Greetings, and welcome to Ecolab Third Quarter 2020 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Monahan. Thank you, Mr. Monahan, you may now begin.

Thank you. Hello, everyone, and welcome to Ecolab’s third quarter conference call. With me today is Doug Baker, Ecolab’s Chairman and CEO; Christophe Beck, our President and Chief Operating Officer; and Dan Schmechel, our Chief Financial Officer. A discussion of our results, along with our earnings release and the slides referencing the quarter’s results and our outlook are available on Ecolab’s website at ecolab.com/investor. Please take a moment to read the cautionary statements in these materials which states 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 September 25, 2020 Form 8-K and in our posted materials. We also refer you to the supplemental diluted earnings per share information in the release. Starting with a brief overview. Third quarter results showed significant improvement from the second quarter, while still reflecting the divergent impacts from COVID-19 on the business segments. Fixed currency sales and earnings per share declines narrowed as we leveraged recovering customer end-markets with new business wins, increased customer penetration and cost efficiency actions to show the sequentially better results. Sales and income for our Healthcare and Life Sciences segment were strong as it continued to benefit from good underlying trends, strong cleaning and sanitizing demand and several large one-time sanitizer orders. Our Industrial segment saw a modest sales decline as end market activity returns toward more normal levels, while income growth continued to be strong due to pricing and lower costs. Institutional division results also improved from the second quarter as consumer activity within restaurants, hotels and entertainment facilities continued to recover, though foot traffic at them continues to run below last year due…

Thanks, Mike, and good day everybody. So our sales and earnings showed significant improvement in Q3 versus the lows we saw in Q2, which was expected. This is led principally by our Institutional division as its markets reopened, albeit partially. Our Healthcare Life Science businesses continued to accelerate with our third quarter sales up 29% and our Industrial businesses performed solidly as well with negative 3% sales but 18% OI growth. Importantly, we expect the overall improvement to continue in Q4, though at a slower pace, as COVID second wave is expected to dampen re-openings. Even so, we have a number of initiatives underway as the opportunities and challenges presented by COVID are much clearer now. We have a heavy upfront investment in hand care and sanitizer production, which is now coming on line and starting to pay off. Our launch of new antimicrobial with best-in-class 30-second COVID-19 kill claims are well timed, it’s just going out now. Our continued investments in digital and our accelerated rollout of our newest shield technology is paving the way for further efficiencies in our cost to serve, which we’re capitalizing on now through targeted cost savings programs. Finally, our new business efforts continue to drive really good results, particularly in Institutional. Our ability to dramatically outperform our competition in terms of customer care during the COVID period is being rewarded with new business across the board. And, our new Ecolab Science Certified Program is helping drive improved penetration in existing customers. You’ll recall, our objective for this year was to maximize our position for post-COVID success, and we are well on our way to do that. As a result, we feel we’ll be in very good position leaving the year. As we look forward, we expect COVID to run into 2021 fairly deeply, meaning through several quarters, but we also expect our business to continue and strengthen as our capacity, innovation, new market entries, Ecolab Science Certified and digital efforts put us in a great position to manage and grow our business. So, I feel really good about the steps our team has taken, how they’ve managed through this period and most importantly, how they position is for success in 2021. Thank you.

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

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] And our first question is from Tim Mulrooney with William Blair.

Hi, Doug. I know there’s a lot of uncertainty right now and a lot of moving parts between your different segments. But, I think, a key question for me, and what’s on a lot of investors minds this morning is, based on what you know today, when you expect to get back to 2019 EPS or better?

Yes. Well, thank you, Tim. I’d say, we’re not giving specific forecast. But, I’ll say this. Even with COVID second wave and I think we’ve -- we understand where COVID is going. We track this very carefully. We all know recent news reports about what’s happening in Europe, what’s happening in U.S. is not really news to us per se, that we’ve considered this in thinking about our business progression, even we talk about further improvement in Q4 and how we’re considering 2021. That doesn’t mean it couldn’t be worse than we anticipate, or could be better than we anticipate. But, I don’t believe we are underestimating COVID. With that said, I think, we are in good shape to be playing above 2019 EPS in 2021. The question is really how much? We’ve got a number of things that give us confidence. The markets we believe are going to be better on average, in ‘21, than they were in ‘20, principally, because we don’t expect a repeat of a global shutdown during the March-April period. That alone drives on average, a significant improvement in just underlying market performance. Inventory reduction is really behind us. This machine rent relief isn’t going to be repeated, a lot of the one-offs that we had talked about that we took purposefully in Q2. And we know we’ve gained share. We’ve got very strong innovation. And we’ve added capacity on hand care where honestly we could sell more if we could make more, and now we’re able to make more. And ultimately, we know we’re also taking steps to lower our costs. So, we feel we’re well-positioned. Next year, we’ve got a number of levers to pull. So, I expect sitting here today that we will be certainly above 2019 EPS in 2021.

Okay. That’s really helpful. I appreciate your thoughts there. I’d also like to ask about your new business wins and how that trended through the quarter relative to your expectations. Are these wins coming from developing growth opportunities, or is it more just from recovering end markets? I know you’ve got a lot going on with new sanitizers and Science Certified for example. So, I was curious how that’s all affecting the cadence of your new wins?

