Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed under Part I, Item 1A – Risk Factors in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as updated by any disclosures under Part II, Item 1A - Risk Factors in our Quarterly Reports on Form 10-Q. The following section is qualified in its entirety by the more detailed information, including our financial statements and the notes thereto, which appears elsewhere in this Quarterly Report.

Overview

Organizational

Trane Technologies plc is a global climate innovator. We bring sustainable and efficient solutions to buildings, homes and transportation through our strategic brands, Trane® and Thermo King®, and our environmentally responsible portfolio of products, services and connected intelligent controls.

2030 Sustainability Commitments

Our commitment to sustainability extends to the environmental and social impacts of our people, operations, products and services. We have announced ambitious sustainability commitments with a goal of achieving these commitments by 2030 (2030 Sustainability Commitments), including our Gigaton Challenge to reduce customers' carbon emissions by a billion metric tons. We are one of a handful of companies whose emissions reductions targets have been validated three times by the Science Based Targets Initiative (SBTi), and one of the very few companies worldwide whose net-zero targets have also been validated. We are Leading by Example as we make progress toward carbon-neutral operations and zero waste-to-landfill across our global footprint and net positive water use in water-stressed locations. Our Opportunity for All commitment focuses on gender parity in leadership, workforce diversity reflective of our communities, and a citizenship strategy that helps underserved communities through enhanced learning environments and pathways to green and Science, Technology, Engineering and Math (STEM) careers.

Recent Acquisitions

On May 2, 2023, we completed the acquisition of MTA S.p.A (MTA), a leading industrial process cooling technology business, which brings complementary, high-performing solutions to the comprehensive Commercial HVAC product and services portfolios in the EMEA and Americas segments. The results of the acquisition are reported within the EMEA and Americas segments.

On May 12, 2023, we completed the acquisition of Helmer Scientific Inc (Helmer), a precision temperature cooling company in the life sciences vertical within the Americas segment. The results of the acquisition are reported within the Americas segment.

Pending Acquisitions

During the third quarter of 2023, we signed a definitive agreement to acquire Nuvolo Technologies Corporation (Nuvolo), a global leader in modern, cloud-based enterprise asset management and connected workplace software and solutions. The acquisition will bring together the companies' complementary capabilities, technology, offerings and customer bases across shared key verticals, including healthcare, life sciences, retail, public infrastructure, education and more. The transaction is subject to regulatory approval, with closing expected in the fourth quarter of 2023.

Issuance of Senior Notes

In March 2023, we issued $700.0 million aggregate principal amount of 5.250% senior notes due 2033. The net proceeds were used to fund the redemption of the $700.0 million aggregate principal amount of the outstanding 4.250% Senior Notes due June 2023.

Significant Events

Reorganization of Aldrich and Murray

On June 18, 2020 (Petition Date), our indirect wholly-owned subsidiaries, Aldrich Pump LLC (Aldrich) and Murray Boiler LLC (Murray) each filed a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Western District of North Carolina in Charlotte (the Bankruptcy Court). As a result of the Chapter 11 filings, all asbestos-related lawsuits against Aldrich and Murray have been stayed due to the imposition of a statutory automatic stay applicable in Chapter 11 bankruptcy cases. Only Aldrich and Murray have filed for Chapter 11 relief. Neither Aldrich's wholly-owned subsidiary, 200 Park, Inc. (200 Park), Murray's wholly-owned subsidiary, ClimateLabs LLC (ClimateLabs), Trane Technologies plc nor its other subsidiaries (the Trane Companies) are part of the Chapter 11 filings.

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The goal of these Chapter 11 filings is to resolve equitably and permanently all current and future asbestos-related claims in a manner beneficial to claimants and to Aldrich and Murray through court approval of a plan of reorganization that would create a trust pursuant to section 524(g) of the Bankruptcy Code, establish claims resolution procedures for all current and future asbestos-related claims against Aldrich and Murray and channel such claims to the trust for resolution in accordance with those procedures.

Aldrich and its wholly-owned subsidiary 200 Park and Murray and its wholly-owned subsidiary ClimateLabs were deconsolidated as of the Petition Date and their respective assets and liabilities were derecognized from our Condensed Consolidated Financial Statements.

In 2021, Aldrich and Murray reached an agreement in principle with the court-appointed legal representative of future asbestos claimants (the FCR) and filed a motion to create a $270.0 million trust intended to constitute a "qualified settlement fund" within the meaning of the Treasury Regulations under Section 468B of the Internal Revenue Code (QSF). On January 27, 2022, the Bankruptcy Court granted the request to fund the QSF, which was funded on March 2, 2022, resulting in an operating cash outflow of $270.0 million in our Condensed Consolidated Statements of Cash Flows, of which $91.8 million was allocated to continuing operations and $178.2 million was allocated to discontinued operations for the nine months ended September 30, 2022.

On April 6, 2023, certain individual claimants filed a motion to dismiss the Chapter 11 cases. Subsequently, on May 15, 2023, the committee representing current asbestos claimants (the ACC) filed its own motion to dismiss the Chapter 11 cases. Aldrich, Murray and the FCR filed responses in opposition to each of these motions, and the Company filed papers joining in Aldrich and Murray's opposition. A hearing on the motions to dismiss was held on July 14, 2023. It is not possible to predict how the Bankruptcy Court will rule on the pending motions to dismiss the Chapter 11 cases, whether the Bankruptcy Court will approve the terms of a plan of reorganization, what the extent of the asbestos liability will be or how long the Chapter 11 cases will last. The Chapter 11 cases remain pending as of November 1, 2023.

See also the discussion in Note 18, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements.

Trends and Economic Events

We are a global corporation with worldwide operations. As a global business, our operations are affected by worldwide, regional and industry-specific economic factors as well as political and social factors wherever we operate or do business. Our geographic diversity and the breadth of our product and services portfolios have helped mitigate the impact of any one industry or the economy of any single country on our consolidated operating results.

