Good afternoon. My name is Brain, and I will be your conference operator today. At this time, I would like to welcome, everyone, to Avantor Second Quarter 2021 Earnings Results Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session.

[Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will now turn the call over to Tommy Thomas, Vice President of Investor Relations. Mr. Thomas, you may begin..

Good morning. In light of the significant overlap of earnings calls in the life science space during our previously announced time, we made the decision to adjust the timing of our call to better accommodate the investment community. We appreciate your flexibility and thank you for joining us today.

Our speakers today are Michael Stubblefield, President and Chief Executive Officer; and Tom Szlosek, Executive Vice President and Chief Financial Officer. A press release and a presentation accompanying this call are available on our investor 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 up the line for questions.

During this call, we will be making some forward-looking statements within the meaning of the 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, whether as a result of new information, future events and developments or otherwise. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the appendix to the presentation.

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

Michael?.

people and culture, innovation and environment, community engagement and governance and integrity. This report also highlights our progress to date. Of note, we've continued to advance the diversity of our leadership. At the end of 2020 women represented nearly 35% of our men.

We also began to integrate sustainability practices throughout our supply chain and establish a goal to reduce Scope 1 and Scope 2 Greenhouse Gas Emissions, 15% by 2025. To support STEM education and healthcare programs worldwide, we donated a variety of products as well as funds from the Avantor Foundation.

And we continued to adopt best-in-class governance provisions, including several enhancements to shareholder rights. I'm encouraged by the work our team has done in this area and keenly aware of the work ahead of us. I look forward to our ongoing progress and remain deeply committed to our global sustainability efforts.

Turning to Slide 5, I'd like to summarize our second quarter financial results. Organic revenues increased 20.5%, all regions and all product groups experienced double-digit organic growth. Overall performance continues to be driven by our biopharma end market where organic revenue growth once again exceeded 20%.

We also experienced strong growth in our other end markets, including sequential improvement and advanced technologies and applied materials, which grew high single-digits. COVID-19 tailwinds contributed about 2% to our organic growth with the largest driver being raw material and single use sales to support the production of COVID vaccines.

Aggregate COVID tailwind revenues were similar to Q1 and our outlook for the full year remains unchanged. Adjusted EBITDA in the second quarter was up 34% leading to adjusted earnings per share growth of 87% to $0.35.

Our EBITDA margin growth reflects the impact of volume growth, commercial excellence, and the favorable mix impact from nearly 30% growth in proprietary, materials and consumables. We generated $265 million in free cash flow in the quarter, driven by strong EBITDA results, capital leverage and lower interest payments.

Our adjusted net leverage ended at 3.8 times within our target range of 2 to 4 times and modestly above Q1 leverage of 3.5 times, reflecting the Ritter and RIM Bio acquisitions. Absent the acquisitions, leverage would have been approximately 3.2 times.

In summary, our financial results reflect the strength and relevance of our portfolio, our integrated offering and exposure to the biopharma space and our unwavering focus on execution enabled by the Avantor business system.

I'm proud of our team for the exceptional results they delivered this quarter, and I'm confident in our outlook for the rest of the year and beyond. With that, let me turn it over to Tom..

Thank you, Michael, and good morning, everyone. I'm starting on Slide 6. As Michael noted, organic growth was 20.5% this quarter, leading to year-to-date organic growth of 17%.

Our core growth rate, meaning organic growth, less the estimated COVID tailwinds, rose from negative 8% in Q2 of last year to positive 18% in this second quarter, representing the fourth consecutive quarter of such acceleration.

From a regional perspective, Americas, which represents approximately 60% of global sales, reported 23.6% organic revenue growth in Q2 and sequential improvement in the daily rate of sales from the first quarter.

End market performance in the Americas, which driven by greater than 20% growth in biopharma, with our biopharma production sales growing more than 30% this quarter.

Healthcare also had a strong quarter growing above 30% driven by materials and consumable sales to hospital and clinical reference lab customers, as well as over 50% growth from our proprietary materials offering in the medical device space.

Education and government grew double digits as university and research, and K through 12 activities resumed to more normalized levels.

Advanced technologies and applied material sales were also up mid-single digits this quarter, reflecting the continued recovery of the industrial sector and strong growth of our proprietary materials for the semiconductor market.

While all product lines in the Americas grew at double-digit rates, proprietary materials and consumables grew at double the rate of third-party materials and consumable. Europe, which represents approximately 35% of global sales, achieved 16.5% organic revenue growth driven by lab product sales, including materials, consumables and equipment.

