Greetings, and welcome to the Ecolab Second Quarter 2020 Earnings Release Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. At this time I’d like to introduce your host, Mike Monahan, Senior Vice President Investor Relations. Mr. Monahan, you may now begin.

Thank you. Hello, everyone, and welcome to Ecolab's second quarter conference call. With me today is Doug Baker, Ecolab's Chairman and CEO; Christophe Beck, our Chief Operating Officer; and Dan Schmechel, our Chief Financial Officer. A discussion of our results, along with our earnings release and the slides referencing the quarter's results and our outlook are available on Ecolab's website. Please take a moment to read the cautionary statements on these materials stating 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 Factors section in our most recent Form 10-K and in our posted materials. We also refer you to the supplemental diluted earnings per share information in the release. Starting with an overview, second quarter results reflected the impact from COVID-19 on our businesses and were generally consistent with our expectations. Sales and earnings were strong for our Life Sciences, Healthcare, and Specialty businesses, as they benefited from favorable fundamental trends and our increased cleaning and sanitizing demand. Our Industrial segment saw a modest sales decline but strong earnings growth, while our Institutional and Pest Elimination businesses experienced significant sales and profit declines due to the substantial negative impact on restaurants, hotels, and entertainment facilities, as they felt the brunt of the March-April global shutdown in travel and dining. Second quarter adjusted earnings per share from continuing operations were $0.65 compared with $1.27 a year ago. Results reflected the COVID-related volume declines and negative operating leverage as well as COVID-related impacts including second quarter equipment lease billing suspensions of approximately $0.10 per share to support customers, a $0.06 per share reduction in Institutional distributor inventories, and increased bad debt expense of $0.07 per share. Looking ahead, we believe we're in a strong position to manage through COVID-19 and are confident we will emerge from 2020 in a stronger competitive position with a more robust offering. Our focus remains squarely on maximizing our post-COVID traction to drive growth. While we have near-term challenges that we are addressing within our Institutional business, we continue to have substantial opportunities in all of our businesses and the right strategies to achieve them. Clearly, Ecolab’s leading capabilities in food safety, clean water and healthy environments is more important than ever, and they have positioned us well as an important and effective partner in this world crisis and beyond. As a significant part of this, we have continued to work aggressively to partner with our customers to solve their problems and, in doing so, further improve our customer penetration and new business wins by providing the critical product, service, and consulting support, our customers need to ensure their operations are safe and functioning effectively as COVID restrictions evolve and our operations adapt to the new sanitation requirements. As a result of these actions, and our new sales initiatives, we have one new business. And along with gradually improving markets, we have seen sales across our businesses including Institutional improve since their lows early in the quarter. While COVID-19 creates a short-term challenge, it also creates long-term opportunities. In a world challenged by COVID, our food safety, clean water, and healthy environments positioning has become even more important. We believe that our long-term growth opportunities remain robust, driven by our huge remaining market opportunity. Our leading global market positions, our focus on providing our strong customer base with improved results while lowering their water, energy, and other operating costs, and our strong financial position with resilient free cash flow. We believe looking beyond the near-term uncertainty and focusing on these sustainable long-term business drivers will yield superior long-term performance for Ecolab and our investors. And now here's Doug Baker with some comments.

Thanks, Mike. And hello, everyone. So just a couple of overview comments on Q2. We'll turn it back to Mike and then to Q&A. So our Q2 results were obviously significantly impacted by COVID-19. They weren't all in line with our expectations going in, which is probably a minor miracle because it is a very difficult environment to predict. The impacts were most acutely felt in our Institutional business. As a balance of our businesses collectively grew both sales and income during the period, Healthcare and Life Sciences had record growth, and our Industrial businesses had extremely strong margin performance, driving strong income gains. And our Specialty portion of our Institutional reporting segment also realized strong growth. Our Institutional division though was directly impacted by the COVID-19 shutdown of travel and dining early in the quarter. This is a one-off event in the history. Now this event was truly further exacerbated by the resultant distributor inventory reductions and a decision we made to suspend Q2 dish machine lease payments as a mean for supporting the foodservice industry during this incredibly traumatic period. In total, these two items hit sales by $82 million in Q2, NOI by roughly $60 million. Importantly, we spent no time or effort postponing pain or managing Q2 for optics. Trade inventories fell and we left them. The dish machine market needed support and we gave it. Reserves and inventory, we took our full dose. Team size, we maintained. And investments we actually increased through the quarter. This is what we said we would do. And we feel it is a smart play. We will manage through the near-term pain in a way that maximizes our potential long-term. While the pain will continue, we believe Q2 was the low point. So while the short-term pain from COVID-19 is obvious, the long-term impact is becoming clear. Hygiene standards will increase in every market we serve, including Industrial, Healthcare, Life Sciences, Institutional, and Specialty. New opportunities are presenting themselves every day in large space disinfecting, hand care, water safety, clean rooms, and data centers, et cetera. We chase a $130 billion market at the end of 2019, and it will be bigger going forward. We're even better advantaged to go after it. We've been out-investing our competition for years and are clearly doing so this year. Our digital and antimicrobial investments in innovation give us significant advantages. Customers' water, food safety, safe environment, and operating efficiency needs are only growing and important. And our cleaner, safer, healthier positioning is spot on. Probably most importantly, our team has never so clearly felt the power of our mission. It is doing a great job, supporting customers, jumping on opportunities, and rebuilding momentum. So, with that, I'll turn it to Mike who will open up Q&A.

