Avantor, Inc. (AVTR) Q1 2020 Earnings Report, Transcript and Summary

Good afternoon. My name is Holly and I will be your conference operator today. At this time, I would like to welcome everyone to the Avantor First Quarter 2020 Earnings Conference Call. After the speaker’s remarks, we will have a question-and-answer session. [Operator Instructions] I will now turn the call over to Tommy Thomas, Vice President, Investor Relations. Mr. Thomas, you may begin the conference.

Thank you, operator and good afternoon everyone. Thank you for joining us in today’s call. Our speakers today are Michael Stubblefield, President and Chief Executive Officer and Tom Szlosek, Executive Vice President and Chief Financial Officer. The press release and a presentation accompanying this call are available on our Investor website at ir.avantorsciences.com. A replay of this webcast will also be available on our website following this call. Following our prepared remarks, we will open up the line for your questions. I would like to note that we will be making some forward-looking statements within the meaning of the 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 may 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, and we do not assume any obligation to update these forward-looking statements whether as a result of new information, future events and developments or otherwise. This call will include a discussion of non-GAAP measures. A reconciliation of these non-GAAP measures can be found in the appendix to the presentation. With that, I will now turn the call over to Michael.

Thank you, Tommy and thanks to all of you for joining us today for our first quarter earnings call. Tommy Thomas started with us in March and we are excited to have him leading the Avantor Investor Relations program. Welcome, Tommy. I want to acknowledge the impact that the COVID-19 pandemic has had in the time since our last earnings call. Our team is doing a terrific job managing the business despite the challenges of the current situation. And during the call today, we will share details about our efforts to provide the mission-critical products and solutions our customers need while also ensuring the safety and wellbeing of our associates. I hope that each of you and your families are staying safe during this unprecedented time. I am starting on Slide 3 with a brief review of Avantor’s revenue profile. Our diversified revenue base, combined with the customized nature of our solutions, makes our business model very resilient even in a recessionary environment. We are very well-positioned for continued growth in Europe and the Americas, and we are investing to expand our capabilities in emerging markets throughout Asia, the Middle East and Africa. More than 85% of our business is recurring, and approximately half of our revenue comes from the proprietary-branded products and services. No single customer represents more than 3% of our revenue and approximately two-third of our revenue is in the life sciences space, in attractive end markets such as biopharma and health care. Moving to Slide 4, I want to provide some insights into our first quarter business highlights. As the COVID-19 pandemic emerged, we quickly mobilized a Global Steering Committee of cross-functional leaders to drive a swift and collaborative response across our business, with a focus on safely providing business continuity to our customers. Throughout the pandemic, our distribution, research and manufacturing sites have remained operational. To protect the health and wellbeing of our associates in these operations, we are closely monitoring and implementing guidelines from credible health agencies, including the World Health Organization, Centers for Disease Control and Prevention and the European Centre for Disease Prevention and Control as well as taking other precautionary measures. For the remaining workforce of sales and support personnel, we have implemented work-from-home processes, which we believe are working very well in the circumstances. I’m extremely proud of all our associates around the world who continue their tireless work serving our customers, including many who are working to develop vaccines and treatments for COVID-19. Our broad life sciences portfolio is being widely used in many COVID-19-related areas, including patient testing, vaccine and therapy development, clinical trial services and ultimately in the production of approved treatments. We have moved rapidly to enable fast and accurate research results by offering products and protocols in sample collection, DNA and RNA extraction, serology and real-time PCR. Our biopharma customers are aggressively focused on therapy and vaccine research, and our capabilities and workflows, such as cell culture, qPCR, protein purification and formulation, are critical. With our broad customer access and extensive portfolio of products and solutions, Avantor is an important partner in the race for a COVID-19 cure. We also advanced key elements of our growth strategy in the first quarter. For example, we launched PROchievA, a proprietary protein A chromatography resin. This new product innovation focuses on downstream processing, enabling best-in-class purification performance for customers working with monoclonal antibodies, Fc-fusion proteins and immunoglobin antibody molecules. This product will expand our addressable market by over $1 billion and enhance our margin profile over time. As you may recall, we have invested significant capital to build a world-class technology and innovation center in Bridgewater, New Jersey to expand our bioprocessing capabilities, and PROchievA is one of the first of many new product innovations to come out of this center. Additionally, our previously announced investments to expand our hydration, single-use HPLE Sugars and biorepository capacity are proceeding on schedule. We’re excited for the future growth prospects that our investments are enabling even in this challenging environment. In addition, we remain on track to complete the VWR synergy program in 2020, and our Avantor Business System continues to gain traction across the enterprise in driving growth and productivity. Turning to Slide 5 of the presentation, I would like to share a few financial highlights from the quarter. Organic revenue growth was 4.1% for the period, representing solid growth on our toughest prior period comparison. Growth was led by high single-digit expansion in our biopharma business, where demand remains robust around the world. Growth was impacted by academic and government lab closures in Europe and the Americas late in the quarter as well as by supply chain challenges associated with government-imposed border controls related to the pandemic. Excluding adverse currency impacts, adjusted EBITDA in the quarter was up 7% and adjusted earnings per share increased approximately 64% to $0.17 per share. Double-digit revenue growth from our proprietary materials was a key driver of our margin expansion in the quarter. Cash flow was very strong in the quarter. We generated $241 million of free cash flow, an increase of 284% compared to 2019. Combined with our earnings growth, this enabled us to reduce net leverage to 4.4x, down from 4.6x at the end of the fourth quarter of 2019. We remain committed to continued de-leveraging as we approach our target leverage range of 2 to 4x EBITDA. Before I turn it over to Tom to discuss the financials in more detail, I want to emphasize the resiliency of our business model. We are well positioned with our highly recurring revenue base, a broad product offering, significant exposure to attractive end markets like biopharma and a strong culture of execution enabled by the Avantor Business System. Avantor’s mission of setting science in motion is more meaningful and relevant now than ever before, and our Q1 results reflect this resiliency. With that, let me turn it over to Tom.

