We started with Trane Technologies. I've covered Trane for about 18 years, and it's been really something to see the transformation in this company, into, you know, one of the highest quality, most dependable companies out there, and it certainly wasn't that 18 years ago. It's been wonderful to see this transformation. With us on stage is Dave Regnery, Chair and CEO of Trane, and Chris Kuehn, EVP and CFO. Dave, over to you, and we'll go from there. Thanks Nigel. Thanks everyone for coming today. It's a great day here in New York, nice and sunny, and I see a lot of blue jackets in the crowd here. I was told I wasn't allowed to wear blue anymore from my wife. Look, I still own a couple. Just to be fair. Look, our purpose at Trane Technologies is to challenge what's possible and to innovate for a sustainable world. That's fundamental to our strategy, really allows us to create differentiated value for our shareholders. The mega trends around decarbonization and sustainability continue to intensify. Unfortunately, the world continues to get warmer. At Trane Technologies, we are scaling technologies that exist today, and we could talk more about this, but they exist today, that can dramatically reduce the carbon footprint of the built environment. We're also relentlessly inventing for tomorrow. We had a very strong first quarter, which gives us a lot of confidence in our guide for the rest of the year. In the first quarter, we had organic revenue growth of 9%, we had EPS growth of 26%, and we ended the first quarter with a backlog of $7.3 billion, which is more than 2.5 x what we would consider to be a normal backlog. We're very well-positioned for not only 2023, we'll be very well-positioned to 2024 into the future. With that, Nigel, I'll turn it over to you. Yes, Dave. I've got to mention that there will be a chance to ask questions, probably in 15 minutes or so. Put your hand in the air if you've got any questions. Dave, your performance for the last, you know, six quarters or so has been pretty consistent, delivering your promises despite all the macro volatility. Maybe just talk about where we are today, you know, what's sort of on your mind, the top two or three kind of problem areas, key issues that you're working through right now, and, we'll get into the macro. We always look at every problem as an opportunity, right? It's how you spin it. Look, I mean, our business is performing very, very well. I think the supply chain, it's getting better, and it continues to get better, and you see that obviously impacting our results in a positive way. The supply chain is not where I would call it's normal, and it has a ways to go to get back to that level. We're continuing to work, and our team continues to do a great job. I would tell everyone that we are carrying more inventory, working capital, than we normally would. We believe that's a very prudent investment, and we'll continue to do that until a time where we'll burn that off. I'm not concerned about burning it off, I'm more concerned about making sure we're able to have continuity in our manufacturing processes. It's very disruptive if you have to take a product on and off the line to retest it, et cetera. We wanna make sure we have the right components, and it's also very disruptive to our customers when we don't deliver on time. We're gonna be on the conservative side here and we'll leave in some layered inventory for a period until we can make sure that the supply chain becomes more robust. When with inventory, are there any remaining bottlenecks, be it chips, filters? Yeah, I mean. Fans at the end of the day, our products over the last, I'll say five years, have become so much more intelligent that their microprocessors that are built into the components are everywhere within the system. We like to think about things at a system level, but that requires a lot of microprocessing. When you start thinking about having a microprocessor in your, not only in your fans, but in your wire harnesses, you can kinda get a degree as to what we're talking about as the intelligence that are built into these systems. What we've done there, is we've actually redesigned a lot of our components to be able to accept many different kinds of chips. Think of it as a minimum of two, and that gives a lot of built-in redundancy, which has helped us tremendously, as we work through these supply chain issues. Great. You built backlog in 1Q. I was surprised that you. I mean, it's not unusual to build backlog in the first quarter, but, off the kind of backlog you've got, that was quite impressive. What are you assuming over the next, you know, several quarters? Do we start to eat into that backlog here? I mean, now that lead times are coming down, is it natural we should assume backlog to kind of revert? Do you want me to start, Dave? Sure. Go ahead. Yeah. Sure. You know, we ended the first quarter with $7.3 billion of backlog, $400 million in Q1, Nigel. We put a scenario out there which would say, you know, we expect backlog, if it were to be at the end of the year, $6 billion. Okay? Down, it would mean order rates were down 6% in the year. It was meant to be a scenario, and in the first