Yes. I’ll ask Christophe to go address this. But, we’ve been, I would say, very surprised at the strength we were worried early in COVID, with the fact that we couldn’t make in-person calls in the same manner that we did prior, impact our ability to get customers, yes, and that’s turned out to be a false worry. We’ve actually performed very well to this whole period. And I’ll give Christophe an opportunity to give you some color.

Thank you, Doug, and Tim, good morning or good afternoon. So, yes, new business has been going very well this year. When we think year-over-year growth of new business that we track, so on a monthly basis, it’s basically growing at the same pace as this used to be, as well as pre-COVID, which is very encouraging. Doug is right as well. So, installing that new business has become a bigger challenge, which means that our full book of business ultimately will help us as well down the road. But, we’ve leveraged as well digital technology. So, to do that in unbelievable ways where we could install new customers all remotely, so we’ve learned as well. And those are capabilities that we can use as well tomorrow. And your question on the main drivers, I’d like to come back as well, to what we discussed during the previous calls as well, where many customers are coming to us because they’re looking for our expertise from a science perspective as well, how to deal with COVID, how to make sure that their guests or customers can be protected as well. That’s been a huge driver, so for many new customers to come to us. It’s also innovation. Doug mentioned our new sanitizing programs that we have that are killings of COVID-19 in 30 seconds or less. Those are world records out there. And that’s coming out of years of innovation as well. And last but not least, in more difficult economic times, our customers like our proposition of driving the total cost of operations down, which drives more business as well. So, net-net, new business generation is kind of steady even versus what we had pre-COVID.

And I’ll just add, because Christophe said he’ll be humble today, is from an operating standpoint, our businesses have done a great job, performing in a tough environment, and honestly have dramatically outperformed competition in our ability to meet our customer needs when it’s required in unit we get there, we’ve worked to leverage remote digital capabilities. And this has really been led by Christophe and all of our teams out in the field. And that has made a big difference here as well.

Thank you. Our next question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.

Thank you. Good afternoon. My first question is just around this increased focus on sanitization that clearly you guys are benefiting from. Maybe a two-parter. The first one is, you talked about you to now do more capacity in hand care. But, I was just curious if there was any updates on any other areas or maybe you still are restrained in terms of how much you can produce? And, I think for the first time ever I saw an Ecolab ad on TV for certified science. I guess, is that trying to target a little bit more branding versus the Cloroxes and Lysols of the world?

Yes. I’ll touch on the capacity question. Our capacity challenges really have been around hand care in particular, to a lesser extent to some surface sanitizers. It’s all driven by demand. Meaning, our hand sanitizer business is up 300 -- 3x. Now, we’ve had to do a lot of work to be able to increase capacity, 3x. And now, we are expanding that beyond that, because demand is greater than that. But, these aren’t easy, easy ramp-ups as you go through this. Right? This is GMP, you’ve got to make this properly. We don’t take shortcuts. We’re not the guys using bad ingredients, people can count on us. And so, we’re going to do this the right way, so customers continue to count on us going forward. But, the operations team has done really a terrific job working with the team to move these volumes up. And we have a lot of capacity, now just coming on line, because it takes months, or as equipment, we found very creative ways to do this. Regarding the TV, Ecolab Science Certified, let me give that to Christophe.

Thank you, Doug. And, Hi Manav. Good to hear you. Ecolab Science Certified, so, it’s something kind of new for us. So, we’re learning as well, as we go. It was really meant to support our customers to provide reassurance for their consumers, their guests, for the most part, so in hotels and in restaurants. And it’s been really driven by the fact that we knew that guests were fearful about the risk of infection. We all know that. We knew as well at the same time that hospital grade disinfectants were driving them to 2 to 1 times versus the retail brands that you mentioned, as well before. So, that was a plus clearly, as well so for us. And the third thing was really that we knew we heard from guests that they wanted to see clean, not just to have people telling them, that it’s safe out there. All that brought together this fear of being infected, the fact that you like hospital grade disinfectants, the fact that you want to see that is clean and safe, so led us to this concept of Ecolab Science Certified that has been extremely well welcomed by our customers. Their customers seem to be liking it a lot as well. So, great reaction from customers. We’re really working now in the rollout of all those thousands of sites as well, so around the country. And from a media perspective, it’s just after a few weeks, so hard to tell. But early indications are way above average than what we had expected.

Okay. Got it. And it was nice to hear the comments on 2021 EPS. But, maybe just on fourth quarter trends, I guess, in terms of the way you described it, it sounds like fourth quarter won’t -- even if there is a resurgence of cases et cetera, it won’t be as bad as the June quarter but maybe somewhere between that and the September quarter that you just reported, and so just maybe partial lockdowns and impacts. Would you say that’s a fair characterization?

Yes. I think, Q4 is, -- one, you’re entering Q4 at a very different run rate from a market consumption standpoint than we entered -- right, Q3. And so, as a consequence, you’ve got room -- I mean, to get to even equal, right, you can add some degradation to the quarter, just fundamentally. We expected -- I mean, some of these lockdowns are just being announced. But we knew that COVID second wave was real coming. And there’s going to have to be some reactions to this. And so, as a consequence, it’s in our mindset. Now, it could get more severe than we anticipate and everything else. But, we expect Q4 to be better than Q3 on the top line on income, on EPS on an absolute basis and on a relative basis versus prior year. I mean, that’s so -- and I think it’s with our eyes wide open, but this is a wild world. And we’re here to react to what we need to react to and we’ll do the smart things. One term, this business I think is in great shape. And we’re going to manage intelligently. The one thing I’m not going to do is touch the investments in Q4 and do some other things, because really what is paving the way for our very positive feelings about 2021 and beyond.