Given our broad range of products manufactured and geographic markets served, management uses a variety of factors to predict the outlook for the Company. We monitor key competitors and customers in order to gauge relative performance and the outlook for the future. We regularly perform detailed evaluations of the different market segments we are serving to proactively detect trends and to adapt our strategies accordingly, including potential actions to be taken under recessionary scenarios. In addition, we believe our backlog and order levels are indicative of future revenue and thus are a key measure of anticipated performance.

Current economic conditions remain mixed across our end markets. Residual effects from the Coronavirus Disease 2019 (COVID-19) global pandemic have moderated as disruptions in the global supply chain and resource constraints have improved throughout the year.

We expect market conditions to remain mixed across the geographies where we serve customers. Overall Commercial HVAC markets remain strong due to demand for our differentiated customer driven solutions and the benefits of installing energy efficient products and decarbonizing the built environment, partially due to government regulation especially in the United States and Europe. Transport refrigeration and Residential markets remain mixed as these markets are normalizing with lead times returning to historical levels due to improved supply chains. We continue to see material, wage and energy inflation impact our cost structure. Our performance may be impacted by future developments that are uncertain. Geopolitical risk and macroeconomic events such as tightening credit conditions, higher interest rates, global banking uncertainty and the possibility of deteriorating overall economic conditions could negatively impact our business.

We believe we have a solid foundation of global brands that are highly differentiated across our portfolio of products and services. Our geographic mix and the diversity of our portfolio, coupled with our large installed product base, provides growth opportunities within our service revenue streams. As part of our long-term sustainability strategy, we innovate to provide solutions for our customers to address the impacts of these factors. In addition, we are investing substantial resources to innovate and develop new and existing products and services which we expect will drive our future growth.

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Results of Operations

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 - Consolidated Results

Dollar amounts in millions			2023						2022						Period Change						2023 % of revenues						2022 % of revenues
Net revenues			$	4,882.9					$	4,371.9					$	511.0
Cost of goods sold			(3,224.8)						(2,939.1)						(285.7)						66.0		%				67.2		%
Gross profit			1,658.1						1,432.8						225.3						34.0		%				32.8		%
Selling and administrative expenses			(793.9)						(693.3)						(100.6)						16.3		%				15.9		%
Operating income			864.2						739.5						124.7						17.7		%				16.9		%
Interest expense			(57.9)						(55.8)						(2.1)
Other income/(expense), net			(10.0)						(18.7)						8.7
Earnings before income taxes			796.3						665.0						131.3
Provision for income taxes			(157.5)						(104.7)						(52.8)
Earnings from continuing operations			638.8						560.3						78.5
Discontinued operations, net of tax			(6.5)						(7.9)						1.4
Net earnings			$	632.3					$	552.4					$	79.9

Net Revenues

Net revenues for the three months ended September 30, 2023 increased by 11.7%, or $511.0 million, compared with the same period in 2022, which resulted from the following:

Pricing			3.7		%
Volume			5.1		%
Acquisitions			2.7		%
Currency translation			0.2		%
Total			11.7		%

The increase in Net revenues was primarily driven by higher volumes driven by increased end-customer demand, realization of inflation-based price increases and incremental revenues from acquisitions. Refer to the “Results by Segment” below for a discussion of Net revenues by segment.

Gross Profit Margin

Gross profit margin for the three months ended September 30, 2023 increased 120 basis points to 34.0% compared to 32.8% for the same period of 2022 primarily due to price realization and gross productivity, partially offset by inflation and business reinvestment.

Selling and Administrative Expenses

Selling and administrative expenses for the three months ended September 30, 2023 increased by 14.5%, or $100.6 million compared with the same period of 2022. The increase in Selling and administrative expenses was primarily driven by higher commissions as a result of higher sales volumes and an increase in human capital related cost from investing in our people. In addition, merger and acquisition related costs as well as a prior year insurance settlement on a property claim for $25.0 million drove higher Selling and administrative expenses. Selling and administrative expenses as a percentage of Net revenues for the three months ended September 30, 2023 increased 40 basis points from 15.9% to 16.3%.

Interest Expense

Interest expense for the three months ended September 30, 2023 increased by 3.8%, or $2.1 million compared with the same period of 2022 primarily due to the issuance of $700.0 million of 5.250% senior notes due March 2033, partially offset by the redemption of $700.0 million of 4.250% senior notes due June 2023.

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Provision for Income Taxes

For the three months ended September 30, 2023 and September 30, 2022 our effective tax rate was 19.8% and 15.7%, respectively. The effective income tax rate for the three months ended September 30, 2023 was lower than the than the U.S. statutory rate of 21.0% primarily due to adjustments related to filing the U.S. Federal income tax return, excess tax benefits from employee share-based payments and earnings in non-U.S. jurisdictions, which in aggregate have a lower effective tax rate, partially offset by U.S. state and local taxes. The effective tax rate for the three months ended September 30, 2022 was lower than the U.S. statutory rate of 21.0% primarily due to a $33.1 million reduction in valuation allowances on certain net state deferred tax assets partially offset by a related $4.2 million expense associated with a deferred tax revaluation resulting from U.S. legal entity restructurings. These items have decreased the effective tax rate for the three months ended September 30, 2022 by 4.3 percentage points. In addition, adjustments related to filing the U.S. Federal income tax return, earnings in non-U.S. jurisdictions, which in aggregate have a lower effective tax rate, partially offset by U.S. state and local taxes, provided net effective tax benefits.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022 - Consolidated Results

