Avantor, Inc. 2026 Q3 Earnings Call

Thank you, operator. Good morning, everyone, and thank you for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer, Todd Garner, Executive Vice President and Chief Financial Officer, and Steve Eck, Senior Vice President and Chief Accounting Officer. The press release and a presentation accompanying this call are available on our investor relations website at ir.avantorsciences.com. Following our prepared remarks, we will open the call for questions. A replay of the call will be made available on our website later today. During this call, we will make 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 may differ materially from any forward-looking statements that we make today.

These forward-looking statements speak only as of the date 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 disclosures package on our investor relations website. I will now turn the call over to Emmanuel.

Thank you, Chris, and good morning, everyone. A special welcome to Todd on his first earning call with Avantor. Todd will introduce himself shortly, and you will hear much more from him at Investor Day on December 8. Today, I will begin with a high-level update on our third quarter performance. I will then take a closer look at Avantor returns to revenue growth, including the progress we are making with Revival, our comprehensive program to sharpen strategic focus and enhance execution. On slide 4, we have the key messages from the quarter. Our third quarter results make a return to organic revenue growth for Avantor. This is an important milestone on our Revival journey. We have more work to do, but the quarter demonstrates why we believe the action we are taking through Revival are putting us on a path to sustainable growth.

Third quarter results exceeded our expectation across revenue and adjusted EPS. Those results were driven by strong performance in our VWR Distribution & Services segments, which accelerated meaningfully after returning to growth last quarter. Organic revenue growth in our Bioscience & Medtech Products segments turned positive this quarter, as anticipated, with performance stronger than we had expected. We once again generated robust free cash flow, which allowed us to invest in the business and strengthen our balance sheet. We remain committed to reducing our adjusted net leverage ratio to below 3 times, and we expect to achieve this objective by year-end. Finally, we are raising our 2026 organic revenue, adjusted EPS, and free cash flow guidance, reflecting our third quarter outperformance, as well as the momentum we see across the business and in our end markets. Please turn to slide 5, where I will review our Q3 performance highlights.

In Q3, we generated $1,698,000,000 of revenue, representing year-over-year organic growth of 5.2% and reported growth of 4.6%, exceeding our expectations. VWR organic growth accelerated to 5.8% in the quarter. This reflects continued execution against our Revival priorities as well as stronger end markets. I will discuss VWR positive momentum in a few moments. Turning to BMP. We were pleased to see the segments returning to revenue growth in the quarter, as we had anticipated on our last earnings call. On a year-over-year basis, BMP revenue grew 3.6% organically, ahead of our expectation, despite 150 basis point headwind from the unusual customers' ordering and shipment patterns that we have discussed on prior calls. We saw strong performance from Process Chemicals and NuSil in the quarter. Importantly, our Revival initiative to enhance commercial and operation execution continued to gain traction across BMP.

Revival is helping the segments deliver more consistent and predictable performance, and as a result, we believe BMP is well-positioned to grow in 2027 and beyond. Moving down the P&L, adjusted EBITDA margin increased modestly on a sequential basis as operational outperformance and cost discipline helped us absorb headwinds from mix inflation and targeted growth investments. Adjusted EPS of $0.22 was above our expectation. One of Avantor's key strengths is robust cash generation. In the third quarter, excluding cash restructuring costs, we generated $169 million of free cash flow, representing strong conversion of adjusted net income. We used this strong cash generation to further strengthen our balance sheet, and we ended the quarter with an adjusted net leverage ratio of 3.1 times. On slide 6, we take a closer look at our return to growth.

In Q3, Avantor delivered positive organic revenue growth driven by two forces, improving execution and stronger end markets. When we launched our Revival program one year ago, we identified five key pillars and began a series of initiatives to sharpen our strategy focused on improved execution. Those actions are increasingly embedded in our operating models, and in Q3, showed up in our results. In VWR, the actions we are taking to enhance customer relationships, boost commercial execution, and expand our digital capabilities continue to gain traction. We estimate that approximately half of VWR growth in Q3 was driven by our commercial initiatives. We see progress in the same area we highlighted last quarter. We are expanding our relationships with large customers, we are performing well in small and mid-size accounts, and our e-commerce platform continues to show positive trends.

