Trane Technologies plc (TT) Earnings Call Transcript & Summary

All right. Rolling along here with Trane Technologies. We have CFO, Chris Kuehn; and CEO, Dave Regnery.

And I don't know if you had anything as an intro, but I guess the standard start that we usually have is how's business so far broadly across what you guys do and maybe some geographic color on what you're seeing out there?

Well, first of all, thanks for having us, Steve. I always enjoy coming to the conference, coming back to New York. And by the way, last year, I think it was during St. Patrick's Day or is that the year before?

I don't remember, maybe I had a couple of drinks. I don't remember that, Dave.

Fortunately, I decided to go off for a walk, and I saw a lot of people that had a couple of drinks. So I was glad to be back here in New York. Look, I won't comment on the quarter, but I will tell you that 2023 was a very strong year for us at Trane Technologies. We had top line growth organically of 9%. We had EPS growth of 23% and we had free cash flow conversion of over 100%. So that's the third consecutive year that we've had EPS growth of 20% or greater. Team is performing at a very high level and demand for our products and services around the globe continues to be very, very strong. We ended the year with a backlog of $6.9 billion, and we're very well positioned for 2024 and beyond.

So thinking about that backlog, a lot of it has to do with commercial HVAC. Maybe we'll start there. Your orders performance pulled back a little bit in line with the group, then like this last -- the last couple of quarters has been very strong. What do you think has been the differentiating factor there and maybe some of the verticals that you're seeing that are strong?

Yes. I think it's -- I always tell people it's a system of things that makes Trane Technologies a great company and whether it's our direct sales force, whether it's our operating system, whether it's the way we relentlessly invest for innovation in the business, whether it's our service business, whether it's our controls business, that's all part of what makes us a great company. I also tell people the most important ingredient of what makes a great company is, a, being close to your customer, which is obvious; b, is the culture that you create for your company. And I would tell you, at Trane Technologies, we have an inclusive uplifting, engaging culture. We work towards yes, okay? We don't look at things as problems. We look at things as opportunities. And that attitude, that opportunistic attitude really creates a different company for us as Trane Technologies. And if you look at what's strong right now, Steve, if you think about the Americas, we track about 14 different verticals internally. You won't see that same number externally, but we track -- we divide some of them up. Certainly, a lot of strength right now in data centers. Certainly, a lot of strength right now in education, K-12 as well as Higher Ed, high-tech industrial, think of data -- think of semiconductors, think of EV battery plants, very, very strong really across the board. If I go over to Europe, it's not that dissimilar, okay? We still see a lot of strength in those verticals. What might be a little bit different in verticals we see -- in Europe is we see a lot of opportunities in our thermal management system. And this is where we've been able to create something that's different in the marketplace. It's not a heat pump, okay? It starts with the heat pump that utilizes simultaneous heating and cooling. These systems are 3 to 4x more efficient than what they're replacing, 3 to 4x. So they have great paybacks for our customers and they're very green solutions. If I go over to Asia, it's -- look, our business in China, which is about 5% of our -- of the enterprise is doing very well, a very seasoned leadership team that we have in Asia. We just had a leadership meeting back in the States here and the leadership team from China came for the first time in 4 years. So it was great seeing them. Just such long tenure, and they're really just executing at a very high level, verticals are not that dissimilar, data centers are strong there. The high-tech industrial is very strong there, and we're capitalizing on those opportunities.

And so when you think about the verticals here in the U.S., education is one, ESSER funding has been pretty strong. How do you see that playing out over the next couple of years? I mean, we'll leave data center, put a data center aside for a second. I know it's a hot topic. On the education front, how do you see that playing out over a couple of years?

Yes. Very strong in the education vertical. If you think about ESSER funding, you can take an order and this keeps changing. But as of right now, you could take an order until September of this year, and then you have to install that system by the first quarter of 2026. So the education vertical will remain strong. And even when the ESSER funding subsides, look, the way this works through municipal funding, municipal bonds, this will be a strong vertical as it has been in the past for an extended period of time. A lot of schools out there, as I'm sure you're all aware, and the infrastructure within schools needs a lot of repair. And that's why we -- it's a great business for us.

