Good morning, and welcome to the Watsco Third Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Albert Ahmed, CEO.
Please go ahead.
Good morning, everyone. Welcome to our Q3 earnings call. First, I hope everyone is safe and healthy given the virus that's going on. But this is Al Nahmad, Chairman and CEO and with me is A. J.
Nahmad, President our 2 Executive Vice Presidents, Paul Johnson and Barry Logan And Rick Gomez, Vice President. Before we start our normal cautionary statement, this conference call has forward looking statements As defined by SEC laws and regulations that are made pursuant to the Safe Harbor provisions of these various laws. Ultimate results may differ materially from the forward looking statements. Now, I am pleased to share that Watsco delivered another record quarter. New records were achieved in virtually every performance metric.
Earnings per share jumped 31 percent to a record $3.62 per share on a 32% increase in net income. Sales grew 16% or nearly $250,000,000 during the quarter to a record 1,780,000,000 Gross profit increased 29% with gross margins expanding 280 basis points. Operating income increased $50,000,000 or 32 percent to a record $207,000,000 Operating margins expanded 100 basis points to a record 11.6 percent. And cash flow for the quarter was a record 238,000,000 Today's results are all the more positive when considered against last year's record results In light of the industry wide supply challenges that are still going on, our teams throughout all of Watsco Are doing an extraordinary job taking care of customers and that has made a big difference. I want to say thanks to all of you.
We also ended the quarter with a strong balance sheet with virtually no debt and cash of $137,000,000 This financial strength provides us the flexibility to invest in most any size opportunity. Our press release summarizes important fundamentals that are critical to understand As we continue to invest and build further scale in what is a very fragmented $50,000,000,000 North American market. An important fundamental is Watsco's geographic coverage and our large number of locations across many markets. The diversity of markets we serve reduces volatility and provides stability during a difficult operating environment such as the one we are witnessing. Also, our large and growing customer base is increasingly equipped With our state of the art technology that helps our customers grow their business and purchase more from us.
Another advantage now and in the future is our offerings of the broadest variety of products and brands in the industry. The depth and diversity of our product offerings should continue to serve us well. We're optimistic about current Market conditions, let me say that again, optimistic about current market conditions and recent trends. End market demand remains strong And we see signs of improvement in our OEMs' ability to help us fulfill that demand. Looking ahead, the industry will experience more change In the years to come, as minimum SEER standards rise, that's normally done by the federal government, by the way, And with changes come opportunities.
We believe that our long term focus, our scale, speed to market, relationship with OEMs, Technology offerings position us better than anyone to capitalize on these upcoming changes. We are living in unusual times, but could not be more positive and excited about the future of the industry and our role in it. Now let's go on to our Q and A.
We will now begin the question and answer session. Our first question comes from Nigel Coe with Wolfe Research. Please go ahead. Mr. Coe, your line is open on our end.
I don't like you.
Okay, moving on, our next our first question is coming from Tommy Moll with Stephens. Please go ahead.
Good morning, Tommy.
Morning and thanks for taking my questions. Sure. You referenced increasing engagement with some of your OEM partners and an increased ability to help you meet the robust underlying demand. At this point in the year, I wonder if you've started to talk to some of the initiatives for 2022 planning. And if so, what if any insight can you give us on those related items?
That's a good I like that question because All of us in the industry are fighting just to get enough product to continue to meet the demand. But 2022, the best one for that I think is Paul Johnston.
Yes. First of all, I'd like to say that we're not increasing our conversation with the OEMs. We're under We have been continually communicating with our OEMs and them with us. So the relationship there all during the Pandemic and even before the pandemic, we were working with them on product planning and delivery planning and all that. Right now, what we're looking at in 2022 is we're trying to straighten the inventories out a bit.
What we ended up with was some of our inventories ended up to be a little bit lopsided on indoor versus outdoor type So we're working with them trying to balance that out so we can sell complete systems. We've been working with them on what the transition plans obviously are going to be, Given that next year is a big year when we're going to be transitioning in 2023 to the or 2022 And 2023 to the new SEER levels. So it's been a it's a full agenda that we have With our OEM partners as far as communicating and planning with most of them as you recognize we're one of their Largest customers, if not their largest customer. And so, we're important to each other.
