providing a catalyst for increased sales of higher-efficiency systems. The Company expects these regulations to reduce the carbon footprint of end-users and increase average selling prices over time, subject to customary risks of quality, availability, and performance of new HVAC systems.

The American Innovation and Manufacturing Act of 2020 (the “AIM Act”) granted the U.S. Environmental Protection Agency the authority to regulate hydrofluorocarbon (“HFC”) refrigerants. Although HFCs were introduced as alternatives to ozone-depleting substances like chlorofluorocarbons and hydrochlorofluorocarbons, they are now recognized greenhouse gases that impact climate change due to their high global warming potential (“GWP”). Consequently, an 85% phasedown of HFC production and consumption over a 15-year period commenced on January 1, 2022. Further regulations were introduced that (1) restrict the use of high-GWP refrigerants in the production of new HVAC systems after December 31, 2024 and (2) established a timeline over which the sales and installation of HVAC systems by distributors and contractors were permitted. The Company, in collaboration with its OEMs and in anticipation of the change, began to transition its inventory to the new lower-GWP HVAC systems (the “A2L Systems”) and phase-out of the higher GWP systems (the “410A Systems”). The regulations permit the sale and installation of matching 410A HVAC systems (i.e., outdoor and indoor components that are installed together) through December 31, 2025, after which only system components may be sold and installed thereafter without limitation or expiration. As of the filing date, it cannot be determined to what degree we will sell through our 410A Systems over the remainder of 2025 or to what extent demand for components will continue beyond 2025. The Company is actively selling these products and will continue to evaluate and assess the ultimate realizability of inventory related to the 410A Systems.

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We offer a broad variety of systems that operate above the minimum SEER standards, ranging from base-level efficiency to systems that exceed 20 SEER. Based on estimates validated by independent sources, we averted an estimated 23.7 million metric tons of CO₂e emissions from January 1, 2020 to March 31, 2025 through the sale of replacement residential HVAC systems at higher-efficiency standards.

Federal Tax Credits and State Incentives

Demand for higher-efficiency products, such as variable-speed systems and heat pumps, is expected to increase due to the passage of the U.S. Inflation Reduction Act of 2022 (the “IRA”) in 2022. This legislation is intended, in part, to promote the replacement of existing systems in favor of high-efficiency heat pump systems that reduce greenhouse gas emissions, as compared to older systems, and thereby combat climate change. According to the DOE, heat pumps can reduce electricity use for heating by approximately 65% as compared to gas furnaces. Programs under the IRA include enhanced tax credits for homeowners who install qualifying HVAC equipment and tax deductions for owners of commercial buildings that are upgraded to achieve defined energy savings. The IRA also sets aside $4.3 billion for state-administered consumer rebate programs designed to promote energy savings for low and medium-income households, including HVAC systems. Further details, including qualifying products, specific programs, states participating, and other regulatory requirements contemplated by the IRA are still being finalized. However, the U.S. government has indicated that credits enacted under the IRA may be subject to reduction or elimination; therefore, the availability of these credits in 2025 and thereafter is uncertain.

Critical Accounting Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon the condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed consolidated unaudited financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated unaudited financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates under different assumptions or conditions. At least quarterly, management reevaluates its judgments and estimates, which are based on historical experience, current trends, and various other assumptions that are believed to be reasonable under the circumstances.

Our critical accounting estimates are included in our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on February 28, 2025. We believe that there have been no significant changes during the quarter ended March 31, 2025 to the critical accounting estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.

New Accounting Standards

Refer to Note 1 to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for a discussion of recently adopted, and to be adopted, accounting standards.

Results of Operations

The following table summarizes information derived from our condensed consolidated unaudited statements of income, expressed as a percentage of revenues, for the quarters ended March 31, 2025 and 2024:


	2025			2024
Revenues		100.0	%		100.0	%
Cost of sales		71.9			72.5

Gross profit		28.1			27.5
Selling, general and administrative expenses		21.1			19.8
Other income		0.3			0.3

Operating income		7.3			8.1
Interest income, net		0.4			0.2

Income before income taxes		7.7			8.2
Income taxes		1.5			1.6

Net income		6.2			6.7
Less: net income attributable to non-controlling interest		0.9			1.1

Net income attributable to Watsco, Inc.		5.2	%		5.6	%

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Note: Due to rounding, percentages may not total 100.

The following narratives reflect our acquisitions of W.L. Lashley & Associates, Inc. (“Lashley”) in January 2025 and Commercial Specialists, Inc. (“CSI”) in February 2024.

In the following narratives, computations and other information referring to “same-store basis” exclude the effects of locations closed, acquired, or locations opened, in each case during the immediately preceding 12 months, unless such locations are within close geographical proximity to existing locations. At March 31, 2025 and 2024, two and four locations, respectively, that we opened during the immediately preceding 12 months were near existing locations and were therefore included in “same-store basis” information.

The table below summarizes the changes in our locations for the 12 months ended March 31, 2025:


	Number of Locations
March 31, 2024		691
Opened		6
Closed

SEC Form 10-Q filed by Watsco Inc.