The 14th Annual Laguna Conference. To start off, for any important disclosures, please see the Morgan Stanley Research disclosures website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. We are happy to have Trane Technologies here with CEO, Dave Regnery, and CFO, Chris Kuehn. To start off, service is about a third of the business. It has been performing very well. I think this is going to be, what, the fifth straight year of double-digit growth. How long can you sustain this? Looking at the kind of lag it has versus equipment and how equipment has ramped over the past few years, what kind of opportunity do you see for some acceleration?
Well, first of all, thanks, everyone, for coming today. Thanks for your interest in Trane Technologies. It is a great time to buy. Double down anytime. I do not know what the news was today, but it is a great time to buy. Look, I always tell everyone that Trane Technologies is a great company for several different reasons, right? It is not one, it is many. One of those reasons is the fact that our service business is so strong. Toby, as you said, it is a third of the company. It has had a double-digit growth rate since 2020. That includes COVID year. Just think about the durability and the resiliency of this business. I would also tell you that it does not happen by accident, right? We invest heavily in our service business, whether it is how we train our technicians.
We have about 7,500 technicians, all Trane Technologies employees, so all trained by Trane Technologies. It is how we recruit our technicians. It is the apprenticeship programs that we have, that we are constantly looking to attract and build new talent in that space. It is pretty obvious our service business is built around our applied business. Our backlog, which is at record levels of $12.1 billion, is over 90% applied. As your installed base grows, the tether to your service business is going to continue to expand. We do not forecast what the growth rate is going to be in the future, but look, we have demonstrated for a long period of time that this is a very, very sustainable and competitive advantage that we have as Trane Technologies. So expect more in the future.
I guess without forecasting, kind of following along there, data center has clearly been a strong driver. You have highlighted that eight to 10 x revenue tail you can get on service.
Yeah.
How has that augmented as systems have become more complex and especially with data centers?
We have said that applied systems and our conventional verticals or our core verticals typically carry about eight to 10x the original price over the life of that asset. That number is probably a bit different in data centers for a variety of reasons. Look, how the chiller is actually being used is different in a data center than what you would see in a core vertical. The renewal process or how you retrofit that will probably be different. We do not believe it is going to be eight to 10. We think it is going to be a little bit lower, but at the end of the day, if you look at all of the chillers that we are installing in data centers, which is a lot, this is going to be great upside for the future.
And kind of staying on that AI theme, how have some of your investments in digital, such as BrainBox, augmented your service offering?
We love being connected to assets. In the past, we have been connected to assets and buildings for a long time now, for decades. Today we have over 70,000 buildings connected. We probably have 2 million-3 million assets—
Over three, yeah.
—connected. BrainBox has done is, in the past, we would always think of things like think of it as machine learning. We were connected, but it was always about how do you make sure the asset or the building is performing the way it was designed? With BrainBox, we now can take unstructured data and add that to the equation. Now all of a sudden you have buildings that are performing not only the way they were designed, but also how they're being used. That's a difference. We're able to get 15%-20% savings by putting algorithms or agentic algorithms in place in buildings. If you think about it, and most people don't know this, but buildings waste about 30% of the energy that they pay for. 30%. That's a very conservative number.
What we can do is we have the technology today with BrainBox and our portfolio of products to not only eliminate that 30%, but actually drive it negative. Think about the savings that we're able to drive for our customers in the buildings. If you think the cost of energy is going to be less in the future, I don't think that's the case. I think it's going to continue to improve, and I think our paybacks to customers is going to continue to increase. Our strategy is, think of it as we think buildings are going to get smarter, more resilient in the future. What that means, smarter, they're going to start using more sophisticated controls, using structured and unstructured data to ensure that they operate at the most efficient level. Resilient, they're going to start using different sources of power at different times.
For example, you may use electricity, you may use fossil fuel, or you may use storage. Our controls will know what to do at what time to optimize the return for our customer. We had our chief digital officer, we were running a pilot in Minneapolis. In February, he came in and he was like, "Dave, let me show you the pilot." He was all excited. I said, "This is great." I'm looking at the screen and I'm like, "What the heck are we running the heat pump for?" Which is electric, and it's minus 5 degrees Fahrenheit in Minnesota. It was 5:00 A.M. Minnesota time when I was looking at this. He quickly pointed to the bottom of the screen and he said, "Well, the cost of a kilowatt is $0.02." That's why we're doing that.
