Q2 2025 Trane Technologies PLC Earnings Call

Regina: Good morning and welcome to the Trane Technologies second quarter 2025 earnings conference call. My name is Regina, and I will be your operator for the call. The call will begin in a few moments with the speaker remarks and the Q&A session. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number 1 on your telephone keypad. We ask that you please limit your questions to one-on-one follow-up. I will now turn the call over to Zac Nagle, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to the Trane Technologies. Second quarter 2025 earnings conference call. My name is Regina and I will be your operator for the call. The call Will begin. In a few moments with the speaker remarks and the Q&A session. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number 1 on your telephone keypad, we ask that you please limit your questions to 1 and 1 follow up.

I will now turn the call over to Zachary Nagel, Vice President of Investor Relations. Please go ahead.

Zac Nagle: Thanks, operator. Good morning, and thank you for joining us for Trane Technologies second quarter 2025 earnings conference call. This call is being webcast on our website at Trane Technologies.com, where you will find the accompanying presentation. We are also recording and archiving this call on our website. Please go to slide two. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Please see your SEC filings for a description of some of the factors that may cause actual results to differ materially from anticipated results. This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release. Joining me on today's call are David Regnery, Chair and CEO, and Chris Kuehn, Executive Vice President and CFO.

Thanks, operator. Good morning, and thank you for joining us for Trane Technologies' second quarter 2025 earnings conference call.

This call is being webcast on our website at train technologies.com where you'll find the accompanying presentation. We're also recording an archiving this call on our website.

Please go to slide 2.

Statements, this is called that are not historical facts, or considered forward-looking statements and are made pursuant to the safe harbor, provisions of federal Securities Law.

Please, crsc filings for description of some of the factors that may cause actual results to different materiality from anticipated results.

This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release.

Zac Nagle: With that, I will turn the call over to Dave. Dave?

Joining me on today's call are Dary chair and CEO and Chris keune, Executive Vice President and CFO with that ultimate call over today. Dave Dave

Dave Regnery: Thanks, Zac, and everyone for joining today's call. Please turn to slide number three. I would like to begin with a few minutes on our purpose-driven strategy, which enables our leading financial results. The global demand for energy is increasing at an unprecedented rate, while many areas lack access to reliable power sources. This is not just a supply equation. At Trane Technologies, we see tremendous opportunities on the demand side. In an average building, we estimate a staggering 30% of energy after the meter is wasted. Our solutions are addressing this head-on, helping our customers save energy and reduce emissions with a strong return on investment. We are setting the pace for the industry and paving the way to a more sustainable world. With our leading innovation, robust customer demand, and talented team, we are well positioned to deliver differentiated shareholder value over the long term.

Thanks Zach, and everyone for joining today's call. Please turn to slide number 3.

I'd like to begin with a few minutes on our purpose-driven strategy, which enables our leading Financial results.

The global demand for energy is increasing at an unprecedented rate.

While many areas lack access to reliable power sources.

But this is not just a supply equation at Trane Technologies. We see tremendous opportunities on the demand side.

In an average building, we estimate a staggering 30% of energy after the meter is wasted.

Our Solutions are addressing this head-on. Helping our customers save energy, and reduce emissions.

With a strong return on investment.

The long term.

Dave Regnery: Please turn to slide number four. Q2 is another strong quarter, marked by record bookings and revenues, a 90 basis point expansion in adjusted operating margins, and 18% growth in adjusted EPS. Our enterprise and America's Commercial HVAC organic bookings reached new all-time highs, with increases of 4% and over 20% respectively. In our America's Commercial HVAC business, we continue to lead the industry by solving our customers' most complex challenges with applied solutions in large, high-growth verticals. Notably, orders for applied solutions surged by over 60% in the quarter and are up over 120% on a two-year stack. Our Commercial HVAC businesses have demonstrated remarkable durability and resilience, achieving compounded growth over multiple years. Our project pipelines are expanding, underscoring continued opportunities ahead. Our direct sales strategy enables us to capture a significant share of these opportunities and consistently outgrow our end markets.

please try to slide number 4, Q2 is another strong quarter marked by record, bookings, and revenues, a 90 basis point expansion and adjusted operating margins and 18% growth in adjusted eps,

Our Enterprise and America's commercial, HVAC organic bookings reached. New all-time highs with increases of 4% and over 20% respectively.

In our America's Commercial hbac Business, we continue to lead the industry, by solving our customers, most complex challenges with applied Solutions in large, high growth verticals.

Notably orders for Applied Solutions, surged by over 60% in the quarter and are up over 120% on a 2-year stack.

Our commercial hbac businesses have demonstrated remarkable durability and resilience achieving compounded growth over multiple years.

Our project pipelines are expanding underscoring. Continued opportunities ahead.

Dave Regnery: Our backlog remains strong at $7.1 billion, up 6% compared to year-end 2024. While there was a sequential decline from the first quarter of approximately $125 million, this was due to expected backlog reductions in our shorter cycle businesses, mainly residential. Our Commercial HVAC book-to-bill ratio exceeds 100% in all regions, further elevating our global Commercial HVAC backlog. Our services business remains robust, representing one-third of our enterprise revenues. We delivered low teens growth in the quarter and have maintained a low teens compound annual growth rate since the inception of Trane Technologies in 2020. We are effectively managing and mitigating all enacted tariffs and inflationary impacts through our world-class business operating system. This system includes advanced mechanisms for pricing, supply chain management, and scenario planning, which we leverage to offset tariffs, drive market outgrowth, and minimize the impact on our customers.

Our direct sales strategy enables us to capture a significant share of these opportunities and consistently outgrow. Our end markets,

Our backlog remains strong at 7.1 billion up 6% compared to year, end 2024. While there was a sequential decline from the first quarter of approximately 125 million, this was due to expected. Backlog, reductions, in our shorter cycle, businesses mainly residential

Our commercial HVAC booked a bill ratio exceeds 100% in all regions. Further, elevating our global commercial HVAC backlog,

our services business remains robust representing 1/3 of our Enterprise revenues.

We delivered low teens growth in the quarter and have maintained a low teens compound annual growth rate since the Inception of trained Technologies in 2020.

We are effectively managing and mitigating all enacted tariffs and inflationary impacts through our world-class business operating system.

This system includes Advanced mechanisms for pricing Supply Chain management and scenario planning.

Dave Regnery: As we review the key drivers for the quarter, our results were in line with expectations, with two notable exceptions. First, America's Commercial HVAC, this business continues to perform exceptionally well, exceeding our expectations and aligning with our track record of consistent market outperformance. Second, Residential HVAC revenues fell short of our expectations due to a near-term industry shortage of our 454B refrigerant cylinders. However, the strength in our America's Commercial HVAC business more than compensated for this, positively impacting our adjusted EPS for the quarter. Overall, we are confident in raising our full-year revenue and EPS guidance, which Chris will cover in more detail shortly. Please turn to slide number five. In our America segment, as we discussed, Commercial HVAC continues to deliver standout performance. In the first quarter of 2025, this business achieved all-time high quarterly bookings.

Which we leverage to offset, tariffs Drive market outgrowth and minimize the impact on our customers.

As we review, the key drivers for the quarter, our results were in line with expectations with 2 notables, first America's commercial hpac, this business continues to be formed exceptionally, well exceeding our expectations and aligning with our track record of consistent Market outperformance. Second residential hbac revenues fell short of our expectations due to a near-term in

Industry, shortage of our 454b refrigerant cylinders. However, the strength in our Americas commercial HVAC business more than compensated for this positively impacting, our adjusted EPS, for the quarter.

Overall we are confident in raising our full year revenue and EPS guidance, which Chris will cover in more detail shortly.

Please turn to slide number 5.

Dave Regnery: In the second quarter, we surpassed this record by nearly $300 million, with growth of over 20%. Revenue growth continues to be exceptional, increasing by mid-teens on top of a mid-20s growth comp in the prior year. Our market outgrowth has been consistent, compounding year after year. For perspective, in the second quarter, three-year stack Commercial HVAC revenues are up approximately 60%, with equipment up approximately 80% led by applied. Our growth in applied solutions is broad-based, aided by market outgrowth in sectors with large CapEx investments, such as data centers and high-tech industrial. These sectors require the most complex applied solutions, and our ability to win more than our fair share of business here adds to our leading growth profile. CapEx spend in these sectors is expected to remain high over the next several years, providing further growth opportunities.

In our America segment, as we discussed commercial, hbac continues to deliver standout performance in the first quarter of 2025, this business achieved all-time high quarterly, bookings.

In the second quarter, we surpassed this record by nearly 300 million with growth of over 20%.

Revenue, growth continues to be exceptional increasing by mid teens on top of a mid-20s growth comp in the prior year.

Our Market outgrowth has been consistent compounding year after year.

For prospective in the second quarter, 3 years, stacked commercial, hbac revenues are up approximately 60%.

With equipment up Approximately 80% led by applied.

Our growth in applied Solutions is broad-based. Aided by market outgrowth in sectors with large capex, Investments, such as data centers and high-tech Industrial.

These sectors require the most complex applied Solutions and our ability to win more than our fair share of business here, adds to our leading growth profile.

Dave Regnery: In addition, applied solutions carry strong service revenue tails, generating eight to ten times the equipment sale, meaning the majority of the revenue from our applied growth is still ahead of us. Turning to residential, revenues were down mid-single digits due to the near-term cylinder-related headwinds I discussed earlier. However, combining our strong Q1 revenues up high teens with our Q2, our year-to-date residential revenues are up 3%. Additionally, we saw very strong growth in Q2 2024, up low teens, which was a multiple of the industry growth rate. Given the varying business models of mix of two-step versus three-step distribution across the industry, it is important to look at residential over the long term to get a clear picture of growth trends. In America's transport refrigeration, bookings were up low single digits, while revenues were down low single digits, significantly outperforming end markets, which were down over 30%.

Capex spend in these sectors is expected to remain high over the next several years. Providing further growth opportunities.

In addition applied Solutions, carry strong, service Revenue Tails generating 8 to 10 times the equipment sale. Meaning the majority of the revenue from our applied growth is still ahead of us.

Jeans with our second quarter. Our year-to-date residential revenues are up, 3%. Additionally, we saw very strong growth in the second quarter of 2024 upload teams, which was a multiple of the industry growth rate.

Given the varying business models of mix of 2-Step versus 3-step distribution across the industry. It's important to look at residential over the long term to get a clear picture of growth trends.

Dave Regnery: In EMEA, Commercial HVAC bookings were down low single digits against a tough 20% prior year growth comp. However, two-year stack bookings were strong, up high teens. Revenues were up low single digits, impacted by timing of customer shipments from Q2 into the second half. EMEA transport organic bookings were down low single digits, while revenues were up low single digits, significantly outperforming end markets, which were down low single digits. In Asia-Pacific, the quarter met our expectations. As we approach the anniversary of our tightened credit policies in China, we expect results to improve. The region is on track to meet full-year 2025 expectations for flat revenues, with stronger performance in the rest of Asia. Now, I would like to turn the call over to Chris. Chris?

In America's transport refrigeration, bookings were up low single digits, while revenues were down low single digits, significantly outperforming in markets which were down over 30%.

In Amia commercial HVAC bookings were down low single digits against a tough 20%, prior year growth comp.

However, 2 year stack, bookings, were strong, a pi teams.

Revenues were up low, single digits, impacted by the timing of customer shipments from Q2 into the second half.

Am Mia transport organic bookings were down low, single digits. While revenues were up low. Single digits significantly outperforming and markets which were down low single digits.

In Asia, Pacific the quarter met our expectations. As we approach the anniversary of our tightened credit policies. In China, we expect results to improve.

