Trane Technologies Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
January 30, 2022

There are 6 speakers on the call.

Operator

Good morning. Welcome to the Trane Technologies Q4 2021 Earnings Conference Call. My name is Chris, and I'll be your operator for the The call will begin in a few moments with speaker remarks and the Q and A session. At this time, all participants are in a listen only mode. After the speakers' remarks, there will be a question and answer session.

Operator

Follow-up. I'll now turn the call over to Zach Nagle, Vice President of Investor Relations.

Speaker 1

Thanks, operator. Good morning, and thank you for joining us for Trinity Technologies' Q4 2021 earnings conference call. This call is being webcast on our website at traintechnologies.com, where you'll find the accompanying presentation. We are also recording and archiving this call on our website. Please go to slide 2.

Speaker 1

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 McNary, Chair and CEO and Chris Keun, Executive Vice President and CFO. With that, I'll turn the call over to Dave.

Speaker 1

Dave? Thanks, Zach, and everyone for joining us on today's call. Let's turn to slide number 3. Today, I'd like to open with a few comments on our purpose driven sustainability strategy, which is the engine that enables us to deliver Differentiated shareholder returns over time. Secular sustainability megatrends continue to intensify.

Speaker 1

Climate Change is causing more extreme weather events, which threaten vulnerable people and economies around the world. Scientists say it is still possible to meet the targets set under the Paris Agreement, but it is getting more difficult as time passes. We need to act today. And that's what Trane Technologies is doing. We have set aggressive science based emission reduction targets that continue to push our innovation further and faster.

Speaker 1

That innovation is transforming the way the world heats and cools buildings, improves indoor air quality and safely transports food and medicine. As we scale today's technology And innovate for tomorrow, we can dramatically reduce emissions and accelerate the world's progress. We are committed to making a difference relentlessly and over the long term. This unyielding approach enables us to consistently out grow our end markets, which in turn helps us drive strong margin and powerful free cash flow to deploy through our balanced capital allocation strategy. The end result is strong value creation across the board for our customers, for our team, For our shareholders and for the planet.

Speaker 1

Moving to slide number 4. Our global team delivered a strong close to 2021 despite persistent macro challenges related to cost inflation, Tight supply chains and logistic markets and labor availability that continue to restrict capacity and negatively impact productivity. In the Q4, we delivered 27% bookings growth, 11% organic revenue growth and 32 This includes approximately $80,000,000 of $150,000,000 of revenue that was pushed out of the 3rd quarter, which was at the high end of our guidance range of $50,000,000 to $75,000,000 On balance, 2021 was another very strong year With record performance across key financial metrics, bookings, revenue, backlog, EBITDA margins and adjusted EPS All hit record levels. Price realization also reached record levels demonstrating the power of our business operating system And enabling us to more than neutralize the impact of widespread and persistent inflation for the year. With record demand for our innovative products and services and backlog nearly double the level it was at this time last year, we are Extremely well positioned for 2022 and beyond.

Speaker 1

We anticipate macro challenges to continue to constrain capacity And to negatively impact productivity and those impacts are reflected in our revenue and EPS guidance. They are also reflected in how we're thinking about the cadence of the year with the second half expected to be much stronger than the first half. With continued strong demand and supply constrained by the macro environment, we expect backlog to remain at elevated levels throughout 2022 and into 2023. Please turn to slide number 5. Looking at our initial guidance for 2021, we effectively met or exceeded all of our targets and delivered another year of Strong financial performance.

Speaker 1

We delivered 11% organic revenue growth, 140 basis points of adjusted Operating margin expansion and 37% adjusted EPS growth. We also delivered strong free cash flow And returned $1,700,000,000 in capital to shareholders through dividends and share repurchases. Please turn to slide number 6. Our relentless investments in innovation and our unwavering focus on serving our customers Enables us to deliver consistently strong performance and differentiated returns for our shareholders over the long term. Demand for sustainable solutions continues to accelerate and our innovation leadership is positioning us to Perform end markets.

Speaker 1

This will only intensify as the world decarbonizes. We're confident our leadership in sustainable innovation will continue to deliver differentiated financial performance and shareholder returns into the future. Please turn to slide number 7. In addition to our financial metrics, Our ESG performance is core to our purpose and our strategy. Beginning in 2021, we revised our Annual incentive compensation plan for approximately 2,300 leaders to link directly to ESG metrics, including reducing carbon emissions and increasing the diversity of our workforce.

Speaker 1

These metrics are on our glide path to achieving our 2,030 sustainability commitments. And I am happy to report That we exceeded each milestone in 2021. Job well done by the team. Please turn to Slide number 8. Customer demand for our climate focused innovation She continues to grow.

Speaker 1

We delivered another quarter of robust organic bookings growth with growth across all segments. Customer demand was high throughout 2021 with organic bookings up 27% for both the quarter And the year driving record backlog in each segment entering 2022. Organic revenues were also strong, Up 11% for the quarter the year. Overall, bookings growth far exceeded revenue growth, which was in part constrained by global supply chain and other macro challenges referenced earlier. Our Americas Commercial HVAC business delivered robust bookings growth in the quarter with orders up mid-20s.

Speaker 1

Strength was broad based with applied, unitary and service each up more than 20%. Demand for comprehensive end to end indoor air quality solutions remained strong and contributed to high single digit organic revenue growth in Commercial HVAC Americas. The residential HVAC markets also remain strong And our residential HVAC team delivered bookings growth over 30%. Revenues were up mid to high teens in the quarter, Adding to growth of more than 20% in the Q4 of 2020. Sell through across our channels was also strong, Up high teens.

Speaker 1

With full year organic bookings up over 70% and full year organic revenues up over 30%, Our Americas transport refrigeration business significantly outperformed the North America transport markets. During the Q4, we extended our 2022 order book through the Q3 of 2022, which contributed to bookings growth of more than 40%. We continue to thoughtfully manage our 2022 order book in order to mitigate inflationary risks. 4th quarter organic Revenue growth was consistent with full year growth, up 30%. Turning to EMEA.

Speaker 1

We continue to see Strong demand for our innovative products and services that help reduce energy intensity and greenhouse gas emissions for our customers. Our EMEA teams delivered 13% organic bookings growth in the quarter, with strong growth in both commercial HVAC and transport refrigeration. With full year organic bookings up over 40% and full year organic revenues up over 20%, Our EMEA Transport Refrigeration business significantly outperformed the markets in 2021. During the quarter, EMEA Transport Refrigeration bookings and revenues were both up high teens. Our Asia Pacific team delivered strong bookings growth of 18% and revenue growth up 4%, supported by broad based growth in China and across the region.

