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DATE

Thursday, April 30, 2026 at 10 a.m. ET

CALL PARTICIPANTS

  • Chair and Chief Executive Officer — David S. Regnery
  • Executive Vice President and Chief Financial Officer — Christopher J. Kuehn

TAKEAWAYS

  • Enterprise Organic Bookings -- Up 24%, driving a record backlog of $10.7 billion, an increase of over 30% compared to year-end 2025.
  • Backlog Detail -- Americas and EMEA combined backlog rose approximately $2.7 billion since year-end 2025, with around $1 billion attributable to the Stellar Energy acquisition.
  • Organic Revenue Growth -- Achieved 3% growth at the enterprise level, led by double-digit global services revenue growth.
  • Adjusted EPS Growth -- Increased by 7%.
  • Americas Commercial HVAC -- Bookings rose approximately 40%, with applied solutions bookings up over 160% and revenues up high single digits; noted third straight quarter of>100% applied bookings growth.
  • Americas Residential -- Bookings increased low single digits; revenues declined mid single digits but “exceeded expectations entering the quarter.”
  • Americas Transport Refrigeration -- Bookings increased double digits and revenues rose low single digits, while relevant end markets declined double digits.
  • EMEA Performance -- Results consistent with expectations, excluding negative impacts from regional geopolitical events.
  • Asia Pacific -- Commercial HVAC bookings up high twenties percent, with bookings outside China up about 50% and low single-digit revenue growth in the region.
  • Enterprise Organic Leverage -- High-teens organic leverage realized; margin expansion of 10 basis points in Americas and 90 basis points in Asia.
  • Q1 Book-to-Bill Ratio -- Reached approximately 150%; backlog up nearly 70% year over year.
  • Q2 Revenue Guidance -- Management projects approximately 10% revenue growth in Q2, with low-teens revenue growth acceleration expected in the second half, and Q2 organic revenue expected up about 5%.
  • Updated 2026 Organic Revenue Growth Guidance -- Raised to approximately 7%, the top end of the prior 6%-7% range.
  • Updated 2026 Reported Revenue Growth Guidance -- Set at approximately 9.5%, with 2 percentage points from M&A and 50 basis points favorable FX included.
  • Adjusted EPS Guidance for 2026 -- Increased to $14.75–$14.95, equating to 13%-15% growth, up from previous $14.65–$14.85 guidance.
  • Capital Allocation -- Planned deployment of $2.8–$3.3 billion for 2026, including $900 million for dividends (12% increase to $4.20 per share annualized), $340 million for M&A and strategic investments, and about $300 million of share repurchases through April; $4.4 billion repurchase authorization remains.
  • Stellar Energy Impact -- The Stellar acquisition contributed $1 billion in backlog, with $500 million revenue expected in 2026, and is projected as a $1 billion business with mid-teens-plus EBITDA in two to three years.
  • CapEx Outlook -- Target raised from the typical 1%-2% of revenue to 2%-3% for 2026 to support facility expansion, particularly in Florida and Texas.
  • Tariffs and Inflation -- Net inflationary pressures, including tariffs and raw material costs, now expected to be higher than guidance from 90 days prior; price increases now assumed at nearly 2 points at the enterprise level, above the previous 1.5-point estimate, all reflected in updated guidance.
  • Service Revenue Mix -- Service business is one third of enterprise revenue and has experienced a low-teens compound annual growth rate since 2020; data center service opportunity is described as “still well in front of us.”

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RISKS

  • EMEA/Middle East Headwinds -- Management expects continued second-quarter headwinds of approximately $50 million in revenues and an estimated $0.50 EPS impact, “representing an estimated $0.50 EPS impact in Q2.”
  • Transport Market Weakness -- The company's market forecast “remains largely unchanged with a mid single-digit decline expected for full-year 2026,” with Q2 revenues in transport expected to be “down roughly mid-teens.”
  • China/Asia-Pacific Challenges -- “China remains challenging with dynamic macro conditions”; overall regional outlook for Asia Pacific is described as “flattish for 2026.”
  • Tariff and Inflation Pressure -- “We do expect inflation will put some near-term pressure on price/cost. However, we expect to manage this for the full year, and it is baked into our guide.”

SUMMARY

Trane Technologies (TT +2.80%) delivered sizable expansion in enterprise organic bookings and backlog, including significant contributions from the Stellar Energy acquisition, reinforcing order visibility into 2026. Management raised full-year organic and reported revenue growth outlooks, as well as adjusted EPS guidance, reflecting operational confidence in commercial HVAC, services, and targeted capital deployment. The call highlighted robust performance and outperformance versus end markets across key businesses, including Americas HVAC and transport refrigeration, while signaling targeted capital expenditure increases to advance production capacity for strategic growth segments. Near-term headwinds were explicitly acknowledged in EMEA due to geopolitical disruptions, with measured risk commentary on Asia-Pacific and transport market recovery timing. Forward guidance incorporates higher anticipated inflation and tariff impacts, with mitigations reflected in updated price assumptions and operational plans.