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

Thank you. Your institutional organic sales were down 28% year-over-year. What’s your estimate of what the market was down, maybe to give us some perspective on the share gain?

Yes. It’s not as easy as just doing the straight math, simply because if the market is down 50%, we’re not going to be down 50%. There’s just some base level of consumption in these units if they’re just open. So, the numbers that we have shared in the deck and others is over 90% of restaurants in the U.S. were open by the end of third quarter, running at a roughly 55% capacity rate. Now, in addition to that, they’re doing a bunch of off-premise. But obviously, off-premise doesn’t generate much warewashing business, as you might imagine, if you’ve been an off-premise customer. So, I would say, we certainly -- our volumes are healthier than the restaurants volumes in total. We do believe we’re gaining share, because we track very carefully what we’re gaining and what we’re losing. And I would say, our losses have been minimal. And I mean, we’ve done a great job on the other side, securing a bunch of new business through this period.

Then water downstream sales were down 11%, petrochemical was up, so refining was down more than 11%. They’re not that surprising or not, but I thought the utilities, the steam system and the cooling tower were relatively insensitive to the refinery operating rate, or is that not the case?

I’ll give it to Christophe. Our water businesses improved. You’re talking downstream and you’re right. Downstream was worse in Q3 than Q2. Christophe, do you want to…?

That’s right. Yes. Overall picture, so Industrial is in a very solid shape, as you see, so up modestly and the OI is up double-digit. As you’ve noticed, driven by a few great businesses, obviously like water being one of them, food and beverage really good, water improving very nicely. On downstream, you underlined petrochem, which is positive, this is really true. Otherwise, so for the fuel refining business, we’re kind of in line with the consumption, which was down 12%, roughly, in the quarter. But, when the oil price is low, refiners have a tendency to go for light crude, which means that they need much less of our additives as well, which are usually used for harder to treat, as well, product. So generally, we like the petrochemical, which is where we focus most of our attention, especially going forward.

Our next question comes from David Begleiter with Deutsche Bank.

Thank you. Doug, you guys increased your savings this quarter to $275 million, from I think $270 million. Where those additional savings are coming from? And if COVID impacts go well into ‘21, are you looking at additional temporary or internal costs levers to pull to offset these headwinds?

Yes. I’ll have Dan answer specific questions around numbers. But, yes, I would say a couple of things. What we wanted to do is, allow time so that we can see more clearly where we are going to be hit, say for several quarters at least or even a couple of years, like we talked about lodging recovery and some other things. And we are starting to adjust our costs in businesses that are going to have more lingering effects. You might think also, we are investing in some businesses like Healthcare and Life Sciences, where we expect the lingering impacts to be positive. And so, we have increased a 2020, which was the program that we had in underway, which is really a place where it supports early moves there. They were not a big impact at all in Q3, will start impacting Q4 somewhat, but the major impacts will be in Q1 and Q2 of next year. And, Dan, if you want to add some detail?

Yes. Thanks. So, just as you’ve indicated, rightly, we’ve announced that we’ve taken up the full year target from 270 to 335. And of this incremental 65, as Doug has indicated, that anticipate that the big bulk of that, say, maybe $50 million will fall into 2021, with a little bit recognized in 2020, not much, frankly, given the fact that we’re, you can imagine, starting where we’re starting now, near the end of October, and a little bit of cleanup in 2022. In terms of what drives it, I mean, I would go back to sort of how we’re thinking about a 2020, or this cost savings initiative generally, which is some of this is reorganization. A lot of it frankly is driven by getting back benefit from the significant investments that we’ve made in institutional. And as Doug has indicated, we’re really similarly sitting here in the era of COVID, taking a look at our deployment principally, and where we might see continuing benefit. And so, of the 50, it’s pretty evenly spread frankly across the Industrial business, opportunities and supply chain too where we can true-up and have an opportunity to think of improving efficiency of some of the lines and some also in the institutional business, not surprisingly.

And Doug, just looking longer term, given the impact of COVID on Institutional, is the Institutional a fast growing business post-COVID than it was pre-COVID?

