Trane Technologies plc (TT) Earnings Call Transcript & Summary

Thanks. Good morning, everybody. We're going to continue UBS' Global Industrial and Transportation Conference. My name is Amit Mehrotra. I lead the multi-industry and electrical equipment research franchise here at UBS. It's my pleasure to start kind of the diversified industrial space with Trane Technologies. I think I've been covering industrial companies for over 20 years. And once in a while, you come across companies that are truly special in terms of value creation, demonstrable value creation, but also despite all that value creation keeping the culture and the search for excellence kind of alive. And I think that's very clear, Dave, when you keep on talking about the market opportunity, how you guys approach the market, the culture, which is so critical to Trane and I want to dive into a lot of that because I want to uncover the secret sauce that is Trane, and I know you're such a great ambassador for the company and talking about the culture and how it fits into kind of the market opportunity.

Before we start there, if I could, there's a lot going on in the world if you haven't noticed. We are now post-election. A lot of -- I know you don't have a big business in China or Asia. I know you don't really manufacture a lot in Mexico, so maybe not pertaining to you. But I'd love to get your perspective on what your observations have been over the last months since the election? What are customers saying? What do you feel in the market? And really open it up to anything you want to talk about in terms of development over the last month or so.

Well, first of all, thanks for hosting the conference here. It's off to a great start so far. So thanks, everyone, for attending the session here on Trane Technologies. Look, I think there's a lot going on right now in the world, as you said, and certainly here in the United States. And there's a lot that's being said and then you find out later maybe it changes a little bit. So what I would advise everyone to do is let's just stay calm, okay? Let's understand what the rules will be, the real rules will be, not positioning that one person may say something just to get a reaction or a person may say something to try to start negotiation with a different country. I think from the -- we'll speak specifically about the Trump presidency, the first term. We all know that it was -- there was a lot that was said and some of it became law, some of it did not. And I'm sure that will be the case with what we have here in the second term. We're going to stay calm, okay? We were very successful when Trump was President the first time, and I'm very confident that we'll be successful when Trump is President here in the second time. And as far as the tariffs, the comments that are being made, as you said, we've had an in-region, for-region strategy for decades now. So that's not new to us. We manufacture in the region in which we serve. That said, obviously, we have some product that crosses region lines. It tends to be a minority of that -- of our products. But it does -- we do have some that are out there that -- we have a factory in Mexico, and most of that product comes into the United States. I'd also tell you that we have over 20 factories in the United States. So again, in-region, for-region, we'll be very comfortable with that strategy moving forward.

Yes. And maybe we can pivot a little bit to kind of the opportunity, the market opportunity you see. I mean, you've obviously had strong double-digit growth in the top line, 20%-plus compounded earnings here. So I think the biggest question I get from investors is the law of large number starts to kind of creep up, and is this growth sustainable? We're now towards the end of 2024, entering 2025. Your backlog is very robust. You've got 90% of that backlog in commercial HVAC, which is obviously a good place to be. Manufacturers come back to the U.S. So it looks like a lot of the growth is still there. But if you could talk about kind of the sustainability of the success you've had and how we think about it going forward.

Yes. I mean, first of all, good question. And I always get asked the question, well, how does Trane Technologies continue to win in the marketplace? And just to remind everyone, as Amit said, our reported compound annual revenue growth over the last 4 years has been double digits. Our EPS compound annual growth rate has been over 20% for the last 4 years. And I keep saying to everyone our best days are in front of us. And if you look at the dynamics that are behind us, right, we have a very large backlog. We have broad-based growth, okay? So we don't just focus on one vertical. We focus on all verticals. We have a direct sales force that allows us to have deep domain expertise within any particular vertical around the world. We're able to capitalize on mega projects because of our direct sales force globally. We are able to triage decision makers in different parts of the world. We have a service business that represents 1/3 of our company that's had a compound annual growth rate of high single digits for the last 6 years. And by the way, our applied business, which is the majority of our backlog carries an 8 to 10x multiple of our service over the life of the equipment. So that's an engine that's going to continue to run. And if you look at the -- what's happening with decarbonization of the built environment, I'm very confident that we are just in the very, very early innings of what has to happen there for us to be successful as a world. And I think that the technology that we have today can dramatically reduce the carbon footprint for building owners around the world. And it's just about educating them what's possible and explaining the payback periods, which are very, very attractive for the investments that they'll be making.

