Avantor, Inc. Aktie

Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Chris Fidyk, Vice President of Investor Relations. Chris, you may begin the conference.

Thank you, operator. Good morning, and thank you for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer; Brent Jones, Executive Vice President and Chief Financial Officer; and Steve [indiscernible], Senior Vice President and Chief Accounting Officer. The press release and our 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 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.

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

Good morning, and thank you for joining us today. Let me begin with a few financial highlights for the quarter. First quarter results exceeded our expectations due to improved execution in BioScience and Medtech product segments, and we have reaffirmed our full year guidance. VWR Distribution and Services generated $1.15 billion of revenue in the first quarter, down 5% organically versus the prior year. This performance was in line with our expectations despite soft market condition in Europe and adverse winter weather in the U.S.

I'm pleased to report that in the quarter, the VWR e-commerce platform showed green shoots of improved performance in traffic, conversion and revenue growth following multiple upgrades as part of our digital road map as well as the successful relaunch of vwr.com. Importantly, Q1 results provide evidence that the VWR segment is stabilizing with financial performance in line with our expectations.

Turning to BMP. BMP revenue was $431 million in the first quarter, down 2% organically versus the previous year. This was ahead of our expectations due to better-than-expected execution from process chemicals and new sales. Brent will discuss the details in his remarks, but [indiscernible] had a heavy influence on a year-over-year growth metrics. I'm pleased to report that revival efforts are already taking hold in BMP.

In Q1, we saw modest improvement in BMP operational performance and we also saw strong commercial performance given the enhanced focus with which our team are working. BMP had a book-to-bill of more than 1.1x in the quarter. Other element of the P&L, including margins were generally in line with expectations, and we generated $0.17 of adjusted EPS in the quarter ahead of our expectation. There are 3 key messages I want to convey about their first quarter.

First, Revival is already having a positive impact on Avantor. Across the organization, we see a clear improvement in execution and increased accountability. Our team has a more intense focus on serving customers and we are taking a data-driven approach to user their performance. Second, improved execution has translated into improved and more stable operational performance, most notably within the VWR platform and BMP manufacturing. Improved execution is also reflected in the strength of our order book and demand funnel.

Third, we believe that we are turning a corner financially. We believe that VWR's growth rate reached a bottom in Q1 and that BMP's growth rate will reach a bottom in Q2, which position Avantor for organic revenue growth in the second half of this year. We moved the company forward in the first quarter, and I'm encouraged by the momentum and positive energy across the organization. In the interest of continued transparency, I want to share 2 examples of actions that we have taken as part of Revival.

Please turn to Slide #4. Revival begins enhanced with people. And for Revival to be successful, we must have the right talent in place. One of the first things we have done is move with speed to recruit exceptional leaders and enhance our leadership structure. This slide summarize the change we have made to the senior leadership team, defined as my direct reports plus their direct reports. We have moved quickly to refresh approximately 25% of this leadership group filling positions such as Chief Operating Officer, Chief Procurement Officer, Head of VWR Sourcing and Head of VWR pricing.

Recently, we welcomed [ James Finn, ] our Chief Digital Officer, who joined us from Medline. And last week, we announced that [indiscernible] will join us from [ Cytiva ] to lead BMP and serve as our Chief Transformation Officer. We expect to announce the addition of other high-impact leaders soon. Many of those talent investments are self-funded with increased productivity. Year-to-date, our overall headcount is down approximately 2%.

I had a very clear vision on how the leadership team should be constructed and in short order, we have supplemented internal talent with external talent. We have a diverse set of leaders in place with skills and experience will allow us to best execute the Revival agenda.

Please turn to Slide 5. Enhancing operation is one of our 4 most priorities. So I wanted to dig deeper into action underway within this important revival pillar, which is led by our COO, Mary Blenn. In the first quarter alone, we completed over 8 weeks of kaizen events across our operational network. I participated in several of those kaizen events as did other senior executives. In parallel, we established a CapEx council that meets monthly to plan, review, sanction and monitor our capital commitments with one eye focused on near-term needs and the other high focused on long-term strategic requirements.

Our CapEx Council has sanctioned 12 projects recently, one of which is depicted in this slide. This project focuses on a downstream production process at an important North American manufacturing facility, where the current workflow is a people-intensive process with scope for improvement. We reimagine the process during a kaizen and as a consequence, are moving forward with a project to install modular automation equipment in a previously unused space in the facility. The before and after images on this slide demonstrate how this automation project will radically simplify workflows.

Furthermore, this investment will enhance quality, compliance and throughput, it will reduce our cost per unit, and it will free up capacity for the team to focus on higher-value activities. We expect to earn highly attractive returns on the capital we deploy. This is just one example of the approach we are taking globally. In all our projects, including the $20 million of incremental investment we announced previously, we use tools such as [indiscernible] and kaizen to rethink the way in which we work, and we are marrying that with rigorous data-driven analysis to measure the financial consequence of our investment.

I will conclude my opening remarks with a few words about the news that Brent will depart Avantor next month. Brent, we are all deeply thankful for your leadership and contribution to Avantor, including the development of a deep and talented finance team. I wish you and your growing family nothing but the best in the future. Thank you, Brent.

Thank you for the kind words, Emmanuel. It's been a privilege to serve as the CFO of this great company, and I'm grateful to have worked with such a wonderful group of people. The finance function will be in good hands with Steve, who is an outstanding leader, and I remain completely confident in Revival and Avantor's future prospects.

With that, please turn to Slide #6, where I will review our Q1 financial results. In Q1, we generated $1.581 billion of revenue, which was down 4% on an organic basis and flat year-over-year on a reported basis. Adjusted EBITDA in the quarter was $219 million, with a margin of 13.9%. Adjusted EPS in the quarter was $0.17 due to good execution in BMP, specifically process, chemicals and new sale, allowing us to outperform our expectations.

Free cash flow in the period was $25 million. Excluding restructuring costs, free cash flow in the quarter was $39 million. Both figures were within expectations and reflect a meaningful and anticipated headwind associated with customer prebates. We repaid approximately $105 million of debt and ended the quarter with an adjusted net leverage ratio of 3.3x adjusted EBITDA. Leverage increased by 0.1 points sequentially and year-over-year, primarily due to lower trailing 12-month adjusted EBITDA.

Please turn to Slide 7. Revenue for the VWR Distribution & Services segment was $1.15 billion in the first quarter, down 5% organically versus the prior year. The primary driver of the organic revenue performance was a decline in volumes with industry dynamics and European market weakness, both contributing. We estimate that severe winter weather in the U.S. negatively impacted segment revenues by about 50 basis points. The bulk of the revenue declined sequentially versus Q4 2025 is due to seasonality.

In the quarter, the VWR e-commerce platform showed green shoots of improved performance in traffic, conversion and revenue growth rates in the U.S. and Europe. This followed multiple upgrades as part of our digital road map as well as the successful relaunch of vwr.com. Enhancing our digital capabilities remains one of our top strategic priorities. Adjusted operating income for VWR was $105 million in the quarter, representing an adjusted operating margin of 9.2%.

The year-over-year decline in margin is due primarily to volume and net price capture. Increased freight costs were also a headwind. The bulk of the margin declined sequentially versus Q4 2025 is due to seasonal declines in revenues with a number of other puts and takes. There are 2 key takeaways from the VWR quarter. First, we are pleased with the positive impact our upgrades had on e-commerce performance. Second, and perhaps more importantly, the VWR platform is stabilizing with Q1 performance in line with our expectations. We will address the stability again in our guidance commentary.

I will now discuss our other segment, Bioscience and Medtech products or BMP. BMP revenue was $431 million in the first quarter, down 2% organically versus the prior year. This was ahead of our expectations due to better-than-expected execution from process chemicals and new sale. In the quarter, process chemicals grew double digits organically due to improving operations and strong order performance. Fluid handling and new sales were down double digits in the quarter, due in part to difficult comps as we had anticipated, while research and specialty chemicals declined about 100 basis points organically. Pricing was positive in the quarter.

Last quarter, we indicated new sale and the serum and electronic materials businesses within research and specialty chemicals would be headwinds to growth in 2026 and and that this comp headwind is primarily due to normalization of idiosyncratic customer ordering patterns and shipments in 2025. In the first quarter, this dynamic in aggregate was a mid-single-digit headwind and to the organic revenue growth of BMP. Adjusted operating income for BMP was $103 million in the quarter, representing an adjusted operating margin of 23.8%.

The year-over-year decline in margin is due to inventory provisions, lower volumes and mix, among other things. Key headwinds in the sequential margin decline were volume and mix. There are 2 key takeaways from the BMP quarter. First, our efforts to enhance operations are bearing fruit as our operations showed increased stability in the quarter. More specifically, BMP back orders declined modestly in Q1, and we have better line of sight to improved operational performance. Second, we had strong order performance in the quarter with a book-to-bill of more than 1.1 for the whole of BMP. Order trends were healthy across all business units, and we saw particular strength in our process chemicals order book.

I will now turn the call over to Steve Eck to discuss our guidance.

Thank you, Brent. Please turn to Slide 8. We reaffirmed our 2026 guidance this morning, but I want to make a few supplemental comments. In Q2, we expect to generate adjusted EPS of between $0.19 and $0.20 per share. Next, as everyone is aware, the Middle East conflict has created inflationary and supply chain pressures that are rippling around the world. At this stage, we are more concerned about the price of raw materials and services rather than their availability, but our concerns could evolve if the conflict persists.

As of today, we estimate that inflationary pressures stemming from the Middle East conflict represent an incremental headwind of approximately $10 million to $20 million to our 2026 operating income, and our reaffirmed guidance incorporates this headwind. We have established a task force whose responsibilities to identify, monitor and mitigate these inflationary headwinds.

Next, on VWR. The financial performance we saw in Q1 was largely in line with our expectations. We believe that VWR is turning a corner and that VWR's growth rate reached a trough in the first quarter. We expect that VWR's growth will improve gradually over the course of 2026, with the segment showing positive organic growth in the second half.

In BMP, the year-over-year comp headwinds from the idiosyncratic customer ordering patterns and shipments mentioned by Brent and new sales, serum and electronic materials will increase sequentially from Q1 to Q2, and we faced another tough comp in fluid handling as well as tougher comp and process chemicals. Therefore, we expect BMP's year-over-year organic growth in Q2 will be worse than the Q1 experienced by more than 500 basis points.

There is no new news in these comp dynamics as our assumptions about their impact are unchanged versus 90 days ago. We believe that Q2 will mark the low point for BMP growth in 2026. Finally, we expect the adjusted operating margins of both segments to increase sequentially from Q1 to Q2 in line with seasonal patterns.

I will conclude with a comment on capital allocation. Debt reduction remains the top capital allocation priority, and we remain committed to reducing our adjusted net leverage ratio sustainably below 3x. With that, let me turn the call back to Emmanuel.

Thank you, Steve. I will conclude our prepared remarks by reiterating the key takeaways from the quarter. Number one, revival is already having a positive impact on the organization. Number two, improved execution has translated into improved operational performance. And number three, we believe that we are turning a corner financially and now believe that the growth rate of VWR reached a bottom in Q1 and that the growth rate of BMP will reach a bottom in Q2. This, combined with our tangible revival progress, give me confidence that Avantor will return to positive revenue growth in the second half of this year.

Finally, I want to extend my gratitude to our Avantor associates across the globe for their dedication to serving our customers. Thank you for embracing revival and the new ways in which we are working together. I am incredibly pleased with the progress we are making together as a team.

With that, operator, we are happy to take questions.

[Operator Instructions] The first question today comes from Dan Leonard with RBC.

My first question, can you talk a bit more about any countermeasures you're taking to offset incremental inflation? And I'm thinking of transportation costs specifically, but it sounds like there are other watch areas as well.

Yes. I think, Dan, if I understand correctly your question, you're talking about the measures we are taking, again, the inflation that we are seeing. Is that correct?

Correct.

All right. Dan, first of all, thank you for the question. I think it's important to also review the fact that we have a new Chief Procurement Officer, [ Keith Balzo ] is joining us from Cytiva, I worked with them a lot in the past, is a really, really good person. We've put in place a task force. The good thing about what we see in the Middle East is that the inflation will happen in 2 areas. The first in inbound and outbound threat. And of course, the team is really looking at our contract and seeing what we can do on that side.

And then the other thing is a few critical materials, which will not be in short supply, but really where we will see inflation. So we have a task force in place already evaluating the impact. I think, Steve, in the opening remarks, talked about the $10 million to $20 million headwind that we are seeing that we are contemplating in the reforming of our guide. And I think it's really an action for us in terms of monitoring and in terms of things what we can pass to our customers.

Okay. I appreciate that. And then as a follow-up, Emmanuel, can you talk about the significance of that book-to-bill in the BMP segment? And what is the lead time required to translate that greater than 1.1 book-to-bill to revenue growth?

Yes. No, it's a very good question, Dan. Look, I think if we look at what we shared in Q4, our order intake in process chemical was high single digit in Q4. And with the operation and the Revival impact on operation, we were able to deliver a double-digit growth in Q1 in terms of revenue. The very positive things and what we are very encouraged is that in Q1, our order intake was double digit. So there is a sequential acceleration, and it's down again to revival on the commercial side.

A lot of those products are between between 30 to 60 days, 90 days lead times. It also depends on the customer that gave us some blanket order with a lot of visibility. We have asked the commercial team to work on this. to make sure that through the [indiscernible] process that we have put in place, we are helping as well the operation to have a good visibility of what is coming. So we are super encouraged with what happened in both operation and commercial due to revival. And so 60 days, 90 days. That's why we are positive and confident about the fact that we'll go back to growth in the second half of the year.

The next question comes from Patrick Donnelly with Citigroup.

I was hoping for just a few more specifics on 2Q. Helpful to hear the VWR and BMP pieces. Can you just talk about overall organic growth and then also the margins for each and how we should think about that margin cadence for 2Q and going forward?

Yes. Yes, Patrick, it's [indiscernible] take this. Look, I think for Emmanuel and Steve as well as my comments there, you see a bottoming in VWR in Q1, we expect to see continued improvement in that business sequentially. There are more shipping days in Q2 than Q1. So even keeping at the same pace that we did in Q1, even though recognizing that's a seasonally lighter quarter that easily gets us within the range of our guidance there. Even though on BMP, you'll see lower organic growth that has to do more with the idiosyncratic competition we brought up it's a nice sequential increase, but not substantial there.

You put those together, you get better fixed cost absorption against that, and then you'll see modest increases and margin against that sequentially. You marry that to revival working in other cost outs there and that very comfortably gets you to the range of our guidance.

Okay. That's helpful. And then maybe just on the BMP side, helpful comments there. Can you just talk about what you're hearing from customers? Obviously, some mixed data points out there. Are there certain segments you're seeing a little more strength? And then again, I guess, the visibility into that recovery and confidence level of that recovery as we work our way into the second half and beyond just with the market positioning there.

Yes. Patrick, I think there's not much change in terms of market dynamics versus what we shared in our last call 90 days ago, biopharma market is healthy, in particular, in bioproduction. We see that in our order book. This is also particularly in process chemicals for Q1 in terms of revenue but also in order, as I just talked about. We also see a strong funnel for us, again, we have pushed commercial team to have a better visibility on the opportunity. So we are looking at a strong funnel.

Around academy and government, nothing really changed. The market is pretty stable. There's maybe a lower level of activity than what we will prefer, and we continue to assume that customers are a bit reluctant to spend money in that part. NHI funding is stabilizing, capitalizing incremental demand that will represent upside potentially, again, if the customer decided to spend their budget. Bottom line is that the end market we exactly as we were expecting it. All right. And I think there's no assumption that there's major change during the year.

I just want to maybe add one comment. We shared in the past that despite the difficulty that we had we never let down the customers, in particular in bioprocessing. And I think we can really say that [indiscernible] I meet customers there is strong feedback about the service level and the engagement that we have. And this is again reflected in our Q1 order book and the book-to-bill, which is 1.1x.

Okay. And Brent, just to close the loop on 2Q, is there a specific organic number you can give?

We're -- you're probably talking about a decline of 500 basis points there for the quarter on top line.

The next question comes from Vijay Kumar with Evercore ISI.

Congrats on a good execution here. Brent, wishing you the best as you transition here. Maybe Emmanuel, I heard the term confidence in the business bottoming error. It sounded very constructive. And when you think about VWR bottoming out in Q1, what gives you the confidence that VWR bottomed out? And Brent, if VWR has bottomed out in Q1, why is 2Q organic minus 5% when you guys just did minus 4% in Q1?

Do you want to -- the we're talking about at the firm level there, Vijay. So you're going to see more decrementals in BMP taking the firm rate down to minus 5% there. So you'll see a sequential improvement in VWR and then going backwards by 500 basis points or more in BMP.

Yes. I was going to add that around VWR. I think we had a strong reset of VWR last year. We shared with you that we've lost market share. Q1 was really the tail of those market share loss. We have really stabilized the situation with VWR. And we also looked at the order trend, okay? We look at the contract conversion, the new contract we win, we measure the engagement of our commercial team. Everything that we are doing on VWR, in particular, around the e-commerce channel has been executed phenomenally well. We're super happy with that, with strengthening the [indiscernible]. And I think this is why we're expecting stabilization really of Q2 and then onwards positive growth.

Understood. No, that's helpful. Maybe one follow-up Emmanuel for you. We're starting the first half, somewhere down mid-single rate minus 4% to minus 5%. What improves in back half, right? Is it just comps getting easier in the back half? Or is the business turning? Is there a bridge from first half to second half, how we get to positive growth in the back half?

Sure. I think this is what I -- what we said in our opening comments, all right? So bottom for VWR Q2 bottom for BMP, stabilization of VWR. And then we have the order book that we just talked about, which is really on crashing on the BMP side. And I think basically, the confidence about the impact that revival has on the commercial intensity on the operation excellence and also on the fact that we are bringing all those talents, which some of them are already having an impact and there are many more coming.

So I think this is a combination of all of this that give us confidence that second half will be back to growth. And of course, [indiscernible] as well in terms of VWR in particular.

And Vijay, coming off -- taking the comp piece aside, not a dramatic sequential increase that we have baked in the plan, certainly, Q1 to Q2, and then we aren't getting more specific on the back half, but broadly beyond that. And just to be super clear into Q2 you'd say about minus 5% at an enterprise level, improvement in VWR coming up sequentially coming off a negative 5% in Q1. And then going backwards, about 500 basis points more in BMP, you can put that math together and gives you a clean picture for that, and that does not require a significant sequential ramp for the company in Q2.

Our next question comes from Catherine Schulte with Baird.

Maybe as you look across your manufacturing and logistics footprint, I guess, what portion of facilities would you say are in good shape today versus still needing some investment? I think you mentioned you've greenlighted projects. What kind of investment do those projects entail? And what's the time line to complete those?

Yes. Thanks, Catherine. Look, I think I visited probably all of them. I think there's maybe a few factory where I have not been like India, which I'm planning to go by the end of May and maybe 1 or 2 in the U.S. So I don't have yet the complete picture of all our sites. But look, we have excellent sites. I was recently in Poland, and Briar in France and [ Luban ] in Belgium, I think, generally speaking, the -- look, in terms of projects, there's always projects to happen in every site, right? There's not one site that consume all our CapEx or not.

Every site as their project, we encourage every leader to look at to apply lean and kaizen on the site to make sure that we have productivity, okay? I think Mary is driving a huge improvement on that side where we are measuring the productivity by site. And therefore, every site leaders are encouraged with the help of our internal lean team to come back with projects that are going to create productivity, and we just shared one of them. So those projects are very different. We did 12 in Q1, but I think we will have more coming on into the rest of the year. And I think this is where we are on curage as the team is responding very well in there.

Okay. Great. And then can you just walk through how the BMP idiosyncratic order pattern comp base throughout the year? I think you said they were a mid-single-digit headwind in 1Q will be higher in 2Q. But how does that look in the back half? And does BMP get back to positive growth at some point in the back half of the year?

Yes. I mean the idiosyncratic gets a little better in the back half of the year. If you recall, the primary driver on the back half is going to be headwinds in electronic materials, and I would just continue to think about sequential improvement here. And that's really the theme we're driving. We're really trying to talk through here is sequential stability than modest growth against that.

Yes. I think we shared in the past call that new sale, serum and electronics had actually different timing in the past. And so new steel serum giving a headwind first half, electronic material giving headwind in the second half. And I think this is important for us to continue to work with the supply chain team, but also with our customers so that we come back to a normalization of the customer ordering pattern and, therefore, shipment across the year.

