Good morning. My name is Emily, and I'll be your conference operator today. I would like to welcome everyone to Avantor's Second Quarter 2025 Earnings Results Conference Call. I will now turn the call over to Allison Hosak, Senior Vice President, 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 as well as a presentation and supplemental disclosure package 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, Alli, and good morning, everyone. I appreciate you joining us today. Before we discuss our second quarter results, I want to briefly address the leadership transition we announced last week. As many of you saw, Emmanuel Ligner has been appointed Avantor's next CEO effective August 18. Emmanuel brings over 30 years of deep experience in the life sciences industry and is eager to hit the ground running. While I will continue to serve as CEO until his official start date, today marks my final earnings call with Avantor. It has been an honor to lead this organization for the past 11 years, and I want to sincerely thank all of you on the call today for your partnership and support. Let's now move on to our second quarter results, beginning on Slide 3. Despite ongoing challenges in the operating environment, we remain laser-focused on executing the strategic initiatives we outlined last quarter, driving growth, improving operating efficiency, strengthening execution, and delivering long-term value. For the quarter, organic revenue growth improved sequentially by 200 basis points and was flat year-over-year. Adjusted EBITDA margin contracted to 16.6%. Adjusted EPS for the quarter was $0.24 and free cash flow was $125 million, with adjusted conversion at 100%. We remain on track with our cost transformation program and continue to expect $400 million in run-rate savings by the end of 2027. In Laboratory Solutions, which makes up roughly 2/3 of our business, organic revenue growth was in line with expectations, increasing sequentially compared to Q1 and finishing modestly down year-over-year. As previously shared, Corey Walker joined us in late March as President of the segment. His early focus has been a comprehensive review of the business, assessing strategy, execution, and opportunities to grow and retain key accounts while aggressively pursuing new ones in partnership with the commercial team. I'd like to highlight a few of the findings and action plans from Corey's early efforts. Corey has spent significant time with customers and heard consistently about the power of our channel. Customers recognize our unique scope, reach, and engagement. And most importantly, they value the solutions we deliver and enjoy doing business with us. At the same time, these conversations revealed opportunities for improvement and ways we can strengthen our offerings for our customers. Corey and team are fully focused on executing an action plan to implement these initiatives while continuing their comprehensive review. For example, service levels are an essential part of our value proposition. We've driven substantial improvements in recent quarters, and the team is executing an aggressive plan to further differentiate our delivery performance going forward. Corey's deep dive into the business also validated the investments we are making to enhance our digital platform. As we discussed last quarter, we are focused on empowering self-service, simplifying ordering and providing greater visibility into order status and fulfillment, enhancing every step of the customer journey. One of the tools being rolled out is Avantor Navigator, our first AI application developed completely in-house, which helps customers discover products and services matched to their research needs. Another is a digital buying experience platform designed to unify customer intelligence and provide a seamless personalized experience across web and mobile channels. We also made significant progress with pricing optimization, including the development of a new pricing tool that increases agility, speed, and competitiveness. At its core, it ensures our customers see market-relevant list prices when they engage with us through our digital sales channel, which not only makes their buying experience more efficient but also reduces abandonment rates and significantly increases conversion. These efforts are already driving results. In a competitive market, we were awarded contract extensions with several top 15 global pharma accounts in the quarter. These awards will result in more than $100 million in share gains, which we expect to realize once fully commercialized. We also executed a five-year extension of our contract with BIO Business Solutions, the largest cost savings purchasing program for the life sciences industry. Over 10,000 companies have access to purchase Avantor's laboratory and production products and services through this agreement. Collectively, BIO is our largest customer, and this extension ensures we are uniquely positioned to benefit when funding levels return to historical norms across the biotech industry. These are significant wins, particularly as competitive intensity remains high across our industry. Our priority in this environment is to protect and grow share while preserving absolute profitability as volumes recover and the benefits of our delivery, digital and pricing initiatives take hold. As a result, our full-year outlook contemplates pressured margin rate assumptions through the balance of the year; however, we remain confident in our ability to expand margins over time. Turning to Bioscience Production, where our bioprocessing performance fell short of our expectations this quarter. While demand for our core monoclonal antibody platform remains strong, results were negatively affected by two discrete headwinds. First, quarterly throughput was impacted by planned maintenance efforts at one of our manufacturing facilities that extended longer than planned and led to an increase in back orders. Second, and more significantly, a few of our large customers faced major unexpected headwinds during the quarter, which slowed the rate of recovery in controlled environment consumables and impacted demand in other elements of our offering. Specifically, a leading gene therapy platform encountered regulatory and patient safety setbacks, a key mRNA platform scaled back their outlook and one of our long-standing mAbs customers had a negative Phase III readout and other commercial challenges. We expect these headwinds to persist through the balance of the year. Brent will discuss the impact on our guidance. Benoit Gourdier and the bioprocessing team are taking decisive action to offset these headwinds and strengthen our market-leading platform, and Emmanuel's expertise will be additive here when he joins the company later this month. The team's efforts are centered on three priorities: optimizing our supply chain to enhance delivery performance and improve operational efficiency across our manufacturing and planning functions, increasing field intensity through new sales leadership and sharper execution discipline, and expanding our product offering through ongoing innovation and customer-focused development. Outside of bioprocessing, the other key components of the Bioscience Production segment performed in line with expectations. We delivered particularly strong performance in our NuSil-branded silicones platform, which grew low double digits. Year-to-date growth of the medical platform is running well ahead of patient procedure counts. So we expect demand in our NuSil platform to moderate in the second half of the year. With that, I'll now turn it over to Brent to discuss the second quarter results in more detail and to walk through our outlook for the second half and the full year.

