Trane Technologies plc

Good morning, and thank you for joining us for Trane Technologies' first quarter 2020 earnings conference call. This call is being webcast on our website at tranetechnologies.com, where you'll find the accompanying presentation. We are also recording and archiving this call on our website. Please go to slide two. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our FCC filings for a description of some of the factors that may cause our actual results to differ materially from anticipated results. This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release. Joining me on today's call are Mike Lemach, Chairman and CEO, Chris Kuhn, Senior Vice President and CFO, and Dave Regneri, President and COO. With that, please go to slide three, and I'll turn the call over to Mike.

Mike? Thanks, Zach, and thanks, everyone, for joining us on the call today. Under normal circumstances, I'd start today's call with a brief overview of our global business strategy and how that's enabled us to deliver strong financial results to our shareholders. But today, we're living through anything but normal times, so suffice it for today's call but although we've got a new look and feel under our new train technologies branding, our long-term strategy is unchanged. With that in mind, I'm going to move directly to slide four and into the heart of our presentation today. The focus of our call today is less about earnings in the quarter, or even in 2020, and more about the long-term health, strength, and positioning of train technologies as a pure-play climate control company as business conditions adapt and eventually improve in a post-COVID-19 world. The depth and duration of the downturn and subsequent recovery is a multivariate equation that's impossible to solve. None of us have ever experienced anything like this in our lifetimes, and we can't effectively draw conclusions from historical reference points because there aren't any. Social distancing has never been part of a recession vernacular, and it provides layers of complexity to our daily life that has far-reaching personal and professional impacts. that we're learning about and trying to adapt to as we go. And for some, these impacts are more devastating and more personal than others. As a global leader in our field, working with thousands of customers and suppliers and touching the lives of exponentially more people, how we lead through this crisis and the things we prioritize matter deeply. The implications of leading companies' actions are far-reaching. Major employer acting with a singular short-term profit focus can take down a community. Community can take down one or dozens of companies, and the unintended consequences can keep rolling downhill, exacerbating an already very challenging situation. We strongly believe the right course of action for our employees, our customers, and our shareholders is to lead authentically, steadily, and with a sense of purpose. We will remain true to our strategy. maintaining world-class employee safety, acting with uncompromising ethics and integrity, supporting the communities in which we live and work, and steadfast in our commitment to building a more sustainable world. These are the fundamental building blocks that drive sustainable, differentiated financial performance for our shareholders now and in the long term. With this context in mind, our core operating principles through this downturn are clear. First, protecting the safety and security of our people is paramount. And here I'll start by saying that we have retained more than 95% of our talented workforce annually for over a decade. And a strong and talented employee base is the most important factor in creating great customer experiences and shareholder returns. We have benchmark levels of employee engagement. which is core to our culture and values, and this is a differentiator that is often overlooked. Each time we survey our employees, the top three things that our people identify with our culture of engagement are our sustainability purpose and the belief that one company can change an industry and the industry can change the world. Second, it's the ethics and values we live and lead by. And third, it's safety. In fact, with regard to our safety record, I don't know of another company today with a better safety record than our own within or anywhere outside our industry. Safety and respect for others are at the core of our value system. We went into the downturn as the premier climate control company, and a relentless focus on continued high employee engagement will enable us to emerge on the other side of this downturn even stronger. Since the crisis, we've gone a great lengths to keep our people safe across the globe. It's not just about strict PPE protocols, dramatically increasing cleaning and disinfecting. We're implementing employee active screening and safe distancing protocols. It's about fundamentally rethinking the way tens of thousands of people conduct their work in our offices, factories, and warehouses, and then reconfiguring them for safe distancing through actions such as reconstructing and rebalancing production lines, radically adjusting material and workflows, and investing in new equipment to adjust for new lifting and positioning requirements, and in every facet of how our people work and move through our facilities. We are also actively helping our employees and communities with financial assistance through this challenging time, through supporting national and local community organizations, and through our employee-funded train technologies, helping hands fund. We are in a strong financial balance sheet and liquidity position and will continue to generate powerful free cash flow. We will utilize our strength to play aggressive offense throughout the downturn. We have a strong management team, a proven operating system, and confidence we can execute our downturn scenario playbook to limit decrementals in line with our gross margins. We announced the RMT transaction with Garden of Denver early in 2019. By mid-2019, well ahead of the pandemic, we created an office of transformation that reports directly to me, blueprinting the organizational design and developing transformational margin improvement opportunities for the pure play train technologies of the future. A stack of projects related to these margin improvement opportunities are progressing well, and many are already underway. We're looking forward to discussing these opportunities in detail at our analyst day, which is still slated for the fall, whether that's in person or virtually. The Transformation Office also oversees our stranded cost reduction programs, and this downturn has created an opportunity to accelerate the elimination of stranded costs. We have now identified $90 million in permanent structural cost savings that we expect to take effect in 2020, with run rate savings in 2021 of 110 million. Lastly, I personally find it useful to continue to look at the future through a holistic sustainability lens. First, sustaining the health, welfare, personal development, and future of our talented people around the world. Next, keeping our communities safe, healthy, and thriving. And finally, of course, Business sustainability, which means managing the business for the long term, including the opportunity we have to invest and build our capabilities, even in this downturn, so we can emerge with an even wider competitive advantage. We have a tremendous opportunity to make this happen. In fact, looking back at the last downturn in 2008, we couldn't be in a more different and preferential position in comparison or better suited to capitalize on our advantages. Now I'd like to turn the call over to Dave to discuss COVID-19 and our proactive response to the crisis in more detail. Dave?

