Trane Technologies plc (TT) — Q4 2024 Earnings Call Transcript

Thanks, operator. Good morning, and thank you for joining us for Trane Technologies fourth quarter 2024 earnings conference call. This call is being webcast on our website at tranetechnologies.com, where you'll find the accompanying presentation. We're also recording and archiving this call on our website. Please go to Slide 2. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of federal securities law. Please see our SEC filings for a description of some of the factors that may cause actual results to differ materially from anticipated results. This presentation also includes non-GAAP measures, which are explained in the financial tables attached to our news release. Joining me on today's call are Dave Regnery, Chair and CEO; and Chris Kuehn, Executive Vice President and CFO. With that, I'll turn the call over to Dave.

Thanks, Zac, and everyone, for joining today's call. Please turn to Slide 3. I'd like to begin with a few minutes on our purpose-driven strategy, which enables our differentiated financial results over time. At Trane Technologies, we continuously innovate for a sustainable world. And our innovation is driving significant customer demand. We are the partner of choice to ensure optimal performance while reducing energy use and emissions. Our customers know that our solutions are green for green, good for the planet, and good for the bottom line. Our relentless investment in innovation powers our flywheel of market outperformance and strong free cash flow. With this momentum, our proven business operating system and our uplifting culture, we are well positioned to deliver a leading growth profile and differentiated shareholder value into the future. Please turn to Slide 4. We expect to deliver top-quartile financial performance over the long term, consistently and reliably for our shareholders. This is core to our culture and central to how we set our targets and execute our strategy across our global portfolio. 2024 was a standout year for the company. I'm proud of how our global teams exceeded our targets, top to bottom. We closely track top quartile performance against our core peer group and believe our performance will rank in the top quartile on organic revenue growth, up 12% as well as adjusted EPS growth up 24%. We also delivered free cash flow of $2.8 billion or 109% free cash flow conversion, enabling us to make key strategic M&A investments while raising our dividend and returning significant cash to shareholders through share repurchases. Please turn to Slide 5. Relentless investment in innovation, growth, people, culture and our business operating system have yielded clear benefits over time, demonstrated by our strong track record. Since 2020, we've delivered a revenue compound annual growth rate of 12%, expanded our adjusted EBITDA margins by 400 basis points and delivered free cash flow conversion of 108%, while deploying approximately $12 billion of capital. We believe that consistent business reinvestment is key to our long-term success. For over a decade, we've added a high level of incremental investments each year in high-ROI projects. This has resulted in a world-class direct sales force channel and service organization. It has also enabled us to develop cutting-edge solutions for the most pressing customer challenges, driving strong demand. We have all the essential ingredients to execute our strategy and continue driving differentiated returns for our shareholders over the long term. Please turn to Slide 6. We delivered robust financial results in the fourth quarter, extending our strong track record of execution and industry-leading revenue and EPS growth. Our global team achieved 10% organic revenue growth, 110 basis points of adjusted EBITDA margin expansion, and 20% adjusted EPS growth. Organic bookings for full year 2024 were strong, up 11% with a book-to-bill ratio of 102% on top of 12% organic revenue growth. This contributed to a highly elevated backlog of $6.75 billion entering 2025. We saw a strong performance across our segments, led by our Commercial HVAC businesses. Fourth quarter Americas and EMEA organic Commercial HVAC bookings were both strong, each up more than 30% on a three-year stack. Fourth quarter organic revenues were exceptional, with Americas Commercial HVAC up mid-50% on a three-year stack and EMEA Commercial HVAC up more than 60% over the same period. Our teams are excelling in complex bespoke applied projects, which are key to the multi-year CapEx cycle, especially in high-growth verticals. For instance, three-year stack organic revenue growth in applied systems for our Americas and EMEA Commercial HVAC businesses is up over 120% and 90%, respectively. Applied systems offer a durable service tail of eight to ten times the initial equipment cost over their lifespan, meaning our strong growth in applied solutions presents tremendous service opportunities with higher margins that are largely still ahead of us. Looking beyond the continued strength in Commercial HVAC, we see several tailwinds in 2025. We believe residential markets have largely normalized and are returning to our long-term framework of GDP plus growth. The Americas transport refrigeration markets are expected to bottom in the first half of 2025, paving the way for a second-half recovery and strong growth in 2026 and 2027. In addition, the challenges associated with our actions in the second half of 2024 to tighten credit policies in China are improving ahead of our initial expectations. Given our consistent performance over time, we are confident in our ability to deliver strong results in 2025. We are initiating a strong guide for the year, which Chris will cover in more detail in a few minutes.