  • Management reported a Q1 book-to-bill ratio of approximately 150%, with backlog up nearly 70% year over year, strengthening visibility into 2026 and beyond and supporting heightened revenue growth expectations in upcoming periods.
  • Guidance for Q2 2026 adjusted EPS was set in the $4.20–$4.25 range, separating near-term performance from full-year projections.
  • Americas applied commercial HVAC bookings grew over 160%, representing the third consecutive quarter of triple-digit applied bookings growth, deepening the company’s penetration in fast-growing verticals such as data centers.
  • The Stellar Energy acquisition, adding modular data center cooling solutions, is expected to be modestly accretive in 2026 as capacity and operational integration investments are prioritized.
  • Full-year capital deployment targets include a planned $900 million in dividends, $340 million in M&A and strategic investment, and $300 million in share repurchases by April, with $4.4 billion buyback flexibility remaining under authorization.
  • Christopher J. Kuehn commented, “Maybe one more thing to add on Stellar from a modeling perspective: as Dave said, we expect about 500 million of revenue this year from Stellar. The base of that business we acquired is around 350 million of revenue—that was part of our January guide of around two points of revenue contribution, from 25% growth off of that, based on where data center growth is going, in our January guide. Now in April, we have the entire 500 million in our guide, and think of that as probably around 50 million incremental revenue we captured in April.”
  • David S. Regnery remarked, “We are a great operator at Trane Technologies plc. We like our plants right here in the United States. We like creating jobs right here in the United States, and we do it in a very competitive way. Every time I go to one of our plants, I see all the improvements they are making from the last time I had an opportunity to visit, and I get excited about what the future is going to look like for our company. As Chris said, we have over 21 plants now in the United States, and we are very competitive as you can see with our results,” pointing to the firm’s 21 U.S. factories and recent expansions as core drivers of localized manufacturing advantages amid cost pressures.
  • The company underscored a multi-year service technician training investment to support aftermarket revenue, especially in data centers and complex verticals, supporting durable revenue mix improvements.

INDUSTRY GLOSSARY

  • Applied Solutions: Custom-engineered HVAC products designed for large, complex, or unique projects, such as data centers and institutional buildings, as opposed to standardized “unitary” or off-the-shelf systems.
  • Book-to-bill: The ratio of orders received (“bookings”) to revenue recognized (“billings”) within a period; ratios above 1.0 indicate backlog growth, relevant for multi-period order visibility.
  • CDU (Coolant Distribution Unit): Subsystem in data center cooling infrastructure facilitating distribution and control of liquid cooling solutions to critical hardware.
  • OEM (Original Equipment Manufacturer): Manufacturer whose equipment is marketed by another manufacturer; in context, Trane servicing or providing original HVAC and refrigeration products.
  • ACT (A.C.T. Research): Industry source referenced for transport equipment demand forecasting, used for benchmarking sector outlooks.

Full Conference Call Transcript

David S. Regnery: Thanks, Zach, and everyone for joining today's call. Please turn to slide number three. I will start with a few thoughts on how our [inaudible] driven strategy continues to fuel strong performance over time. The dynamic global environment and rising demand for power are pushing customers to think differently about energy. With our leading innovation, Trane Technologies plc is uniquely positioned to win. Our high-efficiency systems and smart controls help customers save energy, lower operating cost, and increase resiliency, proving that sustainability and performance go hand in hand. Our strategy is built on a strong foundation: a robust business operating system, a powerful cash flow engine, and an uplifting, engaging culture.

This formula positions us to deliver differentiated long-term value to our people, our customers, our shareholders, and our communities. Please turn to slide number four. Q1 was another strong quarter marked by exceptional enterprise organic bookings, up 24%, and record backlog of 10.7 billion, up over 30% versus year-end 2025. We delivered organic revenue growth of 3%, led by our Americas commercial HVAC business, and double-digit global services growth. This strong performance translated to adjusted EPS growth of 7%.

Our commercial HVAC businesses delivered outstanding performance, particularly in the Americas, where our commercial HVAC bookings reached an all-time high, up approximately 40% year over year, with applied solutions bookings up over 160%—our third consecutive quarter of applied bookings growth of greater than 100%. The strength of our commercial HVAC business is further underscored by our combined Americas and EMEA backlog, which is up approximately 2.7 billion over year-end 2025. This includes approximately 1 billion from our acquisition of Stellar Energy, a leader in modular data center cooling solutions. We are exceptionally well positioned for continued growth in 2026 and beyond.

