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, you know, how's business so far, broadly, across what you guys do, and maybe some geographic color on-
Sure.
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 was that the year before?
I don't remember. Maybe I had a couple drinks. Don't remember that day.
Unfortunately, I decided to go out for a walk, and I saw a lot of people that had a couple 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, you know, 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's 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.
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, but then, like, the last couple quarters been very strong. What do you think has been the differentiating factor there, and maybe, maybe some of the verticals that you're seeing that are, that are strong?
Yeah, I think 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 ingredients 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, you know, 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 through 12, as well as higher ed. High-tech, industrial, 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, that's different in the marketplace. It's not a heat pump, okay? It starts with a heat pump. It utilizes simultaneous heating and cooling. These systems are 3-4 times more efficient than what they're replacing, 3-4 times. So they have great paybacks for our customers, and they're very green solutions. If I go over to Asia, it's, you know. Look, our, our business in China, which is about 5% of our- of, 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 four 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's been pretty strong. How do you see that playing out over the next couple of years? I mean, we'll, we'll leave data center, put a data center aside for a second.
Okay.
I know that's the hot topic.
All right. Great.
On the education front, how do you see that playing out over the couple years?
Yeah, very strong in the education vertical. 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 it's a great business for us.
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-based?
No, no, you got it, Steve. 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'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, 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?
Yeah, 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. Well, 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'll 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?
Yeah. 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 7-8 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?
Absolutely.
even if some of these EV guys maybe, you know, think about pausing or cresting their CapEx as EV sales, you know?
Yeah, 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 2024 and then into 2025? 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'd call out as far as the market out there?
No, I think that the verticals that are very strong right now tend to be served with applied systems. But with that said, you know, 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, are we now kind of normalized on that front?
Yeah, we are. I think if I look across our portfolio, lead times have normalized. You know, 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.
Yeah, and that, that complexion has changed in the backlog as well, Steve. Think of $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. And at the end of December, we had about $1 billion of backlog for 2025 that we had built already.
Mostly for applied, obviously, or all-
Mostly for applied.
Yeah.
That's right.
When it comes to the 454 transition for commercial, I know the residential side, people are talking about, you know, 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 to 410?
There are additional costs for the. You're using a refrigerant that's slightly flammable, so you're gonna have different sensors in the equipment so that it could be... You're gonna 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 we built into the product, so it will cost more.
Okay.
I would just assume that it's gonna be margin neutral. Whatever the price uplift is, assume it 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 a data center and what-
No, no, we have-
Maybe what you're selling or, you know, just what kind of products?
Yeah. 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 gonna be. We provide applied systems within data centers, a lot on the, on the chiller side. 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. Our 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.
How are you differentiating yourself there?
I think it's the applied systems that we are able to provide to the customers. I think it's working 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 gonna be a high growth vertical for 5, 7, 10 years, and depending on what report you're gonna read, it's gonna say that you're gonna 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-
Sure
you know, a bet that you're making.
Yeah.
Small bet.
It's a small bet.
Small bet, small bet, enterprise related.
We made an investment in a company called LiquidStack. 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 LiquidStack, but 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 boards increases, this becomes a very efficient way of actually doing the cooling.
And then on some of the verticals that are not performing, list some of those, and aren't any of these actually down, or are they just, you know, not growing?
I'd say some of the weaker verticals, so think of 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 gonna 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 a vertical is down, don't give up on that vertical long term. And what new technologies can you bring to that, 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, all right? We're calling it, you know, ± 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. 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 weren't able 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 a vertical is down, don't stop investing.
Thermo King would be another great example where the business was. You know, we were flat last year. Markets were down. This year, we're saying the markets are gonna be down, okay, and the Americas will probably be down about 10%, and Europe will probably down mid-single digits. We're investing a lot right now in our Thermo King business, especially around electrification of the, 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 and-
Yeah, I mean, our service business is a fantastic business, so thanks for recognizing that. It's about a third 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 six 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 ninety-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.
You include controls in there. How do you differentiate your controls versus others that do more of an 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.
Right.
But in our service business, it's broad, okay? So we do service controls in there as well. We have, think of it as, you know, 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 both ways. Another part of our service business is our 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, that's a great business. That continues to grow.
Pivoting to residential. You guys guided, I think, ± low single digits for the year. What are you seeing there early on? And, you know, where are we in the inventory cycle as well?
Yeah, 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, you know, 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.
Early in the year, January and February are not necessarily big months in the residential space.
What are you expecting? I know for enterprise-wide, it's a 1% price number. 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?
Yeah, one percent is the enterprise number. It's gonna be in that low single-digit range. Steve, one area that I know, maybe others have commented on, is the transition to R-454B and the new refrigerant and some higher costs that comes from sensors and otherwise in the product. We've not factored in much volume in 2024 of sales to R-454B product. We really see it as more of a R-410A year. So we're making sure that we're pricing effectively to offset the inflation of the R-410A refrigerant. But otherwise, think of it, it's gonna be in that range of, you know, plus low, low single digit.
