Greetings and welcome to the Ecolab First Quarter 2023 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Hedberg, Vice President, Investor Relations for Ecolab. Thank you, Mr. Hedberg. You may begin.

Thank you, and hello, everyone. Welcome to Ecolab’s first 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 the slides referencing this quarter 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, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described in the Risk Factors section in our most recent Form 10-K and in our poster 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. Look, our team delivered another strong quarter, once again, even slightly better than I would have predicted. Top line was very strong. Volume trends remained stable. Margins expanded. Operating income growth got even stronger and adjusted EPS growth kept improving as we promised. All as promised, as we continued to face some real headwinds in foreign exchange and interest. Most importantly, our shift to offense showed some real encouraging signs of progress. Organic sales improved from 12% in the fourth quarter to 13% in the first, with strong performance across all segments. Our net new business pipeline once again reached new records in the first quarter as what we have to offer, water, energy and labor savings while delivering the best and safest outcome in the industries we serve continues to grow in importance for our customers. We also maintained very strong pricing at 13%, which we believe will be the peak as we will begin to lap against last year’s strong acceleration. Our approach to pricing and it’s important to state that is responsible and respectful allowing our customers to absorb long-term increases in a progressive manner. This is backed by true eROI value, the Ecolab way as we help them reduce the overall operating cost, usage of natural resources and their environmental impact. Delivered product cost continued to increase versus last year, but the rate of inflation began to ease. This, along with strong pricing execution, allowed us to drive modest gross margin expansion a bit earlier than expected. That being said, our margin recovery journey has only just begun. Despite our expectation that inflation remains stubbornly high, we remain fully committed to recovering our margin over time, done the right way, when that builds further customer loyalty as…

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

Thank you. [Operator Instructions] Our first question comes from Tim Mulrooney with William Blair. Please proceed with your question.

Good afternoon, Christophe.

Hi, Tim.

Alright. So for my one question, I think I’ll have to go with gross margin. It looks like the adjusted gross margin expanded 20 basis points year-over-year in the first quarter. Now we weren’t expecting to see that expansion year-over-year kind of until the second or third quarter. So that was great to see. But taking into account what you are expecting for pricing and raw materials, I am curious what you’re thinking for the cadence of gross margin expansion as we move through the remainder of this year? Thank you.

Thank you, Tim. I’m very pleased with the progress that we’ve made, and we know that’s an outcome of what the team has done the past 2 years. It’s been a long journey. We wanted obviously to reach the point where we could turn the corner and then rebuild and expand on our gross margins and operating income margins as well. So quite pleased, as you said, with what we’ve delivered. In Q1, operating income went up 19%, as I said just before, which led to a 50 basis points improvement as well as the OI margin, which is the first trigger for me. And the second is this gross margin of 20 basis points. It came a bit earlier than we had expected. We thought it would happen during the second half of the year because, ultimately, pricing got stronger than what we thought initially, which is a good news. Volume was better than feared, especially because of what happened in Europe. It did not happen because of the higher temperature as well. And the delivered product cost inflation that didn’t go down, but went less up than what we saw in the fourth quarter of the past year. So when we bring it all together, gross margins are turned the corner at that point, which is all good news. Gross margin turning good, OI, operating income margin turning good as well, but we are just at the beginning of that journey because our mission is really start to get back to a high watermark as we call it, and then to keep expanding from there. So we’ll keep improving quarter-after-quarter as we’ve promised and committed as well. But that will also depend on the rate of the delivered product cost inflation, which is hard to know exactly how it’s going to be. It’s been up 9% in the first quarter. We had delivered product cost inflation of 27%, same in ‘22. So 19% is obviously lower than 27%, but it’s still going up. And I don’t see it turn negative anytime soon. So for 2023, I think we will be facing continuous DPC inflation. So with that, well, we will keep working on pricing. We will keep working on volume. We will keep working on productivity in order as committed to make sure that our earnings improve quarter-after-quarter until we get to our traditional low double-digit operating income or earnings per share growth in the fourth quarter.

Our next question comes from the line of Ashish Sabadra with RBC Capital Markets. Please proceed with your question.

Thanks for taking my questions. I wanted to focus on the SG&A leverage that we saw in the quarter, pretty strong leverage there. I was wondering if you could talk about the productivity initiatives that you have – and the cost takeout initiatives, but also how the digital innovations are driving better SG&A leverage? Thanks.

