Greetings. Welcome to Ecolab's third quarter 2022 earnings release conference call. At this time, all participants will be in listen-only mode. The question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andrew Hedberg, Vice President of Investor Relations. Mr. Hedberg, you may now 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. A discussion of our results, along with our earnings release and slides referencing the quarter's results, are available on Ecolab's website at ecolab.com/investor. Please take a moment to read the cautionary statements in these materials which state that this teleconference and 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 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, Andy, and welcome to everyone. In Q3, our team delivered another strong quarter with steady double-digit organic sales growth of 13% and total pricing that accelerated from 9% in the second quarter to 12% in the third. Industrial grew 16% organic with 15% pricing, and Institutional & Specialty grew 12% organic with 10% pricing as market stabilized. The Other segment, led by Pest Elimination, continued on its strong trajectory with 13% organic and 7% pricing. In Healthcare and Life Sciences, with year-over-year comparisons finally stabilizing and with Life Sciences clearly leading. Most importantly, accelerating pricing exceeded continued substantial delivered product cost inflation, with the net benefit expanding significantly since the end of the second quarter, which helped further ease year-over-year gross margin pressure. This alone, with increased productivity gains, led to renewed positive growth in fixed currency operating income with nice gains in the industrial, institutional, and other segments. All in all, a clear and further step on our journey to fully recover our margins and get back to strong and steady earnings growth. With this clear commitment to continuously improve earnings performance, quarter- after- quarter, we have been preparing for an environment where inflation will remain high for longer and interest rates will impact demand. This is especially true in Europe, where the war and the energy crisis are impacting demand and global energy costs. In my view, this is just the beginning. With inflation in Europe at 11% as of yesterday and natural gas prices 60% higher than a year ago, which is the equivalent to a $180 per barrel of oil today, with futures pointing toward 230 by the end of this year. More importantly, we're taking early action as we take a realistic view of what's ahead, and we continue to expect earnings growth to progressively improve, but at a moderate pace than previously anticipated coming out of Q2. Over the past few years, Europe has become a very strong, successful, and critical market for Ecolab, with steady growth, profit margin improvement, and the right team to strengthen our market leadership positions. We're therefore entering this European winter with confidence. Confidence not based on hope, but on momentum, actions, and exceptional execution led by a great team. We're in a unique situation to accelerate our performance improvements as we've launched a new initiative that will lead to 80 million of annual savings when fully implemented, helping to partly mitigate the negative impact of the war short term and improve longer term performance. This, along with accelerating pricing, new business, and productivity gains, is expected to deliver a strong acceleration in operating income growth. This sequentially improving operating performance is expected to be offset by unfavorable impact from currency translation and interest expense, resulting in fourth quarter adjusted diluted earnings per share approaching last year's 1.28. Now more broadly, and with pricing and productivity work showing strong continued momentum and now fully in execution mode, we've clearly shifted our primary focus to offense. We've accelerated new business generation to gain more share. We've sharpened our attention on customer value creation to improve their total operating cost and importantly, protect our pricing in the long run. We've increased our investments in select breakthrough innovation to help customers save more water, energy, and cost when they need it the most, especially in Europe. We've prepared to accelerate Purolite growth with new capacity coming online as we speak. This will help us unlock our large order backlog and expand proprietary technologies across high-growth, high-margin end markets in life sciences, nuclear power, microelectronics, and lithium extraction for EV batteries. Being back on offense while staying on price execution and productivity is good for Ecolab. This is where we are at our best and what we love doing most. Looking ahead, we do not expect the global environment to improve anytime soon, but it's in time like these that our growth model demonstrates its strongest resilience and our customers need us the most. We will therefore remain laser focused on exceptional execution to enter next year in a position of strength. With strong double-digit organic sales growth, total pricing getting further ahead of inflation, and productivity work mitigating the impact of the energy crisis and the war in Europe, we're now in a position to deliver earnings growth that progressively aligns with our strong historical double-digit growth performance. This, for me personally, remains my core objective. We have all it takes to win short-term and long-term. Our 152 billion total available markets keep getting bigger. With customers increasingly needing a solution to reduce their total operating costs and water and energy usage. Our pricing and productivity work provides us with a firm runway to recapture our historical OI margin and drive towards our long-term 20% OI margin objective, helping to drive significant earnings power as inflation eventually eases and our value delivered keeps rising. Our leadership team, now together with Darrell Brown as Chief Operating Officer and my trusted partner, has never been stronger. This is why I'm more confident than ever about our future and our ability to deliver superior long-term performance for our customers and our shareholders. I look forward to your questions. Thanks, Christophe. This concludes our formal remarks. Operator, would you please begin the question-and-answer period? Thank you. The question-and-answer period will now begin. We ask you please limit yourself to one question and one brief follow-up question per caller, so others will have a chance to participate. If you'd like to ask a question at this time, please 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 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, while we poll for questions. Thank you. Our first question is from the line of