Can we talk about that because we obviously toured 55 Water Street maybe about a month ago or something like that and it's building big enough where it has its own ZIP code. And you were there and you talked about kind of -- it's pretty impressive in terms of the heat recapture and basically cutting their heating bill essentially down to nothing, so to speak. Can you talk about kind of that piece of it, like the value selling opportunity? And Chris, maybe you could talk about kind of how the economics work as you value sell that into the marketplace.

So 55 Water Street, New York City largest office building structure in the city. It is large enough to have its own ZIP code. We've been working with that customer for well over a decade, right? And we basically said, let's lay out for this customer a plan to decarbonize your building over time. And we're now on our third tranche, okay, of upgrades to that building. Each upgrade had payback by itself, and it created a journey for that building to basically decarbonize. They were using steam as a source for heat. Very inefficient, okay? We now have eliminated, I believe it's 95% of all steam for heating within 55 Water Street. And so let's get this. We eliminated all the steam. We converted everything to electric heating, okay, and cooling. When we converted the heating to the cooling, their electric bill went up, I think it was 3%. So just imagine that, you're basically now getting heating for basically free from what you were doing before by upgrading the efficiencies, by making sure they were taking advantage of the latest equipment to make sure it was running as efficiently as possible. We designed a digital twin for 55 Water Street. I don't know if you saw this or not, Amit.

Yes, we did.

But basically, we were explaining to the customer about here was a particular -- one of the chillers was running out of sequence, okay? It was running out of balance. And you could see this by the profiles, it was using too much energy, to just simplify it. We basically did some upgrades to the equipment. Within 30 minutes of running after we did the upgrades, you could see the balance in the electric discharge actually minimized to a minimum right on the line. So basically, that particular upgrade saved the customer what equates to about $200,000 a year, just by doing the one upgrade. And we could do this across the whole building's portfolio now which is really, really interesting for them.

Can you talk about demand side management and how much gets wasted after the meter?

I'm very passionate about demand side management. And you're going to hear a lot of people talking about the need for electricity, right, and the efficiency of the grid. You probably read a lot about that today. You're probably also going to read a lot about data centers and how data centers are going to be going from 4% to 8% or whatever those numbers are of the total electric requirements here in the United States. What nobody talks about is the fact that about 30%, okay, and that's a very conservative estimate because we've done hundreds of thousands of energy audits in buildings, about 30% of the energy after the meter is being wasted. So you're paying for it, but it's being wasted. And there's a lot of reasons why it can be mechanical, it can be overrides that were put into the system that are causing the product to run inefficiently. So if you think about it, you got all this talk about data centers. You got all this talk here about all the efficiency of the grid, but yet you're wasting 30% of everything that's after the meter and nobody wants to talk about that. That is a massive opportunity for a company like Trane Technologies. And we have solutions today that can dramatically reduce that 30%. And I just think that if you think about 400 billion square feet of commercial space in the world and how much of that has to be decarbonized, that's where the opportunity is going to be in the future. You'll always hear me talk about our service business and how great of a business it is. And I would tell you that in tomorrow's world, an HVAC asset is not performing if it's not cooling properly, it's not heating properly, or more importantly, it's using too much energy. And when you're connected to these systems and you start using structured data and unstructured data, you can really narrow that amount of waste that's occurring.

I want to get Chris in here to talk about how the business is evolving more towards service becoming a bigger piece of it. Obviously, it's now 1/3 of the business. Your backlog is very, very high. I assume that kind of melts up over time. Can you talk about, one, kind of the pricing of this record backlog, how that's evolving? If you see the customer's willingness to kind of invest for the payback and whether that's changing a little bit post-election or anything you could talk about there. And generally, kind of how the margin profile of the business evolves as maybe service becomes kind of a bigger and bigger piece of the portfolio over time, the revenue base over time?