Thanks, Dave. Please turn to Slide 8. This slide provides a snapshot of our fourth-quarter performance, showcasing strong execution across the board. Organic revenues were up 10%, adjusted EBITDA margin increased by 110 basis points and adjusted EPS rose by 20%. At the enterprise level, we achieved robust organic revenue growth in both equipment and services, up high single-digits and low-teens respectively. Our high-performance flywheel continues to yield results with relentless investments in innovation driving top-line growth, margin expansion, and EPS growth. Please turn to Slide 9. At the enterprise level, we achieved robust volume growth, positive price realization, and productivity gains that offset inflation and high levels of business reinvestment. In the Americas, we delivered 9 points of volume growth and 2 points of price. Strong performance in commercial HVAC and residential was partially offset by softer transport results. Adjusted EBITDA margin expanded by 140 basis points, driven by volume growth, productivity, and price realization. In EMEA we delivered 6 points of volume growth and 1 point of price with strong commercial HVAC performance. Adjusted EBITDA margin expanded by 20 basis points, driven by volume growth, productivity, and price realization. In Asia Pacific, we delivered 1 point of price and volume was flat. EBITDA margin expansion was driven by price realization and strong productivity, more than offsetting inflation and business reinvestment. Now I'd like to turn the call back over to Dave.

Thanks, Chris. Please turn to Slide 10. This slide outlines the key dynamics shaping our market outlook and guidance for 2025. In the Americas, we anticipate continued strong execution and broad-based strength in core markets with particular momentum in high-growth verticals. Our world-class direct sales force and leading innovation are powerful competitive advantages that enable us to optimize opportunities and drive market outperformance. We expect residential markets to return to a GDP-plus framework in 2025, following a modest pre-buy of around $75 million to $100 million in Q3 and Q4 of 2024. Most of this pre-buy is expected to impact the first quarter of 2025. For the full year, we see mid-single-digit growth in the residential business with a tailwind from the low GWP mix. Turning to transport, we expect relatively flat markets in 2025, plus or minus low single digits. The market should bottom in Q1, down about 25% year-over-year, then rebound in the second half aligning with freight market recovery forecasts. While the exact timing and speed are uncertain, ACT predicts a sharp recovery in both 2026 and 2027, up mid-teens each year. We've continued to invest heavily during the market downturn and we are well-positioned to outperform as the market comes back.

Thanks, Dave. Please turn to Slide 11. Our 2025 guidance reflects the market dynamics outlined on the prior slide and our optimism about our ability to outperform. It also incorporates our value creation flywheel, emphasizing continued investment in innovation, market outgrowth, healthy leverage, and strong free cash flow. We are initiating 2025 guidance with 7% to 8% organic revenue growth and adjusted earnings per share of $12.70 to $12.90, representing approximately 13% to 15% EPS growth. This includes about 100 basis points of negative FX and roughly 50 basis points of growth from M&A impacting revenue, which together are expected to negatively impact earnings by about $0.20 for the year. We are targeting organic leverage of 25% or higher, consistent with our long-term goals. We anticipate another year of 100% or greater free cash flow conversion in 2025. Looking at the first quarter of 2025, we expect approximately 6% to 7% organic revenue growth, driven by continued strength in commercial HVAC. We expect adjusted EPS in the first quarter to be between $2.15 and $2.20 with a midpoint of $2.17. This midpoint represents about 17% of our full year guidance ahead of our three-year and five-year historical averages of approximately 15% to 16%. Overall, we believe our Q1 guidance is strong and an achievable start to the year. For additional details related to our guidance, please refer to Slide 18.

