Avantor(US:AVTR)2019-11-08 02:58Financial Data and Key Metrics Changes - Organic revenue growth for Q3 2019 was 2.4%, driven by a 7% increase in the Biopharma end-market, which represents approximately 50% of annual revenues [7][8] - Adjusted earnings per share increased by 49%, with adjusted earnings expected to be in the range of $0.55 to $0.58 for the full year [9][29] - Unlevered free cash flow for the quarter was $206 million, representing 127% of adjusted net income, with net leverage declining to 4.8 times [9][10] Business Line Data and Key Metrics Changes - Biopharma experienced a 7% organic growth in Q3, contributing significantly to overall revenue [7] - Education and government saw a low-single-digit decline due to a one-off customer contract that affected year-over-year comparisons by over 200 basis points [8][15] - Proprietary materials and consumables declined low-single-digits, while third-party materials and consumables grew mid-single-digits [16][17] Market Data and Key Metrics Changes - The Americas reported 1% organic growth, which would have exceeded 4% without the one-off decline in education and government [15][22] - Europe achieved 4.5% organic growth, with high-single-digit growth in Biopharma [23][24] - AMEA region reported 8.2% organic sales growth, driven by Biopharma and Advanced Technologies [25] Company Strategy and Development Direction - The company is focused on expanding its Biopharma customer base and enhancing its digital offerings to drive revenue growth [12][13] - Plans to expand the innovation center in Bridgewater, New Jersey, and increase production capacity for high-purity sugars are underway [12] - The company aims to reduce leverage to a long-term target of 2 to 4 times through operational performance and refinancing opportunities [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term growth and margin expansion despite short-term challenges [8][10] - The company anticipates a strong fourth quarter with inferred sales growth of 5% to 6% and EBITDA margin expansion [29][61] - Management noted that the long-term revenue growth guidance of 5% to 8% remains intact despite recent performance [76] Other Important Information - The company is experiencing foreign currency headwinds, which impacted margins by approximately 100 basis points [21][20] - A leadership transition is occurring with the departure of Bjorn Hofman and the appointment of Tanya Foxe as Executive Vice President, Global Operations and Supply Chain [13][14] Q&A Session Summary Question: Comments on geographic performance and October trends - Management noted a strong performance in September across all regions, with the Americas at mid-single-digits and Europe at high-single-digits [33][34] Question: Drivers of EBITDA changes - The reduction in EBITDA guidance was primarily due to Q3 results and foreign exchange impacts [39][40] Question: Volatility in EBITDA and margin expansion expectations - Management remains confident in achieving 100 to 150 basis points of margin expansion in the fourth quarter and into 2020 [42] Question: Performance of proprietary products - Proprietary materials are expected to bounce back in Q4, with strong growth anticipated in Bioproduction [50][51] Question: Free cash flow growth expectations - Free cash flow is expected to grow significantly, supported by EBITDA growth and continued debt servicing [62]