Our next question comes from Casey Woodring with JPMorgan.

Maybe to start, can you walk through the price versus volume performance in the quarter? You said pricing was positive in BMP. So assuming that was down in VWR. So some more color on pricing in the quarter and updated pricing expectations for the year would be helpful. And we'll also be curious to hear your updated thoughts around gross margins and where those could land on the year, just given some of your comments around freight costs and such.

Well, so Casey, broadly in the quarter, and let's talk about this on the gross margin side. And I think the right way to think about it is sequentially. And we talked about -- we talked on the last call about taking the 31.5% gross margin -- adjusted gross margin is a jumping off point to think about to think about this year. And on a total company basis, you really had the decrementals on volume offset by pricing actions that came from the beginning of the year. And then you have other puts and takes with with freight and et cetera, there.

We saw somewhat better performance there. We like that. We believe that will continue to grind up during the year. on a full year-over-year basis, price cost spread was negative. Again, that's due to the VWR margin reset we saw beginning in the second half of of last year, but we like to set up for that. We like the execution, and then we believe you'll see a grinding up certainly into Q2. And then we're not being more specific about the back half of the year. But certainly, our guide is predicated on that gross margin improvement.

Understood. And then as a follow-up, can you just talk briefly about free cash flow performance in the quarter. You did $25 million here in 1Q, but reaffirmed the $500 million to $550 million guide. So just curious if the free cash in the first quarter was in line with your expectations. And I guess the guide does imply a pretty big step-up moving forward. So maybe just walk through how you plan on getting there, the puts and takes? And any sense for just phasing and how back-end loaded that range is?

Yes. No, certainly, Casey. So we noted that it was consistent with our expectations. Our guide is before restructuring expenses. So then it was around $40 million when you exclude restructuring expenses, we cited the significant prebate. If we had not had the significant prepay in the quarter, we would have looked a lot more like last year, and then we would expect a similar sort of ramp throughout the year. there weren't really any other significant moving pieces.

If you look at the cash flow statement, there weren't working capital swings or otherwise, it drove it different way. So really, the story in the quarter on the relative was the prebate as well as on the absolute -- on the year-over-year lower earnings. And again, that will -- it's not unusual for Q1 to be lower on a seasonal basis, and then you'll see strong continued sequential improvement, which you've seen from us.

The next question comes from Brandon Couillard with Wells Fargo.

Emmanuel, on the VWR business, you talked about some market softness in Europe would that region deteriorate sequentially? Or is that just a year-over-year comment? And then the 50 basis points of U.S. weather impact in the U.S. in the quarter. I guess I would have thought you would have made up those orders at some point in the quarter. Did those get pushed out into 2Q? How do I think about the impact of that? Or they just lost revenue in general?

Just on the weather, I think what we were saying is it did impact. But fortunately, the team works very well and finished to deliver what we were expected. So VWR in Q1 was really spot on in terms of our expectations. So again, another confidence about the team capable of being flexible and really make it works. So that's the comment. On Europe, I think there is some softness in particular in the industry in Germany and in a couple of areas like this.

Also, I think remember that in Europe, we are very proud of being the largest distributor there. And so it's the places where the market is when you are the #1 always impact you a bit more than anybody else. I think there is Look, it's an area where we didn't have a leader for a long time there. I think we have [ Christophe ] now, which is really taking care of that. We did some reorganization and the team is reverted right now. And so that's where it's -- we have confidence in the second half in Europe as well.

Got you. And then maybe Steve or Brent, on the inflationary impact, the $10 million to $20 million, nice to see you're able to absorb that in the guidance for the year. Two questions. Do your contracts generally allow for freight-related surcharges to be passed through? And number two, to what extent have you kind of, I guess, stress tested those assumptions? Are there other known unknowns that could push you above that range as you look out the next few months that you've heard about?

Brandon, let me start just a quick comment on the contract and then I'll let Brent and Steve answer for the rest. We tested that during COVID and post-COVID inflation. I don't know if you remember. So we have a tool in place for surcharge it's working well in some area, in geographical area -- other geographical area, it's a bit more difficult. But we are looking at the success story that we had post-COVID when we had huge inflation, and we are just putting a team in place to make sure that we reproduce that and not only one geography, but across the entire territory.

So the answer is, yes, maybe not every contract but a huge majority [Technical Difficulty] potential headwind we see in the year related to the Middle East conflict that we're carefully watching that situation and estimating the impact that it could have on our operating income. And like Emmanuel said, we are monitoring weekly and looking for every opportunity to mitigate that impact on our results, the best we can.

Brandon, I'd just add, you coined a phrase known unknowns there. I suspect -- I don't know if we can never know an unknown. We certainly thought very deeply about this. So we think we've identified that appropriately.

The next question comes from Matt Larew with William Blair.

I wanted to ask about the bioprocess portfolio. You referenced BMP as a category in down slightly in and then improving in the back half. Many of the bioprocessing peers, I think, at this point are closer to normalized growth in the high single digits. So Emmanuel, just curious if you think on a on a long-term basis as is now a chance to really review the business if this is a portfolio that you think can grow kind of at that market rates and maybe how long you think it will take to get back there?

Yes. No doubt. Look, the BMP negative growth into Q2 that we are anticipated. And for that segment to be at the bottom is mostly due to what we talk about the seasonality and the speed static purchasing that we've seen, in particular into serum and new sale last year, all right? So it's a really what is the core of that segment, which is processed chemical. We've seen double-digit in process chemicals in Q1 and in revenue, but also in order, a positive book-to-bill.

We think that the market is 6%, 7%, like our peers looked at it, and we are really pushing the team to make sure that we are growing at market or even above market for the rest of the year. Again, the focus that we've done on Revival around commercial intensity as well as operation, give us confidence that we'll go back in the second half of the year to grow on both segments. And we're getting -- every day, we're getting more optimistic about the business.

That's great. And then Emmanuel, you joined last July. And so then there almost a year, you referenced the 25% of kind of top leaders changing the number of folks that you've brought in from other companies. In response to Catherine's question, you've been out to most of the facilities. I guess where would you assess in terms of the structural kind of personnel changes that you would like to make the -- any kind of accidents you wanted to implement and get going? Where would you say you're at in terms of getting that started and really ready for the company to jump off versus additional structural changes that you think need to be made to position the company?

And this is a very good question. Let me first because I like to be precise. I joined mid-August exactly. So it's not yet a year, right? It may be more time to celebrate my anniversary. But I'm super the about, first of all, the reaction of the team internally, all right? We have some really good talent internally. There's absolutely no doubt. And what we are trying to do is just buying this internal talent with additional external talent. Some of the roles that we've shared today and that are in that early slide, a role that we have created, that we didn't have in the past, okay?

And so I think where I am today, well, look at need a strong right-hand person and the CFO search is on its way, someone that can really be a partner to really continue to push and execute revival. But I will say, generally speaking, at my anniversary. So in a couple of more months, I think we will be almost there. We will announce soon some additional executive member that we should be able to position a couple of weeks to share with you around [indiscernible] and CIO, and I think we will be there.

Nevertheless, let me just say one more thing. Talent is always something which is very dynamic as well, okay? And what we are trying to do is to make sure that we do not lose the talent that we have as well. But this is always something very dynamic. And I think we are constantly making sure that we are motivating our talent. And one of the things that we're doing in revival around simplification is also about changing the delegation of authority to make sure that we empower the right people to make the right decision at the right place, at the place of impact as close as possible to the business. And I think, again, this is something that the team is reacting very quickly and very nicely. And I think the first quarter, we're pretty happy with our results, and we are very optimistic about the rest of the year.

The next question comes from Michael Ryskin with Bank of America.

Great. I've got a couple of minor ones I'm going to throw in. First, you alluded to prebates a number of times. Just wondering if you could expand on that, just sort of the magnitude of it in the quarter, was that unusual for 1Q? Just sort of the impact that had on numbers is how to think about that going forward?

Yes, Michael, it's Brent. So prebates are associated with enterprise contracts with large customers. We started talking about that in Q2 or Q3 of last year. We had a meaningful impact from payments due to that in Q4 of last year, that had very significant. We're not specifically quantifying it, but it had a very significant impact on the cash flow let's also be clear. It was anticipated. It was expected in our guidance as expected and how our cadence was going to get.

Michael, I will also look at it in a sense that if you do not renew and do not win contract, you don't have prebate. So we'll look at it as well as a positive.

Okay. Okay. And then on the VWR business, I hear your comments about 1Q. You expect that to be the organic low point, and you talked about some improvement in 2Q and beyond. You've got easier comps in the second half. But still, you did post a negative 5% organic trend on a negative 3% comp. So could you just talk about share dynamics, share gains, share losses, maybe touching on the prebates and the enterprise customers there? Just confidence that, that's really stabilized and is going to be less and less of an issue going forward?

So we talked about last year, we had some share loss. I think I explained as well that you don't lose share at a one-off, all right? It's a headwind that gone month after month, it takes time for our competitors to convert the loss that -- the win that they had, which is more or less on paper at the very beginning. And this is where we are. We are, first of all, on a seasonal low quarter.

We are at the tail of those losses. And we talked also about the fact that last year, we renewed contract, we renew contract with opportunity to grow license to go hand. And this is what we are doing. We're happy about what's going on right now. And so we have that tangible point, which is stabilization, stabilization of our commercial activity we win contracts, we renew contracts. We lost some contracts. We lost some share within a contract. The customer gave us a certain share of wallet. There's a huge dynamic here. But what I can tell you is we are stabilizing. And that's the most important thing. It's a stabilization. And as we are moving into the second half of the year, we have an easy comp. And that is because we are stabilizing because we are taking the action that we are taking in particular in e-commerce that we are confident about the fact that Q1 is the bottom.

Okay. Okay. If I could squeeze in one small follow-up. To Patrick's question, I think you pushed you on 2Q organic and margins. I want to make sure I understand the margin cadence properly. It sounds like you're pointing to some gradual improvement through the year, including on the gross margin on just looking at prior seasonality that seems to go against that. Is there anything unusual in gross margin that I'm missing for this year that would explain that?

Yes, Michael, I think we're coming up sort of the rebate for the company. We have significant revival productivity initiatives. There's always the noise of mix within that. And we're also not pointing to heroic improvement in that, just the kind of classic revival productivity and other things along with along with just better top line to better absorption against it.

The next question comes from Dan Arias with Stifel.

Brent, just curious how much of the plastic ware portfolio within VWR is yours versus OEM? I ask as I'm just sort of thinking about oil sensitivity and resident put cost, trying to understand how much you have control when it comes to managing inflation just versus sort of being at the mercy of whatever the OEM provider decides to do on price, et cetera?

Dan, Emmanuel here. We have a huge portfolio, and I don't have the data. I don't think -- I'm looking at Brent right now. I don't think we have the data in front of us. So I apologize, this is something that we can follow up. What I can just reinsure is we have also a new sourcing leaders in in VWR and Emilia is really leading that. So Emilia and Keith are really working hand to hand in the task force to make sure that we are controlling and making sure that we are negotiating best deal we can and passing through the increase we manage to see.

Okay. Fair enough. Maybe just sort of looking ahead a little bit and thinking about 2027, which I know is a long ways away, but are you -- does the operational improvement that you feel like you have confidence in right now? Does that give you confidence that EBITDA margins will be up next year?

Let me answer in 2 parts. First of all, let me echo comments from over already it is April '26. It's a bit premature to talk about '27. And I just want to reiterate what I said in the past. I take my comments very seriously. And for me, it is just too early to put a detailed take in the ground. However, and saying said that, I'd like to make a few more observations on the future. look, today, we are pleased with our Q1. We are looking into a second half of the year, which is going to be positive, and we are optimistic about that.

Revival is having an impact, and I'm confident that Revival for the rest of the year will have a greater impact. And so we feel that we will exit 2026. And by the end of the year, I think as well that we will have more capital deployment flexibility a higher level of confidence across the organization and revival is going to accelerate to have an impact on the entire organization around commercial, team around operational, team around the rest of the support functions. And so all what I see today over the last 9 months almost, give me confidence, and I am optimistic that 2027 will be a growth year.

Operator, we have time for one more question, please.

Our final question today comes from the line of Dan Brennan with TD Cohen.

Great. Maybe just on the distribution business. Could you just zoom out and talk to what you're seeing in kind of the broader market? There's a lot of uncertainty, what's happening with pharma spending certainly in the U.S. academic government trends. I'm just wondering versus what you're delivering, kind of how is the broader market doing? And then related to that, like are you guys assuming positive price in the back half of the year?

Do you want to answer the price for the back of the year?

I'm sorry, Dan, we have very modest price baked into our plan here.

And then I think from an overall market -- yes, sorry, from an overall market, I would say what I just said 3 months ago, I think we are where we are academic and government stable, maybe at a low level. Education is a question mark. Education segment is a question mark. There's pocket in Europe, as we discussed about that include industrial that are really struggled given the macroeconomic environment. There are geography differences.

And again, we are in so many different segments, including mining and pharma. Look, we are thinking that from us, and that's very important, we are stabilizing. The team is motivated. We are implementing the plan that we have, in particular in digital. We're super happy to have our new Chief Digital Officer, [ Jim Finn ] and that will really help us to think that the market is probably at a low single digit, and we will be back to growth in second half. I think this is where we are today. And of course, we will continue to monitor the macro environment on this.

Maybe just a final one. I know you called out that material headwind in Q2 from the BMP across those different businesses. Is there any more sounds like it's idiosyncratic very company-specific, but you've got -- it's pretty big. So could you provide any more color on that, like the [indiscernible]? And then it sounds like Brent that current materials is a headwind in the back half of the year. Sorry, if I missed in prior calls, you got to discuss those. But any additional color you can provide on those would be helpful.

Well, look, Dan, I think we've talked about it broadly where it comes as a headwind. But in in the first half of last year due to some timing, both customer orders and our fulfillment, you saw very, very strong performance in new sale. Now that also has very strong margin contribution. That becomes -- that's a headwind right now. You also saw a very strong performance in serum. Then in the back half of the year, we saw exceptional performance in the EM business particularly in Q3.

So new sale we talked about discretely, but for the research and specialty chemicals piece of it, that EM and serum just provides a headwind in the front half in the back half to just make the segment comps more difficult. So that's why you see us calling out specifically how we're doing process chemicals and other pieces there. So they're unburdened by those comp pieces, and I continue to point you all to the sequential performance we have in these through the year, moving away from the pieces on the comps.

All right. Thank you, Steve. Thank you, Brent. Thank you, everybody, on the call to joining us today. We moved the company for 1 in the first quarter, and I'm encouraged by the momentum and positive energy across the organization, revival is having an impact. Avantor is turning a corner financially, which gives me confidence that we will return to positive growth in the second half of the year. I look forward to updating you again next quarter. And until then, be well, everyone. Thank you.

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

Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's Fourth Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Chris [indiscernible]. Chris, you may begin the conference.

Thank you, operator. Good morning, and thank you all for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer; 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.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 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 disclosures package on our Investor Relations website.

With that, let me hand the call over to Emmanuel.

Thank you, Chris, and good morning, everyone. Thank you for joining us today. I'll cover 3 topics to begin the call. First, Project Revival and our progress to date, then our strategic objective for 2026 and how we will track our progress. And finally, my observations about the health of our end markets. I will then hand the call over to Brent. We will discuss our financial performance and 2026 guide in more detail. And after Brent comments, I will make some concluding remarks.

On our previous earnings call, I introduced the Avantor Revival program, which is designed to sharpen our strategic focus and to improve execution across the organization. Revival consists of 5 pillars, evolving our go-to-market strategy, improving our operations, optimizing our portfolio, simplifying our processes and lastly, strengthening talent and increase accountability. We are executing this plan with urgency and in the 3 months since launching the program, we have already made important progress. Our top priority has been the go-to-market pillar. And recently, we made a fundamental shift in how we run the company.

We now operate Avantor with 2 new business units, a product agnostic channel and a channel-agnostic product business. Customers and their needs are at the center of this reorganization. And we believe that this delineation maximize the possibility that every product and every service is delivered in a way that delights customers. Effective in Q1, we will alter our reporting segments to reflect this go-to-market approach and align external reporting with how we now manage the business internally.

Next, we have recommitted to the VWR brand for our channel business. One of my earliest observations when meeting with suppliers, customers and our associates was that everyone refers to the channel as VWR. So as of few weeks ago, the distribution channel of Avantor is once again known as VWR. We intend to capitalize on VWR tremendous brand recognition and long-standing goodwill with customers around the world.

In Q4, we launched an important update to VWR e-commerce platform, and we have committed to invest in addition $10 million to $15 million in 2026 to upgrade our customers' interface. Enhancing our digital capabilities is one of our highest priority given their importance to so many of our customers. In the operations pillar, our new Chief Operating Officer, Mary Blenn, has hit the ground running. Mary and her team have thoughtfully identified of investment to enhance our ability to serve customers.

Next, we have established a Revival project management office led by [indiscernible] that will coordinate our collective effort and will ensure accountability. Lastly, our teams across the world have embraced Revival, and I am thrilled by their willingness to make the changes necessary to maximize our potential. While I am optimistic as ever about the future of Avantor, I want to be crystal clear that 2026 will be a year of transition and investment as we reinforce the foundation of this great company. Significant investment will be made across the organization with our strategic priority in mind, driving sustainable, profitable top line growth. We will compete vigorously, but rationally, and we will work relentless to ensure customers are delighted about Avantor.

As such, the most important metric to track our progress will be organic revenue growth rate. and we intend to demonstrate improvement over the course of 2026. We have a significant amount of work ahead, but the fruits of our label will be meaningful when we execute our Revival plan successfully. We believe that Avantor can grow at a faster rate, generate attractive margin, produce strong free cash flow and do all of this in a fair, more consistent manner.

Before Brent discusses the financials, I want to share what we are seeing across some of our key markets. First, let me echo recent comments from others in our industry. After a challenging 2025, our end markets feel more stable, though naturally some areas are in better shape than others. The biopharma end market contributes to be healthy with production level growing at attractive rates and many companies identified investments that will expand capacity or improve efficiency. The bodes well for future demand from this important customer cohort. The primary growth driver of our bioprocessing business is patient's demand for biologies, which has remained strong. We expect demand for biologies to grow in 2026 and beyond based on customer development pipelines, the number of recent FDA approvals and the pace at which existing therapies are being adopted.

Customer inventory level across J.T.Baker and other process chemicals appear to be reasonable normal, and we expect demand for our products could improve modestly in 2026, having exited 2025 with a book-to-bill ratio of more than 1.

On the Master Flex fluid-handling side, we remain well positioned in areas aligned with customer preferences including single-use assemblies, fluid management and modular process solutions, which support flexibility and faster deployment when customers choose to invest. 2025 was a difficult year for our early-stage biotech, education and government customers. But we are cautiously optimistic that those end markets are near the bottom. While it is difficult to predict if or when Avantor might see improved demand, we are pleased that certain headwinds facing those customers may be dissipating.

The fourth quarter was one of the best quarters for biotech funding in recent years, and this momentums continue in January. Across the education and government end market, which we serve primarily with VWR, we have seen indicator of an improved funding environment in the Europe and Japan, but there remains uncertainty in the U.S. which represent a large percentage of our education and government business. While we are encouraged by expectation for an NIH budget in 2026, customers remain hesitant to spend money even when it is committed and received. This, coupled with reduction in headcount and program cuts over the past year lead us to believe that we will not see a noticeable increase in customer spend until we have an extended period of funding and outlay stability.

Before I turn the call over to Brent, I want to note that we are pleased to welcome [indiscernible] Mehra and Simon Dingemans to our Board of Directors. Sanjeev and Simon had deep global leadership, financial expertise and strategic insight. Brent?

Thank you, Emmanuel, and good morning, everyone. I'm starting with Slide 4. We delivered a Q4 largely in line with expectations with organic revenue growth, adjusted EPS and free cash flow at or above our guidance. For the quarter, reported revenue was $1.66 billion, which was down 4% year-over-year on an organic basis and squarely in line with our guidance. Adjusted EBITDA margin was 15.2%. Adjusted EPS for the quarter was $0.22 and at the midpoint of guidance. Free cash flow was $117 million. Excluding transformation expenses, free cash flow was $150 million at the high end of guidance. Adjusted gross profit for the quarter was $524 million, representing a 31.5% adjusted gross margin. This is a decline of 190 basis points year-over-year driven mainly by unfavorable segment mix and product mix as well as price actions in lab to protect and grow market share.