Thanks, Doug. That concludes our formal remarks. Operator, would you please begin the question and answer period?

Yes, thank you. We will now be conducting a question-and-answer session. Our first question is from the line of Tim Mulrooney with William Blair.

So, the Institutional division was down, I think about 50% organically in the second quarter. And this is my only question today. But can you just walk us through how the monthly performance trended through the second quarter, Doug? And how that compares to what you've seen in July so far?

Yes. I'll give you a perspective on Institutional and we'll address your specific question, while doing it, because I know they're going to be questions, obviously. I mean, Institutional was where COVID impact was most acutely felt. It is obvious when you look at the results. And as I mentioned in my opening, the rest of the business collectively did quite well. Now, there are ups and downs within that group, but that's normal. In Institutional, though being down 50% is quite notable. So, the sales for that reporting sector were down 35%. And it was really driven by the decline in Institutional. Specialty was pretty strong. It was really driven by FRS sales of plus 31% and QSR was flat for the quarter. Institutional decline really was driven by a couple of things. The most notable was a huge decline or the huge shutdown in April of literally global travel and dining and we've never seen anything like this. Transactions fell in April 80%. Now transactions have climbed back. They were 80% down in April, 50% down in May, and down 30% in June. We've also seen our business move back from this 80% type decline up through the quarter. And we've seen it continue in July to your question. But we had other issues here. The distributor inventory rebalanced, which is always a natural outcome, particularly when you have a severe shock like this. So, we mentioned it is 50 million bucks. In the dish machine lease suspension, which we took on because we felt that was a smart thing to do for an industry, which has supported us for many years. And we need to be in there with our customers, who've been decade-long partners with us, to let them know that we understand the pain they're going through. That was a $37 million decision at both sales and ally because it is a complete passthrough. Now we asked for a trade there. When we gave relief for the quarter, and it was just a Q2 relief program, it ends or has ended. What we also went and traded for was an extension of existing contracts and new agreement for the dish machine lease program. We believe it is going to be a great deal for both our customers and for us long term. Now, the inventory is largely behind us. I think it is behind us if you start taking, actually the inventory rebalances $45 million; you take the $45 million and think of it as a 30-day inventory or a 20-day inventory, it is a significant expectation of reduction in sales. That's larger than we think you need to do but that's always the way this thing goes. And we also know for sure that the lease suspension is behind us for sure. As a result, we're pretty confident that the worst is behind us, particularly in Institutional which really as I just said, is a driver for the main challenge in Q2 for the overall company. Now I don't think we're going to see Institutional back in growth until you have a vaccine; people are not dining out for several reasons. In some states and some countries, they're not allowed to, but even where they're allowed to, we've seen them slowly return because there still exists significant fear of becoming contaminated or catching COVID-19. Until that fear dissipates, I don't think you're going to see a huge change or growth in the Institutional business. With that said, it has come back significantly from its low point. May was better than April, June was better than May and we've seen continued progress in July as well. So we aren't going to be hanging out at the same levels that we saw in Q2. But don't expect growth in the next couple of quarters. We don't think that's realistic. Now, with that said, our team is all over a number of things which we think long-term are going to position us terrifically in this market. We’re already helping customers accelerate successful and safe reopening. If you've seen there have been over 50 large chains that have mentioned us, either in the public statements or releases. We're also reengineering a plan to what I'll call over recover. So the goals here are to increase our penetration in existing customers by 20%. And we also want to do that while continuing to drive increases in the number of units. We had interestingly enough, very strong new business performance in Q2 in all of our businesses, including in Institutional, we picked up a number of pieces of business that we've been chasing literally for decades because they understand our expertise, our coverage and how vital it is when you are moving through a pandemic situation like COVID and into recovery and into a world where everyone expects hygiene to be a much more heightened piece of the puzzle for all of these operators. So we're also introducing what we're calling the Ecolab Science Certified Program, which is designed to drive heightened hygiene standards and outcomes within our customers, but also to create comfort for our customers and their guests and meanwhile drive increased penetration of Ecolab programs in these customers to get these better outcomes. So this is going to be a big campaign and a big program that we believe will position us for even more significant share gain and frankly, help our customers recover quicker. Now, we also have accelerated the new technology in the field for Institutional. This will help the team’s efficiency and effectiveness via routing, remote service, online ordering, and opportunity identification programs embedded in this technology. We're clarifying the roles in our field organization to create the focus needed. And frankly, we can do it now because we can leverage this new field technology that we've invested in. So our Institutional team is all over this. They clearly went through shock when you had to live through April and start seeing sales declines they've never experienced. I'll remind everybody, the last great recession was in 2009. Our Institutional business globally was down 2%. This is not because there's an economic slowdown; this is completely pandemic-related, shutdown-related, very unique steps that need to be taken in a pandemic. It has got nothing to do with consumer and/or some minor economic recession slowdown that has never feared us, that wouldn't fear us now; what does fear us is when you're not allowed to go into restaurants, it hurts sales, no doubt about it. Now, we do know this. Our goal is not to recover, it is to create a step function change in growth while we're moving through COVID and then obviously setting ourselves up post-COVID. And I have to say this, the opportunity is huge. So if you just look at the U.S. and you look at our penetration opportunity within our existing customers, there is a billion-dollar opportunity in existing customers alone. So it is not like we are short of opportunity. Globally this market will still be near a $20 billion market post-COVID. So the opportunity exists. What we have today is called necessity, necessity to make change, to drive change and to get on the recovery path. And the team is all over this. The new technology we're launching, we got new antimicrobials that have been worked on for years coming out here shortly. Timing is perfect. We've got this new field technology, the right products. I think we have the enablement and the teams all over this.