Speaker 1

Now, I'd like to turn the call over to Chris. Chris? Thanks, Dave. Please turn to slide number 9. Organic revenue growth in the quarter was driven by both strong volume and continued strong price execution of over 5% incremental price.

Speaker 1

Turning to margins. Price over material inflation was modestly positive in the quarter, capping full year positive price cost. Productivity was significantly impacted by continued supply chain, logistics and labor availability challenges, which were exacerbated in recent weeks with the rapid spread of the omicron variant. In addition, we continue to make strong incremental business reinvestments. Net adjusted EBITDA and operating margins improved 30 10 basis points respectively.

Speaker 1

Adjusted EPS grew 32%, driven primarily from a higher adjusted operating income. Please turn to slide number 10. We discuss the key revenue and margin dynamics for the enterprise on the prior page. The dynamics impacting revenue and margins were similar across each of our business segments as we've highlighted here, with strong price realization, Incremental business reinvestments and innovation and macro challenges impacting productivity and cost inflation as consistent drivers. Both the Americas and EMEA segments delivered higher revenues with modest margin declines.

Speaker 1

Margins were impacted by the macro challenges we've outlined. For the full year, both Americas and EMEA segments delivered strong margin expansion with EBITDA margins expanding 100 basis points And 2 40 basis points respectively. Our Asia Pacific segment delivered good leverage and margin expansion in the quarter with EBITDA margins expanding 170 basis points for the full year. Now I'd like to turn the call back over to Dave. Dave?

Speaker 1

Thanks, Chris. Please turn to slide number 11. Commercial HVAC Americas has significantly Perform the broader markets over a number of years through relentless innovation for our customers. Our unwavering focus on solving our customers' most Complex problems compounded by the strength in underlying market conditions powered the business forward in 2021 and yielded record backlog entering 2022. End markets continue to improve with a multitude of economic indicators pointing to growth in 2022.

Speaker 1

GDP forecast remains strong. Unemployment is low And indicators like Architectural Billing Index, which has been over 50 since February remained largely favorable. Demand remains strong in data center, warehouse, education and healthcare. We're benefiting from increased demand Across our K-twelve customers with federal stimulus funds supporting both current and future growth. We see this as a multi year tailwind for our business, given our strong position in the education market and our direct sales force with deep relationships in this vertical.

Speaker 1

Demand for our residential products was unprecedented in 2021, contributing to record revenue. Looking at 2022, We see tailwinds from record backlog entering the year and expect strong price realization. And We see headwinds from lapping tough growth compares from 2021. I'm proud of our residential team that has continued to meet customer demand while ramping capacity after a February weather event in our Texas facility. The team remains on track for capacity expansion in advance of the 2022 cooling season.

Speaker 1

Turning to Americas Transport. We significantly outgrew strong end markets in 2021 as we outlined earlier. ACT Continues to project continued market growth through their forecast horizon of 2023. I'll talk more about the transport outlook in our topics of interest section. Turning to EMEA.

Speaker 1

While we have muted expectations for market growth, Demand for our sustainability focused systems and services remains strong and we continue to see good opportunities for market outgrowth. Our transport refrigeration business significantly outgrew end markets delivering over 20% full year revenue growth as compared to 13% market growth in the region. Turning to Asia. We expect growth in China in 2022 supported by strength in data center, electronics, pharmaceutical and healthcare. Outside of China, the picture is mixed with COVID related partial lockdowns Still impacting market expansion in some countries.

Speaker 1

Our direct sales force model is differentiated in the region and provides good opportunities for market outgrowth in equipment and services. Now, I'd like to turn the call back over to Chris to outline our guidance for 2022. Chris? Thanks, Dave. Please turn to Slide number 12.

Speaker 1

Based on the market backdrop Dave just outlined and our strong backlog entering the year, We expect to deliver strong financial performance in 2022 with high single digit organic revenue growth and adjusted EPS between $6.95 And $7.15 Our operating leverage outlook of approximately 20% contemplates a stronger second half with improving macro dynamics, particularly around inflation and an improving supply chain. We expect price Cost to be slightly positive for the year, but negative through the first half as we lap strong price and more modest inflation from the first half of twenty twenty one. The macro environment remains dynamic, and we expect tight supply chains, logistics and labor availability to restrain revenue growth and margins, especially in the first half of the year. We expect free cash flow to remain strong At equal to or greater than 100% of adjusted net income, our outlook includes capital expenditures of approximately 2% of revenues, which is at the high end of our typical 1% to 2% range. Relentless incremental business reinvestment is never episodic for And it's how we innovate ahead of the competition year after year.

Speaker 1

Entering 2022, we are planning incremental investments in high ROI projects in support of our profitable growth objectives and our 2,030 sustainability commitments. These high ROI projects include manufacturing automation, Supply chain resiliency as well as investments to further decarbonize our operations. Our free cash flow outlook also includes modest investment in working capital with particular focus on strategic inventory to support continued growth. Given inherent challenges in accurately forecasting FX rates and the fact that we're transparent about our organic bookings and revenue each quarter, Our guidance excludes potential FX impacts. Our FX exposure is largely translational in nature And each point of revenue would translate at approximately OI rates.

Speaker 1

Net, as a reference, each point of negative FX Would translate into about $0.05 of EPS headwind. Please turn to Slide number 13. While we traditionally provide annual guidance, Given the dynamic macroeconomic environment, we believe it may be constructive to provide an outlook for the Q1 based on what we expect to see today. Based on backlog, orders and the dynamic macro backdrop we've outlined, we currently expect organic revenues to grow in the low to mid single digit range with flattish unit volumes and strong price realization. 1st quarter margins are expected to be challenged Due to negative incremental price cost dynamics, considering very strong price versus cost in the Q1 of 2021.

Speaker 1

You'll recall, we were able to get well ahead of inflation in the Q1 with strong price realization, which was part of the reason we were able to deliver Very high operating leverage of nearly 50% in Q1 of 2021. Inflation was relatively modest in the Q1 of 2021 and really began to ramp aggressively in the 3rd and 4th quarters. We exited Q4 with peak price and peak cost for 2021, With price at unprecedented levels of more than 5%. Net, while we expect to carry over strong pricing from the Q4 of 2021 Into the Q1 of 2022, we're also lapping strong price from Q1 of 2021, which dampens the incremental carryover price. Likewise, we expect to carry over peak inflation from the Q4 of 2021 into the Q1 of 2022, but to lap more modest inflation from the Q1 of 2021.

