Ecolab Inc. (ECL) Q3 2026 Earnings Call Transcript

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

Thank you. Hello, everyone, and welcome to Ecolab's third quarter conference call. With me today are Christoph Beck, Ecolab's chairman and CEO, and Scott Kirkland, our CFO. Our discussion of our results, along with our earnings release and the slides referencing the quarter's results, are available on Ecolab's website at ecolab.com slash investor. Please take a moment to read cautionary statements in these materials, which states 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 10k and in our poster materials. We also refer you to the supplemented diluted earnings per share information in the release. With that, I'd like to turn the call over Christoph Beck for his comments.

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

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

Thank you. We'll now be conducting the question and answer session. We ask you to please limit yourself to one question so others will have a chance to participate. If you have additional questions, please rejoin the question queue. To ask a question at this time, you may press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, for our first question. Thank you, and our first question is from the line of Tim Mulroney with William Blair. Please receive your questions.

Christoph, good afternoon. Congrats on the strong quarterly performance.

Thank you, Tim.

So I was hoping we could talk a little bit more about your high-tech water business. in a little more detail the the legacy business you know that accelerated to 60 plus organic growth that's a major step up from the first half school it more than doubled again can you talk about what you're seeing in both of those businesses that's driving the strong growth there and also you know i was also wondering as you progress towards that four billion dollar target. I wonder if a 30% pager is the right number to use based on what you've seen over the last couple of quarters. Thank you.

Thank you, Jim. Love that question and especially that business. It's obviously early. So for us, we own Cool IT now for almost three months. Avivo for a little bit less than a year. And we've been starting our high-tech business so just a few years ago so pretty early pretty new but probably one of the best businesses that we have with the best growth potential um as well ahead so we talk more at the investor day um in a few weeks but i like a lot uh where we're positioned uh right now for a few reasons we with the best technologies and we clearly work hard um at it with the best team um we've been building that as well so for a long time but most importantly we offer what the industry truly needs and especially now in that environment which is best performance and the lowest impact on communities and nature since we've seen that it's become a big topic in the media and in all the discussions we have now so if I unpack a little bit that in microelectronics and we talk more about it to invest today. Well, ultra-pew water is becoming a critical component. It was less the case in the past because purity drives the chip performance for the most advanced chips that are available on the market today. And at the same time, it drives yield in manufacturing, which means that the microelectronics manufacturers can produce more chips coming out of their fabs which is very critical today it's roughly 60 to 70 percent for the latest chips and we'd like to move that obviously so much closer to 100 you can imagine so how much money that represents when it's really well done same time the amount of water that's required to produce those chips are immense so the water circularity is absolutely essential and this is what we do as Ecolab, so bringing together OVIVO and the capabilities of Ecolab in water circularity are providing something that no one else can truly deliver today. Similar in data centers, well, performance drives power required and power drives the And that level of heat can only be extracted through direct-to-chip liquid cooling, which is what CoolIT does. And interestingly enough, water is the best heat extractor, but hot water is pretty hard to manage. But the good news is it's what we master really well at Ecolab. At the same time, well, this water usage and power usage question in data centers has become a top topic in all the discussions today that's impacting obviously the growth for the tech industry. It's creating political challenges as well at the same time. So for us, our approach is really helping tech companies build data centers, the way we call it, done the right way, which means zero water, less power, and at the right places as well at the same time. And that's not including what we do for power, which is providing electricity for data centers, and that's a business where we've been really strong at for decades, and today this business is also gaining steam. So you're right. We're very well positioned. We're even better positioned than what we thought a year ago. We share more at Investor Day when we get together in a few weeks. But I really like how we positioned around performance of chips and data center, making sure they can be done with the least amount of water and done in ways that are cost competitive for the customers that we serve, which is the typical Ecolab offer. It would require investment, obviously, we've demonstrated that in M&A, but also in technology. So we'll make sure we invest in order to fuel this growth in the future as well at the same time. And what's also important is to remain very agile because nobody knows exactly the shape of that curve in the years to come. And I want to make absolutely sure that, well, we are benefiting from the AI infrastructure build. But at the same time, we most importantly are driven by the recurring nature of both of those businesses. So, yes, the targets we've set out there, for me, are more achievable than ever. Let's talk more about how much better we can get when we get together in a few weeks.

Thank you. The next question is in the line of Manav Patniak with Barclays. Please receive your question.

Hi, good afternoon. This is Ronan Kennedy on from Manav. Thank you for taking our questions. You're now expecting 27 organic growth at the upper end of the 5% to 7% range. How should we think about the price volume algorithm underpinning that assumption, both for the full year and then anything to be particularly mindful of in terms of first half and second half dynamics, particularly as I think surcharge pricing starts to lap at the half year mark and then move to structural and then your expectations for volume contribution and build throughout the year?

