Good morning. Welcome to the Watsco Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Al Nahmad, CEO. Please go ahead, sir.

Good morning everyone. Welcome to our fourth quarter conference call. This is Al Nahmad, Chairman and CEO and with me is A.J. Nahmad, President; Paul Johnston, Executive Vice President; and Barry Logan, Senior Vice President. As we always do before we start, the usual 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. 2018 was another record performance year with sales, operating profit, net income and EPS all reaching new highs. 2018 also represents a milestone marking Watsco’s 30-year anniversary in distribution of HVAC. If we reflect for a moment on a distribution history, we have accomplished much as evidenced by gaining the industry leadership position, while generating a 30-year compounded total shareholder return of 18%. I would like to repeat that. We have gained the industry leadership position and we have been producing 18% compounded returns for our shareholders for those 30 years. While that is a heck of an accomplishment, we passionately believe Watsco is still very much a work in process, substantial room to grow or exist given our moderate share in the $35 billion North American market, great family businesses exist in this industry many of which were founded more than 20 years ago. It would be very satisfying to associate with more of them and sustain their legacy as part of Watsco. We also have strong OEM relationships and in many cases I would say in most cases, Watsco is the OEM’s largest customers. We also believe that we are still far from reaching our full potential and scale with our OEM partners. Furthermore, in recent years, we have developed a culture of innovation and have launched…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Robert Barry with Buckingham Research. Please go ahead.

Good morning Robert.

Hi guys, good morning. Congrats on the 30 year anniversary.

Thank you.

So I am just trying to think about the growth rate going forward here, I mean given what’s happening in Florida and I guess Latin America too, do you think this 3% growth you posted in the quarter is kind of how we should think about where the business will be growing at least in that kind of near-term to medium-term?

Yes. I hope that way and we certainly don’t think that way.

I mean it sounds…

I mean these markets change from time to time. And the only thing we have found over the last 30 years is we are steady. Sometimes we grow at a faster rate than in other times, but we always grow. But I wouldn’t be happy with 3% growth rate in revenue.

I mean is there any release insight on the pressures that you are facing in Florida?

Mr. Johnston?

I don’t – the pressures we feel in Florida just there was a slight slowdown last year towards the second half of the year. Obviously, 6 months does not make a trend for Florida. It’s going to be hot in Florida this summer and our full expectation is that we are going to recover what Florida will recover and our sales will grow again.

In 2019, I mean what do you think would cause it to improve, it seemed like it was down double-digits in the quarter?

In which quarter, Robert, absolutely not…

I was just rough math, it seems like the business grew 3x or 7x Florida, I don’t know exactly what percentage is of the business, but I mean big picture I guess it’s causing some real pressure, I am just curious what you think would cause the pressure to alleviate?

Al, I think we have answered that.

Yes. I just think it’s going to – we went into a slight downturn in the State of Florida in the second half of 2018. And it’s our expectation that we think it will try to normalize again in 2019 and we will grow our market share again as we always have in Florida. For us it wasn’t the market share issue, it was a market issue.

Not only that when we first started we were primarily a Florida business and we knew that we have risk in focusing on one geographic area, an area to produce steady results we have decided very actively extended our distribution throughout the nation. So sometimes you don’t have stock markets in part of the nation, sometimes you will have strong markets that’s what happened to us this time. So I feel very confident that because we are diversified in geography that we will just be a steady grower in a steady strong market.

Got it. I guess my other question…

Robert, I just wanted to – Robert, it’s Barry, I just want to clean this up so we are clear. There certainly was growth in Florida in 2018 and as Paul suggested, the second half is equal to first half in terms of growth rates and that slowness affected earnings because the infrastructure is built at a higher level and that can be addressed. While the American markets are the ones that had sales declines in 2018 and an earnings decline after really 4 years or 5 years of pretty incredible growth. And so that team has the same task reacting and to market conditions reacting with SG&A and reacting with market share and moving forward. So I will make it very clear about growth in Florida this year.

