Greetings, and welcome to Ecolab’s First Quarter 2021 Earnings Release Conference Call. As a reminder, this conference is being recorded. It’s now my pleasure to introduce your host, Mike Monahan, Senior Vice President, External Relations. Thank you, Mr. Monahan, you may now begin.

Thank you. Hello, everyone, and welcome to Ecolab’s first quarter conference call. With me today are Christophe Beck, Ecolab’s CEO; and Dan Schmechel, our CFO. A 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/investor. Please 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 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 a brief overview, the first quarter showed continued sequential business improvement that was offset by the Texas freeze. Adjusted EPS were $0.81. That EPS included the impact of short-term supply chain and customer disruption from the freeze that were estimated to be $0.10 per share. Healthcare and Life Sciences segment showed further strong sales growth. The Industrial segment experienced a modest sales decline as its growth was offset by the freeze impact. The Other segment significantly narrowed its sales decline from the fourth quarter and the Institutional and Specialty segments' sales declined narrowed slightly from the fourth quarter as sales trends within our U.S. institutional business improved through the end of the first quarter. Our markets are broadly improving and the increasing rate of vaccination along with the easing of social restrictions provides further support for the global economic recovery. We expect that broad improvement leveraged by our investments and the work we have done to further our critical innovation, service and digital business drivers, as well as our cost efficiency measures will help drive strong comparison against 2020 results over the balance of the year and results in 2021 adjusted earnings per share that exceed 2019 adjusted earnings per share from continuing operations, excluding the estimated $0.15 per share impact from the Texas freeze. Over the past year, we’ve seen the value of Ecolab’s premium product and service expertise underscored again through continued strong new business growth, as well as our strengthened customer relationships, despite the difficult market conditions. Our position as leader in food safety, clean water and healthy environments has become even more important. We believe this position along with our strong 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 through that, our ability to help them meet their growing ESG ambition. We believe these sustainable long-term business drivers will continue to yield superior long-term performance for Ecolab and our investors. Now here’s Christophe Beck with his comment.

Thank you so much, Mike, and good afternoon, everyone. I’m very pleased with our first quarter, which was right in line with our expectations. Excluding the Texas freeze, which we discussed earlier, our business continued to show solid fundamental improvement that gives us confidence in our full-year outlook. Our underlying business momentum, as well as margin development, is improving across the board leading to strong results in the first quarter. Excluding the short-term impact of the Texas freeze, our Q1 adjusted EPS showed a significantly narrowing decline versus the prior year continuing our improving quarterly trends. It’s also ahead of what we delivered in Q1 2019, which is a good indication for our expected full-year delivery. We did all of this while continuing to invest in our major growth initiatives and in our global team capabilities to leverage our position as the markets reopen. Excluding the freeze, all segments stayed strong or showed continued sequential improvement. Our fundamental business strength is gaining momentum, especially in our Institutional division, which saw a definitive pickup as we exited March. Our Industrial segment, which was most impacted by the Texas freeze, delivered improved underlying growth trends versus the fourth quarter of 2020 and continued to further strengthen its margin. Healthcare and life sciences maintained their strong double-digit growth and solid margin improvement. This good start strengthens our confidence for the full year and beyond. Our general market outlook remains largely unchanged versus what we said in previous calls. North America and China are moving ahead of our previous expectations, while Europe and several emerging markets remain behind as they recover from extended lockdowns and are still impacted by a rather slow pace of vaccination. So the exact timing of the global reopenings might shift a few months, which might also shift some of the recovery into Q3. We expect strong growth in the second quarter driven by improving end markets and accelerated underlying growth momentum. We expect these trends to continue in the second half of the year. Our objective has been to start the year in a position of strength and Q1 shows we clearly achieved this. Our net new business pipeline increased to record highs and our global market shares are strengthening. Our differentiated innovations are continuing to help our customers protect their consumers and our world-class programs help them preserve vital natural resources while generating very attractive financial returns. And with our new Ecolab Science Certified Assurance program, we have become the brand that reaches customers and consumers in the times they needed most. All this underscores our confidence that we are on a path to deliver full-year 2021 adjusted EPS ahead of 2019 EPS excluding the estimated $0.15 impact of that Texas freeze. Looking beyond the pandemic, our long-term position is better than ever in a world where hygiene standards are rising, where food safety and infection risk awareness has reached new levels, where the expected gap between water supply and water demand is unprecedented. Our differentiated value proposition as a global leader in water, hygiene and infection prevention services and technologies positions us uniquely to capture these accelerating growth trends. The combination of this unmatched value proposition and the breadth of our comprehensive offering makes us the obvious partner for global companies to help them deliver on their most ambitious sustainability commitments. Our ability to serve customers at 3 million locations in 132 countries with 25,000 dedicated underground experts in 40 industries allows us to deliver the same standards of quality and performance anywhere around the world. With our new business pipeline, breakthrough innovations, unmatched digital footprint, world-class scientific expertise and passion for exceptional execution, we continue to lead to sustained growth momentum and continued double-digit earnings growth for the years to come. I look forward to your questions. So Mike, back to you.

