Greetings and welcome to Ecolab's Third Quarter 2024 Earnings Release Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Hedberg, Vice President of Investor Relations. Mr. Hedberg, you may now begin.

Thank you, and hello, everyone, and welcome to Ecolab's third quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO; and Scott Kirkland, our CFO. A discussion of our results, along with our earnings release and the slides referencing the quarter 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. With that, I'd like to turn the call over to Christophe Beck for his comments.

Thank you so much, Andy, and welcome to everyone on the call. And let me start by thanking our incredible team for their hard work and seamless execution this quarter again. It's because of our team's endless dedication to our customers and commitment to our goals that I have the pleasure of sharing another excellent quarter, delivering broad-based performance across our businesses, end markets and geographies. Our company has never been as healthy as it is today, and I'm proud to lead such a talented team with such a great future. Moving to the specifics of our performance. Our third quarter was highlighted by strengthening volume growth, continued strong value pricing and robust operating income margin expansion. These all combined to deliver 19% growth in adjusted earnings. With this strong momentum, we are increasing once again the midpoint of our full year earnings guidance range. As expected, organic sales grew 4% and with very healthy growth across our businesses. Importantly, volume growth improved to 2% driven by strong business wins and breakthrough innovation. The Ecolab team also delivered solid value pricing at the same time, in our targeted 2% to 3% range in a quarter where carryover pricing is at 0 and new pricing for 2025 is not in yet. In a world that remains hard to predict, our solutions are more essential than ever to our customers. Backed by our reliable supply and global expertise, our unique technologies are recognized to dramatically enhance productivity while significantly reducing water and energy usage. This solid top line growth helped to further increase our gross margin 220 basis points to 43.5%. Our SG&A productivity also improved consistent with our long-term trends. In 2017, our SG&A ratio was over 29%. And today, it's around 27%. This year, we expect it will further improve from 28% in the first half to 26% in the second half, even after growth investments in frontline firepower, digital technologies and service capabilities. And on a side note, third quarter SG&A also benefited from FX, which we expect will reverse next quarter. With this, we anticipate fourth quarter's SG&A ratio to be flattish versus last year's fourth quarter, while long-term trends will keep improving 20 to 30 basis points per year. Overall, our operating income grew 22%. NOI margin expanded by 260 basis points to 17.9%, which is very close to a record third quarter margin for Ecolab. For the full year 2024, we expect NOI margin of around 16.5%, 50 basis points better than our early commitment and 260 basis points better than last year. With our strong margin expansion momentum, my confidence in consistently delivering 12% to 15% long-term EPS growth has only strengthened. This will position Ecolab to reach our 20% operating income margin target over the next 3 years. Now I'd like to transition our attention from Q3 to what our teams are focused on to fuel long-term growth and margin expansion. Our growth engines in clean tech, high tech, and biotech are showing strength and momentum, even if each are at different stages of development. In the clean tech area, institutional and specialty as well as pest elimination are both delivering strong performance, growing 7% and 8%, respectively, with operating income margins north of 20%. Global high tech, which includes data center cooling and water for microelectronics, is growing at strong double digits. In biotech, our life sciences business remains ahead of the curve in what we believe will be a huge long-term growth opportunity. Our innovation pipeline also continues to build as we shift our focus from renovation to breakthrough innovation. With nearly $1.5 billion, our 2024 pipeline is at record levels and laser-focused on the biggest opportunities across our clean tech, high tech, and biotech platforms. Finally, our One Ecolab growth initiative, which seeks to leverage our digital technologies to deliver best-in-class business outcomes, operational performance and environmental impact at every customer location around the world is progressing very well. Over the next few years, One Ecolab looks to more quickly unlock our current $55 billion penetration opportunity. Our early focus on our largest and fastest-growing certified customers is showing promising results with significant total value delivered for our customers and a great growth opportunity for Ecolab. With strong long-term business momentum, record free cash flow, and the proceeds from the sale of the Surgical Drapes business, our balance sheet is in a very healthy position. This provides us with many options to allocate capital to organic and inorganic growth opportunities. On organic growth, we are well positioned to scale unique customer solutions like our AI dish machine program for QSR and circular water systems for data centers and microelectronic manufacturers. On the acquisition front, we're now in a unique position to enhance our focus on the core fields of water, digital, and life sciences to generate strong returns for shareholders. In closing, I said this every quarter, and I'll say it again today. Ecolab's future has never looked brighter. Our leading customer value proposition where our technologies help customers improve their operating performance while reducing the water and energy usage is increasingly relevant, especially in unpredictable times, and continues to fuel our growth and margin expansion. Simply put, we remain very well positioned to consistently drive 12% to 15% growth in adjusted diluted earnings per share in 2025 and in the years to come. So thanks again for your continued support and naturally your investment in our company. I look forward to your questions.

