Good morning. My name is Harry and I will be your conference operator today. At this time, I would like to welcome everyone to Avantor's Third Quarter 2022 Earnings Results Conference Call. [Operator Instructions]. I'd now like to turn the call over to Christina Jones, Vice President of Investor Relations. Mrs. Jones, you may begin the conference.

Good morning. Thank you for joining us. 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 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 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 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 supplemental disclosures package on our IR website. With that, I will now turn the call over to Michael..

Thank you, CJ. Good morning, everyone. I appreciate you joining us today. I'm starting on slide 3. As noted in the press release that went out earlier this morning, our third quarter financial results came in modestly ahead of the updated guidance provided in early September, driven primarily by the ongoing strength of our core business. In the quarter, we realized core organic revenue growth of 7.8%, led by strong performance in biopharma and advanced technologies and applied materials. Within biopharma, our bioproduction business remained strong, delivering approximately 30% core organic revenue growth. We expanded adjusted EBITDA margin by more than 100 basis points, reflecting contributions from our 2021 acquisitions, the favorable impact from growth of proprietary products, and our sustained focus on commercial excellence. Through the first three quarters of the year, our core organic revenue growth of 7% and adjusted EBITDA margin expansion of 130 basis points exceed our long-term targets. And our free cash flow has facilitated over $800 million in net debt reduction. We remain focused on executing our long-term growth strategy, including advancing a robust innovation pipeline, investing in our manufacturing and distribution capacity, and leveraging the Avantor business system to enhance the performance of our business. During the quarter, we had multiple new product launches to support nucleic acid, mRNA, and cell and gene therapy workflows, including cell lysis and viral inactivation solutions, and multi-compendial synthetic cholesterol. We also entered the final validation phase for the hydration expansion at our Aurora, Ohio facility to support our bioproduction customers with ready-to-use buffer management solutions. Additionally, we completed construction and produced the first batch from our new cGMP manufacturing hub in Singapore. Looking ahead, we are updating our full-year outlook to reflect our third quarter performance, $400 million of expected revenue from our 2021 acquisitions and current market conditions. I will take you through our updated guidance later in the call. Regarding capital allocation, we are concentrating our near-term M&A efforts on improving the performance of recent acquisitions. Also, in this macroenvironment, we think it is prudent to use our available free cash flow to reduce debt. We exited the third quarter with adjusted net leverage of 3.6 times, down from 4.2 times at the beginning of the year, and we'll continue to prioritize our strong free cash flows for deleveraging our balance sheet. We remain focused on execution and are confident in our ability to navigate through the current environment, drive our long-term growth strategy and continue to build momentum across our core business as we transition into a post-COVID environment and beyond. With that, let me turn it over to Tom to walk you through our financial results in more detail.

Thank you, Michael. And good morning, everyone. I'm starting on slide 4. Starting from the top of the adjusted P&L, reported revenue was $1.857 billion for the quarter, modestly ahead of the guidance provided in early September. Our core organic revenue growth was 7.8%, reflecting the ongoing momentum in our core business across end markets and geographies. Adjusted gross profit expanded to 35%, driven by the favorable impact of our 2021 acquisitions, strong growth in proprietary products, and ongoing commercial excellence. These positive factors were partially offset by increased cost of materials and freight. Adjusted EBITDA was $384 million in the third quarter, representing over 100 basis points of margin expansion and approximately 13% growth from last year after adjusting for FX headwinds. Margin expansion was driven by our gross margin performance and continued focus on cost management, partially offset by investments to support our growth strategy. Adjusted earnings per share came in at $0.34, driven by adjusted EBITDA performance, partially offset by higher interest expense related to Masterflex borrowings in September 2021 and FX translation headwinds driven by the continued strength in the US dollar. Adjusted net income grew about 9% after adjusting for FX, which represented a $0.02 headwind to adjusted earnings per share this quarter. We generated free cash flow in excess of $219 million in the quarter, representing approximately 95% conversion of adjusted net income. Our adjusted net leverage declined to 3.6 times EBITDA, down from 3.9 times in the second quarter, underscoring the rapid deleveraging enabled by our strong free cash flow generation. Page 5 outlines the components of our revenue growth in the quarter. Our core organic revenue growth of 7.8% was modestly stronger than expected, driven by approximately 30% core organic revenue growth in bioproduction and double-digit growth in advanced technologies and applied…