Dollar amounts in millions			2023						2022						Period Change						2023 % of revenues						2022 % of revenues
Net revenues			$	13,253.5					$	11,917.9					$	1,335.6
Cost of goods sold			(8,867.6)						(8,172.6)						(695.0)						66.9		%				68.6		%
Gross profit			4,385.9						3,745.3						640.6						33.1		%				31.4		%
Selling and administrative expenses			(2,179.5)						(1,907.0)						(272.5)						16.4		%				16.0		%
Operating income			2,206.4						1,838.3						368.1						16.6		%				15.4		%
Interest expense			(177.1)						(167.6)						(9.5)
Other income/(expense), net			(76.8)						(21.0)						(55.8)
Earnings before income taxes			1,952.5						1,649.7						302.8
Provision for income taxes			(400.2)						(302.4)						(97.8)
Earnings from continuing operations			1,552.3						1,347.3						205.0
Discontinued operations, net of tax			(18.2)						(16.6)						(1.6)
Net earnings			$	1,534.1					$	1,330.7					$	203.4

Net Revenues

Net revenues for the nine months ended September 30, 2023 increased by 11.2%, or $1,335.6 million, compared with the same period in 2022, which resulted from the following:

Pricing			5.0		%
Volume			4.6		%
Acquisitions			2.1		%
Currency translation			(0.5)		%
Total			11.2		%

The increase in Net revenues was primarily driven by realization of inflation-based price increases, higher volumes driven by increased end-customer demand within all our reportable segments and incremental revenues from acquisitions, partially offset by an unfavorable impact from foreign currency translation. Refer to the “Results by Segment” below for a discussion of Net revenues by segment.

Gross Profit Margin

Gross profit margin for the nine months ended September 30, 2023 increased 170 basis points to 33.1% compared to 31.4% for the same period of 2022 primarily due to price realization and gross productivity, partially offset by inflation related to supply chain and higher costs to serve customers, as well as business reinvestment.

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Selling and Administrative Expenses

Selling and administrative expenses for the nine months ended September 30, 2023 increased by 14.3%, or $272.5 million, compared with the same period of 2022. The increase in Selling and administrative expenses was primarily driven by an increase in human capital related costs as a result of investing in our people. Additionally, higher commissions and customer facing travel costs as a result of higher sales volumes, merger and acquisition related costs and prior year insurance settlement on a property claim for $25.0 million were partially offset by a favorable change in the non-cash adjustment to contingent consideration of $33.9 million. Selling and administrative expenses as a percentage of Net revenues for the nine months ended September 30, 2023 increased 40 basis points from 16.0% to 16.4%.

Interest Expense

Interest expense for the nine months ended September 30, 2023 increased by 5.7%, or $9.5 million, compared with the same period of 2022 primarily due to the issuance of $700.0 million of 5.250% senior notes due March 2033 and interest costs associated with commercial paper issued during the period, partially offset by the redemption of $700.0 million of 4.250% senior notes due June 2023.

Provision for Income Taxes

For the nine months ended September 30, 2023 and September 30, 2022, our effective income tax rate was 20.5% and 18.3%, respectively. The effective tax rate for the nine months ended September 30, 2023 was lower than the U.S. statutory rate of 21.0% primarily due to excess tax benefits from employee share-based payments and earnings in non-U.S. jurisdictions, which in aggregate have a lower effective tax rate, partially offset by an impairment of an equity investment, which is currently nondeductible, and U.S. state and local taxes. The effective tax rate for the nine months ended September 30, 2022 was lower than the U.S. statutory rate of 21.0% primarily due to a $33.1 million reduction in valuation allowances on certain net state deferred tax assets partially offset by a related $4.2 million expense associated with a deferred tax revaluation resulting from U.S. legal entity restructurings. These items have reduced the effective tax rate for the nine months ended September 30, 2022 by 1.7 percentage points. In addition, excess tax benefits from employee share-based payments and earnings in non-U.S. jurisdictions, which in aggregate have a lower effective tax rate, partially offset by U.S. state and local taxes, provided net effective tax rate benefits.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 - Segment Results

We operate under four regional operating segments designed to create deep customer focus and relevance in markets around the world. We determined that our two EMEA operating segments meet the aggregation criteria based on similar operating and economic characteristics, resulting in one reportable segment. Therefore, we have three regional reportable segments, Americas, EMEA and Asia Pacific.

• Our Americas segment innovates for customers in North America and Latin America. The Americas segment encompasses commercial heating, cooling and ventilation systems, building controls, and energy services and solutions; residential heating and cooling; and transport refrigeration systems and solutions.

• Our EMEA segment innovates for customers in the Europe, Middle East and Africa region. The EMEA segment encompasses heating, cooling and ventilation systems, services and solutions for commercial buildings, and transport refrigeration systems and solutions.

• Our Asia Pacific segment innovates for customers throughout the Asia Pacific region. The Asia Pacific segment encompasses heating, cooling and ventilation systems, services and solutions for commercial buildings and transport refrigeration systems and solutions.

Management measures operating performance based on net earnings excluding interest expense, income taxes, depreciation and amortization, restructuring, non-cash adjustment for contingent consideration, insurance settlement on a property claim in Q3 2022, merger and acquisition related costs, impairment of equity investment, unallocated corporate expenses and discontinued operations (Segment Adjusted EBITDA). Segment Adjusted EBITDA is not defined under generally accepted accounting principles in the United States of America (GAAP) and may not be comparable to similarly-titled measures used by other companies and should not be considered a substitute for net earnings or other results reported in accordance with GAAP. We believe Segment Adjusted EBITDA provides the most relevant measure of profitability as well as earnings power and the ability to generate cash. This measure is a useful financial metric to assess our operating performance from period to period by excluding certain items that we believe are not representative of our core business and we use this measure for business planning purposes. Segment Adjusted EBITDA also provides a useful tool for assessing the comparability between periods and our ability to generate cash from operations sufficient to pay taxes, to service debt and to undertake capital expenditures because it eliminates non-cash charges such as depreciation and amortization expense.

