Avantor, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Advantor Third Quarter Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Helen O'Donnell. Thank you. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us on today's call. Our speakers today are Michael Stubblefield, President and Chief Executive Officer, and Tom Slosek, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our investor website at ir.avantursciences.com. A replay of this webcast will also be available on our website following this call. Following our prepared remarks, we will open the line up for questions. I would like to note that we will be making some forward-looking statements within the meaning of the 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. These forward-looking statements speak only as of the date that they are made. And we do not assume any obligation to update these forward-looking statements, whether as a result of new information, future events and developments, or otherwise. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the appendix to the presentation. With that, I will now turn the call over to Michael.

Thank you, Helen, and good morning, everyone. We appreciate you joining our third quarter earnings call. Let's get right into the performance for the quarter. I'm on slide three. Organic revenue growth was 2.4% for the period, which reflected a couple of factors. First, our strong growth in the biopharma end market continued in the quarter. We were up 7% on an organic basis and are up 10% for the year. You may recall that biopharma represents approximately 50% of our annual revenues. and continued momentum in this end market is a critical element of our model. This growth was partially offset by a low single-digit decline in education and government, which had significant growth in 2018 driven by the initiation of a new customer contract. Tom will share more details later, but this contract affected the year-over-year comparison by more than 200 basis points. Turning to adjusted EBITDA, we continue to make excellent progress on managing product pricing relative to product cost inflation, and delivering the synergies from the VWR acquisition. However, the positive impact of these factors was offset by foreign currency headwinds and adverse product mix, which together diluted margins by approximately 100 basis points in the quarter. The one-off issue in education and government that I mentioned previously also contributed to the margin performance. We will provide more details in a few minutes, but we are confident that our long-term growth and margin expansion model is intact. Q3 was an excellent quarter for earnings growth, as our adjusted earnings per share increased 49%, driven by our operating performance and the ongoing benefits on interest expense from our deleveraging. We remain on track to deliver adjusted earnings in the range of 55 to 58 cents per share for the full year. It was also an outstanding quarter for cash flow generation and continued deleveraging. Our unlevered free cash flow in the quarter was 206 million. representing 127% of adjusted net income. Working capital was the main contributor to the free cash flow improvement. Net leverage declined to 4.8 times in the quarter, down from five times at the end of the second quarter and from seven times at the beginning of the year. In addition to the impact from the IPO earlier this year, we are on track to reduce leverage through operational performance by almost a full turn this year. While we are pleased with the progress we made in the quarter, there were some notable headwinds worth mentioning. The quarter started off somewhat slow, and we saw a modest tightening in capital expenditures, particularly in Europe. Industrial end markets, which represent approximately 25% of our revenue, also continue to be soft around the world. Despite these challenges, and excluding the one-time impact we encountered in our education and government end market, we were able to deliver mid-single-digit growth in our core business. Also, we were encouraged by the momentum of our business in September that has carried forward into the fourth quarter. Our exposure to biopharma, including the high-growth bioproduction space, our global presence, broad customer access, and a highly recurring revenue profile make for a resilient model that performs well across economic cycles. I am moving to slide four, where on the left you can see highlighted the sales growth, synergy execution, adjusted EPS growth, and continued balance sheet deleveraging that I previously discussed. I would like to take a minute to cover some non-financial highlights. We were pleased to expand our share of wallet with several existing BioPharma customers. One notable example is an existing account which we previously only served in Europe. After understanding the value our integrated offering brought to its European business, this global BioPharma customer decided to expand the contract on a worldwide basis. We also won multi-year contract extensions with several top-tier biopharma accounts and successfully onboarded several new customer accounts, including some important wins in CRO and education space. During the quarter, we began work to expand our innovation center in Bridgewater, New Jersey. By nearly doubling our footprint, we will be adding capabilities to support our customers in the areas of downstream processing and cell and gene therapy. We also began work to increase production capacity for high-purity, low endotoxin sugars used in both the upstream and downstream workflows of the biologics manufacturing process. We anticipate that this new capacity will be online by the end of 2020. Our digital offering remains a key driver for our business model, and continually enhancing user experience is a priority. We implemented additional improvements throughout the third quarter and see additional online traffic leading to revenue growth across our platform. In September, we announced that Bjorn Hoffman, the leader of our manufacturing and procurement teams, plans to step down from Avantor later this year to join New Mountain Capital, our private equity sponsor who continues to own approximately 20% of the company. Bjorn has been a valuable member of our executive team for the past five years, and we appreciate his contributions to our growth and execution. The good news is that Bjorn will be with us for as long as we need him and will be available to us even after his official transition. With Bjorn's departure, we are pleased to welcome Tanya Fox, who recently joined as Executive Vice President, Global Operations and Supply Chain. Tanya brings a wealth of experience in supply chain management from her prior roles at Johnson & Johnson, as well as at Avon, Walmart, and Ford. Her leadership and experience will be critical in helping us build a fully integrated end-to-end supply chain that will further strengthen our overall value proposition to our customers around the world. With that, let me turn it over to Tom.