Thanks, Tom. Turning to slide 9, I'd like to update you on our 2021 acquisitions. Last quarter, there was some confusion regarding the numbers on this slide as compared to the numbers in the press release. As a reminder, this slide reflects all revenue and margin from these three assets, regardless of whether they were categorized as M&A or organic in a particular quarter. We recognize the need to improve the performance of these businesses, and I will share some of our action plans in a moment. We remain convinced that Ritter, Masterflex and RIM Bio are high quality assets that will accelerate our expansion in the growing biopharma and healthcare end markets. In early September, we reduced the estimated 2022 revenues from the 2021 acquisitions to $400 million. This includes $240 million to $260 million from Masterflex, a reflection of top line pressures related to ongoing component availability for our peristaltic pump category, as well as demand softness in our tubing category. Extensive customer surveying has confirmed that the key driver of current tubing demand is temporary and related to elevated customer inventory levels that are expected to normalize over the next few quarters. Masterflex has a leading market position. The installed base remains strong, and we continue to see robust demand from our bioproduction customers for our end-to-end fluid management solution. The $400 million contribution from M&A in 2022 also includes $130 million to $150 million for Ritter. Ritter had a stronger-than-expected Q3, driven by a modest shift in revenue from Q4, while core growth was in line with our long-term expectations. As anticipated, Q3 results and the outlook for Q4 reflect a moderation in European industrial demand and a Q2 roll off of COVID-related revenues. We remain confident in our ability to deliver approximately $400 million of…

[Operator Instructions]. And our first question is from the line of Derik de Bruin of Bank of America.

Can we just sort of like elaborate on the two points? You talked about the European macro and the excess inventory in the system. Just can you elaborate a little bit more on those and sort of what you're seeing there? Just a little bit more color in terms of what's going on with it? Didn't think you had as much macro exposure in some of those markets? So any color would be helpful.

I think relative to Europe, I think it's probably important to highlight that our European business performed actually pretty well in the third quarter. We grew mid-single digits in the quarter, which is certainly in line with our expectations. And as you remark, we do have a very diversified portfolio that covers a number of end markets, including biopharma and healthcare, which continued to perform well and run at a high level for us. Of course, the situation in Europe is a bit dynamic and something we're following pretty closely. As we indicated in early September, within our industrial exposure that is closely linked to kind of production output in application or end markets such as oil and gas and petchem, for example, there are pockets of softening there that certainly were reflected somewhat in the third quarter. And I think as we look into the fourth quarter, we see many of those same pressures continuing. Regarding consumables softness within the laboratory environment, that's, I think, an element that we see both in Europe, as well as in our Americas lab business, and that's probably not confined to any particular end market. We see that broad based within a certain set of consumable categories that were severely constrained during the pandemic. And as we look back here to combat some of those constraints, it's clear that customers opportunistically build inventory outside the normal procurement channels. And over the course of the pandemic, brought their inventories to an elevated level. This will be, Derik, for products like manual pipette tips and plates and things like centrifuge tubes for examples. Now that, across most of those categories, supply chains have normalized, raw materials are more available, lead times have been restored, we see customers being more comfortable in drawing down inventories back to more normal levels of destocking, if you will. And it's a dynamic that I think we see certainly somewhat in Q3 and persisting probably for the next couple of quarters as those supply chains return to normal stocking levels. Certainly, we view it as temporary. The engagement that we have with our customers would sort of indicate that's the case. And we're confident that the fundamental end market demand across all of our geographies and end markets remains strong.

Just to clarify your initial thoughts on 2023, so you still sort of see that 4% to 6% as the long term algorithm on the business. So, when you sort of think about 2023, excluding headwinds – so that would be the right place to start, right, on sort of like core organic 4% to 6% because you're not going to break out the core anymore, right?