And then you've also mentioned high-tech manufacturing as a strong vertical for you. Maybe just talk about what's driving that? Is that the EV and semi facilities or something more broad base than that?

No. So you got it, Steve. And I think that these are -- these typically get served with applied systems. So bespoke, highly engineered systems, and that plays right into our strength as Trane Technologies with our applied portfolio. I always tell people that we don't sell products, we sell solutions. And we have a broad base of products that we continuously invest in to make sure that we're leading. But really, what differentiates is the selling of the solutions with our highly technical, highly trained account managers or sales force.

Have you seen when we -- we're all trying to kind of figure out the timing on all those things. So have you seen a lot of the orders for those plants? Or where are we, what inning are we in as far as what's in the funnel and what you've booked into orders, assuming that the sales are just now kind of coming for some of those things?

Yes, I'd say we certainly have seen some orders. But I would also say, as I said at the end of the fourth quarter, we're tracking over 250 mega projects, which I don't like that terminology, but mega projects. So these are very large projects. And the thing that's also we need to consider with these mega projects is you typically have decision makers that exist in different parts of the world and with direct sales force on a global basis, we're able to help triage that. So I gave an example earlier today, Samsung built -- and I could talk about this because the customer said I could. Samsung had a big factory in Texas, while the decision maker there was in Korea, okay? Mechanicals located in Texas, the engineer was up in Seattle, Washington, and we're able to help coordinate that for the customer and also within our own ranks and files so that we can make sure that we have a very holistic solution for the customer. So it was a great win. As far as what inning we're in, we're in very early innings here. I mean some of these orders have been booked, but they -- not a lot of them have shipped right now. So that will be part of the backlog, but you could expect future revenue into the coming months and years.

So I guess, what is the timeline there? If production is coming online in a facility in 2024, when would you have seen that order? And when do you ship that?

I assume if it's a semiconductor, assume back up from 12 months from when production starts. That's when our equipment would go online in the facility, and then you could back it up another 7 to 8 months for the order coming in.

Okay. Got it. And there's still -- you think there's still a lot out in front of us from that perspective even if some of these EV guys maybe think about pausing or cresting their CapEx as EV sales.

Absolutely. Yes, we do. We think we're still tracking a lot of projects. Some have gotten pushed, but they haven't gotten canceled, which is the good news.

Okay. As far as the commercial unitary side of the equation, that market is shorter cycle. You don't have the mega project element to it. How do you guys view that market playing out in '24 and then into '25? I know a couple of your peers have talked about, perhaps a pause before the refrigerant transition. I think that's what one of them said, anything on the unitary side you called out as far as the market outlook there.

No. I think that the verticals that are very strong right now tend to be served with applied systems. But with that said, our equipment sales in 2023 was very strong. Applied was much stronger than unitary, but unitary was strong. So I mean, with the growth that we saw in our commercial HVAC businesses globally, you would understand that both applied and unitary are growing. As far as 2024 goes, we'll see how it plays out. But look, we're very bullish on what we see in the applied space right now.

And then the lead times in unitary. I know they stretched like to 50 weeks at one point at the peak of the cycle. Are we now kind of normalized on that front?

Yes, we're. I think if I look across our portfolio, lead times have normalized. If you start with residential, it's normal. You talk with unitary, I would say it's normal. Our Thermo King business is normal. For the most part, our applied business is back to normal lead times with the exception being some products, we have a lot of demand on. So for example, our thermal management systems in Europe, we're seeing tremendous demand. So some of those are stretched a bit.

