Ecolab Inc.

Greetings, and welcome to the Ecolab's third quarter 2026 earnings release conference call. At this time, all participants will be in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. At this time, I'll turn the conference over to Andy Hedberg, Vice President, Investor Relations for Ecolab. Thank you, Andy. You may begin.

Thank you. Hello, everyone, and welcome to Ecolab's third quarter conference call. With me today are Christophe Beck, Ecolab's chairman and CEO, and Scott Kirkland, our CFO. Our discussion of our results, along with our earnings release and the slides referencing the quarter's results, are available on Ecolab's website at ecolab.com slash investor. We take a moment to read the cautionary statements in these materials, which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the risk factor section in our most recent Form 10-K and our posted materials. We also refer you to supplemented diluted earnings per share information and release. With that, I'd like to turn the call over to Christophe Beck for his comments.

Thank you so much, Jandee, and welcome to everyone joining us today. I'm really super proud of what the team delivered once again. On our last call, we described Q2 as a transition period as we mastered higher commodity costs within the quarter. The third quarter well marked an inflection point for Ecolab. Our core businesses strengthened, our growth engines accelerated, and together they drove 7% organic sales growth. But just as important, every business outperformed its end market, demonstrating the power of our one Ecolab strategy. Despite significant commodity cost inflation we maintained, Organic Gross Margin, as our teams continue to create more value for our customers, win new business, and manage supply chain costs very effectively. This will remain a critical focus in the quarters ahead, as commodity costs are expected to remain high. Through continued pricing execution and disciplined supply chain management, we expect to continue to offset the impact of higher commodity costs. Our productivity also strengthened. as we leveraged the investments we've made in our One Ecolab growth initiative. As a result, our organic OI margin in the quarter expanded to 19.6%, accelerating organic OI growth to 11%. Beyond our reported results, the performance of the underlying business was even stronger as we absorbed additional amortization and interest costs from our recent M&A. On a pro forma basis, including the operating performance of Cool IT and Avivo, Ecolabs Q3 sales would have grown high single digits and adjusted EPS would have grown mid-teens. These results reflect the strength of our core businesses and how our growth engines are materially accelerating Ecolabs growth algorithm. OneEcolab is making a difference across the company. We bring our water, hygiene, tests, and digital solutions together with our field expertise to deliver best-in-class performance for customers at scale. We help customers improve business outcomes and operational performance while using peer resources. That creates differentiated value for customers, strengthens relationships, and helps us win new business. Since launching OneEcoLab, we generated over $400 million of sales growth with our largest 35 customers only. capturing more than a 10% incremental share of our targeted $3.5 billion growth opportunity with these 35 customers. You can see this clearly in food and beverage, which accelerated to 8% organic growth with broad-based growth across dairy, protein, and beverage against stable end-market demand. Now as we bring our integrated water and hygiene solutions, customers look to Ecolab to help protect food safety, while improving operating performance and environmental impact. We connect cleaning, sanitizing, and circular water management solutions to help customers achieve all three at the same time. Light water also strengthens, accelerating to 5% growth. We're winning in the manufacturing and institutional markets as we bring our end-to-end water management capabilities to customers around the world. Paper and heavy water also return to solid growth. In these businesses, strong new wins and improved pricing are helping us outperform stabilizing end markets. Now more than ever, these customers look to Ecolab to help them produce higher quality products while significantly reducing operating costs and environmental impact, which is the Ecolab model, as we all know. Institutional and specialty performance remain consistent despite industry trends that continue to get tougher. including restaurant food traffic that declined mid-single digits in North America. So while I'm pleased with what our team is doing, I'm not satisfied with our results. Given the proven value we bring to customers and the strengths of our offering, we should be outperforming the industry by a much wider margin and growing much faster. New innovations like Dish IQ, Aqua IQ and Kitchen IQ combined with our global service capabilities deliver what our customers need most. improved guest experience, labor automation, and lower operating costs. So we'll be shifting gears. To deliver even more value to our customers, we will be expanding our field sales power, maximizing our service offering across our hospitality and food service segments, and bring our technologies together through our one Ecolab model to drive higher solution penetration. Our growth engines are also accelerating. Life sciences continue to drive very strong share gains, with organic sales growing 17%. Bioprocessing, again, led our performance. As customers advance drug molecules from development into commercial manufacturing, our opportunity grows with depth. Last month, we started up our latest life sciences plant in China, positioning us extremely