All right. Good morning, everyone, to day two of the Morgan Stanley Healthcare Conference. My name is Tejas Savant, and I'm the life science tools and diagnostics analyst here at MS. It's my pleasure to host Avantor this morning, and on behalf of the company, we have Michael Stubblefield, CEO. Thank you for joining us, Michael. Before we get started, just some important disclosures. Please use the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, do reach out to your sales rep. So, Michael, maybe just to kick things off, you know, Avantor has seen its fair share of challenges with the COVID headwinds, the inventory destock, softer demand in pharma, semis, et cetera. But to set the stage, could you talk about, you know, how 2023 has played out so far versus your initial expectations at the start of the year? And what are you sort of most proud about in terms of how you've navigated through these sort of choppy macro times? Yeah. First, Tejas, thanks for having us. Really happy to be here in New York to kick things off here at your conference. It has been a challenging year. The industry is seeing a number of unprecedented headwinds and, you know, certainly the year hasn't played out as we would have anticipated with, you know, destocking persisting through the balance of the year. You know, the COVID headwinds, you know, played out about as we would have expected. But, you know, some of the funding constraints in biotech, certainly the slowdown that we've seen in mid to large pharma has impacted the business. You mentioned the inventory corrections that are underway in the semiconductor market have, you know, provided a headwind to the business. But, you know, these are all temporal. There's nothing structural about what we're seeing here. And so I think, you know, the thing that we think about internally within Avantor is just staying focused on the strategy. The business is well positioned in the end markets that we're in. We're in some great end markets. This is the golden age of science. There's never been a more exciting time to be part of the biopharma space. There's some really cool, you know, therapies being developed, and we're, you know, right at the heart of that. And, you know, certainly I'm really proud of the role that Avantor plays in, you know, helping bring these new therapies to life. Mm-hmm. Got it. So let's dig in, perhaps starting with the biopharma end market. You know, on the last earnings call, you called out stabilization in the biotech customer base, while sales to actually large and midcap pharma, you know, declined a little bit. Can you just give us a little bit more detail on what you're seeing year to date, and has that divergence sort of held up? Yeah. So let me, if we take each of those, you know, separately. Biotech for us is, our exposure there is gonna be primarily in the R&D space. And at the enterprise level, it's, you know, low single-digit% of our total revenues, so not overindexed there, but it is an important, you know, customer segment for us, just given the science that they're developing. And, you know, we first started to see, you know, some of the funding constraints play out as things started to slow down in the back half of last year. That headwind accelerated further into Q1. The business was off about, you know, 15%-20%, high teens, something like that. In the second quarter, to your point, we saw it stabilize at those levels, you know, which, you know, makes it, you know, perhaps feel like we've caught the bottom. I think there's some good data out there that suggests funding into that space has certainly stabilized, maybe some, you know, a bit of a tick-up here of late. As we've moved into the third quarter here, I think we see, you know, certainly that trend, you know, stability continue. The divergence you're talking about really was, you know, mid to large cap, you know, moving away from us in the second quarter. You know, I think, you know, that space, you know, has, you know, trying to deal with the realities of a number of challenges to their top line, you know, whether it be, you know, COVID, revenues rolling off, you know, patent cliffs challenging some of their revenue models, you know, certainly concerns around IRA and interest rates and such. And it has, you know, created a more conservative, you know, backdrop for our customers. And, you know, we see them, you know, tightening the belts and, you know, conserving, you know, cash, driving for efficiencies and productivity, and we certainly see that playing out in the second quarter. And, you know, the way we've guided the year is that we see that trend continuing through the balance of the year. You know, through the early days here of the third quarter, I think we, you know, certainly see that occurring. Got it. And then switching to, you know, bioproduction, where do your customers stand today in terms of, you know, bioproduction inventory versus normalized levels? And based on current demand, what%, would you say, get to normalization by year-end, or could this have been sort of persistent to, you know, 2024 as well? Yeah. So the dynamic we're seeing in bioproduction is really one of, you know, inventory destocking. The end market demand continues to be very robust. You know, despite, you know, all the discussions around all the other modalities, cell and gene therapy and mRNA, the market is still dominated by