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

Our first question is from Tim Mulrooney with William Blair.

So I wanted to talk about volumes a little bit. We saw them accelerating here in the third quarter. It was great to see it was slightly above our expectations. I'm curious how you're thinking about that trajectory as we move into the fourth quarter? And maybe you could talk about some of the moving pieces here, whether it's institutional, what's happening in their volume-wise or any other business that may be having an outsized impact on that trajectory in volumes?

Thank you, Tim. Yes, I’m very pleased with the 2% growth that we delivered in volume after the 1% in the previous quarter. And especially when it comes with the continuous build in value pricing. It’s been quite a long time that we’ve managed to keep volumes strong, while building pricing, while retaining customers all at the same time, which was quite remarkable what the team has been able to execute for quite a while and especially in the third quarter. Our team has been really focused the last few years on selling value for our customers, which has generated record levels of new business and innovation sales. But to your question on how broad-based it is; that’s the best part of it because if I look at all our businesses, most are accelerating in terms of volume, which is good. I’m especially pleased with institutional and specialty that are growing and gaining share in a market that’s going down. It’s the same in Industrial as well, where most of our businesses are improving as well. The volume growth is also present in most markets that are either soft or going down. Remarkably, we’ve delivered 4% organic growth when Europe was flat, which indicates that the rest of the world outside Europe was obviously north of 4%, demonstrating how nicely we’re growing outside of Europe, which is a difficult place, obviously, to operate. But on the other hand, I really appreciate the margins that we have over there, but growth remains our priority going forward.

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

This is Ron Kennedy on for Manav. May I please ask Christophe, as DPC deflation tailwinds fade and inflation normalizes, how do the drivers of margin expansion and the pace of it evolve? If I'm not mistaken, there would be GM leverage with 2% to 3% price over 1% to 2% inflation. But to what extent is that margin expansion depending on volume growth and mix shift, whether it be to high-growth, high-margin businesses or to digital?

Yes. Great question, Ron. As you said, we expect delivered product costs to get back to a normal inflationary trajectory, kind of aligned with inflation as well, kind of a low single-digit growth. We expect that trend, by the way, to happen in the fourth quarter, as we’ve mentioned as well early on. So the fourth quarter will be the inflection point where we’ve seen some kind of a slight tailwind in Q3, turning point in Q4 and then back to historic level in 2025. That’s the way we’ve been used to deliver as well in the past, and I feel really good about that because the way we’re going to deliver is ultimately by staying focused on volume growth, keeping value pricing as well humming as it has so far, and we will keep working on SG&A productivity, improving 20 to 30 basis points on an annual basis while we keep investing in the business at the same time. Ultimately, so you end up with this 12% to 15% earnings per share growth, which we expect to deliver very clearly in 2025 and beyond as well, leading us ultimately to the 20% margin that we’ve committed to and I expect to get there over the next 3 years. I feel really good about the trajectory we have even with DPC delivered product costs getting back to its normal inflationary trends.

Our next question is from the line of Josh Spector with UBS.

I wanted to ask specifically on institutional margins. I mean, you continue to do quite well there. However, when I look at margins relative to the past, there's been a lot more seasonality. So margins typically have been higher in the second half versus the second quarter and the first half, it kind of stabilized. So I was wondering if you could unpack some of the moving parts there between maybe some of the reinvestments, product costs, et cetera. And as you look forward, is this now a more stable margin profile for that segment with some of the changes you made in Europe? Or do you expect that normal seasonality to kind of return?

Thank you, Josh. I'll give that question to Scott, and I'll add a few comments, if needed, after that.

