All right. Good morning, everyone. Thanks for joining us. My name is David Manthey. I am the senior research analyst with Robert W. Baird. On behalf of Baird, I would like to welcome everyone to the 2018 Watsco Technology Summit. As I mentioned, I am a research analyst for Baird. I have been covering distributors broadly for about 20 years and Watsco since 2000. So I often like to brag, even though I do not own the stock, I picked up the stock when it was trading at about $13. For the Watsco people, that is no big deal, but for everyone else, I will just let that settle in a little bit. What is good, sir? That is a post-split number. At the time, I was the only analyst that covered Watsco for a while, and Barry used to say that I was consensus at that point. Whatever my numbers were, that was it.
Thanks to an early 2000s visit here, to Coconut Grove and having dinner out on a patio out there looking out over the bay mid-December. Now, I am from Milwaukee, so I am sitting out in my shorts and my T-shirt, and the locals are all bundled up because it is 60 degrees or something. Thanks to that, I eventually moved. I live in Tampa now, and I consider that my due diligence for the HVAC industry, ever since. Today we are going to hear about some interesting technologies. Years ago, Barry used to talk about e-commerce. We are talking back in 2000 era, the e-commerce tools that were coming in and the impediment to that was the fact that the contractor customer does not have a computer in the cab of his truck, is what Barry used to say.
Now, of course, everyone has a computer in the palm of their hand everywhere they go, and that has created a lot of mobility and a lot of capability that we will talk about with some of these tools. As I see it, and I will not steal the thunder here, but the tools that I have learned about since I have been looking into this is, one, the contractor tools. So Watsco is offering tools to their contractor customers. Two are the tools that Watsco uses internally to make themselves better, more productive, more profitable. Three are some of these Watsco Ventures tools that are B2C, meaning the contractor customer to the ultimate end user customer, the homeowner, and we will hear some about that as well. With that, by way of introduction, again, on behalf of Baird, thank you for joining us, and I will turn it over to AJ. Thanks.
[Foreign language] Buenos dias. Welcome to Miami. Thank you, Barry, for bringing the sunshine. It was not called for today, so. Hopefully it will last because after we spend 3 hours talking Watsco and technology, we are supposed to walk across the street and treat you to lunch outside. So let us all hope for the best. Because there was not enough food out here, we thought we should- Or enough food last night. I do not know if you guys got enough to eat last night. So we are excited to have you guys here. We love telling this story. We are very passionate about this story and what we do. The story is essentially in the safe harbor, who is Watsco? What are we up to in terms of technology, which is critical to us? We talk about being a technology company that just happens to sell heating and air conditioning products.
What you guys care about is what's the impact of the strategy, right? What are we seeing in terms of trends and early returns and so forth? Key to this is also our culture. That's another message I really want to drive home today, and we'll talk about that a lot, long term is really the basis of our culture. That'll come out in the story today, it'll come out in the technology story and also the impact of the strategy story. To start, I thought I'd just tell you what we do for a living. What is Watsco? Seems like a basic fundamental question that we probably forget to describe every once in a while. The basics are like this.
Homeowners, building owners, if you have an air conditioning problem, you find someone to come to your house and diagnose the issue. That person is our customer. We have 90,000 customers across North America, Canada, U.S., Mexico, Puerto Rico. We export product to Latin America. That person will show up at your house, they'll diagnose the issue, then he'll come to our store to get the products he needs to service your system, whether it's a part or a piece or a component or a system, the entire piece of equipment or whatever he needs. He'll go back into your house and install it. We do a lot more than just sell them the equipment or the parts and the pieces.
This is truly a business partnership with these customers, we've got two of them here, by the way, who will share their stories with you and share their stories with Watsco with you'll get to pepper them with all sorts of questions. It is much more than just a store for HVAC contractors. It's a partnership, by that I mean that I believe a lot of our contractors rely on the people that work in our stores, the people that sell products, the technical experts for technical expertise, right? When an air conditioning contractor takes a motor out of your 10-year-old system, he may not know what that motor is or what motor is needed to replace it or how to replace it. They need wiring diagrams, they need instructions, so forth. We are there for them for that sort of technical expertise.
We help train them on products and other technical information as well as business training. We help them with their advertising and co-op marketing. We chip in with our OEM partners and ourselves and them to split help driving sales from marketing and sales perspective. We talk about having the right product at the right place at the right time. Having that in our convenience stores, by the way, we have about 563, which we'll get into. That's kind of table stakes, having the right product at the right place at the right time. It's everything else that we do on top of that, which we sort of refer to as the value stack, that makes us unique and different and interesting and exceptional for our contractors to choose to do business with us instead of our competitors. We have a lot of competitors.
We are one of, what's the number? 2,000 distributors across just the U.S. There's a lot of choices for contractors to buy products from. There's no obligation to buy from us. We have to win their business every day. The other piece I want to talk about here is sort of A lot of what you'll hear today, the format of this technology story, I like to say it as, we'll paint a picture of the as-was versus now how it is with using our technology. Sort of the old way of doing things, now the new way of doing things that we're enabling with these technologies. To paint a picture of as-was. Going back to that, you have a problem in your air conditioning system.
First, you're hot, your family is hot, you're miserable, you have to find someone to do the job for you. You look around, you find that person. You call, you schedule a time. That contractor says, "I'll be there between 10 and 12 or 10 and 1." They get on site, they open up the system, they poke around, they try to diagnose what's going on. They have a theory or a thesis of what's going on. Then they say, "Listen, if this system is under warranty, this will be a $0 problem for you. If it's not under warranty, it'll cost you $500." At that point, they have to get in their truck, they have to drive to one of our stores.
At our stores, historically, especially in a mid-June or mid-July day, they'll wait in line, eventually talk to one of our counter guys. They'll sort of co-diagnose the issue. Again, maybe he took the motor with him and says, "What is this motor? What do I need?" "Help me find the right product." They'll say, "Is this a warranty issue?" They'll search online, they'll do some discovery and say, "Is this system under warranty?" The contractor will then get back. If he says, "Okay, yes, this is the product you need," he'll get a pick ticket. He'll take that around to the back of the shop where the warehouse is.
He'll give it to the warehouse guys and say, "Please fill my order." The warehouse guys will take that pick ticket, walk around the warehouse, come back and load up the truck, 45 minutes later, the contractor is in. From when he came in, he's now out 45 minutes later, hopefully, he's back on the road to your house, where hopefully, he's got the right product. Hopefully, he knows the answer to the warranty issue. Hopefully he can get that installed for you, if not today, hopefully tomorrow. That's the old paradigm. There's a lot of friction in that path that I just told you. A lot of opportunities to do things better. You'll hear that story unfold today.
That's really what this technology or part of what this technology is about, is finding those pain points, asking customers where those pain points are, asking our folks in the field where those pain points are, leveraging tools and data and math and science and technology to alleviate those pains, take friction out of the process, and do everything essentially bigger, better, faster, more efficiently, and ultimately more profitably for everybody in the chain. You'll hear time and time again, it starts with a customer. This office on the ninth floor, we are not contractors. We don't have products in a warehouse. We don't try to sell contractors products. We are the guys that are going out into the field and saying, "Where are your issues? Where are your pain points?
Where do you see opportunities for us to do things bigger and better or faster or more efficiently?" That's a lot of what you'll hear today and how that's unfolding. Let Barry go through the next several slides.
Good morning again. Glad you're here. For those of you that are listening, it is a beautiful day out. The palm trees are swaying out there. This ocean is in fact, looks very inviting, pretty smooth day. That's what we're going to be looking at at lunchtime. Next year, come join us so you can be part of it. You missed some very good Cuban pastries this morning too, for those of you that were not here. This is going to be the 10 minutes of conventional investor meeting. Bear with me, endure through it. I'll take you through it, because the rest of the day really is about the innovation side of what we're doing.
It all needs to be grounded a little bit in how we think, a little bit of what our industry is, and you heard a little bit about transactionally what we do. First, we are the market leader in the industry, about three times our next competitor, about 10 times our tenth competitor in the country. Scale and those types of things have a value, and technology is a very critical part of what scale can mean for what we're doing. In terms of transforming customer experience, you'll hear that. We feel like we've always been doing that in some respect in an old school way. We were the first distributor to have multi-brand distribution in markets. The first to be a multi-brand owner with various OEMs as partners in our industry.
The innovation goes back, but now transforming how customers operate each day and their way of life is the next kind of stage that we're in, which you'll hear about. Unique ownership culture, I'll talk about this in a second. There's an immense amount of ownership in this room, not just in the institutions, but in the people speaking today, and the entrepreneurs that you're listening to today. A lot of us have been here a long time, and we're not vested yet, and I'll cover that. It's a very long-term ownership culture, very interesting, and I haven't found a comparable to it. I encourage you to look and see if you find one and let me know, but a very interesting culture from an ownership point of view. The OEMs that we sell, very deep ties to them.
We are the largest customer of most every OEM of any kind. It's interesting that we buy from these Fortune 100 companies and then sell to 88,000 small contractors who employ five, six people on their own. Maybe a half a million people every day might run into one of our stores. Think of that in terms of the technology story today that you'll hear. How will we better serve a half a million customers this year in all of our stores 24 hours a day? It's interesting. OEMs and becoming their technology partner, their conduit, their way of life into the marketplace. It's only becoming a more valuable channel for our OEMs to look at and say, "What do we do as manufacturers?" Very proven track record and capital position. I'll cover that. This is where we are.
This is about 563 locations in North America. Primarily a U.S. company. About 85% is in the U.S. Florida is where we've been the longest. It's where we started in 1989. Terrific market share in Florida. You can see the market coverage. About 107 locations, for example, are in Florida. The better part of the map long term is not where we are, it's where we're not. There's still about 20 states of territory where we have almost no market share, close to zero. Some very underrepresented markets still, even where you see dots on the map. We still don't sell certain manufacturers that we'd like to sell more of their products for them. There's still, as A.J. said, 2,000 independent distributors that are competing in these markets with us.
I'll bet that 1,995 of them are family-owned businesses, most of which we have some type of personal relationship with, certainly the largest ones. It's an important map, not just for where we are, but also for where we're not, and the growth trajectory that's possible in what we're doing. This is us versus our competitors. Again, scale does matter, we believe. We still represent products and brands in very local markets in a very local way. At this office, the question is, how do we help every store, every manager, every leader, every sales guy, every customer in these markets with our scale? Again, technology is a big access point to that. As far as barriers to entry, again, old school technology is new school way to continue to expand the moat.
This has always been a consultative homeowner transaction with a contractor that is there to solve human misery at that moment. It's not strategic. It's not large companies selling to large companies. It's a contractor at a kitchen table trying to solve a problem that day and doing that 7 million times a year in our case. Very local business, not a do-it-yourself business. We have a lot of brand exclusivities where we sell our products. Again, just the cliché, but if it's 24-hour solution, it's 23 hours too late. In fact, one of the measuring sticks that was in a screen back there is measuring in tenths of minutes how long it takes us to pick a product. That's, again, innovation that's going on to improve the entire fulfillment process for everything we do.
In markets, primarily, again, U.S. market, primarily replacement market in the U.S., and primarily equipment that is sitting in backyards, closets, attics, garages, that when they break, people want them right away. It's very much, again, a simple business from the point of view of where we are and what we sell. It's really the development of our company in these markets that's been terrific. Installed base is my favorite slide from a fundamental common sense point of view. That is that this is I'm showing 25 years. I could show 50 years. The installed base has never decreased. It's only increased every year since this thing was invented. 70 million, almost 80 million air conditioning systems, another 30 million plus furnaces. They're all going to break. Every one of them is going to have to be dealt with in some way.
Every human that has one is going to want a new one or have it fixed. Not a lot of discretion going on in our industry in terms of demand and consistency of demand, more importantly, over long periods of time. Our track record. By the way, we've been in this space and since the early 1980s when the building was built. Distribution came along when Al got a piece of mail sitting right over here. I opened the mail, opened up the piece of mail and said, "Let's go see the company that's for sale." It happens to be 40 miles north. In 1989 is when Watsco bought its first distribution company in this industry. We've never had an event like this here, a little bit of history telling of where it started right over there.
That first year, $64 million, this past 12 months, $4.4 billion, and compound growth rates of earnings and so on. We like the earnings growth rate compounding. We like the dividend growth rate, especially growing at 20%, the earnings growth rate around the same, 19%, our total shareholder returns over 25 years, 19%. If you look at it in five-year increments, we think that's pretty extraordinary performance. It's in the top 40 of all public companies out of 1,700 public companies. Very proud performance. Again, when we look at potential, aspirations, the ambition, the strategy, we certainly believe we can be double the size company we are. If I go back to that original map, talk about where we aren't, and manufacturers, again, that we're still developing with. Certainly, aspiration to be a $10 billion company.
From an EBIT point of view, business units today that are over 10% EBIT. As a corporation, certainly, again, a strong aspiration for EBIT of 10% or more. That's a far cry from where we are, but I might've said the same thing 15 years ago when we had grown 15%-20% a year for 10 years and said, "Here's what we think we can do." Long term, again, a lot of good perspective here. Cash flow. Our CFO is here, Ana Menendez. Her cliché through the years has been, "Cash is queen." Just a message. Cash flow has been good for 15 years, about $2 billion of cash flow versus $2 billion of earnings. Great consistency, dependability. Dividends is about half of what we use cash for. The rest is acquisitions, a small amount of CapEx.
Most of what we're doing is trying to invest here, and continue to invest in growing the business. It's a working capital-intensive business. That's where most of our cash goes, which is very safe, inventory and receivables. We like the safeness of it, even of the cash flow of what we put into our business. Last comment, again, investor meeting, conventional investor meeting will be over is, this is our balance sheet. Just I'm not going to go through all the data, but first, if you look at the debt position, debt to cap, debt to EBITDA, very conservative. We do not like debt. We don't like debt. We dislike debt. Because it lets us sleep at night, but also it lets us think about any opportunity that may come along to invest, to grow, to acquire, to partner.
It gives us very low cost of capital whenever we want to act on something. We doubled the size of our company in the middle of the recession with United Technologies because of that position, because of that thought process, because we were conservative. When we get questions about capital allocation, I'll say it again, we do not like debt because it lets us position ourselves to do almost anything that we may see come along. With that, we'll move on. Thank you.
I love this sentence, "Our culture defines us," and it is everything. Yeah. I'll explain that. It's a long history here. It's a long-term company. We want this to be a 100-plus year company. Our Chairman CEO, who's here in the first front row, got here in 1973, 45 years ago. I've been here 13 years, going on hopefully 63 years, and hopefully one of my kids or one of my nieces will be here for the next 100 years after me. Right? We think about this as a multigenerational company. Long-term thinking is at the core of what we do. I think it's good, and it's interesting and fun to tell the story of the history of the business. Our chairman started his career in New York, as a consultant.
Short story to that is that we don't have a lot of high regard for consultants. He got his break. A man hired him at W.R. Grace to help with acquisitions. W.R. Grace was a conglomerate in New York buying businesses around the country, or I guess maybe around the world. He learned the skill of M&A and went for W.R. Grace and bought a business in Indiana, a business in California, and maybe a couple others. He witnessed what he calls the New York syndrome takeover.
The New York syndrome, maybe that's not the proper name for it anymore, but is the idea that the guys in the ivory tower on 57th Street in Manhattan started making command and control decisions for these local businesses and regional businesses out in Indiana and California, and telling these businesses how to run their business, how to operate, and driving decisions from 57th Street. Ultimately ruined these great businesses, and ultimately ruined all of W.R. Grace. W.R. Grace does not exist anymore. His thesis became, "I now know how to buy businesses. I know the skill of M&A, and I can go buy businesses and not screw up these wonderful businesses by taking the opposite approach." Really respecting the entrepreneurs and the leaders of the businesses that we acquire.
