Good morning, and welcome to the Watsco First Quarter 2015 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Albert Nahmad. Please go ahead, sir.

Good morning, and welcome to our conference call. This is Albert Nahmad, President and CEO; and with me is Barry Logan and Paul Johnston. As always, first, let me read the 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 on to our call. Watsco had a great first quarter. The momentum from 2014 is continuing. We established new record for earnings per share, net income, operating profit, operating margins and for sales. We enjoyed another quarter of growing replacement demand and a continued movement towards higher efficiency systems. We also made further investments in our business in terms of products, people and the launch of new technologies. All in all, we expect 2015 will again be a record year for our company. And now for the details of the quarter: a 35% jump in earnings per share to a record $0.65, a 32% increase in operating income to a record $47 million, a 110 basis point expansion in operating margins to a record 5.8%, a 50 basis point improvement in gross profit margin and a 60 basis point decline in SG&A as a percent of sales to a record low for our SG&A. During the quarter, sales increased 6% to a record $809 million. HVAC equipment sales increased 8%, reflecting continued strong demand for high efficiency systems. Other HVAC products increased 2% and the commercial refrigeration products increased 5%. Now on to our balance sheet, which remains conservative with a debt-to-EBITDA ratio of 1x. Cash flow for the quarter reflects our typical seasonal buildup of inventory. We are again targeting 2015 cash flow to exceed net income. Watsco's outlook for the 2015 diluted earnings per share is within the range of $5 to $5.20, representing a prospective growth rate of 16% to 20% over 2014. This quarter's growth rate is higher, meaning -- again, this first quarter's growth rate is higher, but we will always be cautious until we have greater insight into the selling season. I can't emphasize that enough. We're not into the selling season yet. Regarding dividends, we increased our dividend rate in January by 17% to an annual rate of $2.80 per share. Our plan is to continue the policy of increasing dividends, as we are confident in our ability to generate strong cash flow while maintaining a conservative financial position and a low cost of capital to invest in our business. Now with all that said, we'll be happy to answer questions, that is Barry, Paul and I. Andrew, we're ready for questions.

[Operator Instructions] The first question comes from Josh Pokrzywinski from Buckingham Research.

Just a quick question on the margin enhancement you guys saw in the quarter. Barry, if you could break down some of the parameters of that, whether it was price mix, cost leverage, maybe just carving up those 3 buckets and what you think the biggest driver of margin expansion was.

Sure, Josh. Well, obviously, there are various price introduced into the market this year and that always helps the gross profit to an extent. Also, the sales mix moving towards higher efficiency is also something that can help margin as we get into the early part of the year. It is early. Don't expect this type of continuation of improvement in margin as we get into the selling season, but it is a good start to the year.

And if you'd just carve up the parameters, like what do you think was the biggest help?

Well, Josh, I wouldn't really say...

Josh, it's early. It's early. We don't want to mislead anybody. It's still early. Let's wait till we get into selling season.

No, I understand. Just a backward-looking comment, just trying to understand what was better than expected versus what was more in line and...

Well, I think as a general statement, what you're seeing is that the company itself is getting more efficient in its operations and more efficient in ability to generate revenues. It's more of an internal thing than it is an external thing is my view in the first quarter. Now we'll see what happens when we get into the selling season.

Got you. Okay, that's helpful. And then, Al, you made a comment in the press release about first quarter being disproportionately affected by seasonality and general economic conditions. Is that a comment that you feel like the market overall has had some pressure on it and you're performing well despite that? Or...

We would have -- no, we would say that no matter what year in the first quarter.

Okay. So it really is just seasonality?

We just don't want to send a message that this first quarter is representative of the year because it's too early. It's just too early. We just don't want to cause expectations that we don't know are going to occur until we get into the selling season. And I emphasize, I think what happened in the first quarter is more of an internal matter than it is an external matter. These investments that we're making are improving our efficiency in operations and our efficiency and ability to generate revenue growth.

And just one last one, more mechanical. Could you give us a split between growth in resi equipment versus commercial equipment?

I think we did that, didn't we? Barry?

No. Josh, I would say that the overall growth rate at 8% is consistent across the residential and commercial businesses.

The next question comes from Mike Sang from Morgan Stanley.

Just quickly on guidance, a follow-up to the last one. Could you break out the assumptions for sales growth and margins within that $5 to $5.20?

