Watsco, inc (WSO) Q3 2021 Earnings Call Transcript

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Watsco, inc (WSO -1.25%)
Q3 2021 Earnings Call
Oct 20, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Watsco Third Quarter 2021 Earnings Conference Call. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Albert Nahmad, CEO. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Good morning, everyone. Welcome to our third quarter earnings call. First, I hope everyone is safe and healthy given the virus is going on. But this is Al Nahmad, Chairman and CEO, and with me is AJ Nahmad, President; our two Executive Vice Presidents, Paul Johnston and Barry Logan; and Rick Gomez, Vice President.

Before we start our normal cautionary statement, this conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the Safe Harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. Now, I'm pleased to share that Watsco delivered another record quarter. New records were achieved in virtually every performance metric. Earnings per share jumped 31% to a record $3.62 per share on a 32% increase in net income.

Sales grew 16% or nearly $250 million during the quarter to a record $1,780 million. Gross profit increased 29% with gross margins expanding 280 basis points. Operating income increased $50 million or 32% to a record $207 million. Operating margins expanded 100 basis points to a record 11.6%, and cash flow for the quarter was a record $238 million. Today's results are all the more positive when considered against last year's record results and in light of the industry wide supply challenges that are still going on.

Our teams throughout all of Watsco are doing an extraordinary job taking care of customers and that has made a big difference. I want to say thanks to all of you. We also ended the quarter with a strong balance sheet with virtually no debt and cash for $137 million. This financial strength provides us the flexibility to invest in most any size opportunity. Our press release summarizes important fundamentals that are critical to understand as we continue to invest and build further scale and what is a very fragmented $50 billion North American market. An important fundamental is Watsco geographic coverage and our large number of locations across many markets. The diversity and markets we serve reduces volatility and provides stability during a difficult operating environment such as the one we are witnessing.

Also our large and growing customer base is increasingly equipped with our state-of-the-art technology that helps our customers grow their business and purchase more from us. Another advantage now and in the future is our offerings of the broadest variety of products and brands in the industry, the depth and diversity of our product offerings to continue to serve us well. We're optimistic about current market conditions, let me say that again optimistic about current market conditions and recent trends and market demand remain strong and we see signs of improvement in our OEM's ability to help us to fulfill that demand.

Looking ahead, the industry will experience more change in the years to come as minimum SEER standards rise, that's normally will -- done by the federal government by the way and refrigerant changes that take shape in the coming years. And with changes come opportunities. We believe that our long-term focus are scale, speed to market, relationship with OEMs, technology offerings position us better than anyone to capitalize on these upcoming changes. We are living in unusual times but could not be more positive and excited about the future of the industry and our role in it.

Now let's go on to our Q&A.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Nigel Coe with Wolfe Research. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Good morning, Nigel.

Operator

Mr. Coe, your line is open on our end.

Albert H. Nahmad -- Chief Executive Officer

I don't like you. Well...

Operator

Okay, moving on, our next -- our first question is coming from Tommy Moll with Stephens. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Good morning, Tommy.

Tommy Moll -- Stephens -- Analyst

Good morning, and thanks for taking my questions.

Albert H. Nahmad -- Chief Executive Officer

Sure.

Tommy Moll -- Stephens -- Analyst

You referenced increasing engagement with some of your OEM partners and an increased ability to help you meet the robust underlying demand. At this point in the year, I wonder if you've started to talk to some of the initiatives for 2022 planning.

Albert H. Nahmad -- Chief Executive Officer

Yeah.

Tommy Moll -- Stephens -- Analyst

And if so what if any insight can you give us on those relationships?

Albert H. Nahmad -- Chief Executive Officer

That's a good -- that's a -- I like that question because all of us in the industry are fighting just to get enough product to continue to meet the demand, but 2022, but that's done for that, I think is Paul Johnston.

Paul Johnston -- Watsco, Inc.

Yeah, first of all, I'd like to say that we're not increasing our conversation with the OEMs we're under, we've been continually communicating with our OEMs and them with us. So the relationship there all during the pandemic and even before the pandemic, we are working with them on product planning and delivery planning and all that. Right now what we're looking at in 2022 is we're trying to straighten the inventories out a bit. What we ended up with was some of our inventories ended up to be a little bit lopsided on indoor versus outdoor type units. So we're working with them trying to balance that out, so we can sell complete systems.

We've been working with them on what the transition plans obviously are going to be, given that next year is a big year when we're going to be transitioning in 2023 to the -- or 2022 and 2023 to the new SEER levels. So it's been a, yeah, it's a full agenda that we have with our OEM partners as far as communicating and planning with most of them as you recognize, we're one of their largest customers, if not their largest customer, and so we're important to each other.

Tommy Moll -- Stephens -- Analyst

Well said.

Albert H. Nahmad -- Chief Executive Officer

Yeah.