Yes. I think, there’s going to be -- I mean, Institutional was obviously ground zero for COVID. And there’s going to be some knock-on effects for a period of time, but not forever, by any means. I would say -- I think, if you read most lodging forecasts, people believe that business, travel will be down for several years, but will start coming back. It will be replaced in fairly short order. But I think lodging takes a couple years to recover. I think, restaurants recover a lot quicker. And the reason for that is if you look at the history of recessions and everything else, even in restaurants that go out of business, there seems to be an endless line of people who think opening a restaurant is a great idea. And that has been true. And you end up with a lot of, let me just say, capital light opportunities, after these recessions. You have strip malls with restaurants in them that are vacant, where they are looking for somebody to move in and put a sign on the door and get back into business. And it’s sort of a time honored tradition. So, so far, I would say we’ve been surprised at the fact that there’s not more restaurants out of business during this period. We expect that there will be more, particularly as we get into the winter, but it’s still probably below the forecast that we had internally, last March and April. So, Institutional, ultimately, we feel very confident will be a -- and continue to be a great business. Now, we can get to earnings, right, growth, faster than we’ll probably get to sales record growth, simply because we’re doing right in the business, some of this has planned pre-COVID, a lot of the technology moves we’re doing, the efficiency moves, we’ve accelerated the deployment. I mentioned this in my opening comments of the newest and latest field technology, which gives us a lot of new capabilities and makes our field team a lot more efficient, and use a much more time to sell. We are adjusting our field service team to what we expect to be service requirements going forward and efficiency benefits. But, we’re actually adding sales firepower, because we know coming through this and out of this, we want to go out and secure the new business that’s going to occur. There are other forecasts, let’s say, in 2021 midsized chains and others will be adding a significant higher number of units than they’ve done in recent years, as they work to capitalize on this too. And we want to be the guys there getting this business. We never mind taking, if you will, SG&A risks like this. We think they’re wise, we think they’re going to pay off and help us recover even faster. And if we’re wrong, they’re not hard to address.

The next question is from the line of to the line of Gary Bisbee with Bank of America.

I guess, if I go could back to the cost program for a second, good to hear about the incremental and where that’s coming from and the timing. But, can you just give us an update on where you are versus the initial plan? As I recall, it was a significant number and growing number from ‘19 to ‘20 and then into ‘21. Are you on pace, did you pull them forward given the challenges of this year, or is there still an expectation that there’s a significant step up from the original plan next year, before this $50 million incremental that you’re adding here? Thank you.

So, this is Dan again. Let me -- I’ll just walk through the sequence here. We announced the plan, right, which was originally 200 and took it up to 325, so we accelerated it. Of that 325, $55 million was focused directly on the upstream business. And so, those cost savings and all of incurred expense associated went with the ChampionX business. So, that’s how we net down to the $270 million. And frankly, we’ve described this $270 million as $200 million in run rate savings for Ecolab and then offsetting $70 million of what were essentially stranded costs related to the separation of the ChampionX business. So, that’s the background on the $270 million. If you focus on the $270 million, I would say that our capture of that opportunity has been almost exactly in pace with what we had said. Okay? And so, now, we’re saying that we’re going to increase it by 65, for all of the reasons that I went through with the biggest part of that benefiting and falling into 2021.

Got it. So, there’s -- I mean, I have the 325 breakdown, which you provided a few years ago, and so I understand part of that went away, but it was like $80 million in ‘19, $105 million in ‘20 and $140 million in ‘21 was the initial target. So, assuming a lot that went away is in ‘21 maybe but, so there’s a significant step up still from the original plan. And then, you’re adding on top of that?

I would say, yes. Okay. From the 200 to the 270, that was the step up. Really though I would think about that as an offset to the ChampionX stranded costs. What we disclosed as incrementally benefiting 2020 originally was $110 million. And it will be essentially that number with a little bit of increase related to the $65 million increase. So, I view this as being once we expanded the plan for the first time, if you net down to the 270, which is ex, ChampionX piece, we have been pretty much in line with the targets year by year as we’ve communicated.

I’ll only add this. What we said very early in this and we were asked are we going to make cost adjustments, even back as early as February. We basically said, look, we’re in the fog of war. We don’t know what moves to make right now. We need this fog to clear and really have more understanding of where the opportunities are and where the challenges are going to be, what’s going to linger and what’s going to go away quickly. And as a consequence, we are sitting here today with much more clarity around what needs to happen moving forward. So, we’re much more confident taking steps that we don’t believe are going to cause any unintended harm than other moves. The team, I think, is in a great place. Everybody understands. And since we’re adding in some businesses and subtracting in others, even where we’re reducing our team, we have opportunities to create for them another businesses, which we’re making available sort of differently than we’ve done in the past. So, these are moves we’re taking. So in Institutional, we’re certainly taking steps, which I mentioned, around field service costs in particular, given number of units, and the efficiencies that we have generated as a consequence of the technology investments and all the digital investments that we’ve been talking about over time, you would expect us to do those. And now, we have a better understanding of delay of the land. And so, we’re taking those steps. And if anything, I would expect us to take more -- this is not internal, that’s all been discussed. But, as we start getting clarity around the financials, what that means and what it means for 2021.

Thank you. Our next question is from the line of Ryan Connors with Boenning & Scattergood.

I wanted to ask a question about -- you talked about the fog of war, Doug. One of the things that seems to be emerging from that is that the big chains are out there taking share, if you will, or faring better than some of the mom and pops restaurants, as an example, but I guess, that’s in a number of different industries. That would seem to favor a company like Ecolab that presumably is heavy with some of those big national accounts. Can you talk about that dynamic, and whether you think that’s meaningful? And how that affects you, if that does in fact continue the next couple of few years?

Yes. I mean, it could only be a net positive for us. How it exactly plays out in terms of their ability to continue to garner share vis-à-vis smaller players. We watch the same trend. I believe they will gain share during the upcoming periods, probably even more notably during recovery. They’re poised to add units aggressively and would be in a position to do it even faster, and in some cases, in say, smaller and mid-sized players. So, I would say, we’re not -- it’s hard for us to say exactly what this means to us. But, I would say, to make a case, it’s a negative would be hard to make. It’s net positive, for sure.

