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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 2024 Earnings Results Conference Call. [Operator Instructions] I will now turn the call over to Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin the conference.

Good morning. 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 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 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, CJ, and good morning, everyone. I appreciate you joining us today. I'm starting on Slide 3. We delivered another solid quarter with sequential improvement to all key financial metrics, with reported revenue of $1.7 billion, organic revenue declined 2%, modestly above the midpoint of our guidance, driven by stable conditions in the lab and improved demand in our production business, especially bioprocessing. Compared to the first quarter, adjusted EBITDA margin increased more than 100 basis points to 17.9% and adjusted EPS grew double-digits to $0.25, fall solidly above our guidance for the second quarter. As Brent will outline in his section, our margin improvement was driven by pricing, improved mix and realization of savings from our multi-year cost transformation initiative. We also generated $235 million of free cash flow in the quarter, inclusive of cash costs related to achieving our transformation savings. Reflecting our strong working capital performance, year-to-date free cash flow conversion has exceeded 100%. We paid down over $200 million of debt in the quarter and remain committed to bringing our adjusted net leverage ratio below 3 times. We continue to make good progress with the implementation of our new operating model and are seeing early benefits of aligning our teams with our customers' needs in the lab and production environments. In addition to unlocking significant operating efficiencies and streamlining execution of our operating plan, we're also realizing benefits from ongoing commercial intensity. Highlights from the second quarter include the launch of the J.T. Baker Cell Lysis Solution and J.T. Baker Endonuclease, complementary products to sustainably optimize the gene therapy harvest process. We also launched our Masterflex MasterSense gear pump, which has exciting applications in mRNA encapsulation. We secured several new contract wins and renewals, including with biopharma and CDMO customers, as well as with leading academic and government institutions. As part of our effort to bolster operational excellence and improved service levels, we recently opened our new North America customer service center in Mexico, which is modeled after similar service centers in Europe and in Asia. Sustainability is core to our strategy and the value we provide to our customers. We published our annual sustainability report in June, highlighting the progress we have made in the past year under our Science for Goodness platform, including broadening our sustainable products offering, and working with our suppliers to create a more sustainable supply chain. Finally, our team continues to execute our multiyear cost transformation initiative, including aligning our manufacturing and distribution footprint with current and future areas of growth and improving our organizational efficiency. Accelerated results from this program drove margin performance above our guidance range, and we are on track to meet our in-year cost savings target of $75 million in 2024. The broader market conditions remain consistent with the first quarter and the tone of our customer dialogue continues to be constructive. It is clear to me that the power of our channel and our commercial intensity are making a difference in the current environment. In Laboratory Solutions, consumables and services continue to perform well, validating the strength of our positioning and relevance to our customers. Equipment and instrumentation trends were stable sequentially and we are encouraged by continued customer engagement and activity levels. From an end market perspective, we're still seeing pockets of inventory destocking and cautious customer spending from our biopharma customers. At the same time, Biotech funding remains up double-digits year-over-year and well above pre-pandemic levels. The improved funding environment is driving positive customer sentiment and strong commercial engagement on new projects. Although, we do expect that it will take a few quarters for this to translate into increased sales. In our other end markets, core diagnostic testing demand remained strong, and we saw sequential growth from our higher education and applied customers. In Bioscience Production, the bioprocessing end market remains healthy with a robust pipeline of new therapies, a favorable regulatory landscape and strong patient demand. The FDA has approved 21 biologics this year, including 14 new molecular entities across mAbs, cell and gene therapy, genome editing, proteins and vaccines. Customers have largely worked down excess inventory of our products, though some isolated pockets of destocking remain. Production activity is improving, but has not yet returned to levels that match underlying end customer demand, largely a result of elevated finished goods inventory at some form of customers. In line with this backdrop, our bioprocessing business continues to gain momentum with another strong quarter of orders. Importantly, the positive order trends are converting to sales as bioprocessing grew high-single digits sequentially. We saw a solid performance in process ingredients and a return to growth on a year-over-year basis in our fluid handling platform, which includes our Masterflex and single-use offerings. Within our health care and advanced technology end markets, performance was in line with our expectations, with sustained momentum in aerospace and defense and ongoing recovery of semiconductor demand. Given our performance year-to-date and current market conditions, we remain confident in our guidance and are reaffirming our full year outlook. Brent will provide additional details later in our prepared remarks. In summary, we delivered another quarter of solid performance and are encouraged by our momentum in bioprocessing. Enabled by the Avantor business system, we are ahead of plan in executing our cost transformation initiative and have delivered exceptional free cash flow generation with year-to-date conversion well over 100%. With that, I'll now turn it over to Brent to walk you through our second quarter results in more detail.

