Avantor, Inc. 2021 Form 10-K Summary
Business context and reporting period
Avantor is a global manufacturer and distributor of mission-critical products and services for biopharmaceutical, healthcare, education and government, and advanced technologies and applied materials customers. It serves more than 225,000 customer locations in over 180 countries through materials and consumables, equipment and instrumentation, and services and specialty procurement.
This filing covers the fiscal year ended December 31, 2021. The source is an annual Form 10-K rather than a standalone fourth-quarter filing; the filing text does not provide a clear Q4-only set of financial results.
Avantor completed the acquisitions of RIM Bio, Ritter GmbH, and Masterflex during 2021. Approximately 85% of net sales were recurring in nature, and no single end customer represented more than 4% of net sales.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $7,386.1 million | $6,393.6 million | 15.5% growth |
| Organic net sales growth | 11.3% | Not clearly provided | — |
| Gross margin | 33.9% | 32.5% | +140 bps |
| Operating income | $972.2 million | $706.8 million | +$265.4 million |
| Net income | $572.6 million | $116.6 million | +$456.0 million |
| Net income available to common stockholders | $508.0 million | $52.0 million | +$456.0 million |
| Diluted EPS | $0.85 | $0.09 | +$0.76 |
| Adjusted EBITDA | $1,458.6 million | $1,141.6 million | 27.8% growth |
| Adjusted EBITDA margin | 19.8% | 17.9% | +190 bps |
| Cash flow from operations | $953.6 million | $929.8 million | +$23.8 million |
| Free cash flow | $920.3 million | $868.2 million | +$52.1 million |
Revenue growth reflected strong core-business demand, COVID-19-related sales, favorable foreign currency translation of $130.3 million, and acquisition contributions of $143.0 million. Segment sales were $4,237.4 million in the Americas, $2,677.3 million in Europe, and $471.4 million in AMEA.
Operating income benefited from higher gross profit, partly offset by inflation, acquisition-related costs, higher incentive compensation, and unfavorable operating foreign exchange effects. Interest expense declined to $217.4 million from $307.6 million, while the loss on extinguishment of debt declined to $12.4 million from $346.8 million.
At December 31, 2021, cash and cash equivalents were $301.7 million. Unused availability under the receivables and revolving credit facilities totaled $805.2 million, resulting in reported total liquidity of $1,106.9 million. Approximately $256.5 million, or 85% of cash, was held by non-U.S. subsidiaries.
Gross debt was $7,113.2 million, or $7,023.2 million net of deferred financing costs. Total contractual obligations were $9,113.9 million, including $7,113.2 million of debt principal and $1,425.9 million of estimated interest. Variable-rate debt was exposed to interest-rate risk; a 100-basis-point increase in applicable rates would have increased annual interest expense by approximately $27.9 million at year-end.
Material changes versus the prior comparable period
- Net sales increased 15.5%, with 11.3% organic growth and growth across all geographic segments and major end markets.
- Gross margin and Adjusted EBITDA margin expanded by 140 and 190 basis points, respectively, driven by product mix, commercial excellence, productivity, and acquired businesses.
- Net income increased substantially because of improved operating performance, lower interest expense, and the absence of the significant 2020 debt-extinguishment losses.
- Operating cash flow rose modestly, but working-capital investment increased, including higher accounts receivable and inventory balances.
- Investing cash use increased to $4,121.7 million, including $4,014.1 million of cash paid for acquisitions and $111.1 million of capital expenditures.
- Financing activities provided $3,219.2 million, supported by new debt and a $967.0 million net secondary equity offering used partly to finance the Masterflex acquisition.
- Total assets increased to $13,897.2 million from $9,906.5 million, primarily reflecting acquisitions and related goodwill and intangible assets. Goodwill and other intangible assets totaled $10,481.4 million, or 75% of total assets.
Guidance, outlook, management commentary, risks and unusual items
The filing does not provide a specific 2022 revenue, earnings, or cash-flow guidance range. Management expects growth from customer workflow integration, new products and services, geographic expansion, digital commerce, operational efficiency, and selective acquisitions. Management also stated that more than $220 million of annualized cost synergies from the completed restructuring program were expected to favorably affect results in 2022 and beyond.
Management identified ongoing COVID-19 effects, supply-chain constraints, labor and other inflationary pressures, foreign currency movements, and acquisition integration as important factors affecting future performance. COVID-19 supported demand in areas such as PPE, diagnostics, vaccine production, and biopharma manufacturing, but also caused supply-chain disruption and uneven demand across customer groups.
- Leverage and refinancing risk remain significant. Debt agreements include restrictive covenants, variable interest rates, required amortization, and potential excess-cash-flow prepayments.
- Approximately $7.1 billion of debt principal was outstanding at year-end, with major maturities and scheduled repayments extending through 2028 and beyond.
- Common stockholders are junior to the 6.250% Series A Mandatory Convertible Preferred Stock. Avantor does not currently expect to pay common-stock dividends.
- The MCPS accrues cumulative dividends and is scheduled to convert automatically on May 15, 2022, subject to its contractual terms.
- Acquisition accounting remained preliminary for Masterflex, including $1,231.5 million of acquired intangible assets and $1,742.6 million of goodwill; final purchase accounting could change materially.
- No goodwill impairment was recorded in 2021, but impairment testing depends on forecasts, discount rates, comparable-company multiples, and other assumptions.
- Environmental, regulatory, product-liability, export-control, cybersecurity, supply-chain, raw-material availability, labor, tax, and foreign-exchange exposures could adversely affect results.
- The company settled an EPA matter for less than $1.0 million. It reported no outstanding litigation expected to result in material losses, but environmental liabilities remain subject to uncertainty.
- Management and Deloitte concluded that internal control over financial reporting was effective; however, controls at Ritter and Masterflex were excluded from the 2021 assessment because of their recent acquisitions.
Important facts for investors to verify
- Reconcile reported net sales growth with the 11.3% organic growth rate and separately assess currency and acquisition effects.
- Review the acquisition-related purchase-price allocations, contingent consideration for Ritter, and the final accounting for Masterflex.
- Evaluate debt maturities, variable-rate exposure, covenant requirements, refinancing needs, and the effect of potential interest-rate increases.
- Assess whether margin expansion and projected restructuring synergies can offset labor, logistics, raw-material, and other inflationary pressures.
- Monitor working-capital trends, particularly inventory and accounts receivable, and the conversion of Adjusted EBITDA into operating and free cash flow.
- Consider the substantial concentration of total assets in goodwill and intangible assets and the sensitivity of future impairment testing.
- Verify the timing and terms of the MCPS conversion and its effect on common-share dilution.
- Review environmental remediation obligations, regulatory compliance matters, and the potential availability of indemnification for legacy liabilities.