Trane Technologies plc (TT) Earnings Call Transcript & Summary

Good morning, again, Andy Kaplowitz. I'm very excited to have Trane Technologies with us back in person. We've got Dave Regnery, who is the Chairman and CEO; and Chris Kuehn, who is the EVP and CFO. Just a little bit about Dave. Dave, I think, has been in Trane your entire career and became the CEO in July of 2021, named Chair of the company's Board of Directors in January '22. And Chris is the EVP and CFO of Trane. And prior to serving as CFO, Chris served as Vice President and Chief Accounting Officer of the company. So with that, I'm going to turn it over to Dave, who just has a few prepared remarks, and then we'll get into Q&A. Remember, you can hit your QR code, and you can ask questions and I'll read it over through the handy iPad right next to me.

All right. Well, thanks, Andy. And first of all, I just have a couple of short comments, but first, to start off. Thank you. You've done a great job pulling this together. Your team has done an outstanding job. So...

Appreciate it.

Just great job, make sure your team gets that.

Great to be back for all of us.

It's that feedback. So -- and it's great to be in this setting. I've spent the last 2 years of my life talking to a computer screen. So this is a welcome change. And hopefully, you see the same. Our purpose at Trane Technologies is to challenge what's possible and to innovate for a sustainable world. This is fundamental to our strategy and allows us to differentiate our returns to shareholders over time. The megatrends around sustainability and decarbonization are only intensifying. Unfortunately, the pace of global warming continues to accelerate. We need to act now if we're going to bend the curve on climate change. At Trane Technologies, we're scaling technology that exists today and relentlessly, relentlessly investing in tomorrow. This unyielding approach enables us to consistently outgrow our end markets and drive our high-performance flywheel to deliver powerful free cash flow, which we deploy through our balanced capital allocation strategy. In 2021, we saw record demand for our products and services around the globe, record demand. And as we said during our fourth quarter earnings call, like the broader industry, we are facing supply chain challenges. We're working very closely with our suppliers on a weekly, in many cases, a daily basis. And we believe these supply chain challenges will improve in the back half of the year. With our backlog nearly doubling in 2021, nearly doubling in 2021, we are well positioned to drive value in 2022 and beyond. With that, Andy, I'll turn it over to you for whatever questions Chris and I can answer.

Dave, that was 2 minutes. So let me ask you about one of the last comments you made about backlog, the backlog doubling, $5.4 billion, 30% order growth heading into '22. So how does that make you think about the long term in terms of growth and your ability to maintain or grow market share? And also it's been a little over a year since your last Investor Day. How are your efforts that you've highlighted then accelerating innovation, improving commercialization? How has that contributed to our growth?

Well, I'd start by saying that, yes, we had a fantastic 2021, number one, right, unbelievable demand for our products and services. And a lot of that is led by our innovation and our innovation pipeline. And I would tell you that it's a system of things that makes Trane Technologies a great company. It's not just about being able to invent the next best product, it's about being able to commercialize that next best product. And it's things like having a direct sales force and being able to educate them on the products capabilities. And I could not imagine having distributors and us trying to -- with the velocity of the new products that we have implemented, to try to get them up to speed on what the capabilities of those products are. It has to do with a great service organization that is these are all Trane employees that are factory trained by us to make sure that they're up to speed on the product. So it's a system of things that allows us to continuously outgrow the end markets. And we've consistently done that for a number of years. And we're very proud of our accomplishments. But it's not stopping.

And Dave, sometimes I feel like your peers are "gunning for your market share." You've stayed ahead pretty well. How do you continue to sort of reinvent yourself to make sure that you're keeping or growing market share?

Yes, it's staying close to your customers and understanding what their needs are and being able to really anticipate and help them solve some of their most complex problems. That's where some of our greatest innovation has come from, is talking to our customers. And when we re-blueprinted Trane Technologies, and by the way, we're 2 years old as a pure-play climate company in about 5 days, we really took that into consideration. And it was about creating a simpler organization. It was about a regional structure that was close to the customer. We like direct sales force. We like to be able to interact with our customers. We want to understand what their needs are. And that's where a lot of our innovation comes from. And it gets back into our network, and we follow our operating system, and we're really, really good about taking ideas and then commercializing them into the world.

So I know you get asked the question a lot as what have you, if anything, changed since Mike left. But maybe I can ask you for what is the biggest opportunity for change since Mike left?