Thank you, Michael, and good morning, everyone. I'm starting with the numbers on Slide 4. Reported revenue was $1.7 billion for the quarter, declining 2% on an organic basis. Sales trends in our Laboratory Solutions segment were similar to the first quarter levels and we saw sequential improvement in our Bioscience Production segment, driven by strength in bioprocessing. Adjusted gross profit for the quarter was $583 million, and adjusted gross margin was 34.2%. This represents a 40 basis point expansion year-over-year, with favorable impacts from pricing, mix and productivity. This also represents a 20 basis point sequential improvement helped by the relative outperformance in Bioscience Production. Adjusted EBITDA was $306 million, up $23 million sequentially. Adjusted EBITDA margin was 17.9%, up over 100 basis points sequentially. Our sequential adjusted EBITDA improvement was driven by the increase in sales and the impact of our cost transformation initiatives up and down the P&L. On a year-over-year basis, performance was impacted by low sales volumes and the impact of our incentive compensation reset. Adjusted operating income was $277 million at a 16.3% margin in line with adjusted EBITDA performance and the drivers just noted. Adjusted earnings per share were $0.25 for the quarter, a $0.03 sequential improvement, driven by strong operating income performance. We generated $235 million of free cash flow in the quarter. Our free cash flow performance reflects our bottom line results and strong working capital performance, partially offset by cash costs of nearly $40 million from our cost transformation initiative in Q2. When excluding cash costs related to the transformation, we've generated $385 million of free cash flow year-to-date. Our adjusted net leverage ended the quarter at 3.9 times adjusted EBITDA. As Michael noted, we remain focused on deleveraging and paid down over $200 million of debt in the quarter. Slide 5 outlines our segment performance. Laboratory Solutions revenue was $1.16 billion for the quarter, declined 2.7% versus prior year on an organic basis. Sequentially, sales were stable at Q1 levels. Adjusted operating income for Laboratory Solutions was $151 million for the quarter, representing a 13.1% margin. The year-over-year adjusted operating income decline was driven by negative sales volume and the impact of our annual incentive compensation reset, partially offset by favorable mix and savings from our cost transformation initiative. Sequentially, Laboratory Solutions adjusted operating income was up modestly, with similar sales volume and mix at the gross margin line and incremental cost savings driving improved conversion. Adjusted operating income margin increased 3 basis points from Q1. Bioscience Production revenue was $547 million representing an organic decline of approximately 0.3% versus prior year. Sequentially, reported revenue increased by $24 million, net of a $3 million headwind from FX. Bioprocessing, representing about two-thirds of the segment outperformed and was down mid-single digits on an organic basis versus our expectation of down mid to high-single digits. Sequentially, bioprocessing grew high-single digits as improved order rates are translating into increased sales and are supportive of continued momentum as we enter the second half of the year. Specific areas of strength include both process ingredients and fluid handling products. As Michael noted, our fluid handling products returned to growth on a year-over-year basis, a very encouraging sign for activity in the space. Overall, bioprocessing continues to show signs of improvement, consistent with our view that the end market is healthy and inventory is reverting to more normalized levels. To round out the segment, biomaterials and advanced technology performed in line with expectations. Adjusted operating income for bioscience production was $144 million for the quarter, representing a 26.3% margin. Year-over-year adjusted operating income declined as a result of lower sales volume and incentive compensation headwinds. On a sequential basis, adjusted operating income saw an increase of $17 million due to a combination of higher sales and meaningful savings from our cost transformation initiative. Adjusted operating income margin increased by 200 basis points from Q1. This quarter is a great example of the incrementals this business can drive with even modest top line growth. Overall, a strong quarter for the Bioscience Production segment. Moving to the next slide. As Michael said earlier, we continue to view our guidance ranges as appropriate, and we are reaffirming our full year outlook as shown on Slide 6. In terms of revenue, given our strong year-to-date performance in bioprocessing and continued momentum, we expect Bioscience Production to exceed original expectations and finished the year down low-single digits organically. We expect Laboratory Solutions to be flat to down low-single digits organically with seasonal patterns driving range. At an enterprise level, the midpoint of our organic growth guidance assumes normal lab seasonality, while the lower end accommodates more muted seasonal patterns. Year-to-date margin performance has significantly derisked our adjusted EBITDA margin and EPS guidance and our year-to-date conversion puts us in a strong position on free cash flow. For the third quarter, we expect organic revenue growth of negative 1% to plus 2%. We also expect Q3 adjusted EBITDA margins to be stable sequentially. I'll now turn the call back to Michael.

Thank you, Brent. In summary, our team's commercial intensity, alignment with our customers' core research and production needs, and operational discipline generated another quarter of solid performance. Our margin expansion drivers are working. We are seeing relative strength in high margin categories, including Bioprocessing, and we continue to drive our multi-year cost transformation initiative. The impacts of these actions are having to conversion is evident in our results, and we expect they will continue to drive strong incremental margins as end market demand fully recovers. Additionally, the new operating model that we stood up at the start of the year is generating momentum across our business segments. Our commercial intensity is driving share gains with meaningful new contract wins and expanded customer relationships in our biopharma, education and applied end markets. Our customer driven innovation agenda and internal R&D engine continues to develop products that are inherently sticky. And our integrated sales and customer excellence organization is creating a stronger, more cohesive customer experience. As always, we are focused on execution and remain confident in the opportunities that lie ahead for our business. Finally, I'd like to close by thanking our Avantor associates for their dedication to serving our customers and for their many contribution to our transformation and operating results. I will now turn it over to the operator to begin the question-and-answer portion of our call.