Yes, absolutely. Thanks, Josh. As you noted, the margin performance in Institutional Specialty has been exceptional. Q3, their margin was up 380 basis points versus last year. You talked to the seasonality. Certainly, sales tend to be higher in the summer there. Sequentially, we saw a very modest decline in Q2 to Q3, like 20 basis points. But that’s really to your point, we’re investing in that business as we are elsewhere, making field investments there. That’s really what drove that sequential decline from Q2 to Q3, but I'm very happy with the margin expansion there, performing well. As Christoph said, in markets that are not helping. But given what we do, the labor savings are more important than ever to our customers and quarters move around, as you said. So I would expect margins for institutional, especially on a full-year basis, around about 22%. So right around our long-term target.

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

There are currently outbreaks at a major provider in a major quick service restaurant. When something like this occurs, do you adjust the sales team to use it as a teaching opportunity for your customers and increase market penetration?

It's an interesting question. It's always unfortunate when these situations occur, significantly affecting human lives. I genuinely empathize with what has happened. Whenever these events take place, we reassess our approach. Importantly, it has never happened to just one of our customers first. When it affects some of those companies, we reach out to offer our services, and nearly every time, they eventually return to us, and we collaborate to help them get back on track. Most critically, we discuss these experiences with our new customers who haven't faced such outbreaks, as well as with our current customers, to share what we have learned. We don't use this as a sales tactic; instead, we view it as a chance to learn and improve. Almost without exception, those companies choose to work with us to ensure they do things correctly and ultimately protect their guests, patients, and consumers, which aligns with our mission as a company.

Our next question comes from the line of John McNulty with BMO Capital Markets.

I was hoping you could speak to the growth that you're seeing in the electronics and data center area and how you see that playing out over the next 12 to 24 months? Is it largely coming from existing data centers that are now converting over to and seeing the value kind of what your solutions bring? Or is it new data centers coming online? How should we be thinking about that?

Thank you, John. It’s a very interesting set of end markets. We call it global high tech, but it’s really two complementary but differentiated end markets, microelectronics, obviously, the production of microprocessors and data centers. They’re related, but different. To your question, is it existing or new ones? It’s both. We try to focus as much as we can on the new ones because we can embed our technology in the whole design of the data center or of the microelectronic production site called a fab usually, but we work on both, actually. For perspective, when I think about AI in the next five years, so 2025 to 2030, AI uses 4% of the power generated electricity in the U.S. today. It’s expected to use 10% to 15% by 2030. At the same time, AI globally will require as much water to cool those data centers as the drinking needs of the entire population of India in the next five years. The fact that we’re talking to those high-tech companies is essential as they are very familiar with that challenge. We help them produce those microprocessors in ways that we use and recycle water at every step of the production process, which was complicated to do in the past, while they were generating wastewater that they had to either dump or treat before dumping it and never reuse it. Well, all the new technologies that we are deploying with our customers reuse and recycle water so within the fab. For the data centers, technologies are evolving. Until now, most of the data centers were cooled by cooling the room, but going forward, it will be cooling the chip that’s within the computer, a method called direct chip cooling. In both cases, we have some very good offerings and innovations to help them do that job as well, in ways they’re dramatically reducing water usage. When they reduce water usage, they reduce power usage as well while improving uptime and reducing their costs, which is a very Ecolab-like type of model. We’ve created dedicated teams both for data centers and microelectronics because that’s not happening everywhere around the world, as we know, and really like what we’re building, what we have built, and the performance of that business. I expect it to become a major driver for us in the years to come.

The next question is from the line of Jason Haas with Wells Fargo.

I'm curious if you could comment on the deceleration in the Water segment. I recognize it's relatively slight, but I was curious if that was entirely driven by mining, or are there any other factors? If there is some softness in mining, can you just talk about when you would expect to see some improvement there?

Jason, you actually gave the answer. Water is very stable growth as we had in Q2 but was impacted by mining, which is the smallest business; by the way, it tends to be more lumpy. It’s in remote places. You send all those products long distances. It’s not every quarter created equal, and that’s the only reason for the water trend. Otherwise, our businesses are doing really well, and they’re trending up as well at the same time, which is a good thing.

The next question is from the line of Patrick Cunningham with Citi.

So I know it's early days, but could you discuss how the One Ecolab initiative is progressing in terms of commercial buy-in, value pricing and some of the modest cost efficiencies you laid out in the prior call? You mentioned the early focus on the largest 35 customers, but what's been the feedback from those customers?