Thank you, Michael and good afternoon. I hope everyone listening to our call is doing well. Let’s start on Slide 6. We executed well in a challenging environment. Revenues, profits and free cash flow were all strong. Our manufacturing and assembly plants and distribution centers generally have prioritized or essential status and as Michael indicated, have continued to be operational throughout the pandemic. Vendor supply disruptions have been limited, although some categories, like personal protective equipment, otherwise known as PPE, remain challenging given the extraordinary demand fueled by the pandemic. Organic revenue growth was 4.1% and should be considered in the context of the 7.9% growth in the first quarter of 2019. Overall, this was a good result against a tough comparison, especially with the additional COVID-19 challenges. Growth in the quarter was driven by continued momentum in our biopharma platform that grew high single digits, with notable strength in our single-use solution, life science reagent and personal protective equipment. This growth was offset by COVID-19-driven closures of academic and government research labs, K-12 school closures, high single-digit declines in sales of equipment and instrumentation and AMEA supply chain challenges. We believe that net of all of these factors, COVID-19 contributed approximately 50 to 100 basis points of growth in the quarter. Looking at growth from a regional perspective, Americas, which represents approximately 60% of global sales, reported 5.4% organic revenue growth driven by the biopharma and advanced technology & applied materials end markets, offset by flat health care and lab closures in the academic markets, as I mentioned. Europe, which represents approximately 35% of global sales, reported 3.3% organic revenue growth driven by the biopharma and health care end markets, offset by decline in the education and advanced technology & applied materials end markets. AMEA, representing approximately 5% of global sales, reported a 5.1% organic revenue decline. This region was impacted the earliest by COVID-19, with the largest disruption felt in India where aggressive shutdown mandates were enacted, impacting market demand and supply chain infrastructure. Revenue growth in advanced technology and applied materials was offset by decline in our biopharma and health care end markets. Slide 7 shows our organic revenue growth by end market and product group for the quarter. I will also touch on what we have seen so far in the month of April. Biopharma, representing approximately 50% of our revenue, experienced high single-digit organic revenue growth, which is notable in light of the low-teens organic growth in the first quarter of 2019. We continue to see strong growth in our biopharma production platform, including continued double-digit growth of our single-use solution. Moving to healthcare, which represents approximately 10% of our revenue, we grew low single digits. We had strong growth in clinical and reference laboratories, especially in March as demand for consumables, chemicals and PPE ramp to support COVID-19 testing. Our Biomaterials platform performed in line with plan. Education and government, representing approximately 15% of our revenue experienced low single-digit organic revenue decline. As mentioned previously, this part of our business was most impacted by the COVID-19 pandemic as many academic and government research labs and K-12 schools were forced to close as we moved through the quarter. Advanced technology and applied materials, representing approximately 25% of our revenue, experienced low single-digit organic revenue growth. We experienced strong growth in defense and electronic materials businesses. Also, the food and beverage and petrochemicals businesses realized low single-digit growth. These were offset by modest declines in mining and other miscellaneous industrial segments. By product group, proprietary materials and consumables experienced low double-digit growth, with particular strength in the Americas. Services grew mid-single digits driven by continued strong growth of our on-site services model, especially in the Americas and in Europe. Equipment and instrumentation was down high single digits, reflecting reduced CapEx investments across our customer base. In April, the biopharma momentum has continued, with strong growth in lab products and biopharma production. Also, we are actively engaged with our supplier partners and customers to bring COVID-19-related offerings to the market, including diagnostic kits and serological solutions. The COVID-19 impacts we experienced in the second half of March have also continued. Academic lab closures and curtailment of customer capital spend continue to be headwinds to