Watsco, Inc. (WSO) Q3 2015 Earnings Report, Transcript and Summary

Good morning and welcome to the Watsco, Inc. Third Quarter 2015 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Albert Nahmad. Please go ahead. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good morning and welcome to our third quarter conference call. This is Albert Nahmad, President and CEO. With me is Barry Logan and Paul Johnston, Executive Vice President. First, the cautionary statement. The 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. Watsco delivered another solid quarter. We achieved record sales, profits and earnings per share, while continuing to make significant investments in our business and, most notable, which are investments in technology. We also produced the highest level of operating cash flow for any quarter in our history. Given our cash flow and continued confidence in our business, we have announced today a 21% increase in our annual dividends to $3.40. This dividend increase will be reflected in our payment in January of next year. I will discuss more about our technology and strategy, but first let me go over the financial performance. For the quarter, sales increased 4% to a record $1.2 billion and increased 5% on the same-store basis. HVAC equipment increased 5%, including an 8% increase in the United States and came from share gains in a continued movement towards higher-efficiency systems. Other HVCA (sic) [HVAC] products increased 3% and commercial refrigeration products increased 2%. The EPS for the quarter increased 5% to a record $1.64. Operating income grew 5% to a record $111 million. Operating margins expanded 10 basis points to 9.4%. Gross profit margin improved 10 basis points and SG&A as a percentage of sales was flat. Now, for the nine months, sales increased 5% to a record $3.2 billion. HVAC equipment increased 7%. Other HVAC products grew 2% and commercial refrigeration products increased 2%. EPS for the nine months increased 14% to a record $4.16. Operating income increased 11% to a record $283 million. Operating margins expanded 50 basis points to a record 8.8%. Gross profit margins have improved 30 basis points and SG&A as a percentage of sales decreased 20% to a record low. Operating cash flow for the quarter was a record $174 million. For the nine months, operating cash flow was $100 million compared to $42 million last year. Our balance sheet remains conservative with a debt-to-EBITDA ratio of under 1 time. We expect to further reduce debt by the end of the year, as fourth quarter is a, seasonally, period for positive cash flow. Now, Watsco's revised outlook for 2015 diluted earnings per share is in the range of $4.85 to $4.90, representing a prospective growth rate of 12% to 13% over 2014. Now, let's move on to the technology discussion. These are exciting times at Watsco. Over the last 25 years, we have scaled our business to become the leader in the industry and have achieved greater results – and have achieved great results for our shareholders. Over this period, market capitalization has grown from under $50 million to over $4 billion. Stated in terms of total shareholder return, which measures capital appreciation plus dividend, Watsco's 25-year compounded annual growth rate is 20%, which ranks number 28 out of all public companies that have the market cap of over $2 billion. Watsco's scale has allowed us to compete with capital, giving it more fulfillment centers and products available than anyone. It also allows us to attract and retain the industry's best talent and to partner with OEM suppliers from a strategic long-term point of view. We are looking to use our scale and size to bring technology and innovation to our business and our industry. Our investments have been in the development stage over the last two years and are now in various stages of implementation in our business units. We have grown from under 60 technology employees three years ago to over 170 at present. Our current annual run rate for technology-related costs is approximately $20 million. Here are some examples of what we're doing in technology. We have launched mobile apps in e-commerce to enable customers to buy from us 24 hours a day every day, using the industry's largest source of digitized product information, which is presently over 300,000 SKUs. We have instituted data-driven culture by developing business intelligence and data analytics capabilities to provide insight and support for greater decision making by our 700 profit-and-loss managers. We are implementing software and other tools to optimize our supply chain to improve service levels with less investment. In the long run, we are targeting a material reduction in infrastructure costs, which will provide the opportunity to increase operating margins as our business grows. Now, we are conducting an investor and an analyst meeting on December 18 in Miami Beach to discuss our technology strategy in greater detail. Please let Barry Logan know if you would like to join us. With that said, Barry, Paul and I will be happy to answer your questions.

