Business Context and Reporting Period
Avantor, Inc. is a global manufacturer and distributor serving biopharmaceutical, healthcare, education and government, and advanced technologies and applied materials customers. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the same period in 2021.
Financial Performance and Position
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $1,950.4 million | $1,785.6 million | +$164.8 million, or 9.2% |
| Gross profit | $689.9 million | $612.8 million | +$77.1 million |
| Gross margin | 35.4% | 34.3% | +110 basis points |
| Operating income | $307.0 million | $266.3 million | +$40.7 million |
| Net income | $190.4 million | $164.0 million | +$26.4 million |
| Net income available to common stockholders | $174.3 million | $147.9 million | +$26.4 million |
| Diluted EPS | $0.28 | $0.25 | +$0.03 |
| Adjusted EBITDA | $423.1 million | $363.1 million | +$60.0 million, or 16.5% |
| Adjusted EBITDA margin | 21.7% | 20.3% | +140 basis points |
| Cash flow from operations | $152.2 million | $126.9 million | +$25.3 million |
| Free cash flow | $127.7 million | $111.8 million | +$15.9 million |
Reported sales growth included 5.1% organic growth, a 6.6% contribution from acquisitions, and a 2.5% unfavorable foreign-currency impact. Sales growth was strongest in AMEA at 26.6%, followed by the Americas at 10.5% and Europe at 4.6%.
At March 31, 2022, cash and cash equivalents were $283.6 million, compared with $301.7 million at December 31, 2021. Total debt was $6,860.5 million net of deferred financing costs, versus $7,023.2 million at year-end. Available credit-facility capacity was $805.5 million, producing reported total liquidity of $1,089.1 million. Required term-loan payments over the next twelve months were $38.6 million, and no other debt repayments were due during that period according to management.
Material Changes Versus the Prior Comparable Period
- Sales increased primarily from base-business volume growth, higher sales of proprietary materials and consumables, and the 2021 acquisitions of Masterflex, Ritter GmbH, and RIM Bio.
- Proprietary materials and consumables sales rose to $748.0 million from $565.2 million, while third-party materials and consumables declined to $724.7 million from $758.4 million.
- Gross-margin expansion reflected favorable product mix, commercial excellence, and higher-margin acquired businesses.
- Operating expenses increased $36.4 million, including $26.1 million of additional non-cash acquisition-related amortization and higher workforce investment.
- Interest expense increased $13.3 million because of incremental acquisition-related debt. The company also recorded a $1.8 million loss on debt extinguishment in connection with term-loan prepayments, compared with $5.2 million in the prior-year quarter.
- Operating cash flow improved despite increased working-capital investment. Capital expenditures increased to $24.5 million from $15.1 million, and the company paid $15.3 million to taxing authorities on behalf of the seller for pre-acquisition tax liabilities related to Masterflex.
- Total debt declined by approximately $162.7 million from December 31, 2021, primarily due to debt repayments, including $100.0 million of term-loan prepayments on March 31, 2022.
Guidance, Outlook, Commentary, Risks, and Unusual Items
The filing does not provide clear quantitative full-year revenue, earnings, or cash-flow guidance. Management reported continued demand growth in biopharma, healthcare, and advanced technologies and applied materials, but noted approximately 2% COVID-19-related organic sales headwinds in the quarter.
- Supply-chain disruptions, product and raw-material availability constraints, freight costs, and inflation affected results. Management stated that pricing and productivity measures were being used to mitigate these pressures.
- COVID-19 continued to affect regional results, including lower demand for certain diagnostic testing products, test kits, and other pandemic-related offerings.
- Acquisition integration, acquisition-related amortization, leverage, and higher interest rates remain important financial considerations.
- Interest-rate and foreign-currency exposure is material. In April 2022, after the reporting date, Avantor executed a three-year $750 million interest-rate swap and related cross-currency swap intended to convert LIBOR-based floating-rate interest into euro fixed-rate interest.
- Environmental liabilities included accrued obligations of $3.2 million related to groundwater remediation in New Jersey and $2.7 million for remediation and monitoring in Poland. The New Jersey matter is covered by an indemnification agreement.
- The company stated that no outstanding litigation was expected to result in material losses if decided adversely and that there were no material changes to previously disclosed risk factors.
- Adjusted EBITDA includes $3.9 million of integration-related expenses, a $4.4 million non-cash purchase-accounting adjustment, and $1.9 million of restructuring and severance charges. These non-GAAP measures should not be viewed as substitutes for GAAP results.
Important Facts for Investors to Verify
- Reconcile reported sales growth with the 5.1% organic-growth figure and assess the sustainability of acquisition-driven growth.
- Review debt maturities, floating-rate exposure, applicable covenants, and the effectiveness and accounting treatment of the April 2022 hedging transactions.
- Monitor cash conversion, receivables and inventory growth, capital expenditures, and the company’s ability to continue reducing leverage.
- Assess whether pricing and productivity actions offset inflation, freight costs, supply constraints, and workforce investments.
- Evaluate acquisition integration progress and the continuing effect of acquired intangible-asset amortization on GAAP operating income.
- Track COVID-19-related demand normalization, particularly for diagnostic testing and other pandemic-related products.
- Review environmental remediation obligations and the extent and collectability of related indemnification coverage.