monoclonal antibody therapies that are on the market today. There's been a number of really high-profile, you know, launches. The pipelines have been good. Certainly patient demand is there. And so the end market fundamentals are certainly there, but we are working through, you know, the destocking dynamics that we talked about in previous forums. You know, for us, that's primarily in the single-use, you know, categories that are within our portfolio. You know, there's still a reasonable amount of inventory in the chain. It is improving as we engage with our customers. We're sitting on an order book that's still, you know, well above historical levels. And so certainly the demand is there. But, you know, they're being a little bit more prudent about how they manage their working capital, particularly in this environment. And the guidance that we have out there would contemplate these headwinds persisting through the end of the year. And we'll have the benefit of a couple of quarters to see how that plays out before we look into 2024. Got it. I want to ask you about, you know, engineering drawing activity. That was an interesting leading indicator you pointed to. How has that sort of trended off late as far as, you know, SUG assemblies are concerned? And then in terms of that order book and the backlog normalization dynamic, has the rate of decline sort of slowed sequentially? Yeah. So, you know, we're all looking for kind of the, the green shoots, those bright spots that would indicate that the, you know, the market is, you know, on the verge of an inflection point. And so for us, we look at a whole host of leading indicators in our business. And in the single-use business, for us, or the single-use platform, which has been one of the areas that we've, you know, encountered some of these headwinds. The earliest activity that we would see that would indicate that things are starting to pick up would be, you know, engaging with customers on what we refer to as engineering drawings, and we have talked a bit about this. That's the first step in the process. They'll bring in a concept to my team. My team will, you know, engage pretty intimately with them, translate that into a, you know, a drawing, you know, ultimately probably a prototype. You know, we'll go back and forth, to get the design set. And then, you know, presuming that the program is gonna move forward, they'll translate that into an order. And of course, that'll kick off our production process. So it probably, you know, front runs, our revenue by anywhere from four to six months, that type of activity. We did see a market turn up in, in the second quarter. We've seen really good activity continue through the third quarter. And, you know, we're anxious to see that ultimately translate into, you know, an uptick in the order book. Got it. You know, one of the questions we've gotten of late, you know, speaking about sort of high-profile launches, is how big the GLP-1 opportunity could be, for your Bioproduction business. And could the switch to pill form down the road drive incremental demand for your resins versus the injectable format? Yeah. So this is a really great example of what I was mentioning earlier, around just the promise of science, the number of new therapies and modalities that are out there. It really is an exciting time to be in this space, and, you know, GLP-1, for good reason, is, is getting a lot of headlines. And it is a space that will, you know, be important to our, to our platform, but, you know, no more important than any other- anything else that we do. One of the things I like about our platform is that we're, not over indexed to any single therapy. And, you know, collectively, you know, we serve all the, the spaces. We're gonna be ubiquitous in terms of, the, the modalities as well as, you know, the, the therapies that are commercialized. You know, we're in, you know, more than 85% of these, commercialized therapies. And so GLP-1 will be, you know, one of those. We have a pretty compelling offering, whether you're in the fermentation route or the chemical synthesis route, our process ingredients, buffers, solvents, will be, you know, used, you know, throughout those, you know, workflows. And so it is an area that we're excited about. I think we're a little bit, you know, cautious at the moment, just looking to see, you know, what approvals, and what it, you know, what it gets extended to, what indications that it gets approved for- Mm-hmm ... as well as what the reimbursement models end up looking like. And then, you know, to your point, the dosage, you know, form will be, will be important for us as well. So early innings, clearly, but it is a good example of just the momentum that's in the biopharma space, and it's great to see some of these things coming through. Got it. What%—I mean, speaking of, you know, new modalities, what% of your bioproduction backlog is cell and gene therapies? And, is that mostly on the research side? And I think you called out, you know, double-digit growth in some of those workflows in the second quarter. Do you see that trend sort of sustaining here? Yeah. So interesting when you think about bioproduction, as I mentioned earlier, it's still predominantly driven by, by monoclonal antibodies. And, you know, we're certainly seeing, you know, some of the headwinds play out in that space. I would contrast that, though, with