Trane Technologies plc (TT) Earnings Call Transcript & Summary

All right. We're going to get started again. We are really excited to have Trane Technologies with us. Today, we've got Dave Regnery with us, who is the Chairman and CEO. Dave, I think you've been with Trane your entire career, right? Yes.

I have, yes.

Pretty awesome. And then Chris Kuehn, who is the EVP and CFO, and Chris joined then Ingersoll Rand in 2015 from Whirlpool.

So Dave, as I walk over to you, there are 2 questions I feel like I have to ask you every year. And so I'll just ask you again. Here's the first. You've been at the helm of Trane for almost 3 years now. So can you talk about what, if anything, you've changed regarding Trane strategy over the last 3 years and reflect on what you are most proud of as well as is there anything at Trane that you still think you could improve upon as you head into '24?

Yes. Great question. Well, thanks, everyone, for coming today, and we're certainly excited to be here. Look, as we reimaged the Trane 4 years ago, I guess, 3 years ago, I'm dating myself here, I think I told the audience that, look, don't expect any dramatic changes to the strategy because I was part of developing the strategy with my predecessor. So that's not changing, okay? Our purpose as a company, to challenge what's possible and innovate for a sustainable world. That's still core to who we are and fundamental to the strategies that we execute to every day. I always find it easier to answer these questions a little bit like what am I passionate about as a CEO. And it's a very consistent message that I always give, and that's the fact that, number 1 is customer. I believe that if you don't stay close to your customer, you've got to miss opportunities. I believe if you do stay close to your customer, that's why we have a direct sales force you get insights and you help them work through problems and you help them -- we help them solve problems, not only today but also whatever issues they may have in the future. So that's number one. You're always going to hear me talk about the customer. The second is innovation. If you stop -- someone told me a long time ago in my career, if you stop innovating, you stand still. If you stand still, you get passed. So we're not going to stand still. We're going to continue to invest heavily in our business and innovation is core to who we are. And you can look over the last 3 years, and I'll give you a lot of detail about some of the innovations that we've been able to bring to the market and how we're able to really help decarbonize the built environment. This isn't technology that we're waiting for. This is technology that we sell every day. And the third thing that is always extremely important to me is our culture and our purpose as a company. And as time goes by, if you're working for a company that has a great purpose, like we do at Trane Technologies and you have a culture that's uplifting, engaging, a can-do attitude. It's just amazing what can happen. So it's been 3 years. It's gone by really, really fast. I know everyone says that when you're a CEO, you're living dog years, I was telling Chris earlier, I think I'm on Pluto. So I think it's going by pretty slow. And -- but it's fun. It's exciting. And am I proud of our financial results? Absolutely. Look, I mean, top line growth last year organically, 9%, EPS growth 23%. Third consecutive year of EPS growth of 20% or greater. The quality of our earnings very high. I'll use as a proxy for quality of earnings, free cash flow conversion over a 3-year period, right around 100%. So the business is performing very, very well. But I would tell you what I'm most proud of as the CEO is our culture as a company. And as I look at our employee engagement surveys, as I look at ERG groups, as I look at CEO day of understanding and the participation that I see from our employees, that's what gets me excited about the future. And yes, we had a great year in 2023. We have an incredible backlog going into 2024, but I always tell people our brightest days are yet in front of us.

Dave. That's very helpful. So -- the other similar question I ask you is you, I think, have consistently stayed ahead of the competition when it comes to innovation, even as megatrends have been ramping up. So what is it that you're doing to make sure you stay ahead in terms of innovation?

