Avantor - Earnings Call - Q3 2025

Executive Summary

• Q3 delivered mixed results: revenue fell to $1.62B (-5.3% YoY; -3.3% QoQ), Adjusted EBITDA margin compressed to 16.5%, and Adjusted EPS declined to $0.22; a non-cash $785M goodwill impairment (distribution unit) drove a GAAP net loss of $712M and -$1.04 GAAP EPS.
• Versus S&P consensus, revenue and EPS were modest misses (Rev: $1.624B vs $1.648B est.; EPS: $0.22 vs $0.225 est.); Adjusted EBITDA was essentially in line (~$268M est. vs $267.9M actual)*.
• FY25 outlook reset lower: organic revenue to -3.5% to -2.5% (prior -2% to 0%), Adjusted EPS to $0.88–$0.92 (prior $0.94–$0.98), with margin “mid‑16s”; FCF unchanged at $550–$600M.
• Strategic pivot under new CEO (“Avantor Revival”): decentralize go-to-market, invest in manufacturing/supply chain to fix bioprocessing throughput/on-time delivery, strengthen digital/e‑commerce, add key leadership; Board authorized a $500M share repurchase, signaling confidence and offering a potential near-term support for the stock.

What Went Well and What Went Wrong

What Went Well

• Strong cash generation amid top-line pressure: operating cash flow $207M and free cash flow $172M; adjusted net leverage improved to 3.1x.
• Resilient profitability relative to expectations: Adjusted EBITDA of $267.9M (16.5%) tracked internal targets; disciplined SG&A and cost controls continued, with ongoing $400M run-rate cost program through 2027.
• Segment positives and commercial wins: Applied Solutions within Bioscience had a stronger quarter (electronics materials strength); Lab secured >$100M of combined wins at two top 15 global pharmas slated to phase in 2026.

What Went Wrong

• Laboratory Solutions underperformed: organic sales -4.9% with price/competitive intensity and softer services/education demand; segment AOI margin fell to 11.3% (from 12.9% YoY).
• Bioprocessing throughput issues and backlog: raw material availability, equipment uptime, and plant downtime limited shipments; book-to-bill ~1.0 with high backlog; order trends strongest in process chemicals but fulfillment lagged.
• Impairment and margin pressure: $785M goodwill impairment in distribution business and price actions to protect share weighed on GAAP and gross margin; adjusted EPS dropped $0.04 YoY to $0.22.

Transcript

Speaker 2

Good morning. My name is Emily and I will be your conference operator today. At this time I would like to welcome everyone to Avantor's third quarter 2025 earnings results conference call. After the presentation you will have the opportunity to ask any questions, which you can do so by pressing STAR followed by the number one on your telephone keypad. I will now turn the call over to Allison Hosak, Senior Vice President of Global Communications. Ms. Hosak, you may begin the conference. Good morning and thank you for joining us. Our speakers today are Emmanuelle Ligner, President and Chief Executive Officer, and R. 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 that 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 the non-GAAP measures can be found in the press release and in the supplemental disclosure package on our investor relations website.

With that, I will now turn the call over to Emmanuelle.

Speaker 1

Thank you, Eli, and good morning, everyone. I appreciate you joining us today. As you know, I joined Avantor a little more than two months ago. I came on board because I believe this company has tremendous potential. I have spent my entire career in pharma and lab science industries, spending meaningful time on three different continents. I was fortunate to spend two decades at GE Life Sciences and Danaher, where I built out the Sativa business, significantly accelerated the growth trajectory of the platform, and led its integration with SPA Life Sciences. During that time, I had a front row seat to Avantor trajectories as a customer and supplier. I believe this experience enabled me to step into this role 10 weeks ago with a unique perspective on the company's strengths and areas for improvement.

Throughout my career, the primary lesson I've learned is that there is no substitute for going to Gemba. This concept literally means visiting the place where work is done and value is created to learn and determine how to best improve our organization. For the past two months, this is exactly what I have been doing. I have dedicated my time toward visiting our sites, meeting our people, speaking with dozens of our customers and suppliers across Asia, Europe, and North America. This not only sharpened my initial instincts, but also provided invaluable insights as we map out our strategy moving forward. I want to personally thank all the stakeholders for the warm welcome, open dialogue, and trust they demonstrated from my first day in the role. Here are some of the important learnings. First, this is a great industry with strong secular tailwinds.

Scientific collaboration is more important than ever. If you talk to any pharma or biotech company right now, you will hear about the multitude of ways in which they are harnessing the power of technology and AI to accelerate the next breakthrough discovery. That gives us a tremendous amount of confidence in the long term trajectory of the end markets we serve and reinforces the importance of our positioning within the industry. Our recent announcement with Blue Whale Bio is a perfect demonstration of how Avantor is advancing innovation through collaboration, and we are committed to continue to do our part to facilitate the research, development, manufacturing, and delivery of next generation therapies. Second, Avantor has a solid portfolio, a committed global team, and an incredible customer reach serving more than 300,000 customer locations across approximately 180 countries.