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The following discussion compares our results for each of our three reportable segments for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

In millions			2023						2022						% change
Americas
Net revenues			$	3,888.0					$	3,481.4					11.7		%
Segment Adjusted EBITDA			809.0						697.7						16.0		%
Segment Adjusted EBITDA margin			20.8		%				20.0		%
EMEA
Net revenues			$	618.6					$	513.1					20.6		%
Segment Adjusted EBITDA			130.4						94.7						37.7		%
Segment Adjusted EBITDA margin			21.1		%				18.5		%
Asia Pacific
Net revenues			$	376.3					$	377.4					(0.3)		%
Segment Adjusted EBITDA			87.7						81.8						7.2		%
Segment Adjusted EBITDA margin			23.3		%				21.7		%
Total Net revenues			$	4,882.9					$	4,371.9					11.7		%
Total Segment Adjusted EBITDA			1,027.1						874.2						17.5		%
Total Segment Adjusted EBITDA margin			21.0		%				20.0		%

Americas

Net revenues for the three months ended September 30, 2023 increased by 11.7% or $406.6 million, compared with the same period of 2022.

The components of the period change were as follows:

Pricing			3.8		%
Volume			6.9		%
Acquisitions			1.1		%
Currency translation			(0.1)		%
Total			11.7		%

The increase in Net revenues was primarily driven by higher volumes driven by increased end-customer demand, realization of inflation-based price increases and incremental revenues from acquisitions. Excluding the impact of foreign currency translation and acquisitions, Net revenues increased by 10.7%.

Segment Adjusted EBITDA margin for the three months ended September 30, 2023 increased by 80 basis points to 20.8% compared to 20.0% for the same period in 2022 primarily due to price realization, partially offset by inflation and business reinvestment.

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EMEA

Net revenues for the three months ended September 30, 2023 increased by 20.6% or $105.5 million, compared with the same period of 2022.

The components of the period change were as follows:

Pricing			4.1		%
Volume			(0.8)		%
Acquisitions			11.8		%
Currency translation			5.5		%
Total			20.6		%

The increase in Net revenues was primarily driven by incremental revenues from acquisitions, a favorable impact from foreign currency translation and realization of inflation-based price increases, partially offset by slightly lower volumes. Excluding the impact of foreign currency translation and acquisitions, Net revenues increased by 3.3%.

Segment Adjusted EBITDA margin for the three months ended September 30, 2023 increased by 260 basis points to 21.1% compared to 18.5% for the same period of 2022, primarily due to price realization and gross productivity, partially offset by inflation, lower margin attribution from recent acquisitions, inclusive of integration costs, and continued business reinvestment.

Asia Pacific

Net revenues for the three months ended September 30, 2023 decreased by 0.3% or $1.1 million, compared with the same period of 2022.

The components of the period change were as follows:

Pricing			2.2		%
Volume			(3.4)		%
Acquisitions			3.9		%
Currency translation			(3.0)		%
Total			(0.3)		%

The decrease in Net revenues was primarily driven by lower volumes due to unfavorable comparisons in prior year as a result of the strong recovery in volumes following the ending of localized shutdowns in China related to COVID-19 and an unfavorable impact from foreign currency translation, partially offset by incremental revenues from acquisitions and realization of inflation-based price increases. Excluding the impact of foreign currency translation and acquisitions, Net revenues decreased by 1.2%

Segment Adjusted EBITDA margin for the three months ended September 30, 2023 increased by 160 basis points to 23.3% compared to 21.7% for the same period of 2022 primarily due to price realization and gross productivity, partially offset by inflation, lower margin attribution from a recent acquisition, inclusive of integration costs, and continued business reinvestment.

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Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022- Segment Results

The following discussion compares our results for each of our three reportable segments for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

In millions			2023						2022						% change
Americas
Net revenues			$	10,441.5					$	9,501.0					9.9		%
Segment Adjusted EBITDA			2,056.0						1,805.5						13.9		%
Segment Adjusted EBITDA as a percentage of net revenues			19.7		%				19.0		%
EMEA
Net revenues			$	1,746.8					$	1,476.0					18.3		%
Segment Adjusted EBITDA			342.6						246.2						39.2		%
Segment Adjusted EBITDA as a percentage of net revenues			19.6		%				16.7		%
Asia Pacific
Net revenues			$	1,065.2					$	940.9					13.2		%
Segment Adjusted EBITDA			231.6						168.6						37.4		%
Segment Adjusted EBITDA as a percentage of net revenues			21.7		%				17.9		%
Total net revenues			$	13,253.5					$	11,917.9					11.2		%
Total Segment Adjusted EBITDA			2,630.2						2,220.3						18.5		%
Total Segment Adjusted EBITDA margin			19.8		%				18.6		%

Americas

Net revenues for the nine months ended September 30, 2023 increased by 9.9% or $940.5 million, compared with the same period of 2022.

The components of the period change were as follows:

Pricing			5.1		%
Volume			4.2		%
Acquisitions			0.9		%
Currency translation			(0.3)		%
Total			9.9		%

The increase in Net revenues was primarily driven by realization of inflation-based price increases, higher volumes driven by increased end-customer demand and incremental revenues from acquisitions. Excluding the impact of foreign currency translation and acquisitions, Net revenues increased by 9.3%.

Segment Adjusted EBITDA margin for the nine months ended September 30, 2023 increased by 70 basis points to 19.7% compared to 19.0% for the same period of 2022 primarily due to price realization and gross productivity, partially offset by inflation related to supply chain and higher costs to serve customers, as well as business reinvestment.

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EMEA

Net revenues for the nine months ended September 30, 2023 increased by 18.3% or $270.8 million, compared with the same period of 2022.

