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<p>Minnesota-based Ecolab, which offers cleaning and sanitizing products, water treatment systems, and consulting services, aims to reduce water use. Ecolab provided its expertise in water technology and digital monitoring solutions to Moeve, a leading Madrid-based energy company, to develop a circular recycling system, lowering water use at San Roque Energy Park, a refining, chemical, and biofuel production hub in southern Spain. The system sends a reusable stream back into San Roque’s operations by means of a membrane water system, ultrafiltration, and specialized chemistry. The collaboration between Moeve and Ecolab reduced fresh-water intake, and the San Roque lab was able to recycle up to 317 million gallons of water per year and cut down on exposure to risks from drought. 
</p>

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Ecolab provides water, hygiene, and energy technologies and services that support safety, sustainability, and operational efficiency. The company serves a wide range of industries including food service, health care, hospitality, and manufacturing. Its solutions include cleaning and sanitizing products, water treatment systems, and consulting services. Ecolab operates globally with a focus on helping customers manage resources and meet regulatory standards.

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Ecolab (ECL): Company Profile, Stock Price, News, Rankings

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Ecolab

ecolab

As a reminder, this conference is being recorded. At this time, I'll turn the conference over to Andy Hedberg, Vice President, Investor Relations for Ecolab. Thank you, Andy. You may begin.

Thank you. Hello, everyone, and welcome to Ecolab's third quarter conference call. With me today are Christophe Beck, Ecolab's Chairman and CEO, and Scott Kirkland, our CFO. Our discussion of our results, along with our earnings release and the slides referencing the quarter's results, are available on ecolab.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 joining us today. I'm really super proud of what the team delivered once again. On our last call, we described Q2 as a transition period as we mastered higher commodity costs within the quarter. The third quarter well marked an inflection point for Ecolab. Our core businesses strengthened, our growth engines accelerated, and together they drove 7% organic sales growth. But just as important, every business outperformed its end market, demonstrating the power of our One Ecolab strategy. Despite significant commodity cost inflation, we maintained organic gross margin as our teams continued to create more value for our customers, win new business, and manage supply chain costs very effectively. This will remain a critical focus in the quarters ahead as commodity costs are expected to remain high.

Through continued pricing execution and disciplined supply chain management, we expect to continue to offset the impact of higher commodity costs. Our productivity also strengthened as we leveraged the investments we've made in our One Ecolab growth initiative. As a result, our organic OI margin in the quarter expanded to 19.6%, accelerating organic OI growth to 11%. Beyond our reported results, the performance of the underlying business was even stronger as we absorbed additional amortization and interest costs from our recent M&A. On a pro forma basis, including the operating performance of CoolIT and Ovivo, Ecolab's Q3 sales would have grown high single digits and adjusted EPS would have grown mid-teens. These results reflect the strength of our core businesses and how our growth engines are materially accelerating Ecolab's growth algorithm. One Ecolab is making a difference across the company.

We bring our water, hygiene, pest, 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 fewer resources. That creates differentiated value for customers, strengthens relationships, and helps us win new business. Since launching One Ecolab, 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 gross opportunity with these 35 customers. You can see this clearly in Food & Beverage, which accelerated to 8% organic growth, with broad-based growth across dairy, protein, and beverage against stable end market demand. 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 strengthened, 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 returned to solid growth. In these businesses, strong new wins and improved pricing are helping us outperform stabilizing end markets. More than ever, these customers look to Ecolab to help them produce higher quality products while significantly reducing operating costs and environmental impact, which is the Ecolab model, as we all know. Institutional and specialty performance remained consistent despite industry trends that continue to get tougher, including restaurant food traffic that declined mid-single digits in North America. While I'm pleased with what our team is doing, I'm not satisfied with our results.

Given the proven value we bring to customers and the strengths of our offering, we should be outperforming the industry by a much wider margin and growing much faster. New innovations like DishIQ, AquaIQ, and KitchenIQ, combined with our global service capabilities, deliver what our customers need most: improved guest experience, labor automation, and lower operating costs. We'll be shifting gears. To deliver even more value to our customers, we will be expanding our field sales power, maximizing our service offering across our hospitality and food service segments, and bring our technologies together through our One Ecolab model to drive higher solution penetration. Our growth engines are also accelerating. Life Sciences continue to drive very strong share gains, with organic sales growing 17%. Bioprocessing, again, led our performance. As customers advance drug molecules from development into commercial manufacturing, our opportunity grows with them.