Let me give the first part of the question to Scott, and then I'll talk a bit more about those top 35 customers.

Yes. As we talked about last quarter, we've really just launched the program. It’s very much focused on growth, really getting after accelerating to our 5% to 7% targeted sales growth, focusing on our biggest customers, leveraging the teams that we have, but very focused on growth. The savings are pretty incidental to the program, frankly, but I like the way it's going, getting to this best-in-class performance, the best restaurant, best hotel, data centers within our network, and really transforming the way we work with these largest customers to deliver on that $55 billion opportunity, cross-sell opportunity that we have.

To elaborate on that, it’s a combination of three things. I’ve shared early on in previous calls as well here. To do exactly what Scott has been talking about, really penetrating a much bigger share of the $55 billion that we have as a penetration opportunity within all customers. The total opportunity for the top 35 is $5 billion, and half of it we don’t have; that’s a penetration opportunity we have. But secondly, it’s up to our team to figure out what’s the path to deliver that penetration opportunity while delivering value for our customers. Third, it’s to drive productivity, which is the third priority, but we’ll take it. The technology helps us improve our productivity, which helps us invest while keeping productivity improvements at the same time. One comment for the top 35, which is a combination of our largest 20 customers plus our emerging 15; those are the ones with the potential to become one of the top 2/3 in the future. The reception from our customers has been very positive because the way we sell is evolving. In the past, we’ve been selling significantly more annually, incrementally, what are the new things I can do for you. Tomorrow, we’re selling very differently, saying, well, if one customer has a lot of facilities, locations, units, restaurants, we can help them understand if all your units were performing at the best-performing unit, what would be the potential. That’s the new way of selling, saying you can get savings in your operation, in all three elements: firstly, your business outcome, which can be food safety in a restaurant example; the second is operational performance; and third is the environmental impact. You add all three, you get a dollar impact, you translate that into the total value delivered and we develop a plan to deliver that. That’s driving growth for us and performance for our customers. Our customers have been very pleased with that approach, and to be honest, it was customers that were asking us to approach them that way, which has made the sale to those customers much easier early in the journey but very promising so far.

Our next question is from the line of Chris Parkinson with Wolfe Research.

Christophe, you continue to put up pretty good results in pest elimination. Just the margin was just a touch lighter than we were anticipating. Can you just hit on any color? I think that's a pretty asset-light business, so is there a headcount investment there? Is there innovation in terms of your digital efforts? Just any color on how we should think about the growth rate relative to the margin progress even if you just want to hit on it longer-term would be incredibly helpful.

Yes, that’s correct, Chris. It’s a remarkable business. High single-digit organic growth, high margin, and impressive return on invested capital due to minimal capital investment in that business. When we compare ourselves with large companies out there, there are only four, and a multitude of smaller ones represent the lion's share of the market. We are the best-performing business in the world. When we look at that combination, the best-performing business in the world has great performance compared to all our businesses as well that we have. It’s clear that we should invest more behind that business, and that’s precisely what we’ve been doing over the past few quarters, which is impacting the margin short-term but will yield great long-term results. And to your question, where do we invest? It’s in three areas. First, in innovation. You've heard about our pest intelligence business, connecting millions of devices around the world, simplifying the work for our teams. In a big conference center, you might have 500 devices; it used to take 8 hours to get it done. With pest intelligence, you need 20 minutes to complete the same job, achieving better results for our customers and shareholders. Second, to invest in our sales team to enhance selling capabilities globally. Third is investing in smaller bolt-on acquisitions, all focused on commercial, with an emphasis on B2B that’s where we want to be in the future. In essence, this is a great business with much potential ahead, which is why we’re investing behind it. This investment may impact the margin short-term but will result in substantial long-term returns.

Our next question is from the line of Shlomo Rosenbaum with Stifel.

Christophe, the margin is definitely doing better than expected, and it looks like you put a framework in terms of time-wise into where to get to the 20% target you mentioned. I was wondering a little bit more about the revenue side of things in terms of growth. With declining raw material costs, do you think that tailwind is going to now be behind you? Should we expect you to be leaning more into pricing? Should we expect that volume is going to get better with the investment in resources? I'm just trying to map the 4% to 5% growth this year to getting to the 5% to 7%, which is your targeted range?