The region is on track to meet full year 2025 expectations per flat revenues.

With stronger performance in the rest of Asia.

Zac Nagle: Thanks, Dave. Please turn to slide number six. This slide underscores our robust Q2 performance. Organic revenues increased by 7%, adjusted EBITDA margins expanded by 70 basis points, and adjusted EPS rose by 18%. Our services business delivered impressive organic revenue growth, up in the low teens, while our equipment business achieved mid-single digit growth despite softer residential results. Please turn to slide number seven. Our America segment delivered 9% revenue growth, driven by our Commercial HVAC business. Adjusted EBITDA margins increased by 120 basis points to 24%, marking a record quarterly EBITDA for the segment. Margin expansion was fueled by volume growth, productivity, and price realization, despite softer residential revenue. In EMEA, revenue growth was up 3%, and adjusted EBITDA margin declined by 200 basis points, consistent with our expectations.

Now, I'd like to turn the call over to Chris Chris.

Thanks, Dave. Please turn to slide number 6.

This slide underscores our robust second quarter performance.

Organic revenues increased by 7%.

Adjusted IBA, margins expanded by 70 basis points, and adjusted EPS rose by 18%.

Our services business delivered, impressive organic Revenue growth up in the low teens.

While our equipment business achieved, mid single digit growth despite softer residential results.

Please turn the slide number 7.

our America segment delivered, 9% Revenue, growth driven by our commercial HVAC business

Adjusted Eva margins increased by 120 basis points to 24%, marking a record quarterly, ebita for the segment.

Margin expansion was fueled by volume growth productivity and price realization despite softer residential Revenue.

Zac Nagle: We are doubling down on channel investments and M&A integrations in 2025 to support our growth and position for future opportunities. These strategic investments are impacting margins this year, as expected. In Asia-Pacific, revenue declined by high single digits, and adjusted EBITDA margin contracted by 220 basis points, primarily due to lower volumes in China, consistent with our expectations. Now, I'd like to turn the call back over to Dave. Dave?

In Amia, revenue growth was up 3%, and adjusted EBITDA margin declined by 200 basis points, consistent with our expectations.

We are doubling down on channel Investments and m&a Integrations in 2025 to support our growth and position for future opportunities.

These strategic Investments are impacting margins this year as expected.

In Asia Pacific Revenue decline by high single digits and adjusted Evita margin contracted by 220 basis points. Primarily due to lower volumes in China consistent with our expectations.

Dave Regnery: Thanks, Chris. Please turn to slide number 8. 2025 is shaping up largely as expected, with modest adjustments in our America's Commercial HVAC and Residential outlooks. In Residential, we face temporary headwinds, mainly affecting Q2 and Q3 of 2025 due to the cylinder shortage. We expect this issue to improve in Q3 and be resolved by year-end. At this point in the selling season, we also believe it's prudent to factor inventory normalization into the second half outlook. The estimated revenue impact of these combined headwinds is roughly $150 million for the second half. We now expect Residential revenues to be flat for the full year versus our prior expectations of mid to high single-digit growth. We expect to return to a healthy GDP plus framework over the long term. On the positive side, our America's Commercial HVAC business continues to exceed expectations, particularly in complex bespoke applied solutions.

Now, I'd like to turn the call back over to Dave. Dave, Dave?

Thanks Chris, please turn to slide number 8, 2025 is shaping up. Largely as expected with modest adjustments in our America's commercial, hbac and residential outlooks.

In residential, we Face temporary headwinds, mainly affecting Q2, and Q3 of 2025 due to the cylinder shortage.

We expect this issue to improve in Q3 and be resolved by year-end.

At this point in the selling season, we also believe it's prudent to factor inventory normalization into the second half outlook.

The estimated Revenue impact of these combined headwinds is roughly 150 million for the second half.

We now expect residential revenues to be flat for the full year versus our prior expectations of mid to high single-digit growth.

We expect to return to a healthy GDP plus framework over the long term.

Dave Regnery: Leveraging our best-in-class operating system and direct sales force, we have consistently outperformed our end markets over multiple years. For 2025, we are raising our America's Commercial HVAC outlook from high single digits to low double digits. Overall, while we're addressing temporary challenges in Residential, the strength of our Commercial HVAC business more than offsets these impacts and provides clear long-term benefits for our stakeholders. I'd like to turn the call back over to Chris. Chris?

On the positive side, our America's commercial HVAC business continues to exceed expectations, particularly in complex, bespoke applied Solutions.

Leveraging our best-in-class operating system and direct sales force, we have consistently outperformed our end markets over multiple years for 2025. We are raising our Americas commercial HVAC outlook from high single digits to low double digits.

Overall, while we're addressing temporary challenges and residential the strength of our commercial HVAC business more than offsets these impacts and provides clear long-term benefits for our stakeholders. And now,

Zac Nagle: Thanks, Dave. Please turn to slide number 9. We are raising our revenue guidance to approximately 8% organic growth, up from 7% to 8% previously. Our adjusted EPS is approximately $13.05, up 16% year-over-year and up from $12.70 to $12.90 previously. With the U.S. dollar softening through the end of Q2, we now expect FX to be neutral for the year. M&A contribution remains unchanged at 100 basis points for the year. We expect to manage and mitigate all enacted tariff impacts through proactive measures, including pricing. Based on tariffs in place as of July 28th, we estimate the cost impact in 2025 to be approximately $140 million, roughly half of our estimate provided at the end of the first quarter. Our full-year organic revenue growth guidance includes an estimated pricing impact from tariffs. The tariff environment remains dynamic, and we will provide updates as appropriate throughout the year.

I'd like to turn the call back over to Chris Chris.

You're raising our Revenue. Guidance through approximately 8% organic growth up from 7 to 8% previously.

And our adjusted EPS to approximately 13 dollars up 16% year-over-year and up from 1 2. 7 0.

With the US dollar softening through the end of Q2, we now expect FX to be neutral for the year.

M&a contribution remains unchanged at 100 basis points for the year.

We expect to manage and mitigate all enacted tariff impacts through proactive measures, including pricing.

Based on tariffs and place as of July 28th, we estimate the cost impact in 2025 to be approximately 140 million dollars. Roughly half of our estimate provided at the end of the first quarter.

And our full year organic Revenue growth guidance. Includes an estimated pricing impact from tariffs.

The tariff environment remains dynamic, and we will provide updates as appropriate throughout the year.

Zac Nagle: We continue to target organic leverage of 25% or higher for the year, consistent with our long-term goals, and we anticipate another year of 100% or greater free cash flow conversion. For the third quarter, we expect approximately 6% organic revenue growth and around $3.80 in adjusted EPS, consistent with the outlook dynamics Dave highlighted earlier. For additional details related to our guidance, please refer to slide 16. Please turn to slide number 10. We remain committed to our balanced capital allocation strategy, focused on deploying excess cash to maximize shareholder returns. First, we strengthen our core business through relentless reinvestment. Second, we maintain a strong balance sheet to ensure flexibility as markets evolve. Third, we expect to deploy 100% of excess cash over time. Our approach includes strategic M&A to enhance long-term returns and share repurchases when the stock trades below intrinsic value. Please turn to slide number 11.

We continue to Target organic, leverage of 25%, or higher for the year consistent with our long-term goals. And we anticipate another year of 100% or greater free cash flow conversion.

For the third quarter, we expect approximately 6%, organic Revenue growth and around 3.80 and adjusted EPS consistent with the Outlook Dynamics. Dave, highlighted earlier,

For additional details related to our guidance. Please refer to slide 16.

And please turn to slide number 10.

We remain committed to our balanced Capital allocation strategy, focus on deploying excess cash to maximize shareholder returns.

First, we strengthen our Core Business through Relentless and reinvestment.

Second, we maintain a strong balance sheet to ensure flexibility is markets evolve.

Third, we expect to deploy 100% of excess cash over time. Our approach includes strategic m&a to enhance long-term returns, and share repurchases and the stock trades below, intrinsic value.

Zac Nagle: Year-to-date through July, we've deployed approximately $1.5 billion through our balanced capital allocation strategy, including $420 million to dividends, approximately $15 million to M&A, $900 million to share repurchases, and $150 million for debt retirement. These figures exclude $260 million from M&A and $100 million from share repurchases made earlier in the year, which were included in our full-year 2024 capital deployment targets, as discussed during our fourth quarter earnings call. We have approximately $5.3 billion remaining under repurchase authorizations, providing us with significant share repurchase optionality moving forward. Our M&A pipeline remains active, and we will continue to be disciplined in our approach. Overall, our strong free cash flow, liquidity, balance sheet, and substantial share purchase authorization offer excellent capital allocation optionality as we move forward. Now, I'd like to turn the call back over to Dave. Dave?

Please turn to slide number 11.

Unit 8 through July, we've deployed a proximately 1.5 billion dollars through our balanced Capital allocation strategy including 420 million to dividends and approximately 15 million m&a and 900 million to share repurchases and 150 million for debt retirement.

These figures exclude $260 million from M&A and $100 million from share repurchases made earlier in the year, which were included in our full year 2024 capital deployment targets, as discussed during our fourth quarter earnings call.

If you have approximately 5.3 billion dollars remaining under repurchase authorizations providing us with significant share repurchase, optionality moving forward.

Our m&a pipeline remains active and we will continue to be disciplined in our approach.

Overall, our strong free cash flow, liquidity, balance sheet, and substantial share purchase authorization offer excellent capital allocation optionality as we move forward.

Now, I'd like to turn the call back over to Dave.

Dave.

Dave Regnery: Thanks, Chris. Please turn to slide number 13. The Americas transport refrigeration markets have been volatile, as have ACT's forecast, but the long-term outlook remains strong. For 2026 and 2027, ACT projects a strong rebound with greater than 20% growth each year. We are managing well through the down cycle, we continue to invest in innovation, and we look forward to adding another significant growth driver to our enterprise portfolio in 2026 and beyond. Please go to slide number 14. In summary, we have the optimal strategy, team, and capabilities to deliver leading financial performance in 2025 and beyond. Our uplifting, inclusive culture helps us attract the best talent in the market, powering our innovation. Our solutions offer strong returns to customers and also contribute to a sustainable world.

Thanks, Chris. Please turn to slide number 13.

The Americas transport refrigeration markets have been volatile, as have acts forecast, but the long-term outlook remains strong for 2026 and 2027. Act projects a strong rebound with greater than 20% growth each year.

We're managing well through the down cycle. We continue to invest in innovation, and we look forward to adding another significant growth driver to our enterprise portfolio in 2026 and beyond.

Please go to slide number 14.

In summary, we have the optimal strategy team and capabilities to deliver leading financial performance in 2025 and Beyond.

Are uplifting inclusive culture. Helps us attract the best talent in the market.

Powering our innovation.

Dave Regnery: This drives our consistent track record of leading financial performance and positions us to deliver differentiated shareholder value over the long term. Now, we would be happy to take your questions. Operator?

Our Solutions offer strong returns to customers and also contribute to a sustainable world.

This drives, our consistent track record of leading financial performance and positions us to deliver differentiated shareholder value over the long term and now we'd be happy to take your questions operator.

Regina: At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. We ask that you please limit your questions to one-on-one follow-up. Our first question comes from the line of Chris Snyder with Morgan Stanley. Please go ahead.

Chris Snyder: Thank you. I wanted to ask on Commercial HVAC equipment, specifically in the Americas. Obviously, this business has been strong for a number of years, but the Q2 order acceleration was really a standout, 20% plus versus low to mid-single digit in the prior quarters. Can you maybe just talk about what end markets are driving that acceleration? Are you seeing a broadening of the strengths, and do you think Commercial HVAC equipment could be getting better?