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 super critical. 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 in sales and delivering the performance we committed to you. Double-digit sales growth and OI margins that are on a trajectory to expand to 30% over the next few years. As a result, the return from our acquisition of Purolite is strong, and the NPV we expect to realize from this acquisition is actually greater than we had initially forecasted.

I love how this business is performing and even more where it's headed. Ecolab Digital also continued to grow rapidly, with sales up 34%. Customers increasingly want visibility into their operations and the ability to act in real-time. ECOLAB3D and our expanding IQ solutions across water, institutional Life Sciences, and pest connect unique data insights with our global field expertise to deliver best-in-class customer performance. Pest Elimination is a great example of how we're using breakthrough digital technologies to deliver superior customer outcomes and growth for Ecolab at the same time. In the third quarter, pest sales growth accelerated to 8%, driven by strong new business wins from our One Ecolab 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 environment for our customers versus a 94%, which is the industry standard. With $3 billion of additional cross-sell opportunity, we're actually just getting started. Global High-Tech, now Ecolab's largest growth engine, continues to accelerate, growing organic sales by 63%. Growth remains very strong across both data center cooling and circular water for microelectronics as AI infrastructure rapidly expands around the world. At the heart of AI is water. Water is required to produce, to power, and to cool chips. Ecolab's leading innovation, expert service, and digital capabilities help the world's leading tech companies maximize their growth and performance across the value chain. Our recent acquisition in Global High-Tech adds complementary strengths to this leading business. CoolIT is off to an incredible start within Ecolab, more than doubling its sales with very strong profitability.

Its leading liquid cooling capabilities address a critical need as advanced computing becomes more demanding. We have already fully integrated ECOLAB3D TRASAR liquid monitoring technology with CoolIT's 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, ultrapure 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 Ecolab 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 a 25% operating income margin. This growth platform alone adds more than two percentage points to Ecolab's sales growth algorithm one year after closing. This is just one example of how we're building a higher-growth Ecolab, and we look forward to sharing more at our Investor Day next month. The acceleration we think today is the result of the organic and M&A investment we've made over the last several years to strengthen our core business and build new growth engines. As our growth engines become a larger part of the business, our mix shifts towards faster-growing markets with attractive margin potential.

Our growth engines, when using the same proven operating model as our core businesses, providing mission-critical anchor technologies and consumables that deliver best-in-class operating performance for customers. This is fueling faster, more durable sales growth, faster earnings growth, and strong returns for shareholders. We are entering 2027 with momentum and confidence in our ability to deliver another very strong year. We expect organic sales growth to grow at the upper end of our 5%-7% target and Ecolab's adjusted operating income margin to reach the 20% that we promised. Adjusted EPS growth is expected to accelerate in the second half of next year as we 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 of 12%-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 their end markets. We're leveraging the power of One Ecolab to build a higher growth company with the same durable and consistent core. We have a strong foundation, increasing momentum, and a tremendous opportunity ahead. I want to thank our global team for making that possible and for the value they deliver to customers every single day. Thank you for your continued trust and your investment in Ecolab. I'll now turn it back to Andy for Q&A.

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

Thank you. We'll now be conducting the question and answer session. May I ask you 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 one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two 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 Mulrooney with William Blair. Please proceed with your question.

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

I was hoping we could talk a little bit more about your Global High-Tech water business in a little more detail. The legacy business, that accelerated to 60%+ organic growth. That is a major step up from the first half. CoolIT more than doubled again. Can you talk about what you are seeing in both of those businesses that is driving the strong growth there? I was also wondering, as you progress towards that $4 billion target, I wonder if a 30% CAGR is the right number to use based on what you have seen over the last couple of quarters. Thank you.

