Trane Technologies 10-Q 2024-03-31

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-Q

_______________________________

For the quarterly period ended March 31, 2024

or

For the transition period from to

Commission File Number 001-34400

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TRANE TECHNOLOGIES PLC

(Exact name of registrant as specified in its charter)

_______________________________

170/175 Lakeview Dr.

Airside Business Park

Swords Co. Dublin

Ireland

(Address of principal executive offices, including zip code)

+(353) (0) 18707400

(Registrant’s telephone number, including area code)

_______________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of ordinary shares outstanding of Trane Technologies plc as of April 26, 2024 was 226,352,436.

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TRANE TECHNOLOGIES PLC

FORM 10-Q

INDEX

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PART I - FINANCIAL INFORMATION

See accompanying notes to Condensed Consolidated Financial Statements.

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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, 2023, 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 and first in our industry whose net-zero targets have also been validated. Our emissions reduction commitments align with the Paris Climate Accord net-zero targets, consistent with limiting global temperature rise to no more than 1.5 °C. Our 2030 Sustainability Commitments for scopes 1, 2, and 3 will guide our emissions reduction efforts through 2030, with an emphasis on reducing our largest source: the emissions generated from customer use of our products. 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.

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.

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, 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.

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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. On December 28, 2023, the Bankruptcy Court entered an order denying the motions to dismiss the Chapter 11 cases. On January 11, 2024, the ACC and the individual claimants filed motions seeking leave to appeal the order denying the motions to dismiss and to certify the appeals directly to the Court of Appeals for the Fourth Circuit (the Fourth Circuit). At a hearing on February 9, 2024, the Bankruptcy Court granted the motions to certify direct appeals to the Fourth Circuit. On April 17, 2024, the Fourth Circuit entered an order denying the petitions for direct appeal. It is not possible to predict whether an appellate court will affirm or reverse the Bankruptcy Court order denying the motions to dismiss, 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 April 30, 2024.

See also the discussion in Note 17, "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 geopolitical 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 triggers and 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.

We expect market conditions to remain mixed across our end markets and 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, aided by supportive policies and regulations especially in the United States and Europe. Transport refrigeration markets are experiencing lower demand as customers adjust to lower freight rates. Residential markets continue to reflect uncertainty from the normalization of channel inventory across the industry, inflationary and economic risks and higher interest rates.

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 risks and macroeconomic events could cause disruptions to operations, supply chains, end markets, financial markets and overall economic conditions which could negatively impact our business.

We believe we have a solid foundation of global brands that are highly differentiated in all of our major product lines. Our geographic mix and the diversity of our portfolio, coupled with our large installed product base, provides growth opportunities from replacement demand and within our service revenue streams. In addition, we are investing substantial resources to innovate and develop new products and services which we expect will drive future growth.

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Results of Operations

Non-GAAP Financial Measures

Organic Revenue

We define organic revenue as net revenues adjusted to eliminate currency fluctuations and the impact of acquisitions and divestitures. Organic revenue 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 revenue as determined in accordance with GAAP. Selected references are made to revenue growth on an organic basis so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates and without the impacts of acquisitions, thereby providing comparisons of operational performance from period to period of the business that we have owned during both periods presented. We believe organic revenue growth provides investors with useful supplemental information about our revenues in both periods presented.

Segment Adjusted EBITDA

Management measures segment operating performance based on net earnings excluding interest expense, income taxes, depreciation and amortization, restructuring, non-cash adjustment for contingent consideration, merger and acquisition-related costs, unallocated corporate expenses and discontinued operations (Segment Adjusted EBITDA). Segment Adjusted EBITDA is not defined under 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, service debt and undertake capital expenditures because it eliminates non-cash charges such as depreciation and amortization expense.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023 - Consolidated Results

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Net Revenues

Net revenues for the three months ended March 31, 2024 increased by 15.0%, or $549.7 million, compared with the same period in 2023, which resulted from the following:

(1) Represents a non-GAAP measure. For more information, see "Non-GAAP Financial Measures."

The increase in Net revenues was primarily driven by higher volumes as a result of increased end-customer demand within our reportable segments, realization of price increases and incremental revenue 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 three months ended March 31, 2024 increased 340 basis points to 34.6% compared to 31.2% for the same period of 2023 primarily due to gross productivity and price realization, partially offset by inflation.

Selling and Administrative Expenses

Selling and administrative expenses for the three months ended March 31, 2024 increased by 20.3%, or $139.4 million compared with the same period of 2023. The increase in Selling and administrative expenses was primarily driven by an increase in human capital costs related to investing in our people, higher sales commissions, merger and acquisition related costs, including additional headcount and amortization of intangibles, and higher levels of business reinvestment. Selling and administrative expenses as a percentage of Net revenues for the three months ended March 31, 2024 increased 90 basis points from 18.7% to 19.6%.

Provision for Income Taxes

On December 18, 2023, Ireland enacted legislation related to the 15% minimum tax element of the Organisation for Economic Co-operation and Development (OECD) tax reform initiative, commonly referred to as “Pillar Two," effective January 1, 2024. We have included the impact of Pillar Two in our full year 2024 estimated annual effective income tax rate. We will continue to monitor and evaluate the potential impacts of proposed legislative changes as new guidance becomes available.