At this time, if you would like to ask a question press star followed by the number 1 on your telephone keypad, we ask that you please limit your questions to 1 and 1 follow up. Our first question comes from the line of Chris Snyder with Morgan Stanley. Please go ahead.

Low to mid single digit in the prior quarters. Um, so can you maybe just kind of talk about what n markets are driving that that acceleration? Are you seeing a broadening of the strength and do you think commercial HVAC could be getting better?

David Regnery: Yeah, hey, Chris, thanks for the question. This is Dave. I will start with Chris. Look, we had an exceptionally strong result in Q2 2025 for our Commercial HVAC equipment business here in the Americas. You said it, all-time high, bookings up over 20%. I would also tell you revenue was very strong. It was up in the teens. We got two-year stack. Bookings are up over 40%. It is led by applied. Our applied solutions were up over 60% in the quarter. Our two-year stack applied is up over 120%. So yeah, we are executing extremely well in that business. I would tell you, to your question, it is really broad-based growth once again. Yeah, sure, we had some nice strength in healthcare. We had nice strengths in government. We had strength in data centers. We had strength in higher ed.

Yeah, hey Chris. Thanks for the question. This is Dave. Um, I'll start with Chris, add in look, we had an exceptionally strong results in Q2 2025 for um for our commercial HVAC business here in the Americas. You said at all-time high you know, bookings up over 20% I would also tell you Revenue was very strong lose something. You know, the 15th, you know, 2 years back but these are up over 40%. Um, you know, it's led by applied or applied Solutions. We're up over 60% in the quarter or 2 years stack. Applied is up over a 120%. So yeah we uh we are uh we are executing extremely well in that business and I would tell you to your question, it's really broad-based growth once again

David Regnery: But as I look across the 14 verticals that we track, I would tell you the majority of them were positive, which you would expect from Trane Technologies with our direct sales force with expertise across all of these verticals. Look, that team continues to execute well. I would just, before I turn it over to Chris, the pipeline of activity, we do a lot of work tracking pipelines. I would tell you that that remains very, very strong. The last point I will make is, our services business, once again, here we are at low teens growth. That should not be a surprise to anyone because our compound annual growth rate really, since the inception of Trane Technologies, has been in that same range. So very strong and I am very proud of what that team has been able to accomplish.

And, uh, yeah, sure, we had some nice strengths in Healthcare. We had nice strengths in Government, we had strengths in Data Centers, we had strengths in, you know, Higher Ed. But, um, as I look at the 14 verticals that we track, I would tell you the majority of them were positive, which you would expect from Trane Technologies with our direct sales force and expertise across all of these verticals. So, look,

That team continues to execute well. Um, and I would just, before I turn it over to Chris.

The pipeline of activity, we do a lot of work tracking pipelines. Um and I would tell you that that remains very, very strong.

The, the last point I'll make is, you know, our services business. Once again, here we are at, uh, you know, low teens growth. Uh, that should be a surprise to anyone, because our compound annual growth rate really, since the Inception of Trane Technologies has been in that same range, so very strong and um

David Regnery: Chris, I do not know if you have anything you want to add.

Zac Nagle: will add on the bookings and the revenue growth. If you remove data centers from the vertical, very strong growth ex-data centers in both revenues and bookings. We like that growth in data centers. We were strong in data centers in the quarter, but you remove that, very strong growth as well.

David Regnery: Yeah, the only other thing I would add, Chris, because I know it's a typical question, is what happened with applied and unitary? Obviously, we had a lot of strength in applied, but I would tell you both were positive. Applied was stronger than unitary, but as you would expect, because of the broad-based growth that we're seeing, we're serving, again, all the verticals. Some of those verticals are more dominated with unitary product versus applied.

Chris Snyder: Thank you. I really appreciate that. Super supportive to hear about the broadening. I did kind of want to follow up on what that means for the service flywheel. In the past, Dave Regnery, you have talked about a two-year rough lag between when the equipment starts driving service revenue. If you look at Commercial HVAC equipment, its top line accelerated in 2023 and 2024, kind of versus where it was at previously. So what does that mean for the outlook for service into the back half of the year? Any color on what is implied for the back half service growth guide? Thank you.

You know, I'm very proud of what that team's been able to accomplish Chris. I don't know if you have anything you want to add, I'll add on the bookings and the revenue growth. If you remove data centers from the vertical, very strong growth, X data centers in both revenues and bookings. So uh we like that growth in data centers, we are a strong and data centers in the quarter but you remove that very strong growth as well. Yeah. The only other thing I would add Chris because I know it's, it's typical. Question is is well what happened with applied in unitary? And obviously we had a lot of strength and applied. Um, but I would tell you both were positive. So applied was stronger than unitary, but as you would expect because of the broad-based growth that we're seeing, we're serving, you know, again all the verticals and uh, some of those verticals are more dominated with, uh, unitary product versus Supply.

David Regnery: You are spot on, right? Our service business is really built around our applied portfolio. It does not mean we do not service unitary, but it is really built around our applied portfolio. And we model that it is 8 to 10 times versus the equipment price what we will get over services over the life of that asset. So as this, it is a compounding effect, right? You can see that our growth has really been quite substantial for a number of years, and that compounding is now starting to impact our service business. We are at the low teens. I am not going to commit more than that because I think that is very healthy. But we have a, we are putting a lot of investments in our service business, and it is a third of our company.

No, thank you. I really appreciate that super supportive to to hear about the broadening, um, but I did kind of want to follow up on. What does that mean for the service flywheel? You know, in the past Dave, you've talked about, you know, maybe a new year rough lag between, um, you know, when the equipment, uh, starts driving service revenue, and those kind of commercial HVAC equipment, it Topline accelerated in 23 and 24, um, you know, kind of versus where was that previously. So, so what does that mean? Um, you know, kind of for the outlook for service, um, into the back end of the year and then any color on What's um, implied for that the back app. Service growth guide. Thank you.

David Regnery: And I would tell you it is very, very resilient, and it has got a lot of upside in the future. Chris, I do not know if you want to add anything.

Zac Nagle: Yeah, as we describe services on a regional basis, the margins with services are accretive to the segment margins of each of our regions. To your point, Chris, yes, it takes, you know, maybe a couple of years post-warranty to start seeing the inflection point of revenues, but we're connected to those customers from day one. We're making sure maintenance is getting performed, executing to service plans. That five-year CAGR now of low double-digit services growth gives us a lot of confidence that revenue is really in front of us when we think about these applied bookings today.

For your spot on, right? Our service business is really built around our applied portfolio. It doesn't mean we don't service unitary but it's really built around our applied portfolio. And we model that it's 8 to 10 times versus the equipment price. What? We'll get over Services over the life of that, of that asset. So as this, it's a compounding effect, right? So you can see that our growth, uh, has really been quite substantial for a number of years and that compounding is now starting to impact our service business. So look, we're at the low teams. I'm not going to commit more than that because I think that's very healthy. But uh, we have a we're putting a lot of investments in our service business and um, it's a, it's a third of our company and uh, I would tell you it's very, very resilient and it's um, it's got a lot of upside in the future, Chris, I don't know if you want to add anything.

David Regnery: Yeah, if you want to, just one other point is if you think about, you know, you think about it today, right? Services roughly, if I go to our Commercial HVAC business, think of it half equipment, half services. Another thing that's really accelerating services is these Digital connected solutions. You know, we were talking about the other day, I had a meeting on how many connected buildings do we have with BrainBox included in that equation. We're up to over 60,000 connected buildings and millions of connected assets. So now we're able to have a lot of structured data that we've had as Trane Technologies adding on BrainBox. We're now starting to augment that with some unstructured data.

Of us when we think about these applied bookings today. Yeah, if you want to just 1 other point is, if you think about, you know, you think about it today, right, Services, roughly, if I go to our Commercial hbac Business, think of it, half equipment, half services. And another thing that's really accelerating Services is these whole, these connected Solutions.

David Regnery: It's, you know, as far as the energy efficiencies that we're able to achieve in buildings now, it's not only getting the building to operate the way it was designed, it's how can we even do better than that versus how the building is actually being utilized. So it's a very exciting time at Trane Technologies, specifically in our services business.

And, you know, we were talking about the other day. I had a meeting on how many connected buildings do we have with brainbox included in that equation. We're up to over 60,000 connected buildings, and millions of connected assets. So now we're able to have a lot of structured data that we've had as, as trained Technologies adding on brain box. We're now starting to augment that with some, the unstructured data, and it's uh you know as far as the Energy Efficiency that we're able to achieve in buildings. Now, it's not only getting the building to a to operate the way it was designed. It's how do we even do better than that versus how the building is actually being utilized? So it's a very exciting time at Trane Technologies specifically in our our services business

Chris Snyder: Thank you. Appreciate all the information.

David Regnery: Sure. Thanks, Chris.

Thank you. I appreciate all the information.

Regina: Our next question comes from the line of Julian Mitchell with Barclays. Please go ahead.

Sure. Thanks Chris. Thanks.

Our next question comes from the line of Julia Mitchell with Barclays. Please go ahead.

Julian Mitchell: Hi, good morning. Maybe just first off, I wanted to try and understand the second half America's organic sales growth outlook a little bit better. I suppose the sort of America's framework, it is kind of high single-digit organic growth both Q3 and Q4, and then you have resi and transport down mid-single in both quarters, year on year. Is that the right way to think about that guidance?

Hi, good morning. Um

Maybe, um, just first off wanted to try and understand the, um, second half. Um, Americas, organic sales, growth Outlook a little bit better. Um, so I suppose is, is the sort of America's framework. It's it's kind of high single digit organic growth.

Zac Nagle: Hey, Julia, it's Chris. We've guided the third quarter to 6% organic revenue growth. The implied guidance for the fourth quarter would be in that 9%-ish range. Think about Commercial HVAC equipment Americas being very consistent Q3 and Q4, really up low double digits in both quarters. It's a tougher compare, actually, in the third quarter to prior year results in Commercial HVAC equipment up high teens and easier compare in the fourth quarter for Commercial HVAC equipment up mid-teens a year ago. Think of that business as continuing to execute. We've got a lot of visibility in the backlog to when projects need to be shipped and revenued. So we see that being consistent across the quarters. Think of Transport refrigeration equipment probably more down in the third quarter. As Dave Regnery explained, those markets continue to be under pressure.

Both Q3 and Q4 and and then you have resi and transport down mid single in in both quarters year on year is that the right way to think about uh that guidance.

Hey Julian, it's Chris. Yeah, we've guided the third quarter to, you know, 6% organic revenue growth.

And then the implied guidance for the fourth quarter would be in that, you know, 9 is percent range. Um, but think about commercial HVAC Americas, being very consistent in Q3 and Q4 really upload double digits in both quarters.

It's a tougher compared actually in the third quarter to Prior year results. In commercial age back up high teams and easier comparing the fourth quarter for commercial HVAC uh up mid teens, a year ago. But think of that business, as continuing to to execute, we've got a lot of visibility in the backlog to end projects need to be shipped to revenue. So we see that being consistent across the quarters

Zac Nagle: Maybe that's a little more flattish in the fourth quarter. Residential HVAC equipment, we've, in the second half of the year, taken about $150 million of revenue out in the second half. Think of that as more in the third quarter than the fourth quarter. So we're expecting Residential HVAC equipment to be down more in that high single-digit range for Q3, and we'll sequentially do better in the fourth quarter. Hopefully, that gives you a little bit of context around the America segment.

