Good morning, ladies and gentlemen. My name is Martina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Watsco Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Albert Nahmad, CEO. You may begin your conference.

Good morning, everyone, and welcome to our Second Quarter Conference Call. This is Albert Nahmad, President and CEO, and with me this morning is Barry Logan, Senior Vice President; Paul Johnston, Vice President; and Ana Menendez, who's our Chief Financial Officer. As we always do, first, a 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. Watsco had a good quarter, establishing new records for sales, operating profit and earnings per share. Our Equipment business continued to show growth in the sales of our 410A replacement systems versus the R-22 dry-charged units and parts repair alternatives. Most of these system sales are at [ph] base level energy efficiencies but we are also seeing continued growth in the 16-plus SEER systems. These are good trends for our business and for our industry, as consumers are moving toward upgrading their existing systems in recognition of the energy savings and overall value of these products. We also produced strong growth in sales of commercial products, which grew 20-plus percent during the quarter. We are very pleased to have done this kind of -- to have this kind of impact with the new product lines that we added last year. Overall, we believe we are gaining market share in the markets we serve and feel that many of our initiatives to improve customer service, product availability and improve contractor tools are paying off. We also reduced SG&A again this quarter, producing further efficiencies for the long-term. Our international business, now about 15% of sales, also grew nicely during the quarter. We have an excellent team in place, and they have been able to increase their product…

[Operator Instructions] Your first question comes from the line of Matt Duncan from Stephens Inc.

The first question I've got is, it relates to your parts and supplies revenues. I'm a little surprised to see that was down, given what we're seeing in the housing market and I know typically you have greater content of parts and supplies in a new build. So is that really a function of going back to more replacing versus repairing on the replacement piece of the business or what do you think, sir, is driving that year-over-year decline in the parts and supplies business?

Good question. I'm going to ask Paul Johnston to answer that.

The parts and supply revenue was down for the quarter. It's down more on the parts side, which would reflect, perhaps, a greater replace versus repair situation in the field.

Okay. And then, Paul, maybe if you look at your sales into replacement versus new construction, do you feel like they both grew in the quarter? Was replacement up and maybe new homes still down? Do you feel like you started to see any impact on the housing cycle in your business?

We've seen some. I've talked to a number of our players out in the field, and they feel like they're seeing some traction on new construction. But they all point out to me that for instance in Florida, the permitting is up materially on a percentage basis but still it only represents around 12,000 to 13,000 new permits were issued. Even though it's up 20-some percent and it's still a 580,000 unit market for us. So it's maybe 2% of the equipment movement is going to go into new construction. So we're starting to see it but it's not big enough really to move the ship.

Okay. And then last thing here then I'll hop back in queue. Barry, maybe if you can talk a bit about the accretion of the 10% you bought in the original Carrier Enterprise, what is the annual EPS accretion you get from that transaction?

Well, we have not disclosed separately the profitability of Carrier Enterprise, Matt, to make the calculation for you, so to speak. We've suggested that its margins are very consistent with the overall Watsco margin, and I think you can make some assumptions and do a computation for the last half of the year on an annual basis.

Your next question comes from the line of Ian Zaffino from Oppenheimer.

Question would just be on the lower efficiency that you had mentioned. How much of that lower efficiency is R-22, or what do you mean by low efficiency? Is that R-22 or is that just like the kind of the lowest SEER of 410A?

It's the 13 SEER but -- go ahead, Paul.

13 SEER comes in 2 flavors. It comes in R410 and it comes in R-22 and what we've seen is we've seen the -- we haven't really seen much of a jump in the dry charge. Most of what we're seeing in the second quarter is a reflection of 410A, 13 SEER product.

Okay. So basically year-over-year, your R-22 units are flat but you've seen an uptick in your -- or I guess, a trade down from higher SEER 410As down to 13 SEER 410As?

Right. And I want to correct you, the R-22 sales year-over-year are down.

Can you give me a magnitude?

Yes. It wasn't a big percent of our business last year, and it's not a material size of our business this year.

Probably down single digits not down double digits?

Oh, yes. Oh, my God, yes.

Okay, okay. And then would you be able to give us maybe a breakdown of how much was 13 SEER and below or just 13 SEER and then above 13 SEER?

Yes. For us, it's probably around 55% to 60% would be 13 SEER and the balance being above 13.

Your next question comes from the line of Jeff Hammond from KeyBanc Capital.