Thank you, Tim. I love that question, and especially that business. It is obviously early. For us, we own CoolIT now for almost three months, Ovivo for a little bit less than a year. We have been starting our Global High-Tech business just a few years ago. Pretty early, pretty new, but probably one of the best businesses that we have with the best growth potential as well ahead. We will talk more at the Investor Day in a few weeks, but I like a lot where we are positioned right now for a few reasons. We have the best technologies, and we clearly work hard at it. We have the best team. We have been building that as well for a long time. Most importantly, we offer what the industry truly needs.

Especially now in that environment, which is best performance and the lowest impact on communities and nature, since we have seen that it has become a big topic in the media and in all the discussions we have now. If I unpack a little bit that, in microelectronics, and we will talk more about it at Investor Day, ultrapure 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. 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 is roughly 60%-70% for the latest chips, and we would like to move that obviously so much closer to 100%.

You can imagine how much money that represents when it is really well done. At the same time, the amount of water that is required to produce those chips are immense. The water circularity is absolutely essential, and this is what we do as Ecolab. 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, performance drives power required and power drives the heat. That level of heat can only be extracted through direct-to-chip liquid cooling, which is what CoolIT does. Interestingly enough, water is the best heat extractor, but hot water is pretty hard to manage. The good news is it is what we master really well at Ecolab.

At the same time, this water usage and power usage question in data centers has become a top topic in all the discussions today that is impacting obviously the growth for the tech industry, it is creating political challenges as well at the same time. 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. That is not including what we do for power, which is providing the electricity for data centers, and that is a business where we have been really strong at for decades. Today this business is also gaining steam. So you are right. We are very well positioned. We are even better positioned than what we thought a year ago.

We will share more at the 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 will require investments. Obviously, we have demonstrated that in M&A, but also in technology. So we will make sure we invest in order to fuel this growth in the future as well at the same time. What is also important is to remain very agile because nobody knows exactly the shape of that curve in the years to come.

I want to make absolutely sure that while we are benefiting from the AI infrastructure build, at the same time, we most importantly are driven by the recurring nature of both of those businesses. 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 Patnaik with Barclays. Please proceed with your question.

Hi, good afternoon. This is Ronan Kennedy on for Manav. Thank you for taking our questions. You're now expecting 2027 organic growth at the upper end of the 5%-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 in build throughout the year.

Thank you, Ronan. Talking about 2027, 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. What was first most important to me, I made a commitment to you that we would get to this 5%-7% organic growth. We would get to the 20% OI margin, and we would deliver these 12%-15% earnings per share growth, and all that in 2027. I'm glad that commitment that we've made, we will be delivering it in 2027. 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 in a few weeks.

It's to talk about, well, how can 2027, but most importantly, the years beyond 2027 as well look like with all the investments, the new portfolio we have as well, and how the world around us is turning into an opportunity as well for us. When I think today about 2027, while 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 2026. 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, then you have the Nalco amortization coming off as well in 2027. So it's to think about this mid-teens type of growth for earnings.

If you look at the first half of next year and the second half of next year, while they will be different, mostly because of transaction cost and Nalco amortization. But the base of this mid-teens growth of earnings will remain fairly stable. The way you can think about it's kind of mid-teens earnings growth. So for 2027, you're going to have roughly 5 percentage point headwind in the first half and a 5 percentage point tailwind in the second half when you consider those one-time external factors in a way that 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%-2%. Then the second half volume is going to be faster, so kind of 2%-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 really to think this strong top line, 1%-2% volume, 5%-6% pricing, and then the bottom line at this mid-teens type of growth. So thinking those two parts of the year, but underlying more or less stable, so at top and bottom line.

Our next question is from the line of Ashish Sabadra with RBC Capital Markets. Please proceed with 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 those tailwinds from those? Then 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.

Thank you, Ashish. First, no negative news or impact from what you're describing to our business. That's not going to impact us good or bad generally. When I think about Life Sciences, for me, it's probably one of the best stories in our company's history. We know that 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. As GHT or Global High-Tech 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 wanted to be just a few years later than expected. But overall, our investment thesis when we acquired Purolite is totally intact and anything, we're ahead of that curve and I feel really good about that. 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 have done unbelievable work in innovation. We have the best team that's very agile as well. To be very close to those customers, being the one that can really respond very quickly to their evolving needs.

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. No one else can do that, which is pretty unique to our company. The 10%-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. Getting towards that, it's mostly related to the base 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 in 2025, a year ago.