Thank you. That concludes our formal remarks. As a final note, before we begin Q&A, we plan to hold our 2021 Investor Day on Thursday, September 16 at St. Paul. Operator, would you please begin the question-and-answer period?

Thank you. Our first question will come from Tim Mulrooney with William Blair. Please proceed with your questions.

Good afternoon.

Good afternoon, Tim.

Hi, Christophe. I know everyone’s expecting a strong recovery in the Institutional segment in the second quarter, particularly given the easy comparison that you have with last year. But I’m curious if you could maybe talk about how the recovery in that segment is unfolding on a global basis. How is U.S. institutional performing recently relative to some of your other major global markets? And how do you see that playing out through the second quarter?

Thank you, Tim. So on institutional, net-net, it’s happening as expected. We had the U.S. and China ahead of our expectations, as we can read in the news. On the other hand, we have Europe and a few emerging markets that are behind as we can see with restrictions, lockdowns, and the slow pace of vaccinations, especially in Europe as well. So that’s the balance that we are trying to manage. When I think about how institutional did during the first quarter, we saw a nice pickup in March, it’s being confirmed in April right now in the second quarter. So net-net Q2 should be more or less as expected if there is one caveat; the timing of reopening in Europe and some of the emerging markets that might shift some of that growth to Q3. But for the full year, I confirm the outlook the way we described it in the previous call.

Okay. That’s great. Thanks. And as my follow-up, can you talk about within the Institutional segment how your customers, that are open, how they’re spending? I know this has been a common theme that folks have asked on a conference call, but curious on your updated thoughts. Are customers spending more than they were relative to pre-COVID levels on things like hard and soft surface cleaners, where I know that there’s maybe some elevated demand? And do you think eventually that demand returns to pre-COVID levels? Or do you think that it settles somewhere above pre-COVID levels given the emphasis on virus protection and the like? Thank you.

Good question, Tim. Our focus, as you know, is on our corporate accounts, so those are chain customers. Regional or global customers are the ones who have weathered the pandemic better than others. Most of them are investing in new units or in refreshing current units, which bodes very well for our business today and for tomorrow. To your question on the hygiene products, basically, the way we think about it is that it’s going to be a bit less than during the pandemic where the measures obviously are going to be a little bit less strong than what we’ve experienced over the past 15 months. But it’s going to be higher than what we’ve experienced pre-pandemic as well. So net-net, we think that our position in institutional has strengthened and the customers that we serve are going to be in a better position as well.

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

Yes. Thank you. Good afternoon. I just wanted to touch on your comments around Europe, if you could just elaborate a bit more in terms of – I know pre-pandemic, it was structurally I guess, just a little growth area, and there were some competitive dynamics. So I was just curious if you see any of that changing once we do get this inbound or reopening.

