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

Good morning, and thank you for joining us. Our speakers today are Michael Stubblefield, President and Chief Executive Officer, and Brent Jones, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our Investor Relations website at ir.avantorsciences.com. A replay of this webcast will also be made available on our website after the call. Following our prepared remarks, we will open the line for questions. During this call, we will be making forward-looking statements within the meaning of the U.S. federal securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings. Actual results might differ materially from any forward-looking statements 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, Ali, and good morning, everyone. I appreciate you joining us today. Before we get into our first-quarter results, I want to address the CEO transition announcement we made this morning. After careful consideration, our Board of Directors and I agreed that now is the right time to initiate a transition in Avantor's leadership. The Board has initiated a search process to identify the company's next CEO and will look for someone who has a strong track record of delivering growth and value creation. I plan to step down once a successor is in place and is committed to a smooth transition. In the meantime, as I will discuss in detail shortly, our entire leadership team is focused on taking steps to accelerate growth and strengthen the business. With that, let's turn to Slide 3. I want to acknowledge that we are not satisfied with our first-quarter performance. While we delivered earnings and margin in line with our plan, revenue in both segments fell short of our expectations. We entered 2025 with a clear focus on innovation-driven growth, margin expansion, and deleveraging. However, sentiment in some of our end markets, particularly education and government, turned cautionary as customers reacted to policy changes announced by the new administration. Also, funding fell approximately 40% in the quarter for bench stage biotech companies, leading to additional demand weakness for this important customer segment in our biopharma end market. We expect this market backdrop to continue pressuring demand for the foreseeable future, which is reflected in reset guidance. While we cannot change the market environment, we intend to take every action within our control to enhance growth in both Lab Solutions and Bioscience Production while continuing to expand margins and reduce leverage. Specific to our Lab business, we are making immediate and significant changes to drive growth. We are excited to have Corey Walker, President of Lab Solutions, fully onboarded. Given his prior experience with our business, he has ramped quickly and is conducting a deep dive into the business, evaluating every aspect of our strategy and execution. In the near term, he is working closely with the commercial team to grow and retain key accounts and aggressively pursue new accounts. In addition to the work that Corey has initiated, we have recently implemented a range of actions that will strengthen our business. First, our delivery excellence initiative is focused on ensuring greater supply chain efficiency and resilience. By improving data accuracy, accelerating fulfillment speeds, and optimizing inventory, we are enabling differentiated service levels to our customers that will drive growth across all channels. Second, we are accelerating digital enhancements to our platform, including the rollout of our new AI-enabled e-commerce platform, to further streamline the customer experience. Another important step is strategically optimizing our approach to pricing by leveraging the integration of digital technologies. This transformation is expected to unlock new opportunities, maximize value, and improve profitability and growth. The program will be implemented in a phased approach, with the first go-live scheduled for later this quarter. We also continued to focus on expanding our portfolio with highly attractive new products. In the first quarter, we made meaningful progress with the addition and advancement of several high-impact platforms, including signing a new distribution agreement with Abcam, a market leader in the antibody space with over 100,000 SKUs that will make their high-quality antibodies and reagents available to Avantor's customers across the globe; broadening our collaboration agreement with Fuji Film Bovine Scientific, a trusted provider of cell culture media and bioproduction reagents. The agreement includes enhanced distribution rights across the United States, Canada, Puerto Rico, Latin America, and Mexico and makes an additional 1,500 SKUs fully accessible through Avantor's distribution network; and expanding our collaborative distribution agreement with the Life Science business of Merck KGaA, Darmstadt, Germany for Western Europe, further leveraging their market-leading lab filtration products in our portfolio. This agreement includes over 1,900 SKUs, encompassing well-known brands and accelerating commercialization and adoption of the recently launched J.T.Baker viral and activation solution, which plays a critical role in downstream viral clearance within the monoclonal antibody production workflow. This solution is now specified into a significant number of platforms, with many more currently in late-stage evaluation. While we take steps to accelerate growth, we're also maintaining our relentless focus on efficiency and cost discipline across the company. We drove another quarter of outperformance in our multiyear cost transformation initiative and remain on track to deliver on our $300 million run rate target exiting 2026. I'm pleased to announce that we have expanded the initiative and now expect to generate approximately $400 million in run rate gross savings by the end of 2027. Brent will share more details on this shortly. Turning to Slide 4, let's take a closer look at our performance. In the first quarter, our organic revenue declined 2% year-over-year, driven primarily by underperformance in our Lab business. While we were awarded several new contracts and secured extensions of a number of existing contracts in the quarter, including a renewal of our supply agreement with Regeneron, the work Corey and his team are doing to accelerate the pace of new account acquisition will be critical to returning this platform to growth. Organic revenue within our Biosciences Production segment also came in modestly below plan as growth in process ingredients and excipients as well as double-digit growth in our single-use offering was offset by weaker demand for our controlled environment consumables that are used to maintain the integrity of our customers' clean rooms. While this revenue is sticky and highly recurring in nature, this lower demand is mostly attributable to customers placing tighter controls on usage in response to the current macro environment while still maintaining throughput. Although we are encouraged by end market fundamentals and continued momentum in our Bioprocessing order book, we are not satisfied with overall growth and are taking action to improve performance across our organization. Despite the top-line pressure, adjusted EBITDA margin increased 20 basis points year-over-year to reach 17%. This reflects the continued benefits of our multiyear cost transformation initiatives. Adjusted EPS came in at $0.23, consistent with our plan. Given continued macro and policy-related headwinds, we are revising our full-year revenue guidance. We expect continued spending caution from education and government customers, especially in the U.S., due to concerns about funding. Additionally, the entire market continues to digest the potential impact of tariffs, and we have been working diligently to mitigate the impact of current tariffs on our results. Based on the tariffs in place today, we have approximately 2% COGS exposure with China, which is our most significant tariff risk. Our tariff exposure to the rest of the world is modest by comparison. Brent will walk you through the details of our updated guidance at the end of the presentation. As I reflect on the quarter and look ahead, I'm encouraged that we delivered earnings in line with our plan despite a challenging external environment. That speaks to the strength of our execution and the benefits of our structural cost actions. Nevertheless, we are not satisfied with our growth, and we are taking aggressive actions to reignite the top line regardless of the macro backdrop. With that, I'll now turn it over to Brent.