Can you just kind of go through -- you mentioned the lower guidance, can you just kind of go through your thinking there, how are you thinking about same-store sales embedded in the guidance, either full year or second half? And just is the guide down really a function of 2Q coming in light or just a reassessment of the year, just maybe a little help on the guide.

Well, I'm going to let Barry give you as detailed an explanation, as he can, but my sense of it is that there is a problem with consumer confidence out there and we know there's an enormous amount of pent-up demand, I don't think we're seeing any sign of that coming in large numbers. But I know it's coming. So this is just our sense of the present trends, it's sort of spotty. Up one month very strong and the next month, it falls off. Barry, could you add to that?

Yes, I would add to that, I think, the mix that we saw in the first half of the year is a little lighter than we had expected. But yes, the movement towards 410A is something that's very positive and probably better than we expected. The 410A system importance, just to add to what Paul said before, is that we also are seeing growth in the indoor systems that go with them and that had not been a trend until this summer selling season. So we like the good news of that. We like the prospects of that. The mix is probably where it's lighter than we expected and we want to be conservative in our outlook given that.

Okay. So I know you don't give quarterly guidance but the shortfall relative to consensus expectations was similar to kind of your guide down but maybe it sounds like maybe you had a lower internal assumption and you're baking in some of that mix continuing into the back half?

Well, the reason we don't give quarterly guidance is because when the season enters, and you know this is a very seasonal business, it's very difficult to figure out ahead of time when the season starts and when it ends. For example, this year, the season seems to beginning later than it did last year in terms -- it seems to be coming in stronger in July than it was in June. So that's very hard. If it comes in July, it's a third quarter event and if it comes in, in June, it's a second quarter event. So we don't provide the quarterlies, but essentially, I just don't want to leave you with a bad impression. Business, we're in a very strong position and Barry said, we're trying to -- if we're going to be anywhere in our outlook, we're going to try to be conservative, unless there's some surprise out there that we're not expecting.

Okay. Can you just talk June, July trends?

Well, it's certainly an improvement. I don't want to quantify but I like it.

Okay. And then can you give us early observations of the Carrier Canada business as you get your arms around it and just how it performed relative to expectations?

Yes. It's got its issues. The profitability is not what we had hoped for, but we're going to try to work through it with our partner, Carrier. And big picture, we're very happy we're there. It expands our market coverage in the Americas, which is part of our strategy and in the long-term, it's going to be a solid asset, we hope, and we're counting on support from our partner to achieve that.

And were there any onetime items or purchase accountings in the quarter related to that deal?

I don't think so. Ana, were there any?

There was -- there's the 2 months amortization of intangibles for purchase accounting, but there's nothing unusual.

Okay, great. And then I just was under the impression that, that was a higher-margin business but you mentioned it having its issues.

Yes, yes.

Your next question comes from the line of David Manthey from Robert W. Baird.

First off, in terms of the same-store sales in parts and supplies coming in, it would seem like a little bit light. Could you discuss the initiative at Carrier Enterprise relative to parts and supplies and I would have thought that would help support that growth rate a little bit. And then second, as you're talking about the shift from the R-22 dry ship over to the R410A systems, wouldn't that also help support parts and supplies given that you need to potentially change some piping or ductwork or the inside unit, which I guess, would fall into that category?

Yes and no, but I'm going to ask Paul to answer in more detail. Ductwork is normally not replaced when you replace the indoor and outdoor system, but go ahead, Paul.

Yes, you're not going to get into a lot of supplies when you're just doing a change out of R-22 unit and changing it out to a 410A. Basically, we've got a chemical that flushes out the line set. You're going to use the same pad, and generally the same thermostat. There just -- it's the indoor unit and the outdoor unit. The indoor coil and the outdoor unit will be changed out. So that really didn't have as much of an impact on our parts and supply business. Now as I indicated, when Matt asked a similar question, our parts sales are what are going down, not so much a reflection of our supply business. Our supply business, I think, we will start seeing some legs on that, and that I think will start growing. The parts business is the thing that has been very strong. And we indicated last quarter it was softening and it continued in the second quarter and that's a big piece of our business.

And to add to the comment, Carrier Enterprise did see growth in its supplies business. It's really the parts side of the business where the sales impact is.

Okay, all right. And where do you capture the inside, the coils of the air handler? Where do you capture that sale, is that considered a system sale or is that a parts and supplies, as you quantify things?

It's equipment sale.

An equipment sale, okay. Right, all right. And, Al, when you were talking about the trends in July that you said were better, I mean, you're talking about absolute sales dollars, talking about growth, what are you referring to there?

