Good day, and welcome to the Watsco, Inc. Fourth Quarter 2016 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.

Good morning. This is Albert Nahmad, Chairman and CEO. And with me is A.J. Nahmad, President; Paul Johnston, Executive Vice President; and Barry Logan, Senior Vice President. As always, first, the cautionary statement. This conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the Safe Harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. Now, before I discuss performance, let me first say that we are very pleased to have completed yesterday 10% increase in our ownership of the Carrier Enterprise Northeast joint venture. This adds to the 10% purchase we made in November of last year and raises our ownership stake to 80%, which is the same ownership that we have with the original Sunbelt joint venture. More important, the additional 20% ownership stake provides added earnings and cash flow, and over the long term will provide us with more value for the technology investments that we are making every day. Now on to performance. Watsco delivered another record year and a record quarter. We achieved record sales, earnings, earnings per share and cash flow, while continuing to make significant technology investments. Now, the growth rates were slightly below our long-term averages due to seasonal variability in some of our regional U.S. markets and declines in international operations, which were impacted by the stronger U.S. dollar. In 2016, we produced record cash flow of $8.52 per share. That is an increase of 25% to $278 million, and also exceeded net income. Fourth quarter cash flow was also a record. As a result of this cash flow performance, we have reduced debt, paid 30% higher dividends, and have used cash to help pay for the additional investments we've made in Carrier Northeast joint venture. Now, we…

The first question comes from Robert Barry of Susquehanna. Please go ahead.

Hey, guys. Good morning.

Morning, Robert.

Good morning. Congrats on all those records.

Thank you. Feels good.

Yeah. So, curious about your assessment of the growth in the quarter and, frankly, even for the year in equipment. I mean, as investors look at the growth versus peers such as Lennox, which I think is probably the most apples-to-apples one, but even others like Ingersoll, it looks like in the quarter and even for the year, you've really underperformed a bit. And I'm just curious what your assessment is.

Well, I'm glad you asked the question and I'm going to take a shot at part of the answer and then I'm going to turn it over to Paul Johnston. We believe that it's the mix of product. The residential growth rate was watered down a bit by slower commercial sales. And also, we're not a big player in new construction, as are the two that you just mentioned. We've always said that our basic market is the aftermarket, which is the one we think it'll be steady and growing every year at the same rate that we're growing, and we grow actually faster than the industry aftermarket growth. So, Paul?

Yeah. I think it's a little bit apples and oranges. The numbers I'm sure that you're looking at when you get a manufacturer reflecting their sales is based on shipment data, whereas our numbers are based on what we actually sell through. So, when you look at some of the numbers that come out of AHRI, there was a huge bubble that was shipped in the November-December time period, which are shipments but not movement. Right now, we're very happy with our inventory position that we have. We didn't buy forward a lot of the equipment. And I think, as we move forward with the replacement market, I think our share in replacement market is very solid.

Got you. How did things start off the New Year in January and so far in Feb?

Well, sales are growing nicely, in tune with our long-term growth rate.

Okay. Which you define as kind of a mid-single-digit level?

That's right.

Yeah. And then, just a couple of questions on the IT, and thanks for giving us similar color there. I was curious, that 80 basis-point change in inventory turns in the fully-adopted locations, how does that compare to the 20% reduction in inventory you targeted?

Well, that's a good question for Barry Logan.

Morning, Robert. Well, as we've said, 20% that target is really based on a more simple way of looking at it, and that is to go from 4 turns to 5 turns as an initial target. That's the object that'll get you to 20%. So, 80 basis points in those branches obviously is pushing almost after just 15 months towards that 1 full turn improvement in inventory turn.

Got you.

So, obviously, the important thing is to not do it all at once and take risk across the whole company. We've chosen to launch in certain locations and improve it and execute it and then develop it across more the enterprise. So, that'll take time, but we wanted to give some early insight into what's going on.

Got you. And maybe just one more for me and I'll pass it on. Just can you provide some context about – you mentioned the sales people using the business intelligence platform had 7 times better sales performance. I mean, what percent of the sales people are using it now? And does that actually mean that before a given sales person was using it versus after their, I don't know, selling rate went up by 7x or just...

