Avantor - Q1 2024
April 26, 2024
Transcript
Operator (participant)
Good morning. My name is Emily, and I'll be your conference operator today. At this time, I would like to welcome everyone to Avantor's first quarter 2024 earnings results conference call. After the presentation, there will be the opportunity for you to ask any questions, which you can do so by pressing star, followed by the number 1 on your telephone keypads. I will now turn the call over to Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin the conference.
Christina Jones (VP of Investor Relations)
Good morning. Thank you for joining us. Our speakers today are Michael Stubblefield, President and Chief Executive Officer, and Brent Jones, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our investor relations website at ir.avantorsciences.com. A replay of this webcast will also be made available on our website after the call. Following our prepared remarks, we will open the line for questions. During this call, we will be making forward-looking statements within the meaning of the U.S. Federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements we make today.
These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events, or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the press release and in the supplemental disclosure package on our investor relations website. As a reminder, on January 1, 2024, we transitioned from our former regional segment structure to two global operating segments, Laboratory Solutions and Bioscience Production. Our Q1 2024 results are presented on this basis. With that, I will now turn the call over to Michael.
Michael Stubblefield (President and CEO)
Thank you, CJ, and good morning, everyone. I appreciate you joining us today. I'm starting on slide three. The year is off to a good start as we delivered first-quarter revenue in line with our guidance, with reported revenue of $1.68 billion and organic growth of -6.3%. As anticipated, market conditions remain similar to the fourth quarter. Our team continues to execute well, as evidenced by our margin and profitability outperformance, with adjusted EBITDA margin of 16.8% and adjusted EPS of $0.22. As Brent will outline in his section, our margins were driven by pricing, favorable product mix, disciplined cost management, and accelerated realization of savings from our multi-year cost transformation initiative. We also generated $107 million of free cash flow in the quarter.
Consistent with our current capital allocation priorities, we paid down approximately $170 million of debt and continued to target an adjusted net leverage ratio below 3x. As CJ noted, our new operating model became effective in January. Our new business segments enhance our focus on customers' needs in the lab and production environments, position us for accelerated long-term growth, and unlock significant operating efficiencies. We are early in our journey but are out of the gate strong and are already realizing benefits from the new model. During the first quarter, we aligned our organization with the new business segments and initiated several work streams to optimize the Avantor customer experience. Our commercial intensity and the relevance of our workflow solutions resulted in multiple competitive wins and contract renewals with biopharma, healthcare, and education and government customers.
As part of our innovation strategy, we enhanced our offerings for cell engineering, gene therapy, and synthetic biology applications through supplier partnerships and proprietary innovation. We are seeing strong customer response to recent proprietary new product introductions, including our viral inactivation solutions launched earlier this year and our integrated mixing systems and fluid handling assemblies, which are delivering critical efficiency and quality improvements to our bioprocessing customers. We also advanced our multi-year cost transformation initiative, including footprint optimization, organizational efficiency, go-to-market, and procurement savings. Our disciplined execution enabled us to accelerate the realization of some savings into the first quarter, contributing to our margin and profitability outperformance. We continue to be encouraged by the positive trends we are seeing in our end markets.
In Laboratory Solutions, biotech funding is improving, and our large pharma customers are engaging with us on new projects that are driving an increase in our commercial opportunity funnel. Core diagnostic testing has returned to growth, and QA/QC workflows in the applied markets have been relatively stable. Additionally, internal and external surveys suggest that inventory health continues to improve. Collectively, these factors result in a sequential increase in sales of our consumables and chemicals offerings, both key drivers of our long-term growth. In Bioscience Production, the Bioprocessing end market remains healthy, with a robust pipeline of new therapies, a favorable regulatory landscape, including three new cell and gene therapy approvals in the quarter, and strong patient demand. Importantly, we saw another quarter of sequential improvement in our Bioprocessing order rate.
Within healthcare, medical implant procedure rates continue to be positive, and overall demand within the semiconductor end market has rebounded from the lows we experienced in 2023. Consistent with our in-line revenue performance in the quarter, these encouraging market signals have not yet translated into an inflection in aggregate sales levels, as pockets of inventory destocking and cautious customer spending, notably in equipment and instrumentation, continue to impact demand. We believe our current approach to guidance, which assumes a continuation of current market conditions, is appropriate, and we are reaffirming our full-year outlook. Should a meaningful market recovery take place within the year, that would present upside to our guidance. Before I turn it over to Brent, I'd like to share a few takeaways from the quarter, which show that our model is working.
First, momentum in our consumables portfolio, representing the vast majority of our revenue, largely offset industry-wide weakness in capital-driven equipment and instrumentation sales, and translated to outperformance in margins and EPS. Second, our bioprocessing offerings are strategically positioned to benefit from attractive end-market fundamentals, and we outperformed our bioprocessing guidance and realized another sequential step up in bioprocessing orders. Finally, we are taking action to strengthen performance and drive productivity. We made meaningful progress in transforming our operating model, and we are ahead of plan on our cost transformation initiative. With that, I'll now turn it over to Brent to walk you through our Q1 results in more detail.
Brent Jones (EVP and CFO)
Thank you, Michael, and good morning, everyone. I'm starting with the numbers on slide 4. Reported revenue was $1.68 billion for the quarter, declining 6.3% on an organic basis. In our Laboratory Solutions segment, sales trends were generally similar to the fourth quarter levels. We are seeing nice momentum in consumables and chemicals, offset by softer-than-expected demand for equipment and instrumentation. Our Bioscience Production segment performed modestly ahead of expectations, driven by upside in bioprocessing and biomaterials. Adjusted gross profit for the quarter was $572 million, and adjusted gross margin was 34%. Year-over-year, our adjusted gross profit was impacted by lower sales volume and unfavorable product mix, partially offset by productivity. Adjusted gross margin improved nicely on a sequential basis.