Our exceptional bookings and record backlog provide strong visibility to continued market outgrowth and revenue growth acceleration in the second half of the year. Our robust and rapidly growing commercial HVAC pipeline across key verticals, including long-term capacity and master purchase agreements in data centers, bolsters our confidence in the long-term outlook. Our services business, which represents one third of our enterprise revenue, continues to be a consistent and durable growth driver, boasting a low-teens compound annual growth rate since 2020. Additionally, we anticipate residential market tailwinds in 2026, driven by improving market fundamentals and easier prior-year comparisons. The Americas transport market also continued improvement in fundamentals, strengthening the outlook for a late 2026 and 2027 recovery.

Operational excellence is core to everything we do, and we expect to mitigate tariff and inflationary pressures through our business operating system. Altogether, we are raising our full-year revenue and EPS guidance, which Chris will cover shortly. Please turn to slide number five. As discussed, in our Americas segment, commercial HVAC continued its standout performance with bookings up approximately 40% and revenues up high single digits. In high-growth verticals like data centers, customers expect innovative, highly engineered solutions tailored to their unique needs. This plays directly to our strengths, including leading innovation, system expertise, proven operational excellence, and the capacity to grow with our customers as their needs rapidly expand.

These factors, and the expertise of our direct sales force, enable us to capture a significant share of these opportunities. Turning to residential, bookings were up low single digits while revenues declined mid single digits, exceeding our expectations entering the quarter. In Americas transport refrigeration, bookings were up double digits, and revenues were up low single digits, significantly outperforming end markets, which saw truck, trailer, and APU segments down double digits in Q1. EMEA results were solid and consistent with our expectations, excluding headwinds from geopolitical events in the region.

In Asia Pacific, commercial HVAC bookings were up high twenties and revenues grew low single digits in the quarter, led by the rest of Asia, where bookings were up approximately 50% and revenues were up low single digits.

Christopher J. Kuehn: Thanks, Dave. Please turn to slide number six. Dave covered many key points from this slide earlier, so I will keep my comments brief. Organic revenue growth for the enterprise was solid, up 3%, led by services growth up double digits. Enterprise organic leverage was in the high teens, and adjusted EPS growth was 7%, demonstrating the effectiveness of our business operating system in driving operational excellence throughout the P&L. Please turn to slide number seven. Margins across the segments were largely in line with our expectations, with the Americas and Asia operating margins up 10 basis points and 90 basis points, respectively.

EMEA margins were impacted by expected first-year acquisition and integration-related costs, and lower revenues and forecast in the Middle East. We also maintained high levels of business reinvestment across the portfolio in the quarter, driving our flywheel of innovation and growth. Now I would like to turn the call back over to Dave. Dave?

David S. Regnery: Thanks, Chris. Please turn to slide number eight. Our outlook for 2026 remains strong, supported by our record bookings and backlog. Our America's commercial HVAC business is executing at a very high level, significantly outperforming end markets. We expect continued strength in data centers and other core markets like higher education, government, and health care, just to name a few. Our Q1 book-to-bill was approximately 150% and our backlog is up nearly 70% year over year, strengthening our visibility into 2026 and beyond. Based on our exceptional backlog and the timing of customer deliveries, we expect approximately 10% revenue growth in Q2, against a tough prior-year comp of mid-teens growth.

We expect revenues to accelerate to low-teens growth as we move through the second half of the year. In residential, we had a strong start to the year. We expect Q2 to be flattish, pivoting to growth in the second half, aided by easier prior-year comps. At this early stage in the year, our outlook remains prudent, with flat revenues expected for 2026. Turning to transport, market fundamentals continue to improve and are increasingly supportive of a recovery in late 2026 and healthy growth in 2027. Our market forecast remains largely unchanged with a mid single-digit decline expected for full-year 2026. We expect Q2 to be down roughly mid-teens based on the timing of large customer deliveries within the year.

As we have discussed previously, given our strong mix of large customers, orders and revenues can be uneven from quarter to quarter. We significantly outperformed the transport markets in the first quarter and expect to outperform for the year. Turning to EMEA, our results to date and expectations for the year are largely unchanged, excluding impacts related to the Middle East. First and foremost, we have prioritized the safety of our employees in the region. We do expect continued headwinds in the second quarter, approximately 50 million in revenues representing an estimated $0.50 EPS impact in Q2. We continue to monitor the situation closely. In Asia Pacific, China remains challenging with dynamic macro conditions.

We expect the rest of Asia to be stronger than China in 2026. Overall, our outlook for the region remains flattish for 2026. Now I would like to turn the call back over to Chris. Chris, over to you.

Christopher J. Kuehn: Thanks, Dave. Please turn to slide number nine. Our 2026 guidance reflects the market dynamics we have discussed, and operational excellence driven by our business operating system. It also incorporates our value creation flywheel, continued investment in innovation, market outgrowth, healthy leverage, and strong free cash flow. We are increasing our organic revenue growth guidance to approximately 7%, the high end of our prior range of approximately 6% to 7%. Our reported revenue guidance moves to approximately 9.5% with unchanged estimates for approximately two points of M&A and 50 basis points of favorable FX.