Okay, that's it for me. Thanks. Thanks for all the color, Doug.

Our next question is from the line of Manav Patnaik with Barclays.

Thank you. Doug, just a kind of follow up on that, you talked about the Ecolab Science Certified Program, you talked about the 50 or so, I guess hotel chains, et cetera, using that program. We've also seen obviously a lot of airlines and companies using Clorox and lifestyles of the world as branding like them. Does that consumer brand and so forth matter in order to make the consumers I guess comfortable going in there? Or if you need to pick up the NPR or marketing around the Ecolab brand for that? Just curious there.

I'd offer a couple of things, and I'm going to give it to Christophe to offer some comments too. Number one, yes, I think there's always an opportunity to build. Ecolab is a great brand. It is really well known in the industries that we serve, but it is not very well known in consumer land simply because we're a B2B business. So there's certainly opportunity, if you do it smartly, to increase our awareness and help increase and drive Ecolab penetration. The other fact that we know is, we've done a lot of consumer research. We've done it over the years and we've reconfirmed it recently. That really when you ask consumers, what makes them more comfortable, establishments using hospital grade disinfectant, which is what we sell, or consumer-type products, they are overwhelmingly in favor of hospital grade disinfectant. It is not close. And I would say our customers understand this intuitively and the consumers are right. I mean, disinfectants at a hospital-grade level kill more, and they do it much quicker. In many instances, we're doing things in 30 and 45 seconds, which the products and consumer are doing in three and four minutes. And so that just doesn't work as well in the business-to-business environment. And so, I mean, I think this is well understood. So efficacy is not equivalent. And customers understand this, consumers do so to our customers. And so building programs around these advantages, communicating these program advantages, we think is an important part of the program. And I'll throw it to Christophe to give a little more color on Ecolab Science Certified.

Thank you, Doug. And we've also understood that especially in the U.S., two-thirds of the people have voted cleanliness as the main reason to go or not to go in a restaurant during these COVID-19 times as well. And beyond what Doug just said, that hospital grade disinfectants have a much better perception with guests versus retail products. We've also understood that people need to see safe in a restaurant or in a hotel in order to feel safe. And it is bringing those three things together. I need cleanliness to go in a restaurant. I need to see clean when I go in a restaurant. And I need to make sure that the right products have been used over there. So that has led to the idea of the Ecolab Science Certified, which is not saying that the restaurant is doing 100% right, but is using ultimately our standards, our protocols that we've developed with them, our programs as well as Doug mentioned this was some innovation. We've launched it a few weeks ago as well. It is a smart power disinfectant, which is killing viruses within 30 seconds, which is a world record out there as well. And then we can audit those restaurants. And when they've passed everything, they get the seal as well, which is this Ecolab Science Certified, that guests when they come in, can feel in a better place than in a restaurant that would not have that.

