The paragraph is an introduction to the Trane Technologies Fourth Quarter 2024 Earnings Conference Call. The operator, Regina, introduces the call, and Zac Nagle, Vice President of Investor Relations, explains that the call is webcasted and recorded on their website. He notes that forward-looking statements are included and advises reviewing SEC filings for potential risks. Non-GAAP measures are also mentioned. Key speakers include Dave Regnery, Chair and CEO, and Chris Kuehn, Executive VP and CFO. Dave Regnery then discusses their strategy focused on sustainable innovation, which is driving customer demand and results in environmentally friendly and financially beneficial solutions.

The company highlights its strong financial performance and strategic investments in innovation and culture, which have driven market outperformance and free cash flow. In 2024, it achieved significant revenue and EPS growth and generated $2.8 billion in free cash flow, allowing for strategic M&A, increased dividends, and shareholder returns through repurchases. Since 2020, it has maintained a 12% revenue CAGR, expanded EBITDA margins, and heavily reinvested in high-ROI projects, enhancing its sales and service capabilities and developing advanced solutions to meet customer needs. The company is committed to long-term consistent performance and shareholder value.

The company has all the necessary resources to execute its strategy and deliver long-term returns to shareholders. The fourth quarter financial results were strong, with significant organic revenue growth, EBITDA margin expansion, and EPS growth. The company reported an 11% increase in organic bookings for 2024, a book-to-bill ratio of 102%, and a substantial backlog of $6.75 billion entering 2025. The Commercial HVAC segments in the Americas and EMEA performed exceptionally well, with strong organic bookings and revenue growth on a three-year basis. The applied systems offer long-term service opportunities with higher margins. Looking forward, the company sees favorable conditions in 2025, with residential markets normalizing and aligning with long-term growth expectations.

The Americas transport refrigeration markets are expected to rebound in the second half of 2025, leading to strong growth in 2026 and 2027. Challenges from tightened credit policies in China during the second half of 2024 are improving faster than expected, boosting confidence in delivering strong results in 2025. Demand for innovative solutions was widespread across segments in the fourth quarter, with Commercial HVAC seeing notable increases in bookings and revenues in both the Americas and EMEA. In transport refrigeration, bookings and revenues were down due to timing issues, but the segment still performed better than end markets. In Asia Pacific, there was strong sequential improvement, except for China, where bookings and revenues declined.

The paragraph provides an overview of the company's strong fourth-quarter performance, highlighting a 10% increase in organic revenues, enhanced adjusted EBITDA margins, and a 20% rise in adjusted EPS. The company saw significant organic revenue growth in both equipment and services sectors, driven by investments in innovation. In the Americas, the company achieved notable volume and price growth, particularly in commercial HVAC and residential areas, despite weaker transport performance. EMEA experienced growth in volume and price, with strong commercial HVAC performance, while Asia Pacific saw flat volume but improved EBITDA margins due to price realization and productivity. Looking ahead to 2025, the company expects continued strong execution and market leadership in the Americas through its direct sales force and innovation.

The paragraph outlines expectations for various markets in 2025, predicting a return to growth for residential markets with mid-single-digit increases and modest pre-buy impacts. The transport market is expected to remain flat, but with a significant recovery forecasted for 2026 and 2027. In EMEA, commercial HVAC is anticipated to perform strongly, while transport markets should see slight growth. Asia is expected to have a flat market due to macroeconomic challenges, with uneven performance across countries. The company plans continued investment and innovation, expecting 7% to 8% organic revenue growth and 13% to 15% EPS growth, with adjusted earnings per share between $12.70 and $12.90.

The paragraph discusses the company's financial outlook and capital allocation strategy. It expects a negative impact on earnings due to currency fluctuations and M&A activities but targets a strong organic revenue growth of 6-7% in Q1 2025, driven by commercial HVAC. The projected adjusted EPS for Q1 2025 is between $2.15 and $2.20, indicating a solid start to the year. The company is committed to a balanced capital allocation strategy, focusing on reinvesting in the core business, maintaining a strong balance sheet, and deploying excess cash through strategic M&A and share repurchases. In 2024, $2.5 billion was allocated or committed to dividends, M&A, and share buybacks to enhance capabilities in AI, digital management, refrigerated transport, and other investments, with an active and disciplined M&A pipeline.