Thank you. [Operator Instructions] Our first question comes from the line of Vijay Kumar with Evercore ISI. Vijay, please go ahead.

Good morning, Michael and -- congrats on a steady print share. Maybe my first question here on the Bioprocessing, just given the focus of -- what was -- you mentioned destocking. Is there any way to quantify the destocking impact in second quarter or first half, and to get a sense for underlying growth? And what did orders do in the quarter, maybe sequential and year-on-year trends? Maybe comments on where it came from in the consumables versus instrumentation?

Thanks for the question, Vijay. Good to hear from you. As we described in the prepared remarks, Vijay, overall, we're obviously very pleased with what we're seeing in Bioprocessing and the fundamentals are clearly improving. And I think, we're encouraged by the outlook here. As we said, we had another quarter of strong orders. You asked about year-over-year, certainly, good growth year-over-year as well. We characterize as just continued momentum in how that order book is building. Perhaps more importantly, I think, Vijay, it's important to realize, given our lead times and such, we are starting to see these positive trends convert to revenues, and we delivered another quarter of outperformance on the platform. We went into the quarter thinking about processing being off high-single digits to perhaps mid-single digits, and we obviously finished up at the high end of that. And given the momentum, the order book that we've realized in the quarter, it enabled us to improve our outlook on a full year basis. We're certainly excited to see the platform return to growth exiting the year.

Understood. And maybe, Brent, one for you on a nice free cash (ph) trending this quarter and in first half. Any timing element on free cash and you did mention pricing drove margins? Is that -- when volumes do normalize? I mean, how should we think about margins because you do have normalized. I think operating model (ph) was 50 basis points to 100 basis points. Should cost savings be incremental to that 50 basis points to 100 basis points outlook?

So thanks for the question. A few things to unpack there. Look, on the free cash flow side, I would think about it as just the performance in the first half there, a little lighter in Q1, very solid in Q2. If you look, we had really nice improvement in working capital days there, frankly, in all metrics. And I'd put that to real focus on execution and we reiterated the guide in connection with that. So I think we'll perform solidly for the year. In terms of other margin acceleration and of being on the algorithm, I would just stick to what we stated in the algorithm there. We’re still in this dynamic period right now. We have a lot of costs coming out of the business and just stick to the general way we think about the business going forward.

Understood. Thanks, guys.

Thank you.

Our next question comes from Tycho Peterson with Jefferies. Tycho, please go ahead. Your line is now open.

Hey, good morning. Maybe just want to probe in on some of the Bioprocess recovery comments on -- process ingredients, you made some kind of intra quarter comments on API. So I'm just wondering if you can kind of put the process ingredient comments in context of where we are on the API front? And then how do we think about fluid handling products? You had mentioned that’s a good kind of leading indicator. So maybe put some context around that. And are there remaining pockets of weakness you can point to? And then maybe expectations for the core growth exit rate for Bioprocess for the year would be helpful?

Thanks for the question, Tycho. Good to hear from you. Welcome back. A few things to get into there. I think, again, just to reiterate what we've been saying, we're very pleased with the momentum that we are staying in as broad based, you asked about the process ingredients. I think one of the things I liked about our platform, Tycho, of course, is we're going to have exposure upstream, downstream and through fill/finish and we're seeing good momentum across the portfolio. And we called out our Masterflex and single-use platform, that platform and associated solutions actually returned to growth on a year-over-year basis in the quarter. And that was a platform where we were first starting to see some of the green shoots and leading indicators turn favorable for us last year as we really started to see an acceleration of engineering drawing activity and certainly, that's continued and now also starting to translate into improved revenues. So I think there's a lot to like about the momentum that we have on that front. Relative to APIs and inventories and such, I think probably a couple of ways to think about that. And I think consistent with the way we've been talking about it probably over the course of the last year or so, destocking of our products is largely complete. Yes. I'm sure there's a few isolated pockets of inventories at specific customers, but largely, that's getting behind us. And I think the elevated inventories with some of the APIs in bulk drug substances that we've seen at our customers, that continues to improve, but still not at a level where we see underlying production matching end market demand, but certainly improving and one of the dynamics that's leading to the improved growth rates. I think to be honest on the questions here, Tycho, but I think your last question there was just around how we see Bioprocessing trending through the balance of the year and perhaps where we see it exiting the fourth quarter. I think we've indicated we're certainly looking forward to the -- welcome return to growth for the platform in the fourth quarter. Given the momentum to order book, we have increased the, I think, our outlook on a full year basis. We see Bioprocessing probably down low-single digits on a full year basis, which you kind of do the math on all that, and that leads you to an exit rate in the mid to high-single digit rate for the platform. Thanks for your questions, Tycho.

