Q4 2024 Avantor Inc Earnings Call
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 thought of on tour Sciences Dot 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 these non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website.
Michael: With that I will now turn the call over to Michael.
Michael: Thank you Allie and good morning, everyone. I appreciate you joining us today.
Michael: We are pleased with momentum in our business in 2024, including our Q4 performance.
Michael: There were several notable highlights including exiting the year with high single digit organic growth in bio processing.
Michael: Well have a chance to discuss these highlights as we progress through the presentation.
Michael: Let's turn to slide four with a quick overview of our financial highlights for the quarter and full year.
Michael: We returned to growth in the fourth quarter with low single digit organic growth for the enterprise a significant milestone that reflects our sustained commercial intensity and continued market recovery.
Michael: <unk>, our bio processing business delivered a fourth consecutive quarter of outperformance with high single digit organic growth and strong order intake.
Michael: We expanded adjusted EBITDA margin to 18, 2% the.
Michael: The highest level in more than a year.
Michael: Driven by improving mix and the ongoing benefits of our multi year cost transformation initiative.
Michael: We grew adjusted earnings per share to 27 in the fourth quarter up 4% sequentially and 8% year over year.
Michael: Importantly, we continued to drive best in class free cash flow conversion.
Michael: Finishing the year with another quarter of exceptional free cash flow.
Michael: We generated $222 million in the fourth quarter and $768 million for the year.
Michael: Representing more than 110% free cash flow conversion for the full year.
Michael: Let's now take a closer look at each of our segments.
Michael: Our laboratory solutions segment grew sequentially on an organic basis and continues to show resilience.
Michael: Our commercial intensity is driving share gains with meaningful new contract wins and expanded customer relationships.
Michael: Across our customer base, we are seeing increased engagement signaling a return to normalcy.
Michael: The academic end market remains strong.
Michael: And many of our large pharma customers have worked through their pipeline re prioritization.
Michael: These customers are now ramping up investment in preclinical activities supporting a return to growth in 2025.
Michael: As anticipated our bioscience production segment returned to growth in Q4.
Michael: With organic growth of over 4%.
Michael: Driven by continued momentum in bio processing.
Michael: Which grew high single digits.
Michael: This strong finish coupled with a robust order book supports continued improvement and growth in 2025.
Michael: As a reminder, our bio processing business has leading positions in process chemicals, excipient and single use fluid handling.
Michael: The vast majority of this business is consumable in nature.
And our customer driven innovation model continues to develop products that are inherently sticky.
Michael: In addition to our strong operating results. This quarter, we made important strides in advancing our long term growth strategy.
We significantly increased our portfolio with the introduction of new products and services.
Michael: For example, we launched a new services offering to address capacity and space limitation challenges faced by many large pharma and biotech customers.
Michael: This offering leverages cutting edge digital tools and generative AI to automate operational tasks.
Michael: Providing virtual assistance to researchers at their lab bench.
Michael: Already this solution is supporting a top 10 global pharma client and reinforces our commitment to returning valuable time to scientists.
Michael: We also introduced the new Master Flex mini flex panel Mount pumps further strengthening our fluid handling offering.
Michael: And then our total science solutions platform, we signed several new third party supplier agreements enhancing our portfolio of differentiated technologies.
Michael: Including Lg's <unk> standards, a leader in reference materials used across a wide range of industries, including pharmaceuticals, biotechnology, academia and environmental Sciences.
Michael: With this agreement there are 15000 certified reference materials are now available to our customers in North America.
S: Of course, I'm S. I a leader in the protein sequencing space. We are proud to bring their single molecule next generation protein sequencing portfolio to market in the U S and Canada.
S: And Nova Lytic and innovator in molecular recognition technology.
S: This is an exclusive global distribution agreements covering their proteomics platform, which is setting a new standard for efficiency and reliability and drug discovery clones selection and more.
S: And we continue to hit new milestones in manufacturing capacity and operational excellence.
S: In the quarter.
S: We completed the installation of a state of the art solutions manufacturing facility in Gliwice Poland.
This expansion positions of onshore to meet the growing demand for outsource buffer media and clean in place products in the Biopharma end market.
S: Resulting in lower costs and increased flexibility for our customers.
S: Additionally, we leveraged advanced automation at a regional distribution center in Bridgeport, New Jersey to streamline workflows reduced processing times and significantly increase order accuracy.
S: I can tell you that the team is extremely focused on growing the business.
S: A few weeks ago I joined our Americas sales conference, which brought together our sales associates in the region for a few days of training.
S: Joining us for the meeting where our most strategic suppliers, who spent time showcasing their new products and offerings.
S: It was energizing to touch and feel some of the new innovative products that will help us continue to deliver value to our customers.
Brent: Before turning it over to Brent for a deeper dive into the financials.
Brent: I want to highlight a few key points as we reflect on 2024 and look ahead to 2025.
Brent: First our capital allocation has been primarily focused on bringing our adjusted net leverage comfortably below three times.
Brent: Between our strong free cash flow and the proceeds from our clinical services divestiture.
Brent: We were able to pay down $1 $3 billion of debt in 2024.
Brent: Taking our net leverage down to three two times a significant reduction from nearly four times at the start of the year.
Brent: Deleveraging remains our top priority and we believe that maintaining a capital structure of sustainably below three times is optimal for our business.
Brent: Once we achieve that we will be focused on a balanced value driven capital allocation approach.
Brent: We are entering 2025 with strong momentum and a clear focus on innovation driven growth margin expansion and deleveraging.
Brent: Our end markets are improving our new operating model is driving greater efficiency in our cost transformation program is tracking ahead of schedule.
Brent: Through a combination of outstanding commercial execution and a continued focus on self help actions, we are well positioned to make 2025 a year of growth.
Brent: I'll now turn it over to Brent.
