UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ━━━━━━━━━ FORM 10-Q ━━━━━━━━━ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2023 (Exact name of registrant as specified in its charter) Commission file number: 001-38912 Delaware 82-2758923 Avantor, Inc. (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Radnor Corporate Center, Building One, Suite 200 100 ...

Q1 2023 Financial Performance - Reported revenue decreased to $1,780.3 million from $1,950.4 million, a decrease of 8.7%[6,7] - Core organic growth was -1.8%[6] - Adjusted Gross Profit was $624.8 million, compared to $689.9 million in Q1'22[6] - Adjusted Gross Profit margin was 35.1%, down from 35.4%[6] - Adjusted EBITDA was $346.2 million, a decrease from $423.1 million[6] - Adjusted EBITDA margin was 19.4%, compared to 21.7%[6] - Adjusted Earnings Per Share (EPS) was $0.29, down from $0.38[6] - Free Cash Flow was $191.5 million, an increase from $127.7 million[6] Regional Performance - Americas revenue decreased by 9.7% to $1,032 million[9] - Europe revenue decreased by 7.4% to $630 million[9] - AMEA (Africa, Middle East, and Asia) revenue decreased by 6.7% to $118 million[9] 2023 Full-Year Guidance Revision - Core Organic Revenue Growth revised to -0.5% to +1.5% from the original guidance of +2.5% to +4.5%[49] - Adjusted EBITDA Margin Expansion revised to -75 to -25 bps from the original guidance of -25 to +25 bps[49] - Adjusted EPS revised to $1.28 - $1.36 from the original guidance of $1.35 - $1.45[49] - Free Cash Flow revised to $675 - $750 million from the original guidance of $700 - $800 million[49]

Financial Data and Key Metrics Changes - Reported revenue for Q1 2023 was $1.78 billion, with adjusted EPS of $0.29, reflecting a core organic revenue decline of 1.8% due to inventory destocking and reduced semiconductor demand [7][11][12] - Adjusted EBITDA margin was 19.4%, at the high end of expectations, with free cash flow increasing approximately 50% compared to Q1 2022, achieving about 100% conversion of adjusted net income [8][12] - Adjusted gross profit for the quarter was 35.1%, impacted by inventory destocking and the roll-off of margin-rich COVID-19 revenues [11][12] Business Line Data and Key Metrics Changes - Core organic revenue in the Bioproduction platform grew low single digits, with process ingredients and excipients up high single digits, while medical-grade silicone revenue increased over 20% [11][12] - Advanced Technologies and Applied Materials, representing about 25% of annual revenue, declined low single digits, primarily due to softer semiconductor demand [17][18] - Proprietary materials and consumables were flat, with strong sales in biomaterials and bioproduction process ingredients offset by destocking in single-use solutions [18] Market Data and Key Metrics Changes - The Americas experienced a 3.7% decline in core organic revenue, while Europe achieved 1% growth, driven by strong bioproduction performance [14][15] - EMEA also grew 1% on a core organic basis, with strong growth in bioproduction process ingredients, partially offset by declines in proprietary materials for advanced technologies [15][16] - Biopharma, which represents nearly 55% of annual revenue, declined low single digits, impacted by destocking and COVID-related headwinds [16][17] Company Strategy and Development Direction - The company continues to focus on long-term strategies, including capacity expansion, new product introductions, and digital infrastructure investments to support growth [8][10][22] - Management emphasized the importance of operational rigor and efficiency through the Avantor Business System, aiming to drive growth and profitability despite current market challenges [8][22] - The company remains confident in the resilience of its end markets and its proven business model, despite the ongoing destocking and semiconductor headwinds [10][22] Management's Comments on Operating Environment and Future Outlook - Management indicated that inventory health is improving among customers, but destocking risks may extend into the second half of the year, prompting a cautious outlook [10][22] - The updated guidance reflects organic revenue declines of 3% to 1%, with adjusted EBITDA margin expected to contract by 75 to 25 basis points [19][20] - Management remains optimistic about the long-term growth prospects in bioproduction and biopharma, despite short-term challenges [28][80] Other Important Information - The company paid down over $200 million of debt in the quarter and continues to prioritize free cash flow for deleveraging while pursuing commercial synergies from acquisitions [13] - The company is actively working on initiatives to improve working capital performance, including receivables and inventory management [12][13] Q&A Session Summary Question: What is the updated guidance regarding destocking and biopharma exposure? - Management indicated that destocking headwinds are expected to continue at similar levels, with biopharma exposure to emerging biotech being around 2% to 3% of overall revenues [25][29] Question: How does the company view the visibility of its guidance? - Management expressed that while the first quarter met expectations, the anticipated destocking headwinds have not subsided as expected, leading to a more cautious outlook for the remainder of the year [30][31] Question: What are the implications of semiconductor market conditions on guidance? - The guidance change reflects approximately two-thirds associated with destocking headwinds, with the remainder split between weaker semiconductor demand and a moderately weaker macro environment [44] Question: What is the company's exposure to cell and gene therapy? - The company has moderate exposure to cell and gene therapy within its bioproduction platform, with no significant risks identified that would impact overall performance [54][56] Question: How is the company addressing margin expectations for the second half of the year? - Management expects a step-up in margins in the second half, driven by anticipated improvements in biopharma and ongoing productivity initiatives [70][71]

[PART I — FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) This section presents Avantor, Inc.'s unaudited condensed consolidated financial statements and management's analysis for Q1 2023 [Item 1. Financial statements](index=7&type=section&id=Item%201.%20Financial%20statements) This section provides Avantor, Inc.'s unaudited condensed consolidated financial statements for Q1 2023, along with detailed accounting notes [Unaudited condensed consolidated balance sheets](index=8&type=section&id=Unaudited%20condensed%20consolidated%20balance%20sheets) This section presents Avantor, Inc.'s unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity | (in millions) | March 31, 2023 | December 31, 2022 | | :-------------- | :------------- | :---------------- | | **Assets:** | | | | Total current assets | $2,627.3 | $2,657.9 | | Property, plant and equipment, net | $736.5 | $727.0 | | Other intangible assets, net | $4,077.1 | $4,133.3 | | Goodwill | $5,682.5 | $5,652.6 | | Total assets | $13,395.9 | $13,464.3 | | **Liabilities and stockholders' equity:** | | | | Total current liabilities | $1,669.5 | $1,658.8 | | Debt, net of current portion | $5,736.0 | $5,923.3 | | Total liabilities | $8,401.3 | $8,608.9 | | Total stockholders' equity | $4,994.6 | $4,855.4 | | Total liabilities and stockholders' equity | $13,395.9 | $13,464.3 | - Total assets decreased slightly from **$13,464.3 million** at December 31, 2022, to **$13,395.9 million** at March 31, 2023. Total liabilities also decreased from **$8,608.9 million** to **$8,401.3 million**, while total stockholders' equity increased from **$4,855.4 million** to **$4,994.6 million**[15](index=15&type=chunk) [Unaudited condensed consolidated statements of operations](index=9&type=section&id=Unaudited%20condensed%20consolidated%20statements%20of%20operations) This section presents Avantor, Inc.'s unaudited condensed consolidated statements of operations, detailing net sales, gross profit, and net income | (in millions, except per share data) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $1,780.3 | $1,950.4 | | Gross profit | $624.8 | $689.9 | | Operating income | $231.2 | $307.0 | | Net income | $121.5 | $190.4 | | Net income available to common stockholders | $121.5 | $174.3 | | Basic Earnings per share | $0.18 | $0.29 | | Diluted Earnings per share | $0.18 | $0.28 | - Net sales decreased by **$170.1 million** (**8.7%**) from **$1,950.4 million** in Q1 2022 to **$1,780.3 million** in Q1 2023. Net income also saw a significant decline from **$190.4 million** to **$121.5 million**, resulting in a decrease in basic EPS from **$0.29** to **$0.18**[18](index=18&type=chunk) [Unaudited condensed consolidated statements of comprehensive income or loss](index=10&type=section&id=Unaudited%20condensed%20consolidated%20statements%20of%20comprehensive%20income%20or%20loss) This section details Avantor, Inc.'s unaudited condensed consolidated statements of comprehensive income or loss, outlining net income and other comprehensive items | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Net income | $121.5 | $190.4 | | Other comprehensive income (loss): | | | | Foreign currency translation — unrealized gain (loss) | $16.9 | $(27.0) | | Derivative instruments: Unrealized loss | $(0.1) | $(0.3) | | Reclassification of gain into earnings | $(6.5) | $(0.2) | | Activity related to defined benefit plans | $(4.9) | $4.5 | | Other comprehensive income (loss) before income taxes | $5.4 | $(23.0) | | Income tax effect | $5.2 | $(3.1) | | Other comprehensive income (loss) | $10.6 | $(26.1) | | Comprehensive income | $132.1 | $164.3 | - Comprehensive income decreased from **$164.3 million** in Q1 2022 to **$132.1 million** in Q1 2023. This change was influenced by a positive shift in foreign currency translation (gain of **$16.9 million** in 2023 vs. loss of **$27.0 million** in 2022) and a negative impact from defined benefit plans[21](index=21&type=chunk) [Unaudited condensed consolidated statements of stockholders' equity](index=11&type=section&id=Unaudited%20condensed%20consolidated%20statements%20of%20stockholders%27%20equity) This section details Avantor, Inc.'s unaudited condensed consolidated statements of stockholders' equity, outlining changes in capital, earnings, and AOCI | (in millions) | Balance at Dec 31, 2022 | Comprehensive income | Stock-based compensation expense | Stock option exercises and other common stock transactions | Balance at Mar 31, 2023 | | :-------------- | :---------------------- | :------------------- | :------------------------------- | :--------------------------------------------------------- | :---------------------- | | Common stock including paid-in capital | $3,785.3 | — | $12.6 | $(5.5) | $3,792.4 | | Accumulated earnings | $1,170.4 | $121.5 | — | — | $1,291.9 | | AOCI | $(100.3) | $10.6 | — | — | $(89.7) | | Total | $4,855.4 | $132.1 | $12.6 | $(5.5) | $4,994.6 | - Total stockholders' equity increased from **$4,855.4 million** at December 31, 2022, to **$4,994.6 million** at March 31, 2023, primarily driven by comprehensive income of **$132.1 million** and stock-based compensation expense of **$12.6 million**[24](index=24&type=chunk) [Unaudited condensed consolidated statements of cash flows](index=12&type=section&id=Unaudited%20condensed%20consolidated%20statements%20of%20cash%20flows) This section details Avantor, Inc.'s unaudited condensed consolidated statements of cash flows, outlining operating, investing, and financing activities | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $219.5 | $152.2 | | Net cash used in investing activities | $(27.3) | $(39.5) | | Net cash used in financing activities | $(275.0) | $(127.2) | | Net change in cash, cash equivalents and restricted cash | $(78.0) | $(18.7) | | Cash, cash equivalents and restricted cash, end of period | $318.9 | $308.4 | - Net cash provided by operating activities increased significantly to **$219.5 million** in Q1 2023 from **$152.2 million** in Q1 2022. However, net cash used in financing activities more than doubled to **$275.0 million**, primarily due to higher debt repayments, leading to a larger net decrease in cash and equivalents[27](index=27&type=chunk) [Notes to unaudited condensed consolidated financial statements](index=13&type=section&id=Notes%20to%20unaudited%20condensed%20consolidated%20financial%20statements) This section details the notes to Avantor, Inc.'s unaudited condensed consolidated financial statements, clarifying accounting policies and specific financial items [1. Nature of operations and presentation of financial statements](index=13&type=section&id=1.%20Nature%20of%20operations%20and%20presentation%20of%20financial%20statements) This note outlines Avantor, Inc.'s global operations and the basis of presentation for its unaudited condensed consolidated financial statements - Avantor, Inc. is a global manufacturer and distributor serving biopharmaceutical, healthcare, education & government, and advanced technologies & applied materials industries[30](index=30&type=chunk) - The financial statements are condensed and reflect normal, recurring adjustments, prepared in conformity with GAAP, and rely on management estimates[31](index=31&type=chunk)[33](index=33&type=chunk) - Ritter's revenues declined in 2022 due to reduced customer demand for medical fluid handling tips from decreased COVID-19 testing, potentially leading to impairment of its long-lived assets if revenue replacement measures are unsuccessful. The carrying value of Ritter's net assets (excluding goodwill) was **$248.9 million** as of March 31, 2023[35](index=35&type=chunk) [2. Earnings per share](index=14&type=section&id=2.%20Earnings%20per%20share) This note outlines the calculation of basic and diluted earnings per share for Avantor, Inc., including weighted average shares outstanding | (in millions, except per share data) | Three months ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | | Basic Earnings (numerator) | $121.5 | | Weighted average shares outstanding (denominator) | 674.7 | | Basic Earnings per share | $0.18 | | Dilutive effect of stock-based awards | 3.4 | | Diluted Earnings (numerator) | $121.5 | | Diluted Weighted average shares outstanding (denominator) | 678.1 | | Diluted Earnings per share | $0.18 | | (in millions, except per share data) | Three months ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | | Basic Earnings (numerator) | $174.3 | | Weighted average shares outstanding (denominator) | 610.1 | | Basic Earnings per share | $0.29 | | Dilutive effect of stock-based awards | 8.3 | | Dilutive impact of MCPS | 62.9 | | Diluted Earnings (numerator) | $190.4 | | Diluted Weighted average shares outstanding (denominator) | 681.3 | | Diluted Earnings per share | $0.28 | [3. Segment financial information](index=14&type=section&id=3.%20Segment%20financial%20information) This note details Avantor, Inc.'s financial information by geographic segment and product line, including net sales and Adjusted EBITDA - Avantor reports three geographic segments: Americas, Europe, and AMEA, each serving biopharmaceutical, healthcare, education & government, and advanced technologies & applied materials industries. Corporate costs are managed separately[40](index=40&type=chunk) | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | **Net Sales:** | | | | Americas | $1,032.0 | $1,143.4 | | Europe | $630.2 | $680.4 | | AMEA | $118.1 | $126.6 | | Total Net Sales | $1,780.3 | $1,950.4 | | **Adjusted EBITDA:** | | | | Americas | $240.4 | $294.2 | | Europe | $121.7 | $143.4 | | AMEA | $33.5 | $29.3 | | Corporate | $(49.4) | $(43.8) | | Total Adjusted EBITDA | $346.2 | $423.1 | | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | **Net Sales by Product Line:** | | | | Proprietary materials & consumables | $669.1 | $748.0 | | Third party materials & consumables | $648.0 | $724.7 | | Services & specialty procurement | $231.8 | $235.0 | | Equipment & instrumentation | $231.4 | $242.7 | | Total | $1,780.3 | $1,950.4 | [4. Supplemental disclosures of cash flow information](index=16&type=section&id=4.%20Supplemental%20disclosures%20of%20cash%20flow%20information) This note details supplemental disclosures for Avantor, Inc.'s cash flow information, including cash balances and cash paid for taxes and interest | (in millions) | March 31, 2023 | December 31, 2022 | | :-------------- | :------------- | :---------------- | | Cash and cash equivalents | $294.6 | $372.9 | | Restricted cash classified as other assets | $24.3 | $24.0 | | Total | $318.9 | $396.9 | - Restricted cash primarily represents funds held in escrow for a long-term retention incentive related to the Ritter GmbH acquisition[49](index=49&type=chunk) | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Cash paid for income taxes, net | $13.6 | $47.6 | | Cash paid for interest, net, excluding financing leases | $79.5 | $68.2 | | Cash paid for interest on finance leases | $1.2 | $1.3 | | Cash paid under operating leases | $10.4 | $11.5 | | Cash paid under finance leases | $1.2 | $1.2 | [5. Inventory](index=17&type=section&id=5.