Thank you, Ashish. I like a lot the progress we have made on SG&A. We have made great progress last year in ‘22 as you know, so we improved our 200 basis points in the past year. And we will continue on a very good trend in the quarters and years to come as we automate much of the transactional work that we are doing either in the field with our sales and service people so they can focus really on creating value for our customers, which is where our investments are best focused on obviously and as well in the whole backbone infrastructure as we call it. This is the implementation of SAP. We are north of 80% of the company on SAP as well now and we are trying to leverage all that critical mass in shared services. So it’s helping on the G&A side while we improve on the selling side as well. So it’s not going to be every quarter, obviously, the same improvement, but the trends long term are going to remain the same. And I think that we are probably midway on that journey. So for the years to come, we will still have some upside coming up out of productivity.

Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed with your questions.

Hi, good morning. I wanted to just ask about the pricing commentary you made. Christophe, I think I heard you say the 13% in the first quarter was probably peak, can you just talk to how you’re handling the energy surcharge, whether that’s starting to roll off or whether you’re trying to merge that into more structural pricing going forward? Just how we should think about the mix of pricing kind of coming off of this 13% number?

I’d love to, Seth. Thank you. So pricing, the team has done a remarkable job over the last 18 months, making really sure that the pricing we were delivering was really so backed by value that we’re creating so for customers as well because we will never go down in pricing. It’s been true for the last 20 years. That’s not going to change in the years to come. This is the Ecolab way of creating value for customers and capturing part of it, which translates into pricing for our business. So when I think about the pricing we had last year, we had roughly sort of 10% of price, so in ‘22. As mentioned, half of it will be carried over in ‘23, which is unchanged. The 13% that we have in Q1, you’re right, you understood well. So it’s going to be the peak for ‘23. We will keep having strong pricing in the quarters to come, but the rate of increase will ease as we lap obviously so year-over-year. And now to your point, under energy surcharge, we’ve been working with our customers over the past 12 months to merge as much as we could of the surcharge into structural pricing, a bit different in every industry that we serve. But for the most part, the transfer from energy surcharge to structural pricing is going quite well. It’s not all the way there, but I like the progress that we’ve made so far.

Our next question comes from the line of John Roberts with Credit Suisse. Please proceed with your question.

Thank you. Nice quarter. Do you need to shrink the sales of the European healthcare business in order to turn around earnings?

John, it depends on how mean it. So turning earnings for the overall company, no, but for purely healthcare in Europe, yes, it’s important to keep in mind that healthcare is 5% of the overall Ecolab organization. I am really glad that 95% is going really well and 5%, I don’t like and I am staying focused on it. This is not my first priority, obviously, but this is an important priority for me. So when I think about healthcare, I have committed that in ‘23 we will see a turn. It’s going to take some time to get to the right place. But the first action that we’ve done, are doing and will be doing is to right-size the cost structure. We have announced it with our restructuring plan during the last call and we are implementing it as we talk right now. But that’s not going to be the whole song as we know. At the same time, there is a second point that we are focusing on is really making sure that we refocused the business towards what we know how to run, which is the most institutional like business the infection prevention. It’s a bit of a dish machine, obviously, because it’s instrument and endoscope reprocessing as well. We know how to run that business. We know how to make money with that business. It’s not where we focused in the past, but that’s where we’re going to focus as well in the future. And the last point is, we’re going to really think about options to make sure that we can strengthen this core business in order to make it a real Ecolab business and more profitable as well. So bottom line, still some work to do, again, 5% of the overall company. So it’s not going to move the needle, obviously, for the earnings of the overall company, but I’m committed to make it work.

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

Yes, hi, thanks for taking my question. Just curious on your thoughts on volume as you walk through number of puts and takes, I guess, with maybe Europe being an easier comp, same thing with Asia, North America, maybe a bit more challenging. So do you see this kind of minus 1% persisting into next quarter? Do you have a different view on the second half, given where comps are, just curious on your thoughts around that? Thanks.