We are also increasing our adjusted EPS guidance range to $14.75 to $14.95, approximately 13% to 15% of adjusted EPS growth, up from $14.65 to $14.85 prior. For Q2 2026, expect approximately 5% organic revenue growth and adjusted EPS in the range of $4.20 to $4.25. For additional details, please refer to slide 16. Please turn to slide number 10. We remain committed to our balanced capital allocation strategy focused on deploying excess cash to maximize shareholder returns. First, we strengthen our core business through relentless reinvestment. Second, we maintain a strong balance sheet to ensure optionality as markets evolve. Third, we expect to deploy 100% of excess cash over time.

Our approach includes strategic M&A to enhance long-term returns and share repurchases when the stock trades below our calculated intrinsic value. Please turn to slide number 11. We are on track to deploy between 2.8 billion to 3.3 billion in 2026 through our balanced capital allocation strategy. This includes approximately 900 million for dividends, reflecting a 12% increase to $4.20 per share annualized in 2026. We deployed or committed approximately 340 million year to date for M&A and strategic investments. Our share repurchases year to date through April stand at approximately 300 million, and we still have approximately 4.4 billion remaining under our current share repurchase authorization, providing significant optionality.

Our M&A pipeline remains active, and we will continue to be disciplined in our approach. Overall, our strong free cash flow, liquidity, balance sheet, and substantial share repurchase authorization offer excellent capital allocation optionality as we move forward. Now I would like to turn the call back over to Dave. Dave?

David S. Regnery: Thanks, Chris. Please turn to slide number 13. The Americas transport refrigeration market remains dynamic, but the long-term outlook is strong. ACT projects the market to bottom in 2026, and recover late in the second half. ACT also expects a sharp rebound beginning in 2027 and continued expansion through the end of the decade. We expect growth as well, but anticipate a more gradual slope to the recovery. We are managing the down cycle effectively, outperforming end markets, and continuing to invest in innovation so we are well positioned as the market strengthens. Please turn to slide number 14. In closing, our strategy is aligned to powerful secular tailwinds that position us to outperform.

Megatrends around sustainability, digitalization, and rising energy demand are intensifying the need for our systems and services. Through breakthrough innovation and the strength of our people, we are delivering superior performance for our customers and advancing a more sustainable future. With our proven business operating system, record backlog, and strong demand, we are well positioned to deliver differentiated shareholder value in 2026 and beyond. And now we would be happy to take your questions. Operator?

Operator: Thank you, sir. Again, we do ask that you limit your questions to one initial and one follow-up. First question today comes from Christopher M. Snyder from Morgan Stanley.

Christopher M. Snyder: Thank you. I wanted to ask about the Americas Applied orders just kind of keep getting better despite the bar already being very high—this quarter up 160%. Are customers ordering with longer lead times than they were six or twelve months ago? When you look at the backlog, is the delivery schedule meaningfully different versus a year ago? Just trying to figure out if part of the strength is there is some extension in those lead times. Thank you.

David S. Regnery: Chris, how are you? This is Dave. Hope all is well. Look, we have published lead times for all of our products. The published lead time on unitary could be relatively quick—in many cases, we have stock products, so it could be next day—all the way up through our applied solutions, where you could have lead times of, say, 30 weeks. So from a lead time perspective, we are very competitive. In fact, we also offer in the majority of our applied products quick-ship programs, which, if a customer had an emergency, we would be able to respond to at a premium, but we would be able to respond.

Now, if you are asking when customers are asking for the products, that is a little bit of a different question. In the past, we probably talked about on average—averages are always a little bit different—around six to nine months. In some verticals, we are seeing that being extended—12 months, 18 months in some cases, for sure—depending on the customer and how much visibility they want us to have, to make sure that our supply chain is ready as well. So if you are asking from a customer standpoint, for sure, it is a little bit longer. Customers want that security that they are going to make sure they have their order and we are able to execute to it.

From a lead time that we actually publish and meet demand for customers, that is as it has always been.

Christopher M. Snyder: Thank you. And I appreciate you highlighting that distinction between the customer’s lead times and your own, because it does seem quite important. Maybe as a follow-up on some of the cost/tariff changes that are in the market—any impact on your back-half price expectations in response to that? And then, more broadly, we hear a lot about difficulty or challenges of producing in the U.S., and others say it is uneconomical. You have proved the opposite. Can you talk about the advantages of producing in the United States and how you have been able to compete effectively while facing the higher labor costs that come from domestic production? Thank you.