Okay, okay. I guess my other question is really just on the SG&A performance seeing that grow above the rate of sales or close to it, just curious what the goal is there I know you had spoken about 250 excess headcount that you are going to try and work down, curious where that stands and just what the expectation is around the SG&A growth going forward? Thank you.

Barry?

Well, again, Robert, the concept was during this technology says the last few years was to have our team in the field prepare and do and execute and prosecute all this stuff as they saw fit and we did add headcount throughout that period of time and the technology headcount plus the 250 people you are talking about. So now the challenge is make something of it. it’s not cutting headcount, it’s not reducing the workforce, it’s asking our leadership to go back out in their 2019 execution and plans to make hay out of those investments as well as be wise about growth versus SG&A growth. So we have done that. We have asked for that. They have produced plans. We are comfortable going into 2019 that will be a better spread between sales and SG&A. In February, we are not going to project that out for full year, because in the market we really shift for us shows up in spring and summer, but those plans have been laid for 2019.

Got it. Thank you.

Sure.

The next question comes from Brett Linzey with Vertical Research Partners. Please go ahead.

Hi, good morning guys. Hey, just want to follow backup with the Florida Latin America, so just to be clear so Florida did not decline in Q4, was all just a Latin America issue, is that correct?

That’s correct. Yes, that’s correct.

Okay. And could you maybe size how large Florida and Latin America are as a percent of sales and then I guess the follow-on to that is what really is the root cause there? Are you seeing increased bridge coverage from competitors in those particular regions and then any sense as to what the markets did in the quarter?

Barry?

Well, there was a lot there in the question. So we will focus on Florida, about 20% of our locations are in Florida. So if you want to impede something, you can probably use that as a baseline number one, which would make it approaching $1 billion business. And obviously if you look at any competitor in our market in Florida, there is nothing that’s close that I think is going to irritate market share to the extent that anyone might wish. And as Paul just said a point blank, we did gain share in Florida, we can see the industry data we know our unit data and are comfortable with saying that. So it is a market issue in the second half that simply needs to be reacted to. And the Latin American markets, again, I think our 10-K breaks out some of our foreign operations as percentages. It’s in the probably the 4% to 5% range. You can look at the 10-K and verify that and validate that. It is a profitable market and again has been growing exceptionally well the last few years and it’s part of Mexican politics in terms of the elections. And I think now that, that’s been settled that’s something that our team can move forward on with knowledge and what they are doing and you also have a weaker U.S. dollar in some of these markets that makes our products more expensive in those markets. And again that’s a reaction that OEM and distributor and customer and our teams react to in those markets.

Okay, yes, appreciate that color. And then just in terms of the field level incentive comp for 2018 bit of a headwind here in Q4, what was the total spend for 2018 and does that continue into ‘19 as incremental spending headwind?

Barry?

Alright. Well, again, it is a pay for performance culture. And when we talk about incentive pay at the field level, it starts with 570 branch managers, it starts with their teams, their regional managers and their leaders and the markets. There is about 30 such divisions that operate P&Ls within Watsco and many of those 30 had very good years versus last year and many of those 30 have earned and paid incentive compensation in excessive of last year. So that’s really a scorecard on how well much of the company did this year versus last year and we have given you some insight into the data behind that. So, it’s simply that our pay for performance being better this year in many of those regions and for next year, 2019, I hope all 30 hit their budget, I hope all 30 have incremental incentive pay. I hope all 30 reach those targets, because it will be good for Watsco, but obviously in ‘18 you see a couple of large penalties in two big markets for us and but that doesn’t mean the rest of the company didn’t deserve an earn and get paid more incentive comp.

Okay. So all the catch up was basically in 2018 and nothing else expected in 2019 until you kind of prove it out, is that the right way to think about it?

They must grow EBIT, they must generate cash flow to earn and the answer is yes.

Okay, great. I appreciate it guys.

The next question is from Ryan Merkel with William Blair. Please go ahead.

Good morning, Ryan.

Hey, good morning everyone. I am sorry to ask more Florida questions, but just want to be clear here. It is your biggest market. So, did trends sort of level out and stabilize in the fourth quarter, is that the read here?