Got it. Okay. And then, my other one was, at risk of going across the valley as it were, you talked about investments in capacity, in hand care and sanitizers and the 3x demand growth and so forth. Obviously, you’re not the only one making those capacity investments. And if, in fact, things normalize post-vaccine, even if that’s a year or two, or whatever out there, how do you guard against really as a company and as an industry, adding too much capacity, and then we’ve got a negative pricing cycle in those product lines once this all kind of -- the dust settles here?

Yes. I would say, there is two things. One, here is our expectation in the hand care market. We think in the near term, it probably -- and this includes hand soap, which is obviously a much larger market than hand sanitizer in total, that the combined market triples and then settles as a double, versus pre-COVID, i.e. there’s certainly a COVID bubble here, but the post-COVID will be at a run rate much higher than the pre-COVID, simply because you condition people through this around hand hygiene, which by the way is a smart thing to do to prevent many other viruses than just COVID-19. So, with that, yes, are people going out? Yes. We’re not the only guy adding capacity. But I would say, prior to this, we were also doing a lot of co-packing. So, we are now in a place where we have additional capacity. If it proves not to be as wise, we can in-source stuff if we need to. So, I think, we’ve got a number of options here. And we wanted to create more options, if you would, going forward. In terms of price war, it’s not going to work that well here. Even hand care, dispensers fall off walls, things happen. We have been priced at a premium. In almost every one of our markets, we’re the -- if not the global leader, right, number two in the world in terms of hand care. And we do it at a significant premium, because service does matter even in this market. So, I don’t think that’s going to be the play or the conversation we’re going to be having in two years.

Our next comes from the line of Chris Parkinson of Credit Suisse.

So, you hit on this a little bit, but I just want to get down a little bit further. But just, despite a lot of noise on the Institutional revenues right now, how should we be thinking about the current market share gain environment? It still seems despite a lot of noise, like you’re outperforming a lot of your peers. And then also, just when we think about the growth and innovation investments, how do those ultimately factor into your expectations for your framework for ‘21 and ‘22? Just any additional color would be greatly appreciated. Thank you.

Yes. I’ll just put together what we’ve already said on the call in maybe a different context. One, we have confidence that the business is going to be playing above 2019 in total next year, right, from an earnings standpoint. We don’t believe Institutional is going to be fully back, while we’re doing that, which we’ve also said. Institutional will ultimately have record sales and record earnings. We have not seen the peak of Institutional by any stretch because that market will come back. We think foodservice first, lodging a little later. The good news is foodservice is much larger, and there are underlying trends in foodservice which are positive. We are gaining share, which means, I think, we’ll even beat the market getting back. So, I guess, the point is, I think, when you look out beyond the depth of COVID, you’ve got a number of positive earning machines within this business. [Technical Difficulty] of institutional over the couple of years, [Technical Difficulty] fast to recover in industrial than some of the other players; technology, lowering our cost to serve on a permanent basis, et cetera. So, I -- we feel like the steps that -- steps we’ve done the last six months, I think, has long legs. That was a whole idea. You don’t want to go do a bunch of stuff in the second quarter that would only help the third quarter. We wanted our stuff to have years of benefit, not weeks of benefit. And I think, that’s why I’m proud of the team. You can get very flustered during these periods because these results are hard to report. It’s not what we normally do. But, I think, the steps will prove to be very wise going forward. I don’t think, we’re very far away from getting back to the type of reports people expect out of us.

Great. That’s very helpful. And just very quickly on the Industrial front. There’s been a fairly material divergence between end markets. Just versus your initial expectations, let’s say, coming out of the second quarter, could you just assess your performance in F&B, water and downstream? And then, similar to my questions on Institutional, how would you also view your own relative end-market performance on a go-forward basis? Thank you.

Yes, I’ll give this -- Christophe’s got this.

Hey Chris. Hi. Maybe starting with your Industrial question, and then I’ll cover Institutional. So, as mentioned, overall, Industrial is in a very solid shape, saw slightly off at sales, but income up 18%. And that’s the advantage we have that we have so many different end markets as well that we serve, but all driven by these needs of water purity and hygiene, food safety as well, which are obviously some big trends right now. So, when we think in terms of the water businesses, the way we call them, so this one has improved very nicely. So from a minus 5 to a minus 2 in Q3, and we expect that to improve as well in the quarters to come. F&B, which has been a very strong franchise, pre-COVID, has remained fairly strong positive for sure during COVID as well. Q3 being a little bit of an unusual quarter of those two reasons. One is the total shutdown of brewing in Latin America. You’re not allowed to produce beer basically over there, and we have business over there, extremely strong, extremely profitable as well. But, that’s going to come back. People are not going to stop drinking beer obviously. And dairy as well in the U.S., which is related to schools as such, but this is very temporary. New business is really strong in F&B, good momentum, great relationship with customers. There’s no one even close to us who can really bring the water and hygiene, as mentioned before. So, a very strong position on Industrial. And in Institutional, a lot has been said, obviously before, firmly believe that people are going to go back ultimately to what we call out-of-home. As such, people are not going to start cooking from scratch in the long term. So, these trends are going to be positive. At the same time, people are going to look for more demonstrated safety in restaurants and in hotels. This is well to our advantage. They’re going to look as well for more expertise. This is Ecolab’s strength as well. They will want to have global standards as well that you have in every unit anywhere around the country or the world. Well, this is what we offer to customers. And last but not least, as well as such, well, it’s mostly driven by corporate accounts, as Ryan was asking before, two-third of our business are large customers. Well, that’s where the growth is going to come from and that’s where we have most of our focus. So, Institution long-term is going to be a positive story as well. So, I hope you have it, Chris.

