Avantor at RBC Healthcare Conference: Navigating Market Challenges

On Tuesday, 20 May 2025, Avantor Inc. (NYSE:AVTR) participated in the RBC Capital Markets Global Healthcare Conference 2025, where CFO Brent Jones offered a strategic overview of the company’s performance and future outlook. The discussion highlighted both growth prospects and challenges, such as the impact of NIH funding changes and tariff pressures, while underscoring Avantor’s confidence in its long-term strategic goals.

Key Takeaways

• Avantor’s Bioscience Production segment maintains mid-single-digit growth guidance despite headwinds.
• Lab Solutions’ growth forecast revised due to NIH funding uncertainties, impacting capital equipment demand.
• Tariffs pose a potential $30 million cost impact, with strategies in place to mitigate this.
• The CEO transition is underway, with the Board actively searching for a replacement.

Financial Results

• Bioscience Production:

- Overall guidance remains at mid-single-digit growth.

- Bioprocessing growth revised to mid-single-digits due to control environment consumables challenges.

- Silicones business and electronic materials expected to achieve mid-single-digit growth.

• Lab Solutions:

- Original low-single-digit growth forecast revised to negative low-single-digit to flat due to NIH funding impacts.

- NIH funding changes affect approximately 5% of total revenue.

• Tariffs:

- Estimated unmitigated cost impact of $30 million, equating to $0.03 to $0.04 EPS.

- Mitigation strategies include alternate suppliers and customer collaboration.

• Overall:

- Organic growth guidance reduced by 200 basis points, but EPS guidance remains stable due to FX tailwinds from a weaker Euro.

Operational Updates

• Bioscience Production:

- Adjustments in go-to-market strategies following Q1 weaknesses in control environment consumables.

- Anticipated recovery in bioprocessing driven by drug throughput and approvals.

• Lab Solutions:

- Demand slowdown attributed to NIH funding uncertainty, impacting capital equipment purchases.

- Increased competitive intensity and volume shifts in large accounts.

- New leadership focusing on offensive strategies to enhance competitiveness.

• Tariffs:

- Ongoing efforts to mitigate tariff impacts through strategic supplier and customer partnerships.

• CEO Transition:

- The Board is actively leading the search for a new CEO, ensuring continuity in strategic focus.

Future Outlook

• Bioscience Production:

- Expected to achieve mid- to high-single-digit growth once current headwinds are addressed.

- Continued strength anticipated in bioprocessing due to increased throughput and approvals.

• Lab Solutions:

- Stabilization of NIH funding impacts expected to enable future growth.

- Anticipation of new large account wins contributing to future financial performance.

• Tariffs:

- Continued monitoring and implementation of mitigation strategies to address tariff challenges.

• Long-Term Targets:

- Confidence in platform capabilities and long-term strategic goals remains unchanged.

- Timing for the next Analyst Day is yet to be scheduled.

Q&A Highlights

• Clarification provided on Bioscience Production’s composition and growth drivers.
• Detailed examination of NIH funding changes’ impact on Lab Solutions and Avantor’s response.
• Discussion on competitive intensity and strategies for securing competitive wins.
• Insights into tariff mitigation efforts and potential P&L impacts.
• Update on CEO transition process, with the Board actively searching for a successor.
• Assurance of unaltered long-term strategic goals despite market uncertainties.

For a detailed review of the conference call, please refer to the full transcript provided below.

Full transcript - RBC Capital Markets Global Healthcare Conference 2025:

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: I’m Connor McNamara, the life science tools and diagnostics analyst for RBC. It’s my pleasure to introduce Brent Jones, the CFO of Vantor. Welcome. Thank you for being here. Now just ahead of this fireside chat, the company did issue some new slides, which are available on the webcast for those at home on the company website.

And for those of you in the room, there the printouts are there. Brent is going to walk through those slides just to kick things off, and then and then we’re going to go to fireside chat. So so Brent, I’ll kick it off to you.

Brent Jones, CFO, Vantor: Perfect. Conor, thanks for having me. And as you’ve seen, the slides are available in the room in front of you. After our last earnings, we’ve gotten a bunch of questions on different aspects of the bioscience production segment. So we thought it made sense to provide some additional color on that.

So that’s the purpose of the slides. We Slide two, we have the standard forward looking gap disclaimer, all that, that we need to have. But if you go to Slide three, let’s level set on what are our segments there to put in context. So we have lab solutions, which constitutes our which constitutes lab specialty products, advanced services and our total science solutions. That’s a comprehensive portfolio of high quality lab consumables, equipment services and digital solutions.