Well, we don't provide [ph]. But go ahead, Barry.

Yes. Mike, we really don't provide the building blocks, if you will. It's our guidance for the year. It's what we're looking at from an overall earnings growth rate. And if you look at historical years, you can get a good sense of what it takes to build that type of earnings growth rate.

Okay. And then I know it's early in the year, but last year, you gave guidance in the second quarter. This year, you're doing it in the first. Is that -- maybe that's a function of last year being particularly tough but...

It's a valid question. But we've done it both ways. And one of the reasons I wanted to do it in the first quarter is we don't want to -- I'm going to repeat myself. Because we had such outstanding results in the first quarter, we didn't want to mislead people that we expect that to occur for the rest of the year because we just don't know, so we provided guidance.

Got it. And then -- but that's not because you're seeing anything particularly helpful in the first couple weeks of April that gives you more confidence?

No, we like April.

Okay. And then lastly, just in terms of how you're thinking about inventory going into the selling season, I think you alluded to the step-up this quarter being seasonally normal. But to the extent you're thinking differently about stocking 13 SEERs or if there are any change in tone from the OEMs...

No, generally speaking, we're expecting a better year. So we took in greater inventory to meet what we expect to be a nice demand going forward. I wouldn't attribute anything to any particular kind of SEERs or anything like that, just generally speaking. We increased inventory to meet what we think demand will be going forward.

The next question comes from Matt Duncan from Stephens Inc.

So Al, just to follow up on the comment you made about April. You said you're liking April so far. Is it pretty in line with that 6% growth rate you saw in the first quarter?

Matt, you're so smart. I don't want to mislead anybody. Let's just say it's strong.

Okay, fair enough, because April's still early in the season, so I certainly understand. On the iPad apps, where are you guys in the process of rolling those out to the operating units? And what's the feedback you're getting from your contractor customers so far?

Well, it's constant. We're rolling out updates to the apps constantly. And I can't say that this quarter is any different than others. It's just a routine process for us to update apps. And are they helping? I think so, helping the contractor, which is our goal, help the contractor be more efficient and help the contractor enjoy his relations with us more and more. I mean, it's a competitive tool. We want to be the best there is for the contractor world. It's an ongoing process, and we will continue to invest to further development.

Sure. On the other HVAC product growth, still kind of lagging behind of the equipment. I'm sure that's probably largely a function of the growth really being driven by the replacement market. But is there any other thing going on there that we should be thinking about for the reason that, that growth is a little slower than the equipment?

You mean the 2% on non-equipment. Paul, you...

Yes, the 2% versus the 8%. Yes.

Yes. I don't think there's much to be read into that. It's been trending like that for the last couple years, and we've seen a continuation of that trend.

Okay. So that growth rate would probably pick up if we saw a more meaningful lift in new construction, correct?

And also if we -- when we get into the weather of the season, we'll find out exactly what that impact is on the replacement side also.

But the truth is that we consider ourselves mostly in the replacement business. The new construction business, at most, has to be 10% or 15% of our revenue.

The next question comes from Mark Douglass from Longbow Research.

Can you discuss -- did the -- your OEM suppliers, did they push through price increases at the beginning of the year? And if so, what was the relative amount?

Paul?

Yes. Those price increases were announced in the fourth quarter of last year. I think we explained that in the last call. Generally, in the 3% to 5% range, some a little higher. And it's hard to get a point-to-point comparison with the new 14 SEER product that's coming out.

Okay. Yes, that was my other question. And it's probably very early on with the implementation of the regional standard. So -- but from what you saw in the prebuild in the fourth quarter, what would you say the inventory levels look like on 13 SEER intended for the southern region? About a year's worth? 1 season's worth?

I would have no idea what the industry has for 13 SEER products sitting in the field.

Okay. And then what was Canada like? Was that a real -- was it a pretty tough headwind with the currency?

We don't break out our business into areas. We don't want our competitors to be informed.

The next question comes from Ryan Merkel from William Blair & Company. Ryan Merkel - William Blair & Company L.L.C., Research Division: So I want to just -- I want to step back, and I recognize the first quarter, you don't want to extrapolate that. But '14 was a strong year and you mentioned that the strength has sort of continued albeit that it's early. But if I step back, is there really 4 sort of drivers here? Is it pent-up demand? Is it the SEER mix improving; OEM price increases; and then internal initiatives? Is that what's really driving things? Or did I miss something?