We will now begin the question-and-answer session. The first question comes from Jeff Hammond of KeyBanc Capital Markets. Please go ahead. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Morning, Jeff.

Hey. Good morning, guys. Hey. So, just really wanted to better understand the guide down. It looks like at a midpoint you came down $0.22 and I just wanted to understand what surprised you in the quarter? How much of it was kind of where top line came in versus expectation? And then, maybe just speak specifically to these technology investments and maybe how – if you're accelerating investment or if you came in much higher on the spend curve? Can you hear me guys? Barry S. Logan - Senior Vice President, Secretary & Director: Yeah.

Just one moment. I will – there has been an interruption. I'll reconnect the speaker. Just a moment. [Music] (8:00 – 8:24).

Mr. Nahmad has been reconnected. Please continue with your question, Mr. Hammond. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Sorry about that. Don't know what happened (8:29).

Okay. Did you guys get my question or do you want me to go through it again? Albert H. Nahmad - Chairman, President & Chief Executive Officer: I wish you'd go through it again, if you don't mind.

Yeah. Sure. So, looks like the guide came down $0.22. And so, I just wanted to understand within the guidance revision, what surprised you guys in the quarter and outlook, both on the top line and then speaking on the cost side and specifically around technology investments, and maybe where you're accelerating some of that cost? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Sure. Barry, you want to take a look at that? Barry S. Logan - Senior Vice President, Secretary & Director: Sure. Well, Jeff, in terms of the fourth quarter, we're looking at a growth rate in the fourth quarter similar to the third quarter, really to just reflect a little bit of softness of what we see in Canada. Canada in particular was the one market out of all the markets that had a little bit of a change in trend in the third quarter. It had less of an impact on earnings than on sales. I mean, Canada cost us about $0.03 in the quarter, but it's time to be a little bit conservative about that market. And the only thing I would caution is it's about 6% of our sales and, as I've said, cost us about $0.03 in the quarter. So, that's one component of it. The other component is the technology spend, which is actually a greater component of this discussion. We have been ramping up, moving beyond the development stage into the implementation stage on all of these platforms. And I thought it was worthwhile to go ahead and start to talk more about that, because it does affect some of the earnings that we're seeing this year. And so, again, probably a 4% to 5% cost this quarter, a bit more next quarter as we're ramping up those expenditures. I wouldn't say there's any other real surprises, Jeff, in terms of that. I think it's just time to be a little bit conservative as we go into the off quarters – the off-season quarters and when we talk about the outlook.

Okay. And then I think you've mentioned a $20 million run rate for technology investments. Is that where you think you're going to be at for this year? Albert H. Nahmad - Chairman, President & Chief Executive Officer: I would say that – yeah. Go ahead, Barry. Barry S. Logan - Senior Vice President, Secretary & Director: Yeah. In terms of this year, it will be just shy of that. The run rate is $20 million. So, it'll end up being more in the $18 million range this year. And that would tell you that things have been ramping up a little bit more as we've gotten deeper into this year.

Yeah. So then, when we go into the future years, where do you see that number peaking? And kind of is it 2017, 2018, where you see that number start to come down or is that kind of built into the numbers on a go-forward basis? Albert H. Nahmad - Chairman, President & Chief Executive Officer: That's a good question, but it's difficult to answer, because we are very long-term-orientated, Jeff. And as opportunities arise, for example, we have Watsco Ventures, which is essentially starting new ideas for technology we can employ in the industry. So, at the very minimum, I think we will be increasing as opportunities come up. But I think the return is long-term-orientated. It may cost us some earnings per share in the future. But since we're in for the long term, I'm not concerned about it.

Okay. Great. Guys, I'll get back in queue and see you in December.

The next question comes from Matt Duncan of Stephens, Inc. Please go ahead.