Brent: Thank you Michael and good morning, everyone I'm, starting with the numbers on slide five.
Brent: Fourth quarter reported revenue was $1.69 billion, taking into account a $40 million impact from the divestiture of our clinical services business, which closed in mid October together with the impact of FX, we delivered organic growth of 1%.
Brent: Sales trends in our laboratory solutions segment were stable compared to Q3.
Brent: While seasonal impacts were muted the business continues to show resilience as end markets continue to recover within our bioscience production segment bio processing outperformed expectations for the fourth straight quarter with high single digit growth.
Brent: Adjusted gross profit for the quarter was $564 million, representing a 33, 4% adjusted gross margin, which is flat versus Q3, and a modest improvement versus prior year.
Brent: Our gross profit was impacted by the clinical services divestiture inflation and negative fixed cost leverage. However, we were able to partially offset these effects with improved mix and productivity efforts and we continue to work diligently on reducing our cost base.
Brent: Adjusted EBITDA was $308 million in Q4, representing an 18, 2% margin, which was at the high end of our expectations and a solid improvement sequentially and year over year. This is particularly encouraging given the approximately 40 basis point margin headwind from our clinical <unk>.
Brent: Services divestiture in October.
Brent: Our cost transformation initiative, which continues to drive meaningful savings was an important contributor to our margin performance. Adjusted operating income was $279 million or 16, 6% margin in line with adjusted EBITDA performance and a modest improvement both sequentially.
<unk> and versus prior year.
Brent: Interest and tax expenses were in line with our expectations. As a result adjusted earnings per share were 27 cents for the quarter, a one cent sequential and two cent year over year improvement our adjusted EPS performance in the quarter reflects the flow through of our adjusted EBITDA results as well as <unk>.
Brent: Continued reductions in net interest expense interest expense favorability was driven by incremental debt pay down from the clinical services divestiture and outperformance in free cash flow.
Brent: Moving to cash flow, we generated $222 million in free cash flow in the quarter, which represents a conversion rate of over 115%.
Brent: Our free cash flow performance was enhanced by continued disciplined working capital management enabled by the <unk> business system.
Brent: In Q4, we paid down over $750 million of debt and our adjusted net leverage ended the quarter at three two times adjusted EBITDA as.
Brent: As Michael noted earlier deleveraging remains our top capital allocation priority and we continue to target adjusted net leverage sustainably below three times.
Brent: Turning to the full year results on slide six reported revenue was $6 seven $8 billion, representing a 2% organic revenue declined versus prior year in line with the low end of our original guidance adjusted gross profit for the year was $2.29 billion, representing a 30.
Brent: 3.8% adjusted gross margin.
Brent: Adjusted EBITDA was $1 $2 billion in 2024, representing a 17, 7% margin at the high end of our guidance range.
Brent: Adjusted operating income was $1.09 billion at a 16, 1% margin.
Brent: Putting all of this together adjusted earnings per share came in at 99 cents for the year. Despite the challenging macro environment, we were able to achieve the midpoint of our original EPS guidance.
Brent: We generated $768 million in free cash flow in 2024 inclusive of approximately $100 million of transformation related spend.
Brent: Excluding this spend we generated $865 million of adjusted free cash flow significantly exceeding our original full year guidance range of $600 million to $650 million for the full year, our free cash flow conversion was over 110%.
Brent: As I mentioned earlier, we paid down $1 $3 billion in debt this year and exited 2024 with adjusted net leverage of three two times adjusted EBITDA. So we are well on our way to our sub three times target.
Laboratory solutions revenue was $1.13 billion for the quarter, a decline of 1% versus prior year on an organic basis sequentially sales grew modestly.
Brent: Encouragingly, we had strong performance in proprietary chemicals, and specialty procurement sales, particularly to our Biopharma and health care customers. However, the customary seasonal increase in activity levels was muted given the macro backdrop and the timing of holidays.
Brent: For the full year 2020 for laboratory solutions revenue was $4 six $1 billion, a decline of 2% versus 2023 on an organic basis. Adjusted operating income for laboratory solutions was $147 million for the quarter with a 13, 1% margin.
Brent: Adjusted operating income margin increased 20 basis points from Q3, despite headwinds from our clinical services divestiture.
Brent: This margin expansion was driven by fixed cost leverage from sequential volume growth as well as continued savings from our cost transformation initiatives.
Brent: For the full year 2020 for laboratory solutions adjusted operating income was $598 million with a 13% margin.
Brent: Bioscience production revenue was $561 million in Q4, which represents organic growth of 4% versus prior year and a meaningful sequential acceleration.
Brent: Bioprocess, saying representing about two thirds of the segment outperformed expectations once again with high single digit growth.
Brent: We also saw another strong quarter of order intake with orders increasing meaningfully on a sequential basis, our silicones offering grew double digits, while electronic materials was stable sequentially with an expected year over year decline adjusted.
Brent: Operating income for Bioscience production was $149 million for the quarter, representing a 26, 6% margin on.
Brent: On a sequential basis adjusted operating income was up 120 basis points due to fixed cost leverage from volume growth as well as favorable mix.
Brent: With that I will move to 2025 guidance.
Brent: Building on Michael's opening remarks, we are entering 2025, well positioned for growth the implementation of our new operating model the progress of our cost transformation initiatives encouraging trends, we are seeing across key end markets, particularly bioprocess, saying all give us confidence in forecasting organic.
Brent: Revenue growth continued margin expansion and double digit EPS growth in 2025.
Brent: For the full year, we expect organic revenue growth of 1% to 3% our clinical services divestiture represents a 2% headwind and based on current spot rates. We expect another 2% headwind from FX. This leads to a reported revenue decline of negative 3% to negative.
Brent: 1%.
Brent: This view reflects continued order momentum in Bioprocess, Inc. Stability in our lab business and customary contributions from price.