Yes. And that complexion has changed in the backlog as well, Steve. Think of the $6.9 billion is flat on a dollar basis from 2022 to 2023, but you've seen a shift of around $1 billion of backlog from the normalization of residential, the normalization of transport lead times and that $1 billion say down in those portfolios has been replaced with an increase of $1 billion in the commercial portfolio, most of that being applied systems. At the end of December, we had about $1 billion of backlog for 2025 that we had built already.

Mostly for applied, obviously, or...

Mostly for applied. That's right.

When it comes to the 454 transition for commercial, I know the residential side, people are talking about increased cost. Is the commercial side any different from a increased cost perspective that you're designing into it. Will you get a similar lift in the unitary side when it comes....

There are additional costs for the -- you're using a refrigerant that's slightly flammable. So you're going to have different sensors in the equipment, so that it could be -- you're going to protect the equipment and those working on it if you had a refrigerant leak. So that's what we're looking to sense there. So that will be built into the product. So it will cost more. And I would just assume that it's going to be margin neutral. Whenever the price uplift is, it is assumed to be margin neutral.

Got it. Let's talk about the data center vertical a little bit. Maybe some of the products you play in today and what types of demand you're seeing? And maybe have you guys provided any kind of content color on per megawatt, how much content you guys have in the data center? Maybe what you're selling or just what kind of products?

No. We haven't. Yes. We haven't disclosed a lot of like the size of our business in data centers. I would tell you that. Data centers are not all equal, okay? I'm sure you've heard that from others. It really depends on what the use of the data center is going to be. We provide applied systems within data centers, a lot on the chiller side. I understand that there's lots of different chillers out there, whether it be air cooled, water cooled, different compressor technologies. We play across the field there. The breadth of our portfolio is very strong. And we also play on the air handling side. Data centers move a lot of air handling or have a lot of air handling built into them, and we play in that space.

And that's obviously -- that's right now, I would assume it's the highest growth vertical when it comes to orders and sales.

I would say data centers is very, very strong right now.

And how are you differentiating yourself there?

I think it's the applied systems that we're able to provide to the customers. I think it's working with -- directly with the customers who I won't mention, and it's really helping them innovate for what new technologies are going to be available. I think the data center vertical, depending on what you're looking at, it's going to be a high-growth vertical for 5, 7, 10 years. And depending on what report you're going to read, it's going to say that you're going to have a compound annual growth rate of 15% or greater, okay? Most of them are greater than that. So this will be very strong. I would also tell you that technology moves in this vertical very, very fast. So these are some of the most sophisticated customers we work with, and we have our very technical experts working with their technical experts to really help design what's possible for the future. So you'll hear a lot about whether it's immersion cooling, cooling at the chip and those are all future type technologies. We're bullish on those technologies. We're working with our customers on those technologies, but I would also say, for the most part, they're futuristic right now.

As far as what you guys have in your portfolio, you recently made an acquisition or an investment in a liquid cooling related technology. Maybe just talk about what those guys do and what technology because that's clearly like a bet that you're making, small bet enterprise related?

Sure. It's a small bet. We made investment in a company called Liquid Stack. They do immersion cooling. We think immersion cooling has a lot of potential. We also would tell you that it's not quite ready for prime time, but we're working with not only Liquid Stack, but our also customers as to how we can make that a technology that could be very, very possible and feasible in the future. As the density, the heat density that's created by the board's increases, this becomes a very efficient way of actually doing the cooling.

And then on some of the verticals that are not performing, name -- list some of those and are any of these actually down? Or are they just not growing?