quarter, we saw orders, bookings down 1%. You know, we did better than that versus the scenario. I would tell you that we fully expect the ending backlog in 2023 going into 2024 to be much stronger than $6 billion. Will the backlog ultimately come down over time as lead times improve? It should. It should absolutely normalize. We're seeing that in the Residential space already for the last couple of quarters. Thermo King, you know, that's a little bit lumpy in terms of when order rates have occurred, just given when we've selectively opened up the backlog and the order bookings. We should see that normalize over time. Right now, we're expecting to enter 2024 with a very strong backlog well in excess of $6 billion. Okay. Not a seven handle. That would be. What's that? Not a seven handle. That'd be too aggressive. Let's see where the year kind of plays itself out. Yeah. Remember, the majority of our backlog is sitting in non-residential space. Right. Okay? Over 90% of the backlog is in Commercial HVAC and Thermo King, and of that, the vast majority of that is in Commercial HVAC. That's a great segue because, on, when you think about that backlog and you dissect it, how much of it do you think is due to structural secular factors where customers might be, you know, preemptively upgrading facilities to maybe reduce Scope 1, Scope 2? How much of it do you think is just lead time extension, trying to get it, you know, into the queue? How do you think about that? It's a great question. I think lead time is certainly adding to it. If lead times have extended, obviously customers are gonna give us more visibility as to when they're gonna need the order. When we're gonna book that order, it's gonna become part of our backlog. I would also tell you that innovation helps. If you're able to create solutions that are different in the marketplace, there's a lot of demand for those, and hopefully you saw the results that we were able to demonstrate in our European business, European Commercial HVAC business with, you know, strong order demand, but also you know, on the revenue side, our equipment business was up close to 40%. 40%, that's really about innovation. You also have, there's certain verticals that are really accelerating. Data centers has been strong for a while. You've probably heard me talk about the High-Tech Industrial vertical. It's kind of our own nomenclature for that. Think about EV battery plants, what's happening there. That's certainly adding to the backlog. Think about microprocessors and I'm not talking about what's to come with the CHIPS and Science Act, 'cause I really do believe that that's in front of us. A lot of different things that are growing the backlog. I would tell you, though, having a robust portfolio that's full of innovation, having a direct sales force on your Commercial HVAC business, being able to talk to end customers and all the different decision makers in an order process, it all helps. Clearly more tailwinds than headwinds right now. The other thing too is, that I didn't talk about, is the regulations that are out there. In our industry, for the first time in a long time, we have the tailwinds of what I call policy stacking occurring. It's not just one policy, it's many policies that are out there. You know, it started with the whole, you know, think about ESSER funding. We now have IRA that hasn't yet even impacted us. Think about what's happening with CHIPS and Science. Go over to Europe, there's other regulations that are really becoming tailwinds for our business. A bunch of states and municipal codes as well. There's a lot of tailwinds out there. Yeah, I mean, the whole... It really... You think about the larger umbrella around, you know, the decarbonization of the built environment. It continues to intensify. We're seeing it really on a global basis. You're seeing a lot of codes being written around it. You know, municipalities, you have a Local Law, what, 97? 97. 97. Yeah. I always get it mixed up with what's out in Seattle. Again, it's a local law where it's at a municipality level. It's called New York City Municipality. It's really having an influence on what and how you're gonna manage spaces in the future. That's not just here in New York, okay? That's widespread. If you go over to Europe, right, and you look at it by country level, I mean, you have many countries there that have said that if you're going to have a greenfield building, it will not use fossil fuel. Think about that, not use fossil fuel. Some of the solutions that we've been able to develop that, you know, our thermal management systems where we're able to eliminate or significantly reduce the need for fossil fuel, you can understand why our business in Europe is growing at the rate it is. More tailwinds than headwinds, I would say. More tailwinds than headwinds. Let's talk about the headwinds, the potential headwinds. Let's think about, you know. I listen to Bloomberg in the morning. There's one analyst on there that loves to go to the negative side. Go ahead, Nigel. Yeah. We like, you know. I won't mention him. We're like the groundhog, we see shadows. Okay. Thinking about the regional bank, you know, lending