Avantor, Inc.: Form 10-Q for the period ended Jun 30, 2025

This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See “Cautionary factors regarding forward-looking statements.”

Basis of presentation

This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes. Pursuant to SEC rules for reports covering interim periods, we have prepared this discussion and analysis to enable you to assess material changes in our financial condition and results of operations since December 31, 2024, the date of our Annual Report. Therefore, we encourage you to read this discussion and analysis in conjunction with our Annual Report.

Overview

During the three months ended June 30, 2025, we recorded net sales of $1,683.4 million, net income of $64.7 million, Adjusted EBITDA of $279.8 million and Adjusted Operating Income of $252.2 million. Net sales declined 1.1%, which included a 0.2% organic net sales decrease compared to the same period in 2024. See “Reconciliations of non-GAAP measures” for reconciliations of net income to Adjusted EBITDA and Adjusted Operating Income, and net income margin to Adjusted EBITDA margin and Adjusted Operating Income margin. See “Results of operations” for a reconciliation and explanation of changes of net sales growth (decline) to organic net sales growth (decline).

Factors and current trends affecting our business and results of operations

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

Our results are impacted by a divestiture to further refine our business model

We completed the sale of our Clinical Services business, a component of the Company’s Laboratory Solutions reportable segment, on October 17, 2024. The Clinical Services business was not classified as a discontinued operation as it did not represent a strategic shift that will have a major effect on the Company’s operations and financial results.

We have been impacted by inflationary pressures

We have experienced inflationary pressures across all of our cost categories. While we have implemented pricing and productivity measures to combat these pressures, they may continue to adversely impact our results.

We continue to invest in a differentiated innovation model

We are engaging with our customers early in their product development cycles to advance their programs from research and discovery through development and commercialization. These projects include enhancing product purity and performance characteristics, improving product packaging and streamlining workflows. We are also developing new products in emerging areas of science such as cell and gene therapy.

We continue to advance our cost transformation initiative to reduce our expenses

We are advancing a global cost transformation initiative to further enhance productivity through increased organizational efficiency, footprint optimization, reduced cost-to-serve and procurement savings that are expected to generate approximately $300 million in run rate gross cost savings by the end of 2026.

We have expanded this initiative and now expect to generate approximately $400 million in run rate gross savings by the end of 2027.

Fluctuations in foreign currency rates impact our results

Our consolidated results of operations are comprised of many different functional currencies that translate into our U.S. dollar reporting currency. The movement of the U.S. dollar against those functional currencies, particularly the Euro, has caused significant variability in our results and may continue to do so in the future.

Our results may be impacted by changes in trade policy

The imposition of tariffs and other trade restrictions by the U.S., as well as reciprocal trade restrictions imposed by other countries, could adversely affect global economies, financial markets and the overall environment in which we do business.

Key indicators of performance and financial condition

To evaluate our performance, we monitor a number of key indicators. As appropriate, we supplement our results of operations determined in accordance with GAAP with certain non-GAAP financial measurements that we believe are useful to investors, creditors and others in assessing our performance. These measures should not be considered in isolation or as a substitute for reported GAAP results because they may include or exclude certain items as compared to similar GAAP-based measures, and such measures may not be comparable to similarly titled measures reported by other companies. Rather, these measures should be considered as an additional way of viewing aspects of our operations that provide a more complete understanding of our business.

The key indicators that we monitor are as follows:

