Avantor, Inc.

Good afternoon. My name is Holly, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Avantour First Quarter 2020 Earnings Conference Call. After the speaker's remarks, we will have a question and answer session. To ask a question, please press star 1 on your telephone keypad. To withdraw a question, press the pound key. We do ask that you limit yourself to one question and one follow-up question. I will now turn the call over to Tommy Thomas, Vice President, Investor Relations. Mr. Thomas, you may begin the conference.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us in today's call. Our speakers today are Michael Stubblefield, President and Chief Executive Officer, and Tom Slozek, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our investor website, at ir.avantoursciences.com. A replay of this webcast will also be available on our website following this call. Following our prepared remarks, we will open up the line for your questions. I would like to note that we will be making some forward-looking statements within the meaning of the federal securities law, 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 may 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, Tommy, and thanks to all of you for joining us today for our first quarter earnings call. Tommy Thomas started with us in March, and we're excited to have him leading the Avantour Investor Relations Program. Welcome, Tommy. I want to acknowledge the impact that the COVID-19 pandemic has had in the time since our last earnings call. Our team is doing a terrific job managing the business, despite the challenges of the current situation. And during the call today, we will share details about our efforts to provide the mission-critical products and solutions our customers need, while also ensuring the safety and well-being of our associates. I hope that each of you and your families are staying safe during this unprecedented time. I'm starting on slide three with a brief review of Avantour's revenue profile. Our diversified revenue base, combined with the customized nature of our solutions, makes our business model very resilient, even in a recessionary environment. We are very well positioned for continued growth in Europe and the Americas, and we are investing to expand our capabilities in emerging markets throughout Asia, the Middle East, and Africa. More than 85% of our business is recurring, and approximately half of our revenue comes from the proprietary branded products and services. No single customer represents more than 3% of our revenue, and approximately two-thirds of our revenue is in the life sciences space in attractive end markets such as biopharma and healthcare. Moving to slide four, I want to provide some insights into our first quarter business highlights. As the COVID-19 pandemic emerged, we quickly mobilized a global steering committee of cross-functional leaders to drive a swift and collaborative response across our business with a focus on safely providing business continuity to our customers. Throughout the pandemic, our distribution, research, and manufacturing sites have remained operational. To protect the health and well-being of our associates in these operations, we are closely monitoring and implementing guidelines from credible health agencies including the World Health Organization, Centers for Disease Control and Prevention, and the European Center for Disease Prevention and Control, as well as taking other precautionary measures. For the remaining workforce of sales and support personnel, we have implemented work from home processes, which we believe are working very well in the circumstances. I'm extremely proud of all our associates around the world who continue their tireless work serving our customers, including many who are working to develop vaccines and treatments for COVID-19. Our broad life sciences portfolio is being widely used in many COVID-19 related areas, including patient testing, vaccine and therapy development, clinical trial services, and ultimately in the production of approved treatments. We have moved rapidly to enable fast and accurate research results by offering products and protocols in sample collection, DNA and RNA extraction, serology, and real-time PCR. Our Bar Pharma customers are aggressively focused on therapy and vaccine research, and our capabilities and workflows such as cell culture, QPCR, protein purification and formulation are critical. With our broad customer access and extensive portfolio of products and solutions, Avantor is an important partner in the race for a COVID-19 cure. We also advanced key elements of our growth strategy in the first quarter. For example, we launched Prochiva, a proprietary protein A chromatography resin. This new product innovation focuses on downstream processing, enabling best-in-class purification performance for customers working with monoclonal antibodies, FC fusion proteins, and immunoglobin antibody molecules. This product will expand our addressable market by over $1 billion and enhance our margin profile over time. As you may recall, we've invested significant capital to build a world-class technology and innovation center in Bridgewater, New Jersey, to expand our bioprocessing capabilities. and Prochiva is one of the first of many new product innovations to come out of this center. Additionally, our previously announced investments to expand our hydration, single-use, HPLE sugars, and biorepository capacity are proceeding on schedule. We're excited for the future growth prospects that our investments are enabling, even in this challenging environment. In addition, we remain on track to complete the VWR Synergy Program in 2020, and our Avantour business system continues to gain traction across the enterprise in driving growth and productivity. Turning to slide five of the presentation, I'd like to share a few financial highlights from the quarter. Organic revenue growth was 4.1% for the period, representing solid growth on our toughest prior period comparison. Growth was led by high single-digit expansion in our biopharma business, where demand remains robust around the world. Growth was impacted by academic and government lab closures in Europe and the Americas late in the quarter, as well as by supply chain challenges associated with government-imposed border controls related to the pandemic. Excluding adverse currency impacts, adjusted EBITDA in the quarter was up 7%, and adjusted earnings per share increased approximately 64% to 17 cents per share. Double-digit revenue growth from proprietary materials was a key driver of our margin expansion in the quarter. Cash flow was very strong in the quarter. We generated 241 million of free cash flow, an increase of 284% compared to 2019. Combined with our earnings growth, this enabled us to reduce net leverage to 4.4 times, down from 4.6 times at the end of the fourth quarter of 2019. We remain committed to continued deleveraging as we approach our target leverage range of two to four times EBITDA. Before I turn it over to Tom to discuss the financials in more detail, I want to emphasize the resiliency of our business model. We are well positioned with a highly recurring revenue base, a broad product offering, significant exposure to attractive end markets like biopharma, and a strong culture of execution enabled by the Avantor business system. Avantor's mission of setting science in motion is more meaningful and relevant now than ever before, and our Q1 results reflect this resiliency. With that, let me turn it over to Tom.