It’s our largest segment. It represents about two thirds of our revenue and just over half of our adjusted operating income. The other segment, which is really the focus today, is bioscience production. Now that’s mission critical, high purity materials and solutions, particularly in highly regulated environments. That’s about onethree of our revenues and just under half of our adjusted operating income.

So let’s double click on bioscience production going to Slide four. Three pieces of that business broadly. I think important aspects at the beginning there: highly recurring revenue regulatory and quality expertise that’s critical to our customers there and very frequently in tightly regulated markets. 75% of this content is proprietary. And previously, we’ve talked about this on an end market basis.

Here, we’re talking about it on a product perspective because we think that provides additional insight. Now breaking that down, twothree of the segment, 67% is bioprocessing. There you have process ingredients and excipients, single use solutions and then control environment consumables. Silicones, which we’ve spoken of frequently, it’s our NuSil ultra high purity medical and aerospace grade silicone formulations. And then finally, applied solutions, and that’s a combination of our electronic materials business, proprietary chemicals that go into health care and pharma applications, but not in production environments.

And then finally, chemicals and PPE that are used in industrial applications. Important to recognize here, this is very high margin segment, as you see by the operating income contribution. Generally, these are highly recurring revenue and very attractive growth profiles in these end markets. And not only that, we have strong entitlements against them, and particularly when you think of, obviously, bioproduction, the number of approvals and throughput there. Going to Slide five, let’s double click in bioproduction.

So we indicate here the whole production workflow. So upstream, downstream, formulation and final fill. So three categories, process ingredients and excipients. That’s 44% of revenue that ranges in the upstream from activation of cell culture media to the downstream buffers, salts, viral inactivation solution and then finally, formulation fill and finish are excipients, which are so critical to that. Single use systems, 26% of revenue.

That’s everything from our end to end fluid handling solution that we believe is a real differentiator for us. Other single use two d and three d bags, connectors, tubing, system solutions, hydration, exactly what you’d expect of a broad single use portfolio. And then finally, control environment consumables. Now this is really support for clean rooms. And clean rooms go across all the workflows here.

They’re completely integrated with the production workflow. And this piece of the business includes PPE, chemicals and other sterilization products that are critical to ensuring that the clean rooms can operate the way they’re intended to. And look, in summary, the fundamentals of this business continue to be very strong. These are two segments that have a common customer base. We’re taking actions to strengthen them as we’ve talked about, and the whole focus here is you know, driving value creation, not only in the near term, but in the long term.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Great. Thanks for that, Brent. We really appreciate the clarity. I think this is incredibly helpful. You know, as we’ve gotten questions from investors, I think there’s been a little bit of confusion on the bioproduction side.

So this, I think, clarity is always good. So maybe just starting on the bioproduction business, can you walk through what’s embedded in your guidance for this year, now that we know the pieces of the business a little bit better and maybe kind of walk through exactly what you’ve incorporated in the guidance?

Brent Jones, CFO, Vantor: Certainly, there. So on the guidance basis, we didn’t change the guidance for the Bioscience Production segment, just that continues to be mid single digit growth in guidance just for bioprocessing within it. Okay. And we took that from mid to high single digits to mid single digits. The performance in single use and process ingredients is exactly as we expected for the year that it was the same in Q1 on that.

The primary difference was the headwinds in control environment consumables in Q1. We’ve made some modifications to some of our go to market there. We’ve seen improvements in the past few months, but just given the Q1 impact and not assuming a full recovery, that’s what we took bioprocessing from mid to high to mid.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Okay. So that’s 30% of your business saw a little bit of weakness in Q3. ’30 percent of the bioprocess. Thank you, sir. Yes.

Thank you for that. And so how should we think about that going forward ex this Q1 split? Is that with the whole bioprocessing business, is that a good way to the high mid single digit ex this onetime issue in Q1, is that a good way to think about Absolutely.

Brent Jones, CFO, Vantor: Feel strongly about the growth of those. We’re the great part of our portfolio is it’s driven by throughput. We’re largely not subject to capital cycles or anything else there. It’s throughput of drugs and my other comments, the approvals, the volumes of scripts, you know, that business is functioning exactly as I wanted to do as this recovery cycle is coming in.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: And what percentage exposure do you have to early stage, you know, early stage biotech development versus late stage?