%20Inventory) This note details Avantor, Inc.'s inventory composition, including merchandise, finished goods, raw materials, and work in process | (in millions) | March 31, 2023 | December 31, 2022 | | :-------------- | :------------- | :---------------- | | Merchandise inventory | $546.8 | $556.1 | | Finished goods | $93.5 | $117.1 | | Raw materials | $192.6 | $181.2 | | Work in process | $71.1 | $59.1 | | Total | $904.0 | $913.5 | - Total inventory slightly decreased from **$913.5 million** at December 31, 2022, to **$904.0 million** at March 31, 2023, with a notable decrease in finished goods and an increase in raw materials[53](index=53&type=chunk) [6. Other intangible assets](index=17&type=section&id=6.%20Other%20intangible%20assets) This note details Avantor, Inc.'s other intangible assets, including customer relationships, trade names, and indefinite-lived assets | (in millions) | March 31, 2023 Carrying value | December 31, 2022 Carrying value | | :-------------- | :---------------------------- | :------------------------------- | | Customer relationships | $3,431.1 | $3,472.9 | | Trade names | $145.0 | $149.3 | | Other | $408.7 | $418.8 | | Total finite-lived | $3,984.8 | $4,041.0 | | Indefinite-lived | $92.3 | $92.3 | | Total | $4,077.1 | $4,133.3 | - Total other intangible assets decreased from **$4,133.3 million** at December 31, 2022, to **$4,077.1 million** at March 31, 2023, primarily due to amortization of finite-lived assets, particularly customer relationships[54](index=54&type=chunk) [7. Commitments and contingencies](index=17&type=section&id=7.%20Commitments%20and%20contingencies) This note outlines Avantor, Inc.'s commitments and contingencies, including environmental liabilities, product liability, and litigation risks - The company faces commitments and contingencies related to environmental laws, product manufacturing and sales, and litigation, with ultimate resolutions subject to significant uncertainty[55](index=55&type=chunk) - Environmental liabilities include a **$2.6 million** accrued obligation for groundwater remediation in Phillipsburg, New Jersey, and a **$1.0 million** liability for soil and groundwater contamination at a site in Gliwice, Poland[56](index=56&type=chunk)[58](index=58&type=chunk) - The business involves product liability, patent infringement, and other claims, for which the company maintains insurance and indemnification agreements, though coverage may not always be adequate[59](index=59&type=chunk)[60](index=60&type=chunk) [8. Debt](index=19&type=section&id=8.%20Debt) This note details Avantor, Inc.'s debt structure, including various credit facilities, secured and unsecured notes, and finance lease liabilities | (dollars in millions) | March 31, 2023 Amount | December 31, 2022 Amount | | :-------------------- | :-------------------- | :----------------------- | | Receivables facility | $287.3 | $327.2 | | Senior secured credit facilities: | | | | Euro term loans B-4 | $646.2 | $636.7 | | Euro term loans B-5 | $347.1 | $342.0 | | U.S. dollar term loans B-5 | $1,263.1 | $1,488.3 | | 2.625% secured notes | $706.6 | $694.5 | | 3.875% unsecured notes | $800.0 | $800.0 | | 3.875% unsecured notes | $434.8 | $427.3 | | 4.625% unsecured notes | $1,550.0 | $1,550.0 | | Finance lease liabilities | $69.0 | $68.9 | | Other | $13.6 | $14.2 | | Total debt, gross | $6,117.7 | $6,349.1 | | Less: unamortized deferred financing costs | $(56.5) | $(61.6) | | Total debt | $6,061.2 | $6,287.5 | | Current portion of debt | $325.2 | $364.2 | | Debt, net of current portion | $5,736.0 | $5,923.3 | - Total gross debt decreased from **$6,349.1 million** at December 31, 2022, to **$6,117.7 million** at March 31, 2023, primarily due to prepayments on U.S. dollar term loan B-5[63](index=63&type=chunk)[67](index=67&type=chunk) | (in millions) | Receivables facility | Revolving credit facility | Total | | :-------------- | :------------------- | :------------------------ | :---- | | Capacity | $352.8 | $515.0 | $867.8 | | Undrawn letters of credit outstanding | $(13.7) | — | $(13.7) | | Outstanding borrowings | $(287.3) | — | $(287.3) | | Unused availability | $51.8 | $515.0 | $566.8 | - The company made prepayments of **$220.0 million** on its U.S. dollar term loan B-5 during Q1 2023, resulting in a **$2.3 million** loss on extinguishment of debt[67](index=67&type=chunk) [9. Accumulated other comprehensive income or loss](index=20&type=section&id=9.%20Accumulated%20other%20comprehensive%20income%20or%20loss) This note details Avantor, Inc.'s accumulated other comprehensive income or loss, including foreign currency translation, derivative instruments, and defined benefit plans | (in millions) | Foreign currency translation | Derivative instruments | Defined benefit plans | Total | | :-------------- | :--------------------------- | :--------------------- | :-------------------- | :---- | | Balance at December 31, 2022 | $(131.3) | $19.9 | $11.1 | $(100.3) | | Unrealized gain (loss) | $16.9 | $(0.1) | $(4.9) | $11.9 | | Reclassification of gain into earnings | — | $(6.5) | — | $(6.5) | | Change due to income taxes | $2.7 | $1.6 | $0.9 | $5.2 | | Balance at March 31, 2023 | $(111.7) | $14.9 | $7.1 | $(89.7) | - Accumulated other comprehensive loss improved from **$(100.3) million** at December 31, 2022, to **$(89.7) million** at March 31, 2023, primarily driven by an unrealized gain in foreign currency translation[69](index=69&type=chunk) [10. Stock-based compensation](index=21&type=section&id=10.%20Stock-based%20compensation) This note details Avantor, Inc.'s stock-based compensation expense, including stock options, restricted stock units (RSUs), and remaining unrecognized expense | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Stock options | $3.6 | $4.0 | | RSUs | $8.7 | $7.6 | | Other | $0.4 | $(0.9) | | Total | $12.7 | $10.7 | - Total stock-based compensation expense increased to **$12.7 million** in Q1 2023 from **$10.7 million** in Q1 2022, mainly due to higher RSU expense[72](index=72&type=chunk) - As of March 31, 2023, unvested awards have **$112.6 million** in remaining stock-based compensation expense to be recognized over a weighted average period of **2.1 years**[72](index=72&type=chunk) [11. Other income or expense, net](index=22&type=section&id=11.%20Other%20income%20or%20expense%2C%20net) This note details Avantor, Inc.'s other income or expense, net, including foreign currency gains/losses and income related to defined benefit plans | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Net foreign currency gain (loss) from financing activities | $0.2 | $(0.1) | | Income related to defined benefit plans | $0.4 | $1.4 | | Other | — | $0.1 | | Other income, net | $0.6 | $1.4 | - Other income, net, decreased from **$1.4 million** in Q1 2022 to **$0.6 million** in Q1 2023, primarily due to lower income related to defined benefit plans[78](index=78&type=chunk) [12. Income taxes](index=22&type=section&id=12.%20Income%20taxes) This note details Avantor, Inc.'s income tax expense and effective income tax rate, reflecting income before taxes and tax adjustments | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Income before income taxes | $155.8 | $241.8 | | Income tax expense | $(34.3) | $(51.4) | | Effective income tax rate | 22.0% | 21.3% | - Income tax expense decreased to **$34.3 million** in Q1 2023 from **$51.4 million** in Q1 2022, reflecting lower income before income taxes. The effective income tax rate slightly increased to **22.0%** from **21.3%**, mainly due to a new partial limitation on executive compensation tax deductions[80](index=80&type=chunk)[81](index=81&type=chunk) [13. Derivative and hedging activities](index=23&type=section&id=13.