Okay. Thanks. And can I -- one follow-up quickly, just education and government. You had mentioned some improvements there, but it was down mid-single digits versus down low-single digit in the first quarter. I just want to understand what -- I just want to clarify what you're saying there?

Yeah. So the end market, education and government, you're right down mid-single digits. There's probably three key components to that platform, Tycho. We have some exposure to K-12, which has a real seasonality component to it, kind of, just the return of the school year kind of falls right on top of the quarter. And so you see some dynamics. Sometimes the orders come in June or revenue comes in June. Sometimes it comes in July. So looks like this year probably a little bit more weighted to the third quarter. Government was down for us a bit. I think on the higher education piece, which is probably the most important piece for us here, difficult comp. I think that was probably the high point for the year last year leading to the results you see there. I think for us, the focus here remains on commercial intensity. We've got some -- a lot of nice wins and ongoing share gains there. And I think we're encouraged to see higher education improve sequentially as we move from 1Q to 2Q.

Okay. Helpful. Thank you.

The next question comes from Doug Schenkel with Wolfe Research. Please go ahead. Your line is now open.

Good morning, and thank you for taking my questions. My first one is on Bioprocessing. Recognizing your mix of consumables is a lot higher than equipment. I am just curious if you'd be willing to comment on what you're seeing in terms of demand for each category, meaning consumables versus equipment, kind of how you're thinking about that as you incorporate an assumption about that into your full year guidance? And then kind of related to that, how does that impact margin? I would think if consumables are trending better than equipment, that would actually benefit margin for the year on top of the fact that you're now expecting Bioprocessing to be a little bit stronger for the year? I would think those would all be good guys for margin for the year. So any comments on that would be helpful.

Thanks, Doug. So on Bioprocessing, as you've indicated, really, really heavy mix and certainly favoring consumables. Probably -- roughly speaking, it's probably 95% consumables on our Bioprocessing platform, roughly 5% equipment. And of that equipment, what we're really talking here is primarily our peristaltic pump platform within Masterflex. Good momentum across both obviously and interesting enough, our Masterflex line actually returned to growth in the quarter. And I think margin profile across our equipment or consumables pretty similar within Bioprocessing. So both components of that moving in the right direction and supporting the improved outlook there. When I think, though, I step back across at an enterprise level, this discussion around consumables versus equipment, obviously, we're a consumables driven platform. And I think that's one of the attributes of our business model that I think is particularly attractive, particularly given the recurring nature of the revenues here above 85%. One of the benefits we saw on margin this quarter was due to improving mix. And certainly, the ongoing recovery of consumables and the consumables driven growth is favorable for mix, just given how much of that is proprietary content for us. Equipment was stable sequentially in our lab platform, and we'll see where that goes going forward here. But I think, we like the mix that we're seeing here and particularly the return of the proprietary content, which carries a higher margin for us. So I think a lot of favorable dynamics there that support our momentum going forward.

Okay. One real quick follow-up. And Mike -- could be for Michael, could be for Brent. But given how things are trending right now, it seems like that I think it's the 2025 exit rate target of 20% plus EBITDA margin. It seems like, at least when we plan Excel, you're on track for that. Just want to make sure that you guys agree with that?

We do agree with that, Doug. It's squarely in our sights and there's a lot of different ways to get there. The thing I'm probably most focused on is, how do we get there on driving the things that are fully within our control. Clearly, improved market recovery will help us, but not necessarily needed in order to get there. We're making great progress on our cost transformation initiative. We're ahead of plan and well on track to deliver our targets for this year. And we'll be exiting the year with -- at a run rate there that has us roughly halfway through the program. So you can layer that in. I think it gives us good line of sight to getting there. And then, if we can layer in improving market dynamics, I think that even gives us more of a tailwind. So in short, yes, very confident on being able to deliver that squarely focused and the team I think, continues to execute well against that plan.

Thank you very much.

Our next question comes from Daniel Brennan with TD Cowen. Please go ahead. Your line is open.

Great. Thanks for taking the questions. Congrats on the quarter. Maybe first one is, just you have reiterated the full year guide after the better Q2 with 3Q kind of in line. Your fourth quarter does imply a decent step-up like on a stack basis year-over-year. Maybe just speak to, like, the confidence in the fourth quarter. It looks like it's now with the adjusted guide for lab and bioprocess. Looks like it's definitely, you've got improvement in both, but probably more in bioprocess. Maybe just speak to kind of how your kind of second half sets up, if you will?

Yeah. I think we do like the way the year is playing out so far, Dan. And at this point, as we see it, none of the assumptions that we laid out as we entered the year have really changed. I think all the factors that we called out there that would drive the range and the guidance are still fully intact in terms of how pricing has played out in line with our plans. Obviously, order books are improving. There are some calendar implications to think about as we move from quarter-to-quarter, and that's certainly factored into the guidance. And then, as we've said from the beginning, there is, I would say, a modest seasonality built into our business. We think about kind of 49% of the revenues coming in the first half. 51% is kind of customary for the second half. And so, as we sit here today, I don't think anything has caused to change our view of any of those assumptions. And as I think Brent outlined in his remarks, probably the biggest variable here as we look ahead to the balance of the year is the production segment, clearly on track to continue to outperform. We'll see how the seasonality dynamic that we normally see in the lab business, how that plays out. But I think in terms of confidence, the range of scenarios there I think is covered by the ranges that we've given today.