EBIT. EBIT growth. EBIT growth rates.

EBIT growth rates, okay. Then just to close the loop on...

Which, of course, follows revenue growth rates.

Okay. And on the EBIT, can you discuss your targets over the next few years? I think you said you hit 6.6% in the core business, I'm just wondering how you feel about that and where you see things going over the next...

Well, we have very sharply defined internal goals, which I'll share with you. I think we've done it in the past. Our near-term goal, near-term meaning into 3 to 5 years, we'd like to get to 10% in EBIT margin return on sales. We've done it in the past for some of our business unit, so it's not like we're trying to do something that we haven't already done in the past. Longer-term, once we install some of the technologies that we're installing at the contractor level, as well as our internal business systems, I'd like to, and I know this is going to be a little shocking, but I'd like to reach for 15%, gross return on sales. That's after 5 years.

All right. But I guess, we probably just passed the peak of higher margin parts and supplies here, we're heading toward systems. Which seems like it manifested itself this quarter. So as we go forward, what are going to be the components of that? Is it just...

Internal. Mostly internal efficiencies through the use of greater technology throughout the company. As you've heard us talk earlier, we are reducing SG&A, which I think is consistently we're doing that. I mean, I think we can just get more efficient. Gross profit margins, who knows, that's a market-determined thing but -- which we have to follow markets, but in the SG&A and leveraging the SG&A as with sales increases, I think that's where we'll see the improvements.

Your next question comes from the line of Adam Samuelson from Goldman Sachs.

As for the first question, I was hoping maybe you can give some additional color within the equipment same-store sales growth. I'm not sure if you gave a price mix volume growth and any color particularly around the mix on the quarter?

Barry?

We did see unit growth. Unit growth is consistent with the overall dollar growth of 5%. The mix and price is not something that we separately calculate or separately go through that analysis. So it -- but overall mix and price were flat for the quarter.

All right, that is helpful. And then within -- any differentiation in the sales growth between the legacy Watsco businesses and Carrier Enterprise? You see the EBIT growth faster than net income. Clearly, that's been distorted by the acquisition of the Carrier Enterprise JVs, but in the core Carrier Enterprise business versus the legacy Watsco, has there been any differentiation in sales growth there?

We don't do that anymore. We stopped doing it about 1 year, 1.5 years ago to try to -- it's one company, we're all in the same industry. We're all competing for contractors so we're not going to breakout, I'm sorry, about that performance by unit.

Okay. And then on the update to guidance, I think last quarter, you'd alluded to a $0.13 to $0.15 accretion assumption for the Carrier Enterprise Canada. I believe that also included the pick up of the 10% of the original Carrier Enterprise JV in July. Have you updated that number in the new guidance?

Well, again, I've already mentioned some issues that have come up in Canada but the outlook that we're giving you is a consolidation of everything we see. But we have chosen to not break that out into its pieces. This is everything together.

Right. I mean, your comments earlier, would it be fair to assume that, that the accretion this year is assumed lower than maybe you were assuming 3 months ago?

Yes, that's correct.

Your next question comes from the line of Keith Hughes from SunTrust.

Going back to the first Carrier JV, the one you just increased your stake by another 10%. It's been in the mix for some time now, and I know one of the initial -- one of things that you were going to try to do with that business was make its mix closer to historical Watsco in terms of the mix of equipment...

Yes, you're right, to add more parts and supplies, right.

Where do we stand on that. Is that done? How is it going so far?

I don't think it's done. Let me ask Paul to give you a more detailed explanation.

I think when you look at their overall mix, we've maybe altered or skewed their mix a little bit with some great action that we did with our partner, Carrier, and that is we were able to add a number of larger commercial equipment lines throughout the country. And as we indicated in the release and Al's comments, our commercial equipment sales are up over 20% due to that. And so we probably skewed their equipment by probably 2 to 3 points more equipment than they were before because we've added more equipment lines to them. When you look at their non-equipment parts, they're growing it. They're growing it at a better clip than most of our companies because it's new to them and they're starting to get into it and they're getting their feet wet with it. So we indicated when we went into this joint venture 3 years ago that it's not a light switch changing the mix into more of a supply house mentality. And it's going to take us time and it is taking us time but the traction is good.