revenue growth. Additionally, there is some timing-related softness in our healthcare business as the COVID-19 impact of fewer elective procedures is felt. Also, growth in the industrial portion of the advanced technologies and applied materials end market has moderated from Q1. Considering these factors, we expect the April net revenue decline to be in the low to mid-single-digit range. Given the uncertainties around the intensity and duration of the pandemic, however, we are withdrawing our guidance for the year. Turning to Slide 8, let me start with our first quarter adjusted EBITDA. We achieved 7% growth in adjusted EBITDA and 54 basis points of reported margin expansion. As you recall we were still a private company in the first quarter of 2019 and have since added certain costs to support the public company status post our Q2 IPO, without which, margins would have expanded by approximately 90 basis points in this first quarter of 2020. Key drivers of the performance were volume growth, price and favorable mix, including strong growth in proprietary offerings, all partially offset by the impact of growth investments that we continue to make, particularly in the AMEA region. Free cash flow improved from $63 million to $241 million, an increase of approximately 284%. Un-levered free cash flow was $261 million for the quarter. We had very strong working capital performance which contributed over $80 million to the increase. Also, lower cash interest and taxes contributed a combined $50 million to the improvement. Finally, we reported 64% growth in our adjusted earnings per share for the quarter, primarily reflecting the strong operational performance driven by organic sales growth and margin expansion as well as the ongoing reduction in interest expense from our de-leveraging and the improvement in our income tax rate. Slide 9 has our segment results. We have a minor change in the way we are measuring segment profitability. You may recall that previously, we were using management EBITDA as a profitability measure for the segment which reflected a few more adjustments than the adjusted EBITDA metric we use to measure profits for the entire enterprise. Effective January 1, we have conformed the two and are now using adjusted EBITDA to measure the profitability of the segment and of the entire enterprise. While we have restated the segment results for 2019 for comparability purposes, there is no change to the adjusted EBITDA for the enterprise. Americas reported 170 basis points improvement in adjusted EBITDA. Key drivers include volume growth, strong price management relative to COGS inflation and positive mix driven by a higher proportion of growth in proprietary materials and consumables, all offsetting modestly higher SG&A costs. Europe reported 40 basis points of improvement in adjusted EBITDA. Key drivers include volume growth, strong price management relative to COGS inflation and lower equipment and instrumentation, all offsetting unfavorable operating expenses driven by foreign exchange. AMEA reported 540 basis points decline in adjusted EBITDA, impacted by lower sales volumes and higher operating expenses, including, investments in research, marketing and sales personnel. On Slide 10, we provide a brief summary of our liquidity. To start, it is noteworthy that despite the challenging environment, our de-leveraging continued in the first quarter. We lowered our leverage to 4.4x EBITDA, and this continues to be a major priority for us. In January, we lowered borrowing costs by 75 basis points on the approximate $1 billion in term loans. And in March, we lowered borrowing costs by 60 basis points on our accounts receivable securitization program. We also upsized that program by $50 million to $300 million at the same time. Total liquidity at March 31 was $882 million, made up of $346 million in cash, $300 million in accounts receivable securitization and the unsecured bank revolver of $250 million. Both facilities are largely unused as our free cash flow is our primary source of liquidity. We have no significant debt maturities until 2024 and we only have one substantive debt covenant, which is only triggered if we have more than 35% of the revolver drawn upon. Currently, there are no borrowings outstanding on the revolver, but in the event we were to trip this threshold, our first-lien borrowings would be limited to 7.35x our EBITDA. Currently, our first-lien borrowings are less than 3x EBITDA. To summarize, our liquidity and cash flow are strong and we are committed to de-leveraging even in these challenging market conditions. Our debt maturities and covenants are minimally intrusive, and we look forward to future re-pricing opportunities in our debt portfolio. With that, I will hand it back over to Michael.