Yes. We love the service business, Amit. I mean, as you said, it's a 1/3 of the enterprise revenues, it's really linked to our commercial HVAC businesses. And the largest part of our service business would be in the Americas and then in Europe as well. It's linked to the applied systems within commercial HVAC. We'll do a little bit of work around unitary product. But generally, when you think about those complex systems that are bespoke to a customer application, it really needs the OEM service group, service technicians to ultimately make sure that, that product and that equipment is running efficiently. To Dave's point, we know that without that management, buildings drift over time. So getting it back to its original commissioning structure is really important. What I would say is, is that we like the margins in that service business. We continue to heavily invest in that business. And if you think of the investments across an umbrella of types, right, there are certainly service technicians. We keep adding service technicians to the portfolios in Europe and in Asia as well in the Americas. We want to make sure we're there over the life of the equipment that brings the 8 to 10x of revenue in the service revenue versus the original install of the equipment. We'll call it higher-margin service over time. I won't necessarily dial it in from that end. But we really want that customer for life. Dave talked about 55 Water, you brought up that example, a 10-year journey with that customer. Could you have maybe tried to optimize price at the very beginning? Maybe, but we like that 10-year journey and making sure with that customer, not just for that building but for other buildings that they have in their portfolio as well. So think about continuing to invest in that business. It's grown, to Dave's point, over the last 6 years high single digits. This year, it's on track to grow double digits at an enterprise level for services. And why wouldn't you want to keep investing in that business for us.

Yes. And the contribution margins and the returns have been great. So it's...

They have. They're certainly adding as we think about the margin expansion. It's certainly contributed to the margin expansion. And another reason why we want to keep investing, and not just on the service technician side and people, but the tools that those technicians use when they're out in the field to make sure you're diagnosing problems before you even show up at the customer site. Think of the digital connected solutions back into a central area that ultimately you can diagnose a problem before you're rolling a technician out to a building. But as we like to say, our technicians are some of our best salespeople. They know the structure of a building. They know what the operating assets are. And when you think about a 10-year journey, they're along with the customer on that journey because they know they'll be there for the install and the maintenance.

Can we talk about -- I mean, obviously, we've talked about near-shoring and added -- additions to the U.S. manufacturing base for a long time. These are structures that obviously need HVAC systems service. But what's interesting is that these mega projects, relatively small amounts of them have actually been started. And so hopefully, as we progress over the next couple of years, you start to get more and more starts. Can you talk about kind of the opportunity that presents for Trane? And is that really where you get confidence around kind of being able to sustain this type of high single-digit type revenue?

I think it's one of the areas. Okay. Look, mega projects, I'm the one who does not like the terminology mega projects because these are projects that are in verticals that we've always been very strong in, okay? But to that point, we're tracking over 300 mega projects today globally. And it's pretty dynamic, okay? So you have projects that come into the pipeline. You have some projects that obviously close because they're completed. You have other projects that sometimes get canceled. Like I'm sure you've read a lot about EV battery plants being canceled. So that happens. It's pretty dynamic. I think what differentiates us is this ability to triage decision makers in different parts of the world because a lot of these mega projects are with reshoring, okay? And you'll have decision makers that will operate in different parts of the world. With a direct sales force, we're able to have contacts and relationships around the globe. And it really helps us from a competitive standpoint to stay ahead of helping them with their communication channels.

I don't want this to be a love fest for Trane, so I'm going to ask a couple of maybe devil advocate questions, if you'd allow me to. You obviously...

I'm okay if it's a love fest for Trane.

It's obviously a very -- the sales force is obviously a key advantage. And I would say the sales force, I think, has been particularly good at kind of leveraging all the incentives available to lower the total cost to the customer or make it more economically feasible, so to speak. It seems like the IRA and all that funding still will continue, but there is kind of an element of if we start to get more efficiency and some subsidy reductions, that creates a little bit more friction. I don't know if you buy into that argument or how you respond to that.

Well, first of all, I think when everyone talks about incentives, they think about, at the very high level, they'll hear of IRA, maybe the CHIPS and Science Act and maybe the infrastructure work that was done early on. But let me tell you, there's a whole bunch of incentives that happen at a local level that most people in this room, unless you lived in that area, unless you had the expertise, like New York, I mean, you heard about what was happening with NYSERDA and some of the programs there. They have another program that's out there where if you don't meet a certain efficiency requirement, you start to pay penalties, Local Law 97. So again, it's having that deep domain knowledge in any particular city to really help the customer navigate through to make it simple for them. So if there are incentives out there, they could take advantage of them. That's point number one. Point number two is if you build your business model around incentives, my suggestion to you is you have a bad business model. And at Trane Technologies, our solutions have great paybacks. Now does the payback get a little bit longer if there's not an incentive? Okay, sure. Absolutely, it could. Does it go from 3 years to maybe 3.1 years? Maybe, okay? But I would tell you, they're very, very attractive paybacks and they're very, very sustainable, okay? The whole comment on decarbonizing the built environment, we tell people that our solutions are green for green, right? They're green for the environment. I can -- well, I'll show you example after example there, but they're also very green for your income statement because they have such great paybacks. So with or without incentives, we're going to continue to be successful.