No, I think you've got it. Paul, is there anything you want to add to that?

That's great. I'd tell you, I wrote those down. That's spot on target, Ryan. Ryan Merkel - William Blair & Company L.L.C., Research Division: Okay. I want to make sure that I wasn't missing anything. And then secondly, can you just talk about SEER 13 equipment demand or growth versus the higher SEER stuff? And then the second part of that question, are you seeing the price of SEER 14 pull down towards the 13 at all?

Once again, it's way early.

[indiscernible] go back with the 13.

Yes. It's way early to develop a price trend on that. We are watching it. We have not seen anything yet to indicate any change. But then again, the pull-through hasn't been great enough to even indicate that. So it's -- once we get in the replacement market, we'll have a better idea of what those trends are. Ryan Merkel - William Blair & Company L.L.C., Research Division: Okay. And then lastly, sometimes, you answer this question, sometimes you don't. But on the equipment side, can you just give us the breakdown of the 8%? How much was price versus mix and volume?

No, I think we covered that already. Somebody asked that question earlier. Ryan Merkel - William Blair & Company L.L.C., Research Division: Oh, you answered how much of the 8% was volume versus price mix? Okay.

No. No, I don't think they got in that detail. But we did describe our price increase on the equipment.

Ryan, I would say this. I mean, the growth rate is mostly driven by unit growth, which is what we want. I mean, that's where -- that tells us that we're executing in the field and getting business. Price and mix adds to that, but the predominant share of that is unit growth.

[Operator Instructions] The next question comes from Jeff Hammond from KeyBanc Capital Markets Inc.

So Barry, I think you mentioned early on that you didn't think that the margin performance, at least from an incremental margin, would sustain. I just wanted to better understand that comment, understand if there's any kind of aberrations in the gross margin or SG&A line performance that would -- you wouldn't see trending into the selling season.

We've already said that. I don't know. I would not agree with that. But Barry, you go ahead and explain it, what you...

Sure. And I think if we look at 15 years, the first quarter is where we have price increases implemented into the field. There's a benefit to us that we enjoy in the early part of the year. And how long that sustains itself into the selling season is something again that we're going to watch and see and certainly would like for that. But again, it's just part of the cautiousness that we should talk about this early in the year.

Okay. And then as I do the math on kind of the JV income minority interest, I guess, it seems like your growth -- your EBIT growth in the Carrier businesses was significantly higher than your base businesses. I'm just wondering if a lot of that internal change is being driven by some of the Carrier initiatives or if there's anything unique going on there.

It's across the board. Our investments in our efficiency development is across the board with all our business units.

Right. But just from a performance standpoint, it seemed like the Carrier businesses were a standout? So is there anything...

No, they're all performing well. I don't think Carrier Enterprise is performing any better than anybody else.

Okay. I'll follow up on that offline. And then just on -- I guess, because you do within your filings kind of break out international, at least as a mix of the business, can you just talk about the international business, whether it's in detail of Mexico, Latin America versus Canada?

It's running about 15% of our overall business.

Okay. And how is that trending vis-à-vis the total company?

Business is good internationally as well as domestic.

The next question comes from Keith Hughes from SunTrust.

A couple of questions. One, FX, can you give us any idea how much FX affected the quarter?

Barry, go ahead.

Keith, really, it's immaterial. And given the size of the markets where we have currency, we're still almost 95% U.S. dollar based. So it's really not a material conversation, Keith. That's why we don't break it out.

Okay. Second question for Paul. Outside of equipment, are you generally seeing inflation in the other materials that you purchase and resell? And if there's any areas of deflation you've seen, if you could call those out for us.

It's been pretty steady with the commodities. They're small. They're not material to the whole business. But copper refrigerant have been pretty stable. We are seeing some increases, obviously, in the parts and components side, which is good.

And any -- I mean, you don't use a lot of petrochemical products, but is there anything...

No, no, we don't. We don't get into that.

The next question comes from Walter Liptak from Global Hunter.

And I wanted to go back to the margin discussion. And in some ways, I was kind of prepared for more investment in the first quarter. And so I guess -- and that's into the people and technology and the efficiencies that you're working on. And so I wondered about any timing because it seems like you absorbed any incremental investment this quarter pretty nicely. I wondered if there's any timing issues and when it goes through during the year.