Thank you both. If I could, I wanted to pivot to the customer side Of the business for you, how receptive have they been of late to price increases? And I ask that because clearly there's Put inflation on the OEM side, presumably in this environment, your customers are going to be pretty receptive to your passing that through. It would occur to me that if you've got product available, there's less concern around pricing, which is going to be pretty well passed through to the end user anyway, but any context you can give us on that dynamic?
Well, I think your thought process is a good one, but let's see if Paul can Fill in the hold,
sir. Yes. We always talk about the equipment. Yes. Those are the most recognized price increases that we have.
And the dealer contractors have been accepting of them, especially those who are in the replacement business, Perhaps a little more resistance from people who are on the new construction side. But we've also they are also experiencing upticks in commodity pricing With copper going up above $4.70 here recently a pound, we're seeing flex stock go up double digit Pretty much every 3 to 6 months. So a lot of the other products that go into actually installing a unit are going up at the same time. So I think we're all a little bit numb to it, including our contractors and accepting it and trying to pass it on as best we can, Given the timing of how many price increases we've had here in the last 12 to 18 months.
But it doesn't seem to be slowing demand. Our demand is strong.
Appreciate the context. I'll turn it back.
The next question is from Steve Volkmann with Jefferies. Please go ahead.
Good morning, Steve. Good morning, guys. Just following up on that last one, Al. Are you guys seeing any change in your mix relative to the type of equipment customers are willing to pay for at this point?
Well, that's a very enlightening question because there is a chip shortage. So we see high efficiency Demand there, but we're unable to fulfill it, given the supply of that product. Paul, do you want to fill in?
Yes, that's very true. It takes more hours for an OEM to make a high efficiency to make an 18 or 20 SEER product. And so the focus has been pretty much on the 16 SEER, 15 SEER, 14 SEER, 13 SEER product. So a little bit of a shift there where we're seeing a bump in 2016 SEER sales and obviously 2014, 2013 SEER sales And a small decline in the 18/20 SEER. Having said that, 18/20 SEER has never been a major portion of the market.
And obviously, it's something we would like to have as a major portion of the market. And hopefully with the new energy standards, we'll be able to expand The very high efficiency products is a greater percentage of our sales.
Yes, just to add a thought to that, So it's clear on the data, what the data says. The high efficiency mix increased again this quarter. It's almost 11 straight years of quarters where it increased, but that ultra high efficiency is where the missing link is and did not contribute, But overall, high efficiency grew at a faster rate than base efficiency.
So it almost sounds like as or if maybe I should say if The supply chain issues ultimately normalize and we have these kind of SEER changes happening in 2023. We may actually see a better mix shift going forward.
I would agree with that. Absolutely.
We're definitely going to see a better mix change because of the efficiency going up to 14s here in the north and 15 in the south.
Which is mandated by the federal government, yes.
Yes. So we're going to see that regardless. Our focus is we really want to make sure that that ultra high efficiency that Barry refers to Grows at a faster rate and becomes a more material piece of the market.
Understood. Okay, thanks. And then a quick follow-up. I think you mentioned in your prepared release that SG and A spending was a little bit elevated and you That to normalize as we go forward. Obviously, gross margin was also very good.
Do you also expect gross margin to normalize Going forward or do you think you can kind of hold the rate that we have?
Well, that's a very perceptive question. Looking into the future.
Derosly, that's my joke.
Who wants to take on Barry or Paul?
Jerry, that sounds like your question.
All right. Here we go. So let's go to SG and A first because that's easier To think about, obviously, everything we've said and I just want to say this also, so it's on the table for the rest of the call. Sales volume in the 2nd quarter was up 29% on a same store basis, I think, something like that. So this has been an extraordinary summer.