Yes. Thank you, Josh. So on the volume, as mentioned, we’ve been slightly negative. It was kind of the same trends as what we saw in the fourth quarter. So honestly, better than peer, if I may say, because Europe was less bad than we sold. So from an environment perspective, honestly, I like a lot, how Europe has been delivering. In the first quarter, sales were good. Margins were extremely good, and I think that they’re going to have a very good year in Europe in ‘23. So that’s the good news. If I look at overall volume for the company, if you exclude Europe, as mentioned just before, so we’re slightly positive, which is a good news as well. And the third point, which is most important is the shift to offense that we’ve initiated a few months back, while we wanted to really make sure that pricing was done the right way in order to enter ‘23 very well positioned to improve our margins. Well, that was taking a lot of time for our sales team that they were not focusing on generating even more new business. That being said, new business in ‘22 was stronger than in ‘21. So it’s not that it was not good. It was good actually, but I’d like to have much more. Now we’ve made that shift – it’s what our teams like to do. It’s where we are best at, ultimately, I like a lot when I see the new business that’s been generated. We had a record high in Q1, which is a very good news. We need to execute that properly as well. So we will be biting a slowdown of the global economy. I don’t know whether that’s exactly going to go, obviously, but it’s not going to accelerate that I’m pretty sure about. So we will have to drive volume the old-fashioned way with new business with innovation, investing behind our growth engines as well. So it’s going to improve quarter after quarter. And I think that, that’s the journey that we are on, and you will see that in the quarters to come, especially in the second half of the year.

Our next question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Hi, good morning. Sorry, good afternoon, I guess. Christophe, I know you are reluctant to put numbers around the full year outlook. The wording compared to 3 months ago is pretty much unchanged. But can you talk about how confident you are in that outlook today versus 3 months ago? What are some components that have changed for the better? And maybe what are some areas that you’re more concerned about?

Thank you, Mike and good afternoon. You’re right. My wording hasn’t changed, but my level of confidence has risen in the meantime, which is the net positive. We’re off to a good start in ‘23, but let’s face it. It’s the first quarter of the year, three more to come and a lot can happen still obviously. What we can control like what we’re doing, fundamentals are strong. That’s new business, that’s pricing, that’s innovation, that’s productivity, that investments and so on, all these things that are all in our hands, obviously. And I think that the team is executing very, very well. So we will keep improving so quarter-after-quarter. As we’ve done in the past few quarters, we will be doing in the quarters to come. But the honest truth is, I’d like to see what happens in Q2 in the world not in what we can control in terms of inflation, in terms of interest rates, in terms of war in Europe, in terms of debt ceiling, you name it. The list is long, obviously, here. And I want to understand what happens on the delivered product cost inflation because of all those elements. So you’re right, unchanged wording, unchanged outlook, higher level of confidence to deliver as I’ve committed to as well here, but we will know much more after the second quarter, and I will share with you what I’m seeing. And if things are getting better, I’ll share that with you as well, but we’re going to have a good year.

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

Yes. Hi, maybe I can just squeeze in a two part. But just as a follow-up to the new business comments you made, I was hoping you could help just quantify how much that new business is adding to get some sense of gross volumes, I guess? And the main question I had was just any update you have on a lot of the kind of the data initiatives you had talked about a while back if – where that was today?

Help me understand, Manav, I really wanted sense. So when you say data initiative, what is it exactly like, Manav.

Well, just broadly, all the kind of data collection that you have done on all your on-site, I think you hired a Chief Technology Officer and the productivity, etcetera, whatever the outcomes there were.

Okay. Got it. Thank you. That’s helpful. So two questions here. First, on new business. We’ve never disclosed the exact numbers on your business pipeline and growth. So I’m not going to start now. But we haven’t changed our definitions. So it’s really so comparable. So in Q1 was quite a bit better than what we had in the past few quarters and even compared to Q4 as well. So the fact that new business is accelerating year-on-year is a good news, obviously. So for the new business generation. Then once we have sold that new business, we need to install it, as you know. So we don’t sell for the most part software, so people need to install our technology and make sure that the chemistry is working and that the processes are working as they should and all that. That usually takes a few months or a few quarters to implement nothing new. That’s always been true, and that’s going to be true this year. So very good new business pipeline. Major refocus of our team on new business. If you want to think about it in the past 2 years, our team was 80% focused on pricing and 20% on new business. Now it’s the other way around. It’s 80% on new business and 20% on finishing the price and keeping pricing for the future as well. So that’s going to have an impact, obviously, on our volume, which we will have to net, obviously, with the market evolution. But I feel confident for now that we will master that quite well. Now the second part of your questions are very different on digital. We’re still focusing on three major pillars. That hasn’t changed. The first one is really so to generate value for our customers. The…

Our next question comes from the line of Chris Parkinson with Mizuho. Please proceed with your question.