Manav Patnaik with Barclays. Please proceed with your question. Thank you. Christophe, I just wanted to clarify, you know, the comment around progressively improving to a double-digit EPS growth. I was hoping you'd elaborate that a bit more. I think the headwinds in that comment primarily on the margin and, I guess, European side at the moment, or are you anticipating broader U.S. or global recession in that too? Good question, Manav. Thank you. It's mostly Europe, but it's also the macro view. That's our assumption, which might be overly realistic, if I may say that inflation is going to stay high in 2023, that the dollar will remain strong as well, interest rates might impact demand as well at some point. Most importantly to your point, that Europe is going to have a tough winter. We've been improving our performance quarter- after- quarter from Q2 to Q3, expecting the same as well for Q4, and leading towards the double-digit historical growth that we've had in the past as well, sometime in 2023, that we can have really an improvement that's steady quarter after quarter, mostly driven by steady growth, which has been really strong over the past few quarters and will remain as such. Pricing that's going to continue to strengthen as well over the quarters to come as inflation, hopefully, stabilizes and goes down at some point. Thank you. The next question will be coming from the line of Tim Mulrooney with William Blair. Please proceed with your question. Hey, Christophe. Thanks for taking my question. You know, I know there's concerns about softening Europe and FX headwinds, but based on our math, it still seems like the number one determinant for EPS growth is still around gross margins. My question is, assuming no more significant spikes in raw materials and based on what you expect for pricing, you know, when would you expect gross margins to begin to expand year-over-year? Is that most likely sometime in the second half of 2023? Any directional guidance would be helpful. Yeah. Thank you, Tim. With the assumption, obviously, that inflation remains high for 2023, as mentioned before, that the dollar remains strong as well, and that Europe gets through its winter as well, I would expect gross margin to expand in the second half of 2023 and improving from now to then. If you look at the general margins for the company as well, and it's important to note that as well. Between Q2 and Q3, the margin pressure has been easing as well. We had 270 points down in Q2. We had 180 in Q3. Most importantly, if you look at industrial, which is an interesting bellwether because that's where you have two-thirds of the inflation pressure, if I may say, well, they improved from 340 down in Q2 to 130 in Q3, and will keep improving in quarters as well to come. If you look back in 2020, industrial, which went through a similar cycle, not that extreme, had great OI improvements as well. During 2020, that's a good indication of what's going to happen in 2023 and what's going to happen across our businesses as well. Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question. Thank you. Christophe, in healthcare, margins are a little bit lower than we expected. Anything driving that, downturn in margins you saw in Q3 in healthcare? Thanks, David. Healthcare, I think, has reached the low point in Q3, and now we could see the trends coming back up, where surgeries are starting to get back to normal levels. We could feel that over the past couple of months. Inventories as well of COVID-related products are kind of melting, which is good, as well. Most importantly, pricing moved from 3% in the second quarter to 6% as well in the third quarter, and will keep improving as well in the quarter to come. I think we're turning the corner with the lowest quarter in the third quarter in healthcare. Let me be clear, as I've always been. I don't like the performance of that business. That's been true for quite a while as well. I'm absolutely committed so to resolve it, over the quarters, to come. 2023 is going to be a transformational year, so for healthcare in many ways. Just on the cost side, in 2023, why not assume more cost relief overall in your businesses as demand is lower globally? You're talking about healthcare or overall capacity side of it? No, overall. I see, I believe you're assuming that costs hold in there next year despite some lower demand. Why not? Why wouldn't cost be lower next year if demand does soften globally? It's a good question, David. We're taking probably an overly realistic view, but it's basically saying that the high delivered product cost that we have today will remain for 2023, which is why when we can improve our gross margins and operating margins as well, which by the way have turned positive as well, in the third quarter, it's already a remarkable achievement. If like other things that inflation is going to ease and go down during 2023, well, our margin leverage will improve dramatically as it always does. I'm not counting on that for now. Thank you very much. Thank you, David. The next question is from the line of Seth Weber with Wells Fargo. Please proceed with your questions. Hi, good afternoon, everybody. Thanks for taking the question. I guess I was hoping to drill down a little bit more on the institutional business. You know, whether you saw any deterioration kind of through the quarter just in response to the high price increases, whether that's starting to have any impact on customer demand. You know, I guess I'm just trying to understand what's happening, you know, more specifically in the institutional business, and then just any specific color on European institutional that you could share. Thank you. Yeah. Thank you, Seth. Actually, we're not seeing an easing of demand, which is good in institutional. Honestly, I was hoping to see even more recovery as well, so in that market, which is kind of not really happening as fast as many were expecting as well. When we look at the growth we have in institutional, it's all self-made. Today, we're ahead of pre-COVID levels, which is quite remarkable when you think that just a comparison point that in the U.S., the dine-in traffic, so people sitting in a restaurant, is down close to 30% versus pre-COVID level as well, and our sales are ahead of 2019. I like the growth that we have. We don't see a softening of the demand, certainly not because of pricing, which is good by the way as well in Institutional. So far, so good. We'll need to drive even more demand through new business, penetration, innovation, and as well, keeping in mind that this industry will be facing even more labor challenges going forward, especially on the cost side, but also food costs and energy costs are going to go up. What we're doing for customers is exactly what they need and will need