Avantor, Inc.

Our speakers today are Michael Stubblefield, President and Chief Executive Officer, and Brent Jones, Executive Vice President and Chief Financial Officer. The press release as well as a presentation and supplemental disclosure package 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. Before we discuss our second quarter results, I want to briefly address the leadership transition we announced last week. As many of you saw, Emanuel Ligner has been appointed of OnTour's next CEO, effective August 18th. Emanuel brings over 30 years of deep experience in the life sciences industry and is eager to hit the ground running. While I will continue to serve as CEO until his official start date, today marks my final earnings call with Avantor. It has been an honor to lead this organization for the past 11 years, and I want to sincerely thank all of you on the call today for your partnership and support. Let's now move on to our second quarter results, beginning on slide three. Despite ongoing challenges in the operating environment, we remain laser focused on executing the strategic initiatives we outlined last quarter, driving growth, improving operating efficiency, strengthening execution, and delivering long-term value. For the quarter, organic revenue growth improved sequentially by 200 basis points and was flat year over year. Adjusted EBITDA margin contracted to 16.6 percent. Adjusted EPS for the quarter was 24 cents, and free cash flow was 125 million, with adjusted conversion at 100 percent. We remain on track with our cost transformation program, and continue to expect $400 million in run rate savings by the end of 2027. In laboratory solutions, which makes up roughly two-thirds of our business, organic revenue growth was in line with expectations, increasing sequentially compared to Q1 and finishing modestly down year over year. As previously shared, Cory Walker joined us in late March as president of the segment. His early focus has been a comprehensive review of the business, assessing strategy, execution, and opportunities to grow and retain key accounts while aggressively pursuing new ones in partnership with the commercial team. I'd like to highlight a few of the findings and action plans from Corey's early efforts. Corey has spent significant time with customers and heard consistently about the power of our channel. Customers recognize our unique scope, reach, and engagement. And most importantly, they value the solutions we deliver and enjoy doing business with us. At the same time, these conversations revealed opportunities for improvement and ways we can strengthen our offerings for our customers. Corey and team are fully focused on executing an action plan to implement these initiatives while continuing their comprehensive review. For example, service levels are an essential part of our value proposition. We've driven substantial improvements in recent quarters, and the team is executing an aggressive plan to further differentiate our delivery performance going forward. Corey's deep dive into the business also validated the investments we are making to enhance our digital platform. As we discussed last quarter, we are focused on empowering self-service, simplifying ordering, and providing greater visibility into order status and fulfillment, enhancing every step of the customer journey. One of the tools being rolled out is Avantour Navigator, our first AI application developed completely in-house, which helps customers discover products and services matched to their research needs. Another is a digital buying experience platform designed to unify customer intelligence and provide a seamless, personalized experience across web and mobile channels. We also made significant progress with pricing optimization. including the development of a new pricing tool that increases agility, speed, and competitiveness. At its core, it ensures our customers see market relevant list prices when they engage with us through our digital sales channel, which not only makes their buying experience more efficient, but also reduces abandonment rates and significantly increases conversion. These efforts are already driving results. In a competitive market, we were awarded contract extensions with several top 15 global pharma accounts in the quarter. These awards will result in more than $100 million in share gains, which we expect to realize once fully commercialized. We also executed a five-year extension of our contract with BioBusiness Solutions, the largest cost-savings purchasing program for the life sciences industry. Over 10,000 companies have access to purchase Avantour's laboratory and production products and services through this agreement. Collectively, bio is our largest customer and this extension ensures we are uniquely positioned to benefit when funding levels return to historical norms across the biotech industry. These are significant wins, particularly as competitive intensity remains high across our industry. Our priority in this environment is to protect and grow share while preserving absolute profitability as volumes recover and the benefits of our delivery, digital, and