Think of Transport uh probably more down in the third quarter as we as Dave explained. Those markets continue to be under pressure. Uh maybe that's a little more flattish in the fourth quarter and then residential, you know, we've

In the second half of the year, we took about $150 million of revenue out in the second half. Think of that as more in the third quarter than the fourth quarter. So we're expecting residential to be down more in that high single-digit range for Q3, and we'll sequentially do better in the fourth quarter. So, that probably gives you a little bit of context around the America segment.

Julian Mitchell: is great. Thank you, Chris. My second question, I suppose, just following up on that residential side of things, help us understand on the cylinder point, the progress on getting that resolved. Beyond that supply chain issue, I suppose on the demand side, are you seeing any change in customer behavior around mixing down or repair versus replace, anything on the competitive side shifting?

David Regnery: Yeah. Hey, Julian, how are you? This is Dave. Look, you know, we started the year in Q1 very strong in residential. We were up in the high teens. The second quarter was down 6%. The year to date, we are up 3%. Look, we have a very, very high concentration in our inventory channels of 454B product. When we had a bottleneck that occurred really towards the end of April, we were impacted. We reacted quickly. We have been overcharging units from the factory since May. We are working very closely with the suppliers of the refrigerants, so we know what they have committed to us. We know what they have committed to the industry. I guess the good news is, yeah, it was an impact. It is isolated, okay?

That's great. Thank you Chris. And and then my second question, I suppose, um, just following up on that residential side of things, um, sort of help us understand on the cylinder Point, um, the sort of progress on getting that resolved and, and beyond that supply chain issue I suppose on the demand side. Are you seeing any change in the customer Behavior around, sort of mixing down, or repair versus replace? Uh, anything on the competitive side shifting.

Yeah. Uh, hey, Julian. How are you? This is Dave. Look, um, you know, we started the year in Q1 very strong in residential. We were up in the, you know, the high teens. The second quarter was down 6%. Year to date, we're up 3%. Um, look, we have a very, very high concentration.

In our inventory channels of 454b product.

David Regnery: As we sit here on the, what is it, the 30th of July, I would say that, you know, we could argue whether it is 90% or 95% of this is behind us. We are looking forward, and you know, we will get this business back to what our framework is, which over the long term, which is a GDP plus business. In the second half, we are forecasting inventory coming out of the channel. We talked about having high inventory at the end of the first quarter. Unfortunately, that inventory is still there as we exited the second quarter. So that will burn through. As Chris said, that will be more of an impact in Q3 versus Q4.

And when we had a bottleneck that occurred really towards the, the end of April, we were impacted. Um, we reacted quickly, we've been overcharging units from the factory since May. Um, we're working very closely with the suppliers of the refrigerant. So we know what they have committed to us. We know what they have committed to the industry. Um, I mean, I guess the the good news is. Yeah, it was an impact. It's isolated. Okay. And as we sit here on the what's it the 30th of July? I would say that the you know, if we could argue whether it's 90 or 95% of this is behind us, but uh, we're looking forward and, um, you know, we'll get this business back to what our framework is, which over the long term, which is a GDP plus business in the second half. We're forecasting, uh, inventory coming out of the channel.

David Regnery: On your question on repair versus replace, look, it was probably a difficult quarter to, you know, be able to decipher what is happening there with the bottleneck and refrigerant. We will see what happens as the year progresses. We have not seen anything, but again, I think it was probably not an optimal quarter to see if that is actually moving more to repair versus replace. We are obviously watching that very closely. The last thing I will say on residential is, and I know you heard me say this at the end of the first quarter when we had high teens growth, look at residential over the long term, right? There is a lot of different models out there as far as how we satisfy this channel, two-step, three-step, and you could have one competitor look like they are gaining share and then losing share.

The second quarter. So that will burn through and as Chris said, that'll be more of an impact in Q3 versus Q4 on your question, on repair versus look, it was probably a difficult quarter to

To you know, be able to decipher what's happening there with the bottleneck and refrigerant. We'll see what happens as the year progresses but we haven't seen anything. But again I think it was probably the it was not an optimal quarter to see if that's actually uh moving towards a repair versus replace. But we're we're obviously watching that very closely. The last thing I'll say on residential is and I, I know you heard me say this at the end of the first quarter when we had High Teens growth um, look at residential over the long term, right? There's a lot of different models out there. As far as how we satisfy this channel, 2, Step 3 step and you could have uh,

David Regnery: Look at the long term and look at the growth trends over the long term. The good news is, is we look forward to getting back to our framework, which is a GDP plus business.

1 1, 1, 1, competitor. It looks like they're gaining share and then losing share. Look at the long term and the growth trends over the long term. The good news is, we look forward to getting back to our framework, which is a GDP-plus business.

Julian Mitchell: That's great. Thank you, Dave.

David Regnery: Thanks, Julian.

That's great. Thank you, Dave. Thank you, Julian.

Regina: Our next question comes from the line of Scott Davis with Melius Research. Please go ahead.

Our next question comes from the line of Scott, Davis, with Melius research. Please go ahead.

Speaker 7: Hey, good morning, guys. Chris and Zac.

David Regnery: Hey, Scott. How are you?

Hey, good morning, guys.

Speaker 7: Good morning.

David Regnery: It is getting to be a broken record, but congrats again on the numbers and such.

How are you? Good morning.

Good.

Speaker 7: Thanks, Scott.

Uh, it's getting like a broken record, but, uh, congrats again on, uh, on the numbers and such.

David Regnery: A couple little ones. Your incremental sequentially went up from kind of 25% to 32%. Was that mostly just a mix, or was there timing on investment spend or any other kind of things that impacted that?

Thanks Scott.

couple uh, a couple

Ones. I mean, your incremental sequentially went up from kind of 25% to 32%. Was that mostly just, uh...

mix or was their timing on investment spend or any other kind of things that impacted that

Zac Nagle: Scott, it's Chris. I will start. In the quarter, nice growth in our services business, right? We like the margins in services. Really good productivity in the factories, and it's a hallmark to make sure that we are offsetting other inflation with productivity, and that was strong in the quarter. Then even the volume growth, we got strong leverage on that. So all in, really just managing the full P&L here in the second quarter, but gives us a lot of confidence that the full year will be, you know, 25% or better incrementals.

David Regnery: Yeah, but don't think that we haven't stopped investing, Scott, because we continue to invest at a very high level back into the business. This is all about future growth.

Speaker 7: Yeah, understood. Guys, you seem more confident in the China outlook this quarter than back in April. Has the entire market adjusted? I mean, I know your U.S. competitors have followed suit with pricing terms and credit and such down payments, etc. But have your foreign competitors adjusted in suit, and has there been a kind of a reset of that market with more favorable terms for you guys?

Scott, it's Chris. I'll start um, I mean in the quarter, nice growth in our services business, right? We like the margins and services, uh, really good productivity in the factories. Um, and it's a Hallmark to make sure that we're offsetting other inflation with productivity and that was strong in the quarter. Um, and then even the volume growth, we got, uh, we got strong leverage on that. So all in really, just managing the full p&l here in the second quarter, but, um, gives us a lot of confidence that the full year will be, you know, 25% or better. Incremental. Yeah. But but don't don't think that we haven't stopped investing stock because we continue to invest in a very high level back into the business. This is all about future growth.

Yeah, understood. Um guys, you seem more confident in uh, the China Outlook this quarter than back in April, um, has the entire Market adjusted. I mean, I know your us competitors have have, um,

Followed suit with pricing terms and credit and such down payments, Etc. But has the has the have your foreign competitors, adjusted in suit, and has there been a kind of a reset of that market with, um,

David Regnery: I think it is mixed. The good news there is, look, in Asia, it really met our expectations. We think the full year is going to be flat. It is a smaller part of our business, as you know. But the good news is, look, our anniversary of our Titan credit policy is upon us. So the comps certainly get easier. But with that said, our team, if you look at the sequentials, right, and we spent a lot of time analyzing this, the sequentials are improving. Now, you got to take seasonality out of that. But the sequentials are improving from when we first put in these new credit policies to where we are today. So look, we are very confident in saying that Asia will be flat for the year. And the good news is our China credit policies have had a one-year birthday.

at more, favorable terms for you guys,

I think it's mixed. I mean, the good news there is look in Asia. We've really it really met our expectations. We think the full year is going to be flat. It's a smaller part of our business, as you know, but the good news is look. We're, uh, our anniversary of our Titan credit policy is upon us. Uh, so the the comp certainly get easier, but with that said, our team, if you look at this sequential, right? And we spent a lot of time analyzing this, these sequential are improving. Now, you got to take seasonality out of that, but the sequential are improving from when we first put in these new, you know, credit policies, uh, to where we are today. So look, um, we're we're very confident in saying that Asia will be flat for the year and

David Regnery: So we are moving forward.

The good news is our China credit policies have turned 1 year old, so we're moving forward.

Speaker 7: Okay, fair enough. I'll pass it on. Thank you, guys.

Fair enough. I'll

David Regnery: Scott, I love your videos too. Keep it up, okay?

Speaker 7: will try. Thanks.

have your videos too. Keep it up, okay?

David Regnery: Thanks.

Regina: Our next question comes from the line of Amit Mehrotra with UBS. Please go ahead.

I'll try. Thanks. Thanks.

Our next question comes from the line of Ahmed marotta with UBS. Please go ahead.

Speaker 7: Thanks. Morning, Dave, Chris. How are you?

David Regnery: Good. How are you?

Thanks, morning. Dave, Chris, how are you?

Speaker 7: Good. I guess, Chris, we are moving to the higher end of the CapEx range. Do we think the higher CapEx translates to kind of a burning of the backlog, or do you still expect backlog to stay elevated? Related to that, I think 50% of the product revenue is sitting in backlog today. Just curious in terms of how much visibility does that give you into 2026 from where we stand today?

How are you? Uh, good. Um I I guess Chris removing to the higher end of the capex range. Um, do we think the higher capex translates to kind of a burning burning of the backlog? Or do you still expect backlog to stay elevated and just kind of related to that? I think, you know, 50% of the product revenue is sitting in backlog today. So just curious in terms of how much visibility does that give you actually into 2026 from where we stand today?

Zac Nagle: Yeah, where backlog remains elevated through the end of the second quarter, and our expectation, Amit Mehrotra, is that it is going to remain elevated through the balance of this year going into next year. We are building a backlog already for 2026 and beyond. We have got about $2.5 billion in backlog for 2026 and beyond at this point in time. So it is giving us some good visibility to next year. But with lead times really coming in over the last 18 months, 24 months, you are seeing orders getting placed at roughly a time that is maybe only six months away, nine months away from when deliveries go out, especially in the applied space. So really, it then refers to what Dave Regnery talked about on pipelines, making sure we have really good insight on the pipelines and those continue to be growing.

So, it's giving us some good visibility for next year. Um, but with lead times really coming in over the last 18 to 24 months, you're seeing orders getting placed.

Zac Nagle: So yeah, I think backlog will remain elevated. And right now, it is actually over 90% of our backlog is Commercial HVAC equipment globally. And the majority of that is applied.

David Regnery: The good news of it is we were kind of early in the CapEx investing in capacity. Now, with really the surge in our applied business, we're able to meet our customers' expectations from a delivery standpoint. So no issues there.

At a roughly a time. That's maybe only a 6 months away. 9 months away from when deliveries go out, especially in the applied space. So really it then, um, refers to what Dave talked about on pipelines, making sure we have really good Insight on the pipelines and those continue to be to be growing. Um, so yeah, I think backlog will remain elevated and right now it's actually over 90% of our backlog is commercial HVAC globally and the majority of that Supply, The Good, the good news of it is we we were kind of early in the capex investing in capacity

And, uh, now with really the surge in our applied business, we're able to meet our customers' expectations.

