AVTR - Earnings call transcript Q3 2019

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Avantor Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Helen O'Donnell. you. Thank ahead. go Please

Helen O'Donnell

and today's everyone. call. operator, joining you us on good you, Thank morning for Thank

President Officer. Our and and Vice Chief today Executive Chief speakers are Officer; Tom Michael Szlosek, Stubblefield, President and Financial Executive

available The press presentation also of investor the call. release be replay available at A webcast website on following call ir.avantorsciences.com. this accompanying website this our this and are will on our

line Following up open for remarks, prepared our the we questions. will

from statements will would events meaning and number Actual statements or within forward-looking update obligation not set to a believe, of to speak new developments forward-looking only in to that otherwise. our occur results making I These forward-looking a result and Laws or regarding the are make These may in that those we materially information, the forth date we the we statements these statements be made risks Securities like the of that future Federal or and forward-looking of differ might they forward-looking anticipate, events any subject today. including filings. are statements future. do as statements some whether note we including developments as that any uncertainties SEC assume of

a measures. be these non-GAAP found This discussion measures of call A will can the to in include non-GAAP reconciliation presentation. of the Appendix

call Michael. the to now over that, turn will With I

Michael Stubblefield

call. quarter and Helen earnings third you, good Thank our appreciate morning We joining everyone. you

for X. couple period, into a revenue right which for Let's get X.X% factors. on quarter. the performance the of Organic am the growth was I Slide reflected

organic the were quarter. end-market Biopharma up XX% growth up for First, continued year. in the are our X% an on and the We basis in strong

model. our and represents this that approximately momentum our a critical XX% Biopharma in recall element may annual of revenues of end-market is continued You

later, more by contract. in a significant will by low-single-digit than share points. comparison the was decline the affected which driven growth offset this partially XXXX, Tom of contract new but and year-over-year education growth customer details government, more This in basis by a had XXX initiation

EBITDA, product delivering make adjusted synergies acquisition. to continued managing to to and VWR from inflation product the progress excellent on the we relative Turning pricing, cost

impact which adverse margins XXX However, the diluted these quarter. offset by headwinds mix, basis product positive of by factors and together points currency approximately foreign the in was

The to that one-off and margin issue in government mentioned I also education previously contributed performance. the

We will that are But our minutes. expansion in growth margin details few and a confident provide more long-term model is we intact.

interest quarter remain earnings share earnings the year. excellent to QX of an $X.XX for and increased our by range share XX%, the for ongoing was benefits as expense per on driven performance our the growth, deliver from $X.XX per deleveraging. to adjusted our in operating adjusted We track full earnings on

was an also cash outstanding flow deleveraging. It continued generation quarter and for

million, income. was the cash improvement. XXX% net adjusted capital cash $XXX representing contributor of unlevered was quarter flow Working Our in the the flow free main free a to

leverage of Net in the seven down the the from times the the quarter year. at at times and times of quarter, end from five declined beginning second to X.X

track on from through to turn earlier almost full reduce to this operation a are addition year. year, the impact by IPO we performance In the leverage this

we worth While headwinds mentioning. notable we the were there made some pleased in the are quarter, with progress

continued approximately world. tightening in slow around particularly Industrial XX% started to a represent quarter The soft we off and saw end-markets, our the Europe. be of somewhat modest which in capital also expenditures, revenue,

has business. our fourth carried the impact encouraged business education encountered end-markets, challenges the into we single-digit growth in by in the to Also, forward of and and September in were one-time core able these deliver quarter. momentum were we excluding mid our government we Despite our that

economic cycles. resilient including space, revenue a profile model and access, well customer highly a global Biopharma to our make high-growth across Bioproduction broad for exposure Our recurring the that presence, performs

I X, I you synergy balance see adjusted deleveraging on the and moving highlighted that left, to continued discussed. am EPS sheet where growth, growth, Slide execution, previously can sales the

share like Biopharma pleased which One an minute with would our were to previously several wallet I Europe. we take a is of customers. served to highlights. notable non-financial example some existing existing in expand to cover account, only We

After offering value, basis. expand this a integrated customer contract our on global the decided European its brought understanding Biopharma the to worldwide business, to

education with We accounts also new Biopharma onboarded some the won multi-year accounts CRO top-tier several wins customer including several successfully and contract and space. in important extensions

the work processing During in to center our Jersey. nearly the and support be By of our capabilities expand we to our began in cell doubling downstream and Bridgewater, adding innovation quarter, footprint, therapy. areas we customers New will gene

to work both We XXXX. workflows capacity be low process. production downstream for the manufacturing of by upstream began sugars anticipate also capacity in the and new biologics will this of the that endotoxin high-purity, online We end increase used

the leading traffic model third additional for Our see additional quarter business and priority. our remains experience our digital a online offering continually growth to across key platform. and We implemented a driver enhancing throughout is improvements revenue user

valuable for In that the plans private the Bjorn of later that team his Bjorn our equity who continues XX% sponsor and transition. with our step from Bjorn procurement official years appreciate execution. to is to to manufacturing after own of and and us down him long be Mountain we The to and September, executive growth good company. this news teams, approximately contributions will leader we to Capital, five us we Avantor been need as available year will even be member of announced Hofman, has as our join his past a New our for the