The components of the period change were as follows:

Pricing			5.8		%
Volume			2.6		%
Acquisitions			9.4		%
Currency translation			0.5		%
Total			18.3		%

The increase in Net revenues was primarily driven by incremental revenues from acquisitions, realization of inflation-based price increases, higher volumes driven by increased end-customer demand and a favorable impact from foreign currency translation. Excluding the impact of foreign currency translation and acquisitions, Net revenues increased by 8.4%.

Segment Adjusted EBITDA margin for the nine months ended September 30, 2023 increased by 290 basis points to 19.6% compared to 16.7% for the same period of 2022 primarily due to price realization and gross productivity, partially offset by inflation related to supply chain and higher costs to serve customers, lower margin attribution from recent acquisitions inclusive of integration costs and continued business reinvestment.

Asia Pacific

Net revenues for the nine months ended September 30, 2023 increased by 13.2% or $124.3 million, compared with the same period of 2022.

The components of the period change were as follows:

Pricing			2.7		%
Volume			11.5		%
Acquisitions			3.7		%
Currency translation			(4.7)		%
Total			13.2		%

The increase in Net revenues was primarily driven by higher volumes related to increased end-market demand and prior year localized shutdowns in China related to COVID-19, incremental revenues from acquisitions and realization of inflation-based price increases were partially offset by an unfavorable impact from foreign currency translation. Excluding the impact of foreign currency translation and acquisitions, Net revenues increased by 14.2%.

Segment Adjusted EBITDA margin for the nine months ended September 30, 2023 increased by 380 basis points to 21.7% compared to 17.9% for the same period of 2022 primarily due to price realization, higher volumes and gross productivity, partially offset by lower margin attribution from a recent acquisition inclusive of integration costs, continued business reinvestment and inflation related to supply chain and higher costs to serve customers.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and income tax payments. Our cash requirements primarily consist of the following:

• Funding of working capital

• Debt service requirements

• Funding of capital expenditures

• Dividend payments

*•*Funding of acquisitions, joint ventures and equity investments

• Share repurchases

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Our primary sources of liquidity include cash balances on hand, cash flow from operations, proceeds from debt offerings, commercial paper, and borrowing availability under our existing credit facilities. We earn a significant amount of our operating income in jurisdictions where it is deemed to be permanently reinvested. Our most prominent jurisdiction of operation is the U.S. We expect existing cash and cash equivalents available to the U.S. operations, the cash generated by our U.S. operations, our committed credit lines as well as our expected ability to access the capital and debt markets will be sufficient to fund our U.S. operating and capital needs for at least the next twelve months and thereafter for the foreseeable future. In addition, we expect existing non-U.S. cash and cash equivalents and the cash generated by our non-U.S. operations will be sufficient to fund our non-U.S. operating and capital needs for at least the next twelve months and thereafter for the foreseeable future. The maximum aggregate amount of unsecured commercial paper notes available to be issued, on a private placement basis, under the commercial paper program is $2.0 billion, of which we had no outstanding balance as of September 30, 2023.

As of September 30, 2023, we had $960.0 million of cash and cash equivalents on hand, of which $619.1 million was held by non-U.S. subsidiaries. Cash and cash equivalents held by our non-U.S. subsidiaries are generally available for use in our U.S. operations via intercompany loans, equity infusions or via distributions from direct or indirectly owned non-U.S. subsidiaries for which we do not assert permanent reinvestment. In general, repatriation of cash to the U.S. can be completed with no significant incremental U.S. tax. However, to the extent that we repatriate funds from non-U.S. subsidiaries for which we assert permanent reinvestment to fund our U.S. operations, we would be required to accrue and pay applicable non-U.S. taxes. As of September 30, 2023, we currently have no plans to repatriate funds from subsidiaries for which we assert permanent reinvestment.

We expect to pay a competitive and growing dividend. Since the launch of Trane Technologies in March 2020, we have increased our quarterly share dividend by 42%, from $0.53 to $0.75 per ordinary share, or $2.12 to $3.00 per share annualized. The first, second, and third quarter 2023 dividends were declared and paid during the nine months ended September 30, 2023.

Share repurchases are made from time to time in accordance with management's capital allocation strategy, subject to market conditions and regulatory requirements. In February 2022, our Board of Directors authorized a share repurchase program of up to $3.0 billion of our ordinary shares (2022 Authorization) upon the completion of our $2.0 billion ordinary share repurchase program authorized in 2021 (2021 Authorization). During the nine months ended September 30, 2023, we repurchased and canceled approximately $460 million of our ordinary shares, completing the 2021 Authorization and initiating repurchases under the 2022 Authorization of approximately $260 million of our ordinary shares leaving $2.7 billion remaining under the 2022 Authorization. Additionally, through October 31, 2023, we repurchased approximately $90 million of our ordinary shares under the 2022 Authorization.

We continue to actively manage and strengthen our business portfolio to meet the current and future needs of our customers. We achieve this partly through engaging in research and development and sustaining activities and partly through acquisitions. Sustaining activities include costs incurred to reduce production costs, improve existing products, create custom solutions for customers and provide support to our manufacturing facilities. Our research and development and sustaining costs account for approximately two percent of annual net revenues. Each year, we make investments in new product development and new technology innovation as they are key factors in achieving our strategic objectives as a leader in the climate sector.

We continue to look for similar improvement opportunities including, but not limited to, increasing energy efficiency, developing products that allow for use of lower global warming potential ("GWP") refrigerants, reducing material content in products, and designing products for circularity. All new product development (NPD) programs must complete a Design for Sustainability module within our NPD process to ensure that every program has a positive impact on sustainability. We also focus on partnering with our suppliers and technology providers to align their investment decisions with our technical requirements.