Thanks, Chris. Please turn to Slide 15. We've already covered our transport market expectations in the Americas and EMEA on Slide 10. So I'll keep my comments brief. While the Americas transport refrigeration markets have been more volatile in recent years compared to the five years preceding the 2020 pandemic, the long-term outlook remains strong. ACT forecasts show an average of 44,000 trailer units per year over a 15-year period. For 2026 and 2027, ACT projects mid-teens growth. The future looks bright and we're excited about the opportunities ahead. Please turn to Slide 16. In summary, we are well-positioned to deliver leading performance and differentiated shareholder returns in 2025 and beyond. Our uplifting and engaging culture, combined with our leading innovation and proven business operating system continues to set us apart. I'm proud of our team's consistent track record of growth, including our standout performance in 2024. And I truly believe our brightest days are still ahead. And now we'd be happy to take your questions.

Thank you for the question. I wanted to ask on service with Q4 up low-teens again. I think America was in the mid-teens in Q4. And service has now grown at a double-digit rate for the last three to four years. And Dave, I know you typically talk about high single-digit service growth. I'm just wanted to get a sense for the outlook here and what's baked into this 2025 guide on service, which I know in the past, you've said hasn't usually lagged equipment by a couple of years. Thank you.

Hi, Chris, how are you doing? Thanks for the question. Yes, I'm so proud of our service business. Just the growth rates that we've seen there. Chris makes me use a seven-year CAGR on that. So that's where the high single digits comes from, and it's very high, high single digits. But look, we were up mid-teens or low-teens, I'm sorry, in the fourth quarter, low-teens for the full year. Our service business now from a dollar basis is $6.5 billion. And just tremendous growth that we're seeing there. And if you think about our backlog, right, which is predominantly on commercial HVAC, predominantly applied, that's really where our service business was designed around our applied solutions. And the more complex those solutions become, the more propensity for the OEM to do the service work. So - but we'll keep our guide at the high-single-digits, but think about $6.5 billion that's growing at a close to 10% rate per year in the last couple of years have been in that double-digit range. As you said, it's a very resilient business. And I can tell you that we're operating very well there as part of our operating system, the cadence that we have there, and we're really hitting on all cylinders right now.

No, really, really appreciate that. And then maybe turning over to the commercial HVAC equipment. Orders this quarter, high singles a bit better than last quarter, low singles, comp seems to be the same. I know there's always a lot of focus on data center, but you guys do, obviously, I think you talked to 13 or 14 commercial verticals. So was that improvement - is that just project lumpiness? Or when you look across those verticals, do you see positive rates have changed across some of them? Thank you.

Chris, great question. Look, our order grade for Commercial HVAC in the Americas was up high single digits. On a two-year stack, it's over 20%. On a three-year stack, it's over 30%. So we continue to see tremendous growth in our Commercial HVAC business. As far as the verticals, yes, we track 14 different verticals and we're seeing growth, yes, we're seeing growth in data centers. It's been a strong vertical for us in the past. It's going to be a strong vertical for us in the future. But we're seeing broad-based growth. And if you think about it, I mean, the revenue for the Americas for the year was up over 20% and we had growth in 13 of the 14 verticals. The only vertical that did not show growth was Life Science and it's been challenged all year, but we're very optimistic about the future there. So think about that. We're showing broad-based growth and you would expect that from Trane Technologies with the broad-based portfolio of products and services that we have. We didn't design our portfolio of products to serve a particular vertical. We designed it to serve the market, and that's exactly what we're doing. And if you take that with our direct sales force with deep domain expertise knowledge at both a technical level and then within a vertical level, you could understand why we're being able to have this broad-based growth. So we're very excited about what we're seeing in Commercial HVAC. The team is performing very well. And the pipeline too is very, very strong. So we obviously - we report orders, but the pipeline is what the team is working on and that remains very, very robust.