As we approach any year, we, of course, start with our expectations around our long-term algorithm. And as I indicated in my prepared remarks, our conviction around our ability to continue to grow at those levels is firmly intact. And if we look at the first three quarters of the year, we're still running outside the high end of that range. So, I think your perspective is spot on there, Derik. As we look ahead and what we tried to do here today is just provide a few data points that we're certainly aware of around how we see COVID being handled for next year, certainly from a reporting standpoint. FX is going to be a bit of an issue. We see continued strength in our end markets, save a couple of these headwinds that we've referenced here in the second half of this year that are likely to persist, the magnitude of which is a little bit unknown at this point around Europe and how quickly some of the consumables inventory comes out. The dynamics for those products are short cycle, as you're aware, kind of book and ship type order dynamics. And so, we'll certainly take the benefit of the next several months here to see how that evolves here as we work through the fourth quarter, and we'll bake that into our outlook heading into the new year as we get into the early part of next year. But I would say the core business continues to be strong and will reflect these headwinds as we get a little bit more clarity on those moving forward. But your point around our conviction around 4% to 6% long-term growth is accurate and we view it as still intact.

Our next question is from the line of Vijay Kumar, Evercore ISI.

Mike, maybe my first question on this fourth quarter guidance. I think the core organic ex-COVID headwinds, we're looking at perhaps 3.5%, 4%, somewhere in that range. That's a comp adjusted slowdown of 800 basis points. What portion of that is inventory stocking versus a slowdown in Europe. When you think about the first half of next year, given your commentary about – these stocking dynamics take about six months to flow through, should we expect a similar magnitude of impact in first half of next year?

As you as you've seen, we've delivered more than 7% core organic growth to date, which certainly reflects the ongoing strength of the core business and especially our biopharma platform. We've reflected some of the headwinds that you've referenced around Europe industrial exposure and these liquid handling consumables, and our expectation for Q4 core organic growth is in that kind of 2% to 4% range, which it is important. I think if you're looking at kind of a sequential comparison to Q3, you do need to adjust for the impact of a day's headwind that we have in the fourth quarter. That's a couple of hundred basis points, in fact, with fewer billing days in Q4 this year as compared to last year. And when you kind of consider that, you'll see that our guide for the fourth quarter is certainly square in the middle of our long term 4% to 6% algorithm. And as we look ahead with only two months to go in the year, we're well positioned to deliver on the guidance that we've outlined today. In terms of the step down from, say, Q3 or maybe even more within this year, beyond just the structural headwind of fewer days in the quarter, the impact we're reflecting here on Europe and the lab consumables headwinds, if I think about it, is roughly equally split, Vijay.

Our next question is from the line of Tejas Sevant of Morgan Stanley.

Michael, a couple of quick ones for you. First on pricing and then on margins. On pricing, can you just talk to us about your confidence and your ability to pass through the inflation that you're seeing on your cost structure, particularly on the third party side of the business in 2023? Given the moving parts that you laid out here between the macro and the excess inventory and the COVID coming out and the FX, how should we be thinking about sort of margin trajectory in 2023, at least at a qualitative level?

Starting firstly around margins, I would reiterate the 130 basis points of margin expansion we've delivered to date, which is obviously well above our long-term algorithm of 50 to 100 basis points. And the key levers that drive that are certainly how we manage price relative to the COGS inflation that we take on as well as the mix impact of outsized growth of our proprietary materials, platform, and clearly, those levers have been fully intact and are something reflected in the margins that we've delivered. The team has done a really terrific job, I think, reflecting the impact of inflation in our pricing and we've done a nice job, I think, working collaboratively with our customers to get that reflected in a productive way. And as we look ahead, I don't think there's anything about the current inflationary environment or the pricing environment that would cause us to change our views in terms of the contribution of that lever to margin expansion going forward. In terms of the margin profile for next year, clearly, we’ll not have the incremental inorganic impact from our 2021 acquisitions, as all of those will have become fully organic here in the fourth quarter. So you're certainly targeting that 50 to 100 basis point range. Our view on inflation would indicate that it's going to be certainly higher than the normal, and we'll have to get that reflected up and down the P&L. We'll look at the volume assumptions and the impact on operational leverage, which is an important element here. And we'll obviously have to reflect the growth off of the assets that we've purchased here. So, I think that will be our starting point. And as we work through the quarter here and complete our planning going into next year, we'll see where we land, but margin expansion of 50 to 100 basis points continues to be our expectation over the long term. With some of the COVID revenues and the magnitude of those coming out next year and given a lot of those proprietary content, we'll have to put all that together and see where we land here, but certainly the margin expansion engine is still charging ahead fully intact.