Adjusted EBITDA was $252 million in the quarter, which came in at the low end of our expectations. This was largely driven by gross margin, but also some modest headwinds due to Revival related spending as we have kicked off this program in earnest. Adjusted operating income was $225 million at a 13.5% margin. Interest and tax expense were better than expectations, and as a result, adjusted earnings per share were $0.22 for the quarter, a $0.05 year-over-year decline.

In Q4, we purchased $75 million worth of stock under the $500 million share repurchase program our Board of Directors authorized last fall. We paid down approximately $300 million of debt in 2025 and added approximately $120 million of cash to the balance sheet. Our adjusted net leverage ended the quarter at 3.2x adjusted EBITDA, flat to last year. Leverage increased by 0.1 point sequentially, largely due to FX impacts on the balance sheet that were higher than our expectations as well as lower LTM adjusted EBITDA.

Turning to our full year results on Slide 5. Reported revenues were $6.552 billion, down 3% on an organic basis. Adjusted gross profit for the year was $2.14 billion, representing a 32.7% adjusted gross margin. Adjusted EBITDA was $1.069 billion in 2025, representing a 16.3% margin. Adjusted operating income was $958 million at a 14.6% margin. Putting all of this together, adjusted earnings per share came in at $0.90 for the year at the midpoint of our updated Q3 guidance. We generated $496 million in free cash flow in 2025. Excluding transformation spend, we generated $599 million of adjusted free cash flow. Free cash flow conversion was nearly 98% when adjusted for the cash costs related to transformation.

Laboratory Solutions revenue for the quarter was $1.116 billion, a decline of 4% versus prior year on an organic basis representing the higher end of our guidance of down mid-single digits. Sequentially, sales grew modestly on an organic basis. The market environment remains reasonably stable, albeit at lower levels of activity than we would like to see. The prolonged government shutdown certainly had an impact in the quarter but we also saw some modest end-of-year budget flush that we did our best to capitalize on, particularly with equipment and instrumentation.

Our channel business, which represents approximately 2/3 of the business, was down mid-single digits with strength in chemicals more than offset by headwinds in consumables and ENI. Our Services business was down low single digits, and our Specialty business was essentially flat with proprietary chemicals up low single digits.

For the full year 2025, Laboratory Solutions revenue was $4.4 billion, a decline of 3% versus 2024 on an organic basis. Adjusted operating income for Laboratory Solutions was $114 million for the quarter with a 10.2% margin. Adjusted operating income margin declined 290 basis points year-over-year and 110 basis points sequentially from Q3. The primary driver of the sequential margin decline was mix with stronger equipment and instrumentation and specialty procurement sales at lower margins. Pricing also contributed to the margin decline.

For the full year 2025, Laboratory Solutions adjusted operating income was $510 million with an 11.6% margin. Bioscience production revenue for the quarter was $548 million, which reflects an organic decline of negative 4% versus prior year, representing the high end of our guidance. This also represents mid-single-digit growth sequentially. Bioprocessing representing about 2/3 of the segment saw a high single-digit decline at the better end of our expectations of down high single digits to low double digits. Within bioprocessing, Process Chemicals performed as expected, down double digits year-over-year. This was largely due to the ongoing backlog we are carrying as well as a particularly difficult comparable in Q4 of 2024.

Process Chemicals was up modestly on a sequential basis. On the order side, our process chemicals business, excluding serum and a book-to-bill of more than 1 for the quarter, and this order book is up high single digits year-to-date. While we continue to have operational bottlenecks, these did not materially impact our Q4 performance versus expectations. Our backlog did not reduce meaningfully in the quarter and remains too high but this is receiving intense focus from the operations and supply chain teams in line with our Revival objectives.

As expected, single-use was up low single digits, both year-over-year and sequentially. Controlled environment consumables were down modestly sequentially and somewhat weaker than expected. For the balance of the segment, Silicones performed largely in line with expectations and Applied Solutions outperformed due to electronic materials. Adjusted operating income for Bioscience Production was $127 million for the quarter, representing a 23.2% margin, down 340 basis points year-over-year. This decline is significantly due to volume-related fixed cost absorption and mix. On a sequential basis, adjusted operating income was down 100 basis points, in part due to additional spend to drive better operational performance. For the full year 2025, Bioscience Productions adjusted operating income was $518 million with a 24.1% margin.

Please turn to Slide 8. As Emmanuel noted, we have optimized our go-to-market strategy. And as a result, we are resegmenting the business in 2026. Slide 8 graphically depicts the key elements of this resegmentation as well as our new nomenclature for the business. This resegmentation reflects how we now run the business with a product-agnostic channel on the one hand and channel-agnostic products on the other. You will find detailed disclosures in the Form 8-K we filed earlier today.

Please turn to Slide 9. The larger segment is VWR Distribution and Services coinciding with our relaunch of the VWR brand last month. This will include most of the former Laboratory Solutions segment, but now will include CEC and will no longer include our proprietary laboratory chemicals business as well as a few other small businesses where we manufacture products. The guiding principle for the VWR distribution and services segment is a product-agnostic channel primarily composed of third-party content, but that also includes VWR branded products. Over 90% of this segment will be our channel business and the balance will be our services offerings, which include our on-site services where we manage our customers' inventories and stock rooms as well as our equipment services business.

Based on 2025 revenue, the Channel piece of this segment was approximately $4.4 billion, and the Services piece was approximately $300 million. What we are now calling our VWR Distribution and Services segment represented about 72% of our enterprise revenue in 2025 and had an adjusted operating margin of 11.5% for the year.

I am now on Slide 10. The other segment will be Bioscience and Med Tech Products. This segment includes most of the former Bioscience Production segment with the addition of our proprietary laboratory chemicals business and a few other small businesses where we manufacture products and the removal of CEC. Again, the guiding principle for this new segment is a channel-agnostic product business. The components of this segment are process chemicals, fluid handling, new sale and research and specialty chemicals. As you can see by the slide, process chemicals includes our proprietary J.T. Baker products used in production environments from solvents, to salts, to excipients. Fluid Handling includes our Master Flex pumps and associated tubing as well as [indiscernible] and other fluid management solutions. NuSil includes our well-known high-purity silicones that are used in medical and industrial applications.

Finally, Research and Specialty Chemicals captures the balance of our portfolio, including diagnostic chemicals, proprietary lab chemicals, electronic materials, chemicals and serum for biologic applications. For fiscal year 2025, Process Chemicals generated approximately $500 million in revenue, Fluid Handling generated approximately $400 million in revenue, NuSil generated approximately $350 million in revenue, and Research and Specialty Chemicals generated approximately $600 million in revenue, combined what we are now calling our bioscience and med tech product segment represented about 28% of our enterprise revenue in 2025 and had an adjusted operating margin of 26.7% for the year.

Please turn to Slide 11, where I will discuss our 2026 guidance. For 2026, we expect organic revenue growth of negative 2.5% to negative 0.5%. We expect FX will contribute 1% to the top line, resulting in reported revenue growth of between negative 1.5% and positive 0.5%. We expect that VWR growth will somewhat outpace that of Bioscience and Medtech Products during the year. We continue to drive operational recovery in Process Chemicals and have the benefit of a strong order book in the business. Bioscience and Medtech Products does face difficult comps in 2026 in the Research and Specialty Chemicals subsegment, specifically in Electronic Materials and Serum as well as with NuSil. VWR will be impacted by a continuation of the various dynamics discussed on prior earnings calls. As Emmanuel mentioned earlier, we will continue to compete vigorously, but rationally and believe that this business will exit 2026 on more stable footing. We are making a variety of investments to enhance our value proposition and to better serve customers which we believe will improve the performance of this franchise over time.

Moving to profitability. We anticipate that our EBITDA margins will contract by as much as 100 to 150 basis points in 2026, similar to our margin level exiting 2025. Margins will be pressured by a variety of factors, including Bioscience and Medtech Product growth due to headwinds stated before, mix shifts Revival investments, incentive compensation reload as well as price cost spread. While our cost-saving initiatives remain on track, they will only offset a portion of the headwinds that we will face this year.

Moving below the line, we anticipate interest expense will approximate that of 2025 as FX movements offset the benefits of debt repayment, and we anticipate a tax rate of approximately 22.5%, similar to 2025's rate. Finally, we assume a fully diluted share count of 685 million shares for the year. All this translates to an adjusted EPS outlook of $0.77 to $0.83 for 2026. We expect to generate between $500 million and $550 million of free cash flow in 2026 and we once again expect our free cash flow generation to be back half weighted. Our guidance does not assume any share repurchases during 2026.

A few comments on phasing. In Q1, we expect to generate EPS of between $0.15 and $0.16 per share. We will face the same margin headwinds in Q1 that we do for the full year, but Q1 bears the additional burden of being the historically softest quarter of the year for our industry, plus our cost initiatives will have greater impact later in the year. We may also be impacted by the severe weather across the U.S. recently.

Finally, capital allocation. Debt reduction remains a top capital allocation priority as we remain committed to reducing our leverage sustainably below 3x net debt to adjusted EBITDA. We built cash and paid down a meaningful amount of debt again in 2025. At the same time, we continue to believe that our current share price fails to reflect the intrinsic value of our platform, so we may choose to repurchase shares opportunistically with excess cash.

With that, let me turn the call back to Emmanuel.

Before we move to the Q&A session, I want to spend a few moments discussing 2 important topics: Our cost base and our go-to-market strategy. I've spent my career in an organization famous for their continuous improvement mindset with a particular focus on eliminating wasteful spend and recycling it into growth orientated area. The continuous improvement mindset is central to my management philosophy. I see many opportunities for Avantor to become more efficient, while at the same time, I see many opportunities to make important growth investments across the business. With our focus on Revival, we will no longer report progress related to our previously discussed cost transformation initiative. Now we will continue to target those goals internally as a strategic objective separate from or in addition to Revival. This doesn't mean that we are no longer focused on reducing costs in the business, but I believe that we should not have competing or potential conflicting priorities as Revival is our critical focus going forward.

Through the end of 2025, we have achieved run rate savings of $265 million, ahead of our original expectation. Revival is about much more than cost. It is about driving sustainable top line growth and operating more efficiently. When you marry this to the action already taken, this will provide a strong foundation to drive improved operating leverage and margin improvement that follows from it.

Next, I want to deep dive deeper into the rationale for our new go-to-market strategy and the correspondent resegmentation of our business. Over the last 6 months, I have traveled the globe to engage with customers, suppliers, other external partners. During those travels, too frequently, I've encountered confusion and misunderstanding about who Avantor is and what we do. These confusions end today. Avantor is a house of powerful brands, brands such as J.T.Baker, Master flex, NuSil and VWR. Each of our brand has a unique heritage and offer our brands are synonymous with attributes such as quality or reliability. Our new go-to-market strategy will facilitate sharper market positioning, and will clarify our identity, allowing us to capitalize on the equity of those powerful brands. The distribution business will build on VWR history of offering private label, third-party solutions and services. while the product franchise offers a diversified portfolio of best-in-class manufacturer products. By swapping certain business activities between the 2 segments, we will better organize the company to meet customer needs as the requirement of VWR customers differ from those of J.T.Baker customers. Those pivotal changes should improve our go-to-market effectiveness by enabling each business to focus on its respective customer service needs, product life cycles and value proposition. In addition, we have created clear operational swing lanes, which in turn will result in better operational transparency and accountability.

Finally, we believe that our new structure will enable more focused and faster decision-making as each month is free to pursue its own strategy without any possible tension between a high-volume distribution engine and a product-focused manufacturing engine. To conclude, I am excited as ever about the future of Avantor and confident that the successful execution of Revival will help us reach our vast potential. The company boost a series of world-class assets, including its people, and I'm delighted by how swiftly and energetically the team has responded to change. Avantor is in transition, and 2026 will be a year where we invest purposely and sensibly to strengthen all aspects of our business. The ultimate goal, of course, is for the business to produce financial results that are far more attractive than what we have shown in recent years. Thank you again for joining the call. Operator, let's switch to Q&A, please.

[Operator Instructions] Our first question today comes from Casey Woodring with JPMorgan.

Great. Maybe just to start, you said that you expect growth to somewhat -- or growth in VWR to somewhat outpace that of Bioscience and med tech for the year. Can you just unpack that, what are your segment growth expectations for the year? And then maybe just by quarter, we can talk about what you expect in 1Q in both segments and then the phasing throughout the course of the year?

Yes, Casey, it's Brent. Thanks for the question. The there's some limitation of what we're guiding to there, but that comment really is driven by -- as we noted, frankly, in my remarks there, we have a number of particularly difficult comps in the Bioscience and Medtech Products business and in Serum, in Electronic Materials and NuSil, those are creating several hundred basis points drag on growth there. So that we expect will bring it somewhat below where the VWR channel would be there. So that's a primary driver. We're not really laying out phasing of the growth throughout the year. When we think of Q1 and what builds to Q1, we guided to $0.15 to $0.16 for the quarter, which absolutely implies it should be the low point of the year for most financial metrics. We're not getting to other elements of it. You'd expect doing the math there, the organic revenues have declined by 5% or more, which will be offset by a meaningful FX tailwind there.

Okay. Got it. That's helpful. And then just curious, you highlighted that '26 is going to be a year of transition and investment. Just on the latter piece, how are you weighing some of these investments, like the $10 million to $15 million in e-commerce versus some of the cost savings initiatives that are in place? And if you can give any update in terms of how much by way of cost savings Revival will generate? And if we see any of that in 2026?

Casey, Emmanuel. I think -- what is very important to understand is we are absolutely not abandoning our cost discipline and cost savings. We have cost transformation initiative, okay? What we really want to make sure is it's part of Revival and it's really combined it with what we are starting to do. The other thing is, as I said in my remarks, look, it comes from organization, which are very well known and where I have been very well trained on continuous improvement. And what is continuous improvement mindset is really making sure that you take out the waste, but you also reinvest this waste into opportunity that you have in this company on both segments have tremendous opportunities. So Remember, in the Revival, we have a pillar, which is about simplification, about optimization. That's where the initiative on cost out is going on. And then at the same time, we have to invest in our e-commerce channel. We have to invest in talent as well. And so this is where we are. The goal, Casey, of Revival, I mean, I don't have to remind everybody about it, but it's really about driving urgency to grow the business top line sustainably, but also profitably. So that's the goal that we have is to really make sure that we take cost out, we reinvest it and the outcome is top line growth profitably.

Our next question comes from Brandon Couillard with Wells Fargo.

Emmanuel and Brent, maybe the high level would be helpful to get your perspective on the degree to which you've kind of discounted the guide and to stress tested your assumptions, especially coming off the successive number of cuts last year. Just trying to get a feel for elements of conservatism that may be embedded in either the top line or the margin outlook for the year.

Yes. Look, Brandon, there, number one, very, very mindful of that. There are a huge number of moving parts that are going to impact the P&L in '26. And with the timing of the magnitude of all of them is difficult to reflect. But really, we've taken all the pluses and minus in here. And I would say the guide is neither conservative nor aggressive. It's very prudent, and that's really the approach we've taken here.

Okay. Then as far as the margin guide goes, I've heard you call out $15 million for e-commerce, another $20 million for your ability to serve customers. Are there any other investments that you specifically call out? Should we view those as kind of onetime in nature as we think about what the margin could look like beyond this year?

Yes. I mean, Brandon, a few things here. The $20 million on the operations side is going to be much more capital than OpEx and certainly some of the digital are going to be capital. I think a few things we were thinking about the adjusted EBITDA margin path here. I think of Q4 as a starting point and why I wouldn't exactly call that a run rate, but I think that's an important jumping off point. Then you incorporated in our comments of biotech and -- I'm sorry, Bioscience and Medtech Products or we'll probably shorthand as BNP -- that will probably grow at a lower rate than VWR. So then you have a segment mix issue there. And then within that, the comments I made about headwinds in Serum, Electronic Materials, NuSil, those are really key drivers of margin, marrying that to -- on the VWR side, margins negatively impacted really by a continuation of the recent trends that we've seen in that business. There are some other Revival investments there. I wouldn't say -- the magnitude that Emmanuel called out are probably the really significant ones. And otherwise, these are going to be very tactical things. He's made comments about certain senior hires and all the rest of it. But that's what I would put together for the margin story.

And if I just add something, I think I shared that philosophy as well in my first call. It's also about self-funding, okay? So we spoke a lot about that internally as if there is a need of investment within Revival, we need to make sure that we sell on it, which means that we need to find optimization and waste in other areas to be able to reinvest.

The next question comes from Paul Knight with KeyBanc. Please go ahead.

As you look at this year, I guess we view it as an investment year, what kind of margin impact are these investments creating? Is it 100 bps? Is it 200 bps? Is it 50? Could you kind of give us a range on this implement Revival, fix manufacturing a bit, fix e-commerce, what is this kind of margin impact in your view that, like previous question could dissipate in future years.

That's a very good question. I think, first of all, I will qualify this year as a transition year, okay, more than an investment year. Transition means that we have a lot of change going on. We have a lot of work to do, okay? We have to make sure that we operate and we go to market differently, and we already started. And so remember, Revival that we just introduced only 3 months ago, -- and we -- the team is really in action, and I'm super thrilled by the reaction of the team and the engagement that we have. So I will call it a transition year. I will not call it an investment years. And as I said, all the investment that we need to do will need to be self-funded. So what we are guiding today is what we're guiding, and I don't think we will go in granularity that you're asking about how much Revival is investment or not. Again, if there is more investment that we'll do, which are going to be much more material, we'll share that with you guys. Three months in the road, we've already taken a lot of action. We relaunched VWR, which, by the way, received great feedback from suppliers, from customers for our own people. So the team is energized. I participated [indiscernible] conference of America. Last week, I was in Asia for the same [indiscernible] conference. And in 2 weeks, we will be in Europe. The vibration is -- the vibe and the spirit of the people is really good. So I don't know if you want to add anything, Brent, but I don't think we'll go that granular.

Yes. I mean, Paul, I would just I would also grand yourself in our comments on the exit rate coming out of 2025 in Q4 and the number of moving pieces we have, particularly in the bioscience and med tech business, which is very significant margin impact there.

Yes. And then last question would be, what do you think the growth rate of the industry is under normalized conditions?

What is normalized condition? Is it normalized condition from the market? Or is it normalized foundation from us and on which period during a transition year or not. I think -- look, what I'm still really looking into this trying to really evaluate what will be the future. What is very important is that we execute what we said, we will, that we got into the detail that we compete rationally and that we just move on. So let me -- I've been here only 6 months. So I need maybe a bit more time to come back to you, but this is a very good question.

The next question comes from Michael Ryskin with Bank of America.

Great. I don't want to beat a dead horse, but I want to go back to margins again. Just the 2026 guide, if we look at both 4Q as a jumping point, is just sort of like the total year-over-year. Wondering you guys haven't talked about a lot so far has been price and share gains and share losses you alluded to a little bit on the fourth quarter of lowering price to hold on to volume. So I was wondering if you could elaborate on that. I mean, is this a race to the bottom? Sort of how viable is that is the long-term strategy? Just could you talk about share losses, especially in the lab distribution side of things. And just once you get through all of that 2026, is this the bottom on margins? Can you expect margins to go from here? Or are we still sort of in the process of figuring that out?

Yes, Michael, thank you look, in Q4, the biggest impact on margins was mixed. There was a little price and there was a little negative price in Q4, primarily the lab business there. we're being careful with all the moving pieces going forward into '26. So that's why we're using that as a jump-off point. But our assumptions in the plan for next year include, I would say, when you look at the gross -- or when you look at the revenue outlook, we're expecting very, very flat volume on the lab side and some price, but not a dramatic amount. And we're expecting better price on the Bioscience side with a little less volume there. So that -- we think we're in a point that we can execute against that reasonably on price, and we don't see it as a race to the bottom.

And I just want to maybe make one comment. We are working really hard to make sure that Q1 is the low point.

Okay. Okay. All right. I'll follow up offline. And then for my other question, you mentioned in your prepared remarks, you had a comment about book-to-bill greater than 1. I just want to be clear on that as that was bioprocess specifically? Was that one of the subcomponents of bioprocess. And just depending on where that is, I'm kind of trying to reconcile that with the biosciences and netted guide versus the implied guide for 2026. I mean, I guess, why isn't -- if the book to bill greater than 1, why does not translate to slightly better growth in that segment? I know you called out some tough comps, but just sort of let's put that greater than 1 number on the context and what that means [indiscernible].