Thank you, Michael, and good morning, everyone. I'm starting with the numbers on Slide 4. Second quarter reported revenue was $1.68 billion, which was flat year-over-year on an organic basis. Adjusted gross profit for the quarter was $554 million, representing a 32.9% adjusted gross margin. This is a decline of 130 basis points year-over-year, driven primarily by price actions in the lab to protect and grow market share, unfavorable product mix, and increased supply chain expense in the form of higher-than-expected freight expense and fixed cost under absorption. As expected, we were able to fully offset the dollar impact of tariffs on cost of goods sold through targeted pricing actions and sourcing agility. We had another quarter of solid cost control with adjusted SG&A expense better than planned and prior year, and we continue to identify meaningful additional cost opportunities to help offset the margin pressure we are facing. Adjusted EBITDA was $280 million in the quarter, representing a 16.6% margin. Our shortfall in adjusted EBITDA margin was driven by the headwinds to gross profit and margin and only modestly offset by SG&A savings. Our multiyear cost transformation initiative continues ahead of plan, and we remain on track to deliver in excess of our commitments for 2025 and the entire $400 million program. Adjusted operating income was $252 million at a 15% margin. Interest and tax expenses were in line with our expectations. As a result, adjusted earnings per share were $0.24 for the quarter, a $0.01 year-over-year decline. 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. Our cash generation was strong with $125 million in free cash flow in the quarter. When adjusted for cash costs related to the transformation initiative, our free cash flow conversion was 100% of adjusted net income for the quarter. Our adjusted net leverage ended the quarter at 3.2x adjusted EBITDA, unchanged from Q1 as cash generation was largely offset by FX impacts on our euro-denominated debt. 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 on Slide 5. Lab Solutions revenue was in line with our expectations at $1.122 billion. On an organic basis, we declined 1% versus prior year, but grew 2% on a sequential basis. As Michael noted, we continue to navigate increased competitive intensity as a result of funding and policy-related headwinds many of our customers are facing. In this environment, we are focused on not just retaining but growing share. A particular bright spot was our self-manufactured lab chemicals, which continued its track record of growth. On a regional basis, our European business was nearly flat, outperforming the Americas and Asia, which felt the greater brunt of policy headwinds. Adjusted operating income for Lab Solutions was $133 million for the quarter with an 11.9% margin. Although we were able to implement pricing and sourcing actions to offset tariff cost headwinds, the competitive actions to drive share have come at the cost of margin. Mix was also a negative contributor to margin. Bioscience Production revenue was $561 million in Q2, up 2% organically on a year-over-year basis and up 7% sequentially. Silicones had another strong quarter, up low double digits, and our Applied Solutions business was down low single digits, both in line with expectations. The key disappointment in the quarter was bioprocessing, which, as a reminder, comprises roughly 2/3 of our revenues in Bioscience Production. Although bioprocessing grew 5% sequentially, it was flat year-over-year with declines across the business driven by the customer headwinds and the longer-than-expected maintenance at our manufacturing facility. Within bioprocessing, CEC was down mid-single digits year-over-year but grew sequentially, benefiting from commercial actions taken by the team. Single-use also grew sequentially but was flat year-over-year after increasing high teens in the first quarter. Lastly, process ingredients and excipients grew high single digits sequentially and low single digits year-over-year. While we have limited control over the customer headwinds, the team is actioning on the initiatives Michael outlined to improve execution and performance. Adjusted operating income for Bioscience Production was $140 million for the quarter, representing a 24.9% margin. While this represents a 100 basis point sequential improvement, margin was down year-over-year, largely due to underabsorption and manufacturing-related expense. Given our first half performance and current