Avantor(AVTR) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial statements The company presents its unaudited Q1 2024 condensed consolidated financial statements and discloses a change in its operating segments Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $2,321.1 | $2,384.9 | | Total assets | $12,763.4 | $12,972.7 | | Total current liabilities | $1,441.9 | $1,480.3 | | Total liabilities | $7,427.1 | $7,720.1 | | Total stockholders' equity | $5,336.3 | $5,252.6 | Consolidated Statements of Operations (in millions, except per share data) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net sales | $1,679.8 | $1,780.3 | | Gross profit | $570.5 | $624.8 | | Operating income | $146.3 | $231.2 | | Net income | $60.4 | $121.5 | | Diluted EPS | $0.09 | $0.18 | Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $141.6 | $219.5 | | Net cash used in investing activities | $(34.2) | $(27.3) | | Net cash used in financing activities | $(130.2) | $(275.0) | | Net change in cash | $(28.5) | $(78.0) | - Effective January 1, 2024, the company changed its operating model and reporting structure from three segments to two: Laboratory Solutions and Bioscience Production[33][42] Segment Net Sales and Adjusted Operating Income (in millions) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net Sales | | | | Laboratory Solutions | $1,157.1 | $1,203.0 | | Bioscience Production | $522.7 | $577.3 | | Total | $1,679.8 | $1,780.3 | | Adjusted Operating Income | | | | Laboratory Solutions | $148.2 | $172.2 | | Bioscience Production | $126.9 | $167.5 | | Corporate | $(16.7) | $(16.6) | | Total | $258.4 | $323.1 | Total Debt Summary (in millions) | Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total debt, gross | $5,360.9 | $5,580.0 | | Less: unamortized deferred financing costs | $(37.9) | $(43.4) | | Total debt | $5,323.0 | $5,536.6 | - The company engages in hedging activities using interest rate swaps, cross-currency swaps, and foreign currency forward contracts to reduce exposure to interest rate and foreign currency exchange rate fluctuations[89][90] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes a 5.6% net sales decrease to $1.7 billion in Q1 2024, driven by reduced demand across its newly defined segments Q1 2024 Key Financial Results (in millions) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net sales | $1,679.8 | $1,780.3 | $(100.5) | | Net income | $60.4 | $121.5 | $(61.1) | | Adjusted EBITDA | $283.0 | $346.2 | $(63.2) | | Adjusted Operating Income | $258.4 | $323.1 | $(64.7) | - Key factors affecting the business include the ongoing normalization of customer demand post-COVID-19, global supply chain disruptions, inflationary pressures, and fluctuations in foreign currency rates[117][118][119] Organic Net Sales Growth (Decline) by Segment - Q1 2024 | Segment | Net Sales Growth (Decline) | Foreign Currency Impact | Organic Net Sales Growth (Decline) | | :--- | :--- | :--- | :--- | | Laboratory Solutions | (3.8%) | 0.7% | (4.5%) | | Bioscience Production | (9.5%) | 0.5% | (10.0%) | | Total | (5.6%) | 0.7% | (6.3%) | - Gross margin for Q1 2024 contracted by 110 basis points to 34.0%, primarily due to unfavorable product mix[129][130] - Operating income decreased by $84.9 million, driven by lower gross profit and higher operating expenses, which included restructuring, severance, and transformation costs[131][132] Reconciliation of Net Income to Adjusted EBITDA (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $60.4 | $121.5 | | Interest expense, net | $64.3 | $73.7 | | Income tax expense | $20.2 | $34.3 | | Depreciation and amortization | $99.6 | $101.1 | | Other adjustments (restructuring, transformation, etc.) | $36.5 | $15.6 | | Adjusted EBITDA | $283.0 | $346.2 | Reconciliation of Net Income to Adjusted Operating Income (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $60.4 | $121.5 | | Interest expense, net | $64.3 | $73.7 | | Income tax expense | $20.2 | $34.3 | | Other adjustments | $2.5 | $1.7 | | Operating income | $146.3 | $231.2 | | Amortization & other adjustments | $112.1 | $91.9 | | Adjusted Operating Income | $258.4 | $323.1 | Liquidity Summary (in millions) as of March 31, 2024 | Source | Amount | | :--- | :--- | | Unused availability under credit facilities | $1,018.4 | | Cash and cash equivalents | $234.9 | | Total liquidity | $1,253.3 | Free Cash Flow (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $141.6 | $219.5 | | Capital expenditures | $(34.7) | $(28.0) | | Free cash flow | $106.9 | $191.5 | Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk disclosures from the 2023 Annual Report - There were no material changes during the quarter ended March 31, 2024 to the market risk information reported in the Company's 2023 Annual Report[160] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[161] - There were no changes in internal control over financial reporting during the quarter that have materially affected or are reasonably likely to materially affect internal controls[162] PART II — OTHER INFORMATION Legal Proceedings The company reports no outstanding litigation expected to result in material losses as of March 31, 2024 - As of March 31, 2024, the company did not have any outstanding litigation that it believed would result in material losses if decided unfavorably[66][163] Risk Factors No material changes to the risk factors disclosed in the 2023 Annual Report have occurred - There have been no material changes to the risk factors previously disclosed in the company's Annual Report[164] Other Information Two executive officers adopted Rule 10b5-1 trading plans for future sales of company stock in March 2024 - On March 7, 2024, Christophe Couturier, EVP, adopted a Rule 10b5-1 trading plan[166] - On March 8, 2024, James Bramwell, EVP, adopted a Rule 10b5-1 trading plan[167] Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements and executive certifications - A list of exhibits filed with the report is provided, including credit agreement amendments, consulting agreements, and required executive certifications[169][170][173]