Brent: On a segment basis, we expect low single digit organic growth in lab solutions and mid single digit organic growth in Bioscience production. Importantly, we also expect bioprocess thing to grow mid to high single digits in 2025.
Brent: Moving to profitability, we expect adjusted EBITDA margins of approximately 18% to approximately 19% a solid improvement from our 2020 for second half exit rate of 17, 9%.
Brent: This performance is driven by price favorable mix and continued execution of our multi year cost transformation initiative offset by inflation.
Brent: And as we've discussed this is after the impact of the clinical services divestiture, which is approximately 40 basis points dilutive to our margins.
Brent: Our structural cost improvement initiatives are clearly taking hold we exited 2024 with over $130 million of in year savings and an exit run rate of approximately $165 million.
Brent: Thanks to the team's strong focus in execution or in year savings were meaningfully higher than our original estimate of $75 million.
Brent: In 2025, we expect to generate an incremental $75 million of in year gross savings and.
Brent: And intend to exit 2025 with run rate savings in excess of $250 million well on our way to achieving our goal of a $300 million exit rate in 2026.
Brent: I would like to address our target to achieve 20% adjusted EBITDA margins by the end of 2025 or approximately 19, 6% when adjusting for the impact of the clinical services divestiture.
Brent: As we have said, we can make substantial progress towards this target with the self help impact of our cost transformation initiative.
Brent: Given our meaningful fixed cost base. We also need continued end market recovery to achieve the target.
Brent: Encouragingly, we have line of sight to exiting at this rate if we are able to achieve the high end of our revenue range.
Brent: Continuing down the P&L, our continued strong conversion to cash together with the proceeds of the clinical services divestiture have accelerated our deleveraging and help materially reduce interest expense, we expect interest expense to improve in 2025 by roughly $30 million to $40 million year.
Brent: Over year, resulting in approximately $180 million to $190 million of interest expense.
Brent: We anticipate our tax rate will be similar to 2024 at 22, 5%.
Our adjusted EPS range is a dollar in <unk> to $1.10 10.
Brent: <unk> year over year growth at the midpoint after accounting for the <unk> impact of our clinical services divestiture. This is in line with our long term algorithm and reflects the strong earnings power of our business.
Brent: We expect free cash flow performance of $650 million to $700 million prior to any onetime cash expenses associated with our cost savings initiative, while lower than 2024, which benefited from exceptional improvements in working capital performance. This represents approximately <unk> <unk>.
Brent: 95% conversion of adjusted net income solidly in line with our entitlement.
Brent: A few final comments on phasing.
Brent: In the first quarter, we expect organic revenue for the enterprise to be flat.
Brent: On a segment basis, we expect lab solutions also to be flat, while bioscience production will grow modestly with bioprocess thing expected to grow mid to high single digits.
Brent: <unk> revenue is expected to decline low single digits and adjusted EBITA margin is expected to be in the low to mid seventeens.
Brent: Q1 is historically, the softest quarter of the year for us and our industry.
Brent: In the first quarter of this year, we are also facing fewer selling days electronic materials headwinds year over year and uncertainty due to the macro environment.
Our full year guidance contemplates a continued sequential increase in reported and organic revenue dollars each quarter. As is typical this results in approximately 49% of our revenue in the first half of the year and 51% of our revenue in the second half of the year.
Brent: We anticipate that our margins will increase each quarter as well, particularly in the second half as the incremental benefits of pricing volume growth and transformation savings are realized.
Brent: Lastly, we are modeling interest expense of approximately $50 million in the first quarter. This will continue to trend down each quarter as a result of incremental debt paydown.
Brent: We believe this guidance is a well balanced combination of prudence and confidence in the outlook for our business with that I will turn the call back to Michael.
Michael: Thank you Brent.
Michael: Before we jump into Q&A I want to thank our more than 13500 associates across the globe for helping us deliver a great 2024.
Michael: The progress we made this year implementing a new operating model and transforming our cost structure was significant and sets us up for even greater success in 2025 and beyond.
Michael: With the successful transformation of our business into two complementary segments aligned with our customers' needs in the lab and production environments, we are better positioned than ever to execute on our growth strategy.
Michael: Today, we support more than 300000 labs around the world and 180 countries and have more than 2500 onsite service associates working everyday in customer labs.
Michael: Our unparalleled footprint gives us privileged access and important insights into the challenges customers are working on insights we feed directly into our innovation pipeline.
Michael: And our access to early Phase research and development and design activities allows us to seed our custom proprietary materials into their production processes.
We call it our beaker to bulk strategy and our model really works.
Michael: Our global footprint has also enabled us to establish a highly resilient supply chain featuring tremendous flexibility and redundancy built into our sourcing and manufacturing strategies.
Michael: We plan for a wide range of scenarios and we know that things can change quickly. So we will continue actively monitoring developments and rapidly make any adjustments as needed.
Michael: I am encouraged by our setup for 2025.
Michael: Our sustained commercial intensity and cost transformation initiatives drove sequential momentum throughout 2024.
Michael: We have a solid plan for the year and I am confident that we will continue to execute well.
Michael: We expect a return to organic growth across the business continued margin expansion and double digit EPS growth.
Michael: We will continue our best in class cash generation accelerating our deleveraging.
Michael: We delivered on our commitments for 2024, and I expect us to do the same in 2025.
Michael: I will now turn it over to the operator to begin the question and answer portion of our call.
Michael: Yeah.
Michael: Thank you we will now begin the question and answer session. If you would like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad.
Speaker Change: Change your mind or you feel like your question has already been on switch you can press star and then cage with Julia So from Nicky. Please.
Please limit yourself to one question to allow everyone a chance to participate and please show your microphone Android device on mute locally.
Speaker Change: Our first question comes from Vijay Kumar with Evercore ISI. Please go ahead Vijay.