prior Tanya Vice Tanya wealth Operations Executive of are Supply pleased and as her Chain. we Johnson Foxe, brings at in who as as and With experience Ford. Management roles Chain Bjorn's Johnson, Walmart from Supply Global at a President, recently joined AVON, welcome & to departure, well

world. customers Her will helping integrated that to a the our leadership and proposition in supply critical around chain strengthen experience will build value fully end-to-end us be further overall our

to let turn it that, me With Tom. over

Tom Szlosek

August. the the breakdown growth contraction and X.X% can The on July by Thank in I Slide quarter in you, where with low-single-digit region. lumpy a am bit Michael. and organic was X, you see low-single-digit growth

in pleased is this were had the we September growth to trend mid-single-digit quarter the growth reverse to the see we and XXXX. in X% returned we organic important comparisons to in the had However, challenging third note considering it the level of when quarter

stands The one-off this is materialized. X% the the growth Michael in where out XXXX Americas mentioned effect as the of that

and of XXXX space, ramp this in new in up this million had single more $XX at of account than education reflecting For contract. government start third sales the quarter of the the we the

the large a quarter. for revenue portion this recognized XXXX, the of In in contract was second

repeated would was to of the have approximated portion and XXXX level quarter service up exceeded a X%. in the of factor, threshold of Absent would entire QX to ramp the all business. at the not the volume growth X% growth have the some Americas company this establish Additionally, inventory the

X.X% Biopharma into end-markets in September, seen strong growth growth we grew of double-digits. our the all low reported more and high-single-digit Europe with modestly AMEA was across we Biopharma. recently, than X% at strong in growing including well month at had very have double-digit although growth a bit a

look for me product Let Slide groups. X end-market by and to a at very quick sales move

single-digits, while & flat. can you the low were Healthcare as and Education and single-digit noted government, in Applied grew previously a As Materials see high Advanced technologies had Biopharma decline.

and talk describing. declined the adjusted Americas about Consumables Proprietary which group, when group one-offs and covering part performance. our this will in I government reflected low-single-digits, EBITDA large education have product By we been product more Materials

we Consumables where and grew group customers saw Materials Instrumentation low-single-digits, expenditures. Specialty grew and capital and and the Third-party Services group mid-single-digits. grew Equipment The Procurement by low-double-digits moderate

adjusted and Slide cash X performance. summary of is our a flow EBITDA, EPS adjusted free

As adverse mix. Michael did well more cover foreign on a exchange and of indicated, about I'll on next and this cost had realization, in from product pricing inflation synergy versus but points detail the dilution on slide. basis XXX we product

XX% cash Cash flow was the Unlevered and free strong. $XXX in was is XX% year-to-date. quarter flow for up up the million,

continues leverage position as we quarter. times of to the ended five approximately Our second down the at quarter X.X, the end from at improve

see operational further the performance expense on adjusted in share deleveraging. We progress benefits quarter. and our per XX% ongoing the from the reflects expect fourth earnings the increase to in our Last, interest

third the business. netting XXXX. impact quarter Slide X had against quarter our bridge volume the we the factor, quarter shows one-off XXXX adjusted the in very strong from negative with in of of price of the some the in reflecting million third of volume government the Starting Biopharma and $XX.X flat the EBITDA education to growth Americas

strong, Single-use and strong. performance customer relative supplier serum Americas. rebates. were This the Product timing particularly in to volumes particularly cost of in pricing was by product also offset was and the inflation Americas

These non-COGS the to acquisition The investments in the our AMEA around chain sales strategic productivity approximately factor and from new $X of by inflation mostly supply synergies to functions continued quarter, $X the and largely to SG&A million in growth targeted support realization investments. facilities marketing region. VWR million customer-facing in and are the reflects offset

mix in margin something Sales of an to proprietary our products, in view of the strategy had adverse quarter, the are but our which to impact as enhancement drive temporary sales Part nature. we is accretive it's margins.

sales in successful in products I earlier. third this exceeded proprietary products the and mentioned products. in down for case the our for growth sales very for quarters six been proprietary the this were rate the preceding quarter, doing have We had growth quarter, But sales of fact this rate of third-party as

of these volume business is was XX%. education to healthcare the in The comprised of of third largely Similarly, one-off space, sales the proprietary compared materials sales customer the main grew decline factor sales in quarter experienced to of Americas Americas, in This government materials products. here. proprietary a when normalization the we the XXXX, and

example, that quarter, item impact the most experiencing Euro rate currency We've to exchange were headwinds foreign The was XXX Foreign XXXX time. for we first to at bridge comparing all cover. is of in currency when, intense last XXX, $X.XX the at GAAP XXXX the want a been the I year.

us. it down quarter, the XXX year-over-year this XXX, for still million a third the created For $X versus headwind difference but to was $X.XX,

FX the impact expect XXX expect This quarter. million is We margins this realized XXXX. $X contraction and the impact approximate impact, the we narrow an fourth something Combining we continue. mix in from point to million $X further not to basis in