Well, that's...

...maybe some context there on what all that means?

Yeah.

Thanks.

Why don't we go to the technology man on the phone, A.J. Nahmad, President?

Good morning. Morning. First, there are several thousand people using business intelligence across the enterprise now. That metric is really about – well, I should say, we're able to measure how frequently and how each employee uses the tool. So we're able to look at those that use it more often and more aggressively. They are outperforming their peers who are using it less often or less aggressively. And that's to the magnitude of 7x turns as (12:38).

But I think it was in terms of what? Using it better to do what, A.J.?

Well, the tool gives them insight into their book of business about trends and patterns and their customers' purchasing behavior, about opportunities to sell them different products or a different mix. I mean, it's really infinite opportunities for the sales people, and we've created a number of dashboards and reports and scorecard that help them as they go into the field every day.

Okay. Got you. Thank you.

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

Hi, Matt. How are you this morning?

Good, Al. How are you?

Good.

First question I've got, you noted that there were some markets where you saw some unfavorable seasonal conditions and that elsewhere your growth was more mid-single digits. How many of your geography saw those conditions? And maybe if you could talk about what those where? And have you seen sales growth bounce back in those places yet?

Why don't we turn that over to Barry Logan?

Good morning, Matt. Yeah. Again, we are careful not to give out specific local data per se just from a competitive reason and for other good reasons. You get a sense of where our business is concentrated in the Sunbelt. So, that would give you some big picture look at, I think, another reason why you need a measured performance at Watsco versus a broader geography. But as Al said, we have seen some improvement in growth rates as we started the year. January and February is not a proxy for the entire year, but it's encouraging that it's better.

Okay. So, speaking of looking forward to this year, what level of price increases on average are you seeing on the equipment side from manufacturers? And do you have any big-picture thoughts about what kind of growth you can generate this year? Is it just sort of keeping in tune with that mid-single-digit growth rate that you guys target?

Well, on the growth, of course, I think if you look at our record, we're pretty consistent year-after-year. In terms of pricing, Paul?

Yeah. The pricing that was announced was anywhere from 3% to 6%. We're just implementing that now in January-February. So we'll get a clearer idea during the first quarter how much of that 3% to 6% will stick. And what we've seen to-date through the Q4 though is, last year, the prices held, we saw a little bit of price increase, and we're hoping that we can do that again in 2017.

Got it. Then last thing for me on the additional investment in the second Carrier JV. And my recollection is that the first deal, there was something in the contract that allowed you guys to buy up your ownership percentage, but I don't believe that was in the contract for the second one. So, if you could talk about sort of what both your motivation and their motivation was for increasing your ownership in that deal?

Well, that is well described. The first joint venture, we had an option to increase from 60% to 80%, and we exercised that. In the second joint venture, we started off at 60%/40%. But as we were making these significant investments and producing the results that we are, we constantly were after our joint venture partner to let us buy down to 80%, as we had in the first joint venture. It took a while, but we got it done, and that's where we want to be at 80%/20%. And in the third joint venture, we're still at 60%/40%, but that's Canada, that's a little more difficult because of the currency issues out there. But it's just us trying to persuade our partner that we'd like to do that and we're making all this investment and we hope that you agree, and they did agree on the second joint venture.

Okay. Thanks, Al. Appreciate it, guys.

You bet.

The next question comes from Jeff Hammond of KeyBanc Capital Markets. Please go ahead.

Hello, Jeff.

Hey. Good morning, guys. Hey, just back on pricing. My understanding was in 2016 the pricing didn't – or the price increases didn't hold as well as a lot of the OEMs had some deflation to work with and maybe some of the weather variability caused some price competition. So, maybe just to go back at price, what's your confidence level this year with some inflation in the market that that comes through? And then how do you think about being a merchant in the fourth quarter and kind of buying ahead of price increase, et cetera?

Well, let me answer the first one. Once again, on fundamentals, if you did see price decreases, you probably saw it new construction, which is a field we play in but not as aggressively, nor as dominant as some of the others do. And, Paul, do you want to take a shot through rest of that?