Got it, that's helpful. And maybe just my second question, obviously here in the U.S. we read about all the hotspots and so forth, but you guys are clearly a much more global business. I was just hoping for some perspective on like, in terms of the trends you’re seeing to drive the improvements either like, I guess I'm not sure maybe how notable or sizeable are these hotspot areas that we're reading about versus the rest of the world for you guys.

Yes, what we have certainly seen because you had said the pandemic started obviously in Asia and China specifically early as, and so they are further along. And we have seen improvement, continued improvement in our sales in the China market. In fact in June they were positive in total and we expect that to continue in July moving forward. But that’s been a climb back from fairly significant decline as well, but they are months ahead. And I would also say they have a different mix. It is more Industrial than Institutional than the balance of the world. So you're going to see some of that mix play out favorably as you go forward. But if you're looking at Institutional specifically within China, we've also seen significant improvement over the period of time as well as COVID has abated there somewhat, the restaurants are reopened and travel is reopened. With that said, it is not been a stampede back onto airplanes, into hotels, nor into restaurants. People are still waiting for, I think, finality for this thing, which I think is in the form of a vaccine ultimately. And we don't believe until then that you're going to see complete market recovery in the industries most hard hit by COVID. Now, it'll improve, but we don't think it will improve completely.

Our next question is from the line of John Roberts with UBS.

Thank you. Any way to gauge how much of Institutional is being supported by outdoor dining right now? Because as we move into the fall, we're going to lose that outdoor dining, related to the Institutional market.

John, it's difficult for us to predict exactly what will happen in the Institutional sector. Living in Minnesota, outdoor dining will likely come to an end in the next week or so as winter approaches quickly. However, I believe there will be a transition as we begin to recover and manage the situation. If we can get things back under control, you might see relatively steady dining results. Nonetheless, I anticipate a shift toward modest in-dining experiences moving forward. That's why I'm being cautious about how far this recovery may extend. We don’t expect to see a repeat of Q2 in Institutional sales, but we also don’t foresee a 5% growth rate in that sector until COVID is fully resolved for various reasons.

And then Institutional customers have had to train their employees on new cleaning protocols. Did your Lobster.com acquisition help with providing customers with additional training support?

Yes, it is starting to. I would say what we're learning is how to utilize that technology most effectively. There's obviously been a lot of work done on food safety programming. When we bought Lobster, they had a fairly good breadth of portfolio around lodging specifically, the food safety program is coming on, and we're utilizing that. Yes.

Next question is from the line of David Begleiter with Deutsche Bank.

Thank you, Doug. Just on the margins in Industrial and Healthcare and Life Sciences, they were clearly exceptional in Q2. How should we think about them in Q3 and the back half of the year?

Yes, I head it to Christophe. I mean, Industrial is about 450 basis points. I would say half of it, well to 200 of it was really T&E and bonus. Take back as a consequence of slow sales in that segment, even though it is outstanding. I would have said if you didn't have COVID, you would have had the same level of earnings, they would have just come a different way. But with that, let me give it to Christophe. I mean, he knows the Industrial business and Healthcare and Life Sciences is also performing quite well.

Good. Thank you. So, David, if you comment so on the very good progression in margin, which is, by the way a continuation of what we've seen as well, prior to Q2, not that the same level. It is true that almost half of the improvements have been driven by variable cost. So travel and entertainment and commission bonus, those traditional things, obviously that happen when people travel less, and sail less is at the same time. But the true formula for the margin improvement in Industrial is the outcome of many years as well of work. If you've seen the pricing, it is close to 2%. We were 3% or so a year or two ago, and leading towards probably more to the one so in the future, which is our steady course. But having 2% in an environment like that is quite remarkable. And in how do we get there? It is ultimately out of two main drivers, David. The first one is the type of innovation that we can provide, obviously to customers. They pay more and always more for products and programs that keep improving, and we invest a lot for that. And the second is the fact that we commit as well to our customers for operational improvement, our total cost of operation reduction. Basically saying if you work with us, your total cost is going to go down. And we take part of that improvement as well into our pricing. And the second driver is the fact that raw materials have been reasonably benign over the past quarter. So if you bring it all together that's driving good margins for Industrial. And the story is very similar in a different environment, especially in Life Sciences which is kind of an Industrial business as well so a similar approach, and Healthcare as well with pricing that's a bit lower than in Industrial, it is closer to one than the two in Industrial, but the formula is quite similar.

