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.

Thank you, Brent. Before we jump into Q&A, I want to thank our more than 13,500 associates across the globe for helping us deliver a great 2024. The progress we made this year implementing a new operating model and transforming our cost structure was significant and sets us up for even greater success in 2025 and beyond. With the successful transformation of our business into two complementary segments aligned with our customers' needs in the lab and production environments, We are better positioned than ever to execute on our growth strategy. Today, we support more than 300,000 labs around the world in 180 countries and have more than 2,500 onsite service associates working every day in customer labs. Our unparalleled footprint gives us privileged access and important insights into the challenges customers are working on, insights we feed directly into our innovation pipeline. And our access to early phase research and development and design activities allows us to see our custom proprietary materials into their production processes, we call it our beaker to bulk strategy and the model really works. Our global footprint has also enabled us to establish a highly resilient supply chain featuring tremendous flexibility and redundancy built into our sourcing and manufacturing strategies. We plan for a wide range of scenarios, and we know that things can change quickly. so we will continue actively monitoring developments and rapidly make any adjustments as needed. I am encouraged by our setup for 2025. Our sustained commercial intensity and cost transformation initiative drove sequential momentum throughout 2024. We have a solid plan for the year, and I am confident that we will continue to execute well. We expect a return to organic growth across the business, continued margin expansion, and double digit EPS growth. We will continue our best in class cash generation, accelerating our deleveraging. We delivered on our commitments for 2024 and I expect us to do the same in 2025. I will now turn it over to the operator to begin the question and answer portion of our call.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please do so now by pressing start followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star and then two to withdraw yourself from the queue. Please limit yourself to one question to allow everyone a chance to participate, and please ensure your microphone and your device are unmuted locally. Our first question comes from Vijay Kumar with Evercore ISI. Please go ahead, Vijay.

Michael, good morning. Thanks for taking my question. I guess at a high level, you know, when I look at bioprocessing, some pretty good trends here in Q4. What were order trends in the quarter? And, you know, when you look at the guidance, mid to high singles, there is a range. When your exit rate is high singles, I'm curious, was there any pull forward of orders ahead of tariffs or any macro uncertainty? just if you can elaborate on bioprocessing assumptions.

Yeah, good morning, Vijay. Thanks for the question. Yeah, we agree. We had a really strong finish to the year in bioprocessing with high single-digit growth in the quarter, which builds on four consecutive quarters of outperformance for us. Nothing really unusual in terms of How the quarter developed, I don't think we have any evidence that there was a significant pull forward. The quarter played out pretty much in line with our expectations. I would just indicate that the underlying market fundamentals continue to be quite strong. Destocking has largely subsided. Production levels have improved. We continue to see record levels of approval. um you know strong order intake another another great quarter there um you know with two to three months lead times you know we're seeing that translated to revenue real time um you know our experience in 24 bj was you know one of kind of gradual improvement and that's you know kind of what we've planned on for uh you know 2025 um and you know we enter the year with good momentum and an order book that um you know sets us up for you know sustained recovery as we move through the year

Our next question comes from Michael Riskin with Bank of America. Please go ahead.

Thanks. Just a quick one following up on that, Michael, just because you said sustained recovery through the year in BP, but you are guiding to mid-single, high-single for the first quarter for bioprocess and mid-single, high-single for the full year. So is this just a matter of comps or just some concerns, just a clarification question there? But then my actual question is going to be on the margins, Brent. You know, 80 bps year-over-year is the guide for 2025. You're pointing to, you know, 18.5 at the midpoint. But, one, you are giving a wide range on the margins, a little bit wider than you have in the past in terms of its 100 bps range. Just curious why that's there. And also thoughts on margins beyond that. I think you talked about, you know, you're exiting. You're going to have an excess of $250 million in in savings through 25, 300 is the goal exiting 26. So you're executing on some cost savings faster than you anticipated. Is that just a matter of timing, or is it one of those things where as you're going through the business, you're finding more and more than you thought you would? So maybe there's some upside to that 300 million number for 26. Thanks.