Thank you. Thank you, Ronan. So talking about 27, it's obviously a little bit early right now, but I want to give you a little bit of how I'm thinking about it and we'll go more in details when we get back together at Investor Day, mid-November. But what was first most important to me, I made a commitment to you that we would get to these 5 to 7% organic growth. we would get to the 20% ROI margin, and we would deliver these 12% to 15% earnings per share growth and all that in 2027. And I'm glad that that commitment that we've made, we will be delivering it in 2027. And if the key question is how much better we can be, well, this is a question I truly like and that's why we get together um in a few weeks it's to talk about well how can 27 but most importantly the years beyond 27 as well look like with all the investments the new portfolio we have as well and how the world around us um is turning into an opportunity um as well so for us so when i think uh today about 27 um well i think it's going to be a very strong year it's going to be an even stronger year than what we have or will be delivering in 26. And the best way to think about it is our underlying earnings growth is in this mid-teens type of growth. That's true today if you strip out the cost of amortization and interest and then you have the nalco-amortization So coming off as well, so in 2027, so it's to think about this mid-teens type of growth for earnings. And then if you look at the first half of next year, the second half of next year, well, there will be a difference mostly because of transaction cost and macro amortization. But the base of these mid-teens growth of earnings will remain fairly stable. And the way you can think about it, it's going to maintain earnings growth. So for 27, you're going to have roughly five percentage point headwind in the first half and a five percentage point tailwind in the second half when you consider those one time external factors in a way that's not directly related to the operating business. When I think about the top line, it's also going to be, and that's assuming, obviously, that the inflation of DPC is kind of leveling out at some point, that the first half of the year is going to be stronger in pricing and volume is going to be still in this 1% to 2%. And then the second half volume is going to be faster, so kind of 2% to 3% and pricing is going to be a bit lower because you'll be lapping against what we did in 2026 in the second half. So underlying growth, it's easy to think this strong top line, 1% to 2% volume, 5% to 6% pricing, and then the bottom line at this big teens type of growth. So thinking those two parts of the year, but underlying or less stable, so at top and bottom line.

Our next question is from the line of Ashish Subantra with RBC Capital Markets. Please receive your question.

Thanks for taking my question. Really strong momentum in life sciences, and you talked about the new facility going live in China over the last month. How should we think about the tailwind from those? And then maybe just one quick question there. There were some negative headlines around one of the drug companies around mRNA vaccine. Have you seen any impact from a demand perspective?

Thank you, Ashish. So first, no negative news or impact from what you're describing to our business. So that's not going to impact us, or good at that, generally. But when I think about licenses, for me, it's probably one of the best stories in our company's history. And we know that's the intent, obviously, here, that pharma, and especially biotech, is closely related to this tech revolution. that we're experiencing right now because it's an industry that's going to be one of the first and best beneficiaries of that tech revolution because drug development itself gets a major boost. New drugs are going to be developed much quicker. That's all good news. So as GHT or global high tech or keeps accelerating I think it's going to help ultimately as well our life sciences business. It's a great business, it's been a hard business to build over the past few years as we all know, but I really like where we are today and as mentioned in my open we're exactly where we want it to be just a few years later than expected but overall our investment thesis when we acquired fuel light is totally intact and if anything so we are ahead of that curve and I feel really good about that so why am I constructive and optimistic about this business it's because we have the best technologies we had to because we were the smallest in the industry and our teams has done unbelievable work in innovation we have the best team that's very agile as well so to be very close to those customers being the one that can really respond very quickly to their evolving needs and at the same time we're bringing water and contamination control together which is an ecolab play that we've played in many different industries as you know as well and no one else can do that, which is pretty unique for our company. So the 10% to 12% top-line growth I think is a good kind of base in terms of top-line trajectory. For our future, when I think about the earnings. As I've said, my objective is to reach this 30% operating income margin in the next few years. Feel really good for getting towards that. It's mostly related to the pace of investments. The underlying margins are really strong in that business. It was especially strong in the third quarter because we're also lapping a maintenance period that we had um in 2025 so a year ago so we won't have that type of earnings growth so uh continuing in the quarters to come but solid uh top line rolls in this 10 to 12 percent so steady uh type of trajectory and really an operating margin uh that ends up at 30 percent uh in the next few years so as we have promised and really happy with what the team is delivering here the next question is from the line of John McNulty with BMO Capital Markets.

Please just use your question.