All end markets in the region grew double digits with notable contributions from biopharma and advanced technologies and applied materials, where we've seen a pickup in lab and QA/QC activity.

As was true in the Americas, sales of proprietary offerings grew faster than that of third-party driven by biopharma production, single-use assemblies and medical-grade silicones used for implantable medical devices.

EMEA representing approximately 5% of global sales, achieved 16.4% organic revenue growth, driven by biopharma production and lab products. Sales of biopharma raw materials and single-use assemblies were particularly strong in China and Korea. Higher sales and lab consumables and equipment in India also contributed to the EMEA growth for the quarter.

Let's move to Slide 7, which shows our organic revenue growth by end market and product group for the quarter. Biopharma representing approximately 50% of our revenue experienced over 20% organic growth in the second quarter, including over 25% growth in the production business, driven by sales of processed ingredients and single-use assemblies.

The R&D portion of biopharma end market also experienced strong growth driven by lab reopenings. We continue to witness favorable market indicators, including solid funding from private and public sources, robust clinical trial and FDA activity, and strong therapeutic pipelines across labs, cell and gene therapy and mRNA.

Healthcare, which represents approximately 10% of our revenue experienced more than 25% organic revenue growth, driven by strong recovery of our medical-grade silicone offering. We continue to benefit from a global resurgence of elective surgeries, driving end market demand for our market-leading materials.

Lab product sales to support research and diagnostic workflows also contributed meaningfully to our healthcare results this quarter.

Education and government representing approximately 15% of our revenue, experienced over 40% organic revenue growth in the second quarter, driven primarily by the education market versus the research labs, continuing to reopen and K through 12 activities ramp up in North America.

The funding environment for academic research is favorable with ongoing increases in NIH outlays in 2021. Government sales grew mid-single digits despite facing some difficult comps, which included substantial government purchases of diagnostic supplies and personal protective equipment relating to COVID.

Advanced technologies and applied materials representing approximately 25% of our revenue, increased about 9% on an organic basis in the second quarter.

Growth was driven primarily by lab products sold to advanced technologies and applied materials customers engaged in similar workflows as the other segments of our business, including research and QA/QC. We also benefited from strong demand for our proprietary offerings in the semiconductor space.

We viewed the positive macro-economic signals regarding industrial activity as constructive drivers for our business and expect the advanced technology’s applied materials recovery to continue throughout the year. By product group, all of our product categories experienced double-digit revenue growth.

This included almost 30% growth in our proprietary materials and consumables, driven by strong demand for our biopharma production raw materials and single-use offerings, and our biomaterials platform.

Services had a strong quarter driven by a recovery in our market source offering, lab and production services and equipment services, again, reflective of increasing lab activities across our end markets.

Equipment and instrumentation also grew double digits resulting from a strong funding environment and a recovery in equipment sales deferred during the pandemic. Turning to Slide 8. We achieved 34% growth in adjusted EBITDA and 125 basis points of margin expansion, 18.5% to 19.7%, including over 50 basis points of gross margin expansion.

All three segments achieved strong EBITDA margin expansion, reflecting productivity, commercial excellence, and a favorable mix contribution driven by our proprietary products, growing at nearly 3 times the rate of our third-party products.

Adjusted earnings per share were $0.35, up 87% and reflecting a strong operating performance and ongoing reduction in interest expense from our de-leveraging and debt refinancing and repricing activities.

Free cash flow, a non-GAAP financial measure, which we define as cash from operations, excluding capital expenditures and one-time acquisition cost was $265 million compared to $76 million in the comparable prior period.

Growth was driven by EBITDA performance, working capital leverage and lower interest payments, partially offset by increased CapEx to support our growth strategy. We have excluded approximately $25 million of one-time acquisition costs for Ritter and RIM Bio from free cash flow. Moving to Slide 9.

As Michael indicated, we are raising our guidance for the year to reflect strong first half performance, improving end markets and confidence for the second half of the year. We now expect organic sales growth of 9% to 11% for 2021, which includes 1% to 2% from COVID-19 tailwind.

Our overall guidance for COVID tailwinds remains unchanged at a range of $350 million to $450 million for the year.

Consistent with our previous messaging on this topic, we believe vaccines will continue to grow in proportion to our total COVID-related tailwinds and continue to forecast an overall decline in contribution from diagnostic product sales in the second half. Layering in projected impacts from FX of approximately 2% and M&A of approximately 2%.