As someone that has spent considerable time in recent years working to scale life science businesses, those attributes will be the envy of most companies. We have significant untapped potential and numerous opportunities in front of us, and we need to capitalize on those opportunities. Third, and most importantly, there are many things we can and should do better, and we are taking immediate action to turn the business around and hold ourselves accountable for rewarding the trust our investors place in Avantor. Starting from a commercial perspective, I believe our business is overly complex with unnecessary centralization, which inhibits frontline staff from most effectively meeting our customers' and supplier needs and expectations. Customers buy from Avantor because of the quality and service heritage of our incredible brands.

VWR, JT Baker, Masterflex, NuSil, those are some of the best-known names in the industry, and our commercial team are not being sufficiently empowered to leverage the equity of those brands. On the operation and supply chain side, I believe we need to make some investment and process enhancement to improve our ability to consistently serve our customers. Overall, I believe those challenges are generally self-inflicted, and the good news is that they are fixable with determination, focus, and time. At the conclusion of this call, I will share my preliminary thoughts on our plan for doing just that, which we are calling Avantor Revival. With those initial findings in mind, we strongly believe that our current share price does not reflect the long-term value of our platform.

To demonstrate our long-term conviction in the prospect of this business, our Board of Directors has authorized a $500 million share repurchase program with immediate effect, which we will pursue opportunistically moving forward while also delivering on our commitment to decrease net leverage. Now I would like to turn over to Brent for a more detailed overview of our third quarter financial results and our updated full year guidance.

Speaker 3

Brent, thank you, Emmanuelle, and good morning, everyone. I'm starting with slide four for the quarter. Reported revenue was $1.62 billion, which was down 5% year over year on an organic basis. This reflects weaker than expected top line performance, primarily in Lab. Adjusted EBITDA margin was 16.5%, and adjusted EPS for the quarter was $0.22. Free cash flow was $172 million, with adjusted conversion at 124%. Turning to slide five, adjusted gross profit for the quarter was $527 million, representing a 32.4% adjusted gross margin. This is a decline of 100 basis points year over year, driven mainly by price actions in Lab to protect and grow market share. We had another quarter of solid cost control, with adjusted SG&A expense better than planned and prior year. Our results also benefit from reductions in incentive compensation accruals.

We remain on track with our cost transformation program and continue to expect $400 million in run rate savings by the end of 2027. Adjusted EBITDA was $268 million in the quarter, representing a 16.5% margin, better than our expectations. Adjusted operating income was $237 million at a 14.6% margin. Interest and tax expense were in line with our expectations. As a result, adjusted earnings per share were $0.22 for the quarter, a $0.04 year over year decline. Our adjusted EPS performance in the quarter reflects the flow through of our adjusted EBITDA results. Our cash generation was particularly strong, with $172 million in free cash flow in the quarter. When adjusted for transformation related payments, our free cash flow conversion was 124% of adjusted net income for the quarter.

In terms of our GAAP results, we took a $785 million impairment to the goodwill associated with our Lab distribution business. This non-cash charge was necessitated in large part by the continued weakness in our share price as well as the margin headwinds this business is facing. Our adjusted net leverage ended the quarter at 3.1 times adjusted EBITDA, down 0.1 times from Q2, as our strong cash generation enabled us to reduce net debt. Finally, we recently effected a very attractive refinancing of our near term maturities and upsized our revolving credit facility to $1.4 billion and extended its maturity to 2030. Other than modest required term loan amortization, we now do not have any debt maturities before 2028, and all of our debt is either prepayable at par or at very modest call premium.

Our debt is approximately 75% fixed rate and our current weighted average cost of debt is just over 4%. Let's now take a closer look at each of our segments on Slide 6. In Laboratory Solutions, revenue was $1.1 billion. On an organic basis, we declined 5% versus prior year, below our expectations of negative 2% to negative 4%. The market backdrop in Lab is largely stable and Cory Walker and his team have done a great job defending and expanding business at our largest accounts. The share losses we mentioned on our Q1 call have been phasing in over the past several quarters. The good news is that since Cory joined us in late March, we haven't lost any key customer accounts and in fact we have won about $100 million in business at two top 15 global pharma customers which will start phasing in in 2026.

With that said, customer activity continues to be at lower levels than our original expectations for the year, driven by ongoing end market uncertainty related to basic research funding. Each of our Lab businesses face similar mid single digit headwinds on a year over year basis. Our distribution channel, which accounts for approximately two thirds of segment revenue, was primarily impacted by weakness in consumables and equipment and instrumentation, while our chemicals and reagents were essentially flat. Our services business, approximately 20% of segment revenue, saw greater than expected headwinds due to the aforementioned share loss and our proprietary business, the balance of Lab's revenue, was significantly impacted by our science education business. However, our attractive proprietary lab chemicals grew mid single digits in the quarter and similarly year to date. The primary drivers of our MIS2 expectations were headwinds in services and higher education and K through 12.