And I think there's also a lot of these buildings. I mean, they have tenants. Tenants have Scope 1, 2, 3 emission rules. I mean, it's becoming important for them in terms of carbon footprint from that perspective.

Well, the other thing, too, is that in -- at the end of the third quarter, I mentioned the fact that we were very strong in the office vertical, right? And a lot of people were like, how are you strong in the office vertical? And again, the direct sales force is obviously part of that because we go to where the opportunities are. But we're helping landlords upgrade their building, so it's more attractive for tenants. And 55 Water Street is a great example of that. They're marketing what we're doing to attract new tenants into their occupancy. And if you looked at their occupancy rate, it was extremely high because of the improvements that they've been able to make in that building. So we're constantly out there working with landlords and saying, hey, how could we upgrade this space so you can market it in a different way.

Can we talk -- that's a good segue into my questions about, I mean, I think you guys talked about 14 verticals or end markets that you track. Obviously, everybody wants to talk about data centers and that's great. If you want to tell us what percentage of your business is, feel free to do that. But you're right. I mean, what struck me over the last couple of quarters is how broad based the strength was in terms of how you described about it. Could you talk about that a little bit and just give us a little bit of an update on kind of where you're seeing pockets of strength and where maybe things are decelerating a little bit.

First of all, we track 14 verticals in our commercial HVAC business in the Americas. And if you look at that year-to-date through the third quarter, our order growth in our commercial HVAC business in the America was up high teens. And we had growth in 13 of the 14 verticals that we track. The only one that was down was life sciences. All other verticals were positive. Now data centers, we're very strong in data centers and data centers, as you could imagine, had positive growth. We do not disclose the size of any vertical, okay, for competitive reasons because our direct sales force runs to where the opportunity is. So I don't want to tell everyone where we're running to, okay? But -- so that's the reason why we don't disclose the data center vertical. The data center vertical will be strong for the foreseeable future. Think of it as the -- you'll hear a lot of numbers out there, think of it at 15% for growth per annum for the next 5 years, that's probably a very, very solid bet. And the other verticals, we're going to have strengths in one and maybe a little bit of weakness in another. But because of our ability to call on all of those verticals, we're going to be able to capture that growth.

Is there anything noticeable more recently since the third quarter update? Or is it all kind of continuing in the same trend?

No, we don't provide inter-quarter updates, if that's what you're asking. But look, through the third quarter, we had a very, very successful third quarter, first of all. Our revenue growth on an organic basis was up 11%. Our EPS growth was 21% and we had our second highest quarter ever for orders. And that strength continued through the third quarter.

And then just on the order front, the backlog, obviously, now if you look at backlog relative to sales, it's kind of -- it's gone up significantly, kind of over 30%. Pre-COVID, it was probably around 20-ish percent. So just talk about what's happening there. And do you expect kind of this further visibility or elongating of the backlog, so to speak? Or do we kind of turn that a little bit more and we start to normalize a little bit.