%20Derivative%20and%20hedging%20activities) This note details Avantor, Inc.'s derivative and hedging activities, including economic hedges for foreign currency and cash flow hedges for interest rate risk - Avantor uses hedging activities, including economic hedges for foreign currency exposure and cash flow hedges for interest rate risk, to manage specific financial risks[82](index=82&type=chunk)[83](index=83&type=chunk) - In April 2023, the company executed a **$100.0 million** interest rate swap to convert SOFR-based floating rates to fixed rates, aiming to stabilize interest expense[83](index=83&type=chunk) - As of March 31, 2023, the company had **$750.0 million** in outstanding interest rate swaps designated as cash flow hedges and a cross-currency swap of **€732.1 million** / **$750.0 million** to hedge net investments in foreign operations[86](index=86&type=chunk)[93](index=93&type=chunk) [14. Financial instruments and fair value measurements](index=27&type=section&id=14.%20Financial%20instruments%20and%20fair%20value%20measurements) This note details Avantor, Inc.'s financial instruments and their fair value measurements, categorized by Level 1 and Level 2 inputs - The company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, and debt. Fair values for cash and cash equivalents are Level 1, while trade accounts receivable and accounts payable approximate fair value due to their short-term nature (Level 2)[102](index=102&type=chunk) | (in millions) | March 31, 2023 Fair value | December 31, 2022 Fair value | | :-------------- | :------------------------ | :--------------------------- | | Receivables facility | $287.3 | $327.2 | | Euro term loans B-4 | $639.3 | $627.5 | | Euro term loans B-5 | $345.2 | $340.7 | | U.S. dollar term loans B-5 | $1,263.1 | $1,485.5 | | 2.625% secured notes | $681.5 | $658.5 | | 3.875% unsecured notes | $718.4 | $672.0 | | 3.875% unsecured notes | $407.3 | $396.5 | | 4.625% unsecured notes | $1,475.8 | $1,407.6 | | Finance lease liabilities | $69.0 | $68.9 | | Other | $13.6 | $14.2 | | Total | $5,900.5 | $5,998.6 | - The fair values of debt instruments are based on standard pricing models and private trading data, categorized as Level 2 measurements[104](index=104&type=chunk) [Item 2. Management's discussion and analysis of financial condition and results of operations](index=28&type=section&id=Item%202.%20Management%27s%20discussion%20and%20analysis%20of%20financial%20condition%20and%20results%20of%20operations) This section provides management's analysis of Avantor's financial condition and results of operations for Q1 2023, covering performance, trends, and liquidity [Basis of presentation](index=28&type=section&id=Basis%20of%20presentation) This section outlines the basis of presentation for Avantor's interim financial report, focusing on material changes since December 31, 2022 - This discussion is prepared in accordance with SEC rules for interim reports, focusing on material changes since December 31, 2022, and should be read with the accompanying condensed consolidated financial statements and notes[106](index=106&type=chunk) [Overview](index=28&type=section&id=Overview) This section provides an overview of Avantor's Q1 2023 financial performance, highlighting net sales, net income, and Adjusted EBITDA | (in millions) | Three months ended March 31, 2023 | | :-------------- | :-------------------------------- | | Net sales | $1,780.3 | | Net income | $121.5 | | Adjusted EBITDA | $346.2 | - Net sales decreased by **8.7%**, including a **6.6%** decline in organic sales, compared to the same period in 2022[107](index=107&type=chunk) [Factors and current trends affecting our business and results of operations](index=28&type=section&id=Factors%20and%20current%20trends%20affecting%20our%20business%20and%20results%20of%20operations) This section discusses key factors and current trends impacting Avantor's business, including post-COVID-19 demand, supply chain, inflation, and foreign currency - Customer demand and inventory levels are normalizing post-COVID-19 pandemic, impacting Q1 2023 results[109](index=109&type=chunk) - The company continues to face supply chain constraints and inflationary pressures across all cost categories, despite implementing pricing and productivity measures[110](index=110&type=chunk) - Fluctuations in foreign currency rates, particularly the Euro against the U.S. Dollar, significantly impact consolidated results[111](index=111&type=chunk) [Key indicators of performance and financial condition](index=29&type=section&id=Key%20indicators%20of%20performance%20and%20financial%20condition) This section identifies Avantor's key performance indicators, including GAAP measures like net sales and non-GAAP measures such as Adjusted EBITDA and Free cash flow - Key performance indicators include GAAP measures like Net sales, gross margin, operating income, and net income, as well as non-GAAP measures such as Organic net sales growth, Adjusted EBITDA, Adjusted EBITDA margin, and Free cash flow[112](index=112&type=chunk)[114](index=114&type=chunk) - Organic net sales growth is a non-GAAP measure that excludes foreign currency exchange rate impacts, providing insight into underlying commercial operating performance[112](index=112&type=chunk) - Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP measures used to evaluate operating performance exclusive of certain expenses, while Free cash flow indicates the company's ability to generate cash for financing or investing activities[114](index=114&type=chunk) [Results of operations](index=30&type=section&id=Results%20of%20operations) This section details Avantor's results of operations for Q1 2023, analyzing net sales, gross margin, operating income, net income, and Adjusted EBITDA [Executive summary](index=30&type=section&id=Executive%20summary) This executive summary provides a high-level overview of Avantor's Q1 2023 financial performance, highlighting declines in net sales and profitability | (dollars in millions) | 2023 | 2022 | Change | | :-------------------- | :-------- | :-------- | :-------- | | Net sales | $1,780.3 | $1,950.4 | $(170.1) | | Gross margin | 35.1% | 35.4% | (30) bps | | Operating income | $231.2 | $307.0 | $(75.8) | | Net income | $121.5 | $190.4 | $(68.9) | | Adjusted EBITDA | $346.2 | $423.1 | $(76.9) | | Adjusted EBITDA margin | 19.4% | 21.7% | (230) bps | - First quarter net sales declined across all three regions due to COVID-19 related headwinds, unfavorable foreign currency impact, and inventory destocking. This led to a contraction in gross margin and Adjusted EBITDA margin[116](index=116&type=chunk) [Net Sales](index=31&type=section&id=Net%20Sales) This section analyzes Avantor's net sales performance by region and product line, detailing growth drivers and impacts from foreign currency and destocking | (in millions) | Net sales growth | Foreign currency impact | Organic net sales growth | | :-------------- | :--------------- | :---------------------- | :----------------------- | | Americas | $(111.4) | $(3.5) | $(107.9) | | Europe | $(50.2) | $(32.8) | $(17.4) | | AMEA | $(8.5) | $(5.6) | $(2.9) | | Total | $(170.1) | $(41.9) | $(128.2) | - Total net sales decreased by **8.7%** (**$170.1 million**), with organic net sales declining by **6.6%** (**$128.2 million**), primarily due to COVID-19 related headwinds and inventory destocking across all regions[118](index=118&type=chunk) - Biopharma sales in Americas declined double-digits due to the roll-off of COVID-19 revenues and destocking. In Europe, Biopharma sales declined mid-single digits for similar reasons. AMEA Biopharma sales increased mid-single digits, driven by proprietary materials, despite COVID-19 vaccine production roll-off[119](index=119&type=chunk)[120](index=120&type=chunk)[122](index=122&type=chunk) [Gross margin](index=32&type=section&id=Gross%20margin) This section analyzes Avantor's gross margin performance, detailing factors influencing its contraction, such as product mix and manufacturing variances | | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Change | | :------------- | :-------------------------------- | :-------------------------------- | :--------- | | Gross margin | 35.1% | 35.4% | (30) bps | - Gross margin contracted by **30 basis points** to **35.1%** in Q1 2023, primarily due to an unfavorable product mix in proprietary materials and manufacturing variances, partially offset by lower freight costs and commercial excellence[123](index=123&type=chunk) [Operating income](index=32&type=section&id=Operating%20income) This section analyzes Avantor's operating income, detailing the impact of lower gross profit, higher operating expenses, and amortization | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Change | | :-------------- | :-------------------------------- | :-------------------------------- | :-------- | | Gross profit | $624.8 | $689.9 | $(65.1) | | Operating expenses | $393.6 | $382.9 | $10.7 | | Operating income | $231.2 | $307.0 | $(75.8) | - Operating income decreased by **$75.8 million** to **$231.2 million**, driven by lower gross profit and higher operating expenses, including a long-term retention incentive accrual, inflation, and business growth investments, partially offset by lower amortization[125](index=125&type=chunk) [Net income](index=33&type=section&id=Net%20income) This section analyzes Avantor's net income, detailing the impact of operating income, interest expense, debt extinguishment, and income tax expense | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Change | | :-------------- | :-------------------------------- | :-------------------------------- | :-------- | | Operating income | $231.2 | $307.0 | $(75.8) | | Interest expense | $(73.7) | $(64.8) | $(8.9) | | Loss on extinguishment of debt | $(2.3) | $(1.8) | $(0.5) | | Other income, net | $0.6 | $1.4 | $(0.8) | | Income tax expense | $(34.3) | $(51.4) | $17.1 | | Net income | $121.5 | $190.4 | $(68.9) | - Net income decreased by **$68.9 million** to **$121.5 million**, primarily due to lower operating income, increased interest expense from rising rates, and a larger loss on debt extinguishment, partially offset by lower income tax expense[127](index=127&type=chunk) [Adjusted EBITDA and Adjusted EBITDA margin](index=33&type=section&id=Adjusted%20EBITDA%20and%20Adjusted%20EBITDA%20margin) This section analyzes Avantor's Adjusted EBITDA and Adjusted EBITDA margin by segment, detailing impacts from sales volume, product mix, and foreign currency | (dollars in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Change | | :-------------------- | :-------------------------------- | :-------------------------------- | :-------- | | Americas | $240.4 | $294.2 | $(53.8) | | Europe | $121.7 | $143.4 | $(21.7) | | AMEA | $33.5 | $29.3 | $4.2 | | Corporate | $(49.4) | $(43.8) | $(5.6) | | Total Adjusted EBITDA | $346.2 | $423.1 | $(76.9) | | Adjusted EBITDA margin | 19.4% | 21.7% | (230) bps | - Adjusted EBITDA decreased by **$76.9 million** (**18.2%**), including a **$10.0 million** unfavorable foreign currency impact. The Americas and Europe segments saw declines due to lower sales volume, unfavorable product mix, and increased workforce investments, while AMEA grew due to higher gross profit[130](index=130&type=chunk)[131](index=131&type=chunk) [Reconciliations of non-GAAP financial measures](index=34&type=section&id=Reconciliations%20of%20non-GAAP%20financial%20measures) This section provides reconciliations of Avantor's non-GAAP financial measures, specifically Adjusted EBITDA, to the most directly comparable GAAP measure | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :-------------- | :-------------------------------- | :-------------------------------- | | Net income | $121.5 | $190.4 | | Interest expense | $73.7 | $64.8 | | Income tax expense | $34.3 | $51.4 | | Depreciation and amortization | $101.1 | $114.5 | | Loss on extinguishment of debt | $2.3 | $1.8 | | Net foreign currency (gain) loss from financing activities | $(0.2) | $0.1 | | Other stock-based compensation expense (benefit) | $0.1 | $(1.3) | | Integration-related expenses | $8.7 | $3.9 | | Purchase accounting adjustments | — | $(4.4) | | Restructuring and severance charges | $4.7 | $1.9 | | Adjusted EBITDA | $346.2 | $423.1 | - Adjusted EBITDA decreased from **$423.1 million** in Q1 2022 to **$346.2 million** in Q1 2023, reflecting lower net income and changes in non-GAAP adjustments, including higher integration-related expenses and restructuring charges[133](index=133&type=chunk) [Liquidity and capital resources](index=34&type=section&id=Liquidity%20and%20capital%20resources) This section discusses Avantor's liquidity and capital resources, including cash flows, credit facilities, and overall financial flexibility [Liquidity](index=35&type=section&id=Liquidity) This section details Avantor's liquidity position, including cash and cash equivalents, unused credit facility availability, and foreign cash holdings - Avantor funds short-term cash requirements primarily from operating cash flows and credit facilities, with long-term financing from indebtedness[134](index=134&type=chunk) | (in millions) | Receivables facility | Revolving credit facility | Total | | :-------------- | :------------------- | :------------------------ | :---- | | Unused availability under credit facilities | $51.8 | $515.0 | $566.8 | | Cash and cash equivalents | | | $294.6 | | Total liquidity | | | $861.4 | - As of March 31, 2023, the company had **$294.6 million** in cash and cash equivalents and **$566.8 million** in unused credit facility availability, totaling **$861.4 million** in liquidity[134](index=134&type=chunk)[136](index=136&type=chunk) - Approximately **92.9%** of cash and cash equivalents (**$273.7 million**) were held by non-U.S. subsidiaries, potentially subject to repatriation taxes[137](index=137&type=chunk) [Historical cash flows](index=36&type=section&id=Historical%20cash%20flows) This section analyzes Avantor's historical cash flows from operating, investing, and financing activities, detailing changes and key drivers | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Change | | :-------------- | :-------------------------------- | :-------------------------------- | :-------- | | Operating activities | $219.5 | $152.2 | $67.3 | | Investing activities | $(27.3) | $(39.5) | $12.2 | | Financing activities | $(275.0) | $(127.2) | $(147.8) | - Cash flows from operating activities increased by **$67.3 million**, primarily due to improved working capital and lower incentive compensation payments. Investing activities used **$12.2 million** less cash due to the absence of a prior year acquisition, offset by increased capital spending. Financing activities used **$147.8 million** more cash due to higher optional debt repayments[141](index=141&type=chunk) [Free cash flow](index=36&type=section&id=Free%20cash%20flow) This section analyzes Avantor's Free cash flow, detailing its calculation from operating activities and capital expenditures | (in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Change | | :-------------- | :-------------------------------- | :-------------------------------- | :-------- | | Net cash provided by operating activities | $219.5 | $152.2 | $67.3 | | Capital expenditures | $(28.0) | $(24.5) | $(3.5) | | Free cash flow | $191.5 | $127.7 | $63.8 | - Free cash flow increased by **$63.8 million** to **$191.5 million** in Q1 2023, driven by improved operating cash flows, partially offset by increased capital spending for global supply chain expansions[142](index=142&type=chunk) [Indebtedness](index=37&type=section&id=Indebtedness) This section refers to detailed information on Avantor's indebtedness, as presented in the 'Liquidity' section and Note 8 of the financial statements - Information regarding the company's indebtedness is detailed in the 'Liquidity' section and Note 8 to the unaudited condensed consolidated financial statements[143](index=143&type=chunk) [New accounting standards](index=37&type=section&id=New%20accounting%20standards) This section states that no new accounting standards are expected to materially impact Avantor's financial position or results of operations - No new accounting standards are expected to have a material impact on the company's financial position or results of operations upon adoption[144](index=144&type=chunk) [Item 3. Quantitative and qualitative disclosures about market risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20qualitative%20disclosures%20about%20market%20risk) This section confirms no significant changes to Avantor's market risk disclosures since the Annual Report - No significant changes to market risk disclosures were reported compared to the Annual Report[144](index=144&type=chunk) [Item 4. Controls and procedures](index=37&type=section&id=Item%204.