Thanks, Tom. I am on Slide 11. We executed well in a challenging environment, and our strong revenue and EBITDA growth, outstanding cash generation and continued de-leveraging reflect the resiliency of our business model. Challenging times like this highlight the value of our highly recurring revenue base broad mission-critical product portfolio and our exposure to attractive end markets like biopharma. While the uncertainty associated with the current pandemic has caused us to withdraw our previously issued guidance, our long-term growth strategy remains intact and we are steadfast in our commitment to help our customers combat this virus by supporting ongoing initiatives in testing, vaccine and therapy development and ultimately, the production of approved treatments. Our mission of setting science in motion to create a better world has never mattered more. I want to sincerely thank you for your interest and investment in Avantor and for your ongoing support. I will now turn it over to the operator to begin the question-and-answer portion of our call. Operator?

Thank you. [Operator Instructions] Our first question comes from Tycho Peterson, JPMorgan.

Hey, thanks. Michael, I’ll start with biomanufacturing, I think it’s a little bit over 10% of the business today. Can you maybe just talk about some of the investments you’re making as we think about monoclonal antibody scaling up and vaccine production? Can you just talk about how you feel like you are positioned and the degree of investments you may be making now to meet the growing demands of the market?

Thanks for the question, Tycho. Good to hear from you. Yes, I think you have it about right in terms of the exposure to bioproduction. Obviously, it’s an important part of our portfolio that is experiencing double-digit growth for most of the last couple of years. And we do continue to invest, whether that be in infrastructure in the form of our R&D centers that we’ve been building around the globe, most recently, the inauguration of our new center in Shanghai. We also recently doubled the size of our center in Bridgewater. We highlighted in the press release or in the comments there, one of the first innovations that came out of that new center in Bridgewater, our proprietary chromatography resin, that will expand our addressable market. But we also continue to invest in manufacturing capacity, and we highlighted a number of those areas in recent months, whether that be in hydration capacity or single-use capacity or things like our HPLE Sugar platform. So we continue to invest ahead of demand to ensure that we can meet the robust opportunities that are out there. I would say we are excited about what we’re seeing, and whether it’s the traditional monoclonal antibodies that have been in the pipeline , where we are well positioned or the onslaught of new therapies that are in the pipeline to go after the COVID-19 virus, but we’re also well positioned, Tycho, to have a lot of growth and success in some of the new modalities, whether that be in things like cell and gene therapy. So we continue to scale our infrastructure and capabilities and our presence to be able to get our materials speced into these platforms going forward.

And then one follow-up for Tom, on applied technologies, you noted petrochem up low single-digit obviously oil prices have been volatile, just curious on your outlook for that part of the business in particular?

Yes. I mean we watch it, Tycho. Everyday, we get the daily sales reports. It’s a pretty modest part of that overall portfolio. I mean, like the segment itself is probably 25% of revenues, but it’s an aggregation of a number of individually small exposures to various industries. Petrochemical, oil and gas is one of those. Like we said, it was flattish, low single-digit, kind of continues on that pace. We are seeing a little bit of the industrial softness impacting that. So that growth rate that we saw is moderating a bit, but it’s not like it’s – there is some sort of curtailment of a growth or major negative news to share. So it’s so kind of okay, but not growing through the roof, if you will.

Okay, thank you.

And our next question is going to come from the line of Derik De Bruin with Bank of America.

Hi, good afternoon.

Hey, Derik.

Hey, Derik.

So a couple of questions. I guess the first one just to clarify because I had a little bit of a cell phone garble here, you said down low to mid single-digits in the second quarter, correct?

Derik, based on what we are – yes, based on what we are seeing in April, that’s kind of what we see for April. We didn’t really comment on where we see the full quarter playing out. I don’t think just given the uncertainty of the situation that we are trying to call the quarter, just trying to give you some color on what we have seen through the month of April.

Great. So that was going to be my follow-up question of that then is I guess what can you say in terms of our estimates would put somewhere around 50% of labs are closed. I’m just sort of wondering what your feet on the street or the ground are doing. Obviously, there’s going to be some difference between the pharma labs and academic labs. Just some color on sort of what closures are? And I guess what would need to go – is it just mostly duration to how long a closure is sort of the biggest wildcard on how you are seeing the next couple of quarters play out?

I think Derik, clearly, the biggest headwind that we do see in our business at the moment is the research lab closures in the academic environment, particularly in the university setting. And we’re seeing everything from complete lab closure, to partial operation, to round-the-clock operation of labs that are working on vaccines or therapies for COVID. So we’ve got the full gamut of activities playing out, but it does remain the biggest headwind in the business. And at least in the current environment, with the variables as we see them, a return to more normalized operations in that space would certainly be a tailwind for our business. So just the uncertainty, we don’t know when that’s going to happen.

Great. And if I can squeeze in one final one. A lot of us – I mean a lot of us – I mean nobody really has an experience with the legacy Avantor business sort of going into the recession. And sort of a follow-on into Tycho’s question on is sort of the sensitivity of the overall business to a severe economic downturn and just sort of your thoughts just because it is a different animal than any of us have – when we are looking at the old VWR and sort of getting to understand of like what your macro sensitivities are in sort of over this recession environment?

Sure. I think clearly, the situation that we are in now is probably unprecedented. I’m not even sure if the financial crisis in ‘08 or ‘09 is even a good parallel just given the extreme difference in the dynamics. I would say that we are very well-positioned with a very resilient model, 85% of our revenue being recurring, a very broad portfolio good diversification in both the lab as well as in production. And at least in the current situation, the production environment has held up extremely well. The value chain for currently approved therapies that we’re expecting to continue to run at a high rate, obviously, with the investments that we’ve made in single-use and some of our other proprietary technologies, we continue to outgrow that market by a bit. In the lab, we talk about we’re seeing some headwinds in the academic space, to a lesser extent, in the biopharma research labs. Certainly, some of those labs have scaled back activity, but you have almost an equal amount, that have ramped up activity to go after, whether it’s a vaccine or a therapy for COVID. So the legacy Avantor portfolio, to your question, I think is primarily a production-oriented portfolio, where the preponderance of the revenue of that platform is speced into the high-growth bioproduction space. So it tends to be fairly insensitive to economic shock, but I think we are in a much different environment now and the dynamics of what’s driving the business, I think are probably we all agree are a little bit different.