Low, low single digit. And then as far as that R-454B product, 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... While listening to what others have talked about in terms of their price uplift, maybe that 10%-15% range, I mean, that may be the ballpark that we're in, but we haven't announced that yet. But we've made investments to make sure that we've got mixed model lines, making sure that we've got the ability to keep producing R-410A through the balance of this year, depending on demand. But if we see demand pick up for R-454B, we've got the ability to shift there pretty quickly.
That mixed model line is gonna be very important, because if you look at the way they're rolling this out, the EPA, you're gonna be making 410 product for some period of time in the future. Not at a system level-
Right
but at a product level. This gives us a lot of flexibility for future years.
As far as the cycle is concerned, I know Watsco mentioned there was some pull forward, 2.5-3 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 are in the longer-term cycle and age of the, you know, age of the installed base replacement rate?
Yeah.
You know, what kind of. Where do you guys stand?
I mean, I was smiling because Steve and I have 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, you know, we've said for a long time that over time, our residential business is a GDP plus business. GDP plus. So yeah, 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.
It's, it's a great business, and we have a lot of innovation, as I talked earlier, that's going into this business, and it'll be a great business in future years as well.
Turning to transport, you guys have, again, another area where you're, you know, outperforming peers. How do you explain the difference there between you and, you know, your top competitor?
Yeah, 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. 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, you know, think of it as a trailer going or truck going down the road, and look to see where's all the energy that's being wasted, that's not being captured.
That's kind of the lens that our teams are looking at now as to how you can electrify in a very efficient way. 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 a distribution route. We already see those opportunities today.
So I guess that's part of the longer term. What drives this? I remember, you know, back in the day was cold chain-
Yeah
which I'm sure is still somewhat of a part of it, but what's the—you're gonna probably bounce back in this business in 2025, but then I think the forecasts have it units relatively flat as far as, you know, the chart that you put out there.
Yeah, yeah.
It's kind of flattish. What, what drives this business? Y ou know, as a growth business longer term, or do you guys just, you guys are just gonna continue to take share because of your investments?
Well, I think that, and, and you're right, so 2024 is gonna be a down year in the Americas. Think of it, the market being down about 10%. The forecast right now from ACT is 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 gonna be less perishables need, 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, 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 gonna be required to ensure they end to their destination point as desired. That all requires Thermo King type products. So we think this is 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 gonna be the next frontier there.
Is APU still a-
Yeah, absolutely.
A big driver here?
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 powers it up.
So you're guiding to. Just to pivot, actually, any questions on the businesses anybody wanted to dig into? HVAC, transport? Yeah, right here.
Oh, he's good. Good. Yes, I can hear you, but-
Sorry, go ahead. Just speak up, the mic's not working. Sorry.
Yes.
But, some other
Okay.
And the second one is,
Yes.
Put all out, six. Is it the quote?
Okay.
The two 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 2026, which I think is a maybe misunderstanding of what you were talking about.
Yeah, let me start with that. Just to clarify, 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.
Right. 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 of 2026.
Yeah, but it has to be installed by then.
Yeah, exactly.
So that's the way the-
Delivered and installed, right?
That has pushed to the right a little bit, so I'm not sure what's gonna 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's 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. It 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.
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. If you think about the mega trends, about what's happening, about decarbonizing the built environment, and you think about 400 billion+ sq ft of commercial space on a global basis, this is a tremendous opportunity. 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 3-4 times 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 and in every region of the world right now. Dave, could I add two 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 eighteen months. One was AL-KO
Thanks for the question.
Yeah, 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, you know, how you walk to that 25% leverage, and maybe talk about those pieces of the bridge.
Sure, sure. Happy to. It, 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, you know, 6%-7% organic with about a point of price. We're not capping that number, just to be totally transparent, but what it should send a 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 gonna 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 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 2-3 points of gross productivity pre the supply chain challenges. And as you think about the second half of the year, Steve, that's where we start to see the dovetail of the price contribution coming down, and then the growth of productivity 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 into 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're run through the line. That's gonna be a nice opportunity for us this year, going into 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 through?
It would be gross productivity, gross productivity offsetting other inflation.
Yep.
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 one, 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 R-410A to R-454B, there was expectations on higher price with R-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 two, think of that as 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, you know, we felt comfortable at the beginning of the year, we're gonna 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 three or four price increases like we saw in 2021 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
One thing my wife told me is don't talk about-
I'm not asking you who's gonna win. I'm asking what, you know, 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 kinda handling this uncertainty that, you know, would potentially come with that?
Well, I'll leave-
Or is it not a discussion at all?
I'll leave, 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, you know, 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, you know, any kind of business productivity functions, and where are you in that, you know, journey?
Yeah, I think you look at AI as really three 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 non-structured 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 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.
Thank you.
Thanks for your interest in Trane Technologies.