Great. Thanks. And then I know there's been a few questions just on Bioprocessing and I could have missed it. But if we do the math on like a book-to-bill in the quarter, like could you share like, what we should come up with in Q2? And for the full year Bioprocessing, like what should we be expecting? I know Tycho asked about the exit rate. What about just like the full year outlook for that -- for the Bioprocessing segment of your Bioscience Production business? Thanks, Michael.

Yeah. No, good questions. I mean relative to things like book-to-bill that's not a metric that we actually monitor that closely here for various reasons. So it's not something we've historically tried to quantify. I think we hang our hats here on the momentum we're seeing in the order book given the kind of the two to three month lead times we have, being able to see that order book convert to revenues in the quarter is encouraging for us. We're targeting somewhere in the low-single digit range for Bioprocessing in Q3, also on a full year basis. And so that will have us exiting the year at a mid to high-single digit range as we enter 2025.

Our next question comes from Rachel Vatnsdal with JPMorgan. Rachel, please go ahead.

Perfect. Good morning. Thanks for taking the questions, you guys. I wanted to dig into some of the seasonality that you talked about, especially on the Lab Solutions segment. So first up, could you walk us through what is typical seasonality from quarter-to-quarter throughout the year on the Lab Solutions segments, so we all have that correct? And then, also on the Bioprocessing side of the business, one of your peers recently called out some seasonality trends heading into the summer months in 3Q. So walk us through, are you assuming anything from a seasonality standpoint, even on orders versus revenues for Bioprocessing as well?

Yeah. Thanks, Rachel. Good to hear from you. Look, I think, as a general observation, seasonality isn't that big of a factor in our business. This kind of 49% first half, 51% second half, weighting is customary for the business, and that's the same basis that we've managed the guidance all year. There -- probably is some modest seasonality in our production platform, probably more due to around holiday calendars and such, but not a factor that we overweight in our thinking. It's probably a little bit more pronounced, again, within the context of a 49-51 split, a little bit more pronounced in the lab business. And I think the patterns that we normally see play out here is what's contemplated in the color we've given on kind of Q3 and then what that implies for Q4. I think you'll see that, that kind of matches what we would customarily see. Of course, the business model doesn't give us transparency on the lab side. From an order book perspective to cover that period, we'll see how it plays out. But consistent with what we've said from the beginning, we continue to think it's prudent to base the guidance and the outlook based on current conditions, and we're obviously leveraging some of the historical trends that we see.

Great. And then I just wanted to follow-up on some of the earlier questions, just to clarify some of the answers here. Just -- I know you guys aren't giving book-to-bill, but can you tell us what orders were sequentially for Bioprocessing? And then follow-up on Dan's question, just fully year expectations for the Bioscience Production segment. I know you guys have given us some details there on Bioprocessing specifically, but full segment expectations there for the year would be helpful? Thank you.

Yeah. Let me take them in reverse order there. The expectations for the production segment in aggregate, which would include, obviously, our medical grade silicone offering into the medical device space, as well as you look what we do into aerospace and defense and semis. Bioprocessing is roughly two-thirds of that segment, so probably not much of a surprise for you that the -- that's largely driving the outlook for the full year. So with Bioprocessing expected to be down low-single digits on a full year basis, that's also how we see the segment trending for the full year as well. Getting to your questions on Bioprocessing order book, again, good momentum. Another great solid quarter of intake supporting not only the growth in the quarter that outperformed, but leading to the improved outlook on a full year basis. I think you characterized it correctly, we haven't quantified that or book-to-bill historically. But it'd probably safe for you to assume that our order book certainly grew in line with what you see others talking about.

The next question comes from Michael Ryskin with Bank of America. Michael, please go ahead.

Great. Thanks for the question, guys. I want to switch to LPS. It seems like there is some revision in the outlook for the year there as well. You talked about 2Q came in mostly in line with expectations, then for the year now you're expecting a flat to down low-single digits versus prior, I think I had you at plus low-single digits. So just any color on what's going on there, whether it's by product category and a lot of focus on instruments even a small part of the business or maybe by customer class? And I've got a follow-up. Thanks.