even more in the quarters to come, which is reducing their cost while serving their guests the best possible way. I'm positive with Institutional. I like where they're going, and I think we're going to see good things. At the same time, I'll just conclude on one point. We know it's an industry that is in quite big transformation, which I take that as an opportunity, and we will keep transforming our own business as well so to adapt to what the customers need the most. That's helpful. Thank you. Maybe just a quick follow-up on the Purolite capacity adds. Can you just frame for us the pace of that and just the order of magnitude that you're looking at on Purolite capacity additions for this year and next year? Thanks. Yeah, great question. Different topic. Obviously on Purolite, as I mentioned as well, all along, so we are building capacity expansion, and it's coming online as we speak, in the U.S. and in Europe, so on both continents, as we had planned as well. In 2022, it took us one more quarter to get to that right place. It's really so to do it well, to do it the Ecolab way as well. We've been obviously so squeezing that business because supply was limited, so we could not obviously supply more than what the plants could produce, as well at the same time. When I look a bit ahead, so Q4 is going to be a very good quarter for Purolite. We have almost all orders filling the whole quarter, so there's no big risk in that quarter. For 2023, if we're going to like Q4, I think we're going to love 2023 with that business. Got it. Thank you very much. Appreciate it. Thank you. Our next question is from the line of John Roberts with Credit Suisse. Please proceed with your question. Thank you. In your December quarter guidance, what areas do you expect to be down in volume either year-over-year or sequentially? We're not expecting much softening, John, so in the fourth quarter. We were expecting that in Europe things would be better, which would ultimately so help us get even better in terms of volume. That's not going to happen. I might be overly realistic in Europe, but I think that the war in Europe, the impact as well on energy costs on all European economies as well over there is going to have a major impact. I hope I'm wrong, but that's going to be the bull's eye of the volume challenge. Overall, we're going to keep steady double-digit growth as a company, and volume will remain quite stable as well, so versus what we've seen in Q3. Okay. Is variable debt a priority to pay down, or do you plan to keep a portion of your debt variable since interest rates are hard to forecast? Let me give that question over to Scott. Yeah. Hey, John. Scott here. Yeah, we've got about 25% of the debt is floating right now. Certainly with the way rates are going, we'll expect some upward pressure on interest as a result, but not looking to pay off any debt in the near-term future and making sure that we have, you know, optionalities we look forward. Certainly we have some debt coming due at the end of next year, and so we're opportunistically look at that based on sort of status of the market. Thank you. The next question comes from the line of Josh Spector with UBS. Please just use your question. Yeah. Hi. Thanks for taking my question. Just now that you have a couple quarters under your belt with the surcharges in place, just wondering if you can comment, are those generally working as planned? As oil's moved down and gas has been really variable, how good has that been at matching that variability versus what you've seen? Hi, Josh. It's worked really well, actually. We didn't know how it would be working when we started with the energy surcharge on April first. We had never done that as a company, so let alone on a global basis, all businesses, all at the same time. It worked out really well. Some of the learnings for us, some customers have preferred having it directly in a structural pricing because it was easier for them to handle that. From a system perspective as well, and others chose the energy surcharge as a variable part as well to it. But it's covered very nicely, so dollar for dollar what we were expecting. Most importantly, it's a tool that we can use as well. Going forward, with whatever could happen, like natural gas in Europe, it's been highly variable, as you've seen. It's on the lower side right now, still 60% higher than a year ago. It could double very easily over the next few months. Having such a tool that we can engage very rapidly is going to be a huge advantage for us and our teams. I guess to follow up, if that's worked well, and I mean, correct me if I'm wrong, but in answer to the prior question, you talked about not really a significant amount of additional volume weakness. You're talking about additional pricing, trying to go after new wins. Why wouldn't earnings be up sequentially? The short answer here, Josh, is looking at the operating income. In Q3, it's turned positive for the first time since the war started in Europe. Which is a good sign. It's going to keep improving very nicely as well in the fourth quarter and going forward in 2023. You get the FX impact, which is something I mentioned as well in the previous quarter, that impacted us down. For the third quarter, that's the core of the story. Okay. Thank you. Our next question is from the line of Christopher Parkinson with Mizuho. Please just give us your question. Hey, Christophe. Can we just circle back to just two quick comments on global healthcare and then Purolite? On healthcare, can you just give us the real quick update on the U.S. side for elective surgeries and what that means for your outlook for 2023? On the life sciences side, you know, do you feel that the growth expansion opportunity of Purolite is well understood? Are margins in that business still where you are anticipating or should we anticipate startup costs? Just any additional framework you could help us out there would be greatly appreciated. Thank you. Yeah. Thank you, Chris. A few questions obviously in there. Starting with Purolite, I'm looking at next year exactly as expected. The second year of the Purolite acquisition very promising. We're going to love what we see in 2023. Was hard in 2022, obviously, to get everything lined up, to get the integration really well done, to get the capacity as well online, with everything the Ecolab way. We're at that stage now, and that's why I see the unlock in Q4 so happening very nicely in 2023, so being as good as we thought, and potentially so even better. Very good story. This is true for Biopharma, and this is especially true for our industrial applications as well, as mentioned in my opening, in nuclear power, in microelectronics, and in lithium extraction as well. Ultimately, more demand than we ever thought, as well, from