I want to get to that targeted range, obviously. That’s the beauty of our business; it’s very consistent, long-term, good momentum. It’s going to be a combination of volume and pricing. I think the 2% to 3% on the pricing range that I’ve been discussing and that we’ve been delivering in 2024 seems to be the sweet spot. In the past, pre-COVID, it was 1% to 1.5%. The balance is on the volume side. Interestingly enough, when I look at all our sales across our businesses, close to 60% of our portfolio today is already within the range we committed to at Investor Day 1.5 years ago. The majority of our business is already moving in the right direction. With the penetration opportunity of $55 billion that I discussed earlier, our new growth engines in water circularity, high tech, pest elimination, life sciences, and the whole breakthrough innovation pipeline coming online, I feel optimistic about our progression towards the committed range of 5% to 7%. However, what’s important is that when I commit to 12% to 15%, we don’t need 5% to 7% to get there. That’s why for next year, even if we keep progressing nicely, we’ll still deliver on the 12% to 15% because value pricing drives overall margin. Volume helps, and we will keep driving productivity. As Scott mentioned, with the One Ecolab initiative, we expect improvements in SG&A by 20 to 30 basis points over the longer term while investing in the three major categories that I've mentioned earlier. Overall, I see a positive progression towards the range that we want to achieve.

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

Christophe, staying on value pricing, how should we think about for next year being closer to 2% or closer to 3%? What are the key drivers for the lower and upper end of that band?

It’s going to be between 2% and 3%, David, and we always aim around that number to make your life a bit easier. Sometimes it falls on the 2%, and sometimes it falls on the 3%. But you’ve seen this year, it’s gone pretty well. We had 2% in Q3 because, as mentioned earlier, there was no carryover left in that quarter, and you don’t have the new pricing for the coming year either. It’s kind of the lowest pricing quarter. That’s always the case. It’s not a new thing. I feel good with this 2% to 3% range, and we’re going to try, obviously, to maximize our efforts to be as high as we can in that range. The good news is, as I’ve mentioned before, we drive that value pricing based on the total value delivered for our customers. The savings in operational performance is more than the pricing we are delivering, demonstrating that net-net, it’s a good deal for our customers, and it’s obviously a good deal for us. I feel confident in maintaining this range and ensuring stability over the long term.

Our next question is from the line of Pavel Molchanov with Raymond James.

You had a divestiture this year, but I'm not sure that you've acquired anything since 2023. What are your latest thoughts on the M&A front?

We don’t comment too much on M&A, obviously. It’s a lumpy proposition by design, so we can’t plan too much in advance. But let me share some perspectives on that. We have a great track record of M&A. Over the last decade, we did roughly 100 transactions, smaller and bigger ones, with a high success rate. Our M&A pipeline that we’ve been nurturing for years continuously is strong and focused on the three B areas I’ve mentioned: the first being in water technology, but high technology, not basic technology; the second is in digital and high tech; and the third is in life science. I feel good about our position in terms of firepower and opportunities, ensuring we capture whatever makes sense for shareholders and for the company.

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

Year-on-year, was volume growth in industrial close to 0 and volume growth in Institutional and Specialty close to 4? In terms of your 20% longer-term margin target, over 3 years, would you reach that if you were at the bottom of your 5% to 7% sales range, or do you need to be at the top, or does it not matter, you'll get there anyway?

I feel really good about getting there for all the reasons that I've mentioned earlier. We don't need to be at 7%. Achieving 7% is obviously easier than 5%. 5% is a comfortable position to achieve the 20%, but if we were to continue on the track we are now, with a volume growth of 4% to 5%, which is not my objective as we intend to keep accelerating our top line as well, but external factors play a role. We would still reach that 20% over the next 3 years. If you compute the 12% to 15% growth per year over the next 3 years, you get very close to that. Adding a few other positive elements, like the One Ecolab initiative, brings us closer to achieving that target. The upcoming years will have external challenges, but I feel confident about delivering what we aim for.

And then the volume growth question.

The question about volume growth, as previously stated, indicates that achieving a pricing increase of 2% to 3% is essential, with a baseline of 1% to 2%, to reach our 20% target. Any additional growth will help us reach that goal more quickly.