Yeah. I mean, I agree with Al completely. I mean, we did see some of the price increase hold, but it didn't obviously on new construction, and that follows through. When you look at where we are in the fourth quarter, most of our manufacturers we were able to arrange so that we didn't have to buy forward a tremendous amount of inventory and it into stock. But we will be able to take advantage of the price increases as they move forward in the first quarter and second quarter.

That's assuming, of course, that everyone else absorbs their cost increases and maintains the price increases they've announced.

Right.

Okay. And then non-equipment was pretty sluggish again. What are you seeing there? And then, there does seem to be some inflation in copper and maybe some of the ducting and certainly refrigerant. Is any of that starting to show through?

Well, I do want to give you a general comment about your question, which I think is a good one. We see the same thing. We're going to take major initiatives this year to penetrate more in parts and supplies. Now, historically, I'll let Paul answer that.

Yeah. I mean, we've seen the same. I guess, manufacturers call them headwinds, we call them tailwind on the inflation side of the commodity. Not a big piece of our business, but obviously it's positive for us. On the other products that we sell, the buy side of our business, we've got a major initiative which is being pushed forward to be stronger in the supply business. And I think in the last several phone calls, we've had a lot of discussion as it pertains to the parts business, how much of that is impacted by some of the extended warranty activities that the OEMs did back four, five, six years ago (19:41).

Okay. And then, finally, looks like you had a spike in the fourth quarter in CapEx and you spent a lot more this year than last years. Is that tied to the technology investments, or just help with the bump there?

Barry?

Morning, Jeff. So, Jeff, in the fourth quarter, it's not technology-related, it's business-related. It's something that we'll disclose in the 10-K. But for the year, it's around 50% more. I'd expect 2017 to come back down to look more like 2015.

Okay. Thanks, guys.

The next question comes from Ryan Merkel of William Blair & Company. Please go ahead.

Hi, Ryan. Ryan J. Merkel - William Blair & Co. LLC: Hey. Good morning, everyone. So the first question I had, it seems that sales were a little bit weaker in November and December because I recall you said October was up 4%.

Yes. Ryan J. Merkel - William Blair & Co. LLC: So, was it weather, was there something else that drove the slow finish?

That's a well-placed question. I'm going to turn it over to my well-placed answerer, Barry Logan.

Morning, Ryan. Ryan J. Merkel - William Blair & Co. LLC: Hey.

Again, in the quarter – you're talking about the fourth quarter.

Yeah. He's talking about the last two months of the quarter.

Yeah. I mean, Ryan, again, it's...

I don't really remember that.

Yeah. Ryan, again, it's the concept of seasonality in our Sunbelt business. And we're not going to be driven by winter or how cold it is, how freezing temperatures are. It's really how nice it is in our big Sunbelt markets and which ones are the biggest. So, that really saw some moderation and it's not something that we are paranoid about. It's just something that will play itself out as we get into the spring and summer and expect our big market to grow. Ryan J. Merkel - William Blair & Co. LLC: Okay. And then, as it relates to the international business, is the strong dollar the only reason that that business was weak in 2016? Is there no other reasons?

No, there are no other reasons. I think we're really expanding since we bought the export business and since we bought the Mexican business from Carrier. And those are very high growth businesses for us. Now, Canada is a different story. We bought that business, but the currency issue has been there rather significant. And the answer is, we have to deal with that and we will, hopefully, better this year. But there's nothing strange about all that other than what we've told you. Currency has had a big play in Canada.

Yeah. I mean, I would add to that, Ryan. There's really two risks internationally, right? It's currency risk, meaning that what you sell becomes more expensive as the U.S. dollar strengthened. And the second risk, of course, is credit risk that being, are people going to pay you for what you're selling them? And we do see strength in terms of credit risk. Write-offs are very low. It shows us and tells us that we're managing it well. And so, it's more about the currency risk where, again, U.S. products have become 10%, 20%, 30% more expensive in a lot of these markets and eventually that's going to catch up with the top line or margin. Ryan J. Merkel - William Blair & Co. LLC: Okay. And then, just lastly, can you comment on – in the quarter, did SEER 16 and above equipment sales outgrow the base unit?

