Next up, it's my pleasure to have Trane Technologies, Dave Regnery, Chairman and CEO, Chris Kuehn, CFO. Welcome, both Dave and Chris, for being here, and thank you. Maybe Dave, just start off with a couple of, you know, quick introductory comments before the Q&A. Good. Thanks. Thanks, Jullian. Thanks for having us. Your team's done a nice job of organizing this event, so we're glad to be here. A little bit different than last year. Remember last year we were here? It was the—I think it was the first conference I spoke at in person, so it's a lot different. But, hey, before we just dive into your questions, just a little bit about our strategy and our purpose, right? You know, our strategy is fundamental to our ability to drive differentiated returns for our investors over time. And if you think about the mega trends around decarbonization and sustainability, they continue to intensify. Unfortunately, the world continues to get warmer. And if you look at the last seven years, they've been the warmest on record for the planet, the warmest on record for the planet. The harsh reality of it is, if we do not do something about that, they will be the coldest seven years for the rest of our lives. We need to take action, and we need to take action now. At Trane Technologies, that is what we are doing. You know, we have technologies today that we are scaling that can dramatically reduce the carbon footprint for the built environment. 15% of all greenhouse gas, 15%, comes from heating and cooling of buildings. Most of that is for the heating side. We have technologies that eliminate the need for fossil fuel in buildings, which will dramatically reduce, dramatically reduce that carbon footprint. We finished 2022 with records. I am sure you read our fourth quarter earnings release. For the year, we had organic revenue growth of 15%. We had EPS growth of 21%. For the year, we had a book to bill of 109%. We had strong free cash flow. We ended the fourth quarter with record backlog. We have over close to $7 billion of backlog, which is more than two and a half times what would be normal entering 2023. We're very well positioned for 2023 and beyond. With that, Julian, before I get too passionate at talking about how warm the planet is, I'll turn it over to you for questions. Sure. Thank you, Dave. Yeah, maybe firstly, you know, you ended on that point on the backlog. How are you thinking about orders, book to bills playing out over the balance of this year? We're coming off a very abnormal couple of years for you and most companies at the conference around huge order growth, massive backlog build. Now maybe things are a bit more uncertain, more micro questions, easing supply chains. How do you see the? Yeah. I think, well, I can start with the supply chain is getting better, okay? It's getting better slowly. I'm sure you heard that. We talked about that in our fourth quarter call. We continue to believe that supply chain will get better in the future, but it'll be several quarters before we get back to what I would call a normal state. As far as backlog, we entered the year with, you know, as I said, close to $7 billion in backlog. We said that we will enter 2024 with a backlog that'll be, you know, $6 billion or plus, $6 billion or north of $6 billion. Yep. If you do the math on that, we gave a guide for 2023 of organic revenue growth of 6%-8%. If you take the midpoint and you assume a $6 billion backlog, you do the math, I'll help you with it, it would say that you would have bookings decline in the year of about 6%. We think that's a minimum, $6 billion, which is, you know, almost 2x what's normal. We're gonna enter 2024 with a very, very strong backlog. I don't know, Chris, if you wanted to add. No, I think that's a good summary. If we were to hold bookings on a year-over-year basis, we'd actually add backlog by the end of 2023. The construct we put out there is that we can still be in an elevated position going into 2024. $6 billion dollars is roughly two X normal. Perfect. And looking at the sort of the pricing side of things, I think you've sort of guided to low single-digit price in your revenue for 2023 as a whole. Maybe that's a little bit more cautious than some of the HVAC peers, but in general, I think everyone agrees pricing tailwinds will moderate. How are you seeing pricing play out in kind of orders now? Do you expect to see any kind of pressure as you go through the year? Are your competitors behaving on price? Yeah. When I start, Julian, it's one of the best parts of our business operating system over the last two years is being ahead of the highly inflationary environment we've seen. We've been ahead on price throughout all of 2021 and all of 2022, price cost positive every quarter. Certainly a margin headwind, but from a dollar basis, a positive on price cost. So I think we've led there. Mm-hmm. In most cases, carryover pricing we're seeing into 2023 is in that 2%-2.5%. It does not assume any incremental price increases, you know, beyond what we've already announced in the first part of January. There will be some carryover inflation into next year, but we're not planning on anything incremental beyond what we entered January with. We remain nimble. If markets, commodities, and other costs continue to be inflationary, in the last 60 days we've seen more inflation in copper and aluminum than we did, say, in the third or fourth quarter. We'll remain nimble and we'll revisit pricing again. You know, we're targeting 20-30 basis points of price over cost in 2023. That's a typical year for us, and so we'll kind of report as we go throughout the year how we do, but we remain nimble. I think it's just embedded in the business operating system to take the input costs, look at the value for the customer, and making sure we're gonna price effectively. The only thing I would add is it really helps if you were an