Yes. I think I have been asked that question before and -- just to be fair. But I was part of -- when we re-blueprinted the company, my transition into the CEO role was well planned. And Mike and I worked together, and I was a big part of the blueprinting as to how we're going to organize the company going forward. So not a lot is going to change on our strategy and what we're doing to be close to the customer, the innovation. It's probably easier if I answer that question to say what am I passionate about as the CEO of Trane Technologies? And it's really 4 elements. The first one is our purpose, right, to boldly challenge what's possible for a sustainable world. I mean this is our 36,000 employees, this is what we believe, right? This is what we do. Every day, we know we can get out of bed, and we can have an impact for the next generation that are going to live in this world. That's our purpose. The second is our innovation, right? We're never going to stop innovating. I worked for someone a long time ago, Andy, and he told me, he says, if you stop innovating, you start standing still. And if you start standing still too long, guess what, people pass you. We're never going to be past this Trane Technologies because we continuously are fueling our innovation. It's not episodic in any way. The third thing is our customers, right? I've spent a lot of time in my career on the front lines talking to customers. And to me, everything starts with the customer. I always tell people, if you want to really understand your value chain, start with the customer and work your way back where you're adding value double down. Where you don't add value, eliminate it. It's waste. So we're going to continue to stay close to our customers. And then the fourth element, which is the one is probably the most important, is our culture, right? Our culture at Trane Technology is we have a diverse uplifting culture. It's -- if you look at our employee engagement scores year after year, we're top quartile. Our competitors, they can copy our products. They can copy our services over time. Our culture is very, very, very difficult to replicate. And I'm extremely proud of our culture, and we work very hard at making sure it continues to be as strong as it is today.

So Dave or Chris, let me just focus on the short term for a minute to get it out of the way. So obviously, supply chain is a big topic of this conference. You guys talked about getting some visibility into electronic components, at least for the second half of the year. So can you give us more color on the visibility to the ramp-up you have? You obviously have back-end loaded year in terms of incremental margins also. So any update there, Omicron, come and go maybe. Geopolitical, obviously, is out there, a lot to sort of untangle there, but anything you can give us.

That's a very easy question. I'm sure [indiscernible] it's...

Yes. Well, at least you're not alone in getting that question.

Well, let me start and Chris can add in. But as far as the supply chain, yes, it's going to be -- we know we're going to have some challenges that we're going to have to overcome in the first half of the year, and especially on electronic components, chips and other items in electronic components like wire harnesses, working very closely with our suppliers. And on the chip side of it, what we've learned is, is that you really need to, as I say, swim upstream and understand the whole process. It's not just going through the broker. It's actually understanding who's the wafer manufacturer, who's the chip manufacturer, where are they located, who is their leadership team. So we're doing that work. And it allows us to say, we have some confidence that this will improve in the back half of the year. That said, it's still very dynamic, as you mentioned, for a lot of other reasons. But we're continuing to work and our teams are doing a great job in doing so. Chris, I don't know if you want to add anything on that?

Andy, I'll add. We guided the first quarter and we guided the full year, one, to give some insight for what we saw in the first 3 months of the year to be -- so we're very focused on the long term. We see the second half of the year getting better to the reasons that Dave explained. Second half, very strong incrementals is what we're planning on. We start comping against significant inflation that we saw in the second half of '21. That starts to moderate. Productivity, other inflation for us, productivity should get stronger as we're able to get some more of that supply chain shored up in the second half. We talked about spot buys and other things that are negatively impacting kind of the results in the short term. But we're very focused on the long term. And you asked about staying ahead of the competition. That means in the first half of the year, continuing to invest. We're not pulling back on investments to look at a first half, second half. That's something we just continue to relentlessly invest in the organization.

Chris, could I ask you about sort of productivity in the sense that the sort of old Ingersoll, now Trane, like I remember like there's all these productivity projects you could do to sort of offset other inflation. Can you ramp them up in this environment? Or is it just hard because they're very labor-based and labor is difficult right now?

Yes, you usually start the year with the pipeline, let's say, 125% of what you need for the given year because you're always expecting some level of breakage. I think right now, yes, you're over-indexed a little bit on trying to solve the supply chain challenges. But I would tell you, you're building those cases for productivity when they come back in the second half of the year. The disruption you put the factories through when you don't have all the components, the rework that has to happen when you've got an incomplete unit, right, that's stuff that we're incurring now. It was impacting us second half of '21, we see that getting much better in the second half of the year to reduce some of that short-term kind of impact on productivity. But we're building those plans and those pipelines as we go forward.