Yes. And the numbers weren’t public back in – the numbers weren’t public back when we – Avantor was standalone, but they held up as well as VWR did at least on the EBITDA side. Over that timeframe, cash flow was also pretty strong.

Great. Thanks for that color. Thank you very much.

And our next question is going to come from the line of Vijay Kumar with Evercore ISI.

Hey, guys. Thanks for taking my question and congratulations on a really good prints here relative to I guess some of the fears that The Street had. Maybe starting on the comments around April, I guess does it make sense to look at this business on a week-on-week basis or we are all trying to figure out if it was April the bottom and should things improve month-on-month. That certainly seems to be the case for some of the other companies. So, what could go wrong from April, right? If all of the labs were closed, could anything else go wrong, which would cause May to be a trend below April? So maybe just give us some sense on what happened in April and maybe plus or minus where we could move from that line?

Sure, Vijay. Thanks for the question. Maybe I’ll walk you through each of the 4 end markets that we serve, give you a little bit of color on that, and maybe that will hop with your question. So starting with biopharma, which is roughly 50% of our revenue, that platform remains strong around the world. It’s the bioproduction piece of that, running high single digits, double-digit-type levels. And the research environment is holding up pretty well. There is a mix of some labs that are scaled back and some that are ramping up. But overall, the biopharma platform, whether it be in Q1 or as we saw it into April, continues to be strong. Healthcare, for us, a little less than 10% of the revenue, a little bit of a mixed story here, and we have exposure. About half of that platform is in the clinical diagnostic-lab-, reference-lab-type setting, and you see a mix of things going on there. Obviously, some of the traditional clinical diagnostics running a little bit below historical levels, and that’s primarily being offset by the strong ramp in demand for our solutions for COVID testing. The other part of that platform is our biomaterials platform serving a pretty wide array of implant devices, the medical implants. And as we mentioned, that platform continues to run, at least through the first quarter, at a pretty high rate, somewhat moderated in April due to kind of postponement of elective surgeries. And so that’s a variable that we’re watching pretty closely. I think we’ve talked a lot about the academic and government environments, in aggregate, about 15% of the revenue. The academic research lab, part of that comprises less than 10% of overall revenue. And as I mentioned, I think what we’re seeing there is in line with what you see being reported publicly. And then in the advanced technologies & applied materials part of our business, about 25% of the revenue, split across the wide range of both industrial and non-industrial applications, grew low single digits in the first quarter. I would say strong momentum in defense, semiconductor, food and beverage that we saw in Q1 kind of carry into April. It’s moderated sequentially a bit in some of the industrial areas, as Tom mentioned, like oil and gas. Whether April is the bottom or not it’s probably speculation on our part to try to call that. We clearly are watching very closely, even on a daily basis, what’s going on in these academic research labs. And we’re in close contact with our customers. We do have a significant presence on site at these labs through our services teams and our teams will likely in the labs that are shutdown will likely be some of the first people back in those labs to get them restarted. So we’re staying close to it and fingers crossed that is – the globe gets the pandemic under control. We’ll start to see some of that return, whether that’s in May or June or later, probably a bit tough to call right now, Vijay.

That’s helpful comments, Mike. And maybe one for Tom, Tom, on the cost structure, any comments on fixed versus variables? The Q1 margins were really strong. And if I go back to your original guidance on free cash flow, $450 million to $500 million for the year, and given where 2Q could potentially shake out and if we had to assume sequential improvements, that’s how other companies are looking at the environment, 2Q is the bottom and then we improve, it almost looks like free cash flow is almost down. There is no change. So, any thoughts on your cost structure and your ability to manage P&L fees? Thank you.

Yes, yes. So first, on the cost structure, Vijay, when we look at fixed versus variable, I would say that we’re – when we look at the COGS, I mean, most of that is variable cost. Probably 70% of it is materials. Probably another 10% is kind of people and overhead. I would say, on the other hand, most of the SG&A would be – would fall into a fixed category, but it’s a broadly addressable category. It’s not as if it’s like depreciation, you can’t do anything about it. I mean there are actions you could take. And when you think about cost containment initiatives, I mean, our focus right now is supporting our customers. I mean that and employee safety are top priorities right now. And we have plenty to do. But we also have a good track record of cost management, I would say. We’re nearing completion on our synergy program. In fact, on a run-rate basis in the first quarter, we achieved – we crossed the $300 million threshold line from a run rate basis. So in – we have 3 quarters to go to continue to drive that, but we’ve achieved at least the bottom part of that. We’re not oblivious to what’s going on. We’re actively monitoring headwinds and taking prudent actions. So far, there’s been just modest demand disruption for us. And we’re looking at things like discretionary spend. Obviously, P&E does its own work for you with so many people not traveling. But we’ve taken some other discretionary items around new hiring and so forth. And to the extent action – or to the extent the conditions become worse, I mean, we would obviously have contingency plans in place. From a cash perspective, I totally agree with the – with your observations. Q1 was very strong. We’re up $180 million year-over-year. And it really demonstrates the high conversion, low CapEx model that we have. We had better EBITDA. We had really strong working capital performance with obviously lower interest cost. And as you said, our guide was $450 million to $500 million for the year. We’ve already got $240 million of that. You can do your own math and say where you think that takes you. We’ve also gotten some benefits. We expect to get some benefits from the CARES Act, particularly around freeing up some of this interest deductibility that we have – we’ve been limited to 30% in the past. So that goes up to 50%. That should give us some tailwind as well. I don’t think we’ll spend all the CapEx that we have in the plan. And I think there’s probably, at some point, will be an opportunity for refinancing. So the Q1 performance and those factors I mentioned, I think, instinctually, you’re right, $450 million to $500 million looking out. Maybe there’s an opportunity there. But we’re – because we’re withdrawing guidance, we’re not really going to comment on what – where we think that’s going. We’ll continue to – this will continue to receive our attention. And we’re optimistic that if things turn, this will be a – turn out to be what you’re referring.

