Good. Okay. Good afternoon, good morning, even. Thanks for joining us for Trane. With us we've got Chairman and CEO Dave Regnery, CFO Chris Kuehn, and the IR team as well. Dave, thank you very much for being with us, giving us your time. Maybe I don't know if you wanna start off with any opening remarks or if you just wanna launch into Q&A, but Dave, over to you. Yeah, I just have a couple of comments, Nigel, if I could. You know, first of all, thanks for having us at the conference today. It's great to be here virtually. You know, I'd like to just start with a few comments on our purpose-driven sustainability strategy, which is the fundamental driver behind our ability to deliver differentiated shareholder returns over time. Now climate change is having an undeniable impact, and we are seeing more extreme weather events which continue to threaten people and economies around the world. In turn, secular mega trends around sustainability and decarbonization continue to grow. You know, we see corporations and industries taking more interest than ever to support these mega trends. We also see growing sustainability commitments around the world from our customers, our suppliers, and our investors. We have the technology today to bend the curve, and now is the time to act while it's still possible to meet the targets under the Paris Agreement. Trane Technologies is scaling technologies today that exist to bend the curve, and we're relentlessly innovating for tomorrow to dramatically accelerate progress towards reducing global emissions. This approach enables us to consistently outgrow our end markets, which in turn helps drive our high performance flywheel to deliver powerful free cash flow to deploy to our balanced capital allocation strategy. We ended the Q1 2022 with record backlog and demand for our innovative products and services. Like the broader market, we continue to see supply chain constraints that we expect to continue through the Q2. We are working very closely with our suppliers and continue to expect those challenges to improve in the back half of the year as we reflected in our revenue and EPS guidance for 2022. Our backlog is up more than 50% year-over-year, and we are extremely well positioned to drive value for 2022 and beyond. With that, Nigel, Chris and I would be happy to take your questions. Thanks, Dave. That's great. So I'll do Q&A. Anyone in the room who's got a question, please queue it up. If you've got any questions on the webcast, please feel free to email us at coteam@wolferesearch.com. Hopefully my voice can hold up here. It seems to be I have a problem. Dave, there are lots to talk about, but I wanted to start off quite high level here. You know, you've been, you know, the CEO now for almost a year. I think July is the first last year. Doesn't feel externally like a whole lot's changing, and why would it? You know, it's been. You've been very successful. Internally, is there anything changing? Are you putting your stamp on the company internally? Any changes there? Yeah. Well, thanks for noticing. It's July first. I wonder if they're gonna have a birthday cake at my board meeting coming up this week. Hey, look, you know, I said before, right, there's four things that are very important to me that I'm instilling in our company, right? It starts with our culture, right? You know, we want an inclusive culture. It's so important, it differentiates us. You know, innovation is number two, right? We're gonna consistently innovate. We're not gonna be episodic in any of the investments that we make. Customer is number three for me, right? I believe that, you know, if you start with the customer and work your way back, you're gonna find out where value is being created, and you'll find out where waste is, and you can eliminate. You know, it all leads up to our purpose as a company, right? To, you know, to challenge what's possible, to innovate for a sustainable world. You know, we recently launched our ESG report, our second year. It's a great report, Nigel, if you've had a chance to read it. It really tells stories about our purpose. It tells stories about what we do every day. You know, it's not easy to run the company right now with all the world events, but I would tell you that we talk about ESG, and we talk about what we're doing. It's what we do every day. It's the way we engage our employees, it's the way we talk to our customers. That relationship is just a great one. It's been a fun first year, almost. I couldn't be prouder of the results that we've been able to deliver. Well, I haven't read the ESG report yet, but it's on my to-do list, for sure. It's a quick 130-page read. If you have- Okay. That's a weekend job for sure. You know, obviously, ESG is very integrated into Trane as a company. Maybe just talk about, you know, the seven process and, you know, you've got the Gigaton Challenge by 2030. How important is the whole sort of CO2 reduction efficiency proposition to customers in terms of selling and winning a share right now in the market? Yeah. I think that the tailwinds behind decarbonization of the built environment are gaining momentum every day. You know, we have customer after customer that has put commitments out there, and now they