Good morning. My name is Emily, and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's Third Quarter 2024 Earnings Results Conference Call. 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 the presentation accompanying this call are available on our Investor Relations website. 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 including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements that we make today. These forward-looking statements speak only as of the date that they are made. We do not assume any obligation to update these forward-looking statements as a result of new information, future events or other developments. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the press release and in the supplemental disclosure package on our Investor Relations website. With that, I will now turn the call over to Michael.

Thank you, CJ, and good morning, everyone. I appreciate you joining us today. I'm starting on Slide 3. We delivered another solid quarter with in-line performance across all key financial metrics. Reported revenue increased sequentially to $1.71 billion, while organic revenue declined 0.7% year-over-year. We were encouraged by another quarter of outperformance in bioprocessing and as strong order rates continue as well as sequential and year-over-year growth in our Laboratory Solutions segment. Adjusted EBITDA margin was 17.6%, and adjusted EPS increased to $0.26 in the quarter. Sequential mix headwinds were largely offset by strong realization of savings from our cost transformation initiative. Our disciplined approach to working capital drove another quarter of best-in-class free cash flow conversion. This enabled us to pay down over $200 million of debt, bringing our net leverage down to 3.8x. In light of our strong year-to-date performance, we are raising our free cash flow guidance for the year. On October 17, we successfully closed the previously announced divestiture of our clinical services assets, which provided support for customers engaged in clinical trial activities with kitting, biorepository, and archiving services. This divestiture allows us to focus on our lab and production platforms where we have strategically advantaged position and scale, higher growth entitlements, and lower capital investment needs. After a highly competitive process, we are confident we received full value for the business. The $500 million in after-tax proceeds, combined with our strong cash generation, accelerates our path to achieving adjusted net leverage of less than 3x. In addition to our strong operating results this quarter, we also made considerable progress in advancing our long-term growth strategy. Recent highlights include the expansion of our magnetic mixing systems portfolio with the introduction of a new tabletop mixer. We launched this new product at the recent Bioprocess International Conference in Boston, where we showcased our innovation capabilities with multiple scientific and keynote presentations. In our lab segment, we launched several new third-party branded products, including Agilent advanced analytical instruments for advanced battery and sustainable energy applications, Sarstedt life science and blood collection consumables as their first major U.S. distribution partner, and Oxford Nanopore's grid ion long-read NGS sequencer, further expanding our collaboration with Oxford Nanopore to bring this higher throughput instrument to market in Europe and the Americas. We officially opened our new flagship innovation center in Bridgewater, New Jersey. This 60,000 square foot facility staffed with PhD scientists, biopharma engineers, biologists, and bioengineers, is one of 13 of Avantor innovation centers globally dedicated to solving life sciences' biggest challenges. The Bridgewater Innovation Center includes capabilities for upstream and downstream process development, pilot plants for scale-up simulations, and analytical and bioanalytical labs that support multiple modalities, including monoclonal antibodies, cell and gene therapies, and protein peptide therapeutics. Our new cell business received an award from the prestigious Kaizen Institute for excellence in process improvement and quality management. I recently had the opportunity to visit this team in California and witnessed first-hand how their commitment to the Avantor Business System is driving tangible operational results and fostering strong employee engagement, consistent with our culture of continuous improvement. We continue to improve the efficiency and productivity of our supply chain operations. In the quarter, we completed major technology installations at our Visalia, California site and opened a new facility in Devons, Massachusetts toward our fluid handling business. We advanced our sustainability platform and recently received an updated rating from Covatis, a global leader in business sustainability assessments that places Avantor in the top 17% of over 130,000 rated companies globally. Additionally, we signed our first virtual power purchase agreement through the Energize program, a pharmaceutical industry-sponsored program that will reduce our energy costs and deliver renewable energy to our operations across Europe. Finally, our team continues to effectively execute our multi-year cost transformation initiative with several critical work streams ahead of schedule. We are confident that we'll exceed our in-year cost savings target of $75 million in 2024. Turning to our segment results, Laboratory Solutions modestly outperformed our plan, returning to growth for the first time in two years. Within biopharma, overall market conditions remained relatively stable. Year-over-year increases in biotech funding have not yet translated into increased preclinical spending and large pharma continued their pattern of cautious spending and prioritizing their clinical pipelines. In our other end markets, core diagnostic testing demand remains strong, and we delivered growth in both our education and government and applied end markets, underscoring the strength of our diversified platform. Consumables and services performed well and equipment and instrumentation demand improved modestly from first half levels. In bioscience production, bioprocessing end market conditions continue to improve. Production levels increased, and this quarter, the FDA approved 13 additional biologics and protein peptide therapies for various indications, including oncology, Alzheimer's, and ulcerative colitis. In line with these strengthening conditions, our bioprocessing sales outperformed our expectations of a low single-digit decline, finishing flat year-over-year. Strong order momentum once again reinforces our confidence in mid- to high single-digit bioprocessing growth in the fourth quarter. Outside of bioprocessing, we saw sequential growth in biomaterials, offset by declines in our advanced technology sales in the U.S. In summary, we delivered another quarter of solid performance. Our cost transformation is ahead of plan, and we have raised free cash flow guidance for the year. Order momentum in bioprocessing continues, and we are encouraged by the return to growth in our Laboratory Solutions segment. With that, I'll now turn it over to Brent to walk you through our third quarter results in more detail.