Yeah, good afternoon. Thanks for taking my question. So I wanted to dig into the high-tech organic growth maybe a little bit deeper. Your 2Q level was a pretty strong 29%. This quarter, it was 63%. So you've kind of doubled even the 2Q levels. I guess in terms of what you would attribute that growth to? Is it more the shift that we're seeing from data centers toward liquid cooling and some of the benefits that you're getting there? Or is it kind of early signs of now you have the cool IT sales team and force, and you're kind of integrating the, you know, kind of a total, you know, unified platform, and that's helping to grow some of the legacy business. I guess, can you help us to parse that out a little bit, just because it seems like it's been even faster than kind of the general data center growth that we've been seeing.

Thank you, John. It's a very good story, so for sure. And no, there's no cross-sell yet. So between the different businesses, we're clearly doing it. We've integrated in all those businesses as well. Maybe just for perspective, so our data center business and Cool IT is now integrated and, by the way, led by the leader of Cool IT. And the same is true on microelectronics, where we've integrated with Avivo, and the leader of Avivo is the leader as well of our microelectronics business. So a very good story from a set-up perspective, but that happened the last few weeks. So there's not much cross-selling that has happened so far. So that's going to come in the near, so to the mid-term future, which is really good. So no, the growth that we have today is not driven by cross-selling, but that's going to be a major opportunity, obviously. So going forward today, the growth that we're having, yes, the shift to direct to cheap cooling is helping us because the technologies that we had prior to those acquisitions, well, are more in demand because it's about fluid management, which means 3D tracer. It's about coolants, which is something that we master quite well as well. And it's about services as well because those tech companies, we are looking for partners who can help them get the job done, especially so in a steady state manner, not just the buildup, but operating the data center afterwards and making sure that the cooling as a service is as well managed as it can be. You know, just as a side note, when you think about it, you need four minutes of cooling disruption to kind of destroy the chips that you have in a data center. So the cooling is becoming super critical for those operators. So what we do is becoming as well more important. 63% is not going to be the steady state growth that we're planning. Quarters are not all treated equal, but I like a lot where we are now. So if you have a strong, steady legacy business on top of the two new acquisitions that we've made, It's a pretty good mix of things that we have here, which is why, as mentioned before, I feel really good with the commitments that we've made and we'll work hard to exceed them.

Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. Pleased to see you with your question.

Christoph, on CoolIT, can you discuss your visibility in this business into next year in terms of sales growth? Obviously, we're going to double sales this year, which is a phenomenal performance. I suspect maybe it's a little bit less next year. Any further insight would be helpful in terms of 27 sales growth for cool IT.

Thank you, David. We will share more when we get together. But the fact that our first lap together, it's the first year, obviously since we closed in July. but if we look at the whole year in 2026, more than doubled the business of what we had in 25 pro forma basis. So it's a good way to start. Keeping in mind that obviously it was a smaller business back then, so the growth rates are obviously slowing down as well as you keep moving even though you add some significant dollars to the base business. So we feel really good about your trajectory um if anything we are ahead of what we had planned um a few months ago which is a good sign so for it it's a shorter type cycle of business than microelectronics that needs a few years so to build data centers are more quarters uh than years so you have a bit less visibility than what you have um in microelectronics which by the way um is going really well as well so on the cool IT data centerpiece when I looked a little bit about the next few quarters I feel good especially so compared to what we had expected and committed so slightly ahead of what we had planned will give you more visibility to that when we get together in the next few weeks but so far looks really good for 27.

Our next question is from the line of Seth Webber with BMP Paribas. Please proceed to your question.

Hey, good afternoon. Just following up on that question, can you talk about your expectations to whether you will need to add capacity for CDUs or cold plates?

And can you just give us an idea what your lead times look like on the cdus thank you good question um it's something that we used to do uh we had planned so to build um capacity um for for cdu and cold plates manufacturing and 3d trays our technology and coolant um as well so uh that was true a few months ago it's even more true today because we apparently might need more capacity than what we had planned. Kind of a good problem to have. Our base will remain in Calgary, where our business is based and will be based as well in the future. But in a typical ECOLA manner, we want to produce and supply as close to customers around the world. So we will keep expanding capacity, not just at the center in Calgary, but as well as closer to our key customers around the world. So it's going to be serving a dual purpose, so getting more capacity to supply high growth in business, but at the same time to get closer to our customers in a very Ecolab manner way to manage resilience as well as we can, because we know the world is a bit complicated out there.

The next question is from the line of Lawrence Alexander with Jeffries. Please receive your questions.

So just want to confirm in case there's any upside surprises on inflationary pressure next year that you see the 20 percent margin target is doable regardless of the environment.

