Watsco (NYSE:WSO) Q1 2025 Earnings Call

0:00 Good day and welcome to the What's Co first quarter 2025 earnings conference call. All participants will be in lesson only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your questions, please press star, then two. Please note, this event has been recorded. I would now like to turn the conference over to Mr. Albert Nahmad, Chief Executive Officer. Thank you, and over to you, sir.

0:45 Good morning, everyone. Welcome to Watsco's first quarter 2025 earnings call. And this is Al Nahmad, Chairman and CEO, and with me is A.J. Nahmad, President, Paul Johnston, Barry Logan, and Rick Gomez. Before we start our 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. Pulsement results may differ materially from the forward-looking statements. I'm moving on to our report. Whatco reported a good first quarter.

1:31 We have a lot of positive things going on related to the transition of products to the new A2L system. They will ultimately impact around 55% of our total sales. Our teams are working to convert nearly $1 billion in inventory to the new system. We have trained thousands of customers, and we have updated our technology platform to provide the needed functionality to our customers ahead of the selling season. Similar regulatory, let me start again, similar regulatory mandates have occurred every 10 to 15 years and have historically been good for business.

2:23 The new systems offer solutions to homeowners and businesses that are both more efficient and more sustainable and provide enhanced sales and profitability for both us and our customers. In terms of trends, our core HVAC replacement business is off to a strong start. Sales and replacement systems, the core of our business, increased 10% on higher volumes. New pricing was introduced and realized in the market, and we also saw the richer mix of high-efficiency systems. Gross margins also improved, an important benchmark following the launch of their new systems, which we believe continues to be an area of future opportunity.

3:16 I want to emphasize that the first quarter is the smallest and most seasonal quarter of the year, and while they deserve Early in the selling season, recent sales and margin trends have improved. Looking forward, we expect the benefits of the new A2L products will become proportionally larger over the remainder of the year, especially during the seasonally stronger second and third quarters. Our balance sheet remains in pristine condition with $430 million in cash, no debt, and over $3 billion in equity. We raised our annual dividend 11% to $12 per share in April.

4:05 2025 marks our 51st consecutive year of paying dividends. Now, turning to current events, we are carefully monitoring the potential impact of proposed tariffs on our business. On our domestic front, on the domestic front, which represents 91% of first quarter sales. We are collaborating closely with our OEM partners on current and future pricing actions that may be required in response to the tariffs. We see greater uncertainty for 9% of our sales that are in Canada and Latin America, and we will likely react as needed to grow sales and profitability in those markets.

4:51 Big picture, We possess the scale, the technology, and the relationships to act quickly and efficiently to these changing market conditions. As always, we feel it's important to keep the long-term perspective in mind. Wattsco has delivered superior long-term returns over most any time period. We are the market leaders in a highly fragmented $74 billion distribution market. The products we sell are a necessity, and the install base continues to grow. We have deep collaborative relationships with the industry leaders, OEMs.

5:42 We offer the broadest product variety and operate the largest network. And our unique ownership culture, which is shared by more than 4,000 employees, rewards and incentivizes long-term performance. As always, we invite you to come and visit Miami if you want to learn more and share the continued optimism that we have for our company. With that, let's turn to Q&A. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

6:29 If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Stephen Wolkman from Jefferies. Please go ahead.

6:53 Good morning. Wow, first. Good morning, everybody. Thank you for taking the question. Maybe I'll dive in on the residential side. I think you said plus 10%. Can you give us a sense of what you're seeing, you know, how much of that was kind of R454B versus 410A and how the pricing kind of layered into that?

7:17 Paul? Yeah, well, most of what we saw in the first quarter was 410A. We only had about 20%, 25% of it that came out as 454A. So when you look at the residential, what we're talking about being up over 10% is the replacement market, not the new construction. And so the bulk of that in the first quarter was 410A. Early in the second quarter, we're starting to see the transition over to the A2L product, and hopefully that'll continue as the summer goes on because we're going to be out of 410 probably by the end of the quarter.

7:55 Okay, great. And then maybe just following up, we've seen a fair amount of price that's come through from a variety of suppliers across the industry. And traditionally, that drives your gross margin a little bit higher, at least in the near term. Is there any reason to think we shouldn't see that happening as the year progresses?

8:17 I think after April, April is when we had the two big price increases from the OEM. So that's really what's going to be That could be an impact, obviously, in our gross margin. But in the first quarter, we were fairly clean as far as price increases. Most of the improvement in the gross margin really was related to the segment mix that we had, moving more towards add-on replacement, less towards commercial, less towards residential new construction. Understood. Thank you. I'll pass it on. Thank you. The next question comes from David Manty with Bell.