In pursuing our business strategy, we routinely conduct discussions, evaluate targets and enter into agreements regarding possible acquisitions, divestitures, joint ventures and equity investments. Since 2020, we acquired several businesses, entered into joint ventures and invested in companies that complement existing products and services further enhancing our product portfolio.

We incur costs associated with restructuring initiatives intended to result in improved operating performance, profitability and working capital levels. Actions associated with these initiatives may include workforce reductions, improving manufacturing productivity, realignment of management structures and rationalizing certain assets. Post separation, we have reduced costs by approximately $240 million through December 31, 2022 and are on track to reduce costs by an additional $60 million during 2023 for a total of $300 million in total annual savings under our transformation initiatives. In order to achieve these cost savings, we anticipate to incur costs up to $150 million through 2023. We have incurred approximately $134 million of costs cumulatively through September 30, 2023. We believe that our existing cash flow, committed credit lines and access to the capital markets will be sufficient to fund share repurchases, dividends, research and development, sustaining activities, business portfolio changes and ongoing restructuring actions.

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Certain of our subsidiaries entered into Funding Agreements with Aldrich and Murray pursuant to which those subsidiaries are obligated, among other things, to pay the costs and expenses of Aldrich and Murray during the pendency of the Chapter 11 cases to the extent distributions from their respective subsidiaries are insufficient to do so and to provide an amount for the funding for a trust established pursuant to section 524(g) of the Bankruptcy Code, to the extent that the other assets of Aldrich and Murray are insufficient to provide the requisite trust funding. During the third quarter of 2021, Aldrich and Murray filed a motion with the Bankruptcy Court to create a $270 million QSF. The funds held in the QSF would be available to provide funding for the Section 524(g) Trust upon effectiveness of the Plan. On January 27, 2022, the Bankruptcy Court granted the request to fund the QSF, which was funded on March 2, 2022.

Liquidity

The following table contains several key measures of our financial condition and liquidity at the period ended:

In millions			September 30, 2023						December 31, 2022
Cash and cash equivalents			$	960.0					$	1,220.5
Short-term borrowings and current maturities of long-term debt			348.3						1,048.0
Long-term debt			4,476.3						3,788.3
Total debt			4,824.6						4,836.3
Total Trane Technologies plc shareholders’ equity			6,681.8						6,088.6
Total equity			6,700.4						6,105.2
Debt-to-total capital ratio			41.9		%				44.2		%

Debt and Credit Facilities

As of September 30, 2023, our short-term obligations primarily consist of $340.8 million of fixed rate debentures that contain a put feature that the holders may exercise on each anniversary of the issuance date. If exercised, we are obligated to repay in whole or in part, at the holder’s option, the outstanding principal amount (plus accrued and unpaid interest) of the debentures held by the holder. We also maintain a commercial paper program which is used for general corporate purposes. Under the program, the maximum aggregate amount of unsecured commercial paper notes available to be issued, on a private placement basis, is $2.0 billion. We had no commercial paper outstanding at September 30, 2023 and December 31, 2022. See Note 6, "Debt and Credit Facilities," to the Condensed Consolidated Financial Statements for additional information regarding the terms of our short-term obligations.

Our long-term obligations primarily consist of long-term debt with final maturity dates ranging between 2024 and 2049. In addition, we maintain two $1.0 billion senior unsecured revolving credit facilities, one of which matures in June 2026 and the other which matures in April 2027. The facilities provide support for our commercial paper program and can be used for working capital and other general corporate purposes. Total commitments of $2.0 billion were unused at September 30, 2023 and December 31, 2022. See Note 6, "Debt and Credit Facilities," to the Condensed Consolidated Financial Statements and further below in Supplemental Guarantor Financial Information for additional information regarding the terms of our long-term obligations and their related guarantees.

Cash Flows

The following table reflects the major categories of cash flows for the nine months ended September 30. For additional details, see the Condensed Consolidated Statements of Cash Flows in the Condensed Consolidated Financial Statements.

In millions			2023						2022
Net cash provided by (used in) continuing operating activities			$	1,482.6					$	933.4
Net cash provided by (used in) continuing investing activities			(736.1)						(325.2)
Net cash provided by (used in) continuing financing activities			(952.1)						(1,413.0)

Operating Activities

Net cash provided by continuing operating activities for the nine months ended September 30, 2023 was $1,482.6 million, of which Net earnings provided $1,895.4 million after adjusting for non-cash transactions. Net cash provided by continuing operating activities for the nine months ended September 30, 2022 was $933.4 million, of which Net earnings provided $1,643.4 million after adjusting for non-cash transactions. The year-over-year increase in net cash from continuing operating activities was primarily due to higher net earnings and improved cash conversion cycle. Additionally, during the nine months ended September 30, 2022, we funded the continuing operations component of the QSF for $91.8 million.

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Investing Activities

Cash flows from investing activities represent inflows and outflows regarding the purchase and sale of assets. Primary activities associated with these items include capital expenditures, proceeds from the sale of property, plant and equipment, acquisitions, investments in joint ventures and complementary businesses and divestitures. During the nine months ended September 30, 2023, net cash used in investing activities from continuing operations was $736.1 million. The primary drivers of the usage were attributable to the acquisition of businesses for $510.2 million, net of cash acquired and capital expenditures of $217.2 million, primarily within the Americas and EMEA segments. During the nine months ended September 30, 2022, net cash used in investing activities from continuing operations was $325.2 million. The primary driver of the usage was attributable to capital expenditures of $202.8 million and the acquisition of businesses for $109.6 million, net of cash acquired, primarily within the Americas segment.

