Avantor(AVTR) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Reported revenue for Q3 2025 was $1.62 billion, down 5% year-over-year on an organic basis, primarily due to weaker performance in the Lab segment [12][21] - Adjusted EBITDA margin was 16.5%, with adjusted EPS for the quarter at $0.22, reflecting a $0.04 decline year-over-year [12][13] - Free cash flow was $172 million, with an adjusted conversion rate of 124% [13][15] - Adjusted gross profit was $527 million, representing a 32.4% adjusted gross margin, a decline of 100 basis points year-over-year [12][13] Business Line Data and Key Metrics Changes - Laboratory Solutions revenue was $1.1 billion, down 5% organically year-over-year, below expectations [16][21] - Bioscience production revenue was $527 million, down 4% organically year-over-year, at the low end of expectations [18][21] - Adjusted operating income for Laboratory Solutions was $124 million, with an 11.3% margin, impacted by lower volumes and related absorption [18][21] - Adjusted operating income for bioscience production was $128 million, representing a 24.2% margin, also down year-over-year due to lower volumes [20][21] Market Data and Key Metrics Changes - The market backdrop in the Lab segment is largely stable, but customer activity remains lower than expected due to ongoing end market uncertainty related to basic research funding [16][17] - The company faced competitive pressures, particularly in the Lab services business, leading to share losses [18][44] - The U.S. Federal government shutdown is expected to exacerbate challenges in the academic and government sectors, impacting revenue guidance [93] Company Strategy and Development Direction - The company is initiating a turnaround strategy called "Avantor Revival," focusing on five key pillars: go-to-market strategy, manufacturing and supply chain investment, portfolio scrutiny, cost savings, and talent improvement [27][28][30][33] - A $500 million share repurchase program has been authorized to demonstrate confidence in the company's long-term value [11][26] - The company aims to simplify operations and empower frontline staff to better meet customer needs [10][27] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment with current results but emphasized confidence in the fixability of the issues faced [27][39] - The company expects full-year organic revenue growth to be negative 3.5% to negative 2.5%, with reported revenue growth anticipated to be negative 4% to negative 3% [21][22] - Management is committed to improving both top-line and bottom-line performance through operational efficiency and strategic investments [90] Other Important Information - The company took a $785 million impairment charge related to goodwill associated with its Lab distribution business, reflecting ongoing margin headwinds [14][15] - Adjusted net leverage ended the quarter at 3.1 times adjusted EBITDA, down from Q2, as strong cash generation allowed for net debt reduction [15][26] Q&A Session Summary Question: What is the confidence level in fixing the current declines? - Management expressed confidence that the issues are fixable, emphasizing the need for better communication and execution [37][39] Question: Can the business grow in 2026? - Management is taking a fresh look at the numbers for 2026 and will provide updates once a clearer understanding is achieved [40] Question: How to address share losses and competitive dynamics? - Management acknowledged share losses but noted that no key customer accounts have been lost recently, indicating potential for growth in existing accounts [44][46] Question: What are the steps to simplify operations? - Management plans to decentralize decision-making and empower local teams to improve customer engagement and service levels [49][50] Question: Why is now the right time for a stock buyback? - Management believes the current share price does not reflect the company's long-term value and aims to demonstrate commitment to its turnaround strategy [76][78] Question: What are the expectations for the academic and government market? - Management anticipates continued challenges in this sector due to the government shutdown and other market pressures [92][93]