• Net sales, gross margin, operating income, operating income margin, net income or loss and net income or loss margin. These measures are discussed in the section entitled “Results of operations”;
• Organic net sales growth (decline), which is a non-GAAP measure discussed in the section entitled “Results of operations.” Organic net sales growth (decline) eliminates from our reported net sales change the impacts of revenues from acquisitions and divestitures that occurred in the last year (as applicable) and changes in foreign currency exchange rates. We believe that this measurement is useful to investors as a way to measure and evaluate our underlying commercial operating performance consistently across our segments and the periods presented. This measurement is used by our management for the same reason. Reconciliations to the change in reported net sales, the most directly comparable GAAP financial measure, are included in the section entitled “Results of operations”;
• Adjusted EBITDA and Adjusted EBITDA margin, which are non-GAAP measures discussed in the section entitled “Results of operations.” Adjusted EBITDA is our net income or loss adjusted for the following items: (i) interest expense, (ii) income tax expense, (iii) amortization of acquired intangible assets, (iv) depreciation expense, (v) losses on extinguishment of debt, (vi) charges associated with the impairment of certain assets, (vii) gain on sale of business, and (viii) certain other adjustments. Adjusted EBITDA margin is Adjusted EBITDA divided by net sales as determined under GAAP. We believe that these measurements are useful to investors as ways to analyze the underlying trends in our business consistently across the periods presented. These measurements are used by our management for the same reason. A reconciliation of net income or loss and net income or loss margin, the most directly comparable GAAP financial measures, to Adjusted EBITDA and Adjusted EBITDA margin, respectively, are included in the section entitled “Reconciliations of non-GAAP measures”;
• Adjusted Operating Income and Adjusted Operating Income margin, which are non-GAAP measures discussed in the section entitled “Results of operations.” Adjusted Operating Income is our net income or loss adjusted for the following items: (i) interest expense, (ii) income tax expense, (iii) amortization of acquired intangible assets, (iv) losses on extinguishment of debt, (v) charges associated with the impairment of certain assets, (vi) gain on sale of business, and (vii) certain other adjustments. This measurement is our segment reporting profitability measure under GAAP. Adjusted Operating Income margin is Adjusted Operating Income divided by net sales as determined under GAAP. We believe that these measurements are useful to investors as ways to analyze the underlying trends in our business consistently across the periods presented. These measurements are used by our management for the same reason. A reconciliation of net income or loss and net income or loss margin, the most directly comparable GAAP financial measures, to

Adjusted Operating Income and Adjusted Operating Income margin, respectively, are included in the section entitled “Reconciliations of non-GAAP measures”;

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

Results of operations

We present results of operations in the same way that we manage our business, evaluate our performance and allocate our resources. We also provide discussion of net sales and Adjusted Operating Income by segment: Laboratory Solutions and Bioscience Production. Corporate costs are managed on a standalone basis, certain of which are allocated to our reportable segments.

Executive summary

(dollars in millions)

The second quarter net sales decline was primarily driven by reduced customer demand in the Laboratory Solutions segment and the divestiture of our Clinical Services business in our Advanced Lab Services business. The divestiture of our Clinical Services business, combined with inflationary pressures, higher customer incentives and unfavorable product and customer mix, contributed to a contraction in gross profit. Lower gross profit, partially offset by savings from our cost transformation initiative, resulted in lower Adjusted Operating Income and Adjusted EBITDA.

Net Sales

Three months ended

(in millions)

Net sales decreased $19.4 million or 1.1%, which included $31.4 million or 1.9% of favorable foreign currency impact and $48.1 million or 2.8% of impact related to our Clinical Services divestiture. Organic net sales decreased by $2.7 million or 0.2%.

In the Laboratory Solutions segment, net sales decreased by $33.6 million or 2.9%, which included $25.6 million or 2.3% of favorable foreign currency impact and $48.1 million or 4.2% of impact related to our Clinical Services divestiture. Organic net sales decreased by $11.1 million or 1.0%. The sales decrease was primarily driven by lower demand for consumables offerings in our Total Science Solutions business due to the uncertainty around funding and macroeconomic outlook, partially offset by growth in Laboratory Specialty Products.

In the Bioscience Production segment, net sales increased by $14.2 million or 2.6%, which included $5.8 million or 1.1% of favorable foreign currency impact. Organic net sales increased by $8.4 million or 1.5%. The sales increase was primarily driven by higher sales volume in Silicones as well as improved sales of process ingredients and excipients in our Bioprocessing business.

Six months ended

(in millions)

Net sales decreased $117.8 million or 3.5%, which included $12.4 million or 0.3% of favorable foreign currency impact and $92.2 million or 2.7% of impact related to our Clinical Services divestiture. Organic decline in net sales was $38.0 million or 1.1%.

In the Laboratory Solutions segment, net sales decreased $125.7 million or 5.4%, which included $11.1 million or 0.5% of favorable foreign currency impact and $92.2 million or 4.0% of impact related to our Clinical Services divestiture. Organic net sales decreased $44.6 million or 1.9%. The sales decline was primarily driven by decreased demand for consumables and equipment and instrumentation from our Total Science Solutions business due to the uncertainty around funding and macroeconomic outlook, partially offset by growth in Laboratory Specialty Products.

In the Bioscience Production segment, net sales increased $7.9 million or 0.7%, which included $1.3 million or 0.1% of favorable foreign currency impact. Organic net sales increased by $6.6 million or 0.6%. The sales increase was primarily driven by higher sales volume in Silicones as well as improved sales of single use systems and process ingredients and excipients in our Bioprocessing business.