Not pretending like we have the answers here, in this case, in the ninth floor in Miami, Coconut Grove. Enable those entrepreneurs to do what they do, ask them to grow because we're a public company, our valuation is determined by growth. Ask how we can be helpful. Right? Historically, that helpful meant do you need access to capital to take on more products or open more branches? We are a public company, use our equity to compensate key people in ways that your competitors can't. Over time, now what's evolved is the use of this technology, which we'll get into in depth, which is another vector of more tools in the arsenal for these entrepreneurs in the field to win in the marketplaces.
I think of the culture in these three very simple terms, and it's a super simple formula, and it's really meant all the difference for this company. We talked about the long term. I talked about how I want to be here for a long time, and the next generation included. With that in mind, it's important for us to have good quarters, but it's mission-critical to have good quarter centuries. When we talk about this technology stuff, we talk about we're really knee-deep in this period of evolution, right? Redefining paradigms and foundational elements that will enable us to grow in ways that we have not been able to before, for now and into the future.
The technology will take time to evolve, the adoption of this technology will take time to occur, we're very much at the forefront of this, and we're doing this from a position of strength. Like Barry mentioned, we're the industry leader. We're producing record results, and we're doing this now as opposed to sometime down the road where it might be too late. Again, it's the focus on the long term that drives this. The second point, the entrepreneurial leadership, it's consistent with the learnings from our CEO's early days, which is there's no bureaucracy or politics allowed in this business. We consider those elements of waste. We consider that command and control perspective ridiculous, frankly. We believe that decision-making should be done at the local level where the customers are. Across the company, there are, I think, over 600 P&L leaders, right?
These are entrepreneurs who are compensated based on the performance of their P&L, whether that's at a branch or a region or a division or a subsidiary or even here. All 5,000 employees across this company have some pay for performance component to their compensation. It drives that entrepreneurial culture. Act like an entrepreneur. Don't let bureaucracy and politics slow you down. Again, the mission of this office here is to be helpful. It's really an inverted pyramid when you think about the organizational structure, right? Where Watsco, used to be 20 of us here, now it's maybe 80 of us here because of the new data and technology people.
We're at the bottom of that pyramid, where the subsidiary leaders are at the next rung, all the way down to or up to, I should say, those local leaders in the field dealing with customers every day. Our job is to be helpful to those in the field to help them win. That's because when our customers win, we win. It's a beautiful little algorithm, right? This is a B2B business that if we can help customers, our contractors, sell more product, sell higher margin products, sell product more often, then they should buy more product from us, and we should sell at higher margins, and we should sell more often. When our customers win, we win. This beautiful little algorithm that is really at the foundation of our core. Consistent with that is this culture of equity, which Barry alluded to earlier.
It's how we compensate people to feel like entrepreneurs, to feel like owners of this business is with our compensation schema, which really we always talk about as sort of having a short, medium, and long-term component. Short being a salary and cash bonus opportunity with performance, medium being options, traditional options, which our options mature over a five-year period. The real innovation, which was created about 20, 25 years ago, is our restricted share program. The restricted share program, of which now I think there are 50 or 60 people who have restricted shares, including the presenters from Watsco that you'll meet today, are for key people in the organization, high performers in the organization.
The beauty of it, these are share grants, meaning you actually own the shares, which means you can vote the shares and collect dividends of the shares. You saw we're paying a dividend rate about $5.85 now. You cannot sell the shares until they vest, and they don't vest until age 62 or later. In my case, I'm 36 years old. That means I'd better be thinking long term. Sorry to hear that. Yeah. I collect dividends along the way. In the case of the other gentleman that you'll see presenting today, they're in their 40s, much older than I am. They have to wait till age 62 for their shares to vest.
If I leave the company or if they leave the company, whether voluntarily or if I get terminated for any reason or they get terminated for any reason, they forfeit those shares. These are very long-term compensation plans, and they force you almost to believe long term, to feel long term, to think long term, to decide long term. We have very few mandates to these 5,000 employees across Watsco, but one of them is you are never allowed to sell out the long term for the sake of the short term. Again, making quarters is important, but having great quarter centuries is mission critical. Consistent with that, consistent with believing in the long term, consistent with making sure we have good quarter centuries, it becomes this evolutionary process, right?
There are very few companies that have been around 100+ years. None of them still do what their original business plan was. All of them have evolved, if not completely pivoted. We are knee-deep in this evolutionary period. Like I say, I like that we can do this now while we are in a position of strength and industry leadership. What does that mean in terms of technology? Well, to give you some history, it took us about one year to figure that out, just where to even start, right? What we got to was that when we talk about technology for the enterprise, it's really the foundation is data elements. We've always had lots of data. Our companies run ERPs.
They have data about our financials, about our inventory, about our customers, about limited data about our products. It was trapped in these old school legacy ERPs, which are green screen technologies. Mission number 1 became get the data out of those ERPs and into a format where it's easily digestible to all of these 600 P&L managers and others across the organization so they can make smarter business decisions every day, and you'll hear that. That's an example of one of these foundational elements of our technology. What you'll hear today is how these things have come together and created new platforms for innovation on top of them. This is what I mean. These new productivity paradigms.
We're talking about now we can use data and math and science and compute power to find insights into our business, whether that humans can recognize or they can't recognize without the help of math and science to make smarter decisions every day. Our PIM, which is our product information management system, which you'll hear about today. 700,000 SKUs now, which we know just about everything you could ever imagine about those 700,000 SKUs, and you'll see how that feeds other components of our system. That foundational element, we continue to evolve and continue to develop platforms which can be leveraged in creative ways, and those creative ways are focused on transforming the customer experience.
Helping our customers be faster at what they do, get them in and out of our stores quicker, more efficiently, help them find the products they need faster, all so that they can do more jobs so that they can differentiate themselves in the market and win, because when they win, we win. You take that to the next level, and you'll hear in the Watsco Ventures portfolio, what we've talked about is not just doing this in our core business, but bringing software tools and products and services to these customers so that they can grow their businesses. Again, if we can help them grow, they'll grow with us, and we all win. It's this beautiful formula, and like I said, that's the basis, that's the crux of us becoming a technology company that just happens to sell air conditioning and heating.
It's enhancing that value stack above and beyond just selling the right product at the right place at the right time. Those are table stakes. Everything above that, which you'll hear a lot about today, is really where the value is and what's exciting about it. Clearly, we've got a passion about this stuff. We've got a limited time today, three hours. I could go on for probably three weeks about all this stuff, but we've got it formatted so that I get cut off. I want to introduce you to two key people that are helping lead this effort. Steve Rupp is our Chief Technology Officer.
Hey, everybody.
For those listening in, he's six, four, and redheaded. His background, we found he was the Chief Information Officer at Fresh Del Monte Produce, and Marcos Trinidad, who's also here, runs our mobile solutions and supply chain technologies, also came from Fresh Del Monte Produce. These guys are familiar with growing bananas in Guatemala and getting them to supermarkets and into your homes.
Without spoiling.
Without spoiling.
That's okay.
I'll let you at it.
Perfect.
Enjoy yourself.
Thank you. Welcome, everybody. Watsco Technology's passion, I think most of you, if you're here, were able to go meet the team. It's important to state that we're really, really fortunate to have a bunch of very hyper-capable, hyper technologically forward individuals, and they make it look easy, and they truly are passionate. All of us from the top to the bottom are hands-on every day, going and getting this and truly continually assessing, challenging, and transforming industry paradigms through a technology-focused lens. It's important. One of the things that you haven't heard today, and I'm actually surprised, launch and iterate is core to our methods. What does that mean? What that basically means is we go fast to market.
We work with our customers, we work with our business units, and we identify opportunities, and we deliver them as quickly as we can, get them out in the field where the real magic happens, get them out to our customers, build capabilities into those application sets to get feedback very quickly, and then be nimble and be able to react and respond and get adjustments out when we may have missed the mark. Not the traditional waterfall where we sit in a lab for five years and design things and think that we know everything, and then get it out into the field and fail. We get it out quickly, hopefully fail fast or not fail fast and just tweak and adjust and move on. It's our technology team that does that every day, and they make it look really easy.
At its core, AJ talked about that base level, that foundation, and we work on creating new productivity paradigms through a foundational data-centric platform. It's a lot of words, but what does it mean? What it means is, at its core, building a foundation of strategic data sets enables everything we do from there. Focusing on data sets that differentiate us in the market, differentiate us against our customers. Focusing on data sets that are hard to replicate or impossible to replicate by our customers or by outside competitors. Focusing on data sets that deliver insights that give us opportunities, identify opportunities, or identify opportunity actions.
Most importantly, focus on data sets that are extensible, meaning that we can add to them over time, supporting that launch and iterate mode of operation, as well as reusable. You'll see at our core, everything we've done, and we're kind of showing you a little bit of our strategy and a little bit of our architecture, but at our core, we believe that it's the data that really is the magic. It's the data that differentiates us, and it's the data that makes it challenging. AJ likes to say technology's easy. I'll just say technology's challenging. Right.
It's easy because I have you to do it for me.
Right. Now, the technology's challenging, let's set that baseline.
Okay.
The data's hard. The data is a very hard thing to arrive at, to identify, to curate, to collect. Right. If you think about it, data delivers insights, data identifies opportunities, and to a large extent, data is the experience. You could deliver a technology platform without data, without rich product content that we'll go through, you really don't have anything. Right. In our industry, this rich product content, having all of the historical data, understanding what people want and where they want, is critical to our mission. The first of our data platforms is really delivering analytical insight, and it's our business intelligence and data warehousing platform. You'll see, AJ kind of mentioned it, but we've contrasted the traditional versus what we're calling the digital. Traditionally, this industry is heavily intuition-based.
Tons of professionals making great decisions every day, but based on history and based on their knowledge of the past. Right. You can't blame them, because back in these days, they had an idea, they had a thought, they wanted to check it. They went to the IT group. They asked them to run a report. The IT group took 3 weeks to run that report. They delivered it to the person who requested it. The person who requested it already made the decision, didn't remember what they asked, looked at the data, remembered what they asked, realized that they didn't quite ask the right question, so it wasn't really helpful from the go. Contrast that with where we've taken this, where we've taken this is to mass amounts of data at the fingertips of these people that already have great intuition.
That provides an opportunity to augment their intuition with these deep analytical insights so they can make better decisions, they can make faster decisions, and they can make more complex decisions, by taking their industry intuition, coupling it with the facts from the data and the trends and looking at anomalies and come up with some really great stuff. In addition, what that offered us was, what we see now, is the opportunity to identify things we would have never seen. A perfect example of that, to me, is a risk of customer attrition analytic that we built. Now we've built a model that gives our sales teams and our management teams a forward look into, hey, the behaviors of this customer are of the patterns that are indicative of a customer who may be seeking another partner. With that, but before it's happened.
With that, our teams can go out and save that relationship, figure out what's going on, figure out if their business is struggling, help them get back online. If they don't, if there's a relationship issue, fix that. That's a huge advantage over what we used to have, where customer's gone, then we got to go back and figure out what's going on.
Sorry, if I jump in a couple times here.
Yeah, sure.
The sister analytic to the customer attrition risk is the sales opportunity analytic, which says for these customers that the math is showing they're at risk of attrition, I have a companion analytic that says their buying behavior in a cluster analysis looks like other contractors of this profile, and those contractors are buying X and Y product. I'm going to push those to the top of my list of products to offer these at-risk contractors. Not only to say, here's the customers that are at risk, but here's opportunities for you to save them. I mean, that is derived from mathematics, which would not have been possible, certainly not at scale, by individual humans.
Right. In addition to that, so that's the people side of this platform and the data that it's provided. What it's grown into is a platform that also feeds insights and analytics into our other applications. You think about that broader data set, and we're going to talk about how we federate that data and how we get it out to these other applications. We're doing things like using this platform to define market baskets. What's critical to us is, hey, for people who buy this unit, we see it in the retail space. You bought this condensing unit. You know everybody else who also bought that condensing unit in your region also bought these seven other things. Right? That's a feed into our e-com world, and critical data to increase our line items per invoice, as an example. Right?
It's becoming an ecosystem that really does feed other applications. It obviously feeds the intelligence of our teams and helps them make better and faster decisions. Marcos is going to cover our optimized inventory and what we do there.
Hi, guys. Inventory. Probably the most critical component of our supply chain and the most important for our customers. We talk about customer experience, but nothing's more important than having the right products for our customers at the right time, today, not tomorrow. Our customers need these products, and they got to have them today. We said 563 locations. Those locations have 2 million stocking locations. That means there's 2 million places across the entire enterprise where we have to manage and maintain an inventory and say, "How much do we need?" Or, "Am I overstocked? Am I understocked?" It's critical. We got to have that today. Traditionally, we manage that with our legacy systems, green screens, bar reports, a lot of emotion, very little data, no forward-looking.
That started to hurt us, and as we grew, it became unmanageable, and it started to hurt our customers. The products that they wanted weren't there. We said, "Let's throw more inventory at it," but that's not going to work. Our inventory started to grow, our warehouses started to grow to start to house that inventory. That wasn't working either. We started to take a really good look as to how do we do this and how do we do it better? All it is is a big math equation. It's math and science. You have demand. We can create forecasts. We can measure forecasts. We know who our suppliers are. We know what their lead times are. We have all these tools, but how do we get better at that?
Come digital transformation of our entire supply chain, and we started with optimized inventory, advanced forecasting, and replenishment. What that means is we go out and we found systems that are very scientific systems, that have algorithms that'll go through and basically read all that data. Again, we have this data, but that data doesn't mean anything unless it's actionable, unless it's cleansed and we can act on it. Then kind of sort of put it on autopilot. We now, instead of managing 2 million locations, we manage parameters that are backed by algorithms based on math and science that'll tell us what to buy, when to buy it, when to start a product that doesn't have demand, when do we stop buying it? Or maybe send it to a separate location so it's optimized.
All those things create the basis, the foundation for supply chain optimization. We can grow without growing our warehouses, without growing our inventory. It becomes faster. It becomes quicker. The biggest impact? This increases our customer service levels, right? We have the right products at the right time for our customers today, not tomorrow. Our inventory turns start to increase as well, so improving our turns. We start to reduce excess and slow inventory. When we determine that a product doesn't have demand, the system starts to tune it down. We can eliminate the waste from our supply chain.
I'm sorry. I think that's the most important point. Inventory optimization is not about having less inventory, it's about having the right inventory at the right place at the right time. Every company that has inventory has crap inventory, too, and it's about reducing the crap to be blunt.
That's a technical term.
Again, another transformational platform, right? All these data-centric platforms start to create these foundations for us to grow, to execute, but most importantly, to help our customers grow with the products that they need.
We've got our business data sets, we've got our supply chain data set, right? What could arguably be the most important data set that we've talked about, and the most strategic data set, is our product information data set. If you look at this industry, it's a very technical industry. If you look traditionally, this industry operated on color glossy product cut sheets, right? That said everything about the product, but you had to physically hand them out or physically have them on you. The technical data and the fitment data, the what will work on this and what will work on that, and when should I use this and when should I use that was all in the minds of our workforce and our customers.
