The operator welcomes participants to the Trane Technologies Q1 2024 Earnings Conference Call and introduces the speakers. The call will begin shortly and all participants are currently in listen-only mode. The Vice President of Investor Relations, Zac Nagle, gives a brief overview of the call and reminds listeners that statements made may be considered forward-looking. The Chair and CEO, Dave Regnery, discusses the company's purpose-driven strategy and its alignment with important global trends. He also notes that customer demand is increasing due to the urgency of addressing climate change.

In the first quarter, Trane Technologies continued to demonstrate strong execution and delivered robust performance across the board. This was driven by record high bookings of over $5 billion and organic revenue growth of 14%. The company's commercial HVAC businesses, particularly in the Americas, saw significant growth and the pipeline remains strong globally. Trane Technologies also plans to make high ROI investments in areas such as product innovation, increased capacity, and digital and automation to drive future growth.

The company's bookings performance in the first quarter has strengthened its position for 2024 and beyond. The backlog for 2025 and beyond has increased, providing more visibility for future growth. The demand for the company's solutions remains strong, with a book-to-bill ratio of 120% and 14% organic revenue growth. The Americas segment saw a 30% increase in bookings, led by the applied solutions portfolio. The commercial HVAC business saw mid-20s revenue growth, with strong growth in equipment and services. The residential and transport businesses performed as expected, with cautious optimism for the future. The transport business is facing tough comparisons from 2023.

In 2024, the company expects to have a soft first half and a strong second half. The EMEA region performed as expected, with strong commercial HVAC bookings and revenues, but a decline in transport bookings and revenues. The book-to-bill ratio was strong in both EMEA and Asia. In the first quarter, the company had strong execution and organic revenue growth, with increases in adjusted EBITDA, operating margins, and EPS. The company's high performance flywheel strategy has led to investments in innovation and strong financial results. The company also saw strong volume growth, positive price realization, and productivity gains. In the Americas segment, there was strong volume growth in commercial HVAC, leading to overall margin expansion.

In the EMEA segment, the company saw growth in volume and price, particularly in the commercial HVAC business. Adjusted operating margins were up, and the company plans to continue investing in the business for future growth. In the Americas, the commercial HVAC business had a strong quarter and is expected to remain strong throughout the year. The residential business also performed better than expected, possibly due to EPA clarification.

The company is pleased with their first quarter results, but they believe it's too early to make any significant predictions for the rest of the year. They are maintaining their outlook for the year, but have raised their organic revenue and adjusted earnings per share guidance. They plan to continue investing in their business to drive growth and expect a small impact from M&A.

The impact on the company's financials is primarily due to the acquisition of Nuvolo, resulting in non-cash amortization and integration costs. Foreign exchange is also expected to have a negative impact on revenues in 2024. The company maintains its organic leverage target and expects strong free cash flow conversion in 2024. In the second quarter, revenue growth is expected to be 8.5% and adjusted EPS to be $3.05. The company remains committed to its balanced capital allocation strategy, including reinvestment in the business, maintaining a strong balance sheet, and consistently deploying excess cash through strategic M&A and share repurchases. As of April, $540 million has been deployed in cash, with $190 million to dividends and $350 million to share repurchases.

The company has $2.1 billion remaining for share repurchases and is actively pursuing potential M&A opportunities. They expect to deploy $2.5 billion in cash for 2024 and have strong free cash flow, liquidity, and balance sheet for future capital allocation. The transport business is expected to perform as predicted and the company is confident in its long-term prospects.

The speaker discusses the company's strong financial performance and confidence in its future success. They attribute their success to their innovative technology, effective business system, and positive company culture. They also mention strong growth in various industries, particularly in data centers, and a strong pipeline for future orders. The speaker expresses pride in the team's execution and believes the company is well-positioned for continued success.

Chris Kuehn responds to Andy Kaplowitz's question about Trane's organic incremental margins, which have been higher than the company's 25% target. He explains that investments back into the business have ramped up in February and March, and the pipeline for investments continues to grow. Kuehn also mentions that Trane is not yet at its full potential for productivity, but they are getting better. Scott Davis then asks about the company's data center capability and where they currently stand.

Trane Technologies is well-positioned in the data center vertical and has been for a long time. The company is aware of emerging technologies in cooling at the terminal and rack levels and excels at thinking about systems as a whole. They also repurpose heat from data centers to create district heating loops. This is a dynamic and growing space for the company.

Scott Davis asks Dave about the company's partnership or competition with Vertiv in the data center industry. Dave explains that they have technology partners and work together to provide efficient systems for customers. Julian Mitchell then asks about the company's organic sales guide for the year, and Chris Kuehn explains that the projected slowdown in the second half is mainly due to tough comps in the commercial HVAC sector.