Christopher J. Kuehn: Thanks for the questions, Chris. I will kick off and I think Dave will jump in. Tariffs and inflation—certainly a dynamic environment with many changes since our last earnings call in January. On a net basis, we are expecting more inflation, including from raw materials and tariffs, in the year than was estimated 90 days ago. We do expect inflation will put some near-term pressure on price/cost. However, we expect to manage this for the full year, and it is baked into our guide. I am not going to size the dollar impact for competitive reasons. However, let me share some context. We have had an in-region, for-region manufacturing strategy for well over a decade at Trane Technologies plc.

At year-end 2025, we had 21 factories in the Americas. Of that, 20 of those factories are in the U.S., and one factory is in Mexico. Since then, we have acquired Stellar Energy, which added production in Florida, which we are expanding, and we are expanding capacity with a new site to open later this year in Texas. One more thing to add: over 95% of our products sold in the U.S. are manufactured and/or assembled in the U.S. We have a very strong track record to manage through inflation and tariffs—maybe some short-term pressure, but we have that managed in our guide.

We will continue to leverage our business operating system to mitigate the impact of inflation, including tariffs, over time. We will look at mitigating the cost with suppliers, we will look at alternative sources of supply, and then we will look at pricing as necessary to offset that cost. At this point, I do not want to get ahead of our businesses on price for the year. Our guide was around 1.5 points back in January. It is probably a little higher than that, closer to two points at the enterprise level now. We will continue to leverage the business operating system and mitigate the cost where we can and price where we need to.

David S. Regnery: And, Chris, just to follow up on how we stay competitive—look, I will brag about our operating system. We are a great operator at Trane Technologies plc. We like our plants right here in the United States. We like creating jobs right here in the United States, and we do it in a very competitive way. Every time I go to one of our plants, I see all the improvements they are making from the last time I had an opportunity to visit, and I get excited about what the future is going to look like for our company.

As Chris said, we have over 21 plants now in the United States, and we are very competitive as you can see with our results.

Christopher M. Snyder: Thank you both. Really appreciate that.

David S. Regnery: Mister Chris, thank you. See you soon.

Operator: Julian C.H. Mitchell from Barclays has the next question.

Julian C.H. Mitchell: Hi. Good morning. Just wanted to start off with a question on operating leverage. I think organically it was high teens in the first quarter, and you have got that mid-20s sort of baseline for the year. Maybe walk us through how we should think about the operating leverage playing out through the balance of the year, organically. And I suppose the inorganic headwind to that shrinks progressively. Is that a fair way to look at it?

Christopher J. Kuehn: Hey, Julian. Good morning. Yes, in the first quarter, leverage is consistent with our expectations. We did a little bit better in the residential business. We had a bit of a headwind in the Middle East due to the conflict, and you are right, it was around high-teens organic leverage in the first quarter. We do see that improving as we move through the year. You can think about the second quarter in that mid-twenties range, and then in the second half we are in the mid- to high-twenties in terms of organic leverage. We continue to see an acceleration in the top line and conversion to the bottom line in the second half of the year.

Consistent with our guide in January, we have even more conviction about the second half of the year and the guide for the year—easier comps in residential, growing top line in transport, and we expect to have a very strong business in the second half with Americas commercial HVAC executing on the backlog when customers want product.

David S. Regnery: The only thing I would add, Julian, is in our resi business—we talked about this on our fourth quarter earnings call—we are level loading. In the past, we would ramp up our factory and overproduce in the first five months of the year, and then bleed that down as we worked through the season. We have changed our playbook. We are level loading, so we are taking a bit of an absorption impact here in the first half of the year, but that will come back in the back half of the year.

Julian C.H. Mitchell: That is helpful. Thank you. And then maybe just a follow-up question on the resi HVAC side of things. Any big differences you are seeing on the one-step versus two-step movement there? And what is your confidence in terms of inventory level in the channel? Any early reads on summer selling season as it is starting out soon? Thank you.

David S. Regnery: Good question. We are very happy with our first quarter in resi—came in a bit better than what we anticipated, down mid single digits. As far as inventory goes, as we said on our fourth quarter call, we thought it was set properly in the independent wholesale distributor channel. Here we are at the end of the first quarter, and it is set properly—no change to that. We have the desired inventory levels, and we are optimistic. At the end of the fourth quarter, we felt we could be down 5% in our resi business. We have now modified that—we think it is going to be a flattish year. We will see how it plays out.

We are only in Q1. Early signs are we are executing well, and we are more bullish than we have been for a while in our resi business. The team there is doing a great job executing. We will see how the rest of the year plays out.

Julian C.H. Mitchell: Fantastic. Thank you.

David S. Regnery: Okay. Thanks, Julian.

Operator: The next question comes from Scott Reed Davis, Melius Research.

Scott Reed Davis: Hey. Good morning, guys. I am great. It is good that the week is winding down here, but it is going to be a long day, to be honest, but otherwise, good. So, I want to back up a little bit. Last quarter, you talked about the applied orders widening out beyond just data centers. Can you give a little bit of color on that? What particular markets—I am assuming that continued, given the orders up 160%—has to be pretty broad-based. Can you talk a little bit about some of the non-data center verticals that were strong for you?