pricing initiatives take hold. As a result, our full year outlook contemplates pressured margin rate assumptions through the balance of the year. However, we remain confident in our ability to expand margins over time. Turning to bioscience production, where our bioprocessing performance fell short of our expectations this quarter. While demand for our core monoclonal antibody platform remains strong, results were negatively affected by two discrete headwinds. First, quarterly throughput was impacted by planned maintenance efforts at one of our manufacturing facilities that extended longer than planned and led to an increase in backorders. Second, and more significantly, a few of our large customers faced major, unexpected headwinds during the quarter, which slowed the rate of recovery in controlled environment consumables and impacted demand in other elements of our offering. Specifically, a leading gene therapy platform encountered regulatory and patient safety setbacks, a key mRNA platform scaled back their outlook, and one of our longstanding MABS customers had a negative phase three readout and other commercial challenges. We expect these headwinds to persist through the balance of the year. Brent will discuss the impact to our guidance. Benoit Gordier and the bioprocessing team are taking decisive action to offset these headwinds and strengthen our market leading platform. And Emmanuel's expertise will be additive here when he joins the company later this month. The team's efforts are centered on three priorities. Optimizing our supply chain to enhance delivery performance and improve operational efficiency across our manufacturing and planning functions. Increasing field intensity through new sales leadership and sharper execution discipline, and expanding our product offering through ongoing innovation and customer-focused development. Outside of bioprocessing, the other key components of the bioscience production segment performed in line with expectations. We delivered particularly strong performance in our Nusil branded silicones platform, which grew low double digits. Year-to-date growth of the medical platform is running well ahead of patient procedure counts, So we expect demand in our new cell platform to moderate in the second half of the year. With that, I'll now turn it over to Brent to discuss the second quarter results in more detail and to walk through our outlook for the second half and full year.

Thank you, Michael, and good morning, everyone. I'm starting with the numbers on slide four. Second quarter reported revenue was $1.68 billion, which was flat year over year on an organic basis. Adjusted gross profit for the quarter was $554 million, representing a 32.9% adjusted gross margin. This is a decline of 130 basis points year over year, driven primarily by price actions in lab to protect and grow market share, unfavorable product mix, and increased supply chain expense in the form of higher than expected freight expense and fixed cost under absorption. As expected, we were able to fully offset the dollar impact of tariffs on cost of goods sold through targeted pricing actions and sourcing agility. We had another quarter of solid cost control with adjusted SG&A expense better than planned and prior year, and we continue to identify meaningful additional cost opportunities to help offset the margin pressure we are facing. Adjusted EBITDA was $280 million in the quarter, representing a 16.6% margin. Our shortfall in adjusted EBITDA margin was driven by the headwinds to gross profit and margin and only modestly offset by SG&A savings. Our multi-year cost transformation initiative continues ahead of plan and we remain on track to deliver in excess of our commitments for 2025 and the entire $400 million program. Adjusted operating income was $252 million at a 15% margin. Interest and tax expenses were in line with our expectations. As a result, adjusted earnings per share were $0.24 for the quarter, a $0.01 year-over-year decline. 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. Our cash generation was strong with $125 million in free cash flow in the quarter. When adjusted for cash costs related to the transformation initiative, our free cash flow conversion was 100% of adjusted net income for the quarter. Our adjusted net leverage ended the quarter at 3.2 times adjusted EBITDA unchanged from Q1 as cash generation was largely offset by FX impacts on our Euro denominated debt. Deleveraging remains our top capital allocation priority and we continue to target adjusted net leverage sustainably below three times. Let's now take a closer look at each of our segments on slide five. Lab Solutions revenue was in line with our expectations at $1.122 billion. On an organic basis, we declined 1% versus prior year, but grew 2% on a sequential basis. As Michael noted, we continue to navigate increased competitive intensity as a result of funding and policy-related headwinds many of our customers are facing. In this environment, we are focused on not just retaining but growing share. A particular bright spot was our self-manufactured lab chemicals, which continued its track record of