Albert Nahmad - Chairman, President and Chief Executive Officer Paul Johnston - Senior Vice President for Office of the Chairman Barry Logan - Senior Vice President, Secretary and Director.

Matt Duncan - Stephens Inc Josh Pokrzywinski - The Buckingham Research Group Walter Liptak - Global Hunter Securities Ryan Merkel - William Blair & Company Rohit Seth - Suntrust.

Good morning and welcome to the Watsco Fourth Quarter and Year-End 2014 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

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

Good morning everyone. Welcome to our conference call. This is Albert Nahmad, President and CEO, and with me is Barry Logan and Paul Johnston. As always, we like to state the cautionary statement.

This conference call has forward-looking statements as defined by SEC laws and regulations that are made pursuant to the Safe Harbor provisions of these various laws. Ultimate results may differ materially from the forward-looking statements. Now on to our results.

Well, we had another great fourth quarter which completed a very strong and record setting 2014. We’ve established new records for earnings per share, net income, operating profit, operating margins, and sales. Interesting enough, we did that in 2014 even after we made substantial investments in our business. For example, we added more products.

We launched new technologies. We opened new locations, and we added over 200 employees or about 5% more to our organization. We make these investments to generate more profitable sales growth, development of market share for our many manufacturing partners, and to provide a great customer experience with our 60,000 contractors that we currently serve.

Our highlights for the quarter are a 38% jump in earnings per share to a record $0.69, a 30% increase in operating income to a record $52 million, a 100 basis point expansion in operating margins to a record 5.9%, a 40 basis point improvement in gross profit margins, and a 60 basis points decline in SG&A as a percentage of sales.

That takes us to a record low for that item. During this quarter, sales increased 6% to a record $877 million. HVAC equipment sales increased 8%, reflecting continued strong demand for higher efficiency systems. Other HVAC products increased 2% and commercial refrigeration products increased 8%. Now, let’s take a look at the full-year highlights.

A 78% increase in earnings per share to a record $4.32. A 13% increase in operating income to a record $306 million. A 60-basis point expansion in operating margins to a record 7.8%. A 20 basis point improvement in gross profit margins, and a 30 basis points decline in SG&A as a percentage of sales to a record low.

For the full year, sales increased 5% to a record $3.94 billion. Residential HVAC equipment sales in the US increased 9%, reflecting double digit growth in sales of high efficiency systems. Other HVAC products increased 2% and commercial refrigeration products increased 7%.

The balance sheet at year end remains conservative with debt-to-EBITDA of under 1x. Regarding dividends, we originally increased our dividend rates 17% to an annual rate of $2.80 per share.

Our plan is to continue our policy of increasing dividends as we remain confident in our ability to generate strong cash flow while maintaining a conservative financial position and a low cost of capital to invest in our business. We are confident about the future.

We will continue to act with a long-term point of view and sustain many principles that have made us successful thus far. With that said, Barry, Paul, and I would be happy to answer your questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Matt Duncan of Stephens Inc. Please go ahead..

Good morning, Matt..

Good morning, Al. Congrats on a great quarter..

Thanks very much. We feel good..

So, Al, and you made reference to this in your prepared comments, but you guys have been adding a lot of technology to the business to help your customers.

Is there any way to quantify the impact you think that may be having on your market share gains right now?.

That’s a good question, Matt, but really, I don’t think we could answer that. We don’t know. We just know that we want to be the best there is in this technology with our contractors, and we’re just at the beginning of the investment cycle, so..

Yes, I mean, maybe one way to look at this would be, have you looked at the growth rates in the markets where you have added the technology where you can now order through the app? Are you seeing the growth rates pick up in those places as you add this technology or it is just too early to really know for sure?.

I think it’s too early..

Okay..

We’re just too busy putting out more and more technology. The apps for example are constantly being updated. We’re introducing more and more tools. This is a big deal for us, and I think it will have a huge impact on the company going forward..

Okay. In terms of equipment growth, you had another very good quarter there.

Are you seeing, do you think, any impact from the efficiency standard change in the Sun Belt or is this really just sort of good market share gains and good market growth?.

It’s the latter. I sort of expected questions about this 13 SEER thing and we don’t really focus too much on that because everything we think about every day is long term, and some of these things have a short term life, and we just deal with it as it comes but we don’t really focus too much on it..

Sure. Okay, last thing for me on the non-controlling interest quarter. It looked like it had taken a nice increase year over year. Clearly, your carrier JVs must be doing well.

Is that a function of good sales growth, are the margins showing marked improvement there? Is there anything you’d call out about what you’re seeing from the JVs?.

Barry, you want to deal with that?.