Hey. Good morning, guys. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good morning. Barry S. Logan - Senior Vice President, Secretary & Director: Good morning, Matt.

So, Al, the first question I've got just on the sales trend slowing a little bit. And, Barry, you commented on this some. It sounds like maybe it's just Canada. But I noticed the equipment sales have slowed a little bit. The growth there was 8% in the first quarter... Albert H. Nahmad - Chairman, President & Chief Executive Officer: Sure.

7% in the second quarter and now 5% this quarter. Can you just address what's going on there? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Well, I'll let Barry fill in, but the overall that I saw was that, in September, seems like we had an early end, compared to last year, to the season. And it was – September itself was flat, but the quarter, of course, grew well. Barry?

Al, is October tracking better than that flat number? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Barry? Barry S. Logan - Senior Vice President, Secretary & Director: Yes, it is, Matt. The growth rates so far this month is pretty much like what you – what we're accustomed in a year-to-date in terms of being mid-single digits. So, yes. But I'd just add some color to that. The season did seem to end a little bit early in our markets after what had been very strong performance all year. I mean, if you look at the year-to-date numbers, very consistent performance with what we've been seeing for the last couple of years. Canada, the market they're in, even ends sooner in terms of seasonality. So, I think that's part of that discussion. We're seeing a heating season begin there, which does not have the same consequence of what we saw in the third quarter. And so, I think overall the U.S. market being up 8% in the quarter, again that's pretty strong. I wouldn't say there is any real message in the quarter performance for the U.S. So, the season did end a little bit early it seems. That's not the case as we look at October at least. And then Canada, in particular, is the one market, as I mentioned, which had more softness.

Okay. Very helpful. And last thing from me just, Barry, if you can give us a little detail on sort of the price, volume, mix equation in your sales growth? How much is price helping, the up-shifting to the higher-efficiency systems, how much is that helping? And then what's sort of the underlying volume? Barry S. Logan - Senior Vice President, Secretary & Director: Well, the U.S. market, again, the volume – the revenues are up 8%. In terms of volume, it's – about two-thirds of that is volume and then a third of it is price and mix.

Okay. Very helpful. Barry S. Logan - Senior Vice President, Secretary & Director: And that's been, again, pretty consistent all year. There's really not a change in that trend.

Okay. Thanks, guys.

The next question comes from David Manthey of Robert W. Baird. Please go ahead. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Morning, David. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Hey. Good morning. Hi, Barry. Yeah. Just on the bridging from the midpoint $5.10 down to the $4.85, $4.90, I think, Barry, you talked about $0.03 Canada, maybe $0.04 or $0.05 technology. I guess, in the current quarter, there was probably some impact from those things and some continuing impact going forward. But I'm just hoping can you talk about that bridge? I guess, if you talk about the shortfall in the current quarter and then does the $0.03 and $0.04 to $0.05, do those reflect what's going on in the fourth quarter? Am I reading that right? Barry S. Logan - Senior Vice President, Secretary & Director: Yeah. I mean it's the big picture, what we saw in the third quarter, Jeff. It's hard to pinpoint that in a very direct way. I know you want a very direct answer, but the bigger picture is we saw gross profit flatten out a bit this quarter. So, I think that's relevant to looking at the rest of the year. And the SG&A spend that we see in technology is what it is. It has a bigger consequence in an off-quarter than during the third quarter. The spending is not seasonal in terms of technology. And a little bit of top-line conservatism that I think is important given what we saw as we concluded this quarter. So, it's more of a big picture answer, Jeff (sic) [Dave], than a pinpoint answer. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Yeah. Dave, Barry. Barry S. Logan - Senior Vice President, Secretary & Director: Sorry, Dave. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): So – yeah, it's all right, I'm used to it. Could you talk about the FX impact? You mentioned Canada percent of sales at 6%. Could you discuss what percent other international is as sort of your export market? I guess that wouldn't really have a – maybe it does have a currency impact, but could you outline local currency growth and U.S. dollar growth in both Canada and other international? Barry S. Logan - Senior Vice President, Secretary & Director: Sure. Well, first, Latin America, which is actually a slightly larger market than Canada, grew mid-single digits along with the U.S. So, currency does not influence that market. We sell in U.S. dollars... David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Right. Barry S. Logan - Senior Vice President, Secretary & Director: ...and we buy in U.S. dollars, so it's that simple. In Canada, it's actually more of a unit volume issue in Canada because of really probably the overall economy than currency, because we've raised price. We've protected our gross profit in Canada. So, I would say currency has less of an impact in Canada versus really the unit volume impact from what the economy is doing. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Okay. Lastly, if I can just get one more in here, could you describe your stance on selling into the new residential construction market? When you see the other HVAC products being somewhat slow growth, I'm just wondering has there been any change in your approach or in the competitiveness of that market versus recent history, residential construction?