Think of it as almost free. Think about that at scale, and that's what we're talking about, what we're doing right now. It's really, really exciting. I know everyone wants to talk about data centers. We're very strong in data centers. We're going to continue to be very strong in data centers in the future. Smart, resilient buildings is as big or a bigger opportunity in the future.
To that point on bringing the resiliency and savings to the buildings, could you speak on the longer-term tailwinds that surround the equipment business in commercial HVAC?
Look, I think the pipeline of activity that we're seeing right now in our business is probably the most I've seen in my career in this industry, and I've been in it a long time. We're going to continue to accelerate our growth rates, and I can tell you our pipeline are very, very strong. In the second quarter, we had order growth in the commercial HVAC Americas business of 50%, and we track 14 different verticals in a lot of detail. I would tell you, the majority of those verticals had growth of over 20%. Look, we see a lot of demand not only today, but well into the future. The breadth of our portfolio, our service business, the way we go to market with the direct sales force, those are all things that make Trane Technologies a great company.
Kind of digging in there, could you speak on which of the verticals outside of data have really been the most attractive?
Go ahead, Chris. I will let you speak.
Oh, thanks. I mean, look, in the second quarter, we said 11 of 14, we saw growth.
Actually, no, year-to-date, 11 of 14 growth. In the second quarter, all of them we saw growth. Look, we are seeing a lot of continued support in higher education. Office is turning positive and we are seeing growth there. Let me step back and you think about the direct sales force. You go to any one of our commercial sales offices, we have over 100 of them in the U.S., and you sit down with those teams and you look at the pipelines that they are working on. It is not data center pipelines, it is office, it is higher ed, it is K–12, it is federal government, it is gosh, there are so many different verticals, but I think about what they are working on in their pipeline.
Sure, data centers is a line item, but for them, over 95% of our sales force is focused on verticals other than data centers.
Speaking to that direct sales force, how does that create a competitive advantage for Trane and how do you communicate the value proposition to your customers?
Yeah. What people don't realize is a direct sales force, we have the optionality on calling on all the influencers in a job, right? Think, if you're going to go sell to a hospital, who's involved in that decision-making, right? It could be a mechanical contractor, it could be a general contractor, it could be an architect, it could be the engineer, or it could be the end user. The reality of it is it's all five. And with a direct sales force, we have the appetite, okay, to call on all of them to make sure that we could show our value proposition. If you're going through someone who's representing you or what they call a rep agency, they may not have that appetite, right?
They may want to just call the mechanical contractor, which is fine, but we're calling on all to be able to explain the value proposition. And when you talk to the engineers, you know how much product engineers buy? Not quite zero, but close to zero, right? What you're doing is you're calling on them to explain the value proposition of your products. And when you do that, you become the basis of design. And if you're a mechanical contractor, you may or may not want to start changing the basis of design because once you start changing that, you start taking on liability that you may or may not know of. And what we do is we call on all those influencers, and that's the competitive advantage that we have as Trane Technologies. We love this. We love talking to customers.
We love getting their feedback, and we love being able to help our customers save a whole bunch of money.
Toby, a direct sales force, they're local, so they know the local laws, right? So in a city level or a state level, they understand if there's incentives that come from the states or from the cities. They understand the incentives that can come from utilities. And they're bundling these incentives and making sure with that local knowledge, bringing it to the customer, and then it's an even stronger payback from the customer when you have that understanding locally. We've talked in the past about New York City, where it's not just right now it's maybe some carrots to move to decarbonization, but it becomes sticks in 2030 and 2035 and so on. So how do you get your customers on that decarbonization journey so they don't pay penalties in the future? Having that local knowledge of those laws, that helps out a lot.
With that value proposition, I believe a lot of that is captured in the margin premium you get on the service business. As this business mixes towards services that continues to grow, how does that augment your incremental margin outlook? I know you previously spoken to, like, 25%+ . Is there any room to push that higher?
Well, that is why we have the plus on the back end of that, right? We had some conversations this morning, and we typically do about price versus inflation and then incrementals on volumes, and that all together should get you to the 25% plus. Making sure you have a customer for life, as Dave said earlier, when we want a broad relationship, many of our customers have multiple assets that you want to be on a journey with them for multiple years for CapEx upgrades, okay? But at the same time, it is a plus because we have a very robust pipeline of investments. The way to get the top-line revenue growth, and it has been a double-digit CAGR for the last five years, as Dave called out, is to keep investing in the product, having new products out there, more energy efficient products.