If you look at things as a combined last 6 months, let's not just talk in quarters, let's look at our seasonal Realities of what we've dealt with extraordinary demand, SG and A that needed to deal with A lot of stuff going on in terms of supply chain to make it work. A lot of austerity that came off last year's comparison that It's now in this year's numbers. And just again, as I said, drinking through a fire hose over the last 6 months. So SG and A, We wanted to highlight some things very specific to SG and A that are big buckets. And the word normalize usually means goes down or declines.
Let's put it this way, there's a lot of variable costs that increased. Those costs remain variable and will adjust themselves to whatever the sales volume is over the next 12 months. As Al suggested in the remarks, we're not necessarily seeing a slack in demand as we get out of season right now. In fact, we're seeing increased demand as we're getting out of season from, let's say, recent days. And so SG and A will normalize, but Again, time will tell and the variable costs should adjust over time.
Gross profit is a more interesting question. Obviously, I've said this for a career and we've said this in our comments over many years, inflation It's something that we pass through and pass on. It adds to a gross profit equation and makes more money for us. There's no question of that. We're also doing immense work with technology to improve pricing and margin And to optimize pricing, that doesn't necessarily mean just getting higher margins.
That means improving our pricing profile Across customers, competitors, products and so on. There's a benefit this year in that equation, which is only just the beginning of a pricing discussion. And I think mix also obviously has a benefit and you heard Paul's comments really about mix Maybe looking forward, but that's a big crystal ball to look into, to be honest. And, but some of the undercurrent of inflation and mix And technology and incentives and the way we pay salespeople and commission our sales force, All those things are pulling in that direction still. And next year, I'll tell you more when we know more, but that's what I would tell you today.
All right. Fair enough. Thank you, guys.
The next question is from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.
Hey, good morning guys.
Good morning, John. Hey,
so just to follow on on the gross margin, it looks like, if I do the math right, the Gross margins on the acquisitions are higher than your blended average and the SJA seems higher on a blended basis. Is there Anything I know like TEC, I think is the biggest acquisition contributor, but maybe just speak to those dynamics, those impacts.
Well, I got to say, Barry will answer that, but this is a $6,000,000,000 a year business and What you're talking about is are small relative to the overall in revenue. I can't imagine that that's driving the overall numbers that you perceive. But Barry, go ahead.
Yes, Jeff. I mean, and again, it's very isolated to what we've acquired lately. And yes, the margin and yes, the cost of doing businesses is higher. That's Unique and eccentric to TEC and it's part of their legacy and profile of how they go to market. So They've had an exceptional last 6 months as part of Watsco.
They've had an exceptional year coming into this year and Very proud and happy that they're part of Watsco.
Okay, great. Thanks for all the color on the 2021 performance. That was really helpful. Just sticking to the price dynamic, I think you called out 6% Increase in average selling price for the year to date. I'm just wondering if that number overall is higher within the context of 3Q.
And then if there's any noticeable difference in that 6% between equipment versus the non equipment. Thanks.
I'll take a first stab at Barry, do you want to take the second half? But is there a difference Equipment to non equipment, yes. Anything that's commodity based has an external profile where the pricing fluctuates a daily, weekly basis, and as I mentioned earlier, things like copper, refrigerant, steel have definitely been on the incline and have gone up faster than For the last 18 months, we've gone up faster than equipment. Equipment has a more slower cadence to it because There has to be an announced period of time before we have a recognized price increase. So normally we get Anywhere from 60 to 90 day lead time on the announcement before it's implemented, so it gives us an opportunity to adjust ourselves.
So timing is not unique to the Q3 or to 2021 so far.
The next question is from David Manthey with Baird. Please go ahead.
David, good morning.
Thank you. Good morning. Good morning, everyone. So just definitionally, when you're talking about the 6% year to date Price increase on residential HVAC, is that the typical price mix definition that you've given us historically?
Yes, it is, Jeff. Yes, it is, David. Okay. Thank you.
And then As far as the increased investment that you outlined, and thanks for doing that, adding that clarity, is some of that incumbent on The gross margin being elevated here and Barry you noted that some of the variable expenses will obviously naturally flex down if Things moderate a bit next year, but if gross margin moderates and sales moderate, Is this a fluid plan? Do you plan on modifying that investment plan if things moderate a bit next year?