All right. Thanks, Michael. I'll do my best here to try to unpack some of that and let Brent cover your questions on margins. When I think about our experience to date on bioprocessing, recovery has been incremental, which, as I said before, is probably more sustainable. There's great pipelines across all modalities, MABs, with a lot of exciting things in ADCs and biosimilars. Feline gene therapy is looking pretty good as well. We're ubiquitous across all these modalities, and we continue to drive high penetration across new therapies, and we continue to put more content on each new molecule. Because I think about the progress here sequentially and moving into 2025, as we said, Q1 tends to be the low point for the year, and we think mid to high single-digit target for that business for the quarter is a prudent place to start. contemplate or expect gradual improvement off of that as we move through the year.

Okay. Hey, Michael. Thanks for the question. And you had a few pieces to it there, but on the margin side, look, that's sort of the art of where the point of that's going to be. We had that range, frankly, without round numbers made sense, and we didn't want a sense of false precision there. I mean, I think zeroing in on the midpoint, as you often do there, makes a lot of sense there. This platform does have meaningful fixed costs, and we get real leverage on that. The other thing there is if we get sales at the top end of the range there, you will see us convert even better. So that's the other reason for some breadth to the range there. And you made the comment on the cost savings, which I think both is very fair James Pfeiffer- You know we've I don't know that it's necessary that we found more, but you know this this place can be very action oriented we've seen opportunities we've executed against them because. James Pfeiffer- it's much better to get the cost savings and earlier period I don't think I would call. James Pfeiffer- For the program to outperform quite yet, but I think you'll see very strong continued momentum there, so I just think everyone should feel comfortable that we're leaning into that self help as much as we can.

The next question comes from Dan Brennan with TD Cohen. Please go ahead. Your line is now open.

Great. Thank you. I wanted to ask a question on the lab side of the business. I know in the prepared remarks you talked about, I think you mentioned macro and holidays, but it was a bit light in the fourth quarter down one. I think you had guided for flat to upload low single. So just some more color on how the quarter progressed versus expectations. And then similarly, if we think about your guidance for 25, I think you talked about low single. Just would love to find out what are the puts and takes around that low single and then have a follow-up.

Yeah, great. Thanks for the question, Dan. So as we think about the context for our lab performance in 2024, you know, we entered the year, you know, assuming that 49% of our revenues would come in the first half, 51% would come in the second half, really driven off of you know, kind of a normal seasonality, you know, as we move through the end of the year. And that's, you know, that's what was implied from the beginning. You know, based on, you know, a more muted seasonal ramp, which is contemplated by the low end of our guide, that's, you know, clearly where we fell. Brent mentioned a few factors. You know, obviously there's a bit of noise in the macro environment at the moment. We were uncertain, you know, given kind of a midweek holiday there at the end of the year, you know, how that would impact things, activity levels were Certainly muted as we moved through the last week or two of the year, and there really wasn't much of a budget flush outside of high-end instrumentation, which isn't really a big part of our portfolio. But I would say that the quarter played out generally in line with our original expectations and I think underscores the resiliency of the business. The other thing I would say, Dan, is the quarter for me really highlights just how the model is starting to work again. TAB, You see nice you know margin expansion as as mixes you know continues to improve certainly the cost actions are flowing through we continue to have. TAB, Investing class we cash flow conversion and margins at the high end of the guide you're delivering on our already yes guidance from beginning of the year, so I think there's a lot to like about the quarter here and some good evidence that the model starting to work again.

Our next question comes from Rachel with JP Morgan. Please go ahead, Rachel.

Perfect. Good morning. Thank you for taking the questions, you guys. So I wanted to ask on some questions related to the new administration and policy impacts. You've had a number of your peers call out a certain level of prudence embedded in their guides for risks related to this new administration and potential policy changes. I didn't necessarily hear that in your prepared remarks at all. So can you talk about, have you embedded anything for policy risks into this guidance? And then along those lines, given some of the headlines we've seen so far to start the year with things like NIH budget freezes and RFK nominations, have you seen any changes in customer behavior related to your academic and government or pharma and biotech customer base?