Speaker 1

The equation is a bit more complex than this, but to keep it simple, This essentially means that we'll see almost the full impact of the carryover inflation. The end result is we expect to be upside down on price cost in the Q1 by $30,000,000 to $40,000,000 This pricing dynamic improves as we move through 2022 and additional pricing actions taken in 2022 come online and are realized. As we've outlined, Macro challenges related to supply chain, tight logistics and labor constraints exacerbated by the omicron variant are expected to negatively impact productivity. While it's difficult to predict the negative impact on productivity in a very dynamic environment, We expect a considerable impact in the Q1. All in, our outlook is for adjusted operating income to be down $35,000,000 year over year in Q1 as we work to balance all the pieces.

Speaker 1

As we discussed on the prior slide, Our full year outlook contemplates a stronger second half with easing inflation and an improving macro environment. We'll update this outlook as the year goes along. There are a couple of items for Q1 that I also wanted to highlight to help with your model. First, interest expense is expected to be approximately $56,000,000 reflecting 2021 debt retirements. The other item I highlight is the estimated Q1 adjusted effective tax rate of approximately 17%, Which we've assumed is flat with 2021.

Speaker 1

The Q1 tax rate is traditionally low, impacted by higher stock based compensation in the quarter. The full year 2021 guidance remains 19% to 20%. Please go to Slide number 14. We remain on track to deliver $300,000,000 of run rate savings from business transformation by 2023. Importantly, we continue to invest these cost savings in high ROI projects to further fuel innovation And other investments across the portfolio as discussed earlier.

Speaker 1

Please go to slide number 15. We remain committed to our balanced capital allocation strategy, focused on consistently deploying excess cash opportunities with the highest returns for shareholders. First, we continue to strengthen our core business through relentless business reinvestment. 2nd, we're committed to maintaining a strong balance sheet It provides us with continued optionality as our markets evolve. 3rd, we expect to consistently deploy 100% of excess cash over time.

Speaker 1

Our balanced approach includes strategic M and A that further improves long term shareholder returns and share Purchases as the stock trades below are calculated intrinsic value. Please turn to slide 16 and I'll provide an update on our capital deployment in 2021 and our outlook for 2022. During 2021, we deployed $2,400,000,000 in cash with approximately $1,400,000,000 to M and A and share repurchases. We paid $561,000,000 in dividends $425,000,000 to pay down debt. Looking to 2022, We expect to deploy approximately $2,500,000,000 in cash, inclusive of $350,000,000 in share repurchases We executed in January of 2022.

Speaker 1

Our outlook also includes our announcement that we intend to raise the quarterly dividend to $2.68 per share annualized. When combined with the dividend increase of 11% in 2021, The annual dividend is expected to be up 26% since launching as a pure play climate control business in March 2020. Our strong free cash flow, liquidity and balance sheet continue to give us excellent capital allocation optionality and dry powder moving forward. Now I'd like to turn the call back over to Dave. Dave?

Speaker 1

Thanks, Chris. Please go to Slide number 18. I'd like to spend a couple of minutes providing an update on the transport refrigeration markets. Both Americas and EMEA had robust market In 2021 and our Thermal King businesses thrived. We pushed through macro challenges and significantly outgrew the markets in both regions.

Speaker 1

On the left side of the slide, you can see that the North America trailer, truck and APU markets Combined grew 19%, while Thermal King Americas grew more than 30%. In EMEA, Market growth for trailer and truck combined was 17%, while Thermal King EMEA also grew more than 30%. On the right side of the slide in the highlighted box, you can see that the total weighted average market growth For the Americas and EMEA transport refrigeration markets in 2021 was 15% 13% respectively. Thermal King growth for the Americas and EMEA was more than 30% and more than 20% respectively. We're extremely pleased with the tremendous market outgrowth each of these businesses delivered in 2021.

Speaker 1

Market projections for 2023 call for continued growth in both regions with particular strength continuing in North There is one other important dynamic I'd like to highlight while we're discussing Transport Refrigeration and moving into 2020 Our teams delivered tremendous booking growth in both regions in 2021, as we discussed on Slide 8. Our bookings growth was more than twice our revenue growth, even as our revenue growth far exceeded the growth of our end markets, resulting in record backlogs. Net, we expect this dynamic to result in bookings declines during the year as we work Through backlog extending well into 2022 and go up against tough compares every quarter. We'll highlight these dynamics with our earnings call for transparency as we move through 2022. Please go to slide number 19.

Speaker 1

We added a second Transport Refrigeration slide to the deck last quarter to add more color around the North America trailer market from both backward and forward looking perspectives. We're not going to spend a lot of time on it today, But we think it's a helpful reference slide for additional transparency. AACC continues to call For a 9 year average for North America trailers in the mid-forty thousand unit range through 2023, With the pandemic in 2020 being the only significant outlier. Please go to slide number 20. Energy efficiency, decarbonization and sustainability megatrends are only growing stronger.

Speaker 1

We are uniquely positioned to deliver leading innovation that addresses these trends and accelerates the world's progress, Supported by our business transformation and our engaging uplifting culture. Despite a number of persistent macro challenges, 2021 was a record year for us with top quartile EPS growth, accompanied by strong free cash flow and balanced capital deployment. We're We're seeing unprecedented levels of demand for our products and services and our backlog has never been stronger. We're executing our business operating system well and expect to continue to successfully navigate macro challenges with a customer first Mindset. We believe we have the fundamental ingredients to deliver strong performance across the board in 2022 and beyond and to continue to drive differentiated shareholder returns over the long term.

Speaker 1

And now, we'd be happy to take your questions. Operator?

Operator

From KeyBanc. And please limit yourself to one question with one follow-up question. Our first question is from Andy Kaplowitz with Citigroup. Your line is open.

Speaker 1

Good morning, guys. Hey, Andy. How are you doing? Good morning.

Speaker 2

Good. How are you? Dave or Chris, can you give us more color into how you're thinking about Trane's ability to other inflation outside of material costs with productivity because that seemed to be a pretty big swing factor in terms of margin headwind in Q4 and it Obviously, it's pressuring Q1 and 2022. So how much was the impact on Q4? What's the impact in Q1?

Speaker 2

I assume you're Taking in the additional headwinds on labor from Omicron over the last few weeks into Q1 and how are you thinking about that for 2022?