The comps for commercial HVAC, especially in the Americas, will be tough in 2024 due to significant growth in the previous year. However, the company still expects to have a strong year overall. The second half of the year is expected to be stronger than the first half for Transport Americas due to easier comps. The company is confident in their current guidance, but will have a better understanding of the second half after the second quarter results. Price and price mix are expected to be a 2-point tailwind for revenue in the first quarter, and there has been no shift in expectations for price mix in light commercial and residential HVAC due to refrigerant changes and EPA movements.

In the first quarter, Trane Technologies delivered 3 points of price, but this may become more challenging as the year progresses. They are confident in delivering 2 points of price and volume for the full year, with a focus on remaining nimble with pricing. Residential sales are not expected to have a significant impact in 2024, but the company is prepared to launch new products. The use of 454B refrigerant is not new for Trane Technologies, as it has been used in Europe for over two years.

The speaker discusses the company's comfort with their refrigerant and their plans for the transition to 454B product in 2025. They mention the potential for a pre-buy at the end of the year and the importance of monitoring inventory. They also mention their strong position in the data center vertical and the estimated dollar content for their products in this market.

The company has seen growth in the data center vertical and expects more growth in the future. However, they also have strong performance in other verticals and are tracking over 300 mega projects. They also expect continued business in the education vertical beyond ESSER funding.

The speaker discusses the strength of the education vertical for Trane Technologies and the robustness of the municipal bond process. They also mention the strong order rate for equipment in the Americas, with both applied and unitary orders being strong. The speaker believes they are gaining share in various verticals, and overall, the performance in Q1 was impressive with 40% order growth and broad-based strength. They also briefly touch on the residential sector.

The speaker is asking for a breakdown of the price mix and volume in the business for the quarter. The response is that revenues were up low-single-digits, with residential contributing to the increase. The speaker also mentions that the team in China is executing well and there is a lot of strength in pharmaceutical, health care, high-tech, and data centers. The speaker also mentions that their service business is strong, with growth in the low-teens.

The Americas saw a 15% increase in service growth, which has been steadily growing for the past six years. This area of Trane Technologies is often overlooked, but it makes up 1/3 of the business and has been resilient. The team continues to execute well and expect growth in the future. The quarter had two surprises: better-than-expected performance in commercial HVAC in the Americas and stronger-than-expected results in the residential business, which was initially expected to decline due to destocking.

The CEO of a company discusses the factors that contributed to an upside in their first quarter results, including the EPA's clarification on sell-through for a specific product and the strength of their commercial HVAC business. He also mentions that the rest of the world performed as expected, with modest downturns in certain areas. When asked about the resilience of their commercial HVAC orders and backlog, the CEO mentions a strong pipeline and ongoing demand, despite weak macro numbers in certain areas.

Andrew Obin asks about the potential for Trane to provide more sophisticated solutions and capture more value in cooling for semiconductor plants and data centers. David Regnery explains that they are working closely with partners and customers to understand trends in the data center industry. They are looking at the entire system, including air handling and chillers, and are also exploring opportunities for repurposing heat as an asset. Obin clarifies that he was asking about the potential for Trane to provide energy-saving solutions in these large and complex systems, to which Regnery agrees that there are many opportunities in this growing vertical.

The speaker, Chris Kuehn, responds to a question about the company's M&A strategy and the current market environment. He mentions that the pipeline for potential acquisitions remains active and the company has been successful with its previous bolt-on acquisitions. They will continue to be disciplined in their approach and prioritize opportunities that are EPS and ROIC accretive in three years. The company also has a strong balance sheet to deploy towards M&A or share repurchases.

The paragraph discusses Trane Technologies' growth in thermal management systems and their ability to successfully integrate acquisitions. The company's strong team and focus on learning from acquired businesses are key factors in their success. The complexity of the Applied segment is a challenge, but it also creates a competitive advantage for the company in terms of customer value proposition. This advantage is seen in their ability to provide a diverse range of solutions and their focus on continuous improvement and replication across global plants.

David Regnery, President and COO of Trane Technologies, discusses the company's direct sales force and their focus on selling solutions rather than just products. He also mentions the importance of their global reach and technical expertise in helping customers with their needs. As the company's products become more sophisticated, their strength shines and they are able to provide long-term support through services. Trane Technologies is investing heavily in training and adding to their direct sales force and support team to ensure excellent customer service. When it comes to the attach rate of services to projects, Regnery believes it will continue to grow as the complexity of their systems increases.

David Regnery discusses the importance of connected solutions in the company's services, which can result in an 8x to 10x multiplier over the life of a system. Customers want the company to be connected to their assets to ensure optimal performance. The company is at the forefront of monitoring and servicing these complex systems. There are no further questions at this time. The speaker thanks everyone for joining the call and looks forward to future interactions.

This summary was generated with AI and may contain some inaccuracies.