Slide our X has Results. Segment

As earlier, government rate organic the growth revenue in education decline and the absent business. in exceeded X% revenue Americas indicated one-off I the X%,

with the of exited for the September. quarter also growth We month mid-single-digit

mid-single-digits up new group sales Biopharma volume with on also enjoyed business, strong We growth growth. customer strong solid the another customer remained The and for from Bioproduction customers development. research reflecting and largest low-double-digit our business with spending quarter

contraction This healthcare We was would experienced mid-single-digit for a healthcare healthcare, have mid-single-digit customer, this earlier proprietary the in to sales sales Americas from QX space. the offset materials partially contraction normalization normalization X%. which government. and strength in Absent up reflected the the by in mentioned been of I education

this of wins. remainder the Apart education, especially item, some end-market experienced improved one-off performance the recent from actually had customer we in we higher in where

The softness and chemical Materials the Advanced semiconductor by low-single-digits, decreases in end-market down was beverage, customers from growth platforms. defense offset This Technologies and Applied in high-single-digit industrial our reflecting partially sector. and food was and aerospace agriculture, by driven

management region accruals. the Despite strong which comparison, cost the an more to EBITDA revenue VWR and the pricing and in driven margin compensation reported relative the product rate, challenging by inflation incentive SG&A improvement Americas product synergies savings lower reflected

These margin mix offset referenced bridge. adverse and factors overall EBITDA the adjusted of were rebates in the timing customer partially by I

wins. accounts Europe, with roughly based pricing from and Biopharma strength the improved customer an Sales X.X% customer from basis across strategic volume approximately and In high-single-digits increased contributions growth. new broad net organic increased sales end-market to on equal

The Healthcare and and materials, in in Equipment single segment the strong third-party mid-single-digit Sales Instrumentation and partially due Consumables consumers products. proprietary sales growth, by low education experienced offset government grew declines digits. largely to to of

projects, Materials flat Consumables relatively these government and by sales of offset were partially sales Materials. Electronic and We were new recorded Materials sales. low-single-digit driven successful but contraction by and Instrumentation Equipment in third-party Applied winning growth, gains Technologies in in higher Advanced and

accruals. SG&A Europe improvement favorable to management pricing sales the VWR had rate. volume by product a a had mix EBITDA We and synergies driven savings and product compensation modest modest relative incentive of leverage, in lower the cost strong margin performance, inflation

the headwinds and of these Offsetting foreign currency supplier rebates. unfavorable the transactional were timing

quarter reported due in month and X.X% with region, up Applied for Materials, AMEA sales growth growth organic two and XX% the September. our largest over the Advanced The of Biopharma exited end-markets. Technologies to We

customers, products, by sales to Consumables. in were primarily These The Biopharma challenging volume lab prior production decline the driven offset of driven growth through and comparisons by low-double-digit a in offset sales Materials timing partially third-party experienced stronger business of offerings. and by of Biopharma customer single-use campaign production sales by increased year

of Sales by driven and Advanced growth, mid-single-digit of Consumables. Technologies and third-party Materials Materials were experienced Electronic Applied year-over-year. sales Materials flat

mix had by to growth. We and in EBITDA sales XXXX modest a future a management support XXXX. facilities volume decline customer-facing functions offset the had chain in supply product XX% from slightly in dilutive AMEA and sales leverage, rate in marketing in investments margin XX% and to of new

Turning to to slide for want some performance share quarter. more the XX, detail I on cash

the flow, cash XXXX. green million million of bars grounding, which on of For left grew a in the quarter $XXX third quarter $XX to the XXXX free from the show third in

contributed working approximately Net million can the $XX as capital million this $XX table on in of you right. see the improvement,

is from We clearly receiving. traction the area are getting attention some leadership this

However, significant further improvement. for still have an we opportunity

loss lower by driven begin our You was will higher flow also the was as net expire. for improvement taxes, operating note to interest costs from payments income in that free offset largely cash deductions by deleveraging our

in grew This the the in million to in approximately enabled million generation cash bars, is $XXX cash XXXX quarter. Excluding deleveraging of in blue cash cash shown from free which $XXX million XXXX. flow the unlevered $XXX interest,

by Slide a end at deleveraging, update in five and it seven third on further quarter to and of X.X times XX leverage times June to of the times. reduced the the gives quick at of it reduced the quarter. started Speaking We year the end

times approximate We expect X.X and ratio of leverage in by range ratio a to to long-term our leverage two continue targeting the times. four year-end times

coupon second interest debt further In a our senior X% in some XXXX. secured a Looking the for coupon, are in ahead, $X with opportunities in of refinancing unsecured particular, with senior debt billion there $X.X half reduce opportunities our attractive structure our to debt X% billion with the offer burden. and

we share date. We get as that detail more will to closer

full earnings Our is year guidance and Slide revenue on XX.

year outlook foreign in year reflect quarter our be We guidance full current expect We $X.XXX differences organic environment. the billion increase between the our of an to performance to and third to are billion full range and X.X%. of the of X.X% of with X% revenues to to billion adjusting and now original range $X.XX $X.XXX growth EBITDA to the $X.XX adjusted billion X% in or currency

the At a the X%. of reduction adjusted new approximately EBITDA and midpoint, in guidance in a reflects X% revenues reduction

in an remains per range increase Our XX% or to of XX% for guidance earnings adjusted $X.XX share of $X.XX unchanged. the to

basis expansion and With we guidance, excess the growth XX% a X% of in with of quarter, to EPS of updated EBITDA adjusted inferred fourth strong expect sales very X%, XXX margin to points growth XX%.

to over operator it the turn section. to now will begin I the question-and-answer

Operator

our question of from And line from comes first Tycho Peterson Instructions] [Operator the JPMorgan.