Some of it is to be consistent, right? You can't be episodic when you talk about investing in your business for innovation, right? You have to be very, very consistent. And you have to make sure that you have great process associated with it. Our business operating system when it comes to new product development is top class, right? I mean it's a process that we've developed over a decade and it allows us to really execute flawlessly. And if you ever sat through 1 of our new product development gate reviews, we call them, you'd be like, wow, they go through a lot of detail. And we do because we want to make sure we ask the right questions upfront, so you don't have rework later. And when you do that, your throughput that comes through your innovation is just -- it's stellar. And I think you see that with our results. I would also tell you that stay close to your customer, right? You need to understand what their needs are, not only today, but what they're going to be in the future. And when you do that, you combine those 2, you end up being a very, very innovative company. And it's something that we've been working on, I'll say, a decade, but I'm sure it's longer than that. And it's a proven process that we go through.

So if we go back to your calendar Q2 '23 quarterly report, your Americas commercial HVAC bookings had decelerated. They were down mid-single digits. But then something seemed to change, and you've had a couple of quarters in a row now of reacceleration. So what was the biggest change?

I'm not sure there's one thing that changed. I think it's the system of things, again, that makes us a great company. And we're seeing strong order growth, absolutely. I would tell you that our backlog on a year-over-year basis is basically flat. I think the composite of our backlog has changed, I think about $1 billion of backlog moving from Thermo King in Residential to Commercial HVAC predominantly applied. Again, I think there's some verticals that are very, very strong right now. Think of data centers, think of education, think of health care. Those are all verticals that we do very, very well in with our highly engineered systems. So, we have a lot of activity in the marketplace right now. We have a lot of great solutions that we're helping our customers with, and you see it in our results.

I tried to get you to isolate data centers. But anyway, I will ask you a follow-up on data centers. Maybe a little more perspective on how to think about Trane's data center exposure. If you were to get bookings, let's say -- let's say, it was the 50-megawatt data center, roughly $500 million to build. How much content could you get on that type of project in dollars? How does your offering and market share compared to the more concentrated data equipment providers, the Vertivs, Schneiders of the world.

Yes, it's a great question. Unfortunately, for me to answer it, I'd be talking in averages, which they're always dangerous, right? I have about 15 questions I'd have to ask you before I can give you an answer.

We have 40 minutes, Dave.

We have 32 minutes left. Where is the data center located? What's the use of the data center going to be? Is it a colo? is it a hyperscale? What's the technology we're going to bet on? Is it going to be a water cold chiller, you're going to use air cooled? -- you're going to use MagLev, you're going to use scroll, you're going to use screw. How do you want to -- what's the -- what are the control systems that you're going to be interfacing with? What's the airflow requirement in the data center. There are so many variables that it's impossible to kind of give you an answer here that you could mathematically start to say, well, how many data centers are going to be built, okay, this is what the number should be. But I will tell you that what I just rattled off shows you a little bit of the complexity of these systems, and that's where we have an advantage with our direct sales force that's highly technical, highly skilled in working with data center customers. It's not as simple as a rooftop unit that you're going to put on top of a data center and say, hope this works. These are very, very sophisticated systems. And by the way, they carry a nice tail with service.

So David, is it fair to say though that you really do have a full service off, and when you compare it to the Vertivs of the world, like how do you do it? Like because Vertiv will tell you what their market share is. I don't feel like the HVAC companies really want to do that, but you tell me?

Well, first of all, data center customers are pretty fickle, right? So they don't like a lot of information being displayed about what they're working on. In fact, I was telling a group earlier today that as a CEO, I don't sign a lot of NDAs as you could imagine. Data center customers really want me to. I was a little unsure why, maybe they think I talk too much. But look, they don't want information available as to what they're working on. So that's number one. I would tell you that -- when you think of Trane Technologies, we're selling solutions. We're not selling products. And we can do that because of the breadth of our product portfolio. So we have solutions that are going to be the best for the customer. It's not that we only have centrifugal chillers or it's not that we only have air cooled chillers or it's not that we only have VRF systems. We have the portfolio of products. It's really about developing the solution for the right system that's being -- it's being applied to.

I should just ask you this now, like the liquid cooling element of it, obviously, you have an investment partnership like -- how do you look at it going forward?