When you roll forward and you say, "Okay, that's interesting, who do we go to, right? To get all the digital assets so that we can deliver this vision of a digitized branch, of a digitized experience for our customers?" What you quickly found out was the answer was it doesn't exist, right? We set about and we said, "Okay, if we're going to build a world-class digital experience for our customers, we're a wholesale distributor, right? What we do is sell products. We have to have digital content about products." If we want our customers to be able to do things in the field that they used to have to come to our branches to do or to get help with, or they used to have to pick up the phone or otherwise, we have to have the digital cut sheets.
We've got to have the images. We've got to have the product fitment information, what works with this, what works with that. We have to have all of the documentation, the wiring diagrams, the sales sheets, everything. It's all got to be available to whatever platform we want to feed it to, or we don't have anything, right? We did have, right, a 32-character description in our ERP, which was really helpful, right? The guys at the counter didn't even know what it said, right? Everybody knew part numbers. How did we achieve this? We built a platform that in the technology world is called product information management, right? Think of it as a digital asset library, of everything about every product we sell. How did we source that information?
We worked with our thousand plus suppliers, we went to them and we said, "Okay, right, here's what we're doing. We need digital assets about everything you sell." In many cases, they just sort of looked at us like, "We're not ready for that," right? We partnered with our suppliers, sometimes dragging our partners along, and built an impressive catalog of 680,000-700,000 assets today. These are individual SKUs that we can sell or that are historical products that are needed for reference. We feed that information along with all of the where it can be used, the fitment information, the expertise about that product, to many platforms. So be it e-com or mobile apps or some of the Watsco Ventures capabilities you'll hear about today. This product content is absolutely critical. Very, very hard to replicate by our competitors.
It's a differentiator to us. Very hard to replicate by outside competition. It's industry specific, and it's been amassed and assembled by us within Watsco. It's critical to our future. Marcos is going to cover, that's PIM. We've got our business data, our supply chain data, and our product data. Now Marcos is going to talk about our digital warehouse operations and order fulfillment, another critical thing of wholesale distribution.
Just to remind you, we're still at this, if you see the bottom right, we've got this triangle here, this pyramid. We're at this foundational level. These are data sets. These are analytical capabilities. These are core operational platforms so far.
Yeah. Right.
These capabilities, I talked a little bit about inventory management and inventory optimization. Now we've got this inventory, and we're getting really good at having the right products at the right time, they go into our warehouses. When we started to look at our warehouses and analyze what they're doing there, I said, "What are our pick times?" It's like, gosh, I don't know. What are we doing in the warehouse? How are we fulfilling our customers? How long does the customer wait to get their products? I couldn't answer those questions. We spent a lot of time looking at how we do those things, traditionally, all those things were very paper-based. All that data was locked up in a file cabinet somewhere. We had no access to it, most important of all, it's cumbersome.
It's a slow process. If I go buy something online or if I call in an order, and then I got to go in and wait in line, and then finally get to the counter and ask, "Here's my order," and then they print something, and I go to the back of the warehouse, I've wasted a ton of time. For our customers, that's lost opportunity. That's time that he could be out there getting the job done and getting another job done, helping them grow. What we did is we searched for quite a while to try to find a system that we could leverage that fits us, and we couldn't find one.
What we did is, we know our business, and we took our users, and we said, "How do we build something that works for us and that digitizes our warehouse operations?" We have a platform. We looked at mobile applications, and we have mobile devices in the warehouse that could enable our warehouses to do this much better, much quicker, more accurate. We took that, we developed a system internally, and back to Steve's launch and iterate, we started with three people. Three people, and we took a branch and said, "We're going to go do this," and in three months we created a prototype, and we said, "Here, go use it." In a few days, they said, "Man, I wish it could do all these things.
If you did all these things, then I could be more productive, and I can service my customers better." I said, "Yes, cool. Let's do that." I grabbed my three guys, and I said, "Okay, I need this by next week, and then let's give them another version." That continued to happen every single week until we came up with a really good solution now. Now that we fully digitized our warehouse operations for order fulfillment. Right now it's a platform. We're building it as a platform, and we're prioritizing the order fulfillment. It does things like, the paper is gone. We get extreme visibility to the orders. The customer, it extends what's happening in the warehouse to the customer. The customer is always asking, "Where's my order?
Where's my order?" Now we've built a platform where we can message the customer and tell the customer, "I've received your order. I'm working on your order. Your order is ready for pickup," or, "I'm about to go deliver your order. It'll be there in 30 minutes." Those are transformational for our business. Within our warehouse, it's helped us improve how we pick orders. We've reduced our labor hours. We've been more accurate, but all that we have to measure. Everything that happens in the warehouse now, we capture, and then it's integrated to business intelligence. Now we know exactly what's happening in the warehouse. I could say, "What's happening at Tampa East?" I know some of you guys visited there yesterday, and we can jump on analytics and see who's the best at picking. How long are customers waiting?
How long does it take to pick orders so that we can get better and better and better? It's near real-time dashboarding capability. These analytical insights are available up to the minute. The people that are running these operations now have a window of their operation today. A lot of times you look into these analytical systems, and you can only see backwards. I can't do anything about it. I can't do anything about yesterday. I need to do something about that today. That's why we build these analytical systems. Again, it's a platform that's just now starting to mature to fulfill our orders to our customers quicker, faster, and in many different ways.
Now we're getting creative and said, how do I keep that customer out of my branch and get him all the products that he needs by leveraging e-com or his traditional salesperson, but I can get to him a lot quicker than I did before. To wrap all these things together, we talked about business intelligence. We have ERPs at all our companies. We've got the order fulfillment application. We have PIM. Traditionally, what happens is you build those, and you get these stacks. These, I hate to call them silos, but they're silos. All that data and all that knowledge is locked up in each one of those verticals. We realized quickly is that we don't want to do that. We want a new age technology. We needed, I like to call it's a glue that brings everything together.
Then by taking all of these applications, and we call this product Conduit, it glues everything together, and then it creates this foundational layer that we can build upon. Then it creates these pipes where we can get data and send data to it, and the data can write back to our ERPs, to our PIMs, and leverage all that. Then we start to build all these other applications very quickly. Traditionally, people go out and they build these applications, and they focus on that interface, and they got to rewrite it. Then you do mobile, and then you got to rewrite it again. The reusability of what we're doing today is we can easily go from e-com to mobile, our AHRI matching product to search, and then to others. What else can we build, right? We have our partners with Watsco Ventures.
Whatever they think of, they can rapidly prototype and they can rapidly build on top of that, and they can get creative and innovate and who knows what they're going to come up with, right?
Marcos, give an example of pricing and inventory.
Sure. Let's start with e-com. I've got a ton of ERPs. They're all different ERPs. They all have different data sets, all different data structures. If we go out and say, "Well, let's go build e-com." With e-com, I need to know what's my inventory, what's my real-time inventory, and what's my price? All customers all could have different prices. How do I get that? How do I get that real time? We build that, and this interface in Conduit digs into those ERPs, all the ERPs, and then normalizes the data so that to e-com, he's only looking at one data set or one request. Comes mobile. It's like, you know what? I want to do that.
I want to be able to give a customer, if he's at a job site and he goes on the mobile app, and he's like, "Hey, do you have that?" Well, we'll geo-locate them, and we say, "Yes, we have that inventory." I don't need to write that inventory again. I can use the exact same one that I did for e-com, and I can get that data instantly. I don't have to rewrite it. I can rapidly deploy a mobile app or another product that leverages pricing and inventory or any other data set. I mean, we've got over 75 endpoints that'll leverage all the data that we have. Again, to me, it builds the ultimate foundation for us to create and build new products.
I think of it, I'm the layman, right? You guys are actual techies. I'm a wannabe techie. I think if we have these foundational data sets and PIM and the ERPs and you name it, this is sort of the plumbing. This is how we get the data from those databases into the applications where they can actually be used, whether it's in e-commerce or the mobile apps or Watsco Ventures products that you'll hear about later.
If we wanted to, say, buy some large companies that are dominant regional companies, Conduit provides access to our technology to them very quickly, very easily. We don't have to go through a big construction project. It's something that can happen quickly. Another OEM comes along and says, "Let's do something more with Watsco." Again, it plugs in. It's very viable in terms of how we can leverage the investments that we've made so far very quickly and, frankly, cheaply.
This is by far the nerdiest slide we'll show you today. It really is fundamentally very critical. It's hard to articulate how important it is, but when you have all this rich data, right, if it's trapped in one of these silos or you're not able to leverage it, or it takes you another 8 months or another 1 year to develop another application or to onboard another business, then you haven't done anything. We spent a lot of time building out this, what really is technically a services layer that taps into all that rich data that we just talked about in that foundation. It does it securely, it does it in a performant manner, and it allows us to keep control and track and monitor what's going on. It's super nerdy, but it is fundamental to how we deliver everything that we do.
From here out, we're going to talk about the cool stuff that the customers experience, and then we'll get into Watsco Ventures. Just trust us in saying that that services layer is very strategic to us and very important to us. It supports our decentralized model. It supports our various applications. In everything we do, it's what's the price for this product? What's the product information? What matchups are good for this? On and on and on. The questions that are asked of the data are pretty consistent, no matter what the platform or what the business is. That's what we got going. All of what you just saw allows us to take that next step and say, "Okay, we've done all this groundwork. We've built all these great strategic data sets. We've hooked it up through this plumbing system we call Conduit.
Now, who do we give it to, and how do we give it to them? How do we change, fundamentally, the model that our business partners operate by as a result? We're now at the point, and this is exciting for us, that we can call this the digital branch. AJ focused on how it used to happen. When I first started here at Watsco, I went to our Gemaire Miami branch at 7:00 on a July morning, and you walk in there, and there's a line. There's actually one of those ticket machines you see at the meat counter or the deli, right? They're all taking their tickets, and they're standing around, and they're talking, and they're eating donuts and stuff. You look at this picture, and that's actually what it looks like. It's this club that everybody's hanging out and waiting.
That's how things happen. You get in line, and you get up to the counter. You don't yet know whether or not the group has what you need, or you called on the phone, nobody picked up the phone. You get to the counter, and they're your technical expert. You say, "Hey, John, I've got this job and I need some help. What's the right system? What all do I need to do this job?" They say, "Yep, this is all you need." They print it on your order, and they give you a pick ticket. You go back out to your truck, because you've got to load this heavy stuff up, and there's a line to get to the dock. On and on and on, this is a very, very laborious process traditionally.
Now with e-commerce and order fulfillment facilitating express pickup, it really happens like this. We've got some customers here, and they can talk to you about it. They go online anytime, anywhere, 24/7, they don't have to wait for the branch to open. They can do their research. They find what they need. They see what their price is. They see whether it's in stock or it's not. They see the market basket that we pull from our business intelligence platform, and that tells them, "Hey, listen, these are the other things, the seven things, the hurricane pad and the tie-downs, and oh, don't forget a little bit more Freon." All those things that other people purchased when they purchased that equipment triggers, "Hey, oh, yep, I need that." They don't have to adjust their order when they get to the branch. They check out.
It's all on account. It allows the dealer owners to delegate that work with full security so that they can delegate that work to their technicians directly if they so choose. Now all they have to do is that next morning when they're going in for their first job, is pull straight up to the dock and say, "Hey, I have an express order. Here's the barcode." We scan it. It's probably already staged. They push it into their truck, and they go. That went from this long line with tickets and all of that, to a little pre-planning on the business owner's side, back up to the dock and out they go. A fundamentally transformed experience that a lot of our customers are starting to take advantage of. How do we measure the impact? We look at customer adoption to the digital channel.
We look at % of sales in the digital channel versus traditional. We look at line items for invoice, digital versus traditional. We look at customer attrition or customer retention, traditional versus digital. These are the kinds of things that we're measuring through our analytics platform that we talked about, that give us insight into the health of the growth of this platform or this experience. AJ is going to cover the specifics of that in a bit. It's early days, but we get a lot of really good feedback, and there's a lot of opportunity with this digital branch.
Yeah.
We're excited about it.
I will give you more data points. One on the express pickup, which is a hugely exciting offering now. It's live at one of our subs, and over the last 12 months, only 7% of their sales have gone through the express pickup lane. Why I tell you that is not because it's not working, it's because it's just ramping up.
Yeah.
It's just ramping up at one of our subs, and it'll come to the other businesses. The customers that are using it are loving it. For exactly those reasons. It used to be 45 minutes for a visit to our branch, now it's 45 seconds.
Within the e-com, now we'll drill into sort of some specifics that differentiate. People could quickly say e-com is doable by anybody. It's really the industry specific tools and the capabilities and how we've dialed it in to support our somewhat unique industry. Traditionally, our customers, their technicians, they relied on our counter agents, our sales teams for technical expertise, for technical data. "Hey, Ed, what product should I get for this?" "I need this, do you have it?" If you want to replace that, you need to make sure, and you want digital adoption, you need to make sure that these individuals can find what they're looking for very quickly. When they find it, make sure they're very confident that it's exactly what they need. That's where two things come into play.
Number one, that product information that we talked about and how crucial it is. Number two, really advanced search. Nobody browses catalogs. We've got thousands and thousands of SKUs. Nobody browses a catalog. When you go to Amazon, do you browse their catalog? Did you even know they have a catalog? No. You go up to the top and you type in, on a retail model, you type in roughly what you're looking for, and it comes back with 15 options, and you say, "Yep, that's the one I want." We have very much the same experience. It's a little bit more advanced because our results have to be regionally specific. You can't just say, "Oh, hey, person in Memphis, use this hurricane pad underneath." It doesn't make any sense. You don't want to return that result.
You need to be relevant based on what they told you. You need to be accurate and with a lot of fidelity in the product data so that they're confident in what they see. You need to be regionally set up as well as ideally, personally. How did we do that? We implemented a machine learning product search engine. What does that mean? Everybody's got to use machine learning in their pitches, right?
AI.
AI. What that means is we have this advantage. We have our 680,000 SKUs of information that we can put into a machine learning, very advanced database. We can index all of that data, that's number one. We can augment that data and all the regional elements of it through our business intelligence platform. We can add sales data to that. We can boost the products that people seem to be purchasing, and we can bury the products that people don't seem to be purchasing. Because in this industry, what people are purchasing is generally what others want. Right? We can add sales forecast information, we can add everything, anything we want.
Most importantly, where the machine learning comes in is we track and we look at what others are selecting and clicking on to boost the products that everybody seems to prefer for the search string that somebody had put in. Right? We also track what that individual personally likes so that we can boost, if they search that same string all the time, we know exactly what they clicked on last time, so we present that product again. Right? When you talk digital adoption, they put in what they want. They just get close. Just like Google. You just get close. You get spelling errors all over the place, it doesn't matter. Get close, and we'll give you the most likely product that you're looking for and a set of products, which you can see here.
I'll tell you, this is one of those things where launch and iterate comes in. This is something when we first launched eComm, our search was horrible. Right? Our customers let us know. They said, "Yeah, look, I mean, it's good, but search is bad." You could see behaviors. People are creating lists. They're doing all kinds of strange things. What that lets you know is that you didn't hit the mark. We listened to them. We went out, we built a more advanced platform. We launched that advanced platform, the results are much better. Far more searches, far less search depth, which means they have to look a lot to find what they need. Everything's looking up, and it's a healthy search algorithm now, and we're happy with it.
What that means is we're going to move it into our mobile platform in the next month or so so that we can enhance that search because it's not quite up to par with our eComm search.
That's the nerdiest slide that you've.
No. No way. That was a cool slide. All right. Digital warranty. Lookup and processing. Traditionally, this is a great slide, but a lot of waiting. We do 350,000 warranties. We process 350,000, approximately, warranties annually.
Just think about that number.
Across Watsco.