Speaker 1

Yes. I'll start, Andy. So I think going into the Q4, we continue to see challenges on the supply change front in terms of driving spot buys, inefficiencies in our plant and factory operations. And with our Q4 guide of leverage around mid teens, we really kind of landed right around that guide. I think leverage in the quarter was around 14%.

Speaker 1

So We landed right where we thought we would land. In the Q4, we saw a little bit more price on the realization We saw a little bit more inflation as well in the 4th quarter. Those both continue to ramp. But we did see negative productivity over other inflation in the 4th quarter. We're anticipating that for the first half of twenty twenty two as well.

Speaker 1

The supply chain constraints are real. We're managing through them day by day, week by And right now what we see right now is the second half of the year looks to be stronger in terms of supply chain resiliency and ultimately getting some of the And I could talk more about that after. It's very, very disruptive, okay? So if you were a plant manager, if you ever had the opportunity to be a plant manager, Anyone on the line, you know what I was talking about. We're constantly having to reschedule, rebalance lines.

Speaker 1

We're pulling line side inventory and replace with other line side inventory, rescheduling employees. So this is a plant manager's kind of nightmare. And Good thing is we have great plant managers and we're working through it, but it is disruptive. It's been for Disrupted for some time now. And as Chris said, we anticipate this disruption to continue certainly through the Q1 and the first half.

Speaker 2

It's helpful guys. And then, Dave, I think you mentioned before that you expect your Resi A track business to be a GDP plus Business going forward and in 2022, I think with resi bookings still up 30% in Q4, capacity up, strong pricing, I know you talked about Tough comps. How are you thinking about the business in 2022? Does it have the potential to grow in line with the company? Or how are

Speaker 3

you doing inventory in the

Speaker 2

channel at this point?

Speaker 1

Yes. Great question, Andy. We do see our resi business over time being a GDP plus business. And I'd just remind everyone that our resi business is 20% of our total business and we did it. We had a very strong 4th quarter.

Speaker 1

I mean revenue in the 4th quarter For our resi business, it was up 17%, 17% and our bookings were up over 30%. So the resi business is performing well. I'm really proud of what that team has been able to do ramping up the facility in Tyler, Texas after a freak weather event. And just the customer mindset there and The ability for them to ramp up and serve the customers, some of the best I've seen in our company. As far as the resi markets go, You're going to see we'll see growth in new construction, which is a smaller portion of our business.

Speaker 1

And we don't expect the replacement market, which is the larger part of our business to fall off a cliff. So our resi business will be up against tough comps as you said all year. With that said, we have a strong backlog, the market leading brands And we'll see strong price all year.

Speaker 2

Thanks for that, guys.

Speaker 1

Thanks, Andy, Katie.

Operator

The next question is from Julian Mitchell with Barclays. Your line is open.

Speaker 3

Hi, good morning.

Speaker 1

Hey, Julian. How are you?

Speaker 3

Good. Thank you. Very good. Maybe just wanted to circle back on the sort of EPS seasonality through the year. You gave very clear Q1 guidance.

Speaker 3

And I'd say the Q1 works out to being around the low teens share of Full year earnings are not too different versus history, but you kept emphasizing a sort of challenging first half. So when we think about the first half, should we assume it's around the sort of mid-40s share of full year Earnings, is that roughly the right ballpark with sort of price cost getting a little bit less bad in Q2?

Speaker 1

Hey, Julien. It's Chris. I'll start. Yes, Q1 where we're dialing in the guide around $0.95 to $1 that would Put the it's around 14% to the full year. So Q1 would be around 14% versus the full year at the midpoint.

Speaker 1

That's actually a little better than what our average has been over the last 4 to 5 years. That average is around 12%. So we're seeing it to be a little bit stronger on the full year, but I think it's hard to tell what we think the Q2 will fully be at this point. We continue to work the supply chain challenges and as we see it, this is not a demand concern. The demand is absolutely there.

Speaker 1

This is really a supply chain and how do we navigate through it. So we'll provide some more guidance when we get through our Q1 call and when we think for Q2. But we definitely see from the supply chain aspects that the second half of the year it easing in terms of Supply, logistics and some of the labor constraints as well.

Speaker 3

That's helpful. Thank you. And then just my second one around Commercial HVAC revenue trends in 2022,

Speaker 1

should we think about The Americas having

Speaker 3

kind of the strongest growth of the 3 regions in commercial HVAC this year. And maybe any color on how you see the new construction market in non resi in the U. S. This year?

Speaker 1

Yes. Joey, how are you doing? This is Dave. Look, our commercial business performed very well in the Americas all year in 2021 With broad based strength in Q4 across unitary, applied and service, all of them were up over 20%. So The team is seeing tremendous demand.

Speaker 1

As far as the end markets go, you have low unemployment, you have Strong underlying GDP growth. ABI has been positive for the last 11 months, which Above 50, which means positive. And again, that's a 6 to 9 month lag on that metric. So that's a good foreshadowing as to what to We have particularly strong strength in the data centers vertical, warehousing, healthcare, education. We're starting to see nice growth in the office vertical, indoor air quality and decarbonization of the built environment will continue to be Tailwinds for us.

Speaker 1

So we'll have a strong year in our commercial HVAC business and we have some Nice tailwinds behind us and that business will continue to execute. Our constraint there will not be the markets. It will be back to the supply chain And specifically in the first half as we're starting to get some visibility into the second half, some of those supply constraints Specifically around electronic components will start to ease.

Speaker 3

Great. Thank you. Thanks.

Operator

Our next Question is from Josh Pokrzywinski with Morgan Stanley. Your line is open.

Speaker 1

Hey, good morning guys. Hey, Josh. How are you doing? Good morning. Well, thanks.

Speaker 1

Just wondering what got worse on the inflation front sequentially 4Q to 1Q. I know like some of the metals are sort of rolling off. There's Probably an inventory dynamic that gets in the way and realizing that near term, but putting aside kind of the year over year tyranny of the math like It sounds like things actually got maybe a little bit worse. Like anything you'd call out specifically that we should be kind of watching more closely? Josh, it's Chris.

Speaker 1

In the Q4, I would say price was a little better than where we started the quarter and also inflation wound up being a little higher as well. Part of this is the inefficiencies we're seeing around spot buys and expedited freight to ultimately serve customers. But as I think carrying over Q4 into Q1, we're seeing roughly the same levels of inflation in the Q4 carrying over into the Q1. You may recall, we look at commodities and have a hedging practice and strategy in place for copper and aluminum, Which will roll out really over 12 months, but it really smooths the impact of inflation. Going to any one quarter, we'd have about 70%, 75% of The price already hedged.