account manager and you were calling on customers, if you have a pipeline of innovative products that you continuously are launching into the market, it really helps your conversation with customers as to why they'd be wanting to pay more for your product because of what you're going to be adding for them. That makes sense. And, you know, I suppose looking beyond the very short term, there's a lot of conversation around, you know, Inflation Reduction Act and other stimulus measures. What's your sort of best assessment of when you might start to see some impact on your orders? How significant do you think that impact could be, you know, over several years? Yeah. I think policy is a tailwind for our business today, and it will be well into the future. I think if you look today, you have, you know, you have the Infrastructure Act that's already, we're, you know, we're into that. Certainly ESSER funding for making our schools safer for our children. We're probably, you know, 50% into that, maybe a little bit less. And we've been very successful, by the way, in the education vertical with ESSER funding and making it easy for our customers to navigate that. You know, our equipment orders in the education vertical in 2022 were up 40%, four zero. So we've been very successful there. As far as IRA, that's in front of us. We're still working through how the funds will flow from federal to states, and every state will have a framework they have to operate within. That's being defined. Some states will move faster than others. The key is, how do you make it simple for the end customer to understand what benefit they could receive? We're pretty good at that. That's in front of us. If you look a little bit further, even in front of IRA, you have the Chips and Science Act. Again, that process has really just started. Mm-hmm. That could be a big opportunity for us in the future as well. I know we talked a little bit about North America. In Europe, we also have other policies that are out there that are helping drive and fuel some of the tailwinds that we're seeing. That's helpful. And, and I guess, you know, having come from the, the AHR expert a couple of weeks ago, a lot of conversation there cyclically about the residential market. You know, any broad thoughts on, you know, how that market's playing out, much destocking evident, and any surprises, around the SEER transition where, you know, the, the dates were seven weeks ago now? I mean, I'll start with the SEER transition. I'd say no surprises for us, okay? We were very well planned there, and we worked very closely with our channel partners in the resi space to make sure that they ended up with the correct inventory. I think everyone understands the SEER change is a little bit different this year where, depending on where you were located, it was an install date or a manufacturer date. If you had an install date criteria on you, we wanted to make sure that those channel partners were really good at phase in, phase out of their inventory, which we do all the time because we're introducing so many new products. We worked very closely with them. As far as, you know, transitioning in, you know, in the resi space, you know, we've seen orders for the last two quarters are getting smaller. They're contracting, right? In the fourth quarter, our order rates were down over 20%. Some of that normalization, as we call it, has already started. You know, we feel as we end the fourth quarter that our channel partners are in a good position with their inventory. At least they have the correct inventory. We didn't want to have stranded inventory, which really is a concern that we had in the fourth quarter. We took a little extra time there, but we wanted to make sure that they had the right, the right stocking units in place. You know, I think that there's a debate, certainly the last sort of couple of days here. Do you think about residential and non-residential markets? Classically, there's a linkage; trends in one show up as trends in non-resi after a lag. A debate around is this time different because of things like all the stimulus actions? Just wondered, what's your perspective on that resi to non-resi transmission? Is it something different now because of stimulus? I guess, related to that, your light commercial. Yeah. HVAC business, how do you feel? Yeah. At At the end of the day, we haven't seen that, okay? Our commercial business continues to be very strong, as you saw with our fourth quarter results. Yep. Really on a global basis and really across many verticals too. That's what I'm most impressed with is the strength that we're seeing across many verticals, not just one. Yeah. We'll watch it, as you said, Julian, the whole mega trends around decarbonization and how you improve the carbon footprint of the built environment is a little bit different than what we've seen in the past. You certainly have a lot of policy and dollars behind those policies that are gonna create tailwinds for an extended period of time. With a backlog of $7 billion, which the majority of it is in our commercial businesses. Yep. That gives us a lot of buffer to occur. And as I said before, we're gonna go into 2024 with a backlog that'll be two X normal as well. It will be $6 billion plus. You could start to understand that there's a little bit of a buffer here that we haven't seen in the past when there's been any kind of a slowdown. As far as, you know, a slowdown, if it occurs, are we ready? You know, we, as part of our operating system, we've always done scenario planning at a very detailed level. It's, you know, if things—and this is at a business unit within a geography, even down to a country level—we have certain triggers. If something happens, what do you do? If it's down 5%, what are the actions? If it's down 10%, what do you do? And it's, it's what would you stop doing, what would you never stop doing? Which is as important because you never wanna cut investments that are for the future, especially around innovation. We're very, very specific on, let's go into any problems should wanna arise with a detailed plan so we know how we're going to react. You never wanna go into a situation and not have a plan 'cause you're gonna make decisions you're gonna—you may regret later. We have very detailed plans. Trust me, we're not talking ourselves into a slowdown, but if one occurs, I want everyone to know we'll be ready for it because we'll have very detailed plans. One thing to maybe highlight on the backlog, the $6.9 billion, that does not include service. Our definition, it's really an equipment backlog. 