That is the governor, but at the same time, we look at it as we are always going to bias to accelerating investments where we can.
We are always looking at long-term growth, okay? I know as a CEO, you could get boxed into trying to manage the short term. I would tell you, as soon as that happens, you are probably going to fail. So as always, look out, right? We are interested in top quartile growth on the top line. We are interested in top quartile growth on the bottom line, and we are looking for free cash flow, which we have been able to have at, what, over 100% over the last six years—
Yeah
—on average. Conversion. That tells you the quality of your earnings. I think you all know that. Look, this is a long-term view that we're always going to take. You saw in the second quarter, Toby, we were a bit below the 25%. No excuse. No excuse from Trane Technologies. We're investing heavily. We bought a new business, Stellar. We're making sure we're implementing our operating system. We have some investments that we pulled in to make sure we get the fundamentals correct, so that we can start taking these solutions to other verticals other than just data centers. Again, that's a long-term view that we have as to how we're going to continue to be top quartile growth.
You mentioned Stellar there. Why was that such a good strategic fit with that longer term outlook?
Yeah. I think if you could take skilled labor and variability out of the job site, that's a good thing. If you could take Think about a job site. There's so much variability that happens there. Whether it be weather or whether it be being able to have the proper skills on the job site at a particular time. If you take all that and you move it to your factory, a lot of that work, then you basically just deploy it and it's like literally assembling LEGOs on a job site, that's a much better solution. By the way, the quality level becomes so much greater.
Look, we think this is a trend not only in the data center space, it's exaggerated in the data center space because of the speed at which we're trying to build data centers, but it's going to be very applicable in all verticals. I think the key, though, is we need to make sure that we get our fundamentals correct before we start deploying it to the other verticals. By the way, Stellar, think of it as a billion-dollar business.
Yeah.
Think of it in a couple of years, think of it as mid-teens EBITDA. We are well on our way to make sure that that will become reality.
To that line of thinking, of investing to support these changes in the market, are there any other adjacencies that could be interesting as you see these changes, especially with data center infrastructures moving forward?
Look, you always get asked the question about, "What's the M&A you're looking at?" I always say, "That's a great question that I can't answer." Look, we love being a pure play. It took us a long time to become a pure play. We're going to continue to be a pure play. So if you're wondering about that, don't wonder about that. But we're always looking at technologies, and we're always looking at how we could scale those technologies within our strong channels. We have the advantage of having the strongest channels in the industry. When you do that, you could take technologies and deploy it relatively quickly through your channels.
Now, whether that be Stellar Energy on a modular design or whether that be thermal management systems in Europe that we're scaling, or whether it be an air handling system in Europe that we scale through the rest of our distribution.
And then thinking to the fact that you are a pure play, when you think about the pitch that you give to customers, how has the partnership with Eaton helped bring that more holistic view?
Eaton, first of all, great company, great leadership team. We work with them relatively a lot in reference designs for data centers. They are on the same team we are with one of the larger chip manufacturers, to develop what the data center is going to look like of the future. Think of it as speed, think of it as efficiency, think of it as cost. All three, and that is what we work on together. It is just amazing to me, when you take a whole bunch of really smart people and put them in the room together, the solutions that can be developed. I am super excited about the reference designs that we have developed with this particular chip manufacturer. I would also tell you that we are doing that same work with the majority of the hyperscalers.
Just to be fair, we work with Eaton, but we also work with others in that space as well, like ABB.
To that point, why does Trane's portfolio resonate so well with these hyperscalers and chip vendors? What gives you that right to win?
I think it's not a lot different than what we'd say in other verticals. It's about our domain expertise. We have some of the most technical experts in the industry, and they want to be able to work with us. We have this system mindset. Think about how we go to market in our core verticals. We have a breadth of a portfolio that's broader than anyone else in the industry. We're not selling a product, we're selling a solution. We're selling a system. What are you selling in a data center? You're selling a thermal management system. It's not about the chiller, it's not about the CDU, it's not about the cold plate. It's about how that system works together, including the electrical infrastructure with Eaton, so you can come up with a solution that's more efficient. That's what we do really well.