Thank you, Michael, and good morning, everyone. I'm starting with the numbers on Slide 4. Reported revenue was $1.71 billion for the quarter, declining 0.7% on an organic basis. Sales trends in our Laboratory Solutions segment were similar to second quarter levels with a modest improvement in equipment and instrumentation demand. Within our Bioscience Production segment, bioprocessing outperformed expectations, while advanced technologies were modestly below plan. Adjusted gross profit for the quarter was $573 million, and adjusted gross margin was 33.4%. Adjusted gross margins declined sequentially largely due to mix. Key contributors were the increase in equipment and instrumentation and lab solutions and headwinds in advanced technologies and Bioscience Production. Year-over-year adjusted gross profit was impacted by mix and modestly lower sales volume. Adjusted EBITDA was $303 million, and adjusted EBITDA margin was 17.6%. Our cost transformation initiative continues to drive meaningful SG&A savings nearly offsetting the sequential mix-related headwinds to gross margins. On a year-over-year basis, performance was impacted primarily by our incentive compensation reset. Adjusted operating income was $275 million at a 16% margin, in line with adjusted EBITDA performance and the drivers just noted. Adjusted earnings per share were $0.26 for the quarter, a $0.01 sequential and year-over-year improvement. Our adjusted EPS performance in the quarter reflects the flow-through of our adjusted EBITDA result as well as lower net interest expense. Interest expense favorability was driven by incremental debt paydown from outperformance in free cash flow and the impact of our interest rate swap termination. As Michael noted, we delivered another strong quarter of free cash flow, generating over $200 million in the quarter and approximately $550 million year-to-date inclusive of cash costs related to achieving our transformation savings. Excluding those same costs, we have generated approximately $625 million of free cash flow in the first three quarters against our original full year guidance range of $600 million to $650 million. In Q3, we paid down over $200 million of debt, and our adjusted net leverage ended the quarter at 3.8x adjusted EBITDA. We closed on the sale of our clinical services assets on October 17. After accounting for transaction costs and expected tax payments, we netted approximately $500 million in cash proceeds, which we intend to use for debt paydown. As part of the transaction, we also transferred balance sheet capital lease obligations of approximately $50 million, further reducing our leverage. We now expect to finish the year at, or below 3.4x adjusted net leverage and continue to make meaningful progress towards our target of sub-3x adjusted net leverage. Slide 5 outlines our segment performance. Laboratory Solutions revenue was $1.17 billion for the quarter and grew 0.6% versus prior year on an organic basis. Sequentially, sales grew modestly due in part to an improvement in equipment and instrumentation. While biopharma and health care continue to be pressured by the cautious spending environment, we saw nice improvements in other parts of the portfolio. Education and government grew mid-single digits year-over-year, and our applied and industrial sales grew again with growth in both the Americas and Europe. Adjusted operating income for Laboratory Solutions was $152 million for the quarter with a 12.9% margin. Sequentially, Laboratory Solutions adjusted operating income was up modestly. We had a slightly negative mix at the gross margin line, largely offset by spend controls and transformation-related SG&A savings. Adjusted operating income margin decreased 20 basis points from Q2. The year-over-year adjusted operating income decline was driven by the impact of our annual incentive compensation reset, partially offset by savings from our cost transformation initiative. Bioscience Production revenue was $543 million, an organic decline of approximately 3.5% versus prior year. Sequentially, reported revenue declined modestly, primarily due to advanced technologies. Bioprocessing, representing about two thirds of the segment, outperformed expectations and was roughly flat year-over-year with another strong quarter of order intake. Biomaterials performed in line, while advanced technologies were somewhat below expectations. Adjusted operating income for Bioscience Production was $138 million for the quarter, representing a 25.4% margin. On a sequential basis, adjusted operating income margin was impacted by mix and higher freight expense. Year-over-year adjusted operating income declines were largely driven by incentive compensation headwinds. Moving to the next slide. We are reiterating our full year P&L guidance, net of the impact of our clinical services divestiture and raising our free cash flow guidance. Clinical services was expected to generate approximately $200 million of annual revenue, which will no longer be in our results as of October 17. Accordingly, we are adjusting our reported revenue guidance for the year by approximately $50 million to reflect this impact. Clinical services was part of our Lab Solutions segment, so these expectations should likewise be adjusted. The divestiture is approximately 10 basis points dilutive to our full year adjusted EBITDA margin and $0.01 dilutive to adjusted EPS. As a result, we now expect adjusted EBITDA margin of 17.3% to 17.8% and adjusted EPS of $0.95 to $1.03 for the full year. Given our strong free cash flow performance this year, we are raising our free cash flow expectation from the original range of $600 million to $650 million to more than $750 million. This is before transformation-related cash costs of approximately $100 million. A couple of final comments on organic growth. We are reiterating our expected full year organic growth of negative 2% to positive 1% as our organic growth assumptions remain unchanged. The midpoint of our guidance assumes an approximately 49%, 51% first half to second half revenue split as we have anticipated all year. The low end of the range assumes a more muted seasonal pattern. By segment, we expect Laboratory Solutions organic growth to be flat to modestly up in Q4, leading to an unchanged expectation of flat to low single-digit declines for the full year. We expect Bioscience Production organic growth of low to mid-single digits in Q4 with strong order growth supporting mid- to high single-digit organic growth in bioprocessing. For the full year, we expect Bioscience Production and bioprocessing both to decline low single digits organically, also unchanged. I'll now turn the call back to Michael.