realize that, you know, putting the commitment out there was the easy part of the equation. How do you execute on that is when our customers would call someone like Trane Technologies to come in and help them develop that roadmap. We have a large retailer that we're working with. You may have seen it on our webpage, but Neiman Marcus, and they've asked us to come in and help them with their decarbonization efforts. We approach it in a very systematic way. We look at all of their assets. We help them identify where their biggest opportunities are, and we develop that roadmap for them to be able to achieve their targets. I mean, Neiman Marcus is just one example of what's happening really on a global basis as the world is reacting to these mega trends around decarbonization. We need to react to it. I mean, the weather events that are occurring around the globe right now, I mean, I was just getting an email from one of my board members asking if I knew what's going on in India with 115-degree temperatures. I mean, it's very extreme out there right now. We as a world need to take action. I would tell you that we're scaling the technologies that we have today that can dramatically reduce the carbon footprint for buildings. Pretty much every S&P company right now has Scope 1 emission targets by a certain date. You know, obviously, it varies. That's leading them to look at their building infrastructure needs and to achieve those goals right now. Yeah, absolutely. They're looking for what's their. You know, you could have a, I'll use Trane Technologies as an example, right? We have a 2030 commitment, but we have a glide path every year as to what we need to achieve to hit those targets. We're helping companies build that out, right? It's not about just putting a commitment that says by 2030 or by 2050, I'm going to do something. Show the detail and the roadmap that will allow you to make sure that you're on course. Okay. How much of the extraordinary order growth and strength we've seen in commercial HVAC, you know, you gave the number 60% growth in backlog. A lot of that's been driven by commercial HVAC. How much of that strength is driven by this trend, or is that still a roughly small part of a strong broader cycle in commercial construction? Yeah, that's a tough question to answer. I mean, it's a tailwind for sure. I would tell you that the innovative products that we've been able to introduce over several years, okay, just adds to that. It's a system of things, Nigel. It's not just about a product. People always ask, "Well, what makes Trane Technologies different?" It's a system of things that allows us to be a great company, right? How we go to market, how we, what's our new product development process, how we operate our manufacturing locations. That's all part of this system of things. A service organization that's been able to, you know, deliver over the last five years, compound annual growth rate of high single digits on a global basis. That's all part of the process that allows us to be a great company. Okay. Great. Thanks, Dave. Okay, let's get a little bit more down in the weeds now and you know, talk about some of the operational challenges on the supply chain. You've given, you know, obviously quite specific framework around Q2. Just wondering how the quarter is playing out in terms of China, supply chain, et cetera, versus your expectations. Nigel, it's Chris. Why don't I jump in, then I'll let Dave jump in. We don't normally give inter-quarter updates, but I would say given that dynamic supply chain environment, we thought it was constructive to give some guidance around the Q2. We call that high single-digit growth for revenue in the quarter, largely coming from price, volume being a bit constrained due to supply chain. The underlying core growth in the quarter really would have been in the 10%-12% range in terms of growth, if not for the lockdowns in China, right? We called an estimated reopening around mid-May. We're gonna see how that kinda plays out. We've got our plant reopening and it's starting to ramp up. The underlying growth is a lot stronger than a high single-digit revenue growth in the quarter. It really is being constrained in terms of what we're seeing in China and then just supply chain in general. We gave some guidance around adjusted earnings per share, you know, $2.05-$2.15. Again, just trying to be constructive as what we think that's gonna be playing out here in the quarter. Price cost really flattish on a dollar basis. We were flattish in the Q1, anticipated that being around flattish for the Q2. Let's see where that plays out 'cause as you said, it's a dynamic environment around supply chain for sure. I think you called out, Chris, maybe 2 points or so, impact from the, you know, China, that lockdown, early days of. That would be- Yeah. Yeah, sorry. $80 million-$100 million of revenue was the estimated range of revenue that would shift out of the Q2 and really shift into the second half of the year, right? This is demand delay is how we see it. It really is just shifting that productivity and those production activities into the second half of the year. Think of that as 2-ish points, a little bit over 2-ish points. Yeah. Nigel, just to