And I would just add, Andy, that the disruption -- if you were a plant manager in one of our plants, and this is where I say our team is doing an outstanding job managing through these challenges, you get out of bed every day and you're thinking about cost quality and delivery as a plant manager. That's your mindset. I've been one. I know the rule. When you start having disruptions where items don't show up on time, you're constantly having to change everything about how your plant runs. And it's from the line side inventory that has to be changed out. It's where employees are going to go work in the facility to making decisions around. Am I going to send employees home today and having them come back tomorrow? So those are decisions that our teams are working through on a daily basis. And on the supply chain, it really has improved from where we were, I'll say, 8, 9 months ago. It certainly has improved. There's many components. We're no longer getting the call saying, "Sorry. Your copper tubing is not going to show up today." But there are some areas, and if it's 90% approved, the 10% are still pain points. And obviously, you can't ship a product unless you have everything, right? So those are some of the things that we're working through with our chains.

Right. So maybe just one more question on this topic. You I think, Dave, you said you can reprice residential backlog and you have escalators and commercial backlog. So is it just a matter of time before higher-margin backlog starts to burn, you flip the price cost positive? Like what are the conditions that you need to see to deliver that mid-20% incremental that you have in the second half of the year?

Chris, I don't know if you want to start on price, and I'll certainly add in.

Sure. No. Andy, you hit it right on. We've -- you think about over the last 14 months, we've had roughly 4 price increases from really end of 2020, first quarter of 2021, all the way through the start of 2022. So we've really been leveraging our business operating system, which has worked extremely well in this highly inflationary environment to stay ahead on price cost. In fact, for all of 2021, we were slightly positive on price cost. A very different story from what we saw 4 years earlier with tariffs and other inflation. We're catching up in that equation. So I'm really proud of what the teams have done in that regard. As we come into the second half of the year, that price cost equation does get stronger, right? The material inflation, really the comp as we're planning, we're not planning for really much deflation in the second half of the year. We're assuming what we saw second half of '21 is what we're going to see in the second half of '22. So we start comping equally really on that inflation, the price starts carrying through and that mechanism starts to be stronger. The productivity starts to be stronger. We obviously have transformation savings that are still driving results in the year as well. So all of that gives us the confidence that those incrementals are stronger in the second half than the first. But the business operating system has been working extremely well on the price side for us and trying to get that forward demand into locking strategies for our main commodities and steel and then deploying that to get really good insight on what the cost is going to be so we can price appropriately.

So just shifting topics. So investors were very excited last year about megatrends, your stock ripped. This has been a little tougher this year. A lot of that is probably -- fears of higher interest rates. We kind of know some of the sort of potential concerns, but the question I have for you is nontraditional markets. So like normally, we'd focus on nonres construction. We'll talk about air quality in a second. But like if you think about sort of markets like data centers and warehouses, like the proliferation of Trane's products into these nontraditional markets, how does that help you and how does that help the duration of the cycle here, you think?

Yes. Well, first of all, we've been in these nontraditional markets for quite some time. We're very strong in the data center vertical as well as in warehousing. How does it help us? I mean we really like working with data center customers because they tend to be the ones that challenge you the most on how efficient you can make your product. And we've gotten some -- I don't know if I told you the story or not, but we had -- we were working with a data center customer. We're using some of our AI tools. And I didn't think this was possible, but we actually made the data center, which I consider to be some of the most efficient facilities that exist, right, because I know how they're designed, we actually improved significantly the efficiency there. So we like working with data center customers. They help with our innovation pipeline. I said earlier that we like being close to our customers. We like talking to our customers because they give us a lot of the ideas that we put through our innovation pipeline. And that's a great example with data center customers.

And Dave, I know you've worked with them for a long time, but how much bigger are they as a percentage of the business versus maybe 5 or 6 years ago?

I mean they're certainly growing. I mean the data center market has been growing double digit now for a while. I don't see it slowing down. I don't have an exact number, but it's growing, and it's -- they're actually even thinking about making it a separate vertical. Because today, it's still classified as part of office, believe it or not. So that's a good news story. But I don't see it slowing down. I mean I think it's the creativity that we're able to bring to that market that's allowed us to be successful. I mean we have some really cool solutions that we're working on with data centers, and not just on the efficiency side, but obviously, they generate a lot of heat, how you repurpose that heat. We've done a lot of projects where we've actually created closed-loop systems where we're heating other buildings in, say, a city block with the heat that's being generated from a data center. So the whole -- our data center customers are very leading with technology. They're also very leading in sustainability. And they understand their footprint and they're trying to reduce their carbon footprint on a daily basis. And that's why they come to a company like Trane Technology for innovative solutions.

