Avantor Inc

Previous wording

This discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes. Pursuant to SEC rules for reports covering interim periods, we have prepared this discussion and analysis to enable you to assess material changes in our financial condition and results of operations since December 31, 2023, the date of our Annual Report. Therefore, we encourage you to read this discussion and analysis in conjunction with the Annual Report.

Current wording

This discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes. Pursuant to SEC rules for reports covering interim periods, we have prepared this discussion and analysis to enable you to assess material changes in our financial condition and results of operations since December 31, 2023, the date of our Annual Report. Therefore, we encourage you to read this discussion and analysis in conjunction with our Annual Report.

Previous wording

During the three months ended June 30, 2024, we recorded net sales of $1,702.8 million, net income of $92.9 million, Adjusted EBITDA of $305.6 million and Adjusted Operating Income of $277.2 million. Net sales decreased by 2.4%, which included a 2.0% decline in organic sales compared to the same period in 2023. See “Reconciliations of non-GAAP measures” for reconciliations of net income (loss) to Adjusted EBITDA and Adjusted Operating Income, and net income (loss) margin to Adjusted EBITDA margin and Adjusted Operating Income margin. See “Results of operations” for a reconciliation of net sales growth (decline) to organic net sales growth (decline).

Current wording

During the three months ended September 30, 2024, we recorded net sales of $1,714.4 million, net income of $57.8 million, Adjusted EBITDA of $302.5 million and Adjusted Operating Income of $274.8 million. Net sales decreased by 0.3%, which included a 0.7% decline in organic sales compared to the same period in 2023. See “Reconciliations of non-GAAP measures” for reconciliations of net income to Adjusted EBITDA and Adjusted Operating Income, and net income margin to Adjusted EBITDA margin and Adjusted Operating Income margin. See “Results of operations” for a reconciliation of net sales growth (decline) to organic net sales growth (decline).

Previous wording

The following updates the factors and current trends disclosed in the Annual Report. These updates may affect our performance and financial condition in future periods.

Current wording

The following updates the factors and current trends disclosed in our Annual Report. These updates may affect our performance and financial condition in future periods.

Previous wording

Customer demand and required inventory levels continue to normalize in the transition from the COVID-19 pandemic. For a discussion of this trend and associated economic disruptions, and the actual operational and financial impacts that we experienced through December 31, 2023, see “Part II—Item 7

Current wording

Customer demand and required inventory levels continue to normalize in the transition from the COVID-19 pandemic. For a discussion of this trend and associated economic disruptions, and the actual operational and financial impacts that we experienced through December 31, 2023, see “Part II, Item 7—Management's discussion and analysis of financial condition and results of operations” in our Annual Report.

Previous wording

•Organic net sales growth, which is a non-GAAP measure discussed in the section entitled “Results of operations.” Organic net sales growth (decline) eliminates from our reported net sales change the impacts of revenues from any acquired businesses that have been owned for less than one year and changes in foreign currency exchange rates. We believe that this measurement is useful to investors as a way to measure and evaluate our underlying commercial operating performance consistently across our segments and the periods presented. This measurement is used by our management for the same reason. Reconciliations to the change in reported net sales, the most directly comparable GAAP financial measure, are included in the section entitled “Results of operations”;

Current wording

•Organic net sales growth, which is a non-GAAP measure discussed in the section entitled “Results of operations.” Organic net sales growth (decline) eliminates from our reported net sales change the impacts of revenues from acquisitions and divestitures that occurred in the last year and changes in foreign currency exchange rates. We believe that this measurement is useful to investors as a way to measure and evaluate our underlying commercial operating performance consistently across our segments and the periods presented. This measurement is used by our management for the same reason. Reconciliations to the change in reported net sales, the most directly comparable GAAP financial measure, are included in the section entitled “Results of operations”;

Previous wording

•Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP measures discussed in the section entitled “Results of operations.” Adjusted EBITDA is our net income or loss adjusted for the following items: (i) interest expense, (ii) income tax expense, (iii) amortization of acquired intangible assets, (iv) depreciation expense, (v) losses on extinguishment of debt, (vi) charges associated with the impairment of certain assets, (vii) and certain other adjustments. Adjusted EBITDA margin is Adjusted EBITDA divided by net sales as determined under GAAP. We believe that these measurements are useful as a way to analyze the underlying trends in our business consistently across the periods presented. These measurements are used by our management for the same reason. A reconciliation of net income or loss and net income or loss margin, the most directly comparable GAAP financial measures, to Adjusted EBITDA and Adjusted EBITDA margin, respectively, are included in the section entitled “Reconciliations of non-GAAP measures”;