Thank you, Brent. Before we conclude, I would like to summarize the key takeaways from another strong quarter. We are encouraged to see our ongoing commercial intensity driving growth in our lab business, alongside continued outperformance in bioprocessing. Our order book continues to grow, positioning us for mid- to high single-digit bioprocessing growth in the fourth quarter. Our cost transformation initiative is delivering results ahead of plan, allowing us to substantially offset the mix headwinds we experienced in the quarter. We will exceed our in-year savings target of $75 million, and we'll exit the year with run rate savings of more than $150 million. Enabled by the Avantor Business System, our disciplined approach to working capital resulted in another quarter of best-in-class free cash flow conversion. And we raised our free cash flow guidance for the year. Together with the proceeds from our clinical services divestiture, our strong free cash flow is accelerating our deleveraging efforts and positively impacting our earnings. We continue to make progress with our new operating model, realizing significant commercial and operational benefits just 10 months in. We are now a leaner, more agile, and more efficient organization. This new model is also enhancing both our internal processes and the way we serve our customers. Importantly, we have significantly advanced our long-term growth strategy, achieving key milestones in the areas of innovation, new product introductions, sustainability, and supply chain infrastructure. I want to extend my gratitude to our Avantor associates across the globe for their dedication to serving our customers and their invaluable contributions to our success. I will now turn it over to the operator to begin the question-and-answer portion of our call.

Our first question today comes from Dan Brennan with TD Cowen. Please go ahead.

Great, thanks. Thanks for the question, and thanks for the info on the call. Maybe just on the implied fourth quarter guide, just to start, guys. You gave some color, Brent, right at the end on the segment. But could you just kind of give us a sense of where we should be thinking about overall for the company because if you took the full year guide, 0% to 12% is what's kind of implied in the fourth quarter. So why? So just help us a little bit on that. And then b, just as it relates to Bioscience Production, Brent, I think I heard you say low single to mid-single. If I kind of plug that in, I think I come up with kind of down 3% for the year. I think your prior guidance for the full year was not pointing to us. Maybe just unpack a little bit of the overall guide and what it means for the segment for the fourth quarter.

Yes, thank you for the question, Dan. I wouldn’t read too much into the broad guidance besides the update reflecting the impact of the clinical services divestiture. Overall, the outlook remains largely unchanged regarding the segments. It’s key to note that we expect a return to growth in Lab Solutions, with results flat to slightly up in Q4, mid- to high growth in bioprocess for Q4, and BPS for the segment expected to remain relatively unchanged, declining by low single digits in Q4.

Okay. I'm sure we can discuss that further during the call. As we move on, some of your competitors provided insights earlier in the week regarding 2025. It seems that the market is anticipating around 4.5%. Michael, you mentioned your optimism about cost reductions and the initiatives you're undertaking, but it remains a challenging environment. Do you think that this is a realistic starting point based on your current business trends?

Well, Dan, I'd say probably a couple of things. Firstly, I think as we've done in previous years, where we sit here in the year, it's probably a little bit too early to comment on 2025. We'll certainly see how Q4 plays out and follow our normal cadence as we get into our fourth quarter call for next year.

Our next question comes from Doug Schenkel with Wolfe Research. Please go ahead, Doug.

Good morning, everyone. I appreciate the opportunity to ask questions. To start, I want to build on Dan's second question. As we consider the Q4 earnings per share, it appears that the midpoint of guidance suggests a range of approximately $0.27 to $0.28. I understand that you're not providing guidance for 2025 right now, which is not my main focus. However, if we were to annualize the Q4 figure, considering that conditions are slowly improving, your order book is getting better, and your cost transformation efforts are taking effect, would using the Q4 number in this way serve as a reasonable foundation for establishing a lower limit for next year, provided that trends continue positively?