2022 service revenues were 32% of the enterprise. And over the last six years, services have grown high single-digit revenue CAGR for the last six years. Just to highlight there, Julian, that different definitions of backlog depending who you're speaking to, but one-year, two-year, three-year service contracts, we don't have that in our backlog in a very resilient business. That's helpful. Thank you, Chris. Makes sense. You mentioned the SEER transition has been smooth on your side. I know some others have sort of run aground here and there. When you look at the refrigerants change in a couple of years, how substantial do you think that change is in terms of requiring extra investment, the size of the units, the education of the contractor and installer technician base? Or do you think, no, this is just sort of part and parcel? It's company to company? I mean, for us, it's—I don't know if I'm being overconfident here, but we, we've been working with Next Generation Refrigerants since 2014, okay? We were the first to introduce Next Generation and, you know, talking about, you know, lower greenhouse gas potential and not degrading the performance of our product, but enhancing the performance of our product using a greener refrigerant. We did that back in 2014. I can remember early on having conversations with a lot of investors, and people were saying, "What are you—why are you doing this? Why is it important?" I was sort of like, "No, no, no. You don't understand. This, you know, this is a greener solution. This is a, you know, how we're going to be able to, you know, help next generations that live on this planet. And it kind of went on, "I don't know about this. Do you have customers that are demanding it?" To make a long story short, we became really, really good at transitioning to next-gen refrigerants. In fact, the majority of our commercial portfolio uses refrigerants that have very low GWP. This transition that's gonna take place in residential and light unitary, which is basically the 410 conversion into a different refrigerant, we'll be well ready for it, from a product standpoint for sure. I think where you may run into some slowness is really around policy. This would be, you know, can you actually install the product, okay? Is it—does it—is it going to meet the code requirements because you'll be dealing with 2L slightly flammable refrigerants? That is where I would be more concerned. From a product standpoint, bring it on, right? We are ready for it now. It is not a—we deal with this every day. In fact, we like going to lower GWP refrigerants. From an investment standpoint, yeah, it is an investment, but consider it part of our run rate because we have been doing this for so long. Got it. Thank you. And when you look at the commercial business, do you see much changing in terms of speed of, say, equipment replacement rates because of, you know, energy efficiency or climate change or policy stimulus, or are those holding pretty steady? And I guess that there's another angle to this where, you know, as buildings are digitizing and upgrading, does that benefit those who can cross-sell a range of products within the building or no reason actually why that should be the case, maybe the opposite? With your first question, as far as are we seeing an acceleration of replacement, I guess the short answer is no. I mean, I would look at it as, you know, 65%, you know, 35% as far as, you know, replacement versus new. That number can move around a little. It could be 70%-30%, could be 60%-40%. It is still in that band. What we do is we work with customers on how to enhance their, you know, the efficiency of their building. That does not always necessarily have to be a binary change overnight. There are lots of things you could do, especially in applied systems, to make a building run more efficiently. Your last question there about do you need a whole basket of goods to sell? I mean, one of the advantages that we have as Trane Technologies is we always think of things at a system level. So we're never thinking at it just at a product level. That's why we're so good at the applied side of our business. We're always looking at a system and how we can improve the system, and whether it's a building, whether it's a campus. I'll give you a great example. Our business in Europe, right? The traditional way of heating and cooling a building is, a chiller plant and a boiler plant. You know, our clever leaders basically said, "It's HVAC, heating, ventilation, and cooling. How about we combine the two into one system?" When you do that, we're calling it a thermal management system, but it basically eliminates the need for that boiler. It eliminates the need for that fossil fuel to be used for heating. You know, most of the time, we're the incumbent, right? You rarely find incumbents that become disruptors because they like what they're doing. We became the disruptor here. We're disrupting the industry. We're combining these two plants that were independent into one. This technology exists. We're deploying it. We need to get more people to deploy it. I mean, why would you ever wanna put fossil fuel in your