Speaker Change: Michael Good morning, Thanks for taking my question.
Speaker Change: I guess.
Speaker Change: At a high level.
Speaker Change: Bio processing.
Speaker Change: Some pretty good trends here in Q4.
Speaker Change: What were order trends in the quarter and when you look at the guidance mid to high single if there is a range.
Speaker Change: Exit rate as is.
Speaker Change: Single, So I'm curious was there any pull forward.
Speaker Change: <unk> of orders ahead of tariffs or any any macro uncertainty.
Speaker Change: Just if you can elaborate on bioprocess and assumptions.
Speaker Change: Yes, good morning, Vijay Thanks for the question.
Speaker Change: Yes, we agree we had a really strong.
Speaker Change: Finish to the year in bio processing.
Speaker Change: With.
Speaker Change: High single digit.
Speaker Change: Growth in the quarter, which.
Speaker Change: Builds on four consecutive quarters of outperformance for us.
Speaker Change: Nothing really unusual in terms of.
Speaker Change: How the quarter develops.
Speaker Change: No I don't think we have any evidence.
Speaker Change: <unk>.
Speaker Change: There was a significant pull forward.
Played out pretty much in line with our expectations.
Speaker Change: Indicate that the underlying market fundamentals continue to be quite strong.
Speaker Change: Destocking has largely subsided.
Speaker Change: Production levels have improved.
Speaker Change: The record levels of approvals so.
Speaker Change: Strong order intake another another great quarter there.
Speaker Change: With two to three months lead times, we're seeing that translate into revenue real time.
Speaker Change: Our experience in 'twenty for Vijay was one of kind of gradual improvement.
Speaker Change: Kind of what we planned on for.
Speaker Change: 2025.
Speaker Change: And we entered the year with good momentum and an order book that.
Speaker Change: It sets us up for sustained recovery as we move through the year.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our next question comes from Michael Riskin with Bank of America. Please.
Speaker Change: Please go ahead.
Speaker Change: Thanks, just a quick one following up on that Michael just because you said sustained recovery through the year in <unk>, but you are guiding to mid single high single for the first quarter for Bioprocess and mid single high single for the full year. So is it just a matter of comps or just some concerns. There was just a clarification question there, but then my ask.
Speaker Change: My question is going to be on the margins Brian.
Speaker Change: 80 bps year over year as the guide for 2025 to 2018 five at the midpoint, but one you are giving a wide range on the margins a little bit wider than you have in the past in terms of its 100 bps range. Just curious why that's there and also thoughts on.
Speaker Change: Margins beyond that I think you talked about youre exiting youre going to have an excess of $250 million in <unk>.
Speaker Change: <unk> through 'twenty five 300 is the Golar exiting 2006, so looks like Youre executing on some cost savings faster than you anticipated is that just a matter of timing or is it one of those things where as you're going through the business you are finding more and more than you thought you were so maybe there is some upside to that 300 million number for 'twenty six.
Speaker Change: Yes.
Speaker Change: Alright, Thanks, Michael I'll do my best here to try to unpack some of that and what Brent and cover your questions on margins.
Speaker Change: Do you want to think about.
Speaker Change: Our experience to date on bio processing recovery has been incurred.
Speaker Change: Incremental.
Speaker Change: As I've said before probably more sustainable theres, great pipelines across all modalities maps.
Speaker Change:
Speaker Change: With a lot of exciting things in.
Speaker Change: Adcs in Biosimilars Stone gene therapy is looking pretty good as well.
Speaker Change: And look at it.
Speaker Change: Ubiquitous across all of these modalities and we continue to drive high penetration across new therapies.
Speaker Change: We continue to put more content on.
Speaker Change: On each new molecule.
Speaker Change: Think about that.
Speaker Change: The progress here sequentially and moving into 2025, as we said Q1 tends to be the low point for the.
Speaker Change: For the year.
Speaker Change: Mid to high single digit.
Speaker Change: For that business for the quarter.
Speaker Change: As a prudent place to start than we would.
Speaker Change: Contemplate or expect.
Speaker Change: Gradual improvement off of that as we move.
Speaker Change: As we move through the year.
Speaker Change: Okay, Hey.
Speaker Change: Hey, Michael Thanks for the question so.
Speaker Change: And you had a few pieces to it there but on the margin side.
Speaker Change: Look thats sort of the art of where the point of that is going to be.
Speaker Change: We had that range frankly without round numbers made sense and we didn't want sensitive false precision there.
Speaker Change: Zeroing in on the midpoint as you often do that makes a lot of sense there.
Speaker Change: The.
Speaker Change: This platform does have meaningful fixed costs, and we get real leverage on that the other thing there if we get.
Speaker Change: If we get sales at the top end of the range or you will see us convert even better. So that's the other reason for some breadth for the range there.
Speaker Change: You made the comment on the cost savings, which I think both is very fair.
Speaker Change: I don't know that its necessary that we found more but this.
Speaker Change: This place can be very action oriented if we've seen opportunities we've executed against them because it's much better to get the cost savings at an earlier period I don't think I would call for the program to outperform quite yet, but I think youll see very strong continued momentum there. So I just think everyone can feel comfortable that we're leaning into that self help.
Speaker Change: As much as we can.
Speaker Change: Yeah.
Speaker Change: The next question comes from Dan Brennan with TD Cowen.
Speaker Change: Please go ahead. Your line is now open.
Dan Brennan: Great. Thank you I wanted to ask a question on the lab side of the business.
Speaker Change: In the prepared remarks, you talked about thank.
Speaker Change: Thank you mentioned macro and holidays, but it was a bit light in the fourth quarter down one I think you had guided for flat to up low single. So just just some more color on how that how the quarter progressed versus expectations.
Speaker Change: And then similarly, if we think about your guidance for 25, I think you've talked about low single.