cell and gene therapy. Unfortunately, you know, we're working off a fairly modest, you know, baseline as an industry, and that's true for us as well. But boy, it sure is growing, you know, rapidly. We're well into the double digits with, with growth. There's no headwinds that are playing out in that space at the, at the moment. We've had a terrific year on that platform. Our content is extremely relevant, and we've got a very rich R&D pipeline that's focused on bringing, you know, new materials into the market to be able to satisfy our customers' requirements in this area. So it's a space that we like an awful lot. It's in the early days, but we'll continue to invest in that. So in terms of the backlog and our order book and such, I mean, it still does mimic, you know, kind of the split within the end market itself and which is to say that, you know, most of it is still gonna be monoclonals, but the cell and gene therapy workflow is growing rapidly this year. It is diverging from, you know, what we see in some of the other applications. Got it. You know, before we move to the other segments, Michael, I want to talk about the margins in your Bioproduction business relative to corporate average. You know, obviously, negative operating leverage seems to have hurt you on the way down, but it feels like a recovery could really translate into solid momentum on the margin line into 2024. Tejas, you're exactly right. When we think about the margin algorithm at Avantor, there's three or four key drivers that you know that yield the margins that we, that we print each quarter. One of the most important indicators of margin in our business is the mix. We have a you know a mix of business within the portfolio of proprietary you know products, which carry a margin that's probably 1.5x-2x that of our third-party you know products in our portfolio. And in normal times, just given the workflows that our products are spec'd into, our proprietary products will grow disproportionately faster than our third-party products. And that yields just, you know, structurally, a nice lift to our, to our margins. And so where we see some of the headwinds this year, the COVID revenues that are rolling off, we're very, rich in, in margin. The destocking that we see occurring in biopharma as well as in the lab, you know, again, you know, pretty margin-rich categories.... The electronic materials headwinds that we're seeing, that's all proprietary content with very rich margins. And so we see that, you know, in the P&L, and we're, we're certainly working hard to, to offset that in, in other ways. But to your point, as the volume returns, which it will, you know, the margins will come back, with that. and so, you know, whether that's, you know, at the end of this year or some point in next year, there will be a margin tailwind that comes when the volumes normalize and this ratio of kind of third party to proprietary, you know, returns to normal. Got it. And how does that translate into the bioproduction business, Michael? I mean, is that also largely sort of skewed towards proprietary and the higher side of the margin, sort of category? Yeah, just a little context there. So for bioproduction, for us, would be everything that we supply to our customers that are producing, you know, commercialized therapies. So anything pre-commercial is gonna be captured in our R&D activities. And within that bioproduction space, as we define it, it's nearly 100% proprietary content. There is a bit of third-party content in there, but it is overwhelmingly proprietary content, which is gonna carry margins, you know, GM margins that are, you know, probably 1.5x-2x that of the third party, you know, portfolio. Got it. It's an important area from a growth standpoint, clearly, but it also influences our margins. Got it. That's helpful. Switching to, you know, ATM. In the past, you've called your exposure to, you know, petrochem and food and beverage there as cyclical, and the other half, which is, you know, semis, aerospace, and defense is not. It's not exactly how it's played out this year, you know, with the semis headwinds you're seeing there. But so I think it's really helpful to look at it, you know, on an end market basis, right? So how much of ATM is semis, and can you quantify the other end markets as well, roughly in terms of revenue contributions? Yeah. So, you know, at Avantor, we serve four end markets. You know, biopharma is the largest. It's, you know, roughly 55% of it. You know, healthcare and education and government are, you know, in that 10%-15% range. And then you get into the applied markets, which is about 25% of our revenues. And within the applied markets, which is where your question is at, we serve a whole host of end markets, many of those that you named there, with the largest of those being, the semiconductor space. And it's roughly 2%-3% of our, you know, group revenues. The business model there is actually very similar to what we see in the life sciences space, which is to say, you know, we'll engage with our customers in their early phase, development and, discovery processes. We'll customize a formulation, it'll get spec'd into the process, and then we'll scale with that, as it becomes, commercial. You know, when I look at the dynamics that are underway here in the semiconductor market, that end market went through a lot of the same disruption that the life