Tommy Moll -- Stephens -- Analyst

Thank you, both. If I could, I wanted to pivot to the customer side of the business for you, how receptive have they been of late to price increases? And I asked that because clearly there is input inflation on the OEM side, presumably in this environment, your customers are going to be pretty receptive to your passing that through. It would occur to me that if you've got product available, there is less concern around pricing, which is going to be pretty well passed through to the end user anyway, but any context you can give us on that dynamic?

Albert H. Nahmad -- Chief Executive Officer

Well, I think your thought process is a good one, but let's see if Paul can fill in the hole there.

Paul Johnston -- Watsco, Inc.

Yeah, it's, we always talk about the equipment, yes, those are the most recognized price increases that we have. And the dealer contractors have been accepting of them, especially those who are in the replacement business perhaps a little more resistance from people who are on the new construction side. But we've also -- they are also experiencing upticks in commodity pricing with copper going up above $4.70 here recently a pound [Phonetic]. We're seeing flex stock go up double-digit pretty much every three to six months. So a lot of the other products that go into actually installing a unit are going up at the same time. So I think we're all a little bit numb to it, including our contractors and accepting it and trying to pass it on as best we can given the timing of how many price increases we've had here in the last 12 to 18 months.

Albert H. Nahmad -- Chief Executive Officer

But it doesn't seem to be slowing demand, our demand is strong.

Paul Johnston -- Watsco, Inc.

Yeah.

Tommy Moll -- Stephens -- Analyst

Appreciate the context. I'll turn it back.

Operator

The next question is from Steve Volkmann with Jefferies. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Good morning, Steve.

Stephen Volkmann -- Jefferies -- Analyst

Good morning, guys. Just following up on that last one, Al, are you guys seeing any change in your mix relative to the type of equipment customers are willing to pay for at this point?

Albert H. Nahmad -- Chief Executive Officer

Well, that's a very enlightening question because there is a chip shortage, so we see high efficiency demand there but we're unable to fulfill it given the supply of that product. Paul, do you want to fill in?

Paul Johnston -- Watsco, Inc.

Yeah, it's -- that's very true. It's -- it takes more hours for an OEM to make a high efficiency to make an 18 SEER or 20 SEER product. And so the focus has been pretty much on the 16 SEER, 15 SEER, 14 SEER, 13 SEER product. So a little bit of a shift there where we're seeing a bump in 16 SEER sales and obviously 14 SEER, 13 SEER sales and a small decline in 18 SEER, 20 SEER. Having said that 18 SEER, 20 SEER has never been a major portion of the market and obviously it's something we would like to have as a major portion of the market, and hopefully with the new energy standards we'll be able to expand the very high efficiency products as a greater percentage of our sales.

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

Yeah, I just add a thought to that just so it's clear on the data, what the data says the high efficiency mix increased again this quarter, it's almost 11 straight years of quarters where it increased, but that ultra high efficiency is where the missing link is and didn't -- did not contribute, but overall high efficiency grew at a faster rate than base efficiency.

Albert H. Nahmad -- Chief Executive Officer

So it almost sounds like as or if maybe I should say if the supply chain issues ultimately normalize and we have these kind of SEER changes happening in '23, we may actually see a better mix shift going forward.

Stephen Volkmann -- Jefferies -- Analyst

I would agree to that, absolutely.

Paul Johnston -- Watsco, Inc.

We will -- yeah.

Stephen Volkmann -- Jefferies -- Analyst

Yeah, great.

Paul Johnston -- Watsco, Inc.

Yeah, but we're definitely going to see a better mix change because of the efficiency going up to 14 SEER in the North and 15 SEER in the South. So that's been...

Stephen Volkmann -- Jefferies -- Analyst

Which is mandated by the federal government, yeah.

Paul Johnston -- Watsco, Inc.

Yeah. So we're going to see that regardless, our focus is we really want to make sure that, that ultra high efficiency that Barry refers to grows at a faster rate and becomes a more material piece of the market.

Stephen Volkmann -- Jefferies -- Analyst

Understood, OK, thanks. And then a quick follow-up, I think you mentioned in your prepared release that SG&A spending was a little bit elevated and you expected that to normalize as we go forward, obviously, gross margin was also very good, do you also expect gross margin to normalize going forward or do you think you can kind of hold the rate that we have?

Albert H. Nahmad -- Chief Executive Officer

Well, that's a very perceptive question looking into the future.

Stephen Volkmann -- Jefferies -- Analyst

And hopefully that's my job.

Albert H. Nahmad -- Chief Executive Officer

Who wants to take on Barry or Paul?

Paul Johnston -- Watsco, Inc.

Barry, that sounds like your question.