So it feels like excitement around potential Build Back Better sort of died, right? But at the same time, there's a lot of stimulus already. And so for instance, education-focused stimulus, so where has that -- I mean where is that in its evolution for you guys? Is that sign that sort of peaks this year, couple of years' duration? Like how do you -- because there was specific money for schools, and I think they used a fair amount of that for HVAC purposes.

Yes, there were specific funds going to schools. It was a 3-year horizon. I think we're coming upon what we call season 2. And there's talk about that actually going out to season 4, some extensions. We have dedicated resources that we're very strong in the education vertical. So we have a team that really helps our customers navigate through how to get funding. And there's a lot of -- there's tension in that system, right? There's a lot of needs that are in our education network that people want to get funded. And some of it is online learning, some of it is supplemental learning within the school and some of it is on infrastructure. Now what we did was a little bit unique here is when we -- when the whole indoor air quality, when people realized how important that was, and we've known it's been important for decades and we're very strong in the health care vertical. But when we started doing our indoor air quality audits in the education vertical, we took a system approach, right? Because we realized that the best way to improve indoor -- one of the best ways to improve indoor air quality is through dilution. Well, as you bring in more air, you're using more energy. So again, we took a very holistic view of that, and we did what we call our day 1 activities, which is, hey, let's make the building as safe as possible. But what are the day 2 steps that you need to take to long-term change some of the improvements in your structure so you could have long-term benefits and do it in an energy-efficient way. We're seeing many of those day 2 plans being enacted by different school systems. In fact, Chris and I were with a superintendent out in the Midwest recently and they were explaining how beneficial it was to have that road map and be able to explain to their leadership teams why they need to do certain capital improvements and when it would be best to do those.

So Dave or Chris, to the extent you want to talk about it, because you just mentioned it, right, how many of the day 1s have gone to day 2s now? Is it possible to give us sort of a percentage of that? And then I think Mike had said a year or 2 ago that IAQ could be sort of 1% to 2%, at least to me, for like several years. And I think you said recently, you wouldn't expect the growth to compound moving forward, but like it feels to me like it could be a longer cycle.

Yes. I mean indoor air quality is not going to -- it's top of mind today, and it's not going to necessarily -- some of it will fade, but it's now expanded into verticals that are beyond just health care, right? So I think it's in -- everyone's thinking about indoor air quality. We're thinking about it today as we're sitting in this room together. That's not going to change. We said that we thought it would be about a 2% tailwind. That's -- we actually came in right around that number last year, maybe a little bit stronger. But the -- these things are becoming embedded in the systems, right? Indoor air quality, again, it's not point sales that we're talking about here. These are applied systems that have built into them indoor air quality solutions. And we're not going to -- I told Chris he couldn't hire a bunch of accountants to count how much was indoor air quality versus [indiscernible]

Technically, that's just [indiscernible] price though, Dave, right?

Some of it is and some of it is, right? It's the more innovative you are and the better your solutions are, we're going to do it. As far as your question on how many day 1 audits are becoming day 2, first of all, we've done thousands of audits. These are comprehensive audits. They're not like a 1-day event. We send a team in, and it's a multi-day, multi-week events actually do a complex -- to do an audit of a complex campus. And creating the road map, obviously, they are getting implemented, as I said, in the education space. And some of them, it's just the timing as to when they're going to get implemented. My belief is we should convert them all to day-2 activity. They may -- we may have some disagreement in that. But it's a great way to -- our solution selling at Trane Technologies is one of our competitive advantages. And your first question was what makes you different? What makes you always seem to be able to outgrow your end markets? Well, it's a system of things, but that's one of the items that we do really well is that system selling, that consultative selling and creating the road map for our customers to get better in the future. And I would tell you that in decarbonization, there is so much opportunity out there. As the world now starts to wake up as to while global warming is really accelerating, we need to really act now to bend the curve.