%20Controls%20and%20procedures) This section confirms the effectiveness of Avantor's disclosure controls and procedures and reports no material changes in internal control over financial reporting [Management's evaluation of disclosure controls and procedures](index=37&type=section&id=Management%27s%20evaluation%20of%20disclosure%20controls%20and%20procedures) This section details management's conclusion on the effectiveness of Avantor's disclosure controls and procedures as of March 31, 2023 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023[144](index=144&type=chunk) [Changes in internal control over financial reporting](index=37&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) This section reports no material changes in Avantor's internal control over financial reporting during the fiscal quarter ended March 31, 2023 - No material changes in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2023[145](index=145&type=chunk) [PART II — OTHER INFORMATION](index=37&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) This section provides other information not included in the financial statements, such as legal proceedings, risk factors, and exhibits [Item 1. Legal proceedings](index=37&type=section&id=Item%201.%20Legal%20proceedings) This section refers to Note 7 for legal proceedings, confirming no outstanding litigation expected to result in material losses - No outstanding litigation is believed to result in material losses if decided against the company, and no unasserted matters are reasonably possible to result in a material loss[61](index=61&type=chunk)[146](index=146&type=chunk) [Item 1A. Risk factors](index=37&type=section&id=Item%201A.%20Risk%20factors) This section confirms no material changes to the risk factors previously disclosed in Avantor's Annual Report - No material changes to the risk factors disclosed in Part I—Item 1A of the Annual Report[147](index=147&type=chunk) [Item 2. Unregistered sales of equity securities and use of proceeds](index=38&type=section&id=Item%202.%20Unregistered%20sales%20of%20equity%20securities%20and%20use%20of%20proceeds) This section reports no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and use of proceeds were reported[149](index=149&type=chunk) [Item 3. Defaults upon senior securities](index=38&type=section&id=Item%203.%20Defaults%20upon%20senior%20securities) This section reports no defaults upon senior securities - No defaults upon senior securities were reported[149](index=149&type=chunk) [Item 4. Mine safety disclosures](index=38&type=section&id=Item%204.%20Mine%20safety%20disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[149](index=149&type=chunk) [Item 5. Other information](index=38&type=section&id=Item%205.%20Other%20information) This section reports no other information for this period - No other information was reported[149](index=149&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the 10-Q report, including credit agreement amendments, executive certifications, and XBRL data - Exhibits include Amendment No. 10 to the Credit Agreement, certifications of Principal Executive Officer and Principal Financial Officer (Sections 302 and 906 of Sarbanes-Oxley Act), XBRL exhibits, and the Cover Page Interactive Data File[151](index=151&type=chunk) [Signature](index=40&type=section&id=Signature) This section contains the signature of Avantor, Inc.'s Senior Vice President and Chief Accounting Officer, Steven Eck - The report was signed on April 28, 2023, by Steven Eck, Senior Vice President, Chief Accounting Officer (Principal Accounting Officer) of Avantor, Inc.[152](index=152&type=chunk)

PART I [Business](index=9&type=section&id=Item%201.%20Business) Avantor provides mission-critical products and services to biopharma, healthcare, and advanced technology industries globally - Avantor serves over **300,000 customer locations** in more than 180 countries, positioning itself as a one-stop shop for research, scale-up, and manufacturing activities[15](index=15&type=chunk)[16](index=16&type=chunk) 2022 Net Sales Breakdown by Segment and Customer Group | Category | Segment/Group | Percentage of Net Sales | | :--- | :--- | :--- | | **Geographic Segment** | Americas | ~60% | | | Europe | ~33% | | | AMEA | ~7% | | **Customer Group** | Biopharma | ~54% | | | Advanced Technologies & Applied Materials | ~26% | | | Education & Government | ~12% | | | Healthcare | ~8% | - The company's product and service offerings are largely recurring, with **over 85% of net sales** derived from such offerings[25](index=25&type=chunk) - Avantor operates over 200 facilities globally, including more than **35 manufacturing sites** (12 of which are cGMP compliant) and 13 innovation centers[34](index=34&type=chunk)[35](index=35&type=chunk) - As of December 31, 2022, the company had approximately **14,500 employees** in over 30 countries, with about 6,200 in the U.S[40](index=40&type=chunk) - The company is subject to extensive regulation by global authorities including the FDA, DEA, and EMA, and must comply with standards like cGMP and ICH Q7[53](index=53&type=chunk)[54](index=54&type=chunk) [Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20factors) The company faces significant risks from supply chain disruptions, competition, regulations, and its debt burden - **Business & Industry Risks:** - The COVID-19 pandemic continues to pose risks, potentially causing unpredictable demand shifts and supply chain disruptions - The company has experienced challenges from global supply chain disruptions and inflationary pressures across all cost categories - Competition is intense, with pressures from regional players, large multinationals, and consolidation in the biopharma and healthcare industries - A significant portion of revenue comes from outside the U.S, exposing the company to risks from currency fluctuations, political instability, and trade restrictions - The business depends on complex information systems, and any failure or security breach could harm operations and reputation[66](index=66&type=chunk)[69](index=69&type=chunk)[71](index=71&type=chunk)[84](index=84&type=chunk) - **Regulatory Risks:** - The company must comply with a wide array of laws from agencies like the FDA, DEA, and EMA, with failure to comply potentially leading to adverse consequences - The business is subject to stringent environmental, health, and safety laws (e.g, CERCLA), and could face significant costs for compliance or remediation[111](index=111&type=chunk)[112](index=112&type=chunk)[118](index=118&type=chunk) - **Indebtedness Risks:** - A significant amount of debt could make it difficult to satisfy obligations, expose the company to interest rate risk on variable-rate borrowings, and restrict strategic actions - Credit facilities contain restrictive covenants that could limit business activities and lead to default if breached[123](index=123&type=chunk)[124](index=124&type=chunk) - **Stock Ownership Risks:** - The company has no current plans to pay cash dividends on its common stock - The certificate of incorporation includes an exclusive forum provision, limiting stockholder litigation to courts within Delaware, which could discourage lawsuits[127](index=127&type=chunk)[129](index=129&type=chunk) [Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20staff%20comments) The company reports no unresolved staff comments from the SEC - None[133](index=133&type=chunk) [Properties](index=33&type=section&id=Item%202.%20Properties) The company operates a global network of owned and leased manufacturing sites, distribution centers, and offices - Key owned properties in the Americas include manufacturing and distribution facilities in Phillipsburg, NJ, and Paris, KY[134](index=134&type=chunk) - Key leased properties include the corporate headquarters in Radnor, PA, and a manufacturing and research facility in Carpinteria, CA[134](index=134&type=chunk) - In Europe, the company owns manufacturing and distribution centers in Schwabmuenchen, Germany, and Briare, France, and leases a major distribution center in Lutterworth, United Kingdom[135](index=135&type=chunk) - In the AMEA region, the company owns a manufacturing facility in Changzhou, China, and leases distribution and service centers in Singapore and India[135](index=135&type=chunk) [Legal Proceedings](index=34&type=section&id=Item%203.%20Legal%20proceedings) Details regarding legal proceedings are incorporated by reference from the consolidated financial statements - For details on legal proceedings, refer to Note 13 of the consolidated financial statements[136](index=136&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20safety%20disclosures) This item is not applicable to the company's operations - Not applicable[136](index=136&type=chunk) [Information about our Executive Officers](index=35&type=section&id=Information%20about%20our%20executive%20officers) This section provides biographical summaries of the company's executive officers and their professional experience - Michael Stubblefield serves as the Director, President, and Chief Executive Officer[137](index=137&type=chunk)[138](index=138&type=chunk) - Thomas Szlosek is the Executive Vice President and Chief Financial Officer[137](index=137&type=chunk)[138](index=138&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=36&type=section&id=Item%205.