WATSCO INC

The following table summarizes information derived from our condensed consolidated unaudited statements of income, expressed as a percentage of revenues, for the quarters and six months ended June 30, 2025 and 2024:

Note: Due to rounding, percentages may not total 100.

The following narratives reflect our acquisitions of Southern Ice Equipment Distributors, Inc. (“SIE”) in May 2025, Hawkins HVAC Distributors, Inc. (“Hawkins”) in April 2025, W.L. Lashley & Associates, Inc. (“Lashley”) in January 2025, and Commercial Specialists, Inc. (“CSI”) in February 2024.

In the following narratives, computations and other information referring to “same-store basis” exclude the effects of locations closed, acquired, or locations opened, in each case during the immediately preceding 12 months, unless such locations are within close geographical proximity to existing locations. At June 30, 2025 and 2024, two and three locations, respectively, that we opened during the immediately preceding 12 months were near existing locations and were therefore included in “same-store basis” information.

The table below summarizes the changes in our locations for the 12 months ended June 30, 2025:

Second Quarter of 2025 Compared to Second Quarter of 2024

Revenues

The decrease in revenues for the second quarter of 2025 included $10.2 million attributable to new locations acquired and $7.5 million from other locations opened during the preceding 12 months, offset by $7.1 million from locations closed.

18 of 28

The following table presents our revenues for the second quarter of 2025, as a percentage of sales, by major product lines and the related percentage change in revenues from the prior period:

HVAC equipment sales reflect a 7% decrease in residential products, which is composed of unitary compressor-bearing systems, furnaces, and other indoor components (6% decrease in U.S. markets and a 20% decrease in international markets), and a 5% decrease in sales of commercial HVAC equipment (5% decrease in U.S. markets and a 4% decrease in international markets). The majority component of residential unitary compressor-bearing systems represents “ducted” systems produced by a variety of OEMs. Sales of ducted residential compressor-bearing systems decreased 8% during the second quarter of 2025, reflecting a 16% decrease in unit volume and an 8% increase in average selling price. Domestic sales of residential unitary compressor-bearing systems decreased 8%, reflecting a 17% decrease in units and a 9% increase in average selling price. The lower unit volumes primarily resulted from temperate weather conditions, lower home building activity, and A2L product transition-related impacts on new system installations.

Gross Profit

Gross profit margin improved 220 basis-points primarily due the timing and extent of OEM pricing actions as well as margin increases across several product categories attributable to further scaling of our pricing technologies in 2025 as compared to the same period in 2024.

Selling, General and Administrative Expenses

On a same-store basis, selling, general and administrative expenses increased 6% as compared to 2024, primarily due to increases in headcount, salaries, facilities, and transportation costs partially associated with the A2L product transition, as well as 10 new locations acquired in 2025.

Other Income

Other income of $7.4 million and $8.1 million for the second quarters of 2025 and 2024, respectively, represented our share of the net income of Russell Sigler, Inc. (“RSI”), in which we have a 38.4% equity interest.

Interest Income, Net

Interest income, net for the second quarter of 2025 decreased $2.6 million, or 53%, primarily due to lower cash and short-term cash investment balances on hand and lower interest earned on cash and cash equivalents for the 2025 period as compared to the same period in 2024.

Income taxes represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to our joint ventures with Carrier Global Corporation (“Carrier”), which are primarily taxed as partnerships for income tax purposes; therefore, Carrier is responsible for its proportionate share of income taxes attributable to its share of earnings from these joint ventures. The decrease in the effective income tax rate was primarily due to higher tax credits in 2025 as compared to the same period in 2024.

19 of 28

Net Income Attributable to Watsco, Inc.

Net income attributable to Watsco, Inc. for the quarter ended June 30, 2025 increased $2.2 million, or 1%, compared to the same period in 2024.

First Half of 2025 Compared to First Half of 2024

Revenues

The decrease in revenues for the first half of 2025 included $12.7 million attributable to new locations acquired and $13.4 million from other locations opened during the preceding 12 months, offset by $12.4 million from locations closed.

The following table presents our revenues for the six months ended June 30, 2025 as a percentage of sales, by major product lines and the related percentage change in revenues from the prior period:

HVAC equipment sales reflect a 3% decrease in residential products, which is composed of unitary compressor-bearing systems, furnaces, and other indoor components (3% decrease in U.S. markets and a 13% decrease in international markets), and an 8% decrease in sales of commercial HVAC equipment (7% decrease in U.S. markets and a 9% decrease in international markets). The majority component of residential unitary compressor-bearing systems represents “ducted” systems produced by a variety of OEMs. Sales of ducted residential compressor-bearing systems decreased 5% during the first half of 2025, reflecting a 12% decrease in unit volume and a 7% increase in average selling price. Domestic sales of residential unitary compressor-bearing systems decreased 4%, reflecting an 11% decrease in units and a 7% increase in average selling price.