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

So, looking at the other segment, and it seems like it’s mostly going to be driven by pest. The profitability surged pretty dramatically compared to kind of the revenues where book they were up, but not nearly to this degree. Was there a bit of a catch up in there, or I guess, can you help to explain kind of the incremental margins from 2Q to 3Q in that business and help us to think about how to think about that business going forward?

I would say within their pest -- our pest business, I would say recovered even stronger than we had thought it was during the third quarter. It was down 2% year-on-year in the third quarter. And they made up a lot of ground. They have done a number of smart things in that business and are poised to break through the growth number, even in the fourth quarter. So, of those businesses, it’s probably the most significant in terms of its ability to earn money. And most of them -- that’s probably the biggest positive story coming out of the other segment.

And then, maybe just a housekeeping question, just because admittedly, I’ve gotten probably a dozen e-mails on this since you’ve been talking. But, so when you talk about EPS growth in 2021 versus 2019, I assume that’s on the 5.12 base, the kind of pro forma, the oilfield services split base. Is that right? Am I thinking about that right?

Yes. That would be our new -- that would be the 19 number we would compare to.

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

Just thinking about trying to bridge institutional a bit more, and I’m looking at that slide four you provided in the supplemental data, and in particular, just trying to think about the multiplier effect of a product use in COVID. And, what percentage of operating rates in full-service restaurants do we need to get back to in order to kind of make you whole with 2019? Because presumably, you don’t have to get back to 100% or 90% or something like that just given more product being used and likewise for lodging. So, any thoughts there would be helpful.

Well, we don’t have a specific number to throw out. It would be less than 100. I think, the truth of the matter is, there’s going to be this natural, I would say, recovery ceiling, until you have vaccine. Now, what we believe is, vaccines will be approved here in short order, but they’re first going to go to frontline workers, second to populations at greatest risk, and then broader populations beyond that. And you need a significant number of the population. Again, it’s going to take quarters to get this out. The reason I bring this up is I really think we will continue to see improvement in institutional, some on the top and then on the bottom line as we go through this. I don’t know that you’re going to be breaking through 90% than others, until you get real breakthrough on COVID, to be honest. We’ve launched in other markets. There is just a fundamental fear factor that stops people from going in the environment, even when there is a low COVID rate. Now, it improves -- it’s got clearly room from this 55% number. But, I don’t think it buzz through 80 until you start seeing COVID done. With that said, we don’t expect Institutional to be fully back in ‘21 but we expect to be certainly playing north of ‘19 EPS in ‘21.

Thanks. And just as a follow-up. Just thinking about the SG&A line into next year, you’re down about $165 million year-to-date. And I’m just trying to reconcile, you have some discretionary cost savings that maybe some of that starts to come back later next year versus the cost program that you’re running to take things out. So especially, as we think about SG&A trending into the fourth quarter and then how much do you think it can actually stay down next year?

Yes. I think, the discretionary savings, i.e. T&E in particular and some others, I think last well in the next year. Our view -- we’re going to respond to what actually happens on COVID, not what we believe. We believe COVID is here through a good part of 2021. If that proves to be wrong and it goes away faster than that, we’ll benefit, and vice versa. But our travel isn’t going to change dramatically until COVID restrictions change. And so, there’s a sort of what I will call natural benefit lined up with sales pressure. So, we think for the majority -- certainly majority next year, we’re going to see depressed T&E travel as a consequence. We will not bring it back up to 100% of 2019 rates for a long period of time, because I think we’ve all learned. There probably are a number of trips we took in the past that we didn’t need to take. And we will be using digital technology in many cases that prior we took trips to accomplish. So, travel is not going down to zero, but it’s not going back to 100% or 90% either.

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

Thanks. Good afternoon. With regard to Healthcare and in Life Sciences, the growth rate certainly is impressive. How sustainable do you think that is? And then, the margin in the segment was very strong. Just curious, how much was pricing and other factors for the margin expansion, and maybe some discussion of sustainability of that?

I’ll give it to Christophe?