Speaker 1

So I would say the impacts of the Q4 really start to be very similar to the impacts in the Q1 there. Steel roughly the same way. We have about a 6 month lag on our steel purchasing from when we lock in prices to when we would see any price changes. So any dynamics now in January we're seeing in steel would really be realized in the second half of the year. So that's how it's kind of playing out from Q4 to Q1.

Speaker 1

Got it. That's helpful. And then just on the commercial side, we've had some of these kind of broader market initiatives And your own, whether it's indoor air quality or some of the more sustainability focused products, they've really been out there in the marketplace for a while now and customers taking hold. What are you guys watching today to kind of track that in earnest and maybe disaggregate normal replacement type demand in Commercial from some of the spicier stuff you guys have put out over the past couple of years? Yes.

Speaker 1

Good question, Josh. I mean, first of all, I'll start with IAQ, right? IAQ indoor air quality, we continue to see a tailwind from that. We had a very good year In 2021, we expect to have another good year in 2022. We're still getting a lot of demand out there for indoor air quality audits As well as what we call day 2 activity, which is helping our customers build out the infrastructure for long term improvements with an energy Consumption in line of sight there.

Speaker 1

As far as decarbonization The built environment as we call it, we're in the very, very early innings. And the intensity there is Growing every day. We've talked a lot about what we're doing in Europe there with the electrification of heating and that is again just To remind everyone, it's really not just a heat pump, it's a system that's combining a chiller and a boiler plant together into one system. That is we're not only seeing great traction in Europe there, we're also seeing that in the Americas. So those are in the early innings And we track activity for both indoor air quality as well as on decarbonization pretty closely.

Speaker 1

It's getting harder to blend the 2 together. So So those are going to continue. And then you have the core business that kind of is going to follow what we would say the more traditional, right? We obviously look at What's happening with new construction and Dodge is still actively forecasting pretty Robust demand in 2022, so that's a good sign. And as I said earlier, Architectural Billing Index is probably one of the Has probably some of the highest correlation of what the future is going to be for our commercial HVAC business and that's been over 50 now for 11 months.

Speaker 1

So that bodes well for the future as well.

Operator

The next question is from Jeff Brake with Vertical Research. Your line is open.

Speaker 1

Hey, thanks. Good morning, everyone. Hey, Jeff, did you survive the storm up in Connecticut?

Speaker 4

I did. All good up here, putting the 4 wheelers to work.

Speaker 1

Unfortunately, we had to use some 4 wheelers here in Charlotte too.

Speaker 4

Yes. I'm sure it's a little scary on the roads down there. We know how to drive up here though. Hey, Dave, I think kind of implicit You're acknowledging the orders will roll down now on the comps and the like, right? Would also then obviously suggest that people have ordered Further out to get the place in line and that sort of thing.

Speaker 4

And really the nature of my question is, to what extent Were people able to place orders in advance of your price increases? Or have you been able to fully Protect yourself on kind of the cost coming through the inventory channel and the backlog?

Speaker 1

Yeah. It's a good question for sure. And first of all, let me start with the order rates, Okay. So for many of our products, we do have extended lead times right now. So we do have order customers that are ordering early By definition, I would also tell you that we're working very closely with our customers And they want to give us as much visibility as possible.

Speaker 1

So they're certainly they understand what's happening with Supply Chain, so they're asking us to make sure that we get spots secured for them in the future. So obviously, we are getting orders in earlier. You see that in our robust bookings numbers. I wouldn't get overly concerned with that. It's not like we're pulling in orders from A year and a half out, okay.

Speaker 1

We're talking a few months here. As far as pricing is concerned in the backlog, At the end of the day, you really have to go through it by business. And in our resi business, for example, we reprice the backlog. So So if we have a price increase, we'll reprice the backlog. In our commercial business, some of our orders actually have price This will be built into those based on certain indices.

Speaker 1

So depending on when it's going to ship, we'll actually be it will be at a higher price visavis if it's shipped today. And that's normal and we've been doing that for a long time. So the days of there's going to be Price increased. Let me double order or order as much as I can to get in front of it. I think we've I mean, it certainly happens a little bit.

Speaker 1

A lot of that Behavior has been changed. And could you provide

Speaker 4

a little bit more color on how you think resi plays out, right? You said you don't envision it falling off a cliff. But how do you see it playing? And is there maybe some gainsmanship around The efficiency change you just said people don't pre buy anymore, so perhaps you're not expecting that. But just kind of the overall trajectory of resi as you see it over Course of the year here.

Speaker 1

Yes. I do as far as the pre buy for the regulation change and efficiency change in Change in 2023. There could be some of that activity. We don't see it to be anything alarming. It would obviously we'll update everyone as we see that starting to unfold as the year goes As far as the end markets go in resi, 2021 was a very robust year.

Speaker 1

4th quarter was very I'm very encouraged with order rates up over 30% in the Q4. Residential New construction as I said earlier, it will be positive, right? I mean, there's a lot of metrics out around that. So that will probably be in the low single digits Positive, although that's a small percentage of our business about 20%. The replacement market about 80% of our business, We don't see a fall off a cliff, okay?

Speaker 1

Could unit volume be down a point or 2? Sure. But I also would tell you that we're going to see strong price all year in resi.

Operator

The next question is from Scott Davis with Melius Research. Your line is open.

Speaker 1

Good morning, guys. Hey, Scott. How are you?

Speaker 3

I'm great. Thank you. I'm kind of curious just following up on Jeff's question. In new construction, it was always the builders would buy kind of the cheapest unit out there. Is there a change in some buying patterns?

Speaker 3

Are guys buying higher efficiency and trying So the environmental benefits and stuff like that, are they able to capture any value on the homebuilding side if they Upgrade or is it still kind of similar as the past? Yes, it's

Speaker 1

a great question. Again, it's a smaller part of our Business only about 20%. And we certainly talk to many of the homebuilders, many of the large homebuilders. And What you just described, they're very interested in. We'll see if they act on that.

Speaker 1

But they're very interested conceptually on being able to have a greener home for lack of better terms and being able to sell that To their customer, because we're so small, it'd be hard to where we're selling, we sell some HiSeer into that Mark, it would be interesting to see some of the larger players actually act on what they talk a lot about.