We will not have that type of earnings growth continuing in the quarters to come, but solid top-line growth in this 10%-12%, so steady type of trajectory and really an operating margin that ends up at 30% in the next few years. 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 proceed with your question.

Yeah, good afternoon. Thanks for taking my question. I wanted to dig into the Global High-Tech organic growth maybe a little bit deeper. Your 2Q level was a pretty strong 29%. This quarter it was 63%, so you have doubled even the 2Q levels. I guess in terms of what you would attribute that growth to, is it more the shift that we are seeing from data centers toward liquid cooling and some of the benefits that you are getting there? Or is it kind of early signs of now you have the CoolIT sales team and force and you are integrating a total unified platform and that is 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 has been even faster than kind of the general data center growth that we have been seeing.

Thank you, John. It's a very good story, for sure. There's no cross-sell yet. Between the different businesses, we're clearly doing it. We've integrated now those businesses as well. Just for perspective, our data center business and CoolIT is now integrated and, by the way, led by the leader of CoolIT. The same is true on microelectronics where we've integrated with Ovivo and the leader of Ovivo is the leader as well of our microelectronics business. A very good story from a setup perspective, but that happened the last few weeks, so there's not much cross-selling that has happened so far. That's going to come in the near to the midterm future, which is really good.

The growth that we have today is not driven by cross-selling, but that's going to be a major opportunity going forward. Today, the growth that we're having, yes, the shift to direct-to-chip cooling is helping us because the technologies that we had prior to those acquisitions are more in demand because it's about fluid management, which means 3D TRASAR. It's about coolants, which is something that we master quite well as well. It's about services as well, because those tech companies were looking for partners who can help them get the job done, especially in a steady state manner, not just the build-up, but operating the data center afterwards and making sure that the cooling as a service is as well managed as it can be.

Just as a side note, when you think about it, you need four minutes of cooling disruption to destroy the chips that you have in a data center. So the cooling is becoming super critical for those operators. 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 created equal. But I like a lot where we are now. 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. Please proceed with your question.

Thank you. Good afternoon. Christophe, on CoolIT, can you discuss your visibility in this business into next year in terms of sales growth? Obviously, you are going to double sales this year, which is a phenomenal performance. I suspect maybe it is a little bit less next year. But any further insight would be helpful in terms of 2027 sales growth for CoolIT. Thank you.

Thank you, David. We will share more when we get together. But the fact that our first lap together, it is 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 2025 pro forma basis, obviously. It is a good way to start, keeping in mind that obviously it was a smaller business back then. The growth rates are obviously slowing down as well as you keep moving, even though you add some significant dollars to the base business. We feel really good about the trajectory. If anything, we are ahead of what we had planned a few months ago, which is a good sign so far. It is a shorter type cycle of business than microelectronics that need a few years.

To build data centers are more quarters than years. You have a bit less visibility than what you have in microelectronics, which, by the way, is going really well as well. On the CoolIT data center piece, when I looked a little bit about the next few quarters, I feel good, especially so compared to what we had expected and committed. Slightly ahead of what we had planned. We will give you more visibility to that when we get together in the next few weeks. But so far, looks really good for 2027.

Our next question is from the line of Seth Weber with BNP Paribas. Please proceed with 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 of what your lead times look like on the CDUs? Thank you.

Good question. It's something that we used to do. We had planned so to build capacity for CDU and cold plates manufacturing and 3D TRASAR technology and coolants as well. 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 Ecolab manner, we want to produce and supply as close to customers around the world. We will keep expanding capacity not just at the center in Calgary, but as well as closer to our key customers around the world. It's going to be serving a dual purpose.

Getting more capacity to supply a high growth 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 Laurence Alexander with Jefferies. Please proceed with your question.

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

Yes. The world a bit different than what we had expected, but I see no reason not to deliver the 20% 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. Feel really good about the 20% for next year. My focus is really, what's next? Because once we've delivered the 20%, we're not going to stay at 20%. 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.

But feel good about the trajectory that we have and annual increase that we had committed to a while ago. We'll stick to it. 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 proceed with your question.