Hi, Manav. So on Europe, so Europe had a good year last year. In 2020, we had flat sales overall. We had our profit margins that went up as well. So overall, I was very pleased with the business development that we saw in that critical region for us. If I look at 2021, it’s kind of an on/off approach that they are having. First, I’d like to put on the side the UK, which was partly reopened, as we know, way ahead in terms of vaccinations versus continental Europe. We saw good development over there, while continental Europe, most countries are in complete lockdown, with most of the large countries having curfews, even in Germany and France. Most, if not all of the restaurants and hotels are for the most part closed, which is something that’s going to change hopefully before the summer. They’re all talking about reopening to protect the summer season. I hope that’s going to be true. It’s going to be a bit later than what I had expected ultimately here, but then it’s going to drive a rebound which is going to be positive in Q3. So, as I mentioned before, we might have some of the growth we were expecting in Q2 shifting to Q3. But all in all, for the full year, it’s going to be similar to what we thought.

Okay, got it. And then the other question I just had, Christophe, was on water. I know it was 3% growth backing out the Texas freeze. But just given the water scarcity issues out there, I was just curious, can water grow just like life sciences and healthcare is growing just given the need out there? Or are there any limitations to get to that kind of growth rate?

Yes. For water, you mentioned it was 3% ex the Texas freeze. It’s important to keep in mind that within water you have light industries and heavy industries, both are growing ex-Texas in mid-single plus, which is very good in Q1, and you have mining, which is still in negative territory since we exited some of our coal business. But even mining is going to come back in a nice way, I think in the next few quarters and years for sure. To your point on water scarcity, we see always more customers coming to us and asking us how to help them reach their net zero objective that they have for 2030 or for 2050, which is right in line with our ESG promise as a company and our offerings. That’s going to feed the momentum for water in the years to come.

All right. Thank you very much.

Thank you, Manav.

The next question is from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.

Thank you. Christophe, can you discuss the pressure from raw materials you are seeing and the pricing you need right now to offset that and when that might equalize prices versus raws?

Yes. Hi, David. On the raws, it was pretty benign in Q1, as we’ve shared. But if we look at the full year, if we look at the indices that you read to, it’s obviously much more than what we had expected initially. When I step back and look at the overall picture, it’s roughly kind of mid-single growth in terms of cost for our overall raws spend, which is more than what we had expected but something that we had experienced in the past as well. We know and we have the capability to price for that in a good way, that we price to our customers based on the value that we create as well. For them, which means that we do that over time. It’s not a rapid shift over a month; it takes some time. Just as a reminder, we try to get the dollar value back within 12 months and the margin percent back in about 24 months. The way we look at it today for 2021 might be a slight net negative. But I’m not even sure about that; our teams are good at doing it, and what we’re seeing right now is nothing exceptional versus what we’ve experienced in the past.

No, very good. And can you just discuss the competitive intensity in the marketplace? You have – one of your competitors is now public. Talk about your share gains you saw in Q1 and what you expect as you go through the year versus perhaps a more public-profile competitor.

I’m really happy with the share gains that we have in most, if not all businesses. Actually, we are tracking the number of units that we are serving, the number of solutions that we serve. We’ve talked about that over the past few quarters that was an objective for the whole team during the pandemic to gain share so that when it reopens, we can leverage that pickup, and that’s happening as we expected, which is really good. You’re right, one of our competitors has become public over the past few weeks. We’re very familiar with them. We’ve been competing with them for many years. We respect them a lot as well. They make us better because we need to be better than them. When you think about it, we overlap in less than a third of our end markets. We’re 5x larger, we invest 10x more in R&D and digital than they do as well. I feel really good about what we can do for our customers and how are we gaining shares versus them in the marketplace.

Thank you very much.

Our next question is from the line of Rosemarie Morbelli with G. Research. Please proceed with your question.

Thank you. Good afternoon, everyone.

Good afternoon, Rosemarie.

So Christophe, how likely is it that you could reach the 2019 levels, considering the impact from the freeze and the recovery outside of Europe? Do you need Europe to reopen for all vaccinated Americans, and for us to travel there to support your efforts? What do you require to perform better than your current outlook?