open. Your line is

Tycho Peterson

Hey, to kind some you that that thanks. we how and If a comps kind the tough played being against and conversely was soft Tom, Americas that to bit of I light September, made knew up back want about you little to being kind of the a fine had go of ended in Europe go back out. came quarter about. comments

and worse very I at in talk at September geographically you Europe are you little So, about you trend, strong? can reversal you feeling better, where know of to the quarter, October said a surprised all talk where just was are coming bit the you about out able

Tom Szlosek

Yes.

you, So, happy take that. Tycho. Thank to

And – we it kind went Just tried month were the interesting, at starting in July to we actually range the in with negative August. X%-ish in when was and QX I we growth that. are think of it's comments, in the Europe I part the we in we were by – of that of in kind and look where months, seeing say

in base projection the full particularly always given Europe. kind and on is And year to of August month tough schedules of vacation, a

was the that. high-single-digits us was a Asia, into well mid-single-digits, September and sounding say was, seeing tone across Americas I'd So, mean, we was I board. I definitely strong very Europe the the said as But double-digits. were cautionary for after that

of month strong very So, September.

of terms October. In

full are we closed as We for in that quarter. the the we year, implies provided fourth But not yet. trending the as guidance with what well what are line that for

a going to pretty So, and reasonably to they it's relative QX. good be a are off start quarter for the strong quarter to

Tycho Peterson

a on bit are issues versus there. of much base a timing better that obviously a off AMEA on called I slowdown? just And surprised broader You manufacturing then How you the some Bioproduction. little pacing know didn't I this small do was of comps timing that of was little kind out campaigns Asia, slowed. given a

Michael Stubblefield

this question. is Tycho take I'll Michael. Yes, that

mind couple to of I think, things keep AMEA. for in

we of for than relative that and two regions the just the production Firstly, skewed has out participate magnitude AMEA toward there, roughly in. is, us the portfolio X% is way environment our other been the built it’s more

we little see just more So, do into. campaign a and that cycles batch bring volatility in the customers to owing us our bit Asia

in look of you the for several really, on into in quarter, was watermark in have were the campaigns There significant this at high that specifically QX. if timing of us in the based the the just year, a that participated actually third region. that in, Bioproduction fact really And we XXXX, number those slipped

So, nothing there. very structural position still – well

Our you as in in continues you of to a solid to the I will book, quarter our growth return particularly we fourth would region. Bioproduction, see, of that that order look around into be growth and levels expect think kinds

Tycho Peterson

Okay. a growth lower FX And organic then how lastly, gross spending. it growth? versus already one, much lowered EBITDA just is the I accelerated hopefully being the flagged versus you know of spending quick but

Tom Szlosek

Tycho, really with look we million. $XX call Otherwise, if through. mostly pretty guidance, it I about talked that QX were if orXX.XX And XX.XX midpoint. before QX. the line is QX. are we FX results the on in you remainder we've took $XX we what is million, just million look the the you at you it that Yes, so mean at – at Of midpoint, now, prior In $XX a for

Tycho Peterson

Okay, thank you.

Operator

the Bank America. Derik next of Bruin question our from And of line De comes from

line Your open. is

Derik De Bruin

Hi, good morning.

Tom Szlosek

Derik. morning Good

Derik De Bruin

is year the there to more more, relative to little on bit wanted – FX a this have do can the it Tycho's we when and you just do least the I XXXX, that thought focus model basis anything current IPO XXX with just just volatile EBITDA I still is what margin are mix our to is, lot next want it's associated question a out I experiences EBITDA. given trends? But question, follow-up EBITDA? was. realize – on the you given comfortable even with it. I to goes to of look also mean, VWR where the I can you question the Hey, still the on at curious, than and to there is if with smooth expansion you am And points help

Tom Szlosek

a integration we've XXX Derik. we of to thanks, look having your if of in of talked the the model you in just the period have part synergies hearing your for I if you, on conversion talk quarter, in able trends we year and guidance I with and about because the degree was Yes, you the XXX the growth, does part can a our its little in line three of about continue point organic confidence to but – EBITDA, of bit forward and margins going – because with fourth Avantor if that during that difficulty start high of it range. remind question. being grow also VWR, first But at part, to the basis

two this year. We quarters did quarter. the that it We'll do for the for fourth of first

bit reasons of aberration. a Third talked quarter about for little was we've - the

year XXXX, on so XXXX for that's the finished and as algorithms But would third growth we integration baseline while delevering As margin intact. as I the remain into forth, well yet that overall three-year of we'll growth, and reflect the expect adjust to expansion our still organic planning XXXX, actuals. head our you haven't

part – you to me the first me help you back take question? of Could can the

Derik De Bruin

I sort good out That's – are, in - it. thought you you better gains on on bit some got of maintain and doing just question, what seeing how have you I I basically what to talk basically – you – it. seeing mean, was, that No, something I are bring it’s would the are little covers about you that? am part first had. wanted guess another just I that asked those in wondering price you've sustainable even than Can to I are pricing what

Michael Stubblefield

to Alright. Derik, do minus those, quarter to I there. proprietary the in impact the report see of pricing think COGS as at which what of previous some out third and to products, really to or our our look to played the more then, volume, to is nothing quarters, portfolio strive – on we've say that new in more inflation transactional that you seen our pricing value-based part plus we have modestly which we of of tend relative offset approach

model some to at So, only I out think of place time pricing we execute our Derik. to have the had there, it don't that think contribution in the we as to continue anything we I quarter, for look in unusual note indicate we here. call quite that