Speaker 3

Okay. And then, Dave, back to kind of the common question we're getting right now from folks is just about the integrity of backlogs. And Historically, the larger the down payment and the higher the integrity of the backlog. But Has the dynamic changed with the customer base at all? Can you capture more upfront to get people and kind of secure them spots in line that Perhaps capture a little bit of a premium on the supply and demand imbalance that's occurring right now?

Speaker 3

Yes. I mean, at the end of

Speaker 1

the day, we think the integrity of our backlog is quite strong, okay? And let me tell you why. That's quite strong, okay? And let me tell you why. In our resi business with our independent wholesale distributors, technically they can't cancel orders.

Speaker 1

So we don't see that backlog going away. We do see a small amount of maybe double ordering from dealers, But it's insignificant in respect to a $5,400,000,000 backlog. In commercial HVAC, we're dealing with complex Systems and highly engineered products and working closely with engineers and architects and end customers and You may see a job site delay, but you're not going to see duplicate orders. And in Thermal King, we're working closely with Customers and we're matching their demand with other OEMs, whether it be on the trailer side or the tractor And we're all of us are working together to make sure that we could combine the solution for the customer and everything gets there at the same time. So we don't see those orders Being canceled as well.

Speaker 1

So overall, we think the backlog is strong. As far as your question about Demanding more money upfront, we're not doing that in the certainly in the Americas For EMEA, that has always been a practice in parts of Asia, which we do. But we're not going out and demanding cash From our customers because of the incredible amount of demand that we're seeing, we don't that's not what Trane Technology is about. We want to solve our customers as well as complex Problems and work with them, and that's what we'll continue to do in the future. Sounds good, Dave.

Speaker 1

Good luck. Thank you. Okay. Thanks. Appreciate it.

Operator

The next question is from Joe Ritchie with Goldman Sachs. Your line is open.

Speaker 4

Thanks. Good morning, everyone.

Speaker 1

Hey, Joe. How are you?

Speaker 4

All good. Thanks, Dave. So just maybe we'll start off on this The $30,000,000 to $40,000,000 headwind in 1Q, whatever details you can give us on How that's supposed to look for the several for the rest of the quarters throughout the year? And then specifically on pricing, I'm just curious like What are you baking into resi pricing in 2022?

Speaker 1

Yes. Hey, Joe. So I mean, I'll start The second question first. So on pricing, just to remind you, we had about 3 price increases across the majority of our Portfolio in 2021, really an unprecedented level of price. And on a full year basis, it's 3.5 points of price At the enterprise level across the company, so really very, very strong.

Speaker 1

We are announced And in place, what I'll call the first price increase of 2022 that really started here in January and that applied to the majority of our products. So it's based on the inflation that we see today and as nimble as we were last year and I think we saw The industry follow. We're going to remain nimble as we go through the year as we kind of evaluate inflation. On the price cost dynamic, exactly, we're carrying over significant price from the Q4 into Q1. We're Carrying over a significant level of inflation that nearly offset the price in the Q4, we were slightly price cost positive in Q4.

Speaker 1

And we see that right now being negative in the Q1 and likely negative on the first half. Again, in the Q1 Last year, we saw very strong price. We got ahead of the market and competition in terms of the timing of our price announcements And we had some very modest inflation in the Q1 last year. So that helped drive that near 50% leverage in the Q1 a year ago. So we're going to unfortunately lap against very modest inflation in Q1.

Speaker 1

We see inflation for the year. It's Really a mirror image of 2021, 2022 is. The first half of twenty twenty two is going to look a lot like the second half For 2021 in terms of the inflation, and then we start comping in the second half of the year to much more modest inflation or comparable inflation Starting in the Q3, so I think right now our best view is we're probably price cost negative in the first half and then it returns to really very good strength in the second half

Speaker 4

And Chris, maybe just following up on that point in the second half. We've talked about inflation, but How are you guys thinking about cost curves coming down in the second half? And are you baking in deflation into your numbers in 2H It's part of the guys.

Speaker 1

Yes. I'd say we're not baking a whole lot of deflation into the guide Joe to be fair. I mean I look at Copper and aluminum futures and they're pretty narrow from now until the balance of the year. So I don't see a lot of deflation there. What's starting to show a bit of deflationary impacts is steel.

Speaker 1

Let's see where it goes. But at this point, if we start seeing deflation there, That would really impact us starting 6 months out from today, just based on our buying habits and are locking in a steel price for 6 months. So It turns out we start seeing a deflationary environment, which we're not counting on. But if we start to see that, then we'll see that plays out in the second half

Operator

The next question is from Joel Titts with BMO. Your line is open.

Speaker 1

Congratulations. I hear that retirement is in your future. Congratulations and thanks for all your great coverage So Trane TechnologyIngersoll ran through the years. We certainly appreciate it. We'll miss you.

Speaker 1

Yes. Well, let me see if I'm going to be any good at it or not. We'll get you some fishing rods, okay? Yes. There you go.

Speaker 1

And just 2 longer term kind of questions. I wonder if you can talk a little bit about any factors kind of, I don't know being the new guy and all that kind of stuff. And looking over the next 5 years or so, like what are the factors you see that could really Tap the upside on your operating and your EBITDA margins. Like what do you have to work on today to make sure that there's no bottlenecks 5 years out? Yes.

Speaker 1

Joe, it's a great question and it really has to do with ensuring that you're continuously investing in innovation for the long term. And you heard Chris talk a little about it, even though we know the first half of this year is going to be tough, right? We're going to struggle through Supply chain constraints, we got a mirror image hitting us with inflation. We'll have strong price, but we'll have some Carryover strong price as well. So we know the first half will be tough.

Speaker 1

What we're not going to do in the first half is we're not going to cut our investments, Because we know that's about our long term. And really where we see this is the whole decarbonization of what's happening and Our products about making this world a better place for next generations, that's our purpose, that's what we're committed to and you're going to continue to see that from Trane Technologies. I had a call the other day with some ESG investors and they asked me what I was most proud of For ESG for Trane Technologies, I thought about it for a minute, caught me a little bit off guard. And I was like, I'm proud of the fact that Trane Technologies was green before

Operator

it was cool to be green.

Speaker 2

And we've been working at this for

Speaker 1

Before it was cool to be green. And we've been working at this for a long time since 2013, we had our first set of Science based targets, we now have our 2nd base of science 2nd set of science based targets and we are committed It's making a difference and we're going to do that through our innovation. We're challenging what's possible and it's going to be tremendous upside for Trane Technologies over the long term. And then last, can you just give us a little sense of maybe it's a little kind of a little far Out there also, but what are the impacts on the transport business from trucks turning to EV? Yes.