Great. Thank you so much. Just in your supplemental, when you break down the water business, it’s pretty clear that you’re still enthusiastic about the pricing gains as well as new business wins. But Christophe, just given what – understanding you don’t have a crystal ball, but just given what you’re seeing right here right now and what you’re hearing from the customers of these various substrates, can you just comment on what your expectations are for the evolution of those for the balance of the year? And then perhaps comment on – it seems like this business has been under-earning along with Institutional. And just how long you think it will take to get back to its, let’s say, full potential at trend line? Thank you so much.

Thank you, Chris. So the water business, as you could see, is doing really well and has been doing really well in the first quarter as well. It’s our largest single business, as you know, it’s been growing 14%. Volume has been nicely positive as well. very nice new business in that field because customers need always more what we’re offering, which is basically helping them produce better products, more products, while reducing their water usage. And why do they do that. It is not only to reduce the impact on the environment. But when they reduce the water usage, they reduce their energy usage, reduce their carbon footprint, reduce their cost as well, and that’s why they invest even more in what we’re doing. So the water promise that we started 10 years ago when we acquired Nalco is really paying off in a really big time. And when I look at the pricing journey, a very nice one over the past few quarters. When you look at industrial, as a whole, the OI margin was up 80 basis points. Gross margin was even better than that. So very nice margin improvement, good sales momentum and within that sales momentum, I’d like just to mention, so a few interesting highlights. Our global high-tech business went up 36%, power was 20%. Mining was 40% plus. So a lot of very good things happening in water out of what the team is doing in that field.

Our next question comes from the line of Jeff Zekauskas with JPMorgan. Pleas proceed with your question.

Thanks very much. I have a two-part question. I understand that you’ll be annualizing the price increases of 2022. But in the course of 2023, do you expect to raise prices. Normally Ecolab’s prices go up 1% to 2% a year. But my general sense is you think it should be greater than that, maybe 3%. Is that what you plan for this year? And secondly, SG&A costs went up 8% in the quarter. Isn’t that too high? I understand that the overall SG&A margin was a little bit better. But given the restructuring efforts that you’re making, shouldn’t SG&A be growing at a more moderate rate? Is that your target or no?

Thank you, Jeff. So let me take pricing, and then I’ll give the floor to Scott who need to work a little bit here as well during that call in SG&A. On pricing, you’re right. We’ve always increased prices overall in our history, 20 years plus, it’s not going to change in ‘23 and in the years to come. So there will be a combination of a few things that are going to happen. As mentioned before, 10% was the pricing we had last year. Half of that will be carryover that math since we’re not going to give it back in 2023. And we will build on that some incremental pricing. So you do the math, obviously, and then there is the lap year-over-year. Then there is the last question or part of the question, which is what’s going to be the run rates are going forward. We were 1% to 1.5% in average, in the last 10 years as a company. Depending on where inflation is going to be in ‘24, I don’t know how it’s going to be, but it’s going to be north of 2%. I’m almost sure about that. Jeff, I think that our incremental pricing will be higher than what we had in the past before this inflationary cycle. So if you combine both the carryover and the new pricing, you can see more or less where we’re going to be and for the years to come. I think that the company has developed a very strong muscle in pricing, not because we’re jamming pricing to customers. As mentioned before, we’ve taken our time to do it really well, really respectfully and backed by value with our customers, and we’re going to continue to do that in the future. It’s going to be good for customers. It’s going to be good for us, and it’s going to be good for shareholders, especially as inflation will be easing since our margins will improve as well at the same time. So that’s the general picture on pricing. Now for SG&A. So Scott, you might want to make a few comments.

Yes, sure. Thanks, Christophe. Hey, Jeff, yes, so as you mentioned on SG&A, we think about it from a productivity perspective as a ratio. And as you mentioned, the SG&A leverage continued to improve in the first quarter. We were down 30 basis points year-over-year. And that’s on top of the comparing against a very strong quarter last year where the SG&A ratio improved by 200 basis points. And also, as you know, seasonally, just from a ratio perspective, it’s a sale – it’s our lowest quarter in sales. So obviously, that’s going to drive less SG&A leverage as well as just timing of investments and spending. So we feel very good about where SG&A is, the programs we’re doing, expect to continue to drive that SG&A leverage through those productivity – normal productivity programs as well as the cost savings programs that you mentioned. So we feel really good about the trajectory we have on SG&A and getting back that OI margin.

Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.