Gross margin

Three and six months ended

Gross margin for the three months ended June 30, 2025 contracted by 120 basis points due to inflationary pressures and the divestiture of our Clinical Services business. For the six months ended June 30, 2025, margin contracted 70 basis points driven by inflationary pressures and unfavorable manufacturing variances.

Operating income

(in millions)

Three and six months ended

Operating income for the three months ended June 30, 2025 decreased primarily due to lower gross profit, as previously discussed, and higher SG&A expenses. The increase in SG&A expenses was driven by higher restructuring and severance charges, transformation expenses and inflationary pressures on compensation expense, partially offset by savings from our cost transformation initiative and the divestiture of our Clinical Services business.

Operating income for the six months ended June 30, 2025 decreased primarily due to lower gross profit, as previously discussed, partially offset by lower SG&A expenses, driven by savings from our cost transformation initiative and the divestiture of our Clinical Services business. The lower SG&A expenses were partially offset by inflationary pressures on compensation expense.

Net income

(in millions)

Three and six months ended

Net income for the three months ended June 30, 2025 decreased primarily due to lower operating income, as previously discussed, partially offset by lower interest expense resulting from debt repayments made over the last twelve months.

Net income for the six months ended June 30, 2025 decreased primarily due to lower operating income, as previously discussed and pension termination charges, partially offset by lower interest expense resulting from debt repayments made over the last twelve months.

Adjusted EBITDA and Adjusted EBITDA margin

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

(dollars in millions)

Three and six months ended

For the three months ended June 30, 2025, Adjusted EBITDA decreased by $25.8 million or 8.4%, which included a favorable foreign currency translation impact of $5.2 million or 1.7%. The remaining decline of $31.0 million or 10.1% was primarily driven by the divestiture of our Clinical Services business, lower gross profit and inflationary pressures on compensation expense, partially offset by savings from our cost transformation initiative.

For the six months ended June 30, 2025, Adjusted EBITDA decreased by $39.3 million or 6.7%, which included a favorable foreign currency translation impact of $2.0 million or 0.3%. The remaining decline was $41.3 million or 7.0% primarily driven by the divestiture of our Clinical Services business, lower gross profit and inflationary pressures on compensation expense, partially offset by savings from our cost transformation initiative.

Adjusted Operating Income and Adjusted Operating Income margin

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

(dollars in millions)

Three months ended

Adjusted Operating Income decreased $25.0 million or 9.0%, which included a favorable foreign currency translation impact of $4.4 million or 1.6%. The remaining decline of $29.4 million or 10.6% is further discussed below.

In the Laboratory Solutions segment, Adjusted Operating Income declined $17.6 million or 11.7%, or 13.6% when adjusted for favorable foreign currency translation impact. The decrease was primarily due to the divestiture of our Clinical Services business, inflationary pressures and unfavorable product mix, partially offset by savings from our cost transformation initiative.

In the Bioscience Production segment, Adjusted Operating Income declined $4.3 million or 3.0%, or 4.0% when adjusted for favorable foreign currency translation impact. The decrease was primarily driven by unfavorable manufacturing variances and inflationary pressures on compensation expense, partially offset by savings from our cost transformation initiative.

In Corporate, Adjusted Operating Income decreased $3.1 million due to various immaterial factors.

Six months ended

Adjusted Operating Income decreased $40.6 million or 7.6%, which included a favorable foreign currency translation impact of $1.4 million or 0.2%. The remaining decline was $42.0 million or 7.8% which is further discussed below.

In the Laboratory Solutions segment, Adjusted Operating Income declined $26.8 million or 9.0%, or 9.4% when adjusted for favorable foreign currency translation impact. The decrease was primarily due to the divestiture of our Clinical Services business, lower sales volumes, inflationary pressures and unfavorable product mix, partially offset by savings from our cost transformation initiative.

In the Bioscience Production segment, Adjusted Operating Income declined $7.8 million or 2.9%, or 3.0% when adjusted for favorable foreign currency translation impact. The decrease was primarily driven by unfavorable manufacturing variances and inflationary pressures on compensation expense, partially offset by commercial excellence and savings from our cost transformation initiative.

In Corporate, Adjusted Operating Income decreased $6.0 million due to immaterial offsetting factors.