Speaker Change: Just would love to find out what are the puts and takes around that low single.
Speaker Change: And then I have a follow up.
Speaker Change: Yeah, great. Thanks for the question Dan So as we think about the context for our lab performance in 2024, we entered the year.
Speaker Change: Assuming that 49% of our revenues will come in the first half 51% would come in in the second half really driven off of kind of normal seasonality.
Speaker Change: As we move through the end of the year.
Speaker Change: And that's what was implied from the beginning.
Speaker Change: Based on a more muted seasonal ramp which was contemplated by the low end of our guidance.
Speaker Change: Clearly, where we were we felt Brent mentioned, a few factors, obviously theres a bit of noise in the macro environment at the moment.
Speaker Change: We were uncertain given kind of a mid week holiday there at the end of the year impacting activity levels were certainly muted as we move through the last week or two of the of the year and there really wasn't much of a budget flush outside of private instrumentation.
Speaker Change: A big part of our portfolio.
Speaker Change: So I would say that the quarter played out generally in line with our.
Speaker Change: The original expectations and I think underscores the resiliency of the of the business. The other thing I would say.
Speaker Change: And as the quarter for me really highlights just how the model is starting to work again, you see nice.
Speaker Change: Margin expansion is mixed.
Speaker Change: <unk> to improve certainly the cost actions are flowing through we continue to have best in class free cash flow conversion margins at the high end of the guide delivering on our EPS guidance.
Speaker Change: From beginning of the year, So I think theres a lot to like about the quarter here and some good evidence that the model is starting to work again.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Rachel <unk> with J P. Morgan.
Speaker Change: Please go ahead Rachel.
Rachel: Good morning. Thank you for taking the question with you guys. So I wanted to ask.
Questions related to the New administration and policy impact. He has had a number of your peers call at a certain level of prudence embedded in your guidance for risk related to this new administration and potential policy changes I didnt necessarily hear that in your prepared remarks at all so can you talk about have you embedded anything for policy risks into the guidance and then along those lines given some of that.
Rachel: Headlines we've seen so far to start the year with things like NIH budget freezes in RFP nomination have you seen any changes in customer behavior related to your academic and government or pharma and biotech customer base.
Speaker Change: Yeah. Thanks for the questions Rachel I think all really relevant topics of course a.
Rachel: A few things on the new administration.
Rachel: The clear tends to.
Rachel: The obvious fact, there's only been a couple of weeks.
Rachel: <unk> been in office, it's obviously early days.
Rachel: On one hand, I think we're excited about the overall business environment.
Rachel: <unk>.
Rachel: This administration is likely to create which is expected to be more business friendly in and focus on economic growth.
Rachel: Specific.
Rachel: NIH funding certainly hearing a lot of ideas being being discussed nothing formal yet in terms of funding plans or policies.
Rachel: And as we've said before we have relatively modest direct.
Rachel: Those are to NIH, but of course.
Rachel: Particularly in the academic segment.
Rachel: And of our customers do rely on that on that funding for the programs but.
Rachel: From the language, we've seen so far in the areas are likely to be impacted it doesn't appear to us that are areas, where we would have significant.
Rachel: Our exposure at the end of the day I think.
Rachel: What gives me the confidence here in our outlook for the year is.
Rachel: Good signs continue to get funded.
Rachel: And.
Rachel: We will of course continue to monitor the environment and adjust.
Rachel: Accordingly, but.
Rachel: Net net.
Rachel: It's hard to predict exactly what.
Rachel: All of these policies that are being bantered about.
Rachel: But to the extent that it creates a more positive business environment do you think that would be great.
Rachel: Constructive and of course, we'll continue to look to leverage our broad footprint and.
And flexibility to ensure we continue to deliver value to our customers.
Speaker Change: Our next question comes from Doug Schenkel with Wolfe Research. Please go ahead Doug.
Rachel: Hi, This is madeline on for Doug.
Speaker Change: It seems like Bioscience and bio processing in particular have been trying to have a bit of a riskier again, well based on the fourth quarter and also the guidance.
Rachel: <unk> business has been more under pressure for both you and peers.
Rachel: This trend continues and exacerbates, how could that impact margins and could that be an area of upside for margin versus the guide.
Rachel: Yes, I mean it.
Rachel: But.
Going back to the original comments I may do a couple of questions ago, We do have fixed costs and absolutely. If you have less in the lab will under absorbed against those fixed costs. So I think that.
Rachel: That's pretty arithmetic.
Rachel: I think when you look at our guidance, we look at all kinds of scenarios and I think we've been very prudent about that but we also get questions questions about the breadth of the ranges here, if we do see a resurgence there both.
Rachel: That absolutely would while better conversion I mean, you see just a modest increase to organic growth for this business against margin across both sides of it there.
Rachel: Obviously you.
Rachel: Come in with higher margins on the bioscience side of it so it's easier to see those impacts but even.
Rachel: Even a moderate increase in growth in lab will be very nice for margins here.
Rachel: Yeah.
Rachel: Okay.
Rachel: Okay.
Speaker Change: Our next question comes from Tycho Peterson with Jefferies. Please go ahead.
Tycho Peterson: Hey, Thanks, I want to probe on a couple of things so academic government down-low single digit, but Michael you did call out academic is strong I'm just is that K 12, and I think you usually that the <unk> benefit not a <unk> benefit. So curious about that and then you flagged share gains for lab curious, where youre kind of seeing the most in terms of gains and then lastly, just.
Tycho Peterson: Bioprocess mid to high single digits consistent with some of your peers, but others are firmly kind of endorsing high single digit. So what's your view on kind of market growth and how much conservatism I guess is what everybody is trying to figure out in that mid mid single digit the low end of the range.
Yes, thanks for the question Tycho less impact there.