Derik De Bruin

you lastly quarter? if the Great. that did one, And one-time out on back just you in look at a grow quick if what products, – the proprietary

Tom Szlosek

Yes, have of at we to you were tad – mid-single-digits, certainly impact it, would been we than have third-party. the strong you better we on would out that seen, have take looking had you like which would the and of education piece is what a X% if But this science X% morning. on what the is math if

still third-party of a algorithm our that tenant the expansion. think we intact that, proprietary growth growth is of baseline the relative remains So and

Michael Stubblefield

that Bioproduction point it's we most out, to large Derik, our talking when Materials about manufactured medical-grade space portfolio, Proprietary is of exposure part are I of part And that our where think, at is silicone in mentioned. healthcare into our exposure look of then, Tom solution our important the platform an our you algorithm to technologies. part, also own the from our with important

us end-markets continue those robust. to point, be Tom's very And to for

to our than in more single-use our led growth double-digit XX% Bioproduction strong We by platform in continue see platform. growth

continue the at here save very and really another about a important a talked Science recognize high Materials level portfolio it's and our Proprietary business one-off strong to quarter. the part large that to to that the say, we influence out of of Education in margins today as laid extent run core would does the business I So, part we've

Derik De Bruin

Thanks for the clarity.

Operator

of comes question the Jack line from Barclays. next Meehan Our from

is line open. Your

Jack Meehan

wanted you. Thank Good morning. follow-up. to Actually, I

Tom Szlosek

Hi Jack.

Michael Stubblefield

Good morning

Jack Meehan

follow-up last morning. can organic. related are looks on that as What just fourth guidance, you off quarter around across point, to, point maybe to proprietary and bounce look expecting that at like J.T. Michael, proprietary some Wanted to just back are build we the – Baker NuSil? Good it and the products of X.X% you

Just that you perform – you how the going quarter? about they could maybe, did feeling how year-end. in into And are

Michael Stubblefield

Right, bounce inferred that's the a we long in – I levels look underneath the happen, growth margin flow in think top-line our line an you strong return probably order the kind good high-single-digits expansion all think place to right focus, range are see and our Jack. at to obviously normal performance, When QX a for of with QX. targets to to Materials that, seeing about you Proprietary then, back that in

our That have it. of that times visibility associated our order of part Materials lead limited production business, have we an with longer that of overall particularly And lot book. area in is we a does little bit for talked a a our our Proprietary – is part space,

the in So good comfortable line we that have through of guidance of kind have aspect orders of that of are we've as would for a sight the put and we out year week to of that the we or the end first fairly do model. November, the sit here

Chemicals think continues to beyond, into The referenced business. market our well growing Baker I of rate for we our platform brands I strength and When the are having of think which this BioProduction grow of kind in normalized to our I growth I the global double-digits part single-use look the J.T. speaks our space, the specifically, and Bioproduction, our QX platform. success well around presence in that into

just mentioned another portfolio of that's cycles little you in to of quarter-to-quarter and NuSil production-oriented it, bit platform production pullback have Tom's inventory referenced can go a healthcare a the from balancing business, our to volatility a did it as in that the our that of But he business. through. relates our part customers will that given remarks bit And

was QX, a the And in that particular ago watermark. platform, year high

we a ago. think year that I platform grew XX%

environment of So normal year more the in a structurally we of you return in quarter - end-market, normalized see that bit a bit third that to loosens as see this a up and well. a the growth comp

Jack Meehan

Great, And the deck, one me was then, guess, the only the $X.X that in bridge thing to year-over-year the color. productivity Slide thanks was, like in for that EBITDA all I X. But terms on the net really million slide contributions. I of

margins and you now synergies, into the even we numbers. expand how a of give annualized much potential how at go exit know, $XXX you But you as much is these can as million sense of – left for So terms the into runrate some go to of XXXX, XXXX based you in synergies? us of

Michael Stubblefield

Right.

on the that then bit you a get walk element of I bridge. net So, think and Tom I'll productivity there question provide a little specific high-level cover for will your

$XXX delivering We of outlined at synergies are in beginning had million that still the very confident integration we the VWR. of of the

the end We at million of are $XXX run quarter the nearly rating here.

$XXX next very, us million, programs into that. are year I we to very say, that the And as we look the forward to are about get line would in confident and individual

of to hundreds reduction COGS, that important driving top-line driving more comprised note One point SG&A-driven. which individual in of some is projects, of that are literally revenue, some that program are of some are

$XXX the of see that going scattered P&L. throughout million So impact you are a to

that in this step-up And into from will the continue the to you of see year contributions next as program. we balance and year, moving a the into look

out of walk the productivity that here fixed is COGS in just and bridge plays reflecting through will the we're on how the cost of - Tom kind side the it what Now, of in you – side netting the things, quarter. of

Tom Szlosek

is to really just a Jack, value has was measly saw say. that to on million synergies performance mean, get quarter. reflection it so, it in walk, in what number very you the approaching there – deliver the $XX and It this mean, is capture. we the in the a but that little does there. a is Yes, I some I a I'd strong the of SG&A productivity productivity look right