Yes. So the world a bit different than what we had expected. But I see no reason not to deliver the 20 percent in 2027. I feel really good about that. The path to get there is and was different than I had planned a year ago, but that's been true for the last six years. I'm not totally surprised that the world is not always following our plans or my plans. So I feel really good about the 20 percent for next year. My focus is really, so what's next? Because once we've delivered the 20 percent, well, we're not going to stay at 20 percent. We have many of our businesses that are already north of 20%. My objective is to bring, obviously, everybody north of that and getting closer to the next milestone, which we will share as well in the next few weeks. Let's feel good about the trajectory that we have and the annual increase that we had committed to a while ago. We'll stick to it. So there will be no major surprise for all of you. It's going to be a good story.

Our next question is from the line of Vincent Andrews with Morgan Stanley. Please receive their question.

Thank you. Maybe just to circle back on the institutional business, Christophe, you made in your prepared remarks some comments about, you know, wanting to do better there, obviously, you know, tough environment with the foot traffic. But could you just give a little more detail on the new initiatives you want to put in place there? I thought I heard something along the lines of you wanted to do more cross selling and just make sure that the customers were getting, you know, the full value that you were offering. So I didn't know if that was more about getting more volume price or mix or just what it was that you were going to put in place over the next 12 months to improve the performance there.

So Vincent, it's a traditional place to be in one of our most traditional businesses where We continuously need to reinvent ourselves. You remember, as we went through COVID, we had to refocus on labor alternation for our customers because they had lost most of their employees and they had all the time to get them back. And when they got them back, it was at a higher salary. So not exactly the best mix for an industry that doesn't have a very high margin. That was really our point of focus, and it's worked really well. That's how we developed all those IQ solutions, Aqua IQ, Dish IQ, and so on over the last few years, and it's worked really well. It's driven very nice as well some margin performance in that business. So I like that business a lot. Our key opportunity in institutionally, in INS, our institutional and services more broadly serving retail serving quick serve as well at the same time it's to accelerate the growth in a market that is not growing so we're getting together here as a team we did it the past few months and saying okay how do we double down on what we have in order to gain share in the market that's a volume play obviously but also a value price play as we capture the benefits that we're generating for our customers or share of the benefit as we've always done. So the value price approach here. So the three things I mentioned, the first one is we will rebalance sales and service in our team. On one hand, we will double our sales firepower in North America. That's the feet on the street, the people of serving our customers and selling new customers. The second one, when I think about how we serve our customers in the various segments, restaurants, hotels, quick serve, retail, we do it in a fragmented way today. We'll do that in an integrated way tomorrow, which allows us to get more efficiency in service, which allows us to deploy more of those efficiencies is into the selling arm of our organization. And the third is what you mentioned, it's to integrate the proposition to our customers where we integrate our hygiene, water, pest intelligence, audits that we provide to our customers in a form that is much more integrated for them. We're still developing what that exactly means, but when you think about what we've done in food and beverage uh well we've demonstrated that it works really well uh bringing hygiene and water together so that's a little bit the direction that we're taking in institutional as well kind of using a playbook that has been really successful in the company in other types of businesses the next question is from the line of patrick cunningham with city this is your question hi good afternoon maybe just coming back to global high tech i think you already alluded to some of the differences in the sales cycle there.

But in terms of initial equipment sale versus recurring margin profile, and perhaps the amount of customization, how much does that differ between massive hyperscaler deployments, multi-tenant facilities, and next-generation fabs?

So two different industries, obviously here. In both cases, we're trying to really evolve these businesses much more into a recurring type of business. Interestingly enough, the market evolution helps us do that. If I just unpack the two. First, with data centers, the chip generations are shifting to the next generation much quicker than they used to. A few years back was a few years you could use the same chip and then you change to the next generation now we're talking about less than a year and you get the next cheap generation which means that when you change the chips within an existing data center well you need to change the whole cooling system being cold plates being coolant being control systems being cdu's as well and then you become a much more recurring business, which is much more an Ecolab type of business as well, which is the core reason why we like that business beyond the growth opportunity. Obviously, it's a model that we're very used to it. And that's why we integrate all those components where it's a cooling as a service, fully integrated. We're not the provider of individual pieces of equipment. We are provider of cooling end-to-end, committing to a performance, committing to a cost, and committing to reliability as well by providing the best service. So very naturally this business becomes a much more Ecolab-like type of business. When you shift to microelectronics, it's a bit similar actually. So you have a little bit of a larger port of infrastructure built at the beginning of a new fab but once the fab is built well you need to provide all the 3d tracer technology all the service that we have on site as well adjusting so to the new chip evolution slash generation as well at the same time and you get into a new recurring model as well at the same time but yes the cycles of the two businesses are different data center is kind of a month quarters and the fabs microelectronics business is more quarters and years but i kind of like as well so that balance which provides stability and predictability in what we do our next questions in the line of eric voice with evergo rsi Good afternoon, and thanks.