To that point, how do those relationships help drive your innovation engine?
Yeah. I think the innovation is why we're at the table. Because we're able to think differently. We're okay disrupting ourselves. I know that sounds odd, but it's true. I always tell our team, "What are we doing to disrupt ourselves?" If you're the incumbent and you disrupt yourself, go look in history. Those are the companies that survive well into the future. We're not afraid to do that. We pride ourselves on disrupting ourselves, thinking differently. Look at the thermal management system that we developed in Europe. You had a cooling system on this vertical, you had a heating system, a boiler over here. They didn't even talk together. We combined them into one system, thought differently about how to solve the problem, and all of a sudden now we have the most efficient systems in the world. At least today.
By the way, we keep pushing the envelope on that. Look, we're okay disrupting ourselves, we're okay pushing the innovation. I would tell you that what we are seeing is, especially in the data center vertical, as we're developing next-generation product. That product is making it into other verticals. We talk about chillers being smarter in data centers. That's happened, right? The majority of what we're doing in data centers right now are air-cooled systems. They're basically closed-loop systems. The water is not using evaporative cooling. It's using free cooling.
What we have done is we have designed the chiller so the chiller is smart enough to know what is the receiving water temperature, what is the leaving water temperature have to be, regardless of what it is, and it will optimize that, whether it is, and it will take into account the math associated with the area, the temperature that it is operating in, and be able to optimize at what point do you use a compressor versus when you just use free cooling. That same technology is being deployed right now, not only in data centers, in schools, in hospitals, wherever it is applicable. It is all about efficiency. It is all about how you generate a system that is different and more competitive for our customers.
On that point on chillers, there was some news earlier this year in conversation on what the content for chillers can be in data centers going forward. Any kind of commentary? Your orders have still been strong, so how does that kind of factor in your outlook there?
What I told you a couple of years ago, we are doing all the reference designs, right? We are working on the reference design. I have yet to see in a reference design that does not have a chiller in it. Look, I think that we optimize to what the customer needs. If the water temperature needs to be at 45°C at the plate, we will have it at 45°C . It is going to leave the plate at a level that is higher than 45°C , right, at about seven, and you will be pretty close. That is what has to be removed, right? Because it has got to go back at 45°C . We are really good at optimizing that.
Look, chillers are not going to go away. I think what you are going to find is chillers are going to get smarter, right? They are going to know when to operate in a free cooling mode versus when to operate in a vapor compression mode. I think you will see a lot more creativity on heat recovery within data centers. We are working on a really cool project right now up in the Nordic area, where in the Nordic area, they already have a lot of district heating loops in place. What we are doing is we are taking the data center, and we know when to augment the district heating loop, so you are recapturing the heat rather than wasting the heat or putting the heat back out into the environment so that it becomes an efficiency gain for the district heating loop.
It is going to be really breakthrough thinking as to how data centers of the future start to become an asset to the community versus all the rhetoric you may be reading about in the news right now. More to come on that. It is really exciting.
As you kind of think about the chiller evolution, there has been kind of debate on the future of water versus air-cooled and kind of to that community impact, what kind of impacts are there from these water-cooled chillers?
I mean, at the end of the day, we are using predominantly air-cooled right now. By the way, just be cognizant of the fact that you could sit there and say the data center is not using water because it is a closed-loop system, and when you are using air-cooled chillers, that is a true statement. Or where you are using dry coolers with a centrifugal, that is a true statement. Remember to ask the next question, which is where is the power coming from? That is a very important question to ask. If the power is coming from coal, there is a lot of water being used. If the power is coming from nuclear, there is a lot of water being used. If the power is coming from natural gas, it is about 10% of that of coal.
There is a knock-on effect that you all need to be cognizant of that we certainly are aware of as well. Even though we may be out there saying, "Look, our data centers that we are doing, we are not using water," we may be using water if you look one step removed, which is very important. In fact, I have to go to a meeting, actually on Thursday, where we will be talking about that at a very high level with many of these influencers about let us not be naive to just think of the data center as a It is a whole ecosystem there, and the data center is part of it, but the power is coming from somewhere that you need to make sure that that is in a sustainable way as well.
How have the investments in CDUs augmented those data center offerings?