Yes. Emerging cooling, we're still bullish on it, okay? It's not prime time. So it's not ready for prime time and we're working through different aspects of it. The data center market is one that's always evolving, and we're always looking for new innovations. And that's where when you have the technical sales force and you're working with the data center technical experts, and combining those two to come up with different systems, that's where the magic really happens. So is it emerging cooling? Maybe we haven't given up on it. For sure, there's some hope there. Is it cooling at the chip? Possibly. I was having a conversation earlier around is there a way to repurpose heat, right? Data centers generate a lot of heat, right? We all know that. What do you do with the heat when you're cooling a space, what you're really doing is removing the heat from it. What do you do with the heat. You put it out into the atmosphere or do you repurpose it? We have a couple of projects that we've embarked on in Europe where we're now heating schools with district heating loops from data centers. We have housing development in London that we're heating with the heat that's coming off of the data center. It's a closed loop -- heating loop that actually returns back to the data center and makes the data center run more efficiently because the water temperature has now been reduced. So those are the kind of the creative thoughts that you have when you're talking about data centers and don't run off and think that everything is going to be a district heating loop from a data center because proximity really matters, right, wherever the data center is and power infrastructure really matters as to where you could put a data center. But these are all possibilities that you start to think through and when you have great innovative customers that thinking gets multiplied.

So Dave, you mentioned backlog briefly in the beginning, like -- so how should we think about backlog in '24? I mean I know you have that target all year in 2030 and you probably don't want to be held the backlog for much longer, that's probably the answer.

First of all, last year, I wanted to make sure that everyone was aware -- all the investors were aware that we're going to go into 2024 with a very strong backlog, right? So early in the year, we said, look, the backlog is going to be at least $6 billion. And everyone forgot about what I said prior to the $6 billion, they just remember the $6 billion, and I think I spent all year doing mathematics about, well, how do you get to $6 billion? Or what would have to happen? I'm like, oh, no, this isn't -- this is just saying that the backlog is going to be very robust. And so I'm not going to send the number out this year. I would just tell you that we're going to have a strong backlog for -- into the future. It will normalize over time. We could argue about what normal means now. We're a lot larger company than we were in the past. But look, we're going to have a very strong backlog. And it makes sense, right? Most of our backlog is applied, look at the verticals that are very strong right now. They are typically served with applied systems, and that's one of our strengths at Trane Technologies. Do you want to add anything, Chris?

I think you summed it up, Dave. Just a reminder on the backlog, the majority of that will churn in the next 12 months, but we're already starting to build some backlog for 2025. And Dave mentioned the complexion change, right? The normalization of backlog in residential and the transport markets really being offset by the growth in the commercial HVAC markets, predominantly applied systems. So $6.9 billion of backlog at the end of 2023, and that's after a 9% organic revenue growth in the year. So it just shows you the strength of those commercial markets.

So you went back to your algorithm for '24 of operating leverage, 25% plus, but you did do 36% in 2023. I think we've talked about -- you have a number of productivity projects lined up for '24, but we've also talked about higher investments, right? So maybe talk about the balancing act and why you're still -- because it seems like you're operating at a better level than 25%. So why are you still anchored on 25%?

Yes, I'll start, Andy. We love that long-term framework of 25% plus. It allows us to really invest back in the business each and every year. And Dave will speak, I'm sure in moment and what he's focused on with top line and bottom line. But the pipeline of innovative products and programs we want to do remains extremely robust. So I think about just serving the existing backlog we have and then the new product development, think about those dollars going back into innovation for 2024 and beyond, electrification of not only the heating portfolio, cooling portfolio, but then the transport portfolio would be one of the areas we'd want to call out there. As we think about capacity, we get a lot of questions around that, thinking about the demand. We've been thinking about capacity for years. And some of that is 4-wall capacity. Some of it is also automation into the factories to make sure we've got more throughput, leveraging not only employees, but also automation. And then maybe the last bucket I put out there is really around sales and service. We love our service business. It's 1/3 of our enterprise revenues. It's grown high single digits for the last 6 years. Last year, it grew double digits, low teens. And you think about the applied systems that makes up the majority of our backlog, that brings with it a very strong service tail. 8 to 10x the revenue of the initial install of the equipment over the life of the equipment could be that revenue with a service contract and maintenance contract and how we keep that uptime for customers. So investing in upfront tools, investing in people around sales and service is really important for us, Andy. But we're going to have strong incrementals into 2024. We're starting out the year with 25% plus. We'll see where we end up in the year. We talked about a bit on volume and price. We're going to get nice incrementals on the volume going into 2024. But I'll tell you it gives us a lot of optionality to invest back in the business.