reiterate, kinda just to comment on what Chris said, you know, one of our facilities was impacted in China. It's now open and it's ramping as we expect. Okay, that's great. It's pretty dynamic. I'm sure you've read or seen on the news what's happening in China. It's pretty dynamic with the lockdowns. Very dynamic, yeah. That's certainly the message we're hearing from other companies here at the conference. Then the flattish price costs, I think, you know, North America's been, you know, somewhat better than EMEA and APAC in terms of the price cost dynamics. Maybe, I don't know, Chris, maybe do you wanna touch on essentially what's changing in terms of the pricing within those two regions and maybe the inflationary impacts as well? Yeah. The Americas is always, just given how inflationary commodities are and raw material input costs, since our largest region is the Americas, it's gonna have the largest impact in terms of the raw material cost. We're seeing the best response in terms of pricing that is stronger in the Americas based on that reason. For the quarter, Q1, we had about 7 points of price realization, a little bit stronger in the Americas, a little bit less in EMEA and Asia, just given they've got a less supply or less raw material input cost inflation. We're really proud as to what we've been able to execute here on price realization. We're on our second round of price increases already for 2022. We had roughly 3 rounds of price increases last year. From a consumer perspective, it's been 5 rounds of price increases over the last, you know, 15-ish months. We're not seeing demand destruction with that. We're seeing, you know, tough conversations with customers. The fact is, we're able to really just try to offset the cost. We're not trying to gouge the customer. In a normal year, we try to get 20-30 basis points of price over cost. We're really just trying to offset the inflation at this point in time. That's what we saw in the Q1, where it's, you know, our guidance for Q2 as we price cost neutral, you know, maybe dollar positive a little bit in the Q2. Should be positive on the full year on a dollar basis, you know, very slightly, but we're just trying to offset it right now. Yeah, no question. I mean, it'd be shocking if you weren't getting some, you know, customer pushback, you know, with all the price increases at this point in time. Would you call out any region where you're seeing more pushback? I mean, it seems like there's a lot more inflationary pressures in Europe right now, and it feels like there's construction projects moving to the right in Europe. Would you say that's where you're seeing a bit more pushback, or is it more episodic? Yeah, I mean, I can take this. I mean, yeah, we've seen pushback in Asia. We see pushback everywhere. It's never easy going to a customer and say, "Hey, I'd like you to pay more." Certainly Asia's harder on price. We're being successful there, but it's harder. Europe, I would say is harder as well. Again, we're making progress in both of those regions. Okay. I think another thing, Nigel, that, you know, we comment on a lot is the fact that when you have new innovations and you're able to to tell the customer about what's new and the payback on what's new, it makes some of the pricing conversations go a little bit smoother. Okay. Maybe that's a good place to talk about, you know, NPI and, you know, the focus for your innovations, especially within, you know, commercial HVAC. You know, we think of, you know, heat pumps as being the center of gravity for innovation. Maybe just talk more broadly in terms of the big breakthroughs you're bringing to market. Yeah. I think we think a little bit differently about heat pumps, right? We call them thermal management systems because it's more than just a heat pump. It's combining a boiler plant with a chiller plant with sophisticated controls, and a heat pump is part of that system, but there are other elements that are part of it. These systems, Nigel, are significantly more efficient than the two independent systems in the past. That's why, you know, I talk about scaling technologies that exist today. I mean, these are technologies we should be scaling today globally. We are. Because, you know, it's just there's a payback there, and it dramatically reduces your carbon footprint. These systems are 3-4 times more efficient than the independent systems. Yeah. Europe is still, you know, where you're seeing the most traction, correct? With, I'll say heat pumps 'cause thermal management system is a bit of a mouthful. Heat pumps, that's still where you're seeing most traction, right? We're seeing traction in all markets. All markets. Okay. If you had to talk about, I mean, you've got the billion-dollar, you know, target out there, for again heat pumps. Where are we today and, you know, what's the pathway to a much bigger number? I think, when people start talking about how they're gonna decarbonize the billions of square footage that exists around the globe, you're gonna get to a much larger number because HVAC is a big part of decarbonization. A big part. I mean, 40% of the energy. Yeah. Energy in the building is for HVAC. If you take on that with sophisticated controls, you get to a number