standards tightening, we're all freaked out about, you know, commercial construction. Are you seeing any pockets? And I'm just wondering if, you know, maybe, you know, the kinda light commercial rooftop units, are you seeing any pockets of weakness in that at all? Even just in the front log, perhaps? I mean, we don't look at it necessarily at a product level. We look at it at a vertical level. To be fair, the, on the regional banking side, we haven't seen an impact on that. It's been strong. I mean, it's been very strong and, you know, there's some verticals that are less strong than others. I mean, office certainly hasn't been as robust as, say, the High-Tech Industrial side. The, you know, the thing about our business is that with a direct sales force that's, you know, highly trained, we can pivot to different verticals very quickly, and we do. Yeah. That's. We'll take advantage where the opportunities lie. Okay. Moving to Residential, and I know you like to talk about the fact that this is a GDP plus industry, and I'm sure that, Over time. Over time. We are seeing a lot of noise right now. Yeah ... with, you know, sell-through down double digits, is this a weather issue? Is it a consumer issue? I mean, how would you describe that? Well, first of all, in the first quarter, our sell-through was basically flat, which is a good way to look at the business because it really identifies the health of the business. Yeah. Residential has been normalizing. I would say it's been normalizing for probably the last three quarters. Inventory's coming down in the channel. If, you know, as I said on our earnings call at the end of the first quarter, how does the inventory look? It's probably a bit higher than it needs to be. You'll see some more normalization that will occur in the second quarter. Understand, don't judge the Residential business on the first quarter of the year, okay? It is the smallest portion of that business. When the cooling season starts, demand will be there. There's, you know. The other thing I would say about the Residential business is, it's, you know, our revenue number was down in the mid-single digits. Our volume was down in the teens. We continue to invest heavily in that business. Like, cause I know that this will come back, and I wanna make sure we're ready for it. We're doing a lot of work there with... I'm not just talking about the refrigerant change that's coming or a Cold Climate Heat Pump that, you know, they couldn't even stop our unit, okay? Literally, we had to shut it off. They're like, "Okay, you qualify." They couldn't fail the unit. Think about it at the digital side and what we're doing there and how we're helping our dealers be more successful with their customers. Those are the investments, type of investments that we're making in the Residential space. Yeah, it's a business right now that's got some headwinds. It represents, you know, 20% of our business, so we don't see it falling off a cliff, but it will come back, and when it comes back, we're gonna be more than ready. You think inventories will be right sized by the second quarter. Second half of the year, we should start to see a cleaner. Yeah, we'll see how, we'll see how the year plays out. Okay, a lot of it's gonna have to do with the demand that we see as the heating season starts. Yeah. I'm sorry, the cooling season starts. Which will be anytime to, you know, this week, next week, right? Soon. Hopefully. Soon. Soon. Um- Well, I'm heading to Arizona after here, and I'm being told, as I'm getting these emails, that it's already started there. Yeah. It's coming east. All right. Pretty sure Arizona, if it's not warmer than this, I'd be very worried, so. Yeah. I'd be nervous too. Thinking about the investment, you alluded to the refrigerant change. I mean, where is Trane on that curve of investment to get your Residential and commercial products ready for, you know, the A2L? Yeah. We're more than ready. I mean, we've been dealing with next generation refrigerants since I was running our commercial business back in, I don't know, 2013. You know, there was always this myth out there that if you went to a low- GWP refrigerant, you were gonna sacrifice efficiency or performance of your equipment. Well, we broke that myth. Basically, we increased the efficiency of our product and the capacity of our product by going to a low- GWP refrigerant. That was on the commercial side of our business. You know, I was explaining to a group earlier that they're like, "How'd you do that?" I was like, "It has to do with working across, you know, businesses." You think about some of the major manufacturers of refrigerant. In the past, it was always like, "This is ours. We're not gonna share with you. Here, go try this gas and see how it works in your unit." That's a very ineffective way of developing next technology. Working together, and there's some relationships that have to be built to do that, we're able to come up with solutions that are better for the industry and better for the planet. The speed to market now with next generation refrigerants, there's a reason why you see these things coming out so quickly, right? Because we're working