Prepared remarks
Welcome to the Trane Technologies Q2 2026 Earnings Call. My name is Lisa, and I will be your operator for the call. The call will begin in a few moments with the speaker remarks and the Q&A session. I will now turn the call over to Zac Nagle, Vice President of Investor Relations. Please go ahead, sir.
Good morning, and thank you for joining us for Trane Technologies Second Quarter 2026 Earnings Conference Call. You can access our webcast and slide presentation at tranetechnologies.com. A replay will be archived there as well. Today's discussion includes forward-looking statements. Key risk factors are listed in our SEC filings. We also use non-GAAP measures. Explanations and reconciliations are in our press release and presentation appendix. Joining me are David Regnery, Chair and CEO; Chris Kuehn, Executive Vice President and CFO; and joining us for Q&A is Donald Simmons, Executive Vice President and Chief Operating Officer. With that, I'll turn the call over to Dave. Dave?
Thanks, Zac, and good morning, everyone. Please turn to Slide #3. I will start with a few thoughts on how our focused strategy continues to propel our performance. Elevated energy prices are driving companies to assess their operations, and customers are choosing Trane Technologies to enhance performance, save energy and reduce operating costs. Our smart systems, integrated controls and Agentic AI allow buildings to predict, act and optimize in real time for industry-leading efficiency and resiliency. Our strategy is built on a strong foundation: our robust business operating system, a powerful cash flow engine and an uplifting, engaging culture. This formula positions us to deliver differentiated long-term value to our people, our customers, our shareholders and our communities. Please turn to Slide #4. Q2 was another strong quarter. Enterprise organic bookings were up 37%, driving a record backlog of $12.1 billion, up 70% year-over-year. Organic revenue grew 9%, led by Americas Commercial HVAC and services and residential, and adjusted EPS increased 11%. Our commercial HVAC businesses delivered outstanding performance, particularly in the Americas, where bookings reached an all-time high, up 50% year-over-year. Applied bookings were up 130%, marking our fourth consecutive quarter of growth above 100%. On a two-year stack, applied bookings are up more than four times. We are fueling robust growth for 2026 and beyond. Our exceptional bookings, record backlog and healthy pipeline provide strong visibility to accelerating revenue in the second half. Our historic backlog also lays a strong foundation for continued market outperformance in the future, with approximately $6 billion slated for 2027 and beyond. Services, which represents about one-third of enterprise revenue, continued to be a consistent, durable growth driver with low-teens compound annual growth rate since 2020. Residential was strong in the quarter, and we expect second-half tailwinds driven by market fundamentals and easier comparisons. Americas transport market fundamentals continue to improve, supporting the outlook for late 2026 and 2027 recovery. Operational excellence remains central to how we run the business and underpins our success. We expect continued strong execution as we move through the year. All in, we are raising our full-year revenue and EPS guidance, which Chris will cover shortly. Please turn to Slide #5. Second quarter results were strong, led by standout performance in Americas. Commercial HVAC delivered exceptional bookings, up 50%, and organic revenue up low teens. Our residential business exceeded our expectations for the quarter, with bookings up high 20s and organic revenue up low teens. In EMEA, performance was consistent with our outlook. It's worth highlighting the underlying strength in commercial HVAC, where excluding the impact of the Middle East conflict, bookings were up mid-20s and revenues were up mid-single digits. Our teams in Asia Pacific also delivered strong results with bookings up 31% and organic revenue up 10%. Now I'd like to turn the call over to Chris. Chris?
Thanks, Dave. Please turn to Slide #6. Dave covered the key drivers, so I will be brief. Enterprise organic revenue grew 9%, supported by robust equipment and services growth. Adjusted EPS increased 11%, underscoring the effectiveness of our business operating system and driving operational excellence throughout the P&L. Please turn to Slide #7. Our performance this quarter reflects strong execution and strategic reinvestment across the portfolio. Margins in the Americas and Asia remain healthy and reflect increased investments in capacity, innovation and channel expansion to support robust demand. In EMEA, margins were impacted by the conflict in the Middle East. As the regional outlook became clearer during the quarter, we acted to align our cost structure for improved profitability in the second half. With that, I'll turn the call back over to Dave. Dave?