Yeah, thanks for the questions, Rachel. I think all really relevant topics, of course. A few things on the new administration. Just to call your attention to the obvious fact, it's only been a couple of weeks since they've been in office. It's obviously early days. On one hand, I think we're excited about the overall business environment that this administration is likely to create, which is expected to be more business friendly and focused on economic growth. you know, specific to NIH funding, you know, certainly hearing a lot of ideas being discussed, nothing formal yet in terms of funding plans or policies. You know, as we've said before, we have relatively modest direct, you know, exposure to NIH, but of course, you know, particularly in the academic segment, you know, we know that some of our customers do rely on that funding for the programs. But, you know, from the language we've seen, you know, so far, the areas are likely to be impacted you know it doesn't uh appear to us that it's areas where we would have significant uh exposure and at the end of the day i think you know what gives me the confidence here in our outlook for the year is um you know good science continues to get funded um and um you know we'll of course you know continue to monitor the the environment and adjust uh accordingly but you know i think you know net net um you know it's hard to predict exactly what all these policies that are being bantered about ultimately have. But to the extent that it creates a more positive business environment, we would think that would be constructive. And of course, we'll continue to look to leverage our broad footprint and flexibility to ensure we continue to deliver value to our customers.

Our next question comes from Doug Schenkel with Wolf Research. Please go ahead, Doug.

Hi, this is Madeline on for Doug. It seems like bioscience and bioprocessing in particular have been starting to have a bit of a resurgence, while based on the fourth quarter and also the guidance, the lab business has been more under pressure for both you and peers. If this trend continues and exacerbates, how could that impact margins, and could that be an area of upside for margins versus the guide?

Yeah, I mean, going back to the comments I made to a couple of questions ago, we do have fixed costs. And absolutely, if you have less in the lab, we will underabsorb against those fixed costs. I think that's pretty arithmetic. I think when you look at our guidance, you know, we look at all kinds of scenarios, and I think we've been very prudent about that, but we also got questions about the breadth of the ranges here. You know, if we do see a resurgence there, both, you know, that absolutely would allow better conversion. I mean, you see just what a modest increase to organic growth does for this business against margin across both sides of it there, and obviously you you come in with higher margins on the bioscience side of it, so it's easier to see those impacts. But even a moderate increase in growth in lab will be very nice for margins here.

Our next question comes from Tycho Peterson with Jefferies. Please go ahead, Tycho.

Hey, thanks. I want to probe on a couple things. So academic government down low single digit, but Michael, you did call out academic as I'm just, is that K through 12? And I think usually that's a 3Q benefit, not a 4Q benefit. So curious about that. And then you flagged share gains for lab. I'm curious where you're kind of seeing the most in terms of gains. And then lastly, just bioprocess, you know, mid to high single digits consistent with some of your peers, but others are firmly kind of endorsing high single digits. So what's your view on kind of market growth and how much conservatism, I guess, is what everybody's trying to figure out in that mid single digit low end of the range? Thanks.

Yeah, thanks for the question, Tycho. Lots to unpack there. Starting with our education and government, you know, performance, you know, that's been a real bright spot for us throughout, you know, the years. I said in my prepared remarks, you know, it can be a bit lumpy. I think you've got the phasing on our K through 12 exposure, you know, about right. So, you know, that piece certainly would have been down sequentially, you know, relative to, you know, just the normal timing of when, you know, those K through 12 districts, you know, update their curriculum and materials. But, you know, we've got a track record here now over a couple of years of sustained commercial intensity that is clearly leading to our performance in our, you know, higher education platform. You know, I think with some of the macro noise and, you know, some of the, you know, expected changes, you know, the new administration, the government piece was, you know, a bit weak in the quarter. But we continue to, I think, be quite confident about the work we're doing on the education side of that. When you think about the guiding outlook for bioprocessing, I think I'd say a couple of things. One, we're assuming Q1 is the low point and things will improve from there. Of course, the comps get a little bit more difficult as you move through the year as well. But, you know, we view 2025 as a year of, you know, continued gradual improvement. We really like the setup for the year, strong order book, strong momentum. You know, I think we're trying to be prudent here out of the gate and, you know, just reflect, you know, some of the macro environment. And, you know, obviously we'll be pushing to grow that business as fast as we can. But we like the positioning. We like the setup. We had a great, you know, finish to the year. I think we're encouraged by where we're at.

The next question comes from Luke Sergot with Barclays. Please go ahead, Luke.