We are very happy with our CDU business. Very happy. We acquired Stellar how long ago, Chris? About a year and a half ago?
LiquidStack, we acquired in the first quarter.
LiquidStack.
Yeah.
Yeah. First quarter.
I think of it a great example of a partnership that evolved to a minority investment, that evolved to a full acquisition earlier this year. And emerging cooling technology that's not ready for prime time, but a great CDU portfolio that to Dave's point, it just gets integrated into a system. Then kind of turning to orders and backlog, I think when we're looking at lead times kind of across the industry, there's discussion that they've started to extend. As you think of your order acceleration, how have lead times kind of trended across the portfolio? How does that compare to a year ago?
Yeah. Our published lead times, I don't know the answer to a year ago, but I would guess they're the same or pretty close. Our backlog is growing, but our backlog is growing because customers are telling us when they want something, not necessarily when they can have something, right? They're trying to give visibility so we make sure we can go back to our supply chain and make sure that everyone is ready so we don't have any missed scheduled dates. As far as our published time, if you're a hospital, the published time, depending on the product you need, is probably not that much different than what we've seen in the past. Then you get into some of the, like residential obviously is next day, light unitary could be next day. A lot of those products are stocked. It really depends on the portfolio.
On the applied side, though, think of it as pretty close to what it was a year ago.
I guess that kind of segues us, shifting gears into resi. What's your current sense of channel inventory, and what kind of gives you that color into the channel?
Look, we were the company in the fourth quarter of last year, we said, "Look, we're going to get our inventory right going into 2026." We made a decision to take a lot of work days out, which was not an easy decision because it impacted a lot of lives. But we thought that was the right decision so we could get this behind us. We adjusted our inventory. I told you in the first quarter, I think we had it set right. I can tell you right now, we have our inventory set right. So inventory in our channel, we're in good shape.
Any commentary on how end demand has been trending so far in the quarter and what the outlook is?
I won't give you inner quarter guidance on that. But it's been pretty hot out this summer, huh? In North Carolina, I was out walking yesterday, it was 100 degrees. I was like, "This is crazy."
Yeah.
Anyway, we'll see.
Yeah.
Year-to-date, on sell through, about the same. As Dave said, we entered into the year with a really good inventory level in the channel. We said the same at the end of the first quarter, end of the second quarter as well, and our guide for the year is on mid-single digit growth for the residential business. We'll see how it kind of plays out. I'm happy with what we did last year to set this year up for better success.
Remember, residential's about 15% of the enterprise.
I guess, how do you think about the pricing environment in resi? One of your peers has commented that it's very different from 2022 when you'd be pushing through some multiple mid to high single digit increases during a year. How do you think about pricing now?
Yeah. The business has put forth two price increases this year. One was effective April 1st, that was up to 5%. One was effective July 1st, also up to 5%. It really starts with just leveraging our inputs and our business operating system of what are we seeing for cost, what are we seeing for demand, what are we working with the supply chain to mitigate. To the extent that you've solved for as much as you can, then pricing is a lever that we'll kind of have to implement to ultimately have that cost versus inflation balance out. What we said for the enterprise is that for the first half of the year, price versus inflation was a headwind. Expecting it to be a headwind in the second half of the year. It was captured in our guide that we provided in July.
To Dave's point, we're focused on top line, bottom line, and cash flow for the enterprise, and we'll see where we go into next year taking an inflationary environment and how do we make sure we're ready for mitigants and ultimately with pricing where it needs to be. Look at residential, it's really a ZIP code by ZIP code space where you're making decisions on price, but on the aggregate, the price increases were generating the yield that we expected through the end of July.
Turning to the transport side, how do you assess the pace of recovery in that market that's been fairly soft over the past couple of years? What gives Thermo King the opportunity to outperform the market?
You mean over the last four years? Look, Thermo King's a great business. It's probably the business that got the most overbuilt during the COVID time, where there was a lot of product that was put in and it's taken a long time to get it out. I would tell you that the first half was slow for us, but we project the second half to be much stronger and we project momentum going into 2027. Look at spot rates, look at rejection rates, look at the age of the fleet. These are units that if they get too old, they start to cost a lot to run. I've had the opportunity to run that business at one time in my career, and I would tell you that some of the smartest business people I've ever met run trucking companies. So they will make the right decision.