Thank you, Michael, and good morning, everyone. I'm starting with the numbers on Slide 5. First-quarter reported revenue was $1.58 billion; taking into account the divestiture of our Clinical Services business, together with the impact of FX, organic revenue declined 2%. Proprietary content outperformed third party for the second consecutive quarter. Our sales performance was primarily impacted by the headwinds affecting lab solutions that Michael just discussed. While Bioscience production overall was modestly below expectations, we saw continued growth with our process ingredients, excipients, and double-digit growth in single-use offerings. We also had another strong quarter of order intake, reflecting continued improvement in the bioprocessing end market. Adjusted gross profit for the quarter was $535 million, representing a 33.8% adjusted gross margin. This is a decline of 20 basis points year-over-year, impacted by the Clinical Services divestiture, but a 40 basis points improvement sequentially. Adjusted EBITDA was $270 million in the quarter, representing a 17% margin and consistent with our expectations. This represents a 20 basis point improvement year-over-year and 60 basis points excluding the impact of Clinical Services. Our cost transformation initiative was an important contributor to our margin performance. Notably, adjusted SG&A expense was down $21 million or 7%. Adjusted operating income was $243 million at a 15.4% margin. Interest and tax expenses were in line with our expectations. As a result, adjusted earnings per share were $0.23 for the quarter, a $0.01 year-over-year improvement. Our adjusted EPS performance in the quarter reflects the flow-through of our adjusted EBITDA results as well as continued reductions in net interest expense. Moving to cash flow. We generated $82 million in free cash flow in the quarter. Our free cash flow includes approximately $19 million of one-time costs related to the execution of our cost transformation initiative. Q1's free cash flow was also negatively impacted by working capital timing and annual incentive compensation payments. Our adjusted net leverage ended the quarter at 3.2x adjusted EBITDA. Deleveraging remains our top capital allocation priority, and we continue to target adjusted net leverage sustainably below 3x. Let's now take a closer look at each of our segments. Lab Solutions revenue was $1.07 billion for the quarter, a decline of 3% versus the prior year on an organic basis. As Michael noted, this decline was due in part to the impact of funding uncertainty within the U.S. higher education system, which comprises approximately 5% of our total enterprise revenue. These impacts largely manifested in reduced levels of capital spend along with a general slowdown in lab activity affecting consumables demand as well. As Michael noted, funding for bench stage biotech companies continues to be soft, leading to additional demand weakness for this important customer segment in our biopharma end market. Finally, we also felt the impact of increased competitive intensity that reduced volumes at a handful of customers. Turning to profitability. Adjusted operating income for Lab Solutions was $139 million for the quarter with a 13.1% margin. Adjusted operating income margin was flat sequentially from Q4 and up 30 basis points year-over-year despite the headwinds to the top line. The margin performance was driven by strong operational cost management and continued savings from our cost transformation initiative. Bioscience Production revenue was $516 million in Q1, essentially flat year-over-year on an organic basis. Bioprocessing, which represents about 2/3 of the segment, delivered low single-digit growth. While this is below expectations, the underlying business fundamentals are very encouraging. As Michael mentioned, we had solid growth in sales of our process ingredients and excipients and double-digit growth in our single-use offerings, including Masterflex. However, these were offset by lower demand for controlled environment consumables. We had yet another quarter of strong order intake within Bioprocessing, reflecting ongoing momentum and recovery of this end market. Our NuSil-branded