Yes, I'll start, Amit. You're right, it's no longer 20% of next year's revenues, right? We'd be talking about $30-plus billion of revenue for next year, and we're on target for 2024 to be about $20 billion. So it's elevated. And we expect it throughout this year for the backlog to remain elevated and we see it remaining elevated for a long period of time. It's hard to call when we would expect that backlog to normalize or what does normal look like going forward. But you mentioned earlier, over $7 billion of backlog at the end of the third quarter. And to be clear, it's an equipment backlog, right? It does not include our service business as a 1/3 of the revenues of the company. Think of that as a booking and revenue kind of in the exact same month and the exact same quarter. Even though we may have a 2-year or a 3-year service agreement, that's not in the backlog. So it's an equipment backlog. Over 90% of that is commercial HVAC. And of that, the vast majority of that is really applied systems where you're talking anywhere from 9 to 15 months out in terms of deliveries, right, for us. The backlog would generally churn within 12 months, the majority of that churn. So it's constantly a momentum, but continues to give us some great visibility. But we won't try to call it when do we think the backlog normalizes. But if we look at the front log, the pipelines that we're seeing across those 14 verticals in the U.S. and we think about thermal management systems in Europe because you could argue Europe has been flat to down for some time in most markets, but we have innovation there where you're combining heating and cooling together, we see those front logs as remaining very strong. So keep investing on the sales force, investing in the tools, cover those verticals across the gamut. You really don't want to be chasing a vertical when it grows a year from now. You want to be present in that entire time and making sure you've got innovation to deploy over that period.

I would also tell you that we talked a little bit earlier about mega projects and what everyone has learned during the whole COVID -- we never want to go back to experience another COVID. But what everyone has learned is that giving manufacturers more lead time is a good thing for planning purposes. So the lead times that we're getting now on some of these larger orders is longer than we've seen in the past. So that's obviously part of -- you asked the question, what's a normal backlog. It's going to be elongated on our commercial HVAC business, which is 90% of our backlog just because we're getting longer lead times now so that we can plan. And by the way, we can let our suppliers plan so they could be ready for us.

Is there a disproportionate vertical that represents that backlog growth? And the only reason I'm asking is I'm doing a fireside chat later today where the backlog was reset a little bit lower because of EV plants getting pushed out. And I know you guys -- the fidelity of the backlog is quite strong. I remember you talking about Asia and not booking business if they don't make progress payments and things like that. But can you talk about kind of the representation of the backlog across verticals if there's concentration and kind of how you approach that?

I would say we haven't broken it down per se by vertical. But to give you some context, just given the relative size of the businesses, the majority of that backlog would be in the Americas followed then by Europe, followed then by Asia. The majority of the backlog churns in 12 months. So again, that it constantly is refreshed as you go quarter-by-quarter, Amit. And we've got over $4 billion of backlog for 2025 at the end of the third quarter. And we presume the majority of the bookings we have in the fourth quarter will start to go for backlog into 2025, especially for applied systems. You're not booking them in 1 quarter and deliver them in the same quarter. You probably have a 2- or 3-quarter gap from when you're delivering those systems. So hopefully, it gives you a little bit of a sense. But again, we want to make sure that we're covering all verticals out there. And even a vertical like education, which, okay, you've got some of the ESSER funding that the new orders have, I think, curtailed in terms of what you can do. You're going to see some revenue trail for the next year, 1.5 years in that space. And I think through the early part of 2026, you're going to be delivering equipment under ESSER funding. But there's still higher ed that's been very strong for us. Schools and universities differentiating like office buildings are, bringing students on to campus and how you differentiate an experience. One way to do that is your physical infrastructure as well. So we see education being a vertical that's going to be strong for a longer period of time. If ESSER's funding is -- the new orders have come down, so to speak, what you're seeing is that insight on how much infrastructure still needs to be built up in our K-12 school system. So let that go back to a normal process of bonds and local referendums to get investments to those schools, and we see that continuing to grow.

I want to move to the resi and transport side. I have one question on data centers and liquid cooling in a second. But any questions from the audience on -- for Trane on commercial HVAC? You talked about data centers growing 15%. I mean, there's obviously a lot of, I wouldn't say hype, but excitement about data centers. Can you just get people comfortable that this growth actually has legs to it? There's obviously a lot of data that supports a multiyear period of growth. But just tell us what you're seeing in terms of your business and your orders and your customer conversations about kind of the growth runway you have in data.

Yes. I mean, everything that -- and we talk directly with the hyperscalers here, okay, and they're the ones that are driving a lot of this growth. And every indication that we get from you, pick the hyperscaler, they're planning growth well into the future. So there's no reason for me to believe that this growth rate will not continue. And I think the 15% is a reasonable estimate to think of the growth rate per annum. You see some other numbers that are a little bit higher, but there's some constraints, too, in the data center world, right? It really has to do with power and availability to power. Now they would tell you it's land and then power, but it might be power and then land. So they're working through that to find the locations to actually put the data centers.