That's 10,000 warranties a day that are being processed at Watsco. There's no value add. That also means we inventory $70, $80 million worth of product on our shelves every day that we earn zero gross margin on because they're warranty items. There's a lot of people whose lives are dedicated to doing warranty processing at Watsco.
Right.
It is a major problem for us, for our customers, and for our OEMs, the whole chain. Right, Mike?
The industry has a standard of these 10-year warranties. The problem's not going away. We're going to continue to do a lot of warranty processing. Going through the paper process of adjudicating these warranties and all the people involved. I mean, we have instances where our customers will queue up 10, 20 warranty claims, and they'll send their low-cost guy into our branch, and he'll sit at our counter like that for four hours, just processing warranties through paper. This is not good. Additionally, our customers don't have any visibility into prior warranty claims on a given unit, traditionally. They'll go out to a job, and they'll look at it, and they'll replace the compressor for a fifth time. The manufacturers lose, we lose, we process more paper. They're not solving the root problem.
If they were advised that, "Hey, the last person came out here replaced the compressor. If you think the compressor's broken again, it's not. Go look for something else and try to find the real root of the problem.
Just to cap on that, our OEMs will tell us that 40% of the compressors that come back or 40% of the motors that get back for warranty claims had no fault found. In other words, it wasn't the problem of the system.
We're going to go through a repair example, but this warranty thing hangs over the head in a lot of places in the process and in the channel. It's a worthwhile problem to solve. How we've done it, and we're working on kind of OEM by OEM, but what we're implementing in our Contractor Assist mobile app is the ability to, A, look up the warranty status, which we'll walk through an example of that. That's just in and of itself, is this thing under warranty? There's so many caveats that it is a very difficult and challenging question to answer. Traditionally, they would go to our counter teams, call us on the phone, call the TM, go search for that answer. It's not a very rich experience for the customer, for the homeowner.
Additionally, what we've done is we now can process the warranty. If you're on-site, you can begin the process of getting real-time adjudication on that warranty by just entering the serial number, it'll automatically pre-populate a lot of the paperwork that used to happen at the counter on and on and on. You can digitally process this stuff, get real-time adjudication, which just means is it under warranty, is it not, we're good, move on. Also tell us whether or not they want the part back or not, which is very helpful. What I'm going to do is just walk through our Contractor Assist app and sort of a field repair example to talk to you about how much less burdensome it is and how much richer the experience is with the homeowner
As Steve goes through this, remember the dynamic I told you how it used to be. Right? Guy shows up at your house, he doesn't know what the problem is. He tries to do the diagnosis. He says it may be a warranty issue. He has to go to our branch. He comes back to your house. It's a multiple-day process, right?
Yeah. Lots of phone calls. Right? Lots of, maybe this is, maybe that is. Right? It's not a very professional experience for a homeowner through the technician. This is our Gemaire version 2 Contractor Assist mobile app. If you don't have it, you should all download it.
By the way, when you say version 2.
Yeah
This is the 2nd generation of the technology.
Yeah.
Consistent with that launch and iterate approach, I mean.
It's like version 18.
Well, Marcos told me it's actually for version two alone, which came out this year.
Yeah
It's the 85th.
Wow
build.
You're super nerdy technical. I love it.
Part of the club.
A couple things you'll notice here, and just kind of showing off the Contractor Assist mobile app at this point, is we're really tightly integrated with our e-commerce platform now, which is exciting to us because all of the e-commerce capabilities that we give you in a laptop or a desktop experience are now pulling through. It honors all of the settings that a dealer owner might set up for their technicians. They could set it up so I could be in the field and I could see all the parts, and I can order things, but I can't see pricing, as an example, just because that's my preference. An on-site repair walkthrough. I'm a technician. I go to a home. It's got an issue with the air conditioning. I have absolutely no idea what the problem is.
When I show up on site, the first thing and the most important question to answer in this 10-year warranty world is, "Hi, Mr. Homeowner," right, or "Mrs. Homeowner, is this unit under warranty?" Right? Because it matters. You're going to start a relationship with this customer, and if you don't get it right and let them know it's a $0 problem, if it is, or if it's not a $0 problem, that's a $500 or $1,000 problem, you've got to get that right or that customer will never call you back. They would spend a lot of time. Now all you have to do, and we're going to use Marcos here as our example. This is his unit. You go into the entitlement search.
The first thing you do is you type in the serial number of the unit, or you scan it off the plate, and you give the owner's last name and you search. Immediately we come back with, yep. Right? The owner name matches. That's important because that means the warranties don't transfer across owners. Here's the information about that, the model number. Here's the owner's name. Right? Here's the warranty information. Okay, at that point, you're confident you're good. It's under warranty, and you can proceed. Now you say, "Look, customer, you're under warranty. It's a $0 problem. Don't worry about it. We got you. Just make sure you call us back when it needs to be replaced." Right?
You go about doing the diagnosis, and they go about diagnosing the unit, and they realize, and they find out that the condenser fan motor is the failed part. Okay? Traditionally, what they went through then was, shoot, okay, it's a condenser fan motor. Right? It's got a part number on it. They take it out. They don't know if Gemaire has it. Right? They don't know their price. There's a lot of things they don't know. If they call Gemaire with the part number, Gemaire had to look up the supersedes, because these part numbers roll constantly to new models. Right? That's all very challenging information. You notice a couple things when they do it. They toggle to this Parts tab. Because we know the serial number, we know the bill of materials.
This is all coming from our PIM and all of our data, right, and our Conduit services layer. We pull it up. We say, Okay, condenser fan motor. Right. 11 in the branch near me, and it's a superseded part. What that tells me is I can get it, so I can tell the homeowner, "I'm going to go grab this thing. We got it in stock, no problem." Right. And there's a superseded part number. I should expect that the new part number I get is not going to be the same as the old part number I get. And I can pull it up here, and I can check to make sure that that part number is truly there. I'm even more comfortable getting back to that, how am I comfortable ordering online, because all of this data is right in front of you.
Right. We know there's 11 in the branch. If we want to find the specs or the documents or the supersedes information like I talked about, it's all right there. I can click Add to cart, goes into my cart. It's going to go on my account. At this point, I've got my price, so I know exactly what it's going to cost me. I know it's under warranty, so I'll get a credit, not real worried about that. I go ahead and I check out, set it up for express pickup, go to the branch, back up to the dock, say, "Here it is. I need my motor." They give me the motor. I go back to the job site. I go back to the documentation, pull up the wiring diagram, reinstall the motor. I'm done. Right.
Fundamentally different than the gyrations you would've gone through in the past, and all the people you would've called, and all the lack of confidence you would've had. That's Contractor Assist and where we're taking it.
Steve, I think reading the faces of folks in this room, we need a break.
Break? Before we talk about the dazzling AHRI process?
Yeah. Is this your last slide?
Pretty close.
Is it your last one?
Better side than DMI. DMI.
Okay.
Take a break.
Why don't we take a 7-minute break if we can be back in our seats by 11:30? Restrooms are right out the door and to take a right. We have an esteemed board member here in the front row, and I asked him how we're doing. He said, "Well, the stock's up $1.50, keep going." We're going to keep going. I'll let you pick up where you stopped.
All right. Perfect. Back to the dazzling digitized product matching in AHRI. Again, when we talk about these things. It's important, when we talk about differentiators, and Barry mentioned these moats to entry. Industry-specific technology tools that are integrated into our mobile apps and our e-com platforms, those customer-facing things. It takes a lot of industry expertise and a lot of industry knowledge to build something like this, which is a challenging process, and I'll explain in a second. These are the things that if we didn't have access to all the brilliant people across Watsco, a technologist like myself or Marcos or the rest of the people in the room wouldn't have a prayer of building and developing these algorithms that can go out and do this in an automated fashion.
We spend a lot of time picking the brains of all of these people that are industry experts to figure out how we could possibly do these things and challenge them about how we can stop doing what we used to do. Right? AHRI is an organization that all of the OEM manufacturers work with to certify their systems. When I mean certify their systems, certify that what their engineering specs say they should perform to, that they actually do. When we talk about efficiency and SEER rating and these kinds of things, depending in this world, each system is a bit of a snowflake depending on how you match it up.
A condensing unit that sits outside has a SEER rating, an engineered SEER rating of 16 SEER, but depending on which indoor unit you match it with, it'll either be 16.8 SEER or 15.5 SEER, as an example. There's an infinite number of combinations and permutations to this thing. How did the industry solve it? Well, right, this AHRI organization takes these things into their labs, and they test them, they publish their data. They publish their data in countless numbers of spreadsheets. The part numbers are 32 characters long, and they don't want There's specifics in the trailing 16. They use all this crazy fuzzy logic, and they say, "Okay, this thing here matches with that thing, and here's the AHRI number." Why is the AHRI number important?
Because to pull a city permit, you have to have that AHRI number. It's a requirement for our dealer contractors to understand what a certified matchup is so that they can pull a permit, they could do the work, right? On top of it, we don't want to sell them systems that aren't matched up because that means they haven't been tested, and it's just not good. When we looked at this process, we found how everybody's doing it. We found many, many people in our organization that built matchups. They would build spreadsheets of things that we had in stock and say, "These are good matches." We'd ride around with customers, and the customers were constantly calling our salespeople saying, "Hey, I need a 3-ton 16 SEER. What's a good matchup?" Right?
You go to the counters, they're asking the same question, right? You see that there's errors in the spreadsheet on and on and on. It was a problem worth solving. Roll forward to e-com. We have our digital merchandising teams now, right? We've got PIM. They build catalogs. What are they doing? They're building bundles. Bundles of these theoretical matchups. They're using these crazy spreadsheets, they're building matchups, they're bundling them together. There's infinite combinations. Now we're spending all our time digitally building these bundles. We're like, "No, no. There's got to be a better way. We can't do this." You can't keep up with it. Every week, this organization releases new matchups. It was a non-starter.
What we did was we took that data input, we subscribed to it from AHRI, and we built really interesting algorithms that understand our PIM data, understand the fuzzy logic delivered by AHRI, and they come to a match that allows us to build an interface such as this, and this is live and in our Gemaire app right now, where you say, "Okay, I want a straight cool system." That's an outdoor unit and an air handler that sits in a closet. Right? It needs to be 3 ton and 14 SEER. Only show me the items in the branch, and I want a Rheem. Right? The other problem we always used to have is they'd get a match, then they'd go to our branch, and we didn't have the match. Selling something that you don't have is not a great idea.
Now all you do is you go and you say, "Yep, that's the condensing unit I want, the outdoor unit." We say, "Okay, for that condensing unit, here are the indoor units, the air handlers that you can select from. Here's the AHRI number, and here's all the product specifications about it. Oh, by the way, if you pick this one, here's the dimensions that it will take up in the closet," which is another key data point for them to pick the right product to install it in a home. Now all we have to do is say, "Yep, I want that condensing unit. That matches to these air handlers. I like that air handler." We give them the selections that we have in the branch. Obviously, we boost the ones that we have a full system match for.
We say, "Yep, we have 76 of those." You add them all to the cart. All the product information's there, you can be confident that it's a good match. You check out, and you don't ask anybody anything. You've got the AHRI number, you can now go to the city, and you can pull the permit, and everything is good. Right? A lot of time saved. A lot of confidence from our customers in this. It gives us an opportunity to really boost it and add a ton of efficiency to the whole process.
Seems so simple, but really powerful. When our customers are up here and you get Q&A with them, just ask them if this is a game-changer or not. I hope they say it is. I'm looking at you, Chris. A thumbs up, maybe?
At least ask him if it's a miserable process.
Right.
Marcos is going to cover one of our last slides, which is distributor-managed inventory.
Now we're starting to show things that are, if you see in the top left, it says development underway, right? This is not yet in market.
This is a really good example of taking our tools that we built and taking that foundation. Here, we're looking at taking our mobile app technology, our e-commerce technology, our expertise in inventory management, and we're trying to solve a problem for our customers and be better to our customers, and improve their workflow. Distributor managed inventory. We came up with this, and it's nothing new. Some other industries are doing this. They're out there, and they help their customers manage inventory. We can do the same thing. Now we can do the same thing. We can use our tools and provide a richer customer experience. As we take these tools for inventory management, we can now extend them out to our customers, right?
We take this digital warehouse that we built, and we take the mobile apps, and we take e-commerce, and then we can extend that out to our customers. Many of our customers, they use us as their warehouse. They don't have infinite space for equipment. A lot of the equipment, they always go to our branch, they go to our warehouse, and they pick up. Parts and supplies, most of them have a central warehouse, and it allows them to keep stock of certain items. Every single truck is a rolling warehouse. Every truck has inventory, and they've got from 75 to 100 different items, from wire nuts to fittings, to filters, refrigerant, all those things. That's a tough process to manage. These customers aren't inventory replenishment experts.
They're always trying to figure out, what do I buy, and how much do I buy? How do I stock it? What we're going to solve for them is take our tools and say, "Let's embed ourselves into your process. Let's integrate our tools into your process for ordering and for replenishment so that we can help you manage your inventory." We get visibility to all their stock levels, and then we can automatically replenish them.
Marcos, one thing I think, getting back to the data sets, one of the things that we can do as we're working with our customers to implement this capability is we can use our business intelligence platform to give our customers insight to what parts and supplies they buy on a historical basis.
At what frequency.
At what frequency.
Right.
We can help them set their min-maxes and set their assortments within their warehouses based on their buying patterns, which in many cases, they don't know. They're not fully aware in aggregate of everything they purchase in the parts and supplies category. It's pretty cool.
It's in development. Again, another rapid development using all our tools. Again, data-centric platforms built on an awesome technological foundation, all put together with our Conduit services layer.
That's it. Just going to wrap it up real quick. We did the traditional versus digital. I hope we helped you guys understand how it's fundamentally changed. In the traditional model, right, just countless hours wasted on the phone and waiting in line. Resources spend time away from the jobs, right? This is a resource-driven business. Waste eats into the business profitability and growth. Then the contrary, right? Ordering and pickup done in minutes, not hours. Teams and trucks focused on getting jobs done, and resources are deployed to margin-generating activities. That's what we got.
Great job.
We'll move on to now that top level of the pyramid, right. Where we talked about the bottom level is this foundational data elements. You've heard us say that ad nauseam. Then you saw some tools that have been built on top of that which help our businesses be more efficient and help our customers make it easier for them to do business with us. This third layer, which we lovingly call Watsco Ventures, has really got to organically to a place where it's about helping our customers with their business, helping them grow their businesses. Right. Because again, it goes back to when they win, we win. How can we help our contractors, our customers, win more often in the markets and therefore pull more product through our processes and our stores as well?
I'm going to ask the Watsco Ventures guys to come up here. There's two of them that'll present. First of all, I just want to say, you heard Steve and Marcos, they both come from the fresh produce industry, which is not the HVAC industry. Ivan, if you have 20, 25 people in Watsco Ventures, zero of them come from the HVAC industry. Now we've got one guy. Ivan Rapin-Smith, he runs Watsco Ventures for us. You get to guess where he's from when you try to decipher his accent.
What accent?
He's a startup guy. He's run two accelerators and sold two accelerators both here and abroad. Paul Davignon , who is the newest addition to Watsco Ventures, he ran our Carrier Enterprise Canada business for five years before we suckered him into joining Watsco Ventures and really being the Chief Growth Officer, right? Getting this stuff more into the hands of our customers. I'll let you guys roll.
Thanks, AJ.
Thanks.
Good morning. Well, as you can hear from my accent, I too, am from Milwaukee. Good friends with the Baird folks, you know, we're like, "Hey, go Milwaukee." I'm actually from Belgium. Yeah, as AJ said, I'm from the startup industry. Have been for many years, engineer, built a couple of startups, and then helped startups build their companies. All my friends, when they ask me like, "Ivan, why on earth are you in an HVAC distribution company?" Not in those words, there's a bit more swearing going on, right? I tell them, "Dude, listen, this is a huge industry, HVAC industry.