No. This is Paul. No. There hasn't been any change in our approach into that market. We're continuing to sell products – the non-equipment products into residential new construction. And depending on the type of equipment that we're selling brand-wise, we continue to sell – see some lift in new construction. Albert H. Nahmad - Chairman, President & Chief Executive Officer: But it's never going to be a significant part of our overall product mix. We still believe that our position in the marketplace is the after-market. We like the fact that there are 89 million units out there installed, ducted systems that we will eventually have to replace. And we love the consistency and the stability of that, as distinct from new construction, which goes up and down. David J. Manthey - Robert W. Baird & Co., Inc. (Broker): Got it. All right. Thank you very much.

The next question comes from Ryan Merkel of William Blair. Please go ahead. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Morning, Ryan. Ryan J. Merkel - William Blair & Co. LLC: Yeah. Good morning. Just wanted to follow up on the comment that the season ended a little bit early, just can you give a bit more color? Is it weather issue? Is it weaker consumer? Is it a tougher comparison? Any color there? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good question. As always, you have good questions. It's hard to say. It just flattened out in September. But then again, in October it's growing again. Ryan J. Merkel - William Blair & Co. LLC: Right. No, hey, that's the way monthly sales comps can be. Okay. And then, in the equipment category, what was the residential growth rate and what was the commercial growth rate, if you have it there? Albert H. Nahmad - Chairman, President & Chief Executive Officer: I don't think we split that. Do we, Barry? Barry S. Logan - Senior Vice President, Secretary & Director: No. I would say it's very consistent, Ryan. We don't see any divergence between residential versus commercial. Ryan J. Merkel - William Blair & Co. LLC: Okay. All right. Then last one, if I could, have we started to see benefits from the technology investments, yet, or would you say we're just more incurring costs right now and the benefits will come a bit later? Albert H. Nahmad - Chairman, President & Chief Executive Officer: The latter is the emphasis. We're incurring costs. We'll continue to incur costs, but we expect big time long-term benefits. Ryan J. Merkel - William Blair & Co. LLC: All right. We'll wait for the Investor Day to try to quantify what big time means, Al, but I appreciate it. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Yeah. No, I hope you come. I think it'll be very interesting. Ryan J. Merkel - William Blair & Co. LLC: Oh, I'll be there. Albert H. Nahmad - Chairman, President & Chief Executive Officer: This is the most-exciting part of my career here; the idea that the digital age is here and that we have the size and the scope to invest more money than anybody else that we compete with; I don't care whether it's in the industry or some of these online companies. We have such a fulfillment capability with all the locations that we have and we certainly have the capital to invest in technology and compete with anybody. So, this is a very exciting time. This will separate us more and more from everybody else. And thank God, we have the size and ability to invest increasing amounts of money. But we will change Watsco. Watsco will be very efficient with itself and provide a lot of efficiencies to our contractor customers. We will open up channels of distribution online that haven't existed in the industry before. It's just very exciting. Ryan J. Merkel - William Blair & Co. LLC: Okay. Looking forward to learning more. Thanks.