Yes, Michael, that as well as the full year high single-digit growth was a Process Chemicals comment and Process Chemicals excluding Serum there. And and that certainly is a better part of the story for '26.

And Mike, you remember that we have some bottlenecks in supply chain. We have identified the need to invest about $20 million. Mary and her team is working super hard to make sure that this is put in place. But as you know, a lot of those equipment or investment needed, it takes time. It's customed, it needs to be deployed. It needs to be validated. So we're super pleased to have a book-to-bill superior to 1, but there's a few things that we need to do in supply chain to debottle the net that we have right now.

The next question comes from Dan Brennan with TD Cowen.

Maybe, I guess, the first question would just be back to the margins. I know you're not going to give a lot of granularity, but a little bit more of a bridge would be really helpful if you could, I mean, going from 16.3%. I know, Brent, you're saying south 4Q, but could you just give a little more color about how we think about organic margins how we think about the investments, how we think about kind of other levers, you're talking about mix, that would really help us since I think that's the key reason soon this morning.

Well, Dan, I think you answered a lot of the question within that. Again, the Q4 exit rate is a really important grounding point. We do have a modest incentive comp reset that creates some -- and some merit that creates some headwind on the SG&A side. We're obviously running productivity actions against those things. We will have we will have those mix pieces on the bioscience and med tech side there that there are headwinds there. And then obviously, driving price and lab and putting that all together, I don't think we'll have a more concise bridge for you here. That's also why we're going to EBITDA margin generally because, look, we understand where Q1 is going to be. As Emmanuel said, we expect that to be the low point, and we'll drive sustain continued improvement throughout the year.

Okay. And then maybe Emmanuel, you talked about the tour you did with customers and the strong receptivity on VWR, the panel business. Can you just zoom out a bit on the channel business and just give a perspective how we might think about the outlook there? Like any comment on what your share in that business is, how you're competing with your biggest competitor there, Thermo. And kind of as we look out, what you think that business could sustain from a growth and margin basis to look out a few years?

Yes. Look, again, I spend a lot of time with supplier in particular and customers. Look, after a challenging 2025, I think we're seeing some stability in the market. I think [indiscernible] and the team has done a really good job to renew a really important contract for us. as I said, with opportunity and of course, those opportunities are licensed to end, I will say, okay? So it takes time to really go and convert those things. But we have -- I feel that we are looking at some -- leaving 2025 in -- 2026 story in a better position that we were living in 2025. We'll continue to compete vigorously for sure, but we want to compete also rationally, okay? I think this is very important for us. There's a variety of investment that we are doing. We are bringing a lot of talent in that organization, okay? We have a new supplier relationship leader. We have a new pricing leader, which is very important for us. We are investing into the e-commerce. We had our first release of our graded e-commerce platform in December. And I think the launch of the relaunch as our distribution brand is really, really resonated very, very well with the market. So I feel really encouraged by the feedback that I received from the VWR ecosystem. And again, I think that we will exit 2026 in a more stable footing.

The next question comes from Luke Sergott with Barclays.

Great. I just want to talk about menu, you talked a little bit about not sacrificing growth opportunities for cost savings as you had seen in the past. Can you give us some examples of what you -- as you -- the first 6 months in and looking at some of these missed opportunities, and how you would have done things differently and then we can get some more pointed questions, I guess.

Sure. I mean one example I come straight to my head is in certain, I will say, VWR specialty, we may have cut too many specialists, okay? So when you cover a territory with -- I'm going just to take an example, if you cover England with 10 specialists in the past, which was probably too many, okay, okay. But maybe cutting down to 2 is too little. And that's what we are really looking at in the go-to-market [indiscernible] of Revival. It's really looking at the specialist, the account managers, the deployment of those people by territory, by geography, according to opportunities. And so 10 was maybe too many, 2 is too little, maybe the right number is 5. And it's those type of approach that we have by country, by territory, by product segment for both VWR and one side and BNP on the others. What was the second part of your question? That was it?

I mean, just what you would have done there? I guess -- and as we think -- I mean, I'm not going to talk on the margin, obviously, but you think about the investments here, you got 3 segmentation we've seen this kind of revitalization story before with you guys. So what are the difference in the go-to-market strategy here? What kind of investments do you need to make? And then how should we think about those investments across the 2 segments? Is this going to be on like VWR, and we should expect that business to grow in '26? Or is this just like investment in trying to hold clients in without losing any more key customers?

That's a great question. Look, the basic decision for the change in the go-to-market and the resegment business is really coming from customers. And it's really about the confusion that I heard when I spent 6 months on the road, okay. We have an opportunity to be clear. We have an opportunity to leverage the identity of who we are, where we're coming from, from VWR, from J.T.Baker, from Master Flex, from NuSil. And it helped us to just better organize ourselves really being much more focused on the customers' needs and you can appreciate the customer needs of for VWR customers which want a channel, which won the fast delivery, which won the very fast services at a great price point is different than bioscience chemicals, which are designing into a process or a molecule manufacturing. And so those different needs deserve different commercial approach, different support, and that's what really motivated our decision here. It's about better organization. It's really about making sure that we can compete, that we can be more nimble more agile. And of course, one thing which I think is extremely important as well is to have better accountability across the organization. So that's really what motivated us. In terms of investment, again, we'll make investment in both segments where we see the opportunity. I'll give you an example in VWR book, there are plenty of other opportunities in the BNP segment. So we'll make investment against where we need to go after opportunity. Again, the goal is to really drive sustainable, profitable top line growth for us.

Got you. By the way, in your guide is VWR going to grow? Sorry, about jumping in there last minute.

Well, I think as I said, we feel that with investments we're doing, with the passion that is behind, we will exit 2026 in a more stable footing.

The next question comes from Vijay Kumar with Evercore.

Emmanuel, maybe one on -- given the new segmentations [indiscernible], is there -- what was the organic growth for VWR in Bioscience, Medtech in fiscal '25 because when I'm looking at the numbers, did Bioscience and Medtech grow in the '25. If it did, what was Bioscience versus Medtech, just maybe some context in this new segmentation. Is that -- like how does it help you in better aligning the business? You mentioned go-to-market, right? Like what's changed versus prior and how you go to market?

So Vijay, just on the technical side, we haven't provided that historical, but it's -- the portfolios aren't that different in the aggregate. So your growth path will be similar to what we provided on the historical segments. Emmanuel, on the segmentation change.

Look, on the go-to-market, what change is from a customer standpoint, when you want to buy a product, which is through a distribution channel, a buy to sale, you get everything in there, okay? Remember, one of the things that we moved, I think, which was in the slide was CEC. And the CEC, its mask, it's many products that you use across various places, but of course, also in Biomanufacturing. But you buy them through your indirect sourcing team. You buy them through distribution. So CEC, which was part of the BPS now is going back to VWR because the customers buy them from an indirect sourcing organization, they buy that through VWR. So it just make more sense for the customers. It is simpler for the customers to know which product is by which team, by which commercial team under which contract. So it's all about clarity, it's all about customer centricity, around their demand and how do they want to be served.

Understood. That's helpful, Manuel. Maybe my second follow-up is -- the share count, Brent. You ended, I think, at 679 . Why is it going up to 685. I think given what you mentioned about Q4 stability, can we expect EPS to grow in fiscal '27? It's a directional qualitative kind of question?

Yes. I'll take the first part and then to Emmanuel on the second. We -- just dilutive shares -- dilutive comp grants in that as well as it moves on stock price and that there's nothing dramatic underlying that assumption on the diluted share count.

Yes, I think, look, 6 months in the job, 3 months in Revival, I think it's really too early to talk about what's going to happen after this transition year. So I really want to focus on where we are today. All the work that we have to do, Revival, and then we continue to understand more, learn more and hear more from supplier customers, and we'll take it one quarter over time.

Our final question today comes from Matt Larew with William Blair.

You have the new segments here. And obviously, on the BNP side, you referenced sort of the channel agnostic being the theme. But it also spreads not cross but across end markets and customer classes and some are more scaled than others. Last quarter, you referenced the idea of M&A wanting to bring inside of a healthy organization. And this year it was about making the organization healthy. What about just from a current portfolio standpoint as you now assess the scale needed to be successful within each some of these subsegments. Emmanuel, what's your take on kind of the portfolio as it sits today and where you'd like that to be?

Yes. Look, we shared that in the past in terms of portfolio. We are doing a lot of work. We've done some really good analysis. Brent is leading this pillar inside Revival. They have targets which have been identified. And as we said in the past, everything is on the table, no table, right? We are really looking at everything. And there are some things which are going on. And of course, we will talk to them when they happen, but we're moving full speed ahead on the portfolio. I think it's very important as well to remember that I really want to make sure that this resegmentation is understood on the fact that it gives us opportunity, right? When you look at the BMP channel-agnostic it means that the team is now open to a new opportunity open to a new way to reach customers in an area like in Asia, like I was in 2 weeks ago, there is opportunity. And this is why, again, we are doing this, is making sure that we look at those 2 businesses really separately in terms of opportunity. There is opportunity, and we are enthusiastic about it. That's what we will do. But portfolio, we're working on it. And when we have things to share with you, we will do so.

Thank you. Those are all the questions we have time for today. And so I'll turn the call back to Emmanuel for closing comments.

Thank you. Thank you very much guys for joining the call today. Let me conclude by just maybe repeating what I've said in the opening remarks. Avantor is in transition and 2026 is really a year where we will invest purposefully and sensibly to really strengthen all aspects of our business. The ultimate goal for us, of course, is for the business to produce financial results that are far more attractive than what we've shown in recent years. and you have the full commitment that the team is working really, really hard on this. So thank you again for joining the call, and talk to you soon.

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

I'll now turn the call over to Chris.

All right. Great. Welcome, everybody. Thank you for joining us today. My name is Casey Woodring from the Life Science Tools and Diagnostics team here at JPMorgan. Welcome to the conference. Pleased to be joined by the Avantor management team. We have CEO Emmanuel Ligner; CFO, Brent Jones. They're going to go through the corporate presentation here, then we'll get into Q&A. So with that, Emmanuel, all yours.

Thank you, Casey. Very good morning. Thank you for having us at JPMorgan conference. I've been coming here for a bit more than 10 years maybe now, but that's my first time to present. So it's a very exciting time to talk to you about this great company, Avantor.

As Casey said, I'm joined with Brent Jones our CFO, will be answering some questions after 15 to 20 minutes presentation about the company, but I'm also joined with Hedi Hosak, who is representing our IR team. As you know, I spend my entire career in the life science industry, GE Healthcare, GE Life Sciences, Cytiva and of course, Cerba Healthcare, my former employer. And today, I'm super excited to talk to you about Avantor.

Before we start, a quick disclaimer that I'm sure you know very, very well. We will be presenting in my presentation and in my -- in the Q&A, some forward-looking statements, which reflect our current views, but not guaranteeing future performance. Also in the presentation, it includes non-GAAP measures. A reconciliation of the non-GAAP measures is included in the appendix.

Today, my goal is to introduce you Avantor in a simple way, to share with you the passion that I have for life science, but in particular, for Avantor. I've been working as a customer, as a supplier with Avantor, VWR and all the other brands for more than 20 years since October 1, 2004, actually. This company has solid foundation and a great and rich heritage. It's a global business that support thousands of scientists around the world through their day-to-day work, which is about research, development, and manufacturing.

Our product and services are embedded in every stage of our customers' activities. I worked in GE for more than 10 years, and Jack Welch had a famous say. If you're not #1, if you're not #2, don't bother. Let me tell you about those brands. VWR, which is our distribution brand is #1 in Europe, #2 in the U.S. Masterflex is #1 in high tubing quality and pump systems for research and industrial fluid transfer. J.T. Baker is #1 in bioprocessing chemicals. And NuSil is #1 for human implant, high-purity silicone.

And the solid heritage and an incredible brand, incredible product. We're serving them, and we have such an incredible reach. We reach and serve 300,000 customer locations in more than 180 countries. We supply all the top 20 pharmaceutical companies. By nature, our products are very sticky, product and services are very sticky, and which means that it has an incredible high percentage of recurring business.

Consumables are used every day. Our high-quality products are designing in our customers' processes and stay there for a long time. And finally, this is a business which has an incredible cash flow. Over the last 3 years, we have 100% free cash flow conversion. Now when I say that, I'm sure that our entire audience today will agree with me that while we have solid foundation, there is room for meaningful improvement. I'm sure you will all agree with me that our current share price doesn't reflect the long-term value of Avantor platform.

As you know, I joined in August last year of 4 months. And in October, when we shared our Q3 results, I also introduced you and introduced the launch of the Revival program. The Revival program now is 10 weeks. And today, in addition to tell you a bit more about the company, I also want to tell you what we are doing with Revival, what is going on and what is our commitment.

So quickly a reminder of Revival, which we launched in October. It's about enhancing the go-to-market strategy. It's about improving manufacturing and supply chain organization. It's refocusing our portfolio. It's driving cost out and saving by simplification of processes, by empowering the team and it's strengthening the talent of the organization.

So over the last 10 weeks, we're acting quickly. We have created a Revival management office with project management team. And actually, every single pillar that you see on the slide today is led by one of my team's executives. It is just the beginning. It is a lot of work, but there's a lot of opportunity ahead. And we are really excited about the impact that Revival can have on the organization.

I will give you some further details of the steps that we have already made and what we're doing and what we're expecting for the rest of the year. I like this picture. I like this picture because it's a simple picture that show who we are. On one side, we have distributed lab consumables and equipment to laboratory around the world. On the other, we're manufacturing proprietary products used in life science and medical technology application.

On one side, you have the channel, which is product agnostic. On the other, you have product, which is channel agnostic. Our goal in the go-to-market pillar for Revival, which, by the way, I am leading personally, it's really adjusting our market approach to ensure that each business, each product, its services is sold the most effectively. It's reaching the customers the right way. And we are focusing on 5 key areas: customer service, commercial effectiveness, marketing, sales and talent.

Now I want to go a bit more in detail about VWR and a bit more in detail on product and again, give you an example of what we've done and what we are doing on Revival for those 2 pillars of the company. So as I shared with you at the beginning, VWR is an incredible leading distributor around the world, #1 in Europe, #2 in the U.S. It has been founded in 1852. It's a great heritage, a great brand name, great recognition of high-quality service and speed of delivery of product. And we achieved that using 400 distribution centers around the world, equipped with specialized infrastructure, and it is really renowned for the quality of service that we have provided.

It has 3 pillars. First, a private label with more than 5,000 suppliers providing us product with VWR label. And this offer alternative to our customers. Of course, we're supplying millions of SKUs from top and most renowned supplier in the world. You have only a few names here, but it's also a service that we are providing to those incredible suppliers is to give them access to the reach that VWR have.

And finally, we have really an added value services. We have more than 2,000 of our associates, which works at the customer's bench alongside the scientists and make sure that the scientists are focusing on what they do best, science. And the goal of these services is really to return time to scientists. So Revival, what does revival do? And what are we doing for the go-to-market for VWR?

Well, first of all, over the past 2 days, I've met many suppliers, many customers. And of course, over the last 4 months, a lot of our associates, everybody refer to this channel as VWR. So the first thing that we're doing is we are relaunching VWR as a distribution channel of Avantor. We are doing that next week, our sales conference of the Americas, and we will continue to do that along the year. Really, this brand is very iconic, very well recognized, and we need to capitalize on it.

We have also, in December, and I don't know if you remember in the Q3 earnings, we talked about our e-commerce platform, which had not performed the way that we wanted. Well, in December, we already launched a first update of our e-commerce channel. It is the beginning. There's many more to come. And we've committed between $10 million to $15 million in 2026 to really get back to an e-commerce platform, which is really top of the customers' mind, which is really the perfect interface for the customers.

Our marketing team is also working with supplier to recreate marketing tools as a workflow. The benefit of a distributor for customers is that we are capable of offering a complete workflow for the application of the customers, bundling many different supplier products.

Finally, the team is working on offering both strategic supplier and strategic customers great visibility and analytics about all those consumables and equipment reaching those 300,000 customers location around the world. So it is about a better customer service. It's about a better customer experience, and it's really about bringing the customers at the center of VWR to turn around the performance of this great product brand.

Let's talk now about our product. In addition to the VWR distribution, of course, we are offering manufacturing specialty product, high-quality product. J.T. Baker, high-purity chemicals, a company dated 1904 with an incredible reputation. It's about predictability batch to batch, consistency for our customers.

Masterflex, fluid handling company, as I said, incredible positioning, #1 in pump research, in fluid management. And I will explain to you how those 2 brands and 2 product lines are really helping our bioprocessing business.

And finally, NuSil, high-purity silicon for human implant. Revival for those products is about leveraging our scientists. We add value to the customers when we lean in, when we work at the bench with the customers to solve their challenges to bring them solution to enhance their processes and make their processes better.

So it is about customer intimacy. It is about commercial effectiveness. It is about marketing, leveraging those very powerful brand. But it's also about relying on a strong supply chain. It's about increasing on-time delivery. It's about reducing lead times, ultimately to better serve our customers. As you know, I spend a lot of time in the bioprocessing world at the helm of Cytiva and GE Life Sciences. And I truly believe that Avantor has a differentiated portfolio. That differentiation comes really around our chemical portfolio.

As you can see, it's a busy slide, but our chemical portfolio really are used by our customers and offer really high-quality purity chemistry from the very beginning to the very end alongside the entire processing. However, since the last 4 months in my onboarding, I was a bit surprised that we get compared with Cytiva, with Thermo, with Repligen, with Sartorius because we have a differentiated portfolio. We do not have cell culture media. We do not have a cell line. We do not have filtration. We do not have bioreactors. We do not have large skid and chromatographic columns. And we have a differentiating offer. It's those chemicals, which combined with Masterflex fluid management offer a unique differentiator.

As you know, when customers make buffer, they receive usually chemistry in big drums and large drums. And they have associated with a spoon, a big scoop one place to another into the mixers. Well, our team in our innovation center in Bridgewater, New Jersey have created a combining the Masterflex fleet management and the chemistry from J.T. Baker, a unique differentiated ready-to process, ready-to-dispense bag. It is a unique product. It is differentiated and it shows you the strength of the chemistry on the one side and the fleet management on the other.

It's about really enhancing process integration. It's about reducing contamination risk, safety for the associate and the employee of our customers, it drive efficiency. So again, remember about differentiation, it's a consumable business, which is not exposed to capital cycle, and it's a product line which are embedded in our customers' process. So I just wanted to make sure that I share that with you as this is an area that I know very, very well.

Right. Let's go back to Revival. There's 4 other pillars in Revival, all led by different people, executives. I will just start basically with talent, led by our Chief Human Resource leader, Brittany. We've moved very fast. You've seen that we've hired Mary Blenn, from former employee of GE Healthcare and Cytiva. She has an incredible experience, global experience of leading very large manufacturing operation, and she is already in action.

She has been only 10 weeks in the organization, but she has already identified the need of investing about $20 million of some equipment to make sure that we enhance our reliability. But with her team, she's already in action to work a long-term manufacturing road map, which will give us opportunity to actually simplify our supply chain, leverage the places that we have today and take cost out. So this is for the manufacturing strategy on the top left. Sorry, I started to talk about Brittany on our HRM, but that's Mary, and we are super happy to have her.

So if we go back to the talent, we are also on the final stage of recruiting a CIO, a Chief Digital Officer. We have a new IR leader, which is going to join us on February 1. We have also recruited many talents in both segments, Lab Services segment and the bioprocessing segments with a new leaders for chemistry business in the VWR channel, of course, someone as well, which is going to lead our supplier relationship, which is so important.

So a lot of things already done in talent on the last 10 weeks, a lot of things going on in manufacturing with that $20 million needed and the entire plant being developed. Brent is leading our optimization of our portfolio. A lot of analysis have been done, a lot of decision has been made and a lot of things are already in progress. As you can imagine, I'm not going to share many details about this, but more to come soon.

And then finally, Corey Walker, our leaders of our Lab Services Solutions segment, VWR is leading the simplification work. It's about driving cost out. It's about optimization. And they're really focusing right now on the process of order to cash. So the team is in place. The value stream mapping is being done, and we are going to work on this optimization of order to cash for both channel segments and the product segments. A lot to be done, still a lot to come, but we strongly believe that the Revival plan will be really helpful to revamp the performance of Avantor overall.