While market softness is a key factor in the quarter's performance, we also continue to navigate competitive pressures. These need to be better mitigated by improved commercial and operational execution, which, as Emmanuelle noted at the outset, is one of our key priorities as part of Avantor revival. Adjusted operating income for Laboratory Solutions was $124 million for the quarter with an 11.3% margin. The softer demand environment has pressured our ability to get price, which has meaningfully impacted margins year over year on a sequential basis. The primary driver of the margin decline was lower volumes and related absorption. Turning to bioscience production, revenue was $527 million in Q3, down 4% organically on a year-over-year basis and at the low end of expectations. Bioprocessing was down low single digits year over year versus our expectation of flat.

Within bioprocessing, processed chemicals was up low single digits but was lower than expectations. The planned maintenance downtime that impacted Q2 was remedied during the quarter, but as Emmanuelle Ligner mentioned, we continue to face other operational headwinds that are impacting our throughput, including raw material availability and equipment uptime. As an example, downtime at several of our plants prevented us from shipping several orders that were due for delivery in Q3. Absent these issues, we would have delivered our bioprocessing guide for the quarter. Single-use largely performed as expected, and controlled environment consumables was somewhat weaker than expected, down mid single digits due to commercial execution and competitive dynamics year to date and in Q3.

Our book to bill is 1.0 for bioprocessing, with particularly strong performance in processed chemicals where order rates were up high single digits in Q3 and year to date, while billings are only up low single digits, indicating a solid trend. Our bioprocessing order backlog reduced modestly from Q2 to Q3 but still is too high. The team is working hard to reduce this as much as possible by the end of the year. For the balance of the segment, silicones performed as expected and Applied Solutions had a stronger than expected quarter, up low single digits on significant strength in electronic materials that we expect to continue in Q4. Adjusted operating income for bioscience production was $128 million for the quarter, representing a 24.2% margin.

Margin was down year over year largely due to lower volumes and related under absorption as well as higher expense related to our operational challenges. On a sequential basis, volume was the primary headwind, only partially offset by price and lower operating expense. Slide 7 shows our full year 2025 guidance. This has been updated to reflect Q3 performance as well as our best assessment of the current environment. We now expect full year organic revenue growth of negative 3.5% to negative 2.5%. Based on current FX rates, we expect a modest tailwind from FX of approximately 1.5% along with the 2% headwind from the clinical services divestiture, and this leads to reported revenue growth of negative 4% to negative 3%.

On a segment basis, we expect Laboratory Solutions full year revenue growth to be minus mid single digits to minus low single digits organically, down modestly from previous expectations of minus low single digits. This implies Q4 organic performance of down mid single digits. This change is due to the impact of Q3 performance as well as expectations for continued softness in consumables and in our lab services business. We also expect additional headwinds due to the impact of the U.S. Federal government shutdown. We expect Bioscience production's full year revenue growth to be minus low single digits organically, down from previous expectations of approximately flat. This implies Q4 organic performance of down mid single digits to down high single digits. This change is largely due to reductions in our outlook for bioprocessing as well as customer pushouts.

In our silicones business, bioprocessing is expected to be down low single digits for the year organically, down from previous expectations of flat to plus low single digits. This implies Q4 organic performance of down high single digits to low double digits. Recognizing this is a meaningful change, I want to break down our expectations across bioprocessing in a bit more detail. We believe processed chemicals in Q4 will be flat sequentially versus Q3 and down double digits year over year despite solid year to date order book performance. We previously expected a mid single digit contraction in Q4 for processed chemicals. This change is largely due to higher than expected backlogs as a result of the ongoing challenges previously discussed. Q4 is also a particularly tough comparable as processed chemicals grew meaningfully in the double digits in Q4 last year.

We anticipate single use to be up low single digits both sequentially and year over year. In the fourth quarter, we previously anticipated a high single digit growth in Q4 for single use. Controlled environment consumables are expected to be flat sequentially and down low single digits year over year. We previously anticipated this business to grow modestly in Q4. This business is being impacted by the competitive pressures and the general demand weakness we are seeing in consumables. Moving to profitability, we expect our strong cost controls and favorable compensation accrual impact to continue into Q4. As such, we expect full year adjusted EBITDA margins in the mid 16s. We have reduced our adjusted EPS guidance range to between $0.88 and $0.92. We still expect free cash flow performance of $550 to $600 million before any one-time cash expenses associated with our cost reduction initiative.

The reduction in earnings from our previous guidance should be offset with strong working capital performance, and we now expect about half of the prebate payments anticipated for the fourth quarter to push into fiscal year 2026. I also want to address near-term capital allocation. Much of our debt complex is prepayable at par, and we will continue to reduce outstanding debt as we generate cash. At the same time, with our new share repurchase authorization, we intend to buy shares opportunistically without increasing leverage. We ended the quarter at 3.1 times adjusted net leverage and will continue to move towards our leverage target of sustainably below 3 times. With that, I will turn the call back to Emmanuelle.

Speaker 1

Thank you, Brent. Clearly, we are disappointed with those results, and I am not here to make excuses for our underperformance. My focus is on addressing the root cause of those persisting challenges and implementing appropriate course correction quickly. At the beginning of this call, I introduced the concept of Avantor revival. Our Board and management team are fully aligned with this effort, which will initially focus on five key pillars. First, our go-to-market strategy. We need to evolve our approach to ensure customers and suppliers clearly understand our value proposition and complete product and service offering. As I mentioned in my opening remarks, we have an incredible roster of brands. Embracing VWR heritage as a leading distributor and our company heritage as a leading provider of fine chemicals and specialty materials, for example, is essential to drive growth.