Paul?

Yes. In the fourth quarter, we did see a pickup in the quarter, which brought Florida overall as a market for the year at about even to 2018, so, yes.

Okay. So things are getting worse potentially stabilizing, can you comment on what’s the whole state of Florida week, because I heard it was mostly South Florida, can you just comment there?

Well, we don’t have that level of expertise to be able to give you that. I don’t think it was a pretty much across the board Florida weakness that we saw in the fourth quarter, maybe a little bit stronger in the north, but not a big move. I mean, the downturn wasn’t as severe with just a very small downtick, which we haven’t experienced in several years.

And you don’t view this as a leading indicator for the rest of the HVAC industry at this time?

For the rest of the HVAC industry at this time, I would say no. I think in most areas of the country, we are still seeing buoyancy from the replacement market that’s going to continue to grow. We have good analytics and we use our analytics internally for our strategy sessions and we feel pretty good.

Okay. And just secondly you mentioned growth initiatives you are initiating with supplier health to take share can you just expand upon that a little bit?

Really, those are best kept secrets until we launch them and it’s just not something that we want to present out. Be glad to talk about them at the end of the second quarter at the second quarter call, because by that time we will implement at them and they will be out in the field.

Yes, no that’s fair. Thanks. I will pass it on.

The next question comes…

Hello. Did we just lose?

Hi. The next question is from Stephen Volkmann with Jefferies LLC. Please go ahead.

Good morning, Stephen. Hello?

My apologies, a slight technical error. If Stephen Volkmann would mind getting back into queue, I will put you on next. Right now, we do have David Manthey on the podium from Baird. Please go ahead.

Hey, good morning.

Hi, David Manthey. How are you doing?

I apologize. Jeff Hammond is on the queue, KeyBanc Capital Markets.

Good morning, Jeff.

Hey, good morning.

We will get it right.

So I guess looking more broadly away from just the Florida and Latin America or maybe that simply answers the question, you can see that the AHR and Hearty data better, but it just seems like the industry data has been much more robust. On a unit basis even then your total growth I imagine you had some price in there. So I am just – as you kind of analyze market share shifts, what’s kind of driving the apparent share loss?

Did you hear that, Paul, apparent share loss?

I sure did. Apparent share loss, I don’t go with that, Jeff. But I do have good data looking at the entire country, and frankly, what we saw was a more normal growth rate in a lot of our smile states in the Sunbelt. When you got up into the Midwest up around the Cleveland area, and Detroit, Michigan, Illinois, those states were up strong double-digit that we saw – we saw some states, some states in the Midwest up 25% to 30%. So, those states that had a – have a weather impact to them grew faster this year. We saw very strong sales throughout our Northeast, and New England, parts of the –

But that is smaller part of our overall.

Yes, they just don’t represent enough to overcome what we have in the Sunbelt. We’ve always been a very, very strong player in the Sunbelt as you know. So, I would characterize it as say a year where you had – you didn’t have a flat growth rate across the board, so when you see the entire industry up X%, it could be up 20%, 25% in some states and flat to down some in other states.

Okay. Just on free cash flow, it looks like working capital was pretty big use this year, inventory build. Can you just kind of speak to that around the inventory levels and –

Barry?

Sure. Well, there’s two things, Jeff. Obviously, the units that we own at the end of this year are at a higher price. So that would drive some inventory investment. Also coming into this year, we would – we did decide to use our balance sheet and bought some products at the closing bell, so to speak, in December that averts a price increase heading into 2019. So that lets us have some either profit or competitiveness in our pocket going into 2019. And so that’s on the inventory story. There’s also a tax story, which we explained in the press release of the timing of tax payments between last year and this year, that’s about $100 million swing in working capital if you compare year-over-year. And that’s just really something that happened in 2017 from the hurricanes that didn’t recur in 2018. So, moving forward, cash flow will not have any influence like that. And if we work inventory down from this point, which we expect to for the rest of the year, this is going to be a strong cash flow year.