We are estimating total growth of 13% to 15% for the full year. Our growth in July remains strong and end market dynamics are favorable across the board.

While we expect moderation and growth rates in the second half of 2021 given the strong comparables from 2020, the average two-year core organic growth rate, excluding COVID tailwinds is expected to improve in the second half from 5% in the first half.

We are also increasing our full year adjusted EBITDA margin expansion expectations to be approximately 150 basis points [Audio Dip] strong first half continued core business momentum and a modest benefit from M&A.

The expansion in the second half maybe slightly less robust than that of the first half reflecting the potential for less favorable sales mix as sales of non-proprietary equipment and instrumentation continue to rebound and higher operating costs, reflecting investments to support growth and the gradual return of certain operating costs deferred during a pandemic such as T&E and employee healthcare.

We now anticipate adjusted earnings per share growth of approximately 50% up from our previous guidance of approximately 40%. This guidance reflects our strong first half results, continued operational improvement and lower interest expense from deleveraging and the 2020 debt refinancing and subsequent repricing action.

In 2021, we have completed additional debt repricing actions, including one at the beginning of this month that collectively will reduce annual interest expense by $10 million. Adjusted earnings per share also includes an approximate $0.05 per share contribution from M&A.

We are raising our full year free cash flow guidance to approximately $850 million. Our full year outlook is based on ongoing EBITDA growth and lower interest payments with some modest offsets from increased capital expenditures and working capital needs to support our growth. One final comment regarding leverage.

As noted earlier in the presentation, we ended the second quarter at 3.8x leverage including the impact of Ritter and RIM Bio, or 3.2x, excluding these acquisitions down from 3.5x at the end of the first quarter. We are confident in the attractive cash generation capability of our business model and the capital allocation flexibility it provides.

This concludes my prepared remarks. I will now hand the call back over to Michael..

Thanks, Tom. I’m now on Slide 10. The relevance of Avantor’s business model and the importance of our mission is evident in our exceptional second quarter performance and the overall momentum in our core business. We continue to execute well as evidenced by our margin expansion, EPS growth and our free cash flow results.

We remain committed to our growth strategy, including the ongoing integration of Ritter and RIM Bio. We’ll continue to focus on biopharma as a key growth driver for our company and will support our growth of ongoing investments in raw material and single use manufacturing capacity.

We’re also committed to advancing our sustainability initiatives through our Science for Goodness platform. As we look ahead, we are well positioned for continued growth across each of our end markets and expect to deliver strong results for the full year.

The role of Avantor’s products and services in enabling scientific breakthroughs has never been more important. And one final note, before we conclude our prepared remarks. We are hosting a virtual Investor Day on Thursday, September 9 at 9:00 AM Eastern Time.

Registration is live on our investor relations website, and we look forward to showing more detail about our business and our long-term growth strategy at this event. I want to thank you for your interest and investment in Avantor and for your ongoing support.

I will now turn it over to the operator to begin the question-and-answer portion of our call..

[Operator Instructions] First question we have Tycho Peterson with JPMorgan. Your line is open..

Hey, good morning guys. Great quarter. That 30% growth in proprietary consumables certainly stands out, Michael. I’m just wondering if you could talk to that dynamic, obviously that’s part of the long-term, that will outgrow third-party distribution, and look at the natural margin.

Are there – things you’re doing different from a kind of go-to-market strategy to kind of drive the higher growth in proprietary products?.

Yes. Thanks for the question, Tycho and good morning to you. You’re correct. Proprietary content is an important part of our overall long-term growth thesis.

As we’ve talked historically our proprietary content, would grow of 2x to 3x the rate of our third-party content in our portfolio, and much of that is done to the fact that our proprietary content is preferentially oriented to our production platforms, which grow significantly faster than our R&D platforms.

And I think what you’re seeing here play out is just the access that we have in early phase discovery and process development and it gives us the opportunity to seed our proprietary content on more platforms than we have had historically. I think you’re really starting to see the benefits of our integration with VWR play out here.

[Audio Dip] are more full than they’ve ever been. We’re working on more opportunities than we’ve ever had. And I also think it speaks to the strength of our end markets.

Clearly, within biopharma, the health and strength of the core monoclonal antibody business is clear as well as the emergence of a number of new fairly exciting areas like cell and gene therapy and MRI and others.

So we really are leveraging the access that the VWR gives us to our development partners and very deliberately we’re seeding more content on more platforms. And the impact that that will have over time ultimately is to accelerate top line growth.

