Trane Technologies Reports Strong Third-Quarter 2020 Results In Challenging Economic Environment 

Trane Technologies plc (NYSE:TT), a global climate innovator, today reported diluted earnings per share (EPS) from continuing operations of $1.67 for the third quarter of 2020. Adjusted continuing EPS was $1.72, up 6 percent, which excludes $18.3 million related to planned restructuring and transformation costs.

Third-Quarter 2020 Results

Financial Comparisons - Third-Quarter Continuing Operations

“As we continue to navigate a challenging year, we remain true to our strategy: maintaining world-class safety for our employees, bringing advanced technology and innovation to our customers and accelerating our commitment to build a more sustainable world. These fundamental building blocks will deliver differentiated financial performance for us, now and into the future,” said Mike Lamach, chairman and chief executive officer.

“In the third quarter, we significantly outperformed challenging end markets and delivered both revenue growth and margin expansion, exceeding our prior outlook and enabling us to again raise our outlook for 2020. Strong execution by our teams around the world enabled us to continue our stranded cost reduction and transformation-related margin improvement programs while maintaining high levels of business reinvestment. Our focus is on emerging even stronger as a leading climate innovator as we come through the pandemic.”

Lamach continued, “We continue to see growing interest in the latest technologies for indoor air quality, energy management and precision temperature control for safe movement of food, medicines and vaccines. Looking forward, we remain in an exceptionally strong financial position, which enables us to continue to play offense by investing heavily in the safety of our people and in accretive investment opportunities through execution of our balanced capital deployment strategy. This will further strengthen Trane Technologies and our ability to compete, to win and to thrive both today and as business conditions improve and new market opportunities arise.”

Highlights from the Third Quarter of 2020 (all comparisons against the third quarter of 2019 unless otherwise noted)

• Strong execution drove continuing EPS and operating income growth despite ongoing COVID-19 pandemic related impacts.
• Enterprise reported and organic bookings up 7 percent driven by Americas and EMEA.
• Enterprise reported revenues were up 1 percent; enterprise organic revenues were up 50 basis points.
• GAAP operating margin was up 70 basis points, adjusted operating margin was up 80 basis points, and adjusted EBITDA margin was up 80 basis points, driven by strong performance across all three segments.

Third-Quarter Business Review (all comparisons against the third quarter of 2019 unless otherwise noted)

Americas Segment: innovates for customers in the North America and Latin America regions. The Americas segment encompasses commercial heating and cooling systems, building controls, and energy services and solutions; residential heating and cooling; and transport refrigeration systems and solutions.

• Americas continued to be impacted by the COVID-19 pandemic in the quarter.
• Strong operating performance in Americas was primarily driven by Residential and Commercial HVAC.
• Americas reported and organic bookings were both up 8 percent.
• Reported and organic revenues were up 1 and 2 percent, respectively. Commercial HVAC organic revenues were flat. Residential HVAC organic revenues were up high-teens. Transport organic revenues were down more than 20 percent. Commercial HVAC service revenues continued to outperform equipment.
• GAAP operating margin increased 70 basis points, adjusted operating margin increased 30 basis points and adjusted EBITDA margin increased 60 basis points. Strong productivity, execution and price more than offset lower Transport volumes and revenue mix shift.

Europe, Middle East and Africa (EMEA) Segment: innovates for customers in the Europe, Middle East and Africa region. The EMEA segment encompasses heating and cooling systems, services and solutions for commercial buildings, and transport refrigeration systems and solutions.

• EMEA continued to be impacted by the COVID-19 pandemic in the quarter.
• EMEA reported bookings were up 9 percent and organic bookings were up 6 percent.
• Reported revenue was down 2 percent and organic revenue was down 6 percent. Commercial HVAC organic revenues decreased mid-single digits and Transport organic revenues were down high-single digits.
• Despite lower building occupancy and residual impacts related to the COVID-19 pandemic, Commercial HVAC service revenues continued to outperform equipment, declining at a slower pace.
• GAAP operating margin increased 100 basis points, adjusted operating margin increased 100 basis points and adjusted EBITDA margin improved 170 basis points. Strong execution, productivity and price more than offset COVID-19 pandemic-related volume declines to support operating margin expansion despite continued mix shift to Commercial from Transport.