The next question comes from Keith Hughes of SunTrust. Please go ahead.

Yeah. The question on the gross... Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good morning, Keith.

Hey. How are you all doing? Question on the gross margin, it was up 10 basis points, if you can give any kind of puts and takes you saw – I assume energy efficiency with a gain – if there were any offsets to that in the results? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Barry, you want to take that? Barry S. Logan - Senior Vice President, Secretary & Director: Sure. Well, Keith, first the equipment growth rate is obviously higher than non-equipment, which has a gross margin consequence to it, equipment being slightly lower than non-equipment. So, that's just a bit of a sales mix issue. Also, we did make the decision to move 13 SEER product through our channel aggressively this season, and a little bit of gross profit that is influenced in that decision really to sort of lets us convert our marketplace, convert really our big Sunbelt markets into the 14 SEER phase for next year. So, that's a part of the decision-making that was made as well this season.

How was pricing overall of that gross margin in the quarter?

Pricing has been holding very well. I mean, we haven't seen any collapsing or deterioration yet in the 14 SEER price coming down. Everybody had plenty of supply through the second quarter and third quarter on 13 SEER products, so everything stayed in its – everybody stayed in their lane. So, for right now, I'm very happy with the pricing.

And we've seen a lot of commodities trade off. I mean, I saw that much in just pure commodity items, but are they playing on the gross margin at all in the quarter?

Yeah. Commodities are not a big portion of our business either. We do copper, we do steel, we do refrigerant. And yeah, there has been some commodity deterioration in the price of the product, but also the cost of the product has come down.

Thank you.

The next question comes from Walt Liptak of Seaport Global. Please go ahead. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good morning, Walt.

Hi. Thanks. Good morning, guys. Wanted to ask about the cash flow, which was really impressive and what do you attribute the improvement to during this quarter? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Well, I'm going to let Barry answer that. But somebody asked me earlier what the benefits of some of this technology spend will be. I think probably where we'll have a sooner rather than later impact will be in cash flow, because the tools that we're using now for inventory management are just being implemented. And that gives us a lot of optimism in terms of our ability to lower our investment in inventory and turn it more frequently and produce more cash flow. Barry? Barry S. Logan - Senior Vice President, Secretary & Director: Yeah. On the cash flow, Walt, first, our cash flow really has two components to it; receivables and inventory. And receivables tend to grow along with our sales, but the opportunity this year has been on the inventory side. We started the year and built some inventory early this year really in anticipation of this transition in product. And as I said, it was important for us this year to move that product through the channel and not just to sell things, but also to turn that investment into cash, which is what's happening as this year goes on. So, it's been a good opportunity all year. It's showing itself and there'll be more in the fourth quarter in terms of positive cash flow.

Okay. Great. Just kind of going back to that IT benefit, I want to make sure I'm clear on this. Are you saying that you may be or you are seeing a benefit on inventory management during the quarter or is it something where you...? Albert H. Nahmad - Chairman, President & Chief Executive Officer: No, just starting.

Just starting. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Just starting, because we just – we just implemented the tool in one of our business units, the most-important tool, and it's just starting one of our units and then we have to install it in the other units. So, no, I expect the benefit to come later, not this year. But that's the one I think we'll see the soonest benefit from...

Okay. Yeah. Albert H. Nahmad - Chairman, President & Chief Executive Officer: ...which is terrific, if we can improve our inventory one time inventory turn, that pays for a lot of this technology.

Yeah. Understood. Barry S. Logan - Senior Vice President, Secretary & Director: Yeah. I mean, let's do the algebra quickly. I mean, one turn is around $150 million inventory in our company. So, how long does it take and what will it take? It'll take time. It'll take effort, but that's the kind of opportunity we're looking at.