Barry, that question was Steve.
The answer is, of course. I mean, this is 673 location managers managing P and Ls. It's 30, 35 superpower presidents running markets. It's A data platform suggesting and telling and reminding and monitoring margins and cost and profitability every single minute of the day. It's incentive systems that gear toward EBIT growth and cash flow production.
So yes, I mean culturally, the intent and the obvious culture is profitability growth, Responsible ways is what the mission is. So it may be different in Texas than in Massachusetts next year. It may be different in California than it is in Chicago. So this decentralization and data flow that goes on in markets is how we operate. And when I say, of course, it's because all those dynamics get measured and carried out in different ways in different markets.
So clearly, all these moving pieces that are going on are different everywhere. And so, but culturally, Every Friday morning, we spend a few hours together, go through it all together and act and react accordingly. So the answer is, of course, there'll be Actions and reactions going on as things change.
Yes, got it. Okay. And just quickly as it relates to Technology investments or other sort of corporate level decisions, I know there's not that many of those, but what about those? I mean, those are obviously not controlled by The markets individually, are those subject to or are those set in stone
at this point? Yes. Let me be able to. I agree that that's not controlled the way you stated, Let's have A. J.
Respond to that. Yes. Well, as you saw
in our release, our investments in technology continue to grow, And that's because we are maturing things that are already in flight and we're taking on new projects and programs, All with the intent of continually improving and modernizing everything we do, all focused around helping our customers do business And helping them grow their businesses. So as we see more and more opportunity, we're going to continue to invest.
In other words, we are dedicated to the long term, and as I said it, but We don't see any reason not to continue to invest regardless of what's going on in fluctuations from season to season.
Yes, got it. Thanks very much guys.
The next question is from Jeff Sprague with Vertical Research. Please go ahead.
Thank you. Good morning. Good morning, gentlemen. Thanks for the questions.
I was wondering if you could
give us your early thoughts on Behavior around the potential for pre buy next year. And I asked the question kind of in the spirit that folks Distributors wanting to pre buy into that efficiency change?
Well, right now, the reality is that pre buy doesn't help anything. We can't get what we want Now and we don't seem to be we don't see an end of that yet. So we don't even face those pre buy decisions. What we need now is enough product to meet the demand that we seem to be having at record levels going into the Q4. Will we adjust on pre buys?
Of course, we would. We have a lot of data that A lot of software that tells us how to manage our investment in inventory. Right now, it's a scramble.
So you would be interested in pre buying along maybe historical patterns if the Product was available to do so?
No, I don't think that would be the case. We just want what we have on order. We want to bring it in Exactly. Al, spot on. I don't see a pre buy.
We don't see a pre buy coming at us. We want to make sure we get the inventory that we need to meet Current demands as well as early part demand. I don't think anybody is looking at Carrying a huge amount of inventory into 2022 because there's going to be different government regulations, which are going to have different requirements For where and how you can sell it. So I don't think it's going to be an issue this year.
Yes, I was sort of meaning pre buying in 2022, not right now, but It sounds like the answer is probably the same regardless.
Yes.
Yes. And sort of related to that, what percent of your sales now is Above the minimum efficiency standards
across the platform?
Well, they all have to be
100% or above. At or above.
Yes, I'm saying, so you've got You got 80% or 90%, I would think at, right? I guess the question is, what's the percent above?
Above the minimum, that's
a good question. Do we have that data available?
Yes. It's quite a bit higher than you think. It's higher than 50%. It's actually above the minimum.
Interesting. That is higher than I would guess. Thanks for the color. I
appreciate it.
You've got a lot of other rules that apply to it, such as EPA, On new home construction in order to get your sticker from the EPA, you have to have a higher efficiency product. And there's an awful lot of the 14 share product that actually goes just 15.
I see. Interesting. Okay. Thank you. Appreciate it.
Sure.
The next question is from Chris Dankert with Loop Capital. Please go ahead.
Good morning, Chris.