%20Market%20for%20registrant's%20common%20equity%2C%20related%20stockholder%20matters%20and%20issuer%20purchases%20of%20equity%20securities) The company's common stock trades on the NYSE under the symbol "AVTR" and no dividends are currently expected - The company's common stock trades on the NYSE under the ticker symbol **AVTR**[143](index=143&type=chunk) - Avantor does not currently expect to pay any dividends on its common stock[144](index=144&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%207.%20Management's%20discussion%20and%20analysis%20of%20financial%20condition%20and%20results%20of%20operations) In 2022, net sales grew 1.7% to $7.51 billion, driven by biopharma and advanced technologies despite currency headwinds FY 2022 Financial Highlights | Metric | FY 2022 | FY 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $7,512.4 M | $7,386.1 M | +1.7% | | Net Income | $686.5 M | $572.6 M | +19.9% | | Adjusted EBITDA | $1,570.7 M | $1,458.6 M | +7.7% | | Gross Margin | 34.6% | 33.9% | +70 bps | | Adjusted EBITDA Margin | 20.9% | 19.8% | +110 bps | 2022 Net Sales Growth Reconciliation (in millions) | Segment | Net Sales Growth | Foreign Currency Impact | M&A Impact | Organic Net Growth | | :--- | :--- | :--- | :--- | :--- | | Americas | $233.8 | $(14.1) | $133.1 | $114.8 | | Europe | $(160.8) | $(276.4) | $92.0 | $23.6 | | AMEA | $53.3 | $(26.6) | $43.1 | $36.8 | | **Total** | **$126.3** | **$(317.1)** | **$268.2** | **$175.2** | - Organic sales growth of **2.4%** (**6.0% excluding COVID-19 headwinds**) was primarily driven by growth in proprietary products and services[168](index=168&type=chunk) - Cash flow from operating activities decreased by **$110.0 million** to $843.6 million in 2022, primarily due to higher payments for interest, taxes, and incentive compensation[192](index=192&type=chunk)[193](index=193&type=chunk) - Free cash flow decreased by **$210.1 million** to $710.2 million in 2022, reflecting lower operating cash flow and increased capital expenditures[196](index=196&type=chunk) - Critical accounting policies include testing goodwill and other intangible assets for impairment, estimating valuation allowances on deferred tax assets, accounting for uncertain tax positions, and valuing assets and liabilities in business combinations[205](index=205&type=chunk)[206](index=206&type=chunk)[209](index=209&type=chunk)[211](index=211&type=chunk)[218](index=218&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%207A.%20Quantitative%20and%20qualitative%20disclosures%20about%20market%20risk) The company is exposed to market risks from foreign currency exchange rates and interest rate fluctuations - **Foreign Currency Risk:** A **10% strengthening** of the U.S dollar in 2022 would have decreased net income by **$14.3 million** and Adjusted EBITDA by **$60.3 million**[223](index=223&type=chunk) - **Interest Rate Risk:** At December 31, 2022, a **100 basis point (1%) increase** in variable interest rates would have increased annual interest expense by **$20.4 million**[225](index=225&type=chunk) [Financial Statements and Supplementary Data](index=53&type=section&id=Item%208.%20Financial%20statements%20and%20supplementary%20data) The required financial statements and supplementary data are included at the end of the report - The required information is located at the end of the report, starting on page F-1[227](index=227&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=54&type=section&id=Item%209.%20Changes%20in%20and%20disagreements%20with%20accountants%20on%20accounting%20and%20financial%20disclosure) The company reports no changes in or disagreements with its accountants - None[229](index=229&type=chunk) [Controls and Procedures](index=54&type=section&id=Item%209A.%20Controls%20and%20procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of year-end 2022 - Management concluded that disclosure controls and procedures were **effective** as of December 31, 2022[230](index=230&type=chunk) - Management concluded that internal control over financial reporting was **effective** as of December 31, 2022, based on the COSO framework[232](index=232&type=chunk) - The independent auditor, Deloitte & Touche LLP, issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting[233](index=233&type=chunk)[236](index=236&type=chunk) [Other Information](index=56&type=section&id=Item%209B.%20Other%20information) The company reports no other information for this item - None[242](index=242&type=chunk) [Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=56&type=section&id=Item%209C.%20Disclosure%20regarding%20foreign%20jurisdictions%20that%20prevent%20inspections) This item is not applicable to the company - Not applicable[242](index=242&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=56&type=section&id=Item%2010.%20Directors%2C%20executive%20officers%20and%20corporate%20governance) Information regarding directors, officers, and governance is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the 2023 Proxy Statement[244](index=244&type=chunk) [Executive Compensation](index=56&type=section&id=Item%2011.%20Executive%20compensation) Information regarding executive compensation is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the 2023 Proxy Statement[245](index=245&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=56&type=section&id=Item%2012.%20Security%20ownership%20of%20certain%20beneficial%20owners%20and%20management%20and%20related%20stockholder%20matters) Information regarding security ownership is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the 2023 Proxy Statement[245](index=245&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=56&type=section&id=Item%2013.%20Certain%20relationships%20and%20related%20transactions%2C%20and%20director%20independence) Information regarding related transactions and director independence is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the 2023 Proxy Statement[245](index=245&type=chunk) [Principal Accountant Fees and Services](index=56&type=section&id=Item%2014.%20Principal%20accountant%20fees%20and%20services) Information regarding accountant fees and services is incorporated by reference from the 2023 proxy statement - Information is incorporated by reference from the 2023 Proxy Statement[246](index=246&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=57&type=section&id=Item%2015.%20Exhibits%20and%20financial%20statement%20schedules) This section lists all documents filed with the Form 10-K, including financial statements and key corporate agreements - The financial statements and schedules are indexed on page F-1[247](index=247&type=chunk) - Exhibits filed include key corporate governance documents, debt agreements (such as the Credit Agreement and various Indentures), and executive compensation plans (such as the 2019 Equity Incentive Plan)[248](index=248&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk) [Form 10-K Summary](index=62&type=section&id=Item%2016.