Brent Jones, CFO, Vantor: So all of the early stage development exposures in the lab business, there’s nothing in the bioproductor virtually nothing in the bioprocessing side. Perfect. Alright.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: So bioprocessing, mid single digit growth. Let’s talk about the other two pieces because, obviously, those are having a drag on the overall business. So can you walk through what you’re assuming for growth rates for those? And how do those businesses compare on, you know, just are they cyclical? Are they different macro exposures?

Yes. At first, I wouldn’t call them a drag on

Brent Jones, CFO, Vantor: when you go through our silicones business, that’s at least a mid single digit grower there. We And

applications, we have had headwinds in electronic materials that will annualize kind of in Q2, Q3, but those should be mid single digit entitlements there. So you combine when you’re getting the full throughput and you don’t have the CEC headwinds, high single digit bioprocess, these other pieces of the business that can be mid single digit or better can bring you to that mid to high single digit entitlement for the segment.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Got it. So obviously, too early to start talking about 2026. But as we exit this year, it sounds like that will be a better run rate for how you think that overall business will look because you’ve got kind of these onetime issues with on bioprocess side will be gone, and then any of the tough the comps will get easier on some of the other businesses. So if you’ve got mid to high single digits is a good way

Brent Jones, CFO, Vantor: to think about that, the entire business with xLab Solutions going forward. No, I think that’s absolutely fair. I think but think an important thing for the year, even with those headwinds, our guidance for the segment is mid single digits. So you’re seeing the bioprocess recovery, you’re seeing execution in that business.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Right. Now, I guess, the next question I have is, again, with all of this clarity and the fact that you are going through the divestiture of one business, should investors think of, hey, maybe these business some of these pieces aren’t core, would you consider divesting any of them? That are you trying to signal that as an option at all? Or is this purely just for clarity, and that’s not something that investors should really dig into?

Brent Jones, CFO, Vantor: Yes. I would say, short answer is this is all about investor clarity. We had enough questions about that, that we felt that was an important thing to do. Look, we were always looking at the portfolio. I mean, that’s what you do.

Fundamentally, management has always assessed what you have, and it’s all about maximizing value. But there’s no signaling to this that that this disclosure is due to divestiture thinking.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Great. Thank you for all of that clarity. Maybe we’ll move on to the, you know, start talking about the other two thirds of the business, the lab solutions. So can you walk us through on that business as well? What’s incorporated in your updated guidance?

There were some moving pieces and including what you called competitive intensity and obviously some NIH impact. So maybe just walk through what you’re thinking of that business for the year, and then we’ll get into some of the pieces Okay.

Brent Jones, CFO, Vantor: Yes. So the original guidance for the business was low single digit growth, and we modified that to minus low single digit to flat for the Lab Solutions segment. When we talked about Q1 and then the reasons for the updated guidance, the primary driver in Q1 was, we broadly call sort of the policy implications, I. E, the NIH funding piece of it. Now that primarily impacts U.

S. Higher education part of the business of total revenue at Avantor that represents about 5% of revenue. And we saw meaningful impacts in Q1 in connection with that. So that’s the primary driver of the adjustment to the guidance.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Okay. So let’s dig in there a little bit. So this is 5% of your business, you’re seeing a a slowdown, and that started, you know, kind of mid February when there was I mean, I guess, it’s probably been a week going into last year. But mid February, we had these NIH proposals where there were the it looked like the NIH would would cease funding for certain grants. Was that kind of is that the timing of when you saw a real slowdown?

And maybe walk through what’s embedded for the rest of the year? And post that, have you seen any change in buying patterns from your customers that do receive NIH funding?

Brent Jones, CFO, Vantor: Sure. So first, when we provide guidance and we made some comments about this, we knew there was some uncertainty in the environment, so we were careful in our guidance and that connection. The day we released Q4 and provided guidance that evening, the NIH news hit the tape. So that that wasn’t perfect timing in that connection.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: That was the social media post that they put out, right, on Yeah.

Brent Jones, CFO, Vantor: That’s right. Okay. Yeah. So, you know, we we’d we’d seen just fine performance, you know, even though some uncertainty at the beginning of the year, you know, you saw sort of immediate impact, and then it’s gotten back to a pace even though there is impact on the demand there. But that business has frankly been pretty consistent since that and very similar to how we guided for 2024, and that we’re just assuming continuation of, again, solid performance, but with some of the dampening due to that for the balance of the year, and that’s exactly what’s

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: in the guidance. Okay. And so, you know, here we are, like, May, almost in June. And so have you seen any change in in what those customers are doing? You know, was it and just by way of background for those in the room and on the phone that that don’t know what we’re talking about.