Thank you.

Thank you. Our next question is going to come from the line of Doug Schenkel, Cowen.

Hi, good afternoon guys. First off, when we talked at some point, I don’t know when, it was March I know it was in March. But every week seems like a month these days, so I’m not sure exactly when it was. But when we talked, it seemed like the company was seeing some activity that looked like stocking at the end of the quarter. In hindsight, was that the case? And if so, how material was it? Did it carry into April? And where was it most pronounced by business area?

Sure. Thanks for the question, Doug. It does seem, March, when we did speak to this in like a while ago. As Tom mentioned in the script, I think as we look at kind of COVID related tailwinds, which would include any stocking that did occur in the quarter, as best we can bracket it, probably in that 50 basis point to 100 basis point range. I don’t think stocking ended up being that big of a factor. I think most of what we’re seeing is really to meet increased demand, whether that be in life science reagents or PPE to support COVID related testing or development. And I think the other point to keep in mind here, most of the labs, for example, that we support, they don’t really have significant space for a lot of excess storage. And in fact, I think that is part of what drives some of the value that we deliver, in that they really rely on us to be able to carry the safety stock and provide timely deliveries. And with the model that we have set up, we’re able to do that in more than 170 countries around the world on a same-day or next-day basis. So I’m sure there was some modest stocking in the quarter. I think that’s captured in that 50 to 100 basis points. But I think net-net we think that most of the COVID tailwinds that we saw were demand-driven.

Okay, super helpful. Maybe just a couple of quick ones and then I’ll get back into the queue. I believe the vast majority of your diagnostic business is OEM. I just want to make sure that’s right. And it’s pretty clear based on your prepared remarks that, that is an area that’s a tailwind. I’m just wondering how big is that business today and how much of a tailwind is it. And then the second thing I wanted to ask was just on AMEA. Any update in terms of just what you’ve seen over the last few weeks? Specifically, what I’m trying to get at is you commented on supply chain challenges in India. I am just wondering if that’s freed up at all. Thank you.

Yes. Thanks for the questions. So maybe we’ll go in reverse order here. We’ll talk about AMEA first. Obviously, the pandemic hit that region first and hardest, and the region is 5% of our revenues. So in the end, not a major driver within the quarter. But and we tend to have a little bit different mix of business in the AMEA region relative to Europe or the Americas. It tends to be a bit more production-heavy, and so you see a little bit more lumpiness in the business just owing to the campaign and batch, timings and schedules of our customers. And we saw that play out pretty much as planned. But certainly, on the consumables part of the business, we did see, obviously, some impacts, rather modest. There were some supply chain challenges. When you think about the logistics environment in India, for example, just challenges in getting trucks and drivers and things to complete deliveries was a bit of a challenge as the country moved to lock things down pretty aggressively starting in the middle of March. As we move into April, I think, generally, whether you’re in China, Korea, Singapore, I think we’ve seen sequential improvement in those markets. And I think even in India, we’re starting to see some sequential improvement into April. So I think we feel like the region is heading in the right direction.

Yes. I will say the lockdown for India is May 2, I think, is the official date of when it goes. Because I’ve heard recently that India could - that could be changing and could be extending to the end of the month. So who knows, and we’re subject to that. So the challenges will continue to be there. But I mean, to Mike’s point, we are seeing a little bit of more upside as things start to come together in some of these COVID-19-related areas, whether it’s testing, personal protection equipment and other things that are coming through.

Doug, and then back to your first question around diagnostics. We’re going to play that space in a number of different areas. We have a pretty robust portfolio of reagents, proprietary reagents. They’re going to go into – on an OEM basis that will be specked into the various instrument platforms that are out there. We have a pretty robust infectious disease point-of-care testing kit business primarily focused on hematology, centered in the AMEA region and then maybe a little closer to home here. We have a pretty robust offering of sample prep, extraction reagents and things to support qPCR workflows and other diagnostic workflows, both non-COVID-related as well as COVID-related. And then to supplement that our services platform is going to get pretty heavily involved in a lot of the diagnostic workflows, whether that be in the custom kitting that we would do to support sample collections specimen collection and transportation and in fact, we’re pretty heavily involved with most of the major labs and facilitating the COVID testing in that regard now. And we also have one of the leading biorepository and archiving franchises that’s going to be linked to a lot of the diagnostic testing that goes on around the world. So Doug, we’re going to be exposed to the diagnostic space in a number of different areas.