The paragraph discusses the company's financial flexibility and future plans. With $6.2 billion available for share repurchases, they plan to deploy $2.5 billion to $3 billion in capital in 2025, supported by strong free cash flow and liquidity. Dave Regnery then speaks about the volatility and long-term strength of the Americas transport refrigeration markets, with projected growth in 2026 and 2027. The company aims for leading performance and shareholder returns, highlighting their strong culture and innovation. During a Q&A, Chris Snyder from Morgan Stanley asks about the consistent double-digit growth in the service segment, particularly in the Americas.

The paragraph features a discussion between Dave Regnery and Chris Snyder regarding the service business and commercial HVAC equipment. Dave Regnery expresses pride in the service business, highlighting its strong growth, particularly noting a seven-year compound annual growth rate (CAGR) in the high single digits. The service business has achieved significant growth, with revenue reaching $6.5 billion, growing close to 10% annually in recent years. The service business is resilient and well-operated, particularly in commercial HVAC solutions, which have a growing backlog. Chris Snyder then inquires about the commercial HVAC equipment orders, noting an improvement from last quarter, and asks if this is due to project variability or positive changes across multiple commercial verticals.

The paragraph highlights significant growth in Trane Technologies' Commercial HVAC business in the Americas, noting a high single-digit increase in order grades and more than 20% revenue growth for the year. Their business covers 14 verticals, with growth in 13, excluding Life Science, which has faced challenges but remains promising. The company's success is attributed to its broad portfolio of products designed for the market, not just specific verticals, and its direct sales force's technical and domain expertise. The applied solutions segment has shown impressive growth, with revenues up over 120% in the Americas and over 90% in the EMEA region over the past three years. The overall pipeline remains strong, indicating continued growth potential.

The paragraph is a part of a discussion involving Chris Kuehn, Dave Regnery, and Julian Mitchell about the organic sales growth forecast for the year. There was an expectation for a slow start with acceleration later due to residential HVAC recovery and improvements in TK. However, the growth guide appears steady throughout the year, slightly lower in Q1. Chris Kuehn explains that the pre-buy headwind from residential HVAC is expected to impact primarily Q1, possibly keeping residential sales flat to slightly down. Transport markets are seen as bottoming out in the first half, with challenges in Q1, but the Commercial HVAC segment is anticipated to show strong growth in the high-single digits to around 10% even in Q1.

The company expects 6% to 7% organic revenue growth in the first quarter and 7% to 8% for the full year, with significant contributions from Commercial HVAC. Pricing contributed slightly over 2 points in the fourth quarter, primarily driven by the Americas, and is expected to add about 1 to 1.5 points to 2025's revenue growth. The balance of growth will come from increased volume. There is reduced pricing carryover from 2024, and new price increases are planned for 2025. In the residential sector, they are transitioning to the 454B refrigerant.

The paragraph discusses anticipated price increases, expected to be in the high single digits for a particular portfolio, with the transition affecting about 65% of it for roughly three-quarters of the year due to changes in A2L refrigerants. The price range for the year is estimated between 1 to 1.5 points. During a conversation, Andy Kaplowitz from Citi asks about future growth in data center project bookings and education-related bookings, expressing concerns about possible challenges in North American commercial HVAC bookings due to difficult comparisons. Dave Regnery responds affirmatively, noting growth across several verticals, with education remaining strong due in part to ESSER funding. He expresses optimism about future growth opportunities across all verticals.

The paragraph discusses the positive outlook for Trane Technology's commercial HVAC business, driven by trends like decarbonization, energy efficiency, reshoring in the U.S., and ongoing major projects. The company is optimistic about sustainability solutions that offer good returns for customers. Andrew Kaplowitz raises questions about margin durability, noting strong APAC performance in Q4, and Chris Kuehn attributes this to effective management and strategic decisions in Asia, despite challenges in China's credit policy. He comments on the positive impact of these efforts on productivity and investments, with expectations of continued improvement.

