Avantor, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Appentard Second Quarter 2020 Earnings Conference Call. At this time, our participant lives on 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. If you require any further assistance, please press Star 0. I would now like to hand the conference over to Mr. Tommy Thomas. Thank you. Go ahead.

Thank you, Operator, and good afternoon, everyone. Thank you for joining us on 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 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 questions. I would like to note that we'll be making some forward-looking statements within the meaning of the federal securities laws, including statements regarding events or development 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 made 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 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 like to turn the call over to Michael. Michael?

Thank you, Tommy, and thanks to all of you for joining us today for our second quarter earnings call. I'm starting on slide three with a brief review of Avantor's revenue profile. You've heard me mention before that our business model is very resilient due to our diversified revenue base combined with the customized nature of our solutions. We are 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 proprietary-granted products and services. No single customer represents more than 3% of our revenue, and approximately two-thirds of our revenue is in attractive life science and markets, such as biopharma and healthcare. Our financial results for the second quarter, which I'll elaborate on in a moment, further substantiate our resiliency. The second quarter was the first to be fully affected by the global COVID-19 pandemic. Our business was adversely impacted by lab closures across the R&D and academic landscape, as well as by declines in elective procedures. However, we were able to offset most of the headwinds with new COVID-19 related opportunities in diagnostic testing, vaccine and therapy development, and clinical trial support. Moving to slide four and our second quarter business highlights. Despite the challenging environment resulting from the gold pandemic, our dedication to our customers has not wavered. Our distribution, research, and manufacturing sites have remained fully operational. Our broad customer access and extensive portfolio of products and workflow solutions to support patient testing, research and development, clinical trial services, and ultimately the production of approved treatments and vaccines make Avantor an important partner. We are actively working with many of the world's leading pharmaceutical and biotech companies as they develop and test potential COVID-19 therapies and vaccines. Our comprehensive bioproduction portfolio is being leveraged in most of the leading COVID-19 vaccine candidates across all major technologies, including recombinant proteins, viral vectors, mRNA, and DNA. Our direct involvement in government-sponsored initiatives, such as Operation Warp Speed in the United States, is another proof point of our relevance in the race to combat COVID-19. Of course, the health and safety of our associates who are working at our distribution, research, and manufacturing sites remains a top priority. We continue to comply with local statutes as well as guidelines from credible health agencies around personal protection, workplace density, symptom monitoring, and symptom identification and reporting. Our sales, customer service, and support personnel continue to work from home throughout the quarter. We have carefully developed plans to return some of these associates to work sites and will begin to implement those plans in the third quarter as local conditions permit. Our second quarter results reflect the power of our operating model in even the most challenging conditions. Reported organic revenue declined only 2%, including COVID-19 tailwinds of approximately 500 to 600 basis points. Despite the organic revenue decline, the resiliency of our model enabled us to expand our adjusted EBITDA margins by 94 basis points, grow adjusted earnings per share approximately 33%, and continue our strong cash generation. Earlier this month, we refinanced $2 billion of our high-interest debt, which will result in cash interest savings of more than $90 million per year. As part of the refinancing, we also extended our liquidity by doubling the size of our revolving credit facilities. Our improving balance sheet and favorable outlook resulted in another credit rating upgrade, giving us the opportunity over the next few quarters to further reduce interest costs by lowering the rates on the remaining $3 billion of debt. Our mission drives our deep sense of purpose to create a better, more sustainable world, and our teams have been actively engaged on improving the transparency of our environmental, social, and governance, or ESG reporting. We are pleased to have published our 2020 Corporate Social Responsibility Benchmark Report and look forward to sharing more information about our ESG priorities in the coming months. We've also taken a number of recent actions to reinforce our commitments to providing a positive work environment where all associates feel respected and have an equal opportunity to contribute and succeed. There is no place for racism, prejudice, or hatred of any kind, and we're actively focused on making the company a role model for diversity, equity, and inclusion. Turning to slide five of the presentation, I'd like to share a few financial highlights from the quarter. Organic revenue declined 2% as COVID-19-related headwinds in our education, healthcare, and applied end markets more than offset continued high single-digit growth in our biopharma business, where demand continues to be strong globally, especially in bioproduction, where we realized more than 20% growth in the quarter. Included in our results are approximately 500 to 600 basis points of COVID-19-related tailwinds as we realized incremental revenue associated with higher sales of PPE, qPCR testing kits, qPCR reagents and consumables, serological test kits, and proprietary materials being used to support vaccine and therapy development. Adjusted EBITDA on the quarter was up approximately 3% on a constant currency basis, and adjusted earnings per share increased approximately 33% to 19 cents per share. We continue to generate strong cash flow with first half free cash flow up over 300 million from 2019, enabling continued reduction in our net leverage to 4.3 times EBITDA, down from 4.6 times at the beginning of the year. We remain committed to continued deleveraging as we approach our target leverage range of two to four times EBITDA. As I prepare to turn the line over to Tom to discuss the financials in more detail, I want to emphasize that Avantour's mission of setting science in motion to create a better world is more relevant now than ever before. And our second quarter and first half 2020 results are evidence of the mission critical role we play in supporting our global customers. We are well positioned with a highly recurring revenue base, deep customer access, significant exposure to attractive end markets like biopharma, and a strong culture of execution enabled by the Avantor business system. With that, let me turn it over to Tom.