We are carefully evaluating our brand architecture, and we are going to give more prominence to key product and channel brands moving forward. We also intend to refocus attention to our distribution business and our value proposition to suppliers and customers. We have work underway to analyze our end and evolve our customer service and commercial organization. This work is really focused on empowering our sales representatives to better serve our customers, however and wherever they want to be served. This includes enhancing our e-commerce platform. Second, we need to invest strategically in our manufacturing and supply chain organization. Brent noted the operational issue we are having in bioprocessing chemicals. The demand is there, and we need to be better positioned to meet that demand at all times.

The current state of our manufacturing and supply chain organization varies, with some facilities that are world-class while others are in need of investment. Third, we will be carefully scrutinizing our portfolio to ensure our focus on our core business. We are going to hold each of our businesses accountable for delivering clear growth, profitability, and return on investment targets. We are approaching this process with an open mind, but if any of those businesses are not capable of delivering those targets in a reasonable time frame, we are going to scrutinize whether we are the right owner for them. Fourth, we need to drive net cost saving and simplify processes across the organization. We are committed to being a business that generates strong operating leverage even as we invest in accelerating growth, and our ongoing $400 million cost transformation program is an important step in that direction.

However, we recognize that those savings today are not adequately falling through to the bottom line. Part of this is because we are still operating with far too much complexity today. We need to simplify our operating processes to remove barriers that prevent us from executing efficiently. Gaps in sales and operating processes are contributing to inventory and forecasting changes, preventing us from serving our customers at the on-time rates they expect. To address this, we are focused on improving leadership accountability across the businesses. We are establishing new operating norms and cadence that will ensure the leaders across our organization are aligned and focused on top business priorities. Finally, to help do this, we must strengthen our talent and improve accountability in a few key areas. Very encouragingly, most of the associates I've met are deeply engaged and passionate about the work they do each day.

They want the company to succeed. They are prepared to work hard and be part of the solution. They are looking for leadership and guidance on how to do that. To support those efforts and accelerate improvement, we will be bringing on new talent in a few key areas. A new Chief Operating Officer, a critical role that will report to me and help reinforce consistent manufacturing, supply chain excellence, and lean operations across the organization. A new executive leadership position dedicated to the quality and regulatory function, reporting directly to me. A strategic move reflecting the critical role quality and regulatory play in safeguarding patient safety, ensuring regulatory compliance, and driving operational integrity across our global business. We are also hiring a new Chief Digital Officer to help transcend digital commerce and capabilities with our Laboratory Solutions segments.

Avantor Revival will initially be targeted toward addressing each of those focus areas. The important action will help us drive meaningful changes and improvement across our organization over the next several quarters. It is important to stress that those initial steps are based on my observation. Following about two months in the role, I'm committed to continue to meet with and learn from all our stakeholders, and as I do, rest reassured, those plans will continue to evolve with a renewed focus on getting our performance back on track and creating value for our shareholders. Clearly, turning business performance around will take some time, but we are confident the action we are taking will have an impact that will continue to grow over time. It's about driving simplification, process improvement, and accountability across the organization.

As I noted a moment ago, our Board and management team are 100% behind this effort. The recently announced addition of Greg Lusser to our Board and the elevation of Greg Sumi as our next Board Chairman are demonstrative of our Board's active oversight and engagement in this project. I know we must rebuild our credibility with the investment community, and accountability will be my North Star. You can expect regular updates on our progress against those objectives. With that, I will now turn the call over to the operator to begin the Q&A session.

Speaker 2

Thank you. We will now begin the question and answer session. As a reminder, if you would like to ask a question today, please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered, you can press star followed by two to remove yourself from the queue. To allow everyone a chance to ask a question during Q&A, we request that you please limit yourself to one question and one follow-up. Our first question today comes from Vijay Kumar with Evercore ISI. Vijay, please go ahead.

Hi guys, thank you for taking my question. Emmanuelle, welcome to your inaugural earnings call. Maybe high level as you've reviewed the business, right, and you've come with bioprocessing background, when you look at these declines, what is your confidence that these are fixable, solvable issues? I'm curious on how the quarter played out relative to your prior expectations. Was the quarter progress in line and did things worsen in September, October? I'm curious when did these issues crop up?

Speaker 1

Thanks, Vijay. Thanks for the kind welcoming word. First of all, I'm confident that it's fixable. Over the last two months, I really spent a lot of time in the field with the people, with our customers, dozens of customers and suppliers, and I think the first thing which I was really, really super pleased about is the conviction by the people that they have the passion about the brand, they have the passion about the product, they have the passion about the customers. What the team needs is really leadership, and I think on the quarter, it is very disappointing numbers. There's absolutely no doubt about this, and there's no excuses about the fact that we just dropped the ball on a couple areas. I think I share that around the S&OP.