So February 15, there was a post where the NIH said we’re going to stop funding a specific percent of grants that have already been approved that we’re already paying for. Anything related to indirect costs, we’re going to limit that to only 15% of the total grants. Anything above that, we’re no longer going to fund. That was blocked in the courts, and that’s an ongoing debate. But, you know, we did some checks and we put out some public we published notes on this.

But basically, it created uncertainty for any academic institution that received NIH funding via grant. So that that came out February 15, just so just so we’re all clear. So that created an initial shock is my understanding from the customers. And so what has developed since then? So a

Brent Jones, CFO, Vantor: couple of things. You know, there’s there was a shock, but there’s been consistency since then just at a somewhat lower level. And that’s absolutely what informed our guidance there. I mean, people are open for business just at somewhat of a lower level on that. Now when you have a shock like that, the reaction from people is predictable.

They want to preserve cash, preserve resources, so the most immediate impact is on capital. So equipment and instrumentation impacted the most. Another important part of it, though, is we’re really an activity and throughput based business there. So when you have headcount reductions, when you have slower replacement of staff in that, you have less people working on things. So that also has had some impact consumables and chemicals there.

But again, it’s just it’s the somewhat lower activity. And to your point, the shock in the system happened quickly, and then it has stabilized since then, just at a somewhat lower level.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: But from a relative perspective, you are more on the consumable side than equipment. You sell any equipment into those? We definitely do. So as a firm, capital is about 15% of our total revenue. In lab, it’s about 20%.

Brent Jones, CFO, Vantor: And then in higher ed, it’s a somewhat higher percentage. So it is an important piece of the business.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Got it. So it was more capital that’s probably impacted this year, though Definitely. Someone on the consumables. Okay. And is that so just going forward, first off, did you have any lab customers at these universities that their labs shut down that are no longer purchasing?

Is have you seen that impact yet? And just longer term, how does this, you know, other than the initial shock, do you think this changes the health of that piece of the business within Lab Solutions?

Brent Jones, CFO, Vantor: So I mean, I don’t know every lab or any of that. Certainly, nothing of that has come to my attention. Look, this comment we make frequently, it’s the golden age of science. The even if this creates a baseline that you grow off in that. But frankly, the fact that we’ve seen the consistency in the business even at the other demand levels is encouraging given the level of uncertainty.

And I don’t believe it resets what the business will be over time.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Great. And just outside of The US policy, one other piece, which it sounds it’s a smaller piece of the guidance cut, but you you highlighted something called competitive intensity. And I just want to talk about that a little bit. Is is that something new that you’re seeing? Or is that just something that you wanted to highlight that’s outside of the NIH?

Maybe if you could give any more color on that? Sure.

Brent Jones, CFO, Vantor: No, I think we just highlighted that as good disclosure. The when people ask questions about competitive intensity, I mean, absolutely is a competitive business. That is nothing new. When you have circumstances where you’re not getting the full volume growth you’d have otherwise, then people will compete for the buckets of growth that there are and will compete for share that way. So we did see an increased level of that and, know, however, definitely in some large in a handful of large accounts, there were volume shifts that impacted us.

On the other hand, we had a number of really good wins in Q1. Now those won’t hit the P and L for a few quarters in that, but it’s certainly, there’s nothing in the statement to say, oh, we’re impacted by the competitive intensity, but we’re not driving competitive intensity ourselves, which we are. Okay. And they’ll tell you, the new leadership in lab, what Corey Walker is doing there, very impressive. Okay.

Know, so we’re we’re going on the offensive there in a good way.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Okay. And so you the timing for that to reverse, I mean, it sounds like the new wins that you’ve you’ve got, that’ll be a couple quarters. So should we think about this will be, you know, it’ll take a few you know, two to three quarters to drag out, but this will this headwind will continue and then and then it, you know, will go away and potentially reverse and become a tailwind as as some of those wins hit the hit the p and l?

Brent Jones, CFO, Vantor: Yeah. Look, I’m I’m a big believer on what what that business wants to do. You know, we we just need to get through the period of uncertainty, but I would say we’re we’re taking really significant actions there to drive the business.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Okay. Great. And then the other piece I wanted to touch on for guidance is tariffs. And maybe can you remind us what was incorporated in your guidance, specifically related to tariffs? Yep.

And then we’ll go from there.