Dave, if I can add, you said 1% to 2% was our revenue target about a year ago, 1.5 years ago. We wound up being at the higher end of that range. So I think that pull from a day 1 to a day 2 really kind of came through in the revenue growth. But Andy, I think it just gives us further confidence as we think about the commercial HVAC business that we're in, and you try to size that, why do we think that's a multiple of GDP business. We think this is one of those avenues, thinking about indoor air quality as a solution that we would embed into a customer's product and a service, that gives us a lot of confidence. It's one of those tailwinds to say it's a multiple of GDP business.

So Chris, I want to hit on that, right, because if you go back and look at the date, right, you grew 8% organically from 2017 to 2019 Climate, right? And that was without decarb really getting off the ground, certainly, without air quality -- indoor air quality. And so when I look going forward, I know you have high single digits for this year. And I'm guessing I won't get you to sign up for long-term high single-digit growth. But why shouldn't I get you to sign up for that? And what could decarb in electrification, all that kind of stuff mean for growth moving forward?

Do you want me start?

Go ahead.

I'll start. Well, look, if I look at 2022, Andy, it is not because of demand being a challenge for us to put out a guide for high single-digit growth, really. It's supply chain challenge. If supply chain cooperated quicker, faster, we'd probably have a bigger number we could show. Because to Dave's point, we grew the backlog nearly, I think it was 90% on a year-over-year basis. And bookings grew 30%, nearly 30% on the full year. So the demand is absolutely there. We look at it as a system of things. We've got services that ultimately play into the connectedness of our commercial HVAC products. That's growing at a very strong clip over the last decade as well. In fact, roughly up 10 points when you think around mix. Services are up 10 points over the last 10 years. So we're making sure that, that's part of the more resilient part of the portfolio. But I do think all those megatrends we talked about helped us drive to what should be above-market growth profile, thinking about commercial HVAC, multiple, residential HVAC, GDP plus over the longer term. And then the trends for our markets, we have visibility in the next couple of years as to what the third parties are saying. We're seeing in North America trailer, 16% growth in 2022 in the markets, maybe 13%, 14% growth in 2023. But really appears to be over a longer period of term that there is strong growth.

And maybe like -- so when I think about, for instance, the electrification of heat, like you've always had initiatives, right? It just feels like your initiatives are maybe a little more, or at least they're resonating in the market a little bit more right now. So does that -- again, if I compare to that 2017 to 2019 and think about the next few years, we'll talk about residential, I know, but like excluding sort of residential, like why shouldn't I think you grow at least at those 2017 to '19 levels for the next few years?

At the end of the day, we're going to grow our end markets. And I think some of what you've hit on there is really about the innovation that we've been able to drive. Electrification and heating is a great example, right? It's taking a boiler plant and a chiller plant and making a system out of it, right? That's what we do. We love system work. It's not just a heat pump, it's more than that. It's a creative system that totally eliminates the need for fossil fuel, right? Why would someone not want to do that? And the whole -- the inertia that's happening around sustainability and decarbonization, let's face it. Decarbonization wasn't even a word you heard 1.5 years ago, right? Now it's the -- you hear it all the time. It's real. I was on a call a few weeks ago with several fellow CEOs, and it was very obvious that the easiest thing a CEO can do is to create a climate commitment. Well, the easiest thing to do is create the PowerPoint, right? And the hardest thing is to figure out how to execute to that. And that's where we come in, right? There's 400 billion square feet of commercial space out there. And we know that. Take a building, 40% of all the energy in the building is for what, heating and cooling, right? And we've done hundreds and thousands of energy audits, right? We know most buildings operate inefficiently. And there's just so much to it, right? It's the whole digital connectedness. Once you commission a building, how do you make sure it's always operating at the design state? That's all part of the equation. So we're super excited about the future. We're going to outgrow our end markets.

Is it possible to size the electrification of heat right now and/or tell us if North America really is a market for that? Or should we stick to Europe and China?

Well, I think it's difficult to size just because it's early innings on that. Do I think the -- there's a market in the Americas? Absolutely. Why would someone not want to eliminate a fossil fuel, right? It just -- it's logical. I mean the world is getting warmer. I mean this isn't -- we can't deny that the world is getting warmer. I mean the last 2 years were the hottest years on record, right? We need to all take action. And I was at the COP26, and it was just amazing. We need to act now. We don't need to wait for next technologies, right? Scale what we have today. We can have a dramatic impact on bending the curve.