Thank you, Michael, and good afternoon. I hope everyone listening to our call is doing well. Let's start on slide six. We executed well in a challenging environment. Revenues, profits, and free cash flow were all strong. Our manufacturing and assembly plants and distribution centers generally have prioritized or essential status and, as Michael indicated, have continued to be operational throughout the pandemic. Vendor supply disruptions have been limited, although some categories, like personal protective equipment, otherwise known as PPE, remain challenging given the extraordinary demand fueled by the pandemic. Organic revenue growth was 4.1% and should be considered in the context of the 7.9% growth in the first quarter of 2019. Overall, this was a good result against a tough comparison, especially with the additional COVID-19 challenges. Growth in the quarter was driven by continued momentum in our biopharma platform that grew high single digits with notable strength in our single-use solutions, life science reagents, and personal protective equipment. This growth was offset by COVID-19-driven closures of academic and government research labs, K-12 school closures, high single-digit declines in sales of equipment and instrumentation, and EMEA supply chain challenges. We believe that net of all of these factors, COVID-19 contributed approximately 50 to 100 basis points of growth in the quarter. Looking at growth from a regional perspective, Americas, which represents approximately 60% of global sales, reported 5.4% organic revenue growth, driven by the biopharma and advanced technology and applied materials and markets, offset by flat healthcare and lab closures in the academic markets, as I mentioned. Europe, which represents approximately 35% of global sales, reported 3.3% organic revenue growth, driven by the biopharma and healthcare end markets, offset by declines in the education and advanced technology and applied materials end markets. EMEA, representing approximately 5% of global sales, reported a 5.1% organic revenue decline. This region was impacted the earliest by COVID-19, with the largest disruption felt in India, where aggressive shutdown mandates were enacted, impacting market demand and supply chain infrastructure. Revenue growth in advanced technology and applied materials was offset by decline in our biopharma and healthcare end markets. Slide 7 shows our organic revenue growth by end market and product group for the quarter. I will also touch on what we have seen so far in the month of April. BioPharma, representing approximately 50% of our revenue, experienced high single-digit organic revenue growth, which is notable in light of the low teens' organic growth in the first quarter of 2019. We continue to see strong growth in our BioPharma production platform, including continued double-digit growth of our single-use solution. Moving to healthcare, which represents approximately 10% of our revenue, we grew low single digits. We had strong growth in clinical and reference laboratories, especially in March as demand for consumables, chemicals, and PPE ramped to support COVID-19 testing. Our biomaterials platform performed in line with plan. Education and government, representing approximately 15% of our revenue, experienced low single-digit organic revenue decline. As mentioned previously, this part of our business was most impacted by the COVID-19 pandemic. As many academic and government research labs and K-12 schools were forced to close as we moved through the quarter. Advanced technology and applied materials representing approximately 25% of our revenue experienced low single-digit organic revenue growth. We experienced strong growth in defense and electronic materials businesses. Also, the food and beverage and petrochemicals businesses realized low single-digit growth. These were offset by modest declines in mining and other miscellaneous industrial segments. By product group, The proprietary materials and consumables experienced low double-digit growth with particular strength in the Americas. Services grew mid-single digits, driven by continued strong growth of our on-site services model, especially in the Americas and in Europe. Equipment and instrumentation was down high single digits, reflecting reduced CapEx investments across our customer base. In April, the biopharma momentum has continued. with strong growth in lab products and biopharma production. Also, we are actively engaged with our supplier partners and customers to bring COVID-19 related offerings to the market, including diagnostic kits and serological solutions. The COVID-19 impacts we experienced in the second half of March have also continued. Academic lab closures and curtailment of customer capital spend continue to be headwinds to revenue growth. Additionally, There is some timing-related softness in our healthcare business as the COVID-19 impact of fewer elective procedures is felt. Also, growth in the industrial portion of the advanced technologies and applied materials end market has moderated from Q1. Considering these factors, we expect the April net revenue decline to be in the low to mid single-digit range. Given the uncertainties around the intensity and duration of the pandemic, however, we are withdrawing our guidance for the year. Turning to slide eight, let me start with our first quarter adjusted EBITDA. We achieved 7% growth in adjusted EBITDA and 54 basis points of reported margin expansion. As you recall, we were still a private company in the first quarter of 2019 and have since added certain costs to support the public company status post our Q2 IPO, without which margins would have expanded by approximately 90 basis points in this first quarter of 2020. Key drivers of the performance were volume growth, price, and favorable mix, including strong growth in proprietary offerings, all partially offset by the impact of growth investments that we continue to make, particularly in the EMEA region. Free cash flow improved from $63 million to $241 million, an increase of approximately 284%. Unlevered free cash flow was $261 million for the quarter. We had very strong working capital performance, which contributed over $80 million to the increase. Also, lower cash interest and taxes contributed a combined $50 million to the improvement. Finally, we reported 64% growth in our adjusted earnings per share for the quarter, primarily reflecting the strong operational performance driven by organic sales growth and margin expansion, as well as the ongoing reduction in interest expense from our deleveraging and the improvement in our income tax rates. Slide 9 has our segment results. We have a minor change in the way we are measuring segment profitability. You may recall that previously we were using management EBITDA as a profitability measure for the segments, which reflected a few more adjustments than the adjusted EBITDA metric we used to measure profits for the entire enterprise. Effective January 1, we have conformed the two and are now using adjusted EBITDA to measure the profitability of the segments and of the entire enterprise. While we have restated the segment results for 2019 for comparability purposes, there is no change to the adjusted EBITDA for the enterprise. America has reported 170 basis points improvement in adjusted EBITDA. Key drivers include volume growth, strong price management relative to COGS inflation, and positive mix driven by a higher proportion of growth in proprietary materials and consumables, all offsetting modestly higher SG&A costs. Europe reported 40 basis points of improvement in adjusted EBITDA. Key drivers include volume growth, strong price management relative to COGS inflation, and lower equipment and instrumentation, all offsetting unfavorable operating expenses driven by foreign exchange. And May reported 540 basis points decline in adjusted EBITDA impacted by lower sales volumes and higher operating expenses, including investments in research, marketing, and sales personnel. On slide 10, we provide a brief summary of our liquidity. To start, it is noteworthy that despite the challenging environment, our deleveraging continued in the first quarter. We lowered our leverage to 4.4 times EBITDA, and this continues to be a major priority for us. In January, we lowered borrowing costs by 75 basis points on the approximate $1 billion in term loans. And in March, we lowered borrowing costs by 60 basis points on our accounts receivable securitization programs. We also upsized that program by $50 million to $300 million at the same time. Total liquidity at March 31st was $882 million, made up of $346 million in cash, $300 million in accounts receivable securitization, and the unsecured bank revolver of $250 million. Both facilities are largely unused, as our free cash flow is our primary source of liquidity. We have no significant debt maturities until 2024, and we only have one substantive debt covenant, which is only triggered if we have more than 35% of the revolver drawn upon. Currently, there are no borrowings outstanding on the revolver, but in the event we were to trip this threshold, our first lien borrowings would be limited to 7.35 times our EBITDA. Currently, our first lien borrowings are less than three times EBITDA. To summarize, our liquidity and cash flow are strong, and we're committed to deleveraging, even in these challenging market conditions. Our debt maturities and covenants are minimally intrusive, and we look forward to future repricing opportunities in our debt portfolio. With that, I will hand it back over to Michael.