visibility to the business, we are reducing our full-year organic revenue growth expectation to negative 2% to flat versus prior guidance of negative 1% to plus 1%. Year-to-date, our organic growth is negative 1%, so this updated midpoint reflects a continuation of current trends. To bridge to actuals, there is a 2% headwind due to the Clinical Services divestiture and approximately 1% tailwind due to FX, resulting in reported revenue growth at the midpoint of negative 2%. This assumes a euro-dollar rate of 1.15 for the back half of the year and a 1.12 blended rate for the entire year. On a segment basis, we now expect Lab Solutions growth to be minus low single digits, down from minus low single digits to flat. This assumes a continuation of first half performance in the back half of the year. Conversion associated with the recent share gains described earlier will be a tailwind to our outlook as they are implemented. Consistent with our Q2 performance, we are assuming no material top-line impact from tariffs. We now expect Bioscience production to be flat, down from up mid-single digits, driven by our performance in the first half and headwinds in both bioprocessing and in our medical-grade silicones platform. We expect bioprocessing to be flat to up low single digits, down from up mid-single digits. This reflects our expectation that despite continued strong underlying demand for our core monoclonal antibody platform, we will continue to face the headwinds we described earlier. Single-use is expected to increase mid-single digits for the second half and the year, and we expect Process Ingredients to be up low single digits for the second half and the year. In CEC, we expect performance to continue to improve modestly on a sequential basis as we move through the second half of the year, translating to a low single-digit decline for the year. After mid-teens growth in the first half of the year, our medical-grade silicones platform will take a step back in the second half of the year as customers rebalance inventory to bring full year growth in line with patient procedure count. Accordingly, we expect mid-single-digit decline in the second half, resulting in modest growth for the full year. We are updating our adjusted EBITDA margin expectations to between 16.5% and 17% and our adjusted EPS guidance range to between $0.94 and $0.98. We are also reducing our free cash flow expectations to $550 million to $600 million before transformation expenses. The reduction in free cash flow is a result of the significant contract extensions in the lab business that Michael discussed earlier. While we are excited about these awards, some come with meaningful prepaid rebates, which are accounted for in our updated guidance. In terms of Q3, we expect organic revenue growth of minus 4% to minus 2% with both segments down similarly. Our Clinical Services divestiture represents a 3% headwind. And based on current spot rates, we expect a 2% tailwind from FX. This leads to reported revenue growth of negative 4% year-over-year at the midpoint. We expect adjusted EBITDA margins to be somewhat lower than Q2 in the low 16% range. 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 today's key takeaways and reiterate our priorities moving forward. In a challenging operating environment, we are successfully executing the strategic initiatives we outlined last quarter. In our Lab Solutions segment, we are pleased to deliver sequential revenue growth, and we are committed to protecting key accounts and competing hard to win market share. These efforts resulted in several significant contract extensions in the quarter. Our bioprocessing performance fell short of our expectations this quarter, primarily due to discrete customer headwinds. We are taking action to offset the impact and demand for our core monoclonal antibody platform remains strong. As I reflect on 11 years leading this business, I am incredibly proud of all that we have achieved, including the acquisition of VWR, a successful IPO, navigating the COVID-19 pandemic and its aftermath, and the implementation of a new operating model. Despite recent performance headwinds, I could not be more confident in the strength of our platform and Avantor's future success under Emmanuel's leadership. You'll hear more from Emmanuel at the Q3 earnings call, where I expect he will share some of his early observations and priorities for the business. With that, I'll now turn the call over to the operator to begin the Q&A session.