Keith, the reason we do it is because it enhances the contractor experience. If he can come into one of our locations and not only pick up the equipment but pick up almost everything he needs, it saves him time from having to go to what used to be called the ARW or wholesaler, which is not an equipment guy but carries parts and supplies. We like to do it all in one location to enhance his efficiency, the contract -- our customers' efficiency and that's a conceptual thing and nobody can do it as well as we can.

When do you think this will be fully built out, it's been several years.

I'll ask Mr. Paul Johnston who's always got my future...I think it's going to be many years.

To you get the mechanic or the contractor to realize that we've got this full brand with the product and to switch his buying habits over to buying from us. And it's going to take us time but it's going to be several years before we're done. And it's the same thing we said 3 years ago when we got into the JV.

Okay. And just on a separate topic for you, Paul, in terms of suppliers and pricing. I know commodities are down here somewhat. Are you seeing any actions, positive or negative, for price increases or decreases in the second half of the year?

From the equipment side?

Just across-the-board.

Just across the board. Outside of copper and refrigerant, I mean, the 2 commodities that we sell, really hasn't been much of a price change going on, either up or down this year. It's been fairly flat and of course, those 2 commodities have been just going in opposite directions.

Okay. And R-22, I mean, there's reports that its price is spiking with the potential regulatory impacts for next year. That come off the top on the R-22?

It pretty much -- it went up and it stayed up. We're not experiencing any supply issues at all on it. I think the concern on supply in R-22 is probably going to land next year, not this year. But yes, the prices have held.

Your next question comes from the line of Ryan Merkel from William Blair.

This is actually Pawel calling in for Ryan. I have a question on the gross margin and I'm not sure if it's easier for you guys to talk about it sequentially or year-over-year, but can you guys give us another layer of granularity whether it's -- the gross margin loss is coming solely from change in mix or is it -- or is there more competition and did you guys see a little bit more of the rebate accruals given the dense timing of inventory purchases?

Barry?

Well, first, to answer the last part, we did see increases in the rebates and discounts from purchasing activity. So that is in the quarter in terms of the timing of that and it's a relatively immaterial comment but it's just to answer your question. The gross profit that you see really is a consequence of the Equipment business growing, substantially higher than the non-equipment business. And as Paul mentioned, the strength of commercial, which by virtue of the fact that we don't actually even inventory all commercial products, it's very efficient in terms of working capital, it does come at a tighter gross profit for the commercial market. So it is really more of a mixed answer than anything else.

Okay. So it doesn't sound like you guys are seeing increased competition costs for you to cut prices on a per unit basis.

I think that's going on all the time. In a difficult market, and this has been a difficult market for several years. There's always someone that is using price, and we have to meet it and beat it with service. I mean, we are a service company, and I think we're better than anyone else and we're getting better at it.

Great, great. And then my second question is on SG&A. I mean, you guys did a really good job with SG&A on a same-store basis, down 4%. Can you let us know what are some of the initiatives going on there and how sustainable they are?

Who wants that one? Mr. Logan?

Sure. Well, the biggest consequence is reducing and continuing to reduce the fixed costs of the business. Facilities is the second highest cost behind people, and we've continued to see declines in our rents and facility costs and that's just a grind that's been going on now for the last several years and continuing to grind. And those are permanent reductions, we would not need to add square feet to grow, those are efficiencies for the future. The rest is simply from discretionary spending. Our managers are incentivized on producing EBIT growth each year, and they manage the pocketbook at the local level, at the branch level and it would be -- the reductions would be in their hands and reducing the overall other costs of business.

So is any of the reduction in SG&A in the current quarter attributable to lower bonuses year-over-year?

It would not be a material number this early in the year.

Your next question comes from the line of Steve Tusa from JPMorgan.

Just a question on compressor sales, specifically, you said parts and supplies were down. What were compressor sales down through distribution?

Paul?

We don't break that out, Steve, but obviously, compressors are the largest component of our parts sales.

Was it worse than that?

Yes.

Okay. So I guess, on the R-22 stuff, a lot of the OEMs are talking about that kind of leveling off. I mean, you talked about kind of a tepid consumer, but I mean, do you see any change in behavior? And I guess, for like Lennox housing helped that out a lot because obviously, the builders aren't buying R-22. I'm not sure how much housing helped you guys or hurt you guys or whatever, but are you seeing any kind of change and do you think this is a little bit of change in behavior or is there something a little more technical going on like housing?