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

• Asia Pacific continued to be impacted by the COVID-19 pandemic in the quarter.
• Asia Pacific reported bookings were down 4 percent and organic bookings were down 5 percent.
• Reported revenue was down 1 percent and organic revenue was down 2 percent. Growth in China continued during the quarter, offset by weakness in the rest of Asia.
• GAAP operating margin improved 400 basis points, adjusted operating margin improved 410 basis points and adjusted EBITDA margin improved 400 basis points. Strong execution, productivity and price offset COVID-19 pandemic-related volume declines to expand margins in the quarter.

Balance Sheet and Cash Flow

• As of September 30, 2020, the Company generated strong Y-T-D free cash flow of $1.1 billion, up $353 million, driven by a continued focus on working capital, cost management and lower capex spend.
• The Company expects 2020 free cash flow to be equal to or greater than 125 percent of adjusted net earnings.*

Capital Deployment

• The Company continues to reinvest in employee safety, innovation and technology projects and capital expenditures to support its core sustainability strategy.
• Year-to-date, the Company has paid approximately $380 million in dividends. The Company declared a quarterly dividend of $0.53 per share payable on December 31, 2020, consistent with a $2.12 per share annualized rate in 2020.
• The Company expects to execute its balanced capital allocation strategy including paying a competitive and growing dividend, strategic, value-accretive mergers and acquisitions and share repurchases, and expects to continue to deploy 100 percent of excess cash to shareholders over time.

This news release includes “forward-looking statements,” which are statements that are not historical facts, including statements that relate to our future performance during the COVID-19 global pandemic, capital deployment including the amount and timing of our dividends, our share repurchase program including the amount of shares to be repurchased and the timing of such repurchases and our capital allocation strategy including projected acquisitions; our projected free cash flow and usage of such cash; our available liquidity; performance of the markets in which we operate; restructuring activity; our projected financial performance and targets including assumptions regarding our effective tax rate. These forward-looking statements are based on our current expectations and are subject to risks and uncertainties, which may cause actual results to differ materially from our current expectations. Such factors include, but are not limited to, the impact of the global COVID-19 pandemic on our business, our suppliers and our customers, global economic conditions taking into account the global COVID-19 pandemic, disruption and volatility in the financial markets due to the COVID-19 pandemic, the outcome of any litigation, the outcome of Chapter 11 proceedings for our deconsolidated subsidiaries Aldrich Pump LLC and Murray Boiler LLC, demand for our products and services, and tax law changes and interpretations. Additional factors that could cause such differences can be found in our Form 10-K for the year ended December 31, 2019, as well as our subsequent reports on Form 10-Q and other SEC filings. We assume no obligation to update these forward-looking statements.

This news release also includes non-GAAP financial information, which should be considered supplemental to, not a substitute for, or superior to, the financial measure calculated in accordance with GAAP. The definitions of our non-GAAP financial information and reconciliation to GAAP are attached to this news release.

All amounts reported within the earnings release above related to net earnings (loss), earnings (loss) from continuing operations, earnings (loss) from discontinued operations, adjusted EBITDA and per share amounts are attributed to Trane Technologies' ordinary shareholders.

Trane Technologies (NYSE:TT) is a global climate innovator. Through our strategic brands Trane^® and Thermo King^®, and our portfolio of environmentally responsible products and services, we bring efficient and sustainable climate solutions to buildings, homes and transportation. For more information, visit tranetechnologies.com.

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10/28/20

(See Accompanying Tables)

• Table 1: Condensed Consolidated Income Statement
• Tables 2 - 5: Reconciliation of GAAP to Non-GAAP
• Table 6: Condensed Consolidated Balance Sheets
• Table 7: Condensed Consolidated Statement of Cash Flows
• Table 8: Balance Sheet Metrics and Free Cash Flow

*Q3 Non-GAAP measures definitions

Organic revenue is defined as GAAP net revenues adjusted for the impact of currency and acquisitions. Organic bookings is defined as reported orders in the current period adjusted for the impact of currency and acquisitions.

• Currency impacts on net revenues and bookings are measured by applying the prior year’s foreign currency exchange rates to the current period’s net revenues and bookings reported in local currency. This measure allows for a direct comparison of operating results excluding the year-over-year impact of foreign currency translation.