This was largely due to pricing and the positive mix impact from strength in higher margin consumables and weakness in lower margin equipment and instrumentation. Adjusted EBITDA was $283 million, and adjusted EBITDA margin was 16.8%. Adjusted operating income was $258 million at a 15.4% margin. Year-over-year, our adjusted EBITDA and adjusted operating income performance were impacted by lower sales volumes and unfavorable mix. While adjusted EBITDA and adjusted operating income were down sequentially, primarily from the reset of incentive compensation, our margins were well above our expectations. This outperformance was driven by better than expected mix and the accelerated impact of certain cost transformation initiatives up and down the P&L.
Net interest expense and adjusted tax expense were in line with our expectations, resulting in adjusted earnings per share above expectations at $0.22 for the quarter. Moving to free cash flow, we generated $107 million in the quarter. Our free cash flow performance was impacted by costs associated with our cost transformation initiative. Our adjusted net leverage ended the quarter at 4x adjusted EBITDA. The slight uptick in leverage was driven by a reduction in our trailing twelve months adjusted EBITDA. As Michael noted, we remain focused on deleveraging and paid down approximately $170 million of debt in the quarter. In April, we favorably repriced about $770 million of term loans, reflecting a supportive financing market and strong demand for our debt. Slide 5 outlines our segment performance.
Launching our two new segments has been a critical strategic move to sharpen our focus on accelerating growth and streamlining organizational accountability. It also has the benefit of unlocking significant cost savings. In Laboratory Solutions, which represents roughly two-thirds of our revenue, we provide an industry-leading platform of products, services, and digital solutions to support our customers' research, diagnostic, and QC workflows. Laboratory Solutions revenue was $1.16 billion for the quarter, declining approximately 4.5% versus prior year on an organic basis. Our consumables and chemicals, both proprietary and third-party, showed sequential growth, performing better than our expectations. However, momentum in these categories was offset by lower equipment and instrumentation sales in each of our end markets. Adjusted operating income for Laboratory Solutions was $148 million for the quarter, representing a 12.8% margin.
Year-over-year, adjusted operating income decline was driven by negative sales volume. Sequentially, we saw a favorable mix due to strength in higher margin consumables and chemicals and weakness in lower margin equipment and instrumentation. However, despite the mix impacts on gross profit, adjusted operating income declined due to the impact of our annual incentive compensation reset. This expense increase was partially offset by savings from our cost transformation initiative. Our Bioscience Production segment represents about 1/3 of our revenue and over 45% of our enterprise profitability. This business supports customers' production platforms by providing high-purity process ingredients and single-use solutions for bioprocessing, ultra-high purity silicone formulations for medical implants, and custom solutions for semiconductor and advanced technology applications. Bioscience Production revenue was $523 million, representing an organic decline of approximately 10%, slightly ahead of our expectations for the quarter.
Bioprocessing was down low teens on an organic basis versus our expectations of down mid-teens. Adjusted operating income for Bioscience Production was $127 million for the quarter, representing a 24.3% margin. Year-over-year adjusted operating income declined as a result of lower sales volume. On a sequential basis, despite revenue performance exceeding our expectations and solid mix, adjusted operating income declined modestly, driven by the expense side. Like Laboratory Solutions, this was largely due to our incentive compensation reset. However, these expense accruals were partially offset by savings from our cost transformation initiative. Altogether, a solid quarter in both segments. Moving to the next slide. Slide 6 shows our full-year 2024 guidance. As referenced throughout the call today, we see encouraging signs in our end markets. However, it is still early in the year and the operating environment remains dynamic.
As Michael indicated, we believe it is prudent to base our guidance on a continuation of current market conditions, and we are reaffirming our full-year guidance as outlined last quarter. This includes organic revenue growth of -2% to +1%, adjusted EBITDA margin of 17.4%-17.9%, and adjusted EPS of $0.96-$1.04. We also expect free cash flow performance of $600 million-$650 million, excluding any cash costs associated with our cost transformation initiative. On a segment basis, we expect low single-digit growth in Laboratory Solutions and a mid-single-digit decline in Bioscience Production. A couple of comments on phasing.
As laid out at the beginning of the year, we expect to generate 49% of our full-year revenue in the first half and 51% in the second half. This leads to Q2 organic revenue growth of approximately -3.5% to -1.5%. The modest sequential increase in reported revenue dollars as we progress through the year is driven by pricing phasing, modest seasonality, timing of known orders, and nominal billing day adjustments. In terms of profitability, we expect our Q2 gross margin percentage to be similar to Q1. Adjusted EBITDA margin should improve by about 25-50 basis points sequentially, driven by the impact of our cost transformation initiative. Our ability to accelerate our transformation savings into the first quarter flattens the margin ramp needed to achieve our full-year plan.
We are executing well against the transformation plan, evidenced by the nice pull forward of savings into Q1. We are solidly on track to achieve at least $75 million of in-year savings in 2024. With that, I will turn the call back to Michael.
Michael Stubblefield (President and CEO)
Thank you, Brent. With our new operating model in place, we are well-positioned to realize accelerated long-term growth and unlock significant operating efficiencies. We are seeing the benefits of our new business segments in driving commercial momentum with our research and production customers, as well as enhancing our operational rigor and forecasting. I am pleased with the progress we've made on our multi-year cost transformation initiative. We are ahead of plan and are already seeing the impact in our cost structure and margins. As the market recovers, we'll be well-positioned to enhance the conversion of top-line growth to improve bottom-line profitability. I'd like to close by thanking our Avantor associates for their steadfast dedication to serving our customers and to creating a better, healthier world. Their contributions enabled us to make meaningful progress on our business transformation and deliver on our operating plan.
I will now turn it over to the operator to begin the question and answer portion of our call.
Operator (participant)
Thank you. If you would like to ask a question, please do so now by pressing Star, followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the queue, please press Star and then two. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally. Our first question today comes from the line of Michael Ryskin with Bank of America. Please go ahead.