well to meet growing customer demand across Asia for the years to come. These investments are helping us win where breakthrough technologies, quality, and reliability are supercritical. We've been building this major growth engine for a few years, investing in commercial and technical expertise, breakthrough innovation, and additional capacity. With this critical investment, our life sciences business is soon approaching $1 billion in sales and delivering the performance we committed to you. Double-digit sales growth and OI margins that are on a trajectory to expand to 30% over the next few years. As a result, the return from our acquisition of Pure Light is strong, and the NPV we expect to realize from this acquisition is actually greater than we had initially forecasted. I love how this business is performing and even more where it's headed. Ecolab Digital also continued to grow rapidly, with sales up 34%. Customers increasingly want visibility into their operations and the ability to act in real time. Ecolab 3D and our expanding IQ solutions across water, institutional, life sciences, and PEST connect unique data insights with our global field expertise to deliver best-in-class customer performance. PEST elimination is a great example of how we're using breakthrough digital technologies to deliver superior customer outcomes and growth for Ecolab at the same time. In the third quarter, best sales growth accelerated to 8%, driven by strong new business swings from our OneEcoLab growth platform and best intelligence. Best intelligence today connects over 800,000 devices. Around-the-clock monitoring and predictive insights help our team identify issues sooner and target service more precisely. We combine those insights with local expertise to help deliver nearly 99% pest-free environment for our customers versus the 94%, which is the industry standard. And with $3 billion of additional cross-sell opportunity, we're actually just getting started. Global high-tech, now Eclab's largest cross-engine, continues to accelerate, growing organic sales by 63%. Growth remains very strong across both data center cooling and circular water for microelectronics as AI infrastructure rapidly expands around the world. At the heart of AI is water. Water is required to produce, to power, and to cool chips. Ecolab's leading innovation, expert service, and digital capabilities help the world's leading tech companies maximize their growth and performance across the value chain. Our recent acquisition in global high-tech adds complementary strengths to this leading business. Cool IT is off to an incredible start within Ecolab, more than doubling its sales with very strong profitability. Its leading liquid cooling capabilities address a critical need as advanced computing becomes more demanding. We have already fully integrated Ecolab 3D Tracer liquid monitoring technology with Cool IT's CDO platform. and we're excited about what we can now deliver to customers through one integrated liquid cooling platform. Ovivo is also performing very well, delivering strong double-digit growth versus pre-acquisition sales. Its mission-critical, ultra-pure water systems and onsite expertise provide semiconductor manufacturers with the purest water on earth. Together, We can deliver unique circular water solutions that improve chip quality and production yield while recycling more than 80% of the water used in a fab. And no one can truly do that today. Global high tech significantly strengthens Ecolab long-term growth and margin potential. Last quarter, we outlined our global ambition for global high tech to grow more than 25% annually. reached $4 billion in sales by 2030 and delivered a 25% operating income margin. This growth platform alone adds more than 2% to Ecolab's sales growth algorithm one year after closing. This is just one example of how we're building a higher-growth Ecolab, and we look forward to sharing more with our investors there next month. The acceleration we see today is the result of the organic and M&A investment we've made over the last several years to strengthen our core business and build new growth engines. As our growth engines become a larger part of the business, our mix shifts towards faster growing markets with attractive margin potential. Our growth engines, when using the same proven operating model as our core businesses, providing mission-critical anchor technologies and Consumables that deliver best-in-class operating performance for customers. This is fueling faster, more durable sales growth, faster earnings growth and strong returns for shareholders. We are showing 2027 with momentum and confidence in our ability to deliver another very strong year. We expect organic sales growth to grow at the upper end of our 5-7% target and Ecolab's adjusted operating income margin to reach the 20% that we promised. Adjusted EPS growth is expected to accelerate in the second half of next year as we allow M&A transaction impact and operating performance continue to accelerate. That provides a clear path to meet or exceed our long-term adjusted EPS growth target of 12% to 15% in 2027. In closing, the third quarter marked an inflection point for Ecolab. Our core strengthened, our growth engines accelerated, and all our businesses outperformed the end markets. We're leveraging the power of one Ecolab to build a higher growth company with the same durable and consistent core. We have a strong foundation, increasing momentum, and a tremendous opportunity ahead. I want to thank our global team for making that possible and for the value they deliver to customers every single day. Thank you for your continued trust and your investment in Ecolab. I'll now turn it back to Andy for Q&A. Thanks, Christophe. That concludes our formal remarks.