that end of the business. Purolite heading in a very good direction. Life sciences. Your second question is in a good place. We see as well in Q4 getting back to its usual trajectory and getting back. In 2023 with double-digit top line and bottom line growth. Life science is in a very good place. It's always been. It's been the past few years, the comparison year-on-year have been a little bit complicated sometimes. Underlying, no change. Extremely steady. your last point. On healthcare, it's in the works, this one. As mentioned, not happy with the performance of that business. I haven't been happy for a very long time, by the way, and I see Q3 as the low point for that business, improving sequentially in the quarters to come. I want to be perfectly honest, in here, it's a radical change, that's expected, in that business. The old way of running that business is not going to work with me, so going forward. You have my commitment that we're going to address it one way or another. Very helpful. Thank you. Thank you. Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your question. Yeah, thanks for taking my question, Christophe. I guess the first one would just be on delivered costs. Can you help us to understand how much they went up in 3Q versus 2Q, and maybe give us some color around the baskets, you know, the bigger baskets, whether it's transportation, labor or raw materials? Yeah. Thank you, John. It was roughly the same type of pressure in Q3 versus Q2, which is 30% year over year. Since we had 10% last year, it's a 40% delivered product cost increase over two years. If you want to count, the overall inflation, which is quite a bit to say the least. To your question on the basket, it's a bit evolving with oil price. Easing a bit, natural gas went up during the quarter and eased a bit towards the end of the quarter. Then you have caustic in food and beverage and institutional, that's going up in a big way as well at the same time. Overall, kind of the same, in Q3 versus what we saw, in Q2. That's why, I'm quite proud of what the team has delivered over the last, five quarters. Q2 last year when inflation started to go up, while the team has overcome over $1 billion of incremental cost, with pricing that's going to stick for the future, which is good short-term, but it's especially good for the long-term because, we will be protecting that pricing going forward. Got it. Okay. No, that's helpful. I guess, you know, you mentioned in your opening comments that, you know, when you look to 2023 with the help of pricing, you expect to see double-digit top-line growth. Just when you think about the price catching up to raw materials, et cetera, does that mean that you have double-digit EPS growth in the cards as well, or is that still a little bit of a question mark? It will happen in 2023, during the second half, so most probably. What's most important to me is making sure that pricing gets way ahead of delivered product cost, and we've done that quarter after quarter. Second is making sure that our operating income keeps growing. It's been growing in the third quarter, which is a good sign. It will be growing even more in the fourth quarter, and it's going to keep growing as well in the quarters to come in 2023. You have the impact on FX and interest. Obviously, that's mitigating that. We'll see how it all plays out in 2023. As long as I have business momentum strong, that I have pricing getting way ahead of delivered product cost, and that we have productivity so in a positive direction as it is today as well, well it's going to lead to operating income growth that's ultimately going to lead to EPS growth as well sometimes in the second half of next year. Great. Thanks very much for the color. Thank you, John. The next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your questions. Thanks very much. On slide 12 of your deck, you say that your delivered product cost inflation was 30%, but your SG&A is only up, I don't know, 14%. Product and equipment cost of goods sold is up a little bit faster than that. Can you reconcile those numbers? How do we go from 30%- 14%? 30% is the increase of DPC, as I mentioned, as well before, which is very similar to what we had in the second quarter. The SG&A, which is not obviously in our delivered product cost, went up 14%. It's mostly labor cost that we have in there. We don't have more people in the third quarter, so versus the second quarter as well, which is important. That's why SG&A productivity ultimately so is improving, as well. One point I should have mentioned as well, in our SG&A, Jeff, we have also commissions for our salespeople, and with much higher pricing, they get higher commission. That ends up as well in our SG&A. I hope that helps. In looking at, you know, different chemical companies. Yeah. Like, you know, if you look at the petrochemical companies, I think that utilization rates for those companies maybe have gone from the mid-80s to the low 70s. You know, if you look across many industrial areas, what you're seeing is a tremendous liquidation of inventories. I'm surprised that your industrial business isn't feeling any of that for the fourth quarter, because I would think your customers would be operating at much lower levels of utilization, and water treatment chemicals should be a function of utilization. Is there some other factor going on? You're totally right. If we look at pure same-store sales demand, from one site, same applications, from industrial, we see softening of that part of the demand. If we see industrial doing so well, and especially in places like in downstream as well, it was north of 20%, while it is driven by new business, it's driven by increased penetration, new solutions for those same sites as well. It's innovation and it's pricing, obviously, which is going up so quite significantly. You're absolutely right. With the singular demand for one site is easing and we're feeling that, and we compensate it with new business, and that's why the new approach on offense, as I mentioned so in the previous call as well, is so important because we'll have to face those potential headwinds as well. Okay, great. Thank you so much. Thank you, Jeff. Our next question is from the line of Ashish Sabadra with RBC Capital Markets. Please just give your question. Thanks for taking my question. Christophe, I just wanted to circle back with a comment that you made on the first half versus second half earnings growth, about double-digit earnings growth in the second half. I was just wondering, even in the first half, we should see earnings growth, right? Maybe not in the double-digit range. I was wondering if you could elaborate further and see, like with these combination of first versus second half, could we still get to a double-digit earnings growth