Speaker 1

Electrification is a big part of our Strategy there, Joel. So you're again once again you're on top of your game there. So yes, we have in fact, we We have a couple our unit that's going up and down the highways. If you're in California, you may see it. That is a trailer unit that is 100% electric.

Speaker 1

And so we have a lot of really neat innovation we're working on there. Our customers are loving it. The data that we've been able to extract from the units is going up and down the highway is tremendous call. For our engineers to continue to develop and anyways, it's the lecture, but think about EV vehicles, think about Thermal King has once again staying ahead of the market there with electrification of our products. We have some really neat products that we came out with about This is 18 months ago now in the home delivery and we're getting a lot of traction, a lot of tractions around the globe with those products.

Operator

Call. The next question is from Steve Kusa with JPMorgan Chase. Your line is open.

Speaker 3

Hey, good morning, guys. This is Pat on for Steve. Had a my first one is on the commercial HVAC business. Can you break down your organic growth expectations for this year between what you Expect for services versus equipment and then within that equipment piece, military versus global pod, if possible?

Speaker 1

Hey, Pat, it's Chris. I'll start. Look, we expect strong growth equipment and services on a full year basis. As we've talked in the past, applied orders and installed base drives a nice service tailwind. And just given our orders and Claude that we have in 2021 carrying over into 2022, we expect the services business to grow as well.

Speaker 1

So I'd leave it at that for now. We'll kind of update as we go quarter by quarter, which We typically do to highlight the growth in each of the categories, but we've got some good growth planned for both this year. The other thing I would add Pat, this is Dave, is our service business We've performed very well all year in 2021. And in the Q4, order rates for service were up over 20%. And I don't expect it to grow at 20%, but we've seen very, very nice growth for our service business, really not just in commercial HVAC, but in our commercial HVAC HVAC on a global basis, nice service growth.

Speaker 1

And a lot of that is on Intelligent Services as well. And this would be With our connected solutions and so that side of the business is growing very nice

Speaker 3

Okay. I had to try. And then on the first quarter and first half versus second half dynamics, I may have missed this, but did you say If any particular end market drives the slow start in volume growth? And in resi specifically, do you think there's going to be much difference between First half versus second half growth dynamics?

Speaker 1

Yes. I don't I mean, just to be clear, right, the first half that was constraining growth in the first half It isn't the end markets, it's the supply chain. And specifically, it's components within the supply chain, which is really around electronics. So It's not end markets. As you see through the Q4, our end markets continue to accelerate, so Which is a good sign.

Speaker 1

I would think of it as Chris outlined, we got some tough comps in the Q1 and the first half, Got inflation rolling over. We have price rolling over, but we also have some tough compares against price. But we will have a choppy Supply chain, at least through the first half of the year. We see some light at the through the clouds there as we head into the second half of the year.

Speaker 3

Got you. And so that supply chain impacts resi and commercial and transport kind of equally is what you're kind of saying?

Speaker 1

I think it unfortunately affects most industrial companies.

Speaker 3

Yes, makes sense. Thanks for the time. Appreciate it.

Speaker 1

Sure. No problem, Pat. Thanks, Pat.

Operator

The next question is from Andrew Obin with Bank of America. Your line is open.

Speaker 5

Hey, guys. Good morning. This is Emily Shillan for Andrew Obin. So I had a question on IAQ. You had previously guided to IAQ being 1 to 2 points of additional Revenue growth tailwind per year, does that still stick?

Speaker 5

And where do you expect that to land in 2022? And have you seen any Momentum in demand for IAT products given the Omicron surge? Thanks.

Speaker 1

Yeah. We said early last year that we thought revenue would be in the 1% to 2% tailwind from IAQ. It's actually It will be a little bit north of 2 actually. So the year ended up very well for our indoor air quality solutions. And Remember, indoor air quality is not new to Trane Technologies.

Speaker 1

We've been in it for quite some time. But we have launched several new initiatives there, Especially on the audit side and what we call day 1, day 2. We're going to continue to see tailwinds from indoor air quality. I wouldn't expect 2% to Compound every year, but we do expect to see nice tailwinds with indoor air quality and we're seeing a backlog continues to grow. I would tell you that it's probably harder to count because these indoor air quality Solutions are becoming embedded into our equipment.

Speaker 1

So think of it as like a unit controller in A unitary piece of equipment, right? Indoor air quality is just becoming part of the systems. But with that said, we continue to push the envelope there. We've got some great innovation in the pipeline. Really cool things we're doing with our transit bus business and Thermal King and we're still making a lot of traction with Dry hydrogen peroxide as well as some of our photocatalytic solutions.

Speaker 5

Awesome. And then what kind of visibility do You have on the already passed federal stimulus for K-twelve education. For example, are there any projects we can sort of trace back to stimulus funding? Or do you have a sense of the scope of how much stimulus Has been spent on HVAC since the both are passed? Thanks.

Speaker 1

Yes. I don't know if I get that specific, but I would tell you that We have a dedicated Tiger team that works on this. So we know where how the funding is flowing. And there's a lot of restrictions as you dig into the Dylan, you may know this, you may not, but some of the stimulus funds have to be going to the education side versus the infrastructure side. But we're working with our customers.

Speaker 1

We're helping them navigate that those dynamics that exist there. And Absolutely, we are seeing the funding going all the way through to the local school districts and we're there with our customers On day 1, helping them on what they could do day 2, actually helping them deploy capital on what they should be doing over the long term.

Speaker 4

Great. Thank you.

Speaker 1

Sure.

Operator

The next question is from John Walsh with Credit Suisse. Your line is open.

Speaker 1

Hi. Good morning, everyone. Hey, John. How are you? Good morning.

Speaker 1

Doing well. Thank you. Maybe just the first one as a clarification. When you were talking about the tough order comps, obviously, they're across The Board, but you did highlight that some of those product lines might see declines I think. Just Just wanted to understand if that was an enterprise comment or specific to those particular product lines you called out?

Speaker 1

Yes. I mean, it's certainly got to be the case with our Thermal King business, okay? If you think about it, I mean, Our bookings rate last year was twice our order rate, right? So bookings up over 70%. That's not going to continue.

Speaker 1

And that will we have a very strong backlog there, John. So that will burn during the year. So don't be surprised if you see A quarter or 2 of negative bookings within Thermal King, but you really need to combine Incoming order rates with backlog and really be looking at what the output is through revenue. Yes. Our view now John as we kind of look through the year is Ending 2022 and starting 2023 with a very strong backlog well above what our historical level will be.

