Watsco(WSO_B) - 2023 Q3 - Quarterly Report

Financial Performance - Revenues for Q3 2023 were $2,126.8 million, an increase of 4% compared to$ 2,035.8 million in Q3 2022, with $17.9 million attributed to new acquisitions and$ 1.7 million from new locations opened [81]. - Same-store sales for Q3 2023 were $2,107.2 million, reflecting a 4% increase from$ 2,033.3 million in Q3 2022 [83]. - Gross profit for Q3 2023 was $566.9 million, a 3% increase from$ 550.8 million in Q3 2022, with a gross margin of 26.7%, down 40 basis points from 27.1% in the prior year [84]. - Revenues for the nine months ended September 30, 2023, were $5,693.1 million, a slight decrease of$ 12.5 million or 0% compared to the same period in 2022 [90]. - Same-store sales decreased by 1% to $5,650.0 million for the nine months ended September 30, 2023 [91]. - Gross profit for the nine months ended September 30, 2023, was$ 1,577.7 million, down $19.0 million or 1% from the previous year, with a gross margin of 27.8% [92]. - Net income attributable to Watsco, Inc. rose by$ 13.3 million, or 8%, in Q3 2023 compared to the same period in 2022, driven by higher revenues and lower selling expenses [89]. Acquisitions and Growth Strategy - The company acquired Capitol District Supply Co., Inc. in March 2023 and Gateway Supply Company, Inc. in September 2023, contributing to its growth strategy [78]. - The company operated 691 locations as of September 30, 2023, an increase from 675 locations a year earlier, with 19 locations acquired and 5 opened during the year [80]. - The company acquired substantially all the assets of Gateway Supply Company, Inc. for a net purchase price of $106.3 million, consisting of$ 4.0 million in cash and 280,215 shares of Common stock [118]. - The company acquired Capitol, a distributor of air conditioning and heating products, for a total consideration of $3.1 million in cash and$ 1.9 million for repayment of indebtedness [119]. - The company continues to evaluate potential acquisitions and joint ventures, believing its financial position allows for obtaining additional debt financing or raising capital through equity securities if needed [120]. Expenses and Financial Management - Selling, general and administrative expenses decreased by 1% to $319.8 million for Q3 2023, with a same-store basis decrease of 2% compared to 2022 [85]. - Selling, general and administrative expenses for the nine months ended September 30, 2023, decreased by 1% to$ 911.0 million [94]. - Net interest expense increased by $1.4 million, or 291%, in Q3 2023 due to higher effective interest rates and increased borrowings [87]. - Cash flows provided by operating activities decreased by$ 95.6 million to $263.3 million for the nine months ended September 30, 2023 [105]. Market Conditions and Challenges - The company experienced a 1% revenue impact in Q3 2023 due to supply chain disruptions, with an estimated 3% impact for the first nine months of 2023 [73]. - The company anticipates continued challenges from inflationary pressures and supply chain disruptions affecting product availability and lead times [73]. - The U.S. Inflation Reduction Act of 2022 is expected to increase demand for higher-efficiency HVAC products, with$ 4.3 billion allocated for state-administered consumer rebate programs [72]. Shareholder Returns and Stock Management - The company paid cash dividends of $7.35 per share on Common and Class B common stock during the nine months ended September 30, 2023, compared to$ 6.35 per share in the same period of 2022 [121]. - The company has repurchased a total of 6,370,913 shares of Common and Class B common stock at a cost of $114.4 million since the inception of the repurchase program, with 1,129,087 shares remaining authorized for repurchase [122]. - The valuation of the RSI Shareholders' common stock was approximately$ 426.0 million as of September 30, 2023, based on the criteria set forth in the Shareholders' Agreement [116]. - The company has the discretion to fund up to 80% of any purchase from the RSI Majority Holders using Watsco Common stock, with a limit of $125.0 million on the amount of RSI shares that may be sold during any rolling 12-month period [117]. Other Income and Financial Activities - Other income increased to$ 9.5 million in Q3 2023 from $6.9 million in Q3 2022, reflecting the company's 38.1% equity interest in Russell Sigler, Inc. [86]. - During the nine months ended September 30, 2023, the company issued and sold 45,000 shares of Common stock under the ATM Program for net proceeds of$ 15.2 million, with $284.7 million remaining available for sale under the program [113]. - The company entered into a second amended and restated sales agreement with Baird, removing GS as a sales agent under the ATM Program [114]. - There have been no material changes to the information regarding market risk since the last annual report [123].