Okay. And then if I could just fit one last one in. Barry, can you just kind of re-explain the non-vested restricted stock line item. It seems like it kind of – if you sum it for the 4 quarters, it doesn’t equal the year, and I know that kind of swings the kind of full-year EPS a little bit. If you could just help us understand that?

Yes, well, again, this is Barry, the accountant for a second [ph], Jeff, I appreciate it, appreciate being able to do this for you. Restricted stock obviously is a percentage of our outstanding common stock and the accounting for the restricted stock is really done through the EPS line. The numerator simply as a matter of – for EPS is, takes our income, subtracts what’s allocable to restricted shares, and that’s the numerator for net income and EPS. But, if there is a quarter where our cash dividend exceeds earnings, that is also accounted for in the numerator for EPS. So, a quarter like what we are just in, where our dividend rate exceeded our EPS rate, there is a small – there’s a $0.03 hit in that quarter for that impact. It doesn’t affect the year, it doesn’t affect the first half of the year, it just affects quarters, that algebra affects quarters, where that’s the case. So, that doesn’t make any sense to you at all. I can explain it again, but what I want to say is this, in the first quarter of 2019, where our dividend rate is now $1.60 compared to if you look at what consensus EPS is, for example, the dividend in the first quarter will exceed that and we’ll have to do the algebra and when you build a model, you love to do the algebra for that, just for the quarter, it does not impact the full-year. So again, feel free to call me back and we can go through it, but it’s something that has to be carefully modeled in the first quarter as we head into 2019.

Okay. Thanks, Barry.

The next question is from Stephen Volkmann with Jefferies, LLC. Please go ahead.

Hi, Stephen.

Good morning, good morning, guys. Can you hear me this time?

Perfectly.

Alright, great. It’s always fun to be speaking out into the ether with nobody there, but fine, anyway thanks for looping me back in. Couple of quick things. Barry, you – I think you mentioned a couple of times, I just want to make sure I understood this correctly that you have planned set-up to sort of size the business or sort of react accordingly relative to what you’re seeing in places like Florida and Latin America. And I’m just curious if you can expand on that a little bit, I think you mentioned something about gaining share, but is there something to do on the cost side as well and should we be modeling maybe some slight declines in SG&A or something as a result of this?

Well, again, it’s talking about culture to answer it initially and the answer is yes though. We expect that in these markets that our leadership react on the cost side, because that’s how you can help grow earnings. The more definite opportunity is to grow sales and then make, hey, during that type of a period, and really use these conditions to fire things up and gain share. So, both are going on. It’s not one or the other, it’s absolutely both. So, in terms of materiality to the whole picture into 2019, I think culturally, again, we’re pushing for better SG&A performance, just in general, and in these specific markets, the – probably the efforts will be that much more. But this is a really universal kind of leadership challenge we’ve put out across the 30 business units and having the culture react to the conditions and not just these individual markets.

Okay, good, thanks. And then maybe if I could just switch to some of your technology investments. I think you said in the release something like 30% of your business is going through your digital platforms, I think I’ve heard that right. And I’m curious, I’m sure that’s a rounded number, but I’m curious how that sort of trended through 2018 and what type of curve you think we should think about going forward? And maybe as a quick follow-on, I’m guessing it’s probably a lesser number of your overall customers, who actually do more business with you. So just, I guess, I’m trying to get to is, are you satisfied with the take-up at the customer level? Is there more you could be doing to shift people in this direction, and just any commentary around that?

Well, I would say there is no question. We’re doing – going to do more. The trend is certainly there and we’re going to – it’s such a great digital platform we’re going to be very focused on growing the e-commerce. It’s – no one can do that much – as much good as we do with that, the information that we provide when you – along with e-commerce, what we call the PIM, Product Information Master. So, it’s a very valuable tool for our contractors and it’s – and we certainly expect further and further adoption. Wish I can say it’s all going to be adopted in next number of months or years, but it’s just hard to say. But I think it’s such a useful tool for contractors and we are so passionate about helping our contractors. And we’re just going to continue to improve the technology they have and teach them how to use it and be their partners in the learning curve. So, the answer is yes, expect that – expect growth beyond the 30%.