Thanks, Chris. Please turn to Slide #8. Our 2026 outlook has strengthened, reflecting accelerating growth in the second half, driven by continued strong execution. In commercial HVAC, momentum is robust, driven by exceptional bookings, a robust pipeline and historic backlog. We are certainly seeing strength in data centers, but also broad-based growth across the majority of our key verticals — as a result, we are raising our full-year outlook. In residential, we are also raising our full-year outlook to reflect our strong year-to-date performance while maintaining a prudent outlook for modest growth in the second half. The slide outlines second-half headwinds in EMEA stemming from the Middle East conflict. Importantly, our raised guidance fully absorbs these challenges, reflecting the strength of our portfolio. Our outlook for the rest of the business is largely unchanged. We've provided additional details on the slide for your reference. With that, I will turn the call back over to Chris. Chris?
Thanks, Dave. Please turn to Slide #9. For the full year, we are again raising our guidance. This reflects the market dynamics and investment priorities we've discussed and consistent strong execution of our value creation flywheel. We are increasing our full-year organic revenue growth outlook to approximately 9% and our adjusted EPS guidance to a range of $15.20 to $15.30. For the third quarter, we expect organic revenue growth of approximately 10% and adjusted EPS of approximately $4.70. Please turn to Slide #10. This slide provides a clear view of the acceleration we expect in the second half of the year. The step-up in performance is supported by robust backlog and gives us strong momentum heading into 2027. For additional details, please refer to Slide 17 of the appendix. Please turn to Slide #11. We remain committed to a balanced capital allocation strategy focused on deploying excess cash to maximize shareholder returns. First, we strengthened our core business through relentless reinvestment. Second, we maintain a strong balance sheet to ensure optionality as markets evolve. Third, we expect to deploy 100% of excess cash over time. Our approach includes strategic M&A to enhance long-term returns and share repurchases when the stock trades below our calculated intrinsic value. Please turn to Slide #12. We remain on track with our balanced capital allocation strategy with a target deployment of $2.8 billion to $3.3 billion for the year. A key component of this strategy is our commitment to shareholder returns. Earlier in the year, we increased our dividend by 12% to $4.20 per share annualized. In addition to dividends, we have repurchased approximately $840 million of shares year-to-date with $3.8 billion remaining on our current share repurchase authorization. We continue to pursue disciplined M&A and are strategically investing in capacity to support future growth, with expected CapEx of 2% to 3% of revenue in 2026. Our strong balance sheet and free cash flow continue to provide us with significant optionality. With that, I'll turn the call back over to Dave. Dave.
Please turn to Slide #14. Following a prolonged downturn, we see the Americas transport market improving in late 2026 leading into a multiyear up cycle. Our internal outlook is directionally aligned with ACT, but assumes a more gradual slope of recovery. This reflects a more realistic pace for trailer OEMs to ramp capacity, a dynamic that has historically extended the duration of the up cycle. Having managed the down cycle effectively while outperforming the markets, we look forward to this business transitioning from a headwind to a healthy growth contributor for our portfolio. Please turn to Slide #15. In closing, our strategy is aligned to powerful megatrends that are intensifying the need for our sustainable solutions and services. Customers choose Trane Technologies for leading innovation, strong execution and the expertise of our team around the world. With our clear strategy, exceptional bookings strength and record backlog, we are confident in raising our full-year guide and are well positioned to continue delivering differentiated shareholder value in 2026 and beyond. And now we'd be happy to take your questions. Operator?
Questions and answers
And your first question comes from Scott Davis, Melius Research.
I'm great. It's been a very busy quarter, which I guess always is, but it feels extra busy. Anyways, a lot of things here, and I do appreciate your shortened prepared remarks. I appreciate that.
I thought I might get that comment from you, Scott, but...
Free up some time for Q&A. But I have to ask: with the bookings you have, did inventories get too low, did we overcorrect and now need to correct the other direction? Is that kind of what's going on here?