Thanks, Tom. I'm on slide 11. We executed well in a challenging environment, and our strong revenue and EBITDA growth, outstanding cash generation, and continued deleveraging reflect the resiliency of our business model. Challenging times like this highlight the value of our highly recurring revenue base broad mission-critical product portfolio, and our exposure to attractive end markets like biopharma. While the uncertainty associated with the current pandemic has caused us to withdraw our previously issued guidance, our long-term growth strategy remains intact, and we are steadfast in our commitment to help our customers combat this virus by supporting ongoing initiatives in testing, vaccine, and therapy development, and ultimately the production of approved treatments. Our mission of setting science in motion to create a better world has never mattered more, I want to sincerely thank you for your interest and investment in Avantor and for your ongoing support. I will now turn it over to the operator to begin the question and answer portion of our call. Operator?

Thank you. Ladies and gentlemen, if you would like to ask a question at this time, please press star then one on your telephone keypad. Again, that's star one to come into the question queue. To withdraw your question, press the pound key, and we do ask that you limit yourself to one question and one follow-up question. Thank you. Our first question comes from Tycho Peterson, JP Morgan.

Okay, thanks. Michael, I'll start with biomanufacturing. I think it's a little bit over 10% of the business today. Can you maybe just talk about some of the investments you're making as we think about monoclonal antibodies scaling up in vaccine production? Can you just talk about how you feel like you're positioned and, you know, the degree of investments you may be making now to meet the growing demands of the market?

Thanks for the question, Tycho. Good to hear from you. Yeah, I think you have it about right in terms of the exposure to bioproduction. Obviously, it's an important part of our portfolio that is experiencing, you know, double-digit growth for, you know, most of the last couple of years. And we do continue to invest, whether that be in infrastructure in the form of, you know, our R&D centers that we've been building around the globe. Most recently, the inauguration of our new center in Shanghai. We also recently doubled the size of our center in Bridgewater. We highlighted in the press release or in the comments there one of the first innovations that came out of that new center in Bridgewater, our proprietary chromatography resin that will expand our addressable market. But we also continue to invest in manufacturing capacity, and we highlighted a number of those areas in in recent months, whether that be in hydration capacity or, you know, single-use capacity or, you know, things like our HPLE sugar platform. So we continue to invest ahead of demand to ensure that we can meet the robust opportunities that are out there. I'd say, you know, we're excited about what we're seeing and whether it's, you know, the traditional monoclonal antibodies that have been in the pipeline, you know, will be well-positioned or, the onslaught of new therapies that are in the pipeline to go after the COVID-19 virus. But we're also well-positioned, Tyco, to, you know, have a lot of growth and success in, you know, some of the new modalities, whether that be in, you know, things like cell and gene therapy. So we continue to scale our infrastructure and capabilities and our presence to be able to get our materials specced into these platforms going forward.