I mean back to your prior questions, Andy, why we've been successful with innovation because we're relentlessly invest in our business around innovation. This gives us that optionality.

Yes. No, that's helpful, Dave. And Chris, you mentioned price. So like just talking about price for a second. I think your price expectations for the year, 1% kind of a business as usual year, 20 to 30 basis points of price versus cost. How do you see costs shaking out this year? Because it just seems like inflation has continued to slowly die down. Maybe you guys tell me. Are you still worried about any supply chain kinks, Red Sea, whatever, like?

I'll start. Yes, the price we gave -- our organic revenue growth guidance was 6% to 7%. We said about a point of price. It's not a hard cap, just to be very clear, right? It's the starting point of our guidance for the year. We do like setting guidance out there that we can meet or exceed as we think about any given year. So let's see where it plays out. Could it be stronger? It could be what I would focus on is, and we've been doing this for several years now, it's remaining nimble with price. So as we think about those input costs, as we think about the innovation for our products, and last but not least, we want customers for life, right? We want to make sure that it's a long-term relationship. And for many customers, it is a journey as we think about decarbonization over many years. So we do remain nimble. It's not a hard cap at 1 point. On input costs, look, I do think Tier 1, it's fairly normal or moderate at this point to be fair, supply [indiscernible] steel would be an area of a little bit of an inflection in terms of higher cost, but not something we can't overcome with the price plans for the year. Q2, there's some inflationary areas there. Wage inflation would be one to call out, refrigerated inflation -- as we see a transition in 2024. Those would be areas of inflation. Think of our Tier 1 as $750 million of spend. Think of Tier 2 around $5 billion of spend, almost half of our cost of goods sold. But I think we've stayed ahead -- I know we've stayed ahead in the last 4 years of inflation from commodities. We've stayed ahead on the price cost equation. And you're right, we're targeting 20 to 30 basis points or better this year. And I think that we've got the team and the plans to go do that.

Your question on the Red Sea, we switched our lanes months ago. So we're no risk there. I must say, as I'm sitting up here, drinking out of a plastic bottle, I don't feel very sustainable. [indiscernible] should be yelling....

We can talk about that.

So maybe just -- I asked you on the call, Dave earnings call about why you're outperforming your peers in Asia and China, in particular. And you mentioned certain verticals, data centers, semiconductors, pharmaceutical. But your peers, as you know, are focused on those end markets, too. So is there anything else that differentiates you in China? I know you changed your business model several years ago. I'm sure that has something to do with it, but maybe you could expand a little bit?

Yes, I won't comment on the peers, but I would say that we have a very seasoned experienced team in Asia. I mean Allen Ge, who is the President of that region, Allen and I have worked together for the last 10 years plus. And I would tell you, it's a very seasoned team that operates at a very, very high level. It's the normal system of things that makes us a great business in Asia, right? It's the direct sales force. As you said, Andy, that we invested in, gosh, I guess, it's 7 or 8 years ago now. And we like being close to the customer, right? And that doesn't mean that for everywhere in the world, we want to be close to the customer. Heavy investment, but -- and we continue to invest in that innovation really creative products coming out of Asia right now and exceeding customers' expectation in many cases. And a culture there, they have -- that can do an uplifting culture that we have in the rest of Trane Technologies. So look, our business in China, it's only 5% of the company, just so you're clear, but it's been operating at a very high level, and it's been operating at that level for several, several years now. So I'm very proud of what that team has been able to do. I had the opportunity to visit them in October. It was the first time I was able to go there since COVID and just so excited to see everyone face-to-face. I was tired of looking at my computer screen talking to them. Although I did get to meet their families, I got to meet their dogs. I got to meet a lot of things I would normally see, but it's just -- it's a great team there, and they're excited about what the future is.