Well, it's sort of like this, Walter, we are not out of the investment mode. We added another 25 people in the first quarter. And I think we're going to continue in the investment frame for quite a while. Now when is some of that investment paying off? I think that's what we're seeing is some of that, but it's not measurable. It's just a whole idea that we're getting more efficient in our operations and more efficient in our ability to gain share and produce revenue. And that's really an ongoing thing. We're not going to stop investing; and quite the contrary, if anything else, step it up.

Okay, that sounds good. So is the first quarter the low point in terms of investment and that it steps up as you get...

No, it doesn't work that way. We just keep -- where we see the -- we want to beef up our sales force, we do that. But that doesn't matter what time of the year. And of course, technology is an ever-increasing investment. And so it's not related really to the time of the year. It's just where do we have need and then we take actions to take care of it. We're still going to be adding people is what I'm saying in the rest of the year. It's not -- we're not over it in the first quarter. It's just something that we do on an ongoing basis.

Okay. Okay, good. And then in terms of the benefits, you said they're not quantifiable because if you're growing, you don't know if it's from technology or if it's from the sales adds, et cetera.

That's correct.

You just know that you're growing.

Yes.

The next question comes from Steve Tusa from JPMorgan. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: So I guess, just on the higher efficiency, you said efficiency was a positive. I mean, do we think about this year as kind of like -- because there was more of a prebuild than a prebuy, more of just a continued steady pace of efficiency increase; and then next year, you see kind of more of a skew towards 14?

I don't know about...

We didn't say that.

I think the consumer. And again, we don't look at short term sways. It doesn't matter to us as it does perhaps to... Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Yes, I'm talking about the year, for your view of the year.

We believe that the move by the consumer to higher efficiency is a long-term trend. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Right. But I mean, can that -- but that doesn't necessarily -- like that continues to march forward this year, right? Because you did say that higher efficiency was a -- you didn't mix down in the quarter. You mixed up. And you expect that to continue over the course of the year?

Yes, yes. By the way, the manufacturers are also keen on increasing their efficiencies. So as I said, I think this is a long-term trend. There's no end to the technology development by the manufacturers of equipment to improving efficiency. They're at it. And so that trend, I think, is starting with manufacturing and going on through distribution because the consumer wants it. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Right, right. So we're hearing that -- I mean, actually, that April is pretty strong, even up double digits. I mean is that kind of what you're saying? Was it good? When you say it's good, is there a number [ph] around that?

It's strong. I don't want to mislead anybody. Let's use the word strong. It's only a few days but I like it. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Got you. And then just lastly on the -- I didn't quite catch this. But what do you think -- not in your own business, but what do you think -- can the market growth rate repeat what it did in 2014 in 2015? I mean, it seems like the stars are aligning a little bit here for a good year. I mean, what's kind of the color on the market?

Yes. I think the market will be bigger this year than it was last year. I would agree. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Well, I mean, like -- but I guess, from a growth rate perspective, I would hope it grows [indiscernible].

I couldn't tell you that. I couldn't tell the growth rate. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: So how do you guys set guidance without kind of a sales growth rate?

Well, because we've been doing this for a long time and we just -- this is our sense of what we're going to do. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Okay. So there's no growth rate that underlies -- that you're going to give us that underlies is kind of the point that...

But don't forget -- no, we're not going to provide growth rate numbers. But don't forget, the premise is that we're getting better at what we do [indiscernible] that. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Right. What do you -- Sorry, you're getting better at what?

We're more efficient. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Yes, yes. So the margin improvement is obviously a driver.

Yes. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Okay. And one last question. You said 3% to 5% OEM price increases that were put through. And then that's kind of the -- and that you feel pretty comfortable that it's the commensurate degree of stickiness here.

It has stuck. Those increases were made last year and have stuck this year.

The next question comes from Charles Redding from BB&T Capital Markets. Charles E. Redding - BB&T Capital Markets, Research Division: Al, just wondering if you could drill down a little further on the commercial side. I mean are there particular end markets that are proving relatively strong here? And where could you see added opportunities here in the coming quarters?

Wow, that's a heck of a question. Paul, do you have a sense for that?

No, I really don't. It's like I said, it's not a -- even on commercial, it's not a big quarter for us. So I really can't say there's any direction that I can point us in as far as strong versus weak sectors right now.