Our first question today comes from Vijay Kumar with Evercore.

Michael, wishing you the best as you transition here. Maybe on the guidance here. Your third quarter organic of minus 3%. What is that assuming for the segments? And particularly bioprocessing, it feels like it should step down both bioprocessing and lab, it worsened from second quarter trends. Maybe talk about what changed versus 2Q?

Yes, thank you for the question. It's Brent here. We are seeing consistent performance across each segment as well as for the entire company. The lab segment has shown stability similar to what we observed in the second quarter and the first half of the year. However, we are experiencing some seasonality due to vacation periods in the second quarter. In the bioprocess area, particularly in Bioscience, we are still facing recovery challenges related to manufacturing, and there is also some timing-related slowdown in silicones. This is how we connect the performance metrics.

Understood. I'll let others jump on the segments, but maybe on margins here, Brent, EBITDA margins came down 125 basis points. How much of this was mix sort of volume impact versus some of the pricing commentary you made on initiatives to gain share within lab?

Yes. So the dynamic in the quarter was really a combination of price and mix, price being the most significant piece of that and largely in the lab business there. When you somewhat underperform in bioprocessing, that's also dilutive to margin as well, but it's largely a price and then mix dynamic.

Sorry. Are these expected to continue into fiscal '26? Should pricing actions annualize? Any thoughts on margin cadence here, how we should think about for fiscal '26?

Yes. I think that's probably a bit in the future. Referring to Michael's comments on the intensity, securing contracts, and the additional revenue that comes from that, once we secure these contracts, we typically demonstrate the ability to increase margins as we manage higher volumes. So, we shouldn't anticipate too much for '26 at this point, but we are certainly going to see impacts throughout the remainder of the year.

Our next question comes from Michael Ryskin with Bank of America.

I want to dig into bioprocess first. You've had a couple of really sort of idiosyncratic challenges this year, the control room consumables, the site shutdown running along, some of the customer-specific in gene and cell therapy, but certainly much more disappointing bioprocess number for the year than what we previously talked about and what we're seeing elsewhere in the market. Just wanted to get your thoughts on that business longer term. Do you still feel like bioprocess is a high single-digit long-term grower? Just sort of a number of one-off issues that keep propping up that kind of point to maybe some underlying problems. I just want to gauge your confidence that these are onetime and that once you resolve these, the business is as strong as we previously thought it was.

Michael, this is Michael. I have a few thoughts on that. Looking at the second quarter, without a few specific headwinds, the business performed in the mid- to high single-digit range, which aligns with market trends. This shows that demand for our mAbs platform, the core of our bioprocessing business, is very strong and reflects the recovery in the end market. We did fall short of expectations this quarter due to facility maintenance, which occurs every few years and took longer than we initially thought. However, the plant was back online before the quarter ended, and our team is putting in effort to restore normal backlog levels. We faced unexpected customer headwinds that developed during the quarter, specifically in emerging modalities. It’s not surprising that the industry is experiencing normal challenges with new technologies, FDA processes, and patient safety concerns. This led to reduced demand from some key customers, but it was limited to just two or three clients. Overall, the broader platform we manage is well-positioned with a solid pipeline and strong customer relationships. With Emmanuel joining, given his experience in this area, I anticipate that as we navigate these challenges, our business will continue to grow at or above market rates in the long run.

I want to follow up on an earlier point regarding the guidance for the second half. Brent, you mentioned that you're expecting fairly consistent numbers between the first and second halves, both in terms of organic growth and margins. However, the split between the third and fourth quarters really took us by surprise. A decline of 2% to 4% in organic growth for the third quarter suggests a growth of 1% or more in the fourth quarter. This represents a significant increase, both in percentage and dollar terms. Could you elaborate on the level of conservatism in the third quarter? Are there any trends you've noticed a month into the quarter? Additionally, are there any extra considerations for the fourth quarter that would reassure us about this expected growth?

Yes. No, absolutely fair observation, Michael. I would say we're being careful in Q3 there. I mean we are assuming a continuation of the trends in lab. There is some timing in silicones, which if you were to relatively smooth that out, that would make that step-up look less as much there. And frankly, just the timing of what we know on the seasonality in the order books and the expectations. If we meet or beat in Q3, that will certainly make the ramp on Q4 much lower there...

Our next question comes from Dan Brennan with TD Cowen.

Michael, obviously, all the best to you. Maybe just on the pricing environment, which you guys called out competitive intensity throughout the prepared remarks. And obviously, you're taking down the free cash flow guide as you lock in some of these contracts. I'm just wondering, could you give us a sense of, a, just how much worse this is right now; b, any color kind of within your lab business, kind of what volume and price looks at? And c, is this kind of a new directive? I mean, we understand you guys are trying to be competitive and you've called out some pricing headwinds in the past, but it just seems like things have accelerated here. I'm just trying to get our arms around kind of what's changed.