Right now, I feel very good about delivering these 2019 adjusted EPS, excluding the Texas freeze as you mentioned. The Q1 delivery has increased our confidence to deliver that. As mentioned before, there might be some shifts between Q2 and Q3 because of the timing of reopening in Europe, as you mentioned. But overall with everything I know right now, I think that the delivery as we described it is the right target. If things improve in Europe better than we expect, we will definitely try to gain more momentum. But for now, I think that the 2019 EPS deliveries would be a good target excluding Texas.

Okay. Thanks. And then looking at SMB, could you talk a little bit more details of the different segments or areas in that particular segment?

The SMB had a good year last year. It’s one of our best businesses as you know, so good growth, good margin, good margin improvement. The all industrial segments obviously did as well. SMB had a strong start in 2020 when the pantry loading was happening in the first quarter and a little bit beyond as well. We have some comparison challenges right now, but underlying, I feel good about where SMB is going. It’s a little bit different by end market. We had the milk products impacted for a while because of schools being closed. That’s improving progressively, which is good. We see beverage and brews improving in some places, especially in the U.S. but very strong in Latin America where everything is closed. So that’s going to be good for the future. That’s a little bit less good right now. In the food segment, that’s where we have strong comparisons versus the previous year where pressure is a little bit for the year-on-year comparison. But net-net, the Q1 feels a bit softer because of the comparison, but underlying, especially when I look at the new business being generated in SMB, the next few quarters are going to show some good delivery as it used to be in the past.

All right. Thank you.

Thank you, Rosemarie.

Our next question is from the line of Gary Bisbee with Bank of America. Please proceed with your question.

Hey guys. Good afternoon. I guess the first question, can you just give us an update on where we are with the cost savings programs? Sort of what have you achieved to date? What’s likely to be achieved in 2021? And then how much savings are left from those big programs for beyond 2021? Thank you.

Thank you, Gary. I’ll pass it to Dan, who has the details. Generally, the progress that we’ve made in our cost savings program, which are all meant to strengthen our performance post-pandemic as well. Things have progressed better than we had expected. With that, Dan, maybe some more detail.

Sure. Gary, thank you. Just for common reference, maybe it’s probably helpful to build up the pieces of our cost savings program, which you’ll recall was originally announced back in 2018, and accelerated in 2020. This was the initiative to capture new investments in our digital offering with a $200 million cost savings target. We expanded it at the time we announced the ChampionX then covered things like spend, cost, and anticipated costs related to ChampionX. We expanded it again to cover some aspects of the high chain industrial business, and most recently to cover some restructuring, really some reshaping of our institutional business to improve principally field delivery. You add all that up and we have a targeted cost savings of about $365 million. Some of that is in gross margin. The big bulk of it is in SG&A. Year-on-year, the incremental piece that we expect to capture in 2021 is in the neighborhood if you look just at the SG&A piece $120 million, so that’s a big help in 2021. I’d remind you there’s a lot of – $91 million. The net of it is that we think this entire program will essentially be delivered by the end of 2021 and there’ll be pieces of the institutional program that will extend to 2022, but the bulk of it will be fully accrued and delivered by the end of 2021.

Okay, great. Thanks. And then the follow-up question, just how are you thinking about multi-year growth beyond 2021 as we get more normal performance for the business post-pandemic? Historically, you’d laid out a number of long-term aspirational targets. Should we think back to those as appropriate? Or just can you give us a sense of how you’re thinking about the multi-year?

Gary, just to make sure I understand your question. So you mean in terms of sales growth and earnings growth, right?

That’s right. Yes. So I know this year’s got easy comps, and there’s a lot of moving parts, but over the next two, three, four years, are those normal targets still reasonable? Thank you.

Yes. Our ambition, Gary, has not changed, so the 6% to 8% organic, the 13% to 15% EPS that has been true for many years, and it’s not going to change in the future. If anything, our position has strengthened out there when you think about the rise of hygiene standards, the search for most companies to improve their profile in terms of ESG delivery, net zero in water consumption. Being one of them, the need for digital solutions as well. Those are all things that are improving, our position going forward, so no change in terms of growth expectations for the future. If anything, our position has improved.

Great. Thank you.