It's $80 billion retail and $30 billion wholesale. It's been largely untouched by technology, and there's all this cool stuff we can do with Watsco, where the founder, he went from zero to $4 billion and a half, amazing entrepreneur, and the president has now got this tech visionary guy who wants to disrupt the tech industry by investing in HVAC, by investing in tech." We look at the Biscayne Bay from the office. By the time I'm done, they're like, "Can I come work at Watsco?" Actually one of my best friends, Mario Cruz, he's one of the stories, and one of the most talented technologists I've ever met now works at Watsco. We've been building more and more a team of technologists who embrace this vision and who are proud and happy to be part of this adventure of disrupting the HVAC industry.
Very proud to be part of Watsco and bringing more people into the fold as well. Right? Actually now, if you look at technologists in Miami, it's kind of become like, if you're a software engineer, developer, or designer in Miami, you kind of want to come and work for Watsco. We're very selective. We've got a good thing going, very strong culture. We're going to share some of the things we're doing to add to the EPS growth.
Yeah, the slides.
Thank you, Mr. Nahmad. Thank you. Introduction. What are we doing? The mandate we have at Watsco Ventures is to contribute to earnings growth by generating new profit streams with new businesses, while at the same time, growing the core business, right? By building these innovative, tech-enabled businesses. How we build these businesses, and the way we go about it is in a number of ways. First, we look at what's happening out there in terms of technologies. Some of them mature, like mobile, some of them more up and coming, like blockchain, for example. We look at what's happening in the technology space that could be used to generate new solutions. That's one lens we use. The other lens is, well, Watsco's core business is transactional. Right? Have OEMs, inventory, buyer box, seller box, make some profit, transactional.
What if we looked at other business models, software as a service, data monetization, subscription services. You'll hear some of the Watsco Ventures are these recurring revenue business models we are building by generating new profit streams. As we look at these combinations of business models and technologies, we look at, well, how can we deploy these solutions? Should we build? Should we invest? Should we partner? Should we acquire? We have these three ways in which we build this portfolio we're going to share with you. The build part is right here in Coconut Grove. We have a team, you've seen it this morning, of designers, developers, but also customer success people, and we build companies from scratch. We apply what we know. Mario and I come from the startup world where capital is a constraint.
You raise your first 50k and 150k and $1 million and $5 million. You're used to having a capital constraint and going to creating value as fast as you can with as little money as possible, which I know A.J. and Mr. Nahmad like a lot, right? But every time we do something, it's how is it going to impact EPS, right? We try and be very careful about how we deploy capital to get to shipping products, getting feedback. And just like Steve said, being iterative. That's a team of about 20 people now, and we'll share three initiatives that are homegrown Watsco Ventures startups here built in Coconut Grove. We also like to take strategic investments in startups, and there's a number of reasons. A. By making an investment, we often can also complement it with a commercial deal.
There's a co-development or a distribution deal that goes with investments. Two, because we are investing, the industry knows that Watsco invests in startups. We get this amazing deal flow of companies around the world that say, "Hey, I'm doing something in the HVAC space. Can I pitch to you? Can I show you what I'm doing?" We have deal flow coming in, but we also travel a lot. We go to Silicon Valley, West Coast on a regular basis, really try and have a good feel of what's happening in the HVAC at large space. Not just for HVAC contractors, but in OEMs, fundamental ways that people are trying to change the way things are being cooled or heated.
We get a finger on the pulse of what's happening in the tech space that could be relevant to Watsco, and that would make good sense in terms of investments. This three-pronged approach has led us to building this portfolio. If you look now at the key portfolio we have today, the core question we ask ourselves that has led to this current portfolio is, what keeps HVAC contractors awake at night? What do Chris and Richard think about when they're in bed? What is their business worry, right? In other words, if we are their preferred sourcing partner, where we bring you all these tech-advanced solutions, what other areas of their business are they concerned about? We listen to their concerns, identify opportunities, and we build this portfolio of value-added services that help contractors grow their business.
As A.J. said, it's a win-win thing. Our thesis is, if we can be involved in all the areas of a contractor's business, and that helps them grow their business, and they are sticky with us, then if they grow, we grow, everybody wins. I practiced. Everybody wins. That didn't have the effect I thought it would have.
Well, you've got to cut the pyrotechnics.
If they win, we win, everybody wins.
Oh. Yeah.
Thank you very much.
You practice that or that just happened spontaneously?
This was spontaneous, yeah. Paul will walk you the details of the portfolio. I just want to give you some context of what we're doing here, right? The needs we've heard and the questions we've heard are, at the core here is, how can I grow my business as an entrepreneur, right? Many of our customers, they were techs. They saw the boss earning all the money, said, "I can do that." They go into business, and it's hard, right? We have a company, SBE. Kelsey Summers, the president of SBE, is at the back there, very discreet, but she's a rock star.
Her company helps us change mental models of HVAC contractors, of how they think about their business, how to think about pricing, how to think about serving the modern customer, the millennial who doesn't want to call to make an appointment, who's looking at where's your website? Text me, please, right? It's helping think about new ways to do business as a contractor, and all based on data. Again, Paul will go through more details. I just want to give you an overview and understanding of the portfolio here. That's SBE. Another question our contractors ask us is, "Well, what software should I use to run my business?
I'm using paper and pen and maybe Google Docs and a Google spreadsheet and Google Calendar, but there must be a better way." Housecall Pro is one of those tools we found and partnered with that's helping contractors run a modern business. It focuses a lot on the experience between the contractor and the consumer. Make an appointment, get a text, see the truck on the way, get the real time. Again, Paul will go through more details, but that's powering the operations of a contractor. OnCall Air, that's a response to a question about, well, consumers don't want to be sold something. They want to be able to buy something and have the information they need to make an informed decision.
Why is it that for a $2 iPhone case, I can go to Amazon and have all the information in the world, but for my $15,000 HVAC system, it says chicken scratch, paper, like, "Here's your quote." Ben Vidas, who's at the back there, has built an amazing product called OnCall Air. That's a in-home selling solution. Chris, and we'll talk about it, and Richard as well, and they'll tell you about how it's helping them close more sales at higher ticket values at the kitchen table. Another one we have is Credit for Comfort. This comes from the question of, hmm, you look at furniture stores and cars, everybody's selling monthly payments. One of the questions was, how can we sell more HVAC systems on monthly payments using financing?
We looked at the industry, looked at the partners, and identified a couple of problems. The price of financing, the fear of declines, a lot of paper. We also have a solution to solve that. The last one we'll talk about today, which is really exciting, is more about how do we bring truly disruptive, different types of products to the industry. Sentree is an IoT device that remotely monitors the HVAC system and looks at the health of a system. Instead of a consumer having to call because there's a problem, it's the system itself saying, "Something's wrong with me. Come see me." Paul will talk more about that. The really cool thing about this portfolio, and they all talk together or if they're not yet, they will be talking together, is creating this portfolio of value-added services for contractors.
Now our division leaders, like Wyatt Schwartz is here from Baker, Florida, he can go to customers and say, "Well, A, I'm an amazing distributor because I bring e-com and mobile apps and VMI, all these cool things. B, with the technology, now let's talk not just about transactions, let's talk about your business. What are your ambitions? Where do you want to be? How you want to grow? What do you worry about?" They come with solutions and bring them, now Wyatt's sales team are business solution providers versus being transactional salesmen of equipment, parts, and supplies. It's very exciting. The cool thing is, now, thanks to BI, we look at the behavior of the customers using this stuff, and the results are really, really positive. The guys who are using this are killing it.
Again, Chris and Richard will tell you how it's helping their business. It's good for them, it's good for us. We generate revenue, we drive more business to the core business, and it's all good. That's kind of an introduction. We have a great team here at Watsco. We've got some people that are not from the HVAC industry, like Ben Vidas, who runs OnCall Air, and Mario Cruz, who runs Sentree. Now we also have amazing entrepreneurs and people who know the industry, who've been in the industry for a long time, and combined, we're gonna change the world.
Ooh.
Paul?
That's great. Thanks, Ivan. Appreciate it. Good morning. We still morning? Yeah, we're still morning. Almost noon. Thanks for being patient with us. Thanks for being here. Really excited about being here this morning. I'm your token Canadian in the house. Any other Canadians here this morning? Let me get an ay. At least I'll feel a little bit more comfortable up here. Ay. Ay, ay. You may hear that a few times. It's not on purpose, just a reflex. Really excited about being here today. As Ivan was saying, I've spent the last five years at Watsco in the field and 18 years prior to that, still in wholesale and distribution in the HVAC space and really excited to be here, really excited to be part of the team.
Really amazing time to be in our industry, really exciting growth opportunities, a lot of change going on. Really, we're at the forefront of really bringing some amazing tools to our customers out in the workspace, really helping them revolutionize their customer's customer experience. That's really the prime thing that we're doing here is really helping our customers differentiate their products and services that they're offering out there to their consumers. By doing that, we're generating more sales, making them more profitable, and even more importantly, we're helping change some of their ways of life. How they really have time in their days now that we're giving back some time by automating some of these processes that typically were done after hours, late at night, at home on the kitchen table, as these entrepreneurs were typically after their days of work were doing it.
We're helping them give back time in their days to focus on what's important to them. Really exciting. I'm going to start off by talking to you about OnCall Air. OnCall Air, built right here in home, right here down the Coconut Grove alleyway here. Amazing team that's built this software solution. Really from a sales proposal standpoint, that's where we started. We started in home with what that consumer experience was for that contractor at the kitchen table. We really look back and we take a look at what was typically done out there, as Ivan was saying, for these purchases out there in the field. It was typically done on a piece of paper or a chicken scratch, maybe on the back of a business card. It really wasn't a consultative type of approach or a solution that was provided to the consumer.
What we really developed and grew here was a platform that we can really help those contractors work with those consumers at the kitchen table to really do a consultative selling, and really allow the consumer to really participate in that selection process for what products that they really want to find for a solution for their home. It really differentiates using our platform, what's out there in the marketplace today, giving our customers, our contractors, a competitive advantage in the marketplace. This tool is being used today. It's a subscription-as-a-service model for us. It's being used today. It's been out in the marketplace, and contractors are really experiencing a lot of uptick with this. The feedback is really positive. They're closing more often at the kitchen table.
They're getting to the yes quicker, and the added benefit of this, as they're doing the consultative selling, we're finding through our data that the average sale of the ticket is going up. Consumers are selecting higher efficiency products, or they're selecting additional accessories to really complement those products that they're selecting from an equipment standpoint. Giving the consumers more options to participate in the process and selling higher average tickets. A really great opportunity for our contractors to really grow their business and also save time. One of the really key parts of this from a contractor's standpoint is they want to go in home when they finally get that lead, that opportunity to be in home. They want to be able to close on that first call.
They want to be able to propose a solution to that customer at the kitchen table that solves what their problem is. What they don't want to do is leave that chicken scratch on the table. Maybe the dog will eat it. Maybe it'll get shuffled around with some other papers. This solution, this platform really solves that because it also prevents other customers or other contractors, sorry, from coming in after that piece of paper was left there. Giving the contractor, again, the ability to close the first time that they go on that call to that consumer's home. You see on the right-hand side here, it's scrolling through all our sexy features and benefits. I'll highlight a few of these. Number one, the platform is mobile based. Everything we do in Watsco Ventures, we try to first focus on mobile technology.
It's not new, but as we started today, we know we talked about what contractors are using today. It's that powerful engine that's sitting right there in their pocket. That tool has really allowed us to really change some of the services that we offer our contractors. Mobile-first technology really allowing a contractor to present and the consumer to accept right there on the spot signing the iPad or signing digitally and accepting that proposal then and there on the spot. Mobile-first technology. We're also able in our approach and how we went, we offer different options, good, better, best solutions that we offer to these customers. Again, using them in the process with their feedback and selecting the products that they want to look for. It also incorporates all of our Conduit information that Steve and Marcos was talked about earlier on.
We're leveraging that information that's coming out of that Conduit, number one, through the ERP. It's a fully integrated model from a pricing standpoint. Number one, it gives a contractor flexibility to customize and price whatever they want to the consumer. Also it integrates into the platform automatically all that Conduit information that we're getting out of our ERP from a pricing standpoint. The contractor has a specific pricing with that distributor. It also gives them the ability to pull from the PIM database that we talked about earlier on, all that geeky stuff. Sorry for bringing it back. It allows them to pull videos and information that the contractor can use then and there at the kitchen table to help their salesperson with that sales pitch that they're giving the consumer in home.
Amazing technologies really incorporating the different aspects of the technology platform that we built, and pulling that in through the Conduit. Again, great sales tool, and it also gives the ability to manage from a contractor's perspective what they're doing in the marketplace with their team. It builds a history of all the sales proposals that are up there, keeping them up to date and providing analytics on those proposals as well. Really giving that opportunity for that contractor to manage those proposals that went out. They can even go to as far as measuring when they sent that proposal to the customer what that customer may be clicking on after they left if they didn't close on that first call. They can take a look. That customer looked at that best proposal three, four times overnight.
It may be an opportunity the next morning to pick up the phone and give them a call. There's great opportunities, again, to increase sales from our contractor standpoint, giving them the tools and the analytics to really close that sale, and to follow up on the quotations that are out there.
Yeah, Paul, if I can interject.
Sure.
I meant to say this about our B2B e-commerce, and that our business is now open 24/7. It's no longer 7:00 to 5:00 when our branches are open. 25% of the purchases that happen on our e-commerce sites, gemaire.com and so forth, happen off hours. 25%. That's pretty amazing. It's true here as well. I don't know what the percentage is, Ben. I don't know if you know off the top of your head, but a contractor will be in the home selling this tool, and if they don't get the deal signed right then, they'll sign at 11:00 at night or 12:00 at night when their spouse comes home, and they're talking about it before they go. They go through the options, and these become 24/7 sales cycles now with these tools.
Actually, AJ, that's a great point. I think some of the data that we have actually shows that that's the consumer behavior that's out there.
Yeah.
Typically, consumers are super busy during the day. The only time they get to really sit down and talk to their spouse is late at night or early the next morning before the day gets busy again. The data that we have absolutely supports that. It's amazing from a contractor's perspective. There's nothing more exciting than hearing that ding at 2:00 in the morning and saying you got that sale. Like that is super motivating, and that's what the power is from some of these tools that we're really giving these contractors to go out there and close more sales and differentiate their services from others out in the marketplace. One thing at the bottom here that is really interesting, it incorporates financing, and that sort of leads me into my next venture that I'm going to be talking about.
Again, when we propose, we can propose full solution system sales, or we can propose on monthly payments. All that incorporated in one single app, and a software platform that our customers are using on an active basis today.
I have to say, again, in case it wasn't caught, that it's leveraging a lot of the data that we talked about in those foundational layers, right? Pricing, inventory, ERP data, and then it transverses back soon into e-commerce. How soon, Ben? Soon? Soon.
I was talking about financing, Credit for Comfort. Again, homegrown here in Coconut Grove. This is a platform, a financing platform, a multilevel financing platform that we're offering to our contractors to really solve one of their key problems, is helping a customer who may not have the funds available immediately at the time that that emergency failure or repair happened. First and foremost, what we find in the marketplace today, a lot of the consumers today, again, it's an unplanned repair. When the contractor shows up at the home, the savings may not be available. A contractor today, what they do is they log in to one location with one service provider or they're going to log out and go to another one. There's multiple apps that they're using on multiple platforms.