%20Form%2010-K%20summary) The company reports no summary for this item - None[263](index=263&type=chunk) Financial Statements [Report of Independent Registered Public Accounting Firm](index=66&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued unqualified opinions on the financial statements and internal controls, highlighting two Critical Audit Matters - The auditor issued an **unqualified opinion** on both the financial statements and the effectiveness of internal control over financial reporting[271](index=271&type=chunk)[272](index=272&type=chunk) - A Critical Audit Matter was identified related to the **impairment testing of Goodwill** for the Americas and Europe reporting units, which required significant auditor judgment regarding assumptions for net sales growth, discount rates, and peer group selection[277](index=277&type=chunk)[278](index=278&type=chunk) - A second Critical Audit Matter concerned the **impairment evaluation of long-lived assets** for Ritter GmbH, following a decline in revenues compared to expectations, which required significant judgment in assessing impairment indicators and future cash flow forecasts[280](index=280&type=chunk)[283](index=283&type=chunk) [Consolidated Financial Statements](index=69&type=section&id=Consolidated%20Financial%20Statements) The statements show total assets of $13.46 billion and net income of $686.5 million for the year ended December 31, 2022 Consolidated Balance Sheet Data (in millions) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $2,657.9 | $2,477.2 | | Goodwill | $5,652.6 | $5,341.1 | | **Total Assets** | **$13,464.3** | **$13,897.2** | | Total Current Liabilities | $1,658.8 | $1,450.8 | | Debt, net of current portion | $5,923.3 | $6,978.0 | | **Total Liabilities** | **$8,608.9** | **$9,700.2** | | **Total Stockholders' Equity** | **$4,855.4** | **$4,197.0** | Consolidated Statement of Operations Data (in millions) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net Sales | $7,512.4 | $7,386.1 | $6,393.6 | | Gross Profit | $2,602.8 | $2,502.7 | $2,080.5 | | Operating Income | $1,130.2 | $972.2 | $706.8 | | **Net Income** | **$686.5** | **$572.6** | **$116.6** | | Diluted EPS | $1.01 | $0.85 | $0.09 | Consolidated Statement of Cash Flows Data (in millions) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $843.6 | $953.6 | $929.8 | | Net cash used in investing activities | $(109.6) | $(4,121.7) | $(59.1) | | Net cash (used in) provided by financing activities | $(648.7) | $3,219.2 | $(782.9) | [Notes to Consolidated Financial Statements](index=78&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, business combinations, debt instruments, and other key financial information - **Business Combinations (Note 4):** Details the 2021 acquisitions of Masterflex for **$2.87 billion** and Ritter GmbH for **$1.08 billion**, which expanded offerings in bioproduction and lab automation[363](index=363&type=chunk)[367](index=367&type=chunk) - **Goodwill and Intangibles (Note 11):** As of Dec 31, 2022, Goodwill was **$5.65 billion** and Other Intangible Assets were **$4.13 billion** with no impairment charges recorded in 2022[403](index=403&type=chunk)[404](index=404&type=chunk) - **Debt (Note 14):** Total gross debt was **$6.35 billion** as of Dec 31, 2022, down from $7.11 billion in 2021, with maturities extending beyond 2027[425](index=425&type=chunk)[426](index=426&type=chunk) - **Equity (Note 15):** In May 2022, all outstanding Mandatory Convertible Preferred Stock (MCPS) automatically converted into **62.9 million shares** of common stock[436](index=436&type=chunk) - **Derivative and Hedging Activities (Note 21):** The company uses interest rate swaps, cross-currency swaps, and foreign-denominated debt to hedge against interest rate and foreign currency risks[481](index=481&type=chunk)[482](index=482&type=chunk)[489](index=489&type=chunk)

Financial Performance - Q4 2022 - Reported revenue was $1795 million, with a core organic growth of 2.7%, but a reported revenue growth of -5.9% due to COVID-19 impact (-4.8%) and FX impact (-4.5%) [8, 11] - Adjusted Gross Profit was $615.1 million, representing 34.3% of revenue, with an expansion of approximately 30 bps [8] - Adjusted EBITDA was $359.5 million, representing 20.0% of revenue, with an expansion of approximately 60 bps [8] - Adjusted Earnings Per Share (EPS) was $0.32 [8] - Free Cash Flow was $172 million [8] Financial Performance - Full Year 2022 - Reported revenue was $7512.4 million, with a core organic growth of 6.0%, but a reported revenue growth of 1.7% due to COVID-19 impact (-3.6%) and FX impact (-4.3%) [8, 13] - Adjusted Gross Profit was $2617.2 million, representing 34.8% of revenue, with an expansion of approximately 90 bps [8] - Adjusted EBITDA was $1570.7 million, representing 20.9% of revenue, with an expansion of approximately 110 bps [8] - Adjusted Earnings Per Share (EPS) was $1.41 [8] - Free Cash Flow was $710.2 million, with a conversion rate of approximately 75% [8] 2023 Full-Year Guidance - Core Organic Revenue Growth is projected to be between 2.5% and 4.5%, with a COVID-19 headwind of 2.5% [50] - Adjusted EPS is expected to be between $1.35 and $1.45, based on approximately 680 million diluted shares [50, 52] - Free Cash Flow is projected to be between $700 million and $800 million [50]

Avantor, Inc. (NYSE:AVTR) Q4 2022 Earnings Conference Call February 3, 2023 8:00 AM ET Company Participants Christina Jones - Vice President of Investor Relations Michael Stubblefield - President and Chief Executive Officer Thomas Szlosek - Executive Vice President and Chief Financial Officer Conference Call Participants Patrick Donnelly - Citi Rachel Vatnsdal - JPMorgan Luke Sergott - Barclays Vijay Kumar - Evercore ISI Michael Ryskin - Bank of America Dan Brennan - Cowen Tejas Sevant - Morgan Stanley Dan ...

Financial Data and Key Metrics Changes - The reported revenue for Q3 2022 was $1.857 billion, slightly above the guidance provided earlier [11] - Core organic revenue growth was 7.8%, driven by strong performance in biopharma and advanced technologies [7][11] - Adjusted EBITDA was $384 million, reflecting over 100 basis points of margin expansion and approximately 13% growth from the previous year [11][12] - Adjusted earnings per share came in at $0.34, with adjusted net income growing about 9% after adjusting for foreign exchange [13] Business Line Data and Key Metrics Changes - Bioproduction business achieved approximately 30% core organic revenue growth [7][14] - Advanced technologies and applied materials saw double-digit core organic revenue growth [18] - Proprietary materials and consumables offerings also achieved double-digit core organic revenue growth [18] Market Data and Key Metrics Changes - Americas region, representing about 60% of annual global sales, achieved 8.8% core organic revenue growth [15] - Europe, accounting for approximately 35% of annual global sales, achieved 4.8% core organic revenue growth [16] - EMEA region, representing about 5% of annual global sales, grew 15.1% on a core organic basis [16] Company Strategy and Development Direction - The company remains focused on executing its long-term growth strategy, including advancing a robust innovation pipeline and investing in manufacturing capacity [8][9] - Capital allocation strategy prioritizes deleveraging and optimizing the performance of recent acquisitions [20][22] - M&A remains a key part of the long-term strategy, but the company is cautious in the current macro environment [70][74] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current environment and driving long-term growth despite headwinds from European macro conditions and inventory destocking [9][28] - The company anticipates approximately $400 million in revenue from 2021 acquisitions for the full year [22][26] - Management reiterated a long-term growth target of 4% to 6%, despite short-term challenges [39][60] Other Important Information - The company generated free cash flow exceeding $219 million in the quarter, facilitating over $800 million in net debt reduction [7][13] - Adjusted net leverage declined to 3.6 times EBITDA, down from 4.2 times at the beginning of the year [9][13] - The company plans to retire COVID-related revenue from its projections for 2023, which will impact organic growth [29] Q&A Session Summary Question: Can you elaborate on the European macro and excess inventory? - Management noted that the European business performed well, with mid-single-digit growth, but acknowledged pockets of softening in industrial exposure and laboratory consumables [34][36] Question: What is the outlook for core organic growth in 2023? - Management confirmed that the long-term growth target of 4% to 6% remains intact, despite potential headwinds from COVID and foreign exchange [39] Question: How will pricing and margins be affected in 2023? - Management expressed confidence in passing through inflation costs and maintaining margin expansion, targeting 50 to 100 basis points [45][47] Question: What steps are being taken to improve the performance of recent acquisitions? - Management highlighted organizational changes and a focus on enhancing accountability and operational oversight for recent acquisitions [25][52] Question: What is the expected interest expense for Q4 and 2023? - Management indicated that interest expense for Q4 is expected to remain contained, with a focus on deleveraging to manage rising interest rates [68][69] Question: What would trigger more active M&A in the next 12 months? - Management stated that while M&A remains a priority, the current macro environment and debt market conditions are factors in the timing of future deals [72][74]