Let me ask you about services because you made the comment around services, and we tend to focus on all these other big picture things. But if you look at services, 20% order rate, growth in Q4. But one of your primary competitors talks a lot about their digital platform. So maybe talk to us about your digital platform, your connected sort of platform and why it's differentiating. And throw in sort of performance contracting also because that's another thing that you sort of built on and grown over time. And so why shouldn't services grow for you guys at high single digits or better?

Well, we're very strong in our Service business last year, okay? In fourth quarter, we called out with 20% incoming order rates in North America. There's a lot in your question there, okay?

I asked like 4 of them.

Yes, exactly. As far as the digital connectedness, this isn't new to Trane Technologies. When I was running our commercial business 10 years ago or 12 years ago -- now, time flies, I used to tell people we're investing as much as in our controls as we our equipment, and no one believed me. I'm telling you it's real, okay? And we've been connecting to assets for a long time. We have millions of assets that are connected. We have thousands of buildings that we're connected in. And I don't want to get into this debate on, well, I have how many connected buildings do you have versus how many does competitor B have? Because then you get into this, how you're keeping score, and that's not what this is about. But what it is about, what we do is when we're connected to a building, it's about understanding the energy performance of that building. And in -- 10 years ago, a service technician would be dispatched when a piece of equipment wasn't operating. If we're connected, a service technician gets dispatched when the building is using too much energy. So it's a total different mindset. We have service agreements are now performance-based, based on energy consumption. So that world is changing. And one of the -- if there's a good thing that came out of COVID is, is that people understood the value of being remotely connected. And just because you had to get service things accomplished and you want to do it in the most efficient way as possible and being connected allowed that especially in the health care vertical, while it became so much easier once that started to happen to show the value proposition to the end customer. And think about it. A building like this, most times buildings start to [ degregate ] their performance about 6 months after they're commissioned, right? Wouldn't you always want to be at the most efficient level when you were commissioned? And you can do that when you're remotely connected. So as far as our advantages goes, we've been at this for a long time. We have millions of connected assets. We have leading wireless technologies. We took the approach that said we were going to use open protocol long ago. We didn't want to have our customers feel like they were obligated to use us because of the protocols that we had in their systems and nobody else could work on it. We took a higher road and said, look, we're going to go -- we're going to have open protocol. We're going to show the value that we should add to their bottom lines, and that's what we're doing today.

So you don't think it affects you that you don't have other assets other than your churn?

We hook other assets into our connected solutions every day. It's called middleware. It's relatively inexpensive in creating dashboards for customers to help them operate their facilities. That's a core competency that we have. I mean and it's -- no, I don't think it is at all.

So let me ask you about resi in the sense that I think you said you expect a little bit of growth in new construction. Your words, you shouldn't see replacement markets fall off a cliff despite tough comps. So maybe let's talk about that. When I hear that, I'm like, well, okay, then it's down a little bit. But pricing is going to be really strong. So you've always talked about resi as a GDP-plus business. Do you think we cycle here, or should we just focus on GDP plus? Maybe it's a little soft this year. What are you seeing in that market?

It's a great question. It's a fair question. I mean at the end of the day, you're right with the GDP-plus business over time. That's what we're seeing. If you look specifically at 2022, you look at the tailwinds, we have a very strong backlog. We -- pricing realization is strong. We have great brands, leading brands in the market. But yes, I mean, we think that the new construction will have some growth. We don't see the replacement market falling off a cliff. Remember, our residential business is about 20% of the total company. So if the residential business fell 10%, which we don't see happening. But if it did fall 10%, it would be a 2% impact to the company. And you think about the opportunities that we have with decarbonization in our commercial business, what we're doing with electrification or in our Thermo King business. Some of the innovation that we have in our pipeline in all of our businesses, on a global basis -- yes, I mean, we shouldn't over-index on well, residential, if it was down 10%, it's 2. So I'll leave it at that.

How does regulatory changes impact the landscape because obviously, '23 is a change? Do you expect to see a prebuy at all?

We don't expect to see a big prebuy. There could be some activity there. We took an approach a long time ago, Andy, that we weren't going to wait for regulatory change to make sure that our customers had the most efficient, greenest products possible, whether that be a refrigerant or whether that be an efficiency standard. So as -- regulation, to be honest, is kind of following where we've already been, in many cases. Yes, sure, we have to sell at the lower SEER in the res just because that -- there's a market out there for that. But we already have product that are above the regulatory standards, so from an efficiency standpoint as well as from a refrigerant standpoint.