sciences end markets went through with, you know, a rapid increase of demand during COVID. Supply chains became very constrained. Now on the back end of that, as that supply chain is normalizing, you know, you see, you know, inventory corrections and things, you know, occurring. So we've seen a very deep, you know, cut in demand this year as our customers are aggressively bringing down their own inventories. That, you know, seemed to have bottomed out in the second quarter. We've seen some incremental improvements in the third quarter. We expect to see that continue into the fourth quarter. You know, so it feels like, you know, that's a good example of a headwind that we seem to be working our way out of. Now, it's a space where I don't think the fundamentals of the end market are, you know, in question when you look at what's going on from an AI standpoint or the Internet of Things, the digitization of, you know, virtually everything. All the investment that's going in around the world, you know, to build capacity will be an important driver. So I think we like the end market fundamentals. You know, we've gone through a bit of a painful correction here as customers have very aggressively taken down the inventories of their finished products to reset post-COVID, but it feels like we're coming out the other end of that one. Got it. And so would it be fair to say that the NTM forecasts you're getting from them are sort of gradually improving into July and August versus what you had embedded in the guide? Yeah. So maybe back to the guidance. You know, the, you know, visibility in our business, you know, is a challenge. And so given, you know, some of the headwinds that we were facing and, you know, some of the murkiness that's out there in some of these end markets, the approach we took to our guidance was to try to simulate the end market conditions that we saw in the second quarter and project those through the balance of the year. And so, that's what's in there for, you know, all of our production platforms, including the semiconductor, you know, platform. I think it's gonna be incrementally better than, you know, probably what we have in there. I wouldn't get too carried away with, you know, baking in a lot of upside or a material level of upside, but we have caught the bottom. You know, the forecasts are improving. You know, we're starting to turn up our production units again, and, you know, I think we're definitely heading in the right direction there. Got it. I want to hit upon, you know, education and government. You highlighted a big win there with the E&I consortium. I think it was over 5,000 educational institutions. Mm-hmm. Was that sort of a renewal or a new contract? And how sort of needle moving is the impact from that to education and government? So, the education and government sector for us is about, you know, 15% of our, of our revenue. And in the U.S., one of the, most important ways that we serve that space is through this E&I consortium. As you mentioned, there's roughly 5,000 member institutions that buy across that platform. And this relationship that we've had for, for quite some time with E&I gives us exclusive access, you know, to those partners and, really a ready-made format for us to be able to transact with these, with these customers. So it was an important extension for, for the business. This is an area, you know, that I would say, you know, is a you know a bright spot for our business in the midst of, you know, a lot of different headwinds we see in other areas. You know, our education platform has grown you know pretty meaningfully in the first half of the year, and we see that continuing in the third quarter. And I think it really reflects, you know, one, just our positioning. Mm-hmm. And, you know, this contract and this relationship is an important aspect of that. It also, I think, is a demonstration of our relevance as well as, you know, I think we've really been leaning in hard here from a commercial intensity standpoint. You know, we've done some things around realigning, you know, our commercial activities over the last couple of years to better serve that space, and you see it playing out. I mean, we grew that platform in the U.S. double digits in the second quarter, you know, and we'll continue to drive hard into that space. Beyond the contract, you know, we have had some other wins in the space that's brought business into our portfolio and, you know, it's... Obviously, it's not, you know, a space that we generally rely on for outsized levels of growth. It's, you know, classically more of a low single-digit growth space. We like it a lot, though, because of the insights that we get into, you know, where science is heading and what our customers are working on. And in many cases, it's also the scientists' first exposure to our products. And so it's a strategic area for us. We spend a lot of time on it. I think we really like the positioning and how the year is playing out there. Got it. Turning to, you know, geographies, you know, you've relatively small exposure to China, but it's a huge focus area for everybody. What are you seeing on the ground, in terms of, you know, some of the pretty drastic sort of weakness called out by some of your peers? Do you see any impact from the anti-corruption crackdown there? I think you'd said in the past, it's like 2%-3% of total revenue for Avantor. So