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

Right, here we go. So let's go to SG&A first because that's easier to think about. Obviously everything we've said -- and I just want to say this also, so it's on the table for the rest of the call. Sales volume in the second quarter was up 29% on a same-store basis, I think something like that. So this has been an extraordinary summer if you look at things as a combined last six months, so let's not just talk in quarters, let's look at our seasonal realities of what we've dealt with extraordinary demand, SG&A that needed to deal with a lot of stuff going on in terms of supply chain to make it work, a lot of austerity that came off last year's comparison that is now in this year's numbers, and just again as I said, drinking through a fire hose over the last six months.

So SG&A, we wanted to highlight some things very specific to SG&A that are big buckets. And the word normalize usually means goes down or declines. Let's put it this way, there is a lot of variable costs that increased, those costs remain variable and we'll adjust themselves to whatever the sales volume is over the next 12 months. As Al suggested in the remarks, we're not necessarily seeing a slack in demand as we get out of season right now, in fact, we're seeing increased demand as we're getting out of season from, let's say, recent days. And so SG&A will normalize, but again, time will tell and the variable costs should adjust over time.

Gross profit is a more interesting question. Obviously, I've said this for a career and we've said this in our comments over many years, inflation is something that we pass through and pass on. It adds to a gross profit equation and makes more money for us, there's no question of that. We're also doing immense work with technology to improve pricing and margin. And to optimize pricing that doesn't necessarily mean just getting higher margins, that means improving our pricing profile across customers, competitors, products and so on.

There is a benefit this year and that equation which is only just the beginning of our pricing discussion. And I think mix also obviously has a benefit, and you heard Paul's comments really about mix maybe looking forward. But that's a big crystal ball to look into to be honest, and -- but some of the undercurrent of inflation and mix and technology and incentives and the way we pay salespeople and commission, our salesforce, all those things are pulling in that direction still, and next year I'll tell you more when we know more, but that's what I would tell you today.

Stephen Volkmann -- Jefferies -- Analyst

All right, fair enough. Thank you, guys.

Operator

The next question is from Jeff Hammond with KeyBanc Capital Markets. Please go ahead.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Hey, good morning, guys.

Albert H. Nahmad -- Chief Executive Officer

Hey, good morning.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Hey, so just to follow on, on the gross margin, it looks like if I do the math right, the gross margins on the acquisitions are higher than your blended average and the SG&A seems higher on a blended basis. Is there anything, I know like TEC, I think is the biggest acquisition contributor, but maybe just speak to those dynamics, those impacts?

Albert H. Nahmad -- Chief Executive Officer

Well, I got to say Barry will answer that, but this is a $6 billion year business and what you're talking about are small relative to the overall in revenue. I can't imagine that that's driving the overall numbers that you perceive, but Barry, go ahead.

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

Yeah, Jeff, I mean, and again it's very isolated to what we've acquired lately, and yes, the margin and yes, the cost of doing business is higher, that's unique and eccentric to TEC, and that's part of their legacy and profile of how they go to market. So they've had an exceptional last six months as part of Watsco, they've had an exceptional year coming into this year and very proud and happy that they're part of Watsco.

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Okay, great. Thanks for all the color on the '21 performance, that was really helpful. Just sticking to the price dynamic, I think you called out 6% increase in average selling price for the year-to-date. I'm just wondering if that number overall is higher within the context of 3Q and then if there is any noticeable difference in that 6% between equipment versus the non-equipment? Thanks.

Paul Johnston -- Watsco, Inc.

Yeah, I'll take the first half and Barry, do you want to take the second half, but is there a difference between equipment and non-equipment, yes. Anything it's commodity-based has a -- has an external profile where the pricing fluctuates on a daily, weekly basis. And as I mentioned earlier, things like copper, refrigerant, steel have definitely been on the incline and have gone up faster than -- for the last 18 months have gone up faster than equipment. Equipment has a more slower cadence to it because there has to be an announced period of time before we have a recognized price increase, so normally we get anywhere from 60-day to 90-day lead time on the announcement before it's implemented, so it gives us an opportunity to adjust ourselves. So timing is not unique to the third quarter or to 2021 so far.

Operator

The next question is from David Manthey with Baird. Please go ahead.

Paul Johnston -- Watsco, Inc.

Hi, David, good morning.

Dave Manthey -- Robert W. Baird & Co. -- Analyst

Thank you. Good morning. Good morning, everyone. So just definitionally when you're talking about the 6% year-to-date price increase on residential HVAC, is that the typical price mix definition that you've given us historically?

Paul Johnston -- Watsco, Inc.

Yeah, yes it is, yeah, yes, it is, David.

Dave Manthey -- Robert W. Baird & Co. -- Analyst

Okay, thank you. And then as far as the increased investment that you outlined, and thanks for doing that, adding that clarity. Is some of that incumbent on the gross margin being elevated here? And Barry, you noted that some of the variable expenses will obviously naturally flex down if things moderate a bit next year, but if gross margin moderates and sales moderate, is this a fluid plan, do you plan on modifying that investment plan if things moderate a bit next year?