A couple of more slides. I think a slide which is always very, very important in JPMorgan, it's the capital allocation priorities. This is just reinforcing the message that we gave in our Q3 earnings. Look, we have a commitment to continue to reduce our debt and reduce our leverage. At the end of Q3, we were at 3.1. We will continue to target to have a sustainability below 3. It's a full commitment for us. At the same time, and it's back to my comment at the beginning around the share price, which we believe don't really how do I say, don't really just reflect the value of Avantor portfolio and solid product line.

So the Board of Directors has authorized Brent and myself to go after 500 million share buyback. But this is something that we are going to do on an opportunistic way without increasing our leverage. I think that Revival is going to give us the opportunity in the near future to go back to M&A. But as you can imagine, I think we need to have the house in order. We need to be simpler. We need to have better talent. We need to have better go-to-market and stronger supply chain to be able to go back to M&A to welcome any new technologies that we think will fit our portfolio.

Finally, a quick summary. I cannot be more excited to be first back to the life science industry to be here with you today, but also to lead this incredible business. Incredible heritage, strong brand, strong product. The customers that I've met, the suppliers that I've met all want us to do better, want us to work with us. They want to give us more, and I'm really excited about the future. There's a lot of work to do, but the opportunity is there.

Revival is in action. The team is committed to it, and it has already started to show some improvement of our performance, and I'm super excited about this program because the team has really embraced it. And not only my leadership team, but also the rest of the organization. We are acting with urgency to become more competitive and to serve our customers better and come back to growth.

Finally, I just want to remind everybody, and this is a good reminder before the Q&A session that we will be sharing our Q4 performance and our guidance for 2026 on February 11, and I'm looking forward to talk to you then. Thank you very much. Let's go back to Q&A session now. Thank you.

Great. Thank you, Emmanuel. Maybe to start, just can you talk about how you view the Avantor business in the marketplace as it stands today and your strategic vision moving forward? Obviously, coming from Cytiva, you must have a good understanding of Avantor's legacy bioproduction portfolio. But would just be curious to hear what attracted you to Avantor as a whole? And what are the key initiatives over your first 12 to 18 months on the job?

Yes, sure. Look, as I said, I joined Whatman in October 2004, and VWR was a very important distributor of Whatman. And those 2 brands are incredible legacy and strength. I don't know if you know, but Whatman date 1773 and Avantor and VWR 1852. I mean it's -- you need to be very, very humble when you lead a company like this because they have such a great legacy and you are a custodian of those brands.

So I was always having a great relationship with the VWR team with former CEO, Manuel Brocke-Benz and a couple of other people. And so when John pick up the phone and called me about it, I was very exciting because I knew VWR because I knew what VWR can do for a supplier. And guess what, GE Healthcare was also buying all the consumables through VWR. So I knew as well what a VWR can do and what a distributor can do for a customer side. So that was the first really excitement. It's great brand, great services and something which is really great.

On the other side, when I was leading Cytiva, we purchased a lot of chemicals from J.T. Baker, some amino acids, some glucose, some salt for the buffer business from the cell culture media business of Cytiva. So I knew as well the reputation. I knew as well the quality of the product. And I think what is exciting when you are a leader is, look, it's great to manage great business, great product in great times. I think there's always a challenge to manage businesses that need to be turned around, and this company needed to be turned around.

So I had a great discussion with John Peacock. We thought that it will be great that I bring my experience of supplier, customers and partner of Avantor in the bioprocessing into this business. And so I said yes. And he said, yes as well. So lucky me. But no, it's a great business and I'm super exciting about it. It's a great industry as well.

You gave a lot of detail on revival here today. I guess, which specific elements of the program are being prioritized for immediate execution and which are expected to drive longer-term transformation? Maybe if you could just walk us through the expected time lines for each of those 5 pillars that you talked about today.

Sure. Well, I think the first thing that we need to realize is it's going to be an evolving project, right? I think it's going to be step by step. We will focus on first things and then we find some other things. So I think there's a beginning, it's very difficult to tell you when there is an end. We are leading those 5 pillars at the same time, right? And that's why we have those 5 executives leading them, right? So we're recruiting talent. We are working through the portfolio. Mary is working on the supply chain. I'm working on the go-to-market. Corey is working on the simplification and cost out and empowerment of the team.

So I think we're really working all those 5 things at the same time because they are all very, very important. And they're all kind of coordinated as well. When you look at the go-to-market, if you redeployed your commercial team in certain area and redeployed commercial effectiveness tools, you need to make sure which portfolio you have. So you need to have the portfolio, I would say, cleanup done at the same time in parallel because if they're done after, you have to redo it again. So I think it's very important that we lead all those things at the same time. And look, just by refocusing the organization on the customers, we can already see, I would say, a funnel of opportunity, which is good. And that's why excited us. So we are going to push hard on this.

What specific financial and operational KPIs are you going to use to measure the progress of Revival? And can you just share your short, medium and long-term targets for those metrics, if you can share any today? And where would you see as the greatest execution risk as you implement some of these changes with Revival?

So let me first talk about the last part of your question, which is about the risk. Organization change is always risky. It's always hard. It's very often come from the top. What I am excited about is usually your most resistant layer of your organization to change are your middle layer. Those -- in an organization like us, we are 13,500 people, it's about a group of between 300 and 500 leaders. This is usually the hardest bit to change, and they are the most important people to change. What I'm exciting here is actually they are the team which actually really won't change. And they are the one that when I met with them, are excited about the change.

So I think it will be faster than other change that I may have done in the past. In terms of KPI, I mean, I think Brent can help us here. But what Brent and I are doing, I mean, we both come from Danaher, Brent from Pall and me from Cytiva, and we all worked a lot with bowlers and a lot of KPIs. And so we're working on building those bowlers. So every single team has their own bowler, so there's multiple facets of it. But it's about measuring the customer satisfaction. It's about measuring on-time delivery. Of course, it's about measuring the funnel, the funnel conversion, the funnel growth. And ultimately, it should be measuring a leading indicator about where we're going and what's going to be the performance of the business. So Brent, I don't know if you want to add anything?

No, I would just say there, as Emmanuel noted, 10 weeks into Revival, still getting the work streams going. As you see the effects, as we have '26 guidance, we'll start giving more on what KPIs you should measure us against there.

Maybe we can move on to the Lab Solutions business. So you've highlighted that the impact of prior share losses could create a drag to the business in future quarters. What's your strategy for accelerating the transition and ramp-up of new contract wins? And how should we think about those wins offsetting the drag from prior losses here moving forward?

So you have the contract win, which is very important. And within this win, you have, of course, making sure that the share of wallet gain is coming. So the team is organizing those strategic accounts. There's a lot of engagement from Corey on that side. But we should not forget as well that there is a very important hands of customers, which we do not deal with contract, okay? But we deal with the e-commerce platform. And those customers are very important because they are smaller customers, sometimes customers which are around the 10,000 or 50,000 purchasing a year, but you have to serve them very well. And the way to engage with them is really through the e-commerce platform.

So the revamping of the e-commerce platform is very important for us. I shared that we had our first version, which has been deployed in December. There's many more to come. We have a commitment of $10 million to $15 million investment this year to make sure that we launch a much more powerful tool. Our customers are not looking at a product. They're looking for a solution. They are looking for a workflow.

And so the other initiative that we have with the marketing team to really work with our supplier and our scientists to make sure that we offer a complete workflow to the customers because it simplifies their life. They may be looking for centrifuge. They may be looking for a small centrifuge. But in fact, behind that demand, they are doing Western blotting. They are doing genomics, they're doing proteomics analysis. And therefore, they need the whole full offering.

And by revamping our web page to have an easy search to have a complete workflow offering and revamping our marketing workflow, we will be able to really regain our market share and regain our, I would say, trust in our customers. I think the rest in terms of the logistics, in terms of the on-time delivery and in terms of service level is impeccable. It's really, really good. I think it's more than connection with the customers and interaction with the customers that we really need to revamp in particular, for that sale of small customers, which are very, very important.

And how should investors think about the time line for margin recovery in Lab Solutions? And what framework are you using to balance share growth against margin protection in a competitive environment that is seeing more of your customers bundling and cutting prices?

I'm going to start and then Brent, you can jump in after. Look, we have the right to win, okay? And it's always a difficult balance between price, but it's also a very important volume game here, okay? You have an infrastructure. I spoke about those 40 different incredible distribution centers that we have around the world. So the balance between making sure that you have the right price to win the volume and getting that volume is very important for the recovery of margin. Do you want to add something?

Yes. I mean, look, ultimately, you want to compound earnings and driving volume is the most critical part to absorb there. And look, we have to have volumes the system. Typically when you have those pressures when you have new contracts, you have lower price and they rise over time as you get mix volume otherwise, we're just seeing a lot of intensity of that right now. And again, you'll see that when we talk about the '26 expectations.

Okay. That's helpful. Maybe moving on to Bioscience production. So other bioprocessing players had indicated that the market is going to grow high single digits in '26, primarily driven by consumables growth. How should we think about bioprocessing growth within Biosciences production relative to overall end market growth for Avantor here? And how should we factor in competitive pressures and then the commercial execution headwinds experienced in 2025 in controlled environment consumables and process chemicals?

Look, I think we're pretty happy with where the commercial effectiveness is and with the team winning business, okay? I think in Q3, I shared that our order book and our order intake in bioprocessing and in chemicals, in particular, was high single digit, okay? And so I think it's a good signal that the customer trust us that our commercial team has a winning business. And we have really good share, good positioning. And as I said, in bioprocessing chemicals, we're the #1 company.

I think the combination of the chemicals and Masterflex and the buffer really give us a lot of opportunity. What we have to do is we need to have better supply chain. It's about supply chain. It's all good to have an order, but if you cannot deliver the product, it's on time when the customers want it, it's not helping. So it's a combination of this commercial effort and supply chain effort. And so for us, really on priority on the bioprocessing and on the chemicals is very important that we invest quickly those $20 million of equipment and different assets that we have looked at doing because it's going to help us the ability to be much more reliable to have much more capacity in some of niche products, and this is very important.

So Mary Blenn is full speed ahead on this, and it is very important for us that we do it quickly so that we serve our customers. But the good news is even if we had had a bit of a hiccup on the supply chain side, we didn't let down any customers and the customers want to continue to do business with us. They want to give us more. So I'm pretty confident that fixing supply chain will really help us to go back to the high single-digit growth that we see at the end of Q3 in our order book. Do you want to add something?

No, just in your comment there was on process chemicals.

That was on process chemicals, sorry.

Yes. Yes, that was.

Yes. Okay. And how should investors think about the reshoring opportunity for Avantor? Your portfolio is very consumables heavy. How should we view the potential benefit here relative to other bioprocessing players maybe with more equipment-heavy portfolios? Just curious on Avantor's single-use heavy portfolio. Could that be a competitive differentiator? Maybe walk us through how you're thinking about reshoring.

Well, I think there's very similar opportunities. I think the equipment is always -- give you some lumpiness, and there's always cycle around equipment, which we are lucky that we don't have. So I think it's about compounding. It's about making sure that you're designing your chemicals and your fleet management tools into customers' process and helping them to succeed. And so it's a compounding effect really in that sense. So I think the opportunity is pretty similar.

Okay. And Brent, maybe one for you just on the model here. Can you walk through the moving parts of the adjusted operating margin line for 2026 and whether 4Q could be a good jump-off point? And then maybe if you can help quantify some of the puts and takes on the gross margin line, like incentive comp inflation? Just any color on that.

I would say we'll look forward to giving you all that color on Feb 11.

I did give you a hint about the answer at the end of my presentation.

Okay. Fair enough. We'll wait to hear about that. Maybe one shifting back to the lab business. Given the heightened competitive pressure in LS within the distribution channel, do you see Avantor's portfolio as more competitive or differentiated for certain types of biopharma and biotech customers, whether that be different size or development stage?

That is a very good question. I don't know if you noticed in my very simple way of the business of looking at the business with channel on one side, product on the other. I talk about something which I think is very important in terms of differentiation. It's called channel, which is product agnostic. I think our major competitor is not necessarily product agnostic, and that's the feedback that we got from our customers. So I think this is where the VWR channel can be really differentiated is by really concentrating on what does the customers want, and that's what we want to do.

Interesting point. And then maybe on the academic and government side, can you just walk through the K-12 customer headwinds you've experienced? That business was down, I think, double digits in the third quarter. NIH funding is not a direct correlation here, but obviously, the overall market uncertainty is seemingly impacting your academic and government exposure. So can you just maybe talk about how you expect that market to perform in 2026?

Yes. I think there -- I mean, look, I'm not the one decided of what government will fund in academy. So there's always a bit of a worry there. Science and education is definitely suffering in that side. I think funding, we've seen some good funding at the end of Q4, actually, some leftover budget is always good. Look, I think the government understands that academy is very, very important and innovation is very, very important. So I think that the good science will always be funded. The good project has always been funded, maybe not at the level in the past, but I think it's going to continue to be there, and we are a strong supplier in there. But it's not the only segment that we are supplying.

I think this is a beauty about a business like VWR is we're serving the mining industry, we're serving the oil and gas industry. We are serving the food and beverage industry. Of course, we're serving the health care, the private and the academy and the fundamental research that are done there. So I think it's for us to make sure that we navigate those different segments and put our efforts where the funding and where the money is.

Got you. Coming up here at time. Maybe just in closing, what are you most excited for in 2026? It seems like you guys have a lot on the horizon, but if you can kind of narrow it down, what are you most excited for?

Yes. I mean very exciting about Revival because I think it is really the right program. The team is very embraced about this. And look, I think maybe something for you guys. I think I'm also very exciting because we will have an opportunity probably in the second half, end of Q3, end of Q4 to have an Investor Day and to welcome us to our place and spend a lot of time with you to share you more about the Revival because we will have had more time behind. Remember, it's only 10 weeks now and then really be able to talk about the future because I think the future is bright for Avantor.

All right. We'll look forward to that. And we'll close that. Thank you very much.

Thank you.

Thank you.

Thank you, Emmanuel and Brent. Thank you everybody for joining us. Enjoy the rest of the conference.

Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Allison Hosak, Senior Vice President of Global Communications. Ms. Hosak, you may begin the conference.

Good morning, and thank you for joining us. Our speakers today are Emmanuel Ligner, President and Chief Executive Officer; 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.avantorsciences.com. A replay of this webcast will also be made available on our website after the call. Following our prepared remarks, we will open the line for questions.

During this call, we will be making forward-looking statements within the meaning of the U.S. federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events or other developments.

This call will include a discussion of non-GAAP measures. A reconciliation of the non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website.

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

Thank you, Ali, and good morning, everyone. I appreciate you joining us today. As you know, I joined Avantor a little more than 2 months ago. I came on board because I believe this company has a tremendous potential. I spent my entire carrier in pharma and life science industries, spending meaningful time on 3 different continents. I was fortunate to spend 2 decades at GE Life Sciences and Danaher, where I build out the Cytiva business, significantly accelerated the growth trajectory of the platform and led its integration with Pall Life Sciences. During that time, I had a front row seat to Avantor trajectories as a customer and supplier. I believe this experience enabled me to step into this role 10 weeks ago with a unique perspective on the company's strengths and area for improvement.

Throughout my carrier, the primary lessons I've learned is that there is no substitute for going to Gemba. This concept literally means visiting the place where work is done and value is created to learn and determine how to best improve our organization. And for the past 2 months, this is exactly what I have been doing. I have dedicated my time towards visiting our sites, meeting our people, speaking with dozens of our customers and supplier across Asia, Europe and North America. This not only sharpened my initial instincts, but also provided invaluable insights as we map out our strategy moving forward. I want to personally thank all the stakeholders for the warm welcome, open dialogue and trust that demonstrated for my first day in the role.

Here are some of the important learnings. First, this is a great industry with strong secular tailwinds. Scientific collaboration is more important than ever. If you talk to any pharma or biotech company right now, you will hear about the multitude of ways in which they are harnessing the power of technology and AI to accelerate the next breakthrough discovery. That gives us a tremendous amount of confidence in the long-term trajectory of the end markets we serve and reinforces the importance of our positioning within the industry. Our recent announcement with Bluewell Bio is a perfect demonstration of how Avantor is advancing innovation through collaboration, and we are committed to continue to do our part to facilitate the research, development, manufacturing and delivery of next-generation therapies.

Second, Avantor has a solid portfolio, a committed global team and an incredible customer reach, serving more than 300,000 customers location across approximately 180 countries. As someone that has spent considerable time in recent years working to scale life science businesses, those attributes will be the envy of most companies. We have significant untapped potential and numerous opportunity in front of us, and we need to capitalize on those opportunities. Third and most importantly, there are many things we can and should do better, and we are taking immediate action to turn the business around and all ourselves accountable for rewarding the trust our investors place in Avantor.

Starting from a commercial perspective, I believe our business is overly complex with unnecessary centralization, which inhibits frontline staff from most effectively meeting our customers and supplier needs and expectations. Customers buy from Avantor because of the quality and service heritage of our incredible brands, VWR, GentiBaker, Masterflex, NuSil, those are some of the best-known names in the industry, and our commercial team are not being sufficiently empowered to leverage the equity of those brands. On the operation and supply chain side, I believe we need to make some investment and process enhancement to improve our ability to consistently serve our customers. Overall, I believe those challenges are generally sales inflicted. And the good news is that they are fixable with determination, focus and time.

At the conclusion of this call, I will share my preliminary thoughts on our plan for doing just that, which we are calling Avantor Revival. With those initial finding in mind, we strongly believe that our current share price does not reflect the long-term value of our platform. To demonstrate our long-term conviction in the prospect of this business, our Board of Directors has authorized a $500 million share repurchase program with immediate effect, which we will pursue opportunistically moving forward, while also delivering on our commitment to decrease net leverage.

Now I would like to turn it over to Brent for a more detailed overview of our third quarter financial results and our updated full year guidance. Brent?

Thank you, Emmanuel, and good morning, everyone. I'm starting with Slide 4. For the quarter, reported revenue was $1.62 billion, which was down 5% year-over-year on an organic basis. This reflects weaker-than-expected top line performance primarily in lab. Adjusted EBITDA margin was 16.5% and adjusted EPS for the quarter was $0.22. Free cash flow was $172 million with adjusted conversion at 124%.

Turning to Slide 5. Adjusted gross profit for the quarter was $527 million, representing a 32.4% adjusted gross margin. This is a decline of 100 basis points year-over-year, driven mainly by price actions in lab to protect and grow market share. We had another quarter of solid cost control with adjusted SG&A expense better than plan and prior year. Our results also benefit from reductions in incentive compensation accruals. We remain on track with our cost transformation program and continue to expect $400 million in run rate savings by the end of 2027.

Adjusted EBITDA was $268 million in the quarter, representing a 16.5% margin, better than our expectations. Adjusted operating income was $237 million at a 14.6% margin. Interest and tax expense were in line with our expectations. As a result, adjusted earnings per share were $0.22 for the quarter, a $0.04 year-over-year decline. Our adjusted EPS performance in the quarter reflects the flow-through of our adjusted EBITDA results.

Our cash generation was particularly strong with $172 million in free cash flow in the quarter. When adjusted for transformation-related payments, our free cash flow conversion was 124% of adjusted net income for the quarter.

In terms of our GAAP results, we took a $785 million impairment to the goodwill associated with our lab distribution business. This noncash charge was necessitated in large part by the continued weakness in our share price as well as the margin headwinds this business is facing. Our adjusted net leverage ended the quarter at 3.1x adjusted EBITDA, down 0.1x from Q2 as our strong cash generation enabled us to reduce net debt.

Finally, we recently effected a very attractive refinancing of our near-term maturities and upsized our revolving credit facility to $1.4 billion and extended its maturity to 2030. Other than modest required term loan amortization, we now do not have any debt maturities before 2028 and all of our debt is either prepayable at par or at very modest call premium. Our debt is approximately 75% fixed rate, and our current weighted average cost of debt is just over 4%.

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

With that said, customer activity continues to be at lower levels than our original expectations for the year, driven by ongoing end market uncertainty related to basic research funding. Each of our lab businesses faced similar mid-single-digit headwinds on a year-over-year basis. Our distribution channel, which accounts for approximately 2/3 of segment revenue was primarily impacted by weakness in consumables and equipment and instrumentation while our chemicals and reagents were essentially flat.