Pretty bullish on 2027. I don't think the recovery will be as fast as what ACT is projecting for a lot of reasons. Mostly because I don't believe the trailer OEMs will be able to react that fast. I do think that will be a growth driver for us in 2027 and beyond. I think we are going to go into the year with a lot of momentum.
Then kind of shifting to the international side, how has the EMEA pipeline been progressing?
Which?
In EMEA.
EMEA. I think let's separate Middle East from Europe. In Europe, very strong second quarter. Orders were up 20%. I think I told everyone on the second quarter earnings call, the pipeline of activity, so before something becomes an order, is very strong in Europe. Probably the strongest I have seen in a long time. That's exciting. Middle East is a little bit different story that obviously we are down over 30% there, and that will continue until hopefully things get resolved quickly. Overall, in Europe, we are seeing a lot of strength, which is good.
What have been, I guess, the strongest underlying drivers of that strength?
Obviously data centers are certainly strong there, but I would also tell you that it's a lot of innovation. Europe is one where we've always led with innovation. You could argue that the markets in Europe have been flat for a long time. Go look at our growth rate in Europe and you'd see that we're winning with our innovation, we're winning with our direct sales force, we're winning with our service business, we're winning with our can-do culture. Expect that to continue in the future.
On APAC, what's the strategy there? Outside of China, what have been the growth drivers?
Yeah, Asia-Pacific, think of it's about 6% of the enterprise, first of all. Think about half of that is China, half of that's outside of China. Outside of China, we've had some nice strength. We have a lot of good activity going on really across the regions, right? Whether it be India, whether it be Malaysia, whether it be Thailand, Singapore. All areas where we've seen nice growth. It's in the high tech industrial space, it's in data center space, it's in hospitals, it's in a lot of what we would call our core verticals. China, a little bit more dynamic, but we have a very strong team there, and that team will continue to execute, but we'll continue to move forward.
Could you speak on broader capital allocation? We spoke about M&A earlier. Any other priorities that will be kind of key to the strategy?
Well, I think we feel we have the broadest portfolio in the industry, so there isn't anything we absolutely need. We have almost a fortress balance sheet, right? I say almost, but we have a fortress balance sheet in terms of we can have great optionality to look at make versus buy decisions and not feel constrained. Maybe quietly, but for the last five, six years, we have done about 30 acquisitions, and it is across channel, it is across early-stage technology. Some of it is like that partnership with LiquidStack from a partnership to an investment to hopefully an acquisition. But we really like taking those early-stage technologies and matching them up with the deep channel we have, especially in our commercial HVAC portfolio. But I would say is, look, our focus is invest in the business first.
A couple of times in a year, it happens more frequently, but we have some very robust meetings twice a year on the innovation reviews. It is our pipeline within each of our business units. We have limited it to 10 to maybe sometimes 11 projects that the teams are working on. Generally, we are really talking about how do we keep adding and moving faster in that innovation pipeline, and that drives bookings or drives the top-line revenue growth. So for us, it is really maintaining unconstrained investments where we can go drive that. At the same time, we have grown the dividend each and every year, and the board approved a 12% raise this year, so we will fund the dividend with earnings over time.
Since we launched Trane Technologies, I think we are just about, I think, 99% growth of the dividend from there. So let us see next year. We will see if we break 100% total.
I told you to go to 13. We could say we broke.
I know. I could've said 100% at that point. After that, it is toggling between M&A and share repurchases, and we continue to calculate the intrinsic value of the company stock as we think about our long-range plan and our inside knowledge on where we're growing, where we're investing. As you've seen us do in the past, we've deployed cash to M&A, and when that's not actionable or in the quarter, we'll look at doing share repurchases as well. It's unconstrained in terms of the cash that we generate, and we really like that five-year average. I think the last I saw was 105%, 106% conversion of free cash flow to earnings.
Someone told me a long time ago that when you hear a lot of arguments from both sides of the equation, things get a little bit volatile. They told me to just stay with the fundamentals. If you stick to your fundamentals, you're going to be in good shape. I would tell you that Trane Technologies, we're going to continue to execute. We're going to continue to have top quartile growth on the top line. We're going to continue to have top quartile growth on the bottom line, and we're going to continue to convert our cash flow. Those are the fundamentals that will be the long-term. I've been the CEO now for, I'm on my sixth year. I feel like I was just here the first time I became a CEO, like in a snap. It's been six years now.