Hey, good morning, Al. Good morning, everyone. I guess maybe this one is a
little more targeted, A. J. You did highlight some new projects. I guess anything Specifically, you're ready to discuss over at Skunk Works Watsco yet, or are we still kind of is there anything new to talk about there?
You got about a week?
Yes, exactly. Now you know that these are all long term things as you know we're a long term company. So I wouldn't we don't need to highlight things that are just an early stage development. I will tell you some of the earlier things that are getting a little bit more mature, which we I don't know if we could in this quarter's release, but our OnCallAir, which is our tool to help the contractors sell To their customers and Credit for Comfort, which is a companion tool to help them sell the financing, they're both continuing to grow And very exciting. And customers that are using those tools and really our technology in general continue to be better customers for us, meaning they are Stickier, their attrition rates are much lower and their growth rates with us are much higher.
So all the data shows that These technology investments are paying off and having a nice return.
Got it. I mean, and you've given us some of the numbers in the past. I guess, You guys want to comment on kind of what e commerce growth was in the Q3 here?
Yes, we
can give you that, sure. Who's got that number? Larry Rick, anybody?
15%, 16% was the growth in e commerce for the quarter.
Damn, Rick. I was trying to get you in, but Barry
The next question is from Ryan Merkel with William Blair. Please go ahead.
Good morning, Ryan. Hey, morning, everyone.
So I think it was Al maybe you mentioned that supply chain was going to get better in the Q4. Is that all of your equipment OEs Or are certain OEMs doing better than others?
Let me say that it's not got better just yet. And when I say that, I'm talking about all of them. We're hoping it will get better in the Q4. But as I said earlier, the demand is so high now that it's not easy for them to catch up. And it's all of them.
And there's not one that's better than the other. I mean, they're as you know, we're probably the biggest customer for all of them that we represent their brands. No, I would still say it's still catch up. I don't see any Solutions to supply chain yet, but we're optimistic.
Okay. And I don't know if you mentioned this, but did you leave revenue on
the table you think this quarter because you just didn't have okay, probably hard to quantify, but material or
Oh, yes. Yes. Okay. I don't know. Did we take a shot at that, Paul?
I don't remember. Let's not speculate. I'd rather not speculate.
It's pure speculation. If you listen to the salesman, It's a lot higher than it is when you listen to the data. It's a wave. Yes.
Orion, a very I mean, the OEMs
are running flat out and They're doing the best they can, and I'm talking about all of them that we buy from. And I think we have, besides The 3 major equipment OEMs, we have numerous other OEMs and they're doing the best they can. Have they caught up? Not even close. Will we see some improvement as the quarter proceeds?
I think so.
Okay. That's helpful. And then I'm noticing there's more private equity interest in HVAC distribution lately. And I'm just curious, are you seeing multiples rise in the space and is there more competition for deals?
Well, that question answers itself. Sure, with private equity gets involved, there is more competition. Is it affecting how we think about our strategy? We will not chase pricing because we're in for the long term. I don't know how long they're going to be in it In terms of valuations for businesses, so but there are a large number of distributors.
What's our latest count, Barry, more or less?
And for the terms of acquisition 65?
No, no, no. Available independent distributors. How many do you
call it?
1300, yes.
1300. So there's room for lots of stuff for us.
Okay, helpful. Thanks guys.
The next question is from Steve Tusa with JPMorgan. Please go ahead.
Hello, Steve. Good morning, guys. How's your dad doing?
How's my dad doing?
Yes. He's a watch for shareholder, you told me.
Yes, that's since like 2,004. So I guess he's doing fine. So on price, you guys booked 12% ASP in the 2nd quarter, 2% in the 1st quarter. I think you're saying it's up 6% year to date. Can you just give us what the I mean, given the seasonality, I guess, we could Kind of do the math, but what was the 3rd quarter ASP for U.
S. Resi year over year?
Very consistent, Steve, with the overall 6%.
So why did that decel? I'm missing something on kind of like the comps. Most guys are thinking things continue to accelerate with all these price increases coming through. Any particular reason why that
I'm not sure in season things change very much in terms of price during the course of the season. There were Some late quarter price increases that flow in, I think, September that will flow into the Q4. But in season, Steve, there's not much variation. And with the kind of volatility that went on, I'm not going to surmise much over the last
But I would argue that we sense that there will be more price increases in the near future.