Yes, Doug, I would like to mention a few things. Firstly, I understand the calculations you're trying to make. However, I think it's a bit early for us to comment on 2025. What I want to highlight is our lab business this year. It’s been a year of stability with some gradual improvements. We are certainly encouraged by the growth we saw in the third quarter and the gradual recovery in the bioprocessing area. We have a top-quality platform there, and the strong performance for another quarter is promising. As we approach the year-end, I believe we are in a good position. However, our order book does not provide the clarity needed to predict how things will unfold next year. That said, the fundamentals of the end market are strong. We are optimistic about the momentum in our business, particularly in bioprocessing. Most importantly, I feel we are taking all the right steps to be well positioned to seize growth opportunities as they arise next year.

Thanks, Michael. I appreciate your response. I want to ask an unrelated question about BPS. Overall, BPS came in slightly below expectations, but bioprocessing performed better than anticipated. This suggests that perhaps the shortfall was due to new factors. Can you provide some insights into what’s happening there? Additionally, on a broader level for the segment, it seems that the margin was slightly lower than what you achieved in the second quarter with similar revenue. I'm curious if this was due to a mix of factors or perhaps if you accelerated some investments during the quarter.

Yes. Let me take your first one. Brent can handle your question on margin, Doug. On the BPS segment, we have kind of a broad diversified platform there, probably three principal components there. Obviously, two thirds of the platform is our bioprocessing platform. Again, another quarter of outperformance. We delivered flat performance year-over-year as well as sequentially compared to a low single-digit decline. We're actually encouraged to see our biomaterials platform grow sequentially. So another good quarter there. So the pressure really in that segment was within our advanced technologies platform and primarily in a down quarter on U.S. semiconductors.

Doug, following there on the margin side, I mean, there are a few things going. As we noted in the script there, we did have higher freight expense in that segment. There are things going on in the world there that we work very hard at that, but that was a headwind to us. And we also had the specific comments to Michael, we also had a bit of the mix of the mix there. Nice performance in bioprocessing there. The headwinds and advanced technologies, you put that together with some mix of the mix and that leads to that performance.

The next question comes from Tycho Peterson with Jefferies. Tycho, please go ahead.

Hey, thanks guys. You're going to love this. I'm going to ask another question about the 4Q range. I'm just curious, are you guiding us to the midpoint and high end is budget for us, can you flush that out a little bit? And then the implied margin in 4Q was also pretty wide. Just wondering if you can kind of give us some of the gives and takes on the 4Q margins.

Yes. No, Tycho, thanks for the question. Look, the broad view on the guidance there is the midpoint of the guidance would get you to a seasonal ramp in the lab business. We talked about this some last quarter. The low end would be more muted conditions to sort of similar to the exit rate we saw in Q3 there. So that's the reason for the broader band. That's consistent with the environment that we had talked about before. The flow-through of the margin, I mean part of this, we haven't wanted to touch every piece of the guidance around there. I think you can think of nice consistent performance there when you think about what Q4 wants to be, that will have similarity to Q3, assuming the expectations we talked about there. Again, in Q4, we talked about lab flat to modestly up. BPS, positive low single digit to mid-single digit there. You put that all together, the puts and takes with the headwinds of the clinical services divestiture, which is some headwind to margin, but then nice tailwind from the mid- to high bioprocess there that gets you in a consistent place there to Q3 on a margin basis.

Okay. That's helpful. And then going back to one of the questions earlier from Doug, on some of the other businesses. You flagged semi. I'm just curious your outlook there, how much pressure you think this could put on numbers going forward? And then also, what are you thinking on new cell going forward as well? I know you don't specifically want to comment on '25, but just curious on underlying trends there and how we have to think about what you're seeing?

Yes. So a couple of things to unpack there for you, Tycho. Firstly, on the new cell platform, as we've talked about this in a lot of different forms, it's a really terrific platform, extremely well positioned. The business is running a bit ahead of plan this year. Again, we saw a sequential growth in Q3, which was encouraging. We've got a great innovation pipeline. Procedure accounts are trending in the right direction here. So I think the setup for that long term continues to be quite favorable. And we would anticipate long term that being a mid- to high single-digit growth platform for us and certainly nothing ahead of us that would indicate that's not possible. On the semi front that you referenced there, yes, certainly some pressure building in that end market as we move through the quarter. There are some bright spots in that space, and there's a lot to like about where the technology is headed there. But what we saw in the quarter was a stall in the recovery, particularly in the U.S. and a little bit of some traction getting lost there in the end market. And you see that Tycho and a lot of the recent public updates from some of the key players in the space. I think baked into our outlook for the fourth quarter is we would anticipate that to continue. Unfortunately, that's a relatively small part of the business. And given the strength in bioprocessing and biomaterials, we're able to largely offset that weakness with strength in those other areas of our business.