Very helpful. And just on the new business wins you mentioned as a result of COVID-19, can you give a couple examples of exactly what those accounts were and how they progressed during this crisis?

Yeah. We don't give names in haven't in the past. And I'm probably not going to set a new precedent today. I'll give you some examples of what drove it. I mean, one is a very large operator in the lodging environment. And this is a piece of business that we had been able to secure for honestly 15 years. And it was several things, but most notably, it was just this understanding of the capabilities that we had and the needs that they had and how important it was to partner with somebody who can help you through the most difficult challenges. And so I think it was this recognition. And I hope today, when the team shared with both Christophe and I that they had won this business because both of us have had our crack at running the Institutional business individually, we never got it done. But they did. And it was really a significant win. It was also a huge blow to a key competitor in a number of ways. There have been many other instances of businesses that we haven't really been in that suddenly we have fairly large stakes going because of their need for disinfection at a different scale in a different way. And so what I mentioned earlier in my comments, large space disinfection. There is this need and clearly in many of our customers' hotel and others. And we've got technology to do that. But we also have technology in Bioquell, which is an acquisition we made in the last 18 months, that enables us to do very unique things from a disinfecting standpoint very safely. And so that technology is now moving and expanding fairly aggressively out of its home environment, which was historically Life Sciences into new markets, who understand and see the need and are learning how this technology can help them disinfect when they have a contaminated site, do so quite safely, without any people involvement. So there's a number of these things that are occurring. It is not just occurring in our sphere, but that's why I say this market is so we're going to have some market changes and I think our $130 billion may turn into $140 billion. It is not like every market is going to go up equally x percent. You will have some markets that are a little impaired. But in total, in Healthcare alone, you've got a market that's going to probably triple and then settle down at doubling on a long-term basis. We're going to see hand sanitizer everywhere for a long period of time. In hand sanitizer, sales, if you can make it, you can sell it at this point in time. And so we know there are big changes and these changes are going to have lasting effects going forward, maybe not at the exact peak. But there are certainly going to be more sanitization, more concern, more awareness going forward. And we recognize that and we're making sure we're positioned to capitalize on it.

Thank you very much.

Next question is from the line of Gary Bisbee with Bank of America.

Hi. Thanks, guys. Interesting that you're targeting a 20% increase in penetration I think that was related to Institutional clients, but maybe it was more broadly on the other side of this. And I guess can you help us understand what the components would be to deliver that? And really what I'm trying to think through is like how much larger can unit level sales be on the other side of this when customers are following a higher hygiene standard?

The 20% I referred to the goal of increasing unit penetration was Institutional. I mean, everybody has a goal of increased penetration. And, I get asked the question a lot or have over the years, what percent of our growth do we want to come from new units are from penetration. Right now, in Institutional, we want a disproportionate amount coming from penetration. It is something we can control. It is stuff we can get after. You know that if you end up with larger penetration, you automatically start overwhelming all kinds of economics. If you improve the shop per drop, I mean how much you're selling per service call, per delivery, per everything else, all the economics improve, it is sitting there. And I would say the team has got a very clear view of what needs to get done. So, certainly, Ecolab Science Certified is the umbrella idea under which it is going to help drive penetration. But the field technology also ultimately enables us for each call to identify every time one of our people pulls up to an account, what the opportunities are in that account, because it is tied to our ERP system. And so just being able to manage differently, how do we think about structuring our deals at the chains, how do we end up structuring our agreements, that distribution and how do we end up structuring our deal at the end unit in terms of encouraging more of our product and our sale. Now, this deal doesn't work if it doesn't work for the customer. So this has to translate into customer benefit. You can't trick them. You've got to have a deal that, when they buy more from us, they're going to have cleaner outcomes and better operating income as a consequence of this, which is just what Christophe described in Industrial. It is the promise we've been delivering in Institutional for years, but it is reengineering that program specifically around a greater array of products and programs to deliver that of common food service and lodging.

If I could follow up on the earlier question regarding margins in Health and Life Sciences and Industrial. I understand that discretionary costs are a factor. As we look ahead to the next few quarters, will some of those costs return, or can you provide insight into how they might impact the margins? Health and Life Sciences have seen an increase of 800 to 900 basis points, which is significant. Should we anticipate that spending will increase again? Any additional insights would be appreciated.

