Specialist
Executive at a network of residential HVAC, plumbing, and electrical contractors
Agenda
- US HVAC (heating, ventilation and air conditioning) competitive landscape overview and key players such as Johnson Controls (NYSE: JCI), Trane Technologies (NYSE: TT) and Carrier Global (NYSE: CARR)
- H2 2023 demand outlook and industry headwinds
- Residential and commercial service market update
- Heatwave concerns and potential impact
Questions
1.
Has anything significant changed in the HVAC [heating, ventilation and air conditioning] market between OEMs and distributors since our last Interview [see US HVAC Industry Update – Demand Outlook & Competitive Landscape Analysis – 14 March 2023]? Have you been monitoring any market changes in the HVAC sector?
2.
You mentioned inflationary and recessionary pressure. In past Interviews, we’ve touched on how those different types of pressure impact residential HVAC sales. So far into 2023 and forwards-looking into 2024, has the threat of a recession and the higher inflation impacted the HVAC industry materially? If so, what areas of the value chain are we seeing those impacts on?
3.
If PE consolidators are having huge gains in growth, profitability and market share, and the current market is either flat or even a bit down, what type of forecast would you give us for the same PE consolidators? How will those PE consolidators achieve or sustain profitability if we are to move further down into a recession or if we’re going to come out to the light on the other side and the market actually starts to tick back up?
4.
Could you estimate the multiples on the HVAC contractors in the current market? Does that vary by geography? How should we be thinking about the actual valuations of the smaller local suppliers or servicers that will end up being acquired?
5.
What are the characteristics of a strong company to acquire for PE investors looking at the HVAC service industry? Where should capital be deployed to increase that value once an acquisition is made? What’s the roadmap to further profitability with the lower-to-mid-size HVAC contractors?
6.
Could you reiterate the main benefits of using ServiceTitan, to the point that it’s so widespread that the strongest companies in the industry are using it?
7.
We’ve talked about how the PE consolidators in the HVAC space are experiencing historical profitability. Is there anything that could, either short-term or long-term, tamp down that profitability? Is there anything that we should monitor that could tip the scales back towards a growth decline or at least slow down some of this record growth?
8.
What are the early signs to monitor for the credit guidelines to change that you noted? Would it be possible to quantitatively estimate how a tightening on credit could directly impact revenues for HVAC companies, whether the servicers or top-line of the OEMs?
9.
Could you give us an estimate for the per-unit revenues for installations and replacements vs repairs, so we can weigh how that impacts the companies?
10.
Are there any non-PE consolidators or companies in the services industry to monitor for future sales or a possible IPO? Do any names jump out to you?
11.
Is it becoming more competitive to find the poster child of the independent or smaller, more medium-sized service companies that you would like to try to roll up because of such heightened interest in the industry? Hypothetically, is it becoming harder and more competitive to get those companies and find them?
12.
Is there anything that PE consolidators might get wrong when it comes to consolidation in the HVAC services industry? Specifically, with the smaller contractors or if they’re working to get the medium-sized contractors, is there anything that gets waylaid or put on the back burner when it comes to positioning them for long-term high profitability? Is there anything that might get overlooked or could be done better?
13.
Carrier, Trane, Lennox and Johnson Controls have reported their Q2 2023 earnings in the past several weeks. Do you have any key takeaways from those results, whether industry-wide or OEM-specific, when it comes to demand or profitability?
14.
Could you estimate how much margin OEMs have actually been able to pocket from increasing prices by having commodity prices go down specifically in 2023?
15.
Which OEM is best-positioned to benefit from an influx of the Inflation Reduction Act-induced replacement demand?
16.
Where would you be getting more aggressive if you were Carrier or Daikin, knowing you have 10-15 points of margin in your back pocket in 2023?
17.
How are increasingly volatile weather conditions impacting the 2023-24 HVAC demand environment? You mentioned that there were softer sales in H1 2023, and I think part of that was due to the mild winter. Now we’re seeing historically high heatwave numbers. How should we expect that to offset a mild winter, knowing that we’re in El Niño conditions and might have another mild winter in 2024?
18.
Are there any disruptors that we should be monitoring that could take share in any part of the HVAC value chain, whether that’s someone taking share in the OEMs, manufacturing space, distribution space or service space? Do you see any underdogs or little-known players with potential that we should be watching out for?
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