across the businesses to develop next technology. We're more than ready. We welcome. You know, think about refrigerants. There's three aspects I always tell people to consider when you're thinking about refrigerant, right? One is, what's the greenhouse gas? That's the one that gets advertised. The closer to zero is better, right? There's a point where it becomes de minimis prob, you know, at some level. The second is what's the performance that in your product, right? Did I increase the capacity or did I decrease it? If I had a 500- ton chiller that now becomes a 300- ton chiller, that's a bad thing. Did I increase it? Does the 500 now become 600? That's a good thing. The third element is safety. Don't forget safety because it's very, very important. You know, we're now talking about A2L refrigerants. I don't wanna get too technical. The oxymoron is they're slightly flammable. I don't know how that could be. They're flammable, right? You have to put different detection systems within your system to make sure if there is a leak, it can be detected. We're well equipped to do this. We encourage the market to go to GWPs on refrigerants that are closer to zero, and we're helping to lead that. Okay. You'll be ready. Do you think your competitors will be? I mean, where do you sense you are versus your? I should ask you that question. I think you've got a, at least- Look, I don't know what they're doing. perspective I can tell you what we're doing, and that's the fact that, you know, we've been developing next generation refrigerants across our portfolio for a number of years, and we're very comfortable with the science and the technology that exists there. Okay. It's one of the investments we have this year, Nigel, when you think about the 70 basis points we're guiding to investments on a year-over-year basis. It's one of several that make up that 70 basis points. Yeah. It doesn't sound like, you know, you're going through a particularly heavy investment phase this year and next year, and then all of a sudden you get an investment dividend. There's other things you'll be working on beyond that. Other things, we really like, saving five points of the incrementals back to reinvestment in the business. Yeah. We see that as a long-term play. Here in the short term, there's a lot of projects that we've seen from the businesses on their innovation that we wanna make sure we fund. Okay. Yeah. TK, let's talk about the transition from traditional diesel to electric and alternative fuels. I mean, What is the penetration right now of alternatives? Yeah. It's, it's happening, we've been talking about it for a while. I think we came out with an announcement maybe a year ago that we're gonna invest $100 million over the next three years to electrify our portfolio. It started in the very small sizes. Think of home delivery several years ago. That continues to accelerate. It's really now happening in what I call the midsection, which is think about distribution. Think of food distribution, where a truck or a trailer goes home at night. That's where the electrification is starting to happen. That will continue to accelerate. There's a lot of codes that are being written around that. Talk about this, like CARB, which is obviously the California Air Resources Board. They're writing around that, a lot around that, where actually in 2023, if you're going to buy a reefer truck unit, not the truck, the reefer, 15% has to be electric. Again, it's promoting that. It's another tailwind to adopt this technology at a faster pace. The long haul segment will take a little bit more time. We'll be ready with a product, and we're gonna be agnostic as to the power source on the product, whether it's battery or hydrogen, we'll be ready for that. That will take some time. This middle section is starting to happen very fast. Think about food distribution. Anything that goes home at night, depending on the length of the milk run that they would be on, has the ability to be electrified. In Europe, it's a little bit different, okay? It's moving at a rapid speed as well. You're planning for a flat market, the truck trailer market in North America. I think that's based on ACT's forecasts. Correct. Feels like given the backlog, it could be better than that. Would you agree, disagree with that? For 2023? Yeah. Well, I think we'll certainly... Our plan is to outperform the markets. One of the slides we like putting in to the investor decks the last couple of years has been market performance Europe and Americas, and then our performance in Thermo King. Clearly the innovation and the investments we've made over several years are showing that outperformance. Yeah. Our plan would be to outperform. ACT recently lowered their guidance in 2023 by 1,000 trailer units, and then they shifted it to 2024. You look out through 2028, Nigel, it's a 45,000 or growing market throughout that period of time, which is a really robust market for trailers. Okay. Your competitor, your main competitor is seeing some real noise from container, which is a much bigger business for them. Are you seeing the same headwinds within your... You know, you did 5% organic growth in TK in 1 Q. Are you seeing