Current wording

•Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP measures discussed in the section entitled “Results of operations.” Adjusted EBITDA is our net income or loss adjusted for the following items: (i) interest expense, (ii) income tax expense, (iii) amortization of acquired intangible assets, (iv) depreciation expense, (v) losses on extinguishment of debt, (vi) charges associated with the impairment of certain assets, (vii) and certain other adjustments. Adjusted EBITDA margin is Adjusted EBITDA divided by net sales as determined under GAAP. We believe that these measurements are useful as ways to analyze the underlying trends in our business consistently across the periods presented. These measurements are used by our management for the same reason. A reconciliation of net income or loss and net income or loss margin, the most directly comparable GAAP financial measures, to Adjusted EBITDA and Adjusted EBITDA margin, respectively, are included in the section entitled “Reconciliations of non-GAAP measures”;

Previous wording

•Adjusted Operating Income and Adjusted Operating Income margin, which are non-GAAP measures discussed in the section entitled “Results of operations.” Adjusted Operating Income is our net income or loss adjusted for the following items: (i) interest expense, (ii) income tax expense, (iii) amortization of acquired intangible assets, (iv) losses on extinguishment of debt, (v) charges associated with the impairment of certain assets, (vi) and certain other adjustments. This measurement is our segment reporting profitability measure under generally accepted accounting principles. Adjusted Operating Income margin is Adjusted Operating Income divided by net sales as determined under GAAP. We believe that these measurements are useful to investors as a way to analyze the underlying trends in our business consistently across the periods presented. These measurements are used by our management for the same reason. A reconciliation of net income or loss and net income or loss margin, the most directly comparable GAAP financial measures, to Adjusted Operating Income and Adjusted Operating Income margin, respectively, are included in the section entitled “Reconciliations of non-GAAP measures”;

Current wording

•Adjusted Operating Income and Adjusted Operating Income margin, which are non-GAAP measures discussed in the section entitled “Results of operations.” Adjusted Operating Income is our net income or loss adjusted for the following items: (i) interest expense, (ii) income tax expense, (iii) amortization of acquired intangible assets, (iv) losses on extinguishment of debt, (v) charges associated with the impairment of certain assets, (vi) and certain other adjustments. This measurement is our segment reporting profitability measure under generally accepted accounting principles. Adjusted Operating Income margin is Adjusted Operating Income divided by net sales as determined under GAAP. We believe that these measurements are useful to investors as ways to analyze the underlying trends in our business consistently across the periods presented. These measurements are used by our management for the same reason. A reconciliation of net income or loss and net income or loss margin, the most directly comparable GAAP financial measures, to Adjusted Operating Income and Adjusted Operating Income margin, respectively, are included in the section entitled “Reconciliations of non-GAAP measures”;

Previous wording

•Free cash flow, which is a non-GAAP measure, is equal to our cash flows from operating activities, plus acquisition-related costs paid in the period, less capital expenditures. We believe that this measurement is useful to investors as it provides a view on the Company’s ability to generate cash for use in financing or investing activities. This measurement is used by management for the same reason. A reconciliation of cash flows from operating activities, the most directly comparable GAAP financial measure, to free cash flow, is included in the section entitled “Liquidity and capital resources—Historical cash flows.”

Current wording

•Free cash flow, which is a non-GAAP measure, is equal to our cash flows from operating activities, less capital expenditures, plus the direct costs to close acquisitions and divestitures (including income tax effects, if any) in the period. We believe that this measurement is useful to investors as it provides a view on the Company’s ability to generate cash for use in financing or investing activities. This measurement is used by management for the same reason. A reconciliation of cash flows from operating activities, the most directly comparable GAAP financial measure, to free cash flow, is included in the section entitled “Liquidity and capital resources—Historical cash flows.”

Previous wording

The second quarter net sales decline was driven by decreases in the Laboratory Solutions segment primarily due to reduced customer demand. Volume declines contributed to contraction in gross profit while gross margin increased due to improved product mix, lower inventory reserves and manufacturing productivity, partially offset by inflationary pressures. Volume softness and the reset of annual incentive compensation drove Adjusted EBITDA margin and Adjusted Operating Income margin contraction.

Current wording

The third quarter net sales decline was driven by decreases in the Bioscience Production segment primarily due to reduced customer demand. Volume declines and inflationary pressures, partially offset by manufacturing productivity, contributed to contraction in gross profit and gross margin. Lower gross profit and the reset of annual incentive compensation, partially offset by savings from our cost transformation initiative, drove Adjusted EBITDA margin and Adjusted Operating Income margin contraction.