9:05 Please go ahead.

9:08 Good morning, David. Good morning. Hi, Al. So as it relates to the top line, it seems international was weak but really not big enough to move the needle. And what Paul just said about the mix and that along with other HVAC products being somewhat weak, parts and supplies, I understand, but Should we read into this that residential new construction, even though it's less significant for you guys, was substantially softer year to year? And are you holding share there, do you think? I mean, I'll give some insight to that.

9:45 Yeah. Yeah, I think.

9:47 Go ahead.

9:49 Let's give some insight to it. Well, first, it We don't really do the algebra for you, but there is one less sales day in the quarter, so that has actually a bigger impact than the new construction does, by the way, in terms of algebra. But the new construction element of it is also a choice being made by the contractors that do work for builders in the quarter to use 410A or wait to use 454B upon availability. So there is some disparity, and and how a market like that this time of year operates in terms of this transition. The other reality, Dave, as you know, is we're a 40% larger business in the second quarter. So new housing, which is relatively equal in four quarters, has a bigger impact in this small quarter and should have less of an impact over time.

10:45 And I think also there's some backlog that's built that will consume 434B as time goes on.

10:56 I don't think we've lost any share in the new construction market. I think we're still, you know, where we do it, we do it well. And I think it had more of an impact on the supply side than it did on the equipment side.

11:10 Yeah, that's good to hear. So impressing on gross margin a little bit here, too, as you think about the transition of refrigerant and along with the kind of the mix driven by seasonality and so forth. And then you've got these, what I assume are apples to apples kind of tariff driven and general price increases we're seeing, as you pointed out in April, Paul. As we think about the normal cadence of gross margin from first quarter through the year, just directionally and bigger than a bread box, can you tell us, do you think it'll be less of a degradation as we move forward because of those positive factors that are rolling in here?

11:52 Wow, that's a lot of questions. I wish I could see that far out in the future, but right now... Let me give you an aspiration of gold that we've stated before. Wasco is is working to achieve its goal of 30% gross profit margin. That's where we think we're headed. And we don't know when we're going to get there, but we're working to achieve that. And we have several different ideas on how to get there. Now, do we have short-term changes to that? Yeah. But that's our goal, and we aspire to it.

12:38 Fair enough, guys. Thank you. Thank you. The next question comes from Jeffrey Sprague with Vertical Research. Please go ahead.

12:51 Thank you. Good morning, everyone. Good morning. Good morning. Interesting times, no doubt. Hope everybody's doing well. Just wanted to kind of think about sort of the cadence of what the OEMs are doing on the price side. I think you said you're collaborating closely with them. just got off call with a key player. They said price has gone up twice here just in the last several weeks or so. Maybe just give some view on how this collaboration is working, how the lags of getting price through into the channel, and whether you are seeing any kind of negative demand response given the magnitude of price that's coming through the pipeline.

13:44 No, I don't think we're seeing any real pushback yet from the customers.

13:48 It's such a newsworthy subject, the tariffs, that I think most contractors and consumers were assuming that there's going to be higher prices. How much of that price is being relayed to the consumer, we really don't have visibility to that. The OEMs have been very prudent as far as getting the price increases out. We have the technology to go ahead and implement the price increases instantaneously. So it really hasn't been that much of an issue to date. We'll have to wait and see what happens in Q2 and Q3 as far as how long these price increases stay and what the impact has on the consumer.

14:34 Is there a mechanism in place or should we expect if the tariff pressure changes that This will feed back into the market as some relief on price. How much of the price is surcharge, which is visible and could go away, versus what might be in the base and what you might be able to maintain, even if there is some tariff relief?

15:00 Outside of one manufacturer, I think every pricing action by every manufacturer right now is a price increase. It's not a surcharge. Thank you. Thank you. The next question comes from Tommy Moll from Stephens. Please go ahead. Morning, Tommy.

15:27 Morning, Al. Thanks for taking my questions. Sure. and the earnings relief. And I think as Paul just mentioned, you talked about being able to leverage the technology to quickly, if not instantaneously, implement some of these price increases. But I want to unpack what other levers you have with the technology, because as you've discussed before, it's not just one standard increase across your entire customer base. You have to be a lot more nimble. So in this environment of OEM Price Increases. What additional capabilities do you have through the technology to really customize, if not profitize, some of that at the branch level?