And just given the margins associated with our proprietary content, it will also provide a nice margin lift to our business over time. And then lastly, we’re on the front end of our M&A strategy here. We’ve talked a lot about our algorithm and our filter for how we would screen for acquisition opportunities.

We will overweight the allocation to capital towards proprietary content, and that will also have an acceleration effect on growth and margins as we continue to drive higher proportions of proprietary content into our portfolio..

That’s a good segue to a question that I had on M&A.

RIM Bio, I know you’re talking about only 2% M&A contributions in the back half of the year, but how material is that to kind of in China strategy? Can you talk a little bit more about the importance for that deal?.

We’re super excited about the opportunity to establish single use manufacturing capacity in the region. Not only does it expand our presence, but it allows us to bring a business model with best-in-class lead times there to a pretty important long-term growth for our business. And so, we would view this as something that we’ll build around.

It gives us the manufacturing capacity for our single use franchise with local capacity now in all three regions of the world, which we think is strategic. And it also brought to us some incremental technologies that we’ll be able to leverage globally.

So modest and scale relative to the rest of the business, it is going to be meaningful to our China strategy. And obviously in the early days here, but the customer response has been quite positive. We’re busy seeding new opportunities and integrating that into our system..

Great. If I could ask one last one on just segments. You called out some stock powering and government around diagnostic supplies.

I’m just curious how material that was? And then any segment level commentary you can give for the back half of the year just in terms of mix?.

Yes. I think the comments are relative to government was probably more of a comp issue as we think about the trending over the last seven years or so. Obviously, there was no strong PPE and diagnostic purchases from various government sponsor agencies where it was things like the UN for example that we see subsiding overtime.

From an end market perspective, there's clearly a lot of momentum across all four of our key end markets. We saw that as the growth that we delivered in the second quarter.

And as you kind of screen that through our outlook for the second half of the year, we've obviously not only baked in the overdrive from the second quarter, but we've also elevated our outlook for the core business in the second half, which is a reflection of our view that we'll see continued momentum in each of these end markets for our core business.

And clearly, it's headlined by a really strong environment for biopharma, both in the R&D space, where we see accelerated [Audio Dip] including some catch spend from maybe some postponement of some of the equipment [Audio Dip] that were delayed during the pandemic to pretty frothy production environment.

Our backorders are our open order book for our long cycle proprietary materials, which covers our offering into bioprocessing and it also covers our offering into the medical device space is as strong as it's ever been.

I think when we were looking at our bioproduction order book, for example, we have essentially a full year's worth of demand and are sitting in our open order book. And that level is nearly 5x what we would have normally carried in our open order book pre-pandemic.

And it speaks to not only our relevance in vaccine production, but more so, it speaks to our penetration and the strength of the core biopharma business. Education has for all intents and purposes kind of returned to normal levels, at least at the university level in both Europe and U.S.

Elective procedures and kind of our core diagnostics offering into the healthcare space has been strong. Very, very nice recovery in that part of the business and we see continued strength during the second half. And then obviously, we drove approximately 9% growth in our advanced technologies and applied materials end markets in the second quarter.

And with PMI is the way they look around the world. Semiconductor outlooks’ is as strong as they are. I think we're encouraged by continued recovery in that part of the business as well..

Yes. In fact, just to add to what Michael said, if I go the – if you consider the 9% to 11% full year guides, you can think about biopharma, as Michael said, it's in mid teens for the full year. The second biggest advanced technology is applied materials, obviously coming off a pretty robust second quarter that will be now low to mid-single digits.

And I think when you look at education and government also mid teens and the healthcare business should be the double-digit as well. So that rounds out kind of what we're [Audio Dip] into that 9% to 11%..

Thank you. That's super helpful. I'll let others chop in..

[Operator Instructions] Next question we have the Derik de Bruin from Bank of America..

Hi, good morning. Tom, if I missed it, my apologies, but the update – the guide for the interest expense – run rate of net interest expense for the year..

Yes. I think the run rate for a Q2 should be pretty representative of the full year..

Got it. Thank you.

And also you added in over last [Audio Dip] I'm just curious in terms of what sort of the potential incremental revenue contribution from [indiscernible] capacity?.

Derek, we've been pretty transparent. I think that we've been investing over the last year and certainly into this year across our biopharma platform. Our processed ingredients, recipients chromatography expansions in certainly in our single use area. And we've been bringing them on kind of a rolling basis.

When we think about single use, for example, we've dramatically expanded our capacity with major expansions that are now online in the U.S. We have a brand new site in Europe in Netherlands that we'll be generating revenue out of this third quarter. And then obviously we have the expansion in China with the acquisition of RIM Bio.