Previous wording

In the Laboratory Solutions segment, net sales decreased $38.1 million or 3.2%, which included $5.4 million or 0.5% of unfavorable foreign currency impact. Organic net sales decreased $32.7 million or 2.7%. Sales decline was primarily driven by decreased demand in biopharma and healthcare end markets.

Current wording

In the Bioscience Production segment, net sales decreased by $18.2 million or 3.2%, which included $1.9 million or 0.3% of favorable foreign currency impact. Organic net sales decreased by $20.1 million or 3.5%. The sales decline was primarily driven by decreased demand for our proprietary silicones offerings to customers in the healthcare end market and by decreased sales of formulated solutions offerings to customers in the semiconductor industry.

Previous wording

Net sales decreased $141.6 million or 4.0%, which included $5.3 million or 0.2% of favorable foreign currency impact. Organic decline in net sales was $146.9 million or 4.2%.

Current wording

Net sales decreased $147.4 million or 2.8%, which included $12.5 million or 0.2% of favorable foreign currency impact. Organic decline in net sales was $159.9 million or 3.0%.

Previous wording

In the Laboratory Solutions segment, net sales decreased $84.0 million or 3.5%, which included $3.6 million or 0.2% of favorable foreign currency impact. Organic net sales decreased $87.6 million or 3.7%. Sales decline was primarily driven by decreased demand in biopharma and healthcare end markets.

Current wording

In the Bioscience Production segment, net sales decreased $75.8 million or 4.5%, which included $3.6 million or 0.2% of favorable foreign currency impact. Organic net sales decreased by $79.4 million or 4.7%. The sales decline was primarily driven by decreased demand in biopharma and healthcare end markets.

Previous wording

Gross margin for the three months ended June 30, 2024, expanded by 30 basis points due to improved product mix, lower inventory reserves and manufacturing productivity, partially offset by inflationary pressures. For the six months ended June 30, 2024, margin contracted 40 basis points driven by inflationary pressures and unfavorable product mix.

Current wording

Gross margin for the three months ended September 30, 2024, contracted by 70 basis points due to volume declines and inflationary pressures, partially offset by manufacturing productivity. For the nine months ended September 30, 2024, margin contracted by 50 basis points due to the same drivers as the three-month period.

Previous wording

Operating income for the three months ended June 30, 2024, increased primarily from the absence of impairment charges, partially offset by higher operating expenses driven by transformation expenses, higher accruals related to incentive compensation and inflationary pressures on salary expenses. Operating income for the six months ended June 30, 2024, increased primarily from the absence of impairment charges, partially offset by lower gross profit, as previously discussed, and higher operating expenses driven by restructuring and severance charges, transformation expenses, higher accruals related to incentive compensation and inflationary pressures on salary expenses.

Current wording

Operating income for the three months and nine months ended September 30, 2024, decreased primarily from lower gross profit, as previously discussed, higher operating expenses driven by restructuring and severance charges, transformation expenses, and higher accruals related to incentive compensation.

Previous wording

Net income increased primarily due to higher operating income, as previously discussed, and lower interest expense due to debt repayments made over the last twelve months, partially offset by higher income tax expense due to higher income before income taxes.

Current wording

Net income decreased primarily due to lower operating income, as previously discussed, partially offset by lower interest expense due to debt repayments made over the last twelve months and lower income tax expense due to lower income before income taxes.

Previous wording

For a reconciliation of Adjusted EBITDA and Adjusted EBITDA margin to net income (loss) and net income (loss) margin, respectively, the most directly comparable measures under GAAP, see “Reconciliations of non-GAAP financial measures.”

Current wording

For a reconciliation of Adjusted EBITDA and Adjusted EBITDA margin to net income and net income margin, respectively, the most directly comparable measures under GAAP, see “Reconciliations of non-GAAP financial measures.”

Previous wording

For the three months ended June 30, 2024, Adjusted EBITDA decreased by $37.4 million or 10.9%, which included a favorable foreign currency translation impact of $2.0 million or 0.6%.The remaining decline was $39.4 million or 11.5% primarily driven by increased operating expenses and lower sales volume.

Current wording

For the three months ended September 30, 2024, Adjusted EBITDA decreased by $15.3 million or 4.8%, which included a favorable foreign currency translation impact of $1.3 million or 0.4%. The remaining decline was $16.6 million or 5.2% primarily driven by lower gross profit and the reset of annual incentive compensation, partially offset by savings from our cost transformation initiative.