Albert H. Nahmad -- Chief Executive Officer

Barry, that question was to you.

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

Yeah, the answer is, of course, you know, I mean this is 675 -- 673 location managers managing P&Ls. It's 30, 35 superpower Presidents running markets. It's a data platform suggesting and telling and reminding and monitoring margins and cost and profitability every single minute a day. It's incentive systems that geared toward EBIT growth and cash flow production. So yeah, I mean, culturally the intent and the obvious culture is profitability growth, responsible ways is what the mission is. So it may be different in Texas than in the Massachusetts next year. It may be different in California than it is in Chicago.

So this decentralization and data flow that goes on in markets is how we operate. And when I say, of course, it's because all those dynamics get measured and carried out in different ways in different markets. So clearly all these -- all these moving pieces that are going on are different everywhere. And so, but culturally every Friday morning, we spend a few hours together, go through it all together and act and react accordingly. So the answer is of course, there'll be actions and reactions going on as things change.

Dave Manthey -- Robert W. Baird & Co. -- Analyst

Yeah, got it. Okay, just -- and just quickly as it relates to technology investments or other sort of corporate level decisions, I know there's not that many of those, but what about those? And those are obviously not controlled by the markets individually, are those subject to or those set in stone at this point?

Albert H. Nahmad -- Chief Executive Officer

Yeah, I -- yeah, let me deal with that. I agree that that's not controlled the way you stated, but let's have AJ respond to that.

Aaron (A.J.) Nahmad -- President

Yeah, well, as you saw in our release, our investments in technology continue to grow and that's because we are maturing things that are already in flight and we're taking on new projects and programs all with the intent of continually improving and modernizing everything we do, all focused around helping our customers do business with us and helping them grow their businesses. So as we see more and more opportunity, we're going to continue invest.

Dave Manthey -- Robert W. Baird & Co. -- Analyst

Okay.

Albert H. Nahmad -- Chief Executive Officer

In other words, we are dedicated to the long-term and AJ said it, but we don't see any reason not to continue to invest regardless of what's going on and fluctuations from season to season.

Dave Manthey -- Robert W. Baird & Co. -- Analyst

Yeah, got it. Thanks very much guys.

Operator

The next question is from Jeff Sprague with Vertical Research. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Good morning, Jeff.

Jeffrey Sprague -- Vertical Research -- Analyst

Thank you. Good morning, good morning, gentlemen. Thanks for the questions. I was wondering if you could give us your early thoughts on behavior around the potential for pre-buy next year. And I asked the question kind of in the spirit that folks are programmed for prices to move up, and so is there actually much logic or much to be gained from distributors wanting to pre-buy into that efficiency change?

Albert H. Nahmad -- Chief Executive Officer

Well, right now, the reality is that pre-buy doesn't help anything, we can't get what we want now and we don't seem to be -- we don't see an end of that yet. So we don't even face those pre-buy decisions. What we need now is enough product to meet the demand and we seem to be having at record levels into the -- going into the fourth quarter. Will be adjust on pre-buys, of course, we would. We have a lot of data that -- and a lot of software that tells us how to manage our investment in inventory. Right now, it's a scramble.

Jeffrey Sprague -- Vertical Research -- Analyst

But you would be interested in pre-buying along maybe historical patterns if the product was available to do so?

Paul Johnston -- Watsco, Inc.

No, I don't think that would be the case. We just want what we have on order. We want to bring it in exactly, Al, spot on. I don't see a pre-buy. We don't see a pre-buy coming at us. We want to make sure we get the inventory that we need to meet current demands as well as early part demand. I don't think anybody is looking at carrying a huge amount of inventory into 2022 because there is going to be different government regulations, which are going to have different requirements for where and how you can sell it. So I don't think it's going to be an issue this year.

Jeffrey Sprague -- Vertical Research -- Analyst

Yeah, I was -- yeah, I was sort of meaning pre-buying in '22, not right now, but it sounds like the answer is probably the same regardless.

Paul Johnston -- Watsco, Inc.

Yeah.

Jeffrey Sprague -- Vertical Research -- Analyst

Yeah. And sort of related to that, what percent of your sales now is above the minimum efficiency standards across the platform?

Albert H. Nahmad -- Chief Executive Officer

Well, they all have to be at or above...

Paul Johnston -- Watsco, Inc.

100% [Phonetic] is minimum.

Jeffrey Sprague -- Vertical Research -- Analyst

Yeah, I'm saying, so you got -- you got 80% or 90%, I would think at, right, I guess the question is what's the percent above?

Albert H. Nahmad -- Chief Executive Officer

Above the minimum, that's a good question. Do we have that data available?

Paul Johnston -- Watsco, Inc.