Michael Ryskin (Managing Director in Equity Research)
Great. Thanks for taking the question, guys. Michael, I want to start with one for you, if I could. You know, you talked throughout the call about consistent market conditions, no real change there, but you also did call out some, you know, encouraging market signals that just haven't translated to sales yet. When we think about Avantor, we typically think of it as being a relatively fast order cycle. So could you just help us understand, you know, if the market signals do start to flow through, you know, if the market conditions do improve, sort of like, what's the lag between when you start seeing that and when it starts showing up in the revenues? And obviously, there could be differences in different end markets. Maybe touch on some, it's bioprocessing, anything else?
Michael Stubblefield (President and CEO)
Yeah, good morning, Michael. Thanks for the question. Yeah, you're right. We are, as we said, in the script, recently encouraged by what we're seeing in the marketplace. A lot of the leading indicators, whether it's funding, you know, improvements in order books, particularly in bioprocessing, customer activity, building of pipelines, approvals of new drugs. I think there was even another approval this morning, coming out of the pipeline. So, you know, a lot to like about the setup for our end markets. Our—we do have a relatively short order cycle business model, as we've talked about, previously. Within our Lab Solutions segment, that's more of a book and ship type of business.
So we kinda take orders real time and would, you know, anticipate shipping those typically within a 24-48-hour period. So as these signals translate into, you know, increase in orders and ultimately into revenue, we'll see that pretty much real time. You know, our Bioscience Production segment tends to be driven by a little bit longer lead times that have normalized post the pandemic. We're on average, probably 2-3 months out in terms of being able to satisfy a customer order there. And so, you will see that, you know, inside of a quarter, if at most, you know, maybe with a one-quarter lag.
Michael Ryskin (Managing Director in Equity Research)
I was on mute. Thanks, that, that's really helpful. And then quick follow-up. You did call out in Lab Solutions a little bit of pressure on equipment instrumentation. Realize it's a very small part of your overall mix, but anything specific you can touch on there, whether it's a big pharma or biotech that's still a little bit lagging, and just there, you would have a little bit better visibility. So do you think that's just a timing thing to start the year, or is that budget still being constrained? Thanks.
Michael Stubblefield (President and CEO)
So I'd probably highlight a couple of things here, Michael. You know, firstly, as you suggest, E&I for us is, is a relatively modest part of the business, about 15% of our overall revenue, a little bit more pronounced in our Lab Solutions segment. We are seeing an industry-wide, you know, pressures, you know, for purchase of equipment and instrument driven by, you know, project delays and extended times to get projects approved, and a little bit more, you know, cautious approach to just getting, you know, capital-related purchasing items, and approved, you know, real time here. So, it was a slow start to the year and that, which isn't unusual coming out of, you know, year-end, where folks will typically, you know, try to buy ahead for some of their demand.
But unlike, you know, a normal year where you'd see that kind of pick up as you move through the, the quarter, we didn't really see that acceleration. And so unlike the momentum that we saw in our consumables portfolio, where, you know, both in, you know, consumables and in chemicals, both in both of our segments, you know, where we saw a nice acceleration coming from Q4 to Q1, we didn't really see that in, in the E&I piece. I'd probably say it's probably most notably in biopharma is where we see it, but, you know, we probably look at it across all of our end markets at some level.
Michael Ryskin (Managing Director in Equity Research)
Great. Thanks so much.
Operator (participant)
The next question comes from Dan Leonard with UBS. Please go ahead.
Dan Leonard (Managing Director and Senior Research Analyst)
Thank you. I have a follow-up on that last question. Michael, possible you could frame the magnitude of the decline in E&I in the quarter? And I ask because it's not a big part of your business, but it seems to have fully offset the outperformance in recurring within your lab business, specifically.
Michael Stubblefield (President and CEO)
Yeah, I guess I'd say probably a couple of things, so to maybe lay some tracks for you on that. If I look at our Bioscience Production segment as an example, you know, you saw the modest outperformance that we drove there, you know, reflecting, you know, a bit of momentum in bioprocessing, and certainly our biomaterials business. Our electronics business has, you know, recovered from the lows that we experienced in 2023. But again, it was somewhat modest, but encouraging nonetheless, but nothing that we would consider to be an inflection point. And we have relatively modest equipment and instrumentation exposure in that segment. Now, if I look at the Laboratory Solutions segment, by comparison, we have a bit more exposure there.
It's probably on the order of 20% of the revenues or thereabout would be in the equipment and instrument space. So, you know, reasonably meaningful. We did see similar upside to our consumables and chemicals, you know, growth is what we saw in the, you know, in our, in our Production segment, that, you know, was, was basically fully offset by the, by the sequential weakness in, in E&I. So, you know, although we, we are a, a consumables-driven business, you know, roughly 15% of our overall sales are, are linked to equipment and instrumentation. So, you know, weakness, you know, certainly does get reflected. Fortunately, you know, with the, the consumables portfolio and the higher margins that, that are associated with that part of the portfolio, you see the impact on mix.
As I highlighted in my script, you know, we really focus here on the consumables business. You know, I'm quite encouraged by A, not only the momentum on the top line, but the flow-through of that to margins on the bottom line. You see that, you know, helping with some of the outperformance on the margin line.
Dan Leonard (Managing Director and Senior Research Analyst)
Appreciate that. And then, as a follow-up, you mentioned that bioprocessing is doing a bit better, but not yet an inflection. I was hoping you could elaborate on the performance of any of the leading indicator product categories within bioprocessing and what they're telling you. Thank you.
Michael Stubblefield (President and CEO)
So we are quite encouraged to see a second straight quarter here of sequential improvement in bioprocessing order book trends. And you know, maybe adding to our encouragement here is, you know, we saw the pace of step-up here accelerate in Q1, even a bit more than what we saw in Q4, and it's widespread. We're seeing it both in the process ingredients, excipients part of our business, as well as encouraging in our, you know, single-use platform. We've talked over recent quarters a fair bit about the pickup in engineering activity, which is, you know, certainly historically, a nice leading indicator for our single-use business. Hadn't yet translated into an order book.