Speaker 7: Got it. That is helpful. Then, Dave, just one follow-up on growth in data centers and how that growth piece is evolving. We are obviously, some of these next-generation chips are proliferating now more than they were before. I noticed you guys talked about expanding your liquid cooling product last month, I think, if I saw that correctly. Can you just talk about, I know you guys are very well positioned in that vertical and you have been doing it for a long time, but in terms of the fastest growing parts within the data center, can you just talk about how you guys are positioned there?

Uh, from a delivery standpoint. So no issues there, got it.

David Regnery: Yeah, I mean, I think the data center vertical, and I have been saying this for years now, it is one of those verticals that moves really, really fast from a technology standpoint. You know, we are on it, right? We are constantly working with the data center customers, which I cannot name by name, but they are constantly in our labs and we are working together. So yeah, we did introduce a CDU. That is part of the solution. Obviously, our water-cooled, air-cooled portfolio is extremely important there. Our air handling systems are very important there. Different aspect ratios of those air handling systems are very important there. We like to look at things at a system level, okay? When you do that, you start to see where the opportunities are. You know, customers, these customers want a strong partner and they want a differentiation.

That's helpful. And then just Dave, just 1, 1 followers and and how that's that growth piece is kind of evolving. I mean, we're obviously some of these next Generation chips are proliferating now, uh, more than they were before. I I noticed you guys talked about kind of expanding your liquid cooling. Um, uh product. Uh, last last month, I think if if I saw that correctly, can you just talk about? I know you guys are very well positioned in that vertical and you've been doing it for a long time. But in terms of the fastest growing Parts within the data center, can you just talk about how you guys are positioned there?

Yeah, I mean I think the the data center vertical and I've been saying this for years now it's it's 1 of those verticals that moves really really fast from a technology standpoint.

David Regnery: I mean, I was telling a group the other day, we did a project in Australia, and I cannot say who it was with, but you know, we measure efficiencies of systems by the COP or coefficient of performance. We were able to get a coefficient of performance for this customer in Australia, very large data center. The COP was north of 10. That was like unheard of. If I told someone that four years ago, they would think I was kidding them, right? So these are the types of innovations that, you know, our very clever, experienced engineering teams are able to develop with, you know, these data center customers. So look, we are excited about data centers, but we are more than just data centers. You could tell that by our broad-based growth.

And uh, you know, we're, we're, we're on it, right? We're constantly working with the data center customers, which I can't Name by name, but they're constantly in our labs and, and we're working together. So yeah, we did introduce a CDU, um, uh, that's part of the solution. Um, our obviously, our water cooled air cooled. Portfolio, is is extremely important. There are Handling, Systems are very important, there different aspect ratios of. Those are Handling, Systems are very important there. We like to look at things at a system level, okay, and when you do that, you start to see where the opportunities are. And, you know, customers these customers, want a strong partner and they want a differentiation. I mean, I was telling a group the other day, we did a project in Australia and I I can't see who it was with. But, you know, we measure efficiencies of systems by the the cop or coefficient of performance.

And we were able to get a coefficient of performance for this customer in Australia, a very large data center.

The cop was north of 10.

And that, that was like, unheard of. If, if I told someone that 4 years ago, they'd think I was kidding them, right? So, this is, uh, these are the types of innovations that, you know, are very clever, you know, experienced engineering teams are are able to develop with, um, you know, these data center customers. So look, we're excited about data centers but we're more than just data centers. You could tell that by our broad-based growth,

Speaker 7: Okay, thanks a lot. Appreciate it.

David Regnery: Thanks, man.

okay, thanks a lot. Appreciate it.

Zac Nagle: Thank you.

Regina: Our next question comes from the line of Andy Kaplowitz with Citigroup. Please go ahead.

Thanks a bit. Thank you.

Speaker 7: Hey, good morning, everyone.

Our next question comes from the line of Andy Kaplowitz with Citi. Please go ahead.

David Regnery: Hey, Andy. How are you?

Hey, good morning, everyone.

Speaker 7: Good. How are you?

Hey, Andy, how are you? Good. How are you?

David Regnery: David, Chris, someone asked about margin, but I wanted to ask it maybe a slightly different way. The organic leverage was impressive, despite Asia-Pacific and European margins down. I think Q2's America margin was the highest we have seen from Trane. I am just trying to figure out how enduring America's performance is. I know you said you want to continue to invest, but there is a lot going on, mix-up, better productivity. You are burning more complex, large applied jobs. I am trying to figure out if they are clear or not. Maybe just all this interplay, the durability of this America's performance moving forward.

Uh, David, Chris someone asked about margin, but I wanted to ask if maybe slightly different way. Like, the organic leverage was impressive, uh, despite agent Pacific and European margins down, and I think k2's America margin was the highest we've seen from trains. So I'm just trying to figure out how enduring the America's performances. I, I know you said you want to continue to invest but, you know, there's a lot going on mix up better productivity, you know, you're burning more complex, large applied jobs. You know, I'm trying to figure out if there are clear or not. So maybe just all this interplay and the the durability of this America's performance.

Moving forward.

Zac Nagle: Yeah, Andy, I'll start. Look, I think the old tape of the mix of businesses having different margins, hopefully that puts us finally to rest as you think about the Commercial HVAC equipment performance in the quarter and what we were able to perform there. But I really think it's across the P&L in terms of where we saw the benefits and the leverage. The strong productivity, good incrementals on volumes, price over inflation on a dollar basis and a percentage basis, but also making sure we're making the investments in the business. So I think the second quarter is really kind of following the same playbook. Margins came in a little bit ahead, but healthy leverage there. Again, the services business continues to drive margin accretion as part of a third of the portfolio of the enterprise. We've not changed the formula.

Zac Nagle: The investment flywheel continues, and we just say that we're really confident that we'll have growth on the full year.

The flywheel continues. Um, and we just say that we're really confident that we'll have growth for the full year.

Speaker 7: That is helpful, Chris. Then, Dave, I think you guys mentioned that your unitary business is still doing reasonably well, which is a bit of a contrast versus some of your peers. I know it is difficult to draw lines between, you know, larger unitary and applied. But maybe talk about sort of that particular end market and why Trane Technologies is outperforming.

David Regnery: First of all, I think the unitary market is going to be much softer than the applied market, at least here in the Americas. We continue to, we are performing well, really. As I said, applied was much stronger than unitary. Both were positive. That is a good thing. Andy Kaplowitz, I think it really goes to the focus we have on the broad base of the verticals that we are servicing. There are some verticals that have more of a concentration around unitary solutions. With a direct sales force and being able to have expertise within our regional offices, we are able to capture where those growth opportunities are. So it is really just good execution. I would say, we are now into the book and burn kind of side of that unitary with the replacement market with high heat. So we will see how the year finishes out.

Helpful Chris and then Dave I I think you guys mentioned that you're like unitary business is still doing reasonably well, which is a bit of a contrast versus some of your peers. So I know it's difficult to draw lines between you know, larger Unitarian applied but when we talk about sort of that particular End Market and why train is outperforming

Well I I look for first of all I think the unitary Market is going to be much softer than the applied Market um at least here in the in the Americas. But look we we continue to, you know, we're performing well really. I mean as I said applied was much stronger than unitary both were positive. That's a good thing. And and and I think it really goes to the focus. We have on the broad base of the verticals that were for service. And there's some verticals that have

David Regnery: We are happy with our performance right now, really across our Commercial HVAC equipment businesses, but certainly here in the Americas.

Speaker 7: Appreciate the color, Dave.

You know, more of a concentration around unitary Solutions and with the direct sales force and being able to have expertise within our Regional Offices. Uh, we're able to, you know, capture where those growth opportunities are. So, um, it's really just good execution. I would say, you know, we're now into the kind of the, the book and burn kind of side of that unitary with the replacement Market with high heat. So we'll see how the year, you know, finishes out. But, uh, we're, we're happy with our performance right now. Really across the commercial HVAC businesses, but but certainly here in the Americas,

David Regnery: All right. Thanks, Andy.

Appreciate the color, Dave.

All right, thanks Sandy.

Regina: Our next question comes from the line of Joe Ritchie with Goldman Sachs. Please go ahead.

Our next question comes from the line of Joe Richie with Goldman Sachs, please go ahead.

Speaker 7: Hey, guys. Good morning.

David Regnery: Hey, Joe. How are you?

Hey guys. Good morning.

Speaker 7: Good morning.

David Regnery: Doing great, thanks. Hey, Chris, can you maybe just unpack the guidance increase? So $0.25 as a midpoint. It seems like FX is about a nickel, but you only increase your organic growth by 50 bps. Is this just going to be better margins, better performance in the first half? Just help me unpack the $0.25 number.

Zac Nagle: Our last guide for the year was $12.70 to $12.90. We said we were really at the higher end of that range three months ago, Joe. Raising it to $13.05 on the full year, think about that as taking the Q2 beat and then some and passing it through. FX was probably around that range of what you were talking about. It really is the operational performance in the business. I think we like putting out guidance that we can meet or achieve or exceed. The fact is the operational performance really led by Commercial HVAC equipment and the execution in the team is really driving the performance and how we think about the outlook for the balance of the year. On revenues, think about it as to get to the 8% on the full year versus where we were three months ago.

Hey, Joe, how are you? Good morning. Still doing great. Thanks. Hey, um, Chris, can you maybe just, um, unpack the guidance increase? Um, so 25 cents, uh, from at the midpoint, uh, and it seems like, look, FX is about a nickel, um, but are you—and you're only increasing your organic growth by 50 basis points? So is this just going to be better margins, better performance in the first half? Just helped me unpack like the 25-cent number.

Yeah. Um, our last guide for the year was $12.70 to $122.90. And we said we were really at the higher end of that range three months ago, Joe. So, you know, raising it to $135 on the full year, um, you know, think about that as, you know, taking the Q2 beat and then some and passing it through. Um, FX was probably around, um, you know, in that range of what you were talking about, but it really is the operational performance in the business that.

You know, I I think, uh, we like putting out guidance that we can meet or achieve or exceed and uh the fact is the operational performance really led by commercial HVAC. Um and the execution in the team uh is really driving the the performance and how we think about the outlet for the balance of the year.

Zac Nagle: Think of it as a stronger Commercial HVAC equipment Americas business. We are taking that guidance up to low double digits in terms of revenue growth. Residential HVAC equipment, we think prudently we have reduced the revenues around $300 million on the full year. That is about a rough point and a half at the enterprise. That is a subtraction. We are layering in plus and minus tariff pricing where we are really trying to thread the needle between the price-cost equation there on pricing to really offset the cost, starting with mitigating the cost, but then ultimately trying to price for any residual. That is really the puts and takes on the top line. There is a lot of confidence on the operational performance here driving comfort in raising the bottom line.

On revenues, think of it as, um, you know, to get to the 8% for the full year versus where we were three months ago. Think of it as a stronger Commercial HVAC Americas business. We're taking that guidance up to low double digits in terms of revenue growth.

Uh, residential, uh, we we think prudently we've reduced the revenues around 300 million dollars on the full year. That's about a rough point and a half at the Enterprise. So that's a subtraction and then we're layering in plus and minus, uh, you know, tariff pricing. Where we're really trying to thread, the needle between, uh, the price cost, uh, um, equation there on, um, pricing to really offset the cost starting with mitigating the cost, but then ultimately trying to price for any residual. So that's really the, the puts and takes on the top line. And then a lot of confidence in the operational performance here, driving, uh, comfort and raising the bottom line.