Reconciliations of non-GAAP measures

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

(dollars in millions, % based on net sales)

1. Reflects the incremental expenses incurred in the period related to restructuring initiatives to increase profitability and productivity. Costs included in this caption are specific to employee severance, site-related exit costs, and contract termination costs. These expenses represent costs incurred to achieve the Company’s publicly-announced cost transformation initiative.

2. Represents incremental expenses directly associated with the Company’s publicly-announced cost transformation initiative, primarily related to the cost of external advisors.

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

4. Represents net foreign currency (gain) loss from financing activities, other stock-based compensation expense (benefit) and a purchase price adjustment related to the sale of our Clinical Services business in 2024.

5. As described in note 12 to our unaudited condensed consolidated financial statements.

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

(dollars in millions, % based on net sales)

1. Reflects the incremental expenses incurred in the period related to restructuring initiatives to increase profitability and productivity. Costs included in this caption are specific to employee severance, site-related exit costs, and contract termination costs. These expenses represent costs incurred to achieve the Company’s publicly-announced cost transformation initiative.

2. Represents incremental expenses directly associated with the Company’s publicly-announced cost transformation initiative, primarily related to the cost of external advisors.

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

4. Represents other stock-based compensation expense (benefit) and a purchase price adjustment related to the sale of our Clinical Services business in 2024.

Liquidity and capital resources

We fund short-term cash requirements primarily from operating cash flows and credit facilities. Most of our long-term financing is from indebtedness. For the three and six months ended June 30, 2025, we generated $154.4 million and $263.7 million of cash from operating activities, respectively, ended the quarter with $449.4 million of cash and cash equivalents and our availability under our credit facilities was $1,129.4 million. In the next twelve months, we have coming due debt repayment of $763.9 million related to 2.625% secured notes, debt repayment of $366.7 million related to Euro term loans B-5, required other term loans payments of $17.1 million and repayment of receivables facility borrowings of $100.0 million.

Liquidity

The following table presents our primary sources of liquidity:

(in millions)

Some of our credit line availability depends upon maintaining a sufficient borrowing base of eligible accounts receivable. We believe that we have sufficient capital resources to meet our liquidity needs.

Our debt agreements include representations and covenants that we consider usual and customary, and our receivables facility and senior secured credit facilities include a financial covenant that becomes applicable for periods in which we have drawn more than 35% of our revolving credit facility under the senior secured credit facilities. In this circumstance, we are not permitted to have combined borrowings on our senior secured credit facilities and secured notes in excess of a pro forma net leverage ratio, as defined in our credit agreements. As we had not drawn more than 35% of our revolving credit facility in this period, this covenant was not applicable at June 30, 2025.

At June 30, 2025, $291.4 million or 64.8% of our $449.4 million in cash and cash equivalents was held by our non-U.S. subsidiaries and may be subject to certain taxes upon repatriation, primarily where foreign withholding taxes apply.

Historical cash flows

The following table presents a summary of cash provided by (used in) various activities:

(in millions)

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

2. Includes changes to our accounts receivable, inventory, contract assets and accounts payable.

Cash flows from operating activities provided $159.0 million less cash in 2025, primarily due to higher net working capital requirements, higher incentive compensation payments related to fiscal year 2024 and lower income before income taxes.

Investing activities used $21.6 million less cash in 2025. The change was primarily attributable to a decrease in capital expenditures compared to the prior year.

Financing activities used $286.8 million less cash in 2025, primarily due to the absence of term loan prepayments in the current year, partially offset by a decrease in proceeds received from stock option exercises compared to the prior year.

Free cash flow

(in millions)

Free cash flow was $134.7 million lower in 2025, primarily due to lower cash flow from operating activities as previously discussed, partially offset by a decrease in capital expenditures.

Indebtedness

For information about our indebtedness, refer to the section entitled “Liquidity” and note 9 to our unaudited condensed consolidated financial statements included in Part I, Item 1 — “Financial statements.”

Quantitative and qualitative disclosures about market risk appear in Item 7A “Quantitative and qualitative disclosures about market risk” in our Annual Report. There were no material changes during the quarter ended June 30, 2025 to this information as reported in our Annual Report.

Management’s evaluation of disclosure controls and procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2025, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the fiscal quarter ended June 30, 2025, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report for the year ended December 31, 2024, as supplemented by Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025. There have been no material changes to the risk factors disclosed in Part I, Item 1A “Risk Factors” in our Annual Report for the year ended December 31, 2024, as supplemented by Part II, Item 1A “Risk Factors” in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025.