Greetings, welcome to the Ecolab Fourth Quarter 2022 Earnings Release Conference Call. This time, all participants are in listen-only mode. A 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. It's now my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations for Ecolab. Mr. Hedberg, you may now begin. Thank you, hello, everyone, and welcome to Ecolab's fourth 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 the associated supplemental materials include estimates of future performance. These are forward-looking statements, actual results could differ materially from those projected. Factors that could cause actual results to differ are described under Risk Factors section in our most recent Form 10-K and in our posted materials. We also refer you to the supplemental diluted earnings per share information in the release. With that, I'd like to turn the call over to Christophe Beck for his comments. Thank you so much, Andy, and welcome to everyone. Our team delivered a strong fourth quarter and honestly, even slightly better than I would have predicted. The mild winter in Europe certainly helped, but most importantly, our team executed very well in a macro environment that was far from ideal. Organic sales grew 12%, with good momentum across all segments. Industrial grew 14%, Institutional and Specialty grew 11%, Healthcare and Life Sciences got back to growth, delivering 7% organic, and Pest Elimination remained very strong, growing 10%. Volumes outside Europe remained stable year-over-year, while our total pricing continued to accelerate from 12% in the third quarter to 13% in the fourth quarter. All this contributed to a strong 14% adjusted fixed currency operating income growth, even as we experienced the expected peak in delivered product cost inflation, which reached 43% over the last two years in the fourth quarter. This led to adjusted EPS getting very close to last year's $1.28 EPS, while mitigating $0.10 of currency headwinds or 8% year-over-year headwind to adjusted EPS growth. Since the initial impact from the war in Europe, we've delivered consistent operating performance improvement quarter after quarter, as mentioned during the last earnings call, this is the path we expected to stay on for the quarters to come. We enter in 2023 with a reasonable level of confidence. While we would have lost most of our $1.3 billion of earnings in 2022 to cost inflation, we've rebuilt almost all of it within the same year. This demonstrates the true earnings power of our value proposition and the strong momentum we have in margin rebuild. Most importantly, our shift to offense, which is where Ecolab is at its best, is also showing some very encouraging signs of progress. Our net new business pipeline reached record high at the end of last year as what we offer, water, energy, and labor savings, while delivering the best and safest outcomes in the industries we serve around the world, continues to grow in importance to our customers, and we expect this trend to continue to strengthen. On the other hand, our view on the macro environment remains unchanged. We still expect inflation to remain high well into the year, interest rates to move higher and have an increasing impact on demand in most markets, and geopolitics in Europe, China, and now in the Middle East to remain unpredictable. Nevertheless, we feel ready. In 2023, we therefore expect to deliver double-digit adjusted operating income growth and adjusted earnings growth that keeps accelerating toward our low double-digit historical performance. This includes an approximate 7% year-over-year unfavorable earnings headwind from higher interest expense and FX in 2023. For the first quarter, we feel even more confident and are ready to resume quarterly guidance. We expect our strong top-line momentum to continue and to deliver adjusted earnings per share to be in the range of $0.82-$0.90 compared to $0.82 a year ago. This includes an approximate 15% year-over-year earnings headwind from higher interest expense and FX. Finally, while this is a period of caution, we have a positive outlook on where we're heading. Over the last two years, our expertise grew as we focused on supporting our team and on developing strong new innovation. Our retention rates remain high as we protected our customers from supply shortages. Our margins started to recover as we drove pricing in thoughtful ways while increasing customer value, helping to drive a strong acceleration in operating income. We remain prepared for softening macro trends in Europe by accelerating the productivity improvements we had planned for future years. We are adjusting Institutional to winning the new reality, and we're beginning to reposition Healthcare for profitable growth, as we promised. We will also keep investing in our major engines of high profitable growth like water that delivered 14% organic sales growth in the last quarter, and life sciences that accelerated to 18% in Q4. Purolite, we started its expansion exactly as expected with new capacity coming online, helping to drive a very strong acceleration in sales with operating income margins north of 30%. We remain good stewards of capital by continuing to invest in the business, increasing our dividend, reducing our leverage, and returning cash to shareholders as we've always done. Most importantly, with the best team, science, and capabilities in the industry, we're ready to grow our share of a high-quality $152 billion market. Our future has never looked brighter. I look forward to your questions. Thanks, Christophe. That concludes our formal remarks. As a final note before we begin Q&A, we plan to hold our annual tour of our booth at the National Restaurant Association show in Chicago on Monday, May 22nd. If you're interested in attending or have any questions, please contact my office. Operator, would you please begin the question-and-answer period? Thank you. We'll now be conducting a question-and-answer session. We ask you please limit yourself to one question and one brief follow-up question per caller so that others will have a chance to participate. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. Our first question is from the line of Tim Mulrooney with William Blair. Good afternoon, Christophe, Scott, and Andy. Thanks for taking my questions. Hello, Tim. The first one, unsurprisingly on gross margin, they were down year-over-year. That contraction's continued to narrow for a few quarters now. Based on what you're seeing in your pricing outlook and inflationary cost inputs, when would you expect gross margin to inflect into positive expansion territory? The same question goes for OI margin given some of the productivity gains that we're seeing. Thank you, Tim. Let me start with what we've done in 2022 because margins, gross margins, and OI margins are where our number one focus for the full year. As I've mentioned in my remarks, as well. We were facing headwinds that were equivalent to our net income, close to $1.3 billion. We've been able to rebuild most of it within the same year, which is really showing the earnings power that we have as a model and as a company. I'm confident that we will rebuild our margins to where they were, and we will expand from there, as we've done many times in our history, as well. If I look at our OI margin in Q4, they turned almost positive. They were slightly still down in the fourth quarter, so that's a good sign obviously of where we're trending. Our OI growth organic was up 10% as well. If we look at the trajectory, we're in a fairly good place. If I look at 2023, we have so good momentum, pricing keeps accelerating, productivity is in a good place as well, and we'll see what happens obviously, so with inflation. Q1, so should be a continuation of the OI growth, which means that OI will keep improving as well in the first half. I think that it's gonna turn positive in the first half of 2023. Gross margin will probably follow in the second half of the year. It's not gonna happen on July first, but it's gonna happen sometime in the second half. Got it. Very clear. Thank you. Just as a brief follow-up, you know, I saw an announcement recently you're launching a consumer retail product line with, The Home Depot, I think. Can you just talk about what drove that decision to expand into this channel and, you know, what the margin profile looks like if it's materially different than your institutional margins? I would love to, Tim. First, it's not a consumer brand. It's a brand that's aimed at pros, as The Home Depot so calls them. It's mostly cleaning contractors, that's the vast majority of the customers buying this range, which is an end market that we never really addressed in the past because we go through service and distribution as we've done so for 100 years. It was a wide space, basically for us, again, focused on pros, not really on consumers. We have the best partner ever with The Home Depot to do that as well. We'll see how big it's gonna turn, but we're quite bullish about what that could deliver in the years to come. Got it. Thank you. Thank you, Tim. Our next question comes from the line of Seth Weber with Wells Fargo Securities. Please proceed with your question. Hey, good morning, everybody. I wanted to ask about the new, the new cost program. You know, how should we think about the cadence on that flowing through and, you know, more importantly, are those savings meant to be permanent or will those costs come back if, you know, if volumes get better? Thanks. Thank you, Seth. Maybe just a few comments from me and then I'll pass it to Scott, who will give you a little bit more details on that. I'd like first and foremost to say that for us, productivity is an outcome of momentum. Sales, innovation, pricing, this is the best way obviously, so to drive productivity as we've done over the past few years and we'll continue to do as well in the future. To the programs, it's really so to focus on individual businesses or markets as we've disclosed our Europe program during the last quarter, and now to be more focused on two businesses that we need to address, institutional, because the market has changed. We're in a good place, but market has evolved, and we need to evolve here and healthcare because we need to bring that business back to profitable growth since it's been a challenge, so for many, many years. I'd like to pass it to Scott to give you some more color on that. Yeah. Thanks, Christophe. Thanks for the question, Seth. Just getting to your question about the pacing of the program, when I talk about the program, I'm talking about the combined $175 million savings program, which includes the announced program we talked about in Q3, as well as the expansion that Christophe talked about, which includes healthcare and institutional focus. The pacing of that, of that 175, I would expect about, three-quarters, 75% of it in 2023, and then the remainder in 2024. Okay. It sounds like those changes are meant to be permanent, so not volume. You know, if volume comes back, you wouldn't expect those costs to come back then? Exactly. As Christophe talked about, on institutional and healthcare, this is stuff that we're doing on those specific businesses, targeted to those businesses. On Europe, it's really accelerating what we had been thinking about for quarters and years to come. Yes, we will expect to retain those savings. Right. Okay. Thank you. Then just a quick follow-up on the Purolite. I mean, are the capacity additions done there at this point? I'm just trying to understand, like, what the run rate of that business really looks like today. Thank you. Yeah. I'll maybe take that question, Seth. For the most part, it's done, but it's a continuing story. We will be maxed, as I've mentioned as well, in the previous call, two years down the road, again, which is out of a good problem because it's a business that's growing really fast. It's not gonna be done forever, thank God, by the way. What we've seen in Q4 has been a very strong acceleration of sales. We didn't have pro forma reporting, I won't get too much in detail here, it's been so strong double-digit growth, which is good with margins north of 30%. The trajectory that we've seen in Q4, is kind of a good indication of what we expect for the future or the near-term future. Thank you. The next question is from the line of John Roberts with Credit Suisse. Please proceed with your question. Thank you. Did the surcharge come down in Europe with the drop in energy prices? Do you have any plans to merge the roll the surcharge, I guess, into the base price at some point here to get back to a simple pricing