Speaker 7: Got it. That makes a lot of sense, Chris. Then maybe just my follow-up, Dave, going back to your comments earlier about getting back to being a GDP plus business on the residential side of things. I know it's early, but as you are kind of thinking through maybe beyond this year and this whole, you know, some of the noise that we are experiencing here because of the refrigerant change, you know, when you start thinking about 2026, is that a year where we start getting back potentially to GDP plus from a volume standpoint on resi HVAC? Also just how are you thinking about pricing? There is a lot of pricing that went into the system, right? Like the inelasticity of your dealer network or customers ultimately taking on additional price in resi.

David Regnery: Yeah, look, first of all, I think we had an isolated incident in Q2, number one. We did not see that coming. I do not think the industry saw that coming. So there are no structural problems within residential, and people need to really understand that. We have been saying for a while that this is a GDP plus business. Look, there is a lot of noise out there in 2025, a lot of change happening there, a little bump in the road here in Q2. We believe we are going to get back to a GDP plus business. I will give you a more definitive answer when we get our, we will report our fourth quarter. We talk about the guide for 2026. Look, overall, this is a good business. Do not let the noise confuse you. It is a good, solid business. We do well here.

Got it. That makes that makes a lot of sense. Chris. And then maybe just my follow-up. Uh, Dave, going back to your comments earlier about getting back to being a GDP plus business on the residential side of things, I know it's early but as you're kind of thinking through maybe Beyond this year and and the this this whole, you know, some of the noise that we're experiencing here because of the refrigerant change. Yeah. When you start thinking about 2026, is that a year where we start getting back potentially to GDP plus from a, from a volume standpoint on resi HVAC. And then also just, how are you thinking about pricing? There's a lot of pricing that went into the system and uh and like be in elasticity of your of your dealer Network or customers ultimately taking on additional price and resi.

Yeah. Well, first of all, I think we had an isolated incident in Q2. Um, number 1, right. And uh, we didn't see that coming.

David Regnery: This is going to get back on track here. As I said, there are no structural problems within the industry.

Understand that. And we've been saying for a while that this is a, you know, a GDP plus business. So look there's a lot of noise out there in 20125. A lot of change happening there, a little bump in the road here in Q2. Um, we believe we're going to get back to a GDP plus business and I'll give you a more definitive answer when we get our, uh, we report our fourth quarter. We talk about the guide for 2026 but uh, look overall, this is a good business and don't let the noise confuse you. It's a good solid business, we do well here and um you know, this is this is going to get back on track here and like I said, there's no structural problems within the industry.

Speaker 7: All right. Thanks, guys.

David Regnery: Sure. Thank you.

All right. Thanks guys.

Speaker 7: Thank you.

Sure, thank you. Thank you.

Regina: Our next question comes from the line of Steve Tusa with JPMorgan. Please go ahead.

Speaker 7: Hi, good morning.

Our next question comes from the line of Steve Tusa with JP Morgan. Please go ahead.

Uh, hi. Good morning.

David Regnery: Steve, how are you?

Speaker 7: Good morning. I am good. Thanks as always for the details. Can you just maybe hash out for Residential HVAC equipment what your price and mix expectations are for the back half? Then just help us parse out. I think you guys said $75 million to $100 million in pre-buy last year. Maybe square that with the $150 million number?

Steve, how are you? Good morning, um, good. Um, thanks as always for the details. Um, can you just maybe hash out for resi? Um, what your uh, price and mix expectations are for the back half and then just help us parse out. I think you guys said 75 to 100 million in pre-b buy last year. Um, maybe square that with the 150 number.

Zac Nagle: Let me start with your first question, residential. We are expecting in the second half, if I remove the 454B impact from volumes, which is really how we started the year and thinking about it, but if we really want to isolate volume impact from price, then we are expecting volumes to be down in the second half. More so in the Q3, based on how that $150 million of revenue reduction in the second half, that is more, Steve, in the Q3 than it is in the Q4. But we expect both quarters to see some volume reduction in the second half. Dave Regnery talked about having to get some of that inventory out of the channel as well. So we think that that is prudent. Pricing is in that double-digit range, low double-digit range.

Let me start with your first question, uh, residential. So we're expecting in the second half. If, if I remove the 454b impact from volumes, which is really how we started the year and thinking about it, but if we really want to isolate volume impact from price, then we're expecting volumes to be down in the second half uh, more. So in the third quarter, based on how that 150 million dollars of of Revenue reduction in the second half, that's more Steve in the third quarter than it is in the fourth quarter.

But we expect both quarters, um, to see some volume reduction. The second half you Dave talked about, um, you know, having to get some of that inventory out of the channel as well. So we think that that's prudent.

Zac Nagle: So net-net, it is a reduction in the second half, and that gets you to roughly flattish on residential for the full year.

Speaker 7: Right, because your mix is included in that volume, right? That is the way you guys report it. The mix is kind of included in your volume discussion.

Pricing is in that, um, you know, double digit range, low double digit range, so, uh, net net, net. It's, uh, it's a reduction in the second half and that gets you to roughly flattish on residential for, um, for the full year.

Right, because you're mix.

Zac Nagle: That is how we started it. But if I remove that mix from volume and I say, okay, let us just put the isolate volume.

Yeah. Yeah, because your mix is included in that volume, right? That's the way you guys report it. The mix is kind of included in your volume.

Speaker 7: Got it. Got it.

Zac Nagle: Volumes are death, right? I just think that was prudent to maybe talk about it that way this time around.

Discussion. Well, that's that's how we started it. But if I remove that mix from volume and I say, okay, let's just put the isolate volume, got it, got it.

Speaker 7: Yeah, okay. The $75 million to $100 million that pre-buy, that came, I don't quite recall, that came mostly in Q4, correct, last year that you guys had estimated?

Volumes are dead, right? I just think that was prudent to maybe talk about it that way, this time around.

And the 75 to 100 million that pre-bid, that that came.

Came mostly in the fourth quarter.

David Regnery: Think of it as $100 million, right? If you remember in Q1, we had a very strong Q1, but we said the $100 million is still there. I think we probably replaced the 410 with the 454 product, which is obviously that is where we had the bottleneck that occurred. We believe that our inventory in that independent wholesale distributor channel is still at an elevated level. Think of it in that $100 million to $125 million range. There is still a bit of noise with the 454B canister replacements. That is how you get to the $150 million, Steve, roughly.

Last year that you guys had estimated.

Speaker 7: Got it. Got it. Just one last quick one on services. Really good, obviously, growth during the low double digits. It is decelerating a bit from the mid-teens you guys did last year. I think the HVAC cycle really picked up a couple of years ago. Is there anything moving around that is influencing that? You said two years from the pickup, you would start to see an acceleration. Is there anything going on outside of this, you know, chiller tail, if you will, in services? I guess the implication is, does that low double-digit number that you are seeing today, does that accelerate because of all the applied stuff that you are putting in there now?

Think think of it as a 100 million, right? And if you remember in q1, um, we have a very strong q1, but we said the 100 million is still there. I think we probably replaced the the 410 with the 454 product which is obviously, that's where we had the bottleneck that occurred. But we we believe that our inventory in that independent Wholesale Distributor channel is still at an elevated level. Think of it in that 100 to 125 range. And there's still a bit of Noise with the the 450 bore 454, B, canister replacement. So, that's how you get to the 156.

David Regnery: We always like to see accelerate things. Look, I think the only, first of all, we are very happy with our service business. We are investing a lot in it. It is a third of the company, and it has had stellar performance really over a long period of time. If I had to say what is changing there, it really comes to these connected solutions, Steve. I think you were early on, we explained to you about how being connected to the asset, like 100, you know, think of it as continuous commissioning. That has now really started to accelerate. So hopefully, that becomes more of a flywheel in the future.

Roughly got it, got it and then just 1 1 last Quick 1 on Services. Um really good obviously growth rate and the low double digits. It's decelerating a bit from the mid- teams you guys did last year I think the HVAC cycle really picked up a couple years ago. Um, is there anything moving around? That is influencing that, you know, you said, 2 years from the, the pickup, you'd start to see a an acceleration. Is there anything going on outside of this, um, you know, Chiller tail, if you will, um, in services. And I guess the implication is, is that low double digit number that you're seeing today? Is that accelerate because of all the, um, applied stuff that you're putting in there now,

David Regnery: We have a lot of people working on it. It is part of some of the big investments that we are making there to make sure that we can ensure that this, you know, 30% of energy after the meter, we estimate that number to be very conservative, is being wasted, right? We know we have solutions today that can solve that. I think as the price of energy continues to escalate, that is going to become more relevant to everyone. It also provides great, great paybacks for our solutions. I think that you are going to hear more of that in the future. I know you are hearing it from Trane Technologies, but you are going to hear more of that in the future because the demand side does not get enough attention. We want to talk a lot about the supply side, the demand side, okay?

Well, we always, we always like to see accelerate things. Uh, look, I think the only first of all, we're very happy with our service business. We're investing a lot in it. Uh, it is a third of the company and its had Stellar performance really over a long period of time. If I had to say what's changing there. It really comes to these connected Solutions. Steve, you know, I think you early on WE explained to you about how being connected to the asset know like 100, you know, think of it as continuous commissioning. Um, that has now really started to accelerate. So hopefully that becomes more of a flywheel in the future, and we have a lot of people working on it. It's part of the, some of the big Investments that we're making there to make sure that, um, we can ensure that this

David Regnery: If we are wasting precious energy, that is something that we can solve relatively quickly. It provides buybacks for customers.

Speaker 7: Right. So yeah, it is good growth. It is good growth. 12% is very good growth, obviously. Thanks a lot for the details.

David Regnery: Thanks, Steve.

Escalate that's going to become more relevant to everyone and it also provides great great paybacks for our Solutions. So I think that you're going to hear more of that in the future. I know you're hearing it from Trane Technologies but you're going to hear more of that in the future because the demand side does not get enough attention. We want to talk a lot about the supply side, the demand side, okay? If we're wasting precious energy, that is something that we can solve relatively quickly and, and it provides feedbacks for customers, right? So yeah, it's good growth. It's good growth. Uh, 12% is a very good growth obviously. Um, thanks a lot for the details.

Speaker 7: Thank you.

Regina: Our next question comes from the line of Jeff Sprague with Vertical Research Partners. Please go ahead.

Thanks, thank you.

David Regnery: Hey, thanks. Good morning, everyone. Hope you are doing well. Hey, Jeff, how are you? I am doing great, thanks. Maybe just a few nits to wrap up here on my side. Just, hey, Chris, back to your comment about resi price mix, low double digit. I would have thought mix itself was maybe 10-ish. Can you just give us a little bit more color on kind of the mix effect you are getting and then what kind of price you are actually getting on top of that?

Our next question comes from the line of Jeff sprag with vertical research Partners, please go ahead.

Hey thanks. Good morning, everyone. Hope you're doing well.

Zac Nagle: Yeah, I just put a price mix together, Jeff, and that is up the low double digits here in the second half. That would be inclusive of what we are seeing on 454B and otherwise. So mix is obviously a part of that, but I just put it together.

Hey, Jeff, how are you? I'm doing great, thanks. Um, maybe just a few nits to wrap up here on my side. Um, just hey Chris, back to your comment about residential price mix being low double digits. Um, I would have thought mix itself was maybe 10-ish. Could you just, um, you know, give us a little bit more color on the kind of mix effect you're getting? And then, you know, what kind of price you're actually getting on top of that?

David Regnery: Okay. Then just on tariffs again, Chris. So you mentioned your margin positive in the quarter on tariffs. I do not know if that was a tariff-isolated number or a total kind of inflation number, but do you see, do your expectations for the balance of the year imply that you remain margin accretive on inflation?