Yeah, it's quite a bit higher than you think. It's higher than 50% is actually above the minimum.

Jeffrey Sprague -- Vertical Research -- Analyst

Interesting, that is higher than I would have guessed. All right, thanks for the color. Appreciate it.

Paul Johnston -- Watsco, Inc.

Well, you've got a lot of other rules that apply to it such as EPA, our new home construction in order to get your sticker from the EPA, you have to have a higher efficiency product. And there is an awful lot of the 14 SEER product that actually goes is 15 SEER.

Jeffrey Sprague -- Vertical Research -- Analyst

I see, interesting. Okay, thank you. Appreciate it.

Albert H. Nahmad -- Chief Executive Officer

Sure.

Operator

The next question is from Chris Dankert with Loop Capital. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Good morning, Chris.

Christopher Dankert -- Longbow Research -- Analyst

Hey, good morning, Al, good morning, everyone. I guess maybe this one is a little more targeted to AJ, you did highlight some new projects, I guess anything specifically you're ready to discuss over at the Skunk Works Watsco yet or we just have -- is there anything new to talk about, Barry, you got about a week?

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

Yeah, exactly. You know that these are all long-term things, as you know we're a long-term company. So I wouldn't -- we don't need to highlight things, they're just in early stage development. I will tell you some of the earlier things that are getting a little bit more mature which we -- I don't know if we could in this quarter's release, but our OnCallAir, which is our tool to help our contractors sell to their customers, and CreditForComfort, which is a companion tool to help them seller financing. They're both continuing to grow and very exciting. And customers that are using those tools and really our technology in general continue to be better customers for us, meaning they are stickier, their attrition rates are much lower and their growth rates with us are much higher. So all the data shows that these technology investments are paying off and having a nice return.

Christopher Dankert -- Longbow Research -- Analyst

Got it. I mean, and you've given us some of the numbers in the past. I guess, are you guys want to comment on kind of what e-commerce growth was in the third quarter here?

Albert H. Nahmad -- Chief Executive Officer

Yeah, we can give you that, sure. Who's got that number, Barry or Rick, anybody?

Rick Gomez -- Vice President Corporate Development

15%, 16% was the growth in e-commerce for the quarter.

Albert H. Nahmad -- Chief Executive Officer

Down, Rick, I was trying to get you in, but Barry, continue.

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

I'm sorry.

Christopher Dankert -- Longbow Research -- Analyst

Good deal. Well, thanks so much guys. Appreciate it.

Operator

The next question is from Ryan Merkel with William Blair. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Good morning, Ryan.

Ryan Merkel -- William Blair -- Analyst

Hey, good morning, everyone. So I think -- I think it was Al, maybe you mentioned that supply chain is going to get better in the fourth quarter, is that all of your equipment OEs or certain OEMs doing better than others?

Albert H. Nahmad -- Chief Executive Officer

Let me say that it's not gotten better just yet. It's -- and when I say that I'm talking about all of them, we're hoping it will get better in the fourth quarter. But as I said earlier, the demand is so high now that it's not easy for them to catch up and it's all of them, and there is not one that's better than the other, I mean, there -- as you know, we're probably the biggest customer for all of them that we represent their brands. No, I would still say it's still catch up. I don't see any solutions to supply chain yet, so we're optimistic.

Ryan Merkel -- William Blair -- Analyst

Okay. And I don't know if you mentioned this, but did you leave revenue on the table you think this quarter because you just didn't have, OK, probably hard to quantify, but the material or?

Albert H. Nahmad -- Chief Executive Officer

Oh, yeah, yeah.

Ryan Merkel -- William Blair -- Analyst

Okay.

Albert H. Nahmad -- Chief Executive Officer

I don't know. Did we take a shot at that, Paul, I don't remember.

Paul Johnston -- Watsco, Inc.

Yeah.

Albert H. Nahmad -- Chief Executive Officer

Let's not speculate, I rather not speculate.

Paul Johnston -- Watsco, Inc.

Yeah, it's just pure speculation. If you listen to the salesman, it's a lot higher than it is when you listen to the data, it's a vague.

Albert H. Nahmad -- Chief Executive Officer

Yeah.

Paul Johnston -- Watsco, Inc.

Ryan...

Albert H. Nahmad -- Chief Executive Officer

I mean, the OEMs are running flat out and they're doing the best they can, and I'm talking about all of them that we buy from, and I think we have beside the three major equipment OEMs, we have numerous other OEMs and they're doing the best they can. Have they caught up, not even close. Will we see some improvement as the quarter proceeds, I think so.

Ryan Merkel -- William Blair -- Analyst

Okay, that's helpful. And then I'm noticing there is more private equity interest in HVAC distribution lately. And I'm just curious, are you seeing multiples rise in space and or is there more competition for deals?