Thanks, Mike. Please go to slide number five. During the quarter, the pace at which the COVID-19 pandemic changed the economic landscape is unparalleled, moving from region to region, impacting our employees, customers, and communities as it spread. For trained technologies, we began in early January forming crisis management teams to confront the pandemic with employee safety as our number one priority. As we moved into February, we closed all our facilities in China. We proactively began addressing employee safety. As Mike alluded to on the previous slide, the safety measures were more than just providing PPE. We took a holistic look at how we work. our teams proactively reconfigured our facilities to address the pandemic. We changed the way production lines flow, the placement of machine operators, and created physical barriers where necessary. We implemented active screening, staggered break times, increased cleaning measures and frequency of cleaning measures, and expedited PPE. By March, as we ramped up production in China, With protective measures in place, the work of reconfiguring our facilities moved to EMEA and the Americas. We proactively sent employees home and ensured their pay would be held whole to reduce the number of employees in our facilities to deliver essential customer orders only. This increased the safety for our employees and greatly reduced our facility output to provide time to implement the necessary safety measures fully in each facility. To be clear, these safety measures were not limited to our plants. We proactively addressed employee safety in our distribution centers, offices, and parts stores. All facilities were in scope. By the time April began, our plants in Asia Pacific completed their ramp-up. Our plants in EMEA and the Americas began to ramp their production, and we expect most plants will be fully ramped early in May. Throughout the quarter, our supply chain crisis management team proactively worked with our suppliers as they addressed their own COVID-19 challenges. The team continues on a daily cadence to manage potential risks. This team has done an excellent job. As we move into May, we are running with new line rates and protocols and adjusting to meet customers' demands. Please go to slide number six. From the start, trained technology has been addressed in the crisis by bringing expertise, technology, and services to bear on critical applications for hospitals and other healthcare facilities, like clinics, research laboratories, and pharmaceutical production. By ensuring proper air treatment, filtration, ventilation, and decontamination, we're helping to keep patients and healthcare workers safe and more comfortable in the most challenging situations. We're providing and maintaining indoor air quality through solutions such as trained catalytic air cleaning systems, which remove pathogens from air streams, and negative pressurization systems to isolate infections. Our remote monitoring, controls, and building intelligence solutions are increasingly important in an environment of social distancing. These technologies enable technicians to remotely monitor, inspect, and troubleshoot systems to keep critical environments running safely and efficiently. Our transport refrigeration solutions are protecting the cold chain and helping to ensure the safe and reliable delivery of perishable food, medicines, and other critical goods. Through telematics, we're putting data to work with the ability to track and trace deliveries across fleets, monitor the location of assets, and the temperature of individual deliveries in transit. Please turn to slide number seven. Trane Technologies has been addressing the impact of the pandemic on our communities. Established a number of years ago in response to natural disasters and funded by donations from our own employees, the Trane Technologies Helping Hand Fund is providing financial assistance to our own team members around the world dealing with financial hardship as a result of the pandemic. According to our Feeding America partners, food donations in this environment have declined by nearly 60%. In response, through our Train Technologies Foundation, we made a $100,000 contribution to Feeding America, and our team stepped up to help out with the effort. In one example, our Thermo King and Commercial HVAC Americas team joined forces with Feeding America and the Hand Up International to host two drive-through pantries in Lynnhaven, Florida, providing more than 120,000 pounds of food to nearly 6,000 people. Additionally, teams are upgrading operating rooms, air handlers, preparing patient isolation areas, and expanding COVID-19 treatment facilities for hospitals in record time. I am proud of how our team focused on employee safety and supported our customers and communities in response to this crisis. And I am confident they will continue to address the challenges presented by the pandemic as we move forward. And now I'd like to turn it over to Chris to discuss our balance sheet and liquidity position. Chris?