Okay. Excellent. No, I think it's a good question, Michael. As we talked in Q1 on the lab part of our business, we were, I think, encouraged by what we're seeing on the consumables side of the business, particularly lab, chemicals and some of the diagnostic formulations that we have, showing some good momentum. Services has been an element of growth for us this year. And that just given some of the friction in the system on capital spending, particularly within biopharma. We called out equipment and instrumentation headwinds in the first quarter. And as we now move into the second quarter, I don't think we've seen really any change in dynamics. I think we'd characterize it as pretty stable overall, which implies continued momentum on the consumables side and similar performance on equipment and instruments. Encouragingly, it certainly didn't deteriorate as we move forward. And one of the things that we watch pretty closely there is, again, just activity levels and opportunity pipelines and we continue to be encouraged by what we're seeing there, taking a little bit longer than maybe historical to convert those things to orders, but nevertheless, some really good signs. We actually have a business within our lab that does on an OEM basis, a lot of electrical board design and manufacturing for a lot of the lab equipment and instruments and that -- those tend to be a bit of a leading indicator for us. We are really starting to see some reinitiation of projects that have been halted and good project pipeline there. So characterize it as stable sequentially. And if you just look at the performance year-to-date, which was a little bit below where we exited last year, it's primarily due to the trends that we've described here on E&I and kind of consistent with our methodology here of just continuing to manage guidance according to current conditions, you see that then reflected on a full year basis. So lab, running a bit below the trends entering the year. Production outperformance, leading us to the full year reiteration.

Okay. Let me ask a quick follow-up to that, and then, I'll throw in my second question. I just want to make sure on the LPS again, is there any sign you're potentially losing share to one of your competitors because we have heard more encouraging trends elsewhere, and it does seem like the broader end market in terms of biopharma and academic is starting to trend in the right direction. So I mean I hear you that you're seeing encouraging signs and things are stable, but it is still a guide down. So just I want to dive into that deeper. And then, the follow-up is on the total guide update, I mean just sort of doing a quick and easy sum of the parts. You've got two-thirds of your business, which is LPS -- LSS, sorry, where you're guiding down by a few percent. And then you've got one-third of business, which is BPS, where you're guiding up by a few percent. So is there some rounding in there? It doesn't seem like that should add up to a full reiterated? You should be taking your BPS up significantly more to outweigh the relative sizing of it. So I'm just wondering where I'm missing the math. Thanks.

Yeah. Both good questions. So firstly, the question on just the share performance in Q1 or Q2, I think, in the lab business. I think you'll see from what's been announced, our lab business stacks up well against every number that certainly that we've seen, including some of the numbers that were released this week. But the market is bigger than kind of the two leading players there. And it's our strong view, and we think we've got a lot of data to support that, that we continue to enhance our position. And we talk a lot about our commercial intensity over the last 12 months to 18 months that's driving a lot of customer wins and renewals including in the second quarter across all of our key end markets. You mentioned academia. We saw sequential growth moving from 1Q to 2Q there. So I think we like to set up there, and it's been an area of strong focus for us. So yeah, I think we’re really confident in our value proposition and our competitive position. Relative to your second question, I’m trying to unpack the math at a segment level. I’d probably caution you against trying to be too precise there in your math. I think at an enterprise level, we reiterated the guide, the assumptions we had coming into the year, we think all still hold. And I think the ranges that we’ve provided for each of the two segments gets you into the range there of -- at an enterprise level. So we’d probably caution you against trying to get too detailed there within the ranges that we’ve implied. I assume that it’s all supportive of our full year guidance.

Thanks.

The next question comes from Jack Meehan with Nephron Research. Jack, please go ahead.

Thank you. Good morning, guys. I was wondering if you could just give us a mark-to-market on the $300 million cost savings program. How is that going? And if you -- so you've maintained your margin forecast for the year. Just any thoughts around kind of getting to the targets that you laid out back in December, what the phasing should look like?

Yeah, Jack. It's Brent. Thanks for the question. Look, we -- going back to the cost transformation program, we have four pillars on it or effectiveness, footprint, cost to serve and procurement. The ones you can move more quickly on there, depending upon the geography or effectiveness as well as procurement reasonably, as we said, that's – we have a lot of momentum there, and you're seeing that both sequential impact on us as well as each in quarter. You heard Michael talk about we're going to exit the year at a really nice rate there. So -- and I think we're really ties together and for someone else's question is that, that with the self-help is getting us along with there, towards exiting next year with a 20% EBITDA margin. So I'd say, I think all the pieces are in place there, and it's frankly just a question of phasing and timing of the execution there, but we're very confident we're going to hit the 75 this year.

Okay. And then, there were some questions, I guess, around -- I was wondering, if you could just talk at the segment level as you consider what the total company guide is for the third quarter and the year, kind of like what we should assume at the segment level for the third quarter? Any comments on phasing on margin line, too, that would be helpful.

Certainly. Yeah. So in terms of Q3, we'd expect, on a sequential basis, flat to modest growth in Lab Solutions. And then, as Michael noted earlier, down low-single digits in BPS and in Bioprocessing in Q3 there. In terms of margin, we expect gross margins to be pretty similar in Q3 to Q2 on a sequential basis. And -- I'm sorry, in my comments they were year-over-year, I'm sorry on those. And yeah, and got my sequential and year-over-year backwards. But gross margin to be very similar on a sequential basis and frankly, the SG&A cost base to be very similar sequentially as well.

Got it. Sorry, just to confirm, Lab Solutions, flat to modest growth year-over-year. Bioprocessing...