Adjusted operating income in 2020 is defined as GAAP operating income plus restructuring costs and transformation costs. Adjusted operating income in 2019 is defined as GAAP operating income plus restructuring costs. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 2, 3 and 4 of the news release.

Adjusted operating margin is defined as the ratio of adjusted operating income divided by net revenues.

Operating leverage is defined as the ratio of the change in adjusted operating income for the current period (e.g. Q3 2020) less the prior period (e.g. Q3 2019), divided by the change in net revenues for the current period less the prior period.

Adjusted earnings from continuing operations attributable to Trane Technologies plc (Adjusted net earnings) in 2020 is defined as GAAP earnings from continuing operations attributable to Trane Technologies plc plus restructuring costs and transformation costs, net of tax impacts. Adjusted net earnings in 2019 is defined as GAAP earnings from continuing operations attributable to Trane Technologies plc plus restructuring costs, net of tax impacts. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 2 and 3 of the news release.

Adjusted continuing EPS in 2020 is defined as GAAP continuing EPS plus restructuring costs and transformation costs, net of tax impacts. Adjusted continuing EPS in 2019 is defined as GAAP continuing EPS plus restructuring costs, net of tax impacts. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 2 and 3 of the news release.

Adjusted EBITDA in 2020 is defined as adjusted operating income plus depreciation and amortization expense plus or minus other income / (expense), net. Adjusted EBITDA in 2019 is defined as adjusted operating income plus depreciation and amortization expense plus or minus other income / (expense), net. Please refer to the reconciliation of GAAP to non-GAAP measures on tables 4 and 5 of the news release.

Adjusted EBITDA margin is defined as the ratio of adjusted EBITDA divided by net revenues.

Free cash flow in 2020 is defined as net cash provided by (used in) continuing operating activities, less capital expenditures, plus cash payments for restructuring costs and transformation costs. Free cash flow in 2019 is defined as net cash provided by (used in) continuing operating activities, less capital expenditures plus cash payments for restructuring. Please refer to the free cash flow reconciliation on table 8 of the news release.

Working capital measures a firm’s operating liquidity position and its overall effectiveness in managing the enterprise's current accounts.

• Working capital is calculated by adding net accounts and notes receivables and inventories and subtracting total current liabilities that exclude short-term debt, dividend payables and income tax payables.
• Working capital as a percent of revenueis calculated by dividing the working capital balance (e.g. as of September 30) by the annualized revenue for the period (e.g. reported revenues for the three months ended September 30 multiplied by 4 to annualize for a full year).

Adjusted effective tax rate for 2020 is defined as the ratio of income tax expense less the net tax effect of adjustments for restructuring costs and transformation costs divided by earnings from continuing operations before income taxes plus restructuring costs and transformation costs. Adjusted effective tax rate for 2019 is defined as the ratio of income tax provision plus the tax effect of restructuring costs divided by earnings from continuing operations before income taxes plus restructuring costs. This measure allows for a direct comparison of the effective tax rate between periods.

The Company reports its financial results in accordance with generally accepted accounting principles in the United States (GAAP). The following schedules provide non-GAAP financial information and a quantitative reconciliation of the difference between the non-GAAP financial measures and the financial measures calculated and reported in accordance with GAAP.

The non-GAAP financial measures should be considered supplemental to, not a substitute for or superior to, financial measures calculated in accordance with GAAP. They have limitations in that they do not reflect all of the costs associated with the operations of our businesses as determined in accordance with GAAP. In addition, these measures may not be comparable to non-GAAP financial measures reported by other companies.

We believe the non-GAAP financial information provides important supplemental information to both management and investors regarding financial and business trends used in assessing our financial condition and results of operations.

Non-GAAP financial measures assist investors with analyzing our business results as well as with predicting future performance. In addition, these non-GAAP financial measures are also reviewed by management in order to evaluate the financial performance of each segment. Presentation of these non-GAAP financial measures helps investors and management to assess the operating performance of the Company.

As a result, one should not consider these measures in isolation or as a substitute for our results reported under GAAP. We compensate for these limitations by analyzing results on a GAAP basis as well as a non-GAAP basis, prominently disclosing GAAP results and providing reconciliations from GAAP results to non-GAAP results.

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