I don't think that we want to really emphasize -- I don't want to emphasize the construction yet. It's nowheres [ph] near where it used to be. We don't base our strategies in new construction. When it comes, we enjoy it but we base ourselves on the replacement side of the industry, which we enjoy and think we do it better than anyone else. And when housing becomes significant, we'll enjoy it but I wouldn't say that we're there now.

Right. And then one last question, just again on the pricing side. A lot of these guys are showing, significant to the OEMs, are showing pretty significant spreads and benefits from price cost. Do you think kind of the discipline in the industry, which has been helped by copper and steel over the years. Does that kind of fade in '13 or is there any pushback, incremental pushback, for where commodity prices are now?

Paul, you'd have a better view of that.

Yes. I really -- I would have no idea, Steve, if there's any real pushback on that. There was some initial pushback on the R-22 pricing, when that moved up. Copper, gosh, we've seen a $1 swing, or over a $1 swing now, in the last 6 months on copper, it's all been down on the downside. So there really hasn't been any pushback on that. I really wouldn't know.

Your next question comes from the line of David Manthey from Robert W. Baird.

A quick follow-up here. In terms of the shift from, between repair and replace, my question is, if the compressor costs a couple few hundred dollars and a system would be over $1,000, potentially a new R410 system may be closer to $2,000 for you. If there was a one-to-one shift going on between repair and replace, wouldn't you have seen a much stronger same-store sales on the system side than you did? And I'm just wondering if you can square that up for me.

Go ahead, Paul.

Yes. You would presume that, that there would be a bigger shift. Basically, all you've got is you've got an outdoor unit and you've got a coil, and a coil is not that expensive. It's not a high-ticket item.

Right. But what I'm wondering is if the theory is that to this point, consumers have just been repairing existing systems and the sale to you of a repair compressor, a few hundred dollars, versus if the consumer decides to replace that entire system, which might be a ticket to you for $1,500 or $2,000, I'm just trying to justify if the consumer is actually just making that shift, shouldn't you have seen a much stronger uptick in the same-store sales of systems relative to the downtick you saw in parts and supplies?

I do not think we would have seen that. When you buy a compressor, you're also generally getting into the motor, you're getting into a lot of the other components that are going to be replaced at the same time as the compressor is pulled. Obviously, there's a higher margin that comes with the compressor then we get with the equipment.

Let me add a comment just with some data so we can develop that data. It's a good analysis. The parts business as we said, is down for the year. And the question is, if that converts into equipment sales, what does that mean and what opportunity is there? Well, the equipment business year-to-date is up 7%, so I think there is -- that conversion does provide dollars, it does provide revenues for the company. And of course, this is a trend that we've seen now for 2 quarters and need to sustain itself and we're certainly optimistic about it but I think what you suggest is going on.

Your next question comes from the line of Robert Barry from UBS.

Actually, I just wanted to follow-up on the answer to that last question, in particular Barry's comment. I mean, it just suggests, and I don't want to put words in your mouth, that the upside potential from a significant shift back to replacement is maybe somewhat muted, if the trade-off, I mean, I realize some trade-off between lower parts but higher equipment, but it doesn't sound like it's that dramatic.

It's not yet. It's on the margin now, but as I said, this industry has been below its historical rates of production in the United States. I think we've gone from 7 million or 8 million central cooling systems to around 4.5 million, 5 million. And I think that what you're expecting to see and what the prior questioner was, I think, was very well questioned, is that that's ahead of us. These are just marginal changes right now. It's not massive changes. I think the large changes are ahead of us, not now, and when they come, I think you'll see exactly what the previous gentleman was mentioning.

I guess, the follow-up on that. I mean, I'm trying to resolve what you posted in same-store sales or maybe more accurately, in the equipment same-store sales growth versus what we saw in the HARDI data or out of Lennox or the orders at Ingersoll. I guess, I was a little surprised that in that context that, that 5% wasn't a little higher.

Well, the regional demand, you have to look at as you enter the season, which is something I was saying earlier, not only does sometimes the season starter, say, sometimes as early as May and sometimes as late as July but you have to break that further down into regional demand. And there's no question that regional demand, as the season came in from an industry perspective, is great in the midwest and the northeast and that's, obviously, where some of those other bands are strongest. We have very little, if any, participation that's ahead of us still in the midwest and our penetration in the northeast is very small for now. So I would see that they would have at the beginning of the season some pretty dramatic results versus us. But we're seeing some of that now as the season moves into our regional markets in July. But I don't want to raise too many hopes, I just think that this is just a very uncertain time, consumers are still one day or the other they aren't confident. It's just rocky out there, and we're trying to be conservative. And also more importantly than anything, we're very long-term orientated, we want to continue to build this great company. And we don't want to take our eyes off that, and we're doing that with our strategy, with additional locations, additional product offering, more efficiencies in the whole organization, highly motivated organization, and constantly improving the friendliness and the ease of doing business with our contract of customers. I mean, just timing that we're talking about.

