Watsco, Inc., the largest distributor of heating, ventilation, air conditioning and refrigeration (HVAC/R) equipment, parts, and supplies in North America, is leaning heavily on artificial intelligence (AI) to navigate one of the most consequential product shifts in the industry’s history: the transition to A2L refrigerants.
On the company’s recent first quarter earnings call, Watsco executives highlighted how AI is enabling dynamic pricing, smarter inventory decisions, and sharper customer insights amid a complex and regulation-heavy market environment.
Founded in 1945 and headquartered in Miami, Florida, Watsco operates more than 670 locations across the U.S., Canada, Mexico, and Puerto Rico. The company serves over 100,000 contractors and technicians who rely on Watsco’s vast distribution network to source HVAC systems and parts from more than 1,000 manufacturers. With annual revenues exceeding $7 billion, Watsco has built a reputation not only for scale and reliability but increasingly as a digital innovator.
Now, with the HVAC industry undergoing a sweeping transition to environmentally friendlier A2L refrigerants, Watsco is using that innovation to maintain its leadership position.
“We’ve built the infrastructure to implement price changes instantly across our network,” said Paul Johnston, Watsco executive vice president. “Given how quickly original equipment manufacturing (OEM) pricing is shifting, especially considering recent refrigerant tariffs and environmental regulations, our AI tools allow us to react in real time. It hasn’t been that much of an issue to date, but we’re watching the market closely as the season picks up.”
The transition to A2L refrigerants, mandated by federal and state environmental rules, represents a once-in-a-generation disruption in the HVAC market. The change impacts thousands of stock-keeping units (SKUs), requiring manufacturers, distributors, and contractors to phase out legacy refrigerants and equipment, train technicians, and ensure compliance with safety protocols.
“This isn’t just a product change — it’s a regulatory and educational challenge,” said Albert Nahmad, Watsco’s CEO. “We’re not just converting our inventory. We’re also upgrading our technology platforms, training thousands of contractors, and rethinking how we support customers in the field. AI is helping guide those efforts at every step.”
At the heart of Watsco’s strategy is an AI-driven pricing engine that enables dynamic, hyper-personalized pricing across its vast catalog. Nahmad explained that Watsco can now customize pricing based on the individual customer, product, geography, and competitive environment in real time.
“We sell to 100,000 contractors and buy from more than 1,000 manufacturers,” said Nahmad. “It’s not too hyperbolic to say we have a different price for every product, for every customer. And we can scale that capability in ways that weren’t possible even a few years ago.”
Using AI, Watsco’s pricing system can automatically set floors and ceilings based on competitive benchmarks, purchase history, and market segmentation. It ensures the company stays competitive without sacrificing margins — a delicate balance in a market driven by regulatory volatility and tight supply chains.
“We can react within hours, not weeks, to changes in cost inputs or competitive pricing,” Nahmad said. “That’s a massive advantage when you’re talking about a product landscape in flux.”
Beyond pricing, Watsco is also leveraging AI for inventory management. This is a critical function as the company transitions $1 billion worth of stock to A2L-compliant products. AI algorithms track sales velocity, customer behavior, geographic demand shifts, and more to determine which products to stock where and in what quantity.
“This is the largest inventory transformation our company has undertaken,” said Johnston. “We’ve invested in AI to make sure we’re allocating capital intelligently and reducing obsolescence as we transition to these new systems.”
The company’s digital tools extend beyond its warehouses. Watsco is also using AI to enhance customer engagement through its ecommerce platforms and contractor-facing mobile apps. These tools offer real-time product availability, pricing transparency, equipment compatibility suggestions, and even installation guidance tailored to the user’s historical buying patterns.
“These aren’t just passive interfaces,” said Barry Logan, executive vice president of strategy and innovation. “Our systems proactively surface what customers need before they even ask. For example, if we see a contractor buying compressors in one region and then suddenly switching brands, we can flag that and reach out to understand what’s changing in their business. It’s about being a partner, not just a supplier.”
These capabilities are increasingly central to Watsco’s long-term growth strategy. With industry margins under pressure from inflation, rising labor costs, and regulatory compliance, the company has set an ambitious goal: reach 30% gross profit margins.
“There are several levers we’re pulling to get there,” said Nahmad. “Technology is one of the biggest. Our AI tools are enabling us to drive profitability without sacrificing service or scale.”
Watsco’s leadership believes the company’s early and aggressive investment in AI and digital transformation will continue to pay dividends as the HVAC industry modernizes.
“This is a transitional year for HVAC, no doubt,” Logan said. “But we see a clear path forward. Margins are behaving well, our technology is scaling, and we’re gaining insights faster than ever. And the best part? We’re just getting started.”
With summer just around the corner and demand for HVAC systems expected to surge, Watsco is betting that its tech-forward strategy will position it not just to weather the storm — but to lead the industry into a new era.
“Every disruption is an opportunity,” said A.J. Nahmad. “We’ve invested for this moment — and we’re ready to lead the way.”
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