David S. Regnery: Hey, Scott. How are you? Good morning. I talked a little bit in the prepared remarks, but yes, it was broad-based, which is always encouraging for us. Data centers were very strong—very strong. However, from a revenue standpoint, we had growth in the majority of the verticals that we track in the Americas. Nine of the 14 verticals had positive growth. You can see this is broad-based. We have not lost focus on the core even though data centers are very strong. I will remind everyone that 95% plus of our account managers—our salesforce—do not call on data centers. They have deep domain expertise in their verticals and that allows us to win.

So broad-based growth—mega projects continue to grow, data centers continue to grow, and our order rates continue to grow. It is going to be a great year for Trane Technologies plc.

Christopher J. Kuehn: Scott, I will add on the backlog: the growth in the first quarter was around 3 billion, and of that 3 billion, around 1.2 billion was from acquisitions, of which around 1 billion was Stellar Energy. That means we had about 1.8 billion of backlog growth from the core—from organic growth in the business. A very strong quarter in terms of backlog growth. We typically have seen plus or minus a couple hundred million dollars to the backlog in any quarter over the last few years. Very strong momentum in orders and backlog, and the pipeline continues to remain very strong.

Scott Reed Davis: And are you guys operating full out in your factories and your applied facilities right now? Are you fully capacitated at this point? Do you still have a little bit of flex?

David S. Regnery: There is flex in some of the factories. Obviously, we are operating at a very high level right now. Capacity is one of those things—how you define it. Right now, in the majority of our factories, we are only running two shifts; in fact, some are only running one shift. So we certainly have that to fall back on. We have expanded our capacity over the last three years, and we have plans to continue that expansion. We are making those investments as we speak—Stellar, which Chris talked about earlier. We also have expansions going into some of our applied factories as well.

Christopher J. Kuehn: And, Scott, we did raise our CapEx target for the year. We are generally 1% to 2% of revenue; we raised it to 2% to 3% of revenue to capture the expanded production in Florida and in Texas for Stellar and to make sure we are staying ahead of where we see the growth, especially in our applied commercial HVAC business. Still targeting greater than or equal to 100% of free cash flow even with that higher CapEx spend for the year.

Scott Reed Davis: Excellent. Well done. I appreciate it, guys.

David S. Regnery: And best of luck this year. Appreciate it. Thanks.

Operator: And everyone, as a reminder, please press 1 if you have a question today. We will take the next question from Andrew Alec Kaplowitz from Citi.

Andrew Alec Kaplowitz: Good morning, everyone.

David S. Regnery: Hey, Andy. How are you?

Andrew Alec Kaplowitz: Good. How are you? So, Dave and Chris, data centers continue to be strong. If you look globally at a market like Asia Pac, it is still a tough market as you said, but you did have, I think, percent growth ex-China in bookings there. Are you seeing more broad-based growth—maybe led by data centers in places like that or maybe in Europe as well?

David S. Regnery: Data centers are strong globally. Once you get outside of the U.S., they tend to get smaller in size, but they are strong everywhere. Our Asia team—we are still calling Asia flat for the year—but outside of China, we had nice growth and nice orders. The team has a very robust pipeline they are tracking there. I am still optimistic that we could hopefully do a little bit better than flattish in Asia Pacific for the year, and the team is executing to that goal. In Europe, it was relatively strong for us in Q1—orders were up as we expected, as was revenue.

We are not concerned at all about Europe, and that team continues to be very innovative and satisfy their customers in creative ways. We are happy with Europe. Obviously, the Middle East, we can all understand what is happening there; we talked about that in our prepared remarks. The good news is all of our employees are safe in the Middle East, and let us hope that conflict is over in the near term.

Andrew Alec Kaplowitz: Agreed. I am curious about your continued outperformance in Americas Transport—pretty strong in Q1 versus the market. I know you expect a recovery late this year, maybe a more gradual recovery than ACT. Can you talk about why you continue to outperform—the new products in the market and the outlook as you move forward there?

David S. Regnery: I will sound like a broken record because we love to talk about the innovation we are putting into the marketplace. The transport markets have been down for years now, and we have been saying for a long time that we are going to continue to invest even in down markets because that is what makes great companies in the long term. You see those innovations in the efficiency and quality of our products. If you sample the trucking industry, you would see the gold stars—Thermo King—and it is a gold star for a reason. That team will continue to execute. We are seeing signs that this market turns around.

We are confident it is going to turn in the back half of the year—it is late—but 2027 looks like a very strong market. If you listen to ACT, they would tell you it is going to be a strong market and continue to build through the rest of the decade. We are well positioned there, and I will congratulate my team for executing quite well in the first quarter.