Our next question is from the line of Brandon Couillard with Jefferies.

Mike, a couple of follow-up questions on the steps you're taking around Ritter and Masterflex. When you talk about improved accountability, what does that exactly mean? And what was suboptimal about how you approached that before? Then the 14 products Masterflex plans to launch next year, how does that compare to its historical cadence? Is that substantially higher? Or is that more of a normal year?

I think where I'd start is just reiterating our perspective that, firstly, these are super high quality assets that we've purchased, all three of them. And our conviction around their long term contributions is as high as the time that we purchased these assets. Particular to Ritter, we've spent some time talking about – the strategy for that business is to transform it from an OEM only model and to leverage our strong customer access in our channel to position the capabilities directly with the end customers. And we're very, very active in how we're doing that with very, very targeted sales activities, a lot of training of our reps to help them position these products with our customers. And we've got several thousand customer projects in flight. I think the lead time to drive the qualifications has certainly been impaired a bit by the rapid roll off of COVID and the impact on inventory through the channel for these liquid handling consumables that we produce. But as we kind of transitioned from this year and into next year, we see that rolling off, which should give us a bit more traction. From an accountability standpoint, the business has been tucked in under our regional structure and we've recently made some changes to pull it out and manage it alongside a dedicated set of leaders that run some of our proprietary assets to give it a more dedicated focus and help give it a bit more bandwidth and attention. From a new product introduction standpoint, I would indicate that historically it was a fairly narrow and somewhat of a nascent roadmap that was in place there, just given the focus on servicing the OEMs. As we now leverage the high precision consumables capabilities that they do have and interact directly with our customers, we see a lot of opportunity to expand the portfolio to serve a broader set of our customers' needs. And so, the pipeline has been invigorated to a large degree. Many of these investments that are necessary to support the launches that I referenced were initiated even up to 12 or 18 months ago. And the timeline there to launch is really governed by just the timeline to put the assets in place to produce the expanded portfolio. So, on kind of a rolling basis through the second half of this year and through the first half of next year, a set of these NPIs come online, and it will certainly help strengthen our positioning with the end customers.

Our next question comes from the line of Dan Arias with Stifel.

On Masterflex, it sounds like $240 million to $260 million for the year is still the outlook there, which I think implies about a $20 million or so step up sequentially from 3Q. So, can you just talk to the expected acceleration there and the extent to which there's a seasonality element that you think might play a role?

As we talked a little bit in early September, Masterflex's revenue in the third quarter was impacted by some of the persistent supply chains we're having around our peristaltic pump category, particularly around component availabilities and things like printed circuit boards. And I think we'll continue to deal with some of the challenges in that supply chain. We have a really terrific order book and backlog for that category. And as some of the supply chain challenges ease on that part of the offering, we'll continue to see a step up in growth of that category. The other key challenge in the business kind of linked to this theme of consumables destocking related to supply chain security concerns that's kind of a persistent throughout the pandemic, there was certainly a softness in the tubing demand associated with these platforms that started to become evident in the third quarter, and we'll see that continuing into the fourth quarter. Nothing structural. We're obviously pretty close with our customers on this. And I think you'll start to see them incrementally returning to the market here in the fourth quarter and as we move into the first half of next year. So, the guidance that you've referenced, we're probably focused more on the lower end of that range as we look ahead, which does imply probably a modest step up here in the fourth quarter, which is linked to a bit better supply chain conditions, perhaps, and similar, if not, incrementally better demand in the tubing category. But we'll be in and around that, probably the low end of that range on Masterflex.