Albert H. Nahmad -- Chief Executive Officer

Well that question answers itself. Sure, with private equity gets involved, there is more competition. Is it affecting how we think about our strategy, we won't. We will not chase pricing because we're in for the long-term, I don't know how long they're going to be in terms of valuations for businesses. So, but there are a large number of distributors. What's our latest count, Barry, more or less?

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

In terms of acquisitions, 65.

Albert H. Nahmad -- Chief Executive Officer

No, no, no. What available distributor -- independent distributors, how many are they?

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

1,300, yeah, 1,300.

Albert H. Nahmad -- Chief Executive Officer

1,300. So there is room for lots of stuff for us.

Ryan Merkel -- William Blair -- Analyst

Okay, helpful. Thanks guys.

Operator

The next question is from Steve Tusa with JPMorgan. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Hello, Steve.

Stephen Tusa -- JPMorgan -- Analyst

Good morning, guys.

Albert H. Nahmad -- Chief Executive Officer

How's your dad doing?

Stephen Tusa -- JPMorgan -- Analyst

How is my dad doing?

Albert H. Nahmad -- Chief Executive Officer

Yeah, he is a Watsco shareholder, you tell me.

Stephen Tusa -- JPMorgan -- Analyst

Yeah, that's since like 2004. So I guess he is doing fine.

Albert H. Nahmad -- Chief Executive Officer

Yeah.

Stephen Tusa -- JPMorgan -- Analyst

So on price, you guys booked 12% ASP in the second quarter, 2% in the first quarter, I think you're saying it's up 6% year-to-date. Can you just give us what the, I mean given the seasonality, I guess we could kind of do the math, but what was the third quarter ASP for U.S. resi year-over-year?

Paul Johnston -- Watsco, Inc.

Very consistent, Steve, with the overall 6%.

Stephen Tusa -- JPMorgan -- Analyst

So why did that decel, am I missing something on kind of like the comps, most guys are thinking things continue to accelerate with all these price increases coming through, any particular reason why that decelerated quarter-to-quarter?

Paul Johnston -- Watsco, Inc.

I'm not sure in season things changed very much in terms of price during the course of the season. There were some late quarter price increases that flow in, I think September, that will flow into the fourth quarter, but in season, Steve, there is not much variation. And I'm -- with the kind of volatility that went on, I'm not going to surmise much over the last 90 days just given what was going on.

Albert H. Nahmad -- Chief Executive Officer

But I will know that we sense that there will be more price increases in the near future.

Paul Johnston -- Watsco, Inc.

We know.

Stephen Tusa -- JPMorgan -- Analyst

Right. So that would suggest that your U.S. resi volume was down a little bit in the quarter, right?

Paul Johnston -- Watsco, Inc.

That was up slightly.

Albert H. Nahmad -- Chief Executive Officer

Did you mean it, unit, but no, yeah.

Stephen Tusa -- JPMorgan -- Analyst

Yeah, unit, unit volume.

Albert H. Nahmad -- Chief Executive Officer

It was not that, no, it was up slightly, yeah.

Stephen Tusa -- JPMorgan -- Analyst

Okay.

Paul Johnston -- Watsco, Inc.

Yeah, most of our major resi suppliers, the price increase that they had in the third quarter was September.

Stephen Tusa -- JPMorgan -- Analyst

Got it.

Paul Johnston -- Watsco, Inc.

So we didn't get impacted.

Stephen Tusa -- JPMorgan -- Analyst

Are -- do you think you guys took market share in the quarter, like is the industry, I mean if you guys took market share, I mean the industry was down in the quarter, right?

Paul Johnston -- Watsco, Inc.

You really don't know for the quarter until all the data comes out. I think we said this on the last call, the shipment, the shipment data versus movement data has been so out of sorts here for about the last 12 months, I think it's throwing all of our models to off. What I'd like to say we gained market share well, August shipments as you know were down, what 2.2%, July was down what, 5.6%. So we weren't down, so we must have gained market share, but I don't -- I think that's a hollow statement.

Stephen Tusa -- JPMorgan -- Analyst

Yeah. And then so for these price increases that are coming through, should we expect price to accelerate here in the fourth quarter, I mean can you get to kind of a high -- back to that kind of high single double-digit level for the fourth quarter?

Paul Johnston -- Watsco, Inc.

No idea.

Stephen Tusa -- JPMorgan -- Analyst

Okay.

Paul Johnston -- Watsco, Inc.

No, we really can't predict that.

Stephen Tusa -- JPMorgan -- Analyst

Yeah, and then one last one...

Paul Johnston -- Watsco, Inc.

So we see what the actual demand is in the fourth quarter and we don't know what that's going to be.

Stephen Tusa -- JPMorgan -- Analyst

Got it. And then one last one just on inventories, they were flat quarter-to-quarter, hard to tell what would be kind of volume and what would be some sort of inflation there. Usually it's down a bit seasonally. Is there -- I'm trying to reconcile that with kind of the supply constraints that are out there, could you guys look like you're pretty good on inventory, how do you feel your own inventory situation is?