Yeah. Flat to modestly higher year-over-year and BPS overall and bioproduction, down low-single digits year-over-year.

Great. Thank you.

Yeah.

The next question comes from Matt Sykes with Goldman Sachs. Please go ahead. Your line is open.

Good morning. Thanks for taking my question. Maybe just the first one, Michael, for you, you made some comments about biotech funding, resulting in some elements of starting a positive momentum, yet large pharma remains somewhat constrained. Just what are your expectations for large pharma as we go into the back half of the year? And do you need large pharma to really recover in terms of spend in order to get back to what we consider a normalized specifically Bioprocessing industry growth?

So on the biotech side, funding, obviously, through the first half of the year has been up considerably year-over-year and above pre-pandemic levels. So relative to where it was at last year, we certainly see that as one of the bright spots that supporting the improved market recovery expectations here. Consistent with, I think, historical experience, you see the uptick in biotech funding, it likely it will take a few quarters before that translates. And for us, that results in primarily momentum in the lab as you're talking about new projects getting started and labs being built out and such that we would engage with there. So good funding, a lot of good activity level. And I think that's one of the data points we look to in terms of being encouraged as we look forward. Relative to large pharma, obviously, we have kind of exposure to that on both of our segments, if you will, the R&D activities that we support them with. You look at the pipelines, the science that's being developed here, I think there's a lot to like about the setup going forward on what these customers are working on, and we're right there to help them with new innovative solutions. On the production side of things, that's really linked to the commercial platforms that are out there in patient demand. So we look closely at a number of new molecular entities getting approved, number of new launches that are coming into the market, which continues to run at record levels. It's been a really, really strong first half of the year. And of course, we're well positioned across all of these products and customers. And with the destocking of our products coming to an end and improving health of pharma and product inventories, I think there's a lot to like about this setup. We've outperformed all year. You see us improving the outlook as we move into the second half of the year, and we should return to growth as we exit the year. So getting pretty close, I think, to not only the order dynamics looking a lot more normal as they used to. But also, you start to see the performance of the platform looking a lot more similar to what we all expect as we move into 2025.

Great. Thanks. And then Brent, just on pricing, you guys called it out in your deck as a benefit this quarter. Could you maybe quantify what the pricing was in the quarter and what benefit you saw? And then, what pricing expectations are embedded in your full year guide for '24?

Yeah. I mean we typically look to get 100 basis points to 200 basis points of price there. I would say, everything is rolling really exactly to plan there and there wasn't significant -- you do have more of the pricing impact into Q2 just due to timing of the year, but I wouldn't say it was a dramatic story there, that's really just executing against plan.

The next question comes from Conor McNamara with RBC Capital Markets. Conor, please go ahead.

Thanks. Good morning, guys. Congrats on a nice quarter. First off, just on the intra quarter progression, either from an order perspective or customer activity or however you want to characterize it, how did things progress throughout the quarter? And can you comment on how things exited June and if you can, what you're seeing through July?

Thanks for the question, Conor. I appreciate the support. If you look at the quarter, I'm not sure there's anything that necessarily stands out to me, Conor, in terms of intra quarter dynamics, it played out largely in line with what we would have expected. We certainly exited the quarter with some good momentum. And as we sit here in the early days of Q3, I think we've seen that continue and it's certainly reflected in our thoughts here as we talked about the third and fourth quarter.

Great. Thanks. And then just -- I do realize it's a small piece of business for you, but what kind of trends are you seeing in China?

Yeah. Would first acknowledge your point there that it is a relatively small part of the business. I'd say, it's tracking in line with our plan, which has relatively modest expectations for the year just given the stocking dynamics that we see in the region, which probably a little bit more of a headwind there than what we see anywhere else in the world. Some of the stimulus things that being talked about there don’t really influence our business one way or another. So I think the best way to characterize it for us is it’s performing in line with expectations. Probably got a little bit longer runway to get back to normal compared to our other core regions that we support.

Great. Thanks for the question. Appreciate it.

The next question comes from Luke Sergott with Barclays. Luke, please go ahead.

Great. Thanks for the question, guys. Just kind of wanted to dig in here on the 3Q sequential improvement across the business, particularly in Bioprocessing, just from a number perspective because we haven't heard that from many of your peers. I just wanted to get a better understanding of the drivers there, if it's kind of like idiosyncratic to particular customers and how they order or anything like that? Just give us confidence where you get that visibility.

Yeah. A couple of things. I guess, Luke, firstly, thanks for the question, but there's nothing particularly stands out to me as I look at the dynamics of -- that led to the print in Q2 versus how we see the setup for Q3. Clearly, the order book as it's shaping up is giving us confidence in what we're seeing, we had another really solid quarter of order intake in the quarter. That, I think, matches with what we're seeing from just a customer sentiment perspective and supports our views that we've shared here on the second half. That order book does support continued growth of our single-use platform, which has been an area that we've been really focused on. And our ingredients and excipients platform is looking good as well. So the mAbs platforms clearly continue to drive the lion's share of the revenues, but these new modalities, particularly some of the momentum that we see on gene therapy is helping our business as well. So I'd say, it's broad based across products, modalities and customers here. And we're excited and pleased to see this part of our business starting to fall back in line with our expectations.