Okay. And then, just a follow-on with the increased IT spending, this year, this – and just to calibrate this, there's a pretty large increase in IT spending this year and I think the comment was next year it would increase. But are we seeing the biggest increase this year and we're sort of at a base level, the micro, or with Watsco Ventures, do you envision similar incremental spending in 2016? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Again, that's a very good question, but so difficult to answer, because we're trying to revolutionize what we do in technology and some of this is going to be opportunities as they come up. We're very much into the software world. We go to conferences. We have people visit us. And when we see a good idea, we pursue it. I don't know how to answer it. But I do say that long term, which is the way we'd look at it, I can't imagine a greater opportunity for us and that we can afford it because of our scale.

Okay. Yeah. Very exciting. Thank you.

The next question comes from Josh Pokrzywinski of Buckingham Research. Please go ahead.

Hi, guys. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good morning, Josh.

This is Kevin (27:44) on for Josh. How are you? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Kevin (27:46).

Just to follow up on another question, how would you guys characterize 14 SEER versus 13 Sunbelt mix now? And is the region mostly converted from your perspective? And then, kind of what are you guys hearing on inventory availability?

I would say, we pretty much have reached the end of our 13 SEER transition. Most of our inventory has been sold through and we're seeing our sales mix switching to 14 SEER.

Got it. Got it. Albert H. Nahmad - Chairman, President & Chief Executive Officer: And 16, we're growing 16, too.

All right. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Go ahead. I'm sorry, Josh (sic) [Kevin].

That's okay. No, I was going to say, anything else on what you're hearing as far as availability of inventory?

There's no availability issues.

All right. All right. Thanks, guys.

The next question comes from Justin Maurer of Lord, Abbett. Please go ahead. Justin Christopher Maurer - Lord, Abbett & Co. LLC: Good morning, guys. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good morning. Justin Christopher Maurer - Lord, Abbett & Co. LLC: Just to beat the IT dead horse, sorry, you guys have talked about in prior calls that this is – and to your point, Al, just kind of an ongoing evolution of the company and that the spend is there. Would you argue that it's more incremental at this point than you might have thought three months, six months, nine months ago? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Incremental, I'm not sure I understand. It's... Justin Christopher Maurer - Lord, Abbett & Co. LLC: Well, I know others have asked you in prior calls about IT spend and you've just said, hey, this is the culture of the company. We're always kind of looking to do that. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Yeah. Justin Christopher Maurer - Lord, Abbett & Co. LLC: And it's just more called out this time as to... Albert H. Nahmad - Chairman, President & Chief Executive Officer: I see what you mean. Yeah. Well, our approach to technology has been don't rush into a software or a tool or some idea; be very slow about it. And that's – probably the first couple of years of this technology effort, we weren't really spending a lot. We were really studying it. So, yes, I think it is scaling up, because we've done that. We've taken a lot of time to see what it was that we could do. Some of the software we design it and code ourselves, some we buy. So, it's been very slow at the beginning. And that's why I'm saying now we think we have a great direction. And of course, this will change from time to time, because new stuff will come in front of us. But we were very slow at the beginning, and wanted to be, to make sure that we sort of understood what we were getting into. But A.J. Nahmad, who's the guy that leads this effort for us, he's a very deliberate sort of a manager, and that's the way he's done it and I think he's done it the right way. Justin Christopher Maurer - Lord, Abbett & Co. LLC: Okay. And how would you – I'm sure this is a tough one, too. How would you think to categorize the spend or the benefits going forward in terms of kind of market share and just visibility for you and your – both customers as well as suppliers? So, it'll take maybe longer for it to manifest itself into numbers that we see versus productivity improvements and labor savings for the guys in the field and other things that will be more visible in the next couple of years in terms of benefits? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Yeah. The question is...

He said that just perfectly. Albert H. Nahmad - Chairman, President & Chief Executive Officer: He did.

I mean we want to... Albert H. Nahmad - Chairman, President & Chief Executive Officer: Thank you for that.