Great. And I have a similar question about Europe, but just I'll open up to the audience. But let me ask you it this way, Dave. So I asked you about thermal management systems all the time. You don't really want to quantify it, that's fine. You don't have to. But if I think about its impact on Europe, Europe has been your fastest-growing business for the last several years. So does that -- can it continue to be despite it being an issue for others on the top side?

Another region of the world that I'm very proud of is what we've been able to do in Europe. And -- it's a funny story. But when I first took over, this would have been probably like 2011-ish, okay, so a long time ago, not to date myself. But people were literally telling me, and now I have -- I take over Trane at the time, and I had the Americas and then I was given Europe and people were literally telling me, I'm not sure we should be in Europe. And I'm like, I think we should be in Europe, right? So -- but it was just -- that was that mindset and look at the business today, it's just incredible results there. It was really led by innovation. It was back to basics here and get close to the customer, innovate for your customer, understand what their needs are. I mean our Thermal Management System is 3 to 4x, not percent, 3 to 4x more efficient than conventional heating and cooling. And the carbon footprint associated with that is dramatically reduced. Think about it. 15% of all greenhouse gas is heating and cooling of buildings, 15%. If you're 3 to 4x more efficient, these are projects that have fantastic payback for the customers and a fantastic payback for the planet. And I think I told you last time we were together, Andy, these are green to be green, right? These are green. There is a very -- the financial payback is very strong on these projects. And by the way, you're helping to really decarbonize the built environment. So the team there doing fantastic. I would also say that the verticals that are strong in the rest of the world are also strong in Europe. Data centers is very strong for us there. Health care is very strong, education as well. So our business is -- and our service business in Europe is just doing fantastic. Think about service, right? Service business was always conventionally thought of as during cooling seasons, you get very busy. Well, when you're doing heating and cooling, you're busy all the time. And you could see the tailwind that, that's creating for our business.

Do you think over the next 3 to 5 years, it would still be the fastest-growing region?

I don't know if it's going to be the fastest-growing region because I challenge all of our regions to grow at a very quick rate. But I do tell you, there's a lot of opportunities there. And you -- I mean, look, you see it in our results -- and whether it be in our HVAC business or in our Thermo King business, you see it in our results.

Any questions from the audience? Anybody want to ask a question? I will keep going. So maybe over to resi. Maybe a little more color where you think inventory is in the channel. It appears you've been managing your sales, but it seems like inventories have stayed a little higher for a little longer than expected. So you've got to resi revenue flat again. We muted performance over the last couple of years to a relatively not so cyclical end markets. So maybe you can talk about sort of what is going to happen?

Yes. I mean resi is one where -- just to remind everyone, we go to market in resi. Think of it as either 2-step or 3-step, right? So we either go through an independent wholesale distributor or we act as that distributor. That's our model. It's been our model for a period of time. For 2024, we called it flat for the year. Could it be plus or minus 1%, 2%, sure. But we called it flat. The resi business, I would have thought or I did say this that I thought through the fourth quarter, the destocking in that independent wholesale distributor channel would be completed. That's not the case, okay? That will continue through the first quarter. We'll probably go into the second quarter. We'll see what happens when we get into season. But overall, I mean, our resi business is a great business. It's over -- long term, think of it as GDP plus business. And there's tons of innovation that are being pumped into this business as well, like when a business isn't performing as maybe as well as we think it should be because of market conditions, we continue to invest in it. And that may make us a little bit different than some of our competitors. But look, these products are getting smarter, variable speed is happening everywhere. When variable speed happens, you have micro processors that are on these units. When you have micro processors, you have intelligence. When you get that intelligence, you get that data, you make homes perform in a better way. And I'm really excited about what the future is for residential. 2024, think of it as flattish. We'll see what happens in 2025, but it's a great business overall. By the way, it's about 20% of our revenue. We got to say that in -- you remind me all the time.