Yes. Thanks, Dan. I think it's important to acknowledge it is a dynamic environment and the choppiness of the macro environment, we have seen a step-up in competitive intensity, particularly in our lab business, not necessarily broad-based across all customer segments. We probably see it most pronounced with our larger biopharma accounts. And we've seen that kind of intensifying as we've moved through the year. And would just underscore our strategy here is to protect and grow our share. We have a differentiated platform. The work that Corey and his team have done as he's leaned in here certainly have validated the strength of the platform and how much our customers want to do business with us. And so we're being reactive to the environment and ensuring that we've got a strong platform and basis to grow from as these end markets recover and as the actions that Corey and his team are taking begin to take hold. We had a terrific quarter, really a terrific quarter with a number of really meaningful account awards where we were able to not only protect our share, but also grab substantial market share, as we discussed, more than $100 million of incremental revenues will flow into this business in the coming quarters on the back of those efforts. That will do a lot of good things for absorption, and we've got a long track record of expanding margins. And of course, you can't do that if you don't have the account to begin with. But we think we're as well positioned as anybody out there to compete aggressively for this business, and you see that playing through in the quarter.

And is there any color just on volume, price or just on the lab business? I mean, is that something you guys can break out? And then just as a follow-up, too, beyond that, just wondering, you guys typically give end market color. There's a lot of focus on what the academic environment is like in the U.S. and also pharma. So would you be willing to share kind of how trends performed versus expectations there?

Let me take the last part of that question, and Brent can give you some color on price volume, Dan. From an end market perspective, I would say, as we've moved through the year, we see the end market conditions largely stable as we sit here today, particularly in academia and government following the big step down in February. We've seen that end market perform relatively stable. The funding headwinds for biotech persist, and our large pharma customers continue to be pressured by inflation and other policy-related headwinds. So we haven't really seen, what I would say, a pronounced change here in the quarter. And when we look at the second half, we're assuming that those conditions persist. One maybe additional commentary on our performance relative to those end market trends. If you look into our supplemental disclosure, you'll see a particularly strong quarter for us in academia and government. And consistent with the action plan that we outlined for Corey and his team, I think that's a great data point on the benefits, the early benefits that we're seeing of a step-up in commercial intensity as well as just the relevance of our platform. We grew that business mid-single digit in an end market that probably was down mid- to high single digits. So you're starting to see some of these benefits that Corey and his team are driving. And for me, it just underscores the strength of our platform.

Yes. Following up on the price volume comment there. So maybe rewind to where we entered the year, just frankly, think of the enterprise and lab in particular, for flattish volumes and then a modest amount of price. Fast forward to hear, certainly due to the end market challenges, there has been some pressure on volume, but that is not most of the story. It's primarily on the price side there. So when you look at our attainment, a little bit of pressure on volume and then the price headwind is the main drop-through. And that goes directly to the margin story.

Our next question comes from Rachel Vatnsdal with JPMorgan.

So first off, I just wanted to ask on the Lab Solutions comments. So you noted that those were in line with expectations, but you chose to take down guidance for the full year for Lab Solutions by a few points. So can you walk us through what drove the decision to take down the guide there if it truly did play out as expected? Is this just a function of conservatism? Is it underpinned by trends that you've seen throughout July so far? Or are you assuming that the competitive intensity steps up even further in the back half for Lab Solutions?

No, that's a good observation, Rachel. When we assess the lab performance, we're seeing a decline in low single digits for the first half of the year, with slightly improved results in Q2. However, we don't anticipate any significant changes in the environment. The previous guidance indicated a decline in low single digits to flat. I would consider this not just conservatism but more of a prudent perspective or a realistic outlook. We don't expect any substantial changes in the environment, so we've maintained this outlook for the year. Regarding bridging comments, this approach keeps the math straightforward.

Great. Then maybe shifting over to bioprocessing. You called out the planned maintenance took a little bit longer than expected and created this back order dynamic with some customers. So can you quantify for us how much of a headwind those back orders were within the quarter? And then is the plant fully back up and running at this point? And if that issue is resolved, when should we expect to see a tailwind from those back orders coming back into the model?