What we tried to solve here for our contractors is to go to one single location. It's a one-stop shop for our contractors to go and really access multiple levels of financing. We look first at prime rate financing. We've integrated into our platform second look financing and also PACE financing where applicable into specific markets. From an ease of use perspective, a contractor at the home with the consumer can get the application. If the consumer is looking for financing, they can look at prime rate, and they automatically roll over, if they don't qualify, into second look, and they can also use alternative forms of financing, like PACE, right there at the kitchen table. Again, giving the ability to the contractor to get to more yeses right there at the kitchen table when they're proposing that solution and giving them a complete solution.
We have in this offering, we want to make it easy for contractors. A lot of the things that we found as we started the research of this, as contractors, they had to apply at multiple different locations. We wanted to offer really a white-glove service for our customers. Our customer contractor has a single enrollment with us, and then we, with our partners, will help facilitate that application. It really makes it a lot easier for the contractor to really get started in financing. We found on average about three out of 10 contractors are selling with financing today, a great opportunity, again, to continue to add additional services inside of our market, our industry. Really, there's a lot of room for growth opportunity, because really what a lot of consumers are looking for today are solutions to their problems, including financing.
The three main reasons, and I think Ivan highlighted them earlier on, that contractors don't finance today is they say it's too complicated. We've simplified that process with the Waterfall application, where they enroll only Oh, that's a lot louder. Woo. Where they enroll only one time from a consumer perspective. The consumer applies in home. They select the platforms and financing platforms from a prime look. If they don't qualify for that prime, it automatically re-enrolls to the second look without any additional information having to be entered from a consumer or a contractor standpoint. There's a review of the terms to apply for the second look, again, making it easy and making it quicker for them at the kitchen table. The other reason that we hear contractors don't finance today, they've told us it's very expensive.
As Watsco, we're able to go out there and leverage our size and our scale to really be able to leverage some really great rates that we can offer our contractors. The third reason that we really hear contractors don't finance today is the fear of embarrassment. The embarrassment at the kitchen table when a consumer applies for that financing and you get that, "Sorry, you got denied." That is the three main reasons that contractors don't finance today, and with our platform, we think that we've solved that. This is brand new. We just launched it. We've seen some amazing, good traction, and also a great opportunity to continue to integrate with our other platforms. Our next solution that we'd like to discuss is called Housecall Pro. Housecall Pro is a third-party partnership that we have with a company based out of San Diego.
Really, it came about as a solution that we get as we traveled throughout North America, getting asked, "What software should I use to run my business?" Contractors continuously ask that. We went out and we, through extensive market research, found that it may not be the best solution for us to go out there and build, but we found what we believe to be the best cutting-edge technology that's being leveraged out there that really helps our contractors differentiate their service. Again, a subscription-as-a-service business for us, giving our contractors the ability to run their operations of their business right from their mobile phone. That's the real key of this product. It's everything based on the mobile phone.
Any small or medium-sized contractors, this is like an automatic amazing solution, giving back time to those contractors in the day to focus on what's important to them, not having to go back home and do all those administrative things late at night. What really differentiates this service is their customer experience. The customer experience, again, as we're trying to solve or trying to streamline that experience for consumers through our contractors. The application here, the way it works, the contractor can, through three quick clicks, can schedule a job right from his phone in the field at any time, and it'll send and dispatch a notification to the customer, letting them know when the contractor's going to show up. Long gone are the days that we can say that the servicing contractor's going to show up sometime between 8:00 and 5:00.
It's more like, "We're going to show up at 8:05." That's the consumer expectation today. That's what we really have, and that's what, really, this platform really helps differentiate our contractors' business out there. It gives that platform and that constant communication with that consumer, letting them know who's going to show up at your home. With the dispatch, letting them know that they're on their way and what time they're going to be there. It gives them a picture and a bio of who's going to show up. I'm sure you've seen that if you use Lyft or you use Uber or any other of those technologies today. It gives you that ability and really that nice, seamless customer feel at the end of the day, and that's how this platform really differentiates itself. It also interacts with the consumer all the way through the actual experience.
The contractor can notify the consumer when they start the job, when the job is finished. Even more importantly, at the end of the job, it gives them the opportunity to accept payment then and there immediately in the field, helping our contractors with their cash flow. If payment isn't accepted right there in the field, it has an electronic solution to really follow up with invoicing and collecting payment from these contractors through a mini accounts receivable, really helping our customers with their cash flow and depositing those funds immediately in their account. Amazing solutions for our customers, small and medium-sized businesses looking for these solutions, who have a great need from a cash flow perspective. The other thing that this platform is really exciting, is it incorporates a CRM, so a customer relationship management database.
It's an opportunity for our customers to gather the information of the customers, of the consumers that they went to their homes, the information that they've gathered on these consumers, and an ability to remarket through either direct mailing, through some old school postcard technology, or they can do it digitally. A great opportunity to continue to build, targeting right messages to the right customers at the right time. Allowing, again, our contractors the ability to grow and scale their businesses. Again, the operational efficiency by taking care of the back office sort of operations automatically, giving that time back in the day for the contractor to focus on what's important to them. The final thing I'll say on Housecall Pro, and one thing that we found of late that's a really key driver is, it's fully integrated into QuickBooks. It's QuickBooks Online.
We found that a lot of our contractors actually use QuickBooks. It's probably one of the most commonly used platforms out there. One of the really cool things about this platform is it eliminates that duplication of entry from a traditional system into QuickBooks. The contractor will automatically just enter it once in their ongoing operations with Housecall Pro and their QuickBooks get updated automatically. A really great solution. They actually had an award-winning integration last year, from QuickBooks, so a great tool. Again, saving time for our contractors to allow them to focus on what's important to them. Super easy to use, super intuitive in terms of its ability, and it gives, really, that customer a seamless sort of experience that consumers are looking for today.
That was sort of a discussion about talking about a sales process at the kitchen table, and we removed a little bit talking about the operations. Now I'm going to talk a little bit more about SBE, Service Business Evolution. We have a commercial exclusive partnership with SBE, and really a great opportunity for us to continue to help our contractors grow and scale their businesses. Traditionally, in our industry, you see up here you got a bunch of books on the shelves. That's how traditionally in our industry, training was done. You go to a seminar for a contractor, a half day, maybe a day, you get a big binder, you shove it up on the shelf, and the training is done. That's what is done.
That's what it's been, that's what it's been like, and it's been rebranded, remarketed several different ways over the last 30 years, but it's really all the same old stuff. What we've gone out and partnered with SBE, really, their platform, their app, their dashboard, really changes and revolutionizes that training platform and that coaching platform. It's more of a coaching platform. It's very customized to each one of our customers. The app and the dashboard tracks every single day, daily activities, daily goals to each one of the employees that are out there, putting the power of data back in their hands. Really allowing the people in the field to make those decisions. Again, removing the emotion out of managing a business and really leveraging data to really be able to scale and grow your business. The other way that SBE does it is through coaching.
A lot of our customers, they said, "I can go start my own business." They went and they started their own business, but some of the business skills may not have been there. People learn at different scales, and it's not a binder on the shelf that's really going to do it. A really revolutionary approach that SBE takes is they do coaching through interactive sessions, and it's customized at our contractor's pace. If they want to go fast, they can do multiple sessions and get them up to speed so they get their training and their coaching done, or they can do it on regular intervals. It's whatever is customized for that customer experience, our contractor, and whatever they can do, given their time commitments that they have in a day. Again, it's evolutionary in terms of its approach. SBE is actually in business today.
Most of the people that do coaching and training today don't actually operate an HVAC business, but SBE does. SBE is living, each and every day, the values that they espouse during their coaching and their training, and they're testing it in market through their own business that they were able to build and scale really in an amazing amount of time. We believe that this is an amazing model to really help our customers, first and foremost, who are challenged maybe with some profitability, is get them back to profitability as quick as we can. We really coach. The first thing we do out of the box is to get them back to profitability. Once they're back to profitability, then we talk about scaling is really the next thing on the roadmap, is what are you going to do to really scale your business?
I know Chris is going to talk about SBE, why don't we.
Oh, you want me to skip that?
Yeah.
Okay.
We got-
That was SBE.
Yeah. We're running out of time.
Okay, great.
Sorry, Chris. Keep going.
SBE is awesome. I'll move on to our final venture I want to talk about today.
Which is, if you'll notice, in the lab still.
Yeah, this is in the labs. This is double secret probation. We will erase your minds as you leave here today. A great opportunity, and I want you to sort of picture this. We talked about a lot of different things, and those are things in market today, but it's doing what we've done a lot more efficiently, a lot more productively. Really, let's think about shifting that paradigm even more. Today, every example that we gave you today I'm blocking the screen. See, Tensie? Every example that we gave you today was initiated through a failure and a customer, a consumer, picking up the phone or getting online and getting in touch with a contractor.
Think about what if a unit itself could be monitoring or could be monitored remotely, with what the pressures are going on with that unit, what's going on with the temperatures of that unit. We could actually tell, or the even better, the unit can tell us what's going on with that unit before anybody even knows. Right here in-house, this is patent pending in the lab. Sneak peek. This product really is going to allow us to do that. It's really going to revolutionize, we believe, and shift the paradigm in our industry, allowing the units to tell us what's wrong and what's going on. Through, as you can see on the right-hand side, again, mobile applications, we can notify our contractors of immediate, urgent needs. Even better, we have trend lines that go in the background really monitoring this performance.
We collect a bunch of different information, and we project it through cellular technology back to the cloud, and we use our proprietary algorithms to really predict what's going on with this unit based on its base performance to tell when it's going to actually fail or before it even knows it's going to fail. We're able to dispatch a contractor by notifying them once the unit falls outside of its operating parameters before a consumer knows, before the contractor knows. Even more importantly, with some of our algorithms, we're going to be able to predict what part is needed for that contractor before he actually goes to the home. We call it our one and done. Our one and done solution, really helping our contractors be even more productive.
Through that notification, just imagine that unit sending that notification to the contractor saying, "My performance has fallen outside of my parameters. You're going to need this part. Before you come and see us, order it online through e-commerce, go pick it up through your express warehouse, and show up at the consumer site with the part that you need before the consumer even knows about it, before the contractor even knows about it." Think about the customer service differentiation that we're offering now in the marketplace. Now, a servicing professional HVAC contractor is remotely monitoring each one of these devices, giving complete peace of mind to consumers that this is being monitored 24/7. Great opportunity for us to continue to develop and leverage that data, that rich data that we're getting out of all of these new technologies. It's a cool world for tomorrow.
In summary, we believe what's good for our contractors is good for us. We talked a lot about the different technologies that are out there today, really getting these technologies as quickly as we can to these contractors' hands. We believe we're going to help them, again, grow their businesses, grow their revenue, and scale their businesses, and really help them put time back in the day that they desperately need today, and to really focus on what's important. Again, we believe that it's changing their way of life today. Again, it's a great opportunity from a business standpoint. I talked a little bit about some of the subscription models and the revenue that we're creating from this.
One of the other things that's really a very positive early indications is that contractors that are signed up for one of our ventures, the stickiness that we have with these contractors is growing. Our share of wallet is growing with these customers, their sales with us are growing. Also, as we're helping these contractors with all these productivity gains, their businesses are growing, therefore, organically, our sales are growing with these customers as well. We have the revenue generation from the actual software platforms and also growing our core business at the same time, with tremendous growth opportunities for us. The last thing here is we continue to gain insights. We talked about launch and iterate multiple times today.
We are gaining tremendous insights with the data that we're gathering, we're taking a lot of these great opportunities to leverage that, and again, making our contractors better to really help them grow their businesses. With that, I thank you, and I'll pass it back to A.J.
Seth. Thank you.
This one?
No, I think this works. All right. Pretty smart, impressive humans, if you ask me. I think that's been a major feat over the last few years, is get some, I like to say, sucker some really amazing people to join us here and do some pretty amazing things. I imagine you want to have some sense of what we see the impact is or will be, and so forth. We're not going to give you any sense of that, no. Look, the message I'm going to drive home in this segment is that this is a long-term play. Right? Quickly, I'll just say, and I mentioned this earlier, and I think we've hit on this hard, is that this is a continuous improvement cycle. Right? It's data elements leading to productivity gains that enhance our customer experience, that help our customers grow, which create new data elements.
You can see how this cycle goes up and to the right, and that is us now. That is our posture, right? This continuous improvement cycle going up and to the right, constant feedback from the systems and from our customers, and just always improving. That is what we're up to now. It's a long-term game, and I love this quote from Bill Gates. I think it hits the nail on the head for us. It's perfect. What it says is that we always overestimate the amount of change that will happen in two years, and we underestimate how much change will happen in 10. Right? It's perfect for us. If you think about where are we in terms of the 10-year cycle, we went live with our first e-commerce site in early 2014.
That was with one subsidiary and I guess maybe one market, and then the rest of the subsidiaries came on by the end of 2015, excuse me. We're in year three of just e-commerce. Right? We're in year two probably of order fulfillment. Right? We have maybe half of our branches on the order fulfillment thing, and we're in year two of inventory optimization with half of our business. Again, we have 90,000 customers. You'll meet two of them next, which is going to be a fun show. Even these guys who obviously were handpicked to come speak at this presentation, they've adopted a lot of this stuff. Both of them are 80%, 90% their sales are going through e-commerce, or the purchases are going through e-commerce. They haven't even seen 70% of the stuff we talked about today. Until yesterday.
We took one of them through it, and the other one I'll take through this afternoon. Right. There's this massive scale of 90,000 contractors, a lot of platforms to get the message out. It's going to take time, that's the key message. Meanwhile, the trends are very positive, right? In terms of adoption rates and all rates, right? On the top right here, it's number of PIM products in our database. We started at 0, now we're at 680,000 SKUs. Right. Number of users using the Contractor Assist mobile apps, which is our subsidiary mobile apps in the hands of the contractors, the one that Steve demoed earlier. Up and to the right. Branches enabled with the order fulfillment app, and you see it's kind of plateaued here because Carrier Enterprise hasn't yet even come online yet, which is, I don't know, 150 branches or so.
On the bottom right is business intelligence, right? The number of users internally that are using this tool is now at about 1,800 users a week. The number of inquiries they're making to the system continues to go up. If this system has a hiccup for an hour, everybody freaks out. Right. I see Wyatt nodding his head, and him included. Right. The trends are all very positive. By the way, I don't have it on here, but in terms of the Watsco Ventures products which you just saw, most of them are not just now coming online, or not even in market yet, but in the first quarter of this year, we had as many contractors sign up for our Watsco Ventures program as we did in all of 2017. Right. Just now starting to get that momentum. E-commerce as well, right?
E-commerce, we do highlight fairly often. Our last quarter, we're at 26.2% for Q1. I think this is our domestic business. Number of users, again, it's only 7,900 users that used it last month, and that's Hmm?
Companies.
Companies, sorry, yes. Contracting businesses that used it last month, again, out of 90,000. Those are not ones that use it 89% of the time yet, right? By the way, I put the multi-colors here are each of our subsidiaries, and I did that on purpose to show you that I love the decentralized model. Right. The fact that we have five business units out there doing the thing. The way they do things is unique. Their approach to the market's unique. The way they talk with customers and the product offering and where they locate their branches is all unique, and they have different successes with different things. Then they can learn from each other, right? The blue, I'll just tell you, is Carrier Enterprise, right?