that's even higher. It's gonna be a big part of how the world is gonna be able to really bend the curve on global warming, and we're gonna be a big part of that. How much of that today is in backlog? Backlog book today. I mean, our backlog at the end of the Q1, Chris, help me out. 6 point- Think of it this way. Yeah, $6.2 billion at the enterprise and, you know, 90% of that backlog was non-residential. It would have been really Commercial HVAC and in our Thermo King business, the majority of that still being Commercial HVAC globally. Yep. Commercial HVAC, and I do want to touch on China, away from supply chain issues, but think about China as a market for your products, beyond the lockdowns. You know, we're going through a pretty significant real estate correction, mainly in residential, to be fair, but how do you view China the next 12-24 months? Yeah. We don't play in the residential space. Okay. Right. If we do, it's just right at the top end of that. You think about what's strong in the China market right now, it's certainly electronics, it's certainly data centers, it's certainly healthcare, which are all verticals that we're very strong in. What's strong in China, we're strong in. You saw in the Q1, our incoming order rates continue to be strong. Okay. Dave, you talk about residential HVAC as a GDP plus business, and it's undeniable it is over time. We've had a couple of, like, unbelievable years of growth. I feel that the consumer's under a lot of stress right now. I mean, how do you view the roadmap for residential for the next, you know, 12 months or so? Yeah, I think you're right. Over time, it is a GDP plus business. I think if you're looking out in the next 12-24 months on new construction, there's still a lot of demand for new construction. The built environment still has room to grow as far as the—which is, by the way, new construction is a smaller part of our resi business. On the replacement market, you know, again, it's about 20% of the total company. We don't see it falling off a cliff. Our business is performing very well right now. We have very strong backlog. We have price realization that's very strong, and we have leading brands. There's no price pushback you talked about, that that's not in residential. You're not seeing pushback from distributors at this point? Yeah. Telling someone the price is gonna go up, Nick, is never easy, just to be clear. Right. Yeah, we're sure we have conversations, but, you know, I think people understand what's happening right now with inflation. We're not alone in this, and people are seeing it in many different industries what's happening and what we have to do with price. As Chris said, we're not trying to gouge anyone here. We're trying to pass on the costs that we're seeing. We've been successful in doing so so far. Yeah. No question. TK, you've been constraining your, you know, orders by design to manage the inflationary risks around that business. Maybe just talk about, you know, when you might be opening up more production slots into 2023. Secondly, Dave or Chris, maybe talk about, let's say, you know, the prognoses are correct, and we go into a mild recession in 2023. How do you think this business holds up in 2023 in a softer macro environment? Yeah. I mean, I'll start with the end of your question there. Look, you know, if you look at what ACT is saying right now and IHS, you know, ACT has got a nice growth rate into 2023. IHS in Europe is gonna be flat in 2022. They're showing some modest growth in 2023, but that's subject to change. Our Thermo King business is much more diverse than it's ever been, okay, from a product offering. It's no longer just a trailer and a truck business. You know, it's air, it's home delivery, it's marine containers. It's a vast array of products now that we have. It's bus, okay, here in North America. You can use. It's a very diverse business. We'll see how it plays out. Right now, you know, we think that ACT's got it called pretty close to right here in North America. IHS is. They tend to be a little bit higher level, so we'll see how that plays. Okay. Thanks, Nigel. Sorry. Go ahead, Chris. Go ahead. The question on the bookings and what we're doing there in terms of the backlog, right? At the end of the Q1, we had not opened up the Q4, let's say, for bookings. It doesn't mean we're not accepting slots from customers. We're having those dialogues all the time. We just didn't want to price it based on that level of information. We would probably price that more into maybe Q2 or Q3 when we have a better view on the cost environment that's there. I think this way, we go back to the customers with just one price for them rather than a risk of having another price increase. That's still kind of playing itself out pretty well. 2023, certainly second half of the year is when we'd start thinking about orders for 2023. Okay. Second half of this year. Got it. A lot of your competitors, I mean, your two major competitors in commercial HVAC, spend a lot of time talking about digital. There's, you know, one in particular, you know, software solutions in terms of building. Maybe talk about Trane's IoT strategy in the commercial building. You center it around really connected chillers, historically, but