SG&A is the for an business. piece on the embedded we're productivity, particular the synergies laboratory additional productivity But perspective from We value in you've the part in investments million, of that investments. made the by net volume in in and in price that's continuing this capabilities. invest some just of There line the capture feet got the street and offset $XX operating in synergy, is Asia, and to in big synergies are

you well We've the kind investments there, inflation additional in And R&D in elsewhere growth-oriented from also as just investments. a had got year-over-year perspective. some of a enterprise bit of little

So, that fourth bar the as the bigger into I quarter to into – XXXX. head and expect get we

Jack Meehan

Thank guys. you

Operator

from comes the ISI. Vijay of question next Kumar line from Our Evercore

open. is line Your

Vijay Kumar

Hey Maybe guys. start with my question. X% taking to I'll QX Thanks X%. for this

little comp, was aware given, talk know the for of X% some Maybe comp QX. be easier QX? I that to the Just light. of But here. is you drivers ex confidence in for have anything we QX the about X% a the bit should that

Michael Stubblefield

Yes, Vijay, Good morning. thanks for the question.

really I repeat with you're the to a ground be think science that quarter this education, own X% when quarter. QX, important into one-time doesn’t want its at customer going think I that in absent here you did kind to – it's the looking on issue of

launching a a as point going at So mid-single-digits you QX looking QX. are into normalized from growth

But The in Asia, campaign customers, with Bioproduction pullback hundred comp I contract of here. number as earlier into quarter referenced many a of obviously wins. our we basis will points. schedules which visibility a into especially print the got does recent large the couple had We've

budget range, inferred we would here it kind also Consumables we see at or kind our flush X% that normal X% business. QX in an of look of embedded implied has the as in So year-end that to

we've guidance the I in have we and a pretty the that with would read book exiting trends mind out order with are September on for seen October be that think rounded business. of supportive then we comfortable early here so, Bioproduction robust And

Vijay Kumar

helpful. one on maybe flow free That's And comp. then, cash

now. $XXX presentation end right guidance delevering mean, sub you at the with year. think, cash I are XXXX, guys for of had fiscal I million the of four turns, to X.X you basically free

of be cash fiscal makes of growing for flows XXXX. cash XX% XXXX, north now for year? grow or between $XXX Is your at pay implying that should math incremental – your end billion next that free XX% free is does down should debt to that an catering sense XX% and million This of

Tom Szlosek

EBITDA growth You have the to in well we'll get as the that delevering. factor on

But the on that. as that is in of we the well continued servicing get. as on a growth done combination I EBITDA, the haven't So the math it the debt will

Vijay Kumar

That's an growth guys. impressive free cash flow Thanks. number

Operator

comes of line question Brandon Jefferies. the next from Couillard from Our

Your is open. line

Brandon Couillard

Hi, thanks, morning. Good

Tom Szlosek

Hey, Good Brandon. morning

Brandon Couillard

say, could chemical look you in and of that sub-segments markets just the the you if you on the cyclical, various in the industrial unpack and third for what at side market globally embedding particularly Mike, globally, are more the quarter, kind XQ? industrial

Michael Stubblefield

Right.

have maybe way. into just a fragmented here, provide So, industrial to this of very end-market, bit context of would roughly revenue exposure in our XX% little but a

of end-markets going applications, our serve with beverage, different aerospace are than overall kind no space, more of low-single-digit be lots to semiconductor whether We percentage that and and food representing oil gas, revenue. defense, of and

part third this nor are significant most been for those the we haven't the fourth signaling soft of quarter. quarter business of our that in a or change seen certainly relatively in been have negative on relying and year end-markets anticipating to we any in of and really significant the trajectory pickup as And has

couple pockets a spot bright are There us. of for of

in exposure and end-market grew the quarter. be a to going specked specked would rather growing the - unique specific grow to you much to long-term quarter with us very into biologic expect in we fourth platform is same aerospace way drug on in will a defense that a is specification certainly continue third that are into Our and the

but of in out in signs uptick The see the would a things results quarter, another business nothing a have out significant bit in Asia an that year. the bottomed little we've say. of third drive and there. And slide will that in feel the probably end-market of the like most of to in Starting us seen semiconductor moderate for important we Asia glimmer I and bit end-market space certainly we've of the that a for bottomed hope way likely is

of X.X%, Europe XXX And still in in the third kind out, basis or print look it XXX on been Europe the when at did had was below the year. industrial bit say, change would running in you an we points I a there impressive slow end-markets quarter. of point would where I down is to quarter see the there start one earlier if we

look reflect it as also particularly, to Europe. have relates exposure And does a industrial I capital when demonstrates think But you to we X.X% print, it in weakening expenditures. bit that across of obviously at it the Biopharma a little in sector environment Europe

that part a the Instrument quarter. moderating in to of expenditure XX% recall, in the portfolio customers’ going you Europe. see through and low-single-digits We off if saw in is and here programs what the fourth offer tightening to of of and our that Equipment were roughly platform that on of kind it subject capital be certainly we our quarter, And

So, headwinds maybe up quarter had Europe, spot couple what weakness say point that in a I with the would year. we and third have few would than of areas more I bright to say, seen in continued the a