They know, Ed Gaffney is in the room, who leads the digital efforts at Carrier Enterprise, they have just taken off with e-commerce. So that line, they're at over 34%, 35%, Ed? You have markets, you have branches that are 70% online. You also have branches that are 7% online. So it's this whole, I'm trying to drill this point home, that it will take time for this stuff to mature through our ecosystem, through our industry, through our customer base, which is highly fragmented, a lot of small and medium-sized businesses that we have to touch individually, that rely on the relationships that we have with these owner/operators. It will take time. The trends are very positive. Meanwhile, some data so far, right? Service levels, we talked about earlier.
Having the right product, the four buckets are sort of more internal stuff or internal operating metrics, and the right are more external, right? 300 basis points improvements in service level fill rates. What that means is that we do have more of the right inventory at the right time, at the right place so that contractors are getting what they need and getting their order. In other words, there's fewer back orders or there's fewer missed sales because the product is there when they need it and when they arrive. At the same time, inventory turns are going up.
We're taking, I said crap earlier, maybe I shouldn't say that word, bad inventory out of the system, or old inventory, or slow, or excess, or damaged inventory products out of the system and having more of the right stuff, the high-quality stuff, where it's needed at the right time. We mentioned the number of order fulfillment branches. The other thing that's happening is that as we have smarter warehouses laced up with the technology, laced up with the demand planning inventory optimization, we have less square footage requirements. We should have, this is the theory, and it's proving out so far. So far, we've been able to take out 500,000 sq ft of our warehouse space without closing branches. This is just reducing the size requirements. We're doing more or the same with less physical presence.
Real estate, as you can imagine, is our second biggest cost across the company. Pretty exciting. Again, early days, but indicative of where you're seeing some traction. On the right, e-commerce is talked about. Last year, we did over $900 million worth in e-commerce. This year, I expect we'll do over $1.5 billion online. An increase in online sales. These two right ones are maybe my favorite. We talked about this one on the bottom right. When customers buy online, they're buying 37% more line items per invoice than when they're buying offline. It goes back to that data and the technology that's doing the recommendations engines. It's just a better tool, a better system to order through. It's no longer call your salesperson, give them an order.
They call it into the branch and, "Did I forget something?" These tools make the ordering more efficient, more obvious, easier, faster, more transparent. Now the salespeople can be real, truly consultative salespeople that can bring them more jobs, that can track down orders, that can do all these value-added services that we keep talking about. Maybe my favorite of all of these is that customers that are buying a lot online, the attrition rate of those customers is 30% lower or two and a half times lower than customers that are buying offline. What that means is that there's a lot of stickiness. Customers like using these tools. They're embedding it in their businesses, their processes, their operations.
The thesis of these tools should make it so good for these customers to do business with Watsco, they only want to do Watsco. That to me is the metric that I point to, is that when they're using the tools, they grow faster and they're stickier with our business. Again, early days. I would call it year three out of this 10-year trend. Those are offensive reasons. These are offensive metrics. We're doing things bigger, we're doing things better, we're doing things faster. Customers are buying more. They're more sticky. We should take market share, et cetera. There's a lot of defensive reasons, too, and I love this slide. Defense. Again, I want this to be a 100-plus year multigenerational company.
Like I said earlier, there are no 100-plus year multigenerational companies that have been doing the same thing all those 100 years, or certainly not the same way for 100 years. We're knee-deep in this evolution. I see these big three threats. The first one is not keeping up with the Joneses. Not doing what we need to do to make us the best company we can be with this continuous improvement cycle and taking advantage of new opportunities. We don't want to go the way of the dinosaur or Blockbuster Video. We want to continue to be industry leaders, thought leaders in the industry, and build on the momentum that we have and not just perish. That's one. That's a known threat, that if we don't do these things, the risk is that we become irrelevant and perish.
The second is we know there are companies out there. We mentioned Amazon. It'd be naive to not consider Amazon a potential threat. They have unlimited capital. This investment community gives them unlimited license to make any size bet in anything they can think of, including potentially drones that can move an air conditioning system from one place to the other. I think that's hopefully far-fetched. These efforts that we're putting into technology and being bigger and better and faster and more digital, and the relationships with our customers, all these things we just talked about, they provide some defense, some moats against the known threats. We have competition and we'll compete with them all day long. I'm talking about threats that could come into our space and disrupt us, and known threats. I think that these technology investments help with that.
They also help against unknown threats, which are five guys in a garage, or five people in a garage in Silicon Valley dreaming up something that none of us have ever thought before that's going to come into the air conditioning world and blow us all up to pieces. I don't know what that is, I know that if we continue down this path of continuous improvement and enhancing relationships and blah, yada, it is a higher barrier to entry to come disrupt us than it would be otherwise. I'll tell you that, as if you know our profile, we do a lot of acquisitions. We talk a lot of acquisition targets. They know these threats too. It's becoming a more and more attractive landing place to become part of the Watsco family for some of these targets.
If you're not familiar with this slogan, "Don't ask us, ask our customers." That's in the front page of our annual report this year. Thank you, mother. Don't ask us, ask our customers. We've brought two customers here that clearly are friendly. The idea is for them to share their stories, right? They're entrepreneurs, they're small business owners or medium-sized business owners. They do business with us. I think they like doing business with us, hopefully, because we asked them to come talk in front of you. I thought it would be interesting for them to share their story, share what they see in the industries, share what they see the evolution of our business is and how that is changing what their business might mean, and how we can grow together, and how this is very sticky for both of us.
My only question is, do we need another quick break? Because this might be another 30 minutes or so, because we also got to do Q&A. Play through? All right, who wants to go first? Chris. Chris is the owner/operator of Florida Heat N Air in Fort Myers, Florida.
Yep.
I'll let you tell the whole story, buddy. Oh, you don't need that.
I don't need that.
Yeah.
My name is Chris Graf. I'm a third-generation contractor. My grandfather started the company. My mom and uncle took it over. Once we kind of made it through that economy we all just suffered through, my mom retired, I took over, I've kind of tried to bring us into the technology age, as all the presenters have showed you today, all the different systems. I was primarily a new construction company. My grandfather did it, knew how to do it. We're really good at it. We've never had any retail business, so we've been trying to transition into that with SBE. We're also using the technology that A.J. was talking about with eCom. I love eCom. It's streamlined everything. I don't have to print my orders. I don't have to write them down.
I don't actually do it anymore, I have someone that does it for me. I used to go outside, I'd take my phone out with my app, I'd go down through my daily list, click them off, send them out. I get an email confirmation, boom, it comes in. I get a phone call from a tech. I express lane it, send it over to my tech. My tech goes in, he goes over to express lane, picks it up. It's the greatest thing ever. It really is. As far as how the business runs, like I said, we've been doing new construction for 30 years. We've always wanted to break into the retail market. Wyatt calls me one day and says, "You've got to come to this meeting. We've got a meeting coming up with a company called SBE. I've seen them work. It works.
You need to come here." I go to this meeting, I meet SBE, I instantly have all these ideas of how to transform our company. As soon as we left the meeting, my uncle and I both looked at each other and said, "What do you think?" I said, "Well, I think I'm going to fill the paperwork out Monday, and we're going to do this." He said, "All right, I'm with you." I do that. I meet SBE, they have literally transformed our company with all of these ideas that we never had. We implemented Successware, which is not through Watsco, but.
You're allowed, Chris.
It was the only thing I could find.
Just one time.
that would work with our construction division. Nothing else will work. Successware was the only one, so it was the only choice I had. It is a good one, though, and SBE is using it too, so that kind of helped me go forward with them. They also have shown me how to be better with customer service, like how to relay that we care about our customers, and it's also transformed us into having a better market share in that retail business. We've started in-home consultations with all of our new construction customers. It's allowed us to sell more maintenance agreements, labor agreements. My change-out business went from zero to I did over six figures last month. What was I going to say? Our winter really only ended, like, what, about the first week into April. I mean, I had no service calls up until April.
As soon as the hot weather came in, the service calls started. The training we've been doing with SBE started taking effect. My techs started selling, which we've never done before. It was amazing. Like I said, we did six figures last month just in retail business. It's just been fantastic. I'm not really sure what else to talk about.
There'll be plenty of time for a Q&A.
Anything you guys want to ask me, feel free to ask me either a little bit later or when we go outside and have lunch. Don't hesitate to ask.
We'll do a formal Q&A.
answer anything
which we'll ask you guys to stay for. If Rich, you want to tell your story, that'd be great too.
Sure.
Thanks, Chris.
Well, I got to tell you, I'm very excited to be here. I learned a lot today, a lot more than I actually expected. One thing I'd say from Barry's standpoint, when he put up that slide, that got me really excited because there was one with a 45-degree angle, and I think it should get us all excited, really. That shows you that today is the smallest this industry is going to be. That's pretty profound. Today is the smallest that this industry is going to be. That gets me excited as I'm running my business, trying to build and improve it. You guys talk about disrupting it the industry, you're lifting it. Because I talk to my employees about building, improving, growing yourselves, growing the business, and you're doing it in a much bigger scale than I am, and it's pretty exciting to see it.
This is our company, GAC Services. Started in 1970, just like any other small company would, probably out of someone's house. It was actually the founder's house. He started it, left IBM. My partners and I took it over in 2007. It was about a $2 million business back then. Some of the things that contractors go through, and even in 2007, when we got into the business, it was amazing at how defined the workspace was for contractors, where they would draw a line and say, "We don't go past this road or this ZIP code," or they cherry-pick the work. They wouldn't work on certain equipment. When it rained, everyone came into the office as if it was okay to come in and not work. It rains a lot. Duck Man would go on vacation and no installs.
A typical contractor will do 75%-80% of their business is installs. We're trying to lower that as we've grown so that our revenue is about 65% at this point, is what the installs are. Technicians, they would decide where they would go and what they wanted to do, and we were kind of handcuffed, and we had to make a lot of changes. When you make a lot of changes, people don't like that, and you're dealing with trying to rebuild the business. These guys here, I take out my sword every day and help battle with them, and these are my partners, these are my brothers. We have gone out and done our best to make something of the business that we had an opportunity to take over.
We also are making a real commitment. It's interesting because the contractor, the owner that sold the business to us, he came back to us a couple years later, and he's in here looking and seeing what we're doing and all the stuff we're doing. He said, "You took my thing to do and changed it into a business." That's what it is for a lot of contractors. It's the thing to do because they want to do other things. They would like to hunt, fish, go on the boat, do whatever. I think that some of just being able to begin to know how to plan, forecast, do what's needed in the business, it helps them grow it and improve it. We had employee issues where they didn't want to change.
We constantly focused on growth. One of the things we did was just keep the business simple. What do we do today and what can we do tomorrow, continue to grow at 15%, 20%, some years 30%. We did that for the last 10 years. At this point, we have about 100 and some people, and we're doing about $16.5 million. We did that also with keeping up with technology. Technology, whether it's the phone systems, the computers, anything we could do to help our employees have a better day or do the process in a better way, that's what we were looking to do, and that was exciting as I'm sitting here listening to all these great things that you guys are doing, and having a great relationship with our distributor and manufacturer. That's always important to us. What's burn the boats, though?
Oh, burn the boats? Yeah. Burn the boats, it's become an internal battle cry at our company, where going back to the days where people would conquer lands, right? If you had a bigger army, you would always win, right? You have a 10,000-person army. They studied it and they said, well, the Vikings, they would go in with 500 people and beat at 2,000. How did they do that? What they did was, they had a little ceremony once they landed. They burnt the boats. The only way you can get home is to use their boats, right? That's kind of our concept, and that's what we're doing. Commitment. That's the commitment. It's a higher level of commitment. That's the concept there with burn the boats, that's kind of where we got that from.
Our service industry, low barriers to entry. We got plenty of trucks in the truck that you guys have as customers. We compete with them every day. Average contractor's generating anywhere from $500,000 to $600,000 a year. That can provide them with a good living. They probably have three or four people working for them, and life is good. It's very labor intensive. It sounds easy. You're uncomfortable, you call us, you ask us to get a guy out there. It's very labor intensive, you're constantly managing people, and that's probably one of the reasons why an average contractor is $500,000, $600,000, because they can live comfortably and not continue to add the headaches. It is a feast or famine market. When we're busy, we're overwhelmed, and when we're not, we're trying to do everything we can to drive some business in.
As we've grown, we have gone over the model, and we've gotten into the electric business as well. That kind of helps smooth things out. For example, I could have a $2 million month in revenue, and then all of a sudden, I have a $800,000 month, but I still have the same overhead. I have to build the other areas of the business that can help lift that so I can at least try to break even sometimes. Customers in more demand, they demand more today. I think we all expect more from everything we're doing, and we got to continue to train the technicians. We've gone from paper, two-way radios, to iPhones and emailing invoices. ACCA, Nexstar, Service Roundtable. These are organizations in the industry that help contractors grow and build and improve their businesses.
I'm on the local board of the ACCA, and it was interesting. National chapter has a meeting, a couple thousand contractors go every year to just talk and get together and have a conversation and learn from each other. They sent out a letter just this week, we got the information back, and the four key areas were leadership, employee recruitment, productivity, and management. That's the top four that the contractors came back to the ACCA and said, "We need to know this, and we want this at the conference next year." It has nothing to do with tech. It doesn't have anything to do with what does the TXV do and teaching everyone that. It's about leadership management. How do I manage these people to do a better job in the home and grow the business?
We are tied to a. We have a great relationship with obviously the manufacturer and the distributor. That's basically what you're looking at in the industry. Why Watsco? Personal relationships. It's nice to have a lot of this technical stuff, but if you don't like the guy you're talking to when something goes bad, that's not going to work. We have a great relationship, great group of people, and the people even are not here today. Everyone just seems to complement each other. The personal relationships are extremely important. The education and training, they'll come to our office because we have enough people where they'll train, and we'll also send guys out to their facility to actually get education on the new products that are coming out or the new services that they have to offer.
They sell the right products to us at competitive prices and deliver them on time. That sounds easy, but I know it's not. It is extremely important. We need the product in there, and need it in our offices early. They're making my complex world easier. That's a big piece of it. Just being here today and hearing all this gets me excited because they're actually thinking about what the next steps are. The e-commerce site, we're buying about 90% or a little over 90% of all of our products through the e-commerce site. The CE app, that's this one. This helps make our technicians better in the home. It makes it more efficient.
The guy can get on there and look up a document search and figure out the part and maybe the schematics of what he needs to do to actually get the job done correctly. Then they do have the sales app that you just heard about that it does help us differentiate ourselves in the home, and we're excited to use it. We've used it. Actually, yesterday I got a text from one of my sales guys. He sold a job that was $37,000 right off that app. That was great. In conclusion, the industry is evolving. The expectations are higher from our employees, from our customers. There's a demand for labor, quality labor, and companies that want to grow and build and improve themselves need partners like Watsco here that are thinking through the industry with us. Thank you very much.
Fantastic. Thank you.
Thank you.
Well done, Richard.
Thank you, sir. If you hang out here, actually, if the presenters would come up.
Peyton didn't get a hand. You did. Richard.
We're not done. The long and short of it is that we're in full evolution mode, right? We opened the kimono. There's a lot going on in terms of the world of data and technology and customer experience and all the good stuff you saw today. It's all a means to an end. It's going to take time. The trends are positive. The customers are starting to discover it more and more and love it more and more. The end. Let's do some Q&A. Someone's got to break the ice. Dave Manthey? He's got a mic for you here. Dave's is not on. No. It says off. He says it's off. No? Try this one. Okay. There we go.