It's really about better communication, it's about visibility, it's about execution, it's about accountability, and that's why Brent and myself are putting new norms, new cadence to make sure that the team is really working together. I think again, it is fixable. Those are just the five pillars that I just identified in my first eight weeks. Of course, we'll continue to learn, we'll continue to speak with a key shareholder, and this plan will evolve without any doubt.

Understood. Brent, maybe one for you on, you know, when you look at 2026, some of your peers have given outlooks right in the low single digit range. Can the business grow in 2026? You mentioned $100 million of lab contribution on paper. Looks like lab should grow in bioprocessing. It feels like some of these were unique customer situations that was largely tied to fiscal 2025 and it should grow. Can the business grow at a high level in 2026?

Hey, Vijay, Emmanuelle again. Look, I'm taking a fresh look at all the numbers because I want accuracy, and let me look at those numbers again and then we'll come back to you when we have a good understanding of 2026.

Understood. Thanks, guys.

Speaker 2

Thank you. Our next question comes from Michael Ryskin with Bank of America. Michael, please go ahead.

Great. Thanks for taking the question and appreciate all the candid color during the prepared remarks. You touched on share losses and competitive dynamics briefly in the prepared remarks, just talking about, you know, 1Q, 2Q dynamics. Can we talk about that a little bit deeper? I mean, I think it's pretty evident based on the results over the last couple of years, especially in the Laboratory Solutions segment, but also in bioscience, there's been pretty deep share losses to your competitors. Appreciate all your color on operational steps to fix that. Given the portfolio and given the markets you play in, how do you plan to stem that tide of share loss? Could you just give us some confidence and visibility to correct that? That seems to be sort of the biggest structural challenge you're facing.

Speaker 1

Yes, Michael, look, here's my understanding. I think we've lost some share without any doubt in the lab services business. Here's why I'm super encouraged: we have Corey that took the lead of this business six, seven months ago, and what he and the team is doing is really having, I will say, a fighting spirit back. What we've observed over the last six to seven months is that we have not lost any new renewal of any large key account contract. I think this is really important for us. On the contrary, we have the opportunity to grow our share of wallet in those accounts. Now, we have some barrier that we need to fix and some challenges. E-commerce is one of them.

This is why we're taking really quick action to recruit a digital officer to help us to really get this AI-enabled e-commerce platform to engage with our customers in a much more leaner way, to provide not only product but really workflow, which is so important for the customers. On bioprocessing, my view is the following. Really, our key product line in bioprocessing is our bioprocessing chemicals. When we look at our order intake year to date, our order intake is on a high single-digit level. We're there. I met customers that clearly said to us, we want to work with you, we want to do better, we can give you more business. We need to fix a couple of things, like our service level, in particular our on-time delivery. This is why it's so important to work on the S&OP, to look on the different plants that need upgrade.

That's what we're doing, and we are doing as fast as possible on this.

Okay, thanks. If I can have a follow up on the Avantor revival dynamic, I think that certainly resonates. You called out a couple times that you believe the business is overly complex, unnecessary centralization. We've heard that from a number of our channel checks as well. What are the steps to fixing that? I mean it's a huge organization, there's a lot of levels. It seems like there's going to be some deep changes there. From an operational perspective that seems to be the easiest fix. Could you talk us through the process to get there and how long that could take?

It's really early days for me, remember. Look, we are going to start to really work on the go to market. Really understand how we can decentralize more of the decision making closer to the customers. As you know, there's different regions with different dynamics, and we really need to empower the local team to really drive the decision. I think the other thing is, look, we have two really important businesses. One is our Lab Services, it's VWR, it's a distribution business. We have a very strong brand there. The other one is a bioscience business with brands like JT Baker.

Baker.

I think we need to make sure that those brands are more, I would say, front at the customer's level to make sure that we engage with the customers with the brand they want to work with. The observation that I have, Michael, is many customers told me, we love VWR. We want to continue to work with VWR. Some even say they didn't know that VWR was part of Avantor. That's why I'm talking about brand revival and really making sure that we are improving our engagement with the customers. Service level is very, very important. This is why we are looking at what we need to do in the plant, which is in need of investment to make sure that we raise our service level on the bioprocessing. Again, as we said earlier, the demand is there. It's for us to really make sure we operate better.

Speaker 2

Thank you. Our next question comes from Daniel Brennan with T.V. Cohen. Dan, please go ahead.

Great, thank you. Thanks for the questions. Maybe just to start on the lab side of the business, could you just describe, I know you discussed pricing in the opening remarks. Just give us a sense in 3Q and kind of 4Q how we think about that price, volume mix, if you will, and then any thoughts? I know you're not ready to talk about 2026, but is the assumption that price gets better, just any visibility on that? Maybe the second part would just be more strategically as you've looked at, you know, since you've been on board, you've looked at the lab market. Obviously you've talked about share loss, but you studied that now recently, any way to characterize in that context, like how much share you think VWR has lost over the last two or three years.

Just to give us the framework for if you're able to kind of regain nature or stabilize it, what the opportunity might be. Okay, so on the price volume.

Speaker 3

Dynamic, I mean, certainly in connection with the comments and share on that, you know, there is some down volume.