The paragraph discusses the company's strong performance across different regions, with a focus on margin expansion and investment. The company is confident in future growth in margins and leverage, particularly in EMEA and the Americas. The Asia business, despite being only 8% of revenue, showed impressive growth, especially in China and the rest of Asia, with strong order growth and a successful implementation of a new credit policy. The company is focused on ensuring all orders are backed by down payments and is accelerating investments across regions. Dave Regnery and Chris Kuehn express pride in the team's execution and performance.

The paragraph discusses the service business's margin opportunities and its evolution towards maintaining equipment efficiency through technology investments. Chris Kuehn highlights the higher margins and growing demand for optimizing running equipment. The service sector, representing a third of the enterprise's revenue, benefits from investments in technology and tools, enhancing service technicians' efficiency and diagnostics capabilities. Dave Regnery adds that the recent acquisition of BrainBox AI will further support the service business's growth, considering their current connection with around 42,000 buildings.

The paragraph discusses the integration of structured and unstructured data through AI to enhance building efficiency, with a focus on reducing energy waste, which currently stands at around 30% post-meter. The goal is to decarbonize the built environment and improve energy use. Amit Mehrotra highlights the compelling paybacks and the expectation of rising energy costs driving growth. Dave Regnery emphasizes that as energy prices likely increase, operating systems efficiently becomes crucial, making paybacks more significant. BrainBox's acquisition is seen as a vital component in enhancing equipment efficiency and achieving demand side management objectives.

The paragraph discusses a company's success in scaling software technologies within its channels and its optimistic outlook for future growth. During a conversation, Scott Davis from Melius Research asks about the role of energy audits in driving the sales cycle and if internal measurements of these audits are used as indicators for future business activity. Dave Regnery acknowledges that their operating system includes various metrics, including those related to energy management audits, which help ensure assets perform efficiently without wasting energy. He emphasizes that communicating these efficiencies to customers is compelling.

The paragraph involves a discussion between Scott Davis and Dave Regnery about the advancements in using AI and digital twins, particularly through the integration of unstructured data with BrainBox, leading to significant results. Dave mentions how digital twins are being used to enhance equipment performance by constant monitoring, with AI being one of several tools improving this process. Joe Ritchie from Goldman Sachs then asks about the future trajectory of their data center business and the status of their commercial HVAC backlog, to which Dave Regnery responds affirmatively.

The speaker addresses the company's backlog and its implications. Despite a slight decline due to currency impacts, stricter backlog inclusion criteria in Asia, and normalization in transport businesses, their backlog remains strong, providing clear visibility into 2025. The speaker also highlights robust pipeline activity. Regarding data centers, the speaker notes longstanding strength and growth in this sector. Although unsure about the impact of a new competitor from China, the speaker cites Meta’s recent earnings call, which emphasized their infrastructure expansion as a competitive advantage.

The paragraph is part of a conversation during a conference call. Joe Ritchie asks Dave Regnery about the company's exposure to tariffs. Dave explains that the company has a diversified manufacturing strategy with plants in various regions, including the Americas, Europe, and Asia, which helps manage tariff risks. He acknowledges that tariffs could impact the supply chain but expresses confidence in their ability to adapt and maintain profit margins. The conversation then shifts as Steve Tusa from JPMorgan asks about the residential guide, noting a mix benefit and a volume headwind from pre-buy.

In this discussion, Chris Kuehn outlines three factors contributing to the mid-single-digit revenue growth projection for residential markets: the A2L refrigerant change providing a mix tailwind, growth driven by a GDP-plus framework supported by consumer confidence and state-deployed IRA funds, and a pre-buy dynamic acting as a headwind. He notes that if market conditions were softer, the impact on enterprise revenues would be minimal. Regarding the Light Commercial sector, Kuehn expects the applied markets to grow faster than unitary markets in 2025, emphasizing Trane Technologies' advantage with its broad product portfolio.

The paragraph discusses the financial implications of service costs in relation to the initial purchase cost of an asset with a 30-year useful life. Steve Tusa expresses surprise at the high multiplier of service costs, suggesting that owners spend significantly on maintenance and refurbishments over time. Dave Regnery explains that over the life of such an asset, service costs can be 8 to 10 times the initial purchase price, due to ongoing maintenance and upgrades as technology advances. Regnery emphasizes confidence in this analysis based on the existing installed base. The conversation then shifts to Jeffrey Sprague from Vertical Research, who is greeted by Dave Regnery and Chris Kuehn, noting that it is a chilly morning in Connecticut.