Our next question is from the line of Laurence Alexander with Jefferies.

It's Dan Rizzo on for Laurence. I was just wondering if you've talked about how much cannibalization new technologies do of some existing products, if at all? And if you’ve discussed the vitality index for you guys?

The vitality index, how we calculate it, is based on sales of new products introduced within the last 5 years. That's our definition that we've been using for a very long time. It's around 30% plus and it's growing with our increased focus on breakthrough innovations, so really pleased with that. We don't disclose the cannibalization number, but it's very high, particularly on the innovation side, and most importantly, all new products and offering coming to the market are incremental at margins, which is our #1 objective.

Vitality index at 30% growing? Is there a target you guys have for it over the next, say, 5 years or 3 years, given what you've laid out before with your sales growth target?

It’s going to be north of 30%. We haven’t committed to a number out there. The quality of innovation is more important than just a number. The 30% in the past was mostly renovation of existing products and offering that we provided to our customers. Now, almost half of that innovation pipeline, at record levels, represents what we call breakthrough innovation. That’s an end-to-end solution data center, microelectronics manufacturers for brewers or restaurants, ensuring their performance reaches the best-in-class level. The quality of the innovation pipeline is going to be much better, and we expect strong growth from that.

Our next question is from the line of Ashish Sabadra with RBC Capital Markets.

I was just wondering how we should think about the benefits of the growth investments in frontline digital technology and service capabilities as we approach fiscal year '25 in terms of pricing tailwinds or volume growth but also operating efficiency. So any incremental color?

The best way to think about it, Ashish, is that it’s fueling our acceleration towards the 5% to 7%, helping us reach ultimately the 20% margin over the next 3 years as mentioned. It consists of three components: one, sales firepower, putting more people on the street who are more efficient in doing their jobs; second, digital technologies; and third, enhanced service capabilities like the One Ecolab initiative mentioned earlier. Importantly, we make those investments while driving a net productivity improvement at the same time. That’s why I shared a bit about the numbers here. We think about in the years to come, investing 20 to 30 basis points of our sales in growth initiatives while still achieving 20 to 30 basis points of SG&A productivity improvement through those investments. So that means good progress on productivity and at the same time, achieving EPS growth in line with the 12% to 15%, leading us toward the 20% goal over the next 3 years.

Our next question is from the line of Kevin McCarthy with Vertical Research Partners.

I was wondering if you might hit the reset button for us as it relates to health care and life sciences. Now that you've closed the GSS divestiture, how would you characterize organic sales growth prospects and margin uplift prospects for 2025 and beyond?

We have two different businesses; healthcare and life sciences. Healthcare is becoming a pretty small business after the divestiture. It’s very close to the institutional team, as they leverage the same sales force, especially in the US. I’m very pleased with the evolution we’re having here. It’s a smaller business where we want to improve profitability and build a new proposition around instrument reprocessing. The first step was to drive costs right. Second, was the bifurcation of surgical and infection prevention. Third was selling surgical drapes. The fourth step is to rebuild the instrument reprocessing business for the future. We have a nice base to start with in Europe, and that’s going to be our foundation for growth in the years to come. Still, it’s going to be a smaller business with low to mid-single-digit growth prospects. On the life sciences side, we made that bet since 2016-2017. I believe that it’s going to be a booming business in the next 5 to 10 years. The industry is in transition after the years of COVID, and while we’ve been growing slightly, my ambition was double-digit growth. We have been in low single digits while most of the competition was down. Luckily, this doesn’t make me feel good, but better than what we’ve seen in other companies. I believe it’s going to grow significantly in the next 5 to 10 years, aiming for margins in the 30% range, if not more. I like the progress we’re making and see that opportunity growing.

Our next question is from the line of Andres Castanos with Berenberg.

Actually following up on health care. You just consolidated that business that was making 20% margin, and you are expanding margins quarter-on-quarter despite that. Can you help us understand what has gone well and what is turning around within health care?