I don't think so — we track independent wholesale distributors' inventory pretty closely. I think we were in a good spot. If you remember correctly from the fourth quarter, we had to take 30% of our production days out of the cycle to get the inventory where it needed to be. We came into the year with the right level, and the good news is it's still at the right level, which is reassuring for us in the back half of the year.
I would add, Scott: year-to-date sell-in is really approximately equal to sell-through. And to Dave's point, inventory is at a good spot at the end of the quarter.
Okay. Fair enough. And then on price versus cost — you guys are delivering a fair amount of product and taking big orders while scaling capacity. Did the cost issues mitigate over time, particularly thinking about scaling new capacity? Should we expect some improvement in incremental margins going forward?
Yes. That's how we got the guide slated for this year. Margins are stronger in the second half and comps do matter. In the second quarter last year, we had organic leverage up around 40%. So you're right, it does get better in the second half. Price versus inflation was a headwind in the second quarter as we thought. We expect it will be a bit of a headwind in the second half as well, but it does sequentially get better from Q2 to Q3 to Q4. We're leveraging all parts of our business operating system right now to absorb these cost inputs — working with supply chain, driving productivity and then leading with pricing or following up with pricing as needed.
I would also tell you, Scott, that we invested pretty heavily in the second quarter: a couple of capacity expansions. We're deploying our operating system in Stellar and pulled some investments forward. These are all good long-term investments for our future.
Next up is Andy Kaplowitz from Citigroup.
So David, Chris, maybe you could give a little more color into your commercial HVAC pipeline and the strong orders you've been booking — does the pipeline continue to refill even as your bookings and backlog have been accelerating here? And obviously you just talked about Stellar; you've been beefing up your portfolio with these recent acquisitions. How are they doing in terms of helping your share — and maybe you can talk about the strength of other verticals besides data centers, which we know are strong.
A big question there. As far as orders go in commercial HVAC, the Americas is obviously very strong — 50% growth in the pipeline. A few quarters ago I said we had a pipeline I'd never seen as strong, and today the pipeline is still really, really strong, which is great for the future. The pipeline in Europe has really started to increase. In Europe, excluding the Middle East, we had orders up over 20% and a very strong pipeline as well. On verticals: with 50% growth in the Americas, we track 14 different verticals — they were all very strong and up; in fact, they were all up over 20%. Year-to-date, we had growth in 11 of 14 verticals from an order standpoint, and most of those 11 were double-digit growth. We're very strong in data centers and have been for a long time, but the growth we're seeing right now is very broad-based, which plays to the strength of our leading portfolio. This is core to Trane Technologies and it was a great second quarter. I'm excited about the future because we have so many opportunities in front of us.
I'll add that I'm Donald Simmons, the Chief Operating Officer. I've been with the company 25 years. One thing to add: in the second quarter, we had four orders that were over $100 million in the business, and one of those was in Stellar, which was an excellent start to that acquisition.
Very helpful. And then, Chris, a small follow-up: on the Middle East impact, you already talked about it, but maybe you could elaborate on the cost actions you took there and the ability to sort of inflect even if the Middle East is still a bit weak in terms of EMEA margins in the second half.
Thanks, Andy. To step back: the Middle East is less than 3% of our total enterprise revenue, but within EMEA it represents almost about 15% of that segment. Excluding the Middle East, the segment had strong bookings in the quarter, up mid-teens, and revenues were positive, up low single digits. Given the ongoing conflict and the performance in the second quarter, we took some cost actions at the end of June. This included rightsizing positions and infrastructure — those actions are behind us at this point. We are confident that the deleverage was above gross margins in the second quarter after those cost actions. We do expect deleverage to be within gross margins into the second half of the year. We expect revenue in the Middle East that we are anticipating to be down about 30%; it was down about 30% in the second quarter. We've baked that into our guide for the second half. We're thankful for the team there; they're executing under difficult conditions and we've got this baked into our guide.
Next up is Chris Snyder from Morgan Stanley.
