Avantor Q4 2024 Earnings Report

Avantor EPS Results

• Actual EPS: $0.27
• Consensus EPS: $0.26
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: $0.22

Avantor Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.71 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Avantor Announcement Details

• Quarter: Q4 2024
• Date: 2/12/2025
• Time: Before Market Opens
• Conference Call Date: Friday, February 7, 2025
• Conference Call Time: 8:00AM ET

Avantor (NYSE:AVTR) engages in the provision of mission-critical products and services to customers in the biopharma, healthcare, education and government, advanced technologies, and applied materials industries in the Americas, Europe, Asia, the Middle East, and Africa. The company offers materials and consumables, such as purity chemicals and reagents, lab products and supplies, formulated silicone materials, customized excipients, customized single-use assemblies, process chromatography resins and columns, analytical sample prep kits, education and microbiology products, clinical trial kits, peristaltic pumps, and fluid handling tips. It also provides equipment and instrumentation products, including filtration systems, virus inactivation systems, incubators, analytical instruments, evaporators, ultra-low-temperature freezers, biological safety cabinets, and critical environment supplies. In addition, the company offers services and specialty procurements comprising onsite lab and production, clinical, equipment, procurement and sourcing, and biopharmaceutical material scale-up and development services. Further, it provides scientific research support services, such as DNA extraction, bioreactor servicing, clinical and biorepository, and compound management services. The company was founded in 1904 and is headquartered in Radnor, Pennsylvania.

Avantor Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Hello, everybody, and a warm welcome to Avantor's Fourth Quarter twenty twenty four Earnings Call. My name is Emily, and I'll be coordinating your call today. After the presentation, you will have the opportunity to ask any questions, which you can do so by pressing star followed by the number one on your telephone keypad. I will now turn the call over to Alison Hosack, Senior Vice President of Global Communications. Ms.

[Operator]

Hosak, you may begin your conference.

[Allison Hosak, Senior VP - Global Communications at Avantor]

Good morning and thank you for joining us. Our speakers today are Michael Stubblefield, President and Chief Executive Officer and Brent Jones, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our Investor Relations website at ir.avantorsciences.com. A replay of this webcast will also be made available on our website after the call. Following our prepared remarks, we will open the line for questions.

[Allison Hosak, Senior VP - Global Communications at Avantor]

During this call, we will be making forward looking statements within the meaning of The U. S. Federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward looking statements that we make today.

[Allison Hosak, Senior VP - Global Communications at Avantor]

These forward looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward looking statements as a result of new information, future events or other developments. This call will include a discussion of non GAAP measures. A reconciliation of these non GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website. With that, I will now turn the call over to Michael.

[Michael Stubblefield, President and CEO at Avantor]

Thank you, Ellie, and good morning, everyone. I appreciate you joining us today. We are pleased with the momentum in our business in 2024, including our Q4 performance. There were several notable highlights, including exiting the year with high single digit organic growth in bioprocessing. We'll have a chance to discuss these highlights as we progress through the presentation.

[Michael Stubblefield, President and CEO at Avantor]

Let's turn to slide four with a quick overview of our financial highlights for the quarter and full year. We returned to growth in the fourth quarter with low single digit organic growth for the enterprise, a significant milestone that reflects our sustained commercial intensity and continued market recovery. Notably, our bioprocessing business delivered a fourth consecutive quarter of outperformance with high single digit organic growth and strong order intake. We expanded adjusted EBITDA margin to 18.2%, the highest level in more than a year, driven by improving mix and the ongoing benefits of our multi year cost transformation initiative. We grew adjusted earnings per share to $0.27 in the fourth quarter, up 4% sequentially and 8% year over year.

[Michael Stubblefield, President and CEO at Avantor]

Importantly, we continue to drive best in class free cash flow conversion finishing the year with another quarter of exceptional free cash flow. We generated $222,000,000 in the fourth quarter and $768,000,000 for the year representing more than 110% free cash flow conversion for the full year. Let's now take a closer look at each of our segments. Our Laboratory Solutions segment grew sequentially on an organic basis and continues to show resilience. Our commercial intensity is driving share gains with meaningful new contract wins and expanded customer relationships.

[Michael Stubblefield, President and CEO at Avantor]

Across our customer base, we are seeing increased engagement signaling a return to normalcy. The academic end market remains strong and many of our large pharma customers have worked through their pipeline reprioritization. These customers are now ramping up investment in preclinical activities supporting a return to growth in 2025. As anticipated, our Bioscience Production segment returned to growth in Q4 with organic growth of over 4%, driven by continued momentum in bioprocessing, which grew high single digits. The strong finish coupled with a robust order book supports continued improvement and growth in 2025.

[Michael Stubblefield, President and CEO at Avantor]

As a reminder, our bioprocessing business has leading positions in process chemicals, excipients and single use fluid handling. The vast majority of this business is consumable in nature and our customer driven innovation model continues to develop products that are inherently sticky. In addition to our strong operating results this quarter, we made important strides in advancing our long term growth strategy. We significantly increased our portfolio with the introduction of new products and services. For example, we launched a new services offering to address capacity and space limitation challenges faced by many large pharma and biotech customers.

[Michael Stubblefield, President and CEO at Avantor]

This offering leverages cutting edge digital tools and generative AI to automate operational tasks, providing virtual assistance to researchers at their lab bench. Already this solution is supporting a top 10 global pharma client and reinforces our commitment to returning valuable time to scientists. We also introduced the new Masterflex MiniFlex panel mount pumps, further strengthening our fluid handling offering. And in our Total Science Solutions platform, we signed several new third party supplier agreements, enhancing our portfolio with differentiated technologies, including LGC standards, a leader in reference materials used across a wide range of industries, including pharmaceuticals, biotechnology, academia and environmental sciences. With this agreement, their 15,000 certified reference materials are now available to our customers in North America.

