Trane Technologies(TT) - 2023 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Presents unaudited Q1 2023 and 2022 Condensed Consolidated Financial Statements, detailing earnings, balance sheets, and cash flows Condensed Consolidated Statements of Earnings | Indicator | Q1 2023 (in millions) | Q1 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net revenues | $3,665.8 | $3,355.5 | +9.2% | | Operating income | $456.8 | $388.2 | +17.7% | | Earnings from continuing operations | $316.6 | $270.4 | +17.1% | | Net earnings | $311.1 | $263.4 | +18.1% | | Diluted EPS (Continuing operations) | $1.35 | $1.13 | +19.5% | | Diluted EPS (Net earnings) | $1.33 | $1.10 | +20.9% | Condensed Consolidated Balance Sheets | Account | March 31, 2023 (in millions) | December 31, 2022 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $692.9 | $1,220.5 | | Total current assets | $6,074.8 | $6,379.2 | | Total assets | $17,897.4 | $18,081.6 | | Total current liabilities | $4,831.4 | $5,686.8 | | Long-term debt | $4,481.8 | $3,788.3 | | Total liabilities | $11,843.1 | $11,976.4 | | Total equity | $6,054.3 | $6,105.2 | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Q1 2023 (in millions) | Q1 2022 (in millions) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $8.5 | $(188.2) | | Net cash provided by (used in) investing activities | $(91.0) | $(83.3) | | Net cash provided by (used in) financing activities | $(459.2) | $(534.6) | | Net increase (decrease) in cash | $(527.6) | $(810.8) | Notes to Condensed Consolidated Financial Statements Explains accounting policies and specific financial statement items, including debt, equity, revenue, segment performance, and asbestos-related contingencies Note 6. Debt and Credit Facilities - In March 2023, the company issued $700.0 million of 5.250% senior notes due 2033, using proceeds to redeem $700.0 million of 4.250% senior notes due June 2023[40] - The company maintains two $1.0 billion senior unsecured revolving credit facilities, maturing in June 2026 and April 2027, which were unused as of March 31, 2023, supporting the $2.0 billion commercial paper program with no outstanding balance[36][41][42] Note 10. Equity - During Q1 2023, the company repurchased and canceled approximately $300 million of its ordinary shares, completing the 2021 share repurchase authorization and initiating the 2022 authorization, under which approximately $100 million was repurchased, leaving $2.9 billion remaining[56] Note 11. Revenue | Revenue by Geography & Type (Q1 2023) | Equipment (in millions) | Services (in millions) | Total (in millions) | | :--- | :--- | :--- | :--- | | Americas | $1,900.6 | $960.4 | $2,861.0 | | EMEA | $365.1 | $145.4 | $510.5 | | Asia Pacific | $201.7 | $92.6 | $294.3 | | Total | $2,467.4 | $1,198.4 | $3,665.8 | Note 16. Business Segment Information | Segment Performance (Q1 2023 vs Q1 2022) | Net Revenues 2023 (in millions) | Net Revenues 2022 (in millions) | Segment Adjusted EBITDA 2023 (in millions) | Segment Adjusted EBITDA 2022 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Americas | $2,861.0 | $2,633.2 | $455.8 | $405.6 | | EMEA | $510.5 | $441.3 | $94.4 | $59.1 | | Asia Pacific | $294.3 | $281.0 | $57.2 | $43.5 | | Total | $3,665.8 | $3,355.5 | $607.4 | $508.2 | Note 17. Commitments and Contingencies - On June 18, 2020, subsidiaries Aldrich and Murray filed for Chapter 11 bankruptcy to permanently resolve all current and future asbestos-related claims, resulting in a stay of all asbestos-related lawsuits against them and other Trane companies[81] - An agreement in principle was reached with the future asbestos claimants' representative to establish a trust funded with $545.0 million to resolve all claims, with a $270.0 million Qualified Settlement Fund (QSF) funded in March 2022, while Chapter 11 cases remained pending as of May 3, 2023[88][91][92] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 performance, covering revenue growth, segment results, liquidity, capital allocation, and economic trends