Gross Profit

Gross profit margin improved 140 basis-points primarily due to the impact of pricing and sales mix for HVAC equipment in 2025 as compared to the same period in 2024.

Selling, General and Administrative Expenses

20 of 28

On a same-store basis, selling, general and administrative expenses increased 5% as compared to the same period in 2024, primarily due to increases in headcount, salaries, and facilities costs.

Other Income

Other income of $12.5 million and $13.5 million for the first half of 2025 and 2024, respectively, represents our share of the net income of RSI, in which we have a 38.4% equity interest.

Interest Income, Net

Interest income, net for the first half of 2025 increased $0.4 million, or 5%, primarily due to greater interest earned on cash and short-term investments for the 2025 period as compared to the same period in 2024.

Income taxes represent a composite of the income taxes attributable to our wholly owned operations and income taxes attributable to our joint ventures with Carrier, which are primarily taxed as partnerships for income tax purposes; therefore, Carrier is responsible for its proportionate share of income taxes attributable to its share of earnings from these joint ventures. The decrease in the effective income tax rate was primarily due to higher tax credits combined with lower earnings in 2025 as compared to the same period in 2024.

Net Income Attributable to Watsco, Inc.

Net income attributable to Watsco, Inc. for the first half of 2025 decreased $4.7 million, or 2%, compared to the same period in 2024.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to execute our business strategy and fund operating and investing activities, taking into consideration the seasonal demand for HVAC/R products, which peaks in the months of May through August. Significant factors that could affect our liquidity include the following:

Sources and Uses of Cash

We rely on cash flows from operations and borrowing capacity under our revolving credit agreement to fund seasonal working capital needs and for other general corporate purposes in the short-term and the long-term, including dividend payments (if and as declared by our Board of Directors), capital expenditures, business acquisitions, and development of our long-term operating and technology strategies. Additionally, we may also generate cash through the issuance and sale of our Common stock.

We believe that the combination of our operating cash flows, cash on hand, available borrowings under our revolving credit agreement, and funds available from sales of our Common stock under our 2024 ATM Program, each of which is described below, will be sufficient to meet our liquidity needs for the foreseeable future. However, there can be no assurance that our current sources of available funds will be sufficient to meet our cash requirements.

As of June 30, 2025, we had $293.0 million of cash and cash equivalents, of which $94.8 million was held by foreign subsidiaries. The repatriation of cash balances from our foreign subsidiaries could have adverse tax impacts or be subject to capital controls; however, these balances are generally available to fund the ordinary business operations of our foreign subsidiaries without legal restrictions.

21 of 28

Our access to funds under our revolving credit agreement depends on the ability of the syndicate banks to meet their respective funding commitments. Disruptions in the credit and capital markets could adversely affect our ability to draw on our revolving credit agreement and may also adversely affect the determination of interest rates, particularly rates based on the Secured Overnight Financing Rate (“SOFR”), which is one of the base rates under our revolving credit agreement. SOFR has limited historical data and is a secured lending rate. The use of SOFR as a base rate under our revolving credit agreement could give rise to uncertainties and volatility in the benchmark rates applicable to our borrowings under such agreement. Additionally, disruptions in the credit and capital markets could also result in increased borrowing costs or reduced borrowing capacity under our revolving credit agreement.

Working Capital

Working capital increased to $2,228.8 million at June 30, 2025 from $2,096.1 million at December 31, 2024 due to: (i) higher inventory balances driven by the seasonal ramp-up in inventories in connection with our selling season and the A2L product transition; (ii) higher accounts receivable; and (iii) lower cash and short-term cash investments consistent with the change in inventory.

Cash Flows

The following table summarizes our cash flow activity for the six months ended June 30, 2025 and 2024 (in millions):

The individual items contributing to cash flow changes for the periods presented are detailed in the condensed consolidated unaudited statements of cash flows contained in this Quarterly Report on Form 10-Q.

Operating Activities

Net cash used in operating activities was higher primarily due to higher inventory balances driven by the seasonal ramp-up in inventories and new products related to the A2L product transition, and the timing of vendor payments, partially offset by a lower increase in accounts receivable in 2025 as compared to 2024.

Investing Activities

Net cash provided by investing activities increased primarily due to proceeds from certificates of deposit that matured in 2025.

Financing Activities

Net cash used in financing activities increased primarily due to $281.8 million in net proceeds received in March 2024 from the sale of Common stock under our 2021 ATM Program (as defined below), as well as distributions to thenon-controlling interest in 2025.