Andrew Alec Kaplowitz: Appreciate all the color, Dave.

David S. Regnery: Alright. Take care, Andy. See you now.

Andrew Alec Kaplowitz: You too.

Operator: Next up is Amit Singh Mehrotra from UBS.

Amit Singh Mehrotra: Thanks. Morning, everybody. Dave, I would like to see if you can talk about what you think your TAM is within data centers and how Stellar may change that. When I think about Trane in data centers, I think large applied chillers, but there are modular systems now with Stellar, and the orders and conversion are very good. Can you talk about what that does for your competitive offering within data centers and what it does for your TAM?

David S. Regnery: Sure. Let me start with Stellar, because that is a great business, and we are excited to have it as part of the Trane Technologies plc family. Today, Stellar specializes in building modular chiller plants for data centers. If we start with the end in mind as to where we see Stellar, think of this as a business that in two to three years is a 1 billion business with mid-teens-plus EBITDA, serving many verticals, not just data centers. Skilled labor scarcity is not unique to the data center vertical—it applies to all of our verticals—and we know this is a great solution to help alleviate some of those shortages.

We are very excited to have Stellar as part of the acquisition. Today it is 1 billion in backlog—think about half of that shipping in 2026—modest accretion in 2026 as we will be investing heavily there. Chris talked about some of the expansions. We are deploying our operating system to make a good company an even better company. We will continue to see benefits from our Stellar acquisition well into the future. The other addition we made was LiquidStack, which expanded our offering in CDUs—another nice addition that is off to a great start and we will continue to leverage it. They also have technology—futuristic technology—that we think could be part of data center solutions in the future.

As far as our position in data centers, we like our position. We are thought of as the thermal management experts. We are working with hyperscalers and other influencers—chip manufacturers—and designing what some refer to as reference designs, others refer to as data centers of the future. We get called on for a reason: our expertise. As far as the TAM goes, it keeps expanding. The data center vertical keeps moving with innovation, and we keep pushing and developing that innovation. It is a very strong vertical today and will be a very strong vertical well into the future.

Amit Singh Mehrotra: Great. Maybe as a follow-up, can you talk about data center service revenue and when you expect that to kick in? Service is one third of the business mix now. How much of that is already data centers, and how does the mix within that mix of data center service revenue ramp up?

Christopher J. Kuehn: With the end in mind, the service opportunity with the recent last few years of growth in data centers is still well in front of us. We have been in the data center vertical for decades, so there has been a service component, but it was one of 14 verticals prior to the last few years with the significant investments there, Amit. That is very much in front of us. Think about complex applied systems—they require the OEM to be connected. They require the OEM to provide service and maintenance, and the last thing a data center wants is to ever have a fault or go down.

Making sure those cooling systems are operating efficiently and rotation through the products is very important. Maybe one more thing to add on Stellar from a modeling perspective: as Dave said, we expect about 500 million of revenue this year from Stellar. The base of that business we acquired is around 350 million of revenue—that was part of our January guide of around two points of revenue contribution, from 25% growth off of that, based on where data center growth is going, in our January guide. Now in April, we have the entire 500 million in our guide, and think of that as probably around 50 million incremental revenue we captured in April. It is an exciting business.

The pipelines remain very strong in that business as well. To Dave’s point, we have a lot of investments to make to take this from a 350 million business to a 1 billion-plus revenue business in two to three years.

David S. Regnery: Just one other comment on services. I think I have told most of you about our investment in North Carolina in our training facility. It is the largest of its kind. I had the opportunity the other day to speak to a class—technicians getting certified in data center commissioning. That is how detailed we are in our training. I was so impressed with the talent of our technicians and the excitement they had that I went home and told my wife, when I come back next time, I am going to be a service technician. It is going to be fun, and there is going to be so much growth in that space.

As Chris said, a lot of this data center service work is in front of us and we are making sure we are ready for it. It is going to be a really fun journey.

Operator: Great. Dave, I think you would make a great technician, by the way. Thank you very much.

David S. Regnery: She was okay with me being a technician—but I had to do it now. She did not want to come back and be one. A lot of fun. Great we have there.

Operator: Andrew Burris Obin from Bank of America has the next question.

Andrew Burris Obin: Hey, Dave. How are you? Dave, I think you are probably doing better than a technician—that would be my guess. Maybe a question: there is a lot of conversation about behind-the-meter power resulting in changes in HVAC infrastructure in data centers. Can you talk about absorption chiller technology at Trane? What do you have? Do you need to add capacity, and does technology need to evolve to support behind-the-meter needs?

David S. Regnery: Behind-the-meter needs are not only in data centers—I will start with that and come back to data centers. In data centers, sure, we are starting to see that. As far as absorption chillers, that is a technology that has been around for a while. It is getting conversation now in data centers, but there are other types of technologies we are looking at as well that probably have less water usage and can get some of the same benefits. Think of it as adiabatic cooling-type solutions that we are working on in clever ways. There is a lot of conversation around direct current in data centers, so that is another technology that we are doing a lot of work on.