We are getting price, not exactly the.

Levels we'd like to see, but we're certainly seeing price coming through.

You know, we expect a similar dynamic.

In Q4 on that.

When you look at Q3 performance sequentially to Q4, the main dynamic in lab is a modest increase.

really related to number of days and seasonality in Europe there. What you're really hearing from us.

Is stability through to Q4, and that.

Dynamic will continue on the pricing side as well.

Speaker 1

On the market share, look, I think we've lost a couple of large accounts and we know them and that's something which is tracking. I think what is important to understand is when you lose a key account contract, the time that it takes to lose this account, as there are many, many different sites around the world, it takes time. In the same way, when you renew a contract and then you have an opportunity to grow your share of wallet, it also takes time to ramp up. This is where the commercial effectiveness is very important because you go at every single lab, convert the customers. Either from a loss standpoint or from a gain standpoint, the dynamic drags on several quarters and I think that's where we are.

Sometimes it's difficult to really evaluate the amount of market share that we've lost but ignore the contract that we've lost in the past.

Let me just on bioprocess manual, since you've got significant domain experience there, just kind of how would you characterize the Avantor portfolio today? I mean, you know, when you think about this market recovering, consumables I think have been growing double digits, equipment still under pressure from a market basis. How do you think of Avantor's position with their current portfolio? You know, as we look ahead into, you know, say the next 12 to 24 months, can they get back to market growth above or below? Just what are the key variables there? Thank you.

It's a great question. Look, I'm super excited about the portfolio we have, in particular around the chemicals, you know, acid-based. We have adjuvants, we have also, you know, viral inactivation product which are preparatory. We have a really good portfolio, and I think we have a good commercial team. Again, as I said, our order intake year to date is high single digit. Basically, it gave me the confidence that the demand is there. It's for us to make sure that we serve the customers better, and all the customers that I've met are super satisfied with that part of the portfolio. I'm confident that the portfolio is good. Also, the recent announcement we've made, like Bluewhale, is very encouraging about the fact that we will continue to collaborate with, you know, strategic innovation that will give us a differentiated portfolio in the future.

Quite exciting about the bioprocessing portfolio.

Great, thank you.

Speaker 2

Thank you. Our next question comes from Luke Sergott with Barclays. Luke, please go ahead.

Hey guys, thanks for the question here. Appreciate all the updates and everything you're thinking about. As you think about, you know, when you're looking at 2026 and the overall market rate, just relation to how you guys are going to grow, what's your outlook for the market? I guess given that the underlying demand that you've seen, especially across what your peers have said too.

Speaker 1

I think on the Pierce comment, we need to look at apples to apples. I think what is important for me is to make sure that I remind everybody that our portfolio on bioprocessing is really primarily around chemicals. It's a unique, differentiated portfolio, especially from the company that I'm coming from. I think it's very important that we think that it as of today, year to date, the direction is order intake, high single digits. What I need to do is I really need to take a fresh look at the 2026 numbers, the market, what do we think we can do, what's going to be the impact of the five pillars of revival plan, how fast we can get some impact on this. Some will have an impact quickly, some will take more time. I'll come back to you as soon as I have a better view.

Okay. I was just trying to figure out what your overall outlook for your particular market looks like, and then we can kind of make the assumption there on what you guys can do from a growth perspective. That's fine. I guess just from a follow-up here, you talked about the bioprocessing plant, the downtime there. Is this just like a planned regular maintenance downtime that you guys had? You talked a little bit about kind of building some redundancy. Is this what you're kind of referring to, so that you don't miss out on the quality and the reliability that that market completely relies on as number one?

Look, I visited several of our chemicals plants. We have really world-class plants, super modern, very well run, with a very, I would say, dedicated team. Some are just in need of upgrade. Some of the tools are a bit older and therefore they break down. They give us a bit of unreliability of on-time delivery. Some service level for some plants are excellent, some are not where we should be. This is what I'm talking about, strategic investment. There is some investment that are needed. We need to be very surgical about this. That's just on the plant themselves. The second thing is about the processes.

It's about how do we give visibility to the plant, what's going to be the demand, having a good understanding that the plan are putting in place, the planning to make sure that the product will be delivered as the customers requested and at the quality which is requested. It's really around the processes that today are not as simple as they should be, not as smooth as they should be, with a bit also of lack of accountability. Strategic investment on one side, and I think it's also about talent. One of my remarks was about the fact that the team is super passionate and want to do well and they want to fix the issue and they want to do better. They need direction, they need someone who is going to help them to focus and they need leadership.

This is also why we are far advanced into a recruit of a Chief Operating Officer, someone who has a global experience, a long-term experience of leading different type of plant, including chemistry plants, someone who is a black belt, someone that has a lean mindset, a productivity mindset. We are on the final stage of that recruitment that will really help as well the team to drive and improve plant performance.

Great, thanks.

Speaker 2

Thank you. Our next question comes from Tycho Peterson with Jefferies. Tycho, please go ahead.

Speaker 1

Hey, thanks.