Thank you. Maybe just to circle back on the institutional business. Christophe, you made in your prepared remarks some comments about wanting to do better there. Obviously, 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 the full value that you were offering. I did not 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.

Vincent, it is 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 automation for our customers because they had lost most of the employees and they had a hard 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 does not have a very high margin. That was really our point of focus, and it has worked really well. That is how we developed all those IQ solutions, AquaIQ, DishIQ, and so on over the last few years. And it has worked really well. It has driven very nice as well as the margin performance in that business. So I like that business a lot.

Our key opportunity in Institutional, in I&S or Institutional and Services, more broadly, serving retail, serving quick serve as well at the same time, it is to accelerate the growth in a market that is not growing. So we are 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 is a volume play, obviously, but also a value price play as we capture the benefits that we are generating for our customers or share of the benefit as we have always done. So the value price approach here. 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 is the feet on the street, the people 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 will 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 into the selling arm of our organization. And the third is what you mentioned, it is to integrate the proposition to our customers where we integrate, so hygiene, water, Pest Intelligence, audits that we provide to our customers in a form that is much more integrated for them.

We are still developing what that exactly means. But when you think about what we have done in Food & Beverage, we have demonstrated that it works really well, bringing hygiene and water together.

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's from the line of Patrick Cunningham with Citi. Please proceed with 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?

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 chip 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 CDUs as well.

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 is a model that we are very used to it, and that is why we integrate all those components, where it is a cooling-as-a-service, fully integrated. We are 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 is a bit similar, actually. So you have a little bit of a larger part of infrastructure built at the beginning of a new fab.

But once the fab is built, well, you need to provide all the 3D TRASAR technology, all the service that we have on site as well, adjusting to the new chip evolution/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 than years. But I kind of like as well, so that balance, which provides stability and predictability in what we do.

Our next question is from the line of Eric Boyes with Evercore ISI. Please proceed with your question.

Good afternoon, and thanks. You highlighted that Ecolab 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? Thank you.

Good story in digital. Honestly, I think that we could do much better going forward. Interestingly enough, it is 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 TRASAR, as you know, and in other businesses, more legacy Ecolab, so we had much less. Today, the highest growth we have is in Institutional & Specialty and in Pest Intelligence as well, which is very good news because we rebalance across all the various segments that we have. When I think about it today, we connect less than 100,000 locations out there with all the services that we can provide.

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. 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 is exactly going to land in terms of share, I do not know, but it will be pretty equal going forward.

The next question is in the line of John Roberts from Mizuho. Please proceed with your question.

Thank you. I think of Pest Elimination as the leading indicator for your digital deployment. When should we expect revenues to accelerate there and for margins to start improving?

First, we've had some acceleration in Pest Elimination, from 7% in the second quarter to 8% in the third quarter. 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. 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. 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, 95% of the devices or the traps that we check are empty and 5% have activity, as we call it.

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% pest free location to 99% pest free location, and at the same time, that will unlock a lot of margin that we can reinvest in sales, in innovation, and obviously, in bottom line margin as well. I expect it to take a year or two to get fully deployed around the world with Pest Intelligence that will require the upfront investment that we're doing right now. But I feel really good about the top-line acceleration and the margin expectations to rise as well because of the model evolution that we're making. But it's going to take a year or two to get to the steady place.

The next question is in the line of Jeff Zekauskas with JPMorgan. Please 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. That would be $63 million in growth, which is 1.5% on your previous year's consolidated sales. 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. 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? 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. 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. That's why I like the overall view on I&S, on Institutional and Services. So to get 53%, all the other businesses are actually still 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 a High-Tech and/or Life Sciences. The other one in Water are doing really well. F&B is doing well as well.

On top of it, one thing that we need to mention is something I'm not spending too much time explaining, but we spent 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, with one exception of being in Institutional that's slightly declining.

The next question is in the line of Matthew DeYoe with Bank of America. Please use 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? We've seen a few reports now about poor coolant management at some of your competitors. Is this too small of a sample size? Does this just strengthen your pitch? Or do you think ultimately there's an opportunity to extract more value from TRASAR deployment? Because it feels like it's pretty dynamic backdrop, obviously, with a lot of growth, and yield management could be more than maybe just a token revenue opportunity. So how do you think about pricing that effectively?