silicones platform grew mid-single digits, while electronic materials was stable sequentially with an expected year-over-year decline. Adjusted operating income for Bioscience Production was $123 million for the quarter, representing a 23.9% margin. Adjusted operating income margin was down year-over-year due to modest freight and absorption headwinds. As Michael noted in his opening remarks, we are revising our 2025 guidance to reflect the current uncertainties related to funding- and policy-related headwinds and competitive intensity. For the full year, we now expect organic revenue growth of negative 1% to positive 1%. Our Clinical Services divestiture represents a 2% headwind. And based on current spot rates, we now expect a 1% tailwind from FX versus the FX headwind in our prior assumptions. This leads to a reported revenue decline of negative 2% to flat. Our key FX assumption is continuation of the dollar-euro exchange rate of approximately $1.12. We also assumed a modest headwind in China related to tariff impacts on demand. On a segment basis, we now expect Lab Solutions growth to be minus low single digits to flat. We continue to expect bioscience production to be up mid-single digits. However, due to the headwinds in controlled environment consumables, we now expect Bioprocessing growth to be mid-single digits. We expect adjusted EBITDA margin to be 50 basis points lower, 17.5% to 18.5%, while adjusted EPS and free cash flow remain unchanged at $1.02 to $1.10 and $650 million to $700 million, respectively. In terms of Q2, we expect organic revenue growth to be flat to modestly up. Our Clinical Services divestiture represents a 3% headwind. And based on current spot rates, we expect a 1.5% tailwind from FX. This leads to reported revenue growth of flat to modestly down year-over-year. On a segment basis, we expect Lab Solutions to be flat to modestly down and Bioscience Production to be up mid-single digits. We expect modest sequential improvement in EBITDA margin to the mid-17s. We expect that the external environment will continue to be dynamic, particularly with respect to the potential impacts of a global restructuring of international trade agreements and related taxation. While our manufacturing footprint and supply chain are significantly in region for region, we do have a meaningful amount of cross-border trade, particularly in our Lab Solutions business. The updated guidance does not assume any material impact on demand or earnings from the potential tariffs. In the event that renegotiated trade agreements do not adequately prevent tariff-related headwinds, we are prepared to mitigate by leveraging our global supply chain. We have a broad product offering that gives our customers optionality, and we will work closely with our customers to ensure that we are able to offset tariff surcharges to the extent possible. Finally, an update on our cost transformation. This initiative has not only made a material impact on our financial results, but it has also sharpened our focus on conversion to the bottom line and to cash. Our actions have been carefully designed and executed to ensure that our critical capabilities remain intact. As a reminder, we exited 2024 with over $130 million of in-year savings and an exit run rate of approximately $165 million, well ahead of plan. In 2025, we expect to generate an incremental $75 million of in-year gross savings and exit 2025 with run rate savings in excess of $250 million. We have a clear line of sight to exiting 2026 with the promised $300 million of run rate cost savings. As we more deeply live into our new segments and operating model, we continue to identify further opportunities for productivity. As a result, we are expanding the initiative and now expect to exit 2027 with at least $400 million of run rate cost savings. While we aren't currently forecasting material impact to fiscal '25, we are committed to front-loading the incremental savings as much as possible. In the current environment, we believe it is critical to control our controllables as much as possible, and these incremental cost actions are an important example of this. With that, I will turn the call back to Michael.