Can we move to the resi? I know it's only about 20% of your business or something like that. But obviously, with the refrigerant changeover, I know you guys talked about not necessarily seeing a lot of pre-buy. There's obviously a pricing component to it. There's -- some people are talking about 10%, 15% more pricing. Can you just talk about kind of what the expectation is there? And what your views on pricing in the resi market?

Yes. I mean, I think the resi business is a great business at a -- I think as we started the year with resi, we thought it could be plus or minus low single digits, right, just because there was a lot of volatility. And then what's changed in the resi business in the year, right? One is the inventory in the channel normalized. Two is the EPA came out with a clarification on the refrigerant change. If you remember, in the beginning of the year, it was really unknown what the sell-through was going to be. And the third is, is we had a very, very warm cooling season. So when you take those 3 together, we're now saying that our residential business for the year will have growth of 10%. So it will be a very strong year for residential. As far as the refrigerant change goes, look, we're all systems go and we've been saying since the beginning of the year that we're going to have a lot of flexibility. We've built the flexibility into our manufacturing locations. We develop what you call mixed model lines so you could run either refrigerant down a particular line. It just has to do with the charging station. So maybe it cost us a bit more, but we want that flexibility well into the future because, remember, you're going to be servicing this 410A product for a long time into the future. So we wanted to make sure we had that flexibility built in. As far as prebuy go, we've also been out there for a long time saying that we don't expect a large prebuy. But I will tell you that as the year is now coming to a conclusion, it's really, really hard to figure out what's a prebuy, right? So the customer doesn't give us an order and say, "Hey, this is a prebuy. This one's not." So look, we'll let you know as we get through the year, we'll have a better indication there. But we do not expect a large prebuy and we haven't expected that for -- since the beginning of the year. As far as pricing, yes, we did come out with pricing. It's going to be in the high single-digit range. Think of it as margin neutral on the product. The product is going to cost more, right? It's got sensors in it now. It did not. There are some other changes that had happened to the products as well with the new refrigerants. But look, the resi business is a great business. We see in the future this going back to a GDP-plus business, which is what our model has been in that -- in the resi space for a long time.

On the transport side, obviously, people expect there to be improvement back half of next year. Orders improved last quarter. I don't know if that was more easy comps or if there's anything there...

Yes. I wouldn't pay attention too much to the order rates in the transport business just because it's so lumpy. You've got to look over a longer period of time. Look, ACT right now is saying that 2025 will be up low single digits. They have significant growth in 2026 and 2027. We agree with that projection. We'll see what happens in 2025. At best, it's a back half and that's what they're projecting. We'll see where that back half goes as the year progresses. But look, transport business is a great business as well. The key is, is that even though the markets are down, continue to invest in your business. And if you do that, good things will happen because I know that when these markets come back, and they will come back, we're going to be ready with a whole bunch of really neat innovation for our customers.

Last couple of ones for me. So one, I want to talk about capital deployment. Leverage is, I think, close to kind of 1x leverage. You've obviously had a lot of organic success. Could you talk about inorganic opportunities where you think there -- whether it's regionally or product category...

I'm going to let Chris answer that. But you know what, you said that we've had a lot of organic success. We've also had a lot of inorganic success. And some of the really neat innovations that we have right now, they were acquired. And we have a business that we bought over in Europe about 6 years ago called Thermocold. That's where we develop this thermal management system from. It was a product that was a 4-pipe chiller, we called it back then. We've then modified that to become part of a thermal management system, which basically eliminates the need for fossil fuel for heating. And I'm talking about in all climates. So you basically start with a heat pump. You do some -- you have some water-to-water heat pumps within the system and you have sophisticated controls. You no longer need a boiler for heating. So think about that. Think about reducing the carbon footprint. Think about the savings that can occur there. That's the same solution that we put in 55 Water Street. And that was vis-a-vis an acquisition. We have another company that we acquired here in the United States -- it was actually in Canada called Arctic Chill (sic) [ Arctic Chiller ], right? Another one that I think when we -- I think we acquired that business for, I don't know, it was less than $100 million of revenue. That business will be a multiple of that revenue this year. So we've had a lot of success with taking really cool technologies, smaller businesses and then scaling them through our direct channels on a global basis. So it's really organic as well as leveraging the acquisitions that we've done. But you can answer the question on capital.