Thank you. Christophe, in Institutional, we are seeing some better trends amongst your customers. Are you yet seeing those trends in your volumes? And actually, in Q1, why are your volumes down in Institutional? Thank you.

So David, I like the progress we’re making in Institutional. You’ve seen the numbers, 14% growth in Institutional & Specialty and 16% on the operating income, which is good. But this is the beginning of the journey. As I’ve mentioned a few times over past calls, the industry behavior has changed quite a bit. If I take the example of restaurants, which unfortunately are the same numbers as the ones that I’ve mentioned during the past few calls, the dining in traffic, which means people going in the restaurant and sitting at the table is down 30% versus 2019. And we were all hoping that, that would improve quarter after quarter. Well, the ugly truth is that it’s not. And people have gotten used to order online, to do some pickup or being delivered as well the food, and that’s amazingly sticky interestingly enough. So it’s been good for our customers, and I’m really pleased for them because at the end of the day, well, they are selling the same or more at a lower service cost because they have less people staying in the dining room, very good deal for restaurant operators. And I think this is a very good thing for them as well. We had to change obviously. So for us, when I think about it versus 2019, so if you take in restaurants, this minus 30% of foot traffic in their dining room, well, our sales in comparison in North America are up 12% in 2023, so the first quarter. So we’ve gained market share. Our teams have managed to really sort of drive share, drive pricing, drive innovation to make sure that we could get ahead of the curve. But the baseline has changed quite a bit. A bit similar in hotels as well because…

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

Yes. Thanks for taking my question. And my question is on the global Healthcare & Life Sciences businesses. The margins in the third quarter were in the single digits. They spiked back up to mid-teens. And then again, this quarter, they are back down into the single digits. So can you help us to understand what’s driving the big volatility that we’ve seen there over the past few quarters in what I would assume is normally a pretty stable business. And then I guess to one of the points you brought up earlier, you indicated that you’re looking to strengthen the core of the specific healthcare side of Healthcare & Life Sciences. I guess can you flesh that out a little bit? Does that include potentially M&A? Or is it really just internal self-help? I guess how should we think about that.

Good question, John. So Healthcare & Life Sciences, it’s 1 group, but it’s two very different businesses as we both know. One is doing really well Ecolab Life Science and the other one, not so much. And I’ve been very I’ve spoken about my view on the performance of this business and my commitment to improve it. So when you talk about volatility of earnings in Healthcare, while we’re talking about the small base, unfortunately, a small dollar variances have a big percentage variances as well. So it’s kind of a good bad problem, but it’s still a problem that I have here. As mentioned before, Healthcare is 5% of the company. I’m glad that 95% of the company is doing quite well. So I want to make sure that Healthcare gets to a better place by driving the three things I mentioned before, so the cost structure, making sure we refocus on our institutional-like business, disinfection prevention and third, to your point, so strengthening the core. Overall, Healthcare is not going to get bigger for the company in the years to come. So to answer your question on the M&A piece. But we will keep working on adding new offering, new expertise, new capability. I want to make sure that the future is going to be focused on a business that we truly understand the business that we know how to make money, which is the closest to the institutional business where you have kind of a dish machine at the core of what it is. So more to come, I will share with you along the journey, what we’re doing and what we will be doing, but you will see a change of performance in 2023.

Our next question comes from Shlomo Rosenbaum with Stifel. Please proceed with your question.

Hi, good afternoon.

Good afternoon.

Hey, Christophe, can you talk a little bit about whether you’re seeing any tangible results yet from splitting the sales and services role within the Institutional segment? It seems like a pretty big difference from the way you guys have operated from before, and I’m not sure if takes a while to see results, if you’re actually seeing the results right now, when you would expect to see a significant change? Maybe you could just flesh that out a little.

Yes. Thank you, Shlomo. So it’s a change that we’ve initiated in 2021, if I remember right. So it’s been quite a while ago. It’s something that we have been preparing very carefully. It’s a large business. It’s a successful business in an industry that is changing and that will be changing in the future. So it’s combining repositioning towards what our customers truly need while making sure that we’re improving the performance our overall business. And that’s why we’re doing that in a very careful, thoughtful manner. I might be taking a bit more time than some would wish. But I want to make absolutely sure that Institutional after that cycle is in a better place than it was pre-COVID or pre cycle. This is my objective number one. And as mentioned before, when you look at the numbers I mentioned on restaurant with traffic in dining down 30% and our own sales up to 12% versus 2019. So precycle as well, same on hotels, as mentioned before as well, is showing that we’re gaining share. At the same time, our margins are improving as well, so in that business. So the fact of splitting sales and service has reached or is reaching because we’re still on that path, our two objectives. The first one is to gain share, as mentioned before, so we did. And second is to reduce our cost because we have a service organization that is really organized in order to have the best performance in serving and servicing our customers. And when you look at the cost structure that we have in Institutional, it’s improving as well. So, we get both. Gain share in our end markets and at the same time, reduction of our cost structure that leads to better performance for the business. So, work in progress, but I like where we are going here.