And then one follow-up for Tom on applied technologies. You noted Petrochem up a little single digit. Obviously, you know, oil prices have been volatile. Just curious, you know, on your outlook for that part of the business in particular.

Yeah, we watch it cycle every day. You know, we get daily sales reports. It's, you know, a pretty modest part of that overall business. portfolio. The segment itself is probably 25% of revenues, but it's an aggregation of a number of individually small exposures to various industries. Petrochemical oil and gas is one of those. you know, like we said, it was, you know, flattish, low single digit, kind of continues on that pace. You know, we are seeing a little bit of the industrial softness, you know, impacting that. So that growth rate that we saw is moderating a bit, but it's not like there's some sort of, you know, curtailment of growth or major negative news to share. So it's So, you know, kind of okay, but, you know, not growing through the roof, if you will. Okay. Thank you.

And our next question is going to come from the line of Derek DeBrown with Bank of America. Hi. Good afternoon.

Hey, Derek.

Hey, Derek.

Good to hear your voice. So a couple of questions. I guess the first one, just to clarify, because I had a little bit of a cell phone garble here, You said down low to mid single digits in the second quarter, correct?

Based on what we're seeing in April, that's kind of what we see for April. We didn't really comment on where we see the full quarter playing out. I don't think, you know, just given the uncertainty of the situation that we're trying to call the quarter, just trying to give you some color on what we've seen through the month of April.

Great. So that was going to be my follow-up question to that is, I guess, what can you say in terms of, you know, our estimates would put somewhere around 50% of labs are closed. I'm just sort of wondering what your feet on the street or the ground are doing. Obviously, there's going to be some difference between the pharma labs and the epidemic labs. Just some color on sort of what closures are and, you know, I guess, you know, what would need to go Is it just mostly duration and how long closures are the biggest wild card on how you're seeing the next couple of quarters play out?

I think, Derek, clearly the biggest headwind that we do see in our business at the moment is the research lab closures in the academic environment, particularly in the university setting. We're seeing everything from complete lab closure to partial operation to round-the-clock operation of, you know, labs that are working on vaccines or therapies for COVID. So we've got the full gamut of activities playing out, but it does remain the biggest headwind in the business, and at least in the current environment with the vehicles as we see them, you know, a return to more normalized operations in that space, you know, would certainly you know, be a tailwind for our business. The uncertainty, we don't know when that's going to happen.

Great. And if I can squeeze in one final one, you know, a lot of us overall business to a severe economic downturn. And just to remember your thoughts, just because it is a different animal than any of us have you know, looking at the old DWR and sort of getting an understanding of, like, what your macro sensitivities are in sort of a recession environment.

Sure. I think clearly the situation that we're in now is probably unprecedented. I'm not even sure, you know, the financial crisis in 2008 or 2009 is even a good parallel, just given the the extreme difference in the dynamics. I would say that we're very well positioned with a very resilient model, 85% of our revenue being recurring, a very broad portfolio, good diversification in both the lab as well as in production. At least in the current situation, the production environment has held up extremely well. The value chain for you know, currently approved, you know, therapies that we're expecting to continue to run at a high rate. Obviously, you know, with the investments that we've made in single use and, you know, some of our other proprietary technologies, you know, we continue to outgrow that market by a bit. You know, in the lab, you know, we talked about we're seeing, you know, some headwinds in the academic space. To a lesser extent in the biopharma research labs, certainly some of those labs have scaled back activity, but you have almost an equal amount that have ramped up activity to go after, you know, whether it's a vaccine or therapy for COVID. So, the legacy of ENTRE portfolio, you know, to your question, is primarily a production-oriented, you know, portfolio where the preponderance of the revenue of that platform is specced into, you know, the high-growth, you know, bioproduction space. So, you know, tends to be fairly insensitive to, you know, economic shock. But I think we're in a much different environment now, and the dynamics of what's driving the business, I think, probably all agree, are a little bit different.

And the numbers weren't public back in, the numbers weren't public back, you know, when we, you know, Avanto were standalone. But they held up as well as VWR did, at least on the EBITDA side. You know, over that time frame, cash flow was also pretty strong. Oh, great.

Thanks for that, Keller. Thank you very much.

And our next question is going to come from the line of Vijay Kumar with Evercore ISI.

Hey, guys. Thanks for taking my question, and congratulations on really good prints here relative to, I guess, some of the fears the street had. Maybe, you know, starting on the comments around April, I guess... I guess, does it make sense to look at this business on a week-on-week basis? We're all trying to figure out, was April the bottom, and should things improve month-on-month? That certainly seems to be the case for some of the other companies. So what could go wrong from April, right? If all of the labs were closed, could anything else go wrong, which would cause May to be a trend below April? So maybe just give us some sense on what happened in April. and, you know, maybe plus or minus, you know, where we could move from that line.