Great. Thanks, guys. Just kind of like following up on what everybody's trying to figure out is, you know, starting the year slower than what was expected, and then so it implies another pretty sequential impressive ramp throughout the year. Robert Marlayson, Bioprocessing maintaining your growth and so, as you look across the rest of the book, you know what is going to get better and we'll give you know what's what's the visibility on that like, especially as you think about us semis and and you know the government funding and several labs.

Robert Marlayson, yeah a couple of things one i'd reiterate you know kind of the facing that we've implied in our in our guidance today, which is typical for our business. 49% of our revenue in the first half, 51% of our revenues in the second half. So, you know, not a lot of ramp here implied in our numbers. You know, I think from a processing standpoint, you know, we see, you know, mid-single digit growth to high single digit growth in the first quarter as well on a full year basis, which, you know, given that comps, you know, improve or get more challenging as we move through the year. You know, that just reflects, you know, good study, you know, improvement, you know, from that end market as things continue to normalize. You know, in the lab business, we've, you know, contemplated relatively stable, you know, end market conditions. We're not really expecting or needing any heroics to occur there for us to deliver on our guide, you know, with, you know, an assumption that we'll realize normal, you know, contributions from price. That phases in, as we talked about in previous years, as we move through the first quarter and should be in place fully by the time that we get into the second quarter. So those are some of the puts and takes, Luke, on how I think about the setup for the year. So hopefully that was helpful to you.

Our next question comes from Patrick Donnelly with Citi. Patrick, please go ahead. Your line is now open.

Hey guys, thanks for taking the questions. Maybe to follow up a little bit on Luke there, I know he touched on the semi piece. Can you guys just kind of expand a little bit on what you saw in the quarter broadly in advanced technologies? I know the semi piece jumped out last quarter and bit the margins a little bit. Just the outlook on that part of the business as we work our way through the year, impact the margins would be helpful. Thank you guys.

Yeah, good question, Patrick. You know, firstly, just to remind the group here that, you know, semis is a relatively small part of our overall VPS, you know, segment. And, you know, as we talked about it in the third quarter, you know, the conditions in that end market, particularly with, you know, some of the larger customers here in the U.S., deteriorated pretty meaningfully in Q3. And, you know, our Q4, you know, plan was, you know, assuming that things would be, you know, relatively stable sequentially, is how the quarter played out. So it wasn't an incremental headwind on a sequential basis to us. And as we think about what's factored into the guide for 2025, we've assumed that things will stay relatively stable at the levels that we saw in the second half of this year. So we'll not be taking any recovery for that end market. It'll be a pretty meaningful headwind to us in Q1. That was the high point of that market for the year. So we've got a pretty tough comp for our semis business there. And so that's, you know, also part of, you know, what we've contemplated in our guide there that offsets, you know, the good momentum on our new cell platform and our bioprocessing platform. But we continue to stay close to our customers, and I think we're encouraged to see that things have, you know, stabilized a bit here, but not really anticipating any recoveries that move through the year.

Hey, Patrick, I'd just add on. You had a piece about margins in connection with semis there, and You know, when we had commentary last quarter, that was more about a surprise versus where that went. But when you think about what the setup for 2025 is here and what that means with this level of bioprocessing growth, with this level of bioscience growth, that will definitely have us mixing up. And you can see that into the margin guide. So I just want to be clear that you don't see the comments on electronic materials there. It's problematic to margin in the year. It's absolutely baked into our expectations.

Our next question comes from Tejas Savant with Morgan Stanley. Please go ahead.

Hey, guys. Good morning, and thanks for taking the time here. Brent, a couple of quick cleanups on the guide for you. Can you just remind us of how the 200 whips FX headwind on the top line impacts EBITDA and then the EPS line? And second, bioprocessing, a lot of questions here, but Michael, can you confirm that, you know, in steady state, you still expect that to be a double digit grower for you? And then lastly, on M&A, you know, you guys have been pretty cautious on sort of reprioritizing that, you know, Brent, you mentioned, you know, cost outs and debt pay downs. That said, a lot of your peers are, you know, opportunistically dusting off their M&A playbooks, given a more benign regulatory backdrop and a decent rate environment. And you don't want to presumably sort of miss the boat, so to speak, on the pick of the litter, right, among the assets out there. So could we see you sort of revisit that strategy a little bit sooner than you've indicated recently? Thank you.