Thank you, Brent. Before we move into Q&A, I would like to briefly recap the day's key takeaways and reiterate our priorities moving forward. First, we remain confident in the strength and resilience of the Avantor platform. Our Lab Solutions segment is built on differentiated capabilities, a broad and expanding portfolio, and a global supply chain that enables us to reliably serve our customers around the world. Our Bioscience Production platform has a leading bioprocessing franchise and we are the leading supplier of medical-grade silicone formulations. Second, our multiyear cost transformation initiative continues to be a powerful driver of margin expansion and strong free cash flow even as we navigate near-term top-line headwinds. We are expanding this initiative and remain committed to best-in-class operational discipline and execution. Finally, while growth, particularly in Lab Solutions, is not where we want it to be, we are taking decisive action. Under Corey Walker's leadership, we are strengthening the foundation of the business and enhancing the commercial strategy to position Lab Solutions for long-term success. We look forward to updating you on our progress in the quarters ahead. With that, I'll now turn the call over to the operator to begin the Q&A session.

We have a question from Michael Ryskin with Bank of America.

Great. Brent, my first question is about the guidance you provided, as that's where you concluded. You mentioned that the 2Q guidance indicates mid-single digits of basis points, flat to modestly up for the entire company. That appears to be quite an ambitious increase from 1Q, both in percentage growth and dollar amount. Was there any timing factor in that, possibly related to clean room controlled environments or any customer agreements? Are you anticipating any changes in the underlying market? I'm curious about what is contributing to the improvement from 1Q to 2Q and for the remainder of the year to meet your revised guidance.

Yes, Michael, thanks for the question. It's really a continuation of the current environment. When discussing growth rates, they are always year-over-year; what we're seeing is comparable. Q2 is typically a very strong quarter for us, and it's influenced by all the momentum we have observed so far this quarter. Additionally, we have carefully considered the guidance for both the year and Q2. I often say that we believe we have a prudent balance. We view the BPS from Q1 as an anomaly in terms of timing. Therefore, we think this guidance for the full year is very reasonable, and we are comfortable with what we have projected.

Okay. And then for the follow-up, I think you called out 2% COGS exposure to China as your more significant one. Just to be more specific on tariffs, can you say like what are you factoring into the new fiscal year guide? I saw that you didn't change your EPS number. So are you offsetting some of that exposure with price or with other mitigation techniques? Just sort of like what's built into your guide from a tariff set now?

Yes. For the full-year guidance, we have noted a slight decrease in demand in China. As you may remember, our revenue from China is not substantial, so this is a minor factor, and it stems from the bilateral tariffs. Apart from that, we haven't incorporated any major tariff assumptions into our guidance, which is why we detailed the specifics. The main exposure is the 2% of cost of goods sold associated with China. As mentioned, we have various strategies in place, including local sourcing and alternative suppliers, along with a diverse range of materials. This situation primarily affects our Lab Solutions segment, and we can adjust pricing to offset the impact. If the circumstances were to become considerably significant, we might need to make changes, but currently, we anticipate no impact on our guidance from tariffs.

Our next question comes from the line of Vijay Kumar with Evercore.

Michael, my first question is about the BPP segment. It seems that advanced technology and health care met expectations, while most of the changes came from controlled environment substances. I understand these products should be linked to production volumes. Is that correct? If so, why were customers cautious in Q1? Was it just a timing issue with orders, and is that what gives you confidence that BPP will increase in the mid-singles in Q2?

Thanks for the questions. I think that is really a great place to start. When we unpack the performance in the BPS segment, consistent with what we said generally across the enterprise, we're not entirely satisfied with where the quarter played out. And I've taken a number of actions to address the pockets of weakness that we saw in the quarter, and we're certainly starting to see even over the last several weeks some impacts of those actions. Now at a little bit more granular level. When we look at Bioprocessing, which is about 2/3 of the revenue on that platform, we remain incredibly optimistic about the end market fundamentals there. We had a great quarter on process ingredients, excipients. We highlighted double-digit growth on single-use, including Masterflex. That was offset in the quarter by headwinds in the controlled environment consumables category that you mentioned, Vijay. That's an important part of the platform in that it helps maintain the integrity of these clean rooms. It's specified into these clean rooms and it's quite sticky in revenue. What we were seeing in the quarter was customers looking for various levers to address the macro headwinds, including inflation. And I think, observing opportunities they had in the quarter to optimize usage. We're leaning in there, and we're optimistic about or encouraged by some of the actions that we've taken there. And just given the strength of the order book across the Bioprocessing platform, where we continue to be encouraged by the trending that we're seeing there and feel really confident about the outlook that we've given here today.

Understood. And maybe my follow-up is on the Lab side. I think you mentioned higher competitive intensity. Maybe if you could just elaborate on the competitive dynamics within the channels part of the business.