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

Great. Thanks for taking the question, guys. I want to talk a little bit about the clinical services divestment and the impact to the guide. I know you only really talked about the last 2.5 months of the quarter. But is it reasonable to just take that and prorate that to fiscal year '25, meaning like you said, $200 million a year? You're seeing $150 million of it this year, so you expect the other $150 million, give or take next year. And then in terms of EBITDA, it's a 10 bps dilution to the EBITDA margin this year. So 30 to 40 bps impact to EBITDA margin next year? Or is there any other seasonality we should keep in mind or anything like that?

Michael, really good question there. And I think the math that you've laid out there makes a lot of sense. Just to reiterate a couple of the points here. We talked about the business being roughly $200 million on an annualized basis. There's not a lot of seasonality to that. So you see roughly 1/4 of that impact being taken in Q4. And I think it would be safe for you to assume that you would see a similar impact as what we're seeing here in Q4 play out through the first three quarters of next year and not just for the top line, but all the way through the P&L.

You mentioned during the call that you're exceeding your $75 million cost savings target for the year. Is this partly due to timing, possibly pulling some savings from next year? It seems like there might be additional potential for savings next year as well. How should we interpret this comment considering it’s part of a three-year program?

Michael, it's Brent. I'll take that. Look, we appreciate the focus on that. Year-to-date realization is nicely ahead of plan for the full year. Again, we still have hard work to do in Q4, but we expect to deliver comfortably in excess of $100 million in the year. This puts us nicely ahead of the $150 million exit rate that Michael noted on the call last quarter. Really how we got there was year-to-date realization ahead of plan. We got more in-year impact. We started talking about that on the Q1 call due to being really quick execution in connection with that. I wouldn't read any more into what it means for the broad program. It's three years, the $300 million. We're obviously incented to get these things done rapidly, but we'll update you with the guide there. But I would say it's better than steady she goes there.

The next question comes from Vijay Kumar with Evercore ISI. Vijay, please go ahead.

Hi Michael, good morning, and thank you for taking my question. I wanted to follow up on the performance this quarter. When you evaluate BPS and exclude BPS, it seems that the other segments of the business have declined in the mid-teens range. You mentioned the semiconductor area. Were there timing impacts affecting this? Should we expect a recovery? I know you referenced some peers. How should we interpret this situation? Should we consider companies like ASML in our analysis of the semiconductor market?

Yes, a couple of points there, Vijay. Thank you for the question. I want to ensure it's clear for today's call that bioprocessing continues to perform well. We have seen growth in our biomaterials platform and the new cell platform sequentially. The main challenges are within our applied segment, specifically in the advanced technologies segment. Our focus is primarily on the U.S. semiconductor sector, where we supply formulated solutions used in semiconductor manufacturing. It would be best to look at the semiconductor chip manufacturers for insights into the end market. This isn't really about timing. As I mentioned in response to another question, this end market faced significant challenges throughout last year. We were on a recovery path through the first half of this year and into the early days of the third quarter. However, we noticed that momentum slowed down in the third quarter, and we're experiencing a pause in that recovery. For the fourth quarter, we assume that this trend will continue based on the forecasts we are receiving from our customers.

The next question comes from Dan Leonard with UBS. Dan, please go ahead. Thank you.

Regarding the 20% EBITDA margin exit rate for 2025, can you remind me what growth is needed to reach that target? Also, does the divestiture of the clinical services impact that target at all?

Yes, that's a great question. Dan, regarding the 3% exit rate target we set for next year, we are very confident in our ability to achieve it due to various strategies we can implement, including self-help measures. Brent will provide some insights on how our cost transformation initiative is progressing, which should significantly contribute to meeting that target. This doesn't rely on a full recovery in the end markets, and we don't need to take extraordinary measures on the revenue side to reach it. Our confidence remains strong. The fact that we're ahead of our cost transformation plan will be beneficial. It's important to note that when we established that target, we did not account for the divestiture of our clinical services platform. As we plan for 2025, we will need to factor that in. However, our original assumptions are still valid, and we believe we can reach that level of performance, adjusted for the divestiture, with actions primarily within our control.

Understood. And as a follow-up, Michael, can you give your updated view on the competitive environment in Lab Solutions and the market share picture there?

Yes. Great question, Dan. First, we'll just reiterate how encouraged we were to see our lab business returned to growth for the first time in a couple of years. The activity levels there have been improving, and we finally were able to push that into the growth territory. The sustained commercial intensity that we've referenced in a number of different forms here over the last year or so, I think is certainly correlated to the outperformance we're seeing in that segment. And when I compare our disclosures here around lab to other disclosures that others are making on lab, I think you see a platform here that continues to outperform. We're confident we certainly have a leading platform here and we remain focused on leveraging our capabilities to continue to grow share. And I think there's certainly a lot of data points here to support our view here that we've got a nice share story, particularly in things like academia when you look at our performance in that end market in the quarter. So it's a highly fragmented space. We're clearly a leader, and we like our positioning and momentum here.