Albert H. Nahmad -- Chief Executive Officer

Barry gave you a clue on that in terms of having inventory particularly in equipment, where we only have part of the system, not all of the system, so we are carrying unusually high numbers of this item, but it doesn't, we don't have the matching part yet of the unit. Barry, you want to elaborate on that?

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

Yeah, just I'll do some math. The -- our version of inventory turns which we can calculate using monthly averages, it's hard for you all to do that, but the monthly average inventory turn as of September 30th was identical to the prior 12 months. So all the investment level, if you will, is the same. The mix of that investment is what we're talking about that needs to improve and so on. And Steve, there is not a great story there. There is some inflation, yes. There is some shortages, yes. There is a lot of product being moved around as we mentioned in the press release in terms of our logistics to handle customer needs, and all that balances out and should help the inventory position as we go into next year.

Stephen Tusa -- JPMorgan -- Analyst

Yeah, OK.

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

But they're still dependent on normalcy, which means normal lead times are normal, the normal feeling in terms of order flow and we're not there yet.

Stephen Tusa -- JPMorgan -- Analyst

Right, right, right, well, congrats on executing continually here in a pretty challenging environment. Thanks for the info.

Paul Johnston -- Watsco, Inc.

Thank you.

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

Thank you.

Operator

Please excuse any mispronunciation, the next question is from Josh Pokrzywinski from Morgan Stanley. Please go ahead.

Albert H. Nahmad -- Chief Executive Officer

Good morning.

Joshua Pokrzywinski -- Analyst

Well, at least I know who I am. Good morning, guys.

Albert H. Nahmad -- Chief Executive Officer

You should make and spell out without looking at the data.

Joshua Pokrzywinski -- Analyst

Well, it was good. I need to take myself off mute as soon as he started on the pronunciation comment. So, good morning, guys. Thanks for taking the question. I guess maybe first question on some of the availability stuff, I know we've kind of trodden this path a lot already, but even though it's not a critical market to Watsco, we are transitioning into furnaces and you guys do have some exposure there in a few region. Does that availability you look any different than the AC market? I mean obviously, the lines aren't the same, the components aren't fungible like any improvement just by virtue of turning on furnaces this year?

Paul Johnston -- Watsco, Inc.

Yeah, furnaces are an important part of Watsco, let's put it that way, especially with the acquisitions that we've made over the last several years. With Peirce-Phelps and TEC and N&S Supply and DASCO, etc. Furnaces right now, what we're seeing there is kind of an inversion a little bit to the air condition. We need more of the, what we call a standard furnace right now, and there seems to be some shortage on standard furnaces where we're getting some of the high-end furnaces.

Just got off a call with one of our groups on furnaces and a manufacturer and we're trying to supplement that and make sure we get them in. They may be a little bit later than normal, normally we're able to do a preseason with the contractors to pre-sell furnaces into the marketplace. And this year it looks like that may be a little bit of a delay for the preseason program.

Joshua Pokrzywinski -- Analyst

Got it. And then just on the refrigerant transition, I guess the phase out on R22, I think some of the other OEMs have described it as sort of de facto, a $1,000 office system because it's cost avoidance on having to recharge a system that had worked on or had a week. I guess maybe a couple questions off that, what is sort of the pricing on R22 today and how does that work in the homeowners to manage? And I feel like if we would have this conversation. I don't know seven, eight years ago recycling of refrigerant was something that was a little bit more of a topical moment in time, like isn't that helping at all? So just maybe speak to like how much of these upgrades or replacement is driven by the refrigerant piece and maybe some of the numbers behind that if you wouldn't mind?

Paul Johnston -- Watsco, Inc.

Well, the number of R22 units is decreasing obviously every year. And my best estimate is it's probably 20%, 25% of what it was when we did the transition. So there's fewer units out there that we have to service. But the other side of R22 is that they would drop in replacements from both DuPont as well as from Arkema or Chemours and Arkema that we're able to work around any sort of higher prices of shortages in R22. We continue to see R22 sales as just a raw gas on the residential side at least continue to move down.

Joshua Pokrzywinski -- Analyst

Okay. So the actual like homeowner economics haven't changed that much because of these dropping?

Paul Johnston -- Watsco, Inc.

No, that really hasn't. And if you think back to how many years it's been since these -- since we went with 410 across the board, a lot of those units are -- have become replacement vehicles. And as we move forward into, obviously into the phase down of the refrigerants that we currently are using the 410s and such, I think there'll be a slight acceleration on the remaining balance of those 22 units coming forward to be replaced and it's with gas.

Joshua Pokrzywinski -- Analyst

Great, helpful color.