Back then, I think I told everyone, "Look, we're a great, innovative company. We're a great operator, but I want to create a growth company." People looked at me like I was a little bit crazy. Here we are, we've had double-digit growth during that time, compound annual growth rate of double digits over that time period. I look at you all today and I say, "I see more opportunities today than I saw six years ago." Whether it be the data center vertical, whether it be the smart, resilient buildings, or I see a service business that's just executing flawlessly, we have more opportunities today than we did six years ago. Look, it's a great time to invest in Trane Technologies. For some reason, we're on sale today.
But look, I would tell you that I have so much confidence in the future of our company. Yes, I am biased because I am the CEO, but I would also tell you that I have been in this industry a long space, a long time, and we have just unbelievable opportunities in front of us.
As you look at those growth opportunities, especially with data center moving so fast, how does that affect how you think about capacity and what you may need to do with capacity going forward?
Yeah, look, we got in front of capacity. Maybe we did it silently. We did not advertise it. We have expanded our applied system capacity by 4x over the last two and a half, three years. We continue to make investments where required. We know what our pipeline is. We know what our commitments are, and we have a business operating system that helps us make sure that we stay in front of that, and we plan on doing that. I would tell you that we are relatively CapEx- light, okay? I know that we will talk about 2%, but compared to other industries, that is CapEx- light. These facilities that we are bringing facilities on board, most of them are leased. So there is a bit of variability there if something starts to slow down, which we do not see happening.
Think about capacity too, with a third of the company's revenues being services. It is capacity with service technicians and always adding to our service technician fleet, and we think about it as retention, and why do you retain a service tech when they are in high demand? Well, one of the ways you do it is you train them. So late last year, we opened up a service technician training center in Davidson, North Carolina. We have multiple of these around the globe, but this is, I think, the premier one. It is nearly 50,000 sq ft. Think about over, I think it is 3,000 now, technicians to date have been through training at the technician center.
Starting from, let's call it the more basic applications in the unitary space and rooftops, water-cooled, air-cooled, all the way through the largest applications you'd see, that would go in a data center vertical. Having that service tech leave their office for a week, come down to Davidson and be trained, not just on equipment, but on controls as well. What's the latest architecture we have with controls? What are we doing with BrainBox ? Now those service techs go back to their offices, and they're even more ready to go support the customer, where many times they are the main contact to our end customer, and they're helping guide the customer down a path. So bigger capacities around service techs, about training and retaining. Many times you get more service techs because of great referrals. They like to be trained, as I said.
Then we're putting in programs and have had programs around apprenticeship where we're adding, I think it's what, 300, 400, Dave, or so that we've got?
A little bit less than 400.
400, where you're getting apprentices where it's a multi-year journey for them, and a lot of it's on the job. But then they come back, and they get trained for a couple of weeks, then they go back into the workforce and work with a master apprentice or a master technician to grow through their apprenticeship program. So think of it as a great investment. Next time you're down in Davidson, we'd love to show you what that service technician training center is. It's pretty cool. This is all operating equipment there in the room.
Then as you kind of—
They try to train me, but they say I'm not very good, so I can't say that.
I think you're doing great at what you're doing. As we think about the capacity added both on manufacturing and on the labor side, how do you stay thoughtful about the cost profile of the business and making sure you stay on the healthy margin trajectory?
Well, I think number one, we think about incrementals, right? Let's have volume come through the facility, and we like the incrementals on volume. So we're always thinking about lean, right? So work with what you have. How do you get faster or more volume on an existing line? How do you redesign the space to get even more lines within an existing location? After that, then you're thinking about additional space beyond it. But think about having value to the customer. It leads with innovation. That's when you can get pricing. If you're out there four years later with the same product you had four years ago, that's a tough conversation for a salesperson, I'm sure. So our goal is, let's keep investing in the product, drive the factories to where we need to be for great output, great quality as well.
You get quality where you want it to be. That's a lower cost to serve. We have multiple ways to get there on the margins.
That's great. I think that's about all the time we have, but thank you again. I appreciate it.
No, thanks everyone for coming, and thanks for your interest in Trane Technologies. Hopefully, you're happy shareholders. Thanks, everyone.
Thank you.