So it’s 2-in-1 — 3-in-1, it’s automated dish machine, laundry, floor cleaning, whatever those solutions might be as well so for the industry. So we’ve reoriented really over the last two years, all our innovation towards increasing even more the automation level for our customers in order to drive better cleanliness while using less labor and keeping the margins that they used to have. So at the end of the day, if Institutional industry hadn’t changed for a long time like 100 years, I think that the past few years, it’s an industry that has made a step change in terms of leveraging technology more than ever. Well, this is exactly what we’re doing. For me, it’s going to help bring our partnership between us and our customers to a whole new level, helping them perform better and for us leveraging all the innovations that we have to offer.
So, at the end of the day, a good news, and cleanliness is going to improve as well in the hotels that you’re going to visit.
Operator: The next question is from the line of Scott Schneeberger of Oppenheimer.
Scott Schneeberger: Christophe, could you give us an update? It’s been, I think, nearly five years since data centers and animal health became big areas of focus of the company. Could you speak to growth rates at both and how meaningful they’ve become within their subsegments of Industrial? Thanks.
Christophe Beck: Well, the two are very different, obviously. So data centers is growing at incredible rates. We’re not giving the detail here, but it’s strong, and it keeps accelerating. So it’s north of 30%, which is quite remarkable. You see that with the high tech companies, obviously, saw the usage of cloud is going up exponentially. They need way more computing power in places where there is limited water as well at the same time. And there’s almost no one out there who can serve them in a way that’s increasing capacity, reducing water consumption and at the same time, making sure that the uptime remains close to 100%. So quite a challenge from a technology and expertise perspective. This is playing exactly to our strength as a company.
That’s why having focused on that business, having a dedicated team on it is paying off more than ever. And I think that we are at the beginning of that growth journey, which is really good. Animal health, a total different story. Obviously, since the promise there is as the food industry is moving away, at least in places where it’s still being used antibiotics, well, you need to have much higher level of hygiene in the farms that are growing, obviously, these animals. We’ve been building that over the last few years. It’s not an exponential growth like data centers has been, is and even more will be in the future. But that’s a business that’s in a good place, but that you can’t compare with the data center business. But it’s a very good complement for our Food & Beverage business which is doing really well overall.
So I like those focus and investments that we’re making in those industries, but they’re very different from each other.
Operator: The next question is from the line of Josh Spector with UBS.
Josh Spector: I guess two quick ones, probably both for Scott, is, when I look at SG&A, flat into fourth quarter, if I think about normal seasonality and what that means for next year, extrapolating that gets me to like $4.4 billion to $4.5 billion or another 10% increase. I guess, is that the right way to think about it, or would you expect it to move differently than that? And just second, you have about $1 billion plus in debt due in the next couple of quarters, pretty low coupon. Are you looking to pay that off, or would you roll that?
Scott Kirkland: Yes. Josh, I’ll handle the two follow-ups. The first one on the debt and where we sit today, have strong liquidity, as you saw on the free cash flows for the third quarter and the expectation for the full year and we ended third quarter with around about $1 billion of cash. And so where we sit today, my expectation would be we pay down both maturities due in December and January combined is a little over $1 billion. So expectation there. Again, long-term focus on capital allocation remains the same. But obviously, in the short term, we’re very committed to deleveraging. And on a good path to do that where at the end of the third quarter leverage ratio was at about 2.5% and feel very good by end of next year to get back down to our historical sort of 2 times range.
Getting back to your SG&A question. As we talked about, and Christophe talked about in the open that the Q3 dollar was what we expected — expect similar levels in Q4, as you talked about, but year-over-year, really largely driven by this incentive compensation. And then, as well, if you look at Q3 had a tougher comp — low incentive compensation last year, but that underlying productivity remains really strong. Just for perspective on that, SG&A, as Christophe talked about, we will continue to grow this business, but we’re needing less people. And actually, in the third quarter, our headcount year-over-year was down on SG&A 2% and so our sales per head was up about 7%. So showing that good productivity. And I would expect — it’s early to sort of talk about 2024, but we’ll expect to continue to drive great productivity next year, leveraging the technology that we continue to deploy and really increasing the time that our sales teams spend on creating customer value.
Christophe Beck: Maybe two points to build on what you just said, Scott. On SG&A, it’s 100% on our control. We’ve demonstrated for years that we drive productivity the right way. It’s not by squeezing cost, it’s by automating our operations and focusing our teams on creating value with our customers. So I completely expect that in the years to come, through technology, through digital, through AI, we will keep on that journey and feel really confident about that. And the point on cash flow and debt speak balance sheet, for me, in those times, having a very strong balance sheet, not only has been true for us for many, many years, it’s especially true today. So getting our working capital as tight as it can be, getting our cash flow as strong as it can be, through volume, new business, pricing and all that business obviously generated is absolutely essential.
So, on the two sides, keep looking for good progression, both on SG&A productivity and the strengthening of the balance sheet.
Operator: Thank you. Mr. Hedberg, there are no further questions at this time. I’d like to turn the floor back over to you for closing remarks.
Andy Hedberg: Thank you. That’s wraps up our third quarter conference call. This conference call and the associated discussion slides will be available for replay on our website. Thank you for your time for participation. I hope everyone has a great rest of your day.
Operator: Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference, and you may now disconnect your lines, and have a wonderful day.