So I want to make sure I leave a little time for transfer refrigeration. So you outperformed your markets in transfer refrigeration in 2021. So maybe talk about why you did and then the sustainability of that outgrowth. Because, again, we can all debate the cyclicality, but talk about sort of the market outgrowth opportunity, specifically in transfer refrigeration.

We had our Thermo King business on a global basis, just phenomenal year, okay, just a phenomenal year. I think that you have to look at the underlying demand first, okay? Think about the movement of perishable goods, there's a lot of demand out there. And that's not going to slow down, right? 20% or numbers even as high as 30% of all food that's produced is wasted every year. A lot of that has to do with how it's being transported. So the underlying fundamentals there are strong, and they'll be strong for a long time. You take -- you add on to that pharmaceuticals and what's happening there, I mean there's great underlying demand. Our Thermo King business, so that's part of it, right, for sure. The second part of it is our innovation and our diversification. And we have leading technologies and we've diversified that business over time. And it's more than just a trailer business. And it's a fun business. It's some of the -- I love going to visit our Thermo King locations just because of the passion that's built around how they're innovating in some of the electronics -- the electric solutions that they've had as they've eliminated diesel engines and -- it's just a great business that we're really proud of, and we're certainly very proud of the -- I'm certainly very proud of the performance that they were able to orchestrate in 2021.

So maybe balance sheet cash flow question or two. Like you bought back, I think, $350 million of repurchases in January, right? And that's more than your run rate from last year, the stock is obviously off a bit. Do you lean into the stock here given it's come off significantly? And how do you balance that versus M&A this year?

Andy, so we guided to the year to deploy $2.5 billion of cash. Think of that as $600 million to a dividend, which we just raised the dividend a few weeks ago through an announcement. We raised it 14%. And when you think about what we raised the dividend a year ago by 11%, the compounding together is about a 26% raise on the dividend in the last 13, 14 months. So we look at that as one way to return cash to shareholders. We obviously start out with investing with the business and we grow the dividend. But then to your point, we have about $1.9 billion left for M&A and share repurchases, of which we deployed $350 million in January to share repurchase. So now we're left with about $1.5 billion in the year. And I would say we're going to toggle that between those 2 options, looking at M&A and the pipeline of projects out there, we think that remains very active. We've been very successful bringing on bolt-on technologies, bolt-on channel acquisitions and the returns that they drive. So we would certainly opt into that as they become available and as we can action them. If it's not there, then we're going to go ahead and buy back stock and do share repurchase. We see a lot of value in the stock today, it's trading below its intrinsic value. So we look at that as throughout the year, making those decisions.

When you think about possible targets, do you have any white spaces that are apparent right now? And are there other fair scientifics out there to go after?

Well, for our scientific, I'll talk about in a second. But as far as do we have any gaps in our portfolio? The answer is no. Do we have any gaps in our channels? The answer is no. We like our position, okay? The good news is we don't need to do anything, whether it be on the equipment side, whether it be on the control side, whether it be on the channel side. All of that we have on a global basis that we're very happy with. With that said, we obviously have an M&A pipeline that is robust that we review on a frequent basis. And as you would expect, as a large HVAC player in the industry, we're going to see a lot of opportunities. As Chris said, we love finding technologies that we can put into our innovation pipeline, augment them a bit in some cases and then scale them. And for our scientific is a great example. I mean biopharmaceutical space, we learned about it because we were close to our customer, especially when we started talking about distribution of mRNA vaccines. And we learned a lot about the process of actually making an mRNA vaccine and what the requirements were. We saw the technology, think of it as ultra temperatures, whether cold or hot, right, and to thaw and the process that goes through there. And this is one, again, where we can add to that technology, and we believe we could scale it.

So the business so far in the full performing at above, below expectations?

As expected, it's early revenue. It's really a technology there. And the biopharmaceutical space is just so interesting where that's going and what the drugs of tomorrow will be versus what they are today. And the way they have to create a lot of these drugs is they actually suspend life as they're manufacturing it. So you actually have to bring it down to a point which is below 80 degrees C to actually put it into an element where life becomes suspended and cells no longer move. And that's the part that we like, right? That's a technology that -- we have some of that technologies. They had a lot of that technologies. We're now scaling this and augmenting it to make it even better. So it's a very interesting space that we're very excited about, but it's early stage revenue right now.

Got it. Awesome. Well, very much appreciate the time. I think we're out of time. So thank you for being here again, guys.

All right. Thanks. It's great to see everyone in person.

Bye-bye.

Thank you.