Our next question comes from the line of Andrew Wittmann with Baird. Please proceed with your question.

Great. Thanks for taking my question. I guess Christophe, I had a question about the gross margin. You talked about you are targeting getting back to the prior gross margins and eventually even exceeding that. I guess with – the business mix has changed over the recent years, certainly, in the waning days of your energy ownership, it was weighing on margins. Purolite goes the opposite way. That’s a very high margin – gross margin business. So, I guess I don’t know what the target gross margin to get back to the prior levels is, and I was hoping you could kind of clarify what that gross margin is that would be equivalent on today’s mix of business to kind of where it was pre-inflation or pre-COVID, if you understand what I am asking here?

I think so, Andy. So, what we have said is that we want to reach first our 20% operating income margin. And we have been pretty clear of that. That’s where we want to get to, the quicker, the better, and that’s not the sound barrier, once we reach that, it’s to keep going further after that. So, to your point, yes, job one is to recover the margins that have lost over the past 2 years during this inflationary time. That’s always been true. As you know, in the past, we get dollars first, we get margin second. It’s lasted longer this time because inflation was way higher than what it is today mentioning earlier as well on that call, so 27% in ‘22, only, which adds to 20% as well, so in ‘21 of delivered product cost inflation as well that we had to face as a company. Well, it’s taking a bit more time because it’s longer and deeper, but we will get back to where we used to be, and we will expand from there. The second thing or third thing is the business portfolio, as you mentioned. Well, on one hand, Institutional saw – was the most behind after COVID, just the fact of having Institutional recovering will help our gross margin and operating income margin as well as a company. And that’s an old business kind of performing better in the future. That’s not the new thing. On top of it, yes, you have businesses like life sciences that are above the average of the company that are growing fast as well at the same time, that’s going to help further. So, overall, good pricing work, delivered product cost that hopefully is going to ease, but I am not expecting to turn negative anytime soon and certainly not in 2023. Portfolio that’s going to keep improving, innovation that’s always above the company’s average. And last but not least, the new businesses like life sciences that are going to contribute. So, we are going to get back to where we used to be in terms of margin, and we will keep expanded from there in order to get to the 20% OI margin I talked about.

Our next question comes from the line of Ryan Connors with Northcoast Research Partners. Please proceed with your question.

Hi. Thank you. Good afternoon. I know you have indicated it’s not necessarily a needle mover in the near-term, but I wondered if you could give us any update on the rollout of the Home Depot initiative and how that’s tracking relative to your expectations?

Great question. Thank you, Ryan. Yes. It’s not our biggest business, obviously. But it’s quite a fascinating journey because we all see obviously, those products when we get to the stores of Home Depot. I hope Ryan that you participated as well, so to our new venture here. It’s been a great story over the last few months. It’s early. We started in January. Home Depot had their market manager conference a month ago with 5,000 people, the number one innovation was our rollout of the Ecolab products that we do exclusively for them. So, it’s a big deal for the Home Depot. And it’s an interesting deal for us. We take it extremely seriously. We have a great team after it. We are doing it very thoughtfully. We are trying to learn as much as we can with the consumers, what the pros since it’s the main focus of that whole business are looking for as well, so far, so good. Every week, we track the progress, and it’s been a remarkable progress week-after-week without disclosing numbers that need to be Home Depot’s numbers, obviously here. I like where we are going. It’s not going to move the needle for the company in ‘23. But down the road, I think it’s going to be a nice growth engine for the company.

Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Good afternoon. Just a follow-up on your discussion around sort of the pricing environment, particularly in a more inflationary environment. As you have done experiments around the world, do you get a sense that your ability to take share and your pricing initiatives have kind of a linear relationship, or is there kind of a non-linear kind of breakpoint where if you push too hard, the share gains really deflate very quickly. Just can you give a sense for how you see the customer psychology playing out based on what you have seen over the last couple of years?