just any color on China? Yeah. So maybe taking the reverse order there, you've got the exposure about right. Asia, for us, is about 5% of our total revenues, and, you know, China is a subset of that, so it's in that 2%-3% of our total revenues is China. We're seeing the same things that everybody else in our space is seeing. Demand is quite weak. They're sitting on a lot of inventories. It's really not clear how soon it's gonna turn around. I certainly don't have any hope for a turnaround there anytime soon. But it is at this stage a pretty modest impact to our business. We still think that and believe in the long-term fundamentals of that space. There's a lot of activity there, particularly in the cell and gene therapy area, but even in, you know, tech transferring in a lot of monoclonal antibodies, you know, we are, you know, strategically investing in that in that region, you know, whether it be through, you know, our R&D center that we have there, we've established a manufacturing footprint there. And I think the key for us there is just to continue to localize capabilities to service what we think is gonna be long-term an exciting growth opportunity. But, you know, structurally, that economy has some things to work through, and it's, you know, I don't think it's gonna turn around anytime soon from what I can tell. Fair enough. And then just shifting over to Europe, do you see... Now, what do you see across the end markets there? I think you'd called out pharma and academic government weakness, in the region. And are you starting to see any fallout from China and some of these, you know, export-oriented European, economies? Yeah. So, you know, Europe, for us, has been pretty resilient so far this year. I think we were off on a core basis, you know, a couple of points in the second quarter, but there is certainly stress in the system in Europe. You see some of the countries already in recession. Germany is a good example of that. And I think these countries like Germany, who have this significant industrial exposure to a country like China, you know, are certainly starting to feel, you know, some of the challenges associated with that exposure. And so there are some certainly some challenges that are building you know, within the region. But for us, I think probably more of it has been just around biopharma, you know, similar funding constraints in biotech, large pharma, you know, taking a more cautious approach. So that's probably been a bigger headwind for us in Europe this year than, you know, maybe some of the applied end markets. Got it. Services and specialty procurement, I think it's low double-digit as a percent of total sales, held up reasonably well for you this year. Can you just remind us of the puts and takes in that part of the portfolio and the sustainability of growth in the second half? So services, for us, is a strategic part of our portfolio. As you mentioned, it's just a bit under 15% of our total revenues, and it's a platform that's been growing, you know, roughly double digits for a number of years. And, you know, strategically, it's an area that we lean in hard on because it really gives us more intimate access to our customers. It enables us to, you know, get a better view into the challenges that they're working on. And where we, you know, have significant services relationships with our customers, we also see a disproportionate growth of our, you know, other product categories. And so, this is an area that we're quite focused on. And to your point, this year, not unlike other years, has been another strong year for our services platform. They're actually pretty close to their plan this year, despite all of the headwinds. And I think it does, you know, further validate the positioning of our platform, you know, the access that we have to our customers. And in these categories where you don't have a surplus of inventories and, you know, some of these dynamics, you know, our business continues to be quite strong, and that services platform is a good example of that. Got it. Switching to, you know, pricing and margin, really, I mean, how is the pricing environment holding up? Have you seen any sort of, you know, shifting share dynamics there? And I think you'd called out flipping a pretty large account earlier this year. How has that started to sort of show up in the numbers yet? Give us a sense, at a high level, Michael, of... When a customer decides to choose, you know, a distributor like you versus, you know, Fisher or Sigma to meet their needs, what exactly drives kind of like that win-loss rate dynamic? Sure. So let me, try to unpack a few points that you made in there. So this year, pricing, once again, has been, outsized relative to historic levels, which is to say it's probably, probably 300-400 basis points, something like that. It's been, you know, pretty consistent, you know, throughout the year. I think it's, you know, playing out essentially as we would've, anticipated. And, you know, back to the comments I made earlier around our, our margin expansion algorithm, price over COGS is, is one of those key, you know, variables. And, you know, I think throughout the pandemic and throughout the last several years, this, you know, the price relative to COGS dynamic we've been able to drive has yielded, you know, I would say, consistent results in line with our long-term algorithm. So although