structure? Hi, John. Two parts, a few questions. First, the surcharge has not come down since we started it on April first. generally, so far so good. No change here. The second part of your question, yes, we are progressively merging as much as we can of the surcharge into traditional structural pricing. It's not gonna be 100% game. Every region is in a different place. You mentioned Europe, every customer is in a different place as well. Generally, we're trying to get everything in traditional pricing, going forward. Then on the Pro So Clean program with The Home Depot, will those be identical products to what you distribute through Sysco and others? Will the Ecolab salespeople service customers who buy through The Home Depot? Two parts in your question as well here. The first part, those are different product than what we distribute or through distribution like Sysco. They're really made for smaller cleaning contractors. Those are not concentrated products. Those are ready-to-use products for the most part. They're different, but really so adapted for their needs at the right price point as well. No real competition with anyone else out there. Second part of your question, there will be no service to those products. It's straight, so consumer products as well. Knowing as well that those cleaning contractors sometimes become bigger, as well, and those ones so might be shifting towards a service program at some point, which is what we do with Sysco, as well. They have their own line, like Keystone, that we do for them, a non-serviced, and when customers become bigger, we start to service them. It's really finding ways to approach every part of the market out there. Thank you. Our next question is from the line of Josh Spector with UBS. Please proceed with your question. Yeah. Hi. Thanks for taking my question. I'm curious if you could talk about your volume expectations in first quarter. You mentioned in your prepared remarks you were surprised at some of the performance in the quarter. I wasn't sure if that was volume or something else you were talking about. Yes. Hi, Josh. Not surprised. It was in Europe, we were expecting a worse situation like everybody else, actually. The milder winter has been a less negative news generally for Europe, and we take it. I'm not taking it to the bank for 23. We know that in the months to come, the geopolitical situation on the eastern front in Europe could change quite dramatically, but I'm not gonna make any prediction in here. We'll take the trajectory as it is right now. Generally, for the whole company, what you've seen in Q4, with volumes so fairly stable, excluding Europe, is what I'm expecting more or less in 23 as well. I think the environment is gonna soften generally with interest rates going up in the U.S. and in Europe. That's the whole intent of rising interest rates, obviously. The shift that we've made to offense a few months back, as I've mentioned, so is driving some very positive results in terms of new business, which I think so should mitigate the further softening of the demand out there. What we've seen in Q4, I think, is a good indication of what we could see in 23. Thanks. Just to follow up on the cost reductions and specifically institutional, I guess when you're adjusting to the current environment, I mean, is that restaurants and takeout or something different? What does that mean in terms of your longer term volume recovery potential? Great question. Institutional is in a good place. As a business, we love that business. That's where we came from. It's a highly profitable business. We have great position, and I think it's gonna be a great business for the future as well. Here's the situation. Our sales are north of 19, which is good. Our margins are not there yet, which is the opportunity that we have that we need to adjust. Now, the market has changed because of the return to office, because of what you're saying as well, the people are ordering online, are using takeout as well, much more than they did before. It's translating to the dine-in traffic, people sitting in a restaurant down 30% versus 2019. That's a fact that we all need to live with. It's not the demand reduction that we are seeing in our own business, but it has gone down. We have the same amount of work because we have a similar amount of customers out there for a demand that is slightly lower, so we need to adjust for that. What we're doing is doing two things. On one hand, and we started that over the past 12, 18 months. It's not totally new. We're just accelerating that program right now. On one hand, it's to have a dedicated sales organization that drives new units and increased penetration, and a second service organization that drives productivity in order to reduce our cost structure as well, and that's where our program is directly focused on. Thank you. Our next question is from the line of Manav Patnaik with Barclays. Please proceed with your questions. Thank you. Good afternoon. Christophe, maybe if you could just help us with your, you know, price, in, you know, the price increase and also the raw material increase assumptions you've made to 2023. I mean, the 13% in the fourth quarter is obviously very strong. Like, how sustainable and sticky is that versus, you know, whatever you're expecting for the raw materials? Hi, Manav, two parts, a few questions. First, the delivered product cost inflation outlook, and then pricing, which obviously both are driving our margins. Starting with the market that we can't influence, obviously, but the way we look at it, from our perspective, in 2023, it will keep going up, but at a lower rate than what we've seen in 2022. It's not that our delivered product cost is gonna get cheaper. It's gonna increase less fast than what it did in 2022. That's the first part. Obviously, things can move one way or the other, depending on what's happening in the world. That's the middle of the road that we've taken. Inflation staying high as a rate for longer, well into 2023, as I've mentioned as well, during the past call. On the pricing piece, we remain focused on pricing. We will have a carryover in 2023 coming from 2022, we expect half of it to be strictly carryover into 2023. We will keep pricing further as we've always done as a company, and we'll keep doing going forward in order to