In the discussion, Jeffrey Sprague asks about the company's backlog, specifically regarding its staging and deliverability in 2025 and beyond. Chris Kuehn responds that the backlog is $6.75 billion at the end of 2024, primarily driven by Commercial HVAC globally, and most of it will generate revenue in 2025, with a small portion extending into 2026. Dave Regnery clarifies that services are not included in the backlog. Sprague mentions that a majority implies 80% to 90%, not just above 50%. Additionally, they discuss the performance of residential channels, noting that a pre-buy occurred with Independent Wholesale Distributors, amounting to $75 million to $100 million, spread across Q3 and Q4, rather than concentrated solely in Q4.

The paragraph discusses a conversation during a conference call where Nigel Coe from Wolfe Research asks about the mix and differences between predictive connected services and transactional services in a business context. Dave Regnery responds that while the company is strong in both areas, they have not disclosed specific mixes for various reasons. He emphasizes the importance of service agreements to ensure asset performance and explains that the company responds to ad-hoc, urgent requests but aims to convert such interactions into more comprehensive service agreements. Regarding potential margin differences, Regnery notes that margins typically do not differ but acknowledges that urgent requests might have variable pricing, although exploiting such situations is not considered a sustainable business practice.

In the paragraph, Nigel Coe asks about the acquisition details and financial implications of BrainBox AI, perceived as a significant deal with an enterprise value less than the speculated $300 million. Chris Kuehn responds by explaining that BrainBox is similar to a previous acquisition in Europe, and it involves early-stage technology with high amortization expenses expected in 2025. He mentions that this will negatively impact earnings by about $0.20, which is factored into their financial guidance. Additionally, he discusses how the amortization expense related to a separate business, Trane, will decrease in 2025 by $25 to $30 million, but this will be offset by increased depreciation from recent capital expenditures and other acquisitions' higher amortizations.

In the paragraph, the discussion revolves around the financial impacts anticipated in 2025 and 2026, particularly concerning Trane's amortization, which is expected to have a neutral impact in 2025. Dave Regnery expresses excitement about growth opportunities in technology, highlighting the potential of using existing data from 42,000 buildings. The conversation shifts to Deane Dray asking about a pre-buy situation, to which Dave Regnery responds that the pre-buy was modest as expected and the transition to the A2L refrigerant was successfully executed without surprises. The capability for mixed model production lines to support aftermarket needs for different refrigerants was also noted.

In this paragraph, Dave Regnery and Deane Dray discuss sales timing and credit policies. Regnery notes an unexpected increase in pre-buy activity in the third quarter, which was initially unnoticed but rational given potential fourth-quarter supply issues. Despite this, the impact on overall results was minimal. Dray acknowledges the continued availability of a specific product (410) and shifts focus to China's credit tightening measures. Regnery explains that the company now requires down payments when orders are placed and before shipping, a policy applied broadly across all verticals and channels. The team has made progress in educating customers about these requirements and saw improvement in the fourth quarter over the third.

In the discussion, Chris Kuehn explains to Tommy Moll that the expected earnings per share (EPS) for the first quarter of 2025 are higher than the usual range, reaching about 17% of the full-year guidance compared to the typical 15-16%. While the first quarter shows strength, there are anticipated headwinds in the transport markets during the first half of the year, with an expected recovery in the second half that could lead to flat or slightly positive growth for the full year. Residential markets also face some challenges in the first quarter due to a pre-buy impact. However, there is high confidence in the year’s guidance and optimism for growth in transport markets in the Americas in 2026 and 2027.

The paragraph discusses business updates and strategies. Chris mentions potential growth dynamics for the year, including A2L pricing and new business in China, with expectations for normalization in the second half of the year. Dave Regnery discusses investments in the Commercial HVAC business, highlighting a recent acquisition in Belgium as part of their ongoing strategy to buy independent channels. The strategy remains opportunistic as they aim to bring the remaining independent channels into the Trane business.

The paragraph details the conclusion of a conference call, with Zac Nagle providing closing remarks. He thanks participants for joining, mentions availability for questions in the coming days and weeks, and notes upcoming conference attendance. The call is then officially closed by the operator.

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