Thank you, Doug. Hi, Scott. So, it’s been another great quarter for this group. So, 29% top-line growth, 82% income, and it’s been driven by both, big businesses in there. So, Healthcare and Life Science, both were in the double digital top-line growth and income growth as well, driven from one part, because of COVID, on the other hand, as well, a lot of government business as well, that we could conclude as well in Germany, in the UK, in Australia because of the expertise that we could provide as well as to those agencies with whom we have great relationships. That’s going to partly stay in the future, but it’s going to ease as well over time, whenever coverage is going to ease as well. So, that’s back to Doug’s comment of the vaccine and how many quarters we’ll have to wait for that. Bottom-line, when we think in terms of underlying growth, we’ve said, so for Healthcare that if you exclude those big one-timers, it’s roughly 12% top-line, but that’s still driven by the COVID wave as well. So, when that eases as well, we believe that we will be in Healthcare, kind of 6% to 8% underlying growth, which is really where we always want it to be. So, ultimately, that’s a business that has truly benefited from what’s happening here. And on Life Science, it’s a business that’s totally on fire. It’s really an industry that loves what we do. So, then, new business is extremely strong. Innovation is very strong as well, think Bioquell as well, so has grown 100% during the quarter as well in Q3. Well, those are offerings that are going to stay as well going forward. So, it’s not going to stay at the same high level as what you’ve seen in Q3, but it’s going to be double-digit underlying, going forward, for sure.

Thanks, I appreciate that, Christophe. And then, a follow-up for to you Doug. Just curious, now that you’ve built out capacity significantly for hand sanitizing, just curious, kind of on the back end of the supply chain, what were the considerations you made, so that if we get into a situation where this largely sit down -- shut down, hopefully that doesn’t happen again. But, has this been done largely domestically, near shored? Just curious the thought process and the strategies you’ve taken in developing that supply chain strategy?

Yes. Our historic supply chain strategy is to make in the currencies we sell in. I.e., if you go to China, we have multiple manufacturing facilities. They’re really designed to meet China demand. And like 93% of our China volume is produced in China. So, that’s been historic strategy. And it’s a strategy that governs us going forward. It was really designed because we didn’t want currency to become a strategic problem, i.e. producing the U.S. dollar gets strong and our competitiveness is weakened everywhere else. That was the initial reason for it. It obviously is also proven to be a good strategy in a tariff world, and a more restricted supply world. So, that strategy has been, let’s say, cemented, at this point time is a good idea. So, where we’re building? We’re building a lot of the capacity in the U.S. and in Europe, which are two largest markets where you’d expect but we also made capacity moves in China too.

Our next question comes from the line of Laurence Alexander with Jeffries.

Two quick questions on the cost reductions moves that you’re now making. How will that affect operating leverage once conditions recover? And secondly, longer term question, I guess, I remember most of our discussions on the Healthcare side being around antimicrobials. Can you speak a little bit about your [Technical Difficulty]

Sorry. Laurence, the last couple of words got garbled. What was the last question about Healthcare antimicrobial?

Sorry. Can you speak about your capabilities in antifungals -- the antimicrobials?

Yes. Well, in Healthcare, I mean, if you want to go, I mean, spores are the biggest challenge, right, C. diff and the others. And we have significant advantages in that category in Healthcare as well. And so, that’s been an area that I would say, we have some standout capabilities too. The Healthcare capabilities are important, not just, because of the healthcare market opportunity, but also because of, if you will, what we learn in Healthcare, and how we can apply it in other businesses. So, Christophe talked about the positioning that we’re using in Ecolab Science Certified, which is Healthcare grade -- hospital grade disinfectants that resonates with consumers, or by the way, they’re right. Because the breadth of the kill claims and the kill time are much more advanced in those types of products than they are in consumer products. You can have a consumer product that literally takes 4 minutes to kill what we’re killing in 30 seconds. And the problem is not many people wait 4 minutes for anything anymore. So, this is an important part of what we’re doing. The leverage question, I mean, we don’t have a specific answer. I mean, as we get out and articulate the complete program, it’ll be pretty obvious what the leverage impact will be. But certainly, it’s going to improve leverage, which I know you already know.

The next question is from the line of Mike Harrison with Seaport Global.

Doug, you mentioned this reduction in on-premise dining, a lot of your restaurant customers are shifting toward more takeout and delivery, some are coming up with these novel ideas like those kitchens or cleaning meal kits to help make ends meet or survive in this challenging time. What kind of changes are you making in your approach to help your customers navigate this trend toward less on-premise dining? And, how do we think about kind of the future of your business? What we used to think of is warewashing being kind of the anchor or the cornerstone of your institutional business. Is that going to be shifting towards hard surface cleaners, going forward?

I’d say two things. I mean, there are certainly new business categories in institutional that we are pushing and exploring that frankly we think will have staying power, no matter which way the industry goes. With that said, I would say, we think post-COVID the industry reverts back to principally on-premise for two reasons. It’s what diners want mostly; and two, the profit of takeout, given packaging and other is not great. If you’re in a pizza business, it’s hard not to make money on pizza, because the ingredient costs are so low, and all you got is a cardboard box. But when you’re getting into, let me just say, some of these fancier meals and the packaging costs and the rest, I have a number of friends who are actually in the restaurant business, it is not a perfect solution for them. They’re trying to keep the doors open, cash flow moving and everything else. But, their preference greatly would be to be serving these meals on-premise versus off. We have supported those kitchens. They’ve been longstanding in a number of ways, think about food trucks and the rest. They are going to have a place going forward. And it’s probably the way to run just a delivery business. But, there will be modifications in this industry as a consequence of COVID, but I don’t think it’s a revolution.

And then, in terms of the food retail side, you mentioned expanding cleaning protocols and frequency. Can you give us a sense of how much that’s increasing sales right now? Like, is the typical grocery store customer for example using 10% or 20% more of your product or is it double how much they would typically be using?