Thank you. Our next question is going to come from the line of Dan Brennan, UBS.

Great, thank you. Thanks for taking the question and congrats on the quarter. I was hoping to go to the more industrial parts of your business. I know you talked about it, I think, to Vijay’s question maybe could you elaborate a little bit? It looks like that business is certainly holding up reasonably well despite what’s going on in the broader economy. I’m wondering if you can maybe unpack that a little bit and maybe give a little flavor of like how that business is doing?

Yes. Thanks for the question. Good to here from you. Most of the exposure that we would characterize in industrial is going to be mapped into the advanced technologies & applied materials portion of our business, which is roughly 25% of the revenue. Within that, part of that is going to be kind of non-industrial in nature, the way we play defense, the way we play semiconductor, for example. And then you are going to have a mix of industrial-type exposure in various end markets, none of which would be by themselves more than a couple of percent of total revenue. So that’s going to pick up things like petchem, oil and gas, for example, mining, to some extent. And we are seeing kind of a mix of performance there. You take the mining business. We have a pretty unique exposure there, particularly to things like gold mining, where if you look at the price of gold, the demand curve has shifted from maybe being jewelry-dominated to more currency-driven in a kind of a flight to safety there in a macro crisis, propping up pricing and demand in that part of the business. Oil and gas, petchem held up generally pretty well in the first quarter. We have seen sequential decline as we moved into April as things like oil price and production have fallen off dramatically in line with the oil prices, think high single-digit type declines there, so pretty unique exposure to the space. And I think that combined with the diversification, it allows that part of our business to hold up reasonably well. We aren’t expecting significant growth in that part of the business this year. If you recall in 2019 that was a bit of a headwind for us most of the year just given some of the industrial weakness around the world. We did see sequential improvement moving into the first quarter, and while that’s moderated somewhat, it’s not a major headwind for us at the moment.

Great. Thank you for that. That was great detail. And I was hoping, I know, obviously, the biopharma, the biologic production business obviously is kind of a highlight for the company, but just more broadly, within your largest customer base, I think you talked about research holding up pretty well. Is it like – could you give a little more flavor besides the bioproduction piece and the research piece? I mean like how much of that business is maybe tied to clinical trials? Has that been a drag? Maybe give a little more flavor, similarly for your biopharma business and the different pieces and how – kind of how they did in Q1 and kind of how you think about the outlook? Thank you.

Sure. Sure. So as, biopharma, for us, is roughly half of the revenue, and that’s going to be split roughly two-third, focused in biopharma research environments and so the laboratory environment, and then roughly one-third of that is going to be focused in bioproduction. And within the research environment, obviously, we’re going to be bringing to bear the full breadth of our portfolio. Whether that be our proprietary materials and consumables or third-party materials and consumables, our services is going to play a pretty important part in those labs. We’ll have more than 1,000 associates embedded in our customers’ research labs, either sitting on the bench running experiments or managing the labs. And then, of course, in – we will support our customers. And I think that’s one of the unique aspects of our business model. And a key point to understand about our model is that we have fully integrated the business such that we can support our customers and the scientists in the lab to support their early phase discovery and process product development and then scale with them as they move through clinical trials. We obviously have a pretty robust offering in that space, and then ultimately serve their commercially approved platforms at scale with a pretty robust offering that allows us to participate in both upstream, downstream and formulation activities in those environments with our G&P portfolio. So we’re pretty well-covered in this space. And I would say, except for maybe a little bit of pullback in the first quarter in some of the research activities as some of the labs did pare back their on-site presence, an overwhelming majority of what we saw in biopharma was a continuation of the strength that we saw pretty much throughout 2019, which means you’re talking about high single-digit growth in the lab and essentially double-digit growth in the production environment. And we really see that continuing into April. We’re well positioned across all the different modalities, whether that be vaccines or monoclonal antibodies. Obviously, cell and gene therapy or emerging environments, we’re spending a lot of time in. And geographically, we’ve got good coverage, good presence at the CMOs, CROs, so pretty important part of our business. I think we’re well positioned to continue to realize the upside of a pretty attractive end market.

Great. Thank you. Michael.

Our next question is going to come from the line of Patrick Donnelly with Citi.

Great. Thanks guys. Maybe I want to think about the April decline, and I appreciate the color you gave there, any chance of a breakout? I know it’s only 15%, but how should we be thinking about the instrumentation equipment decline versus kind of that more recurring revenue side during April?