The margin you’re talking about was a combination of healthcare and life sciences. It’s crucial to remember these are two very different businesses. One serves hospitals while the other serves the pharma industry and biotech. Our healthcare business is now a breakeven-type business; we knew that, so no big surprise. However, it’s very similar in structure to our institutional business. We realize what needs to be done to improve that business, and we’re familiar with this playbook. I like where we’re headed and am confident we’ll get to the right place. It’s a very small business being less than 5% of the company, but we want it to be smaller and much more quality-focused than in the past. The life sciences side is what we’re currently investing in, like many businesses we've built successfully in the past, focusing on enhancing capacity, capability, teams, and technology to compete with a couple of major players in the market, aiming for margins closer to 30% or more in due course.

Our next question is from the line of Mike Harrison with Seaport Research.

Christophe, I'm curious about the recent hurricanes and whether you saw any impact on your institutional or specialty businesses. Can you quantify any drag that you saw in Q3? Would you expect that to worsen in Q4 or be similar?

Well, I don’t know what’s going to come in Q4, Mike, obviously. I can’t talk about events that haven’t occurred yet. However, we have become adept at managing these situations. The human impact is always alarming. Our supply chain team has become incredibly organized and resilient, addressing whatever may occur in the market. We’ve seen no significant business perspective impact in Q3 from the hurricanes. We are better prepared now, producing 92% of our sales locally. For example, in China, it’s 99%. This evolution has improved our resilience dramatically, allowing us to navigate such events with more confidence. I’ve been really pleased with how we’ve managed challenges, and our customers appreciate that stability, especially during extreme times.

The next question is from the line of Vincent Andrews with Morgan Stanley.

Christophe, could I ask you, as you think about your market share gains, whether it's new business wins or increased share of wallet, compared to the beginning of the year or this time last year, how would you characterize them in terms of their pace of acceleration? Are you doing better more with wallet share gains or with new business wins? Or is it about the same?

Both trends go hand in hand. When we secure a larger share of wallet, it often means increased market share, as we are taking it from our competitors. We also strive to introduce new offerings. For instance, in the data center and microelectronics sectors, customers are seeking these innovative applications. This represents significant new business, as they might not have sourced such services before. I want to highlight that our top-line performance is healthy, with improving volumes across various markets despite increasing external challenges. Our share gains have been solid over the past 12 to 18 months, with new business outlook remaining optimistic due to our robust innovation pipeline.

One is not significantly stronger than the other in terms of leading factors.

New business is the closest, but new business is fostered by innovation as well. We don’t differentiate our measurements of these contributions, both are at record levels, which bodes well for our sustained sales momentum.

Our next question comes from the line of Charles Neivert with Piper Sandler.

Just a couple of quick things. One, in terms of the fact that oil pricing has dropped quite a bit lately and may continue to drop a little bit more. I know there's not sort of an effect on a raw material standpoint, but when people are looking for savings and the savings you can offer them on the energy side, will that drop affect your ability to raise pricing further than it might have otherwise gone?

The best indication is what happened in the last 12 to 18 months. Raw material costs provided a tailwind, yet we still delivered robust value pricing because we are delivering significant total value delivered, demonstrating that it’s a net positive for our customers. For them, TVD always prevails over pricing. Thus, I believe we can still generate value pricing, even in tighter oil price scenarios. Selling pricing remains essential. I feel reasonably good about our outlook for 2025, as we expect solid volume growth alongside stable value pricing, which collectively positions us well to deliver on our 12% to 15% growth target despite any headwinds we might face.

Our final question is from the line of Scott Schneeberger with Oppenheimer.

Christophe, all the way back to the first question, it was a discussion about how volumes had picked up a little bit. You mentioned you were really proud of how you continue to get pricing, and retention had been quite strong. I just want to ask this as a look-back question about two years ago, when you really started increasing pricing in the inflationary environment. I'm curious, did you see anything unique or dynamic with retention over the last couple of years? Which I imagine is improving now. Just to gain some perspective on retention and anything currently on the competitive environment that may influence that as well.

Our retention rate remains close to 95%, which has been consistent for a long time. It hasn't changed in recent years, even through such extreme events since 2020, including COVID and the pricing volatility. Our focus on total value delivered has consistently provided more savings to our customers, maintaining high retention levels. Overall, I feel optimistic with the momentum in the business; volumes are strengthening, and pricing is holding steady, resulting in a balanced growth strategy.

Thank you. That wraps up our third quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thank you for your time and participation. I hope everyone has a great rest of the day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.