recover and expand our margins. Where it will net out, we will see, that's how we're estimating basically. Our sequential progressive earnings improvement quarter after quarter into 2023. Okay, that's helpful. You know, you talked about, you know, offense a couple of times in the call. Just, you know, the cost reductions that you're making, you know, which categories, I guess, are you doing the headcount reductions? I guess the question is more tied to, are you beefing up your sales force, you know, at a faster clip maybe? When we talk about beefing up our sales force, they're not all created equal. We have the high-growth businesses, like Life Science, Pure Light, High Tech. Those ones are clearly being fueled. We add people, we add investments for those ones because we know it's driving so high profitable growth. We have on the other side of the spectrum, other ones where we need to do some work. Healthcare, being one of the examples because it's a billion-dollar business that's not making much money, as we know. We'll have to work on cost efficiencies, including in our sales structure as well, but all done with a long-term view of building a profitable growth business. When we talk about shift to offense, this is by far, the number one priority that we have as an organization. For 23, it's about new business. Manav, you're familiar with that, and we had some very good results in Q4. It's about innovation. The Home Depot that we talked about is a good example, as well, and fueling the high-growth businesses as I just mentioned. It's what we're really good at, it's what the organization loves doing, and while we do that, we'll stick as well. New to pricing because we need to get our margins back to where they used to be and expand further. Third, we will address those programs as mentioned, but in a real surgical way, this is not gonna be our main priority in 23. Thank you. The next question. Thanks, John. next question comes from the line of Mike Harrison with Seaport Research Partners. Please just give us your questions. Hi, good afternoon. Good afternoon, Mike ... was wondering, Christophe, was wondering if you could give a little bit more color on how you're thinking about the earnings cadence in 2023. You talk about getting to an EPS low double-digit growth rate later in the year. But if I look at your guidance for Q1, the top end of that range is already kind of a 9%-10% growth rate. So maybe just help us understand how you expect the year to play out, and maybe what are some of the key drivers that could lead you to be maybe toward the higher end or lower end of that outlook? A few parts to your question, but generally, no change versus what we said, what I said during the third quarter call. And now, in our release and in my remarks, as well in the fourth quarter. The way we look at the outlook hasn't changed. We've decided to provide a formal guidance for the first quarter because we see pretty clearly what's happening, or more clearly than what we've seen in the past. We're not providing formal guidance for the full year yet. It will come at some point obviously here. It's two parts for Q1 and for the full year. Now, as I've mentioned, we expect continued sequential improvement as you've seen as well in 22. By the way, so Q3 was a nice improvement versus Q2. Q4 was a nice improvement versus Q3. Q1 is gonna head in the same direction of being a further improvement as well, and that's what we're providing, so with the range. That's gonna continue in the quarters to come, driven by the momentum that we have. The pricing that we've done and will keep doing, obviously. The productivity that we've done and will keep doing as well, so going forward, which will lead to an operating income growth that's gonna be in the double digit range, which will drive, so, operating income margin turning positive sometime in the first half, and the gross margin sometime as well in the second half. That leads to an EPS improvement quarter after quarter, keeping in mind that we have headwinds in FX and in-interest, $0.30, as we've mentioned, half of it in the first quarter as well. You will see continued improvement quarter after quarter. The question, when do we get to the low double digit traditional Ecolab performance? I said during the last call it's gonna happen sometime during the second half. With everything I know today, everything I see today, I think that's probably gonna happen in the fourth quarter. All right. A quick question on the water business, particularly the downstream portion. Was just hoping to understand the additives impact that you called out in the prior year. Were those sales kind of one time in nature? I guess, is that the main reason that volumes aren't looking better in that downstream business, as we're seeing some improvement in refinery utilization rates? That's exactly right. You gave the answer. Here it's one time in nature. It's depending on where the crude is coming from, as well. Sometimes they need additives and sometimes they don't need. That's not under our control. That's our customer's control, whether they need additives or not, depending on where they're buying the crude from. On the other hand, the water business in general is doing really well. It's close to 2.5% volume in that business. 14% sort of total growth as well in the fourth quarter. Water is in a very good place. Downstream being this special case in additive, as you've mentioned, with the one-timers. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question. Thank you. Christophe, just on your cost inflation in 2023, is it primarily wage inflation? For raws this year, are you expecting raws to be actually down year-over-year for you guys? No, we don't. Hi, Dave. We expect, as mentioned before, that our costs are gonna keep going up, as they did in 2022. The rate is gonna be lower than what we've seen. The rate of increase is gonna be lower than what we've seen in 2022. Our delivered product cost is gonna keep rising in 2023. The wage part is a minimal part of it. It's gonna contribute to an increase in cost. That's always the case every single year, obviously, so that's not exactly material, but that's gonna go up as well, and all part of the outlook that I've described before. On that note, which raws are you seeing the most inflation right now year-over-year and through the rest of the year? Just some raw materials specifically. You know, we buy 10,000 different raw materials, so that's gonna be hard for me, Davey, to go in all details. The truth is that most of them keep going up. Some are more extreme than others. The caustic in Europe so went up 90%, for instance, lately. Those are things that we need to deal with. Everything else is between zero, slightly negative, but nothing much negative, to 100% plus, like the caustic that I mentioned before, so being close to the 100% here. Not an exact answer to your question, but that it'll be hard. With the thousands of commodities that we buying out there. Our next question comes from the line of Jeff Zekauskas with JP Morgan. Please just give us your question. Thanks very much. Historically, Ecolab has raised prices about 1% or 1.5% per year in that its rate of inflation in costs has been pretty low. You know, over time, there's much less commodity production in China, and domestic producers of chlorine and caustic soda are operating their businesses differently. As a base case, are your expectations that annual price increases for Ecolab are no longer in the 1%-1.5% range, but maybe now are more 2%-3%, and your customers understand that, if that's true? It's a great question, Jeff. The short answer is we can deliver more pricing than what we've done in the past. We've learned that over the past few years, and our teams has built as well, so new capability during that time, because we had to, and we wanted to do it in a way that was thoughtful and smart with our customers as well. The fact that our retention rate have remained almost unchanged during that remarkable time, is a good indication. We've gained customers during that time, and we keep gaining customers. The big difference beyond the capability that we are improving within our team, Jeff, is the fact that we've become much better at documenting the value, the savings that we are providing our customers with our service, how much we can deliver for them in the years to come as well. We've become much better at that. We can document it, we can share it with customers, we can make sure that we align on those numbers as well, and we have a discussion ultimately on what's our share of that savings that we have delivered for our customers. It's been at the core of the way we've been selling for 100 years. We've never brought it to such a high level than the past 18 months, that's gonna help us get more pricing in the future. What's gonna be the exact range, Jeff? I don't know yet, but it's gonna be higher than where we were before. Maybe quickly for Scott. Yeah. You know, it looks to me like your inventories are maybe $150 million too high. What will working capital be as a source of cash in 2023? Yeah, Jeff, thanks for the question. We certainly have seen throughout the year working capital increased, both because of inventories as well as just because of the sales growth with this very high pricing. Again, we expect higher pricing next year, relative to history as Christophe and you had talked about. The inventory was, again, very specific decision as we dealt with the supply chain constraints around the world and to make sure that we could get products to our customers, help our customers, and with that, made a very intentional decision. Now as we've seen the supply chain constraints ease a bit, we will start working our inventory and DOH levels down. Certainly I wouldn't expect the same level from inventory in 2023 as we had in 2022. At the same time, we are gonna continue with, having very high sales growth, and so you will have, some natural drag there. Thank you. Our next question's from the line of Christopher Parkinson with Mizuho. Please just give us your question. Great. Thank you so much. Christophe, you hit on a little bit on the volume trends in the water segment. I was wondering if you could just parse down a little, you know, go down a little bit more, between just the trends in light, heavy, and mining and how you see those, you know, evolving, throughout the year. Thank you. It seems like your question is focused on the industrial segment here. Correct. Good. Generally, industrial is in a good place, not because the market is booming, and we know that interest rate are gonna soften the demand. That's our base case of saying our general demand, like for like, same store sales is gonna go down. We will need to drive our own growth, through new business, innovation, new end markets, and so on, as we've done as well in the past. Industrial is in a very solid place, in a very good trajectory in terms of margins as well. It's doing that balancing act of making sure that we can drive pricing, getting the right margins, driven by value, as I mentioned to Jeff as well before, while we drive the new business with this shift to offense, which I like a lot because it's ultimately where our teams want to focus the time. It's where we are best at, and what we love most doing. Generally, industrial is gonna keep being in a good place. Some quarters will be a little bit lower in volumes and some will be a little bit higher. Generally, in a very good place. Just a quick follow-up on pest elimination. It seems like your market share gains, I mean, obviously coming out of COVID is a bit difficult, but it seems like your market share gains are beginning to, you know, re-accelerate. Can you just you know, confirm that and talk about, you know, how your innovation in that segment is gonna you know, further drive and whether or not you're interested in a further M&A? Thank you. It's a great business. It's been a great business for a long time. I'm a fan of that business going forward. I can't comment on the M&A side, obviously. Generally, it's a business that has done very well during the COVID times and has done very well in the years after that as well. Very nimble business, very strong leadership team, unique market positions as well. We see that in the 10% growth that they've delivered in the fourth quarter as well. I expect them, so to continue to do so. When I think in terms of innovation here, they're starting to provide disinfection services for their customers as well, which I think is gonna be a very promising proposition. It's a good complement to what our teams are doing right now as