And we have, as you know, and we'll continue to have expansions playing out on a rolling basis that are necessary to fuel the sustainability of our growth outcome, particularly in biopharma.

And so when you think about the strength that we're delivering in that business will be to keep up with the demand that's really is on the back of the investments that our team is making. And we've got a series of investments that play out again over the next several years.

So when we think about our long-term growth algorithm, these investments are in line with outlook we provided in certainly contemplate in the guidance that we've shared today..

Thank you..

Thank you. Next question, we have Doug Schenkel with Cowen..

Good morning. I guess just two or three quick math.

One on M&A, you've talked about the financial parameters that we should apply when we are thinking about your capacity for M&A, if we're thinking you could do maybe $1 billion in free cash flow over the next six quarters, looking at our EBITDA forecast and thinks that you might go to 4x net debt to EBITDA [Audio Dip] deals.

Is it right to conclude that you still have, even after a couple of recent deals above $1.5 billion to $2 billion in capacity, excluding any equity potential?.

Yes. I saw that rather – I think, your math and we ended the quarter at 3.8x and we continue to go through the trajectory that we're on, as we said, when we did the [indiscernible] we expect to be doing the mid-threes or better, by the end of the year.

You can do the math and say, okay, what's incremental, if you just take it out to four, but it really depends upon the amount of EBITDA that you're requiring and the multiples that you're paying in terms of how that would impact the leverage levels. But suffice to say that, we think we have no more capacity now.

And even at the end of the year, because it grows every day then we had at the beginning of the year. And I think that, I think the numbers that you mentioned are quite obtainable assuming we're going after deals that again, have the kind of EBITDA profile that we're targeting, we're not going for development stage companies are in like that.

They're going to be operational strong cash flows and enhancing our own margin rates. So I wouldn't just see the range that you articulated..

Okay. Thanks for that Tom. And then I guess a couple on – I guess it's really just the operating margin and operating expense. The first thing I want to get at is on proprietary content. I know Tycho asked the question about, how things are evolving there and durability.

I'm just wondering if you could maybe take it down a level to kind of have a mix of products within the proprietary content category are evolving. I guess what I'm thinking is things like bioprocessing, bioproduction proprietary products are going to have a higher margin then maybe a proprietary equipment at the other end of the spectrum.

So, I’m just kind of wondering if you could, maybe share a little bit more on how margin within that important category is evolving. And then the other thing I want to get out is the operating expense increased 17% year-over-year obviously we all know what was going on in Q2 of last year.

So some of that’s comp, but I think what we are starting to move into is a period where, and certainly what we’re hoping for is a continued period where travel is picking up, conference schedules are normal, more client details are occurring.

With that in mind, I’m wondering over the balance of this year, but maybe more importantly as we look ahead to 2022, how are you looking about – how are you thinking about operating leverage in a period where from an operating standpoint, things are hopefully normalizing a little bit more?.

Okay. Let’s unpack there. We’ll do our best to answer your questions. On your question around proprietary content and kind of what’s in there and a little bit around the mix and margin impact.

Like, I would highlight within the proprietary materials category, which is, it’s going to be the predominant contributor to the overall growth of proprietary content, really focused in probably three or four principle areas. Certainly bioprocessing is a really critical driver for that.

And kind of – I think you’re familiar with the margins and that part of the business. One item that you didn’t mention that really is important to call out here is our leading medical grade silicone formulation platform for medical devices.

And clearly a lot of that is being driven by a lack of procedures, and when we look at it, kind of the trajectory that business through the pandemic, and now where we sit today, I think Tom referenced in his prepared remarks at that part of the business grew at nearly 50% in the second quarter.

And that business brings considerable margins into the next, and it was important driver and certainly was an important driver in the second quarter. And in the last area would be our custom formulations to support aerospace and defense in our semiconductor activities.

And those margins are very similar to the margins that we would have in our bioproduction business. So the materials component of our proprietary mix brings considerable margin into the business.

You were asking about other elements are offering, whether that be some of our services, particularly in the clinical services area where we have a nice proprietary offering, those margins are going to be in and around the margins for our materials on an aggregate basis.

Maybe some of the kidding things we do are going to be lower margin, but when you look at some of the things we do in bio – purposely a little bit higher margin, but on – in aggregate our clinical services offering, it’s going to be similar and I think gross margin is our rest of our proprietary content.