You highlighted that EqualLab digital grew 34%. How much of that acceleration is software versus kind of enabling hardware, and maybe how does that mix affect kind of recurring revenue growth and margins going forward?

So good story in digital. Honestly, I think that we could do much better going forward But interestingly enough, so it's more software than hardware today. I think that it will have to be more balanced going forward. But what I really like is that our digital business has been built on our industrial businesses with 3D Tracer, as you know, and in other businesses, more legacy, Ecolab. so we had much less. Today, the highest growth we have is in institutional and services and in pest intelligence as well, which is very good news because we rebalance across all the various segments that we have. And when I think about it today, we connect less than 100,000 locations out there with all the services that we can provide. And when you know that we have close to 3 million locations around the world, that shows the type of runway that we have ahead of us. So it will be a combination of hardware, but with recurring rent or lease, as we would do in dish machines in a restaurant, for instance, and software and data consumption as well at the same time. Where it's exactly going to land in terms of share, I don't know, but it will be pretty equal going forward.

The next question is in the line of John Roberts from Mizuho. Thank you.

I think of pest elimination as the leading indicator for your digital deployment. When should we expect revenues to accelerate there for margins to start improving?

So first we've had some acceleration in pest eliminations or from 7% in the second quarter so to 8% in the third quarter so I like what I'm seeing here it's early on that journey we've deployed 800,000 devices out there as mentioned in my open well that's the beginning of the story it's not the end of the story and we have millions of devices out there in tens of thousands of locations that we need to deploy. So this will drive growth ultimately and it will drive much better margins because the model is going to change all the time as I've shared with you in past conferences or at investor day as well today well 95 of the devices or the traps that we check are empty and five percent have activity as we call it well with the connection to the cloud we will go only to the devices that have an activity which means we will have a much better operating performance which will help us serve the customer better hence the 94 best free location to 99 best free And at the same time, that will unlock a lot of margin that we can reinvest in sales, in innovation, and obviously, so in bottom line margin as well. So I expect to take it a year or two to get fully deployed around the world with best intelligence that will require the upfront investments that we're doing right now. But I feel really good about the top line actual rating and the margin expectations to rise as well because of the model evolution that we make it. But it's going to take a year or two to get to the steady place.

The next question is in the mind of Jeff Zagostis with J.P. Morgan. Pleasure to use your question.

Thanks very much. I think you said your organic sales growth in your global high-tech business was 63%. And maybe the base is $100 million. So that would be $63 million in growth, which is 1.5% on your previous year's consolidated sales. And in your global life sciences business, it looks like you grew, I don't know, maybe you grew your volumes 10%, which is maybe another 70 basis points. So it seems that all of the volume growth that Ecolab achieved this quarter came from the global high-tech group and the life sciences group. Is that fair? And, you know, is that a function of some contraction in the institutional business and a little bit better growth in water in volume terms?

I'm not sure I totally follow all your math, Jeff, but I'll take the time to do it. But the bottom line is that yes in institutional you have a slight volume decline which is not totally surprising in a market that is in decline but that's why I like so the overall if you are not on services so to get 33% all the other businesses are actually saw having positive volume growth and pricing so it's been quite broad based, the volume growth, which is what I really like. That's why I mentioned it as well in my open. It's not one or two businesses being high tech and or life sciences. The other one in water are doing really well. F&B is doing well as well. And on top of it, one thing that we need to mention is something I'm not spending too much time explaining, but we spend quite a bit of time managing is the impact of the Middle East. That is roughly one point as well of growth, which is obviously a headwind in what we deliver. So when you look at it, overall, the 2% volume growth net of what's happening in the Middle East is pretty good, especially the fact that it's so broad-based is one exception being an institution that's slightly declining.

The next question is in the line of Matthew Dale with Bank of America. Pleased to see your question.

Thanks. I wanted to just ask, with CoolIT closed, what do you think a reasonable revenue per gigawatt hour of compute installed capture rate do you think is targetable for the pro forma business? Um, and we've seen a few reports now about poor coolant management at some of your competitors. Um, you know, is this too small of a sample size? Uh, does this just strengthen your pitch? Uh, or do you think ultimately there's an opportunity to extract more value, uh, from TraceR deployment? Because, um, it, it feels like it's pretty dynamic backdrop, obviously, with a lot of growth and yield management could be, you know, more than maybe just a token revenue opportunity. So how do you think about pricing that effectively?