We haven’t felt any elasticity issue, which is a good news. And the reason why is because our focus is really making sure that at the end of the day, the customer is better off. Even if it takes us more time, more effort to get to the right place, we want to do it in a way that we can keep the customer for life, which is the mantra that we have in our company. It’s not to win a quarter, it’s to win a lifetime together with our customers and many of them we have had for decades as you know as well. So, we start focused on creating even more value for customers. And honestly, we have discovered ultimately value that we have been creating for customers that we have not been merchandising as well as we should have in the past because pricing was not such a big deal. In the past, well, it has been an argument in order to get a bigger share of what we were creating as well, but always making sure that the return for the customer remains very strong. This eROI of 25% return for the customer is our mantra. It’s not always the same for every customer, everywhere around the world. But it’s showing that it’s pretty high from a return perspective. This is good for us. This is good for the customer. And ultimately, it’s good for our share gains as well because when customer get better outcomes both from a product perspective and from a performance perspective as well, while reducing their impact on the environment, well, they want to buy more. So, this is helping us as well gain further share. So overall, I think it’s been a very positive journey for everyone. It’s been a learning process, and it’s always a painful process to learn. But at the end of the day, it’s been good for everyone.

Our next question comes from the line of Kevin McCarthy with Vertical Research. Please proceed with your question.

Yes. Good afternoon. Christophe, would you comment on your volume experience in the life sciences business in the quarter as well as what you think it might be for the year. Reason I ask is on Slide #10, you cite sales growth of 10%, including robust pricing, which seems to imply that there wasn’t as much volume, and I found that to be counterintuitive following the capacity expansions you have done in the U.S. and UK. So, just wondering if there is anything anomalous there with regard to the comparison or customer behavior, if you could help us put that in context. Thank you.

No, in general, it’s been a very good story. It’s not going to be every quarter the same because in Life Science, obviously, where half is our Purolite business. We are building new foundations. We are expanding the capacity, as you mentioned before, we are investing as well in the team that requires time to do it very thoughtfully. But when I look at the capacity build, we are exactly on schedule. It’s going really well. We are learning while we are doing it. But for the most part, it’s going well. When I look at the whole new business generation, good progress being made here as well at the same time and driving it towards customers, so it takes time for us to do it really, really well. We had as well that shift, obviously, so from pricing to new business, which impacted as well. Life sciences, good on margin and it’s a shift that’s required in order to get more volume going forward. But the stores are aligning very nicely in this overall life science business. I like a lot where we are going. Long-term, it’s not going to be every quarter the same as mentioned a little bit early on, but the trajectory, very good, very promising, and we are going to do that really well.

Our next question comes from the line of Steve Byrne with Bank of America. Please proceed with your question.

Yes. Thank you. So, what would do you attribute the primary driver of the new business wins in water? And I say that not beyond – not discarding the effort that your sales force is putting in. But is this new customers, or is this expanded treatment for existing customers, is there something particularly driving it such as increased regulatory or legal scrutiny on your customers?

Yes. Steve, it’s mainly three things. Some of those you have just mentioned, obviously, so a good business doing really well and that keeps improving, so a very good story. It is the leading water business in the world, so enjoying a very special situation in the industry, even though we are small versus the whole market that we are serving. But the three main drivers of growth. The first one is we are trying to focus as much as we can towards the end markets that are growing the fastest. When we think about data centers, for instance, people don’t think data centers mean a lot of water, well, they use a huge amount of water. And that’s driven by cloud consumption, obviously, by the high-tech companies and have all made commitments to get to net zero in the foreseeable future for the most part in 2030. Well, that’s growing fast because the industry is growing fast and at the same time, they are trying to get less water consumption, well, that’s a double win for us. Think about microelectronics as well require a lot of ultrapure water. It’s a fantastic business. So, for us, well, that’s driving growth as well at the same time it can be as well more traditional businesses like mining, as I mentioned before as well, a huge amount of water that’s being required. We have shifted years back way, thank God, from the coal business towards fertilizers and premium high-tech materials like copper and nickel, all related to renewable EV technology. Well, that’s driving very nice growth as well. So, we are, first and foremost, an end-market focused that’s helping us drive growth. The second is most of our customers have made commitments in terms of carbon and water. And they all have – or most of them have a hard time so to get to their commitment. We are best positioned to help them get to where they want to be, the right way, which means while saving money as well at the same time, we don’t believe in the green premium. We believe in the green benefit, and that’s the way we are partnering with our customers. Well, that’s driving more demand for what we are doing. And last not least is innovation. We keep innovating in our water business in a remarkable way, especially on the digital front, which is high margin. By the way, it’s something that’s connecting our customers as well, increases the stickiness as well of the relationship, but all for the right reasons, obviously. So, if you think in terms of end markets, in terms of what we do for customers to reach the sustainable commitments and third, innovation, well, those are the three main drivers for our water success.