Has the uptake been slower than you might have hoped for?

These are all – I could make up a story, but I just don’t do things like that. We don’t know. We just went up and did this. Nobody has done this in our industry to the scale that we have. And we’re very happy, I mean, we started this, what was it A.J. 4 years ago?

Right.

And now we’re $1.2 billion of our $4.5 billion business. I mean, it’s satisfying, it’s gratifying. Do I think it’s a great service to the contractor? We absolutely believe that. Do I think we’re going to have much more adoption of it? Yes. Can I tell you when that’s going to occur? You guys ask those questions and we try to answer them, but we really don’t know, but if the trend is followed, it’s going really good.

Okay. I appreciate the color. And maybe Barry, is there any meaningful change in spending on these things going forward in 2019 versus 2018?

Well, there is one –

Go ahead, Barry.

Go ahead, A.J.

No, just one – maybe I can give some context since we’re talking technology. So first, we said from the beginning that we’re a long-term company and this is a long-term program to really modernize our business it’s not just technology, it’s people, process, technology and being competitive in 2019 and for the next 20 plus years, 30 plus years. So this has been a very deliberate and very important process for us. We have been very cautious in our approach. We have been risk averse on how we do this, we are okay taking our time and trying to get it right. And over the last 4 years or 5 years really what we have done is reestablished a foundation of who we are as a business and what our capabilities are. Business intelligence, data analytics, e-commerce that you mentioned, product information management where we now have 800,000 or so SKUs and that’s in our database or our contractor apps or our apps on our warehouses, these are all platforms that have all gone through the cycle of due diligence in design and development and essentially rollout and now adoption. And again there has been serious adoption of some of these tools, right. We have 2,000 people using our business intelligence tools. We have got 30% of our sales online to your point earlier, it’s about 15,000 contractors using this tool. We have got almost 100,000 contractors using our apps last year, I know it was over 1 million times. Even our ERPs are now on the latest version of software for the first time in a long time. And we have got a new web service. I won’t go down the technologies. But the point is that we have got this new foundation that’s kind of materialized that can put us in a position to do new things, right. Take on new technologies or modern technologies to modernize our core business processes to gain efficiencies operations or warehouses, logistics, pricing, how we manage credit and payments, everything on those lines. And then it puts us in a position to take advantage of cutting edge best of breed technologies to really help our customers. And whether that helped them gain efficiencies, bring them new products to sell, bring them new ways to sell product, new ways to grow their businesses. But we have got these 15,000 customers buying online, 90,000 in total. These – I guess where we are in the life cycle of technology is we have now re-established sort of our capabilities that and we are positioned to take advantage of more sales, more margins, lower cost to serve, all of the focus that’s helping our customers. And the customers feel that and that’s why they are buying online that’s why the adoption rates are where they are and continue to tick up.

Great. Thank you. I hope passing on it. I appreciate it.

David Manthey still has the question for the speakers. Please re-enter the question queue. Next we have Ronald Newman a private investor. Please go ahead.

A former employee.

Hi Al, Barry and A.J., I just – I don’t have a question, I am just calling to congratulate you on the 30 years in the industry and absolute amazing things you have done in it.

That’s nice Ronald. We miss us, how long it’s been.

Right, it’s been 20 years.

20 years since you left, well.

Yes. Anyway I just wanted to – I knew that I could get all of you at the same time on this call that’s why I joined in. I don’t want to distract from the questions, but I think it’s great.

Say big hugs to your wife and your boy. He is not a boy now, he is a big man I guess.

45 years old.

Okay.

Alright. Congratulations again. Bye-bye.

Thanks. Thank you very much.

The next question comes from Dave Manthey with Baird. Please go ahead.

Hi Dave.

Hi, good morning, there is a tough act to follow there, but I will bring it back to the questions about the quarter here, so first off, price mix has been very strong for you likely, can you give us an idea of what price mix contribution was in the fourth quarter and then what your expectations would be for 2019 as you look at it right now?