So here, real quick on the modeling cleanups there, Tejas. So the, you know, we're more than 50% U.S. dollar in our business, but we have significant exposure to the Euro. So you'll see in the footnotes on the page there that we're modeling based off your dollar of 1.03. Now, what we realized in 24 was 1.08. So that's what, on the math basis, gets you to about a 2% headwind. So that's kind of $135 million of revenue. As that rolls down, that'd be approximately $25 million of EBITDA through cents to VPS. So that's the FX modeling impact.

And then, Tejas, I think we'll try to clean up your other two questions you had. Firstly, on bioprocessing, yeah, I think our conviction level on double-digit growth for that platform is still fully intact. As we highlighted at a recent conference here earlier in the year, we like, of course, the position we have today with more than 85% penetration of the commercialized platforms. And as we look ahead, We see that growing to over 90%, including five of the five top blockbusters. So very, very strong positioning. Our innovation engine is hitting on all cylinders there, and we continue to have strong conviction on how that in-market will play out for us over the long term. From an M&A standpoint, good question. you know, we've been squarely focused on paying down that, you know, we paid down, you know, well over $2 billion over the last couple of years. And, you know, our average stands at 3.2 times as we enter 2025. So we'll definitely get below three times at some point this year. And, you know, as we said in our prepared remarks, you know, at that point, we'll certainly, you know, have some flexibility here. You know, as it relates to M&A, that remains an important part of our long-term playbook. And, You know, we continue to be active in building our pipelines and linking those pipelines to our business strategies. And, you know, I think we have some clear areas of focus, you know, where we think we can, you know, add significant value over time. But I would reiterate that, you know, we are, you know, committed to running the business sustainably below, you know, three times. And so I think you'll see us be proven here as we, you know, work through this transition into more flexible, you know, allocation policy.

Our next question comes from Connor McNamara with RBC Capital Markets. Please go ahead.

Great. Thanks for taking the question. Michael, you talked about the new distribution agreements at the start of the call. Can you just talk about the impact of those agreements to your overall third-party business? And, you know, if that business is down in the quarter, in the year, how should we think about long-term when that returns to growth? And then just are these new agreements marginally created for the third-party business?

Yeah, really great questions, Conor. Thanks for bringing that up. So as we think about the setup for our lab business for the year, we're anticipating low single-digit growth for that platform in 2025. So we're certainly looking forward to returning that to organic growth. Our algorithm, our long-term growth algorithm, contemplates that business being low single-digit growth. certainly we're starting to get into that envelope where things are certainly normalizing. And one of the important attributes on how you grow that business, of course, is ensuring that you have the right portfolio to bring differentiated technologies to your customers to help them solve their most current challenges. And so we have a very, very vibrant innovation portfolio, and that includes you know the work we do in our own r d centers uh and bringing those technologies into the market but of course an important part of the model is um you know working with the supplier community to help them bring their innovations to to the market and so really what was just trying to highlight you know for you today um some of the more notable uh you know milestones in that regard in the in the quarter and you know each one of these is you know somewhat incremental in nature and you know, we would on average launch roughly 100,000 new products a year, Connor. And so you can kind of get a sense there for, you know, how important this is to our business. And, you know, I think it, you know, is just another good data point that shows the focus that our new operating model is bringing us and, you know, the setup that we have going into the year. So, you know, with some of these new technologies, new technologies, you know, supply arrangements together with the impact of pricing, you know, we are looking forward to having that platform grow again for us here as we move into 25.

Our next question comes from Matthew Sykes with Dolphin Sachs.

Please go ahead. Hi, this is Evie on for Matt. Thanks for taking my questions. So I understand there is a more muted impact seasonally in 4Q, but can you talk about what you're seeing in terms of large pharma versus emerging biotech customer cohorts and then any puts and takes you could provide there?