I'd say some of the weaker verticals. So think a traditional office, think of retail, think of warehousing, they were not strong in 2023. We don't anticipate them being strong in 2024. However, I would tell you that they will cycle back, maybe warehousing not to this great extent as office will. But look, we're going to be ready when it does come back. We have a direct sales force that pivots to where the opportunity is and when that becomes an opportunity, we'll be there. What's important to also know is you always need to be investing for the future like from an innovation standpoint, just because of verticals down, don't give up on that vertical long term and what new technologies can you bring to that particular vertical in the future. A great example of it and not that we're talking about is residential business. Residential was down in 2023, right? We're calling it plus or minus low single digits in 2024. We're investing a lot in our residential business right now to make sure we're ready for when it comes back. And we have a lot of really neat technologies there with our variable speed technologies and how -- if you think about variable speed technology, you're able to control that with microprocessors. Where you have microprocessors, you have intelligence. Where you have intelligence, you could get data that you were unable to get in the past and how you can utilize that to create a better experience for the homeowner or a stickier relationship with the dealer. This is an example of just because the vertical is down, don't stop investing. Thermo King would be another great example where the business was -- we were flat last year, markets were down. This year, we're saying the markets are going to be down, okay? And the Americas will probably be down about 10% and Europe will probably be down mid-single digits. We're investing a lot right now in our Thermo King business especially around electrification of the fleet.

And then just on the services side, great business for you guys. How is that? How do you see that playing out? I mean 15% growth last quarter, what's the trend line on that?

Yes. I mean our service business is a fantastic business. So thanks for recognizing that. It's about 1/3 of our company right now. It's a very resilient business. It's had a compound annual growth rate of high single digits for the last 6 years, okay? That includes a year of COVID, where the business was flat. So despite not being able to get into buildings, our business was flat, so a very resilient business. That applied, as Chris said, our backlog is made up of 90-plus percent applied commercial HVAC. Our service business is tailored around our applied portfolio. So we anticipate a continued success in our service business in the future.

And you include controls in there. How does that -- how do you differentiate your controls versus others that do more of a enterprise kind of BMS?

We don't control. We don't have -- well, we have the service on controls in that business, but the actual BMS system would be part of the equipment side of the equation. But in our service business, it's broad, okay? So we do service controls in there as well. We have -- think of it as feet on the street, doing service calls, service agreements, digital service agreements. Think of it as energy services contracts. So now it's no longer just kind of a break-fix business, but you could be connected to the asset and you're looking at performance as well as energy consumption. So something now needs to be fixed when it's using too much energy, whether that be at a building level or at an asset level, we can do both, and we can write contracts to both ways. Another part of our service business is a rental business. So this is a great story. Probably 10 years ago, we were talking about a rental business, but we were using it around service agreements. So think about a critical application, we needed to ensure that you always had uptime. So think of a hospital. So we would write service agreements where we would guarantee uptime and we would do that with a rental fleet. Well, now that's blossomed into a rental business. That's a great business that continues to grow.

Pivoting to residential. You guys guided, I think, plus or minus low single digits for the year. What are you seeing there early on? And where are we in the inventory cycle as well?

Yes. As I said on the fourth quarter call, look, we thought that as I said on the third quarter call, I'll take a step back, we thought that the inventory would be normalized by the end of the fourth quarter. And then on the fourth quarter call, I said I was wrong, okay? We think there's more normalization that has to take place in that channel. So expect the destocking to continue through the first quarter. And we'll see what happens, but it could go into the first half of the year. And you're right, Steve. We called the year plus or minus low single digits and we'll see how it goes through. It's early in the year, so don't judge anything. And we're not going to comment on what's happening in the quarter here. But early in the year, January and February are not necessarily big months in the residential space.

And what are you expecting? I know for enterprise-wide, it's a 1% price number? It seems pretty conservative, we'll get to in a second. But in resi, what are you guys embedding from a price perspective this year in your guide?

Yes. I mean 1% is the enterprise number. It's going to be in that low single-digit range. Steve, we've -- one area that I know, maybe others have commented on is the transition to 454B and the new refrigerant and some higher cost that comes from sensors and otherwise in the product. We've not factored in much volume in 2024 of sales to 454B product. We really see this as more of a 410A year. So we're making sure that we're pricing effectively to offset the inflation of the 410A refrigerant. But otherwise, think of it is going to be in that range of plus low -- low single digit.