It feels like, you know, we're starting to see that, you know, start to translate, you know, quite nicely. And it's, you know, with large pharma, it's with CDMOs, and so we like, you know, how broad the, you know, the pickup, you know, appears to be at the moment. But to your point, and consistent with what we've said and how we've guided, we've, you know, not yet realized that pickup in the order book, in a meaningful change in our, in our sales trends, and so our guidance reflects a continuation of current conditions. But certainly, you know, a couple of straight quarters here where we're pretty encouraged.
Dan Leonard (Managing Director and Senior Research Analyst)
Thanks, Michael.
Operator (participant)
The next question comes from Dan Brennan with TD Cowen. Please go ahead.
Dan Brennan (Sellside Senior Equity Research Analyst)
Great, thank you. Thanks for the questions. Michael, maybe just on the Lab Solutions business, since that came in a bit weaker here. Just can you discuss kind of how the quarter played out? Any, you know, versus expectations, kind of, you know, what trended a little bit lighter than what you expected and what gives you confidence in kind of the full year there?
Michael Stubblefield (President and CEO)
Yeah. So, you know, I think we called for roughly low single-digit decline in the quarter. It came out maybe a point or so, you know, weaker than that. Really all on the back of, you know, the E&I trends that we've discussed here on the call and in the early questions. You know, the 80% of that segment that's consumables, you know, chemical services, actually performed, you know, better than our expectations, and we're starting to see some nice acceleration there, which I think is, you know, reflective of, you know, the destocking trends that we're seeing and, you know, the improvement of inventory health, as well as just a good indicator of funding and activity levels, engagement with our customers, you know, across the board.
So, the two largely offset one another, but yeah, the weakness there was really driven by, you know, continued cautious approach to capital purchase spending there in the equipment and instrument category.
Dan Brennan (Sellside Senior Equity Research Analyst)
And then maybe a follow-up for Brent, just in terms of the nice progress on the cost saves and the nice margins in the quarter, you guys are maintaining the full year guide. Just walk through a little bit of, like, what drove the upside in the quarter there, and, you know, did that give you potential upside bias to, you know, how, how you think the full year plays out?
Brent Jones (EVP and CFO)
Yeah. No, absolutely. Thanks for the question. Obviously, the cost transformation has been a huge focus for us, and, you know, Michael noted our four pillars: organizational efficiency, footprint optimization, go-to-market, and procurement. Unsurprisingly, given that they're sort of your shorter cycle in actions, we outperformed on the organizational efficiency and the procurement side there. You know, a lot of this is frankly unlocked by the new segment structure, which really allows us to get the efficiencies of the new model, and frankly, that also drove to the procurement piece of it. You know, in terms of outlook on the full year there, I'd say, you know, we are gratified with the strong start. We, we worked really hard at that, and we're going to continue. But it's, you know, it's early in the year, and there are a lot of moving pieces.
I think let's hold it. $75 million is a good assumption for the year, but, you know, if we get acceleration, certainly the next time we talk to you, we'll let you know.
Operator (participant)
The next question comes from Luke Sergott with Barclays. Please go ahead.
Luke Sergott (VP and Equity Research Analyst)
Great. Thanks, guys. Just wanted to follow up on that last question. And so when we're thinking about the pacing of the cost out structure across the margins for the rest of the year, can you help give us a little help on the modeling side, and then by segment? You know, and then the blend there between the gross margin and operating and SG&A.
Brent Jones (EVP and CFO)
Luke, I think that's seven questions, but I'll do my best. So, yeah. So on the progression there, you know, again, nice outperformance and transformation in Q1. We'll see a meaningful uptick in transformation saves in Q2, and then that will increase somewhat ratably in Q3 and Q4, unsurprisingly, just due to the timing of actions, particularly on org efficiency, but as well as, you know, procurement and the others. Then we do, starting in Q2, have merit coming in, so that's not a material headwind against it. So you won't see a dramatic change in the SG&A line in Q2. You will see some goodness with additional actions then in the back half of the year. We're not breaking the transformation down really by segment here.
It's unlocked by that, but we're not gonna make external comments there. But then it just, that will lead to kind of as you get that ratable improvement there, as well as,
... as you get that ratable improvement there, that will just nicely lift EBITDA margin there. You know, when you do the math on keeping the full year guide, and we really expect gross margins to be pretty consistent based on what we're seeing. So if you manage those together, I would think of that in a pretty linear basis, honestly, for how the year lays out.
Luke Sergott (VP and Equity Research Analyst)
All right, that's helpful. And then so on the, on the Biosecure Act, what are you guys hearing from your customer, your CDMO customers on that side? And then any exposure to WuXi and the, and that complex that, that might provide some near-term disruption, or, you know, how are you guys thinking about that?
Michael Stubblefield (President and CEO)
Yeah, look, we obviously are monitoring the developments with that legislation, you know, pretty closely. Obviously, the final details are, you know, still be determined, and, you know, we're not in any better position than anybody else, probably, to try to anticipate, you know, where that's gonna land and how it ultimately gets implemented. But what I would say is, you know, we benefit from a global presence, and certainly are well-positioned to support our customers through our collaboration model, you know, to ensure that we can help them through whatever implications of that act, you know, might mean for them. You know, we don't anticipate any particular meaningful at an aggregate level for us.
We don't have a lot of exposure into, you know, into China specifically. And then on the, you know, maybe on the U.S. side, we're obviously well-positioned with both CDMOs as well as, you know, the OEMs. And so I think from our perspective, you know, you could end up seeing some puts and takes, you know, between, you know, specific accounts, but as deeply embedded as we are across this space, I think, you know, we view us as a solution provider here that will be able to help our customers with any implications here.
Luke Sergott (VP and Equity Research Analyst)
Great, thanks.
Operator (participant)
The next question comes from the line of Vijay Kumar with Evercore ISI. Please go ahead.