16:17 David, you want to share?

16:18 Yeah, I'll take that one. My instinct to that answer is I don't mean it to be flippant, but it's infinite. Because the technology we put in place, what it does is provide visibility and tooling for world-class analysts to see opportunities across all of our business units and collectively as an enterprise. So just for an example, you know, and this is an environment where there are raising prices, which, by the way, there are and there will be from not just our major equipment manufacturers but from the thousand parts and supplies manufacturers that we buy products from. And just to give you a sense of the scale, it's It's 1,000 manufacturers of products. We sell products to 100,000 contractors.

17:09 It's not too hyperbolic to say that we have a different price for every product for every customer, almost. The tooling enables that sort of intricacies and being dynamic and seeing where there are opportunities to raise prices, to a market level that we see customers of a particular segment or size buying at, which perhaps needs to be adjusted for others, or the other way around. Perhaps we're out of market with the price, and we need to get in line so that we can effectuate more sales. Just, I mean, again, as a small example, say we sell product ABC in one market, take Miami, We probably sell it in 20 locations here to several thousand customers at several thousand prices. And if you put that on a histogram, the spread is too big.

18:10 So if we can put a floor and a ceiling and do some intricate analytics, we can affect margin impacts as well.

18:24 Thank you, AJ. As a follow-up, I wanted to ask for a little more detail on the early selling season trends. Al, you mentioned that there's been some improvement, and so while we're all here live, I wanted to just give the opportunity to give any quantification there or additional insight into what you were referencing there. Thank you.

18:50 Barry, you want to deal with that? Sure. Again, I'll focus on domestic. We've said that international is still probably greater uncertainty, but if I address the domestic, 91% of our business, it's mid-single-digit growth thus far in the quarter.

19:11 Great. I appreciate it, and I'll turn

19:15 it back. And I add a sentence to that, and margins are behaving well additionally. Thank you. The next question comes from Ryan Merkle with William Blair. Please go ahead.

19:33 Hey, everyone. Good morning. I guess I'm going to follow up on that last question. I guess it sounds like we shouldn't extrapolate the week first quarter to the rest of the year. Is that the right read here? You feel like the business has found better footing? Yes. Okay, that's a simple answer. And then can you just unpack, I think you mentioned the A2L transition with a negative in the quarter. What was the impact there, and what was that negative? A negative?

20:10 Negative, no.

20:12 Okay, so I misunderstood that. Yeah. Okay, so the one-third of the business that was weak, it was the international down 9%. and then what else was in there that caused the weakness? Because, again, algebra is kind of difficult for some of us to figure out.

20:30 Sure, I understand. Let's go through it. I think a lot of the numbers are there in the press release, Ryan. You have non-equipment going down for the quarter. It's about 30% of the business, right? Refrigeration has a small component. Nonetheless, it's part of what else is down, which is what your question is. We have commercial products. which is down right around 10% for the quarter. That, too, has a heavy influence going on with the product transition and 410A versus 454B, and we think that that levels out or at least has less disruption or less disparity going on as time goes on. The commercial product is a component of what else went down.

21:17 International we talked about. and then there are some other products that I would just, or some other segments I would categorize as large accounts, national accounts, where again, the 410A versus 434B has some disruption in it and that's short term and we don't see that as a seasonal reality over time and I mentioned the same day, one less selling day and this quarter is about almost a 2% impact on sales.

21:49 Okay, I got it. That's helpful, the commercial pieces. Yeah, I thought that might be part of it. Last question, the price mix outlook, you know, we've had some new price increases. Any chance you'd help us with what you're thinking there for the year?

22:07 Well, I would say we tend to talk factual about what we see, what we experienced in the first quarter, and not extrapolate that until we have more data and more time in the season, Ryan. but price was up about price and mix for what is our unitary business was up about 5% for the quarter. Okay. All right. Great. Thanks, Barry. I'll pass it on. Thank you. The next question comes from Brett Lindsey with Mizzou. Please go

22:43 ahead. Hey, good morning, everyone. Hey, I wanted to come back to the A2L transition. One of your peers had noted some delays there, maybe a little bit more on the commercial side, but it was related to the learning curve. And I'm just curious, what's the industry readiness like on the transition from a technician standpoint? Are you seeing any bottlenecks? Is it driving some delays in residential? Any color would be great.