Yeah, I I just put a price mixed together, Jeff and, and that's up the, the low double digits here in the second half. That'd be inclusive of. Um, you know what? We're seeing on 4504 B. And, and otherwise. So, um, mix is obviously a part of that but I just put it together.

Okay. Um, and then just on on tariffs again, Chris. Um, so you you know, you mentioned your, your margin positive uh, in the quarter on.

Terrorists. I don't know if that was terrifying number or a total kind of inflation number. But, um, do you see? Do your, you know, expectations for the balance of the Year imply, that you remain margin? Accretive on inflation?

Zac Nagle: Yeah, Jeff, my comment was really around just price and inflation all in. Think about inflation not just being tariffs, but as we think about our commodities, our tier one, our tier two, and just making sure that price is staying ahead of inflation, part of our business operating system. That was my comment there. On tariffs, look, it was a pretty modest, almost immaterial impact here in the second quarter. The pricing on tariffs, assuming what we knew as of Monday holds, and it's very dynamic, as we all know, with negotiations ongoing. That'll ramp as it moves throughout the year. The goal is still to keep mitigating the actual impact, but we know that, if there is a net impact, we're going to have to, the plan is to price for it. So don't think of it as it's margin accretive on tariffs.

Yeah, Jeff what? My comment was really around just price and inflation all in. So think about inflation. Not just being tariffs, but as we think about our Commodities, our Tier 1 or tier 2, and just making sure that price is staying ahead of inflation, um, part of our business operating system. That was my comment there, um, on tariffs, look, it was, uh, pretty modest to almost immaterial impact here in the second quarter. Um, the pricing on tariffs, um, assuming what we knew as a Monday holds and it's very dynamic. As we all know with negotiations ongoing, um, you know, that'll ramp as it moves throughout the year. The goal is still to keep mitigating the actual impact, but we know that um, you know, if there is a net impact, we're going to have

Zac Nagle: We're going to thread the needle to make sure that it is margin neutral on a dollar basis. We don't want this to become a profit center, but that may take a little bit of time to get there. But ultimately, that's our target, and we're still executing to that.

David Regnery: Okay, great. Thank you.

There. Well, the plan is to price for it, so don't think of it as its margin, accretive on tariffs, we're going to thread the needle to make sure that it is margin neutral on a dollar basis. We don't want this to become a profit Center, but you know, that may take a little bit of time to get there. But, um, ultimately that's our Target and, uh, we're, we're still executing to that.

Zac Nagle: are welcome. Thanks, Jeff.

Okay, great. Thank you.

Regina: Our next question comes from the line of Deane Dray with RBC Capital Markets. Please go ahead.

You're welcome. Thanks Jeff.

Our next question comes from the line of Dean Dre with RBC Capital Markets. Please go ahead.

Speaker 7: Thank you. Good morning, everyone.

David Regnery: Hey, Deane. How are you?

Thank you. Good morning everyone.

Speaker 7: Good morning.

David Regnery: Doing really well, thank you. I am really interested in how many times this revenue multiplier has been talked about on the call, the 8 to 10 times over the economic life of the business. How does that vary by either region or probably more by application? I would imagine data centers have got to be the highest given how complex and redundancy they have, but maybe it is more how much connected the systems are, like that continuous commissioning. How does that vary the 8 to 10, and might it go higher the more connected the customer is? I do not see it go more higher. I think the higher would be on the energy savings, and it would probably be a different revenue stream that would be in the future on the digital side.

Hey, Dean, how are you? Good morning.

Doing really well. Thank you. Hey, I'm really interested in how many times this revenue multiplier has been talked about on the call, the 8 to 10 times, over the economic life of the business. How does that vary, either by region or probably more by application? You know, as I would imagine data centers have got to be the highest given how complex and redundant they are. But maybe it's more about how much connected the systems are, like that continuous commissioning. So how does that vary? The 8 to 10, and might it go higher the more connected the customer is?

David Regnery: On the 8 to 10, think of it as it does not really vary by region. It would vary by product. Think of it as the more sophisticated chillers are in that 8 to 10 range. Obviously, unitary, we are not including that when we say that because that is not the focus of our service business. Do not think of it as a regional variation. Think of it more as a product variation. We are obviously very strong in the chiller portfolio, and that is a big part of our service business. That is where we would see this 8 to 10 times tail.

I don't see it go more more higher, okay. I think the the higher would be on the Energy savings and it'd probably be a different, different Revenue stream that would be in the future, on the digital side, on the 8, to 10, think of it as it doesn't really vary by region, it would vary by product. Okay? So think of it as

You know, the more sophisticated chillers or in that 8 to 10 range, obviously, unitary, we're not including that when we say that because and that's not the focus of our service business, but don't think of it as a regional variation, think of it more as a product variation. And you know, we're obviously very strong in the The Chiller portfolio. And and that's a big part of our service business. So that's where we would see this 8 to 10 times tail.

Speaker 7: That is really helpful. Just to follow up on data center, you divided up your commercial, made a reference between data center and non-data center. Your competitor yesterday did the same thing. How did data center do in the quarter? What kind of growth rate are you expecting for the year for that vertical?

Data center or non-data center, your competitor yesterday did the same thing. How did data center do in the quarter? What kind of growth rate are you expecting for the year for that vertical?

Zac Nagle: Yeah, Deane, it's a great question. We're not going to size it there. We haven't sized our data center business for various competitive reasons. But I think, you know, I think about the applied bookings, and that's where data center bookings would go into. I think we're getting more than our fair share. And I think it really comes down to innovation. It comes down to those relationships that Dave talked about and having the direct sales force that stays connected with these customers over a long period of time to innovate for the solutions today and then what they want to bring in two to three years' time. So the 120% two-year stack of applied bookings is really indicative of our strength across all the verticals. And you know, just important to highlight, it's not just data centers. And we don't want it to solely be that.

Indeed, it's it's a great question where we're not going to size it. There we we haven't sized our data center business for various competitive reasons. But I I think uh, you know, I think about the applied bookings and that's where data center bookings would go into. I think we're getting more than our fair share. Uh, and I think it really comes down, Innovation, it comes down to those relationships that they talked about. And having the, the direct sales force that stays connected with these customers, over a long period of time to innovate for the solutions today. And then what they want to bring in 2 to 3 years time. So, um, the 120%,

Zac Nagle: These are verticals that have ebbs and flows, and we like having the broad-based growth. So we're there when these verticals, if they're slower now and they return, you like having that sales force direct and exposed to that. So that's why we just keep investing fully in our services business to make sure we're ready after the applied business comes in. We've got the ability to execute on services.

Speaker 7: is really helpful. Thank you.

2 year stack of Applied, bookings is really indicative of our strength, all the verticals and um you know, just important to highlight its not just data centers and we don't want it to slowly be that these are verticals that have es and flows and we like having the broad-based growth. So, we're there when these verticals, uh, if they're slower now, and they re we return, we like having that sales force direct and exposed to that. So, um, that's why we just keep investing fully in our services, business to make sure we're ready. After the applied business comes in, we've got the ability to execute on services.

That's really helpful. Thank you.

David Regnery: Thanks, Steve.

Regina: Our next question comes from the line of Nigel Coe with Wolfe Research. Please go ahead.

Thanks Steve.

Julian Mitchell: Oh, thanks. Good morning, everyone. I promise you no more resi questions. I think we've beaten that dead horse to date.

Our next question comes from the line of Nigel. Co with wolf research. Please go ahead.

Oh, thanks. Good morning, everyone. Um,

David Regnery: Nigel, I was going to ask you what you have in your home, but you probably won't tell me.

I promise you, no more busy questions. I think we've, uh, we've beaten that dead horse to, uh.

I was going to ask you what you have in your home, but you probably won't tell me.

Julian Mitchell: am not going to disclose that information. It is confidential information, but I will tell you offline. Here we go. I just want to pick up on the last question around the applied, you know, the broad-based strength. You called out education and healthcare. Education, we have had a lot of angst around the ESSA funding, muni bond issuance, etc. Healthcare, we know the hospitals have got a lot of funding pressures. Just curious, specifically within those two markets, what do you think is driving the continued strength in order patterns?

um,

David Regnery: Well, education, we have been saying for a while, look, just because ESSA funding is, it is not behind us from a revenue stream, but it is behind us from an order stream. Do not assume that market is going to fall off a cliff because if anything, it kind of heightened the demand for how underinvested in the infrastructure is of many of the schools around the, certainly here in the United States. Look, we still see activity there, but we see really strong growth in the higher ed side of things. This is really where the universities are using their physical space and how they control that physical space as a way to attract students into their organization.

I'm not going to disclose that information. It's confidence with me, but I'll tell you offline. Um, um, so here we go. So, um, just want to pick up on the on the last question around the applied, you know, the board based strength and you, you called out education, and and Healthcare. And, you know, education. We've had a lot of angst around the SF funding ball of community, Bond issues, ETC. And, uh, and and Healthcare, you know, we we know the hospitals have got a lot of funding pressures. So, um, just just curious, you know what, you know specifically within those 2 are markets, you know, what what what do you think is driving the continued strength and and Order patterns.

Yeah. Well education we've been saying for a while look just because that's for funding is is what's up behind us from a revenue stream but it's behind us from an order stream. Don't assume that market is going to fall off a cliff because if anything to kind of heighten the demand for how underinvested in the infrastructure is of many of the schools around the certainly here in in the United States. Um, so look, we still see activity there, but we see really strong growth in the higher ed. So,

Side of things. And this is really where, um,

David Regnery: If you have ever had the opportunity to go on a tour, they will talk about that, about their dormitories and how they are conditioned and what they are doing for indoor air quality. We are seeing a lot of demand there. As you would expect, that is right in our sweet spot. These are usually complex systems. In some cases, they are retrofitting buildings that are extremely aged. The solutions sometimes become more complicated than you may imagine. But we are doing really, really well there.

you know, the the the universities are using their physical space and how they control that physical space, as a way to attract students into their organization. And if you ever had the opportunity to go on a tour, they'll talk about that about their, you know, their dormitories and how they're conditioned and what they're doing for indoor air quality. So we're seeing a lot of demand there and um, as you would expect that's right in our sweet spot. These are usually complex systems and in some cases, they're retrofitting buildings that are um, extremely um, aged. And the, the solution sometimes become more complicated than you might imagine. But we're doing really, really well there.

Julian Mitchell: Well, I'm going through that process with my second boy now. So I'll definitely keep my ears up for that indoor air quality. I was kind of hoping you got to talk about heat, electrification of heat, and sorry.

David Regnery: A separate question, a separate call, you could tell me what schools you are going to and I will let you know, okay?

Well, I'm going through that process with my second boy now, so I'll definitely keep my ears up for that indirect quality. I was kind of hoping you got to talk about heat and electricity—that's the heat. Sorry.

Julian Mitchell: Well, let's have that call. I was kind of hoping you were going to talk about maybe sort of electrification of heat, but maybe touch on that in a separate question. In China, I know it's not a huge business for you, but we're seeing just broad-based another step down, it seems, in China, which might not be a big surprise based on the stats we're seeing from the market there. Just maybe talk about what you've seen in China and more importantly around pricing, around credit quality and things like that. Just wondering if there could be some risks going forward in China.