Chris, I would add - think about our applied solutions, which impact many of those 14 verticals. Revenues in applied are up over 120% in the Americas, Commercial HVAC business over the last three years. In the EMEA business, it's up more than 90%. And that is building an installed base that then drives services that think of that as a few years after the installed base, the service revenues start to apply post-warranty period. That's largely in front of us. So it's a very durable tail, as Dave described, and I'm really excited that, again, applied serves multiple verticals.

Thank you guys. Really, really appreciate that.

Hi. Good morning. Maybe just a first question around the sort of organic sales guide through the year.

Yes. Hi, Julian, it's Chris. I'll start. Yes, think about the first quarter, and I'll start with residential, right? Dave called out the pre-buy estimate that we had around $75 million to $100 million. We expect that should largely impact the first quarter. It may extend beyond that, but right now, we're thinking that should largely impact the first quarter. Probably means residential is flat to slightly down in the first quarter. Transport markets, as you described, I mean, we're seeing them bottom out in the first half of the year, probably a bit under-challenged here in the first quarter. But we're seeing continued strength in the Commercial HVAC businesses. So think of them as up high-single-digit could be 10% growth here even in the start of the first quarter. But it's really why we have a range of 6% to 7% organic revenue growth for the first quarter. We think the guide is in the right range. We've got opportunities and multiple ways to get there. But you're right. I mean, transport residential, it may have a start that could be a little bit down in the beginning of the year, but a lot of strength coming through Commercial HVAC. And then we have multiple opportunities as we execute to the guide on the full year, as we said was 7% to 8% organic revenue growth, a lot of confidence in our guide for the first quarter and for the full year.

Thanks very much. And then just my follow-up would be around the price sort of volume outlook within the organic sales guide.

Yes. For the fourth quarter, price was a little bit above 2 points. It really has been coming down over the last couple of years and now at a - for the full year in 2024, it was a little bit above 2 points as well. And the Americas would be really the driver there, a little bit above 2 points in the Americas. And Julian, for 2025, we'd expect pricing to contribute about a point to maybe 1.5 points on the full-year revenue growth outlook. So on 7% to 8%, we get 5.5% to 6% or 6.5% around volume and then 1 to 1.5 points coming from price.

That's great. Thank you.

Hi, good morning, everyone.

Hi, Andy, how are you doing?

Good, how are you? Dave, Chris, I wanted to ask Chris' question in a slightly different way. I know you have the 14 verticals. But are data center project bookings set to lead growth, for instance, in '25 versus '24? And it seems like education-related bookings are holding up well. There's been some consternation about that. And just on the comps issue, like comps in North America seem like they continue to get a little more difficult. Can you still grow Commercial HVAC bookings in North America even against difficult comps?

Yes. A lot there, Andy. But look, our - we saw a growth in, like I said, at almost all verticals. So, yes, data centers were strong, but we had a lot of other verticals that were very, very strong. And you hit on one, education. Education has been strong, certainly, ESSER funding was a tailwind there, but even in the fourth quarter, where ESSER funding is now at least from an order standpoint behind us, we still saw growth in fourth-quarter bookings. And I would tell you the pipeline there in education is very, very robust. So look, as far as the - do we think there's opportunities that comps get hard? Look, we still believe there's tremendous opportunities here for growth in all verticals, right? If you think about the megatrends around decarbonization and energy efficiency, they're - they continue to intensify. If you think about reshoring activity in the United States, that continues to intensify. If you think about the multi-year CapEx cycle with mega projects, that continues to have momentum. So we're very bullish on our commercial HVAC business. I would tell you that the portfolio of products and the innovation that we have there, I know I said in my prepared remarks, we are green for green. When you have a solution that's very sustainable for the planet and has a great payback for the customer, it's the greatest place to be. And that's what we have at Trane Technology. So, I'm very bullish about the future.