Can we disclose that kind of thing, Paul?

We've always talked about in general what our mix change is. But, I mean, did it outperform In the quarter – it was pretty much the same as it was the quarter before. So I would say no. Ryan J. Merkel - William Blair & Co. LLC: Okay. Because you speak to that as a way to measure the health of the industry and the health of the consumer, correct?

Yes. I think we're going through a transition that we have to find out exactly how the 14 SEER is going to fit in with the consumer replacement market, local utility rebates and all the other things that happen on a regional basis. Ryan J. Merkel - William Blair & Co. LLC: Got it. Okay. Thank you.

The next question comes from Steve Tusa of JPMorgan. Please go ahead.

Yeah. Hey, guys. Good morning.

How is it up there, Steve, the weather?

Little chilly...

Good.

...but just fine.

But the worse is over, right?

We can handle it. Never say that. Never say that. (24:31).

Now that we own 80% of it, I'm glad it's chilly up there.

Well said.

So, thanks for all the color on kind of the moving parts of the equipment growth. What was your commercial business – what did your commercial business do in the quarter or for the year, either way?

Barry?

It's, yeah, relatively flat for the quarter and for the year down, what I would say, low-single digits.

And does that include like whatever you would – kind of VRF that you guys would sell, I would assume, right?

No. No. It doesn't. We look at that as a separate business, different people, different...

How is the VRF stuff doing?

Absolutely fabulous.

Okay. Like double-digit, I guess, that means?

That means you're (25:20)

Well, I can't believe you answered that question but...

Well, by the way, double-digits can be somewhere between 10% and 99%, by the way, so.

Yeah.

Fabulous. Phenomenal. We'll look out for Twitter from you guys in the future on VRF.

Yeah. That's good.

So, one last question just on the Trump stuff out there. Have you guys dug in a little bit more to understand from a supply chain perspective?

Oh, sure. Sure we have, Steve.

Do you know where your sourcing is? Do you know where you're sourcing a lot of your stuff?

Yeah. Remember when Mr. Trump went to Indianapolis and, after he was very critical of actions taken by Carrier in Indianapolis, but then he became a great proponent of Carrier. We thought that would really cause great demand for Carrier brand, but it didn't. It was just normal. But, of course, we've spoken to all our major suppliers, and, of course, they're satisfied that they can continue to supply us no matter what happens with the government policy, and can supply us at competitive way. A major part of all HVAC equipment is made in Mexico. And in the case of some of our major OEM equipment suppliers, they have to sell these to United States, and we buy a lot from and they can crank it up even to develop and produce more. So I'm not concerned about that, Steve. But it's a good question, but we are very on top of that with the OEMs.

Okay. Okay. I think that's – sorry one last one. Acquisition pipeline, what you're seeing out there?

All right. Let me tell you – yeah, that's a good question. I feel very positive about the economy. I'm not alone, the stock market is reflecting that. And we have such a healthy balance sheet, and we have this investment and technology that will continue our rollout and development for a long time. But I'm still so optimistic, I am now looking for very serious acquisitions, and more active personally than I've been in the long time because I feel so good about where we are and where the economy is going. So I don't have anything to report, but I got to tell you, I'm focused.

Is it mostly the smaller guys or are there any OEMs that are shipping around their strategies? I don't seem to really see any strategy...

Well, I don't know – I can't answer the OEM issues because I don't know what they're doing. But my appetite now is for larger ones but, of course, it doesn't matter. Smaller ones also provide more share and more distribution points. Now, I'm not saying we're going to get anything done, but I'm telling you I'm very focused on it and want to get a lot done.

Yeah. Okay. Great. Thanks a lot.

The next question comes from David Manthey of Baird. Please go ahead.

Morning, David. David J. Manthey - Robert W. Baird & Co., Inc.: Hey, Al. Good morning. Could you talk about the contribution (28:26) price and mix each, specifically this quarter?