Tycho Peterson: With our education and government.
Tycho Peterson: <unk>, that's been a real bright spot for us throughout the.
Tycho Peterson: Of the year as I said in my prepared remarks, it can be a bit lumpy I think you've got the phasing on our K through 12 exposure.
Tycho Peterson: About right so that piece of it certainly would have been down sequentially relative to just the normal timing of when.
Tycho Peterson: Those K through 12 districts update their curriculum materials.
Tycho Peterson: But.
Speaker Change: We've got a track record youre done over a couple of years of sustained commercial intensity that is clearly leading to outperformance in our.
Tycho Peterson: Higher education platform.
Speaker Change: I think with some of the macro noise and some of the.
Speaker Change: Expecting expected changes with the new administration the government piece was.
Speaker Change: A bit weak in the quarter, but we continue to I think be quite confident about the work we're doing on the education.
Speaker Change: Education side of that.
Speaker Change: New business.
Speaker Change: Yes.
Speaker Change: When you think about the.
Speaker Change: On the guide and the outlook for.
Speaker Change: Bio processing.
Speaker Change: <unk>.
Speaker Change: I'd say a couple of things one word.
Speaker Change: We're assuming in Q1 as the low point and things will improve.
Speaker Change: From there of course.
Speaker Change: The comps get a little bit more difficult as you move through the year as well.
Speaker Change: But we view 2025 is a year of continued gradual improvement we really like the setup for the year a strong order book.
Speaker Change: Strong momentum.
Speaker Change:
Speaker Change: I think we're trying to be prudent here out of the gate in just reflects some of the macro environment.
Speaker Change: Obviously, we will be pushing to grow that business as fast as we can but we like the positioning we like to set up we had a great.
Speaker Change: Finish to the year I think we're encouraged by where we're at.
Speaker Change: Okay.
Speaker Change: The next question comes from <unk> <unk> with Barclays.
Speaker Change: Please go ahead.
Speaker Change: Great. Thanks, guys, just kind of like following up on what everybody is trying to figure out.
Starting the year.
Speaker Change: Lower than what was expected.
Speaker Change: And then so it implies another pretty pretty sequential impressive ramp throughout the year bio bio processing, maintaining a growth and so as you look across the rest of the book.
Speaker Change: He's going to get better.
Speaker Change: Im looking at it.
Speaker Change: The visibility on that like especially as you think about <unk> and <unk>.
Speaker Change: The government funding et cetera with labs.
Speaker Change: Yeah look a couple of things one I would reiterate kind of the phasing that we have implied in our guidance today, which is typical for our business, 49% of our revenue in the first half 51% of our revenues in the second half so.
Speaker Change: Not a lot of ramp your implied in our in our numbers.
Speaker Change: I think from a bio processing standpoint, we see mid single digit growth to high single digit growth in the first quarter as well.
Speaker Change: A full year basis, which given that comps.
Speaker Change: Improve will get more challenging as we move through the year.
Speaker Change: This reflects good steady improvement.
Speaker Change: That end market as things continue to normalize.
Speaker Change: In the lab business.
Speaker Change: Contemplated relatively stable end market conditions were not really expecting or needing any heroics to occur there to deliver on our on our guide.
Speaker Change: <unk>.
Speaker Change: With.
Speaker Change: An assumption that we'll realize a normal.
Speaker Change: Contributions from from price and that that phases in as we've talked about in previous years as we move through the first quarter and it should be in place fully by.
Speaker Change: At the time that we get into the into the second quarter. So there's some of the puts and takes a look on how you think about the setup for.
Speaker Change: For the year.
Speaker Change: That's helpful to you.
Speaker Change: Our next question comes from Patrick Donnelly with Citi.
Speaker Change: Patrick. Please go ahead. Your line is now open.
Patrick Donnelly: Hey, guys. Thanks for taking the questions maybe.
Patrick Donnelly: Maybe to follow up a little bit on loop. There I know you touched on the semi piece can you guys just kind of expand a little bit on what you saw in the quarter broadly in advanced technologies into the semi piece.
Patrick Donnelly: <unk> out last quarter and that the margins a little bit just the outlook on that part of the business as we work our way through the year impacted margins would be helpful. Thank you guys.
Speaker Change: Yes, good good question Patrick.
Speaker Change: Firstly, just remind the group here that semis is a relatively small part of our of our overall EPS.
Speaker Change: <unk>.
Speaker Change: And.
Speaker Change: And as we've talked about it in the third quarter the conditions in that end market, particularly with some of the larger customers here in the U S deteriorated pretty meaningfully.
Speaker Change: In Q3.
Speaker Change: <unk>.
Speaker Change: Our Q4 plan was assuming that things would be relatively stable sequentially, which is how the quarter played out so.
Speaker Change: It wasn't an incremental headwind on a sequential basis to us as we think about what's factored into the guide for 2025, we've assumed that things will stay relatively stable at the levels that we saw in the second half of this year.
Speaker Change: So we will not be taking any recovery in for that for that end market.
Speaker Change: A pretty meaningful headwind to us in Q1 that was the high point of that market for the year.
Speaker Change: So we've got a pretty tough comp for somebody's business there.
Speaker Change: And so Thats also part of.
Speaker Change: What we've contemplated in our in our guide there that offsets the good momentum on our new cell platform in our bio processing platform, but we continue to stay close to our customers.
Speaker Change: And I think we're encouraged to see that things have stay.
Speaker Change: Stabilized a bit here, but not.
Speaker Change: Not really anticipating any recovery as we move through the year.
Speaker Change: Patrick I would just add on you had a piece of that margins in connection with semi is there.
Speaker Change: We had commentary last quarter.
Speaker Change: That was more about the surprise versus where where that went but when you think about what the setup for 25 years here and what that means with this level bioprocess and growth with this level of bioscience growth that will definitely have this mixing up and you can see that into the margin guide. So just wanted to be clear that you don't see the comments on electronic materials. There is.