Yes, Rachel, regarding the bioprocessing underperformance in Q2, 1 to 2 points of growth were due to the increase in back orders and the timing of maintenance completion. The remaining issues were connected to the customer challenges that Michael mentioned. This explains the drop from the mid-single-digit guidance to the flat performance we observed. The operational recovery is indeed on track, and the plant is functioning as it should. However, addressing the backlog will take some time, and we anticipate that this will gradually improve throughout the year. As Michael noted in his questions, we are being cautious about the timing for Q3, and we will be easing that in during the second half of the year.

Our next question comes from Luke Sergott with Barclays.

I was hoping you could elaborate on the various challenges without delving into specific customer details, particularly in light of the headwinds you encountered in the second quarter and how they influence the revised guidance for Biosciences. I'm trying to understand what elements were within your control, especially in relation to the extended site maintenance costs compared to the issues faced with customers.

Look, we cited a couple of discrete headwinds for the quarter. Brent just sized for you the impact of the extended maintenance outage. Think about that as 1 to 2 points in the quarter, which leaves kind of 2 to 3 points for the 2 to 3 customers that encountered significant challenges as we progressed through the quarter. The plant is fully online, and we don't expect that maintenance headwind to impact the second half. So when we look into the outlook for the last couple of quarters here, what you're really seeing reflected here is a full quarter's impact of these discrete customer headwinds, both in Q3 and Q4 as our current assumption is that those headwinds don't unwind as we move through the year. And we don't necessarily comment on specific customer detail there, but of the 2 or 3 accounts, they all kind of contributed roughly equal to the headwind there. The other dynamic impacting the BPS outlook for the second half was our NuSil platform. We're off to an incredibly strong start, particularly in our medical implant part of that business, growing mid-teens year-to-date, which is well ahead of procedure count. And so not unusual for that business. You see that the customers normalizing inventories to bring full year purchases more in line with, in this case, patient procedure count. And so that creates a little bit of a headwind for us in the second half of the year. But that end market is incredibly strong, and our value proposition there remains fully intact. We're going to have a great year overall and the setup into '26 will be very favorable.

Great. I apologize for repeating the question, as I missed it earlier. For a follow-up regarding the business overall, how well integrated are the two segments? I understand that from a channel perspective, you have a lot of third-party involvement, but you also offer many proprietary and white label products. So how well are the two manufacturing facilities or the manufacturing between the two segments integrated? I'll just leave it at that.

Thank you, Luke. When we established these platforms over seven or eight years ago, we implemented a significant number of synergies. This included fully integrating the back office operations and particularly the IT infrastructure. Our manufacturing facilities, especially for our proprietary content, are completely integrated. A key aspect of our offering in the GMP environment is our ability to supply research-grade quantities from a GMP line. As programs scale up to commercial levels, customers do not need to requalify a new production line since everything is produced on the same line. This creates nice synergies. Additionally, we have an integrated account structure, and both segments utilize the same channel. So, there are definitely important synergies for the business. However, as we manage the businesses, both segment leaders are focused on driving the independent growth of each segment.

Our next question comes from Tycho Peterson with Jefferies.

I appreciate you've had a number of questions on kind of the lab dynamics and pricing. But can you help us bridge the free cash flow cut? How is that tied to the $100 million of wins on the lab side? Are there mechanics around the rebates here? Should we be worried about channel stuffing effectively giving away some inventory here? And then what really is the path to margins bottoming in lab? I think that's a key question people are trying to get a handle on. Obviously, there's some new initiatives by Corey, but then you've got these new pricing headwinds. And I also didn't hear you kind of quantify anything around pricing. So any color there would be helpful, too.

Yes, Tycho, let me begin and then Michael will provide some additional insights. The main factor affecting the free cash flow range was related to the prebate dynamics. There is also an aspect tied to the lower EBITDA. We are actively focusing on working capital to address these issues. I'm not entirely clear on your concerns about channel stuffing, but...

When you mention $100 million in benefits from new wins, are you giving away inventory upfront?

Absolutely not. What I would say about that, Tycho, is those are share gains. That's incremental business that will transfer from our competitors to us on top of the business that we have been able to retain. The contracts that go around that will incorporate significant upfront rebate payments. I think that's all Brent is reflecting in the outlook; it's just the timing of those payments in the second half as those contracts are implemented that needs to be taken into account. But there's nothing unusual associated with the demand dynamics, Tycho.