building? I don't understand it. You don't have to do that. It is one of those things where I was talking to a group yesterday, and they were asking me, "Well, why don't more people deploy this?" I was thinking, I was like, "Well, if you're a boiler—if you're a maintenance leader for a building and your boiler breaks, do you think they're gonna call Trane to say, 'Can you come fix my boiler?'" They're gonna call the boiler manufacturer. That is where this education process has to happen at all levels so people can understand what's possible so we can really have an impact on the decarbonization that has to occur on our planet. That's a good—I think lead into, you know, we always get this question around heat pump exposure, you know, size of the business at Trane, the positioning in sort of resi versus commercial in, in Europe versus the Americas. You know, any broad color you do. Yeah. I mean, if you think about resi, I mean, the industry is probably—it's around 30% heat pump. We're north of that. We tend to be on the higher end. You know, we're very well served there. If you think about on the commercial applied systems, I think people are still grappling with what a heat pump is. I mean, this is something that started seven, eight years ago. Julian, you know this. We were talking about heat recovery, right? And then we started talking about full heat recovery. And then we started talking about simultaneous heating and cooling. I think you remember we were calling it four-pipe chillers. Yes. Which confused everyone. Then—but it's evolved from there, right? It's simultaneous heating and cooling, but it's at a different level now. It's a system. We call it a thermal management system where it's just so much more efficient than what it was in the past. So much more, three to four times more efficient. We just need to deploy this technology everywhere. Understood. And transport refrigeration, you know, it doesn't get a huge focus. I think a couple of quick questions. I guess one is around, you know, how you see that market playing out. Clearly, it's a very good industry structure with you and another major rival, in Europe and North America. And then also sort of secularly, how does that electrification theme play out in the sort of rig side and the reefer side? And what are you doing to sort of stay abreast of that change? Yeah. I mean, Thermo King is a business that we invest heavily in, like all of our businesses. Yes. Certainly a theme there is the electrification of that portfolio. Over time, a lot of that fleet is running on diesel today. Mm-hmm. A lot of that fleet will switch to an electric or a renewable-type solution. I wouldn't necessarily get fixated on whether it's battery, whether it's hydrogen. It'll be a greener solution than diesel. We'll be ready for it. I think the transition will happen with smaller first, and then move up to larger. I think long-haul, or what we call long-haul, which is traditionally served by trailers today. Mm-hmm. That will take some time before it evolves. We have demonstration products out there today. We're working with some of our major customers. If you're in California, you may have seen them going down the road. Companies like Walmart are very, very boastful about what they're doing as far as all-electric vehicles, and we're working with them. It'll happen. It'll happen over time. Think of it more as, obviously, home delivery as a vehicle is electric. We'll have an electric unit for that. Think about class five to seven. Those units will probably start as hybrid, then go to electric. We have electric today. In fact, in California, they have legislation out there now that basically says if you're going to purchase a refrigeration unit for class five to class seven, a percentage of that has to be fully electric. Not the truck, but the unit. We have applications there that we're deploying today and selling to customers. Other states are looking to adopt that. This will start to transition over time. You will have some policy that will drive it, like you've seen with CARB in California. Other states will start to adopt that as well. Typically, I suppose, you know, you have a good backlog. It's an industry that tends to have big ups and downs. Yeah. I mean, I think in the past it was big ups and downs. If I look at the trailer market in North America, which tends to be the bellwether for Thermo King, people look at that. Mm-hmm. That market's been above 40,000 trailers for seven of the last nine years. One of them was a pandemic year, and then the next year was coming out of a pandemic. I mean, think about it. That's pretty—that's a very robust market in the trailer space for our Thermo King business. If you look at the forward-looking forecast from ACT, they're saying this year is gonna be flattish. It's up a couple%. They say next year it'll be down in the 10% range. They're right back up to the 45,000 range the following year. Again, they're forecasting the next five years will be at 40,000 or greater. It's a very robust market. I think the cyclicality that we've seen maybe back when I was running that business in the 2010 time period, we haven't seen that. We could debate whether it's gonna occur or not. Obviously, if there's a slowdown, every industry could be impacted. Just some will be impacted less than others. The Thermo King business today is much more diverse than it's ever been in the past. It's not just a trailer business or a truck business. It's auxiliary power units. It's bus. It's marine. It's air. It's intermodal. It's a very diverse business to transport perishables. When we look at, you know, China specifically, you have some transport there and also a lot of applied. Mm-hmm. How is that market kind of shaping up? You know, if it—if we do see a reopening, do you think there'll be a sort of a, a market share grab among companies, or it's gonna be pretty