I'm sorry. David, you broke up. Can you repeat the question? David J. Manthey - Robert W. Baird & Co., Inc.: Oh, sure. I'm wondering if you can talk about the contribution from price and mix this quarter specifically.

Barry, do we do that?

Yeah. I mean, I'll give you a sense of it. First, we always talk about our HVAC equipment business. Let me answer this question because that's kind of what is measurable in terms of price and mix. We did see growth in units, for sure, and we saw some growth in price. And mix, as Paul alluded to, was relatively flat this quarter, but the mix is up for the year. David J. Manthey - Robert W. Baird & Co., Inc.: Okay. So we should assume it's some positive number in the fourth quarter?

Yeah. So where you see the 3% U.S. growth for HVAC equipment, that's what I'm breaking apart. David J. Manthey - Robert W. Baird & Co., Inc.: Got it. Okay. And then, second, when you look at the international results, could you discuss what the local market growth was versus the impact of currency?

Barry? Do you want to take a shot at that?

Sure. Yeah. Well, for the quarter – and Canada, by the way, is the largest market obviously of the discussion. We did see unit growth. We did see some Canadian dollar growth, but not on U.S. dollar basis. It's not enough for us to get – to use a lot of explanation in press releases about what's in with our currency because of the materiality. But I would say also that the fourth quarter was better than the rest of the year in that market. David J. Manthey - Robert W. Baird & Co., Inc.: Okay.

And in our Latin American markets, we sell in U.S. dollars. We sell and collect in U.S. dollars. So there's not a currency play per se. It's...

It's more the demand play if the U.S. dollar – yeah, if the U.S. dollar becomes stronger, it's more of a demand play where can they afford to buy U.S. product.

That's correct. David J. Manthey - Robert W. Baird & Co., Inc.: Okay. So, if I'm deciphering this correctly, you said you saw some unit growth in Canada, but it was offset by FX.

That's correct. David J. Manthey - Robert W. Baird & Co., Inc.: Okay. All right. Then, third, you mentioned you had a $23 million run rate for tech spending in the fourth quarter. Could you give us an indication of what you think that might be in 2017?

A.J.?

And just to clarify that $23 million run rate, it's annualized. And our approach to that is – well, first, I should say that many of platforms we developed are now maturing. They're in place. Our focus is on getting them adopted through the several hundred thousand contractors and technicians and internally. If and when there are great opportunities that arise that we can deploy or that we can take advantage of and make investment and have strong returns on investment, we won't shy away from that. But, right now, the focus is on driving home and maximizing return on what we have invested. So I don't want to be held to a number in terms of spend because it could be opportunistic. David J. Manthey - Robert W. Baird & Co., Inc.: Okay. So, is that saying, A.J., that since you have these systems implemented, that number could actually come down theoretically, or are we still saying it's growing?

Well, it's hard to say exactly because these continue to develop on top of this platform. We continue to tweak and to iterate, and that's been our approach since launching the iterate approach. We don't have any current plans for major new platforms. But this is a way of doing business for us now. This is moving away from being a technology program at Watsco to just being Watsco and being accomplished in all we do. David J. Manthey - Robert W. Baird & Co., Inc.: Okay. All right. Thank you.

The next question comes from Robert McCarthy of Stifel. Please go ahead.

Morning, Robert. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Hey. Morning. I'm surprised and shocked you don't manage for the quarter better. Just kidding.

Where are you, Robert? Robert McCarthy - Stifel, Nicolaus & Co., Inc.: I'm on a – well, it's the city formerly known as Boston. It's now known as Hoff (32:52). So I'm enjoying the beautiful, beautiful weather up here in any event. So I guess first question is when do you think you're going to be able to have kind of a credible outlook for 2017. I mean, usually it depends, sometimes it's the first quarter, sometimes it's the third quarter, sometimes it's towards the end of the year.

Yeah. That's – yeah. Yeah. What... Robert McCarthy - Stifel, Nicolaus & Co., Inc.: It depends on what it depends, but I mean, maybe this year, can you just give us a sense when you can see the lights of the eye, so how you think as the year plays out what are the qualitative factors?