Very helpful, Dave. And then just focusing on margin. APAC margin was obviously surprisingly strong in Q4. Maybe just comment on the durability of those margins in '25? And then I think your incremental margin dropped a little in Americas and EMEA in Q4. Is that just, you mentioned transport mix, is that really what it is, but you also talked about investments quite a bit. Could you quantify how much they were and what you're thinking for '25?

Yes, Andy, I'll start. I'll soon start with Asia. We expected sequential improvements in Asia in the fourth quarter versus the third quarter and our team in Asia just has even outperformed those expectations. It's still going to take some time to continue to normalize in China the tightened credit policy. So that will probably extend into the first half of 2025. But their decisions were the right decisions you're seeing that come through on sequential improvement versus what we saw in the third quarter. Margins, look, that team has just been outstanding in terms of managing their productivity, their investments, and ultimately still investing in the business. So let's see where margins go for going forward. There's certainly leading margins across the regions and it gives us a lot of confidence that EMEA and Americas can continue to grow their margins into the future as well given, just to recall, our Asia business is largely Commercial HVAC that they're selling into the region. For the other markets, very strong results in terms of margin expansion. We're driving all of those businesses for 25% or better leverage into 2025. We like that framework. The last couple of years, we've - actually, we've taken the lid off of investments. We're making sure that we can drive strong leverage and also accelerating as many investments as we can, and that's really across all three of our regions. Otherwise, I think that hopefully answers the question. We have a lot of confidence that we're going to be able to grow the margins and really the leverage with the investments we're making.

Yes, I'll just add that, look. I'm super proud of the team in Asia. I know Asia, it's only 8% of our revenue, 50% of that's China, 50% is outside the rest of Asia. But I mean just great performance. I mean, the rest of Asia had 10% growth and had order growth in the high teens. So very strong performance there. And as Chris commented, the team in China just executed very well, implementing our new credit policy and the credit tightening is the right reason and I was very - the right prudent thing to do. And I was very clear on the third quarter if we don't have an order, we're not going to - we don't have a down payment, we're not going to take the order. And in the fourth quarter, we made some adjustments to our backlog to make sure that everything in the backlog had down payments in it. So that team is just executing at a very high level.

Thanks. Good morning, guys. Dave, can you talk about the margin, just coming back to the service conversation at the front of the call. Just trying to understand the margin opportunity in the service business over time. I know there's a lot of investments in technology to make technicians more efficient, maybe predictive maintenance. But hoping you could just speak to the runway there just given obviously, it's a third of the business and the installed base is growing quite rapidly and a few years from now, it could be quite larger. So if you can talk about that?

Hi, Amit, it's Chris. I'll start. Yes, look, we like the margins in the service business. It's higher margins when you think about what we're delivering to customers and making sure that their products are running efficiently. As Dave has described in the past, the service business is rapidly evolving from running to go fix something that's not working effectively to now making sure that the equipment is always optimized, right. It may be running, you may think it's up, it's operating well, but the fact is it may be operating inefficiently and therefore, that's a really nice opportunity for us. So it gives us a lot of confidence that we should be driving organic leverage 25%, or better. And a reminder, services is a third of the enterprise revenues. It remains a third of the enterprise revenues. And you're right, the investments that we've been making across our portfolio also include investments in our service portfolio. So think about service technicians, think about front-end tools, digital in terms of diagnostics, it's an area that again, that's a great area to take the lid off and keep investing in that part of our portfolio.