maybe just talk about some of the innovation you have around there and some of the products you go to market with. Yeah. I mean, we're super excited about our controls business, okay, from a building management system. We've been working on it for years. It's not new to us, and we have a fantastic offering. You know, years ago we decided that we were gonna be a little bit different, so we went out there with an open protocol. We went out there, we led with wireless. We knew we had to be different, and we lead with wireless today. We look at it holistically. It's not, you know, the building management system, how it connects into our products, how we are able to aggregate data, how we're able to run AI against that data. We're very happy with the growth rates that we've seen in our controls business, for the last, you know, 7, 8 years for sure. You know, it's been double digits, and we continue to see a lot of activity there. We love our connected strategy. You know, that continues to grow. Customers see the value in it every day. It's migrated from a you know, connected strategy to augment your service business to be a connected strategy to help the customers manage their energy needs. That's really the way we look at it today in this kind of light. Well, that's what I was trying to get at was really, you know, roughly half of your commercial HVAC, well, applied business is service. You know, how has the service mix changed over the last, you know, 5, 10 years, you know, from sort of a regular break-fix parts-based service model to now a more predictive and value-added services? Yeah. I mean, I don't have the exact percentage, but I would tell you that a service technician today is, if they get a service, they're dialing into a unit, right? To understand what's happening many times before they even get to the job site, right? We're dispatching in many cases, depending on the service agreement, we may be dispatching someone because a particular building is using too much energy, which could be a number of things that could be, you know, how you correct. It could be how someone set the controls. It could be a mechanical problem on a damper that's not operating properly. Yeah, it's changed over time. It's everything is connected, okay? Everything is becoming more intelligent. Maybe that's part of the reasons why we have all the chip problems we have. It's actually really interesting to see how it's transformed our service business. What's that doing to things like attrition, attachment rates, you know, market share versus ISPs? I mean, how is that changing your competitive positioning within the market? Well, first of all, we're attached on the applied side of our business. We like to say we're attached to everything coming out. Anything that's new, we wanna be attached to it. We wanna be attached to it from making sure that it's operating the way it should be operating day one out of the box. Now, some of that's a warranty, and some of it is to make sure the customer is getting the value that they signed up for. We're always gonna be connected. Being able to prove your value proposition to the customers, it doesn't take long. When you're connected, when you're able to have conversations with a customer at a different level about how their building is performing, that's very, very powerful. You know, I tell you one of the things that during the pandemic, think about a hospital, Nigel, where you know that you couldn't even go visit someone who was sick, yet you had an HVAC problem, you had a technician that would have to come into the facility to fix it. If you're remotely connected, that whole dynamic just changed, right? What could be fixed remotely? If I am in there, how do I limit the amount of time that I'm actually in there as a service technician? That's played out, and people, the value proposition became very, very clear to at least in the healthcare channel, very fast. Yeah. Okay. I do wanna give the room a chance to ask the questions. Is there any burning questions? Yeah, right here, please. There's a question coming from the room here. I can't see them, but you can repeat it. Okay. Hey, thanks for taking the time. Just on the education front, it seems like a lot of the funding still has yet to be spent. Just I would be curious how you guys are thinking about that. Should that be a, you know, a pretty significant tailwind in the years to come? Yeah, that's a great question. I mean, I think in the education vertical, we started with indoor air quality audits and provided our customers with roadmaps as to, over time, how they could deploy capital to improve the indoor air quality as well as to ensure the energy efficiency of their buildings. With the stimulus funding, obviously that accelerated some of those roadmaps, and we worked with our customers to you know, show them how funding can be available to them utilizing the roadmaps. Specifically to your question, we're in year 2, okay? It's May, this is the school season as students start to take summer break, where a lot of the work happens. The funding actually lasts until September of 2024. There is some activity right now to potentially extend that. I don't know where that will end up. We're in season two, as