Out of separate question, uh, separate call. You could tell me what what schools are going to and I'll let you know. Okay, okay, well, let's, let's have that cool. Um, but I, I kind of hope you're going to talk about, maybe sort of electrification of heat, but maybe maybe touching on an, in, in, in a separate question. But, um, in China, uh, I know it's not a huge business for you, but, uh, you know, we're seeing just broad-based another step down. It seems in in China, which might not be a big, um, you know,

Zac Nagle: Nigel, I will start. It is Chris. Look, the Asia region makes up around 7% of our enterprise revenues, and half of that would be China. Half of that would be rest of Asia. Think of that as 10 plus countries that we operate in. We are seeing the slower markets in China. To Dave's point, it was a year ago that we implemented the tighter credit policies there. Now, starting in the third quarter of 2025, we have comps that are comparable to that credit policy implementation from a year ago. We think from a comp perspective, things certainly get easier, but we are watchful. It is a choppy environment for sure. It is why we are viewing still the Asia segment to be flattish on the full year with declines in China, with rest and performance, positive performance in the rest of Asia.

The price based on the stats, we're seeing from the market there, but just maybe talk about what you're seeing in China and more importantly around pricing. Um, you know, around credit quality and, and things like that. Just just wondering what if there could be some risks, uh, you know, going forward in China.

Zac Nagle: Let us see how it plays out, but we are investing still in that region. It is a region-for-region methodology and a lot of great confidence in the team there.

David Regnery: Nigel, your question too on electrification of heating, that's still, I mean, we now have a core portfolio of products on a global basis there, and we're making a lot of head there. It's part of this growth profile that we have.

In China. And to Dave's point, it was a year ago that we implemented the tighter credit policies there. And now, starting in the third quarter of 2025, we've got comps that are comparable to that credit policy implementation from a year ago. So, um, we think from a comp perspective things, certainly get easier but, uh, we're watching. It's a, it's a choppy environment for sure, and it's why. We're viewing still the Asia segment to be flattish on the full year with declines, in China with, um, rest and performance positive performance in, uh, in the rest of Asia. So, um, let's uh, let's see how it plays out. But we're investing still in that region. It's a region for region methodology and a lot of great confidence in the team there and Nigel your your question too. On the electrification of heating. That's still. I mean it's we now have

Julian Mitchell: Great. Thanks, guys. Appreciate it.

a core portfolio of products on a global basis there and we're making a lot of headwinds there. And it's it's it's part of this growth profile that we have.

David Regnery: Thanks, guys.

Great. Thanks, guys. I appreciate it. I appreciate it.

Regina: Our next question comes from the line of Andy Kaplowitz with Citigroup. Please go ahead.

David Regnery: Good morning.

Our next question comes from the line of Andrew oen with Bank of America. Please go ahead.

Speaker 7: Hey, Andy Kaplowitz. How are you?

Hi, yes. Good morning.

David Regnery: am good. Just a little bit on transports. It seems like we are at the bottom. I know that you are referencing the ACT forecast, but the truck cycle and the reefer cycle has been very strange over the past couple of years. What do you guys see in the channel, and when do you think it bottoms? I do appreciate the ACT disclosure, very useful. Look, at the end of the day, transport, you are right, it has been very volatile for the last, I think we kid ourselves and say we are in year three of a two-year cycle, or maybe even year four of a two-year down cycle. We do see that ACT is going to come back, or I am sorry, the market is going to come back in 2026. That is what ACT is saying now. We are looking forward to it.

Hey Andrew, how are you?

Uh, I'm good. Uh, just a little bit on, uh, transports. Uh, you know, it seems like we're at the bottom. Uh, I know that you are referencing the ACT forecast, but, you know, the truck cycle and the referral cycle have been very strange over the past couple of years. What do you guys see in the channel? And when do you think it bottoms? I do appreciate the, you know, the ACT disclosure—very useful.

David Regnery: The key here is make sure that you are investing in the business when it is in a downturn. That is what we have been able to do. We have a lot of really cool solutions that we are now having in the marketplace. One of the reasons why we are clearly outperforming the end markets is because of that. We are looking forward to this coming back in 2026, and we are going to be ready for it. As an old president for Thermo King business in my earlier in my career, this is a great business, and it is going to be very successful in the future.

Yeah, I mean look at the end of the day um transport you. You're right, it's been very volatile for the last you know, I think we kid ourselves and say we're in year 3 of a of a of a 2 year cycle or maybe even year 4 of a 2 year down cycle. So um we do see that act is going to come back or I'm sorry the the Market's going to come back in 2026. That's what acts saying now um what we're looking forward to it. I the key here is

Um, make sure that you're investing in the business when it is in a downturn and that's what we've been able to do. And we have a lot of really cool solutions that we're. We're now having the marketplace and 1 of the reasons why we're clearly outperforming the end markets is because of that. But uh we're looking forward to this coming back in 2026, and we're going to be ready for it and uh, look as an old president or Thermal King business in my earlier, in my career. Uh, this is a great business and um it's uh it's going to be very

Speaker 7: I appreciate it. On data centers, as you have noted, you have introduced the CDU. Is there any interest in getting more scale in this area through M&A? I think there might be some private equity assets available down the line.

Successful in the future.

I appreciate it. And then you know just on data centers. You know as you have noted, you've introduced the CDU, but any interest in getting more scale uh in this area through m&a, I think there might be some sort of private Equity assets available down the line.

Zac Nagle: Yeah, Andrew, it's Chris. As a large player, we get a chance to see just about everything that comes across from an M&A perspective. So we will remain disciplined. We will look at returns. We will look at where we can integrate, where we can drive value. You know, certainly, we like the space that we are in. We like having the partnerships that we have and the relationships with customers over time. As you know, we have got the financial firepower to do almost anything, but we are going to remain disciplined here around M&A.

Speaker 7: But is there a limit on how big an asset? All your acquisitions have been very prudent, but they did not really bolt-on. Would you be willing to step up for something larger in a critical area?

Andrew's Chris. Uh, I mean there's a large player we get a chance to see just about everything that comes across uh from an m&a perspective, so we'll, we'll remain disciplined. We'll look at returns. We'll look at where we can integrate where we can, uh, Drive value and um, you know, certainly we like the space that we in, we, we like having the Partnerships that we have and then the relationships with, uh, with customers over time. But uh, as you know, we've got the financial power Firepower to do almost anything, but we're going to remain disciplined here around m&a.

Zac Nagle: Yeah, I would just say, look, bolt-ons for us is $1 billion or less. That number keeps growing as we keep growing. Look, we like the bolt-ons. We like the channel investments. We like the early-stage technologies and match it up with deep channel. You know, maybe a little bit below the radar, but we've had, I think it's 25 to 30 acquisitions over the last five years.

But is there a sort of a limit on how big, an asset, you know, all your Acquisitions have been very prudent, but they've been really bolt-ons. Would you be willing to step up for something larger in a critical area?

Speaker 7: Yeah.

Zac Nagle: Yeah, and deployed over a billion dollars of capital to them. I think closer to one and a half. We like that flywheel. We look at everything, and if we think that there's an option that makes sense, we'll certainly give it a look. But we'll remain disciplined, I think is the key message.

Yeah, I I would just say look bolt-ons for us is a billion dollars or less. Uh, and that number keeps growing as we keep growing but um look, we like to bolt ons. We like the uh channel uh Investments. We like the early stage Technologies and match it up with deep channel, uh, and so, you know, maybe a little bit below the radar. But we've had, I think it's 25 to 30 Acquisitions over the last 5 years and uh, the price. Yeah.

Speaker 7: Really appreciate it. Thank you.

Yeah, and deployed over a billion dollars of capital to them. I think it's been closer to 1 and a half. So uh look we we like that flywheel. We, we look at everything and if we think that there's an option, uh that makes sense. We'll certainly give it a look but we'll remain. We'll remain disciplined. I think is the key message.

Zac Nagle: Thanks, Andrew. You are welcome.

Really appreciate it. Thank you.

Regina: Our final question will come from the line of Noah Kaye with Oppenheimer. Please go ahead.

Thanks Andrew. You're welcome.

Our final question will come from the line of Noah K. with Oppenheimer. Please go ahead.

Speaker 7: Thanks. Chris, just to go back to Jeff's question, can you give us the updated price assumption for Trane Technologies for the year? Then, maybe more broadly, we can talk through where pricing power is and applied, given the booking strength and the fact that you are always pricing for value creation.

Creation.

Zac Nagle: Yeah, I think for price.

Regina: full year, think of that as probably a bit above 3%. We delivered 3% in the first quarter. We were tracking a bit above 3% in the second quarter. For the full year, as we are baking tariffs in there, we are probably a bit above 3% on the full year. Then think of volume as really closer to 5% on the full year.

Yeah, I think for uh price on the full year, think of that, it's probably a bit above 3 points. Uh you know we delivered 3 points in the first quarter, we were tracking a bit uh, above 3 points in the second quarter um and for the full year, as we're baking tariffs in there, we're probably a bit above 3 points on the full year and then think of volume as really close to the 5 Points, on the full year.

Zac Nagle: is perfect. Thank you. Maybe just add one more on. You mentioned those channel investments and the margins improving in the back half. Maybe just, if you can help us think about how that translates to growth accelerating, stronger incrementals, setting up in 2026. I am sure these investments are really fortifying your channel position there.

Regina: Yeah, think of them as investments in the channel for both transport and our Commercial HVAC equipment business, thinking about where we have partners and where we want to grow share. So those are just businesses, actually part of the bolt-on acquisitions we have done over the last six or nine months. They just come with low operating margins that impact the margins in the region. We are talking a bit around the law of small numbers here as well, but very much a part of our plans for the year. You are right. What it does is that it gives us even more optionality to have formidable businesses going forward and continuing to drive revenue growth, well above what the markets are showing in both of those platforms. So, this is very modest in terms of the relative scale to EMEA, but we think the right long-term decision here.

Perfect, thank you. Um, maybe just add 1 more on Mia. You know, you you mentioned those channels Investments and and the margins improving in the back half. Maybe just if you can help us, think about how that translates to growth accelerating, uh, Stronger incremental, uh, setting up in 26. You know, I'm sure these Investments are are really fortifying your Channel position there.

Yeah, um, think of them as, uh, investments in the channel for both transport, and our commercial HVAC business, um, thinking about where we have, um, partners and where we want to grow share. And so those are just businesses actually part of the bolt-on Acquisitions. We've done over the last 6, or 9 months, and they just come with low operating margins that, um, impact, uh, impact the margins in the region. I mean, we're talking a bit around the law of small numbers here as well. But, um, very much a part of our plans for the year and, uh, and you're right. What it does is that it gives us even more optionality to have, um, you know, from

Regina: I think it will continue to give us confidence we are going to outperform those markets in EMEA.

Middle of businesses going forward and continuing to drive Revenue growth. Uh well above what the markets are are showing in both of those platforms. So um, this is, uh, very modest in terms of the relative scale to Amia, but we think the right long-term decision here and um, you know, I think it'll for continued to give us confidence. We're going to outperform those markets in in a Mia.

Zac Nagle: All right. Thanks so much for the call.

Regina: Thanks. You are welcome.

All right, thanks so much for the caller.

Dave Regnery: That will conclude our question and answer session. I will turn the call back over to Zac Nagle for any closing comments.

Thanks, you're welcome.

And that will conclude our question and answer session. I'll turn the call back over to Zack Nagel for any closing comments.

Zac Nagle: would like to thank everyone for joining on today's call. We must appreciate all the good questions. We will be on the road in the coming months, and we look forward to seeing many of you there. Obviously, we will be around over the coming days and weeks to take any investor questions or analyst calls and questions. We look forward to speaking with you soon. Thanks, and have a great day.

As I can, thank everyone for joining me on today's.

All the good questions. We'll be on the road in the coming months and we look forward to seeing many of you there and obviously we'll be around over the coming days and weeks to take any

Investor questions or analyst calls: we look forward to speaking with you soon. Thanks, and have a great day.

Dave Regnery: That concludes our call today. Thank you all for joining. You may now disconnect.

That concludes our call today. Thank you all for joining you may now disconnect