...have you present. Justin Christopher Maurer - Lord, Abbett & Co. LLC: But is it (31:14)... Albert H. Nahmad - Chairman, President & Chief Executive Officer: If you can, I really suggest you come down to the tech conference. I mean, there would be certain things we can't answer, like when do the major benefits come, how's the spend going to change one way or the other. I don't think the spend is going to reduce. I do believe that there's just so much opportunity out there, there's so many things that we can do. And I think that there – everybody is going to benefit. There is no one that's not going to benefit, starting from the customer down to the company's efficiency itself, and ultimately to the shareholders. So, the reason I like about it, it's such a huge opportunity and we're the guys in this industry that are on the innovative edge. I mean, the reason we know that is we talk to our OEMs, because they have to cooperate with it, and we see that we're sort of leading it and they're cooperating with us as we ask for their data and that sort of thing. So, I'm sorry that we're so vague about when is the opportunity coming or when is the spend going to start slowing. We just don't know, but it's a good thing. Justin Christopher Maurer - Lord, Abbett & Co. LLC: Yeah. It's just – I'm sure you can appreciate from our perspective it's tough when money's being spent... Albert H. Nahmad - Chairman, President & Chief Executive Officer: Yeah. Justin Christopher Maurer - Lord, Abbett & Co. LLC: ...and you're doing it to the long term, as you articulate, to the benefit of the business over time. But obviously, from our perspective, the ROI... Albert H. Nahmad - Chairman, President & Chief Executive Officer: Absolutely. I mean, I understand you have to do your models. And we'll try to be helpful as we go. Justin Christopher Maurer - Lord, Abbett & Co. LLC: Okay. Just one other quick one on the industry shift on the efficiency side, are you guys – in terms of what you would have guessed this year of folks having three decisions; one, either to replace the existing equipment with 13 or higher versus just maintain and just throw some dollars at their existing unit. Has that kind of unfolded this year as you thought? And as you look to next year, obviously, their ability to find 13 is not going to be there, so it's going to be a mix up. But in terms of replace versus fix, has it gone like you thought? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Paul?

Yeah, I would say it's gone pretty much in line with what we thought it was going to do. We continue to emphasize, obviously, all three channels; one, a repair and upgrade to a higher SEER efficiency product, or maintain it with what's going to be a 14 SEER going forward. I don't think you can predict which way the consumer is going to go. So, like I say, our strategy has always been to be strong in all three areas. And I think, in 2016, we're going to see that same dynamic going on that we've seen for the last four years or five years. Justin Christopher Maurer - Lord, Abbett & Co. LLC: Yep. Okay. And... Barry S. Logan - Senior Vice President, Secretary & Director: Yeah. And I would add two points just as color. First, how is the consumer doing is important to our business. And the transition has been nice for our business. But we're also seeing outsized growth in even the higher-efficiency 16 SEER and above systems. So, to us, at least at present, that's a good trend. That's a good sign of what's going on underneath our economy in our business. And the other, which I never get asked about, but it's relevant, is we have 50,000-plus customers that owe us accounts receivable and the quality of that portfolio is really at a quality that is probably the best we've seen in our career. So, the quality of what's going on with our customer seems to be very strong. And so, those are good trends. Justin Christopher Maurer - Lord, Abbett & Co. LLC: Yeah. And just, Barry, just one last on the 13. So, the inventory you guys took on earlier this year and sold through, I think you've said that that's had negative gross margin implications for this year. So, as that clears out, that's a tailwind for you guys next year? Is that true? Barry S. Logan - Senior Vice President, Secretary & Director: I mean, that's what's impacted some of our gross profit this year. Is it a tailwind? We'll see when we get into next year. Justin Christopher Maurer - Lord, Abbett & Co. LLC: Fair enough. Fair enough. Thanks. Barry S. Logan - Senior Vice President, Secretary & Director: Yeah.