Vijay Kumar (Senior Managing Director)
Hi, Michael. Good morning, and thanks for taking my question. I guess my first question, Michael, on consumables. I think you said improved sequentially. Can you split that out between Bioprocessing and Lab Solutions? You know, were consumables up in both segments sequentially? Was it flattish? I think on the order side for Bioprocessing, you did mention sequential growth. Could you quantify that? Was book-to-bill, you know, perhaps north of one?
Michael Stubblefield (President and CEO)
Yeah, let me take the two questions there. So, you know, consumables are pervasive across both segments, as you noted. And encouragingly, we saw you know, sequential improvement in both segments. You know, we probably have less than, I don't know, 5% of our revenues in our production segment are equipment and instruments. And so that's you know, largely a consumables play for us in that segment. And you saw the modest you know, beat to expectations there, and you know, that's all linked to the consumables trends that we did see.
And similarly, you know, although a bit more equipment and instrument exposure on the lab segment, you know, we saw a similar upside from the consumables part of that business as well. So, you know, again, I think that speaks to just the power of our model. You know, I indicated in my remarks that I think this quarter is actually a really good illustration of how our model is working. You know, where you see the activity levels, inventory health improving, leading to stronger pull-through of our core portfolio here, you know, which are bringing the higher margins with it, which, you know, that led to better mix in the quarter and the higher margins as you see.
So really like how the model, you know, worked in the quarter. Relative to your second question there around, you know, the you know, some of the insights there on our bioprocessing, you know, order book, I don't think we've historically, you know, discussed a book-to-bill. We don't, we don't find that to be particularly meaningful in our business. But what I can say is, you know, we're now a couple of straight quarters here of sequential improvements. The acceleration or the improvement that we saw in Q1 was actually even a bit more than what we saw in Q4. So the rate does seem to be, you know, picking up some momentum here. It's broad-based.
It's across, you know, not only our chemicals, process ingredients, excipients, you know, categories, but also across our single-use, you know, platform, which, as I said before, you know, we think is maybe the first sign that how the engineering drawing activity we discussed last year is now, you know, starting to work its way through the pipeline. We've talked a lot, you know, in these forums, Vijay, about our best-in-class, you know, bioprocessing performance, both in terms of, you know, absolute, you know, revenue performance. You know, we think with the performance in this quarter, you know, we were as good or better than anybody out there. I think you could probably say the same about the order book trends that we saw.
I mean, obviously, you know, we're looking at a lot of the same things that you are, and, you know, I would say we're very pleased with, you know, the development of our order book, and, you know, I think you could be safe in assuming that it was as good, if not better than anything that you've seen reported so far.
Vijay Kumar (Senior Managing Director)
That's very helpful, Michael. Maybe one more on instrumentation. Anything on phasing, Michael, in the quarter on instrumentation? Were there any days impact or, you know, holiday impact, Easter, et cetera? I'm just trying to think, instrument was down consistently throughout or anything happened late in the quarter?
Michael Stubblefield (President and CEO)
The only thing meaningful intra-quarter dynamic that I would point out was, you know, we got off to a slow start in the year for equipment and instruments, which it wasn't such a huge surprise. That's not unusual. You know, coming into a new year, folks are, you know, had satisfied probably a lot of their near-term needs, you know, at year-end, using whatever budget they had, you know, getting budgets set for the coming year. What you normally then see, though, is a pickup in acceleration as you move through the quarter. We didn't see it. It was weak all quarter, as it turned out. So, you know, that's probably the only intra-quarter dynamic that I would highlight for you.
Vijay Kumar (Senior Managing Director)
Thank you, guys.
Operator (participant)
The next question comes from Jack Meehan with Nephron Research. Please go ahead.
Jack Meehan (Equity Research Analyst)
Thank you. Good morning. Michael, could you talk a little bit about the academic end market? It looks like, you know, it took a little bit of a step back with the low double single-digit decline. You know, heard some. It's probably similar to what we're seeing at others, but can you just talk about what you're seeing in terms of market conditions there?
Michael Stubblefield (President and CEO)
I'd say a couple of things, Jack. You know, firstly, you're right, we were down, I think, low single digits in aggregate for that education and government, you know, end market. You know, probably the more important part for us and consistent with, you know, what we've been seeing actually over the last several quarters, you know, in 2023 was, you know, our ongoing, you know, share wins, and momentum in large, you know, academic institutions. And, you know, despite that end market overall for education and government, being down, our, you know, large, you know, academic, you know, customers were up, again, in the quarter.
So continued momentum and nice activity levels, and, you know, that's, I highlighted in my prepared remarks, you know, some of the customer wins, renewals, and share gains. Certainly, this academic setting, particularly in the U.S., is a large focus for us, and, you know, pleased to see yet another quarter of growth.
Jack Meehan (Equity Research Analyst)
Great. And then for Brent, can you just lay out for us, on the segment level, what the expectations are for organic growth in 2Q? I'm trying to tease out, like, what's comps versus kind of recovery, you know, as we phase through the year.
Brent Jones (EVP and CFO)
Yeah. You know, as we, as we think about Q2 there, as we noted, we expect Lab Solutions to be down low single digits, and basis points to be down sort of low single digit, mid single digit, and within that, bioprocessing down, sort of mid single digit, high single digit.
Jack Meehan (Equity Research Analyst)
Okay. Thank you.
Michael Stubblefield (President and CEO)
Yep.
Operator (participant)
The next question comes from Doug Schenkel with Wolfe Research. Please go ahead.
Doug Schenkel (Managing Director, Senior Research Analyst and Head of Life Science and Diagnostic Tools)
Hey, good morning, guys, and thank you for taking my questions. First, just on geographic trends, anything you can share, you know, across the business, capital versus recurring, you know, segment by segment or, you know, even specifically for bioprocessing? I think that would be really helpful as we're just thinking about, you know, how we update our models for the balance of the year.