the same headwinds from container within that number? Actually, our Marine Container business has been quite strong. It's a much smaller base than our trailer business. We've actually had some neat innovation in that space, specifically around refrigerants. We've actually performed quite well. I don't remember the exact percentage. Okay It's a small percentage of our business. Okay. Yeah, we continue to invest. We invest in If it's gonna be in our portfolio, we're gonna invest in it. You know, I think the mistake that sometimes a CEO might make is to stop investing in a particular part of the business 'cause it's smaller. I always have this philosophy that smaller should be a lot larger, especially if the market opportunity exists. Yeah. We love the diversification of that Thermo King business, Nigel. I mean, two-thirds of it's really truck and trailer. You've got the other third is marine, bus, air, rail, services, parts. We love that diversification of that portfolio. Sure. That's great. All right, guys, any questions from the audience? All the questions on stage. Good. Okay, good. Let's carry on. I wanna talk about margins. I thought your margins in aggregate in 1Q were actually quite robust, quite strong. I think some investors felt that Americas was a bit weaker than expected. Europe, obviously, and APAC, very strong. Maybe talk about some of the dynamics within the Americas, because I think, Chris, you talked about investment spending picks up in the Americas- Mm-hmm In sort of beyond 1Q, second half of the year. Perhaps just talk about some of the headwinds you saw in the Americas, in 1Q. Look, our Americas segment had a really strong first quarter. 8% revenue growth organic. We saw 26% organic leverage in the business and 90 basis points margin expansion on operating profits. Thought I had a really strong first quarter, but think about it as really a tale of two cities. Dave mentioned before Residential. You know, revenues were down mid-singles, volumes were down more than that, and the business delevered at its gross margin level. What we saw was a really strong Commercial HVAC business, okay? Revenues were up mid-teens, okay? Volume was stronger than price in the quarter, right? This continuing improvement around supply chain, we're seeing that really benefit in terms of volume growth. We'll kind of do the math. The operating leverage on the business was over 30%. This is the power of having a bit of a diversified portfolio. Yeah. Americas did a nice job in the quarter, led by Commercial HVAC and hopefully just shows the power of that franchise globally. Some great performance in Asia and in Europe. Of course. That- Just to bring out the positives. Of course. Yes. That segues into... I mean, there's this notion that, you know, your resi and TK margins are fantastic. Light commercial's good, and then applied is lower margin. Your EMEA and APAC businesses are largely Applied markets, right? Right. Those are really good margin businesses. Yeah. Is that sort of old sort of, heuristic still, you know, kind of wrong? It may be a little bit of old tape, because if you look back the last two years, and to your point, different mix of businesses, Asia, Europe, EMEA, and the Americas. Last two years, plus or minus those businesses, all three of them have generated EBITDA margins around 18%, plus or minus. Very different business mix with Residential in the, in the Americas. We're driving all of our segments to driving 25% or better operating leverage. We expect each of our business units to be driving for that. I think the opportunities still are very much in front of us as we think about getting the supply chain normalized, productivity back into our plants and into the operating system. That's a nice opportunity for us going forward. The EMEA margins, which were good. Let's emphasize that. 500 - Yeah ... plus%, growth. Yeah. Thanks, Nigel. Is that primarily- Thank you, Nigel. Appreciate the points growth. Yeah. Is that primarily a price- cost catch-up? Think of it as, really, strong negative impact a year ago from supply chain, the inability to get volumes out, and then just a higher cost to serve customers from a year ago. Yeah. It's not back to zero in terms of cost to serve customers. There's still some higher costs. We think that's the right thing to do to get product out. It's the power of seeing the volumes come through the business and the rework, as Dave described before, is not happening to the extent we saw a year ago. That productivity is starting to really come through the business there. It's getting it back to a. Innovation helps. ... more sustainable level. Innovation helps. Innovation. Then APAC, you've had a lot of, like stop start, you know, one step forward, two back, et cetera, in China, and the region. Are we now at a point now where things are a bit more stable and perhaps you can get better productivity through the factories? We're happy with the reopening as how things have gone since, you know, call it the late summer, fall of last year. I think it was over 300 basis points of margin expansion in Asia in the first quarter. We really liked that reopening and that status. The team has