Dan, this is Tom. Just to add a little bit more on your question on seasonality, as you know, one-third of the Masterflex business is the pumping and the rest of it is consumables, the two-thirds is consumables. So, on the pumps themselves, we've got a decent open order book that is subject to the constraints we talked about on the supply chain. But as you would expect, Q4 tends to be a little bit bigger quarter from a capital perspective, if your customers are releasing or consuming the rest of their capital budget. So that element of it supports the incremental as well.

Our next question comes from the line of Dan Brennan of Cowen.

Sounds like it's a one-question Q&A. Maybe I'll ask kind of a multi-parter, if you don't mind. So, Europe, obviously, was solid this quarter, mid-single digit. You did note, obviously, some of the pressure points there. Just how are you thinking about like kind of what's assumed in 4Q and the jumping off point as we look ahead. And then on bioproduction, obviously, a really solid quarter again, 30%. Just similarly, kind of what's the right way to think about that growth rate. Obviously, that's running pretty hot right now. And as we look at it 4Q and beyond, kind of what's the right trajectory there? And then a final one would just be, could you just remind us like what is Avantor's cyclical exposure? Like, how much of your business goes into end market you consider cyclical? I know there's different definitions today, given some of the semi business is probably more structural growth. But just if you can help us define that.

I'll do my best to stay on track there with your multi-part question. Maybe taking them in the order I've written them down here. Your point around bioproduction is an important one. That's obviously been a really important driver of our growth and will continue to be so. Year-to-date, we're running off 20%. We had a great quarter in the third quarter with more than 30%. We continue to experience healthy end market demand for our offerings, and certainly are confident in the industry drivers behind that that we see as persisting. We've got a super strong order book that's at this stage by more than three times our historical level, and we've got a historically high backlog as well. Obviously, we're making a lot of investments in our supply chain. Raw materials are becoming a bit easier to come by, and we're really focused on improving service levels and lead times to our customers. As I look ahead, we're poised to have another strong fourth quarter, and we'll deliver, I think, good momentum going into next year as well. As it pertains to Europe, obviously, there's a lot of noise around Europe at a macro environment. And when I look over the last couple of quarters, on a core basis, which is probably the right way to think about it, given our COVID headwinds are a bit more allocated into Europe, given we did more testing related revenues there in 2021 than in the other regions. But on a core basis, we've been running the last couple of quarters in our – kind of right in the middle of our expectations for that region of mid-single digits, which I think compares pretty favorably to how the region has performed historically. Continue to get really good traction from a pricing…

The other thing, Dan, just to point out back to Europe is, we're not talking about any significant step down. There still is growth. It does moderate. The first three quarters of the year, we were 5%, 6% on a core organic basis. And we've modelled that lower single digits in Q4. So it's a moderation and not anything else.

Our next question is from the line of Jack Meehan from Nephron Research.

Just wanted to focus on the balance sheet, make sure we're all aligned around interest expense expectations. So what does the fourth quarter guide assume for interest expense? And if we follow the rate curve and assume the debt paydown 2023, just where would interest expense land in 2023?

A couple things to point out. I know there's been some sensitivity to this. Our model continues to work on debt. We've actually paid down over half a billion dollars of debt in the current year. And we've taken actions to fix our interest rate exposure, but we're probably roughly 70% fixed when you consider or incorporate the impacts of the hedging that we've talked about. So we've been able to, over the course of the year, maintain our interest expense exposure in that $260 million range, in line with the original guide, despite all the increases you've seen. It may be a little north of $260 million by the time the year rolls out, but it's been well contained, particularly in light of those increases. For next year, we've talked about a shift in short term priorities of delevering – to more delevering and we'll continue to do that. And I think the impacts of delevering will give us a nice offset to impacts of the rising interest rates on that 30% of the portfolio that's not fixed. So when you when you factor that in, I would expect us to continue to be able to maintain interest rate expense below $260 million. We'll give you a more refined guidance on that as we get to 2023 guide.

The next question today comes from John Sourbeer of UBS.

Just maybe a little bit on M&A here. It sounds like you're not going to do any deals here over the near term, but the deal model hasn't changed. I guess what would it take for the company to become more active M&A over the next 12 months and any learnings, additional learnings you can provide from the recent deals as you integrate them as you look to potentially do more on M&A?