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

Good morning, and thank you for the question. I appreciate it. First, regarding the implied guidance for Q4, that range is about $200 million based on your reiterated guidance. Can you walk through what you need to see over the next couple of months to hit the high end of that guidance? Or should investors focus on the midpoint of your guidance when considering Q4 results?

Yes, Conor, thank you for your point. Referring back to my previous comments, we have been cautious about making significant adjustments. The lower end reflects reduced seasonality and a continuation of the exit rate we experienced in Q3. To reach the midpoint, we would need to see increased seasonality, as we discussed in our last call. It's important to note that we are focusing on the Laboratory Solutions segment. We are quite confident in our outlook for Bioscience Production and bioproduction specifically. This would entail more activity in the laboratory within that channel. Once again, we are satisfied with our current exit rates to achieve the midpoint or better, but we will need to see an increase in activity to get there.

Great. And regarding cash flow generation, it was a really strong quarter. Congratulations on that. As we look ahead to next year, you mentioned that you're expected to end the year at 3.4 times leverage. Is it realistic to consider that you could begin pursuing mergers and acquisitions next year? What is the current state of the M&A environment?

Okay. Just on the exit rate, I mean, it is absolutely very likely during next year, we'll be below 3x net leverage there. You just look at the cash generation as well as getting there on the EBITDA side of things doesn't put us in a position there. Now we want as comfortably stable our leverage target there. So that adds complexity to that. But I would say we'll be in the position where to start looking at inorganic growth for some time next year. Michael, I don't know if you want to supplement that?

Yes. No, I think that's exactly right. We are laser-focused on deleveraging and getting ourselves in a position where we have room under 3x to be able to sustainably be a consolidator in this space, and M&A remains an important part of our long-term growth playback. We're not in a hurry. We'll see how it plays out next year. We've got a lot of things in flight here around our cost transformation and standing up our new segments. We like the momentum in our end markets and our positioning. And fortunately, we can create a lot of value with all the organic levers that we have available to us. And whether it's next year or future year, we'll certainly get back to M&A at the appropriate time.

The next question comes from Dan Arias with Stifel.

Mike, at the Investor Day last year, you talked about the potential for an above-average growth period once the recovery is underway and once orders sort of turned the corner. How do you feel about that idea today when you look at the evolution of demand here and just the way that the dynamics are playing out as things slowly get better?

Yes. I mean it's a really good question. And as we've talked about here today, unfortunately, our business model doesn't give us the visibility to call the timing or the shape of how that does recover. But I'd just kind of point you to what we've experienced this year, which is a year of stability, gradual improvement in the lab, probably a little bit ahead of the curve on some of the applied markets in the academic space getting back to more normal rates. We still got some room to go here with activity levels in preclinical research, but there are some things to like about that. There are certainly within large pharma that are doing pretty well there, and there are some green shoots even in the biotech space, not across the board, but certainly some of the larger biotech we see some of the step-up in year-over-year funding starting to translate into a step-up in spend on that. So we like that, but there's still some headwinds there that we need to overcome, but the trajectory's encouraging. When you flip over to the production side of the business, the exit rate here of mid- to high single digits is certainly, compared to where we've been this year is quite encouraging. But against the long-term algorithm, that would have us in the double-digit range. There's certainly room for improvement here. And we'll see how that plays out. We've got high confidence in working to go for Q4 based on our order book. And the fundamentals are strong. We've talked about that all year. Demand remains great, great regulatory environment. I think we had another 13 approvals in the quarter on new molecules for new therapies, and the production rates are continuing to improve as the destocking subsides. So I think the setup is good. We'll see how Q4 ultimately plays out, and we'll build that into our plans for next year here but probably a little bit too early to call how we see '25 playing out yet.

Okay. Helpful. And then maybe just a follow-up on the overall consumables piece. I mean it feels like the inventory drawdown phase that we've been talking about has kind of run its course, but there is a level of restraint out there just overall on budgets. When you look ahead a bit, and I know you're not trying to raise expectations to get people's hopes up or anything, but I'm curious if just sort of conceptually, when you think about the beginning of next year and 1Q consumables orders, do you think they could have a bit of a catch-up feel to them, maybe a little bit larger than normal if just spending into the end of the year was muted to a degree and now these companies are working with a fresh budget and maybe you need to restock a bit? Does that seem plausible to you at all or just not really?