I want to go back to the pricing question earlier because I think it's an important point. I think the message coming out of last quarter, and admittedly Emmanuelle, was before you started, was that Avantor was willing to trade price to hold share. That's not what we heard from Brent a minute ago. Are you committing to actually taking price in the lab market next year, and can you maybe quantify what you're expecting there? I think that was a very different message than we heard coming out of Q2.

Speaker 3

Yeah, Tycho, just to be clear there.

I mean, you know.

There are raw materials and there is inflation in the channel. We are getting priced against that. The margin pressure you're seeing is differential from the price to the COGS. What we've talked about also is giving price to drive share in that it's relative to the inflation against the products we're selling. It actually is the same message. I take your point on the nuance and look, it's in the lab.

We've continued to say that we're about.

Accreting operating income there, and we absolutely.

Are doing the actions to drive volume, to drive share.

In that connection, the new contracts which as Emmanuelle made the comments, you know, we're seeing the impact of the contract losses on share there. It will take time both on the defense and the new contract wins to see those come in there.

We absolutely are.

Looking to accrete operating income and then obviously over time, margin.

Okay. A capital deployment question. Given everything going on and it's still early days, Emmanuelle, why is this the right time to be buying back stock? It's a little bit confusing given that you're just kind of stepping in here. There are a lot of moving pieces, still a volatile backdrop. Maybe talk to the rationale of the buyback right now.

Speaker 1

Tycho, we believe our current share price really does not reflect the long-term value of the company, especially in the turnaround. The program is just basically to make sure that we demonstrate our commitment to the long-term value of the company and our confidence in the business, confidence about the fact that we can turn around the performance with the revival plan. In terms of capital allocation, M&A is always an opportunity. When you bring M&A, you need to make sure that you're going to bring the company into a company which is operating really, really well. Integration of an acquisition needs to be done with a team which has simple processes, which has really great talent that are going to be able to execute the acquisitions and the integration super well.

I think right now it's just a conviction that the business is going to do better, that we are going to turn it around. I think it was the right message and the right thing to do. Okay, and then the last one on Bioscience, you quoted a number of kind of shipping timing issues. Are you assuming those come back in the fourth quarter?

It was a little bit unclear what's actually baked into guidance from a kind of timing and recapture perspective.

Yes, I think the team has already started to do some good job in Q3, but not enough and will continue to do so. Yes, we're going to see some improve in Q4, but as I said as well, some of the plants need some equipment investment, and you know, those things sometimes take some time. We're working as fast as possible. You have my commitment to really focus on executing the demand as much as possible and as fast as possible.

Okay, thanks.

Speaker 3

Thank you.

Speaker 2

Our next question comes from Patrick Donnelly with Citi. Patrick, please go ahead.

Hey guys, thank you for taking the question. Brent, maybe a follow up on the pricing side. Certainly understand some of the cadence there. Can you just talk about, I guess the moving pieces on margins just high level as we get into next year in terms of what pricing rolls through next year and has to annualize and pressures margins versus some of the offsets? What levers do you guys have to pull? Obviously you've done some cost out initiatives over the last couple of years. How much more room is there on that front versus some of the pricing pressures? Maybe just a high level piece on margins would be helpful.

Speaker 3

Important question, Patrick, and per other comments here, probably won't make significant comment.

Into 2026, but you know when you.

Think about our margin dynamics broadly here. Gross margin down year over year, largely driven, it's falling on the type of question. We are getting modest price against it, but we're absorbing more inflation. That's been the primary driver, the lab pricing into the gross margin. Now, on a sequential basis, you saw pressure in gross margin that was more just mix of the relative businesses because.

We didn't have the same level of.

Growth in bioscience as well as primarily.

There on the business basis.

Continuing on that, look, Emmanuelle made the comments that we.

Need to continue to drive at cost.

Broadly, and get net cost out rather.

That offset inflation and offset FX. You know the.

When you think about key drivers here, obviously getting price and getting price against COGS are really important in the business. The differential segment mix is really, really important, and that hurt us in Q3. Finally, productivity, which to Project Revive, to Avantor Revival, Chief Operating Officer driving better productivity of plants, those will be key parts of it. When we come with the views on 2026, that will certainly be wrapped in our commentary.

Speaker 1

Can I just add something? I'm absolutely committed to really improve not only the top line, but also the bottom line.

All right.

We need to be an operation which is leveraged, and so this is what.

We're going to do.

Part of the revival, of course, we talked about simplification processes. It also means productivity gain. That is going to be very, very important, and I think that we will make sure that the entire leadership is really focused behind it.

Understood. Thanks, Emmanuelle. Maybe just a quick one on the academic government side, touched a little bit on the prepared remarks. You know, what are the expectations there? Obviously, we have the government shutdown. You guys have some exposure there. Maybe just talk about what you're seeing on that front and what the expectations are going forward for that market. A lot of noise there. Appreciate it.

Speaker 3

Yeah Patrick, you know you saw we were down in academic and government Q1. We had a nice up mid single digits in Q2, and then down double digits in Q3. I think, frankly, we saw some of the pent up concerns come through in Q3. Significant impact was K through 12, you know, before the school season started there.

As well as other softness that we saw through consumables in the form of higher ed, there we, you know, the.