Got it. And then just the last one here for Brent. Great, great margin progression, plenty of questions on this. I guess what I'm thinking about it is, you're on track here to hit your guide or at least to the low end for the back half through the year. Just like how much of this is due to when you guys are doing the cost outs and kind of rightsizing the cost structure, you're finding more than what you thought was there or is this more of just kind of things are kind of progressing faster than we expected? I'm just trying to get a sense of like how much juice is left in that squeeze versus it's a timing issue.

Yeah. No, Luke. Thanks. And I think it's a really good point to highlight there. I would definitely put it to the latter there that it's around execution. I think we had dimensionalized the opportunity here very well. When you dig into a program like this, you always find places that are a little larger than you'd expect and places that the juice is and what the squeeze is there. But I think what I'd really emphasize on it is, not only are we getting at it faster, which is allowing us to derisk the margin for the year. But a question we've gotten is, okay, is this much transformation that caused confusion in the business? And I think what I'd say is, it’s not an easy thing to do, but not only are we getting at the cost, but we’re also getting at the top line. So I think it’s proof that we’re hitting the right areas at the right times, and we’re being really prudent about it, and you’re seeing it both in the P&L on the expense side as well as on the revenue side that the work is still really focused.

Great. Thanks.

Welcome.

We have time for one more question. And so our final question today comes from the line of Tejas Savant with Morgan Stanley. Please go ahead.

Hey, guys. Thank you. Michael, I'll ask a two-parter. One, just really a clean-up on BPS. On your bulk drug substance destock comments, are there any ways for you to improve visibility there and how should we be thinking about guardrails around time to normalization? And can you help us think through how much of a drag that was on your 2Q order growth, which you said was pretty good? And then separately, one for Brent. Margins here, again, like 70 bps of upside versus your own guide Brent. So can you just parse that out for us between pricing versus the bioprocessing mix help versus the cost outs? And are any of these sort of timing related in nature in your mind, which is why you decided to keep the margin outlook for the year unchanged?

Thanks, Tejas for the question. I appreciate the support. On our Bioprocessing business, certainly one of the things try to triangulate is not only the inventories that are customers of our products, but also we watch closely what they're reporting on their balance sheets or inventories of their products. And hopefully, all that gets reflected in their production plans they share with us and it gets reflected in orders. So consistent with what they're telling us and what we see in terms of where our inventory stand. You see that being reflected in the order book and with the momentum that we see there, and then living through to revenue, I think we're very, very encouraged with how those things are trending. Given that we're still -- platform is still below what you'd see from a long-term growth rate, that's evidence that there's still room for improvement there, but the trends are very, very favorable and seem to be accelerating for us. So nothing particular that I would call out there around our customers' inventories. We see it improving. Rates -- production rates don't quite yet match what we see from an end market demand, but certainly starting to close the gap there. And Brent, I think you got...

Perfect. Yeah. On the margin side there, so let me break it down to gross margin and then as well as the EBITDA margin. So on the gross margin side, Q2 had a lot of aspects that were like Q1. Obviously, we had the sequential BPS improvement that was very helpful there, really as well as pricing actions coming more fruition. So I would say a significant balance of price and mix there on the gross margin side. I’d be remiss, if I also didn’t highlight some of the cost actions as well as really good productivity because in an inflation environment with this much dynamism, not just holding the line, but improving our gross margin there is not the easiest thing. And then on the OpEx side – that’s a confirmation of very direct transformation impact offsetting our incentive comp reset and other things there as well as, again, just generally good execution on the cost side generally. So really a balance of the two, obviously, a larger impact on the SG&A line there, but really consistent with other comments.

Got it. Thanks, guys. Appreciate it.

Welcome.

We have time to no further questions. I'll so turn the call back to Michael for closing remarks.

Yeah. Thank you all for joining us today. A couple of things I'd like to cover here in the close. Just to reiterate our assumptions for the third quarter. Organic growth, minus 1% to 2%. The segment level on a year-over-year basis, we'd anticipate flat to modest growth. In the lab business and low-single digit decline in our production segment, and then living through on a full year basis, we've obviously reaffirmed our full year guidance with lab now expected to be down low-single digits to flat with our production segment with improving outlook here down low-single digits. Really pleased with how the year is playing out. The assumptions that drove our guidance as we entered the year still fully intact. Clearly, very solid performance against our plan. Would call out again and reinforce the strong momentum we're seeing in our bioprocessing business, and we're confident in our ability to deliver our plan for the year, and it's unfortunately not predicated on any market recovery or improved conditions. We talked a bit here today about the meaningful progress that we're making on our transformation initiative, and we're well on track to meet our targets for the year, as well as over the three year life of the program. And as always, we look forward to updating you when we get a chance to meet again in October. Until then, be well, everyone.