Previous wording

For the six months ended June 30, 2024, Adjusted EBITDA decreased by $100.6 million or 14.6%, which included a favorable foreign currency translation impact of $3.0 million or 0.4%.The remaining decline was 103.6 million or 15.0% primarily driven by increased operating expenses and lower sales volume.

Current wording

For the nine months ended September 30, 2024, Adjusted EBITDA decreased by $115.9 million or 11.5%, which included a favorable foreign currency translation impact of $4.3 million or 0.4%.The remaining decline was 120.2 million or 11.9% primarily driven by lower gross profit and the reset of annual incentive compensation, partially offset by savings from our cost transformation initiative.

Previous wording

For a reconciliation of Adjusted Operating Income and Adjusted Operating Income margin to net income (loss) and net income (loss) margin, respectively, the most directly comparable measures under GAAP, see “Reconciliations of non-GAAP financial measures.”

Current wording

For a reconciliation of Adjusted Operating Income and Adjusted Operating Income margin to net income and net income margin, respectively, the most directly comparable measures under GAAP, see “Reconciliations of non-GAAP financial measures.”

Previous wording

Adjusted Operating Income decreased $106.4 million or 16.6%, which included an unfavorable foreign currency translation impact of $1.6 million or 0.3%. The remaining decline was $104.8 million or 16.3% which is further discussed below.

Current wording

Adjusted Operating Income decreased $20.2 million or 6.8%, which included a favorable foreign currency translation impact of $1.2 million or 0.4%. The remaining decline was $21.4 million or 7.2% which is further discussed below.

Previous wording

In the Laboratory Solutions segment, Adjusted Operating Income declined $28.8 million or 16.0%, or 14.9% when adjusted for unfavorable foreign currency translation impact. The decrease was due to increased operating expenses primarily driven by higher accruals related to incentive compensation.

Current wording

In the Laboratory Solutions segment, Adjusted Operating Income declined $7.6 million or 4.8%, or 5.2% when adjusted for favorable foreign currency translation impact. The decrease was due to increased operating expenses primarily driven by higher accruals related to incentive compensation and inflationary pressures, partially offset by savings from our cost transformation initiative.

Previous wording

In the Bioscience Production segment, Adjusted Operating Income declined $10.2 million or 6.6%, or 6.4% when adjusted for unfavorable foreign currency translation impact. The decrease was driven primarily by increased operating expenses primarily driven by higher accruals related to incentive compensation and lower sales volume.

Current wording

In the Bioscience Production segment, Adjusted Operating Income declined $10.1 million or 6.8%, or 7.1% when adjusted for favorable foreign currency translation impact. The decrease was driven primarily by lower sales volume, unfavorable product mix and higher accruals related to incentive compensation, partially offset by savings from our cost transformation initiative.

Previous wording

In Corporate, Adjusted Operating Income decreased $2.7 million due to immaterial offsetting factors.

Current wording

In Corporate, Adjusted Operating Income decreased $2.5 million due to immaterial offsetting factors.

Previous wording

Adjusted Operating Income decreased $41.7 million or 13.1%, which included an unfavorable foreign currency translation impact of $2.5 million or 0.8%. The remaining decline was $39.2 million or 12.3% which is further discussed below.

Current wording

Adjusted Operating Income decreased $126.5 million or 13.5%, which included an unfavorable foreign currency translation impact of $0.4 million or 0.0%. The remaining decline was $126.1 million or 13.5% which is further discussed below.

Previous wording

In the Laboratory Solutions segment, Adjusted Operating Income declined $52.8 million or 15.0%, or 14.3% when adjusted for unfavorable foreign currency translation impact. The decrease was due to increased operating expenses primarily driven by higher accruals related to incentive compensation and lower sales volume.

Current wording

In the Laboratory Solutions segment, Adjusted Operating Income declined $60.3 million or 11.8%, or 11.5% when adjusted for unfavorable foreign currency translation impact. The decrease was due to increased operating expenses primarily driven by lower sales volume and higher accruals related to incentive compensation, partially offset by savings from our cost transformation initiative.

Previous wording

In the Bioscience Production segment, Adjusted Operating Income declined $50.8 million or 15.8%, or 15.7% when adjusted for unfavorable foreign currency translation impact. The decrease was driven primarily by lower sales volume and unfavorable product mix.

Current wording

In the Bioscience Production segment, Adjusted Operating Income declined $60.9 million or 13.0%, or 13.1% when adjusted for modestly favorable foreign currency translation impact. The decrease was driven primarily by lower sales volume, unfavorable product mix and higher accruals related to incentive compensation, partially offset by savings from our cost transformation initiative.