Speaker 1

So today's point 1 or 2 quarters of some comping against some very strong order growth, but we see by the end of the year that's still being a very healthy back call. And we'll have tough comps in resi too, okay, just so you're aware. Just on the backlog, I just want to make sure everyone's clear. Our backlog will be $5,400,000,000 it was at the end of the year. If you look at that as a percentage of our Our midpoint revenue guide, it's like 35%.

Speaker 1

And in a normal year, your backlog would be like 20%. So I mean we have a very, very, very strong backlog for the year. Great. No, appreciate that. And maybe just a Quick one on uses of cash.

Speaker 1

Obviously, you called out elevated spend for repo in January. How does the deal pipeline look As you're thinking about the balance of the year and toggling between share repo and M and A? Thank you. Yes. Our M and I pipeline is robust and we look at a lot of opportunities as you would imagine being A major HVAC player in the industry.

Speaker 1

So we always have a full pipeline that we evaluate. John, I would add on the $1,900,000,000 to M and A and share repurchase, we did repurchase $350,000,000 here in January. So let's say approximately $1,500,000,000 left to deploy in the year. And from a modeling perspective, just given we can't Identify yet how much is to be spent on M and A versus share repurchase. We for our guidance, we just assumed the whole 1.5 $5,000,000 remaining would be the share repurchase kind of ratably over the remaining quarters of the year.

Speaker 1

So we'll update Everyone as we go quarter to quarter, but certainly our preference would be to spend some value of that $1,500,000,000 on M and A. Call. The

Operator

next question is from Gautam Kenna with Cowen. Your line is open.

Speaker 1

Doing well. Doing well. Hey, I just wanted to follow-up. I think you may have been Josh who asked the earlier question on NIM Spread. Can you talk a little bit about how in the commercial space, If at all, is the business model evolving?

Speaker 1

So customers concerned about ESG targets of their own, Presumably utilizing HVAC as a tool to hit those targets as opposed to just payback on energy savings or whatever As a stimulant to demand, are you seeing like performance contracts where if you can guarantee certain greenhouse reductions, you get Paid for it. Just sort of the terms of sort of the contract, are they changing in any meaningful way? And does that maybe allow for some pricing power in commercial that didn't exist before? It's a great question, Kyle. I would tell you that it's It's a great question.

Speaker 1

And I would tell you that it's very, very early innings there. But obviously, There's a lot of questions. We're getting calls from customers and asking how we can help them Decarbonize their built environment and one of the things we did, Gautam, that was maybe a little bit different than some is, we actually went out and practiced on ourselves First, so part of our commitments is to reduce our own greenhouse gas. So we're implementing Best practices in many of our facilities as well, so that we could take customers there and show them what we've done. Well, you're certainly on to the decarbonization as a service type environment And that is getting some traction.

Speaker 1

I would tell you it's very early innings, but it's getting traction. And just as a follow-up, do you think it It confers kind of greater pricing power in the commercial market, I mean, over time than has been the case historically where we think of it being more competitive than in A deeper example. Yes. I think the concentration of the customers. Yes.

Speaker 1

It's a fair question. I think We'll be able to write that chapter probably in the coming years here. But I would tell you that whenever we've had products And services that have high efficiency, that have complex Problems to solve for our customers, we tend to do very well.

Operator

The next question is from Deane Dray with RBC Capital Markets. Your line is open.

Speaker 1

Hey, Dean. How are you? Good morning. Doing real well. Thanks.

Speaker 1

I might have missed this, but did you size any revenue push out From 4Q into the Q1 that would be comparable to the 130 that got pushed out from 3Q. Yes. I mean, we did not, okay. So you didn't miss anything. But obviously, we did have some revenue that pushed out From Q4 into future periods, it's probably in the same realm that we saw Going from Q3 to Q4 in that $150,000,000 range, one thing that's different there in the 4th quarter, We had visibility working with our suppliers that we would recoup about half of that in the quarter, it will be in the Q4, which we did.

Speaker 1

We do not have that same visibility as we entered Q1. So obviously, we're not including that in our guide. Not including the guidance for the Q1, is that it? That's correct. That's correct.

Speaker 1

Got it. Obviously, the backlog will churn and It will be within the year for sure, but not in the Q1. Is that mostly electronic components still?

Operator

Yes.

Speaker 1

Yes. Electronic components is still the biggest concern we have. There have been some areas of supply chain that have improved Well, as I said earlier, but electronic components has got still we still have some significant choppiness there. Great. Just last question from me.

Speaker 1

On the increase in CapEx for the year, you referenced some higher returns. Can you size for us what kind of Returns you're getting on these projects and maybe an example of your own decarbonization investment you're doing? Yes, Dean. I think we see multiple categories kind of driving a little bit higher CapEx, again still within our range of 1% to 2%, but right now I think it to be closer to 2% in 2022. The categories would be around capacity expansion, driving further automation in the plants, Supply chain resiliency projects here as we kind of manage through this transitionary year in 2022 improving front end systems.

Speaker 1

Maybe one thing to highlight on the sustainability side, as we take older pieces of machinery offline, there's examples where you've got Three pieces of machinery in a factory that you're able to deploy 1 piece of machinery today just given improvements To technology and efficiency and for us that we should have a lower impact on the environment, a lower impact on energy usage. So So those are the types of things we can kind of lean in. I was out at one of our factories in the Midwest and they were showing me examples where they literally had Four old pieces of equipment and they took them out of service. These were old pieces of equipment that the old our Prior mindset would have been the assets fully depreciated. I only run it 40% of the time.

Speaker 1

I don't need the space. We take those out, we put into a new piece of equipment, dramatically reduce the energy load in the facility. In many cases, you're able to increase throughput with a newer machine, with newer technology and it's just Great program that they're working through as are many of our factories around the world. So it's sort of what we're Talking about all the time is don't wait for new you need to wait for new technology. Deploy what's available today and you're going to get significant benefit.

Speaker 1

And this is it's the same What we say is what we do. All sounds good. Thank you. All right. Thank you.

Speaker 1

Thanks.

Operator

That concludes our question and answer session. I'll turn the call over to Zach Nagle for any closing remarks.

Speaker 1

Great. Thanks, Chris. I'd like to thank everyone for joining us on today's call. As always, we'll be around for any questions that you may have in coming days weeks and we look forward to Hopefully, seeing many of you on the road in 2022. Thank you and have a great day.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. And you may now disconnect.

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Earnings Conference Call
Trane Technologies Q4 2021
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