Our services business, approximately 20% of segment revenue, saw greater-than-expected headwinds due to the aforementioned share loss, and our proprietary business the balance of Labs revenue was significantly impacted by our science education business. However, our attractive proprietary lab chemicals grew mid-single digits in the quarter and similarly year-to-date. The primary drivers of our miss to expectations were headwinds in services and higher education and K-12. While market softness is a key factor in the quarter's performance, we also continue to navigate competitive pressures. These need to be better mitigated by improved commercial and operational execution, which, as Emmanuel noted at the outset, is one of our key priorities as part of Avantor Revival.

Adjusted operating income for Lab Solutions was $124 million for the quarter with an 11.3% margin. The softer demand environment has pressured our ability to get price, which has meaningfully impacted margins year-over-year. On a sequential basis, the primary driver of the margin decline was lower volumes and related absorption.

Turning to bioscience production. Revenue was $527 million in Q3, down 4% organically on a year-over-year basis and at the low end of expectations. Bioprocessing was down low single digits year-over-year versus our expectation of flat. Within bioprocessing, process chemicals was up low single digits but was lower than expectations. The planned maintenance downtime that impacted Q2 was remedied during the quarter. But as Emmanuel mentioned, we continue to face other operational headwinds that are impacting our throughput, including raw material availability and equipment uptime. As an example, downtime at several of our plants prevented us from shipping several orders that were due for delivery in Q3, absent these issues, we would have delivered our bioprocessing guide for the quarter.

Single use largely performed as expected and CEC was somewhat weaker than expected, down mid-single digits due to commercial execution and competitive dynamics.

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

Adjusted operating income for bioscience production was $128 million for the quarter, representing a 24.2% margin. Margin was down year-over-year largely due to lower volumes and related under-absorption as well as higher expense related to our operational challenges. On a sequential basis, volume was the primary headwind, only partially offset by price and lower operating expense.

Slide 7 shows our full year 2025 guidance. This has been updated to reflect Q3 performance as well as our best assessment of the current environment. We now expect full year organic revenue growth of negative 3.5% to negative 2.5%. Based on current FX rates, we expect a modest tailwind from FX of approximately 1.5%, along with the 2% headwind from the Clinical Services divestiture, this leads to reported revenue growth of negative 4% to negative 3%.

On a segment basis, we expect Laboratory Solutions full year revenue growth to be minus mid-single digits to minus low single digits organically, down modestly from previous expectations of minus low single digits. This implies Q4 organic performance of down mid-single digits. This change is due to the impact of Q3 performance as well as expectations for continued softness in consumables and in our lab services business.

We also expect additional headwinds due to the impact of the U.S. federal government shutdown. We expect Bioscience Productions full year revenue growth to be minus low single digits organically, down from previous expectations of approximately flat. This implies Q4 organic performance of down mid-single digits to down high single digits. This change is largely due to reductions in our outlook for bioprocessing as well as customer pushouts in our silicones business. Bioprocessing is expected to be down low single digits through the year organically, down from previous expectations of flat to plus low single digits. This implies Q4 organic performance of down high single digits to low double digits.

Recognizing this is a meaningful change, I want to break down our expectations across bioprocessing in a bit more detail. We believe process chemicals in Q4 will be flat sequentially versus Q3 and down double digits year-over-year despite solid year-to-date order book performance. We previously expected a mid-single-digit contraction in Q4 for process chemicals. This change is largely due to higher-than-expected backlogs as a result of the ongoing challenges previously discussed. Q4 is also a particularly tough comparable as process chemicals grew meaningfully in the double digits in Q4 last year. We anticipate single use to be up low single digits, both sequentially and year-over-year in the fourth quarter. We previously anticipated high single-digit growth in Q4 for single use.

Controlled environment consumables are expected to be flat sequentially and down low single digits year-over-year. We previously anticipated this business to grow modestly in Q4. This business is being impacted by the competitive pressures and the general demand weakness we are seeing in consumables.

Moving to profitability. We expect our strong cost controls and favorable compensation accrual impact to continue into Q4. As such, we expect full year adjusted EBITDA margins in the mid-16s. We have reduced our adjusted EPS guidance range to between $0.88 and $0.92. We still expect free cash flow performance of $550 million to $600 million before any onetime cash expenses associated with our cost savings initiative. The reduction in earnings from our previous guidance should be offset with strong working capital performance, and we now expect about half of the prepaid payments anticipated for the fourth quarter to push into fiscal year '26.

I also want to address near-term capital allocation. Much of our debt complex is prepayable at par, and we will continue to reduce outstanding debt as we generate cash. At the same time, with our new share repurchase authorization, we intend to buy shares opportunistically without increasing leverage. We ended the quarter at 3.1x adjusted net leverage and will continue to move towards our leverage target of sustainably below 3x.

With that, I will turn the call back to Emmanuel.

Thank you, Brent. Clearly, we are disappointed with those results. And I am not here to make excuses of our underperformance. My focus is on addressing the root cause of those persisting challenges and implementing appropriate course correction quickly. At the beginning of this call, I introduced the concept of Avantor Revival. Our Board and management team are fully aligned with this effort, which will initially focus on 5 key pillars. First, our go-to-market strategy. We need to evolve our approach to ensure customers and suppliers clearly understand our value proposition and complete product and servicing offering. As I mentioned in my opening remarks, we have an incredible roster of brands. Advancing VWR heritage as a leading distributor and a company heritage as a leading provider of fine chemicals and specialty materials, for example, is essential to drive growth. So we are carefully evaluating our brand architecture, and we are going to give more prominence to key product and channel brands moving forward.

We also intend to refocus attention to our distribution business and our value proposition to supplier and customers. We also have worked on the way to analyze our end evolve our customer service and commercial organization. This work is really focused on empowering our sales representative to better serve our customers however and wherever they want to be served. This includes enhancing our e-commerce platform.

Second, we need to invest strategically in our manufacturing and supply chain organization. Brent noted the operational issue we are having. In bioprocessing chemicals, the demand is there, and we need to be better positioned to meet that demand at all times. The current state of our manufacturing and supply chain organization varies with some facilities that are world-class, while others are in need of investment.

Third, we will be carefully scrutinizing our portfolio to ensure our focus on our core business. We are going to hold each of our businesses accountable for delivering clear growth, profitability and return on investment targets. We are approaching this process with an open mind, but if any of those businesses are not capable of delivering those targets in a reasonable time frame, we are going to scrutinize whether we are the right owner for them.

Fourth, we need to drive net cost savings and simplify processes across the organization. We are committed to being a business that generates strong operating leverage even as we invest in accelerating growth, and our ongoing $400 million cost transformation program is an important step in that direction. However, we recognize that those savings today are not adequately falling through to the bottom line. Part of this is because we are still operating with far too much competitive today. We need to simplify our operating processes to remove buyer that present us from executing efficiently. Gaps in certain operating processes are contributed to inventory and forecasting changes, preventing us from serving our customers at the on-time rates they expect. To address this, we are focused on improving leadership accountability across the businesses. We are establishing new operating norms and cadence that will ensure the leaders across our organization are aligned and focused on top business priorities.

Finally, to help to do this, we must strengthen our talent and improve accountability in a few key areas. Very encouragingly, most of the associates I have met are deeply engaged and passionated about the work they do each day. They want the company to succeed. They are prepared to work hard and be part of the solution. They are looking for leadership and guidance on how to do that. To support those efforts and accelerate improvement, we will be bringing on new talent in a few key areas: a new Chief Operating Officer, a critical role that will report to me, and [indiscernible] consistent manufacturing, supply chain excellence and lean operations across the organization. A new executive leadership position dedicated to the quality and regulatory function, reporting directly to me, a strategic move, reflecting the critical role quality and regulatory play in safeguarding patient safety, ensuring regulatory compliance and driving operational integrity across our global business.

We are also hiring a new Chief Digital Officer to help strengthen digital commerce capabilities with our Laboratory Solutions segments. Avantor Revival will initiatively be targeted toward addressing each of those focus areas. So important action will help us drive meaningful changes and improvement across our organization over the next several quarters. But we are not stopping here. It is important to stress that those initial steps are based on my observation following about 2 months in the role. I'm committed to continue to meet with and learn from all our stakeholders. And as I do, rest reassures, those plans will continue to evolve with a renewed focus on getting our performance back on track and created value for our shareholders.

Clearly, turning business performance around will take some time, but we are confident the actions we are taking will have an impact that will continue to grow over time. It's about driving simplification, process improvement and accountability across the organization. As I noted a moment ago, our Board and management team are 100% behind this effort. The recently announced addition of Greg Laser to our Board and the elevation of Greg Sumi as our next Board Chairman are demonstrative of our Board active oversight and engagement in this project.

I know we must rebuild our credibility with the investment community and accountability will be my north star. You can expect regular updates on our progress against those objectives.

With that, I will now turn the call over to the operator to begin the Q&A session.

[Operator Instructions] Our first question today comes from Vijay Kumar with Evercore ISI.

Emmanuel, welcome to [indiscernible] earnings call. Maybe high level, as you've reviewed the business, right, and you come with bioprocessing background, when you look at these declines, right, what is your confidence that these are fixable, solvable issues. And I'm curious on how the quarter played out, it relatively to prior expectations? Was the quarter progress in line and did things worsened in September, October? I'm curious when did these issues crop up.

Thanks, Vijay. Thanks for the kind welcoming world. Look, first of all, I'm confident that it's flexible. Over the last 2 months, I really spent a lot of time on the field with the people, with our customers, dozen of customers and supplier. And I think the first thing, which I was really, really super pleased about is the conviction by the people that they have the passion about the brand, they have the passion about the product, they have the passion about the customers. What the team need is really leadership. And I think on the quarter, look, it is a very disappointed numbers. There is absolutely no doubt about this. And there's no excuses about the fact that we just dropped the ball on a couple of areas. And again, I think I share that around the [indiscernible]. It's really about a better communication. It's about visibility, it's about execution, it's about accountability, and that's why Brent and myself are putting new norms, new cadence to make sure that the team is really working together.

I think, again, it is fixable. Those are just the 5 pillars that I had just identified in my first 8 weeks. Then of course, we'll continue to learn. We'll continue to speak with a key shareholder and we -- this plan will evolve without any doubt.

Understood. And then Brent, maybe 1 for you on when you look at '26, some of your peers have given outlooks right in the low single-digit range. Is -- can the business grow in 2026? You mentioned $100 million of lab contribution. On paper looks like lab shore in bioprocessing it feels like some of these were unique customer situations that was largely tied to fiscal '25, and it should grow, but can the business grow at a high level in 2016?

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

Our next question comes from Michael Ryskin with Bank of America.

appreciate all the candid color during the prepared remarks. You touched on share losses and competitive dynamics briefly in the prepared remarks, but just talking about 1Q, Q2 dynamics. Can you talk about that a little bit deeper? I mean, I think it's pretty evident based on the results over the last couple of years, especially in the Lab Solutions segment, but also in Bioscience. There's been pretty deep share losses to your competitors. I appreciate all your color on operational steps to fix that. But given the portfolio and given the markets you play in, how do you plan to stem that tide of share loss? And just could you just give us some confidence in the visibility to correct that because that seems to be sort of the biggest structural challenge you're facing?

Yes, Michael. Look, this is my understanding, I think we've lost some share without any doubt in the lab services business. Here's why I'm super encouraged is we have Cory that took the lead of this business 6, 7 months ago. And what is -- what him and the team is doing is really having, I will say, a fighting spirit back. And what we have observed over the last 6 to 7 months is that we have not lost any new renewal of any large key account contract. And I think this is really important for us. And on the contrary, we have the opportunity to grow our share of wallet in those accounts.

Now we have some area that we need to fix and some challenges. I mean, e-commerce is 1 of them, and this is why we're taking really a quick action to recruit digital officer to help us to really get this e-commerce platform to engage with our customers in a much more leaner way to provide not only product, but really workflow, which is so important for the customers. On bioprocessing, my view is the following. Really, our key product line in the bioprocessing is our bioprocessing chemicals. And when we look at our order intake year-to-date, our order intake is on a high single-digit level. So we're there. I met customers that clearly said to us, we want to work with you, we want to do better. We can give you more businesses. We need to fix a couple of things like our service level, in particular, on-time delivery. And this is why it's so important to work on the SNOP to look from the different plants that need upgrade. And that's what we're doing, and we are doing as fast as possible on this.

Okay. And if I can have a follow-up. On the Avantor Revival dynamic, I mean, I think it's certainly but you called out a couple of times that you believe the business has overly complex unnecessary centralization. We've heard that from a number of our channel checks as well. What are the steps to fixing that, right? I mean it's a huge organization. There's a lot of levels. It seems like there's going to be some deep changes there. But from an operational perspective, that seems to be the easiest fix. But could you talk us through the process to get there, and how long that could take?

It's really early days for me, you have to remember. So look, we're going to start to really work on the go-to-market, really understand how we can decentralize more of the decision-making closer to the customers. And as you know, there's different regions with different dynamics. And so we really need to empower the local team to really drive the decision. I think the other thing is, look, we have 2 really important business. One is our Lab Services, it's VWR, it's a distribution business. We have a very strong brand there. And then the other1 is bioscience business with brands like JT Baker. I think we need to make sure that those brands are more, I would say, front at the customer's level to make sure that we engage with the customers with the brand they want to work with.

The observation that I have, Michael, is, many customers told me, we love VWR. We want to continue to work with VWR, some even say, well, we didn't know that VWR was part of Avantor. And that's why I'm talking about brand revival and really making sure that we are improving our engagement with the customers. Service level is very, very important, okay? And this is why we are looking at what do we need to do in the plant, which are in need of investment to make sure that we raise our service level on the bioprocessing. Again, as we said earlier, the demand is there, it's for us to really make sure we operate better.

Our next question comes from Dan Brennan with TD Cowen.

Maybe just to start on the lab side of the business, could you just describe -- I know you discussed pricing in the opening remarks. Just give us a sense in 3Q and kind of 4Q how we think about that price volume mix, if you will? And then kind of any thoughts, I know you're not ready to talk about '26, but is the assumption that price gets better? Just any visibility on that?

And then maybe the second part would just be, more strategically, as you've looked at -- since you've been on board, you've looked at the lab market. Obviously, you've talked about share loss, but you studied that now recently. Any way to characterize in that context, like how much share you think VWR has lost over the last 2 or 3 years, just to give us a framework for if you're able to kind of regain that or stabilize at what the opportunity might be?

Okay. So on on the price volume dynamic, I mean, certainly in connection with the comments and share on that, there is some down volume. We are getting price, not exactly the levels we'd like to see, but we're certainly seeing price coming through and we expect a similar dynamic in Q4 on that. So when you look at Q3 performance sequentially to -- the main dynamic in lab is a modest increase really related to number of days and seasonality in Europe there. So what you're really hearing from us is stability through to Q4, and that dynamic will continue on the pricing side as well. Do you want to hit this share?

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

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

That's a great question. Look, I'm super excited about the portfolio we have, in particular, around the chemicals, as [indiscernible], we have adjuvant, we have also viral inactivation product, which are proprietary. So we have really good portfolio, and I think we have a good commercial team. And again, as I said, our order intake year-to-date is high single digit. So basically, it gives me the confidence that the demand is there. It's for us to make sure that we serve the customers better and all the customers that have made are super satisfied with that part of the portfolio.

So I'm confident that the portfolio is good. And also the recent announcement we've made like Bluewell is very encouraging about the fact that we will continue to collaborate with strategic innovation that will give us a differentiated portfolio in the future. So quite exciting about the bioprocessing portfolio.

Our next question comes from Luke Sergott with Barclays.

I appreciate like all the updates and everything you're thinking about, but as you think about when you're looking at '26 and the overall market rate in just relation to how you guys are going to grow, what's your outlook for the market, I guess, given that the underlying demand that you've seen, especially across what your peers have said so?

I think on the peer's comment, we need to look at apples-to-apples. And again, I think what is important for me is to make sure that I remind everybody that our portfolio on bioprocessing is really primarily around chemicals in case it's a unique differentiated portfolio especially from the company that I'm coming from. And so I think it's very important that we think that it -- as of today, year-to-date, direction is order intake, high single digits. What I need to do is I really need to take a fresh look at the 2026 numbers, the market, what do we -- we think we can do, what's going to be the impact of the 5 pillar of revival plan, how fast we can get some impact on this? Some will have an impact quickly, some will take more time, and I'll come back to you as soon as I have a better view.

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

Look, I visited several of our chemical plants. We have really world-class plants, super modern, very well run with a very, I would say, dedicated team. Some are just in need of upgrade, okay? And so some of the tools are a bit old and so therefore, they break down. So they gave us a bit of an unreliability of on-time delivery. So service level for some plants are excellent, some are not where we should be. And this is what I'm talking about strategic investment. There is some investments that are needed. We need to be very surgical about this. And that's just, I will say, on the plant themselves.

The second thing is about the processes. It's about how do we give visibility to the plant, what's going to be the demand, having a good understanding that the plants are putting in place, the planning to make sure that the product will be delivered as the customers requested. And then, of course, at the quality which is requested. So it's really around the processes that today are not as simple as they should be, not as smooth as they should be and with a bit also of lack of accountability. So strategic investment on 1 side, and I think it's also about talent.

One of my remarks was about the fact that the team is super passionated and want to do well and they want to fix the issue and they want to do better. They need direction. They need someone which is going to help them to focus and they need leadership. And this is also why we are far advanced into a recruit of a Chief Operating Officer, someone which have a global experience, a long-term experience of leading different type of plants, including chemistry plants, someone which is a black bear, someone that has a lean mindset of productivity mindset. And we are on the final stage of that recruitment. That will really help as well the team to drive and improve plant performance.

Our next question comes from Tycho Peterson with Jefferies.

I want to go back to the pricing question earlier because I think it's an important point. I think the message coming out of last quarter and admittedly Emmanel, was before you started was that onto is willing to trade price to hold share. That's not what we heard from Brent a minute ago. So I guess are you committing to actually taking price in the lab market next year? And can you maybe quantify what you're expecting there? Because I think that was a very different message than we heard coming out of 2Q.

Yes. Tycho, just to be clear that, I mean, we I mean there are raw materials and there are -- there's inflation in the channel. We are getting priced against that. The margin pressure you're seeing is a differential from the price to the COGS. I mean there -- so when we've talked about also giving price to drive share in that, it's relative to the inflation against the products we're selling. So it actually is the same message, but I take your point on the nuance. And look, it's in the lab, we've continued to say that we're about accreting operating income there. And we absolutely are doing the actions to drive volume, to drive share in that connection. The new contracts, which, as Emmanuel made the comments, we're seeing the impact of the contract losses on share there. It will take time, both on the defense and the new contract wins to see those come in there. But we absolutely are looking to accrete operating income and then obviously, over time, margin.

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

Well, look, Tycho, we believe our current share price really does not reflect the long-term value of the company, especially in the turnaround. So the program is just basically to make sure that we demonstrate our commitment to the long-term value of the company, okay? And we are confident to the business, the confidence about the fact that we can turn around the performance with Revival plan. we -- look, in terms of capital allocation, M&A is always an opportunity, but when you bring M&A, you need to make sure that you're going to bring the company into a company which is operating really, really well, right? Integration of an acquisition needs to be done with a team which have simple processes, which have really great talent in that are going to be able to execute the acquisitions and the integration super well. And so I think right now, it's just a conviction that the business is going to do better, that we are going to turn it around. And I think it was the right message and the right thing to do.

Okay. And then the last 1 on Bioscience. You quoted a number of kind of shipping timing issues. Are you assuming those come back in the fourth quarter? It was a little bit unclear what's actually baked into guidance from a kind of timing and recapture perspective.

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

Our next question comes from Patrick Donnelly with Citi.

Brent, maybe a follow-up on the pricing side, certainly understand some of the cadence there. Can you just talk about, I guess, the moving pieces on margins just high level as we get into next year in terms of what pricing rolls through next year, and how to annualize pressures margins versus some of the offsets? What levers do you guys have to pull? Obviously, you've done some cost out initiatives over the last couple of years. How much more room is there on macro versus some of the pricing pressures? Maybe just a high-level 1 piece on margins would be helpful.

Well, we'll -- an important question, Patrick, and I -- per other comments here, probably won't make significant comment into '26. But when you -- when you think about our margin dynamics broadly here, gross margin down year-over-year, largely driven, and following on the Tyco question, we are getting modest price against it, but we're absorbing more inflation. So that's been the primary driver of the lab pricing into the gross margin. Now on a sequential basis, you saw pressure in gross margin. That was more just mix of the relative businesses because we didn't have the same level of growth in bioscience as well as primarily there on the business basis and continuing on that.