That's a great question, Vijay. We've discussed the macro environment and the demand challenges we face across the market, influenced by various funding and policy-related issues that everyone in our industry is encountering. Within this macro backdrop, we are experiencing increased competition, which manifests in various ways at the account level. We have highlighted several new account wins and extensions, including a significant extension with Regeneron. However, as Brent mentioned, we also observed some shifts within a few accounts that resulted in lower volumes. This environment reinforces the importance of the proactive measures we are taking to strengthen the business. Under Corey's leadership, we are focused on retaining and growing our key accounts. The overall action plan we implemented is designed to fortify the business, regardless of the prevailing macro conditions.

The next question comes from Rachel Vatnsdal with JPMorgan.

Great. So I wanted to dig into the performance within Lab Solutions. You highlighted some of the weakness within academic and government, given that's 5% of your total co revenues. You also noted that there's not only weakness on the capital equipment side, but also on the lab activity side. So can you break down for us what did you see for equipment declines within your academic and government customers? And then also, what did you see for consumable declines? And then within that segment overall, for academic and government, what are you assuming for declines this year? An updated guide?

Yes. Thanks for the question, Rachel. Obviously very relevant for the environment that we're in. So just to recap a couple of the key points here around the performance in the quarter. Lab platform for us fell roughly 3% in the quarter. And as we think about how we're reflecting the current macro environment in the updated guidance that we've provided, we're really using a lot of the same approach that we had last year, where we're projecting current trends to persist through the balance of the year. We have baked in the headwinds that we're seeing here, particularly in the academic and government environment as you suggest. In the U.S. higher education market, the sentiment did turn decisively more cautious following the announcement of the NIH funding actions, and we saw that manifest itself with customers in a number of ways. Firstly, looking to optimize existing cash and funding, and so you do definitely see a pullback in equipment and instruments. Also, just some caution on hiring new scientists; initiating of new programs, which is a part of how we grow that business, and that's where the consumables piece of this comes in is just a muted level of activity, generally speaking, given the uncertainty these universities have around funding on a full-year basis. But when we look ahead here, together with the actions that we’re taking to strengthen the business, we think the current environment is well covered in our updated outlook for the year.

Great. And then just for my follow-up here. I just wanted to dig into some of the pricing dynamics. So you've highlighted some of the weakened funding on not only the biotech side, but also with your academic and government customers. Also just the broader environment with tariffs as well. So there's a few moving pieces on the pricing front. I believe your prior assumption within guidance was 1% to 2% pricing contribution for the year. So what is your ability to take price in this new regime that we're seeing relative to a few months ago? And what are you assuming for pricing contribution in the guide? And then if I could sneak in a follow-up. I'm getting a bunch of questions on the tariff answer earlier in the discussion. Can you just clarify for us, is that 2% China COGS, is that going to be fully absorbed in the guidance? Or is that not baked in at this point?

Happy to address both of those. I'll cover the pricing questions, Rachel, and we'll have Brent give you some additional detail on the tariffs there. So as you know, pricing is an important part of our algorithm here in the level of impact, I think you highlighted, I think, is an appropriate way to model this. And as we got into the year and you got through contracting season and price administration, I think it's played out largely as we had expected and in line with the guidance that we had given there. Probably the one dynamic to consider, which is reflected in Q1 as well as through the rest of the year, is just the increased competition for new accounts, new business that is printing at modestly lower margins than what we would typically see, just given the competitive intensity there. But for the business that we have today and for the contracted customers, pricing has played out. The other thing I would point out though or highlight or take you back to is the actions that we outlined that we're taking to strengthen the business. One of those is in the pricing area. And while we think we're pretty good at this, and it is a complex platform that we run to administer pricing 6 million SKUs. We are taking some additional steps and then making some additional investments to strengthen our pricing capabilities, really looking to leverage the integration of a number of digital technologies that will significantly advance our capabilities in this area, making us more agile, able to do more tailoring. And in this dynamic environment, the capabilities that we're adding here will enhance profitability and growth, and that will roll out on a phased approach starting this quarter. Brent, do you want to answer her tariff question?

Sure, Rachel. So the 2% of COGS was dimensionalizing the total exposure. We did have the other comment on we have taken a little demand out in China there on the revenue side. But on the cost side, the 2% of COGS is the exposure. We have not explicitly included that in the guide. For all the commentary we made, we will do everything to offset that. But one day, the tariff rates are x, the other they're y. Our view is don't overly speculate. We just indicate there's risk around that, and we're doing everything we can to execute around it.

Our next question comes from the line of Tycho Peterson with Jefferies.

Michael, I'll take the bait on the Bioprocess order book. You characterized it as strong. Just maybe a little more color on demand trends. I assume book-to-bill above 1. Can you maybe just give us some flavor of what that looks like? And is this mostly emerging biotech? Is it CDMOs? A little bit of end market mix color too.