Well, I think, it’s settling down where it’s double digit up in consumption. I will also say, you’ve seen slowly a number of retailers curtail some of the cleaning that they were doing early, it’s still up versus where they were pre-COVID. But, where you had maybe four people wiping down every car, you may have one or you have car wipes and some other things all of which go to go to consumption. We expected this. So, I think what you’ll see -- you’ll see certain categories have benefit going forward. But right now in the Institutional business, I mean, the number one volume standout is the negative impact on warewashing, which by the way, is where we have a lot of our innovation and money, it will come back. But until it does, right, you got a mix challenge in Institutional, doesn’t get fixed until dishes start getting washed.

Thank you. Our next question is coming from the line of P.J. Juvekar with Citi. Please proceed with your question.

Hey, Doug. Good morning. It’s Eric Petrie on for P.J. Can you talk a little bit more about your growth opportunity in these new fast kill cleaners? And how long does it take to reach peak sales in your view? And then, as these viruses mutate, can you talk about how effective the cleaner is over the long-term and whether or not you reformulate?

Yes. I’ll turn it to Christophe on this. They have quite a bit of staying power as you go through. And there’s different ways you kill organisms. And I would say, for instance, hand sanitizers, alcohol basically destroys a cell. So, it’s hard to develop immunity to a sphere if you think about it that way. Some do poison. And you can have immunity built over time to poisons, but not to everyone and it’s not a fast issue, i.e., we’re using quads [ph] that still have effectiveness that have been around for decades, right, in a number of instances. So, it’s not a short life in terms of our business careers. It’s a short life in terms of human history. So, I don’t know if you want to add in terms of, Christophe, how long it takes to get to peak sales, et cetera.

The only thing I would offer is that we’re really watching every pathogens out there. So, the ones that we know well and how do they react against our products as well or how do our products are effective against those, the new ones as well, COVID being one of those that we didn’t know, obviously in the past and we learn from each other. The latest disinfectant that we talked about today with this extremely fast kill time was developed for the norovirus, for instance. So, we really look at all pathogens out there, try to understand the type of effectiveness, how is it still working, is there any reaction to it as well? And generally, so we develop our innovation in order to stay ahead of that. So, I believe that we are in a very unique place, especially compared to any competitor out there.

Helpful. And then, just maybe talk, Christophe, on peak sales related to that question. And then, for my follow-up to Doug, as end markets recover, some managements have been talking about building out their M&A pipeline or returning to share repurchases. So, Ecolab’s net leverage has improved to the low 2s. Can you discuss both uses of cash? Thank you.

Okay. So, I’ll take the first question and I’ll give the M&A part to Dan, just in a second. To your point, on the peak annual sales, we usually take five years, which is the best average that we have out there. Some products or sometimes shorter term, but most of them are longer than five years. So, that’s why it’s the metric that we use. On M&A, Dan?

Yes. So, I’ll interpret it more as a cash priorities question. You also asked the question on share repurchase. So, let me just say this. We ended the quarter with a little north of $1 billion on the balance sheet in cash, which is by any historical standard, a very, very big number for us. So yes, that’s the premise for the question. Right? I will follow the thread of a lot of the Q&A today to just say that the world remains a very uncertain place. And I’m comfortable with the amount of cash that we have on the balance sheet. Partly this is a cash is king environment. And there’s a lot of who knows what’s to be seen. We are getting increasing confidence, as you’ve heard, from the tone of the call today too, about the shape of the world with many uncertainties yet to be known. I presume that as we go forward, it will present both, challenges, right, maybe some unforeseen, but also opportunities. And so, I guess the shortest answer I can provide is that as our confidence continues to build, you’ll see us return to more traditional cash levels and cash priorities, including share repurchase and M&A activities.

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

Revenues declined $250 million in Institutional business, and Institutional operating profits were down $200 million. Why is the decremental margin 80%? If a decremental margin were 50%, you would have earned double? What is it about the business where the incremental returns are so high?

Are you talking about year-on-year on third quarter to third quarter?

Yes. Exactly right.

Well, I would say a couple of things. They won’t be 80% over any long period of time, as you go through this. But, you get into quarters. Now, you’re getting to what happened last period, you get into bonuses, bonuses where you know are taken down and up in different quarters in different years for different reasons, and these going to have impact as you go forward. There are other investments or bad debt and some other things as you go through this period. But, our decremental margins either going down or going up over a period of time aren’t going to be in the 80% range. The gross profit of that business is right in the mid-60s, right, on the good day. So, a lot of that’s going to happen. We are starting to take decisions on fixed costs and other things. And so, what we will see is a recovery of those margins as we go forward.

Were raw materials down about 5% year-over-year in the quarter?

Raw materials in total were not a material impact. If anything, they were negative in Institutional. A lot of that is stuff you’re seeing around heightened demand in hand care and some other areas, where you really just have shortage of supply, and Industrial, year-on-year minorly favorable.

At this time, we’ve reached the end of our question-and-answer session. And I’ll turn the floor back to Mr. Monahan for closing remarks.

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

Thank you to those who joined us today. This concludes our conference call. You may disconnect your lines at this time. And we thank you for your participation.