Sure, Vijay.

Thanks for the question.

Maybe I'll walk you through each of the four end markets that we serve, give you a little bit of color on that, and maybe that'll help with your question. So, you know, starting with Biopharma, which is roughly 50% of our revenue, that platform remains strong around the world. The bioproduction piece of that, you know, running high single digits, you know, double-digit-type levels, And the research environment is holding up pretty well. There is a mix of some labs that are scaled back, you know, and some that are, you know, ramping up. But overall, the BioPharma platform, whether it be in Q1 or as we saw it into April, continues to be strong. Healthcare for us, you know, we're less than 10% of the revenue. A little bit of a mixed story here. We have exposure. About half of that platform is in the clinical diagnostic lab reference lab type setting, and you see a mix of things going on there. Obviously, some of the traditional clinical diagnostics running a little bit below historical levels, and that's primarily being offset by the strong ramp in demand for our solutions for COVID testing. The other part of that platform is our biomaterials platform serving you know, a pretty wide array of implant devices, medical implants. And as we mentioned, you know, that platform continues to run, at least through the first quarter, at a pretty high rate. Somewhat moderated in April due to kind of postponement of elective surgeries. And so that's a variable that we're watching pretty closely. I think we've talked a lot about the academic and government environments. In aggregate, about 15% of the revenue The academic research lab part of that comprises less than 10 percent of overall revenue. And as I mentioned, you know, I think what we're seeing there is in line with what you see being reported publicly. And then in the advanced technologies applied materials, you know, part of our business, about 25 percent of the revenue split across the wide range of both industrial and non-industrial applications, you know, grew those single digits the first quarter. I would say strong momentum in defense, semiconductor food and beverage that we saw in Q1 kind of carry into April. It's moderated sequentially a bit in some of the industrial areas, as Tom mentioned, like oil and gas. Whether April is the bottom or not, probably speculation on our part to try to call that. We clearly are watching very closely, even on a daily basis, what's going on in these academic research labs. We're in close contact with our customers. We do have a significant presence on site at these labs through our services teams. Our teams will likely, in the labs that are shut down, will likely be some of the first people back in those labs to get them restarted. We're staying close to it. Fingers crossed that as you know, the globe gets the pandemic under control, but we'll start to see, you know, some of that return, whether that's in May or June or later, probably a bit tough to call right now, BJ.

That's helpful comments, Mike, and maybe one for Tom. Tom, on the cost structure, many comments on fixed versus variables. This Q1, you know, margins were really strong. If I go back to, you know, your original guidance on free cash flow, 450 to 500 for the year, And given where 2Q could potentially shake out, and if we had to see sequential improvements, that's how other companies are looking at the environment. 2Q is the bottom, and then we improve. It almost looks like free cash. There's almost, dare I say, no change. So any thoughts on your cost structure and your ability to manage P&L, please? Thank you.

Yeah, yeah. So, you know, first on the cost structure, Vijay, you know, we look at, You know fixed versus variable i'd say that we're going to look at the COGS I mean most of that is is variable cost by 70% of those materials. Probably another 10 is you know kind of people and overhead, I would say, on the other hand, most of the sg and a would be could fall into. You know, a fixed category but it's a broadly addressable category it's not as if it's like the depreciation can't do anything about it, I mean. there are actions you could take. And when you think about, you know, cost containment initiatives, I mean, our focus right now is, you know, supporting our customers. I mean, you know, that and employee safety are top priorities right now. And, you know, we have plenty to do. But we also have a good track record of cost management, I would say. You know, we're nearing completion on our Synergy program. You know, in fact, you know, on a run rate basis, in the first quarter, we achieved, you know, We crossed the $300 million threshold line from a run rate basis. We have three quarters to go to continue to drive that, but we've achieved at least the bottom part of that. We're not oblivious to what's going on. We're actively monitoring headwinds and taking prudent actions. So far, there's been just modest demand disruption for us, and we're looking at things like discretionary spend, obviously T&E, you know, does its own work for you with so many people, you know, not traveling. But we've taken some other discretionary riders around, you know, new hiring and so forth. And, you know, to the extent action or to the extent, you know, the conditions, you know, become worse, I mean, we'd obviously have contingency, you know, plans in place. You know, from a cash perspective, you know, totally agree the – With your observations, Q1 was very strong. We were up 180 million year over year. And it really demonstrates the high conversion, low capex model that we have. We had better EBITDA. We had really strong working capital performance with obviously lower interest costs. As you said, our guide was 450 to 500 for the year. We've already got 240 of that. You can do your own math and say where you think that takes you. We've also gotten some benefits. We expect to get some benefits from the CARES Act, particularly around freeing up some of this interest deductibility that we've been limited to 30% in the past, so that goes up to 50%. That should give us some tailwind as well. I don't think we'll spend... you know, all the CapEx that we, you know, we have in the plan. And I think there's probably, at some point, will be an opportunity for refinancing. So, all, you know, the Q1 performance and those factors I mentioned, I think instinctually you're right, you know, 450 to 500, you know, looking out. Maybe there's an opportunity there. But, you know, we're, because we're withdrawing guidance, you know, we're not really going to, you know, comment on what, where we think that's going. We'll continue to, this will continue to receive our attention. And, you know, we're optimistic that, you know, if things turn, this will be a, you know, turn out to be what you're inferring.