Thank you, Gary.

The next question is coming from the line of John McNulty with BMO Capital Markets. Please proceed with your questions.

Yes. Thanks for taking my question. In the Institutional business specifically, can you speak to the number of accounts that you serve this quarter versus the prior quarter? And how that may have changed? And then I guess to that are starting to see any early signs of new account or I guess potential customer launches at this point? Or is it a little bit early given where we are in the pandemic kind of stages? at this point?

Good question, John. We don’t share the exact number of accounts or solutions per account that we’re tracking on a monthly basis for competitive reasons. What I can say is that the number of accounts is continuously increasing which is giving us confidence for the growth of our business going forward because we’re talking about growth without having more customers buying our programs. So more accounts buying more solutions, and I’d like to add that the Ecolab Science Certified program that we launched a year plus ago in institutional requires customers to buy most of our solutions in order to qualify for this certification. This is driving penetration of solutions in a good way, and it’s helping with the retention as well going forward. So not only are we gaining a number of accounts and solutions, but we are keeping them longer because customers are interested in keeping the certification at the same time.

Got it. And is there a way to think about on the Ecolab Science Certified program, the difference in total value that you’re getting from a specific customer versus one that’s not tied into the program if there’s – looking at like a like-for-like customer, obviously.

So it depends on where they’re starting from; if they just bought one solution, the gap is bigger, and the opportunity is much bigger. In some cases with some of our long-term customers, while they’re buying everything from us, the opportunity is smaller. The Ecolab Science Certified program was something we didn’t plan to launch pre-pandemic; it came as an outcome of the pandemic where we recognized that our customers needed help in order to protect their guests. Guests coming into a hotel or in a restaurant are looking for more reassurance, and that’s going to continue for the quarters to come. We’re measuring the number of locations that are certified by Ecolab Science Certified; it’s pretty large. We’re not disclosing that number, but it’s by far the number one program in the U.S. right now and it’s generating significant incremental sales while simultaneously being recognized by consumers as a brand in the media, which is being increasingly acknowledged by guests. Overall, this is a good story for us.

Got it. Thanks very much for the color.

Thank you, John.

The next question comes from the line of John Roberts with UBS. Please proceed with your question.

Thank you. Does it matter that COVID isn’t significantly transmitted on surfaces or does it matter because cleaning theater is more important?

Infections can be transmitted in so many different ways. It can be the air, it can be what you eat, it can be what you touch, it can be what you drink, the hands that you shake. It’s true that COVID is mostly transferred through the air. But many other illnesses are transmitted through surfaces or human contact. When I think about infection prevention, short-term, we all think COVID-19, but mid to longer-term, we think about any infection that could happen out there, and surfaces like human contact are a big vector. One example is in hospitals, the number one vector of infection is through hands, not for COVID but for many other infections. Making sure that you reduce the number of infections in a public setting means you need to have surfaces disinfected as well.

Okay. Good answer. And healthcare was 5% excluding one-time sales and 12% including. Could you talk about that difference?

The main difference – first of all, I’d like to say, so Healthcare used to have underlying sales of 3%, 4% before pre-pandemic, getting to this underlying 5%, which has been a long journey. COVID has helped because infection prevention awareness of customers and patients has gone up strongly during COVID-19, which is good. The underlying growth is solid in healthcare, which is here to stay. On margins, we have seen good improvement last year, partly with one-off deals that we made with some governments around the world to address, obviously, the infection risks. This is COVID-19 related, and is tapering off right now. We start comparing against very high growth last year. We knew that the business is going to normalize and get back to the underlying growth of 5%.

Right. Thank you.

Thank you, John.

Our next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Thank you. Dan, can I just ask you about the working capital and how you’re thinking about free cash flow this year? Just noticing inventory was up about $100 million, $120 million in the quarter versus last year, even though sales were down. I think you mentioned in the prepared remarks that you’re building inventory ahead of the recovery, but just how should we expect working capital to trend overall? And then ultimately what that’s going to translate into free cash?

Thank you, Vincent. I’ll pass it to Dan to add some comments on that.