23:12 Paul, I don't see any real delays with the product. I mean, if you consider that 410A is basically 50% of 410A is 32, and the balance of it is a 125 combination, whereas when you get into the 454 and the 32 products that we sell, they just become 70% and the 454 becomes 32, and, of course, 32 is 100%. So we're really not seeing a bottleneck from the mechanics viewpoint, no. I just think there is a price difference between an A2L product and a 410 product, and I think the contractor gravitated towards the 410.

23:57 That's just an opinion.

24:00 I think to editorialize that probably the right way is this is a quarter, as we said seven times, thus far the smallest time of year, but also had a lot going on with whether 410A was in the channel or not. If you own a lot of 410A and you leaned into it, you have some short-term benefit this quarter. You have long-term risk of obsolescence. It should be obvious by our balance sheet at year end. We did not lean into 410A. We did not choose short-term, you know, Consequences with longer-term risk. We wanted to move to the 454B. We have the pricing, the margins, the activity with replacement is a good indicator of that decision.

24:50 And maybe some of the large, giant customers that wanted to chisel into 410A and get some short-term wins, that's a transient business that is short-term.

25:04 Yep, got it. And then just to follow up on the second quarter, I guess, near term. So I think the industry is talking about some destocking on the R410A, but also we're seeing the industry raise prices really across the board on tariffs. Would you expect some level of pre-buy on price escalation here in the near term? Or how do we think about the netting of those two pieces as we get into the selling season here?

25:36 I don't see any pre-buy coming on the A2L product. You can't really get 410 products from any of the OEMs. They had to stop manufacturing that on 1231. So anything that we would have in stock right now that's coming in is going to be an A2L product. The price increases are very rapid. They happened on April 1st, and then a second price increase – occurred for most of the OEMs on the third. So unless there's a reversal of the tariff, I really don't see much of a pre-buy opportunity for 454.

26:17 Okay, understood. All right, thanks. I'll pass it along. Thanks. Thank you. The next question comes from Patrick Bowman with J.P. Morgan. Please go ahead.

26:33 Good morning, Patrick. Good morning. Thanks for taking my questions. So I just had a question on the gross margin in the first quarter, and I was wondering if you were able to optimize price on the 410A inventory that was sold and whether that had a benefit there. I'm asking kind of in context of I think you said price mix was a 5% benefit in the quarter, and I don't think the OEMs raised price on the 410A since they're not really making it anymore. Just curious if you get any color on that.

27:12 Yeah, Pat, it's a good question. I think most distributors were able to gain some price on 410A as we started the year. And also, it wasn't said in this call so far, but mix also improved, meaning energy efficiency mix. That tends to help Margin to an extent. And third, as Paul said, or I think, is we have a higher mix of replacement versus new construction. That helps margins to an extent. And the rest of the pricing discussion is, I think Paul mentioned, 25% of the business is 464B in the quarter. And obviously, the higher pricing contributed something to that equation.

28:01 Yeah, that makes sense. The benefit on the price optimization maybe in the 410A stuff, is that like in the tens of basis points?

28:12 Yeah, it's not material enough. It was not like something to exploit, Pat. It was something to add a bit of inflation as we started the year. It's in basis points.

28:26 Helpful. And then... We've been hearing about shortages of the 454B refrigerant due in part to container issues. Just wondering if you've seen or heard anything on this front and what your view is on whether this could have any impact on the selling season?

28:45 Yeah, we have heard that. It's supposed to be over by June, you know, as far as the containers, but it's not just on 454. It's also on 32A. They both use almost the same container, so there's no real difference. So, yeah, there's been a shortage. We've been on allocation. Everybody in the industry is on allocation right now. There apparently is still some 32 out in the marketplace, but the 454 has become increasingly difficult to obtain. Is it going to impact us longer term? No, it's not. Our creative branches have come up with other ideas to be able to satisfy the need of the contractor to be able to get the refrigerant they need to top off a new system.

29:31 You do know that all the equipment is precharged with 454. There's no shortage of 454. It's strictly the container that's missing right now. Okay. Appreciate the comment. Thank you. The next question comes from Jeff Hammond with KeyBank Capital Markets, Inc. Please go ahead.

29:59 Hey, good morning, guys. Morning, Jeff.

30:03 You know, the consumer just can't catch a break. They keep getting hit with these price increases and high rates. Just wondering if you're hearing or seeing anything on kind of repair versus replace or mix down as people maybe choose a de-featured product. Very good question.