Who will answer that one, Barry or Paul. Hello, do you guys have the line or are you blank again, somebody is on…

It looks like everyone is still on.

Yes. But they couldn’t hear me. So I don’t know what’s going on. Barry, are you still on the phone?

They are still connected.

Madam they are connected, we are not hearing them.

Right.

And we are not hearing them.

Okay. Let me troubleshoot a moment. While we are waiting out, let me add to the congratulations on 30 years.

Okay, thanks very much. It’s been the joy, but I will tell you this I am more excited about the next 30 years and I am about the last 30 years, this technology stuff is really a great way to embrace our customers in the way that very few can do. And I hope to be here another 30 years, how is that?

That sounds good.

Where are you physically?

Still in Tampa right now.

Is it cold?

Yes, little chilly this morning, supposed to get up to the mid 70 though by this afternoon and next week is probably the 80, so yes, it’s real nice.

Nice. I have a false part of my heart for Tampa. I used to spend time there.

As you know, lot to goes my inspiration and move to Florida in the first place so thanks for that.

Wow, if I knew I forgot, but nice to hear. Thank you. I don’t think we have ever had this kind of a technical breakdown before.

Right. We are rejoining Barry Logan to the conference and when he is back in. I will let you know.

Barry, go ahead and answer his question if you remember.

Let’s dial it back and I think maybe I have to hear the question.

Hi, Berry, it’s Dave Manthey here. My question was price mix has clearly been very strong for you lately, any comments about what it was in the fourth quarter and then as you look to next year would you still expect, I don’t know low to mid single-digit kind of positive contribution from price mix?

Yes, I think in again I rather speak to the year than on the individual quarter Dave just to be a little careful about it, but it’s been kind of at a mid single-digit price for most of the year, I think the fourth quarter is similar and it’s above average from any recent year or normal year I would say. So that would be a little more moderate heading into next year. And again, let me just say this also in the context of that. If I take Florida out of the fourth quarter, our equipment business grew almost 9% in the quarter. So there are some real positives going on part of that’s units, part of it’s price for next year, I think of something more normal based on what we are hearing and saying so far in February still early, but that’s what we see.

Yes, that makes sense. And then second about what percent was the international business down in the fourth quarter?

Yes. I would rather not implicate that story anymore than we have David. It’s off and it’s not a tsunami, it’s just a business that is great margin and in a short quarter like this it has a bigger impact than normal.

Alright. You said it was about 4% to 5% of annual sales and if it’s down double-digits maybe something like that?

You said it.

Alright. Well, thanks very much for all the time guys.

Sure. Are you still there, operator?

Yes. The next question comes from the Blake Hirschman with Stephens Inc. Please go ahead.

Hello, Blake.

Hey, guys. First off just on M&A it’s been kind of quiet, can you talk about the pipeline I assume there has probably been a gap between buyer and seller expectations holding back deal flow, but with overall housing outlook having softened a bit, have you seen sellers return to the table and become a little bit more elastic when it comes to the modes that they are asking for?

Mr. Logan?

Yes, it’s a – like I wish it was about money, it’s usually not. It’s really an emotional process and the timing – timing for a family and in terms of conversation, we would always try to meet what the owner’s expectation might be in order to make them happy and reduce risk going into a deal. And so then the real question is, is anything for sale, where are people’s emotions and so on. And I can tell you two things, we’ve put much more effort into prying loose, prying open some of those discussions and we’re having some success. Secondly, we’re using our technology story as an ingredient to that conversation, which again, I think is helping bring some success to those discussions. So like the press release does intimate, we do like the conditions, there is some good activity. I never want to jinx it by mentioning it or saying anything much about it, but we do like the conditions that we’re in and there has been I would say better actions and reactions going on in that respect.

Got it. And in the past, you’ve kind of talked about these three indicators of cycle health [ph] being margins, bad debt and mix. As of last quarter, it sounded like all three were hanging in there alright. Is there any update to provide on those?