Yes, Amit, one of the things that we announced in the quarter was the closure of an acquisition, BrainBox AI, and that's really going to help our service business as well in the future. So if you think about today, we have 42,000 roughly connected buildings. We have well over 2 million connected assets. We're getting a lot of data at the building level and at the asset level and we'll call that structured data. What AI does is, it augments that with unstructured data. And when you combine that, that's really where you're able to make buildings operate more efficiently. So our service teams will be a big part of that in the future. And I know you've probably heard me speak in the past about demand side management. Look, we've done hundreds of thousands of energy audits and we know that about 30% of the energy consumed after the meter is being wasted. And our goal is to help decarbonize that built environment and to get everything back to where it was designed to operate. And if we can save that 30%, there's so much opportunity there well into the future.

And then just related to that because obviously, paybacks are so compelling today, which is what's driving a lot of the growth. But there is this expectation that power prices will continue to go up over the next several years. I guess the BrainBox acquisition probably allows the equipment to run even more efficiently. Can you just talk about how you think the payback map evolves over the next few years? Because there's, the question you routinely get is how long is it sustainable, but if paybacks can actually improve, I wonder if this growth can actually reaccelerate.

Well, I think you're spot on. I don't think anyone is projecting that the cost of energy is - or at least electricity is going to go down in the future, right. So you think of the paybacks, it's actually going to become more punitive if you're not running the system the way it was designed. So the paybacks will actually increase. So we're - we think there's a tremendous opportunity in demand side management and we're executing to that strategy. BrainBox can be a big part of us. It's a small business today, but we've been really good at taking these technologies, in this case, the technologies on the software side, and scaling it within our channels. So we're really excited about the growth that we're going to see in the future from it.

Hi, good morning, guys.

Hi, Scott, how are you doing?

Good, good. Congrats on a very strong year. Guys, I wanted to go back, I mean, you talked a lot about energy audits, and just makes a ton of sense. It seems like that's kind of what drives the sales cycle. Do you measure internally the number of energy audits that you do kind of each quarter? And is there such a thing as kind of thinking about that as I'll just call it like front log that energy audits are up x percent this quarter and that gives you some additional confidence on the backlog or - on the front log, backlog?

Yes. It's a great question, Scott. But obviously, we have a lot built into our operating system around our energy management audits that we do. So, I won't disclose too much there, but absolutely, we track a lot of different metrics, okay, and a lot of them are leading metrics and that would be one of them, but we track a lot of others as well. At the end of the day, it's when you're connected to an asset, you're going to make sure the asset is performing the way it was designed and it's not wasting precious energy. And when you get - when you show that to customers and they start to understand it, it becomes very compelling. And now with the addition of not only the structured or machine learning data that we've been able to derive in the past, this unstructured data that we bring into the equation with BrainBox, it really we're able to drive results that we didn't think were possible three or four years ago.

Hi, guys. Good morning.

Hi, Joe, how are you?

Doing great, thanks, Dave. So look for better or for worse, your stock at times tends to trade with the sentiments surrounding AI, CapEx and data centers. I guess just maybe as you think through like the trajectory of your data center business from here, maybe just give us some color on how you think that you expect that to progress? And then also just on your commercial HVAC backlog, is, are you still well above normal on that backlog in terms of how long cycle it is? Or is it starting to normalize?

Yes. Why don't I start with the backlog, then I'll get to the data center question. Look, our book-to-bill in 2024 was over 1%, it was 102% and our backlog year-over-year was relatively flat. It's down a little bit. What everyone needs to understand is we had a couple of adjustments that occurred within the backlog, right? There's really three. One is, currency worked against us all year. Two is, I've been very clear in Asia, specifically in China, that if we don't have a down payment, we're not including something in our backlog. So we adjusted that out of our backlog. And then the third is the normalization of our transport businesses, which have been under pressure all year. That accounts for about $0.5 billion of backlog adjustments that we took in the year. So if you think about it, our backlog would actually be up year-over-year versus what we're reporting right now. That said, our backlog is very, very elevated, which gives us a lot of visibility into 2025, and that's why Chris and I could speak with so much confidence about the guide that we're putting forward. It gives us great visibility. And the other thing that we track a lot of is the pipelines and these are orders before they become orders, that activity remains very, very robust.