Revolving Credit Agreement

We maintain an unsecured, five-year $600.0 million syndicated multicurrency revolving credit agreement, which may be used for, among other things, funding seasonal working capital needs and for other general corporate purposes, including acquisitions, dividends (if and as declared by our Board of Directors), capital expenditures, stock repurchases, and issuances of letters of credit. The revolving credit facility has a seasonal component from October 1 to March 31, during which the borrowing capacity may be reduced to $500.0 million at our discretion (which effectively reduces fees payable in respect of the unused portion of the commitment). Included in the revolving credit facility are a $125.0 million swingline loan sublimit, a $10.0 million letter of credit sublimit, a $75.0 million alternative currency borrowing sublimit, and an $10.0 million Mexican borrowing subfacility. The revolving credit agreement matures on March 16, 2028.

At June 30, 2025 and December 31, 2024, there was no outstanding balance under the revolving credit agreement. The revolving credit agreement contains customary affirmative and negative covenants, including financial covenants with respect to consolidated leverage and interest coverage ratios, and other customary restrictions. We believe we were in compliance with all covenants at June 30, 2025.

At-the-Market Offering Program

On August 6, 2021, we entered into a sales agreement with Robert W. Baird & Co. Inc. (“Baird”), which enabled the Company to issue and sell shares of Common stock in one or more negotiated transactions or transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), for a maximum aggregate offering amount of up to $300.0 million (the “2021 ATM Program”).

During the quarter ended March 31, 2024, we issued and sold 712,000 shares of Common stock under the 2021 ATM Program for net proceeds of $281.8 million. We used a portion of the proceeds to repay outstanding debt under our revolving credit agreement and purchased short-term cash investments with the remainder. In aggregate, we issued and sold $298.5 million of Common stock under the 2021 ATM Program.

22 of 28

On May 3, 2024, we entered into an amended and restated sales agreement with Baird (the “2024 ATM Program”), which enables the further issuance and sale of Common stock for a maximum aggregate offering amount of up to $400.0 million. At June 30, 2025, $400.0 million was available for sale under the 2024 ATM Program. The offer and sale of shares under the 2024 ATM Program had been registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form S-3 (File No. 333-282975).

Investment in Unconsolidated Entity

Carrier Enterprise I, one of our joint ventures with Carrier, in which we have an 80% controlling interest, has a 38.4% ownership interest in RSI, an HVAC distributor operating from 36 locations in the Western U.S. Our proportionate share of the net income of RSI is included in other income in our condensed consolidated unaudited statements of income.

Carrier Enterprise I is a party to a shareholders’ agreement with RSI and its shareholders (the “RSI Shareholders’ Agreement”), consisting of five Sigler second generation family siblings and their affiliates, who collectively own 55.4% of RSI (the “RSI Majority Holders”) and certain next-generation Sigler family members and an employee, who collectively own 6.2% of RSI (the “RSI Minority Holders” and, together with the RSI Majority Holders, the “RSI Shareholders”). Pursuant to the RSI Shareholders’ Agreement, the RSI Shareholders have the right to sell, and Carrier Enterprise I has the obligation to purchase, their respective shares of RSI for a purchase price determined based on the higher of book value or a multiple of EBIT, the latter of which Carrier Enterprise I used to calculate the price for its 38.4% investment held in RSI. The RSI Shareholders may transfer their respective shares of RSI common stock only to members of the Sigler family or to Carrier Enterprise I, and, at any time from and after the date on which Carrier Enterprise I owns 85% or more of RSI’s outstanding common stock, it has the right, but not the obligation, to purchase from the RSI Shareholders the remaining outstanding shares of RSI common stock. At June 30, 2025, using the criteria set forth in the RSI Shareholders’ Agreement, the valuation of the RSI Shareholders’ RSI common stock was approximately $460.0 million.

On July 28, 2023, Watsco, Carrier Enterprise I, and the RSI Majority Holders entered into an agreement that (1) provides Carrier Enterprise I the discretion, but not the obligation, to fund up to 80% of any purchase from the RSI Majority Holders of their RSI common stock, as required under the Shareholders’ Agreement, using Watsco Common stock (the “Offered Shares”), (2) provides that any Offered Shares actually issued would be valued based on the average volume-weighted average price of Watsco’s Common stock for the ten trading days immediately preceding the payment date for the applicable RSI shares, and (3) limits the amount of RSI shares that may be collectively sold by the RSI Majority Holders to Carrier Enterprise I under the Shareholders’ Agreement to $125.0 million during any rolling 12-month period. We have not issued or sold any Offered Shares, and there is no assurance that we will issue and sell any Offered Shares, nor is the number of Offered Shares that may be issued and sold currently determinable.