I also just wanted to follow-up on the other revenue. You mentioned that the parts piece of that was down more. Was the supplies piece down as well, not as much?

Not as much.

And like the supplies piece, why would the supplies piece be down? I get the parts piece, because of the shift from repair to replaced but especially in the context of the housing, why would the supplies piece be down?

I think we've already covered -- the housing is not a big piece of our business, even with the percentage uptick it has, it's not going to have a remarkable impact on our sales to start with. We hope it does some time. Like Al said, we'll be happier than can be with it.

The nonhousing and supplies piece? I guess, then.

I think when Steve asked the question also we talked about copper is down $1. Refrigerant and R-22 is up 4/10 down [ph]. So you've got a lot of different pieces that are moving on the supply side besides the ductwork and grills and registers that you see there.

Got you. And then just finally, on the Canada business, I think, Al, you commented that the profitability hasn't been what you hoped for. And I was just wondering if you could expand on that just, especially given we're so close to when you just finished the due diligence. And is there an opportunity to adjust the terms for the performance or the additional...

You're good.

I'm trying to be hopeful.

I know you are and I just can't go into that. There's a long-term view and a short-term view and it isn't what we thought it was, we've alerted our partner and we're in discussions.

Your next question comes from the line of Jeff Hammond from KeyBanc Capital.

Just a couple of quick follow-ups. Can you just talk about how you're thinking about the dividend policy, the same or different if we do see a slight fall [ph] change?

Sure, sure. That's an easy one. I think -- it is our expectation. We're going to continue the trend we started 11 years ago in having increasing dividends.

Okay, great. And then can you just talk about how you see your inventory levels relative to demand, your want or need to replenish and just what you're hearing in the field about channel inventories?

Paul, you've got a good view on -- or Ana.

Our inventory's basically flat when you take out the Canadian inventory and the Mexican inventory that we didn't have last year. Our inventories are right in line with sales, and so we're very happy with that. We've seen no supply issues on any product supply, anything that we've experienced so far year-to-date. So the inventory is something we're managing very closely against what our sales is. We're not reaching forward.

Your next question comes from the line of Jeff Pokrzywinski from MKM Partners.

On Barry's earlier comment about unit growth being plus 5%, does that include the commercial, which I understand is a smaller piece but sounds like it was up materially. Should I interpret residential as being more like up 3% to 4% on a volume basis?

That would just be our unitary residential business, Josh. We're not into [ph] the commercial inventory.

Okay. I guess, I'm a little surprised then that the price mix combination is flat. I mean, it seems like some of the OEMs have pointed to maybe a bit more drag on the mix side and that seems to be the case for you guys as well. Are you guys taking up a lot of additional pricing from non -- I guess, you don't want to go into specific suppliers, but is there a lot of price increases that continue to come through in 2Q? I guess, that flatness surprises me.

I mean, there have been no price increases that have come through in any kind of individual basis on vendors, Josh, no.

Okay. So I guess, the -- it all boils down to underlying volume activity was maybe a little bit slower than some of the OEMs saw and some of the regional differences that Al talked about earlier and then migration from repair to replace. So I guess, the bottom line is the season got off to maybe a slower start for where you guys are. What has changed into July in your region? Was it just more equipment failure, better weather, kind of help me walk the...

Well, the season has started a little late in July, and we're seeing it in the demand in the regions that we operate in.

I think that the regions that you're in, the season would have started earlier just because it gets warmer.

No. No, they didn't. Actually, Josh, if you want to look at it from a temperature point of view, in the markets that we serve, the temperatures were lower up until July. Is that not correct, Paul?

Yes, I mean we -- our big market...

I don't want to talk too much about temperatures other than just generally saying...

Just to say, that's true.

Demand that's coming from temperature increases in the season in our principal markets were below last year in terms of temperature. I don't like to give all the credit to temperature because really the season comes and it goes, and it comes at different times at -- different months of the year but it always comes and then it hits different regions at different times of the year.

We have no further questions in queue.

Well, thank you and we look forward to talking to you in the third quarter. Bye now.

This concludes today's conference call. You may now disconnect.