Look, Emmanuel made the comments that we need to continue to drive at cost broadly and get net cost out rather than offset inflation and offset FX. And the -- but when you think about key drivers here, obviously, getting price and getting price against COGS are really important in the business. The differential segment mix is really, really important. And that hurt us in Q3. And then finally, productivity, which to project Revival, Chief Operating Officer, driving better productivity in plants, those will be key parts of it. And when we come with the views on '26, that will certainly be wrapped in our commentary.

Can I just add something? I'm absolutely committed to really improve not only the top line but also the bottom line, right? We need to be an operation which is leveraged, and so this is what we're going to do. So part of the Revival of course, we talked about simplification processes. It also means productivity gain. That is going to be very, very important. And I think that we will make sure that the entire leadership is really focused behind it.

Understood. And maybe just a quick 1 on the academic government side. You touched a little bit on the prepared remarks. What are the expectations there? Obviously, you had the government shutdown, you guys have some exposure. But maybe just talk about what you're seeing on that front, and what the expectations are going forward for that market, a lot of noise there? Appreciate it.

Yes, Patrick, you saw we were down in academic and government in Q1. We had a nice up mid-single digits in Q2 and then down double digits in Q3. And I think, frankly, we saw some of the pent-up concerns come through in Q3. Significant impact was K-12 before the school season started there as well as other softness that we saw through consumables in the form of higher ad there. We -- the U.S. government shutdown is certainly going to exacerbate that. That is really a key driver of the reduction of the lab guidance for Q4 and for the year down to the mid-single digits, that differential as well as the headwinds to consumables. But we're certainly forecasting that continue to be somewhat challenged.

Our next question comes from Doug Schenkel with Wolfe Research.

A few questions. Emmanuel, it's only been 8 weeks. There's a lot going on here. Is it reasonable to expect you to outline your full assessment and strategic framework by early Q1? Or is that too aggressive? So that's my first question.

My second is really for Brent. Emmanuel talked a lot about new hires and investments. Revenue growth is likely to remain challenging for the next several quarters. Margin comparisons are notably tough in the first half of next year. So when I just look at that fact pattern, my words not yours given you don't want to talk too much about 2026, but it just seems hard to see a scenario where we would get meaningful EBITDA expansion in 2026, maybe no expansion at all given those 3 observations. Is there anything you think I'm missing? And then really, the last 1 is for both of you. Recognizing it's been a tough period for tools in terms of downward estimate revisions. I think the challenge is, to be fair, have lingered a bit more for Avantor than for most of the group.

Clearly, visibility and forecasting has been a challenge for you guys for the past few quarters. Do you think this is systems that requires more investment? Or is this more a function of just competitive dynamics maybe evolving in a way that you didn't anticipate?

Doug, thanks for your question. Look, I think, in terms of timing, when I came, I spoke with the Board, I spoke with the team and I said I needed 100 days to really learn the business, meet everybody that include all the stakeholders, our people, the customers and a few main investors. And look, after 60 days, I already need to be in action because, first of all, there are some few things which are absolutely obvious, some challenges that we need to fix. And that's what I shared with you. And indeed, in Q1, I'll come back with you with further thoughts and with further strategic vision, absolutely. I'll let Brett answer the question and then I'll come back to the other part.

Yes. Look, like you're -- I mean, you're absolutely there on the facts and those are the harder comparators if you look at the trend of this year. I would just go back to 1, we don't want to signal a lot about '26 now because there's more work to do there. But again, it's about driving Revival and not just how it impacts operations, but also purely on the cost to serve. And getting to the top line and the conversion. And beyond that, we'll update you when we talk about '26.

And Doug, on the market, my sense is the following. I think production is solid. I think in the R&D aspect from an academic standpoint and even from a pharma, there is some uncertainty and uncertainty is never good. So I would say it's a mixed market dynamic.

Our next question comes from Dan Leonard with UBS.

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

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

Understood. And then a follow-up. You referenced a couple of large clients you lost from a share loss perspective. How would you characterize the risk of further big share loss? I can't imagine you have large contracts that turn over every year. Are we in a period of stability now for some time? Or are there further just big opportunities ahead in either direction?

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

Those are all the questions we have time for today. And so I'll now turn the call back over to Emmanuel for closing remarks.

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

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

Good morning. My name is Emily, and I'll be your conference operator today. At this time, I would like to welcome everyone to Avantor's Second Quarter 2025 Earnings Results Conference Call. [Operator Instructions]

I will now turn the call over to Allison Hosak, Senior Vice President, Global Communications.

Ms. Hosak, you may begin the conference.

Good morning, and thank you for joining us. Our speakers today are Michael Stubblefield, President and Chief Executive Officer; and Brent Jones, Executive Vice President and Chief Financial Officer.

The press release as well as a presentation and supplemental disclosure package accompanying this call are available on our Investor Relations website at ir.avantorsciences.com. A replay of this webcast will also be made available on our website after the call. Following our prepared remarks, we will open the line for questions.

During this call, we will be making forward-looking statements within the meaning of the U.S. federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we make today.

These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website.

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

Thank you, Alli, and good morning, everyone. I appreciate you joining us today.

Before we discuss our second quarter results, I want to briefly address the leadership transition we announced last week. As many of you saw, Emmanuel Ligner has been appointed Avantor's next CEO effective August 18. Emmanuel brings over 30 years of deep experience in the life sciences industry and is eager to hit the ground running. While I will continue to serve as CEO until his official start date, today marks my final earnings call with Avantor. It has been an honor to lead this organization for the past 11 years, and I want to sincerely thank all of you on the call today for your partnership and support.

Let's now move on to our second quarter results, beginning on Slide 3. Despite ongoing challenges in the operating environment, we remain laser-focused on executing the strategic initiatives we outlined last quarter, driving growth, improving operating efficiency, strengthening execution and delivering long-term value. For the quarter, organic revenue growth improved sequentially by 200 basis points and was flat year-over-year. Adjusted EBITDA margin contracted to 16.6%. Adjusted EPS for the quarter was $0.24 and free cash flow was $125 million, with adjusted conversion at 100%.

We remain on track with our cost transformation program and continue to expect $400 million in run rate savings by the end of 2027. In Laboratory Solutions, which makes up roughly 2/3 of our business, organic revenue growth was in line with expectations, increasing sequentially compared to Q1 and finishing modestly down year-over-year. As previously shared, Corey Walker joined us in late March as President of the segment. His early focus has been a comprehensive review of the business, assessing strategy, execution and opportunities to grow and retain key accounts while aggressively pursuing new ones in partnership with the commercial team.

I'd like to highlight a few of the findings and action plans from Corey's early efforts. Corey has spent significant time with customers and heard consistently about the power of our channel. Customers recognize our unique scope, reach and engagement. And most importantly, they value the solutions we deliver and enjoy doing business with us. At the same time, these conversations revealed opportunities for improvement and ways we can strengthen our offerings for our customers. Corey and team are fully focused on executing an action plan to implement these initiatives while continuing their comprehensive review. For example, service levels are an essential part of our value proposition.

We've driven substantial improvements in recent quarters, and the team is executing an aggressive plan to further differentiate our delivery performance going forward. Corey's deep dive into the business also validated the investments we are making to enhance our digital platform. As we discussed last quarter, we are focused on empowering self-service, simplifying ordering and providing greater visibility into order status and fulfillment, enhancing every step of the customer journey. One of the tools being rolled out is Avantor Navigator, our first AI application developed completely in-house, which helps customers discover products and services matched to their research needs.

Another is a digital buying experience platform designed to unify customer intelligence and provide a seamless personalized experience across web and mobile channels. We also made significant progress with pricing optimization, including the development of a new pricing tool that increases agility, speed and competitiveness. At its core, it ensures our customers see market-relevant list prices when they engage with us through our digital sales channel, which not only makes their buying experience more efficient, but also reduces abandonment rates and significantly increases conversion.

These efforts are already driving results. In a competitive market, we were awarded contract extensions with several top 15 global pharma accounts in the quarter. These awards will result in more than $100 million in share gains, which we expect to realize once fully commercialized. We also executed a 5-year extension of our contract with BIO Business Solutions, the largest cost savings purchasing program for the life sciences industry. Over 10,000 companies have access to purchase Avantor's laboratory and production products and services through this agreement.

Collectively, BIO is our largest customer, and this extension ensures we are uniquely positioned to benefit when funding levels return to historical norms across the biotech industry. These are significant wins, particularly as competitive intensity remains high across our industry. Our priority in this environment is to protect and grow share while preserving absolute profitability as volumes recover and the benefits of our delivery, digital and pricing initiatives take hold. As a result, our full year outlook contemplates pressured margin rate assumptions through the balance of the year; however, we remain confident in our ability to expand margins over time.

Turning to Bioscience Production, where our bioprocessing performance fell short of our expectations this quarter. While demand for our core monoclonal antibody platform remains strong, results were negatively affected by 2 discrete headwinds. First, quarterly throughput was impacted by planned maintenance efforts at one of our manufacturing facilities that extended longer than planned and led to an increase in back orders.

Second, and more significantly, a few of our large customers faced major unexpected headwinds during the quarter, which slowed the rate of recovery in controlled environment consumables and impacted demand in other elements of our offering. Specifically, a leading gene therapy platform encountered regulatory and patient safety setbacks, a key mRNA platform scaled back their outlook and one of our long-standing mAbs customers had a negative Phase III readout and other commercial challenges.

We expect these headwinds to persist through the balance of the year. Brent will discuss the impact to our guidance. Benoit Gourdier and the bioprocessing team are taking decisive action to offset these headwinds and strengthen our market-leading platform, and Emmanuel's expertise will be additive here when he joins the company later this month. The team's efforts are centered on 3 priorities: optimizing our supply chain to enhance delivery performance and improve operational efficiency across our manufacturing and planning functions, increasing field intensity through new sales leadership and sharper execution discipline and expanding our product offering through ongoing innovation and customer-focused development.

Outside of bioprocessing, the other key components of the Bioscience Production segment performed in line with expectations. We delivered particularly strong performance in our NuSil-branded silicones platform, which grew low double digits. Year-to-date growth of the medical platform is running well ahead of patient procedure counts. So we expect demand in our NuSil platform to moderate in the second half of the year.

With that, I'll now turn it over to Brent to discuss the second quarter results in more detail and to walk through our outlook for the second half and full year.

Thank you, Michael, and good morning, everyone. I'm starting with the numbers on Slide 4. Second quarter reported revenue was $1.68 billion, which was flat year-over-year on an organic basis. Adjusted gross profit for the quarter was $554 million, representing a 32.9% adjusted gross margin. This is a decline of 130 basis points year-over-year, driven primarily by price actions in lab to protect and grow market share, unfavorable product mix and increased supply chain expense in the form of higher-than-expected freight expense and fixed cost under absorption.

As expected, we were able to fully offset the dollar impact of tariffs on cost of goods sold through targeted pricing actions and sourcing agility. We had another quarter of solid cost control with adjusted SG&A expense better than planned and prior year, and we continue to identify meaningful additional cost opportunities to help offset the margin pressure we are facing. Adjusted EBITDA was $280 million in the quarter, representing a 16.6% margin. Our shortfall in adjusted EBITDA margin was driven by the headwinds to gross profit and margin and only modestly offset by SG&A savings.

Our multiyear cost transformation initiative continues ahead of plan, and we remain on track to deliver in excess of our commitments for 2025 and the entire $400 million program. Adjusted operating income was $252 million at a 15% margin. Interest and tax expenses were in line with our expectations. As a result, adjusted earnings per share were $0.24 for the quarter, a $0.01 year-over-year decline. Our adjusted EPS performance in the quarter reflects the flow-through of our adjusted EBITDA results as well as continued reductions in net interest expense. Our cash generation was strong with $125 million in free cash flow in the quarter.

When adjusted for cash costs related to the transformation initiative, our free cash flow conversion was 100% of adjusted net income for the quarter. Our adjusted net leverage ended the quarter at 3.2x adjusted EBITDA, unchanged from Q1 as cash generation was largely offset by FX impacts on our euro-denominated debt. Deleveraging remains our top capital allocation priority, and we continue to target adjusted net leverage sustainably below 3x. Let's now take a closer look at each of our segments on Slide 5. Lab Solutions revenue was in line with our expectations at $1.122 billion. On an organic basis, we declined 1% versus prior year, but grew 2% on a sequential basis.

As Michael noted, we continue to navigate increased competitive intensity as a result of funding and policy-related headwinds many of our customers are facing. In this environment, we are focused on not just retaining but growing share. A particular bright spot was our self-manufactured lab chemicals, which continued its track record of growth. On a regional basis, our European business was nearly flat, outperforming the Americas and Asia, which felt the greater brunt of policy headwinds. Adjusted operating income for Lab Solutions was $133 million for the quarter with an 11.9% margin. Although we were able to implement pricing and sourcing actions to offset tariff cost headwinds, the competitive actions to drive share have come at the cost of margin. Mix was also a negative contributor to margin.

Bioscience Production revenue was $561 million in Q2, up 2% organically on a year-over-year basis and up 7% sequentially. Silicones had another strong quarter, up low double digits, and our Applied Solutions business was down low single digits, both in line with expectations. The key disappointment in the quarter was bioprocessing, which, as a reminder, comprises roughly 2/3 of our revenues in Bioscience Production. Although bioprocessing grew 5% sequentially, it was flat year-over-year with declines across the business driven by the customer headwinds and the longer-than-expected maintenance at our manufacturing facility.

Within bioprocessing, CEC was down mid-single digits year-over-year but grew sequentially, benefiting from commercial actions taken by the team. Single-use also grew sequentially but was flat year-over-year after increasing high teens in the first quarter. Lastly, process ingredients and excipients grew high single digits sequentially and low single digits year-over-year. While we have limited control over the customer headwinds, the team is actioning on the initiatives Michael outlined to improve execution and performance. Adjusted operating income for Bioscience Production was $140 million for the quarter, representing a 24.9% margin. While this represents a 100 basis point sequential improvement, margin was down year-over-year, largely due to underabsorption and manufacturing-related expense. Given our first half performance and current visibility to the business, we are reducing our full year organic revenue growth expectation to negative 2% to flat versus prior guidance of negative 1% to plus 1%.

Year-to-date, our organic growth is negative 1%, so this updated midpoint reflects a continuation of current trends. To bridge to actuals, there is a 2% headwind due to the Clinical Services divestiture and approximately 1% tailwind due to FX, resulting in reported revenue growth at the midpoint of negative 2%. This assumes a euro-dollar rate of 1.15 for the back half of the year and a 1.12 blended rate for the entire year. On a segment basis, we now expect Lab Solutions growth to be minus low single digits, down from minus low single digits to flat. This assumes a continuation of first half performance in the back half of the year.

Conversion associated with the recent share gains described earlier will be a tailwind to our outlook as they are implemented. Consistent with our Q2 performance, we are assuming no material top line impact from tariffs. We now expect Bioscience production to be flat, down from up mid-single digits, driven by our performance in the first half and headwinds in both bioprocessing and in our medical-grade silicones platform. We expect bioprocessing to be flat to up low single digits, down from up mid-single digits. This reflects our expectation that despite continued strong underlying demand for our core monoclonal antibody platform, we will continue to face the headwinds we described earlier.

Single-use is expected to increase mid-single digits for the second half and the year, and we expect Process Ingredients to be up low single digits for the second half and the year. In CEC, we expect performance to continue to improve modestly on a sequential basis as we move through the second half of the year, translating to a low single-digit decline for the year. After mid-teens growth in the first half of the year, our medical-grade silicones platform will take a step back in the second half of the year as customers rebalance inventory to bring full year growth in line with patient procedure count. Accordingly, we expect mid-single-digit decline in the second half, resulting in modest growth for the full year. We are updating our adjusted EBITDA margin expectations to between 16.5% and 17% and our adjusted EPS guidance range to between $0.94 and $0.98.

We are also reducing our free cash flow expectations to $550 million to $600 million before transformation expenses. The reduction in free cash flow is a result of the significant contract extensions in the lab business that Michael discussed earlier. While we are excited about these awards, some come with meaningful prepaid rebates, which are accounted for in our updated guidance. In terms of Q3, we expect organic revenue growth of minus 4% to minus 2% with both segments down similarly. Our Clinical Services divestiture represents a 3% headwind. And based on current spot rates, we expect a 2% tailwind from FX. This leads to reported revenue growth of negative 4% year-over-year at the midpoint. We expect adjusted EBITDA margins to be somewhat lower than Q2 in the low 16% range.

With that, I will turn the call back to Michael.

Thank you, Brent.

Before we move into Q&A, I would like to briefly recap today's key takeaways and reiterate our priorities moving forward. In a challenging operating environment, we are successfully executing the strategic initiatives we outlined last quarter. In our Lab Solutions segment, we are pleased to deliver sequential revenue growth, and we are committed to protecting key accounts and competing hard to win market share. These efforts resulted in several significant contract extensions in the quarter.

Our bioprocessing performance fell short of our expectations this quarter, primarily due to discrete customer headwinds. We are taking action to offset the impact and demand for our core monoclonal antibody platform remains strong. As I reflect on 11 years leading this business, I am incredibly proud of all that we have achieved, including the acquisition of VWR, a successful IPO, navigating the COVID-19 pandemic and its aftermath and the implementation of a new operating model.

Despite recent performance headwinds, I could not be more confident in the strength of our platform and Avantor's future success under Emmanuel's leadership. You'll hear more from Emmanuel at the Q3 earnings call, where I expect he will share some of his early observations and priorities for the business.

With that, I'll now turn the call over to the operator to begin the Q&A session.

[Operator Instructions] Our first question today comes from the line of Vijay Kumar with Evercore.

Michael, wishing you the best as you transition here.

Maybe on the guidance here. Your third quarter organic of minus 3%. What is that assuming for the segments? And particularly bioprocessing, it feels like it should step down both bioprocessing and lab, it worsened from second quarter trends. Maybe talk about what changed versus 2Q?

Yes. Thanks for the question. It's Brent here. So we see about ratable performance in each segment along with the full company there. The dynamic there is really consistency in lab, by and large, with what we've seen in Q2 and the first half of the year. There is some seasonality with vacation times in that in Q2. And then in bioprocess, we -- in Bioscience, we still have the recovery on the headwinds due to the manufacturing and that, and there is some timing slowness in silicones there. So that's really how you tie that math together.

Understood. I'll let others jump on the segments, but maybe on margins here, Brent, EBITDA margins came down 125 basis points. How much of this was mix sort of volume impact versus some of the pricing commentary you made on initiatives to gain share within lab?

Yes. So the dynamic in the quarter was really a combination of price and mix, price being the most significant piece of that and largely in the lab business there. When you somewhat underperform in bioprocessing, that's also dilutive to margin as well, but it's largely a price and then mix dynamic.

Sorry. Are these expected to continue into fiscal '26? Should pricing actions annualize? Any thoughts on margin cadence here, how we should think about for fiscal '26?

Yes. I think that's probably a bit in the future there, what I -- going to some of Michael's comments on the intensity, winning the contracts, incremental revenue that comes from that. Once we get on those contracts, we always show or extend them in these instances, we show the ability to accrete margin as well as we absorb better with volume there. So probably wouldn't get ahead of ourselves on '26 here, but certainly, we're going to see impacts through the balance of the year.

Our next question comes from Michael Ryskin with Bank of America.

I want to dig into bioprocess first. You've had a couple of really sort of idiosyncratic challenges this year, the control room consumables, the site shutdown running along, some of the customer-specific in gene and cell therapy, but certainly much more disappointing bioprocess number for the year than what we previously talked about and what we're seeing elsewhere in the market. Just wanted to get your thoughts on that business longer term. Do you still feel like bioprocess is a high single-digit long-term grower? Just sort of a number of one-off issues that keep propping up that kind of point to maybe some underlying problems. I just want to gauge your confidence that these are onetime and that once you resolve these, the business is as strong as we previously thought it was.

Michael, this is Michael.

A couple of thoughts on that. Firstly, when we look into the second quarter, absent a couple of these discrete headwinds, the business really did want to perform in that mid- to high single-digit range in line with the rest of the market and would underscore that the demand for our mAbs platform, which is the biggest part of our bioprocessing business, remains incredibly strong and certainly in line with what we see in a recovering end market. No doubt, fell short of expectations in the quarter with this facility maintenance is something you do periodically every few years as we got into the turnaround went a bit longer than we had anticipated.