Yes. I mean, they've been more bolt-on acquisitions over the last 4 to 5 years in that, but just given the size of the company, we generally get to see nearly everything that comes down the pipe from an M&A perspective. But we want to make sure we've got the ability to action and to grow and to integrate these acquisitions and make sure that we're being disciplined around pricing as well. Another example on -- where Dave was talking about taking those early stage technologies, we've done a couple of acquisitions in Europe about 18 months ago and 2 years ago where we had, call it, revenues very strong in 1 or 2 markets in Europe, okay, 2 countries. Well, we're strong in 30 countries in Europe. So how do you scale that application to your entire direct sales force in Europe as well to go sell in those markets? They also brought, those 2 acquisitions, brought manufacturing capabilities into -- and a footprint into the company as well. So think about not just being able to grow the revenues of what you just purchased, but now you have a manufacturing footprint that you can reorganize, right, and think about where you're seeing your strengths within commercial HVAC or unitary product, you've got a nice way to go reorganize that. So you're not actually making more physical investments in plants or maybe less, you're doing it through M&A as well. That's been a nice win for us. But the last 4 years, the cash conversion has been 108% of free cash flow to net income. I think high-quality earnings is the way that I would describe it, and it is a high-grade problem to have, what are we going to do with the cash. We've talked a lot about investments already. We accelerated some of the investments in our -- we highlighted that on our last earnings call about $30 million of investments into 2024 because that pipeline of investments that we see within the company, that's as robust as we think about the order front log. In fact, in about a week or 2, we're going to have innovation reviews in the company that Dave kicked off several years ago. We do it twice a year by product portfolio. We had to stop the meeting at 2 hours and only 10 innovations. Otherwise, we'd keep going. And with multiple business units, we want to make sure we get through it over in 2 days. But we're going to see another set of pipeline of innovation. I want to make sure the question is, how do you go faster? And let's pull in those dollars to go ahead and be ready earlier in the market. But after we fund the investments, then I would say our next capital deployment priority is going to really be around growing the dividend. Since we launched Trane Technologies 4 years ago, we've raised the dividend cumulatively almost 60%. And we'll look at that each and every year. I won't get in front of the Board of Directors, but generally, we look at that at the beginning part of each year. And we'll want to grow that dividend over time in line with earnings growth. Then the last 3 -- the third and the fourth priority, think of the last 2, it's really around M&A. If that's not actionable we'll look at the intrinsic value of the stock and then -- which we believe the stock is trading below that intrinsic value and then we'll put cash towards share repurchases. This year, targeting about $2.5 billion of capital deployment, a little over $200 million so far in the year to M&A, a little over $1 billion to share repurchase. And we felt a lot of confidence a month ago, right, we'll be on track again to go deploy about $2.5 billion for the year.

Dave, do you want to end on maybe some musings on 2025? Obviously, you're having a lot of success, backlog's up a lot. I think expectations are kind of calibrated towards another good growth year in 2025 with high single-digit revenue, double-digit earnings growth. Any thoughts on kind of -- final thoughts in December about what you see there.

Yes, I would just say, look, I'm not going to comment on 2025. We'll provide guidance during our fourth quarter earnings call. I will tell you all that, look, we've had a tremendous run for the last 4-plus years and our organic growth is double digits. Our EPS growth is more than 20%. And I truly believe that our best days are yet in front of us. And we have tremendous growth opportunities in our business. And you asked -- one of the first things you talked about is what's the secret sauce of Trane Technologies. And I always -- I love the question because I get so excited about what we have and the strategy that we have. And I always talk about our direct sales force. I always talk about our service business. I always talk about our business operating system. And those are all things that we've hit on here today. But what I always talk about is our culture, and I really do believe that, that is truly what differentiates one company versus another company is the culture. And the culture at Trane Technologies is diverse, inclusive, uplifting. We don't look at problems. We look at what's the solution to solve that problem. And when you could get a culture that starts looking at how to solve problems, that's where the growth comes from. That's where the opportunity comes from. So we've had a great run for the last 4-plus years, but I'm very, very, very confident that our best days are yet in front of us. So thank you very much for coming today, and certainly appreciate everyone's attendance.

Thanks. Appreciate it.

Thanks.