Tycho, that's really important, to your point, to articulate here today is we are optimistic about the end market fundamentals, and that's really informed by now well more than a year of momentum that we see, not only on the top line but also in the building of the order book, which gives us confidence in the outlook. And we see that strength in the order book, which you can assume is as strong as some of the other numbers that you've seen printed, if not stronger. Pretty broad-based, it's across the portfolio, ingredients, excipients. We were really encouraged by strong double-digit growth of our single-use offering, including Masterflex in the quarter. And just given how pervasive our platform is, we're agnostic around modality, and indication type. And so it's pretty safe to assume with the broad exposure that we have and the momentum that we see. We don't really see a lot of differences between large pharma, biotechs, CDMOs. We see the strength pretty uniform across the space.

Okay. And then back to this issue on the controlled environmental consumables, can you just break out the percentage of revenues or mix? I mean, we've never really heard you talk about this business before. So how large is it? And what do you think it takes to turn it around? I mean, we're still in a tough budget environment. So is there anything you can do proactively?

Great questions, Tycho. So we actually incorporate that into our Bioprocessing categorization. That was included in the 2/3 of our revenue. And classically, that application would reliably grow mid- to high single digits. And even as recently as the fourth quarter, it was growing high single digits. So the pullback that we saw in Q1 was certainly unexpected. But as we started to spot some of the optimization and usage, the team has kicked into action, and we have ramped up commercial intensity and account-level activities to drive improved performance there. And when we look at order trends, daily rate of sales in those categories over the last month or so, I think we're encouraged by the actions we’re taking are certainly having the intended effect and moving things in the right direction here.

Our next question comes from Dan Brennan with TD Cowen.

Great. I wanted to revisit the tariff situation to ensure I fully understand it. Regarding the 145% tariff that the U.S. is imposing on China, which is 2% of COGS, it seems you are not accounting for its impact. I know you mentioned plans to offset it, but I'm trying to clarify that. Additionally, could you discuss what percentage of your U.S. sales are sourced from outside the U.S., not just China and Europe, since there is still a minimum 10% tariff on other regions? Have you factored in these impacts, or are you not including them at all? That would be my first question.

Yes, Dan. So we're not assuming those impacts is so dynamic right now. As we noted, the China exposure is the lion's share of the exposure. We do have some of the other jurisdictions. It's obviously a significant difference, 135%, 145% versus 10% tariffs there. But the exposure to China and towards the other ones, we will do our best to offset. But again, it's the environment has showed dynamic. We sort of knew any estimation we have there would be wrong. So that's the approach we've taken.

And to add more detail to the topic and provide context for the 2% of COGS, based on our current cost structure and what we know about the tariffs on imports from China to the U.S., this translates to less than $100 million of exposure for us. It's important to note the various strategies we have to mitigate this, including alternative sourcing options for our customers. We have many SKUs sourced from China that can be obtained from other suppliers that fit into our customers' workflows appropriately. We also have inventory hedges in place for certain items, and we have the option to implement tariff surcharges as needed. The situation is quite fluid, with discussions this week suggesting that tariffs could potentially be reduced significantly. We are monitoring it closely and collaborating with our customers to determine the best ways to alleviate any impacts. Overall, we believe we are well-positioned to manage this as it develops.

Got it. And then maybe just a follow-up on the Lab side. I know there's been a few questions asked, but just would love to unpack it a little bit more. So could you just speak to what happened to your higher ed business in the quarter, kind of what you're assuming? And then I don't know, if you sized it, the bench stage biotech business, which you talked about being weak, how big is that? And kind of how have you thought about that outlook? And then I apologize, you talked about the competitive intensity. Michael, you and I have spoken that there's a lot of mom-and-pop distributors still out there. So it's not just you and Thermo. So I'm just wondering if you could speak a little bit, also just unpack that a little bit. Like it sounds like you lost some share in the quarter. Just wanted to understand like if you think about the overall market for lab distribution, are you growing well below that now? Or are you still growing roughly in line?