Yes, well, mix again is a important one and it’s the, I think the 25th straight quarter, where we’ve seen improvement in mix. And what that means again is the percentage growth rate of high efficiency systems beyond the standards here, so, that’s a good benchmark for what consumers are spending and investing in their products with our customer. From a bad debt point of view, past dues, and so on, again, one of the healthiest years we’ve had and certainly current trends are – again remained favorable. And then price and mix – price and unit volume, if we’re growing gross profit margin, which we did in the fourth quarter and the year, our equipment business even more so than optically what you can see in our financials. Again, that speaks to the ability and capability of passing through price and gaining that. So, that is – those are positives that remain.

Got it. And then just lastly from me, on the UTX split, carrier obviously an important strategic partner of yours with the planned breakup now confirmed. Can you touch on some of the dynamics at play there? And some of the more structural or bigger picture impacts that would come as a result of them being a standalone entity? Thanks.

Well, if you’ve listened very carefully to the UTX report to the public, their CEO Greg Hayes, I think is very articulate on why they’re doing what they’re doing. And he also has gone further to say that a separate carrier means that they’ll be more aggressive in pursuit of share market, whereas as part of United Technologies, they were sustained – they had to sustain certain margins. He said such things. So, I expect a much more aggressive carrier and I think it’s good for us, good for the industry, and we’re going to be very strong partners of theirs. We’re going to invest whatever is needed to continue to be the great partner. In terms of other stuff like consolidation, it seems like that’s pooped out from what I know in terms of major OEMs merging or being acquired by others.

Got it. I’ll turn it over. Thanks.

You know, operator, A.J. Nahmad is not connected.

Okay. We will get him connected too. I apologize for that. It looks like he looks connected on our – so we’ll disconnect him and reconnect him. Thank you.

Next question, please.

The next question comes from Jeff Hammond with KeyBanc Capital Markets.

Hi, Jeff. Hello? Hello?

Jeff is on the podium. We have an operator who is working to getting him back on.

Barry, you’ve seen something like this before, it’s my first experience.

No.

Who – are these new people?

No.

No, these are unusual circumstances. I do see that A.J. Nahmad is back in, and Jeff –

A.J. you’re on?

I am on, yes.

Paul needs to be reconnected as well.

Okay. He is being reconnected now. And Jeff, can you hear the conference? Okay, we will get him reconnected as well. Okay, Paul is back online with us and Jeff will be shortly.

Jeff, are you on?

We are still reconnecting him.

Are there any other questions?

There are no other questions in the queue.

Operator, are any others connected to this call?

I believe that everyone is connected still. Yes, let’s see. Everyone shows up on my end is in conference except that Jeff Hammond is still idle. And the operator is attempting to get him back on. We actually do have another person who is under the queue. I will put his question on the podium. This is Chris Dankert with Longbow Research. Please go ahead.

Hi, can you hear me?

Yes, I am sorry about all these problems. We have never had this happened in the past.

This is actually Carl on for Chris. So I figured out to jump in front of and I had a chance, so you kind of talked about gross margin improving in the fourth quarter, it sounded like could you talk about maybe where price cost has started entering 2019?

Barry?

Well first there were some fourth quarter price increases that were implemented and again it speaks to how they pass through as gross profit did go up in the quarter. There are some first quarter price increases for some of our OEMs as well that play out more into February and March, but again maybe some moderate benefit and then our market test in April, May, June, but there is more price coming in not to the same extent, but I would say more normal pattern should happen this year and we will know more when it plays out in the spring.

Got it. Thanks. That’s all I had.

Okay we do have Jeff Hammond. He is with KeyBanc Capital Markets. Please go ahead.

Jeff, hi? Are you there, Jeff? Hello.

Jeff, your line should be open. You are in talk and in the conference recording.

Are there any other questions after this one?

There are no other questions at this time.

Barry, why don’t you call Jeff? Barry?

Yes, I will call him.

Call him, because who knows where this is going to end? And operator what can I say this is probably the worst connectivity we have had in 40 years.

And I just apologize for the – I am not sure….

Well, it’s not you to apologize, it’s the owner or the manager that has to know what is going on.

Right. And they will.