Thank you, Christophe. And that might be the answer to the core of your question. Look, internally, we’ve been very clear that the mistake that we are not going to make is not going to have the right product in the right place to serve our customers as their path to reopening accelerates. Okay, so you’re right. We built significant inventory versus the same time last year, also versus year-end 2020. My guess is that we will continue to, because we’ll have the right stuff where we and our customers need it. Rebuilding the balance sheet means there will be some pull on inventory and accounts receivable too, which are in very good shape from a payment perspective. As people buy more stuff, we’ll have more on the balance sheet in accounts receivable. We’ll continue to manage our vendors and what we purchased with the appropriate discipline. There will be an investment in working capital as the business rebuilds, which is expected and completely appropriate. The net though of our cash flow delivery for the full year, even including the higher level of CapEx that we will continue to invest in the business in 2021, our cash flow will continue to be bigger and also if you think about the metric that matters most to me in terms of conversion, it will continue to be in the mid-90% range, which I think is a very good number for the company and for the model.

Okay. Thank you. And maybe Christophe, any comments on where you are with sort of the bolt-on M&A pipeline?

With the M&A pipeline, that’s always a difficult question. Obviously, we have a very rich pipeline. We’ve been working quite a bit during COVID. We’ve done fewer transactions for the obvious reasons. We’ve done a lot of strategic work. We’ve built a lot of relationships with targets we have out there. I feel good about the pipeline we have. I want to invest in places that are driving higher growth and higher margins and making sure that we can do that at valuations good for us and for shareholders. So I feel good; it’s about to come.

Thanks very much.

The next question is from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions.

Thanks very much. Good afternoon. This is regarding the Texas freeze. It looks like that lost revenue came in a high decremental margin, if my numbers are correct. Could you please elaborate on just how that impacted? And now that we’re near the end of April, have you seen the full $0.15 impact? Or is this going to drag on through the fall on, through the second quarter, possibly third, just curious what type of lag there is occurring? Thanks.

Yes, Scott. We expected this $0.15, which seems to be the right number as we speak, with $0.10 impacting Q1, as we communicated and we expect the remaining $0.05 to impact Q2. We see things moving behind us; it’s not a perfect science, as you can imagine. What froze, what was closed, when it reopened? This is something we can’t control. What I like is that things already saw backing up operations. That’s true for our customers, and our suppliers as well. The only issue we had was backing mostly March and April, which crossed two quarters. But $0.15 is the total number: $0.10 in Q1, $0.05 in Q2. It’s happening as expected.

Thanks, Christophe. And then peers of yours in the industrial segment, where if I backed that out the weather impact, had very elevated margins. Just curious what incremental upside do you see in the segment going forward? It looks very strong since the onset of the pandemic and shrinking? Thanks.

You’re right that knowledge in industrials has been remarkable. Over the past few years, it was over 300 basis points in 2020, while sales were slightly declining. In Q1, Ex-Texas, that was also a double-digit operating increase, which is good as well. Going forward, I believe that’s a winning business. There will be times with raw materials and pricing where quarter-over-quarter things might lag a little bit. But generally, margins will continue to improve in industrial, especially, because the value that we provide to our customers is unmatched. Most of the customers are coming to us, especially, in our water business to help them reach their ESG commitments that they’ve made for 2030 or 2050. There’s no other that can truly help them like we can. This is something that is driving growth and it’s driving margins for us as they need better technology, which is where we invest most in research. That’s where we have the highest margins. So it’s good growth driven by good natural feedback, which is also driving our margin. So the short answer to your question is that margins in industrial are going to keep improving.

Right. Thanks very much.

Our next question is coming from the line of Laurence Alexander with Jefferies. Please proceed with your questions.

Good afternoon. Just following up on the margin discussion and the price versus loss, as you look at 2022, 2023, should margin speak for the entire firm, be hitting a new high.