So a few elements. In your question, Tim, first, the dollar per megawatt installed is still something that we're trying to figure out as a total number when we bring the whole Ecolab for data centers. So I don't have a final number for you, but as I mentioned when we announced CoolIT and closed CoolIT, by the way, so CoolIT is multiplying by three to five times the dollar potential we had as a legacy business. but that was directional so the three to five times i want to have a number that's um much more solid and we keep working on it and share it with you um once we have something that is um more uh fine you just mentioned so we we early on that journey uh that three months that we've been together so with cool it um so i don't have the the most detailed number that i'd like to have but we will have it now back to the other question of the reliability of the service I can't talk about what our competition is doing out there that almost all if not all of our competitors are providing or selling individual piece of equipment or a coolant as you mentioned it as well and someone has to put it together, someone has to make sure that it works well together and someone has to maintain it because things obviously are evolving on a day-to-day basis in that industry. So we position ourselves in a very Ecolab manner where we say we're not the provider of individual piece of equipment we are provider of end-to-end solutions in cooling when we talk about data center today and that's very different and that's why we brought the whole 3d tracer technology not just for the coolant but also for the cdu we'll think about how does it connect the cold plate everything in between as well and ultimately so to be in a place where we can commit to performance the cost and an environmental impact which is the way Ecolab has always been selling as well to customers we're doing it the same in that industry today it's an industry that's not used to such an approach but we've experienced that before in other industries but that is showing a very high interest in our approach here because it's removing one of their concerns because we will be providing, well, a cooling performance that's integrated, not just short-term but long-term as well, at a predictable cost, which is exactly what they're looking for. So, we're the only one not doing it that way, and I think that's a huge competitive advantage we have here because it's a huge malt as well at the same time.

Our next question is from the line of Josh Spector with UBS. Please, excuse me, with your question.

Yeah. Hi, good afternoon. I wanted to ask two things kind of together is one just on pricing. I think, you know, in prior quarters, you talked about getting to a five to 6% run rate. I'm wondering, do you still see pricing accelerating into fourth quarter? Because your top line guidance is pretty similar. And then related with that, you know, how do you see the incremental margins and water developing?

You had very strong volume growth or organic growth but you know the incrementals were you know kind of below our expectations is there a catch up in fourth quarter linked with pricing thanks so two different questions uh they're related um obviously so josh uh first when i think about um volume and price so very short term uh q3 q4 uh as i've said so it's kind of volume one to two uh mass of uh middle east uh obviously and then this pricing um this five to six. I think Q4 is going to be kind of similar to what we've seen in Q3 at the same time, working on operational performance or productivity to take a different term as well at the same time. So I like how we're managing margins as an organization. As I mentioned a few months ago, as we published our second quarter, well, it took us in the past two years to get our margins back to where they used to be when inflation was hitting out there. It was the first year to capture the dollar, then the second year to capture the margin back. Well, we've done that in one quarter, in the second quarter. We've done it again in the third quarter in an inflationary environment that was higher than what we had in Q2. I think it's going to be slightly higher in Q4 as well. But all in all, it's going to be a very similar story than what we've seen in Q3. Now, if I look at the water margin, it's been a nice improvement in Q3. It's going to keep improving. But as we know, it's a business that's more impacted by DPC fluctuations than other businesses like high tech that has almost no DPC because there's almost no chemistry in that business or life science or pest intelligence. Every business is a little bit different. Water is more impacted by it, but has demonstrated it can manage that very well short term. So it's going to keep improving. Nobody knows exactly where the market is going from an inflation perspective. So we'll adjust. If it keeps going higher, we will manage it. My assumption right now is that it's at a high level today. It's going to stay at that high level till the end of next year. That's the base assumption I'm taking here. And we know how to manage it. We've demonstrated in Q2. We've demonstrated in Q3. We keep demonstrating that in the next few quarters. And if it goes up and down, we'll adjust as well accordingly. And we know that at some point, well, DPC is going to go down and we're going to maintain our value price because it's anchored on the performance that we're delivering to customers. And that's going to help us improve our base margin for all the businesses, as we demonstrated all the time as well at the same time. So kind of three advantages here. One is that we can control our margins within a quarter. Second, we can improve our net margins after the cycle, as we've demonstrated as well in the past. And third, it's going to help earnings, obviously, the moment that the cycle is going to go the other way. Those are all positive news ultimately for us and for investors.

The next question is from the line of Mike Harrison with Seaport Research Partners. This is you with your question.

Hi, good afternoon. I wanted to see if we could revisit a couple of the assumptions that you've told us to think about in our models. First of all, the cool IT, $0.20 per quarter EPS headwind, is that more or less where it was in the third quarter? And how should we think about that $0.20 of headwind tracking over time? And then the second piece is the life science margin. I think you told us to assume high teens margin, and you did about 23%. So should we update our view there and assume that maybe instead of high teens, it's low 20s in the near term?

Great questions, Mike. Mike and our CFO Scott was going to get the questions, so I'm just going to pass it to him for this one.