I wanted to ask about backlog — you exited the quarter with over $12 billion of backlog. You started the year at less than $8 billion, so you added about $4 billion, up 50% in six months. Has there been any change in the conversion of backlog versus a year or two ago? I imagine you're mixing in data center work, which may convert more slowly. Any thoughts on whether conversion timing is changing versus a year or two ago?
Good question, Chris. Our backlog is up significantly through the second quarter; about 90% of the backlog is in commercial HVAC — similar to what we've said previously. On conversion: if you look at our revenue growth in the second quarter for Applied, it was up over 40%, so you can see the backlog is starting to flow through. For the back half of the year, based on our current guide, we're projecting that 40% to carry forward. Very strong backlog gives us a lot of visibility not only into 2026 but into 2027. We have approximately $6 billion of the backlog slated for 2027 and beyond. So it's going to be a very strong second half and we're going to carry a lot of momentum into 2027.
Chris, I would add that backlog is now almost 95% commercial HVAC, and it's up year-over-year. The backlog in our commercial HVAC business is up year-over-year about 90%. It's normal to see differences depending on the mix into data centers and other verticals, but right now the conversion pathway looks healthy.
David, I'm really interested in your view on data center trends. You guys are typically ahead of the curve. How do you see things evolving?
Thanks for the question, Chris. Innovation in this vertical moves very fast. We're working directly with hyperscalers, colocation providers and other influencers — we're constantly looking at reference designs and data centers of the future. If I had to sum up what I think the innovation of tomorrow will be: chillers are getting smarter. When you think about the thermal management system, whether the desired leaving water temperature needs to be 31°C or 45°C doesn't matter to us. With our portfolio, we're going to optimize so that the data center gets the right mix of water temperatures to operate most efficiently. By smart chillers, I mean building in control systems so that if you want to run in free cooling mode using ambient air for cooling, that's great. If you need vapor compression and compressors to tweak water temperature, we're able to do that. It's moving fast; we have great solutions — some we're selling now, some are in the pipeline — and we're working with all the influencers to make sure they know what's possible. They challenge us and we challenge them, which leads to creative solutions.
I'll add a bit: one way we win in this market is the design days that we do. In the second quarter, we had multiple design days with our critical customers. We look at the full thermal management portfolio: chillers, chilled water requirements, air handlers, CDUs, and how it all works together to meet customer requirements. That's where we focus on innovation and on the next wave of products we're developing to meet those requirements.
Please remain online while we connect our speaker line. And once again, everyone, we do expect our speakers back on shortly. Please continue to stand by.
All right. Chris, sorry about that. We're going to do this the old-fashioned way on cell phones, so we sound a little scratchy. Donnie, go ahead — you were adding a little color.
Sorry about that, Chris. What I was saying is that when we think about this market and our focus overall, we look at the thermal management system for the customer. We have design days — in the second quarter we had multiple design days with key customers — and we look at the full portfolio. We don't just talk about chillers; we talk about chilled water requirements, air handlers and CDUs, and how it all works together to meet the customer's needs. That's where we focus on innovation and developing the next wave of products to meet those requirements.
It's a great vertical. We're strong and we'll be strong well into the future.
Our next question will come from Amit Mehrotra from UBS Financial.
I wanted to come back to backlog. Backlog today is more or less 50% of this year's revenue and that backlog is mostly attributable to 15% to 20% of your revenues, which is applied equipment. Given there's no material elongation of backlog, at what point do you start turning away orders because of capacity constraints? Can you talk about that?
We have about $6 billion of backlog for 2027, which gives us momentum into next year. We're not turning away orders. We expanded our applied capacity fourfold over the last three years and that expansion continues. We deploy lean principles to do more with what we have, and we also have brick-and-mortar investments underway — we talked about Stellar and investments in Grand Rapids. We're in front of the capacity needs, so bring on the orders and we'll fulfill them.
It's a cheeky way of asking: it wasn't that long ago we were asking if $5 billion was peak, and here we are approaching $8 billion. Are we at peak orders or not?