Michael Stubblefield (President and CEO)
Yeah, I don't think we saw, you know, anything meaningful to point out, you know, between the regions that, you know, that are probably too helpful. I think that the trends in each region were, you know, pretty similar, with maybe the one caveat in Asia, you know, continued weakness, maybe some early signs of stability in China, but, you know, less meaningful for us. But continued strength in, you know, some of the other, you know, submarkets within Asia for us in bioprocessing, you know, particularly Korea, and Southeast Asia. So that might be the only other, you know, trend that I might point out. But, you know, I think similar trends between Europe and the Americas.
Doug Schenkel (Managing Director, Senior Research Analyst and Head of Life Science and Diagnostic Tools)
Got it. And, I want to go back to the topic of activity. Again, you, you've talked about some improvement in activity levels. It totally makes sense how you're managing spend expectations. It's, it's really prudent coming off of a, a tough period for the group over the last several quarters. But in terms of how you're managing the business and, you know, keeping in mind, you know, internal metrics like corporate goals, are you managing the business with an assumption that the improvement in activity that you've described translates into an increase in the need for product support and ultimately revenue generation in the back half of the year?
Michael Stubblefield (President and CEO)
Yeah, I'd say a couple of things, you know, about that, Doug, is, you know, we're laser-focused on executing our long-term, you know, growth strategy, which means, you know, we're investing in innovation, new product introductions, you know, strategic marketing, a lot of the, you know, investments in our digital platform, to position our business, you know, for sustained, you know, long-term growth and, you know, to build on our leading position in both of our, you know, segments. You know, when I think about the, you know, the cost transformation initiative that we're driving, you know, it's a multi-year effort, you know, quite strategic in nature, linked to...
You know, the rollout of our new operating segments, which, you know, in a very unique way, you know, do unlock significant efficiencies. So these come with, you know, investments in capability that strengthen the footprint, investments in technology that allow us to do things a bit more efficiently. So, you know, we'll benefit from the savings associated with that in the near term, which is helpful in an environment of maybe a little bit muted volumes. But there's nothing that we're doing here that, you know, prevents us from growing the business as it returns.
When I think about our incentive systems, you know, certainly, you know, there's a bias for, you know, delivering upside in both our in-year as well as our equity plans.
Doug Schenkel (Managing Director, Senior Research Analyst and Head of Life Science and Diagnostic Tools)
Super helpful. Thank you again.
Operator (participant)
Our next question comes from Rachel Vatnsdal with JPMorgan. Please go ahead.
Rachel Vatnsdal (Executive Director of Equity Research)
Great. Good morning, and thanks for taking the questions. So I wanted to follow up on Vijay's question around bioprocessing. Great to hear that sequential growth on orders, but can you actually give us what was the number in terms of sequential growth for this quarter and for last quarter, since you said it accelerated in terms of the velocity? And can you break out how orders trended by customer type across pharma, biotechs, and CDMOs? And then specifically on the full year guide, we heard you reiterate the mid-single-digit declines on Bioscience Production, but can you just confirm, are you still expecting mid-single-digit declines for the full year in bioprocessing as well?
Michael Stubblefield (President and CEO)
Yeah, a lot, a lot to unpack there. You know, you may have to redirect me here if I, if I don't respond to each of your, your questions there, Rachel. But, you know, to your first point about the bioprocessing, you know, order book, we haven't, you know, quantified a book-to-bill or, you know, gotten, you know, too specific about this. I'm not sure we're going to be granular enough to satisfy your, your needs here. But, you know, we just reiterate, you know, again, two straight quarters of sequential improvement. The rate of that improvement is increasing.
You know, in terms of, you know, comparative to other numbers that you've seen out there, you know, consistent with how I answered one of the earlier questions, we do have a best-in-class, you know, platform, and that pertains to, you know, in period, you know, revenue performance and growth as well as, you know, order book. And, you know, I'd characterize our order book as best in class based on, you know, the data points that we've seen that are, you know, that are out there. As I think about, you know, the full year, you know, the bioprocessing, you know, did perform a bit better in the quarter, as Brent indicated.
You know, on the second quarter, you know, we would see bioprocessing moving from, you know, kind of a low-teens decline in Q1 to, you know, something in that, you know, mid- to high-single-digit declines for the second quarter. You know, as you suggest, on a full year basis, I think the right way to model it at this stage would still be, you know, a mid-single-digit decline overall, which implies, you know, another sequential improvement in Q3 and, you know, ultimately a final improvement there in Q4, primarily driven by just the weaker comparables. You know, we're as we've said before, our guidance, you know, assumes relatively similar absolute levels of revenue in each period.
And so the, you know, the step up in growth rate there is really just driven off of the prior year comparables.
Rachel Vatnsdal (Executive Director of Equity Research)
Great, thanks. And then appreciate we're only a few weeks into the quarter here, but can you talk to us about the trends that you've been seeing in April so far across Lab Solutions and then Bioscience Production, and bioprocessing specifically as well? Has there been anything specifically to call out that shifted relative to exit rates from, you know, 1Q in March as well?
Michael Stubblefield (President and CEO)
Yeah, I'd say, you know, we're obviously, you know, early in the quarter here, not quite through April yet. But, you know, certainly, you know, do follow the business real-time. And, you know, the trends that we're seeing in April, I think are, you know, consistent with our commentary today and certainly reflected in our perspective on, you know, how we see, you know, Q2 trending.
Which, you know, again, when I look at the first half, you know, based on what we did in Q1 with what we anticipate doing in Q2, you know, we're right in line with, you know, where we started the year, which is, you know, expectation of, you know, roughly 49% of our revenues in the first half, you know, 51% of our revenues in the second half. And so I, you know, I think what we're seeing here in April, you know, certainly is consistent with, you know, the guidance that we've provided to you here today.
Rachel Vatnsdal (Executive Director of Equity Research)
Thank you.
Operator (participant)
The next question comes from Tejas Savant with Morgan Stanley. Please go ahead.