I'll do my best to address the questions raised. The core issue clearly lies in our mutual disappointment with the platform's performance this quarter, emphasizing the necessity of having Corey on the team and the decisive actions we're undertaking. We recognize that the macroeconomic environment is tough, affecting everyone. We are not trying to excuse ourselves; we are actively doing everything we can to enhance the platform's growth and fortify it for the long haul. Funding challenges, particularly uncertainty in academia and government, are well-known. At the enterprise level, as highlighted in our disclosures today, we're down mid-single digits, and in the U.S., we're experiencing declines in the double digits. We expect these trends to persist. Biotech funding has been weak, currently lower than levels seen three years ago, and at an enterprise level, our exposure is low single digits. In the Lab segment, this exposure is about 10% of our overall risk. Similar to our assumptions for academia and government, we are reflecting persistent headwinds in our current guidance without factoring in any recovery. However, as we implement successful actions, there could be upside potential for us. The market is not a duopoly; it's highly fragmented with many players, all facing similar challenges. We believe we are managing the headwinds and competitive pressures as well as anyone this quarter. We did observe some shifts in some accounts, but we also achieved several wins. It's difficult to compare our numbers directly with others, except to say that we are not satisfied. We are well positioned to serve this market, and as our initiatives bear fruit and the market rebounds, we are set for long-term growth.

Our next question comes from Doug Schenkel with Wolfe Research.

Before asking my 2, I just want to thank you, Michael, for all your help over the years. So I know today is not the end, but I know you're moving out, so congrats on that. And again, thank you for all your help.

Thank you, Doug.

So on just a couple of things. First, on bioprocessing. Obviously, this has come up a little bit. But on one hand, you sound good on the order book and trends. On the other hand, you lowered expectations for bioprocessing. Is that largely just a function of the environment and wanting to be a little bit more conservative, given everything that's going on outside your control in spite of the fact that, that business actually looks okay? And then the second topic is really a longer-term question. I think a lot of us appreciate the efforts you're making to aggressively control what you can control in terms of cost. In a scenario where the company returns to a more normal-ish mid-single-digit level growth in 2026 with higher growth from higher-margin businesses, it seems like mathematically you could drive 100 to 150 basis points of margin expansion in that scenario. Again, I'm not asking you to guide, but I just want you to tell me if I'm doing my math right.

Both very good questions, Doug. Let me take the first one on bioprocessing, and we'll have Brent give you some color on incremental margins as growth returns to the platform. So starting with BPP or Bioprocessing platform, there is a lot of momentum. I'd just reiterate what I've already said, we're encouraged by the end market fundamentals. And our order book has been strong, and that's across that platform, whether it'd be process ingredients or single-use or even these controlled environment consumables. The guide at mid-single digits that Brent outlined does reflect the low single-digit growth for the platform in Q1 and kind of rolls that into the full guide here. But when we look at the order book and the trending that we're seeing, we do see the incremental improvement in the business, particularly here in the second quarter. And I think that the guide is, to use Brent's word, is prudent. We've thought about it quite carefully and looking at the positioning and the data. We are taking actions, similar to what we're doing on Lab to drive the business. And I think there's a lot working here in our Bioprocessing platform to be excited about.

Doug, talking about the margin point, and again, absolutely not making future guidance there. But just with particularly what we can do on the BPS side of the business, the incremental margins you can print there are fantastic, which you get to the right levels of growth. Obviously, the Lab lacking growth, de-growth, we do have meaningful fixed cost against that, and that impacts margins for sure. We've talked about the either 20% EBITDA margin/ accounting for the Clinical Services divestiture, this platform absolutely wants to be above 20% margin there. We just need the right growth entitlement against it. And I think your comment is absolutely correct there, but let's get further in the year. Let us get back to the right kind of demand environment, and that will absolutely be a topic, when we get into guidance for '26.

Our next question comes from Luke Sergott with Barclays.

I just want to talk about the business transformation and especially on the Lab Sciences side. Are you guys talking about doing the improvements there. Like how much of the change that you're taking a look at is due to substandard or suboptimal portfolio? I'm just trying to get a sense of what you guys need to do from an investment standpoint to kind of send off the competitive dynamics there?

Good questions, Luke. Where I'd start with that is just highlighting our focus on enhancing and positioning the growth of that business to weather the current macro environment. And there's going to be a lot of aspects to it. Corey has now been on the ground here for a month. Fortunately, he knows the business well from his time here before and has ramped quickly. And he's moving aggressively to interrogate the business strategy and execution and leaving no stone unturned unearned and working very, very closely with the commercial team in the near term to drive new account acquisition and retention of existing accounts. But there are a number of other things that we are doing to strengthen the business, investing to deliver differentiated service levels that are important to our customers in these sensitive end markets, enhancing the customer experience and streamlining that experience through an AI-enabled e-commerce platform that's now been live here in the U.S. for a bit, and we're in the midst of rolling it out in Europe; investing in enhanced pricing capabilities; and as always, continuing to drive innovation into our portfolio, and we're really excited by the content that we were able to add to the portfolio in the first quarter. And I wouldn't say any of these actions are specific to one single data point we're getting out of the market. It really just is a reflection of we understand the environment that we're in and we understand the expectations that we have for this business, and we are doing everything we can to control the business in this environment and strengthen it. And I think we’re confident the actions that we’re taking will give us the best chance to grow this platform long term.