[Michael Stubblefield, President and CEO at Avantor]

Quantum SI, a leader in the protein sequencing space. We are proud to bring their single molecule next generation protein sequencing portfolio to market in The U. S. And Canada. And Novolytic, an innovator in molecular recognition technology.

[Michael Stubblefield, President and CEO at Avantor]

This is an exclusive global distribution agreement covering their proteometer platform, which is setting a new standard for efficiency and reliability in drug discovery, clone selection and more. And we continue to hit new milestones in manufacturing capacity and operational excellence. In the quarter, we completed the installation of a state of the art solutions manufacturing facility in Gvice, Poland. This expansion positions Avantor to meet the growing demand for outsourced buffer, media and clean in place products in the biopharma end market, resulting in lower costs and increased flexibility for our customers. Additionally, we leveraged advanced automation at our regional distribution center in Bridgeport, New Jersey to streamline workflows, reduce processing times and significantly increase order accuracy.

[Michael Stubblefield, President and CEO at Avantor]

I can tell you that the team is extremely focused on growing the business. A few weeks ago, I joined our America's Sales Conference, which brought together our sales associates in the region for a few days of training. Join us for the meeting where our most strategic suppliers who spent time showcasing their new products and offerings. It was energizing to touch and feel some of the new innovative products that will help us continue to deliver value to our customers. Before turning it over to Brent for a deeper dive into the financials, I want to highlight a few key points as we reflect on 2024 and look ahead to 2025.

[Michael Stubblefield, President and CEO at Avantor]

First, our capital allocation has been primarily focused on bringing our adjusted net leverage comfortably below three times. Between our strong free cash flow and the proceeds from our clinical services divestiture, we were able to pay down $1,300,000,000 of debt in 2024, taking our net leverage down to 3.2 times, a significant reduction from nearly four times at the start of the year. Deleveraging remains our top priority and we believe that maintaining a capital structure sustainably below three times is optimal for our business. Once we achieve that, we'll be focused on a balanced value driven capital allocation approach. We are entering 2025 with strong momentum and a clear focus on innovation driven growth, margin expansion and deleveraging.

[Michael Stubblefield, President and CEO at Avantor]

Our end markets are improving, our new operating model is driving greater efficiency and our cost transformation program is tracking ahead of schedule. Through a combination of outstanding commercial execution and a continued focus on self help actions, we are well positioned to make $20.25 a year of growth. I'll now turn it over to Brent.

[Brent Jones, EVP & CFO at Avantor]

Thank you, Michael, and good morning, everyone. I'm starting with the numbers on Slide five. Fourth quarter reported revenue was $1,690,000,000 taking into account a $40,000,000 impact from the divestiture of our clinical services business, which closed in mid October, together with the impact of FX, we delivered organic growth of 1%. Sales trends in our laboratory solutions segment were stable compared to Q3. While seasonal impacts were muted, the business continues to show resilience as end markets continue to recover.

[Brent Jones, EVP & CFO at Avantor]

Within our Bioscience Production segment, bioprocessing outperformed expectations for the fourth straight quarter with high single digit growth. Adjusted gross profit for the quarter was $564,000,000 representing a 33.4% adjusted gross margin, which is flat versus Q3 and a modest improvement versus prior year. Our gross profit was impacted by the clinical services divestiture, inflation and negative fixed cost leverage. However, we were able to partially offset these effects with improved mix and productivity efforts and we continue to work diligently on reducing our cost base. Adjusted EBITDA was $3.00 $8,000,000 in Q4, representing an 18.2% margin, which was at the high end of our expectations and a solid improvement sequentially and year over year.

[Brent Jones, EVP & CFO at Avantor]

This is particularly encouraging given the approximately 40 basis point margin headwind from our clinical services divestiture in October. Our cost transformation initiative, which continues to drive meaningful savings, was an important contributor to our margin performance. Adjusted operating income was $279,000,000 at a 16.6% margin in line with adjusted EBITDA performance and a modest improvement both sequentially and versus prior year. Interest and tax expenses were in line with our expectations. As a result, adjusted earnings per share were $0.27 for the quarter, a $0.01 sequential and $0.02 year over year improvement.

[Brent Jones, EVP & CFO at Avantor]

Our adjusted EPS performance in the quarter reflects the flow through of our adjusted EBITDA results as well as continued reductions in net interest expense. Interest expense favorability was driven by incremental debt pay down from the clinical services divestiture and outperformance and free cash flow. Moving to cash flow, we generated $222,000,000 in free cash flow in the quarter, which represents a conversion rate of over 115%. Our free cash flow performance was enhanced by continued disciplined working capital management enabled by the Avantor business system. In Q4, we paid down over $750,000,000 of debt and our adjusted net leverage ended the quarter at 3.2 times adjusted EBITDA.

[Brent Jones, EVP & CFO at Avantor]

As Michael noted earlier, deleveraging remains our top capital allocation priority and we continue to target adjusted net leverage sustainably below three times. Turning to the full year results on Slide six. Reported revenue was $6,780,000,000 representing a 2% organic revenue decline versus prior year in line with the low end of our original guidance. Adjusted gross profit for the year was $2,290,000,000 representing a 33.8% adjusted gross margin. Adjusted EBITDA was $1,200,000,000 in 2024, representing a 17.7% margin at the high end of our guidance range.

[Brent Jones, EVP & CFO at Avantor]

Adjusted operating income was $1,090,000,000 at a 16.1% margin. Putting all of this together, adjusted earnings per share came in at $0.99 for the year. Despite the challenging macro environment, we were able to achieve the midpoint of our original EPS guidance. We generated $768,000,000 in free cash flow in 2024, inclusive of approximately $100,000,000 of transformation related spend. Excluding the spend, we generated $865,000,000 of adjusted free cash flow, significantly exceeding our original full year guidance range of $600,000,000 to $650,000,000 For the full year, our free cash flow conversion was over 110%.

[Brent Jones, EVP & CFO at Avantor]

As I mentioned earlier, we paid down $1,300,000,000 in debt this year and exited 2024 with adjusted net leverage of 3.2 times adjusted EBITDA, so we are well on our way to our sub three times target. Laboratory solutions revenue was $1,130,000,000 for the quarter, a decline of 1% versus prior year on an organic basis. Sequentially, sales grew modestly. Encouragingly, we had strong performance in proprietary chemicals and specialty procurement sales, particularly to our biopharma and healthcare customers. However, the customary seasonal increase in activity levels was muted given the macro backdrop and the timing of holidays.

[Brent Jones, EVP & CFO at Avantor]

For the full year 2024, laboratory solutions revenue was $4,610,000,000 a decline of 2% versus 2023 on an organic basis. Adjusted operating income for Laboratory Solutions was $147,000,000 for the quarter with a 13.1% margin. Adjusted operating income margin increased 20 basis points from Q3 despite headwinds from our clinical services divestiture. This margin expansion was driven by fixed cost leverage from sequential volume growth as well as continued savings from our cost transformation initiatives. For the full year 2024, laboratory solutions adjusted operating income was $598,000,000 with a 13% margin.

[Brent Jones, EVP & CFO at Avantor]

Bioscience production revenue was $561,000,000 in Q4, which represents organic growth of 4% versus prior year and a meaningful sequential acceleration. Bioprocessing representing about two thirds of the segment outperformed expectations once again with high single digit growth. We also saw another strong quarter of order intake with orders increasing meaningfully on a sequential basis. Our silicones offering grew double digits, while electronic materials was stable sequentially with an expected year over year decline. Adjusted operating income for bioscience production was $149,000,000 for the quarter, representing a 26.6% margin.

[Brent Jones, EVP & CFO at Avantor]

On a sequential basis, adjusted operating income was up 120 basis points due to fixed cost leverage from volume growth as well as favorable mix. With that, I will move to 2025 guidance. Building on Michael's opening remarks, we are entering 2025 well positioned for growth. The implementation of our new operating model, the progress of our cost transformation initiatives and encouraging trends we are seeing across key end markets, particularly bioprocessing, all give us confidence in forecasting organic revenue growth, continued margin expansion and double digit EPS growth in 2025. For the full year, we expect organic revenue growth of 1% to 3%.

[Brent Jones, EVP & CFO at Avantor]

Our clinical services divestiture represents a 2% headwind and based on current spot rates, we expect another 2% headwind from FX. This leads to a reported revenue decline of negative 3% to negative 1%. This view reflects continued order momentum in bioprocessing, stability in our lab business and customary contributions from price. On a segment basis, we expect low single digit organic growth in lab solutions and mid single digit organic growth in bioscience production. Importantly, we also expect bioprocessing to grow mid to high single digits in 2025.

[Brent Jones, EVP & CFO at Avantor]

Moving to profitability. We expect adjusted EBITDA margins of approximately 18% to approximately 19%, a solid improvement from our twenty twenty four second half exit rate of 17.9%. This performance is driven by price, favorable mix and continued execution of our multi year cost transformation initiative offset by inflation. And as we've discussed, this is after the impact of the clinical services divestiture, which is approximately 40 basis points dilutive to our margins. Our structural cost improvement initiatives are clearly taking hold.

[Brent Jones, EVP & CFO at Avantor]

We exited 2024 with over $130,000,000 of in year savings and an exit run rate of approximately $165,000,000 Thanks to the team's strong focus and execution, our in year savings were meaningfully higher than our original estimate of $75,000,000 In 2025, we expect to generate an incremental $75,000,000 of in year gross savings and intend to exit 2025 with run rate savings in excess of $250,000,000 well on our way to achieving our goal of a $300,000,000 exit rate in 2026. I would like to address our target to achieve 20% adjusted EBITDA margins by the end of twenty twenty five or approximately 19.6% when adjusting for the impact of the clinical services divestiture. As we have said, we can make substantial progress towards this target with the self help impact of our cost transformation initiative. Given our meaningful fixed cost base, we also need continued end market recovery to achieve the target. Encouragingly, we have line of sight to exiting at this rate if we are able to achieve the high end of our revenue range.

[Brent Jones, EVP & CFO at Avantor]

Continuing down the P and L, our continued strong conversion to cash together with the proceeds of the clinical services divestiture have accelerated our deleveraging and helped materially reduce interest expense. We expect interest expense to improve in 2025 by roughly $30,000,000 to $40,000,000 year over year, resulting in approximately $180,000,000 to $190,000,000 of interest expense. We anticipate our tax rate will be similar to 2024 at 22.5%. Our adjusted EPS range is $1.02 to $1.1 10 percent year over year growth at the midpoint after accounting for the $0.03 impact of our clinical services divestiture. This is in line with our long term algorithm and reflects the strong earnings power of our business.

[Brent Jones, EVP & CFO at Avantor]

We expect free cash flow performance of $650,000,000 to $700,000,000 prior to any one time cash expenses associated with our cost savings initiative. While lower than 2024, which benefited from exceptional improvements in working capital performance, this represents approximately 95% conversion of adjusted net income solidly in line with our entitlement. A few final comments on phasing. In the first quarter, we expect organic revenue for the enterprise to be flat. On a segment basis, we expect lab solutions also to be flat, while bioscience production will grow modestly with bioprocessing expected to grow mid to high single digits.

[Brent Jones, EVP & CFO at Avantor]

Reported revenue is expected to decline low single digits and adjusted EBITDA margin is expected to be in the low to mid-seventeen. Q1 is historically the softest quarter of the year for us and our industry. In the first quarter this year, we are also facing fewer selling days, electronic materials headwinds year over year and uncertainty due to the macro environment. Our full year guidance contemplates a continued sequential increase in reported and organic revenue dollars each quarter. As is typical, this result in approximately 49% of our revenue in the first half of the year and 51% of our revenue in the second half of the year.

[Brent Jones, EVP & CFO at Avantor]

We anticipate that our margins will increase each quarter as well, particularly in the second half as the incremental benefits of pricing, volume growth and transformation savings are realized. Lastly, we are modeling interest expense of approximately $50,000,000 in the first quarter. This will continue to trend down each quarter as a result of incremental debt pay down. We believe this guidance is a well balanced combination of prudence and confidence in the outlook for our business. With that, I will turn the call back to Michael.

[Michael Stubblefield, President and CEO at Avantor]

Thank you, Brent. Before we jump into Q and A, I want to thank our more than 13,500 associates across the globe for helping us deliver a great 2024. The progress we made this year implementing a new operating model and transforming our cost structure was significant and set us up for even greater success in 2025 and beyond. With the successful transformation of our business into two complementary segments aligned with our customers' needs in the lab and production environments, we are better positioned than ever to execute on our growth strategy. Today, we support more than 300,000 labs around the world in 180 countries and have more than 2,500 on-site service associates working every day in customer labs.

[Michael Stubblefield, President and CEO at Avantor]

Our unparalleled footprint gives us privileged access and important insights into the challenges customers are working on, insights we feed directly into our innovation pipeline. And our access to early phase research and development and design activities allows us to seed our custom proprietary materials into their production processes. We call it our beaker to bulk strategy and the model really works. Our global footprint has also enabled us to establish a highly resilient supply chain featuring tremendous flexibility and redundancy built into our sourcing and manufacturing strategies. We plan for a wide range of scenarios and we know that things can change quickly, so we will continue actively monitoring developments and rapidly make any adjustments as needed.

[Michael Stubblefield, President and CEO at Avantor]

I am encouraged by our setup for 2025. Our sustained commercial intensity and cost transformation initiative drove sequential momentum throughout 2024. We have a solid plan for the year and I am confident that we will continue to execute well. We expect a return to organic growth across the business, continued margin expansion and double digit EPS growth. We will continue our best in class cash generation accelerating our deleveraging.

[Michael Stubblefield, President and CEO at Avantor]

We delivered on our commitments for 2024 and I expect us to do the same in 2025. I will now turn it over to the operator to begin the question and answer portion of our call.

[Operator]

Thank you. We will now begin the question and answer session. Our first question comes from Vijay Kumar with Evercore ISI. Please go ahead Vijay.

[Vijay Kumar, Senior Managing Director at Evercore ISI]

Michael, good morning. Thanks for taking my question. I guess at a high level, when I look at bioprocessing, some pretty good trends here in Q4. What were order trends in the quarter? And when you look at the guidance mid to high singles, there is a range when your exit rate is high singles.

[Vijay Kumar, Senior Managing Director at Evercore ISI]

So I'm curious, was there any pull forward of orders ahead of tariffs or any macro uncertainty? Just if you can elaborate on bioprocessing assumptions.

[Michael Stubblefield, President and CEO at Avantor]

Yes. Good morning, Vijay. Thanks for the question. Yes, we agreed. We had a really strong finish to the year in bioprocessing.

[Michael Stubblefield, President and CEO at Avantor]

With high single digit growth in the quarter which builds on four consecutive quarters of outperformance for us, nothing really unusual in terms of how that quarter developed. I don't think we have any evidence that there was a significant pull forward. The quarter played out pretty much in line with our expectations. And I would just indicate that the underlying market fundamentals continue to be quite strong. Destocking has largely subsided.

[Michael Stubblefield, President and CEO at Avantor]

Production levels have improved. We continue to see record levels of approval. So strong order intake another great quarter there. With two to three months lead times, we're seeing that translated to revenue real time. Our experience in 2024, Vijay, was one of kind of gradual improvements and that's kind of what we planned on for 2025.

[Michael Stubblefield, President and CEO at Avantor]

And we enter the year with good momentum in an order book that sets us up for sustained recovery as we move through the year.

[Operator]

Our next question comes from Michael Ryskin with Bank of America. Please go ahead.

[Michael Ryskin, Analyst at Bank of America]

Thanks. Just quick one following up on that, Michael, just because you said sustained recovery through the year in BP, but you are guiding to mid single, high single for the first quarter for bioprocess and mid single, high single for the full year. So is it just a matter of comps or just some concerns, just some clarification question there. But then my actual question is going to be on the margins, Brent. Eighty bps year over year is the guide for 2025.

[Michael Ryskin, Analyst at Bank of America]

You're pointing to 18.5 at the midpoint. But one, you are giving a wide range on the margins, a little bit wider than you have in the past in terms of its 100 bps range. Just curious why that's there? And also thoughts on margins beyond that. I think you talked about you're exiting you're going to have an excess of $250,000,000 in savings through '25, '3 hundred million dollars is the goal exiting $26,000,000 so you're executing on some cost savings faster than you anticipated.

[Michael Ryskin, Analyst at Bank of America]

Is that just a matter of timing or is it one of those things where as you're going through the business you're finding more and more than you thought you would, so maybe there's some upside to that $300,000,000 number for 2026? Thanks.

[Michael Stubblefield, President and CEO at Avantor]

All right. Thanks, Michael. I'll do my best here to try to unpack some of that and let Brent cover your questions on margins. When I think about our experience to date on bioprocessing, recovery has been incremental, which as I said before probably more sustainable. There's great pipelines across all modalities, mAbs, with a lot of exciting things in ADCs and biosimilars, cell and gene therapies looking pretty good as well.

[Michael Stubblefield, President and CEO at Avantor]

And look, we're ubiquitous across all these modalities and we continue to drive high penetration across new therapies and we continue to put more content on each new molecule. As I think about the progress sequentially and moving into 2025, as we said Q1 tends to be the low point for the year and we think mid to high single digit target for that business for the quarter is a prudent place to start and we would contemplate or expect gradual improvement off of that as we move through the year.

[Brent Jones, EVP & CFO at Avantor]

Okay. Hey, Michael, thanks for the question. So, and you had a few pieces to it there, but on the margin side, look, that's always sort of the art of where the point of that's going to be. We had that range frankly with our round numbers made sense and we didn't want a sense of false precision there. I mean, I think zeroing in on the midpoint is as you often do that makes a lot of sense there.

[Brent Jones, EVP & CFO at Avantor]

The this platform does have meaningful fixed costs and we get real leverage on that. The other thing there is if we get sales at the top end of the range there, you will see us convert even better. So that's the other reason for some breadth to the range there. And you made the comment on the cost savings, which I think both is very fair. We've I don't know that it's necessary that we found more, but this place can be very action oriented if we've seen opportunities we've executed against them because it's much better to get the cost savings in an earlier period.

[Brent Jones, EVP & CFO at Avantor]

I don't think I would call for the program to outperform quite yet, but I think you'll see very strong continued momentum there. So I just think everyone should feel comfortable that we're leaning into that self help as much as we can.

[Operator]

The next question comes from Dan Brennan with TD Cowen. Please go ahead. Your line is now open.

[Daniel Brennan, Analyst at Cowen]

Great. Thank you. I wanted to ask a question on the lab side of the business. I know in the prepared remarks you talked about, I think you mentioned macro and holidays, but it was a bit light in the fourth quarter down one. I think you had guided for flat to up low single.

[Daniel Brennan, Analyst at Cowen]

So just some more color on how that how the quarter progressed versus expectations? And then similarly, if we think about your guidance for 2025, I think you talked about low single. Just would love to find out what are the puts and takes around that low single? And then I have a follow-up.

[Michael Stubblefield, President and CEO at Avantor]

Yes, great. Thanks for the question, Dan. So as we think about the context for our lab performance in 2024, we entered the year assuming that 49% of our revenues would come in the first half, 51% would come in in the second half really driven off of kind of normal seasonality as we move through the end of the year. And that's what was implied from the beginning. Based on a more muted seasonal ramp which contemplated by the low end of our guide that's clearly where we fell.

[Michael Stubblefield, President and CEO at Avantor]

Brent mentioned a few factors. Obviously, there's a bit of noise in the macro environment at the moment. We were uncertain given kind of

[Michael Stubblefield, President and CEO at Avantor]

a midweek holiday there at

[Michael Stubblefield, President and CEO at Avantor]

the end of the year how that would impact things. Activity levels were certainly muted as we move through the last week or two of the year and there really wasn't much of a budget flush outside of high end instrumentation which isn't really a big part of our portfolio. But so I would say the quarter played out generally in line with our original expectations and I think underscores the resiliency of the business. The other thing I would say Dan is the quarter for me really highlights just how the model is starting to work again. You see nice margin expansion as mix continues to improve.

[Michael Stubblefield, President and CEO at Avantor]

Certainly the cost actions are flowing through. We continue to have best in class fee cash flow conversion margins at the high end of the guide delivering on our EPS guidance from beginning of the year. So I think there's a lot to like about the quarter here and some good evidence that the model is starting to work again.

[Operator]

Our next question comes from Rachel Van Stahl with JPMorgan. Please go ahead, Rachel. Perfect. Good morning. Thank you for taking

[Rachel Vatnsdal, Analyst at JPMorgan Chase]

the questions, you guys. So So I wanted to ask on some questions related to the new administration and policy impacts. You've had a number of your peers call out a certain level of prudence embedded in their guide for risks related to this new administration and potential policy changes. I didn't necessarily hear that in your prepared remarks at all. So can you talk about, have you embedded anything for policy risks into this guidance?

[Rachel Vatnsdal, Analyst at JPMorgan Chase]

And then along those lines, given some of the headlines we've seen so far to start the year with things like NIH budget freezes and RFP nominations, Have you seen any changes in customer behavior related to your academic and government or pharma and biotech customer base?

[Michael Stubblefield, President and CEO at Avantor]

Yes. Thanks for the questions, Rachel. I think all really relevant topics, of course. A few things on the new administration. Just to call your attention to the obvious fact it's only been a couple of weeks since they've been in office.

[Michael Stubblefield, President and CEO at Avantor]

It's obviously early days. On one hand, I think we're excited about the overall business environment that this administration is likely to create which is expected to be more business friendly and focused on economic growth. Specific to NIH funding, certainly hearing a lot of ideas being discussed, nothing formal yet in terms of funding plans or policies. As we've said before, we have relatively modest direct exposure to NIH, but of course, particularly in the academic segment we know that some of our customers do rely on that funding for their programs. But from the language we've seen so far and the areas that are likely to be impacted it doesn't appear to us that it's areas where we would have significant exposure.

[Michael Stubblefield, President and CEO at Avantor]

And at the end of the day, I think what gives me the confidence here in our outlook for the year is good science continues to get funded. And we'll of course continue to monitor the environment and adjust accordingly. But I think net net it's hard to predict exactly what all these policies that are being bantered about ultimately have. But to the extent that it creates a more positive business environment we would think that would be constructive. And of course, we'll continue to look to leverage our broad footprint and flexibility to ensure we continue to deliver value to our customers.

[Operator]

Our next question comes from Doug Schenkel with Wolfe Research. Please go ahead, Doug.

[Madeline Mollman, Senior Associate - Equity Research at Wolfe Research, LLC]

Hi. This is Madeline on for Doug. It seems like bioscience and bioprosting in particular have been starting to have a bit of a resurgence, while based on the fourth quarter and also the guidance, the lab business has been more under pressure for both you and peers. If this trend continues and exacerbates, how could that impact margins? And could that be an area of upside for margins versus the guide?

[Brent Jones, EVP & CFO at Avantor]

Yes. I mean, it look, going back to the original comment or the comments I made to a couple of questions ago, I mean, we do have fixed costs. And absolutely if you have less in the lab, we will under absorb against those fixed costs. So I think that's pretty arithmetic. I think when you look at our guidance, we look at all kinds of scenarios and I think we've been very prudent about that.

[Brent Jones, EVP & CFO at Avantor]

But we also got questions about the breadth of the ranges here. If we do see a resurgence there both that absolutely would allow better conversion. I mean, you see just what a modest increased organic growth does for this business against margin across both sides of it there. And obviously, you come in with higher margins on the bioscience side of it. So, it's easier to see those impacts.

[Brent Jones, EVP & CFO at Avantor]

But even a moderate increase in growth in lab will be very nice for margins here.

[Operator]

Our next question comes from Tycho Peterson with Jefferies. Please go ahead, Tycho.

[Tycho Peterson, Managing Director at Jefferies Financial Group]

Hey, thanks.

[Tycho Peterson, Managing Director at Jefferies Financial Group]

I want to probe on a couple of things. So academic government down low single digit, but Michael, you did call out academic as strong. I'm just is that K through 12? And I think usually that's a 3Q benefit, not a 4Q benefit. So curious about that.

[Tycho Peterson, Managing Director at Jefferies Financial Group]

And then you flagged share gains for lab. Curious where you're kind of seeing the most in terms of gains. And then lastly, just bioprocess, mid to high single digits consistent with some of your peers, but others are firmly kind of endorsing high single digits. So what's your view on kind of market growth and how much conservatism I guess is what everybody is trying to figure out in that mid single digit low end of the range? Thanks.

[Michael Stubblefield, President and CEO at Avantor]

Yes. Thanks for the question, Tycho. Let's unpack there. Starting with our education and government performance, that's been a real bright spot for us throughout the year. As I said in my prepared remarks, it can be a bit lumpy.

[Michael Stubblefield, President and CEO at Avantor]

I think you've got the phasing on our K-twelve exposure about right. So that piece certainly would have been down sequentially relative to just the normal timing of when those K-twelve districts update their curriculum and the materials. But was that a track record here now over a couple of years of sustained commercial intensity that is clearly leading to outperformance in our higher education platform? I think with some of the macro noise and some of the expected changes with the new administration, the government piece was a bit weak in the quarter. But we continue to I think be quite confident about the work we're doing on the education side of that business.

[Michael Stubblefield, President and CEO at Avantor]

When you think about the guide and the outlook for bioprocessing, I think I'd say a couple of things. One, we're assuming Q1 is a low point and things will improve from there. Of course, the comps get a little bit more difficult as you move through the year as well. But we view 2025 as a year of continued gradual improvement. We really like the setup for the year strong order book strong momentum.

[Michael Stubblefield, President and CEO at Avantor]

I think we're trying to be prudent here out of the gate and just reflect some of the macro environment. And obviously we'll be pushing to grow that business as fast as we can. But we like the positioning. We like the setup. We had a great finish to the year.

[Michael Stubblefield, President and CEO at Avantor]

I think we're encouraged by where we're at.

[Operator]

The next question comes from Luke Surgott with Barclays. Please go ahead, Luke.

[Luke Sergott, Analyst at Barclays Capital]

Great. Thanks, guys. Just kind of like following up on what everybody is trying to figure out is starting the year slower than what was expected. And then so it implies another pretty sequential impressive ramp throughout the year, bioprocessing maintaining your growth. And so as you look across the rest of the book, what is going to get better?

[Luke Sergott, Analyst at Barclays Capital]

And what gives you what's the visibility on that, like especially as you think about U. S. Semis and the government funding etcetera with labs?

[Michael Stubblefield, President and CEO at Avantor]

Yes. Luke, a couple of things. One, I'd reiterate kind of the phasing that we've implied in our guidance today, which is typical for our business, 49% of our revenue in the first half '50 '1 percent of our revenues in the second half. So not a lot of ramp here implied in our numbers. I think from a bioprocessing standpoint we see mid single digit growth to high single digit growth in the first quarter as well as on a full year basis, which given that comps improve or get more challenging as we move through the year, that just reflects good steady improvement from that end market as things continue to normalize.

[Michael Stubblefield, President and CEO at Avantor]

In the lab business, we've contemplated relatively stable end market conditions. We're not really expecting or needing any heroics to occur there for us to deliver on our guide with an assumption that we'll realize normal contributions from price. And that phases in as we've talked about in previous years as we move through the first quarter and should be in place fully by the time that we get into the second quarter. So those are some of the puts and takes Luke on how I think about the setup for the year. So hopefully that's helpful to you.

[Operator]

Our next question comes from Patrick Donnelly with Citi. Patrick, please go ahead. Your line is now open.

[Patrick Donnelly, Analyst at Citigroup]

Hey, guys. Thanks for taking the questions. Maybe to

[Patrick Donnelly, Analyst at Citigroup]

follow-up a little bit on Luke there. I know you touched on the semi piece. Can you guys just kind of expand a

[Patrick Donnelly, Analyst at Citigroup]

little bit on what you saw in the quarter broadly in Advanced Technologies? I know the semi piece jumped out last quarter and bit the margins a little bit. Just the outlook on that part of the business as we work our way through the year impact the margins would be helpful. Thank you guys.

[Michael Stubblefield, President and CEO at Avantor]

Yes. Good question, Patrick. Firstly, let me just remind the group here that Semise is a relatively small part of our overall BPS segment. And as we talked about at the in the third quarter, the conditions in that end market, particularly with some of the incremental is how the quarter played out. So it wasn't an incremental headwind on a sequential basis to us.

[Michael Stubblefield, President and CEO at Avantor]

And as we think about what's factored into the guide for 2025, we've assumed that things will stay relatively stable at the levels that we saw in the second half of this year. So we'll not be baking in any recovery into that end market. It will be a pretty meaningful headwind to us in Q1. That was the high point of that market for the year. So we've got a pretty tough comp for our Sunrise business there.

[Michael Stubblefield, President and CEO at Avantor]

And so that's also part of what we've contemplated in our guide there that offsets the good momentum on our Nusil platform and our bioprocessing platform. But we continue to stay close to our customers and I think we're encouraged to see that things have stabilized a bit here, but not really anticipating any recoveries that move through the year.

[Brent Jones, EVP & CFO at Avantor]

Patrick, I'd just add on you. You had a piece about margins in connection with semis there. And what we had commentary last quarter that was more about a surprise versus where that went. But when you think about what the setup for 2025 is here and what that means with this level of bioprocessing growth, which with this level of bioscience growth that will definitely have us mixing up and you can see that into the margin guide. So just wanted to be clear that you don't see the comments on electronic materials there as problematic to margin in the year.

[Brent Jones, EVP & CFO at Avantor]

It's absolutely baked into our expectations.

[Operator]

Our next question comes from Tejas Savant with Morgan Stanley. Please go ahead.

[Tejas Savant, Analyst at Morgan Stanley]

Hey, guys. Good morning and thanks for taking the time here. Brent, a couple of quick cleanups on the guide for you. Can you just remind us of how, the 200 bps FX headwind on the top line impacts EBITDA and then the EPS line? And second, bioprocessing, a lot of questions here.

[Tejas Savant, Analyst at Morgan Stanley]

But Michael, can you confirm that in steady state, you still expect that to be a double digit grower for you? And then lastly, on M and A, you know, you guys have been pretty cautious on sort of reprioritizing that. Brent, you mentioned cost outs and debt pay downs. That said, a lot of your peers are opportunistically dusting off their M and A playbooks given a more benign regulatory backdrop and and a decent rate environment. And you don't want to presumably sort of miss the boat, so to speak, on the pick of the litter, right, among the assets out there.

[Tejas Savant, Analyst at Morgan Stanley]

So could we see you sort of revisit that strategy a little bit sooner than you've indicated recently? Thank you.

[Brent Jones, EVP & CFO at Avantor]

So here, real quick on the modeling cleanups there, Tayla. So the we're more than 50% to U. S. Dollar in our business, but but we have seen an exposure to the euro. So you'll see in the footnotes on the page there that we're modeling based off euro dollar of $1.03 Now what we realized in 2024 was 1.08 So that is that's what on the math basis gets you to about a 2% headwind.

[Brent Jones, EVP & CFO at Avantor]

So that's kind of $135,000,000 of revenue as that rolls down that would be approximately $25,000,000 of EBITDA, $0.03 of EPS. So that's the FX modeling impact.

[Michael Stubblefield, President and CEO at Avantor]

And then, Tay, just think before I clean up your other two questions you had. Firstly, on bioprocessing, yes, I think our conviction level on double digit growth for that platform is still fully intact. As we highlighted at a recent conference earlier in the year, we like of course the position we have today with more than 85% penetration of the commercialized platforms. And as we look ahead, we see that growing to over 90% including five of the five top blockbusters. So very, very strong positioning.

[Michael Stubblefield, President and CEO at Avantor]

Our innovation engine is hitting on all cylinders there. And we continue to have strong conviction on how that end market will play out for us over the long term. From an M and A standpoint, good question. Obviously, we've been squarely focused on paying down debt. We paid down well over $2,000,000,000 over the last couple of years.

[Michael Stubblefield, President and CEO at Avantor]

And our leverage stands at 3.2 times as we enter 2025. So we'll definitely get below three times at some point this year. And as we said in our prepared remarks at that point we'll certainly have some flexibility here. As it relates to M and A that remains an important part of our long term playbook and we continue to be active in building our pipelines and linking those pipelines to our business strategies. And I think we have some clear areas of focus where we think we can add significant value over time.

[Michael Stubblefield, President and CEO at Avantor]

But I would reiterate that we are committed to running the business sustainably below three times. And so I think you'll see us be prudent here as we work through this transition into more flexible allocation policy.

[Operator]

Our next question comes from Connor McNamara with RBC Capital Markets. Please go ahead.

[Conor McNamara, Equity Research Analyst at RBC Capital Markets]

Great. Thanks for taking the question guys. Michael, you talked about the new distribution agreements at the start of the call. Can you just talk about the impact of those agreements to your overall third party business? And if that business is down in the quarter end of the year, how should we think about longer term when that returns to growth?

[Conor McNamara, Equity Research Analyst at RBC Capital Markets]

And then just are these new agreements margin accretive to the third party business?

[Michael Stubblefield, President and CEO at Avantor]

Yes. Really great questions, Connor. Thanks for bringing that up. So as we think about the setup for our lab business for the year, we're anticipating low single digit growth for that platform in 2025. So we're certainly looking forward to returning that to to organic growth.

[Michael Stubblefield, President and CEO at Avantor]

Our algorithm, our long term growth algorithm contemplates that business being low to mid single digit growth. So certainly we're starting to get into that envelope where things are certainly normalizing. And one of the important attributes on how you grow that business of course is ensuring that you have the right portfolio to bring differentiated technologies to your customers to help them solve their most current challenges. And so we have a very, very vibrant innovation portfolio and that includes the work we do in our own R and D centers and bringing those technologies into the market. But of course an important part of the model is working with the supplier community to help them bring their innovations to to the market.

[Michael Stubblefield, President and CEO at Avantor]

And so really we're just trying to highlight for you today some of the more notable milestones in that regard in the quarter. And each one of these is somewhat incremental in nature and we would on average launch roughly 100,000 new products a year Connor. And so you can kind of get a sense there for how important this is to our business. And I think it is just another good data point that shows the focus that our new operating model is bringing us and the setup that we have going into the year. So with some of these new technologies who supply arrangements together with the impact of pricing, we are looking forward to having that platform grow again for us here as we move into 2025.

[Operator]

Our next question comes from Matthew Sykes with Goldman Sachs. Please go ahead.

[Ivy Yan, Analyst at Goldman Sachs]

Hi, this is Evie on for Matt. Thanks for taking my questions. So I understand there is a more muted impact seasonally in 4Q, but can you talk about what you're seeing in terms of large pharma versus emerging biotech customer cohorts? And then any puts and takes you could provide there?

[Michael Stubblefield, President and CEO at Avantor]

Yes, happy to. So I think it's kind of a teller to cities if you will there. We are rather encouraged by what we're seeing out of large pharma. There's been quite some notable headwinds there on preclinical activities as they've been reprioritizing pipelines and working through a number of adjustments to their spend and such. And

[Michael Stubblefield, President and CEO at Avantor]

now for

[Michael Stubblefield, President and CEO at Avantor]

a couple of quarters in a row, we're starting to see large pharma return to growth and we actually had a pretty nice quarter with large pharma in our lab business and seeing across that space both in Europe as well as in The Americas a nice return to growth there. On the other end of the spectrum of course is the biotech activities and we know that on a year over year basis biotech funding was up, but it probably doesn't tell the whole story. It took a pretty meaningful jump in Q1 of last year and it fell sequentially each and every quarter through the end of the year. And so activity levels there continue to be a bit bifurcated. We see some of the more established biotechs doing okay and growing.

[Michael Stubblefield, President and CEO at Avantor]

But the traditional startup, we're not seeing the same level activity there as what we would normally expect. So that continues to be a bit of a headwind for us. But we are encouraged by some of the activity levels we're seeing across the space particularly and notably the momentum we're seeing with large pharma pickup again.

[Operator]

Our next question comes from Brandon Couillard with Wells Fargo. Please go ahead Brandon.

[Brandon Couillard, Managing Director at Wells Fargo]

Thanks. Good morning. Brent, just a clarification. I think you mentioned fewer selling days in the first quarter. Is that down sequentially as well?

[Brandon Couillard, Managing Director at Wells Fargo]

Could you just quantify the contribution and the impact relative to the flat organic guidance? Are there any other variances to be aware of as we move through the year?

[Brent Jones, EVP & CFO at Avantor]

The on Q1 that's down year over year, it's not down sequentially there, but certainly that does have an impact. It's not worth a full year figure there. But no, I think when you think about the Q1 setup there, again, we're talking about lab being very lab being stable. We recognize there's the other noise out here, but there are always puts and takes in the business there and then you blend that with bioscience being up mid there and I'm sorry, bioprocess of mid to high. And just we're being cautious about the quarter and I don't think that makes us an outlier with what you're hearing from other people there, caution on Q1.

[Operator]

Our next question comes from Jack Meehan with Nephron Research. Please go ahead, Jack.

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

Thank you and good morning. Two quick follow ups. One was just on the model for Brent. Interest expense $50,000,000 in the fourth quarter. Was there anything one time in the $45,000,000 in 4Q or why would it step up sequentially?

[Jack Meehan, Equity Research Analyst at Nephron Research LLC]

And then for Michael, just any comments on the education market, which declined low singles in the quarter. Was that just seasonal factors in the holidays or something else that you're seeing there? Thank you.

[Brent Jones, EVP & CFO at Avantor]

Yes, Jack, we had there's a little bit of accounting in the interest expense there with unamortized fees going through. And we also do have a decent amount of euro debt, so you have FX running through it there. And our guide to the year is

[Brent Jones, EVP & CFO at Avantor]

180

[Brent Jones, EVP & CFO at Avantor]

to 190 there. So 50 when you have deleveraging throughout the year there that's just sort of it's kind of dollar cost average down for

[Brent Jones, EVP & CFO at Avantor]

the year.

[Michael Stubblefield, President and CEO at Avantor]

And then Jack your question on education, I think I shared some thoughts on this earlier. But just to reiterate, we continue to be very satisfied with the shared gains we're driving in the higher ed space. We're probably seven or eight quarters into that trend driven off of our sustained commercial intensity there. And we also had a note some good meaningful shared gains on the biopharma side of things as well in the quarter.

[Michael Stubblefield, President and CEO at Avantor]

A couple of things to note in 4Q, the K-twelve exposure that we have is a little bit more muted in the quarter particularly as you move sequentially just given how the districts manage their curriculum updates and such. The government piece was somewhat muted presumably owing to some of the uncertainty associated with the administration change. But the higher ed piece continues to be a bright spot for us and we would anticipate that momentum continuing into 2025.

[Operator]

Thank you. Those are all the questions we have time for today. I will now turn the call back over to Michael for closing comments.

[Michael Stubblefield, President and CEO at Avantor]

Yes. Thank you and certainly appreciate you all joining us today. Just to reiterate some of our key messages here as we turn to 2025. We are encouraged by our expectations of returning to the platform to growth. We're anticipating continued momentum and leadership in bioprocessing, another year of strong margin performance and leveraging our Avantor business system.

[Michael Stubblefield, President and CEO at Avantor]

You should expect continued disciplined and execution around our free cash flow generation. I think our guide at the midpoint here of double digit EPS growth is quite notable. And I think we're encouraged that we see our model working again and markets starting to cooperate again. So again appreciate you joining us today. Certainly look forward to updating you when we meet next.

[Michael Stubblefield, President and CEO at Avantor]

Until then be well everyone. Thank you.

[Operator]

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

Participants

Executives

• Allison Hosak, Senior VP - Global Communications
• Michael Stubblefield, President and CEO
• Brent Jones, EVP & CFO

Analysts

• Vijay Kumar, Senior Managing Director at Evercore ISI
• Michael Ryskin, Analyst at Bank of America
• Daniel Brennan, Analyst at Cowen
• Rachel Vatnsdal, Analyst at JPMorgan Chase
• Madeline Mollman, Senior Associate - Equity Research at Wolfe Research, LLC
• Tycho Peterson, Managing Director at Jefferies Financial Group
• Luke Sergott, Analyst at Barclays Capital
• Patrick Donnelly, Analyst at Citigroup
• Tejas Savant, Analyst at Morgan Stanley
• Conor McNamara, Equity Research Analyst at RBC Capital Markets
• Ivy Yan, Analyst at Goldman Sachs
• Brandon Couillard, Managing Director at Wells Fargo
• Jack Meehan, Equity Research Analyst at Nephron Research LLC