Avantor(AVTR) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents Avantor, Inc.'s unaudited condensed consolidated financial statements and management's analysis for Q1 2023 Item 1. Financial statements This section provides Avantor, Inc.'s unaudited condensed consolidated financial statements for Q1 2023, along with detailed accounting notes Unaudited condensed consolidated balance sheets 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] Unaudited condensed consolidated statements of operations 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] Unaudited condensed consolidated statements of comprehensive income or loss 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] Unaudited condensed consolidated statements of stockholders' equity 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] Unaudited condensed consolidated statements of cash flows 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] Notes to unaudited condensed consolidated financial statements 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 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] - The financial statements are condensed and reflect normal, recurring adjustments, prepared in conformity with GAAP, and rely on management estimates[31][33] - 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] 2. Earnings per share 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 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] | (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 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] | (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 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] 6. Other intangible assets 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] 7. Commitments and contingencies 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] - 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][58] - 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][60] 8. Debt 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][67] | (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] 9. Accumulated other comprehensive income or loss 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] 10. Stock-based compensation 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] - 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] 11. Other income or expense, net 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] 12. Income taxes 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][81] 13. Derivative and hedging activities 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][83] - 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] - 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][93] 14. Financial instruments and fair value measurements 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] | (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] Item 2. Management's discussion and analysis of financial condition and results of operations 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 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] 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] Factors and current trends affecting our business and results of operations 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] - The company continues to face supply chain constraints and inflationary pressures across all cost categories, despite implementing pricing and productivity measures[110] - Fluctuations in foreign currency rates, particularly the Euro against the U.S. Dollar, significantly impact consolidated results[111] Key indicators of performance and financial condition 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][114] - Organic net sales growth is a non-GAAP measure that excludes foreign currency exchange rate impacts, providing insight into underlying commercial operating performance[112] - 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] Results of operations 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 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] Net Sales 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] - 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][120][122] Gross margin 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] Operating income 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] Net income 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] Adjusted EBITDA and Adjusted EBITDA margin 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][131] Reconciliations of non-GAAP financial measures 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] Liquidity and capital resources This section discusses Avantor's liquidity and capital resources, including cash flows, credit facilities, and overall financial flexibility 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] | (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][136] - Approximately 92.9% of cash and cash equivalents ($273.7 million) were held by non-U.S. subsidiaries, potentially subject to repatriation taxes[137] Historical cash flows 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] Free cash flow 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] 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] New accounting standards 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] Item 3. Quantitative and qualitative disclosures about market risk 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] Item 4. Controls and procedures 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 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] Changes in internal control over financial reporting 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] PART II — OTHER INFORMATION This section provides other information not included in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal proceedings 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][146] Item 1A. Risk factors 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] Item 2. Unregistered sales of equity securities and use of proceeds 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] Item 3. Defaults upon senior securities This section reports no defaults upon senior securities - No defaults upon senior securities were reported[149] Item 4. Mine safety disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[149] Item 5. Other information This section reports no other information for this period - No other information was reported[149] Item 6. Exhibits 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] 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]