for the full year in 2023? Any color will be helpful. Thanks. You know what, Ashish, it's very early. We usually never talk about next year before the publication of our results of the fourth quarter in February. I chose intentionally so to share with you early enough what we're seeing. Things are going to evolve, obviously, in the next three, four months until we get back together. It's really so trying to share with you what we're seeing, what we're assuming. Our assumptions are really so inflation stays more or less same level for the whole next year. The dollar remains strong as well, so for most of the year as well in 2023. Same with the interest rate and with Europe getting tougher as well, so in the months to come. How it's going to play out exactly, I don't know yet, and I don't think that anyone knows. What I know that we're going to maintain our strong momentum, top line volume and pricing, so together that we will keep expanding pricing as well as we've done in quarter- after- quarter, over the past five quarters, as well. That we're going to get some upside from the European program that I've announced as well. Well, I can feel reasonably confident that quarter after quarter we're going to improve as we've done Q2 to Q3. It's going to be Q3 to Q4, and we're going to keep going that path as well in 2023, heading towards this double digit that I mentioned, so in the second half, sometime in the second half of 2023. That's very helpful color. Thanks, Christophe. Thank you, Ashish. Our next question is from the line of Shlomo Rosenbaum with Stifel. Please just give your questions. Hi. Thank you for taking my questions. Hey, Christophe, the volume growth is 1% across the company, which is, I would consider that a little bit low for coming, still coming off of, COVID, you know, comps and still potential for some opening. I was wondering if you could break out the volume growth along the different segments and, you know, how much of that had to do with the inventory stuff going on in healthcare that you have to go through. Maybe just give us a little bit of color on that then, and then I'll have a follow-up. You know, the biggest element on volume evolution is the year-on-year comparison. If you compare, which is something that we usually don't talk too openly, but versus 2019, which was kind of a stable base, pre-COVID influence over the past three years, it's very steady. So the volume trends that we have right now in most of our businesses are continuing the same way as they did in Q2, in Q3, and probably will as well in Q4 with that impact from Europe, as I've mentioned before as well. To your point of the recovery in institutional, well, the recovery has kind of plateaued on the market in here. The number of restaurants or hotels that are available as well out there is remaining so quite flat since the beginning of this year as well. I mentioned early on as well, so the traffic of city people in restaurants is down almost 30% versus 2019. We're basically in that industry in a steady state where there is not further recovery. If you see sales going up from our customers, it's mostly driven by pricing, which has been a big deal obviously for them. Which means that for us, we need to keep doing two things. The first one is to keep on offense. It's new business, it's penetration, it's innovation, especially with customers who needed solutions in terms of reducing the total operating costs and improving as well the quality. Second and last point is the market has changed. When I look at where we are today, where we're going to be in 2023, the market of hotels and restaurants, especially in the U.S. and in Europe. For that, we will have to adjust as well over the months to come, and I feel confident that the team is going to do it the right way. The world we live in now is probably the world that we're going to have in the years to come. Okay, great. The next one maybe is for Scott. Just some of the below the line items and how to expect, or what to expect, I'm sorry. You know, should we expect in the other income kind of after 3Q more of a normalized pension income, which you've been getting somewhere around 19 million, you know, for the last three quarters? Is that fair, or does something change with the, you know, with the change in the stock markets? You know, you had a $10 million sequential increase in the interest expense. Do you feel like we're You know, from where you are right now, it should be relatively close to this, or are you assuming that the interest expense is going to continue to step up a lot? Yeah. I guess I'll first talk on the pension. Certainly for this year, I would expect the sort of other income to be pretty similar to Q3 to Q4. As we go into next year, as you think about the impact on rates, there will be increasing headwinds on pensions as we go into 2023. It's too early to sort of talk specifics, but we'll expect that pension expense to increase. In addition as we talk about just interest expense, you know, with about, call it a quarter of our debt being variable rate, and just given where rate hikes have continued to increase, I would expect that to continue to be a headwind. It'll increase in Q4, and similar to pension, be a bigger headwind next year. Thank you. Next question is from the line of Mike Harrison with Seaport Global. Excuse me, Seaport Research Partners. Please go ahead with your question. Hi, good afternoon. Good afternoon, Mike. Was hoping that you could talk in a little more general terms about the industrial business. As you think about recessionary conditions, whether you're talking specifically about Europe or about a broader global slowdown, it seems like some of your markets hold up better than others within industrial. Maybe talk a little bit about some of the pockets where you're seeing some weaker or concerning demand trends as you look into Q4, and what are some of the areas that are holding up better within the industrial business? Yeah. Mike, industrial has been a great story for many, many years. When we say industrial, it's mostly driven by water, which is becoming something that's even more essential for our customers going forward because of water scarcity, but most importantly because water drives, energy consumption, which drives cost and which drives, as well as the carbon footprint. When I look across, the various segments, in industrial, think about it. Water is up 14%, F&B is up 14%, downstream is up 22%, and paper is up 19%. It's very healthy, very steady, very strong growth, that we have, so in that, in that whole group. It's driven, by, okay, a market that likes what we're doing, which is ultimately driving new business. It's a business that's very strong at innovation. It's a business that's strong in digital technology as well, and that's