Financing Activities

Cash flows from financing activities represent inflows and outflows that account for external activities affecting equity and debt. Primary activities associated with these actions include paying dividends to shareholders, repurchasing our own shares, issuing our own stock and debt transactions. During the nine months ended September 30, 2023, net cash used in financing activities from continuing operations was $952.1 million. The primary drivers of the outflow related to dividends paid to ordinary shareholders of $513.0 million and the repurchase of $459.8 million in ordinary shares. In addition, we received $699.1 million in proceeds from the issuance of 5.250% senior notes due March 2033 which was offset by the redemption of $700.0 million of senior notes due June 2023. During the nine months ended September 30, 2022, net cash used in financing activities from continuing operations was $1,413.0 million. The primary drivers of the outflow related to the repurchase of $900.1 million in ordinary shares and dividends paid to ordinary shareholders of $467.0 million.

Free Cash Flow

Free cash flow is a non-GAAP measure and defined as Net cash provided by (used in) continuing operating activities adjusted for capital expenditures, cash payments for restructuring, transformation costs, merger and acquisition (M&A) related costs, the continuing operations component of the QSF funding, and payout of executive compensation less an insurance settlement on a property claim in Q3 2022. This measure is useful to management and investors because it is consistent with management's assessment of our operating cash flow performance. The most comparable GAAP measure to free cash flow is Net cash provided by (used in) continuing operating activities. Free cash flow may not be comparable to similarly-titled measures used by other companies and should not be considered a substitute for Net cash provided by (used in) continuing operating activities in accordance with GAAP.

A reconciliation of Net cash provided by (used in) continuing operating activities to free cash flow for the nine months ended September 30 is as follows:

In millions			2023						2022
Net cash provided by continuing operating activities			$	1,482.6					$	933.4
Capital expenditures			(217.2)						(202.8)
Cash payments for restructuring			8.8						20.4
Transformation costs paid			3.5						8.9
M&A transaction costs			10.7						—
QSF funding (continuing operations component)			—						91.8
Compensation related payment to a retired executive			—						64.3
Insurance settlement on a property claim in Q3 2022			—						(25.0)
Free cash flow (1)			$	1,288.4					$	891.0

(1) Represents a non-GAAP measure.

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Pensions

Our investment objective in managing defined benefit plan assets is to ensure that all present and future benefit obligations are met as they come due. We seek to achieve this goal while trying to mitigate volatility in plan funded status, contribution and expense by better matching the characteristics of the plan assets to that of the plan liabilities. We use a dynamic approach to asset allocation whereby a plan's allocation to fixed income assets increases as the plan's funded status improves. We monitor plan funded status and asset allocation regularly in addition to investment manager performance.

We monitor the impact of market conditions on our defined benefit plans on a regular basis. None of our defined benefit pension plans have experienced a significant impact on their liquidity due to market volatility. The Company currently projects that it will contribute a total of approximately $97 million to our enterprise plans worldwide in 2023. For further details on pension plan activity, see Note 9, "Pensions and Postretirement Benefits Other than Pensions," to the Condensed Consolidated Financial Statements.

Supplemental Guarantor Financial Information

Trane Technologies plc (Plc or Parent Company) and certain of its 100% directly or indirectly owned subsidiaries provide guarantees of public debt issued by other 100% directly or indirectly owned subsidiaries of Plc. The following table shows our guarantor relationships as of September 30, 2023:

Parent, issuer or guarantors			Notes issued			Notes guaranteed
Trane Technologies plc (Plc)			None			All registered notes and debentures
Trane Technologies Irish Holdings Unlimited Company (TT Holdings)			None			All notes issued by TTFL and TTC HoldCo
Trane Technologies Lux International Holding Company S.à.r.l. (TT International)			None			All notes issued by TTFL and TTC HoldCo
Trane Technologies Global Holding Company Limited (TT Global)			None			All notes issued by TTFL and TTC HoldCo
Trane Technologies Financing Limited (TTFL)			3.550% Senior notes due 2024 3.500% Senior notes due 2026 3.800% Senior notes due 2029 5.250% Senior notes due 2033 4.650% Senior notes due 2044 4.500% Senior notes due 2049			All notes and debentures issued by TTC HoldCo and TTC
Trane Technologies HoldCo Inc. (TTC HoldCo)			3.750% Senior notes due 2028 5.750% Senior notes due 2043 4.300% Senior notes due 2048			All notes issued by TTFL
Trane Technologies Company LLC (TTC)			7.200% Debentures due 2023-2025 6.480% Debentures due 2025 Puttable debentures due 2027-2028			All notes issued by TTFL and TTC HoldCo

Each subsidiary debt issuer and guarantor is owned 100% directly or indirectly by the Parent Company. Each guarantee is full and unconditional, and provided on a joint and several basis. There are no significant restrictions of the Parent Company, or any guarantor, to obtain funds from its subsidiaries, such as provisions in debt agreements that prohibit dividend payments, loans or advances to the Parent Company by a subsidiary. The following tables present summarized financial information for the Parent Company and subsidiary debt issuers and guarantors on a combined basis (together, "obligor group") after elimination of intercompany transactions and balances based on the Company’s legal entity ownerships and guarantees outstanding at September 30, 2023. Our obligor groups as of September 30, 2023 were as follows: Obligor group 1 consists of Plc, TT Holdings, TT International, TT Global, TTFL, TTC HoldCo and TTC; Obligor group 2 consists of Plc, TTFL and TTC.