30:25 In the first quarter, you really aren't going to see a lot of compressor sales. And compressor sales, when you look at parts and supplies, parts is what it takes to repair a unit. Supplies is generally what it takes to install a unit. And so when we look at it, we look at the motors and we look at the compressors. And as I've said, I think on the last call and the call before, I'm hoping that we have a repair and a replace market. Motor sales for the quarter were up 7%, which is good. And then we were up slightly with the compressors. It wouldn't really be indicative of a repair versus a replace type mode yet. So I think with the dichotomy that we have in the homeowners, I think we're going to see a lot of replacement, and I also think we're going to see a lot of repair.

31:22 and the trade-down dynamic? I'm not sure.

31:27 The trade-down dynamic hasn't shown up yet. Go ahead, Barry.

31:31 Go ahead.

31:34 That's something we've seen. It's obviously, you know, I could comment. First, energy efficiency mix actually improved this quarter. I want to ring the bell in October when we have our third quarter conference call if the trend continues. but also what's competitive for us, every location in Wasco has multiple brands, multiple price points. Many of our competitors, including OEM networks, do not have that variety, do not have that functionality or flexibility at a store level. So, you know, we can make hay in a tricky environment if that's where the consumer is, and I'm glad we have that variety in our stores.

32:20 Barry, you mentioned people that leaned in on 410A, which was not your tack, maybe benefited 1Q, and maybe they're a little bit behind. I'm just wondering if you think 1Q was impacted at all because maybe you had less than your fair share of 410A, and maybe you catch up some of that. It seems like your inventory position is really strong coming out of 1Q. Just kind of thoughts around you know, playing the merchant in gross margin arbitrage, you know, around, you know, these kind of follow-on increases.

32:55 Yeah, I mean, obviously, I don't have access to anyone else's financial statements to know what somebody else sold versus what we sold. But the anecdote in the market is there are some national accounts, you know, multifamily channels, facilities maintenance channel that consume Fortune A and, you know, and I think that provided that short-term opportunity. Those aren't channels that we necessarily are going to take product away from our other good higher margin customers and serve that market. And instead, we're going to try to serve the good customers that will be there, you know, longer term. So that's just an anecdote, Jeff. I don't, you know, the – but we – that's volume where those customers – and a more conventional environment, you know, 60 days from now when 410A is gone, our customers that as opposed to maybe being more opportunistic over the last quarter or so.

34:01 Yeah, I think that's perfectly framed. I mean, you can't see it even within our business, some of our business units who did have a higher position of 410A products. They did have bumps this quarter. and Matt in total at Wattsville that was not our tact, as you said, but I think that was a Q1 dynamic and as A2L becomes the prevalent or the more prominent product set, it's going to level out that playing field and, yes, we will be merchants and, again, I think looking at Q1s, our core performance and our core AOR business, it shows that we're healthy and strong and poised for a good year.

34:44 Okay, Barry, we thought you were all-knowing over 25 years I've known you, but I understand you can't see everything. I appreciate the time, guys. Thank you. Again, if you have a question, please press star, then 1. The next question is from the line of Chris Snyder with Morgan Stanley. Please go ahead. Thank you.

35:12 I want to pick Hey, good morning. I appreciate the question. I want to follow up on some of the prior commentary, and it seems like you guys didn't lean into 410A as hard as others, and maybe there was some softness in Q1 as a result. I guess my question is, do you have any sense of how much 410A your distributor competitors still have into Q2? Because it seems like maybe that share shift back to you or 454B will happen really ultimately when the 410A is just totally done being sold. I really have no idea.

35:52 Yeah. Go ahead, Rick. I was going to say that that's awfully hard to have a line of sight into our best, and it's purely anecdotal, but, you know, obviously we talk to a lot of other distributors in our quest for more acquisitions, and And as we do that, this is obviously a recurring topic and something that is on everyone's mind. I don't get the sense in talking to those independent distributors that they have, you know, that they're planning on or that they have enough 410A inventory to get very much past the second quarter. And nor could the OEMs supply a whole lot of that to close out the year. So I think by the end of 2Q, 410A will largely be in the rearview mirror.

36:42 Thank you. I appreciate that. And then, you know, I think you guys said maybe 20% or 25% of your volumes in the quarter were 454, if I heard that right. So I imagine, you know, we're still – like the field is still not installing a ton of 454B. You know, maybe in April that's changing. But I guess do you have any sense of, you know, the rate at which 454B is being installed and, You know, just trying to figure out, like, have we tested the demand or even maybe the price elasticity on 454? Because it still seems pretty early in the process.