Yes, I'm not exactly sure. When you look at a consumables portfolio, which we benefit from, that inventories from our perspective, I think we would agree with your view that the destocking is pretty much behind us. And for the most part, inventories have normalized. And so we see our customers managing their inventories in line with their activity levels. So it feels like we have consumption and demand matching the orders that we're seeing at the moment. And certainly, the activity levels continue to improve. So I think that's encouraging. On the flip side, we have about 15% of our revenues or so on the equipment and instrument side of things. And that's probably been the bigger headwind across the space this year linked to budgets and capital spending. And as we noted in our prepared remarks, relative to where we're at in the first half of the year, we did see some sequential improvement in that as we got into the third quarter, and that's somewhat reflected in our mix that we see this year and in the quarter as well. But I think that's another good signal. The pipelines and activity levels have been strong there all year. It's been taking longer to convert those pipelines to orders and revenue, but there was a bit of a turn up on that area in Q3. So you kind of step back from all of that, things are definitely heading in the right direction, and the environment continues to improve.

The next question comes from Rachel Vatnsdal with JP Morgan. Rachel, please go ahead.

Thanks. Good morning and thank you for taking the questions. So first up, just on Lab Solutions. So I know you guys don't want to guide to 2025 at this point, but just given the hyper focus that investors do have on Lab Solutions into next year, how should we think about pricing in 2025 on the lab side of the portfolio? And what could that mean in terms of a floor for what the lab segment could do? Given some of these budget pressures that we're seeing on pharma and biotech and the pressure on volume, is there a world where lab could even be flat or declining next year? Or does that pricing power help define some of the performance and equate to some level of growth, even if it's just on pricing?

Yes, Rachel, thank you for the question. Regarding pricing for 2024, we've consistently mentioned that our lab pricing has aligned with our expectations, allowing us to manage the inflation in costs. Fortunately, the pricing and cost of goods sold environment has mostly stabilized compared to the past few years, where we had to make significant price hikes. This year, the situation feels much more like it did before COVID. We are currently collaborating with our suppliers to project next year’s costs, and initial indications suggest they may be similar to what we experienced this year. We will be finalizing our pricing strategy for next year in the coming 30 to 60 days. There are no current concerns about our ability to implement our usual pricing in relation to the cost environment. Our team has established a solid process and discipline in this area. As long as we stay aligned with the cost expectations, I don’t have any concerns at this time.

That's helpful. And then just on the Bioscience Production segment and this advanced technology dynamics, can you just break down for us what percent of the Bioscience Production segment is exposed to silicon and biomaterials versus advanced technologies? And then within that advanced technologies for total co, that grew mid-single digits this quarter, but I know there's a fair amount of exposure within the lab segment. So, what did advanced technologies do within the Bioscience Production segment this quarter given the weakness you've been calling on in semis?

Yes. So just maybe to recast what we've said about the segment, two thirds is bioprocessing. I think we've covered performance of that pretty well here today. And then the balance of that 30%, 35% of the platform is kind of split between our new cell platform, our biomaterials platform and the other applications in things like aerospace and defense and semiconductors. Overall, at the enterprise level, we've talked about semiconductors being roughly a couple of points of our overall exposure. And you're right to note, there is certainly some applied exposure in the lab where we actually saw growth in that part of the business in the quarter, which is, I think, just a great proof point of not only the diversity of our platform, but certainly the resilience and relevance of our platform. So the weakness that we saw there really was isolated to the semi activities and principally in the U.S. is where we saw the kind of the headwinds materialize as we moved through the quarter.

The next question comes from Luke Sergott with Barclays.

I just wanted to clarify Doug's earlier question. With the biosciences exit projected to be low single-digit to mid-single digits in the fourth quarter, and you indicating that the bioproduction exit is expected to be mid to high, shouldn't that mid to high exit rate reflect the growth rate for 2025? It seems there was an implication that it might be a bit lower, and I'm trying to understand that better.

I wouldn't try to use our Q4 exit rates to predict next year's performance. It's a useful data point illustrating the recovery we've seen this year, starting with a low teens decline, moving to flat in the third quarter, and now exiting in the mid- to high single digits. We're on a positive trajectory for bioprocessing, with considerable momentum ahead, though we're not yet back to our double-digit growth rate, indicating there’s still room for improvement. Regarding the biomaterials business, we've exceeded our expectations this year. Last year, this platform saw over 20% growth, so we anticipated this year would be more challenging due to the inventory restocking effects. However, we remain optimistic about the fundamentals, projecting mid- to high single-digit growth for that platform in the long term, while we evaluate the semi business's outcome. The exit rates for bioprocessing provide a constructive starting point, and we'll refine that as we develop our full year guidance. The setup looks promising, with strong pipelines and order book momentum over the past four quarters. There’s a lot to be optimistic about.

I wanted to clarify the impact of equipment on margins. While you mentioned improvements, the E&I side of the business has been weak across all competitors based on various channel checks. Can you elaborate on what you’re observing in that area? Was there any increase, and is it still down compared to last year? What ultimately affected that margin, and what is the outlook for E&I moving forward?