Yes. You’re hitting on, I think, a pretty important part of the story here, Patrick. So thanks for the question. That part of the business, and really anything that’s kind of CapEx-driven is, whether it be in this downturn or in previous downturns, is the part of the portfolio that gets hit the hardest as our customers, regardless of end market, obviously look to optimize cash flow and squeeze capital investments. And so as you look at where the headwinds played out in Q1, it was disproportionate into that category. Fortunately for us, though, it’s only 15% of our revenue. And I think when we talk about the resiliency of our portfolio and our model this is an important driver that we have relatively light exposure into that space and that category, down double-digits in April, not a surprise to us. And I think we would expect to see it at those levels, high single-digit decline, low double-digit declines until we start to see broader recovery. But that really highlights then the strength of the rest of the portfolio and being consumable-driven and being highly relevant in our customer’s research activities as well as in their production activities.

That makes sense. And then maybe one for Tom, just on the debt side and I know you’ve talked in the past, as recently as 4Q, about the re-pricing opportunities on debt, assuming things are maybe tabled a little bit for now. But maybe can you just talk through when you think there’s potential to do that as we get through corona or COVID here and get to the other side. How much of a priority that is for you guys?

Yes. I mean I wouldn’t be in this job if I knew exactly when the markets were going to kind of return to the status that we were seeing in early and mid-first quarter. But with that said, there has been some recovery, if you just kind of follow what’s going on in the debt markets where we participate. Most of our debt has – it trades, and it was kind of back to the levels that it was trading at, not quite all the way back to January, but a good degree of the way back. And so we are still very interested in going after and addressing the debt. There’s nothing built into our guidance for 2020, our original guidance. And so we don’t feel like there’s any urgency, and in fact, really, it isn’t – it wouldn’t be in our best interest unless a real – something very, very attractive, which we don’t see right now, came along. It wouldn’t make any sense to do any before October 1, anyways. That’s the first time our make-whole premiums expire. We wouldn’t have to pay them. But with that said, we are actively monitoring things. We have weekly discussions with advisers and banks that know the market pretty well and reasonably confident that as the year transpires, that our original plan of taking action on this would come into play. But it’s going to take a while for the markets to fully get back to a point where we can say with confidence that we know when and the degree of benefit that we are going to get.

Great. Thank you.

Holly, we’re running up on the hour, so let’s just take one more question.

Alright. Our final question then for the day will come from the line of Brandon Couillard with Jefferies.

Hey, thanks for squeezing me in. Michael, you mentioned launching a new protein A chromatography resin. You sort of talked through sort of the go-to-market strategy there, initial conversations with customers, and how significant do you think that could be kind of over the next 3 to 5 years if it was a pretty consolidated market competitively for that type of product?

Yes, thanks for the question, Brandon. As innovation, particularly in our proprietary human technology portfolio is an important part of our business model. We have been investing to enhance our capabilities around the world over the last couple of years of opening up chromatography labs in Korea. Our new center in Shanghai will be heavily focused on chromatography. And our flagship center in Bridgewater, where this technology was developed starting about three years ago, obviously, has a whole complement of protein expression all the way through to formulation capabilities. So we’ll continue to drive a lot of innovation into our bioproduction portfolio, and this is a great example of that. We’re pretty well-penetrated into the chromatography space. This was a gap in the portfolio, in not having a credible offering into the protein A space, and it represents probably half of the chromatography market. And so it really does expand our total addressable market. Performance is obviously critical and in enhancing recoveries. And I think the market is anxious to have alternatives, to your point, to the concentrated supply base that’s there today. I think there’s value in having independent supply chains for things like ligands and resins and such which this will provide. I think the performance, as we have tested it and sampled it, we put it at the top of the market. And so I think there’s a bit of a long-cycle qualification time on these things, as you know. We’ll get a lift into the lab market. We’ll see these opportunities immediately. It’s in the field. We have a very robust launch plan that was co-provided in the spirit of our ABS program. And our sales force is actively sampling and selling columns into the lab space as we speak. That will scale over time. And as it gets specked into new therapies and those become approved, we’ll start to enjoy higher revenues as those columns become commercial. So the impact will scale overtime, and we’ll obviously continue to invest in optimizing the solution and bringing new versions of it to market over time, but pretty excited to be able to introduce that at this time.

Super. Thanks.

Thank you. I would now like to turn the conference back over to management for closing comments.

Thank you, operator, and thank you all again for participating in our call today. As we close, I would just like to reiterate our commitment to supporting our customers as they navigate this unprecedented COVID-19 pandemic and seek solutions to protect and detect and treat the virus. Also, we’ll be remiss if I didn’t express my gratitude and admiration for the tireless efforts of all of our associates around the world who are living our corporate values every day, their passion and dedication to our mission, which is setting science and motion to create a better world, positions us to help bring life-changing therapies that can improve patient outcomes for people across the globe. And I think as we look at it, our mission has never been more important than it is today. I’m certain we’ll come through this stronger than ever before, and I’m optimistic about what lies ahead for not only our industry, but specifically for our business. I look forward to updating you all at the end of the second quarter. And until then, everyone, please take care and be well. Thank you for joining the call today.

This concludes today’s conference call. You may now disconnect.