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Summarized Statements of Earnings

			Nine months ended September 30, 2023
In millions			Obligor group 1						Obligor group 2
Net revenues			$	—					$	—
Gross profit (loss)			—						—
Intercompany interest and fees			(111.1)						118.8
Earnings (loss) from continuing operations			(339.8)						(73.9)
Discontinued operations, net of tax			(17.5)						(17.8)
Net earnings (loss)			(357.3)						(91.7)
Less: Net earnings attributable to noncontrolling interests			—						—
Net earnings (loss) attributable to Trane Technologies plc			$	(357.3)					$	(91.7)

Summarized Balance Sheets

			September 30, 2023
In millions			Obligor group 1						Obligor group 2
ASSETS
Intercompany receivables			$	935.3					$	2,036.4
Current assets			1,156.1						2,236.8
Intercompany notes receivable			1,831.9						4,081.6
Noncurrent assets			2,531.0						4,690.2
LIABILITIES
Intercompany payables			3,497.2						1,092.9
Current liabilities			4,324.2						1,866.8
Intercompany notes payable			4,000.0						4,000.0
Noncurrent liabilities			9,059.9						7,701.2

			December 31, 2022
In millions			Obligor group 1						Obligor group 2
ASSETS
Intercompany receivables			$	860.0					$	1,092.1
Current assets			1,011.6						1,231.7
Intercompany notes receivable			1,831.9						4,781.6
Noncurrent assets			2,582.3						5,383.1
LIABILITIES
Intercompany payables			3,303.5						1,792.1
Current liabilities			4,851.8						2,611.9
Intercompany notes payable			2,400.0						2,400.0
Noncurrent liabilities			6,789.8						5,433.4

For a further discussion of Liquidity and Capital Resources, refer to the discussion under that heading herein and in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contained in our Annual Report on Form 10-K for the period ended December 31, 2022.

Commitments and Contingencies

We are involved in various litigation, claims and administrative proceedings, including those related to the bankruptcy proceedings for Aldrich and Murray and environmental and product liability matters. Amounts recorded for identified contingent liabilities are estimates, which are reviewed periodically and adjusted to reflect additional information when it becomes available. Subject to the uncertainties inherent in estimating future costs for contingent liabilities, except as expressly set forth in Note 18, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements, management believes that the liability which may result from these legal matters would not have a material adverse effect on our financial condition, results of operations, liquidity or cash flows.

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Critical Accounting Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to use judgments in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses, as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from estimates.

Management believes there have been no significant changes during the nine months ended September 30, 2023, to the items that we disclosed as our critical accounting estimates in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Pronouncements

See Note 2, "Recent Accounting Pronouncements," to the Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements.

Safe Harbor Statement

Certain statements in this report, other than purely historical information, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “forecast,” “outlook,” “intend,” “strategy,” “plan,” "may", “might,” “could,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” or the negative thereof or variations thereon or similar terminology generally intended to identify forward-looking statements.

Forward-looking statements may relate to such matters as projections of revenue, margins, expenses, tax provisions, earnings, cash flows, benefit obligations, share or debt repurchases or other financial items; any statements of the plans, strategies and objectives of management for future operations, including those relating to any statements concerning expected development, performance or market share relating to our products and services; any statements regarding future economic conditions or our performance including our future performance statements related to the continued impact of the COVID-19 global pandemic; any statements regarding our sustainability and Environmental, Social, and Governance (ESG) commitments; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. These statements are based on currently available information and our current assumptions, expectations and projections about future events. While we believe that our assumptions, expectations and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on our forward-looking statements. You are advised to review any further disclosures we make on related subjects in materials we file with or furnish to the SEC. Forward-looking statements speak only as of the date they are made and are not guarantees of future performance. They are subject to future events, risks and uncertainties - many of which are beyond our control - as well as potentially inaccurate assumptions, that could cause actual results to differ materially from our expectations and projections. We do not undertake to update any forward-looking statements.

Factors that might affect our forward-looking statements include, among other things:

• overall economic, political and business conditions in the markets in which we operate including recessions, economic downturns, financial institution disruptions, price instability, slowing economic growth and social and political instability;

• impacts of the COVID-19 global pandemic on our business operations, financial results and financial position and on the world economy;

• commodity shortages, supply chain risks and price increases;

• national and international conflict, including war, civil disturbances and terrorist acts, such as the Russia-Ukraine conflict;

• trade protection measures such as import or export restrictions and requirements, the imposition of tariffs and quotas or revocation or material modification of trade agreements;

• competitive factors in the industries in which we compete;

• the development, commercialization and acceptance of new and enhanced products and services;

• attracting and retaining talent;

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• work stoppages, union negotiations, labor disputes and similar issues;

• other capital market conditions, including availability of funding sources, interest rate fluctuations and other changes in borrowing costs;

• currency exchange rate fluctuations, exchange controls and currency devaluations;

• the outcome of any litigation, governmental investigations, claims or proceedings;

• risks and uncertainties associated with the Chapter 11 proceedings for our deconsolidated subsidiaries Aldrich and Murray;

• the impact of potential information technology system failures, vulnerabilities, data security breaches or other cybersecurity issues;

• evolving data privacy and protection laws;

• intellectual property infringement claims and the inability to protect our intellectual property rights;

• changes in laws and regulations;

• health epidemics or pandemics or other contagious outbreaks;

• climate change, changes in weather patterns, natural disasters and seasonal fluctuations;

• national, regional and international regulations and policies associated with climate change and the environment;

• the outcome of any tax audits or settlements;

• the strategic acquisition or divestiture of businesses, product lines and joint ventures;

• impairment of our goodwill, indefinite-lived intangible assets and/or our long-lived assets; and

• changes in tax laws and requirements (including tax rate changes, new tax laws, new and/or revised tax law interpretations and any legislation that may limit or eliminate potential tax benefits resulting from our incorporation in a non-U.S. jurisdiction, such as Ireland).

Some of the significant risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There may also be other factors that have not been anticipated or that are not described in our periodic filings with the SEC, generally because we did not believe them to be significant at the time, which could cause results to differ materially from our expectations.

Available Information

We have used, and intend to continue to use, the homepage, the investor relations and the “News” section of our website (www.tranetechnologies.com), among other sources such as press releases, public conference calls and webcasts, as a means of disclosing additional information, which may include future developments regarding the Company and/or material non-public information. We encourage investors, the media, and others interested in our Company to review the information it makes public in these locations on its website.

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