For the three months ended March 31, 2024 and March 31, 2023 our effective tax rate was 19.2% and 18.8%, respectively. The effective income tax rate for the three months ended March 31, 2024 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, including the impacts of Pillar Two, 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 March 31, 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 U.S. state and local taxes.

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023 - Segment Results

We operate under three regional operating segments designed to create deep customer focus and relevance in markets around the world. Intercompany sales between segments are immaterial.

• 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 solutions, 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.

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The following discussion compares our results for each of our three reportable segments for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Americas

Net revenues for the three months ended March 31, 2024 increased by 16.6% or $473.8 million, compared with the same period of 2023.

The components of the period change were as follows:

(1) Represents a non-GAAP measure. For more information, see "Non-GAAP Financial Measures."

The increase in organic revenue was primarily driven by higher volumes led by strong demand and realization of price increases for both equipment and services within our Commercial HVAC business, partially offset by the softening of transport markets.

The increase in revenue from acquisitions includes MTA S.p.A (MTA) and Helmer Scientific Inc (Helmer) which were acquired in May 2023, and Nuvolo Technologies Corporation (Nuvolo) which was acquired in November 2023. Together these acquisitions increased Net revenues in our Americas segment by 1.7% compared to the corresponding prior-year period.

Segment Adjusted EBITDA margin for the three months ended March 31, 2024 increased by 220 basis points to 18.1% compared to 15.9% for the same period in 2023 primarily due to price realization, gross productivity and higher volumes, partially offset by inflation and continued business reinvestment.

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EMEA

Net revenues for the three months ended March 31, 2024 increased by 8.4% or $42.9 million, compared with the same period of 2023.

The components of the period change were as follows:

(1) Represents a non-GAAP measure. For more information, see "Non-GAAP Financial Measures."

The increase in organic revenue was primarily driven by higher volumes led by strong demand within our Commercial HVAC business.

Segment Adjusted EBITDA margin for the three months ended March 31, 2024 decreased by 50 basis points to 18.0% compared to 18.5% for the same period of 2023, primarily due to inflation, the devaluation of the Egyptian pound and continued business reinvestment, partially offset by gross productivity, higher volumes and price realization.

Asia Pacific

Net revenues for the three months ended March 31, 2024 increased by 11.2% or $33.0 million, compared with the same period of 2023.

The components of the period change were as follows:

(1) Represents a non-GAAP measure. For more information, see "Non-GAAP Financial Measures."

The increase in organic revenue was primarily driven by higher volumes related to end-customer demand and the realization of price increases for both equipment and services within our Commercial HVAC business.

Segment Adjusted EBITDA margin for the three months ended March 31, 2024 increased by 220 basis points to 21.6% compared to 19.4% for the same period of 2023 primarily due to higher volumes, gross productivity and price realization, partially offset by inflation and continued business reinvestment.

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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

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 $100.0 million outstanding as of March 31, 2024.

As of March 31, 2024, we had $849.9 million of cash and cash equivalents on hand, of which $674.0 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. As a result of the Tax Cuts and Jobs Act in 2017, additional repatriation opportunities to access cash and cash equivalents held by non-U.S. subsidiaries have been created. 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 March 31, 2024, 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 58%, from $0.53 to $0.84 per ordinary share, or $2.12 to $3.36 per share annualized. The first quarter 2024 dividend was declared and paid during the three months ended March 31, 2024.

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). During the three months ended March 31, 2024, we repurchased and canceled approximately $300 million of our ordinary shares, leaving $2.2 billion remaining under the 2022 Authorization. Additionally, in April 2024, we repurchased approximately $131 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. In addition, we make investments in technology and business for our operational sustainability programs.

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.

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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. We believe that our existing cash balances, anticipated cash flow from operations, 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.

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:

Debt and Credit Facilities

As of March 31, 2024, our short-term obligations primarily consist of current maturities of $499.6 million of long-term debt that matures in November 2024 and $295.0 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. Holders who had the option to exercise puts up to $37.2 million for settlement in February 2024 did not exercise such option. In the months of September and October 2024, in accordance with notice requirements as specified in the offering documents, holders will have the option to elect to exercise puts up to $257.8 million for settlement in November 2024. 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 $100.0 million of commercial paper outstanding at March 31, 2024. We had no outstanding balance under the commercial paper program as of December 31, 2023. 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 2025 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 March 31, 2024 and December 31, 2023. 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.

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Cash Flows

The following table reflects the major categories of cash flows for the three months ended March 31. For additional details, see the Condensed Consolidated Statements of Cash Flows in the Condensed Consolidated Financial Statements.

Operating Activities

Net cash provided by continuing operating activities for the three months ended March 31, 2024 was $254.4 million, of which Net earnings provided $584.0 million after adjusting for non-cash transactions. Net cash provided by continuing operating activities for the three months ended March 31, 2023 was $16.8 million, of which Net earnings provided $431.2 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 an improved cash conversion cycle.