I mean Life Sciences. I mean, it is a little bit of a magic. You saw the other side of it, when you're up 50%, good things happen. A lot of money flows through. When you're down 50%, I guess we prove this quarter, bad things happen in the opposite. So, I think Life Sciences has been a profitable business will remain a quite profitable business. We would not say that that's our terminal run rate, the 50 top line or the 800 basis points at the below. But what we do know in Life Sciences, they got very good momentum, a lot of very smart new business programs that they're driving. They've had a few one-offs here as a consequence of some of the Bioquell sales that we've had that we don't believe will repeat long term. But with that said they're going to have very healthy growth. On the Industrial side, I'll give it to Christophe to answer it.

Thanks, Doug. So, Gary, what's important to look at a little bit pre-COVID as well. So the evolution that we've had. This is the type of underlying margin improvement that we're going to continue to see. Yes, you're right, the discretionary spend is going to go up as people start to travel again, not as much as before, but it is going to be variable. So, it is going to go up. But at the same time, the leverage as well, the volume leverage in our operations is going to improve because that was a negative during that time. Ultimately, it is important to keep in mind, so these pricing momentum that we have between these 1% and 2%, which has been so positive for a very long time. And we have no intention to see it drop below zero for sure. So it is to keep it so between one and two. As long as we can get that in that raw material has remained so as they are now, the leverage and the discretionary will be compensated for itself, which will lead to similar type of improvement, we had pre-COVID.

Great. Thank you.

Our next question is coming from the line of Ryan Connors with Boenning & Scattergood. Please, proceed with your question.

Great. Thanks for taking my question today. It is a big picture question. And I really wonder, whether you can talk about the big picture of the federal response to COVID. I mean, obviously the shock that we saw from the Fed and from Congress was really key to stabilizing things in particular for many of your Institutional customers. But there seems to be an emerging debate about the unintended consequences of that and how that subverts the natural creative destruction and the calling of the herd, so to speak. So what are your thoughts on that in terms of how that impacts your industry and your business? Both in terms of competitors, who may have been price-based competitors who would have been vulnerable, but now they can hang around through PPP money or whatever, and they don't become acquisition opportunities or they don't maybe go away. And then also in terms of customers, are there small mom-and-pop businesses that compete with your strategic accounts that maybe would have gone away that now will hang around and prevent your strategic accounts from gaining share?

Yes. Well, that is a big question. I would say this. We’re going to take a lot of the early federal response was frankly much more right than wrong, i.e., fund the businesses, and they get to keep the funds as long as they keep employing folks. I mean, if all you do is fund people, the problem is there's no employers left to reemploy them post-event. And so I think they took a page, frankly, out of Germany when they went through the crisis back in the 2000. I think it was a smart way to go. Hopefully, there's more of that in tranche three. In terms of does it keep the walking wounded alive? I don't know. I think you're seeing a lot of people opening and really just opening to ultimately go bankrupt and to walk down. So I think you're going to see enough creative destruction as a consequence of COVID in many industries, not just in food service and lodging, but retail and others as you go through. And so, I think the third tranche needs to go consider this. But the biggest driver I believe is really fear. And if you start looking at what's really going on and I alluded to this in China. So China has this under control in many respects, I mean, all the reported respects and you still don't have the same level of activity in retail or in dining or in travel. And that's not driven by government programs or anything else; it is really driven by people's fear that they could contract COVID again, and they are reluctance to do so. So the big thing that needs to happen, I mean, the government has got to do smart policy to figure out how they keep the economy moving and on life support at minimum; I agree with that. But we need a vaccine, and we need better treatment, which is coming. But ultimately until I think communities feel confident that they can start gathering again, you're not going to see a normalization or a renormalization of the economy. You'll see recovery, but it is going to get stalled at x point. Now that's what I believe. So, the government can do anything work and make sure the vaccination development is moving and that we are prepared to make billions of doses once it is available. So there you go.

That's really helpful perspective. Thanks for your time.

Our next question is from the line of Chris Parkinson with Credit Suisse.

Great. Thank you. So, Doug, can you think of all $130 billion market at the end of ‘19, which will likely be bigger in the years to come. Can you speak to your assessment of your positioning for that growth? Is the focus still on a few key initiatives, just broad initiatives, such as enterprise selling and digitization and customer stickiness? Just trying to get a sense of how you're rethinking or how you're further evaluating customer contract growth and the opportunity to expand there within.

