Trane Technologies PLC at UBS Global Industrials & Transportation Conference Transcript

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

Question: Amit Mehrotra - UBS - Analyst : Before we start there, if I could, there's a lot going on in the world, if you haven't noticed. We are now post-election. A lot of -- I know you don't have a big business in China or Asia. I know you don't really manufacture a lot in Mexico. So maybe not pertaining to you, but I'd love to get your perspective on what your observations have been over the last month since the election. What are customers saying? What do you feel in the market? And really, open it up to anything you want to talk about in terms of developments over the last month or so.

Question: Amit Mehrotra - UBS - Analyst : Yeah. And maybe we can pivot a little bit to the market opportunity. See, you've always had strong double-digit growth in the top line, 20% plus compounded earnings. So I think the biggest question I get from investors is the law of large number starts to kind of creep up and is this growth sustainable? We're now towards the end of 2024. Entering 2025, your backlog is very robust. You've got 90% of that backlog in commercial HVAC, which is obviously a good place to be. Manufacturers coming back to US. S So it looks like a lot of the growth is still there, but if you could talk about the sustainability of the success you've had and how we think about it going forward.

Question: Amit Mehrotra - UBS - Analyst : Can we talk about that? Because we obviously toured 55 Water Street maybe about a month ago or something like that, and it's a building big enough where it has its own ZIP code, and you were there and you talked about kind of -- it's pretty impressive in terms of the heat recapture and basically cutting their heating bill essentially down to nothing, so to speak. Can you talk about kind of that piece of it, like the value selling opportunity? Chris, maybe you could talk about kind of how the economics work because you value sell that into the marketplace. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 1:50PM, TT.N - Trane Technologies PLC at UBS Global Industrials & Transportation Conference

Question: Amit Mehrotra - UBS - Analyst : Right.

Question: Amit Mehrotra - UBS - Analyst : Yeah, we did.

Question: Amit Mehrotra - UBS - Analyst : And you talk about demand side management and how much get (inaudible) after the meter.

Question: Amit Mehrotra - UBS - Analyst : And I want to get Chris in here to talk about how the business is evolving more towards service becoming a bigger piece of it, obviously. It's now one-third of the business, your backlog is very, very high. I assume that kind of melts up over time. Can you talk about one kind of the pricing of this record backlog? How that's evolving? If you see the customer's willingness to kind of invest for the payback and whether that's changing a little bit post-election, or any anything you can talk about there? And generally, how the margin profile of the business evolves as maybe service becomes kind of a bigger and bigger piece of the portfolio over time -- the revenue base over time.

Question: Amit Mehrotra - UBS - Analyst : Yeah, and the contribution margins [in turn] have been great. So it's a --

Question: Amit Mehrotra - UBS - Analyst : Can we talk about -- obviously, we've talked about nearshoring and added -- additions to the US manufacturing base for a long time. These are structures that obviously need HVAC systems service. But what's interesting is that these mega projects, relatively small amounts of them actually been started. And so hopefully, as we progress over the next couple of years, you start to get more and more starts. Can you talk about kind of the opportunity that presents for Trane? And is that really where you get confidence around being able to sustain this type of high-single digit type revenue?

Question: Amit Mehrotra - UBS - Analyst : I don't want this to be a love fest for Trade, so I'm going to ask a couple maybe a devil advocate questions, if you'd allow me to. You obviously --

Question: Amit Mehrotra - UBS - Analyst : It's obviously a very -- the sales force is obviously a key advantage, and I would say that the sales force, I think, has been particularly good at leveraging all the incentives available to lower the total cost to the customer or make it more economically feasible, so to speak. It seems like the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 1:50PM, TT.N - Trane Technologies PLC at UBS Global Industrials & Transportation Conference IRA and all that funding still will continue, but there is kind of an element of if we start to get more efficiency and some subsidy reductions that creates a little bit more friction. I don't know if you buy into that argument or how you respond to that.

Question: Amit Mehrotra - UBS - Analyst : And I think there's also a lot of these buildings, I mean, they have tenants. Tenants have scope 1, 2, 3 emission rules. I mean, it's becoming important for them in terms of (multiple speakers) from that perspective.

Question: Amit Mehrotra - UBS - Analyst : Can we talk about this? It's a good segue into my questions about, I mean, I think you guys talked about 14 verticals or end markets that you track. Obviously, everybody wants to talk about data centers. And that's great if you want to tell us what percentage of your business is, feel free to do that. But you're right. What struck me over the last couple of quarters is how broad based the strength was in terms of how you described about REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 03, 2024 / 1:50PM, TT.N - Trane Technologies PLC at UBS Global Industrials & Transportation Conference it. Could you talk about that a little bit and just give us a little bit of an update on kind of where you're seeing pockets of strength and where maybe things are decelerating a little bit?

Question: Amit Mehrotra - UBS - Analyst : Is there anything noticeable more recently since the third-quarter update or is it all kind of continuing the same trend?

Question: Amit Mehrotra - UBS - Analyst : And then just on the order front, the backlog, obviously, now, if you look at backlog relative sales, it's gone up significantly, kind of over 30%. Pre-COVID is probably around 20%-ish. So just talk about what's happening there and do you expect this further visibility or elongating of the backlog, so to speak, or do we churn that a little bit more and we start to normalize a little bit?

Question: Amit Mehrotra - UBS - Analyst : Is there a disproportionate vertical that it represents that backlog growth? And the only reason I'm asking is I'm doing a fireside chat later today where the backlog was reset a little bit lower because of EV plants getting pushed out. And I know you guys, the fidelity of the backlog is quite strong. I remember you talking about Asia and not booking business if they don't make progress payments, and things like that. But can you talk about the representation of the backlog across verticals if there's concentration and how you approach that?

Question: Amit Mehrotra - UBS - Analyst : I want to move to the resi and transport side. I have one question on data centers and liquid cooling in a second, but any questions from the audience on -- for Trane on commercial HVAC? You talked about data centers growing 15%. There's obviously a lot of -- I won't say hype, but excitement about data centers. Can you just get people comfortable that this this growth actually has likes to it. There's obviously a lot of data that supports multi-year period of growth but just tell us what you're seeing in terms of your business, and your orders, and your customer conversations about the growth runway you have in data.

Question: Amit Mehrotra - UBS - Analyst : Can we move to the res? I know it's only 20% of your business or something like that, but obviously with the refrigerant change over, I know you guys talked about not necessarily seeing a lot of pre-buy, there's obviously a pricing component to it. There's some people talking about 10%, 15% more pricing. Can you just talk about what the expectation is there and what your views are on pricing in the res?

Question: Amit Mehrotra - UBS - Analyst : On the transport side, obviously, people expect there to be improvement back half of next year. Orders improved last quarter. I don't know if that was more easy comps or (multiple speakers).

Question: Amit Mehrotra - UBS - Analyst : Last couple ones for me. So one, I want to talk about capital deployment leverage is I think, close to one-time leverage. You've obviously had a lot of organic success. Could you talk about inorganic opportunities where you think there -- whether it's regionally or product (multiple speakers) --

Question: Amit Mehrotra - UBS - Analyst : Dave, do you want to end on maybe some musings on 2025? Obviously, you're having a lot of success, the backlogs up a lot. I think expectations are calibrated towards another good growth year in 2025 with high single-digit revenue, double-digit earnings growth. Any thoughts on -- final thoughts in December about (multiple speakers) --

Question: Amit Mehrotra - UBS - Analyst : Thanks, appreciate it.