why pricing is so good as well, with pricing that's been up 15% in the third quarter, and we had 12% in the second. We know that that business, when you look at the margins as well here, have improved so dramatically from the second to the third, or the margin pressure I should rather say. 340 basis points in the second quarter, down only 130 basis points in the third quarter as well. We know when industrial gets in the right momentum in terms of pricing and inflation eases, we know that great things happen both on the margin and earnings perspective as well. Yes, as mentioned before to Jeff, some softening that we're feeling in some of the industries, petrochemicals being one of them for the reasons mentioned as well early on, which we mitigate with new business, with penetration and innovation. So far so good, but let's see what happens in the months and quarters to come. All right. Then in terms of the cost program, was hoping you could give a little bit more detail on, maybe the timing of those, the $80 million in benefits, what segments should see the greatest proportion of benefits, and, I guess what are the cash costs associated with that 80 million in savings? Thank you. It's all in Europe, as you said. I've been leading that region some years back, leading the turnaround over there, so very familiar with that story. I'm really proud with what the team has done. You maybe remember or not that 10 years ago, we had a large business over there that was not growing and that was not making money. Other than that, it was a great place to be. Well, when I look at today, well, over the last five, ten years, growth has been at 4% from a CAGR perspective. Our OI has grown double digit over that time as well, and we've moved from close to nothing in terms of profitability to north of 10% in 2021 as well. A great story that we've had in Europe. I want to make absolutely sure that we not only mitigate the short term, but most importantly, what we're doing is helping us for the long term, that Europe can stay on that successful journey. To your question on where we're going to work the most, it's going to start with supply security. This is a big deal for our customers. Streamlining our network, making sure that we can have the best cost of delivered product in Europe. It's going to be the first priority. The second one will be our structural cost as well in our SG&A, leveraging as well as our digital automation. Third will be in regional G&A as well, leveraging all the work that we've done with the backbone SAP infrastructure over the past few years as well. It's really so kind of doing things we would have done no matter what for the long term, but really so accelerating these activities in order to get even more on the short term. We would have done it in a more organic fashion in the years to come. I've decided to do that in the months to come, which is generating so this restructuring program as we've announced. Our next question is from the line of Laurence Alexander with Jefferies. Please proceed with your question. Hey, guys, it's Daniel Rizzo for Laurence. Thanks for taking my question. Just piggybacking on what was just said about the cost reduction program. I was wondering if there are other variable costs that you could temporarily take out if things were to get significantly worse in Europe, if there's something you can do there. We will absolutely. I've experienced Europe, so for half of my life, so very familiar with the Europe situation. It's quite extreme with what's happening right now with the war on the eastern front. It's having an impact on demand. It's having an impact on supply, especially so for industrial businesses. It's having an impact on cost, as we know, as I mentioned as well in my open. I may be in the camp of preparing for a pretty tough winter in Europe. I know many people are saying it's pretty mild right now. We're just early November. Things can change quite a bit in the months to come. Yes, we're thinking about some extreme scenarios as well, and that includes all I've talked about before and for sure, all short-term measures that we can take. Everything we're doing in Europe and everything we will do is ultimately so leading to better performance, not only short term, but most importantly long term, because that's an important region for us. If we think about North America, the rest of the world, so things are pretty okay right now. But assuming that as everybody's expecting that there is some sort of recession in the second half of next year, are you targeting or setting up cost programs that could be implemented there? Obviously, it seems like a much more efficient and better margin region or elsewhere. But I was wondering if there's things there you're looking at if things get markedly worse, you know, here in the U.S. It could be, but that's all, a question of timing. We will not do things that we wouldn't have done, over time. Think about digital automation, think about ERP implementation, think about supply network, as well. We have clear plans in order to continuously improve our productivity over the next few years. If things turn worse, to your point before, we would accelerate them and that could lead to some restructuring. It's really because we would be accelerating our plans we had all along. Okay. Thank you very much. Thank you. Our next question is from the line of Andy Wittmann with Robert W. Baird. Please proceed with your question. Great. Thanks for taking my question. I guess I just wanted to understand a little bit more about the pricing and the expectations you have for pricing, because it seems like a really important variable as we head into next year. With the cost side seemingly evening out, you'll certainly have a little bit of a tougher compare on the cost side in the first half. Sounds like the second half compare on the cost side under current expectations isn't materially worse. I guess the question that comes to mind is you're filtering through the price increases from the last quarter or two, Christophe, and you're talking about focusing more on gaining share here. Is that to say that there isn't another unusually large price increase in store for your customers sometime in the middle of the next two or three quarters to recover that? Or how should we be thinking about the next wave of price, if any? Yeah. Let me be very clear, Andy. Pricing is going to strengthen, especially in the next quarter. In Q4, we're going to keep working on pricing as well, in 2023. Don't want to get too much ahead of my skis here. It's really making sure that we get the right pricing in order so to rebuild our margins fully. This is the objective, for the team. As we run a commercial organization, it's kind of leading them towards what's the primary focus. The last five