Certainly, the ones you mentioned are remaining as top initiatives. I mean, the digital work that we've done, thank God we invested in digital the way we did. Any company that did has been really prospering as a consequence of this. When Christophe just walked through what's going on in Industrial, a lot of the stage has been set over the last several years where they've worked very hard to better wire customers remotely, and also equipped the field with technology that enabled them to provide services they couldn't before. The same is true in Institutional. We are doing amazing things remotely that we couldn't have done just two or three years ago. And the ability to do this has given us a great advantage. I'd also say it has given us great insight as to where we need to continue to drive digital innovation. Innovation in antimicrobials, which has been a prime focus of ours for 15 years, where we identified we had a major role to be quite honest, that's proven to be invaluable. We have the best portfolio. We have new technology, Christophe just alluded to one, and we've got another launch coming up here in a week that really couldn't be better timed in terms of ease of use, simplification, chill breaths, and kill time. And so all these things matter terrifically as we go through. But value capture, making sure that we are able to articulate the benefits of buying from us, not only environmentally, operationally but economically. The big advantage we have is the way we go to the market is while we create huge environmental sustainability benefits, we do it while simultaneously delivering huge economic benefits. So, when you get into rough economies, it is the reason we've historically continued to sell successfully. We may start talking about economic benefits in advance of environmental benefits, but they're of the same DNA in the way we go to market. And so we believe, ultimately, that is a pretty resilient way and operating model to execute, no matter what the environment is.

Got it. And there's been a lot of focus, obviously, on some of the bigger areas in Institutional, full-service restaurants and lodging, etcetera. Based on how the strategies you articulated to me, can you sit on, there are some other areas like facilities, long term care, and food safety that had thrown their past and, Healthcare, I think you already spoke about a little bit? How are those turned in the back half the year because obviously, there's an argument that those will actually gain momentum versus some other businesses, which obviously will be more subjective to the actual, macro rebounds pre-vaccine? So, just what are your thoughts on that as well? Thank you.

Our appetite and interest in the Institutional markets including some of the segments you talked about, catering, as well as lodging, as well as food service, as well as long term care had anticipated one iota. So, you're going to be in remain huge opportunities. We have outsized advantage in those markets. We believe clearly that we will be setting record sales and ally in those markets in the years to come. So, they believe, and we believe those are terrific opportunities for us. They are going through, like a legendary impact as a consequence of the pandemic. And we'll see this through they'll see it through. But I don't know this. This imagination that somehow nobody's going to be dining out any longer, long term, where it is literally a tradition that's thousands of years old and only built over time. I just don't buy. Do I think that lodging may take a while to recover? Yes, it is 7% of our portfolio as a company, right? We can overcome some dents in some parts of our portfolio. We have to deal with it all the time through these things. But every intention is being absolute laser-focused in the Institutional market. We take our advantages here are going to grow, not shrink.

Hello. I have two quick questions. First, regarding the Institutional margins, do you think you can return to the levels seen in 2018?

Yes, I would say I don't think we've seen our peak margin in Institutional, right? I mean, we're not going to get back there this year, that's for sure. And it is going to take a while to go march back there. But there's nothing I know that says that Institutional has the ability to set record sales, record margins, record income levels going forward.

But I guess what I'm trying to get at is can you get to the same margin as last year at a lower sales run rate than last year? Or do you need to get back to within 5% or so to get the same margin?

I'll answer a theoretical question with a theoretical answer. And I don't mean to be cute on this. Some of this in what we've been doing is making sure we understand what the situation is going to look like in our markets. Before we take real action. Now we're doing a bunch of things to equip our businesses to be much more agile in the field. And I talked about field technology and the acceleration that we're doing in Institutional, as we've done in Industrial and other places, this gives us the ability to do a number of things. But if you wanted a theoretical and you told me that I was going to live in a world with less units, okay, if I sell more per unit, I will make more money. And I don't need to get exactly to the same level of sales simply because everything I do becomes more efficient. So there's always ways to engineer the business, if you will, to overcome whatever it is that the world is going to throw at you. What we need to make sure we understand is, what is it that the world is throwing at us? We have a lot of guesses out there, but we want to watch and make sure we understand it, and we will design to win in that market. So we could do it with less volume and make the same amount of money, which would be a higher margin. You can't do it at half the volume, but you could certainly do it at any normal expected, potential pain you might realize post-COVID for a short period of time or even a couple of years.

Our next question comes from the line of Rosemarie Morbelli with G.research.

Thank you. Good afternoon, everyone. Doug, while we don't expect the Institutional business to grow at 5% anytime soon, I'm curious about how much improvement in hotel occupancy would be necessary to maintain a stable situation. If they operate at 40% occupancy, do they not utilize and clean the entire facility?