Sounds good. Okay. Thank you. Thanks very much for coming to the contractors. We appreciate that. It's always good to get your insight into what's going on. I'll direct my question to you two originally here. As you look at these tools, you think about the early adoption that you've had and the impact that it's already had on your business. It might be a tough question. Is there any way that you can measure the benefit that it's had on your business thus far at all. I mean, in terms of, is it 1% better? Is it 5% better? Just trying to get an idea of if there's any metric you can give us at all in terms of the results so far as you see it.
I don't know if it's measurable from my end other than time and paper and ink. We don't have to print the orders out and manually write on them and then scan or fax them. Like I said, I used to go outside with my phone, click them off. I built all the order sheets, like when we'd order equipment, like they were showing you the match-ups. You take the match-ups, build the order, you click in, you want a 16-tier 5 ton. This is what we're using, off goes the order. It's like that. I was telling A.J., Sunday I was doing a duct design on a custom house. After I got done doing it, I did the pull sheets and I thought, "Well, shoot, I can order the equipment." I ordered equipment at 11:30 P.M. I don't have to write it down.
I didn't have to remember it. I did it. It was done. It shows up the next day. I mean, before, like I said, you'd have to write it down, fax it, scan it, call to make sure they got it. I mean, it's a time thing for me, really. I don't know if there's a percentage I could put on it, no.
Before I get to you, Richard, just one second here. In terms of that time factor, as you look at your weekly production or something, forget percentages in dollar terms, are you able to get to more jobs per week, just anecdotally, than you would historically because of that time saving?
Well, maybe. I'm not sure how to answer that. Our construction side is very strong, and we're very productive at it. I don't know if it's increasing productivity. One thing about Watsco, though, is, the competitors in our area, they don't have the materials that these guys keep on hand. They cannot keep up with our demand, and Watsco has it. Every day when I call and ask for it's there. It shows up, sometimes two trucks fully loaded. That's the benefit I get from Watsco, and then the apps are helping streamline. I didn't know I could do warranties through the app. That was very enlightening today, and now I'm really going to be pushing my service techs onto this app. That's pretty awesome.
Like the long terms. It's hard to get the scale of this stuff.
Yeah. It's hard to do everything-
At once.
At once. Like with SBE, I've made so many changes since January that all of our heads are spinning, and I had to stop at some point and say, "Okay, we need to stop, focus on what we're doing, see what's working, and then start making more changes." That's why with the service techs and the apps, I kind of put that on hold. With all the pricing changes and the training we've been doing, I needed to put a hold on all the changes for a little while and start focusing on what's working, what's not. Take this, take that. That's how we've been doing it. The apps, though, are absolutely working. I would not go back to what we were doing, I'll tell you that. Yeah, I like them.
I don't have an answer from a financial standpoint either, what that does. I will say the app does allow us to be more productive internally, right? Because you don't have the paperwork, you don't have all the steps that we used to take, now that frees people up to do some of the other aspects of the job that they need them to do. It does open it up for us.
Thank you.
Hey, guys. Thank you so much for putting this on. It's been a great presentation so far, and thanks to the contractors. Maybe just tacking onto that. AJ put up the metric around lower attrition and higher stickiness with Watsco and when you use the apps. Can you talk a little bit about what you used to do before you used the apps in terms of possibly shopping around multiple dealers and distributors versus now that you're using the apps, how much stickier has it gotten for your businesses with dealing with Watsco directly?
Well, what I did when I took my position in the company, I've known Wyatt for probably 14, 15 years now. Jerome, my territory manager, I knew him when I was 10 years old. I was at my grandfather's house. This giant man shows up. I mean, he's a big guy, and he gets out of this delivery truck. I've known Jerome pretty much my whole life. When I took my position, I called Jerome, and I'm sure Wyatt was in on some of the talks, and I said, "Look, I want to buy everything from you guys." I love those guys. Those are like family to me. They do give me the best pricing that they can give me.
I do shop around, and sometimes I'll call and say, "Hey, Tropic Supply's selling this for X amount of dollars," and they do whatever they can to meet me to there because I don't want to buy it from Tropic Supply. I want to buy it from Watsco. That's how I do it. As far as, like I said, with the paper, all the paper, I mean, mountains and mountains of paper. I myself go through probably a bundle of paper every day, and just getting away from that, and like he said, with productivity, I mean, you're saving time. That's a no-brainer. Then, I used to have to build. My mom did it before me. I've done it. We had to build lists, and it's pages and pages of parts and materials-
Now I go into e-com. I built all the lists. It was much easier. I can organize it. We buy box quantity, so it's all set up in box quantity. We go in, we hit one, two, three, however many you want, and you get an email confirmation. I get an order acknowledgment confirmation. In a couple of hours, it shows up. You can't get any better than that. Not to mention these guys, Wyatt and Jerome, these guys jump through hoops for me. They really do. I ask them to do some crazy things sometimes, and they make it happen. They really do.
I'll literally have a truck sitting in my office unloading, and I'll think, "Oh, my gosh, I forgot to order equipment." I'll call Jerome up and say, "Hey, I forgot a system." When I do stuff like that, I try to make it worth their while, so I'll try to find another job a couple of days out and say, "Hey, throw these couple of units on there to make it worthwhile to come back." They do come back, and they bring it, and they give me what I need. Sometimes they bring it in the morning. They'll throw it in their car and bring it over. These guys are great guys. That's why I buy from Watsco. They go that extra mile. You've seen all the stuff that they're working on, trying to make us better.
I get it, we're all trying to make money. They're trying to do the same thing. Making us better and helping us better is making the money flow a lot easier.
My experience is the same as what Chris has said. It is the relationship that you have with the local dealer or distributor and what they're doing to help us build our business. There is a stickiness, I'm sure, with the process that we end up putting in place because there's people executing it every day, so they know CE is where we're buying certain things, and we're going to be buying it from them. The majority of what we're doing is buying through that. They are going and using the products. Yep.
This has been a very impressive and productive day. Thank you all for being here. One question. It's probably best for Barry and A.J., as you think about these investments in the technology opportunity, I'm curious how you compare yourself and where you are on this journey compared to, say, the Goodmans or a Lennox, also competitive advantage in that regard.
Go ahead.
Well, first, going back to technology, it means a lot of things. Is it ordering online? We will seek competition ordering online, no question about it. Some of the OEMs have developed that for their own brand and their singular brand. Other distributors are taking their electronic capability, putting it as a front end for ordering online. Did everyone only hear an ordering online strategy today? This is a much deeper, more profound, more prolific thing. Even if someone did do it won't be on the scale that we're doing it in terms of value, if you impute that. We certainly are seeing the ordering online kind of thing that is more cliché. You heard a much deeper, obvious strategy today than ordering online. I'm not sure we're seeing, again, a universal scale in any market or any one market. It's very eccentric across markets.
Steve, it's part of your job to know that. What do you see?
Yeah, I would say it's the same. One of the things is the breadth of products and the breadth of the capabilities, right? These industry-specific capabilities that make the contractors' and the dealers' lives that much easier. The Lennox, yeah, everybody's going there to online ordering, when you look at our product content and the multi-brand aspects of what we can do, you look at the commitment, the commitment from our leadership and the fervor with which we're going after it and our passion to be partners with our customers, I think that's unique.
Oh, right behind you.
Oh.
Yeah, I just want to echo what everybody else said. This was a really great presentation, congrats on all the success on building very cool, not so geeky products. AJ, this question is probably mostly directed to you. Now that you've built a lot of these products, what I find interesting, what Chris just mentioned was that he didn't realize there was this warranty-
Yeah
option. As you try to get these products to market, can you talk about that strategy on how you take it to market?
Yeah.
Not only, you mentioned there was 7,900 contractors that use just your e-commerce platform out of the 9,000.
90,000.
90,000. Not just that remaining piece, but also from contractors that don't use-
Yeah
or don't work with Watsco. I'd love to hear just about that go-to-market strategy.
Yeah, look, it's a challenge. It is the toughest challenge. It's classic change management, right? There's the leading 10% early adopters who are like, "Wow, I've been waiting my whole life for this. Now I'm going to use it day one, and I'm in it. I'm going to win with it." Then there's the opposite 10, on the other side of the spectrum, extreme laggards who will never get it, will never win with it. I believe natural selection will take care of those. Then there's the 80% in between, right? Those 80%, we call it the ground game.
We have to get in front of these customers, make them aware that these tools exist, help them understand that they can trust these tools, so get them active with it, designed in a way that they're super usable, and they're intuitive in how they're used, and just chip away. But that is our challenge. There's not only 90,000 customers to do this with, but you just heard a dozen or 20 different things that we can talk about, and even within the e-commerce world, which we could spend four hours talking about what's going on in e-commerce. Right. That's why I stress this time, this 10-year change time. We're kind of pulling or dragging everybody into the 21st century with us, and it's just going to require that kind of ground game.
That's helpful. If there's a specific example, I'd love to hear just maybe some of the biggest challenge that you had to overcome and an example just to kind of maybe educate or kind of push this product to your customer base.
You guys want to take that one?
Yeah, I think one of the things that we've done sort of tactically to get the message out, we've got an amazing sales force. I think you've heard the relationships that these guys have built with them. We implemented a train-the-trainer program.
All the way down for e-com and for the mobile apps and all these platforms, we're starting at leadership, and we're training in the value proposition of these platforms to not just our customers, but also to the sales force. Why should everybody embrace these tools? We're pushing that out, and that's been effective. Getting the word out to the sales force, who then get the word out to our customers is the best way to fan out and get this done. Almost crowdsourcing the adoption. That's one thing. What has been most challenging? I think it's just that. These guys are busy. Competing for their time is a challenge. How do you do that?
You make sure you take advantage of the downtime that they might have and get out there and quickly and efficiently show them the opportunities and the benefits of what we've built.
I'll tell you another one is we have 1,100 or 1,200 TM salespeople across North America. Early days, I was worried. Steve and I would visit customers and TMs and people in the field, I was worried that the perception was that e-commerce was out to get these guys' jobs, that they thought that e-commerce was to replace them. I asked one of our leading TMs, a guy that's kind of a godfather around here called Mike Rivera, and I said, "Mike, am I right?" He said, "No, you got it wrong.
That is our customers worry that you're going to take away our jobs and replace it with the technology." I said, "Oh, I love hearing that because it's the exact opposite, and I can tell that story." The reason that you guys love these TMs so much is not because they take your order. It's because they expedite things for you. It's because they bring you new business. It's because they train you on new products. It's because they help you grow your business. It has nothing to do with taking your order. Let the technology take care of that 80% of the time. When it's just a standard thing that can go through the system, which, by the way, has tools that help you be more efficient and make that more streamlined.
Rely on the technology for that stuff and free up more time for the TM to bring the value-added service. That message is one that we need to tell and tell. It's starting to click.
I'd almost add a layer to that. We're talking about a sales force leveraging their relationships. What about a gazillion customers that don't have a dedicated salesperson of ours calling on them every day? There are thousands of those contractors. They may buy something from us, but again, not a deep relationship like you sense with these guys. Within one of Watsco's divisions, that database, that product knowledge, that business intelligence is being used now, and I'll leave it at that. Another project, another splinter of technology here to get after those customers and serve customers in a digital way that is outside of the conventional sales force that we have.
Sit with Ed Gaffney at lunch.
Ed, I hope I did it somewhat justice by what I just said.
What else can we answer?
I'll echo what everybody else has said. This has been an amazing presentation and very helpful. Can you maybe just talk to the OE involvement with this process? Are they?
Sorry, the who involvement?
Just the OEM involvement.
Oh, okay
Just in what you guys are introducing, how much is actually are they on board with? Do they have a lot of input? Do they hate some of the things you're doing from their business model? Maybe if you just can comment in terms of have there been friction points, have this been very beneficial to your relationship? Anything on that.
The short answer is that they're very proud of the work that we're doing because it's in coordination and collaboration with them and for their customer base, too. Yeah. Where is Mike? Did Mike leave? Chris Peel. We had the President of Rheem here that could have answered that much better than I could. What it's meant for them is that they have to up their game, too. We're pretty demanding with data requirements and integration requirements and so forth. So we ask for a lot for them, from them, I should say. They have bought in because they understand the value, and they see these trends, and they're feeling these trends. Like I said, we're sort of dragging this industry into the 21st century, and it's becoming palpable. Now it's a race to get it embedded in everybody's business.
I don't know if you guys have a better answer than that.
No, that's accurate. It's intriguing. I mentioned there are 20 states that we don't have product in or branches in, and yet any contractor anywhere can download our apps and use the technology today, except they can't buy something because we may not have a store in Seattle, Washington. The chat that comes in from those contractors through the technology is.
Right
why don't you have a branch in Seattle? Long term, and who knows how long term, long term is, but those are territories, markets where our OEMs are going to have to consider what long-term distribution decisions should we make with our brands and territories. That's another challenge we're putting out for them to think about because it's reality.
Any other question?
Steve, I know you mentioned that there's a lot of iterating on the product, going back and forth and just improving it. I know when you look at the contract as time is money, do you measure any of the Using kind of like NPS as an example. If you do, can you give us some data points around NPS, how that's trended over time, where it is now today?
Yeah, we don't look at NPS specifically. What we do do is we're hyper-analytical, as you've probably gathered. Every interaction with all of our platforms, we track and we monitor, and we look at feedback obsessively, right? Between the utilization metrics, the engagement metrics, and the feedback, that's what fuels our sprints and our iterations. We solve the problems that our customers or business users deliver to us. If we see a feature that's not getting appropriate traction, we'll get out there and figure out why it's not being used, or we'll deprecate it because it's not worth maintaining, or whatever the case may be.
We need critical feedback, right? In order to iterate. When we meet with customers like these guys or in the field or other subsidiary people, we say, "Give us the good and the bad and the ugly." Right? What's particularly interesting is the ugly. Again, technology's easy, right? It's software. We can fix technology if there's a bug, or we can add future functionality if there's a great idea. You just tell Steve, and he does it.
I absolutely don't.
I just wanted to ask about just incentive structures, how you, at the TM level, what have you guys put in place to help drive that adoption? Then maybe from you guys, what kind of interactions have you had with, say, Jerome, for example, where you felt like he's helping you understand some of these new technologies and capabilities that Watsco's bringing out?
The first answer to that is that we set no compensation for the subsidiaries from here. That's the decentralist to the core, right? I said earlier, too, part of what I love about the decentralized model is that you get different people innovating in different ways and trying different things and having different successes. I happen to know that actually, CE Mid-Atlantic, they have tried this year, I think over the last 12 months or so, compensating TMs differently. Where it used to be all commission-based, now they have some, quote unquote, "softer metrics," right? Like e-commerce adoption or app drops, these kind of technology things or safety metrics and other things. I don't know if it's probably too soon to tell how effective that's been, but we'll ask them, and they'll let us know.
If there's great successes, we'll ask Wyatt from Baker Four and say, "Hey, go learn what those guys are doing and see if it makes sense for you or not." That's still Wyatt's decision on how to compensate his guys. People, I should say.
Are there any incentive levels at Wyatt's level that are in place that maybe-
Let's ask Wyatt.
Yes, there are. We have conversion goals on e-commerce, and we measure those regular, and it does not filter down to a territory manager. That's more of an expectation that management sets for our TMs.
Any other questions? Listen, this has been great. We love telling the story. We're very passionate about it, as you, I hope you can tell. I hope you enjoyed seeing the space, which we're also very excited about. Next step is we have to eat more because that's what we do. Lunch is being hosted across the street. It's a very not fancy, casual restaurant right on the water. They got fish sandwiches and buckets of beer, if you're interested. It's literally a walk across the street. The people that work here can lead the way. There's also a little 5-seat golf cart that can drive people across if you need help for other reason. That's it. Thank you guys so much for coming. Really enjoyed it. Look forward to the next one.