Brandon Couillard

And the little then, a year. Tom, the Thanks. bit just trim of in I color. for guide, appreciate that in terms EBITDA

holding curious curious changes other Just terms in any net year? of there Thanks. if, below tax and for interest but EPS, line the just or is the

Tom Szlosek

really, little together the that better We've we modeled. year. assumed original levels also of the done little put we through it's as middle bigger mean IPO bit some guide, had a when the bit the had a mean, interest expense. – I on than had We've a helped we we of Not we I in the year and little bit. repricing was progress

getting range. out are of XX% mean that we talked that's what forward line. I in favorability be to And with two, area an we look as much Taxes line on tax, as we those some the opportunity about, I for in modeled between certainly So us. interest pretty will

good are other things. we down need IPO repricing about I on it's rate some side the the the in overall, talked But, progress we than to that of a mentioned things I've And to significant before. not as on of making the change levels fact the to do bring

Brandon Couillard

Super. Thank you.

Operator

Our next question comes from the line of Doug Schenkel from Cowen.

Your line open. is

Doug Schenkel

guys. morning good Hey,

Michael Stubblefield

Good Doug. morning,

Doug Schenkel

the start high-level over that I to you a tough relative and in call, this generally norm of of as noted prepared some growth a already to relative your trends. had a speaking, question, guess one-timers revenue to course a the and we've comparison Maybe quarter organic – remarks covered of recent with depressed sort times in bunch as the you

second it year cut probably something off internal does sure something at model seem That given more that's of that if surprised to growth X% this the of is know year, just to like fair. guidance basic, much full point? revenue that’s even that to relative building say it your said, half I long-term you changed I is for guidance. to but this importantly, that your in fair the make And want you quarter, X% intact very

Tom Szlosek

that me question. let take Yes,

I we somewhat QX Certainly, think of the known. known your results one-time to this be the the comp of tough certainly the here education some expected. observations customers of of from from QX to nature on was that revenue were shifting saw kind was science

that that and volume What didn't was of business, that inventory not of repeat the the were is was part carrying the the quarter. level in they on known relative

just were quarter. the would the that that was on know there much there as in inventory and they volume, a we of was some of pull-forward consequence, lack carrying So, transparency of volume repeat but how a some

where you other volatile difficult that ago schedules year the and be taken limited is point we which some through predict. healthcare the and actually some supply there this quarter visibility end-market. normal in out likely that XX% the into inventory for relatively very knowing quarter do production had a off dynamic a that of timing at But is we of inventory to the would the going The didn't anticipate relatively chain, into have relatively space, coming value revenue chain,

in what came than would it of more like have looked we it QX out unfortunately, anticipated. And

point us a quarter. the are would great factors, guide, had kind two on Relative we probably bit those surprised that I of absent longer-term quarter. our things to those the that So, two a to

Our up holding the Consumables business levels. in mid-single-digit

business around as you intact. our that's range. the to very demonstrated in the over And even Bioproduction much embedded This in holding high-single-digit built long-term quarters Our we here mid-single-digit low-double-digit growth to we've into on that on fourth a with see really sustainable is model a various have the the optimism range power basis, quarter. up deliver go

Doug Schenkel

drive Or XXXX all be look in in to That's And And range? tax sit the we adjusted I helpful. guess, the timing quick much expectations rate rate, on to this of are seeing as well could super still of How function tax if expect could you even we in something you. you today in just as or lower? something slip quarter. XX% ahead, follow-up, a that here one XX% do that Thank Okay. below you I came else? maybe was

Tom Szlosek

the it’s think yes, for the is think, Yes, year talking you're is, I I about, guide for what everybody's Doug, our roughly for reference tax XX%.

That's $X.X to sticking that. than We a lighter income little in net around bit it terms quarter of and came a million penny. are XX%. rate still The was less about in the of

a longer-term terribly or perspective. and point not So from is really to structurally material to nothing there

But rate around on the to that I the do up are international way to for to operations would our need say get we track in a are tax earlier manner. the we what financing that that tax-efficient lined we that relative more and repeat doing particularly that, things I said I much XXXX

Doug Schenkel

helpful. Super great. Thank That's you. Okay.

Operator

Our of next the Brennan from from question line comes UBS. Dan

Your line is open.

Dan Brennan

taking questions. I was growth joined expecting. - Great, know a it's AMEA. the and we late. just the an thank smaller what But of I this opportunity little below a the question were I growth was your know had you quarter business. portion for you. for it's I Thanks first important on

also was of us kind sense for as what's of growth expect the some the quarter? that kind in you? to kind right of out, the rate we just geography And give trend of you look what for could So,

Michael Stubblefield

we to Obviously, call revenues in revenue disproportionately for answer a overall their we've other our then that us just that there. we towards exposure modest but two naturally earlier from question serve, the oriented X% points the it's our roughly to reiterate of campaign the and Yes, production Asia, the cycles. and regions base in customers unlike gave or key cover here, small did it's the relatively

in just wins happens important region region the was in of year this last number high the year. watermark our a ago. Bioproduction that So, the for really we've had year probably a so business It

year. comps difficult campaigns a the into of fourth this actually for and number quarter very slid So those

structural. foreseeable future. to to of negative. The certainly Materials continues at business platform well. the part be grow least in But for that perform our This in particularly that low-double-digit we downside is the would continued by our nothing expect Electronic range to long-term, business So, muted