Low Single digit. And then as far as that 454B product, what's your -- what's the price uplift do you think on that for next year?

We haven't communicated that yet, but products will start rolling out here later in the first quarter into the second quarter and third quarter. We've made sure -- well, listening to what others have talked about in terms of their price uplift, maybe in that 10% to 15% range, I mean, that may be the ballpark that we're in, but we haven't announced that yet. But we made investments to make sure that we've got mixed model lines, making sure that we've got the ability to keep producing 410A through the balance of this year depending on demand. But if we see demand pick up for 454B, we've got the ability to shift there pretty quickly.

And that mixed model line is going to be very important because if you look at the way they're rolling this out, the EPA, you're going to be making 410 products for some period of time in the future, not at a system level, but at a product level. And this gives us a lot of flexibility for future years.

And as far as the cycle is concerned, I know Watsco mentioned there was some pull forward, 2.5 million to 3 million units they thought during COVID. There's been debates around useful life really for the last several years. Where do you guys stand on kind of where we're in the longer-term cycle and age of the installed base replacement rate, what kind of -- where do you guys stand?

I mean I was smiling because Steve and I've had this debate. And I'll summarize where I don't think useful life has changed a lot, okay? So whatever it is, keep using whatever you're using. I will tell you that we've said for a long time that over time, our residential business is a GDP-plus business, GDP plus. So yes, we have some normalization that has to take place. There certainly was a pull forward, and it's normalizing right now as we speak, and it's been normalizing for a good part of 2023. But over time, look at our residential business as a GDP-plus business. And it's a great business. And we have a lot of innovation, as I talked earlier, they're going into this business, and it will be a great business in future years as well.

Turning to transport. You guys have, again, another area where you're outperforming peers. How do you explain the difference there between you and your top competitor?

Yes, I think it's innovation, right? It's consistent innovation. And I look at what we've been able to come out with product. If you have a product that you introduce that's 30% more efficient, fuel-efficient than the best on the market. That's I always tell the salespeople I could sell. They tell me I try all the time. But look, I mean it's about innovation. And what we're doing in that business is really -- it's incredible. We have a great leadership team there. What we're doing around electrification and thinking futuristic as to what will happen and how we're working with -- think of it as a trailer going or truck going down the road and look to see where is all the energy that's being wasted that's not being captured. And that's kind of the lens that our teams are looking at now as to how you can electrify in a very efficient way. And it's starting, right? I mean, I look in Europe right now, it starts small and it goes larger. I don't see us getting to long-haul trucking because of the infrastructure, but I do see opportunities around anything that's going on in a distribution route. And we already see those opportunities through that.

So I guess that's part of the longer term. What drives this? I remember back in the day, it was cold chain, which I'm sure is still somewhat of a part of it. But what's the -- you're going to probably bounce back in this business in '25, but then I think the forecast have it, units relatively flat as far as the chart that you put out there, it's kind of flattish. What drives this business as a growth business longer term? Or do you guys just -- you guys are just going to continue to take share because of your investments?

Well, I think that -- and you're right. So 2024 is going to be a down year in the Americas. Think of it, the market being down about 10%. The forecast right now from ACT is that it bounces back in 2025. I think they have it up 19% in 2025. We'll see how that pans out. And then future years tend to -- I think it's probably at the 5% or 6% growth per year. Look, unless you believe that there's going to be less perishables that need transportation in the future, this is a great business. And I look at food waste, which by the way, 30% of all food that's produced is wasted, and most of it because of the way it's being transported. So there's an opportunity. And I look at what's happening in the Life Science business, and think about mRNA vaccines and think about what's happening with next-generation vaccines and think about the precision temperature control that's going to be required to ensure they end to their destination point as desired. That all requires Thermo King type products. So we think it's a great business. Again, a lot of synergies throughout our portfolio, but a lot of our technologies at a high level is very consistent throughout the portfolio and the whole electrification of this -- of our fleets around the world is really going to be the next frontier there.