A few elements in your question came out. 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. I don't have a final number for you, but as I mentioned when we announced CoolIT and closed CoolIT, by the way. CoolIT is multiplying by three to five times the dollar potential we had as a legacy business. That was directional, so the three to five times, I want to have a number that's much more solid, and we keep working on it and share it with you once we have something that it's more fine-tuned, as mentioned. We early on that journey of the three months that we've been together, with CoolIT.

I don't have 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. 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. We position ourselves in a very Ecolab manner where we say we're not the provider of individual piece of equipment. We are a provider of end-to-end solutions in cooling when we talk about data center today.

That's very different, and that's why we've brought the whole 3D TRASAR technology, not just for the coolants, but also for the CDU. We'll think about how does it connect the cold plate, everything in between as well. Ultimately, 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. That is showing a very high interest in our approach here because it's removing one of their concerns, because we will be providing 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.

We're the only one doing it that way, and I think that's a huge competitive advantage we have here, because it's a huge moat as well at the same time.

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

Yeah. Hi, good afternoon. I wanted to ask two things kind of together. One, just on pricing. I think, in prior quarters, you talked about getting to a 5%-6% run rate. I am wondering, do you still see pricing accelerating into fourth quarter? Because your top-line guidance is pretty similar. And then related with that, how do you see the incremental margins in water developing? You had very strong volume growth or organic growth, but the incrementals were kind of below our expectations. Is there a catch-up in fourth quarter linked with pricing? Thanks.

Two different questions. They are related, obviously. Josh, first, when I think about volume and price, very short term, Q3, Q4, as I said, it is kind of volume one to two net of Middle East, obviously, and then this pricing, this five to six. I think Q4 is going to be kind of similar to what we have seen in Q3. At the same time, we are working on operational performance or productivity to take a different term as well at the same time. I like how we are managing margins as an organization. As I mentioned a few months ago as we published our second quarter, while 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 have done that in one quarter, in the second quarter. We have done it again in the third quarter in an inflationary environment that was higher than what we had in Q2. I think it is going to be slightly higher in Q4 as well. But all in all, it is going to be a very similar story than what we have seen in Q3. Now, if I look at the water margin, it has been a nice improvement in Q3.

It is going to keep improving, but as we know, it is a business that is more impacted by DPC fluctuations than other businesses like Global High-Tech that has almost no DPC because there is almost no chemistry in that business, or Life Sciences 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. It is going to keep improving. Nobody knows exactly where the market is going from an inflation perspective. So we will adjust. If it keeps going higher, we will manage it. My assumption right now is that it is at a high level today. It is going to stay at that high level till the end of next year. That is the base assumption I am taking here, and we know how to manage it. We have demonstrated in Q2, we have demonstrated in Q3, we keep demonstrating that in the next few quarters. If it goes up and down, we will adjust as well accordingly.

We know that at some point, DPC is going to go down, and we are going to maintain our value price because it is anchored on the performance that we are delivering to customers, and that is 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 have demonstrated as well in the past. Third, it is 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.

Next question is from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Hi, good afternoon. I wanted to see if we could revisit a couple of the assumptions that you have told us to think about in our models. First of all, the CoolIT $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? The second piece is the Life Sciences 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 is low 20s in the near term. Thank you.

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

Yeah. I'll give Christophe a break, Mike. As we said in the release, if you look at the impact of CoolIT, the interest amortization, it was about a 10% headwind in Q3. 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. As you think going forward, as Christophe 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 CoolIT amortization interest annualization the first half, partially offset by the Nalco amortization, you have this -5%, and then this +5% in the second half. So that's how to think about it through 2027.

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 committed. I know that it's not been an easy buildup 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 Purolite, and I will not budge from that.

Our next question's from the line of Andrew Wittmann with Baird. Please just use your question.

Yeah, great. Thanks. I just wanted to have you expand a little bit on some of the comments you made earlier on the Global High-Tech business. I think, Christophe, you were talking obviously 63% organic growth. That's good. You mentioned that going forward, 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 is that service, you mentioned it as services, where you were doing professional services 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?

Ecolab (ECL) Q3 2026 Earnings Call Transcript

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