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 divestitures. During the three months ended March 31, 2024, net cash used in investing activities from continuing operations was $81.7 million. The primary driver of the usage was attributable to capital expenditures of $83.8 million, partially offset by cash provided by other investing activities. During the three months ended March 31, 2023, net cash used in investing activities from continuing operations was $91.0 million. The primary driver of the usage was attributable to capital expenditures of $77.1 million.

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 stock and debt transactions. During the three months ended March 31, 2024, net cash used in financing activities from continuing operations was $386.7 million. The primary drivers of the outflow related to the repurchase of $300.3 million in ordinary shares and dividends paid to ordinary shareholders of $189.5 million, partially offset by borrowings from commercial paper, net of interest, during the period of $99.9 million. During the three months ended March 31, 2023, net cash used in financing activities from continuing operations was $459.2 million. The primary drivers of the outflow related to the repurchase of $300.0 million in ordinary shares and dividends paid to ordinary shareholders of $170.3 million. 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.

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, legacy legal liability, transformation costs and merger and acquisition (M&A) related costs. 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.

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A reconciliation of Net cash provided by (used in) continuing operating activities to free cash flow for the three months ended March 31 is as follows:

(1) Represents a non-GAAP measure.

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 to increase fixed income assets as the plan's funded status improves. We monitor plan funded status and asset allocation regularly in addition to investment manager performance.

In addition, 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 $61 million to our enterprise plans worldwide in 2024. For further details on pension plan activity, see Note 9, "Pensions and Postretirement Benefits Other than Pensions," to the Condensed Consolidated Financial Statements.

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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 March 31, 2024:

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 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 March 31, 2024. Our obligor groups as of March 31, 2024 were as follows: Obligor group 1 consists of Plc, TT Holdings, TT International, TT Global II, TT Americas, TTFL, TTC HoldCo and TTC; Obligor group 2 consists of Plc, TTFL and TTC.

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Summarized Statements of Earnings

Summarized Balance Sheets

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, 2023.

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 17, "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 judgment 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 these estimates. If updated information or actual amounts are different from previous estimates, the revisions are included in our results for the period in which they become known.

Management believes there have been no significant changes during the three months ended March 31, 2024, 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, 2023.

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; 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, price instability, slow economic growth and social and political instability;

• impacts of global health crises, epidemics, pandemics, or other contagious outbreaks on our business operations, financial results and financial position and on the world economy;

• commodity and raw material shortages, supply chain risks and price increases;

• national and international conflict, including war, civil disturbances, terrorist acts, and other geopolitical hostilities and tensions;

• 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 markets 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 asbestos-related bankruptcy 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;

• 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, 2023. 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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For a discussion of the Company’s exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded as of March 31, 2024, that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this Quarterly Report on Form 10-Q has been recorded, processed, summarized and reported when required and the information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in the Company’s internal control over financial reporting that occurred during the first quarter of 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

In the normal course of business, we are involved in a variety of lawsuits, claims and legal proceedings, including those related to the bankruptcy proceedings for Aldrich and Murray, commercial and contract disputes, employment matters, product liability and product defect claims, asbestos-related claims, environmental liabilities, intellectual property disputes, and tax-related matters. In our opinion, pending legal matters are not expected to have a material adverse impact on our results of operations, financial condition, liquidity or cash flows.

The most significant litigation facing the Company is the asbestos-related bankruptcy cases of Aldrich and Murray. For detailed information on the bankruptcy cases of Aldrich and Murray, see Part I, Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Note 17, "Commitments and Contingencies," to the Condensed Consolidated Financial Statements in this Form 10-Q.

There have been no material changes to our risk factors contained in our Annual Report on Form 10-K for the period ended December 31, 2023. For further discussion of our risk factors, refer to Item 1A. "Risk Factors" contained in our Annual Report on Form 10-K for the period ended December 31, 2023.

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table provides information with respect to purchases of our ordinary shares during the first quarter of 2024:

(a) 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). During the three months ended March 31, 2024, we repurchased approximately $300 million of our ordinary shares, consistent with our capital allocation strategy, leaving $2.2 billion remaining under the 2022 Authorization as of March 31, 2024.

(b) We may also reacquire shares outside of the repurchase program from time to time in connection with the surrender of shares to cover taxes on vesting of share-based awards. We reacquired 2,487 shares in January, 98,001 shares in February, and 25 shares in March in transactions outside of the repurchase programs.

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The following table describes contracts, instructions or written plans for the sale or purchase of our securities adopted by our directors and executive officers during the first quarter of 2024, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), referred to as Rule 10b5-1 trading plans:

(1) In each case a trading plan may also expire prior to the scheduled expiration date if all transactions under the trading plan are completed before the scheduled expiration date.

(2) Aggregate number of shares in this column includes shares that may be forfeited or withheld to satisfy exercise price and tax obligations at the time of vesting.

(3) This figure includes a grant of 4,188 unvested PSUs that are expected to vest during the term of the 10b5-1 plan, which are assumed to vest at 100% of the target award amount. The actual number of PSUs that may vest can vary between 0% - 200% of the target award amount, subject to the achievement of certain performance conditions as set forth in the PSU award agreement.

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(a) Exhibits

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TRANE TECHNOLOGIES PLC

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.