And then I think your instincts are probably correct on the equipment and instrument piece, which obviously is a much smaller component of our overall offering. It’s going to bring better margins than our third-party mix, but a little bit lower than what we would find do in our materials portfolio.

But I think you’ve got some more granular detail with the Tom..

Yes, I think, you can look at for the first half in its entirety and the gross margin to expand nicely. And roughly half of that has come from the mixed tail that’s Michael referenced. And that’s obviously the part of the business model here is to try and to drive that, achieve that.

Relative to the OpEx increase, I mean I would say that, 17% in the second quarter, consider that in the light of some of the performance based incentives that we are required to recruit for we probably have a little bit heavier weighting at that in the second quarter, in the first given the performance, as well as the outlook for the rest of the year.

And that normalizes that you should kind of go into the second half is probably $5 million, $6 million worth of – I call it just that you’re catching up to the full year to the to the mid-point based on our updated view of the full year.

So, I think that comes down, and yes, there’s – there are some volume related costs in there as well, so some of that scales up and down with volume. And there have been some investments that we made, we continue to – continued reference some of the CapEx investments that we’ve made, but there are some SG&A costs that come with those.

And truthfully there’s – there is some inflation, yes that we are seeing that and showing up in SG&A line, but we think we’ve contemplated that in our pricing approach as well as some of the productivity in the shift that we’ve got.

So overall, I mean, we’ll give more perspective on 2022 in terms of power, thinking about SG&A, but there will be there – we’ll continue to invest and grow the business, and you’ll see some of that come through, but no we’re equally focused on driving productivity and trying to do things as efficiently as possible.

So more to come on that when we get to our 2022 guidance..

Okay. Thanks very much..

Thank you. Our next question would be from Vijay Kumar with Evercore. One moment. You many ask your question..

Hey guys, congrats on a strong prints here.

Michael maybe one for you on your comments around COVID tailwinds, the overall revenue raised $350 million to $450 million was unchanged with I think the mix between vaccine and diagnostics change, I’m curious what is – what percentage is vaccine contribution now and given your comments on the order book, should we assume the vaccine tailwind to sustains in the fiscal 2022?.

Thanks for the feedback Vijay. On the COVID tailwind [indiscernible] crisis obviously our outlook for the full year is unchanged at $350 million to $450 million, which implies roughly 1% to 2% contribution to our organic growth guide. And we’ll just highlight that overall this reflects represents less than 5% of our overall revenues.

Our views are basically unchanged from what we talked about at the end of the first quarter, meaning that ex of the business would kind of play out 40% to 50% diagnostics roughly 40% to 50% so vaccines in the rounds PPE.

And I think we’ve been quite consistent about our view on diagnostics and certainly, we don’t have a lot of visibility into that and market, as we talked about that we can really only see over the next one to two weeks.

And so we’ve been quite conservative throughout the year, and highlighting that we had already baked in a very aggressive ramp down of the diagnostic contributions in the second half of the year. And I think that’s consistent with what we’re saying.

And clearly with the lead times associated with our offering into the vaccine space, we’ve got a very clear view of the order book in that space. And certainly, as we’ve been able to bring on capacity, I think our confidence has certainly increased and we’re maximizing what we can supply into that end market.

And so as we move through the year, and this certainly played out this way in the second quarter and it would be our expectation in the second half of the year that the majority of our tailwinds would be coming from vaccines.

As we then transitioned into 2022, obviously we’re going to have to put together our plan and we’ll share that one with one we’re done.

But when we look at our order book, which you need for bioproduction, which stands at nearly a eight year’s worth of demand now, we do have confidence going into 2022 that the contribution from vaccines will be quite durable. And I think there’s a lot of drivers from that. I think the prevailing view is that the virus is likely to be endemic.

We certainly see the impact of variants. There's a lot of data coming out now about the need for boosters and annual shots and these kinds of things. So I think we're at least, it was there today.

Our view would probably support the durability of vaccines into 2022 and beyond, and our order book would certainly support that going into next year, Vijay..

That is helpful. And maybe Tom one for you on the guidance. The tax rate, it looks like 24% had crept up. I'm curious, how we should think about tax and where the $0.05 of that contribution seems to be coming in about plan.

I'm curious if you're seeing a better – is that a better top line or a margin contribution on not the recruiter side?.

Yes. On the tax, maybe we've been conservative. I think the rate will probably play out the way we guided at the beginning of the year. And there's nothing new or different relative to tax we have incorporate into it. So – and I expect something along the lines of 23%.