Thank you.

Thank you. Our next question is going to come from the line of Doug Schenkel. Cohen.

Hey, good afternoon, guys. First off, when we When we talked at some point, I don't know when it was, March. I know it was in March, but every week seems like a month these days, so I'm not sure exactly when it was. But when we talked, it seemed like the company was seeing some activity that looked like stocking at the end of the quarter. In hindsight, was that the case? And if so, how material was it? Did it carry into April, and where was it most pronounced by business area?

Sure. Thanks for the question, Doug. That does seem, Mark, when we did speak, that does seem like a while ago. As Tom mentioned in the script, I think as we look at, you know, kind of COVID-related tailwinds, which would include any stocking that did occur in the quarter, as best we can bracket it probably in that 50 to 100 basis point range. I don't think stocking ended up being that big of a factor. I think most of what we're seeing is really the mean increased demand, whether that be in life science reagents or PPE to support COVID-related testing or developments. And I think the other point to keep in mind here, most of the labs, for example, that we support, they don't really have significant space for a lot of excess storage And in fact, you know, I think that is part of, you know, what drives some of the value that we deliver in that, you know, they really rely on us to be able to carry the safety stock and provide, you know, timely deliveries. And, you know, with the model that we have set up, we're able to do that in more than 170 countries around the world on the same day or next day basis. So I'm sure, you know, there was some, you know, modest stocking in the quarter. I think that's captured in that 50 to 100 basis points. But I think Matt, we think that most of the COVID tailwinds that we saw were demand-driven.

Okay. Super helpful. Maybe just a couple quick ones, and then I'll get back into the queue. I believe the vast majority of your diagnostic business is OEM. I just want to make sure that's right. It's pretty clear based on your prepared remarks that that is an area that's a tailwind. I'm just wondering, how big is that business today and how much of a tailwind is it? And then the second thing I wanted to ask was just on AMEA, any update in terms of just what you've seen over the last few weeks? You know, specifically what I'm trying to get at is you commented on supply chain challenges in India. I'm just wondering if that's freed up at all. Thank you. Yeah, thanks for the questions.

So maybe we'll go in reverse order here. We'll talk about EMEA first. Obviously, you know, the pandemic hit that region, you know, first and hardest. And, you know, the region's 5% of our revenues. So in the end, not a major driver within the quarter. And we tend to have a little bit different mix of business in the EMEA region relative to Europe or the Americas. It tends to be a bit more production heavy. And so you see a little bit more lumpiness in the business just owing to the campaign and batch timings and schedules of our customers. And we saw that play out pretty much as planned. But certainly on the consumables part of the business, we did see obviously some impacts, rather modest. There were some supply chain challenges. When you think about the logistics environment in India, for example, you know, just challenges in getting, you know, trucks and drivers and things to complete deliveries was a bit of a challenge as the country, you know, moved to lock things down pretty aggressively starting in the middle of March. As we, you know, move into April, I think, you know, generally whether you're in China, Korea, Singapore, I think we've seen, you know, sequential improvement in those markets. And I think even in India, we're starting to see, you know, some sequential improvement into April. So I think we feel like the region is heading in the right direction.

Yes. I will say the, you know, the lockdown for India is May 2nd, I think, is the... is the official official date of of you know when it goes goes down. I've heard I've heard you know recently that you know India could you know that that could be changing and it you know could be extending to the end of the month. So you know who knows when we're subject to that. So the the challenges will continue to be there, but I mean to Michael's point we are seeing a little bit of more upside as a you know as things start to come together and in some of these COVID-19 related areas, whether it's testing, personal protection equipment, and other things that are coming through.

Doug, and then back to your first question around diagnostics. We're going to play that space in a number of different areas. We have a pretty robust portfolio of reagents, proprietary reagents. They're going to go into on an OEM basis that will be, you know, specced into the various instrument platforms that are out there. We have a pretty robust infectious disease, you know, point of care testing kit business, you know, primarily, you know, focused on hematology, you know, centered in the EMEA region. And then, you know, maybe a little closer to home here, we have a pretty robust, you know, offering of, you know, sample prep, you know, extraction reagents and things to support QPCR workflows and other diagnostic workflows, both non-COVID related as well as COVID related. And then to supplement that, our services platform is going to get pretty heavily involved in a lot of the diagnostic workflows, whether that be in the custom kitting that we would do to support sample collection, specimen collection, and transportation. And in fact, we're pretty heavily involved with most of the major labs in facilitating the COVID testing in that regard now. And we also have one of the leading biorepository and archiving franchises that's going to be linked to a lot of the diagnostic testing that goes on around the world. So we're going to be exposed to the diagnostic space in a number of different areas.

Thank you. Our next question is going to come from the line of Dan Brennan, UBS.