Speaker Change: Matic to margin in the year, it's absolutely baked into our expectations.
Speaker Change: Okay.
Speaker Change: Our next question comes from Tejas Savant with Morgan Stanley. Please go ahead.
Hey, guys good morning, and thanks for taking the time here.
Speaker Change: Rent a couple of quick clean up some of the guidance for you can you just remind us of how the 200 bps FX headwind on the top line impact.
Speaker Change: EBITDA and then the EPS line.
Speaker Change: And by processing a lot of questions here, but Michael can you confirm that in steady state you still expect that to be a double digit grower for you and then lastly on M&A.
Speaker Change: You guys have been pretty cautious on sort of re prioritizing that rent you mentioned cost outs and debt Paydown that said a lot of your peers are opportunistically dusting off the M&A playbook, given a more benign regulatory backdrop and a decent rate environment and.
Speaker Change: And you don't want to presumably sort of missed the boat so to speak on the pick of the litter rate among the assets out there. So could we see you to revisit that strategy a little bit sooner than you have indicated recently thank you.
Speaker Change: Sure. So here real quick on the modeling cleanups there to this so the.
Speaker Change: We're more than 50% U S dollar in our business that we have significant exposure to the euro so you'll see in the footnotes on the page there that we've got.
Speaker Change: We are modeling based off of Euro dollar of 1.3 now what we realized in 'twenty four was one point.
Speaker Change: So that is that's on.
Speaker Change: The math basis gets you to about a 2% headwind.
Speaker Change: So that's kind of.
Speaker Change: $135 million of revenue as that rolls down there'll be approximately $25 million of EBITDA <unk> EPS. So that's the FX modeling impact.
Speaker Change: And then just think.
Speaker Change: Clean up your other two questions you had firstly on bio processing.
Speaker Change: I think our conviction level on double digit growth for that platform is still fully intact.
Speaker Change: As we highlighted at a recent conference you earlier in the year.
Speaker Change: Like of course, the positioning that we have today with more than 85%.
Speaker Change: Penetration of the commercialized platforms and as we look ahead.
Speaker Change: We see that growing to over 90%, including five of the five top.
Speaker Change: Blockbusters so.
Speaker Change: Very strong positioning our innovation engine is hitting on all cylinders there and.
Speaker Change: Yes.
Keith you have strong conviction on how that end market.
Speaker Change: Will play out for us over the long term from an M&A standpoint.
Speaker Change: Good question, and obviously, we've been squarely focused on paying down debt.
Speaker Change: We paid down well over $2 billion over the last couple of years.
Speaker Change: Our leverage stands at three two times as we enter 2025, so we'll definitely get below three times at some point this year.
Speaker Change: As we said in our prepared remarks at that point, we'll certainly have some flexibility here.
Speaker Change: As it relates to M&A remains.
Speaker Change: An important part of our long term playbook.
Speaker Change: We continue to be active in building, our pipelines and linking those pipelines to our business strategies.
Speaker Change: I think we have some clear areas of.
Speaker Change: Our focus.
Speaker Change: We think we can.
Significant value over over time, but I would reiterate that we are committed to running the business sustainably low.
Speaker Change: Three times and so I think you'll see us be prudent here as we go.
Speaker Change: Work through this transition into more flexible allocation policy.
Speaker Change: Okay.
Speaker Change: Our next question comes from Kona Mcnamara with RBC capital markets. Please go ahead.
Speaker Change: Great. Thanks for taking my question guys.
Speaker Change: Michael you talked about.
Speaker Change: Only distribution agreement start of the call.
Speaker Change: Talk about the impact of those agreements overall third party business.
Yes.
Speaker Change: Download a quarter of the year, how should we think about lowering through in that regard.
Speaker Change: The growth.
Speaker Change: Are these new agreements margin accretive.
Speaker Change: Yeah.
Speaker Change: Yeah really great questions Carter, thanks for bringing that up so as we think about the setup for our lab business for the year.
We.
Speaker Change: Anticipating low single digit growth for that platform in 2025.
Speaker Change: Looking forward to returning that to.
Speaker Change: Organic growth.
Speaker Change: Our algorithm our long term growth algorithm contemplates that business being low to mid single digit growth. So.
Speaker Change: Certainly, we're starting to get into that.
Speaker Change: Things are certainly normalizing.
Speaker Change: One of the important attributes on how you grow that business of course is ensuring that you have the right portfolio.
Speaker Change: To bring differentiated technologies to your customers to help them solve their most.
Speaker Change: Current challenges and so we have a very vibrant.
Speaker Change: Vibrant.
Speaker Change: Innovation portfolio and that includes the <unk>.
Speaker Change: Work, we do in our own R&D centers, and bringing those technologies into the market, but of course is an important part of the model is.
Speaker Change: Working with the supplier community to help them bring their innovations to the market and so really we're just trying to highlight for you today.
Speaker Change: Some of the more notable.
Speaker Change: Milestones in that regard.
Speaker Change: In the quarter and.
Speaker Change: Each one of these is somewhat incremental in nature.
Speaker Change: On average launch roughly 100000, new products a year Conor.
Speaker Change: And so you can kind of get a sense. Therefore, how important this is to our to our business and.
Speaker Change: I think it is.
Speaker Change: Just another good data point that shows the focus that our new operating model is bringing us.
Speaker Change: And the setup that we have going into the into the year. So.
Speaker Change: <unk>.
Speaker Change: With.
Speaker Change: Some of these new technologies.
Speaker Change: Supplier arrangements together with the impact of pricing.
Speaker Change: We are looking forward to having that platform grow again for us here as we move into 'twenty five.
Speaker Change: Our next question comes from Matthew So Mike Smith Goldman Sachs. Please go ahead.