Yes. Dave, you've been asked, I think, a fair amount around the refrigerants transition. And so maybe just an update there because I get asked, like why wouldn't the combination of 454B beginning to roll out and 410A maybe becoming a little more scarce and therefore, higher price? Why would it lead to more pricing for you guys and for...

Yes. Well, first of all, I think the EPA clarified the ruling, okay? So there's going to be a transition to a low GWP refrigerant. It is going to be classified as an A2L, which means it's slightly flammable, which means you have to have different protection metering on the unit. So they originally said that you had a complete manufacturing of the product in 2024, and you didn't have a sell-through period. They basically came back and said, "No, you're going to have a sell-through period." So now you complete your manufacturing in 2024, and you could sell through the product through all of 2025, which we totally support and we agree with the EPA, that's the right decision. We'll be launching product throughout 2024 and I'm not necessarily sure how much we're going to sell yet. I'm not sure what the demand is going to be for that. But we're going to have mixed model lines on our manufacturing locations. We could run either product down the line. We'll be ready for that. Some may be early adopters. Some may not be. You have a variable there saying that the cost of 410 may go up. So with that -- could that facilitate more 454B product, which is the refrigerant we're moving to? Possibly. We'll see how it shakes out. I would just tell you, we'll be ready.

That's helpful. And then maybe shifting to Thermo King. Americas Transport, I think in terms of revenue, it was down 20% in the second half of '23 in Q4. And you've talked about outperforming the market in '24, right? So ACT says down 10%, you said you'd sort of beat that. So maybe talk about why you're so confident. And then I guess it's the same thing in Europe, right? It's like market forecast down low single digits, you could do better. So you've been outperforming, why do you keep outperforming? Is your level of outperformance getting better, same, worse? What would you say?

I mean, I think it goes back to the system of things that makes us a great company, right, stay close to your customer, innovate as much as you possibly can, and be relentless on that, don't ever take a break. And that's what we do in our Thermal King business. We have such -- the pipeline of new products that we're coming out with in Thermo King is very, very impressive. The whole electrification of the Thermal King business is -- I think we're like 70-something percent complete with the journey there that will continue to evolve and continue to get more and more efficient. We have products now that with our actual power generation where we're able to charge the battery from the axle movement. And then if you know the physics on this, right, it typically becomes a drag, so it becomes negative. We believe we figured out how to make that positive. So we'll be able to charge batteries and have it not be a draw -- a negative draw overall. You got to think of it overall as a system. So there's really cool things we're working on. It's still in the pipeline, but we're excited about our Thermo King business in the future. So you asked me how we able to outperform. We outperformed because we continue to innovate for the business. We are very close to our dealer network there. We're very close to our customers and it will be a down year in 2024. The good news is that all projections have this snapping back in 2025.

Dave, any color on to who you're taking share from in that market? Like -- is it regional people? It's probably not your other big competitor, but maybe there is, I don't know.

I don't know. I just know we're performing well, and that's what we look at.

So let me ask you 1 more follow-up there. Like the electrification being 70% of the way through, that seems like a big number to me, like did it accelerate pretty significantly?