U.S. Government shutdown is certainly going to exacerbate that.

That is really a key driver of.

The reduction of the Lab Solutions guidance for.

Q4 and for the year, down to.

The mid single digits, that differential as well as the headwinds to consumables.

We're certainly forecasting that that continue.

To be somewhat challenged.

Thanks, Doug.

Yep.

Speaker 2

Thank you. Our next question comes from Doug Schenkel with Wolff Research. Doug, please go ahead.

Thank you. Good morning everybody. A few questions. Emmanuelle, you know, it's only been eight weeks. There's a lot going on here. Is it reasonable to expect you to outline your full assessment and strategic framework by early Q1 or is that too aggressive? That's my first question. My second is really for Brent. Emmanuelle talked a lot about new hires and investments. Revenue growth is likely to remain challenging for the next several quarters. Margin comparisons are notably tough in the first half of next year. When I just look at that fact pattern, my words, not yours, given you don't want to talk too much about 2026, it just seems hard to see a scenario where we would get meaningful EBITDA expansion in 2026. Maybe, maybe no expansion at all. Given those three observations, is there anything you think I'm missing?

The last one is for both of you. Recognizing it's been a tough period for tools in terms of downward estimate revisions, I think the challenges, to be fair, have lingered a bit more for Avantor than for most of the group. Clearly visibility and forecasting has been a challenge for you guys the past few quarters. Do you think this is systems and requires more investment or is this more a function of just competitive dynamics, maybe evolving in a way that you didn't anticipate?

Speaker 1

Thank you. Hey, Doug, good morning. Thanks for your question. I think in terms of timing, when I came, I focused on, with the board, I spoke with the team and I say I needed 100 days to really learn the business, meet everybody that I could, all the stakeholders, our people, the customers and a few main investors. After 60 days, I already need to be in action because, first of all, there are some few things which are absolutely obvious, some challenges that we need to fix. That's what I shared with you. In Q1, I'll come back with you with further thought and with further strategic vision. Absolutely. I'll let Brent answer the question, then we'll come back to the other part.

Speaker 3

Yeah, look, Doug, you're absolutely there on the facts, and those are the harder comparators.

If you look at the trend of.

This year, I would just go back to one. We don't want to signal a lot about 2026 now because there's more work to do there. Again, it's about driving revival and not just how it impacts operations, but also purely on the cost to serve and getting to the top line and the conversion and beyond that. We'll update you when, you know, when.

Speaker 1

We talk about 26 and Doug on the market, my sense is the following. I think production is solid. I think in the R&D aspect from an academy standpoint and even from a pharmaceutical, there is some uncertainty and uncertainty is never good. I would say it's a mixed market dynamic.

Speaker 2

Thank you. Our next question comes from Dan Leonard with UBS. Please go ahead.

Speaker 3

Thank you. My first question is on the revival program. Emmanuelle, can you frame the cost impacts of that program? It seems like there's a lot of extra money to be spent on e-commerce, on investment needs in manufacturing, on new hires, and I'm just trying to think about how to balance that with margin objectives.

Speaker 1

Dan, thanks for your question. I think it's early days for me to really put a number to it. We're really pushing the program as soon as possible and making sure we make a plan. I don't want to rush on giving you a number which is not accurate. I really want to gain accuracy about numbers, any numbers that we're going to put in front of you. Let us put the plan together. Let's review the plan. Let's make sure that the plan will have an impact. I think it's back to a further question earlier. I really want to give you answers about how much, when, what we will see, by when. It will take several quarters without any doubt. It's early days for me. Let me come back to you when we have a precise plan and accurate number.

Speaker 3

Understood.

Speaker 1

A follow up.

Speaker 3

You referenced the couple large clients you lost. From a share loss perspective, how would you characterize the risk of further big share loss? I can't imagine you have large contracts that turn over every year. Are we in a period of stability now for some time, or are there further just big opportunities ahead in either direction?

Speaker 1

Great question, Dan. Look, what I've discussed with Corey and what we've discussed with the team is that most of our very large key account contracts have been renewed. We've kept them, and on the contrary, we have opportunity to gain share of wallet in those accounts. I think we are in a much more stable position right now. However, as I explained earlier, the loss that we've seen in the past, they're still having an impact on us. It takes time for those large contracts to switch over, the same way that it takes time for us to ramp up the share of wallet gains. I think we are in a much more stable area. I think Corey is a very good leader that is bringing a lot of rigor in the business. From that standpoint, I'm confident about the future of the lab business.

Got it. Thank you.

Speaker 2

Thank you. Those are all the questions we have time for today. I'll now turn the call back over to Emmanuelle for closing remarks.

Speaker 1

Thank you, Emily. Thank you everybody for joining us today. We just outline the beginning of our, I will say, next chapters called Avantor Revival. I want you guys to remember and to know that we are moving with urgency to improve our performance. I want to regain your trust. I want to be accurate. I want us to be accurate. I'm looking forward to give you further updates on our progress in the next quarter. Be well, everybody.

Thank you.

Speaker 2

Thank you everyone for joining us today. This concludes our call, and you may now disconnect your lines.

Thank you.