Well, there's not an easy answer, like 59%. I would say, I think two things are going on. Certainly there's been temporarily demand destruction in the lodging and dining markets. I mean, it is nothing disputable. And now part of that has also been overcome by increased spend within these places on hygiene. So if you walk into a hotel today, you are going to see and Christophe alluded to this, we talked about the Ecolab Science Certified program, part of what people want to do is they want to see clean. So interestingly, where before people would hide cleaning public areas from the public and not do it until off hours, they're now doing it 24 hours. They want the public to see this happening. And they're increasing cleanliness frequency in virtually every part of the establishment. So that's going to mean you can get back to the same sales at lower occupancy. What that exact math is, I mean, we're all learning. I mean, we're literally weeks into this thing as we go through there. With that said, we saw better recovery in U.S. lodging in the second quarter than I would have guessed going in. And it was quicker in some regards in other markets, which is an interesting outcome. And so we'll all watch this, but we don't need to get back to the same exact level that have the same spend per location.

And then looking you are emphasizing hospital grade infections. But as we all know, and as you know about hospitals, your hospital experience, if they are not used properly, it really doesn't matter what they use. So, are you training them? Is there some kind of a certification? And would you be held responsible if you certify that what they are doing is going to end up with a clean area?

Yeah, absolutely. And all I've Christophe give some color. A key component of the Science Certified program is in-unit training of employees. And some of this is going to be done through Lobster type technology and much of it like it is done historically it is also in-person training and development. But you're absolutely right. I mean, if you don't take a disinfectant out of the bottle, it doesn't kill any germs. So you need to do it properly. The advantage we have with our accelerated kill time, is it is much less sensitive to procedure. If you have 4-minute requirement for dwell time, that is a huge training obstacle. Because it is not natural, it is not what we do. People don't spray things and leave them on there for 4 minutes to kill. It is just not what we all believe, is necessary. Even though it is actually the requirement. And I can ask Christophe to get more color, if he wants to, around some of the training and certification efforts around Science Certified.

So the idea of Science Certified is really that you get audited at the end. And we know that it is a point in time. We should be going every day in order to make sure that everything is right. But we want to make sure it is like in a company if the accounting standards have been defined what you expect the people to follow them and then to audit them. That's a little bit of the same approach in a more volatile world, obviously, in the kitchen and in a restaurant. But it is really defining with them, what are the standards? What are the protocols? How do we train the people? What are the programs? And as Doug mentioned, so we're trying to have programs as simple to use as we can with the maximum impact in terms of kill time and in terms of efficacy as well. And then we can audit those restaurants. And when they've passed everything, they get the seal as well, which is this Ecolab Science Certified, that guests when they come in can feel in a better place than in a restaurant that would not have that.

Next question is from the line of Andrew Wittmann with Baird.

Thanks. My questions have been asked and answered.

The next question is from the line of P.J. Juvekar with Citi.

Hi Doug. It is Eric Petrie on for PJ. How often do contracts come up for renewal in the Institutional market? And in terms of your new business wins, are customers more willing to source incremental products from Ecolab or is there still a mentality to diversify supply?

I would say there hasn't been more one than the short answer is. I mean, they're anywhere from three to five years on average, our contracts. I don't ask investors to take a lot of comfort there, we don't. I mean, if a customer wants to leave us because we're poor performing, then we do not sue. I mean there's a few exceptions if we have capital upfront and do some other things. And we have spelled out requirements, but we operate like every one of these contracts has renewed every day. It is the only way that you continue to grow share in these industries. I would say customers, typically I mean, we have very good penetration in a number of our chains, wide and deep. And so there is not, I would say a built-in reluctance in the industry to do this. I think what we need to do is continue to sharpen the way we articulate the benefit of doing it, of having the product portfolio are because in every chain there's always a gap or two. So every place we go, we know we can sell more as we do it. But it is not a simple thing; they have this purchasing mandate of having two suppliers. That's not the situation we see. We address security supply, which is a very real and valid concern by making sure that we manufacture in multiple sites, that we have multiple avenues to supply customers even when we're in sole supply. So they can't be victimized by a bad event, say unfortunate hurricane or tornado or some other natural disaster that knocks them out and us.

At this time, we've come to the end of our question and answer session. And I'll turn the floor back to Mike Monahan for closing comments.

Thank you. That wraps up our second quarter conference call. This conference call and associated discussion slides will be available for replay on our website. Thanks for your time and participation and best wishes for the rest of the day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines at this time, and have a wonderful day.