It started with smaller, okay? So think about smaller vehicles. So these would be like vans, electrified their capability, then you move up to larger trucks, et cetera. The trailer side, which is to think of these as the tractor trailer here 18-wheeler here in the States, that will take a bit of time. There's a solution that exists. But obviously, you need to build out the infrastructure for charging stations. That's still not happening. But the technology, we're getting very, very sophisticated technology that we've been able to put out. So we're excited about that. We have a couple of trailers that are out on the road now. We're working with customers that I'm sure you all know that I'm not allowed to say their name, but -- and they're excited about what this is as well. You're starting to see it in some of the -- what we call milk runs. So think about a distribution company that would go home at night, they're starting to think about how they electrify their fleets so that when they go home at night, obviously, they're going to recharge their trucks or tractors, and then they'll go out back the next day. So that's where it will happen for that. First, I think the long haul, which is someone who's going to go from East Coast to West Coast, that has some work to do and there's some infrastructure that has to be built out.

Has a question?

This is going to be a question about productivity. In the intensity of the innovation efforts within Trane, sometimes there can be kind of attention with the efforts to drive productivity gains. Can you talk about what you think is left to squeeze out of productivity gains and how you're balancing it against all the innovation that's taking place?

I think where the squeeze we've seen in productivity has been more shifting our resources in the engineering talent and product management to go solve supply chain challenges, right? When you didn't have access to the full load of chips or different components, we really shifted that workforce to go solve those problems and get products into customers' hands. Even though we were able, I think, to do better maybe than others, we still had a lot of situations for the better part of the year where you were not able to take a unit from start to end with all the components available first time. A lot of situations where we had 70%, 80% partially complete units that comes off the line, wait a week or 2 for the components to come in, put it back on the line, add the components, do a retest, get it ready for shipment and put it out the door. So that's really been, I would call it, the challenge of getting productivity in the last couple of years. That's where we see a nice dovetail right now as the price contribution comes back to, gosh, even a point of price for 2024 would be well above what our normal levels have been. We're seeing a nice dovetail with productivity coming back. Supply chain is largely resolved. At this point, the engineers are back working on value-add, value engineering products to take cost out. I talked a little bit about automation before making sure we've got the automated factory of the future as we continue to expand. And I'll tell you, that's a nice dovetail the opportunity for productivity for us, baked into a little bit of our guidance in 2024, but I don't see us in '24 hitting our normal levels of 2% or 3% productivity, gross productivity. That's still an option an opportunity, I should say, for us in the future.

Yes, automation, we're doing a lot of automation projects and just to give a little commercial for our panel or panel at noon. Look, we're always looking for productivity. And I think sometimes, when you think of automation, you're thinking productivity and people are thinking dollars and cents to the bottom line. Sometimes that shows up because you increase your capacity. And we're finding a lot of projects out there where we're able to increase our capacity and redeploy workforces to other areas, which is obviously a big deal for us.

Any other questions? So I wanted to go to services, Dave. Like it was up double digits in 2023, high single digits on average over the last 6 years. You were asked a question on the last earnings call, but I wanted to follow up. It's a really important part of your business, 1/3 of your business. So do you see the growth algorithm actually changing a little bit? Because it seems like the business is moving a little bit more toward Applied. And if it moves toward Applied, that should be pro services, as you kind of alluded to. So can you do even better, maybe sustainable double-digit growth. Always good to push, Dave?

Oh you would be sitting to my seat pretty soon. Look, our service business is a key part of who we are as Trane Technologies. It is part of that system of things that makes us a great company. And you're right, it's geared towards our Applied Systems. And as product is becoming more and more sophisticated, you want the OEM to be servicing your equipment. It's that simple. And if you think about even how we're digitally connected now, it's millions of assets, right? We're now able to really get into an area where it's not only through our AI to be able to say what could potentially be -- how the unit is functioning, but it's making sure that it never goes out of tolerance, right? So our service business now is morphing into something that needs to be fixed, not when it's not producing hot or cold, it needs to be fixed when it's using too much energy. So it's a whole different mindset that's happening, and it's really happening at rapid speed. So I'm so proud of our Service business. It's something that I don't talk a lot about other than give you high-level numbers because I don't really want to create road maps for everyone else. But I would tell you that we have a very detailed operating system on our Service business, anywhere from how do you renew a service agreement to how you train a technician. And it's really exciting what we've been able to do with our service business. As you said, over the last 6 years, it's got a compound annual growth rate of high single digits. And the other thing about Service too, and I alluded to this is when you start talking about heating and cooling, right, thermal management systems, you're now on both sides of that. Because you're now servicing the heating side as well as on the cooling side. We don't service a lot of boilers today. So that's another tailwind for this business.

