Trane Technologies PLC at JPMorgan Industrials Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : So you brought up backlog and orders, obviously, go into backlog. So I think there's some concern, especially on the data center side, that there's been -- it's more lumpy, obviously. The term pull forward is used out there. How do you guys see the pipeline and then the trajectory of orders coming out of that pipeline in '25?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Can you grow backlog in '25?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst :

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : So I'll get in back into the data center in a second. But just broadly, you mentioned education and ESSER, that you're really not seeing any impact from that rolling down. What about IRA? I know that there were some interesting chiller incentives, especially for your thermal management systems, I believe, that really enhance the ROI for the customer. Anything that you're seeing there or if they put a lid on that spending that would perhaps drive a bit of a temporary pause in some of that activity?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And then lastly, outside of data center on manufacturing. One thing we're having like a tough time reconciling is high-tech manufacturing was a vertical you called out for many quarters, every other HVAC company similarly. So obviously, there were EV plants, semi plants, but everybody in kind of the industrial world has seen those get paused or pushed out or slow down. What are you seeing in that project pipeline?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And how much of your business now is these -- is like truly new kind of greenfield, if you will, versus -- in the equipment business, versus like a -- maybe a little bit more of a discretionary upgrade? Like not necessarily end of life, hey, I've got to do it, but you guys go in and pitch them and they decided to do it because of the payback?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Yeah. That's very fair. So getting into data center here a little bit. What are -- first of all, what are you guys seeing today? What are your customers telling you? Anything post DeepSeek or Microsoft lease cancellations or anything else that you're seeing out there that your customers are pumping the brakes a little bit on any of the stuff?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : So if you think this is kind of a mid-teens market for, call it, three to five years, however you want to talk about it, it seems to me like the order rates that everybody is booking last year -- you guys don't disclose specifically -- but all your peers were running in at least 30%-plus type of range for this vertical. The census data is up 50% pretty consistently. Do we need to toggle around that 15% rate where you did 30% to 50% -- guys did 30% to 50% last year. So that means you have a year of digestion and like flat to negative at some point? Are we still in this kind of catch-up phase?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Can we talk about how the like timing works on all this? So if I'm building and I'm trying to commission a data center, the following year, when am I ordering that? What is the -- what is kind of the lead time on that? And are you booking to the total size of the facility? Or are you booking to a certain part of the facility that's being built out over a number of years? How are you guys seeing that? We're all kind of having a little bit of trouble identifying that lead time.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And you're talking about phases as far as like if I'm building a 250-megawatt data center and there's five halls of 50 even phases 1, 2, 3 --

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Right. Right. Okay. So do you get that?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Right. So you get that order and then you would ship when they want it? Or you -- and you said, I think down at our conference in the fall that you -- and I think, JCI said this last night, but you do ship to them and then they start and then they figure out like where it's going from there?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Got it. That makes a ton of sense. From a TAM perspective, Vertiv's talked about $3 million a megawatt. JCI last night said $2 million a megawatt from their TAM. I would assume you guys are like in and around, maybe just below the JCI TAM because you don't have the fire and security. What do you guys think about it --?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Yeah. That's super helpful. And most of your exposure is in applied. Is there any that kind of slips into light commercial or the VRF --?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Yeah. No. No, it's all applied and then --

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Right. And as far as services are concerned, I understand your rental business does really well here. Maybe talk about how that works is rental. We think of rental as a temporary solution. I'm not sure for these data centers if they're just scooping all these things up and put in -- how does rental play in to this? It's an interesting aspect for --

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Has that been a decent-sized business for data center?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Got it. So I guess the bottom line is when you look at last year's order rates for data center, do you get --?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Yeah. But I'm just saying in general terms. Do you get the sense that there was pull in and that there's digestion needed or not? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 11, 2025 / 2:30PM, TT.N - Trane Technologies PLC at JPMorgan Industrials Conference

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And a key aspect of that is the VRF JV, which is, I think, have been super successful.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : What are you guys seeing on the commercial side there? And is that one of the businesses that's growing pretty well?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And on the rooftop side and anything that's a market that's a bit confounding. The HRI data is down. Some of your peers have warned a bit, but others are growing pretty nicely. What are you seeing on kind of the light commercial trends? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 11, 2025 / 2:30PM, TT.N - Trane Technologies PLC at JPMorgan Industrials Conference

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And you mentioned services, obviously, a fantastic story for you guys growing really nicely. You mentioned, I think, 8 to 10 times the revenue front versus the initial sale. Can you just delve into that a little bit more? What drives that? Is that mostly time material? Is it spares? What's the key driver of that? Because it seems like a big number.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Yeah, it's been pretty strong. So you're saying that there is some kind of further down the road refurbs that really --

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Like our high calorie type of events?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Is there incremental investment required there as far as feet on the street? Or are you guys pretty comfortable with your structure? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 11, 2025 / 2:30PM, TT.N - Trane Technologies PLC at JPMorgan Industrials Conference

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : What are you seeing over in Europe right now? In commercial HVAC?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And as far as those thermal systems, is there the district heating over there is also in --

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And I guess you brought up data center. So in Europe, what are you seeing there? And is there -- there's been a bit of a debate on the lag time of them building out. Are you --?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And you expect that to be a part of the growth story in the next several years?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Right. Okay. On residential.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : All right. On residential HVAC, where are we in this -- what are you seeing on the ground when it comes to this replacement cycle? And how do you view kind of the volume picture in the context of the consumer and how they're doing that? I mean, it's been resilient, of course.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : And what is your strategy from a price perspective? A couple of your competitors have been out with letters basically highlighting the risk of tariffs and being very aggressive on their front foot about price. How are you guys approaching all this?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Residential. Well, I mean, in general, too, if you will, but I think residential --

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : So I guess is there any color? You guys are usually pretty good about giving your raw materials numbers. And like any color on how much you think of your COGS is potentially exposed to Mexico? It sounds like your actual production that you're bringing over yourselves is not that much, but any color on all of this?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Right. So the message there is manageable --

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Any concerns around the movement in the 454B gas prices, Dave, the availability and anything you're seeing there on 454B that's concerned in the channel?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Okay. All right.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Okay. On transport, business has been a little bit stubbornly soft, I guess. It's still bouncing back a little bit. But what's going on in that market and what's the visibility on that really kind of digging back into --?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Yeah. I mean, it's -- I remember when it kind of dominated the narrative on your stock years ago. It's just not the --

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Any questions out there? We've got four minutes left. Yeah. Right here. Unidentified Participant You highlighted the growth out of Europe that was well above the -- the lack of growth in that market, and you gave one small example. But what else when you talk about innovation, maybe give us a little bit more color on what that is and then how it can get rolled out more broadly.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Yeah. [Nice moves]. Unidentified Participant Thanks very much. Just a question about one of your competitors selling their US residential business, and just with how well yourselves and your peers have operated in the US have been disciplined and rational. Are you paying attention to any signs of that potentially changing with ownership, moving hands here with one of your competitors in the US?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Any risk around Daikin being more aggressive, Goodman being more aggressive? I mean, they lost a ton of share last year. It seems like you guys weren't like the prime beneficiary of that, but anything you're picking up from the channel that you worry about there? Is that --?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : That was pretty good.

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Okay. Just lastly, just on the margin side. From a mix perspective, do we still think about you guys as resi and Thermo King up here in commercial HVAC below the average? What is the -- how should we kind of -- has anything changed on that construct over --?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Okay. Any other questions? One more? Time for one more?

Question: Charles Stephen Tusa - JPMorgan Chase & Co - Analyst : Thanks, guys.