Is APU still kind of a big driver here?

Yes, absolutely. So auxiliary power units, they're used rather than idling your tractor, which is prohibited in many states. You use an APU, auxiliary power unit to take the inside cab where the driver will often sleep and use as a hotel room. It makes it -- it powers it up.

So you're guiding to just pivoting actually -- any questions on the businesses, maybe wanted to dig into HVAC, transport. Yes, right here.

Yes, I can hear you, but.....

Sorry, go ahead, if you speak up. The mic is not working. So the 2 questions are, how are you outperforming your peers in HVAC in Europe? And then the other one is the education question, and you place the order today and you get it in '26, which I think is a maybe misunderstanding of what you were talking.

Yes, let me start with that, just to clarify, it's you have until to order that. So it's not you place the order now. You could place the order as far in advance as September of this year. It just -- to get ESSER funding, you have to have it installed before the first quarter of 2026. So sorry, if I confused you.

So if I want the funding, I ordered it in September, and then I can say, you know what, don't deliver it until whatever January '26.

Yes, but it has to be installed by then. So that's the way -- and that has pushed to the right a little bit. So I'm not sure what's going to happen. But over the past several times, that's gone a little bit more extended a bit, but we'll see how that plays out. On Europe, I'm very proud of what our team has been able to do in Europe, right? We have solutions there that are differentiated. Our commercial HVAC applied systems in Europe are different, right? We created a thermal management system. It's not a heat pump, okay? It starts with a heat pump that uses simultaneous heating and cooling. It's thought of at a system level. So if you need to have makeup heat, you could do that with a water-to-water heat pump as part of your system or you can use the boiler that exists for makeup heat. And it's sophisticated controls that ensures that it operates the way it was designed to ensure that you have both heating and cooling in a building. If you think about it, 15% of all greenhouse gas comes from heating and cooling of buildings, 15%. A big chunk of that is from heating. This is a solution that's 100% electric, unless it's a hybrid where you use the boiler, and it dramatically reduces the carbon footprint, dramatically. And if you think about the mega trends about what's happening about decarbonizing the built environment, and you think about 400 billion-plus square feet of commercial space on a global basis, this is a tremendous opportunity. And the payback on these projects, especially if you come at it from the cooling side, they could be less than 3 years. So you have a solution that's 3 to 4x more efficient, a great payback for your income statement. And by the way, it's a very green solution, so green for green. And we're winning in Europe. And this is a technology that's now spread across the world, okay? We have these technologies in different forms in every region of the world right now.

Dave, can I add 2 comments there. I mean also a long-tenured management team that we have in Europe. So with that, they've got the ability to really stay engaged over long sales cycles and make investments from a few years ago that pay back to today and beyond. And the second point I'd make would be around M&A. Acquisitions in the last 18 months, one was AL-KO, one was MTA, both really founded in Europe and think about great technologies and matching them up with our deep channels within Europe. So maybe they were strong in 1 or 2 markets, and we're strong in all markets. And we really like where those business cases were, and we're exceeding those business cases with those 2 acquisitions in the region. So just really coming at it and winning in all angles.

Thanks for the question.

Yes. On the margin side, you guys have continually guided to kind of 25%, I guess there's sometimes a plus on there. But you do have some price cost benefits and then, I guess, productivity. Just maybe talk about how you walk to that 25% leverage and maybe talk about those pieces of the bridge.