Dan Brennan

been Michael, the from kind what you there I peers just different it And a that. across was know positive, degrees just, little varying lower your still then, then, of Biopharma. And thank growth within within quarter bit than quarter has this sub-segments Biopharma, growth for the of and been. But then, kind this of had

think Bioproduction of can kind obviously we the Just between areas you Biopharma in and in of Biopharma, robust kind remind us QX the of trajectory and is about how within which your of beyond? you. split Thank other

Michael Stubblefield

for XX% is roughly revenues. Biopharma us our So, of

number that that a we specifications had wins us year. the we've for are of we should business. in the and end-market the obviously, which excited quarter, We in So, and be we from follow-on number a it's the throughout customer highlighted momentum had a critical that about have wins of a

really momentum great there. So,

We to the across way serve Biopharma phase, the starting research are the to in discovery workflows environment. and all going the through production

wouldn't range and probably falling research roughly to thumb, be that going discovery somewhere of the and production phase fall laboratory too the of into into and is off of rule assume in third you two-thirds of the revenue the environment. revenue far to a As a

in growth be robust. going that a the of the to Clearly, production is bit more piece

triangulate and points Bioproduction market high-single-digits, growing think you most low-double-digits. at I look the of if data

in exposure with our slightly portfolio, that. if better to than globally, our given would line not at least expect that we do Just

Dan Brennan

you. Thank Great.

Operator

Credit next question Suisse. from from Erin comes Wright Our of line the

line open. Your is

Erin Wright

integrated Was that speak to Great. in contributed those be the would those? of and If across little great. nature quarter? as of you the the there? to to Thanks. some contract offering bit you as drove Can in a Biopharma more the expansions euros, what I well it could wins wins speak that the guess, those

Michael Stubblefield

it's we're the it's defending reasons successful We accounts, that that accounts and to we the customer No, really always had obvious across success for of when as our excited Yes. speak across detail we've Biopharma success especially, a education well winning been I won't as year. are But, been, here. at having. some new in about look specific into as get

I two of of certainly or platforms the of them when in our them. speak a much two come as together, we And so is to on these gain and power integrated for of things more accounts. to you have have we before three seem offer to offering discussions, our back-end the these solution kind with One, customers emanate unique see wallet that able ever some are share are these to significant with than and today we them able

only Our had global Asia, capabilities, awarded a have our exposure that in is stuffed and in out Americas, us also important of especially in as but but customer in built we Example globally. up that referenced to Europe, they we served the remarks. we business our presence building historically our on as

to wins of The of space. a continues driver for had quarter contract the us. important in be CRO number important growth that space an in We

consortium multiple we've organization. continue to as education exclusive quarters, in higher momentum other now for on a And had have, the discussed in an portion - then, we our we running Americas. build the playing been relationship We our that we've theme of business and in forums, with

part that as year. the this efforts this seen world A lot been wins of the important as higher that would of well the we've driving, education of and buy space given we've focused across in position, a universities number just contract the in

Erin Wright

Okay, digging deeper productivity then, synergies, of sort can a the VWR update And a I and you initiatives give on guess, geographic a bit it's little into thanks. great, there. other us

in as Specifically IPO, opportunity intact that there? the of that with know you area that terms all was Is in an Asia, well. prospects as synergies far the I highlighted as VWR with still

Michael Stubblefield

those we VWR as is, commercial A Yes, commercial are as play of of one describing look when in two-thirds at synergies synergies. across. actually kind portfolio Asia, third you cost, bit out synergies roughly good it we integrate the

to that marketing our that we continue of what legacy some in in see be few open sales within will or we in the a our weeks Shanghai. that resources center, numbers invest other and whether case expenses operating that reps onto SG&A and a you infrastructure application In in happens or and here new total commercializing

to we in to long-term to grow So, they build we that region synergies. supply due - these see a we'll capture to But a those and as then double-digits chain continue our able in part service out synergies. to be that definitely

Erin Wright

you. great. Okay, Thank

Operator

the remarks. would over Michael call I Stubblefield you. to Thank to back turn closing like for now

Michael Stubblefield

call Avantor. thank in participating appreciate Yes, everyone you certainly your of We for today. our support

growth prior quarters As of bit our we strong that But, and pleased one-offs currency or had the deleveraging in optionality a year provide did headwinds. have about business underlying we here, the generation we generate excited mix noise that talked foreign some forward. in are and with trends that the cash the we for from the we going

grow fourth end-markets. into the quarter. and great Biopharma are exited strong certainly our overall momentum September most important Continues has forward with that to we carried

in call talked the we customer investments to we proposition to overall quarter continuing customers. strengthening strategic our and on by make value you we As are wins the better today serve our see to significant did

our remain flow the with progress track and long-term and cash benefited deliver objectives. overall, performance the synergies continued we integration and on from in expansion of operational line margin operating our efficiencies from to and Certainly, program that's our VWR

our businesses science dramatically is enable As well improve we and life look to outcomes. at innovation breakthroughs customers that positioned platform, our certainly this patient further help the

today. and after Year forward New you in update you look the appreciate to of next coming person in joining our seeing our the Again, to call We some weeks.

Have everyone. a you. Thank great day

Operator

concludes and today’s you this gentlemen, for Ladies Thank participating. call. conference

You may disconnect. now

Avantor (AVTR) 7 Nov 192019 Q3 Earnings call transcript