done, both in regions, outstanding job in terms of recovery there. Think of a first quarter a year ago, a little bit of the shutdowns were starting to happen already. That was very heavy in the second quarter a year ago. Our Asia business had a very strong Q2. They've had a nice solid full year. Great. Competition. It seems that you've got some of your competitors have got some market share ambitions. Lennox in light commercial, AAON light commercial, Goodman making lots of noises in Residential. I don't wanna name names or anything, but it just seems to me that. Named a few. Keep going. ... a long list of, your competitors- Right ... wanna gain share. I mean, are you seeing any pickup in incentives or price competition out there? We have not, okay? I mean it's still remains a pretty disciplined business. Look, at the end of the day we're gonna continue to execute on our strategy, we're gonna continue to invest heavily in our innovation, and that's what gives you a fresh portfolio to get in front of your customers and talk about what you can do for them. Right. Okay. Thinking about M&A. You've done probably three, what I would describe as bolt-on deals in the last year or so. Obviously still more buybacks than M&A, but how do you think that balance changes over the next year or two? Do you see the scope for some larger deals? Obviously, you know, your competitors have been making larger deals. How does Trane think about the world? You wanna start with our capital deployment strategy? Yeah, sure. Happy to. You know, after we fund the business, Nigel, and then we're growing the dividend in line with earnings, then we'll look to toggle that cash deployment between M&A and share repurchase. You're right, the last six, nine months we've closed on or announced three acquisitions, two in Europe and one in the Americas around Life Sciences. The one in October, we closed last year, a business called AL-KO. Think of that as high-end air handling in building out a complementary portfolio in Commercial HVAC Europe. The second announcement that we did and closed on was a business called MTA. Think of that as industrial process cooling, also for our Commercial HVAC business in Europe. We recently announced an acquisition that'll close here in the second quarter in Life Sciences in the Americas, building out industrial refrigeration and, you know, making sure we've got controlled temperature across manufacturing through production in life science applications. Bolt-on acquisitions, individually each less than 1% of revenues, but we like taking those kinda early stage technologies and matching them up with our deep channels. Dave, you wanna talk a little more about the Europe strategy. Yeah, I mean. ... and the Life Sciences strategy? At the end of the day, if you have a, if you have the strength that we have in our channel with a direct sales force, and you take these bolt-on acquisitions as as you call them, with great technologies, we scale them very quickly. AL-KO is a great example, right? October, think of high-end air handling, complements our whole portfolio. Take that technology, scale it across your channel. we're in the process of doing it. MTA, industrial process cooling. Industrial process cooling and heating, okay. We've already expanded our operating map with our thermal management systems. This further expands that map. You think about process heating and cooling for, like, the food industry, or even at a machine level, okay? We're now in that space in a different way than we were, say, three years ago. It's a great vertical to be in. Life science, I mean, think about what's happening in the manufacturing of drugs today or vaccines today versus where it was five years ago. During COVID, we worked very closely with many of the pharmaceutical companies on the distribution, because we were the only one who could get to - 70 degrees Celsius. So they knew that, so they were working with us. It was a product that we used to that was designed to transfer sushi, believe it or not, from one part of the world to the next. We took that technology and we were working with them closely. We got so knowledgeable about the manufacturing of these vaccines and that vertical and the how you manufacture and what they call rate chambers and how you know, how you have to vary the temperature as you create vaccines. If you do it wrong, you're gonna have a very bad outcome. It's a vertical that's, think about precision temperature control, we're really good at that. This is a vertical that we're very excited about. Seems like industrial process and cooling is a sort of a multi-headed opportunity. It seems that you can go in different directions there, so that's interesting. It's a very, it's a great vertical to be in. My final question. Would you at this point rule out a large acquisition? Look, the M&A pipeline is always full, okay? We have the opportunity to look at everything as a major HVACR player. We like being a pure play, I'll say that. We've been very successful with bolt-ons. Great. I think that's very clear. Thanks, Dave. Thanks, Chris. That was a great conversation. Thanks. All right. Thanks, everyone. Thank you. Thanks for coming.