Sure. Sure, happy to. It is a long-term framework of 25% or better. So we will always have the plus next to it if we can deliver on that, but it really starts with the investments that we're making in the business to ensure that we can get strong incrementals on the volume that we see coming through the business. The volume is getting better as we've guided 2024. Last year, if you go back a year, we had about 4 points of price, 4 points of volume. This year, we've guided 6% to 7% organic with about 1 point of price. We're not capping that number just to be totally transparent, but what it should send the message is that volumes are getting stronger. And with that, it's because the supply chains have normalized here through, say, middle of 2023 and maybe the price/cost contribution as that starts to normalize, it's going to be dovetailed with productivity. So we've been very happy with our price/cost, price inflation kind of dollar positive for the last 3 years and we're in a very inflationary environment. The business operating system has really executed quite well in executing to a positive dollar there. But the biggest opportunity for us now is to get back to the full level of productivity. We generally have been 2 to 3 points of gross productivity pre the supply chain challenges. And as you think about second half of the year, Steve, that's where we started to see the dovetail of the price contribution coming down and then the growth of productivity is starting to come back in the business. To think about the engineers that we had working on supply chain challenges all through 2020, late 2021, all 2022 and the early part of 2023, shifting those resources now back in the cost takeout of products, value-add, value engineering, the ability for the factories to have more throughput without inefficiencies there of products not being fully complete the first time they run through the line. That's going to be a nice opportunity for us this year going to next year. So think about 20, 30 basis points is our target for price versus inflation, strong incrementals on the volume, making sure that we're factoring in cost inflation and pricing effectively for that, but then always reserving those dollars for innovation and that pipeline for innovation is very, very strong.

Right. And you offset -- when you say gross productivity, the offset would be that whatever you decide to invest.

It would be. It would be gross productivity offsetting other inflation. And then that could offset as well the investments that we're driving and/or the volume -- incrementals on the volume could be offset with some of the investments we're making. But we do like the 25% plus framework.

What type of inflation are you seeing these days?

Tier 1, it's very modest at this point, right? It's fairly stable. I would say refrigerants is an area that we're seeing in terms of inflation, that transition from 410A to 454B. There was expectations on higher price with 410A. We baked that into our guidance for the year based on what we saw in early part of February. And then in the Tier 2, think of that is really around wage. That would be a leading area of inflation, and we don't see that going backwards. So with the price increases we put in place late Q4, early Q1 baked into our guide for the year. We felt comfortable at the beginning of the year, we're going to have the ability to have that price versus inflation spread. But what I would say is we remain nimble, right? As new inputs come into the model, we've got the ability to be nimble again. And I hope we don't go back to 3 or 4 price increases like we saw in '21 or 2022, but the nimbleness in the business really remains there.

I'm asking all -- everybody some kind of standard questions that I'm almost embarrassed to ask, but the U.S. election, what's your take on if....

What if my wife told me, don't talk about....

I'm not asking you who's going to win. I'm asking what -- in a change of administration, has that been talked about in the boardroom? Do you guys have to pivot footprint in anticipation of tariffs? How are you kind of handling this uncertainty that would potentially come with that or is it not a discussion at all?

Well, I'll leave the election out, okay? But I will tell you that we're always looking to make our supply chain more resilient, okay? That goes back to the challenges that we faced during COVID. As far as what about programs that are existing today and what if they went away, would your business continue to grow, like, for example, IRA. And I sit there and say, we didn't build our business around any kind of policy or any kind of rebate. Our products have and solutions have great paybacks on their own. The policy could be a tailwind, but it doesn't interrupt our business model. So we'll continue to execute the way we have been executing and expect great things from Trane Technologies in 2024.

And then one more, are you using AI internally yet for any kind of business productivity functions? And where are you in that journey?

Yes. I think you look at AI, it's really 3 factors, right? One is the fact that we've always been in AI with our structured data, and that's our connected solutions to our assets to our buildings, okay? The second is, now we're using AI in a nonstructured way within our businesses to look for productivity opportunities. And there's a lot of different areas we're looking at. The key is make sure you use it in a secure way. So don't be -- don't let your confidential data get out or have someone misuse it. And the third is, as we're all using more data, it's putting a lot more demand in data centers and data centers is a very strong vertical for us.

Okay. Great. Thanks a lot guys.

All right. Thanks. Thanks for your interest in Trane Technologies.