Brent Jones, CFO, Vantor: So we actually did not incorporate any tariff impact in our guidance. And the foundation for that is because we believe we’d be able to offset it. Now it’s obviously a very, very dynamic environment right now, but sort of the bottom line to putting the bullet point there is we don’t expect to have tariff impacts into the P and L this year, particularly after the changes. The gross exposure has decreased dramatically. We’re now saying that the in P and L impact, so it’s the cost impact of tariff taxes, would approximately be $30,000,000 which we believe will be able to offset.

The vast majority of that is China to The U. S. And then the balances from other regions, unmitigated, that would be zero three dollars to $04 of EPS. We already have significant plans in place there. Now it’s a combination of alternate suppliers from regions where you don’t have the same tariff impact.

That’s either tariff surcharges or price. We’re working very closely with our customers on that. Obviously, no one wants those things to happen. And again, that’s with the new leadership in lab. I think we’re executing very thoughtfully, and, you know, we we feel good about how we’re going to

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: mitigate that. Okay. And obviously, the policy, you know, the tariff situation is fluid and it changes almost on a daily basis. But, you know, anything that you’re seeing that potentially now with the new policy, hey, maybe this will be a tailwind, especially if you’re able to put suit through some pricing or is it the impacts will only be done to mitigate the headwinds, and we shouldn’t be thinking about any type of actual tailwind this year? I mean, mitigating some price can help the top line there, even though we didn’t incorporate that into guidance.

But no, I wouldn’t take that as a tailwind to guidance. Okay. Great. And just a high level question, you did cut organic guide by 200 basis points, but you left EPS where it is. Is that I mean, you have got you’ve got a range on the EPS or there is that because you’re finding more opportunity on the cost outs?

Or are there other actions you’re taking to offset the revenue headwinds you’re seeing? How should or should we think, okay, now we should be looking more towards the lower end of the range on EPS or?

Brent Jones, CFO, Vantor: No, we certainly haven’t directed to the lower end of the range there. I mean, the simple math there is we guided the year with a $1.3 euro dollar and it’s and the update was a dollar 10 or blended a dollar 10 for the year. So that’s FX dropping through. So the 200 basis points in lab is offset by the FX tailwinds.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Right. Okay. Makes sense. And we’ve only got a few minutes, so I did want to touch on the CEO transition. Can you give us any update on that process and kind of what you see as the ideal candidate to replace Michael?

Oh, look,

Brent Jones, CFO, Vantor: it’s I wouldn’t want to get ahead of the board there, but, you know, they’re leading that process. And, you know, I believe they’ll find the right person there. And they’re they’re moving expeditiously. Okay. Got it.

That’s that’s a

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: good update. How what challenges does this presented for you? Obviously, you came on board and and you’ve done a lot. You know, you changed the for the company, which I’ll give you credit for just because you’re here. But you changed the reporting structures of the business.

You just gave more disclosures. You found a bunch of cost outs that obviously helped the earnings power. Now you’ve got to assuming you’re burning you have a higher burden with the departing CEO. So just how has your role shifted and kind of how do you think that will evolve over time? Well,

Brent Jones, CFO, Vantor: two pieces there. First off, I would never individually take credit for anything there. That is it is a team sport, and we have a great team. You know, my burden hasn’t changed here. Look, you know, Michael made this decision with the Board.

It was the right time for him. And frankly, you know, he is the CEO, and he’s engaged as he’s ever been. And the other members of senior management are just as focused, and it’s it’s frankly all about driving improvement in the business. That’s all we’re focused on. Right.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Couple high level questions. So from a long range target perspective, you guys did an Analyst Day at the end of twenty three, I believe. And so when should we see the next Analyst Day, if talked about that? And kind of what types of things are you seeing now in end markets versus what you saw at the end of ’twenty three? And how important is seeing end market stabilization before you lay out new long range targets?

Brent Jones, CFO, Vantor: Well, I mean, we haven’t scheduled one yet there, so we’ll see on that. I don’t our long term view hasn’t changed. Obviously, there’s been an unprecedented amount of end market noise since the last Investor Day, and none of us had hoped for that. But the long term view on both what this platform can do and what our entitlement is absolutely hasn’t changed.

Connor McNamara, Life Science Tools and Diagnostics Analyst, RBC: Great. Well, that just about wraps up our time. So Brent, we appreciate you attending the attending the conference. We appreciate all the clarity you gave in the slides. And thank you for everyone here and everyone attending at home.

We appreciate it. Thanks.

Brent Jones, CFO, Vantor: Thank you. Good to be here.

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