And then just a question on the path to margins bottoming in lab between some of the initiatives Corey has identified. And then again, anything around pricing numbers you can give us? We haven't heard anything about kind of to quantify the pricing headwind.

When we look at the gross margin performance in the second quarter, Tycho, being down 100, 140 basis points wherever it landed there, there's a price and mix component to that, but most of that is price that we see living through into the second half. In an environment where volume growth is relatively muted, of course, absorption becomes an issue. One of the things that we're excited about is we don't have it built into the outlook and will be a tailwind to the prints going forward. But as these share gains materialize, those will fall through disproportionately, and you'll see some nice things happening there due to better absorption. I think it's important to note and kind of go back to, look, this business has a long-standing track record of margin expansion. We have a very disciplined approach to offsetting inflation, and you see the actions we're taking on cost. Corey and his team, as you noted, are driving some aggressive actions to continue to lean in to accelerate the growth of the business and improve the operating leverage in the business. And the strategy we're deploying in this environment is to protect and grow our share so that we have the opportunity to expand these margins as we move forward. I don't think our view on kind of long-term margins for this business are impacted by the outlook we have here for the second half.

Okay. Lastly, regarding bioprocessing, I want to ensure I grasp the situation. The Sarepta news came out in March, and you offered guidance in late April. Demand for mRNA has significantly declined this year and towards the end of last year as well. Was this a surprise to you after your guidance? Additionally, what specific actions are you taking? You mentioned taking steps in bioprocessing. What are you doing to enhance visibility?

Yes, a couple of things on that, Tycho. Firstly, the challenges we faced during the quarter were unexpected and arose about halfway through. We were primarily dealing with just a few customers, and based on our strong relationships with them, they communicated with us mid-quarter and significantly revised their expectations downward. While we operate in a heavily regulated environment that provides some stability, the downside is that suddenly overcoming these challenges in the short term can be quite difficult. However, staying true to our strategy of managing what we can control, Benoit and his team are actively focusing on actionable areas. There are three specific points I would highlight, Tycho. First, for both lab operations and bioprocessing, our delivery performance sets us apart, and Benoit and his team are implementing aggressive actions to enhance this and aim for best-in-class status. Similarly to Corey’s efforts in boosting commercial activity in certain segments, Benoit and his team are also intensifying their focus. We're concentrating on high-potential growth opportunities, like biosimilars and new modalities, including antibody-drug conjugates. Lastly, since this is an innovation-driven business, there is a strong emphasis on advancing technology and ensuring we have valuable offerings for our customers. These are the three key areas that Benoit and his team are prioritizing in the near term.

Our next question comes from Patrick Donnelly with Citi.

Michael, maybe just on the bioprocessing business. Obviously, you certainly understand the company or the customer-specific issues there. Can you just talk broadly on the business in terms of what you saw on the order side, maybe if you can kind of a little bit ex some of the onetime issues, where lead times are? Just curious what you're seeing in that business outside some of the near-term noise here.

Yes, we are very optimistic about the recovery and growth in the bioprocessing sector. Most of our revenue is derived from monoclonal antibodies, and the demand for our solutions in that área remains very strong. I want to emphasize that if we had not faced a few specific challenges, our performance would have mirrored the market trends you have observed. Over the past few years, we have been focusing on new modalities, although they currently represent less than 10% of our total platform revenue, reflecting the number of approvals in that area compared to monoclonals. Developing technologies in this domain has its challenges due to limited approvals, but we have successfully incorporated more content into these new modalities thanks to the strengths of our platform and innovation model. When one or two customers face difficulties, it can disproportionately affect us. Therefore, I wouldn’t use the results from this quarter or our outlook for the latter half of the year to judge our platform's strength or our perspective on the market. We remain very optimistic about the ongoing recovery. Regarding lead times, our supply chain has been functioning normally for several quarters now, with an average lag of about two to three months from order to delivery.

Okay. That's helpful. And then obviously, new CEO coming in, we'll wait to hear from him directly, obviously. But just in terms of the hiring process, what attracted you guys to have him? And again, any changes we should expect, whether it's capital allocation, the approach to the business? Curious just the overall view on that front would be helpful.