Yes, a couple of things there. You're right, first of all, in that it is a relatively modest part of the business. It's roughly 15% of the total with a little bit more of that exposure in Lab Solutions where we see roughly 20% of our lab revenues are linked to equipment instruments. Market conditions, generally speaking, have been pretty similar all year, really highlighted by there's more cautious spending on capital items, particularly within biopharma. We did see some improvement, as we've noted in the third quarter. It was up low single digits sequentially. But to your point, it's still down year-over-year. I think the first half of the year, we were probably down high single digits, low double-digit kind of range, and so it did improve to down mid-single digits in the quarter. So still a bit of a headwind. But as we've said, actually, the activity levels and pipelines have been pretty strong most of the year, all year. What we see, though, is just a longer cycle time to get that activity converted to an order and ultimately realized in the P&L. So maybe some green shoots here in the quarter as things seem to be start to moving in the right direction.

The next question comes from Tejas Savant with Morgan Stanley.

I appreciate the time here. Michael, I just want to double-click on Smid-Cap Biotech a little bit. I know it's like low single-digit exposure for you. what are you hearing from that specific customer constituency given the weakness called out by some of the CRO peers and so on. When do you think the rate cuts start to filter through in terms of customer psychology? Or do you expect perhaps like election outcome clarity to move things along a little bit on that front?

Great question, Tejas. I'd say a couple of things about the biotech space. It's a relatively modest exposure for us, but it is an important customer set just given the science that they're developing. And similar to what we're seeing with some of the large pharma, it's a little bit of a mixed bag here in that yes, particularly a lot of the smaller biotechs are still struggling under the weight of the funding headwinds that have been in play over the last couple of years. But we are starting to see some green shoots in this area. And if I kind of segment the exposure here to the biotech space, we actually see some of the larger customers within that area, have a bit more access to cash, maybe benefiting from some of the early turn in funding on a year-over-year basis here, actually starting to return to growth. So yes, still some headwinds there. We're not fully seeing all of the step-up in funding translate into preclinical spend yet. But certainly, we're encouraged by some of the green shoots that we are starting to see there.

Got it. And then my follow-up is focused on Europe, Michael. Just talk to us about sort of any signs of stress in the system or perhaps like sequential improvement, especially in important geographies like journey. You've got this dynamic of defense spending crowding out other priorities from governments. But then on the other hand, I think in the past, you've also talked about how you're relatively under-indexed to biopharma there versus North America. So just paint that picture for us a little bit in terms of what you're seeing exiting the third quarter and into October here in Europe.

Europe for us has actually been probably the strongest geography as we look across the business. I think even in the third quarter, it outperformed the Americas. And some of that, I think, can definitely be linked to what you're talking about there on maybe a little bit less exposure to preclinical research and biotech funding and such on a relative basis. And when I look through to things like our applied exposure in the region, we actually saw some pretty reasonable growth in the quarter for Europe. So Europe overall holding up quite well despite some of the macro factors out there. And again, I think it's just a great proof point of the benefits of a consumables-driven portfolio and the resilience that our platform offers.

We have time for one final question. And so our final question today comes from Patrick Donnelly with Citi.

Michael, I wanted to follow up on the discussion regarding the biotech and pharma sectors. We've heard from some sources that the biotech field is experiencing some delays, while larger pharmaceutical companies appear to be doing slightly better. In considering these customer bases, are you noticing any noticeable differences? How are your conversations with customers shaping your outlook on spending towards the end of this year and for budgeting next year?

Yes. A couple of things to point out there, Patrick. Biotech funding has been a headwind going back to the early days of last year. We did see it tick up beginning in Q1 this year. And as we sit here on a year-to-date basis, it is encouraging to note that overall biotech funding is up on a year-over-year basis, and we definitely see things heading in the right direction there. But it is somewhat mixed in terms of the picture out there. As we talk to customers, particularly the smaller biotechs, we definitely see more muted activity levels. You see fewer start-ups coming in that generally drive some good activity when funding is strong. But the more established biotechs, Patrick, we actually do see the step up in funding translating into growth. When I look into our business, we saw that a nice sequential improvement in that part of our business in the quarter. We still do need some of the smaller folks to step up to kind of get away from this being generally a headwind. But there are some green shoots here that we have our eyes on that give us some encouragement here and do align with this trend of funding being up year-over-year.

That's helpful. And maybe just a last quick one for Brent, just on the gross margins in particular where I understand mix is obviously an impact this quarter. Just trying to think about the go forward, whether it's price, mix, any moving pieces we should be thinking about as the right point for '25 just given this quarter? It seemed like have moved around a little bit with mix just trying to get our arm around that one. Yes. Look, you have another around '25 there, Patrick. We'll come back to you on February there, but I think I would just have you focus Q4 and beyond, we're going to have some headwinds from the clinical services divestiture. We do have the mix variability. You cited those headwinds should be essentially offset or more than offset by the growth in bioprocess in Q4. That's a real virtue of that mid to high. So I think about Q4 is something very similar to Q3, and we'll update you on all the mix and everything else for the guide for '25.

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