We've come a long way. The good news is the pipeline of orders is very strong, and that's what gets me excited. It's not just in the Americas; we're seeing a lot of pipeline in Europe as well, which we haven't seen in a while. Europe has performed well, and the pipeline there has come to an inflection point. We're looking forward to strong orders in EMEA.
Amit, some of these investments are captured in CapEx and some flow through the P&L as we ramp production and implement our operating system. That's one impact on leverage in the second quarter and near term. These are great medium- to long-term investments to ensure we have revenue capability. To Dave's point, we're not going to get behind, and we're not turning away orders.
Maybe a follow-up: we're now closer to 2027 than the start of 2026. Is the exit rate at the end of this year the right starting point to build off of for 2027? Also, given supply chain examples where expectations weren't met, how comfortable are you that supply chain can scale with what looks like an almost doubling of organic growth from first half to second half?
I'll start with the first part and then address supply chain. There's a lot to be excited about as we go into the back half. We always thought exit rates at the end of 2026 would be stronger than at the end of 2025. We've got significant growth in applied, strong bookings, and over $6 billion of backlog for next year here at the end of June. That gives us confidence in this year's guide and more visibility into next year than normal. We see tailwinds in residential and Thermo King as well. Let's get a few more quarters before we dial in 2027, but we like the exit rates.
On supply chain and capacity, we're always working with our supply partners on deliveries. As volumes expand, we ask more of our suppliers and see constraints from time to time — that's normal. Maybe a bit more than normal now, but nothing our team can't manage. We meet with leaders of these supplier companies to ensure we're aligned on what's coming and how we'll leverage them. Donnie, any examples of how we work with suppliers?
Absolutely. This morning I was on a call with the CEO of one of our suppliers discussing our plans and how they're ramping capacity. We lean heavily into our business operating system. Much of it was developed over decades and further during the 2021–2022 supply chain crisis. We're looking at a three-year plan on multiple levels: we communicate our plan to suppliers, evaluate max capacity of our factory footprint and share unconstrained demand plans with suppliers. We often deploy lean resources to help suppliers improve processes and work with them to secure components so they can meet our demand. It's a robust process in our business operating system.
We'll take the next question from Andrew Obin, Bank of America.
How do you think about running companies structurally in this high-growth, inflationary environment? Does the operating model change? How do you negotiate with customers? How do you lock in capacity with hyperscalers in this inflation environment? Any color is helpful.
Great question. Our operating system includes approaches for dealing with inflation and conducting pricing. On the inflation side, we work with suppliers, improve supplier resiliency, drive internal productivity, and if we cannot offset inflationary pressures we do pricing. On pricing, we're strategic: we must be competitive and fair to customers because we want long-term relationships. It's a multipronged attack leveraged through our operating system, which is a powerful, repeatable tool.
I'll add that with customers we often have long-term capacity agreements, which helps visibility to volume. We provide the same visibility and commitments to our suppliers. Productivity is also critical — it's not all about pricing. We always look for ways to remove cost after product launch through insourcing components, redesigns and other improvements. We have a pipeline of productivity initiatives to help offset inflation as part of our business operating system.
A quick follow-up: in February you launched a battery energy storage systems rental offering. Internally, you seem focused on improving off-grid reliability and shaving peak capacity. Could you expand on the concept? What conversations do you have with customers and how fast could adoption be over the next 12 to 24 months?
Think about smart, resilient buildings: this ties into our acquisitions like BrainBox and our Agentic controls. Buildings will have alternatives for energy use at any time: electricity, fossil fuels or storage. That's where batteries come in. We're still early days, but we're excited. BrainBox is a great starting point and buildings conservatively waste about 30% of the energy they pay for. As buildings get smarter, we can help them reduce waste and build resiliency. It's a large opportunity for us.
Your next question is from Noah Kaye, Oppenheimer.
On the increased business reinvestment and CapEx: you said some is for Stellar and tied to modular demand growth there. What benefits come from that reinvestment? Is the higher CapEx primarily supporting what's in backlog or for longer-dated growth expectations?