We believe that our operating cash flows, cash on hand or funds available for borrowing under our revolving credit agreement, or use of the 2024 ATM Program would be sufficient to purchase any additional ownership interests in RSI for cash pursuant to the agreement described in the preceding paragraph.

Acquisitions

Southern Ice Equipment Distributors, Inc.

On May 1, 2025, one of our wholly owned subsidiaries acquired SIE, a distributor of food service and ice machine equipment, parts and supplies with annual sales of approximately $30.0 million operating from seven locations in Arizona, Arkansas, Louisiana, Mississippi, New Mexico, and Texas. Consideration for the purchase consisted of $14.3 million in cash and 7,400 shares of Common stock having a fair value of $3.4 million, net of cash acquired of $0.7 million. The preliminary purchase price resulted in the recognition of $7.8 million in goodwill.

Hawkins HVAC Distributors, Inc.

On April 1, 2025, one of our wholly owned subsidiaries acquired Hawkins, a distributor of commercial HVAC supplies with annual sales of approximately $9.0 million, operating from two locations in North Carolina and South Carolina. Consideration for the purchase consisted of $2.5 million in cash, net of cash acquired of $0.4 million.

W.L. Lashley & Associates, Inc.

On January 3, 2025, Carrier Enterprise I acquired Lashley, a distributor of commercial HVAC supplies with annual sales of approximately $8.0 million, operating from one location in Houston, Texas. Consideration for the purchase consisted of $3.7 million in cash, 1,036 shares of Common stock having a fair value of $0.5 million, and $0.8 million for repayment of indebtedness, net of cash acquired of $0.8 million. Carrier contributed $1.0 million cash to Carrier Enterprise I in connection with the acquisition of Lashley. The preliminary purchase price resulted in the recognition of $3.1 million in goodwill.

23 of 28

Commercial Specialists, Inc.

On February 1, 2024, one of our wholly owned subsidiaries acquired CSI, a distributor of HVAC products with annual sales of approximately $13.0 million, operating from two locations in Kentucky and Ohio. Consideration for the purchase consisted of $6.0 million in cash, 1,904 shares of Common stock having a fair value of $0.8 million, and $0.6 million for repayment of indebtedness, net of cash acquired of $1.4 million. The purchase price resulted in the recognition of $2.5 million in goodwill.

We continually evaluate potential acquisitions and/or joint ventures and investments in unconsolidated entities. We routinely hold discussions with several acquisition candidates. Should suitable acquisition opportunities arise that would require additional financing, we believe our financial position and earnings history provide a sufficient basis for us to either obtain additional debt financing at competitive rates and on reasonable terms or raise capital through the issuance of equity securities.

Common Stock Dividends

We paid cash dividends of $5.70 and $5.15 per share on common stock during the six months ended June 30, 2025 and 2024, respectively. On July 1, 2025, our Board of Directors declared a regular quarterly cash dividend of $3.00 per share on common stock that was paid on July 31, 2025 to shareholders of record as of July 16, 2025. Future dividends and/or changes in dividend rates are at the sole discretion of the Board of Directors and depend upon factors including, but not limited to, cash flow generated by operations, profitability, financial condition, cash requirements, prospects, and other factors deemed relevant by our Board of Directors.

Dividend Reinvestment Plan

On March 29, 2024, we implemented the Watsco, Inc. Dividend Reinvestment Plan (the “DRIP”), under which existing shareholders may, in accordance with the DRIP, acquire up to 300,000 shares of each of Common and Class B common stock, as applicable, by reinvesting all or a portion of the cash dividends paid on such shareholders’ shares of common stock. The DRIP has been registered under the Securities Act pursuant to our automatically effective shelf registration statement on Form S-3 (File No. 333-282975).

During the quarters ended June 30, 2025 and 2024, 16,553 and 4 shares of our common stock, respectively, were issued under the DRIP. During the six months ended June 30, 2025 and 2024, 30,495 and 4 shares of our common stock, respectively, were issued under the DRIP.

Company Share Repurchase Program

In September 1999, our Board of Directors authorized the repurchase, at management’s discretion, of up to 7,500,000 shares of common stock in the open market or via private transactions. Shares repurchased under the program are accounted for using the cost method and result in a reduction of shareholders’ equity. We last repurchased shares under this plan in 2008. In aggregate, 6,370,913 shares of common stock have been repurchased at a cost of $114.4 million since the inception of the program. At June 30, 2025, there were 1,129,087 shares remaining authorized for repurchase under the program.