we're, you know, taking higher price into the market, we're also seeing, you know, higher levels of inflation. And that'll be an important variable as we move into next year, to see where inflation is landing so that we can set the pricing. But you know, I think it... You know, we've had good pricing power this year, and the teams have done a nice job, you know, executing that. You know, relative to, you know, customer wins, you know, I'd say we've had another very terrific year. You mentioned a pretty high-profile win and conversion that we're in the midst of driving, playing out as we would've anticipated. This is a very complex account that you're referring to. And, you know, we, in our... I would say it's in line with our plans, but which is to say that we'd anticipated that it would ramp as we move throughout the year- Mm-hmm ... as we, you know, connect our systems, you know, get our services associates on site, you know, implement the catalogs, and, you know, drive that conversions. Our teams are very good at this, and we've got a full, you know, full team that's dedicated to driving that. So it's had, I would say, through the first two quarters, as we've indicated before, it's had a modest impact, but you'll see that impact start to ramp as we move through the back half of the year. Got it. A couple of quick ones on the numbers. You know, Brent's been in the CFO seat, he's in the audience here, for a little over a month. What are his initial priorities? Should we expect anything sort of markedly different in terms of the way you've been forecasting or guiding? I think the balance sheet sort of, rejigging is largely complete, so what sorts of, you know, initiatives are on his priority list in his first year? Yeah. So, we are really happy to have, you know, Brent here. Tom had been a great partner, and you referenced, you know, some of the highlights, what he did for us, remaking the balance sheet and really changing, you know, our tax structures and making that a lot more efficient. So certainly a lot more. A lot of really good work that Tom, you know, left us with. As we think about bringing, you know, Brent in, obviously, in the early days, he's just trying to learn the business and get his arms around, you know, a new platform. You mentioned forecasting and visibility. That's a critical area for us, so as you would expect, that's an area that he's spending a tremendous amount of time on. You know, he's, you know, engaged with our businesses, you know, to kind of unpack the growth strategies and, you know, identify opportunities for us to accelerate our growth. And, you know, certainly as we think about doubling down in this environment, not only just to accelerate growth, but to control costs, you know, Brent's, you know, operational background is gonna be pretty important to us as we, you know, work through some of these headwinds, and he's leaning in hard there. So, thrilled that he's here, and he's coming up to speed quickly. Got it. So, you know, you've got about 125 basis points of EBITDA margin decline embedded in your guide this year. You know, 200 basis points from, you know, lower volume, weaker mix, and then an offset of 75 from productivity and cost control. Yeah. So my question really is, you know, could we see additional margin benefit from these cost actions in 2024? Which in combination with a mixed benefit, particularly as, you know, some of the proprietary stuff you alluded to earlier comes back, could see, you know, pretty meaningful uplift in margins versus even what the Street has you doing next year. Yeah, so probably helpful to focus a little bit on the, on the guide. If you think about, the comment I made earlier about trying to simulate the, the conditions we saw in the second quarter, in the third and fourth quarters, you know, in the, the lab part of our business, you know, which is more subject to kind of the, the number of shipping days in a, in a financial period, you kind of convert that to a daily rate of sales and then translate that through the number of business days. And so on a reported basis, that yields slightly lower revenues in Q3 and Q4 than what we saw in Q2 for the lab part of our business. You know, there's about a 2.5% FX tailwind in our numbers to get you to organic growth numbers of, you know, roughly down 8% at the midpoint in Q3, and, you know, kind of 5%-6% down in Q4. Then, you talk about the margin impacts. Certainly, we're seeing the impacts of lower volumes, the shift in mix that we're, you know, trying to, you know, work through on a temporal basis. Offsetting that then with the cost actions that we're taking. Many of these are structural, whether it's, you know, footprint realignments around manufacturing centers. We've invested a lot in automation in our distribution network to bring a lot of efficiencies there. These are long-term investments that we've made that will survive, you know, these headwinds that we're seeing here. And so, you know, it's an important part of our culture. It's in our DNA to drive continuous improvement, and, you know, we're pulling that lever a little bit harder than we would normally, but, you know, it will, you know, yield some stronger margins as we move forward. Great. We're out of time. Lot to chat about. We'll carry on the conversation at dinner. Thank you, Michael, for joining us. Appreciate it. All right. Thank you all. Appreciate it.