It’s a great question. It’s hard to know exactly how it’s going to be in 2021, knowing 2022 and 2023 will be even hotter. The way we drive pricing is driven by the value that we create for like estimates. In other words, how many savings we deliver for them on a year. They invest 10% in our services and they get all 20% or more back as a return. This is the way we price; it’s basically sharing how much value we create for them. Obviously, when there are raw material increases, we will be experiencing them in the next quarters and probably years to come, but we’ve been quite successful in doing that over the past few years. That’s been one of the reasons why margins have improved, especially last year. I don’t know how raw materials will be in 2022 and 2023, but I know our pricing will keep increasing by 1% to 2% plus depending on how the raw materials are market, but it’s never going to go down. Overall margins will continue to trend upwards over the long-term.

And then are there any end markets where you have been surprised at the elasticity of demand and where you’re seeing a clear trade-off between pricing and organic growth?

You mean in a negative manner?

Just – I mean, has anything changed in your framework over the course of the COVID related disruptions? Have you learned anything new about the end market behavior where you’re like, okay, that was not expected?

No, if anything, it’s more about interest on one hand, driven by increasing trends of ESG and sustainability commitments. What we do for customers has become even more critical, and customers are ready to invest more to get a greater return from a financial and image perspective because they’ve made commitments as well. On the other hand, it’s also in times where performance cost becomes more important. Think about some of the end markets that are economically challenged right now. Our solutions are handy for those customers because they can improve cost competitiveness by doing the same work, achieving better outcomes while using less labor or creating less waste. So using fewer natural resources as well, it’s a good story.

Thank you.

Our next question is from the line of Andrew Wittmann from Robert W. Baird. Please proceed with your questions.

Great. Thanks for taking my questions. You’ve had a couple of questions on margins. I wanted to do another one. You had the one on the industrial segment. You had the consolidated margin question. But I had a kind of a two-part question here on the healthcare segment to start out with, obviously, here, you talked about some of the large governmental orders and other things that probably helped your fixed costs leverage in that segment over the past 12 months. I was just wondering as those comparisons are now stiffer and the business starts to normalize above historical levels, if you think that some of the fixed cost leverage goes away, if that’s the appropriate way of thinking about that segment margins in the 12 months ahead. And then secondarily just maybe a little bit more detail on the institutional segment margins obviously where volume declines are significant. I don’t make sense of what’s happened to the margin so far, but on the way back up with the cost reductions programs that you’ve put in place, do you think that when revenue levels get back to 2019 levels, is there any reason to think that the margins would be any different in that business than they were pre-COVID? Just recognizing that the customer base is probably going to be somewhat changed, maybe not so much to the national accounts, but a lot of changes to hospitality and food service stuff, I want to get your thoughts on that. Sorry for the long question.

No, that’s good. Thank you, Andy. Maybe starting with healthcare, it’s a very different dynamic of business. In institutional, coming out of 2020, the institutional division experienced the most significant impact, with over 90% of the COVID impact at Ecolab being on institutional division, which is 20% of our overall company. When I think about the margins, I would say two things: every quarter, we expect improvement, and we’re going to gain back a lot from what we lost in 2020. We’ll get close to where we were in 2019 pre-pandemic. Probably not by the end of this year, but early in 2022. On the second part of your question, so post-pandemic, if I can call it that way, we’ve invested in our organizational development and restructuring. We’ve invested as well in field technology to help improve the performance. If anything, the margins of institutional over the mid-term are expected to improve versus what we have seen pre-pandemic.

Thank you very much. Have a good day.

Thank you. Our next question is coming from the line of Shlomo Rosenbaum with Stifel. Please proceed with your questions.

Sorry. Christophe, maybe you could talk a little bit about the discussion used to be before the pandemic, a lot more about the investments that were being made in digital solutions. I know the company didn’t want to pull back on investments through the pandemic. Can you talk about what has happened over the last year, where there have been areas of adoption that have been accelerated because of the pandemic and where there might be areas of lag?