growth. On a regional basis, our European business was nearly flat, outperforming the Americas and Asia, which felt the greater brunt of policy headwinds. Adjusted operating income for lab solutions was $133 million for the quarter with an 11.9% margin. Although we were able to implement pricing and sourcing actions to offset tariff cost headwinds, the competitive actions to drive share have come at the cost of margin. Mix was also a negative contributor to margin. Bioscience production revenue was $561 million in Q2, up 2% organically on a year-over-year basis and up 7% sequentially. silicones had another strong quarter, up low double digits, and our applied solutions business was down low single digits, both in line with expectations. The key disappointment in the quarter was bioprocessing, which as a reminder comprises roughly two-thirds of our revenues in bioscience production. Although bioprocessing grew 5% sequentially, It was flat year-over-year, with declines across the business driven by the customer headwinds and the longer-than-expected maintenance at our manufacturing facility. Within bioprocessing, CEC was down mid-single digits year-over-year, but grew sequentially, benefiting from commercial actions taken by the team. Single use also grew sequentially, but was flat year-over-year after increasing high teens in the first quarter. Lastly, process ingredients and excipients grew high single digits sequentially and low single digits year over year. While we have limited control over the customer headwinds, the team is actioning on the initiatives Michael outlined to improve execution and performance. Adjusted operating income for bioscience production was $140 million for the quarter, representing a 24.9% margin. While this represents a 100 basis point sequential improvement, margin was down year over year, largely due to underabsorption and manufacturing related expense. Given our first half performance and current visibility to the business, we are reducing our full year organic revenue growth expectation to negative 2% to flat versus prior guidance of negative 1% to plus 1%. year-to-date, our organic growth is negative 1%, so this updated midpoint reflects a continuation of current trends. To bridge to actuals, there is a 2% headwind due to the clinical services divestiture and approximately 1% tailwind due to FX, resulting in reported revenue growth at the midpoint of negative 2%. This assumes a euro dollar rate of 1.15 for the back half of the year and a 1.12 blended rate for the entire year. On a segment basis, we now expect lab solutions growth to be minus low single digits down from minus low single digits to flat. This assumes a continuation of first half performance in the back half of the year. Conversion associated with the recent share gains described earlier will be a tailwind to our outlook as they are implemented. Consistent with our Q2 performance, we are assuming no material top line impact from Terrace. We now expect bioscience production to be flat, down from up mid single digits, driven by our performance in the first half and headwinds in both bioprocessing and in our medical grade silicones platform. We expect bioprocessing to be flat to up low single digits, down from up mid single digits. This reflects our expectation that despite continued strong underlying demand for our core monoclonal antibody platform, we will continue to face the headwinds we described earlier. Single use is expected to increase mid single digits for the second half and the year, and we expect processing gradients to be up low single digits for the second half and the year. In CEC, we expect performance to continue to improve modestly on a sequential basis as we move through the second half of the year, translating to a low single-digit decline for the year. After mid-teens growth in the first half of the year, our medical-grade silicones platform will take a step back in the second half of the year as customers rebalance inventory to bring full-year growth in line with patient procedure count. Accordingly, we expect mid-single digit decline in the second half, resulting in modest growth for the full year. We are updating our adjusted EBITDA margin expectations to between 16.5% and 17%, and our adjusted EPS guidance range to between $0.94 and $0.98. We are also reducing our free cash flow expectations to $550 million to $600 million before transformation expenses. The reduction in free cash flow is a result of the significant contract extensions in the lab business that Michael discussed earlier. While we are excited about these awards, some come with meaningful prepaid rebates, which are accounted for in our updated guidance. In terms of Q3, we expect organic revenue growth of minus 4% to minus 2%, with both segments down similarly. Our clinical services divestiture represents a 3% headwind And based on current spot rates, we expect a 2% tailwind from FX. This leads to reported revenue growth of negative 4% year over year at the midpoint. We expect adjusted EBITDA margins to be somewhat lower than Q2 in the low 16% range. With that, I will turn the call back to Michael. Thank you, Brent.