quarters, it's been driving price, and they've gotten over $1 billion over the last five quarters while driving new business. Primary focus pricing, secondary price focus, new business. Now we've shifted that in the third quarter, where it's clearly so going for offense for all the reasons that we've discussed on that call, being in Europe, the risk, in the U.S. or elsewhere as well around the world, to really go for new business, to really go for penetration, to really go for innovation while we keep strengthening the pricing. That's why I'm saying it's going to be higher in Q4 than it's been in the third quarter as well. At the same time, making sure that we can maintain most of this pricing as well in the long run because we provide incremental customer value, as well, so over the quarters to come as we've always done in our history. Got it. Could you talk a little bit about how the pricing is affecting customer retention, if at all, in any parts of the business where it's been better or worse received might be helpful information as well? Thanks. So far, it's been very good. Our customer retention hasn't changed versus pre-pricing times. Customers are always price sensitive, and that's why we're taking time to do it really well. We can't compare obviously to a commodity company, a chemical company that's going up and down with the markets. As you know, at Ecolab, when we go up, we don't go down. The energy surcharge is the only variable that we'll have to manage the right way going forward. The vast majority of our pricing is structural pricing. We do that with customers in ways that is good for them, that we create value, which means we reduce their total operating cost. That ultimately it's a good deal for them, it's a good deal for us as well, and that we can keep it so going forward. But that's real work, and that's why we haven't lost customers more than we used to pre-pricing or pre-inflation as well, and that we do it very carefully because we want to keep our customers for the long run. Great. Thanks a lot. Thank you, Andy. The next question is from the line of Eric Petrie with Citi. Please proceed with your question. Hi. Good afternoon, Christophe. Good afternoon. Could you talk a little bit more about your Climate Intelligence offering? You know, what kind of technology does Siemens bring to the table? How do you split value and gain share with those industrial customers towards that net zero goal? Yeah, great question. The simplest way to explain it is we're experts at water management, at water reduction, at helping customers to operate with less water or zero water going forward. There's the other component, which is the energy component, where Siemens is having strong expertise at it. When we say energy, that's mostly power as well, so for our industrial customers. When we get together, well, we have both expertise, water reduction and power energy reduction from Siemens. By bringing our offerings together, we can help our industrial customers to get both water reduction that's leading to power reduction, and power reduction that's leading as well, so to carbon and cost reduction as well at the same time. It's a joint offering, it's joint systems that we bring together, and it's digital technology as well that we connect between the two companies for the good of our customers. Thanks. Circling back to the Purolite expansion, how much EBITDA uplift do you expect on an annualized basis? Is it 30 million-35 million? Is that in the ballpark? Overall, we haven't disclosed that, for obvious reasons. It's going to give us enough capacity so for the next 2+ years, that we know is going to come, so from the pipeline we have and the current demand backlog, that we have right now. We are already working, as we speak on what's required for beyond those two, three years, as well, so down the road because building plants will take some time, as well. It's going to be as expected, so for 2023 or even better. That's going to continue, on the same trajectory, so in 2024, and we're building the future as well, so for the years to come. Thank you. The next question is from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions. Yes. Good afternoon. Christophe, how would you compare and contrast your price cost gap by region of the world? Wondering where you've made the most progress and where you feel you have the most work to do? Great question, Kevin. The best is in North America. We have the strongest team. It's one market, as well, two countries, the way we define it, so with the U.S., and Canada. Europe is the toughest, because it's always been the toughest complexity, a region that's used to negotiate price, as well. With whom we have very good relationship because ultimately our value is to help our customers reduce their total cost, as well at the same time. You have the rest of the world, in between, with probably China being the toughest place. As a follow-up, I want to come back to your price contribution. You had nice acceleration to 12%, I think as a base case, you commented. That's right. that should improve in the fourth quarter. Can you help us in terms of understanding the contributions from base pricing versus the surcharges? You mentioned the volatility in Europe. US natural gas looks like it might actually come down sequentially. I'm just trying to understand the moving parts there. I'd also be curious to hear any thoughts that you might have on diesel. We're hearing more about potential for shortages there. You know, do you think you're well equipped to recover that through the surcharge paradigm if it happens? Starting with the last part, from a supply perspective, we feel good about it. We practiced our resilience planning for quite a while. Now from a cost perspective, of diesel or other, the fact that we have that surcharge allows us to react fairly quickly, which is very different, obviously, than structural price, which is an agreement for the long term together with our customers. In terms of structural price versus energy surcharge, as I've shared earlier, it's roughly two-thirds structural, one-third energy surcharge. Knowing as well that the structural parts are growing as well, which is good. We want to make sure that as much of the pricing as can be structured for the long term, backed by true value that we're creating for our customers, as well. It's not the perfect line between structural and energy surcharge because some customers aren't equipped to deal with an energy surcharge and are saying, "So let's have that directly in my structural price," which we've accommodated for, as well at the same time. Two-thirds, one-third is a good proxy. Thank you very much. The next question is from the line of Rosemarie Morbelli with Gabelli Funds. Please proceed with your question. Thank