We know.
Right. So that would suggest that your U. S. Resi volume was down a little bit in the quarter, right?
That was up slightly.
Did you mean in unit volume? Yes, unit volume. It was up slightly.
Yes. Most of our major resi Suppliers, the price increase that they had in the Q3 was September. So we didn't get impacted.
Do you think you guys took market share in the quarter? Like is the industry, I mean if you guys Took market share that means the industry was down in the quarter, right?
You really don't know for the quarter until all the data comes out. I think we said this on the last call, the shipment data versus movement data has been so out of source here for about the last 12 months, I think it's thrown all of our models off. What I'd like to say, we gained market share. Well, August shipments, as you know, were down, what, 2.2%. July was down, what, 5.6%.
So, we weren't down. So we must have gained market share, but I don't think that's a hollow statement.
Yes. And then so for these price increases that are coming through, should we expect price to Accelerate here in the Q4, I mean, can you get to kind of a high sync back to that kind of high single double digit level for the Q4?
No idea. No, again, we really can't predict that.
Yes. And then one
last one. So we
still think what the potential demand is
in the 4th quarter. We don't know what that's going to be.
Got it. And then one last one just on inventories. They were flat quarter to quarter, hard to tell what would be kind of volume and What would be some sort of inflation there? Usually, it's down a bit seasonally. Is there I'm trying to reconcile that with kind of the supply constraints that are out there, because you guys look like you're pretty good on inventory.
How do you feel your own inventory situation is?
Barry gave you a clue on that in terms of having inventory, particularly in equipment We only have part of the system, not all of the system. So we are carrying unusually high numbers of this item, but doesn't We don't have the matching part yet of the unit. Barry, you want to elaborate on that?
Yes. Just I'll do some math. Our version of inventory turns, which we can calculate using monthly averages, it's hard for you all to do that, but the monthly average return as of September 30 was identical to the prior 12 months. So all the investment level, if you will, is the same. The mix of that investment is what we're talking about that needs to improve and so on.
And, but Steve, there's not a great story there. There's some inflation, yes. There's some shortages, yes. There's a lot of product being moved around, as we mentioned in the press release, in terms Of our logistics to handle customer needs and all that balances out and should help the inventory position as we go into next year. Yes.
Okay. That's still dependent on normalcy, which means normal lead times or a normal feeling in terms of order flow and We're not there yet.
Right, right, right. Well, congrats on executing continually here in a pretty challenging environment. Thanks for the info.
Thank you. Thank you.
Please excuse any mispronunciation. The next question is from Jeff Pokrzywinski from Morgan Stanley. Please go ahead.
Good morning.
Well, at least I know who I am. Good morning, guys.
You should make him spell it without looking at
Well, it was good. I knew to take myself off mute as soon as you started on the pronunciation comment. So good morning, guys. Thanks for taking the question. I guess maybe first question on some of the availability stuff.
I know we've kind of trodden this path a lot already, but Even though it's not a critical market to Watsco, we are transitioning into furnaces and you guys do have some exposure there in a few regions. Does that availability look any different than the AC market? I mean, obviously, the lines aren't the same, The components aren't fungible, like any improvement just by virtue of turning on furnaces this year?
Yes. Furnaces are An important part of Watsco, let's put it that way, especially with the acquisitions that we've made over the last several years With Pierce Phelps and TEC and NNS Supply and DASCO, etcetera. Furnaces right now, what What we're seeing there is kind of an inversion a little bit to the air conditioning. We need more of the what we call the standard furnace right now. There seems to be some shortage on standard furnaces where we're getting some of the high end furnaces.
Just got off a call with 1 of our groups on furnaces and a manufacturer and we're trying to supplement that and make sure we get them in. They may be a little bit later than normal. Normally, we're able to do a pre season with the contractors to pre sell furnaces into the marketplace. And this year, it looks like that may be a little bit of a delay coming up with the preseason program.