Well, I don't know that we can tell you definitely, but we like to look at second – this is such a seasonal business, we like to look through the first half and then talk about what we think is going to happen. Now, sometimes, like last year, we weren't able to do that until the third quarter. But let's say our traditional is we like to look at the first half. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: All right. We'll leave it there for now. And then on the technology spend side, kind of the question there is have you seen – and you have cited some interesting, well, not anecdotal, but I guess incremental disclosure in terms of some of the metrics you use to show better sales outcomes, et cetera, less square feet. But have you seen productivity pick up on your sales force in terms of measures, in terms of just maybe the contracting base, automating functions of the contracting base where your service rates are high and your sales force can be put to more productive use and kind of closing new sales? Anything along that line?

A.J., here's your opportunity to talk about your approach to the sales force.

Yeah. That's exactly the point. Interesting, I visited probably about half or a dozen contractors in just this year so far. And when you sit with them and you explain to them the intent and the context and the spirit of these investments, which is to help make them more efficient in the field and make it easier for them to do business with us, and in turn, as byproducts that make our sales force more efficient, which again is helpful for the customer because then the sales force can help with more value-added-type requests, expedite orders, check on orders, bring new business, or go hunt for more business. So, that's exactly the intent of these investments. And it's starting to play out. Of course, we want to accelerate, again, how quickly we can realize the value of that. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: And then, finally, just in terms of the technology spend. I mean, are some of the OEMs engaging with you on some of these technology investments? Are you cross-purposes? Can you kind of talk about, particularly on sensing technology, where there could be some channel conflict, but also some channel cooperation, or how do you go about it?

Well, it's a great question because since we're the innovator of this technology strategy, the OEMs had to be part of this because, if you look, out of 500,000 SKUs that had information had to come from them. And in some cases, at the beginning they were reluctant, but as they got more involved with this, they cooperated. And I think, A.J., you can confirm this that we have full cooperation, at least of the majority, of what we do. And others we think that aren't cooperating will cooperate because it's such a great opportunity for them. And A.J., you can improve that.

Yeah. I would say, absolutely. We've spent time with the senior leaders of our OEM partners and other parts and supply vendors and with their technical teams, and finding ways to collaborate where really it's one-plus-one-equals-three opportunities where our investments alone or our investments plus their investments can really create some unique things that couldn't be (36:41) done independently. And now, we have the talent and the resources to make that play out in an impactful way.

Maybe there's something else that's on my mind about that question because we have these 500,000 SKUs, which we believe could eventually double. There's a lot of talk in the press about technology companies like Amazon displacing the traditional businesses, I don't think it's very easy for anybody to come along and duplicate the product information and the digitation of what we have and the knowledge of the industry that we have. And I think that sort of advantage will accelerate and improve our competitiveness, not only against our normal competitors but also against people that might come into the industry. So, to us, that's not only an offensive play but it's also a defensive play to develop this technology. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: One question then just last question that came up on the M&A. Obviously, it looks like you paid south of 14 times by my estimates of consolidating another 10%. So, that's an accretive acquisition and on the basis of debt...

No. No, that's not – we didn't pay 14 times. We didn't pay double-digits. We did not pay double. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Okay. Okay. Well, that answered my question there. But still that's a high ROI investment, right, particularly when you're trading at kind of the 16 times range. But, I guess, from your standpoint looking at M&A, you sound very bullish. Do you think this is a good environment in this Trump era for people to sell? I mean, obviously, for the bid-ask to kind of work, number one, you probably need the asset to mature, and it's an event whether a family patriarch passes on, or whatever the case may be where there's an opportunity for it to happen. But then also you have to have a positive view of your underlying business prospects for kind of the bid to be there. I mean, do you think it's going to be a good environment for M&A, for you, over the next 18 to 24 months from your perspective?