In terms of litter, it's pretty much up the middle, Vijay in terms of what we talked about when we first went through the announcement in mid-April. We're really excited about the opportunity to accelerate our growth rates, enhance our proprietary offerings, provide more workflow solutions for our customers.

We've – when you look at later, it has the high precision consumable platform, excellent strategic fit for us. And the financials as we said in April will be agreed for our growth rate will be accretive to our margin rate.

And for 2000 – for the rest of the year the revenue is pretty much that we baked into the plan have, or to the guidance pretty much in line with the business model that articulated in mid-April..

Thanks and okay..

Next we have Jack Meehan from Nephron Research. Your line is open..

Thank you. Good morning. Just hoping, can elaborate a little bit more on the early integration of Ritter launching the offering under the J.T.B Group brand? Sounds like a good move. Just talk about the breadth you're seeing in the channel and sorry if this is a stupid question, but the deal closed a little early.

Why was there no revenue contribution in the quarter?.

Thank you. Tom, could you help me on this..

We're super excited about the closing of the transaction.

The opportunity to integrating litter into our business just as a refresher that acquisition brings significant proprietary, high precision consumables into our business and gives us a much richer solution for the high profile lab automation workflows that are important to our business, and brings a pretty attractive financial profile with it.

It'll accelerate our overall – our organic growth. It will give them the proprietary [Audio Dip] is going to expand margins and as we talked about, we announced the deal. We're confident in a low double digit ROIC by year five.

We be able to close at least a couple of weeks ahead of plan, and here we'd been busy driving integration with, you probably having emphasis on getting the offering integrated and up and running in our channel and that included obviously making some branding decisions and as you indicated, we have launched the products under the J.T.

Baker brand name, which within our portfolio values our flagship premium proprietary brand within our portfolio. And I think the Ritter products are a great fit under that brand, given what they stand for high precision quality performance. And the product was just recently made available into our channel.

We've got inventory positioned around the world now in our branding and our teams are fully activated. The quote levels are super high and we're starting to deliver meaningful revenues through the channel and listen to supporting the legacy OEM business that came with that with that acquisition.

Relative to kind of the impact on Q2, I think we look at really just a couple of weeks of selling there and so you can kind of what the overall, sorry for the business would have been in a relatively short period of time. And it was relatively material to our results. We would anticipate doing, going forward, Jack.

Obviously on the top line we'll report actual growth as we always do, which would include the impact of both RIM and Ritter. And we will also provide visibility into organic growth, which starting in the third quarter would exclude the impact of Ritter and RIM.

We also don't break out some of these adjustments for M&A lower in the P&L, but we will likely did with the guidance today. Try to give you some visibility into the impact on EBITDA, as well as constitution from these acquisitions to EPS.

As we look at our outlook for the full year on EPS, for example, we highlight that we would anticipate M&A to contribute approximately $0.05 to earnings in the second half of the year..

Yes. The other thing that Jack is that when you look at the reported guidance growth rate, 13% to 15% that takes the 9 to 11 organic in factors in FX and M&A it's probably split between the two of them. So you can kind of get the math from there. And as I said our integration has started in full throttle.

And then you, you mentioned some of the branding that we're doing, but financial modeling wise, it's pretty much on track before we'd original model that articulated..

Great. And then Tom, you referenced some of the inflation earlier, certainly getting a lot more questions about supply chain.

Could you just elaborate on any shortages you might be seeing and then on the pricing side do you think you might be able to push that a little bit harder as some of these challenges persist?.

Yes. Three questions Jack. When you look at the – when I look at our overall financial algorithm certainly managing that price cost dynamic has been something we've demonstrated over time, and that continues to hold true in this environment.

And so we thought about those market expansion certainly be – we've been talking about mix earlier, but into the commercial aspects of managing the price and cost, it's been – it's been playing out nicely.

With that said you're right there are some inflations that we're seeing, and I think the – it's probably more pronounced on some of the categories where it's just been known – there's been known difficulties.

So if you think about it, first, it was some of these PPA categories [indiscernible] or no gloves or apparel it's kind of migrated, but you definitely are seeing some inflation there, and again that factors into the pricing that I talked about.

And then when you look at our own operating costs, certainly from a production perspective, in our own supply chain center and our distribution centers, there is a bit of inflationary that we're contending with. I think it's been manageable. It's not outrageous, it's entirely event in the past, but I'd say marginally higher at this point.