disciplined? I mean, our business in Asia, like, for the enterprise, we had organic growth of 15%. Our Asia business grew 12%. Yeah. It was very strong. If you look at the obstacles that we had to overcome in Asia in 2022, there are some steep obstacles. I mean, we were in—let's face it, we were in a lockdown situation in China for a good portion of the year. That team performed just exceptionally well. I'm very, very proud of what that team's been able to perform and what they've been able to achieve. As far as the reopening goes, we're optimistic, cautiously, as to what's gonna happen. In the fourth quarter, I would tell you I was a bit nervous as to what was going to happen. We actually put more inventory in place because I was nervous that the reopening, you'd have a surge of COVID, and then we'd go back into lockdowns. That did not occur, which is a good thing. I think the spread of COVID, although there's no official numbers that have come out of China, has been very rapid. If you look at our cross-section of businesses, not that that's statistical in any means for China, you know, over 70% of our employees have already had COVID. The reopening has happened a lot faster than any of us anticipate. We're optimistic but cautiously optimistic on China. I would tell you that the verticals that we've been strong in were strong all the way through the lockdowns. Think of the bigger infrastructure-type industries, fab plants, data centers, etc. You see the benefit of us making an investment seven years ago in a direct sales force where a sales force that could call on engineers, architects, mechanicals, GCs, and getting them all part of that buying process is really paying dividends. That's great. Maybe lastly, before we go into the audience response survey, you know, when you think about Trane's focus in the building, you know, how comfortable do you feel that you're sort of going up high enough, if you like, in the stack? You have a very good controls business on the equipment. Mm-hmm. You've got maybe people trying to come from a, an IT background or building management systems background to get lower in the stack. You know, do you think those sort of IT penetration in buildings as it goes up, does that put pressure on you, in terms of that sort of reinvestment, on controls or systems? I would tell you that I used to tell people five years ago or 10 years ago now, 'cause I'm dating myself here, when I was running the commercial business for the Americas, I used to say, "We're investing more in controls than we are equipment." No one believed me. I would tell you that we have a very robust controls platform. You are right, Julian. We start at a—think of it as a unit controller for sure, right? We want to control the intelligence within our units. Go to the next level up. Think of it at a system level. Think of it at a chiller plant controller for sure. We are very robust. Think of it at a BMS level, building management system. We have very sophisticated controls. We have for a number of years. You know, seven years ago when we started this journey, or 10 years ago when we started this journey, I said, "We wanna be different," right? We did not have a robust platform. A couple things that we kind of led with, one was we wanted to make sure we had open protocol. We wanted to make sure that we could network in with other systems. The second is we wanted to lead with wireless. Today we are the leading wireless provider of BMS systems. Why would you wanna run wires through the ceilings of your building if you are upgrading your controls? You do not have to. It has to do with the sophistication of the meshing network for repeating that we have been able to develop. It is very, very impressive. Very impressive. Is there competition? There is competition all the way through there. Yeah. There's also competitions at the equipment level. Mm-hmm. We have a very, very robust platform that we continue to invest in. I'm very happy with the success that we've had. Great. Now if we could please switch to the audience response survey questions. First, did you currently own the stock? You want us to participate too? Yeah. I own a bit of the stock, just to be fair, just in full disclosure. All right. It looks like we have a lot left. Looks like we have 32% of the audience to do some convincing too. Next question, please. General bias. Quite mixed. Third question is around earnings growth for, for Trane. And again, the peer set in this context is, you know, sort of US industrials or, you know, multi-industry. It's a sort of a broader group. So generally above peers. Fourth question is around, you know, capital deployment, which we didn't have time to touch on. But, you know, it's mostly been around historically, buybacks and dividends and bolt-ons. There's no option number seven, which is all the above, Julian. No. It kinda puts the—yeah, put our foot to people's throats on one answer. Yeah, bolt-on M&A, the most popular answer. The next question I think is around valuation. You know, what PE multiple does Trane deserve, you know, through cycle, let's say, or next 12 months? We should do these questions before I talk so I know how to emphasize them. Right. I promise. We'll do that next year. Okay. So sort of 20 times, it looks like. The penultimate question is around sort of what's the biggest thing holding people back from the stock? You know, why, why 20, not 25 times, or why does—not everyone own it? So core growth. I think it's been pretty good, but. Core growth? Yeah. And then, the last one, this is a new question this year. Does ESG play an active role in your investment decision on Trane? And for context, for most companies, number one is about 25%. So 60% for Trane is very different from the norm. All right. Hey, great. I'm glad you had some time today. Thank you, Dave. Thanks, Joe. Thanks very much. Thank you. Thank you.