The next question comes from Samuel H. Eisner of Goldman Sachs. Please go ahead. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good morning, Sam. Samuel H. Eisner - Goldman Sachs & Co.: Good morning, everyone. Just a quick question on market share, particularly at the OEM level, if you look, from what's been reported thus far through the third quarter, looks as though Ingersoll and Lennox growing in roughly the 13% range or low teens. I think Carrier was closer to around 7%, 8% and your growth rates seems to be matching up with that in North America. So, I'm just curious if you can talk a bit about what you're seeing with regards to OE market share in the industry, any shifts going on there that we should be mindful of? Albert H. Nahmad - Chairman, President & Chief Executive Officer: Well, Sam, I'm going to let Paul answer that, but don't forget our consistency. Some of these other businesses have had ups and downs. We're just consistent in a growth level. So, maybe some of these others have bad previous sales and now, of course, they're catching up. But go ahead, Paul.

Yeah, I mean, Sam, it's a real tough question, trying to compare what goes into the channel versus what Watsco – everything Watsco reports is a sale to a consumer or a contractor or an end user, whereas when you're talking about the OEMs, you're going to have to ask them the question directly, whether or not how much of it's going into channel load or channel fill versus how much of it's actually sold all the way through to the consumer. I don't know that answer. Only they would know. I think we're a good indicator of what the market is. And I think looking at what our sales volume has been and what the industry numbers that have been reported, I feel pretty confident that we've gained share on the sell-through side. Samuel H. Eisner - Goldman Sachs & Co.: And if you look across your business, whether it's any particular brand, do you see any changes on a year-over-year basis or a nine-month basis with regards to kind of sell-through of any particular brands?

I don't think we want to comment on particular brand. Samuel H. Eisner - Goldman Sachs & Co.: Understood. And then maybe just overall in the M&A environment, obviously, you guys are increasing your dividend by 20%-plus on a go-forward basis, but perhaps you can talk a bit about capital allocation and the opportunities for M&A? Thanks. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Sam, let me deal with that one. We are very cognizant that we want to do further M&A activity. Now, we've had some frustration in recent past, because it's not that we don't want to do them, but there were – we just couldn't get sellers to want to sell. Now, I'm hoping that as the industry has recovered that that will change. And so, we want to keep our balance sheet very strong and capable of doing any size transaction. So, it's not a lack of desire to do it. It's hoping that as the industry has recovered that more sellers will come to us. And we certainly are going to do every bit of M&A that we can. Samuel H. Eisner - Goldman Sachs & Co.: Appreciate that. We'll see you down in Miami in December. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Good.

And we have a follow-up from Jeff Hammond of KeyBanc Capital Markets. Please go ahead.

Hey. Good morning, guys. Just a couple of quick follow-ups. It sounds like pricing holding up as you thought. What are you hearing from OEMs about 2016 pricing and how do you expect to react to that?

Really not hearing much from the OEMs on 16 – really not hearing much from OEMs on 16 SEER pricing right now. I mean everybody has been pretty much focused on the 14, 13 SEER transition stage that we've been going through. And seeing what sort of support the 14 SEER pricing would have, that obviously is going to be relevant to the 15, 16 and 18 SEER product pricing going forward.

Paul, I was actually asking about just have you gotten price increase announcements heading interest 2016, in general.

No, not yet.

Okay. And then, it looks like the JV income is roughly flat and I think someone mentioned Carrier growing 7%. I know you don't break that out. But is there anything on the cost side where you're not necessarily seeing the leverage in the JV near term? Barry S. Logan - Senior Vice President, Secretary & Director: Well, I'd have to see your math, Jeff. No, we did see growth in EBIT in the JV, and Canada would be the exception to that in the quarter which I've kind of quantified for you.

Okay. Thanks, guys.

This concludes our question-and-answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks. Albert H. Nahmad - Chairman, President & Chief Executive Officer: Well, thank you again for your continued interest in our company. I look forward to bringing you guys up to date as we progress. Bye now.