well. Strong business with strong margin, with the highest return on invested capital because there's almost no capital involved, obviously, in that business, and driven by good innovation for the future. Great story that's gonna keep staying great. Our next question is from the line of Ashish Sabadra with RBC Capital Markets. Please proceed with your questions. Thanks for taking my question. I just wanted to drill down further on the first quarter EPS guidance and follow up on a prior question. That range seems pretty wide. What are the key factors which takes you to the top or the bottom end of the range? Is it more volume, raw material, or below-the-line items? It's a good question. For Q1, the range we provided is reasonably consistent with what we've done in the past when we were providing guidance as well. The inflation component of the delivered product cost is a timing that we cannot manage. Obviously, that's market depending. That's probably the main driver for the minimum or the maximum of the range as well in here. We're getting close to the end of the first quarter, obviously, as we speak. We have a reasonable view on how it's going to end. In a month, a lot of things can happen. Last year, I was pretty confident in the first quarter, and the war started at the end of February. We had one month to go. We had to deal with that. It's those external factors that are driving ultimately. The range that we're providing for the first quarter as for every quarters in the past. That's very helpful color. Good to see that strong momentum in the business as well. Maybe just a quick question on the National Restaurant Association. I was just wondering from a preview perspective, can you provide any color on new innovations that we can potentially expect at that event? Thanks. It's a, it's a great business, as mentioned before. We've been in that business for 100 years today. We've been successful. We have great positions. We are very close partner to most of the restaurant and hotel companies around the world. I'm very bullish about the future of that business. That being said, as mentioned before, we need to adjust as well because the market has evolved from dining in a restaurant versus taking out from a restaurant as well. We need to adjust. We've done that in the past. We need to do it today. That's gonna take some time, but we're gonna get in a stronger place as well after that. In terms of innovation, I think the most important, so for institutional, is the overall program of Ecolab Science Certified, because it's one way of bringing all the solutions that we have, all the innovations that we have for our customers and to really drive full penetration. It's good for us, it's good for the customer, and it's good for the guest, ultimately, because that's the way that they are the most protected, from whatever that can happen, and at the same time, making sure that I have a good experience, being in that hotel, that restaurant or that retail store, as well. If I had to pick one, that would be the most important one. Our next question comes from the line of John McNulty with BMO Capital Markets. Please proceed with your questions. Yeah, thanks for taking my question. On the healthcare and life sciences business, when I look at the third quarter, you know, you kinda made some comments at the time, like this is not acceptable, and literally one quarter later, the segment had earnings that were double. I guess, how much of that would you attribute to the Purolite capacity getting unlocked versus some of the changes that you're trying to enact with the sales force, the team, the cost-cutting, you know, those types of initiatives? 'Cause it's such a dramatic move. I guess I'm trying to understand it a little better as to what drove kinda that big improvement. Two things, John, and very different stories, obviously, in that segment. life science has been in a good place for a long time. They were just lapping against very high numbers during the years prior as well. It was more of a year-on-year comp than anything else. Life science, as mentioned before, so is back, so to our 18% growth driving very good earnings as well as they did prior during that comp was an issue and back ultimately, so to the traditional trajectory. Life science in a very good place, which you see fully in Q4, and you couldn't see fully in Q3. Second. Purolite. As mentioned. Many times. We were capped in terms of how much we could produce until Q4, which limited the growth by definition because we couldn't produce the products that we could sell. Ultimately, that has created a bump, obviously, so in Q4, it's not in our organic numbers by definition since it's an acquisition and it's the first year. It's gonna change as of Q1. You have healthcare. Totally different story. I like the fact that they're turning slightly to positive growth, the fact that they have made some money, but I'm not getting overly excited with that. It's one quarter, and it's not a dramatic change in that business. On the other hand, I like a lot the efforts, that are being made by that team to really sort of drive it back, to the performance that it should be from a growth and, most importantly, from a margin perspective. The program we've announced is part of it. That will help obviously the cost structure, but at the same time we know that we need to improve our offering. We need to make sure we focus, on the programs that make most sense as well for our customers and for us. It's still a long road ahead, but we will get to the right place as I've committed to that. Got it. Got it. Thinking about the industrial segment and China, you know, you had the lockdowns end. You had the virus kind of rip through the country and, you know, that business of yours doesn't tend to be overly economically sensitive. It is sensitive if plants have to close. I guess, how much of a pressure was that in the fourth quarter? How should we think about how that may snap back? You know, first, China represents 4% of our global business, so it's hard to be material like Europe would be in our results. We have a good position in China. Our industrial business is a very strong business. What we do is something that customers and government likes a lot as well. It's about clean water, safe foods, preventing infection. It's obviously