All right. Great. And then just a follow-up here, talk about the incremental $100 million on the cost out. Brent, you talked about trying to do what you can to front load that in the earlier years. Like what can you do, just dig in a little bit more there on specifics that you run the risk there or have to strike a balance without disrupting your overall sales force or the momentum you're trying to build within the 2 segments?

Yes, Luke, that's a great point, and we've touched on that in our prepared remarks. To start, we believe the program so far has been executed smoothly without causing any disruption. Ultimately, while we aim to optimize costs, our primary focus is on growth across both areas of the business. One reason we've been able to act quickly is our intention to limit any organizational disruption. Improving our approach is valuable, and Corey's leadership will be crucial in this process. Additionally, the segment structure will enhance our existing capabilities. Some initiatives will require time, but they are vital, such as our digitization efforts in manufacturing that will significantly improve customer satisfaction and reduce costs. Michael discussed tech enablement and pricing, which will be apparent across various commercial efforts. We're determining where to expedite progress and where to be patient, but we believe these actions will have a significant positive impact on the business. That's our perspective on the matter.

Our next question comes from Tejas Savant with Morgan Stanley.

Brent, maybe starting with you at a relatively high level, the 200 bps reduction in organic growth, can you just bridge us to that between education and government, the controlled environment, consumables the competitive intensity you guys cited and then a little bit of a haircut on China. Like if you were to parse it out, that 200 bps, how would you do it?

Yes. Bridging that, Tejas, it is largely influenced by the policy environment and the biotech funding aspect, primarily within Lab Solutions. When examining the underlying segments, there is a very minor contribution from the critical environment. Additionally, our sales in China are minimal, so they do not significantly impact the overall picture. In many ways, we are taking the growth rates from Q1 and extending them throughout the year. The decrease observed in Q1 is essentially what we are using to update our full-year guidance.

Got it. That's helpful. And then, Michael, one for you again at a high level. Last quarter, we spoke a little bit offline about your ability to help customers navigate the shifting tariff environment and some of the supply chain derisking that they're looking to do. Why isn't this an opportunity for you to perhaps even gain some share from customers, who are currently sourcing direct or sourcing from smaller distributors in the months ahead as the vendor consolidation is a theme we hear about from some of these customers? Conversely, are any of your customers choosing to go direct and just sort of disintermediate the middleman? Or in combination with this increased competitive intensity you called out, does that just nullify any benefit from potential share gains at the moment?

Great questions, Tejas. When we look at the environment that we're in and particularly the global nature of our supply chain, the broad product assortment and optionality that it gives our customers, we think we are uniquely positioned to support our customers through this challenging environment. And in times of dislocation like this or whether it's friction in the system, it certainly gives you an opportunity to get close to our customers and be a solution provider to them. And given all the flexibility that we've talked about and optionality that we offer, we are working very closely with our customers, both existing as well as potential, that are looking to find ways to address the current macro headwinds that we're all facing. And so yes, we certainly would never want to imply to our remarks today that we're not looking at it that way. And with the work that Corey is certainly leading, together with our commercial associates, who are deeply engaged with our customers, we are moving as aggressively as we can, not only to support the customers but to strengthen and grow the business. And with all that we have here, our value proposition is certainly enhanced in an environment like this. And your point there about folks cutting out the middleman, that's not a trend that we've experienced in this environment. And that's largely just due to the value proposition and the strength of the supply chain that looks like ours, unparalleled customer access that we provide, the agility, the choice, and the ability to serve these customers the way we do really is an important part of our differentiated platform here.

Got it. Appreciate the color, Michael. Thank you, and thanks for the help over the years.

Thank you.

Those are all the questions we have time for today. I will hand back to Michael Stubblefield for closing remarks.

Yes. Thank you all for joining us today. As you've heard through our prepared remarks and through our Q&A session here, we are not satisfied with our overall results. And hopefully, you sense the urgency that we're moving to enhance performance and maximize value in this environment, including through the upsizing of our cost reduction initiatives. The Board and our entire leadership team are committed to achieving this objective. And we look forward to discussing our progress as we move forward. And until then, be well, everyone. Thank you.

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