Yeah, happy to. So, you know, I think it's going to tell it to cities, if you will, there. We are rather encouraged by what we're seeing out of large pharma. You know, there's been quite some notable headwinds there on preclinical activities as They've been reprioritizing pipelines and working through a number of adjustments to their spend and such. And now for a couple quarters in a row, we're starting to see large pharma return to growth. And we actually had a pretty nice quarter with large pharma in our lab business. And seeing across that space, both in Europe as well as in the Americas, a nice return to growth there. um you know on the other end of the spectrum of course is the biotech activities and we know that on a year-over-year basis biotech funding was up but you know probably doesn't tell the whole story um it took a pretty meaningful jump in q1 of last year and it fell sequentially each and every quarter through the end of the year and so activity levels there continue to um you know to be a bit bifurcated we see some of the more established biotechs you know doing okay and growing but the traditional startup we're not seeing the same level of activity there as what we would normally expect. But that continues to be a bit of a headwind for us. But we are encouraged by some of the activity levels we're seeing across the space, particularly and notably the momentum we're seeing with large former pickup again.

Our next question comes from Brandon Couillard with Wells Fargo. Please go ahead, Brandon.

Good morning. Brent, just a clarification. I think you mentioned fewer selling days in the first quarter. Is that down sequentially as well? Could you just quantify the contribution and the impact relative to the flat organic guidance? Are there any other variances to be aware of as we move through the year?

On Q1, that's down year over year. It's not down sequentially there, but certainly... Certainly that does have an impact. You know, it's not where the full year figure there. But no, I think when you when you think about the Q1 set up there, you know, again, we're talking about being very, you know, lab being stable. We recognize there's the other noise out here, but they're always puts and takes in the business there. And then you blend that with with the but, you know, bioscience being up mid there and or I'm sort of by a process of mid to high, you know, that's just we're being cautious about the corridor. And I don't think that makes us an outlier with what you're hearing from other people there. Caution on Q1.

Our next question comes from Jack Mahon with Nefron Research. Please go ahead, Jack.

Thank you and good morning. Two quick follow ups. One was just on the model for Brent. Interest expense, $50 million in the fourth quarter. Was there anything one time in the $45 million in 4Q, or why would it step up sequentially? And then for Michael, just any comments on the education market, which declined low singles in the quarter? Was that just seasonal factors with the holidays or something else that you're seeing there? Thank you.

James Pfeiffer- yeah jack we had there's there's a little bit of accounting and the interest expense there with an unadvertised fear amortized fees going through, and you know we also do have a decent amount of euro debt to have fx running for it there, and our guide to the year is. James Pfeiffer- You know. James Pfeiffer- 181 90 there so. James Pfeiffer- You know 50 when you have to leveraging throughout the year there that's just sort of kind of dollar cost average down for the her.

And then, Jack, your question on education. I think I shared some thoughts on this earlier, but just to reiterate, you know, we continue to be very, you know, satisfied with the shared gains we're driving in, you know, in the higher ed space. We're probably, you know, seven or eight quarters into that, you know, trend driven off of our sustained commercial intensity there. And we also had, you know, I would note, you know, some really meaningful shared gains on the biopharma side of things as well. in the quarter. A couple things to note in 4Q, the K-12 exposure that we have is a little bit more muted in the quarter, particularly as you move sequentially, just given how the districts manage their curriculum updates and such. The government piece was somewhat muted, presumably owing to some of the uncertainty associated with the administration change. The higher ed piece, you know, continues to be a bright spot for us. And, you know, we would anticipate that momentum continuing into 2025. Thank you.

Those are all the questions we have time for today. I will now turn the call back over to Michael for closing comments.

Yeah, thank you. And I certainly appreciate you all joining us today. you know, some of our, you know, key messages here as we, you know, turn to 2025. You know, we are encouraged by, you know, our expectations of returning the platform to growth, you know, anticipating, you know, continued momentum and leadership in bioprocessing, another, you know, year of strong, you know, margin performance, and, you know, leveraging our Avantour business system, as you expect, you know, continued you know, disciplined and, you know, execution around our pre-cash flow generation. You know, I think our, you know, guide at the midpoint here of double-digit EPS growth is quite notable. And, you know, I think we're encouraged that we see our model working again and markets, you know, starting to cooperate again. So, again, appreciate you joining us today. Certainly look forward to updating you when we meet next. Until then, be well, everyone. Thank you.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.