very important, so for all of them as well out there. We've had a decent performance in 2022 in China in Q4 as well, so it's positive growth. It was kind of in the mid-single range in China during the fourth quarter. We'll see how Q1 is exactly happening. There's the new year that's happening during the quarter with the shutdown and reopening. That's gonna be a bit of a messy quarter in China in Q1. Ultimately, I think we're gonna get back to a good place once this kind of volatile period is behind us because what we do matters, and our team is really strong as well over there. The next question comes from the line of Shlomo Rosenbaum with Stifel. Please proceed with your questions. Hi, this is Adam Morgens for Shlomo Rosenbaum. What tax rate are you assuming for 2023? Hi, Shlomo. You talked about the tax, right? Yes. I'll give it back to Scott, who is much better than me to talk about that. Yeah, I will cover off on that. Thanks for the question. I expect the rate for 2023 to be slightly higher than this year, just due to sort of geographic mix, but right around, call it 19%. Okay. How should we think about free cash flow in 2023 in light of the restructuring items related to the expanded cost savings program? You should think about the free cash flow in 2023 much like we did this year in terms of our historical conversion. Certainly from a pacing perspective, Q1 will always be lighter, but I would expect the free cash flow of 2023 to be right in that mid-90s% conversion on net income. Thank you. Our next question's from the line of Rosemarie Morbelli, Gabelli Funds. Please proceed with your questions. Thank you. Good afternoon, everyone. Bonjour, Christophe. Bonjour, Marie. You know, we are talking about First of all, congratulations on a great quarter and a great year. we talked about the challenging economic environment currently, and you are beginning to see it. Now, what you see, if you compare it to what you saw prior to the last recession, are those signs indicating a recession or just a slowdown from, you know, where you stand? It's hard to tell. I don't have a clear opinion on whether they're gonna be a hard landing, soft landing, recession, no recession. we're seeing some softening in the demand of individual customers, so a like for like or same store sales demand, so from our customers. That's not true in every segment, obviously, but the indication that it's softening, is there, even though it's very minimal. What we're seeing here, feels very traditional versus what we've seen in the past. The shift to offense, which is the typical Ecolab way of responding to it, is gonna be the best tool we have to mitigate against that. Can you tell whether it is real demand slowdown or whether it is actually de-stocking? It's probably a combination of both. Especially in industrial segment, for hotels and restaurants, they don't have much inventories, distributors. Could be the case. Everyone is becoming a bit more cautious, so that has an influence of it. Exactly how much, I can't tell, but it's definitely not helping. You have softening of straight demand, reduction of inventories as well at the same time, having saw a slight impact on the rate of demand. So far, nothing dramatic, and I feel good with our shift to offense approach, because getting new business, driving penetration, getting innovation on the market, well, it's what we're good at. Thank you. The next question is from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions. Yes, good afternoon. How would you apportion the $175 million of targeted productivity savings between the institutional and healthcare segments? Let me give you just a few comments, and then I'll pass it as well to Scott. As you've seen, half of the overall program is in Europe. That's what we've communicated well underway on this one. I like the progress that the team is making over there. The balance of the overall program is mostly institutional with healthcare getting its fair share. Maybe any more comments, Scott? Yeah, no, not a lot to add there, Christophe. Exactly that. Certainly, the Europe program will impact other businesses as well, but certainly Institutional will have the largest portion of the overall $175 million. Okay. Secondly, if I may, for Scott, if we go back a quarter or so, my recollection is that you anticipated higher pension expense in 2023. Is that still the case? If it is, how large might that headwind be? We do expect some modest headwinds, we're talking in the sort of $0.05-$0.06 range, not overly significant. Thank you. The next question is coming from the line of Steve Byrne with Bank of America. Please proceed with your questions. Yes, thank you. If you had to estimate what your raw material costs are to purchase today versus this 10,000 products versus what their average costs would have been in the fourth quarter, what would you estimate that sequential change to be? That's just purchasing the products. What would you also estimate the average number of, say, months that a raw material is purchased versus when it flows through cost of goods? We don't buy any spot price or product at spot price, so to begin with. It's usually contractual. There are some exceptions, but it's not material. To it, generally it should be less than a 5% range. I'm sorry, I didn't follow that. You mean, what is the less than a 5% range? I'm trying to assess whether there has been a sequential change in your raw material costs. During which? I wanna make sure, so I understand your question. From Yeah. Versus The last quarter to where we are today. between We're, we're- Between Q4 and Q3. overall, Q4 and where we are today. I mean, are you seeing anything, you know, in recent weeks that is, that is- Okay, got it. ...in your view? Got it. You mean today, in Q1. The trends, as mentioned before, they keep going up. Just to be very clear, in the third quarter, our total cost, as mentioned, we're up 30%. They were up in Q4 a little bit less than that, and in Q1, they will be up a little bit less than what we had in Q4, but still up. Did I answer your question like that? Well, I see it that the year-over-year trend, you know, you're starting to lap higher costs and thus that maybe is part of that decrease. You know, there's two things here. You know, are raw material costs actually starting to deflate? Are