Yeah, I'll give Christophe a break, Mike. So as we said in the release, if you look at the impact of CoolIT, the interest stabilization, it was about a 10% headwind in Q3. So Q4 will be a little bit more, about 12% because you have an extra month because of the lag of the international business. So you'll have about a 12% drag in Q4. And then if you think going forward, as Christoph talked for next year, his math there was that, hey, this EPS for the full year at this mid-teens level, but because of the cool IT immunization interest annualization in the first half, partially offset by the now-going immunization, you have this minus 5%, and then this plus 5% in the second half. So that's how to think about it through 2027. And then as you think about the life sciences, as Christophe talked about, that business is doing really well. The margins are really strong, especially given the growth in the bioprocessing businesses, but all those businesses performing very well. Our expectation on this business right now is because we're continuing to invest in this business. So the underlying margins are higher, more similar to what you saw in Q3, but expect Q4 margins to be in this mid to high teens level.

This business is going to be a 30 margin business down the road and not so many years down the road as we've committed. I know that it's not been an easy build up over the last few years and I'm really pleased to see that we are back to the trajectory that we had planned initially in our investment thesis. So, ultimately, that we can return to shareholder what we promised when we acquired Pure Light, and I will not budge from that.

Our next question is from the line of Andrew Whitman with Baird. Please receive your question.

Yeah, great. I just wanted to have you expand a little bit on some of the comments you made earlier on the high-tech business. I think, Christophe, you were talking, obviously, 63% organic growth. That's good. You mentioned that going forward, you know, don't expect 63%. I think you said not all quarters are created equally. And that makes sense. As I understand it, some of this business, you mentioned it as services, where you were doing like professional service consulting, helping your customers manage the heat, manage the water. It's not all just product sales, like I think a lot of people assume. Is that a lumpier part of the business, those consulting services? Are they more in demand maybe when you're opening a new data center than they would be on an O&M basis, if you were to say? I'm just kind of curious as to what can drive a quarter like this and maybe what was unusual about it, and if you could just talk about how services might play into that.

So a few things, Andy. When we talk about consulting, there's nothing new. That's not the way we position it. Obviously, when we do a plant assessment in a brewery that we've done for a very long time, I've been 20 years in the company, we did it. So when I started here, is really to understand what we've got. So how much water is being used, how much energy is being used, how much waste is created, what's the quality of the food and so on. Really to understand, so what's the starting base? How does it compare to the best plants out there and developing a plan for the customers to reach the next level of performance? We do the same in hotels, we do the same in hospitals, We do the same in every industry that we serve. So that's the very traditional approach to customers in the company. As you know, you've been following us for a very long time. And data centers are no different. It's just that they are usually new when we serve them. It's not an existing data center. There's some of those, obviously, but for the most part, those are new data centers. So we sit together with the builder, with the developer, being a co-locator or being a high-tech hyperscaler company, a little bit of a different approach. But in the end, it's more or less the same thing where we get together and try to understand what are they trying to accomplish, what can we provide in order to get the right heat extraction at the right cost, at the right level of reliability, while minimizing the impact on the environment. And in the case of water, so to get to water neutral, I call it water neutral, because it's not that you have no water in the system. It's just a circular system that you have within the data center. So that's kind of this consulting piece that you're talking about, which, by the way, is part of the overall program. So it's not a big driver of revenue. Afterwards, it's an evolving proposition. Today it's being sold a little bit the old-fashioned way, where it's 3D Tracer technologies for coating towers or coolant, depending on the technology that's being used. The coolant that's based on 3D Tracer technology and what we do for CDUs and for cold plates and every technology that you have in between. But ultimately, it's to sell that as cooling as a service, ideally, that we can charge much more like a subscription versus an individual piece-by-piece type of equipment. But that's a journey that we need to get through, as we've done in other businesses and actually really good for the path that we are on this one. Now, to your point of the higher growth in some quarters, well, it depends on the deliveries that we have since we're still on that journey of making sure that it gets invoiced as an integrated proposition. Well, if you have more data centers that are getting started to operate in one quarter, you get higher And if you have a little bit less the next quarter, you're going to have less of those sales as well. But the 30% overall global high-tech trajectory of growth that we've talked about, this is the baseline as I've expressed over the last 12 months. And that's the baseline. So I think that from here, it's just going to get better when we take year after year. and I don't really care if every quarter is the same or not because they will be different for the reasons I just mentioned.

Our next questions are from the line of Jason Haas with Wells Fargo. Pleased to see if you have questions.

Hey, this is Keegan Antico on for Jason. Thanks for taking that question. On the pricing discussions you're beginning to have for 2027, can you just outline how those are going and if clients are generally receptive for additional price increases, obviously alongside the surcharge? Are you seeing any pushback that could lead you to be more at the lower end of the 2% to 3% annual range, obviously, outside of the surcharge?