VWR growth acceleration in Q3 reinforce our confidence in our competitive position in the global distribution market. In BMP, we are making steady progress on our Revival initiative to strengthen operations and enhance our supply chain. We have driven sequential increase in manufacturing throughput during 2026. Let me share a few examples of the progress we are making with Revival across the organization. On Monday, we announced that Mikey Santiago will join us from Danaher to serve as our Chief Information Officer. With Mikey joining, and Todd now on board, our executive leadership team is complete. I am excited to work with this exceptional group of leaders to execute Revival and create shareholder value. In BMP, our manufacturing teams have increased output across critical product lines.

In early September, a key North American manufacturing line produced more than 25,000 kilograms of product in a single week, exceeding its original design capacity target and achieving a nearly 99% overall equipment effectiveness ratio for that week. This is a good example of the operational improvement we are making across BMP. We have advanced our digital manufacturing strategy, including the development of digital workflow and electronic batch records at two key manufacturing sites. Those capabilities improve quality, reduce deviation, and enhance delivery performance, supporting a more efficient manufacturing network over time. Across our supply chain network, S&OP and other process improvement initiatives are taking hold, contributing to improved customer service and on-time delivery across certain product categories. While I am pleased with our progress, we will continue to invest in our operation. In VWR, we are deploying AI to improve productivity and enhance the customer experience.

One example is VWR Internal Sales Assistant or ISA, which use AI to combine customer, sales, and product data to help sales team prepare for meetings, generate leads, prioritize opportunities, and act on recommendation. ISA also simplified administrative tasks. Since its launch last year, ISA has been widely adopted, and we have received positive feedback from our sales team, our customers, and our supplier. We plan to expand ISA and add new functionality. VWR is also enhancing our internal cross-reference platform with AI to allow our teams to proactively identify product substitutes that offer sustainability advantage or cost-saving opportunity to customers. The key takeaway is that Revival impact is broad, from leadership and operation to digital capabilities and customer-facing tools. Revival is helping us improve execution and better serve our customers, and ultimately translate to the growth acceleration we see in Q3. That is the execution side of the equation.

I will now turn to end markets, where we are also seeing positive signs. Two points of context are important to note. First, our segment respond differently to end market condition. VWR is more sensitive to market fluctuation given its significant exposure to research spending, while BMP is more heavily weighted towards production environment. Second, we have a unique perspective on the end markets. Through VWR, we serve the daily needs of scientists across more than 300,000 customer sites around the world. We see lab activity as it happens, in daily order rates and in consumption of everyday consumables, which give us a clear view into the health of the scientific ecosystem. What we see is encouraging. The recovery that began in Q2 continued to build in Q3, and importantly, has broadened. Last quarter, we highlighted a pickup in activity among large pharma and biotech customers.

That momentum has continued in Q3. Our large pharma and biotech customers continue to invest in their R&D pipelines, many of which have been supplemented by business development. We also saw green shoots of recovery demand in higher education and early-stage biotech customers in North America this quarter. For some of those customers, a more positive funding environment translated into greater research activity. We also see strength in certain industrial sub-sectors, such as mining. From a geographical perspective, our Americas demand is performing very well. We are also seeing good activity in Asia, which remain a smaller region for us. We continue to see the market recovery in Europe lagging that of the Americas and Asia. On average, Europe faces more challenging macro conditions, including high energy costs and government funding pressure. Any improvement in this important geography will represent a tailwind to our business.

Overall, we are encouraged by the improving tone across our end markets and believe that the demand environment is the most constructive we have seen in several years. Stronger end market are providing a tailwind, and improving execution is converting this tailwind into growth. We believe this provide us a foundation of sustained revenue growth, and we remain focused on execution to build on our positive momentum. Before we walk through the financials, I want to welcome Todd Garner, who joined us as the Chief Financial Officer on September 21st. Todd brings 30 years of finance, operational, and public company leadership experience. He most recently served as CFO of CONMED. In his first weeks, Todd has been meeting our teams around the world and getting to know our operations. As Todd continue to deepen his engagement in our business, Steve Eck will walk through today's results.