The plant came back online before the end of the quarter, and the team is working hard to restore normal backlog levels. These customer headwinds that we encountered in the quarter were certainly unexpected and developed as we got into the quarter for very specific discrete customer-related headwinds, particularly in these emerging modalities, which I don't know that it's all that surprising that the industry itself is going through normal growing pains of launching new technologies, the FDA processes and some of the concerns around patient safety that are top of mind certainly have to be a consideration there.

And as demand fell off for some of our key customers in that space, it impacted the quarter. Fortunately, it was contained to just 2 or 3 customers overall. And when we look at the broader platform that we run there, the platform is incredibly well positioned. We've got a great pipeline, long-standing customer relationships. And I would expect, particularly as Emmanuel comes in with his background in this space, this business will -- as we work through some of these headwinds, continue to grow at or above market over the long term.

Okay. And then I want to follow up on an earlier point in terms of the guide for the second half. Brent, you called it out. It looks like you're assuming pretty much very consistent numbers, 1H versus 2H, both on organic and on margins. But the 3Q to 4Q split really surprised us. Down 2% to down 4% organic in 3Q implies plus 1% or better in the fourth quarter. So just both on a percentage basis and on a dollar basis, really big step-up -- just can you talk about extent of conservatism in 3Q? Is there anything you're seeing a month into the quarter? Or just any incremental things you should keep in mind in 4Q that will give us confidence in that ramp? Just...

Yes. No, absolutely fair observation, Michael. I would say we're being careful in Q3 there. I mean we are assuming a continuation of the trends in lab. There is some timing in silicones, which if you were to relatively smooth that out, that would make that step-up look less as much there. And frankly, just the timing of what we know on the seasonality in the order books and the expectations. If we meet or beat in Q3, that will certainly make the ramp on Q4 much lower there...

Our next question comes from Dan Brennan with TD Cowen.

Michael, obviously, all the best to you. Maybe just on the pricing environment, which you guys called out competitive intensity throughout the prepared remarks. And obviously, you're taking down the free cash flow guide as you lock in some of these contracts. I'm just wondering, could you give us a sense of, a, just how much worse this is right now; b, any color kind of within your lab business, kind of what volume and price looks at? And c, is this kind of a new directive? I mean, we understand you guys are trying to be competitive and you've called out some pricing headwinds in the past, but it just seems like things have accelerated here. I'm just trying to get our arms around kind of what's changed.

Yes. Thanks, Dan. I think it's important to acknowledge it is a dynamic environment and the choppiness of the macro environment, we have seen a step-up in competitive intensity, particularly in our lab business, not necessarily broad-based across all customer segments. We probably see it most pronounced with our larger biopharma accounts. And we've seen that kind of intensifying as we've moved through the year. And would just underscore our strategy here is to protect and grow our share. We have a differentiated platform. The work that Corey and his team have done as he's leaned in here certainly have validated the strength of the platform and the -- how much our customers want to do business with us.

And so we're being reactive to the environment and ensuring that we've got a strong platform and basis to grow from as these end markets recover and as the actions that Corey and his team are taking begin to take hold. We had a terrific quarter, really a terrific quarter with a number of really meaningful account awards where we were able to not only protect our share, but also grab substantial market share, as we discussed, more than $100 million of incremental revenues will flow into this business in the coming quarters on the back of those efforts. That will do a lot of good things for absorption, and we've got a long track record of expanding margins. And of course, you can't do that if you don't have the account to begin with. But we think we're as well positioned as anybody out there to compete aggressively for this business, and you see that playing through in the quarter.

And is there any color just on volume, price or just on the lab business? I mean is that something you guys can break out? And then just as a follow-up, too, beyond that, just wondering, you guys typically give end market color. There's a lot of focus on what the academic environment is like in the U.S. and also pharma. So would you be willing to share kind of how trends performed versus expectations there?

Let me take the last part of that question, and Brent can give you some color on price volume, Dan. From an end market perspective, I would say, as we've moved through the year, we see the end market conditions largely stable as we sit here today, particularly in like academia and government following the big step down in February, we've seen that end market perform relatively stable. The funding headwinds for biotech persist and our large pharma customers continue to be pressured by inflation and other policy-related headwinds.

So we haven't really seen, what I would say, a pronounced change here in the quarter. And when we look at the second half, we're assuming that those conditions persist. One maybe additional commentary on our performance relative to those end market trends. If you look into our supplemental disclosure, you'll see a particularly strong quarter for us in academia and government. And consistent with the action plan that we outlined for Corey and his team, I think that's a great data point on the benefits, the early benefits that we're seeing of a step-up in commercial intensity as well as just the relevance of our platform.

We grew that business mid-single digit in an end market that probably was down mid- to high single digits. So you're starting to see some of these benefits that Corey and his team are driving. And for me, it just underscores the strength of our platform.

Yes. Following up on the price volume comment there. So maybe rewind to where we entered the year, just frankly, think of the enterprise and lab in particular, for flattish volumes and then a modest amount of price. Fast forward to hear, certainly due to the end market challenges, there has been some pressure on volume, but that is not most of the story. It's primarily on the price side there. So when you look at our attainment, a little bit of pressure on volume and then the price headwind is the main drop-through. And that goes directly to the margin story.

Our next question comes from Rachel Vatnsdal with JPMorgan.

So first off, I just wanted to ask on the Lab Solutions comments. So you noted that those were in line with expectations, but you chose to take down guidance for the full year for Lab Solutions by a few points. So can you walk us through what drove the decision to take down the guide there if it truly did play out as expected? Is this just a function of conservatism? Is it underpinned by trends that you've seen throughout July so far? Or are you assuming that the competitive intensity steps up even further in the back half for Lab Solutions?

No, good note of the detail there, Rachel. And look, we -- when we look at the lab performance, minus low single digits for the first half of the year, somewhat better performance in Q2. We just don't see the environment changing. So the prior guide was minus [ LSD ] to flat. So just I don't know that conservatism, I would probably just call it prudence or very realistic outlook on that. We don't see the environment changing materially there. So we just extended that for the year. And to other comments on bridging, it makes the math make the most sense.

Great. Then maybe shifting over to bioprocessing. You called out the planned maintenance took a little bit longer than expected and created this back order dynamic with some customers. So can you quantify for us how much of a headwind those back orders were within the quarter? And then is the plant fully back up and running at this point? And if that issue is resolved, when should we expect to see a tailwind from those back orders coming back into the model?

Yes, Rachel, when I think of the bioprocessing underperform in Q2, 1 to 2 points of growth were related to the increase in the back order and the timing of the maintenance completion. The balance was related to the customer headwinds that Michael cited there. So that sort of -- that essentially walk you from the mid-single-digit guide to the flat where we ended up there.

The operational recovery -- the plant is absolutely back where it needs to be. That operational recovery and driving down that backlog does take time. So we expect that will feather in through the rest of the year. So I would not you noticed from Michael's questions, we're being careful about timing of that for Q3. And I would -- we're just feathering that in through the second half of the year.

Our next question comes from Luke Sergott with Barclays.

I was just hoping you could size the different headwinds and not going into the specific customer exposure, but really just kind of from the headwinds you saw in 2Q and then from what's baked into the guide cut for Biosciences, really just trying to figure out what was in your control. So if you could help size what -- those related due to the extended site maintenance costs or versus the issues you have with the customers?

Look, we cited a couple of discrete headwinds for the quarter. Brent just sized for you the impact of the extended maintenance outage. Think about that as 1 to 2 points in the quarter, which leaves kind of 2 to 3 points for the 2 to 3 customers that encountered significant challenges as we progressed through the quarter. The plant is fully online, and we don't expect that maintenance headwind to impact the second half. So when we look into the outlook for the last couple of quarters here, what you're really seeing reflected here is a full quarter's impact of these discrete customer headwinds, both in Q3 and Q4 as our current assumption is that those headwinds don't unwind as we move through the year.

And we don't necessarily comment on specific customer detail there, but of the 2 or 3 accounts, they all kind of contributed roughly equal to the headwind there.

The other dynamic impacting the BPS outlook for the second half was our NuSil platform. We're off to an incredibly strong start, particularly in our medical implant part of that business, growing mid-teens year-to-date, which is well ahead of procedure count. And so not unusual for that business. You see that the customers normalizing inventories to bring full year purchases more in line with, in this case, patient procedure count. And so that creates a little bit of a headwind for us in the second half of the year. But that end market is incredibly strong, and our value proposition there remains fully intact. We're going to have a great year overall and the setup into '26 will be very favorable.

Great. Sorry for the doubling up on that question. I missed it. It was asked earlier. And I guess just for a follow-up here, thinking about the business overall, how integrated are the 2 segments when you think about like your -- I understand from a channel perspective, you got a lot of third party, but you also have a lot of proprietary and white label stuff that goes in there. So how integrated are the 2 manufacturing facilities or the manufacturing between the 2 segments? And I'll just leave it with that.

Yes. Thanks, Luke. We -- when we put these platforms together more than 7, 8 years ago now, there were a pretty significant number of synergies that were implemented and recognized at that time, obviously, full integration of the back offices and particularly the IT infrastructure and such. The manufacturing facilities, particularly for our proprietary content are fully integrated. One of the important value elements of our offering, particularly in the GMP environment is being able to supply research-grade quantities of products coming from a GMP line. And then as those programs scale up to commercial scale, the customer isn't having to requalify a new production line. It's all produced on the same line. So there's quite some nice synergies there.

And then we have an integrated account structure and both segments leverage the common channel here. So yes, there's certainly some synergies that are important to the business. But as we think about running the businesses, as you can see, both segment leaders are squarely focused on accelerating the growth of each segment independently.

Our next question comes from Tycho Peterson with Jefferies.

I appreciate you've had a number of questions on kind of the lab dynamics and pricing. But can you help us bridge the free cash flow cut? How is that tied to the $100 million of wins on the lab side? Are there mechanics around the rebates here? Should we be worried about channel stuffing effectively giving away some inventory here? And then what really is the path to margins bottoming in lab? I think that's a key question people are trying to get a handle on. Obviously, there's some new initiatives by Corey, but then you've got these new pricing headwinds. And I also didn't hear you kind of quantify anything around pricing. So any color there would be helpful, too.

Yes, Tycho, let me start and then Michael will add some other color on that. So the significant piece of the free cash flow range was related to those -- that prebate dynamic. There is a piece of it that's the lower EBITDA dynamic. Now we're working all the harder on working capital to try and mitigate pieces of that. But -- that's how I would click that together. I don't exactly follow your channel stuffing notion there, but...

When you talk about $100 million of benefits from new wins -- you talked about the $100 million of benefits from new wins. Are you giving away inventory upfront, I guess, is the question.

Absolutely not. These are -- yes, what I would say about that, Tycho, is those are share gains. Those are -- that's incremental business that will transfer from our competitors to us on top of the business that we have been able to retain. The contracts that go around that will incorporate significant upfront rebate payments. And I think that's all Brent is reflecting there in the outlook is just the timing of those that will get paid here in the second half as those contracts are implemented need to be taken into account. But the demand dynamics associated with -- there's nothing unusual associated with that, Tycho.

And then just a question on the path to margins bottoming in lab between some of the initiatives Corey has identified. And then again, anything around pricing numbers you can give us? We haven't heard anything about kind of to quantify the pricing headwind.

When we look at the gross margin performance in the second quarter, Tycho, being down 100, 140 basis points wherever it landed there, there's a price and mix component to that, but most of that is price that we see living through into the second half. In an environment where volume growth is relatively muted, of course, absorption becomes an issue. One of the things that we're excited about is we don't have it built into the outlook and will be a tailwind to the prints going forward. But as these share gains materialize, those will fall through disproportionately, and you'll see some nice things happening there due to better absorption.

I think it's important to note and kind of go back to, look, this business has a long-standing track record of margin expansion. We have a very disciplined approach to offsetting inflation, and you see the actions we're taking on cost. Corey and his team, as you noted, are driving some aggressive actions to continue to lean in to accelerate the growth of the business and improve the operating leverage in the business. And the strategy we're deploying in this environment is to protect and grow our share so that we have the opportunity to expand these margins as we move forward. I don't think our view on kind of long-term margins for this business are impacted by the outlook we have here for the second half.

Okay. And then just lastly on bioprocessing. I want to make sure I understand the dynamics. I mean the Sarepta headline was in March. You guys guided late April. [ mRNA ] demand has been kind of falling off really a lot this year and end of last year as well. So I guess, did this come kind of as a surprise to you post guidance? And then also, what actions specifically are you taking? You flagged you are taking actions in bioprocessing. What are you actually doing here to improve visibility?

Yes, a couple of things on that, Tycho. Firstly, the headwinds that impacted us in the quarter certainly were unexpected and materialized probably halfway through the quarter. And given that we're talking just really a couple of customers there, we had -- given the relationships that we have there, we have a pretty tight connections to our team, and they came to us middle of the quarter and substantially cut their outlooks to us at that time.

In -- we benefit from being in a heavily regulated environment where we're specked in. The downside to that, of course, is trying to offset unexpected headwinds in the near term can be a bit of a challenge. But nevertheless, consistent with our theme of controlling the things that we can control, Benoit and his team really are leaning in aggressively on the things that they can action. Three specific things I'd point you to, Tycho. Firstly, both for lab as well as bioprocessing. Our delivery performance is one of the key differentiators of the platform and Benoit and his team have some really aggressive actions that they're taking there to continue to push us towards best-in-class.

Similar to the actions that Corey have taken on ramping commercial intensity, particularly in certain segments, we see Benoit and his team doing that as well. Think about areas like biosimilars, some of the newer modalities, antibody drug conjugates, for example. So really doubling down in some of the more attractive growth opportunities. And then lastly, this is an innovation-driven business, incredible focus on continuing to extend the technology and make sure that we have relevant content to offer our customers. So those are the probably the 3 most important areas that Benoit and his team are focused on here in the near term.

Our next question comes from Patrick Donnelly with Citi.

Michael, maybe just on the bioprocessing business. Obviously, you certainly understand the company or the customer-specific issues there. Can you just talk broadly on the business in terms of what you saw on the order side, maybe if you can kind of a little bit ex some of the onetime issues, where lead times are? Just curious what you're seeing in that business outside some of the near-term noise here.

Yes. Our perspective on the bioprocessing business is that we continue to be extremely encouraged by the ongoing recovery and strengthening of the end market. Consistent with the industry or end market exposure here, most of the revenue is coming from monoclonals and the demand for our solutions for that platform remain incredibly strong. And I would just reiterate that had we not run into these couple of discrete headwinds, our platform would have performed very much in line with the end market as well as some of the other prints that you've seen here.

One of the things that we have been doing over the last number of years is leaning in on some of these new modalities. Our revenue exposure there would be probably consistent with the number of approvals you see overall in that end market relative to the mAbs. It's just to say it's probably less than 10% of our total platform. But one of the attributes of developing technology set like that is there's not a lot of approvals out there, and we have benefited from putting more content on those new modalities and, say, we have historically, just given some of the strengths of our platform and innovation model. And so when you have a customer or 2 encounter some challenges, some growing pains, if you will, it does have a bit of an outsized impact on us.

So I wouldn't use the print in the quarter or the outlook for the back half of the year to read through our -- a, the strength and relevance of our platform nor our view on the end market. We remain incredibly bullish about the ongoing recovery. And you asked a little bit about lead times there. Our supply chain has been transacting normally now for quite a number of quarters, which for us means we probably have a 2- to 3-month lag from order to delivery on average.

Okay. That's helpful. And then obviously, new CEO coming in, we'll wait to hear from him directly, obviously. But just in terms of the hiring process, what attracted you guys to have him? And again, any changes we should expect, whether it's capital allocation, the approach to the business? Curious just the overall view on that front would be helpful.

I would reiterate, Emmanuel start here in a couple of weeks, August 18. And as we've indicated, I'll continue to stay fully engaged and direct the business up until then. The Board led a very thorough process. And I think Emmanuel's background speaks for itself. He's an industry veteran with over 30 years' experience in this space and with a particular strength in bioprocessing, given the work that he did at first GE and then ultimately over at Cytiva within Danaher. I know that he's incredibly excited to get started. And with his experience and familiarity with the space, he'll no doubt hit the ground running.

We do have a very good process in place to ensure a smooth transition, and I'm confident that, that will indeed occur certainly wouldn't want to get ahead of the work he'll do here in setting his agenda for him. I know in the early days, he'll be very focused on engaging with our customers, with our team, with our Board, and you'll hear from him at least in the third quarter call. And as his agenda and priorities develop, I'm sure he'll be anxious to share those with you all.

Our next question comes from Doug Schenkel with Wolfe Research.

So a couple on VWR. First, I believe you mentioned a major contract extension as you talked about future share gains. I just want to better understand why are those share gains if they are extensions? Are you getting commitments from some existing customers to spend more and/or are these becoming exclusives? Again, I just want to better understand the link between those comments. So that's the first thing.

Second, it sounds like you're using price as part of a share gain strategy. That's obviously come up a lot this morning. How does this impact near- and long-term margin targets? And I guess kind of cutting to the chase, does that mean that [ LSS ] margin should stay in the low double digits for the foreseeable future? So those are the 2 questions on VWR.

Last one, and then I'll move back into the queue and listen. On margins, your fiscal year and Q3 guidance implies around an 18% EBITDA number -- margin number in the fourth quarter. Given the bioprocessing challenges and what we just ran through on the VWR side, I'm just wondering what gives you conviction in getting back to that level, just given how many headwinds you're facing right now?

I'll be happy to give you some color on the account wins and share gains in the quarter, and Brent can weigh in on your questions around margin. So a couple of things on the account wins there. We do have a very clear strategy here of protecting and growing share, and that was part of the agenda that we outlined for Corey as he stepped in and leaned in aggressively with our commercial team to protect our business. And in the quarter, we had a number of large pharma accounts, several, in fact, where the business was being competitively up for bid. And we were able to retain the existing business that we had as well as grab some of the business at those accounts that we didn't have.

And the net impact of the success we had in the quarter was a net increase as the conversion occurs over the next couple of quarters of more than $100 million. So substantial share gains there. And I'd also note, I think we probably drove some nice share gains in the academia market given the mid-single growth there that we that we printed. We also announced that we extended prematurely our relationship with Bio, which is the largest purchasing consortium serving biopharma and biotech with more than 10,000 customers collectively making it our largest accounts. And so I think you put all that together, and you see a couple of things.

One, we are eager to invest and continue to grow our business and ensure that we have a customer base to do that off of. But I think more importantly, you see just the relevance and strength of the platform and customers voting to do business with us. We offer a lot of efficiency, a lot of optionality, certainly a broad portfolio and a best-in-class supply chain here. So really pleased to see the differentiation of the platform coming through, and we'll continue to execute on that strategy. Of course, it is coming at the expense of margin rate, but we're keenly focused on preserving absolute margin dollars overall. And over the long term, no doubt we'll have an opportunity to improve the margins as we execute our playbook here.

Doug, jumping off Michael's comments there. I mean your -- I think your observation in the near term on Lab Solutions segment operating margin is correct. We need to play through these contract extensions. We need the absorption from the additional volume here. There absolutely is a price share dynamic here, but I think the share is super important to us. So that is a necessary consequence of it. We get volume. We'll continue to be vigilant on our own cost and then we'll have a path to accreting that, and we'll talk more about that when Emmanuel is here and in future quarters looking into '26. But look, we are not excited about the margin piece of it, but we are excited about the wins and what they mean for the prospects of that business.

Your comments to Q4, that observation is true if you get to the very high end of it. When I sort of think of both organic growth and on a margin basis, if we're at the low end, it's sort of very consistent with where we're tracking. This goes back to Mike Ryskin's question as well. Where we'd be tracking, you'd not have dissimilar growth. in the mid, you need some of that in Q4. And the important point there that we expect more silicones in Q4 as well as some additional bioprocessing there. So you get that on the mix up. And then at the high end, you'd approach margin rates that you were citing, but also happy to follow up on any of the arithmetic for alignment there. So thank you.

Those are all the questions we have time for today. And so I'll turn the call back over to Michael for closing remarks.

Yes. Thank you, everyone, for joining us today. Thank you for your partnership and support over the years. That will conclude our call today. Hope you all have a great day, and be well, everyone. Thank you.

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