We've guided CapEx to 2% to 3% of revenue for the year — still a CapEx-light model. We've been investing in capacity each year and over the last three to four years have added four times the capacity in our applied business. Part of CapEx focuses on scaling acquisitions and tying them into our direct sales force globally. That helps scale those businesses. There are also innovation investments, especially in the faster innovation cycles like data center verticals, and operational excellence investments to drive cost out in production and supplier partners. These are ongoing and help ensure we have the revenue capability.
It gives us confidence as we make capacity expansions — we're not turning away orders because we are confident in our four-wall capacity.
About margin trajectory: is third quarter implied to be back to year-over-year margin expansion? Directionally, where should we see margin expansion across the segments given EMEA's headwind from the Middle East?
You're right: we have confidence that margins expand in Q3 — probably in the 50 basis-point range — and then it accelerates into Q4, targeting over one point of margin expansion for the fourth quarter. Much of the full-year margin expansion will be led by the Americas, given its relative size. EMEA will be under pressure in the second half given the Middle East — it's about 15% of that segment and we expect revenues to be down about 30% in that region. Asia margins are a small percentage but we're encouraged with order rates across Asia. Note that M&A and investments create a delta between reported and organic leverage — about a 700 basis-point difference — much of which is year-one impacts from acquisitions and investments.
As CEO I'm focused on the long term. I'm not overly concerned about leverage in any one quarter or half; it's about the long-term vision. We see tremendous growth opportunities and will make long-term investments to be ready. Historically those investments have been beneficial.
Next question is from Jeff Hammond from KeyBanc Capital Markets.
Back on chillers and data center: how are customers ordering differently between liquid and air-cooled chillers? You mentioned Grand Rapids expansion and new air-cooled products; what's the shift there?
Many hyperscalers have master purchase agreements or long-term capacity commitments with us, which gives us visibility into needs. We see a mix toward air-cooled systems, with less evaporative cooling and more closed-loop systems. Some systems now avoid large water usage; press discussions about data centers wasting water are often overstated in many cases. Other trends include potential shifts to direct current versus alternating current; we're aware and helping hyperscalers design those systems.
Historically, water-cooled was chosen when customers expected a very long data center life (e.g., 40 years), and air-cooled for shorter horizons (e.g., 20 years). That dynamic has shifted with capacity requirements. Customers choose water-cooled for absolute best efficiency, but modern air-cooled tech can deliver competitive efficiency. It depends on the customer's design requirements, and we focus on meeting those.
These are the conversations we have during design days with hyperscalers.
Stellar came in lighter — I want to understand the cadence of the $500 million of Stellar revenue into 2026 as you ramp up.
We brought in about $1 billion of backlog with the Stellar acquisition and said about half would ship this year — about $500 million. We're on track for that. As we implement our operating system we pulled some investments forward. I said at the end of last quarter we expected Stellar to be modestly accretive for the year; in our guide we've modeled Stellar as roughly flat for the year from an EPS standpoint because of those investments. One of our large orders this quarter was for Stellar, so we're making progress. Stellar is modular chiller plants focused today on data centers, but the product is applicable to other verticals as well.
To reiterate from last quarter: we expect the Stellar business to be $500 million in revenue this year — no change in that expectation.
The next question is from Varun Govindaraj from Bernstein.
For the back half of the year, you're expecting a ramp — how confident are you in customers' ability to take delivery, specifically for data center products? There are narratives that projects are getting delayed and power is taking longer to connect, making it harder to test and commission equipment when there's no power. Any commentary would be helpful.
We have a lot of confidence in the backlog. In our guide we assume some level of leakage or breakage, because we know not everything goes perfectly. We do a great job with suppliers and we've included a bit of breakage in our guide. Could there be shifts? Yes — that's part of site construction — but overall we are confident in the guide.
You're always going to see some job sites move; we see both positive and negative movement in data centers. Nothing alarming right now.
Separately, on Thermo King: you're expecting a recovery in the back half. What other signals give you confidence independently of forecasts?