Tejas Savant (Executive Director and Senior Healthcare Equity Analyst)
Hey, guys, good morning. Maybe, you know, I'll start on the CDMO side, Michael. I think you sort of alluded to, you know, what you see in that end market in China and, you know, the fallout from the Biosecure Act and so on. But, you know, with the prospect of a degree of consolidation here, or M&A rather, in the U.S., does that impact your near-term visibility at all in terms of your relationship there with Catalent specifically? Is there a possibility that, you know, after a change of ownership there, the terms of that contract, you know, might need to be renegotiated?
Michael Stubblefield (President and CEO)
Yeah. So if you're speaking, you know, specifically to Catalent, you know, they've been a great partner to us. We're certainly encouraged by the momentum we have, you know, there. And, you know, not maybe unsurprising to you, just given how pervasive we are in serving this market across the board. You know, clearly, we'd have a relationship with their potential acquirer here. And so to the extent that gets done, you know, we look forward to continuing the collaboration, you know, with Novo.
You know, when we think about our bioprocessing business, you know, one of the things I really like about it, of course, is that, you know, our materials, our ingredients, our buffers, you know, chromatography resins, our single-use solutions are spec'd into, you know, the process and are part of the regulatory filing. So it's one of the things that makes it rather resilient and quite sticky and, you know, there's certainly nothing from a contractual perspective that has us, you know, concerned there. You know, to expand a little bit and take it beyond just, you know, Catalent, though, you know, we don't have much customer concentration in this business, and in fact, you know, it's quite a diversified platform.
So, you know, we're going to be well exposed across, of course, the OEMs, but also, you know, the playing field there for all the CMOs around the world. And so we're well positioned, you know, to support the strategies of our, you know, the OEMs and, you know, the innovation cycles that are in play here. And, you know, as it relates to BioSecure and, you know, China, you know, it's a little bit of a balloon, any impact that, you know, some of those partners may see negatively, you know, presumably will show up, you know, somewhere else in the network that we'll be able to help our customers through. So I really like our positioning and setup here.
Tejas Savant (Executive Director and Senior Healthcare Equity Analyst)
Got it. That's great to hear. And then a quick follow-up on the geopolitical side of things outside of China. And it's more of a medium-term question, really. What are you hearing in terms of governments in Europe starting to push, you know, for a greater degree of self-reliance when it comes to their own defense expenditures? They want to have a layer of insulation in place, you know, relative to the U.S. election outcomes, et cetera. Is there a risk here in your mind that research budgets there could get crowded out? Not so much in 2024, like I said, but more in 2025 and beyond.
Michael Stubblefield (President and CEO)
Yeah, and, you know, undoubtedly there's, you know, a higher degree of, you know, geopolitical tensions, you know, around the world, and, you know, we follow that closely to see how it impacts the business. But, you know, but I think specific to your question, you know, at the end of the day, you know, it's our strong conviction that good science gets funded, and we're quite encouraged by, you know, the pipelines and, you know, the new modalities and the research that's underway. You know, these pipelines are as full as they've ever been. You know, things are accelerating through, particularly on cell and gene therapy. Again, you know, I mentioned, I think there's been, you know, three approvals year to date.
I think there was a fourth one that came through, you know, even this morning. And so you see the rate of those things starting to pick up. So, you know, I think history has shown, and I don't think we've seen anything here in the near term environment that would cause us to waver on that, you know, this promising good science that's in flight here is going to get the funding it needs to progress.
Tejas Savant (Executive Director and Senior Healthcare Equity Analyst)
Thanks, Michael. Appreciate the time.
Operator (participant)
The next question comes from Josh Waldman with Cleveland Research. Please go ahead.
Josh Waldman (Senior Equity Research Analyst)
Morning. Thanks for taking my questions. I've got a couple for you. First, Brent or Michael, wondered if you could comment on how you think visibility in the business has evolved over the last 90 days. Are you seeing any improvement in regards to the team's ability to forecast sales here in the near or medium term? And then along those lines, can you talk about how or if you're seeing bulk orders come back into the business, and how that impacts your ability to forecast?
Michael Stubblefield (President and CEO)
Yeah. Thanks, Josh. Good to hear from you. A couple of things I would say about, you know, visibility. I think one of the remarks I may have made in my prepared remarks was just some of the early returns we're getting from our new operating model, and one of those certainly is the operational rigor and improved forecasting that comes from a more simplified and a more logical, in my opinion, you know, structure to the business. It's easier to think about these businesses from a, you know, a customer needs, you know, research or production environment, and it, you know, certainly aligns better with how our customers think about it, as opposed to our historical, you know, approach, you know, from a geographic standpoint.
Our operating reviews have become a lot more streamlined and a lot more you know, straightforward, which you know, from our perspective, is certainly a helpful improvement. You know, it's a relatively short order cycle business, as I commented you know, earlier, and so I wouldn't say we've seen really any you know, meaningful change in that regard over the last you know, 90 days or so. Our supply chains have largely normalized in both segments. You know, so we're you know, back to pretty you know, healthy levels of you know, service in our lab segment, which means you know, we can satisfy most orders in a day or two.
On the production side, we're, you know, two to three months out, which is, you know, kind of pre-COVID levels of performance there. So I'd say the visibility is similar. Now, of course, with the accelerating order book and improved, you know, and a building order book here, that gives us, you know, a little bit more, you know, forward visibility on the production side of the business, and certainly more, you know, confidence in underwriting the outlooks that we have here, which I think is, you know, encouraging. Your second question there around, you know, have we seen a return for, you know, bulk orders?
You know, in our business model, if I think about the ingredients or, you know, buffers, excipients, our customers, you know, don't typically have the ability to store, you know, just, you know, elevated levels of product, and so they tend to sync their orders with their production campaigns. And, you know, consistent with kind of the destocking trends that we've seen, that was more prevalent on single use than it was on, you know, the process ingredients for those reasons. And so I would say, you know, the size of the orders has been, you know, pretty, you know, consistent on the process ingredient side. And then, you know, on the single use side, I don't know if we've, I'd say that we've seen a change in order size.