Previous wording

In Corporate, Adjusted Operating Income decreased $2.8 million due to immaterial offsetting factors.

Current wording

In Corporate, Adjusted Operating Income decreased $5.3 million due to immaterial offsetting factors.

Previous wording

The following table presents the reconciliation of net income (loss) and net income (loss) margin to Adjusted EBITDA and Adjusted EBITDA margin, respectively:

Current wording

The following table presents the reconciliation of net income and net income margin to Adjusted EBITDA and Adjusted EBITDA margin, respectively:

Previous wording

Represents other stock-based compensation expense (benefit) and charges and legal costs in connection with certain litigation and other contingencies that are unrelated to our core operations and not reflective of on-going business and operating results.

Current wording

Represents charges and legal costs in connection with certain litigation and other contingencies that are unrelated to our core operations and not reflective of on-going business and operating results.

Previous wording

The following table presents the reconciliation of net income (loss) and net income (loss) margin to Adjusted Operating Income and Adjusted Operating Income margin, respectively:

Current wording

The following table presents the reconciliation of net income and net income margin to Adjusted Operating Income and Adjusted Operating Income margin, respectively:

Previous wording

Represents net foreign currency (gain) loss from financing activities, other stock-based compensation expense (benefit) and charges and legal costs in connection with certain litigation and other contingencies that are unrelated to our core operations and not reflective of on-going business and operating results.

Current wording

Represents charges and legal costs in connection with certain litigation and other contingencies that are unrelated to our core operations and not reflective of on-going business and operating results.

Previous wording

We fund short-term cash requirements primarily from operating cash flows and credit facilities. Most of our long-term financing is from indebtedness. For the three and six months ended June 30, 2024, we generated $281.1 million and $422.7 million of cash from operating activities, respectively, ended the quarter with $272.6 million of cash and cash equivalents and our availability under our credit facilities was $1,060.7 million. We have no debt repayments due in the next twelve months other than required term loan payments of $19.7 million and receivables facility borrowing of $233.3 million.

Current wording

We fund short-term cash requirements primarily from operating cash flows and credit facilities. Most of our long-term financing is from indebtedness. For the three and nine months ended September 30, 2024, we generated $244.8 million and $667.5 million of cash from operating activities, respectively, ended the quarter with $285.3 million of cash and cash equivalents and our availability under our credit facilities was $1,066.3 million. We have no debt repayments due in the next twelve months other than required term loan payments of $20.1 million and receivables facility borrowing of $205.1 million.

Previous wording

At June 30, 2024, $258.0 million or 94.6% of our $272.6 million in cash and cash equivalents was held by our non-U.S. subsidiaries and may be subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply.

Current wording

At September 30, 2024, $257.2 million or 90.2% of our $285.3 million in cash and cash equivalents was held by our non-U.S. subsidiaries and may be subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply.

Previous wording

Consists of typical non-cash charges including depreciation and amortization, impairments, stock based compensation expense, deferred income tax expense and others.

Current wording

Consists of typical non-cash charges including depreciation and amortization, impairments, stock-based compensation expense, deferred income tax expense, non-cash restructuring charges and others.

Previous wording

Cash flows from operating activities provided $35.0 million more cash in 2024 primarily due to improved working capital and lower outflow of income taxes, partially offset by lower operating income.

Current wording

Cash flows from operating activities provided $49.1 million more cash in 2024 primarily due to improved working capital and lower outflow of income taxes, partially offset by lower operating income.

Previous wording

Investing activities used $22.4 million more cash in 2024. The change was primarily attributable to an increase in capital expenditures compared to the prior year.

Current wording

Investing activities used $25.9 million more cash in 2024. The change was primarily attributable to an increase in capital expenditures compared to the prior year.

Previous wording

Financing activities used $143.9 million less cash in 2024 primarily due to the net borrowings made on the receivables facility in 2024 compared to having net repayments in 2023 and higher proceeds received from stock options exercises in 2024 compared to the prior year.

Current wording

Financing activities used $133.7 million less cash in 2024 primarily due to the lower repayments of term loans in 2024 compared to 2023 and higher proceeds received from stock options exercises in 2024 compared to the prior year.

Previous wording

Free cash flow was $12.6 million higher in 2024 primarily due to higher cash flow from operating activities as previously discussed, partially offset by an increase in capital spending across the Company in 2024 as noted above.

Current wording

Free cash flow was $23.6 million higher in 2024 primarily due to higher cash flow from operating activities as previously discussed, partially offset by an increase in capital spending across the Company in 2024 as noted above.