Got it. And then just on the refrigerant transition or I guess the phase out on R-twenty 2, I think some of the other OEMs have described it as Sort of de facto $1,000 off a system because it's cost avoidance on having to recharge a system that had worked on or had a leak. I guess maybe a couple questions off that. What is sort of the pricing on R-twenty 2 today and How does that work in the homeowners' advantage? And I feel like if we would have this conversation, I don't know, 7, 8 years ago, Recycling refrigerant was something that was a little bit more of a topical moment in time, like isn't that helping at all?
So just Maybe speak to like how much of these upgrades or replacement is driven by the refrigerant piece and maybe some of the numbers behind that if you wouldn't mind?
The number of R-twenty two units is decreasing obviously every year. And My best estimate is it's probably 20%, 25% of what it was when we did the transition. So There's fewer units out there that we have to service. But the other side of R-twenty 2 is that there were drop in replacements From both DuPont as well as from Arkema or Chemours and Arkema that we're able to work around Any sort of higher prices or shortages in R-twenty 2. We continue to see 2022 sales as just a raw gas On the residential side, at least, continue to move down.
Okay. So the actual like Homeowner economics haven't changed that much because of these drop in.
No, it really hasn't. And if you think back to how many years it's been since these 20 since we went with 4 10 across the board, a lot of those units have become replacement vehicles. And as we move forward into Obviously, into the phase down of the refrigerants that we currently are using, the 4 10s and such, I think there'll be a slight acceleration on the remaining balance of those 22 units coming forward to be replaced. That's a hope.
I got it. Thanks, Paul.
The next question is from Nigel Coe with Wolfe Research. Please go ahead.
Good morning, Nigel. Good morning.
Hi, Al. Sorry about earlier. I don't know what happened there, but
Not a problem at all.
Thanks, Al.
Of course, all my questions have been answered at this point. Let's see what's remaining. Just wanted to clarify the point on pricing. You mentioned You get 60, 90 days notice from the OEM on price increases. Does that allow you a chance to maybe get ahead of that and that was a bit of a mismatch between Price you realize from your customers versus what you pay out?
Well, that's interesting. It's 60 to 90 days. It's not
Okay. 69, Dennis. Yes. Okay. Yes.
That's right.
Yes. And
yes, of course, we can move ahead of that.
Okay, okay. That's I just want to clear that up. And then on the Commercial Refrigeration, I mean, it's only 4% of your sales, so let's not spend too much time here, but It was up 27%. So I'd be curious what drove that extraordinary strength?
All yours, Paul.
Okay. Generally, what drove that is, a lot of it has to do with restaurants, Supply, ice machines, reach in coolers, that type of thing was really driving that progress. Okay. Rebounding is opened.
Okay. So okay. That makes total sense. And then just a quick one, if I may, on the other HVAC products outgrew HVAC equipment. Was there because of the availability issues, was there a slight shift towards repair versus replace, in the quarter because you just couldn't get product apps?
Does anybody study that mix?
No, I have not. Barry?
I can take a quick look. I mean, first, it is about I've said this for a long time too. There's over 100 product lines and 600 vendors in that bucket, anything from duct tape to Sunglasses to refrigerant to copper tubing and so on. So and replacement parts is a component of that. Replacement parts does not account for the increase because it's a single digit increase in parts As Paul suggested in some of the what I'll call the billing materials in there, which would be flex duct, copper tubing and other products.
It's also been a mission of our business units to grow that part of our business at as much higher margin. That's part of the Consequence of the higher margin across Watsco as well in the quarter. So not there's not one story there, Nigel, and the story is not Repair versus replace.
Okay. I didn't know you sold sunglasses, so that's something I've done today. So thanks.
Hey, there. Very stylish. Nigel, you should look
at it. Well, safety first. Well, I'll hop in
and have a look.
Thanks, Bob. It's safety glass.
This concludes our question and answer session. I would like to turn the conference back over to Albert Nahmad for any closing remarks.
Well, thanks again for your interest in our company. We hope that you'll join us for more of these calls and follow us as we progress scaling the company. Thanks again.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.