But as we go into 2022, we definitely need to be mindful of both the purchase inflation that we had, and the inflation is within our own ecosystem. Again, manage that through productivity, and through and a proxy initiative that we have..

Thanks, Tom..

Thank you. Next we have Patrick Donnelly with Citigroup. Your line is open..

Great. Thanks for taking my question guys. Maybe one on China, you talked about the expansion there, both organically and inorganically with RIM Bio, is an area where you guys are a little bit under penetrated relative to peers, can you just talk through trends there that you've seen and then the opportunity going forward.

Again, it sounds like you're making some CapEx investments, along with the long-term deal. So we'd love to see your thoughts on the opportunities there..

Thanks, Patrick.

I think, can you talk a little bit about our broader Emir strategy, including the China, maybe a couple of headline comments, you're correct in that the EMEA region reflects picking approximately 5%, 6% of our overall, rather than which, relative to other peers, certainly at least at the outset appeared somewhat, represented when you unpack that and get a little bit under the details.

I think the, probably the key driver here is, just the lack of penetration. We have probably on the R&D side of the business throughout the region. If you look at the proprietary content that we have seated in the region for areas like bioproduction for example, that would represent well over 20% of our bioproduction business globally.

And so when we think about our strategy and wherever we're focused, clearly biopharma globally is important. And that is certainly true of the EMEA region.

And we are very well represented and, as well, if not better represented than our peers in areas like Singapore and in Korea which today are driving the bulk of the biopharma revenue for the industry in the region. And I think we all see now the strong upside and our long-term opportunity coming from China with the investments.

And, certainly the focus on biopharma in China. We’re in early days as an industry, pipelines are building aggressively, there's a strong focus on selling gene therapy. There's a lot of investments and capital, that it's helping drive the acceleration of that market.

And so, as we indicated, we are very aggressively deploying our playbook and our model to position us to capture our entitlement to that growth. And that's, everything from, commercial and technical resources to, the deployment of our application and technology capabilities in the region.

And now we're getting to the point where the business, they meaningfully support, localized production and you see us, kind of accelerate that strategy through M&A with the addition of RIM Bio. And we will continue to look at but, what else we can show them the right timing to do those things.

The business is growing aggressively, where the numbers are pretty impressive on a percentage basis, but, it's off a relatively small base at this point, but the fundamentals are strong. And I think we're very encouraged about the trends that we do see playing out in China.

And we're investing aggressively in mobilizing our model to ensure that, that over time that we could, we get our entitlement level of growth there..

That's helpful. And then maybe just one more on the bioprocessing besides vaccines certainly appreciate all the color on the order book. Some of your peers have come out and said, 2022, they feel pretty good about their vaccine revenue being flat, or maybe even up relevant to 2021.

I mean, is your order book, enough to kind of make that commentary or any high-level thoughts, revenue back in 2022 versus 2021, just tied to COVID vaccine?.

Yes, I don't know that we were – more color than maybe what you've heard others say.

We certainly have at this stage, sitting here at the end of the second quarter have very good visibility, probably at least through the first half of next year, just based on the lead times of some of our materials that, that gives us a lot of confidence and, the outlook.

And certainly there's a lot of data that would support the durability of what we're all doing here.

We've got the added dimension of you will bringing on incremental capacities, throughout this cycle, there's a lot of capacity coming on and off system in the second half of this year and into next year, that'll allow us to participate, that whatever level that is required.

So I think we're certainly encouraged by what we're seeing and, getting down to, is it going to be same or above? That's probably a little finer granularity than what we would have at the moment, but I think we're certainly, very domestic and you were well positioned for however the industry trend plays out here..

Yes, Patrick I’ll add the interesting part of our older orders is because of the pass and some of the other U.S. prioritization, we've been serving on a priority basis, the COVID vaccines. And so the order book itself is more heavily weighted to non-COVID in a major way.

I'd say COVID piece of it is probably 20%, 30% of it but it comes, those orders come in on a more frequent basis. As I said, it's kind of a prioritize, like order type basis..

That's really helpful. Thank you..

Okay. And that concludes our question-and-answer session. I'll turn the call over to Michael..

Thank you. Thank you all for participating in our calls today. Certainly would be remiss if I didn't express my continued gratitude to all of our associates around the world for their support of execution and certainly for living our corporate values each and every day. Our team is resolute and steadfast in the support of our customers.

And this is certainly important and critical element of our mission and our overall success. I'm excited about Avantor's future, and I look forward to updating you, when we get an opportunity to meet again next, and tell them take care and be well, everyone. Thank you..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..