Great question. Thank you, Shlomo. Digital has been an important part for us for many years; it started 30 years ago. Actually what’s called differently, obviously, back then. What’s true when we did – so we moved monitoring of pools and falling institutional; that was especially true. We have 3D trays for the industrial water business as well. If I fast forward, ultimately, for 2020 things that accelerated because in many instances, we could not go to customer locations for obvious reasons related to COVID. Customers and our teams have embraced digital solutions even more than before. Keep in mind as well that we invested over the past, high figures, over $150 million a year in digital, so we were ready for that moment during the pandemic; it was more luck than genius, as such. When I think about the three main drivers for us in digital, I believe the first one is to drive customer value; it’s subscriptions, it’s regional prevention programs, for instance. They are all driven by digital technology and that technology is growing very nicely. The second one is our field solutions in order to improve the productivity and the value created by our 25,000 people around the world. Institutional, has rolled out everywhere around the world, then you can platform during COVID, and that’s going to help us in the post-pandemic period; that’s what I just answered earlier. The last pillar is the customer experience, e-commerce for instance, that has gained traction in 2020 also because of the remote nature of the customer relationship we had during the pandemic. On all three fronts, good progress in 2020. When I looked at the progress we made in digital in 2021, our digital enabled sales rose to roughly $1.5 billion, growing double-digit as we speak; a very good story.

Okay, great. If I could follow-up, is there any progress to note in the new verticals regarding data centers? Is there anything to report on that over the last year or quarters?

It’s been a great story. Because we’ve all ended up working remotely on whatever your system of preference, Webex, Teams, Zoom and so on, remote monitoring of applications as well or plans, it’s an industry that has been booming. As you can see from the numbers from the tech industry that we serve, last year which was also pre-pandemic, we created global data centers as a dedicated business which came luckily enough before the pandemic. Since then, this business has been growing strong double-digit operating income improvement. Interestingly enough, the customers we serve, all the tech companies that own those data centers, made big commitments in terms of water and carbon savings. This is the work we do for them because that’s ultimately where they use the water or emit CO2 due to the energy that they use for the computers. You’ve heard from Microsoft as well; they’ve shared it openly, publicly. It’s not a secret that they’ve committed to net-zero water by 2030, and that’s the plan we’ve developed with them. That’s all driving the growth in that new vertical, which is very promising.

Thank you so much.

Our next question is from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Thanks very much. When you think about the restaurant and hotel business going forward, is the restaurant future going to be different than the restaurant in the past and the hotel of the future? There may be distancing rules. There may be other factors. Does the Ecolab institutional business go back to where it was in 2019 in a normal environment? Or does it go to a different place? Is it better? Is it worse?

It’s a fundamental question, and it’s not going to go back to where it was in 2019. I think it’s going to be better. When I think about our end markets, it’s not going to be true for every one for the independents. It’s been difficult for restaurants during the pandemic financially; to survive, those who have had more hardship than the chain customers, which is the vast majority of our business. The corporate accounts, as we call them, more of the chain customers, the ones who have survived and invested in their operations are expanding as well in terms of units; this is good for us. The hygiene standards expected by guests will be higher than 2019; it’s going to be lower than during the pandemic, but higher than 2019. Guests or consumers are all asking for higher hygiene standards, cleaner environments, and they want to see action in cleaning in order to feel safe. The second thing is the labor shortage will become a bigger issue. It was an issue pre-pandemic; it’s going to be even more so going forward. Our solutions help them deliver more with less labor, which is good as well. The last thing, what’s harder to grasp completely is how much the takeout and delivery are going to grow. It’s going to keep growing for sure. Those are new opportunities for us, as those are new businesses we haven’t completely figured out. But I see that as upside. Net-net for our customers, the chain customers, it’s going to be different than 2019 but better for us as the pandemic gets behind us.

Okay. Thank you for that. And what percentage of cost of goods sold are raw materials for you?

It’s roughly 45%, but obviously, depends a lot by business; pest elimination is much lower as you can imagine. In some industrial businesses, it might be higher, but on average, it’s 45% for the company.

Thank you so much.

Thank you. At this time, we’ve reached the end of our question-and-answer session. Now I’ll hand the floor back to management for further remarks.

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

Thank you. This concludes today’s conference. You may disconnect your lines at this time, and have a wonderful day.