Speaker Change: Hi, This is <unk> on for Matt Thanks for taking my questions.
Speaker Change: And there was a more muted impact seasonally and far Q, but can you talk about what youre seeing in terms of large customers large pharma furnishes emerging biotech customer cohorts and then any puts and takes you can provide there.
Speaker Change: Yes happy to do so.
Speaker Change: I think it was.
Speaker Change: Kind of a tale of two cities. If you will there were rather encouraged by what we're seeing out of large pharma.
Speaker Change: There's been quite some notable headwinds there on preclinical activities as you know they've been re prioritizing pipelines.
Speaker Change: Working through a number of adjustments to.
Speaker Change: Their spend in sites and now for a couple of quarters in a row, we're starting to see large pharma returned to growth and we actually had a pretty nice quarter with large pharma.
Speaker Change: In our lab business.
Speaker Change: Being across that space, both in Europe, as well as in the Americas.
Speaker Change: A nice contributor to growth there.
Speaker Change: On the other end of the spectrum of course is the biotech activities and we know that on a year over year basis biotech funding was up.
Speaker Change: But.
Speaker Change: Pie doesn't tell the whole story.
Speaker Change: Took a pretty meaningful jump in Q1 of last year. It fell sequentially each and every quarter through the end of the year and so activity levels there continue to.
Speaker Change: <unk>.
Speaker Change: To be a bit bifurcated, we'll see some of the more established biotechs doing okay and growing but the traditional startup we're not seeing the same level of activity. There is what we would normally expect.
Speaker Change: That continues to be a bit of.
Speaker Change: A headwind for us but.
We are encouraged by some of the activity levels, we're seeing across the space, particularly and notably the.
Speaker Change: Momentum, we're seeing with large former pick up again.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our next question comes from Brandon <unk> with Wells Fargo.
Speaker Change: Please go ahead Brendan.
Brandon: Thanks, Good morning, Brent just a clarification I think you mentioned fewer selling days in the first quarter.
Brandon: Is that down sequentially as well could you just quantify the contribution.
Brandon: And the impact relative to the organic guidance are there any other variances to be aware of as we move through the year.
Brandon: The.
On on Q1, that's down year over year, it's not down sequentially, there, but certainly.
Brandon: Certainly that does have an impact.
Brandon: Yeah.
Brandon: <unk>.
Brandon: I'm not aware of the full year figure there, but I think when you. When you think about the Q1 set up there again, we're talking about being very lab being stable. We recognize there's the other noise out here, but there are always puts and takes in the business. There and then you blend that with.
Brandon: With.
Speaker Change: Bioscience being up.
Brandon: Mid there and.
Brandon: I am sorry, bioprocess up mid to high <unk>.
Brandon: And just we're being cautious about the quarter and I don't think that makes us an outlier.
Speaker Change: You are hearing from other people there caution on Q1.
Our next question comes from Jack Meehan with Nephron Research. Please go ahead Jack.
Jack Meehan: Thank you and good morning.
Speaker Change: Two quick follow ups.
Speaker Change: One was just on the model for Brent interest expense $50 million in the fourth quarter was there anything one time in the $45 million in <unk> why would it step up sequentially.
Michael Riskin: And then for Michael just.
Michael Riskin: Any comments on the education market, which declined low singles in the quarter or was that just seasonal factors holidays or something else that you're seeing there. Thank you.
Speaker Change: Yes, Jack we had there's a little bit of accounting and the interest expense there with.
Speaker Change: Unamortized fee or amortized fees going through and we also do have a decent amount of euro debt to have FX running through there.
Speaker Change: Through the years.
Speaker Change: 190, there so.
Speaker Change: 50, when you have deleveraging throughout the year, there that just sort of if you kind of dollar cost average down for the year.
Speaker Change: And then Jack Youre question on Education, I think it's fair to them.
Speaker Change: Thoughts on this earlier, but just to reiterate.
Speaker Change: We continue to be very.
Satisfied with the share gains we're driving in.
Speaker Change: In the higher Ed space.
Speaker Change: Probably seven or eight quarters into that.
Speaker Change: Trends driven off of our sustained commercial intensity there and we also added a note.
Speaker Change: There were some meaningful share gains in the biopharma side of things as well.
Speaker Change: In the quarter.
Speaker Change: Thank you a couple of things to note in <unk>.
Speaker Change: Through 12 exposure that we have is a little bit more muted in the quarter, particularly as you move sequentially just given how the districts manage there.
Speaker Change: Their curriculum updates insights.
Speaker Change: The government piece was somewhat muted.
Speaker Change: Presumably owing to some of the uncertainty.
Speaker Change: Associated with the administration change but.
Speaker Change: The higher Ed piece.
Speaker Change: <unk> continues to be a bright spot for us.
Speaker Change: We anticipate that momentum continuing into 2025.
Thank you those are all the questions. We have time for today I will now turn the call back over to Michael for closing comments.
Speaker Change: Yes, Thank you and I certainly appreciate you all joining us today, just would reiterate some of our key messages here as we turn to 2025, we are encouraged by.
Speaker Change: Our expectations of returning the platform to growth.
Speaker Change: Anticipating continued momentum and leadership in bio processing.
Speaker Change: Another year of strong margin performance.
Speaker Change: And.
Speaker Change: Leveraging our onshore business system.
Speaker Change: Do you expect to see continued.
Speaker Change: Disciplined execution.
Speaker Change: Execution around our free cash flow generation.
Speaker Change: I think our guide at the midpoint here of double digit EPS growth is.
Speaker Change: Quite notable.
Speaker Change: I think we're encouraged that we see our model working again and end markets starting to cooperate again. So again I. Appreciate you joining us today certainly look forward to updating you when we meet next until then be well everyone. Thank you.
Speaker Change: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.