Super helpful. And bless you to whoever sneezes in the background. The quick question follow-up there is just maybe just a tariff question. Any comments on, like how you see this playing out and any thoughts and your potential exposure there?

Yes. I mean, good question, Joe. Look, we - for decades now, we've had a manufacturing strategy of in-region for-region. So you think about - in the Americas, we have a plant in Mexico. We have over 20 plants in the United States. We have plants throughout Europe. We have plants throughout Asia, some in China, some outside of China. So look, we've - in the past, we've dealt with tariffs. Should they happen, we'll react. Do I think they could impact our supply chain? For sure, there's a little bit of flexibility there, but they will have an impact. But I think we've been able - part of our operating system is we understand our cost inputs. And if we see something change, we're going to react and we're going to act very quickly to make sure that we stay margin-neutral over time.

Hi, good morning.

Hi, Steve. How are you?

Good. Always interesting times. So I guess just on this resi guide, roughly, I don't know, 4%-ish on the mix benefit, which you'll call volume a 1.5%, maybe 2% headwind from pre-buy, this is all annual. So what are you thinking about like the market on like a volume basis this year, just like from an underlying demand and replacement events perspective, if you will?

Yes, Steve, it's Chris. Yes, you're right, there's three elements that really come into the guide of around mid-single-digit revenue growth for residential. The first one would be that mix tailwind from the A2L refrigerant change, right? You can think of that as maybe around 4 points high single-digit price on 65% of the portfolio multiplied by, say, three-quarters of the year impact gets you to around 4 points. The view around a GDP-plus framework would be the second element. Think of that as maybe 3 to 4 points of growth from returning to GDP, IRA tailwinds, right, that money is at the state level and it's really starting to be deployed. That could be a tailwind for 2025. And then items around consumer confidence, tax cuts, those are all things that could be beneficial to the - to a GDP-plus framework for the year. And then the third element would be the pre-buy dynamic, which is probably around 3 percentage points of a headwind. So altogether, you get into that 4% to 5%-ish range on growth, which is our guide for the year around residential. But to be fair, if it turned out that things were softer in the markets and it wasn't necessarily growth, but it was flattish, and really the impact to our enterprise revenues would be less than a point. It would be 70 basis points or 80 basis points and we really feel comfortable we've got that and it's manageable within our guidance for the year.

Yes. That makes sense. And what do you guys see in Light Commercial? What's your expectation for the year on Light Commercial?

Yes. That's - we certainly think applied markets are going to grow faster than the unitary markets will for 2025. We'll see where it plays out. The best thing about Trane Technologies is we've got the broadest portfolio of products. And unitary versus applied, it's not harder and harder to kind of figure out what the need for the customer is. We're looking at a solution and many of those solutions will involve multiple products to ultimately deliver the energy savings that they need. So let's see, but, probably more growth in applied for 2025 than unitary.

Thanks. Good morning, guys. Just one more on the service side. Could you just frame the margin implications as we scale the business with connections, A2L transitions, IoT solutions, all the things that you've referenced? How do you see that margin evolving on a framework essentially you're recognizing it to be better going forward? So just maybe quantify that?

Yes. I think as we continue to put more connected solutions in place, we are continually deploying technologies that improve the efficiency of the service business. I mean, 42,000 connected buildings means we're able to monitor those buildings on a real-time basis. And as you bring AI into the mix with BrainBox and the connectivity we have, it allows us to drive efficiencies in those buildings more effectively, thus driving margins.

Thanks, operator. I'd like to thank everyone for joining today's call. As usual, we'll be available to answer any questions you may have in the coming days and frankly in the coming weeks. We'll also be on the road in the next couple of months attending conferences and other things. And so, we hope to see you in person very soon. So hope everyone has a great day. Thank you.