Great. Thank you. Thanks for taking the question, and congrats on the quarter. I was hoping to go to the more industrial part of your business. I know you talked about it, I think, to Vijay's question. Maybe could you elaborate a little bit? It looks like that business is certainly holding up reasonably well despite what's going on in the broader economy. I'm wondering if you can maybe unpack that a little bit and maybe get a little flavor of, like, how that business is doing.

Yeah, thanks for the question. Good to hear from you. You know, most of the exposure that we would characterize as an industrial is going to be, you know, mapped into the advanced technologies and applied materials portion of our business, which is roughly 25% of the revenue. Within that, you know, part of that is going to be, you know, kind of non-industrial in nature, the way we play defense, the way we play semiconductor, for example. And then you are going to have a mix of, you know, you know, industrial-type exposure in various end markets, none of which would be, you know, by themselves more than a couple of percent of total revenue. So that's going to pick up things like pet chem, oil and gas, for example, mining to some extent. And we are seeing kind of a mix of performance there. You take, you know, the mining business, you know, we have a pretty unique exposure there, particularly to things like gold mining where, If you look at the price of gold, you know, the demand curve has shifted from maybe being jewelry dominated to more, you know, currency, you know, driven in a, you know, kind of a flight to safety there in a macro crisis, you know, propping up, you know, pricing and demand in that part of the business. Oil and gas pet chem held up generally pretty well in the first quarter. We have seen sequential decline as we moved into April as things like oil price and, you have fallen off dramatically in line with the oil prices. Think high single-digit type declines there. So pretty unique exposure to the space, and I think that combined with the diversification allows that part of our business to hold up reasonably well. We weren't expecting significant growth in that part of the business this year. If you recall, in 2019, that was a bit of a headwind for us most of the year. just given some of the industrial weakness around the world. We did see sequential improvement moving into the first quarter, and while that's moderated somewhat, it's not a major headwind for us at the moment.

Great. Thank you for that. That was great detail. And I was hoping, I know obviously the biopharma, the biologic production business obviously is kind of a highlight for the company, but just more broadly within that, you know, your largest customer base, I think you talked about research holding up pretty well. Is it, like, could you give a little more flavor besides the bioproduction piece and the research piece? I mean, like, how much of that business is maybe tied to clinical trials? Has that been a drag? Maybe give a little more flavor similarly for your biopharma business and, you know, the different pieces and, you know, kind of how they did in Q1 and, you know, kind of how you think about the outlook. Thank you.

Sure, sure. So, as you know, biopharma for us is roughly half of the revenue, and that's going to be split roughly two-thirds, you know, focused in – biopharma research environments, and so the laboratory environment, and then roughly a third of that is going to be focused in bioproduction. And, you know, within the research environment, obviously we're going to be, you know, bringing to bear the full breadth of our portfolio, whether that be our proprietary materials and consumables or third-party materials and consumables. Our services is going to play a pretty important part in those labs. We'll have you know, more than a thousand associates embedded in our customers' research labs, either, you know, sitting on the bench running experiments or managing the labs. And then, of course, in, you know, we'll support our customers. And I think that's, you know, one of the unique aspects of our business model. And a key, you know, point to understand about our model is that we have fully integrated the business such that we can support our customers and the scientists in the labs you know, to support their early phase discovery and process product development and then scale with them as they move through clinical trials. We actually have a pretty robust offering in that space and then ultimately serve their, you know, commercially approved platforms at scale with a pretty robust, you know, offering that allows us to participate in both, you know, upstream, downstream and, you know, formulation activities in those environments with our with our, you know, GMP portfolio. So we're pretty well, you know, covered in this space. And I would say, except for, you know, maybe a little bit of pullback in the first quarter in some of the research activities as, you know, some of the labs did pare back their on-site presence, the overwhelming majority of what we saw in biopharma, you know, was a continuation of the strength that we saw pretty much throughout 2019, which means You're talking about high single-digit growth in the lab and essentially double-digit growth in the production environment. And we're going to see that continuing into April. We're well-positioned across all the different modalities, whether that be vaccines or monoclonal antibodies. Obviously, cell and gene therapy are emerging environments that we're spending a lot of time in. And geographically, we've got good... you know, good coverage, you know, good presence at the CMOs, CROs. So pretty important part of our business. I think we're well positioned to continue to realize the upside of a pretty attractive end market. Great. Thank you, Michael.

Thank you. Our next question is going to come from the line of Patrick Donnelly with Citi.

Great. Thanks, guys. Maybe I want to think about the April decline and appreciate the color you gave there. Any chances to break out? I know it's only 15%, but how should we be thinking about the instrumentation equipment decline versus kind of that more recurring revenue side during April?

You're hitting on, I think, a pretty important part of the story here, Patrick, so thanks for the question. That part of the business and really anything that's kind of CapEx you know, driven is whether it be in this downturn or in previous downturns is the part of the portfolio that gets, you know, hit the hardest as our customers, regardless of end market, you know, obviously look to, you know, optimize cash flow and squeeze, you know, capital investments. And so as you look at where, you know, the headwinds played out in Q1, it was disproportionate into that category. Fortunately for us, though, it's only 15% of our revenue. And I think When we talk about the resiliency of our portfolio and our model, this is an important driver that we have relatively light exposure into that space. That category down double digits in April, not a surprise to us. We would expect to see it at those levels, high single-digit decline, low double-digit declines. until we start to see, you know, broader recovery. But, you know, that really highlights then the strength of the rest of the portfolio and being consumable driven and being, you know, highly relevant in our customers' research activities as well as in their production activities.