you seeing any- No ...cost deflation? No ...how long does it take before that flows through cost of goods? I'm sure there's some of your outlook is just the lag that it takes for the raws to flow through COGS. To the lag question, it takes a quarter or two to get through the system. Generally, not every product is created equal in here. I wanna be very clear that the increase that we see in Q1 is a net increase, which means that the cost of our delivered product cost is clearly going up as well in Q1 versus what we saw in Q4 in dollar terms as well. The cost of what we buy keeps going up, albeit at a lower rate of increase than what we saw in the past two quarters. Okay. Then maybe just one on a potential end market opportunity for you. A lot of industrial companies are getting sued. The products they're selling contain some PFAS, and it's not because they're making stuff out of PFAS, it's in the water. Is that an opportunity for you? Do you have expertise in taking these really, really, you know, minute levels of PFAS out of water? Yeah. We're probably the most advanced company in the science of water, in mastering water, in managing water. PFAS is an opportunity that we've been looking at for quite a while. The demand hasn't been as clear as we would wish so far, so it's something that's gonna come at some point, which will be most probably something interesting for us. Like microplastic, by the way, as well. The technology, the science, we have it. We'll be ready when the market is ready to use those solutions. Our next question is from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions. Thanks. I just have 1 question left here. In your downstream segment, you talked about particular strength in the quarter, in petrochemicals. I was just wondering if you could bridge that, with the fact that in most cases, particularly in the U.S. and Europe, the petrochemical assets were running at very low operating rates? We've shifted what we do for petrochemicals towards water management, energy footprint reduction, cost reduction, which I think the team did exactly the smart move. Our customers are looking for solutions to reduce their environmental footprint while reducing their cost as well at the same time. Even though the utilization rates are going down, so to your point, our business is still in a very healthy place, and I think it's gonna keep being good for the years to come. Okay. Thanks very much, guys. You're welcome, Vincent. The next question is from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions. Thanks very much. Good afternoon. Following up on a earlier question on the cost savings program, you guys shared on institutional versus healthcare breakouts. I'm just curious, you know, it was originally in Europe, but when you announced in the third quarter, now it's spanned to other regions. First part of the question, just curious of, you know, is this mostly global non-U.S.? How involved is the U.S. with regard to these cost savings plans? Also, Scott, I guess specifically for you on this topic, you're going from $80 million savings to $175 million, more than a double with this incremental announcement, yet, the costs incurred to enact only go up by about half as much as what it originally cost for the enactment. Just curious how you're able to basically get more leverage off this second iteration? Thanks. Two parts of your question. I'll have maybe Scott to answer the cost versus savings first, and then I'll build on your question. U.S., non-U.S. Scott first. The split of the savings, as you pointed out, certainly the first program, and this is very consistent in what we've experienced historically with programs, where the cost to implement these programs is higher in Europe and then less so, in the U.S., just due to the nature of the environment. Maybe to build on that, to your question, outside the U.S., it's the vast majority is in the U.S., and those are programs we've been working on for quite a while. As mentioned before, healthcare is a business that I've committed to bring to the right place at the right time as well, and that's a first step in that direction. What we've announced is mostly in the U.S. Same for institutional. The shift from dining in to take out is a shift that has happened mostly in the U.S, and that's where we wanna adjust as well. I wanna be very clear as well that those programs are kind of a surgical way of improving our businesses. The vast majority of our margin and earnings improvement as a company is really so to keep driving new business, getting pricing right, innovation, and productivity as well, while the programs is helping us do surgical work, where we truly need it, in a short period of time. Great. Thanks. A quick follow-up. You've addressed working capital a bit and free cash flow, and thanks for that. Just curious on CapEx levels this year versus the past and what a normalized level% of revenue perhaps is a good way to think about that. Going one step farther, where the free cash flow might be utilized this year. Thanks. Yeah, sure. I'll start with your CapEx question, get to the sort of the capital allocation question next. This year, we're at about 5% of sales, which is at the low end of sort of our historical range. Certainly, the couple of years prior to that, below that, would expect in 2023 to get to that sort of close to the middle of that historical range of 5%-6%. As I talk about capital allocation, certainly, we completed our $500 million program, share buyback program this year, continued, now we'll be on our 31st year of increasing dividends. Between the two of those, returned 100% of our free cash flows to shareholders, over $1 billion in 2022. Going forward, I would expect to continue the dividends increase, but continue our consistent principles, which is first investing in the business, which includes M&A, as well as increasing our dividends, as I mentioned. With excess cash, looking at share buybacks. All right. Thanks, gentlemen. Thank you. At this time, we've reached the end of our question and answer session. I'll turn the floor back over to Mr. Hedberg for closing remarks. Thank you. That wraps up our fourth 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 and hope everyone has a great rest of your day. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.