Paul Johnston -- Watsco, Inc.

That's our hope.

Joshua Pokrzywinski -- Analyst

Got it. Thanks, Paul.

Operator

[Operator Instructions] The next question is from Nigel Coe with Wolfe Research. Please go ahead.

Paul Johnston -- Watsco, Inc.

Good morning, Nigel.

Albert H. Nahmad -- Chief Executive Officer

Good morning.

Nigel Coe -- Wolfe Research -- Analyst

Hi, Al, sorry about earlier, don't know what happened there, but...

Albert H. Nahmad -- Chief Executive Officer

Not a problem, not a problem at all.

Nigel Coe -- Wolfe Research -- Analyst

Of course, all my questions have been answered at this point, just see what's remaining. Just wanted to clarify the point on pricing, you mentioned you got 69 days notice from the OEM on price increases, does that allow you a chance to maybe get ahead of that and that was the mismatch between price you realized from your customers versus what you pay out?

Albert H. Nahmad -- Chief Executive Officer

Well, it's interesting.

Paul Johnston -- Watsco, Inc.

It's 60 to 90 days, it's not 69 days.

Albert H. Nahmad -- Chief Executive Officer

Yeah.

Nigel Coe -- Wolfe Research -- Analyst

Okay, 69 [Phonetic] days, yeah.

Albert H. Nahmad -- Chief Executive Officer

Yeah, answer the question though, Paul for more info.

Paul Johnston -- Watsco, Inc.

Yeah, and yes, of course, we can move ahead of that.

Nigel Coe -- Wolfe Research -- Analyst

Okay, OK, that's I just want to clear that up. And then on commercial refrigeration, I mean, is there any [Technical Issues], but it was up 27%. So I'd be curious what drove that strength?

Albert H. Nahmad -- Chief Executive Officer

All yours, Paul.

Paul Johnston -- Watsco, Inc.

Okay. Generally what drove that is a lot of it has to do with restaurants supply, ice machines, region coolers that type of thing was really driving that progress.

Nigel Coe -- Wolfe Research -- Analyst

Okay. And then...

Paul Johnston -- Watsco, Inc.

Rebound has opened.

Nigel Coe -- Wolfe Research -- Analyst

Okay. So, OK, that makes total sense. And then just a quick one, if I may, on the other HVAC products outgrew HVAC equipments. Was that because of the availability issues, was there a slight shift toward repair versus replace in the quarter because you just couldn't get product out?

Albert H. Nahmad -- Chief Executive Officer

Is anybody study that mix?

Paul Johnston -- Watsco, Inc.

No, I have not. Barry?

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

I can take a quick look, I mean, first there is about, I said this for a long time too, there's over 100 product lines and 600 vendors in that bucket, anything from duct tape to sunglasses to refrigerant to copper tubing and so on. So, and replacement parts is a component of that. Replacement parts does not account for the increase because it's a single-digit increase in parts during the quarter. So it's everything else and it's across again 100 different product lines. So the measure of inflation going on as Paul suggested in some of the, what I'll call the building materials in there which would be flex duct, copper tubing and other products. It's also been a mission of our business units to grow that part of our business, it is much higher margin, and that's part of the consequence of the higher margin across Watsco as well in the quarter. So not -- there's not one story there, Nigel, and the story is not repair versus replace.

Nigel Coe -- Wolfe Research -- Analyst

Okay. I didn't know you sell sunglasses, so that's something I've known today. So thanks for that.

Albert H. Nahmad -- Chief Executive Officer

Hey, they are very stylish, Nigel, you should look at it.

Nigel Coe -- Wolfe Research -- Analyst

I hopefully then have a look. Thanks a lot.

Albert H. Nahmad -- Chief Executive Officer

It's safety glasses, it's safety first, right.

Operator

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

Albert H. Nahmad -- Chief Executive Officer

Well, thanks again for your interest in our company. We hope that you'll join us for more of these calls and follow us as we progress scaling the company. Thanks again.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Albert H. Nahmad -- Chief Executive Officer

Paul Johnston -- Watsco, Inc.

Barry S. Logan -- Executive Vice President-Planning & Strategy and Secretary

Aaron (A.J.) Nahmad -- President

Rick Gomez -- Vice President Corporate Development

Joshua Pokrzywinski -- Analyst

Tommy Moll -- Stephens -- Analyst

Stephen Volkmann -- Jefferies -- Analyst

Jeffrey Hammond -- KeyBanc Capital Markets -- Analyst

Dave Manthey -- Robert W. Baird & Co. -- Analyst

Jeffrey Sprague -- Vertical Research -- Analyst

Christopher Dankert -- Longbow Research -- Analyst

Ryan Merkel -- William Blair -- Analyst

Stephen Tusa -- JPMorgan -- Analyst

Nigel Coe -- Wolfe Research -- Analyst

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