You know, we're certainly starting to see with the orders return, you know, the positive indications of, you know, destocking, you know, presumably coming to an end here, you know, in the, in the near term and, you know, good underlying levels of activity.
Josh Waldman (Senior Equity Research Analyst)
Got it. Thanks, Michael. And then, wondering if you could talk a bit more about the pricing and share environment. You commented on contract wins. Any more context you could provide there? And then do you think you're seeing more account churn than normal this year? If so, does that pose any risk to pricing as the year plays out, or would you see it more as a potential opportunity for share and maybe top line outperformance?
Michael Stubblefield (President and CEO)
Maybe take those in reverse order, maybe talking first about your questions on pricing, then I'll talk about share. You know, on the pricing side, I would say, you know, the team has delivered another solid year of execution on this, you know, in executing on that playbook. You know, we expect, you know, kind of 1-2 points of contribution coming from price that's, you know, primarily offsetting the COGS inflation that we are seeing. So pretty close to historical levels of contribution, I would say, coming from price and, you know, I think the teams did a nice job putting that through, and not a lot of noise around that at this stage.
We'll see a little bit of step-up in revenue in the second quarter as those price increases, you know, we get the full phasing of those in the quarter. So pretty pleased about where we're at from a pricing standpoint and, you know, certainly one of the favorable drivers of margin that we do see. Share is a great story for us and certainly excited to talk about that. On the production side, I think we've got a long-standing track record, you know, particularly in our biomaterials and bioprocessing business of share growth. You know, you typically see us outperforming the broader market on bioprocessing, 300-400 basis points.
You know, again, even, you know, with the declines we saw in the quarter, you know, I think that performance is, you know, as good as you're going to see, and, you know, certainly again, best in class. You know, even if you were to adjust for maybe our more modest exposure to China, I think that's still a true statement. On the lab side, you know, we've talked a lot about our strong focus in the academia world. We continue to see nice growth there, and nice penetration, and a lot of new customer wins there, a lot of important contract renewals. You know, that's an end market or a customer segment that historically has been a little bit more open to churn. I'm not sure we're seeing it any differently now.
You know, maybe we're playing it a bit more aggressively now, but, you know, just with their more fixed budget environment, and less, you know, sensitivity to maybe some of the, the high regulatory environment that a, you know, a biopharma customer might have, you know, that is an area that, you know, we think that we can continue to be, you know, successful with. So, you know, again, another great quarter here of, you know, we think, share expansion in both of our, of our segments.
Josh Waldman (Senior Equity Research Analyst)
Got it. Thank you, Michael. Appreciate all the color.
Operator (participant)
We have time for one final question today, and so our next question comes from the line of Patrick Donnelly with Citi. Please go ahead.
Patrick Donnelly (Managing Director of Equity Research)
Hey, guys. Thanks for, thanks for getting me in here. Michael, I know on the last call, you talked a little bit about, you know, some of the margin pacing and even the exit rate potential this year. You know, I guess with the bioprocessing order improvement, obviously, nice margin flow-through on that, you know, the cost savings plan. Obviously, Brent talked a lot about just the visibility there. Can you talk about just the confidence on that margin exit rate and how you are viewing things on that front, given the current trends?
Michael Stubblefield (President and CEO)
Yeah, that's a really good question, you know, Patrick. You know, we've reaffirmed our full year, you know, guidance today, which, you know, I think does a couple of things for us.
You know, it shows our confidence in the plan that we have in place. But with the margin outperformance that we drove in Q1, of course, that has the effect then of de-risking the margin ramp that was necessary to hit the full year margin number. So, you know, I like that. You know, certainly it's early in the year. You know, Brent talked a bit today about our cost transformation initiative that seems to be ahead of plan. You know, still a lot of things to get done on that front this year, but we're focused on executing those. And, you know, perhaps there'll be some upside as we get further into the year.
But, you know, I think it's, you know, at this stage of where we're at in the calendar, you know, prudent to kind of bank the outperformance in Q1, continue to drive hard on all the initiatives that we have in flight here. And, you know, we'll keep you updated as we move through the quarter. But I think the read for me on this is just, you know, a bit of de-risking here on being able to deliver that margin target for the full year.
Patrick Donnelly (Managing Director of Equity Research)
That's helpful. Just a very quick one. I know we're kind of tight, but Brent, just on the debt paydown visibility, you know, leverage exit rate, when you guys start to think about capital deployment getting back in the mix there. Thank you, guys.
Brent Jones (EVP and CFO)
Yeah, sure. Thanks, Patrick. Look, you know, we continue to generate cash very well. You know, we're holding our pre-transformation cost cash flow guidance for the year. Just you do the math on that, it will certainly, you know, absent, you know, a meaningful increase in EBITDA, will certainly be within 2025. I mean, we're absolutely committed to getting to adjusted net leverage of below 3x. We're certainly doing what we can to accelerate that, but I'd say we'll keep posting you every quarter, and we're going to keep diligently grinding down the debt balance.
Operator (participant)
Those are all the questions we have time for today, and so this concludes our question and answer session. I would now like to turn the call back over to Michael for any concluding remarks.
Michael Stubblefield (President and CEO)
Yeah, thank you. Maybe just a couple of quick comments here. Just would reiterate, you know, how well-positioned we are here in this environment, you know, particularly with our new operating model. As you can tell from our comments today, we're encouraged by the leading indicators that we're seeing, you know, particularly in the improving order book in bioprocessing. You know, we're out of the gate strong, you know, with our cost transformation initiative. You know, we're able to accelerate some savings into the first quarter here, and, you know, I'm pleased with our progress here. So thank you all for joining us today. Certainly look forward to updating you when we meet next. Until then, be well, everyone.
Operator (participant)
Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.