Sure, Matt. Well, the JVs are performing very well across the board in all markets. So it’s just raw performance sales growth, gross profit growth, and EBIT margin growth that continues on the momentum they’ve had for the last five years. So it’s a simple, good progress on behalf of all the JVs..

Okay. Thanks, guys..

Sure..

The next question comes from Josh Pokrzywinski of Buckingham Research. Please go ahead..

Good morning, Josh..

Good morning, Al.

Just a question for me, Al, I know that obviously Canada is not an enormous part of your business, but with the currency move there and then obviously the fact that all the equipment is made in the US, can you guys talk about either the margin headwinds or pricing actions you need to take to offset that this year and maybe what you guys are pondering here in the near term on that?.

Well, all I want to say about that is Canada is a significant part of our business, and we’re doing well with it. We deal with whatever comes up. There are no issues that I can report that’s a big problem for us in Canada..

I get -- does that mean to say that there’s a pricing action being taken though because you do have significant currency headwinds?.

No, those are things that I don’t want to talk about. We have a strong competition in Canada. We’re just doing well there, and things will come up on currency and kinds of things you’re talking about, but we seem to be navigating very successful and I think that should continue..

Okay. And then just back on some of the technology investments, should we expect that to be up again in 2015 and at what point does that start to level out and be in the comp? I know that it’s a long-term view and you guys don’t really pay attention to the year over year spend, but..

Yes, I’ll give you the best I can on that. You should see increasing investment for some time. I see no end to it, and I see increasing investment..

All right. Thank you..

The next question comes from Walter Liptak from Global Hunter. Please go ahead..

Good morning, Walter..

Hi, good morning, guys. Thanks for the good quarter. I wanted to ask about your inventories, it seems like some of the seasonality change this quarter where your inventories build up 60 million, and typically they go down by about that much.

Is it a SEER equipment build, and I wonder if you could comment on that?.

Sure.

That’s a good question, Barry or Paul, do you want to deal with that?.

Yes, Paul, go ahead..

Oh, okay. Yes, we had a slight build because of the equipment change, but it was very, very small. Most of it was just solid blocking and tackling that our people were doing on new branch ads that we’ve been putting in place as well as just balancing our inventory up to get ready for the season..

There have also been, just to add to that, there have also been some product lines that have been introduced this year that requires a build in inventory for sales in 2015. That’s part of the investment we’ve been making..

Okay, got it.

So not a lot of SEER 13 in that inventory build?.

No..

Okay. And I think about this time of year, you don’t give guidance, but you kind of can talk about the market and what you’re thinking about for next year. Do you think next year for HVAC equipment we should see similar mid-single digit growth to what you saw this year? Is there something changing about your markets where the growth might slow..

Well, I see, as you said, the first part of that statement is, we don’t like to talk about the year because we are just -- just one month and a few days into the second quarter. And we will not mention what we think is going to happen to the industry. We don’t know. But I can tell you that I like what I see for Watsco in the first part of the year..

Okay. Okay, fair enough. Thank you..

[Operator Instructions] The next question comes from Rohit Seth of SunTrust. Please go ahead..

Hi, guys, great quarter..

Good morning..

Good morning..

Thanks, yes..

I’ve just got a quick question on the energy costs.

Do you guys -- is there a substantial portion of your cost there, on the diesel fuel?.

No, it’s not a big deal..

Not a big deal.

So there won’t be any savings with it coming down so much?.

There will be savings. It’s not a material mountain mover now..

It’s not material..

Okay.

And then could you -- you usually break this out on the US residential equipment, what was the growth there?.

Really, all markets were consistent with the overall growth rate..

Okay. Okay, great. That’s all I had. Thank you..

The next question comes from Ryan Merkel from William Blair & Company. Please go ahead..

Thanks. Very nice quarter, guys..

Good morning..

Good morning..

Thanks..

So did you talk about what drove the strong gross margins in the quarter? I might have missed it..

We didn’t get questioned. We’ve reported what we know in the press release, the efficiency improvements..

So, it was driven by the mix to the higher SEER equipment?.

Mix is the very part of it, yes..

Okay.

And then what was the growth rate of higher SEER equipment then? Was it higher than the 8% total equipment growth?.

I don’t think we want to get into that sort of detail, Ryan..

Okay. And then, I guess, lastly, the OEM price increases, are those sticking in the market? I know it’s early..

Yes, yes. The answer is yes..

The answer is yes. Okay. Great. Thank you so much..

And as I see there are no other questions, I would like to turn the conference back over to Mr. Nahmad for any closing remarks..

Thanks again for being on this call and we look forward to the next call. Bye-bye..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..