We think Thermo King is transitioning to a growth engine in the back half. Key indicators: rejections remain high for several months, spot-to-contract spreads are trending positively, and utilization rates have trended positive for the last 10 months. These are good signs. We've continued investing in the business during the trough, so we have great products and are ready to delight customers.
The next question comes from Alexander Virgo, Evercore ISI.
Can you talk a little about the impact from business reinvestments in the Americas? Give a sense of the weighting of those three points you mentioned earlier — capacity, innovation and operational excellence — and whether this is something to think about into the first half of next year as well.
I'd say the weighting is roughly in the order we provided: capacity, innovation, then operational excellence, but they're all important. These are things we invest in all the time. We have innovation reviews at least twice a year, go business by business, and each year we accelerate investments as needed. Our bias is to invest to stay ahead while maintaining long-term leverage targets (25% plus). The pipeline remains robust and we've accelerated some investments given orders and backlog.
Don't get held up by any one quarter. Our target is 25% plus; we may have quarters below that but the focus is long-term growth.
We'll take the next question from Joe Ritchie, Goldman Sachs.
Great results. On residential: low-teens growth this quarter — can you bifurcate replacement market versus residential new construction? A peer noted tough pricing in that market. Any light you can shed on new construction?
Our position hasn't changed: we're heavily focused on replacement, not new construction. Residential new construction is maybe in the teens as a percentage of the business and typically represents smaller builders building custom homes. The residential team had a very strong second quarter. Year-to-date our residential business is up mid-single digits and we expect that to carry for the rest of the year. When we came into the year we thought residential could be down a bit; by the end of Q1 we revised to flat, and now we're confident in mid-single-digit growth for 2026. We'll see how momentum carries into 2027.
Great to see a rebound. A quick follow-up on data centers: how's the CDU business doing? You started shipping earlier this year. What does the pipeline look like and how much of backlog is it today? How is that business trending?
I won't go into detailed cadence, but we are in the CDU business. The business is performing. The Liquid Stack acquisition is exceeding expectations and the pipeline is strong.
The next question is from Jeff Sprague, Vertical Research Partners.
Dave, just a couple of quick follow-ups. On Europe ex Middle East: is the pickup you're starting to see primarily data center-related, or is there breadth in activity? And similar on Asia: we've heard that non-China Asia is looking better. Can you provide more color on what you're seeing?
In Europe, it's both data center and core vertical growth. In the pipeline, data centers are getting bigger than we've seen in the past, which is a good sign for future orders — permitting remains to be seen, but the pipeline shows larger projects. In Asia, China remains dynamic but we see growth across the rest of Asia. We're doubling down on channel investments there, adding account managers because we see opportunities in India, Malaysia and Thailand. We're gearing up to capture those opportunities.
Quick follow-up on residential: any significant difference in volumes in your one-step versus two-step channel?
I don't believe we saw a meaningful difference. Year-to-date sell-in and sell-through are roughly equal, so nothing abnormal there.
Our final question today comes from Deane Dray from RBC Capital Markets.
All good things come to an end at some point, but I'm ready. I'd love an update on your ambitions in liquid cooling and whether you need capacity expansion. You've got Liquid Stack and a good presence. This is probably the fastest growth opportunity in data centers today — what's your updated ambition?
We don't manufacture immersion cooling at scale in-house as a core product line; we work with partners so we can model and understand its impact on the thermal management loop. Immersion cooling is still out there with some challenges. We have patents in that space and it's very efficient, but infrastructure and economics need to be aligned. We love data centers and will continue to innovate with our customers.
Thanks for the kind words — I'll be watching from the sidelines.
All right. Good luck to you. Take care.
At this time, there are no further questions. I'd like to hand the call back to Mr. Zac Nagle for additional or closing remarks.
I'd like to thank everyone for joining today's call. As always, we will be available for your follow-up questions at any time over the next several weeks. We'll also be on the road attending conferences and other investor events, so we look forward to seeing you soon. Thank you.
Once again, everyone, that does conclude today's conference. We would like to thank you for your participation. You may now disconnect.