we call it, and you have a couple more seasons left. Great. That's good. Just remind us, Dave, how big is education for Trane? Yeah. You want me to go, Dave? Yeah. Think of our Commercial HVAC North America business, 50% equipment, 50% services. Then of that 50% of equipment, we have multiple verticals in which we play in. Think of that as maybe half institutional, half commercial, of which within institutional you're gonna see education, and that could be K-12 and higher ed. We're pretty diverse, but it's an area that we play very well in. Okay, great. I wanna finish off on margins. What better way to finish? Actually margins and then hopefully we can have time for just a quick capital allocation question. Going into 2023, I think you said, you know, back in the 25% organic incremental zone. Is that still sort of the best thinking right now? You know, since obviously the transaction with Ingersoll Rand, you've gone through a $300 million productivity program. Is there a next leg of productivity beyond that, Chris, the way you sit today? Do you see a potential for another wave of initiatives? Yeah. I'll take your second question kinda first. We're well in the path of the $300 million transformation cost savings. We've realized up to $190 million through the end of last year. It incrementally jumps to $240 million of run rate savings this year. Incremental is $50 million. It gets to the run rate of $240. It puts us in a great spot to be ready by 2023 to be at that $300 million. Again, we're using those dollars, Nigel, that can go to the bottom line, but it also can help fund that innovation loop and that flywheel, as we describe it, to make sure that we've got those innovative products and the funding to go execute on that. Will we stop in 2023? The answer is gonna be no. We're always gonna look for opportunities going forward to streamline, operationalize. The launch of the new company gave us a great platform to do that. Think about where the work's being performed, less central, more decentralized in our regions. That's been kind of a go-to model that Dave helped pull together for the company. Yes, we'll continue to look at options going forward, but it's not gonna stop magically in 2023 is what I would say. The first part of your question on margins, we haven't really guided 2023 yet. We really wanna see how we get through the next couple of quarters. I would tell you that our long range target is really to get 25% incrementals on good revenue growth. Let's see where the markets fall out on revenue growth. You know, long-term target, we should get 25% incrementals. Start with 30% core, and then we save 5 points for that reinvestment back in the business, okay? 25% we still like over the long term. Maybe just a quick comment on the M&A pipeline. You know, you've got, you know, $1.9 billion commitment to deploy capital this year. We've got that in as buybacks right now. Buybacks at all of these levels is probably not a bad idea. You know, how do you feel about the possibility of one or two deals breaking free this year? Yeah, I'll start. So we've $2.5 billion was kind of our ballpark estimate for capital deployment. I'll tell you, based on the M&A pipeline, you know, maybe we'll do more. It really will depend on what's available and what we like and it's attractive. Of $1.9 billion left to deploy outside of dividends, we really deployed about $350 million in January to share repurchase. The stock was trading a bit higher at that time, and we thought there was good value in the shares then to repurchase. We absolutely see value in the shares today to continue that process. Two and a half billion is a guideline, but and we have, I think, $4 billion of firepower in terms of share repurchase authorization that our board upped in the Q1. We've got a ton of firepower to do both, is what I would end with. We're not capacity constrained. We've got a great balance sheet. We did close on one acquisition in the early part of April in Commercial HVAC Americas space, another independent sales office that we brought into the Trane family, which have been great returns for us. The pipeline remains active in terms of the technology acquisitions early-stage, as well as, we'll look at channel deals as well. Dave, anything you wanna add? Nigel, the M&A pipeline is active, and obviously, we're gonna be disciplined. We like being a pure play, we like Trane Technologies, and we've been very, very successful at deploying some of the technologies that we've acquired over the years. Fantastic. We're almost out of time, Dave, but do you have any closing remarks? Hey, first of all, thanks for having us. I mean, the demand for our products and services has never been stronger, and I've been in this industry a long time. We have an incredible backlog right now. You know, the supply chain's gonna be choppy through the Q2. We see it getting better in the back half of the year. You know, the tailwinds around decarbonization are not gonna go away, and they continue to gain momentum every day. Thanks everyone for your time today. Thanks for your interest in Trane Technologies, and hope to see everyone in person real soon. Thanks, Dave. Thanks, guys. Thanks, Chris. That was great. Thanks. Thanks, Nigel.