Trane Technologies plc

Good morning. Welcome to the Train Technologies Q2 2023 Earnings Conference Call. My name is Josh, and I will be your operator for the call. The call will begin in a few moments with the speaker remarks and the Q&A session. At this time, all participants are in a listen-only mode. If you would like to ask a question during the Q&A session, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I will now turn the call over to Zach Nagel, Vice President of Investor Relations.

Thanks, Operator. Good morning, and thank you for joining us for Terrain Technologies' second quarter 2023 earnings conference call. This call is being webcast on our website at TerrainTechnologies.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 SEC 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 Dave Regneri, Chair and CEO of and Chris Kuhn, Executive Vice President and CFO. With that, please go to slide three, and I'll turn the call over to Dave. Dave?

Thanks, Zach, and everyone for joining us on today's call. Let me begin with a few comments on our purpose as a company to boldly challenge what's possible for a sustainable world. Our purpose is at the heart of our strategy, which is linked to powerful megatrends like climate change. This enables us to drive differentiated financial results and shareholder returns over the long term. The recent news on climate change has been sobering. Water temperatures off the Florida coast recently soared to over 100 degrees. We've seen deadly heat waves in parts of the United States, Europe, and Asia in one of the Earth's hottest summers on record. In fact, Scientists say these temperatures are likely the warmest the planet has seen in 120,000 years and have dangerous effects on the environment, the economy, and human life. Urgent action is needed to limit global warming and preserve our planet for the next generation. Our customers are seeking sustainable solutions and choosing trained technologies as their partner in decarbonizing the built environment and the cold chain. We are leading the way with our innovation. The end result is long-term value creation across the board for our team, our customers, our shareholders, and for the planet. Moving to slide number four, our global team continues to execute at a high level and delivered another quarter of strong performance, showcasing the benefits of our diverse, resilient portfolio. Organic revenue was up 11%. Adjusted operating margins expanded 110 basis points, and adjusted EPS grew 24%. We delivered 30% plus organic leverage across the enterprise and in each segment, led by our commercial HVAC businesses in each region. Our residential HVAC business continued to normalize and was further impacted by a difficult comp versus the second quarter of last year, when revenues were up 30%. net on a two-year stack, residential revenues were up mid-teens in Q2. Importantly, we're delivering strong results while increasing business reinvestments. We're accelerating high ROI projects in focused areas, including digital, electrification, and factory automation. These investments are flowing through our segment results, as well as through corporate expenses for enterprise-wide initiatives. To drive innovation, growth and productivity well into the future. Bookings remained robust after reaching unprecedented levels in 2021 with nearly 30% bookings growth. In 2021, bookings exceeded revenue by approximately $2.7 billion, nearly doubling our backlog in a single year to $5.4 billion. During 2022, bookings grew more modestly, up 5%. However, The sharp increase in absolute bookings in 2021 translated 5% bookings growth in 2022 into another 27% increase in backlog. Net 2021 and 2022 are both important drivers of our strong backlog position of 7 billion at the end of the second quarter, which is roughly two and a half times historical levels. we've been encouraging investors to look at absolute booking levels and backlog in addition to growth rates to gain a more complete understanding of the strength of our business. Further, when looking at growth rates for trained technologies, it's important to consider a three-year stack that includes 2021 for the reasons discussed. Commercial HVAC continues to be a standout across our segments globally. In the second quarter, commercial HVAC bookings were up nearly 40% in each region, on a three-year stack, supporting revenue growth of high teens in both the Americas and EMEA, and 45% in Asia. Additionally, our commercial HVAC book-to-bill ratios were effectively 100% or higher in each region. Our end markets continue to be healthy overall, and we believe we are well positioned for strong growth in 2023. While it's premature to dial in an outlook for 2024, continued high levels of demand, and our extremely strong backlog position, particularly across our commercial HVAC businesses globally, puts us in a strong position to drive growth in 2024 as well. We expect to enter 2024 with elevated backlog of more than $6 billion. To put that in perspective, backlog has historically represented approximately 20% of the next year's revenue, It's also worth noting that $2 billion of our $7 billion in current backlog is for equipment to be delivered in 2024. This is approximately five times the level of backlog for the next fiscal year versus historical trends at the end of the second quarter. Our strong results through the first half, combined with healthy end markets and backlog that remains two and a half times norms, positions us well to raise our full year 2023 guidance. Chris will discuss in more detail later in our prepared remarks. Please go to slide number five. As we discussed, bookings and revenue growth were broad-based globally with particular strength in our commercial HVAC businesses in all regions. Enterprise and America's bookings were down 5% and 8% respectively, largely due to softness in our America's residential business, which was down approximately 20% in the quarter, as that business continues to normalize. Excluding the impact of residential bookings decline, enterprise bookings were up 1%, and America's bookings were down low single digits. In our America segment, commercial HVAC bookings were down mid-single digits against high teens growth comp in the prior year. Absolute bookings remained robust, with growth of approximately 40% on a three-year stack. Commercial HVAC revenues were up high teens in the quarter, with strong growth in both equipment and services. Even with strong revenue growth, the book-to-bill ratio was approximately 100%. Commercial HVAC backlog remains highly elevated at three times historical levels. Residential HVAC revenues were down as expected as the business continues to normalize. Revenues were down low teens. However, it's important to note that the team delivered leading revenue growth of 30% in the second quarter of 2022. On a two-year stack, the business was up mid-teens. In our transport refrigeration business, we delivered strong bookings and revenue growth, up approximately 40% and 30%, respectively. Revenue strength was broad-based in North America, with the big three, truck, trailer, and APUs, up approximately 50%. In our EMEA segment, our commercial HVAC business delivered another strong quarter. Bookings were up mid-single digits on top of low teens growth comp in the prior year. Revenues were up high teens with strength in both equipment and services, up mid-20s and high single digits, respectively. Our transport refrigeration business is executing well in a modestly down market. We expect the EMEA weighted average transport markets to be down low single digits to mid single digits in 2023 and for our Thermo King business to outperform and to be relatively flat for the year. With revenue growth of mid single digits in Q1 and revenues down low single digits in Q2, we're well positioned to hit this target for the full year. In our Asia Pacific segment, the team delivered strong results. with bookings up mid-single digits versus bookings up mid-teens in the prior year. Revenues were very strong, up 41%. China results were robust, with bookings and revenues up 20% and 40%, respectively. Now, I'd like to turn the call over to Chris. Chris?