Just a quick follow-up there. We've stopped talking about attachment rates with you guys a long time ago. But like is there still an opportunity in a place like China, for instance?

Our service business in China does very well. It's not as large as it is here in the as a percentage of in Europe or in the States, but it's growing nicely. So...

Easy enough. So let me back up. It's obviously an election year in many countries, including the U.S. So first, how do you think investors should look at the rollout of fiscal stimulus? Like -- 2 years ago, you were being asked about heat pumps in the U.S. It doesn't seem like it's had like a huge impact. But how are you thinking about that, inflation reduction act, tailwinds and what would happen in a Trump presidency you think?

Yes. I won't comment on that, but -- we talked that conversation earlier. But look, we've been on this journey to be more innovative in a sustainable world since 2012. It's probably a little bit before then. And the whole decarbonization of the built environment has done nothing but accelerate since that time. When you go back into 2011, 2012, we've had several different leaders around the world. The mega trends around decarbonization are only going to intensify. And better -- they should and they need to as 2023 was the warmest on the planet. So we have a lot of work in front of us. As far as stimulus happening or not happening, does it create a tailwind? Sure, it does. Does that mean the business stop, if it stops, absolutely not. When you have a payback that's -- when you're able to have 3 to 4x more efficient systems, the payback is very, very attractive. Okay. Does the stimulus make it better, sure. Is it meaningful? I mean, we could define what meaningful is. But our business isn't necessarily built around any policy or stimulus that may or may not happen from a government, right? We have fundamentally changed how you heat and cool buildings. And when you do that, you disrupt the old and you create the new. And that's what we've been able to do at Trane Technologies. So look, it's an election year. I live in North Carolina. I know it. I see every commercial being a swings [ day ], but our business is going to continue to thrive well into the future.

So I'll just ask you 1 quick one on capital deployment. Like does anything change? I mean you've had a pretty consistent algorithm. You've got a couple of bigger competitors who are sort of in deconsolidation mode. I'm sure you're watching it from a far -- has anything changed for you guys based on these other things being out there or no?

Look, our M&A pipeline is always going to remain robust as a major HVACR player. We're going to get the opportunity to see everything. We love our portfolio. We don't have to do anything. We're performing at a very high level. We like bolt-ons, okay? You've seen us. We executed on 4 of those in 2023, all very successful, all ahead of our business plans. So we like the strategy where we are. We love our portfolio of products and services.

So last question. I asked you this last year, I'm asking every company. What are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current discussion?

I think energy efficiency is going to continue to be a theme, okay? -- next-generation refrigerants will continue to be a theme. I think that refrigerants will all continue to evolve until they have greenhouse gas potential of some de minimis value. I believe electrification of heating will continue. That will become the norm -- and within 5 years, you could start to see more and more countries probably regulating against greenfield with fossil fuel. We'll see how that plays out, at least for heating purposes. There's other needs for fossil fuel. I think it's -- I think one of the things that's going to continue to evolve as companies that have purpose. And I think if you want to go to a college campus and you want to recruit, you want to explain what your company is all about. If they can relate to the purpose, and our purpose is to challenge what's possible and innovate for a sustainable world. Talent is always key to success. And I believe we have the right message.

I think it's a good note to end on. Dave, Chris, thank you again for joining us. We'll see you in a couple -- an hour or so for the...

All right. Thanks, everyone.