37:18 Thank you. Yeah, I was going to say, I don't feel like it's that early. I feel like it's going on materially and importantly, and we do have a view into what's going on. I mean, 25% of the first quarter is, what, probably $250 million of product demand. I don't think that's a small number. That's larger than most distributors for a full year. And so there is some insight into it. If I look at the last two weeks, it's probably over 60% of what we're selling is 454B products. So the ramp is happening pretty quickly. So when we talk about current trend and current margin visibility, you know, we're satisfied the new product is being accepted well.

38:06 Appreciate that. Thank you. Thank you. The next question comes from Steve Tusa from JPMorgan. Please go ahead.

38:20 Hey, guys. Good morning. Hey. Sorry, just to follow up to Pat's questions. Just philosophically as a distributor and when you're looking at like these situations, What is the difference between a surcharge and a price increase? What is there to read into from OEMs that are picking surcharges versus price increases just broadly? What do you take away from that from an industry perspective?

38:56 I think a surcharge is temporary because of some exterior conditions. and a price increase is longer term. A surcharge doesn't affect your inventory. A price increase does. To my knowledge, there's only been one OEM that's issued a surcharge.

39:16 I would say, look, this is a new and dynamic environment we're in with these extreme tariffs or potential tariffs. So everybody's working their models and and figuring out the best approach. And this is where we've referenced our great relationship to the OEMs and the collaboration. There's a lot of conversation about how to do this without creating much friction or as little friction as possible and make this as harmonious as possible. And that's one of the dimensions that was discussed thoroughly. And there's pros and cons of doing a surcharge versus a price increase. And like Paul said, I think one OEM went with surcharge. but I don't think there's too much to read into that other than just trying to do the best we can or anybody can to keep harmony in the market.

40:09 Are you guys doing any surcharges or are you mostly like price increases? Obviously, you guys can be pretty agile with the tech you have, but is mostly of what you do surcharges or price increases or a mix?

40:26 It's mostly price increases. Yeah. Yeah. Yeah. Okay.

40:32 And Steve, to remind you of the texture of this, because it's just important to know the two-sided equation we deal with, AJ said earlier, if we have 1,000 customers in South Florida, we may sell the same product at 1,000 different prices. We also buy the product, purchase the product, the same product at different prices, depending on the market segment we're addressing. And so an OEM's price to us varies depending on those variables. So in that double-sided equation, there's a lot of, I think, artistic and good ways to use technology to deal with these kind of environments where, again, I'm not sure competitors have it.

41:16 Hey, one last one, Paul. Just from an industry perspective, how much of the unitary product do you think is – sourced directly from China, where you have a Chinese manufacturer who may be shipping it over here and the U.S. guy is sticking a label on it. I guess it's not huge, but it's been growing in the last couple of years. How much do you think there is of the industry?

41:47 I think in the industry it's less than 5% on the ducted side, and then on the duct-free side, obviously, it's higher. I don't know if we make a single unit in the U.S. There's a few units made in Mexico, but the ductless side would be heavier. The ducted side would be very small. There's maybe one manufacturer left, I think, that's using a product that's made in China.

42:16 Right, and one last one. I know we've got like 15 minutes left for the hour, so I might as well get one more in. I heard kind of the tail end of Pat's question on 454B. Why is Honeywell putting this huge price increase out there if there's such abundance and it's a container issue? Trying to figure that one out.

42:40 I would, too. I'd like to figure out why there's not more of a shortage on 32 because it's the same container. But, you know, no clue. But, you know, at the same time, there's only two manufacturers that make 454, you know, and that's Honeywell and Chemours. And Chemours had a price increase, a fairly sizable price increase. The primary reason why they had that price increase is because majority, 80-plus percent of the 32 that's brought into the U.S. is from China. There's been a lot of inventory of 32 in the U.S., but I think those two manufacturers – with 70% of 454 represented by 32, felt like they had to have a price increase.

43:26 So both of them went up. It wasn't just Honeywell. On the other side, we're starting to see allocations forming around 32. Yesterday, we saw a material price increase on the 32 that we buy. The price spread between the two products now is narrowed to just – Little over $3 a pound. So it's not as big of a difference for Delta as it was when they were introduced. Okay. That's great, caller. Thank you very much. Thank you. This concludes our question and answer session. I would like to turn the conference back over to the management for any closing remarks.

44:12 Well, thanks for your interest in our company, and we look forward to catching you up at the end of next quarter. Bye-bye now. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.