Well, I'm not sure I understand entirely, but I can tell you that I believe it's important when we visit with wonderful companies that we want to be part of our family, we bring them the technology, we show them. And we think it's an advantage for them to be part of us, to take advantage of that technology. And by the way, it takes a lot of money, you've heard us talk about that, to get this technology. So I think it's an advantage in the M&A world, plus our culture of decentralization, plus the fact that when we buy a great company, we respect the sellers and we follow him and we invest in him. When I say him, it could be a company, it could be an individual. And so, our reputation, and we've done over 60 of these acquisitions, is very good in what happens post acquisition. But the new thing is this technology that we've spent so much money and that we're continuing to spend that we provide for them to use against their own competitors. So, yes, very positive. Anytime there's a distributor that deals with contractors to an end market like the one we're in, we have a great asset, we believe and we have an advantage over others that haven't developed this sort of technology. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Thanks for your time.

The next question comes from Chris Dankert of Longbow Research. Please go ahead.

Morning, Chris.

Hey. Morning, guys. Thanks for taking my question. I guess, my first one would be more targeted at A.J. here. It's kind of nice to see some of the tech metrics you highlighted in the end result of 2016. I guess, beyond the inventory reduction, is there any kind of goals you'll be highlighting for 2017? I mean, the first thing that pops out is the BI use performance 7 times better than guys who aren't using BI. Why isn't everyone on that kind of thing, I guess? So, anything you want to comment on tech in 2017.

I liked that last question the best is, if there is 7 times outperformance, why isn't everybody else using it to outperform. And again, it goes back to the culture-change question, right? I mean, there are early adopters and then there's the laggards and then there's the 70% in between. I think, at this point, we've done a pretty good job getting the early adopters on-board. And we're focused now on that 70%. And that's both internally and amongst our customers, which is a lot of the stuff that's customer facing. But the internal stuff, such as the supply chain technologies and the order fulfillment and usage of BI, that's all within our control. So, our leaders know exactly what our targets are and we have big goals in terms of adoption and what kind of value that's going to create when they are adopted. And most of the customer base, again, we set very aggressive goals in terms of getting our companies to help drive this through their customers and their customers' businesses. I don't think yet we want to share exactly what those numbers are, but they're aggressive. And while we hope that we can accelerate the pace, we're still careful to say we're still in the early innings of all this as well.

Got it. Yeah. I know it's all very touchy as far as how much you want to disclose, but thanks for the color there. And I guess the follow-up I've got. Have you guys seen any disruption? Is there any kind of disruption of risk? I mean, you guys highlighted reducing square footage by 500,000 square feet. I'm assuming there's probably some other moving parts of that CapEx spend. I guess, is there any risk to the customer disruption in 4Q or 1Q here?

No, I think – sorry.

First, let me just say, generally speaking, that's what we reduced with branches we've opened over a year. Now, we have been adding branches. That's not in that number.

Okay.

Yeah – sorry, go ahead. Go ahead.

Go ahead.

So I was going to say, the reduction in square footage is not for the sake of reducing square feet. It's because we are taking math and science in a data-first approach to the business, the facilities, our processes, and so forth, and optimizing its base requirement and optimizing the processes in the branches, all for the sake of creating a better customer experience for the 90,000 customers we do business with or 88,000 customers we do business with. So these are all about being a better company, right? So I don't believe there should be any disruption to how we serve customers. I think it's the exact opposite that we should be able to be better with our customers with a smaller footprint or more efficiently whatever that requires based on the situation locally.

I got you. I mean, the question had been – I mean, it's more about long-term, of course. I think everyone sees the benefits of improving the utilization of your current asset and that kind of thing. I meant it was – I think it was more kind of a question for short-terms, some were I think concerned about little variations in sales this way or that way and if it could be explained by moving where you're sourcing product from this to that if it kind of could help us waive some of those concerns. So, that was kind of the thrust of my question.

Either way. We had a conference late last year on the topic of technology, which was conducted by Watsco in Miami. It's on our website. You can click it on and get a much more in-depth understanding of what we're doing technology-wise.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks.

Well, thanks for attending. This is a longer conference than we normally have, and I really like that, give us a chance to answer your questions and to deal with whatever issues are out there. But we're very optimistic. We feel good about what we're doing, and we want to remain as the leader in the distribution of HVAC products. Thanks again. See you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.