I mean, I would say it this way, that it's become a dependable part of the business over the last several quarters. I mean, there was some choppiness a couple of years ago, but it's become much more dependable and consistent. And as Paul said, it's early, but it certainly has become more dependable over time. Charles E. Redding - BB&T Capital Markets, Research Division: Okay. And is it fair to assume that inventory turns on the commercial side are pretty similar to residential and that you really don't keep a material level on stock on hand for any appreciable period?

Barry, do you have a sense for that or Paul?

Yes. No, I mean, we certainly stock commercial products to fulfill the demand cycle of replacement just as we do in residential. So there's nothing peculiar or different about commercial versus residential at all. Charles E. Redding - BB&T Capital Markets, Research Division: Is it possible to get any sense on what kind of work...

It is a replacement market that we're working in, Charles. So I mean, yes, we do keep inventory out there. It's just packaged equipment. It's rooftops and packaged equipment. So... Charles E. Redding - BB&T Capital Markets, Research Division: I mean, do you get a sense of kind of where commercial backlog stands given -- I mean, because it's lighter inventory turns, I mean, at least in terms of historically speaking?

Charles, there's really not a material backlog. When we talk about the replacement market, our backlog might be 0.5 hour after a phone call was made. So it's a very short-term, quick emergency replacement business. Backlog is not really a measurable thing in our business.

And that's how we compete because of our balance sheet strength. We perhaps can carry more inventory to meet replacement demand than our competitors can. That's fundamental to our strength.

The next question comes from David Manthey from Robert W. Baird. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: First, could you talk about R-22 prices if you haven't already? What are you seeing? Do you expect prices to move higher this year?

Paul?

Yes. The price already moved in the fourth quarter. Do we expect it to stay high? It's -- quite frankly, David, it's a very, very small piece of our business, R-22 refrigerant sales. I mean, it's almost untrackable. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Okay. And what about the -- did you see any benefit from fuel year-over-year?

It's not material. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Immaterial, okay. One last immaterial question here. Cuba is an export market 5 years from now. Immaterial or is there any potential there?

Any what? I couldn't hear the question. David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division: Well, I was half serious on it. I'm just wondering. Are you looking at Cuba as a potential export market for your international business?

Oh, gee, that's -- of course. If it opens up, we're right next to it. There are 11 million people living there and they probably need a lot of air-conditioning. I mean, don't forget, we -- our current market is North America and the export market -- and our location's in Mexico, so it's a much larger market than we presently service. There's 11 million people against, I don't know, 500 million, 600 million is not -- of our existing market is not a big number. But the need may be greater there because it's still underdeveloped. Then we have to see whether they can afford to pay for things. So if it develops, we'll be -- we're their neighbor, so -- and if we're allowed to do business there, we certainly are not going to ignore it.

And we have a follow-up from Walter Liptak from Global Hunter.

So we've talked a lot about -- a little bit about the strong balance sheet, the cash flow. And I wondered about what the M&A environment looks like. I know it's -- outside of Carrier, it's been a little while since we've seen acquisitions, what your appetite is and what the environment's like.

We are interested in M&A, but the situation for us is that at our size, it's very difficult to see an M&A activity at this moment that would move the needle much for us. But if it comes along, we certainly want to have and do have the balance sheet to do almost any size. But there's nothing of size that is imminent that I'm aware of or have a sense for, not for lack of looking and not for lack of trying. But we bought 67 companies more or less, and many of them were smaller businesses. That's not the sort of thing we probably would do today, acquiring smaller businesses. What I hope we can do is when we do M&A to have something of some size.

And we have a follow-up from Steve Tusa from JPMorgan. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Along that same line, the appetite for the OEMs to restructure their distribution, are you seeing anything there?

I wish to get after them, Steve. We would love for them to -- get after them, tell them that they should turn over their distribution to us. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: Nobody listens to me.

Trust me, I would love to do that. We would love to buy manufacturers' distribution assets in the Americas. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: I guess the final follow-up is how's the weather down in Florida right now?

You don't want to know. Well, actually in the Northeast, it's also very good. So it's beautiful. Charles Stephen Tusa - JP Morgan Chase & Co, Research Division: So the weather's good.

Yes. 86, sunny and humid. We love it.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Nahmad for any closing remarks.

Thanks. Thanks for your interest in our company, and we look forward to talking again at the conclusion of the second quarter. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.