Avantor, Inc.

Ms. Hosack, you may begin your conference. 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.avantoursciences.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. 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 filing. 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. 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.

Thank you, Allie, 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. 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 27 cents in the fourth quarter, up 4% sequentially and 8% year over year. 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 million in the fourth quarter and $768 million 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. 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. This strong finish, coupled with a robust order book, supports continued improvement and growth in 2025. 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. 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, there are 15,000 certified reference materials are now available to our customers in North America. QuantumSI, 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 Novalytic, an innovator in molecular recognition technology. 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 Głowice, 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. 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. Joining us for the meeting were 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. 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 $1.3 billion 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. 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 2025 a year of growth. I'll now turn it over to Brent.

Thank you, Michael, and good morning, everyone. I'm starting with the numbers on slide five. Fourth quarter reported revenue was $1.69 billion. Taking into account a $40 million 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 solution segment were stable compared to Q3. While seasonal impacts were muted, the business continues to show resilience as end markets continue to recover. 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 million, 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 $308 million 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. 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 million 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. 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 in free cash flow. Moving to cash flow, we generated $222 million 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 million of debt, and our adjusted net leverage ended the quarter at 3.2 times adjusted EBITDA. 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 $6.78 billion, 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 $2.29 billion, representing a 33.8% adjusted gross margin. Adjusted EBITDA was $1.2 billion in 2024, representing a 17.7% margin at the high end of our guidance range. Adjusted operating income was $1.09 billion at a 16.1% margin. Putting all of this together, adjusted earnings per share came in at 99 cents for the year. Despite the challenging macro environment, we were able to achieve the midpoint of our original EPS guidance. We generated $768 million in free cash flow in 2024, inclusive of approximately $100 million of transformation-related spend. Excluding this spend, we generated $865 million of adjusted free cash flow significantly exceeding our original full-year guidance range of $600 to $650 million. For the full year, our free cash flow conversion was over 110%. As I mentioned earlier, we paid down $1.3 billion 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 $1.13 billion 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. For the full year 2024, laboratory solutions revenue was $4.61 billion, a decline of 2% versus 2023 on an organic basis. Adjusted operating income for laboratory solutions was $147 million 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 million with a 13% margin. Bioscience production revenue was $561 million 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 million for the quarter, representing a 26.6% margin. 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, in double-digit EPS growth in 2025. For the full year, we expect organic revenue growth of 1 to 3%. 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 the 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. Moving to profitability, we expect adjusted EBITDA margins of approximately 18% to approximately 19%, a solid improvement from our 2024 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. We exited 2024 with over $130 million of in-year savings and an exit run rate of approximately $165 million. Thanks to the team's strong focus and execution, our in-year savings were meaningfully higher than our original estimate of $75 million. In 2025, we expect to generate an incremental $75 million of in-year gross savings and intend to exit 2025 with run rate savings in excess of $250 million, well on our way to achieving our goal of a $300 million exit rate in 2026. I would like to address our target to achieve 20% adjusted EBITDA margins by the end of 2025 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. Continuing down the P&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 to $40 million year over year, resulting in approximately $180 to $190 million of interest expense. We anticipate our tax rate will be similar to 2024 at 22.5%. Our adjusted EPS range is $1.02 to $1.10, 10% 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. We expect free cash flow performance of $650 million to $700 million 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 the 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. Reported revenue is expected to decline low single digits, and adjusted EBITDA margin is expected to be in the low to mid 17s. 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 results 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. 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 million 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.