Thanks, Keegan. The 2-2-3 that's in steady state, honestly, I'm not totally sure when the steady state is going to come back. Right now, we're much more in this 5% to 6%. As mentioned a little bit earlier, that was true for the third quarter. That's going to be true for the fourth quarter. and it's probably going to be true for the first half of next year and probably even a little bit more than that as well. When it's going to come back to the two to three, I don't know. And I don't really care, honestly, here. We'll adjust as we need to while providing incremental value to our customers in order to make sure that we can get the value price that we deserve while doing it the right way for our customers that net net they get a positive outcome of the financial equation that they have so together with us do they like pricing no uh they would prefer obviously having 100 of the upside without having to pay for it well that's not exactly the way life works but at the end of the day when i talk to customers i'm really pleased with what i'm hearing in the sense of saying you guys um are very high touch uh in what we're doing being in life science in food and beverage in restaurants in high tech uh wherever that is you're not a big share of our spend usually a few percentage points so we okay um need to pay more premium for a service that ultimately is not only helping us keep operating but driving better operational performance in our operations as well at the same time and that's why our value price approach has been so steady sticky and so reliable for the past few years and nothing is going to change in the years to come our next question is in the line of kevin mccarthy with vertical research partners please receive

your questions yes thank you and good afternoon uh christophe in listening to your remarks today You seem quite pleased with all of the significant acquisitions that you've done in recent years, Pure Light, Ovivo, Cool IT. And so I'm tempted to ask, you know, as you look at, you know, M&A opportunities in the private market today, are there additional high growth, high margin properties that you think might fit quite well under the GHD umbrella? or should we expect, you know, deleveraging to be squarely in focus, you know, over the next, call it a year or so as you digest Cool IT?

It's the latter, Kevin. It's really, it's two things. First of all, it's really to integrate those two companies, Avivo and Cool IT, extremely well. This is something that we've done over and over again over the years we're really good at it but we need absolutely to have the right focus dedication resourcing in order to make sure that it happens as we have planned and committed so this is priority one making sure that of evil cool it are perfectly well integrated that we have those two businesses data centers and microelectronics really keeping growing and accelerating as we've discussed today and over the past few calls this is priority one and obviously that's leading the debt leveraging by getting so closer to these two times that we've talked about this is my 1b priority that I have in front of me now to you question of opportunities out there in our key businesses we keep nurturing them we're very active on the market building those relationship understanding what's out there what are the good what are the ones that are less good we've been really good at it for a very long time that's how we ended up with those two uh by the way as well so i like the pipeline but there's nothing imminent that's going to happen because i'm going to focus on the two priorities i mentioned before thank you our final questions from the line of scott seberger with roppenheimer this is your question uh thanks very much um

Christophe, for the past few quarters, heavy water and paper have been areas of softness, but both inflected to revenue growth, organic revenue growth in the quarter. So kudos there. How sustainable is that looking? And just curious, outside of the Middle East, are there any other areas of the business now that you would cite under pressure, or are you looking pretty good across the portfolio?

I feel pretty good. But I'm always a bit paranoid. I'm paid for that. This is my role. It's to thinking ahead, to look around the corners, to be ready for things that we didn't plan for. and I've had plenty of practice in the last six years. I don't know if it's a good thing or an unfortunate thing. I really like it, and we've done really well as a company navigating a difficult environment while delivering exceptional performance. So what I like the most in our company today is really this breadth of performance. We have a very strong portfolio. Some are growing faster, much faster than others. But we have no business that's really in a troubled situation. All of them have upside potential. That can be true in high-tech. That can be true in institutional, as we talked before. Which is the magic of this company that I really like. Because ultimately, you have a real strong portfolio. You have a company with a lot of key growth opportunities in front of us, like high tech, like life science, like best intelligence, but also in our core businesses like food and beverage, bringing hygiene and water together. we talked about institutional as well at the same time and the third component that I really like is the fact that we're less facing risk of market disruptions out there being in tech areas or in different areas because of the very well-balanced portfolio that we have our ability as a team as well to react to external factors, being inflation, being supply disruption. We've demonstrated we can do that. So ultimately, we are exactly in the place I want it to be. And that's why I'm talking about this inflection point. As a company, we have strong, consistent base performance as a company. We have very good growth opportunities and even bigger than we thought in front of us. And third, We are very resilient. We know how to manage things that nobody planned for, including us. And we deliver net performance that keep getting better. And that's why I feel that 27 is going to be an even better year than 2026. And our future is going to be at a very different level of performance than what we've seen in the past. A pretty good story.

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

This will conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation.