Avantor, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Initial Findings: The industry has strong tailwinds, but Avantor has a complex commercial structure and operational issues. The current share price doesn't reflect long-term value, so a $500 million share repurchase program was authorized.
• Avantor Revival Plan: Focuses on 5 pillars: 1) Evolve go-to-market strategy, evaluate brand architecture, refocus on distribution and enhance e-commerce. 2) Strategically invest in manufacturing and supply chain. 3) Scrutinize portfolio for core business focus. 4) Drive net cost savings and simplify processes. 5) Strengthen talent and accountability, with hires for COO, quality/regulatory, and CDO.

Segment Performance

• Laboratory Solutions: Revenue was $1.1 billion, down 5% organically year-over-year. Adjusted operating income was $124 million with an 11.3% margin. Impacted by services and higher education/K-12 headwinds, and competitive pressures. The market backdrop in lab is stable, but customer activity is lower than expected due to end market uncertainty.
• Bioscience Production: Revenue was $527 million, down 4% organically year-over-year. Bioprocessing was down low single digits, process chemicals up low single digits but lower than expected, single-use largely performed as expected, while CEC was weaker. Adjusted operating income was $128 million with a 24.2% margin, down due to lower volumes and operational headwinds like raw material availability and equipment uptime.

Guidance

• Full year organic revenue growth expected to be -3.5% to -2.5%, with reported revenue growth -4% to -3%.
• Lab Solutions full year organic revenue growth expected mid-single to low single digits down. Bioscience Production full year organic revenue growth expected low single digits down.
• Adjusted EBITDA margins expected in the mid-16s. Adjusted EPS guidance range $0.88-$0.92. Free cash flow expected $550M-$600M. $500M share repurchase program with opportunistic execution.

Risks

• Operational headwinds in bioprocessing including raw material availability, equipment uptime, and plant downtime.
• Market uncertainty affecting academic and government segments, with the U.S. government shutdown exacerbating challenges.
• Complex commercial structure and centralization leading to underperformance in serving customers.

Question and Answer

• Q: Vijay Kumar with Evercore ISI asked about confidence in fixing declines and when issues cropped up.

A: Emmanuel Ligner said it's fixable, focus on 5 pillars, new norms/cadence for better communication and execution.

• Q: Michael Ryskin with Bank of America asked about stemming share loss in Lab Solutions.

A: Emmanuel Ligner said Corey Walker's team is defending accounts, working on e-commerce and service level improvement in bioprocessing.

• Q: Tycho Peterson with Jefferies asked about pricing in lab market.

A: R. Jones said getting price against inflation, focusing on accreting operating income in lab.

• Q: Daniel Leonard with UBS asked about cost impacts of revival program.

A: Emmanuel Ligner said it's early days, hard to pin numbers, but focused on the revival plan to drive improvement.