That makes sense. Thank you. And then maybe one for Tom, just on the debt side. I know you've talked in the past as recently as 4Q about the repricing opportunities on debt. assume things are maybe tabled a little bit for now, but maybe can you just talk through when you think there's potential to do that as we get through COVID here, get to the other side, how much of a priority that is for you guys?

Yeah, I mean, I wouldn't be in this job if I knew exactly when the markets were going to kind of return to the status that we were seeing in early and mid-first quarter. But with that said, there has been you know, some recovery if you just kind of follow what's going on in, you know, the debt markets where, you know, we participate. Most of our debt has, you know, it trades and, you know, it's kind of back to, you know, the levels that it was trading at. Not quite all the way back to, you know, January, but, you know, a good degree of the way back. And so we are still very interested in, you know, you know, going after and addressing, you know, the debt. There's nothing built into our guidance for, you know, 2020, our original guidance. And so we don't feel like there's any urgency. And in fact, you know, really, it isn't, it wouldn't be, you know, in our best interest unless a real, something very, very attractive, which we don't see right now, came along. It wouldn't make any sense to do anything before, you know, October 1st anyways. That's the, you know, first, time our make-hold premiums expire, we wouldn't have to pay them. But with that said, we are actively monitoring things. We have weekly discussions with advisors and banks that know the market pretty well and reasonably confident that as the year transpires, that our original plan of taking action on this would, you know, come into play. But it's going to take a while for the markets to fully, you know, get back to a point where, you know, we can say with confidence that we know, you know, when and, you know, the degree of benefit that we're going to get.

Great. Thank you. Holly, we're running up on the hour, so let's just take one more question.

All right. Our final question then for the day will come from the line of Brandon Couillard with Jefferies.

Hey, thanks for squeezing me in. Michael, you mentioned launching a new protein A chromatography resin. You sort of talked through, you know, sort of the go-to-market strategy there, initial conversations with customers, and how significant you think that could be kind of over the next three to five years for what was, you know, a pretty consolidated market competitively for that type of product.

Yeah, thanks for the question, Brandon. As you know, innovation, particularly in our proprietary technology portfolio, is an important part of our business model. We have been investing to enhance our capabilities around the world, and over the last couple of years have opened up chromatography labs in Korea. Our new center in Shanghai will be heavily focused on chromatography, and our flagship center in Bridgewater where this technology was developed starting about three years ago, obviously has a complement of protein expression all the way through to formulation capabilities. We'll continue to drive a lot of innovation into our bioproduction portfolio, and this is a great example of that. We're pretty well penetrated into the chromatography space. This was a gap in the portfolio. and not having a credible offering into the protein A space. And, you know, it represents probably half of the chromatography market. And so it really does expand our total addressable market. Performance is obviously critical in enhancing, you know, recoveries. And, you know, I think the market is anxious to have alternatives, to your point, to the concentrated supply base that's there today. I think there's value in having independent supply chains for things like ligands and resins and such, which this will provide. I think the performance, as we have tested it and sampled it, would put it at the top of the market. And so I think You know, there's a bit of a long cycle of qualification time on these things. As you know, we'll get, you know, a lift into the lab market, you know, where we'll see these opportunities. Immediately it's in the field. You know, we have, you know, a very robust launch plan that was, you know, co-provided in the spirit of our ABS program. And, you know, our sales force is actively sampling and selling, you know, columns into the lab space as we speak. you know, that will scale over time and, you know, as it gets specked into, you know, new therapies and those become approved, you know, we'll start to enjoy, you know, higher revenues as those, you know, columns become commercial. So the impact will scale over time and, you know, we'll obviously continue to invest in optimizing the solution and bringing, you know, new versions of it to market over time. But pretty excited to to be able to introduce that at this time. Super, thanks.

Thank you. I would now like to turn the conference back over to management for closing comments.

Thank you, operator, and thank you all again for participating in our call today. As we close, I'd just like to reiterate our commitment to supporting our customers as they navigate this unprecedented COVID-19 pandemic and seek solutions to protect and detect and treat the virus. Also, we'll be remiss if I didn't express my gratitude and admiration for the tireless efforts of all of our associates around the world who are, you know, living our corporate values every day. Their passion and dedication to our mission, you know, which is setting science in motion to create a better world, positions us to help bring life-changing therapies that can improve patient outcomes for people across the globe. And I think, as we look at it, our mission has never been more important than it is today. I'm certain we'll come through this stronger than ever before, and I'm optimistic about what lies ahead for not only our industry, but specifically for our business. I look forward to updating you all at the end of the second quarter. And until then, everyone, please take care and be well. Thank you for joining the call today.

This concludes today's conference call. You may now disconnect.