All that is in front of us. A couple of the larger chip manufacturers publish some of these reference designs. It is interesting to look at what our team is working on—pretty explicit as to what some of those technologies could be in the future. Behind the meter is happening, and we also have a philosophy that it will happen in all buildings. Long term, we believe all buildings will be smarter and more resilient, and we believe we are going to be part of the solution there with our AgenTeq AI software tools to make buildings a lot smarter. That is part of our future growth projections because most buildings waste about 30% of the energy they pay for.

When you can solve that problem, you are solving a great problem for the planet from a carbon footprint standpoint, and you are also creating great paybacks for the customer. It is green for green—it saves our customers a lot of money and it is really good for the environment. Data centers are one part of it, but do not leave out the core because that same concept is going to take hold there.

Andrew Burris Obin: Excellent. Thank you. Once again, staying on the data center topic—you acquired Stellar Energy and you have CoolIT. How has dialogue changed with customers since these acquisitions, and your ability to increase your service presence inside data centers with these acquisitions—how should we think about that?

David S. Regnery: I do not think our dialogue has really changed with end customers. We have always led with our deep domain expertise. We like direct relationships with the customer—that is not new to us. We have the broadest portfolio in the industry, and we make sure we are thinking at a system level, not a product level—that also has not changed. The service organization—when customers, whether a hyperscaler or a colo, come and see the capacity we have within our service organization, you can see their eyes light up. They see the expertise we have and how we train our associates, and it alleviates any fear that if something went wrong we would not be there—that fear gets alleviated very quickly.

Andrew Burris Obin: Thank you.

Operator: Thank you, Andrew. Up next, we will take a question from Noah Duke Kaye, Oppenheimer. Hey, Dave and Chris. How are you?

David S. Regnery: Good. How are you, Noah? Good morning.

Noah Duke Kaye: Good. Thanks for taking the question. Maybe just to go back to transport and the outlook. Can you give us a little more insight on what drives your back-half conservatism versus ACT? Anything you may be seeing from the pipeline to drive that, or are you just leaving this as upside for the year?

David S. Regnery: We have several models—ACT is one of them—that we use to do our forecasts. Do not base everything on ACT. We think there will be an uptick in the back half of the year. It is probably the oldest fleet of vehicles we have seen in a long time—maybe 30, 40 years. These units eventually have to get replaced. They cost too much to operate if you do not. The spot rate is now exceeding the contract rate, which is always a good sign. We are bullish that this market is going to start to come back, and when it comes back, it is going to come back relatively strongly.

We do not quite have the same inflection point in 2027 as ACT does. We think they are being a little aggressive there because we are not sure the trailer OEMs could respond to that type of increase. We are bullish—from a trough in the second quarter, upside in the back half of the year and for several years to come. This is a great business. It has had some tough years, but having personal experience running this business at one time in my career, we will continue to be very successful in our transport refrigeration business.

Noah Duke Kaye: Thanks. Maybe just want to ask about some of the improvements that the company made to the reference design for large-scale data center deployments. There is more benefit from heat recovery integration and larger air-cooled chillers. How far in front of the market is this in terms of the innovation trend? Are you already starting to see this reflected in your order rates or your pipeline?

David S. Regnery: You have to take a reference design and think it is probably out there—whether it is 12 months or 24 months, it is probably somewhere in between. Buildings will be smarter. You are going to see chillers being smarter, and we are doing a lot of work around that—taking different elements that may not be part of that system today and embedding them in the system. Having a chiller that knows when to run in a free-cooling mode only, or when to run in a vapor compression cycle and for how long.

Understanding weather patterns and the impact they have on these microgrids being created with these chiller farms, and knowing when to cycle which units—that is all part of the efficiencies. Then think about the water flow—these are all closed-loop systems—but the water flow within the system and the velocity, needs, and pressure. There is a lot here, and I will get over my skis relatively quickly, but we have very smart technical engineers who work with the hyperscalers and the NVIDIAs of the world who love to have these conversations. Little changes make a big difference and can have a big impact on the bottom line of a data center.

Noah Duke Kaye: Thanks for the insight.

David S. Regnery: Okay. Thanks, Noah.

Operator: Nigel Edward Coe from Wolfe Research is up next.

Nigel Edward Coe: Thanks. Good morning. I want to go back to this AI design that you have been highlighting today. Before that, I want to make sure we cover just a couple of guidance points. The resi outlook for flat for the year—you have got flat for Q2. Seems like on easier comps, the back half looks super conservative. Just want to make sure I understand that. I think that ACT raised their reefer builds for the full year. You are not raising your market outlook—just wondering what that disconnect is about.