you. Hello, everyone, and bon après-midi, Christophe. Bonjour, Rosemarie. When we look at institutional, did quite well, travel has been strong, which I am assuming also translates into hotels, restaurants, cruises, you know, Disney, et cetera. Are you seeing some kind of a decline recently due to inflation, or you haven't seen any change yet? We haven't seen anything yet, but there's no doubt that the cost pressure is starting to impact our customers. Not from us, general cost of food, of energy, and especially on the labor side. That's why what we do is becoming increasingly important for them, which is not new. You're familiar with that, Rosemarie, over the years. The harder it gets for the institutional market, the more they need us because ultimately they can reduce their total operating costs, and especially now with the labor shortages. For us, the biggest challenge that we've had with institutional is that the travel, the guest traffic in general so has been okay, but the service has gone down quite a bit. You've probably experienced that going to hotels as well, where service is quite way down, or you need to do your room, as well as yourself. While that means less consumption, of our products as well, which is why it's so important for us to get new customer, new penetration, new innovation. Online, the demand has stayed reasonably stable, around the world and across the end markets in institutional. Okay. That is helpful. Thanks. I was wondering, you mentioned lithium as one area using your products. Can you give us a better feel for what from Ecolab is the lithium industry using and then where? Because it is mostly, you know, in Asia Pacific and not yet in the U.S. or Europe. Yeah. Lithium has been a new opportunity that we didn't have on our radar screen even before we acquired Purolite. Interestingly enough, that Purolite technology allows you to extract lithium from a brine, so salt water. There's only one mine in the U.S., by the way, of lithium today, which is in California, which we own with our solutions as well, which is a remarkable solution, so for customers, because it go through the system and you can extract the lithium at pretty low cost and low energy and low waste as well at the same time. We didn't plan for it, but that's definitely a technology that we're planning to use around the world because lithium is kind of booming because it's driven by EV batteries from cars and other products as well. This is a new segment that we're getting into, that we didn't plan for before we acquired Purolite. I am a little confused. I am not aware of any mine in California. There is projects going on the Salton Sea, but with no lithium coming out of it. Which mine are you referring to? I'll ask Andy, so to come back to you with the exact name. I don't remember exactly the name of that mine in California. That was a deal that was concluded just before we concluded with Purolite as well, and that has evolved so nicely in the meantime. It's a long-term project, which is really promising for us. We'll come back. Thanks. All right, thanks. Thank you, Rosemarie. Our next question is from the line of Steve Byrne with Bank of America. Please proceed with your questions. Yes, I wanted to better understand this relationship with Siemens. Is it fair to characterize this that, you know, you have your customers that you primarily support with water, they might have a completely different set of customers that are more energy-focused? And is this in a way to collaborate where you might pick up new accounts on the water side, they might pick up some of your accounts on the energy side? Is that how you would characterize it? This is essentially a market share expansion opportunity for you? Steve, it's a combination of that obviously cross-selling in other words. Customers we have, they don't, that we bring into our customers and the other way around, as well, so for them. At the same time, it's developing sort of joint solutions that are adding value for customers because they manage power in a plant, electricity in a plant, something we don't do. We manage water in a plant, from end to end, and the both are related as well. Connecting our applications is not only good for both of us, Siemens and Ecolab, but is most importantly so good for our customers. I'm sure you've evaluated this, but do you see any risk that Siemens could become more of a competitor of yours, such as to expand more into water? No, because this is not an expertise that they have. They're not planning to have expertise in water management, in chemistry, in service that we're providing. We don't have the ambition either to become an electricity power expert as well. For our industrial customers. We're in a very healthy place where we work together for the good of our customers with no risk between the two companies. Thank you. Thank you. Our final question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions. Thank you. I guess just one last one from me. Just looking at working capital, I'm wondering whether you'll be kinda getting aggressive on inventory levels into year-end. Not just because your cash flow from operations, I think is down about 500 million year-over-year, but also because we've seen amongst a fair number, especially chemical companies through earnings season, sort of a desire to take inventories down, you know, to kind of send messages to the raw material suppliers that you know, that the raws prices need to come down as well. Is that something that you folks will be working on? Let me pass it to Scott. Yeah, I'll take that. Thanks for the question. As we look at both our working capital and cash conversion, as you've probably seen, the free cash flows have been very strong, below last year because of the investments in working capital, both as the pricing is growing, the investments we have in AR, but also the investments in our inventory. We're continuing to invest in inventory as we look ahead, especially as we look across Europe and just continuity of supply and making sure we can supply to customers. Do not have specific actions to bring down inventories because for us, making sure we can supply to our customers is most important. Still expect to have very strong fleet free cash flow conversion for the year, and we'll expect that to accelerate as we get into the fourth quarter, getting towards our historical levels around 90%. Okay. Thanks, guys. Thank you. At this time, we've reached the end of the question and answer session, and I'll turn this floor back to Mr. Hedberg for closing remarks. Thank you. That wraps up our third quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thank you for your time and participation. I hope everyone has a great rest of the day. Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.