Results of Operations | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Revenues | $3,665.8M | $3,355.5M | | Gross Profit Margin | 31.2% | 29.5% | | Operating Margin | 12.5% | 11.6% | - The 9.2% increase in net revenues was driven by pricing (+6.6%), volume (+2.4%), and acquisitions (+1.8%), partially offset by unfavorable currency translation (-1.6%)[119] - Gross profit margin increased by 170 basis points to 31.2%, primarily due to price realization and productivity, which offset material and other inflation[120] Segment Results - Americas: Net revenues grew 8.7% to $2,861.0 million, driven by pricing (+6.6%) and volume (+1.5%), with Segment Adjusted EBITDA margin increasing 50 basis points to 15.9%[128][129][130] - EMEA: Net revenues grew 15.7% to $510.5 million, driven by pricing (+8.9%), volume (+6.5%), and acquisitions (+6.2%), with Segment Adjusted EBITDA margin significantly increasing by 510 basis points to 18.5%[128][132][133] - Asia Pacific: Net revenues grew 4.7% to $294.3 million, driven by volume (+4.4%) and pricing (+4.0%), with Segment Adjusted EBITDA margin increasing by 390 basis points to 19.4%[128][133][134] Liquidity and Capital Resources | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $692.9M | $1,220.5M | | Total debt | $4,830.1M | $4,836.3M | | Debt-to-total capital ratio | 44.4% | 44.2% | - The company repurchased $300.0 million of ordinary shares and paid $170.3 million in dividends to ordinary shareholders during Q1 2023[153] | Free Cash Flow Reconciliation (Q1) | 2023 (in millions) | 2022 (in millions) | | :--- | :--- | :--- | | Net cash provided by continuing operating activities | $16.8 | $(3.9) | | Capital expenditures | $(77.1) | $(74.8) | | Adjustments (Restructuring, M&A, etc.) | $8.7 | $106.0 | | Free cash flow (Non-GAAP) | $(51.6) | $27.3 | Quantitative and Qualitative Disclosures about Market Risk Refers to the Annual Report on Form 10-K for detailed discussion of market risks, such as interest rate and foreign currency fluctuations - The company's disclosure on market risk refers back to the discussion in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022[175] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal financial reporting controls - Based on an evaluation as of March 31, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[176] - No changes occurred in the first quarter of 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[177] PART II OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, with no expected material adverse impact, except for ongoing asbestos-related bankruptcy cases of subsidiaries - The company states that pending legal matters are not expected to have a material adverse impact on its financial condition or results[180] - The most significant legal matter is the asbestos-related bankruptcy cases of subsidiaries Aldrich and Murray, which are discussed in detail in Part I of the report[181] Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K for the period ended December 31, 2022[182] Unregistered Sales of Equity Securities and Use of Proceeds Details Q1 2023 share repurchase activities, completing the 2021 authorization and initiating the 2022 program with $2.9 billion remaining | Period (2023) | Total Shares Purchased (000's) | Average Price Paid per Share | Value of Shares Remaining for Purchase ($000's) | | :--- | :--- | :--- | :--- | | January | 3.5 | $168.09 | $199,776 | | February | 600.9 | $183.22 | $96,918 | | March | 1,148.0 | $185.11 | $2,899,773 | | Total Q1 | 1,752.4 | $184.43 | - | - During Q1 2023, the company repurchased approximately $300 million of its shares, completing the 2021 authorization and initiating the 2022 authorization, with $2.9 billion remaining available for repurchase under the 2022 program[183] Exhibits Lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and financial statements formatted in iXBRL - Lists exhibits filed with the report, including CEO/CFO certifications (Exhibits 31.1, 31.2, 32) and iXBRL data files (Exhibit 101)[186]