I would reiterate, Emmanuel start here in a couple of weeks, August 18. And as we've indicated, I'll continue to stay fully engaged and direct the business up until then. The Board led a very thorough process. And I think Emmanuel's background speaks for itself. He's an industry veteran with over 30 years' experience in this space and with a particular strength in bioprocessing, given the work that he did at first GE and then ultimately over at Cytiva within Danaher. I know that he's incredibly excited to get started. And with his experience and familiarity with the space, he'll no doubt hit the ground running. We do have a very good process in place to ensure a smooth transition, and I'm confident that, that will indeed occur certainly wouldn't want to get ahead of the work he'll do here in setting his agenda for him. I know in the early days, he'll be very focused on engaging with our customers, with our team, with our Board, and you'll hear from him at least in the third-quarter call. And as his agenda and priorities develop, I'm sure he'll be anxious to share those with you all.

Our next question comes from Doug Schenkel with Wolfe Research.

So a couple on VWR. First, I believe you mentioned a major contract extension as you talked about future share gains. I just want to better understand why are those share gains if they are extensions? Are you getting commitments from some existing customers to spend more and/or are these becoming exclusives? Again, I just want to better understand the link between those comments. So that's the first thing. Second, it sounds like you're using price as part of a share gain strategy. That's obviously come up a lot this morning. How does this impact near- and long-term margin targets? And I guess kind of cutting to the chase, does that mean that Lab Solutions margin should stay in the low double digits for the foreseeable future? So those are the two questions on VWR. Last one, and then I'll move back into the queue and listen. On margins, your fiscal year and Q3 guidance implies around an 18% EBITDA margin number in the fourth quarter. Given the bioprocessing challenges and what we just ran through on the VWR side, I'm just wondering what gives you conviction in getting back to that level, just given how many headwinds you're facing right now?

I'll be happy to give you some color on the account wins and share gains in the quarter, and Brent can weigh in on your questions around margin. So a couple of things on the account wins there. We do have a very clear strategy here of protecting and growing share, and that was part of the agenda that we outlined for Corey as he stepped in and leaned in aggressively with our commercial team to protect our business. And in the quarter, we had a number of large pharma accounts, several, in fact, where the business was being competitively up for bid. And we were able to retain the existing business that we had as well as grab some of the business at those accounts that we didn't have. And the net impact of the success we had in the quarter was a net increase as the conversion occurs over the next couple of quarters of more than $100 million. So substantial share gains there. And I'd also note, I think we probably drove some nice share gains in the academia market given the mid-single growth there that we printed. We also announced that we extended prematurely our relationship with Bio, which is the largest purchasing consortium serving biopharma and biotech with more than 10,000 customers collectively making it our largest accounts. And so I think you put all that together, and you see a couple of things. One, we are eager to invest and continue to grow our business and ensure that we have a customer base to do that off of. But I think more importantly, you see just the relevance and strength of the platform and customers voting to do business with us. We offer a lot of efficiency, a lot of optionality, certainly a broad portfolio and a best-in-class supply chain here. So really pleased to see the differentiation of the platform coming through, and we'll continue to execute on that strategy. Of course, it is coming at the expense of margin rate, but we're keenly focused on preserving absolute margin dollars overall. And over the long term, no doubt we'll have an opportunity to improve the margins as we execute our playbook here.

Doug, building on Michael's points, your observation about the Lab Solutions segment's operating margin is accurate in the short term. We need to navigate these contract extensions and benefit from the increased volume. There's definitely a pricing dynamic at play, but maintaining our market share is crucial for us. Achieving higher volume is essential, and we will remain cautious about our costs, creating a pathway for improvement, which we can discuss further when Emmanuel joins us and in upcoming quarters as we look toward 2026. While we are not pleased with the current margin situation, we are encouraged by our recent successes and their implications for the business's future. Your comments regarding Q4 are valid, especially if we reach the upper end of expectations. In terms of organic growth and margins, being at the lower end aligns with our current trajectory. This is also relevant to Mike Ryskin's inquiry. We anticipate maintaining steady growth in the mid-range, especially in Q4, where we expect an increase in silicones and some additional bioprocessing. This will shift our mix positively. At the higher end, we could approach the margin rates you mentioned, and I'm available to clarify any calculations for alignment. Thank you.

Those are all the questions we have time for today. And so I'll turn the call back over to Michael for closing remarks.

Yes. Thank you, everyone, for joining us today. Thank you for your partnership and support over the years. That will conclude our call today. Hope you all have a great day, and be well, everyone. Thank you.

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