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Thank you. Christophe, I just wanted to follow-up on delivered product costs. I heard you earlier in the call, say that they would be up for all of 2023. And I am wondering, if you can just disaggregate them a little bit. I believe there is some labor included in your delivered product costs as well as freight. I am assuming labor is up. Freight, I would think, would be down. And I know you buy 10,000 raw materials, but I would think as we move through this year, we have – shouldn’t we be heading into a deflationary environment for your actual raw materials, or do I have this wrong?

So, a few elements, Vincent, here. So, labor is not in delivered product costs for us. So, that’s outside those numbers that we have always been talking about and that I have been talking about as well, but just maybe a comment on labor and wages. I feel really good with how we have been able to manage that. The fact that we have had very high retention of our team has helped us as well to keep our labor cost within a good framework ultimately and driven by the digital automation. As mentioned before, we managed to drive the productivity that you have seen as well in our numbers. So, on the labor side and wages, I feel really good. When we talk about the delivered product cost, which is ultimately raw materials, freight/logistics and technology, dispensing equipment and all of that that we are bringing to our customers as well, that’s what we mean. We delivered product costs and that you see in our numbers that represent roughly a third of our sales. Overall, I wish you were right, Vincent, that it would turn negative. It will not in ‘23. The question is only, so how much is it going to ease. As mentioned a little bit earlier on the call, we had an overall increase of delivered product costs of 27% in 2022. We had a further increase of 9% in the first quarter of this year. So, better than the increases we have seen in the past, but still an increase. And I hope that in the next two quarters, this rate of increase will ease, but we do not expect that it’s going to cross the zero line to become negative in the quarters to come. And well, when it comes and if it comes earlier, Vincent, will take it. But this is not what we are seeing right now.

Our next question comes from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.

Thanks very much. Good afternoon. Christophe, I think let’s go to the pest category, one segment, two questions. The momentum has been really, really strong there. We have seen margin expansion. Some of the reference in the releases is about innovation and competitive advantages. I was hoping you can elaborate on that a little bit. And the second part of the question is, it was cited unfavorable mix was one of the headwinds in the segment? I am just curious if you could share a little bit about what that means. Thank you.

Thank you, Scott. You know that the other segment is a little bit of a weak combination of things because you have our pest elimination business, we have our textile care business in there, and we have our colloidal technologies business. Three business stories that have nothing to do together, but at on a whole part of one same segment for simplicity reasons. So, when we talk about the mix, it’s the growth mix of those three businesses that are very different. Colloidal is very related to microelectronics, which is very different than what we do in textile, which is very different than what we do in pest elimination. But the biggest business by far in that segment is pest elimination, which is doing extremely well. It’s an unbelievable team with great positions on the market that delivered 14% growth globally, 19% in North America. That’s been a great journey over the past few years. It’s true today, and it’s going to be true tomorrow. The big reasons for that as mentioned are our great team, great position in a few markets where we have very good strong positions. We are very focused on commercial. So, we have no residential business, as you probably know, as well in there, so a very pure play in what we are doing here. And in terms of innovation, well, without going too much in detail here, we have millions of traps that we need to serve, obviously in the world in order to get the job done well. You can imagine that there is a lot that we could automate in here with the vast capabilities that we have in digital in the company. That’s a primary area where we could improve the work we do and making sure that we send our teams whether it’s truly something to do and not just to go and check in places not knowing if there is some pest activity as well in that location. So, combining the two great business, great performance, great positions with the innovation, especially in digital capabilities that we have I think the pest is not only to a great here, but an even better future with all that’s being done. So, a good contributor of the performance of the company for ‘23.

And Mr. Hedberg, there are no further questions at this time. And now I would like to turn the floor back over to you for closing comments.

Thank you. That wraps up our first quarter conference call. This conference call and the associated discussion slides will be made available for replay on our website. Thank you for your time and participation. And I hope everyone has a great rest of your day.

Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may disconnect your lines and have a wonderful day.