As I think Tom indicated in his prepared remarks, M&A continues to be an important part of our playbook and our long term value creation story. And so, certainly, something we're committed to doing. And as you have seen us announce here in the last couple of quarters, we're continuing to invest in enhancing our capabilities there. Kitty Sahin has joined the team and really hit the ground running and brings an incredible depth to the team, both around organic as well as inorganic growth experiences across the core end markets that we're focused on. And as she continues to build out her team and start to refine our playbook here, I think we're excited about the capabilities that we'll have to support our strategy going forward. So that's certainly a big part of the focus. But her and her team are actively engaged in supporting us with the integration and synergy capture activities with the deals that we concluded last year and helping support some of the sprint teams that I mentioned that are meant to drive an acceleration in our commercial synergies that have been identified in those businesses. In terms of what would cause us to be able to conclude a deal or when we might be ready to conclude a deal, it's a challenging macro environment, for sure. Debt markets are more than dislocated at the moment, and there continues to be, I think, a pretty meaningful valuation disconnect in the market, particularly for a lot of the private assets that would be in our pipeline. So with some of the macro concerns that are out there, together with some of the challenges around the debt markets, I think it's prudent, in our case – we've made great progress on deleveraging. We'll finish the year 3.5 times levered or below, and we'll be able to drive that down meaningfully in the coming quarters as we apply free cash flow to do that. And that's an important element of what Tom just described around managing interest rate expenses. And we're looking – continue to drive pipeline activity, enhance our capabilities and watch the markets closely. And I don't know that we necessarily have a particular time on the calendar mark that would trigger us to be more active here. We'll continue to watch the markets as they develop, and we'll continue to work our pipeline. But as Tom mentioned, the bar is high here in the near term and we think we can add a lot of value to our shareholders by deleveraging and managing our interest costs.

Our next question is from the line of Tim Daley of Wells Fargo.

I just wanted to dig a bit more into the moving pieces around the margin outlook. So Michael, you described two major factors in 2023 that we've gone through a lot in this call impacting growth framework. The two big ones are European macro softness and the inventory destock. So just thinking about those two buckets, Europe is the lowest margin region in your business and outside of Masterflex, correct me if I'm wrong, it seems like most of the destocking is happening within the legacy VWR portfolio, which is lower margin than the proprietary book. So these two pieces being kind of a headwind to growth would suggest a bit of a tailwind to margin. So how should we think about those two pieces moving? The other moving piece is, obviously, heading into next year and then relative to the kind of margin accretion framework that you guys have for the multi-year basis?

I think there's probably a couple other factors worth pointing out. The takedown of more than $200 million of COVID-related revenues in the year, which does bring with it a fair bit of proprietary content is important to consider and the impact that that will have on margin expansion. And then just on a comparative basis, we're not going to get the inorganic lift from M&A, like we experienced this year. So important to keep that in front of you as well. And then, the other item here is just around inflation and kind of what the spread is that we can drive from a price relative to that inflation, which I think we're confident that will be positive. And I think we're still kind of refining those models to see how much expansion that's going to drive. It'll certainly be an important contributor for next year. So those are probably the factors you mentioned – some of the revenue headwinds around liquid handling consumables and maybe some of the industrial concerns in Europe. And as I look ahead, I think we'll certainly see margin expansion next year given the confluence of these factors. You're probably on the lower end of our historical algorithm, but we'll see where we land here as we work through the next couple of months and come out with some more fulsome guidance early in the new year.

Our next question is from the line of Andrew Cooper from Raymond James.

A lot has already been asked. So, maybe just diving in on one more piece in fourth quarter. You mentioned the $20 million contribution from COVID in the acquired businesses this year, but obviously that feels like it's getting folded into the organic piece for 4Q. So can you give us a sense for how much "COVID revenue" was maybe coming out there? And then, just on the M&A at a higher level, obviously, the EBITDA margins from 3Q are nice, year-to-date are nice, but as we think about some of these headwinds in those businesses, how do you feel like you're doing on the margin side there, especially with some of the investments that are coming? Is that stable or is it on plan? What should we be thinking about for 2023?

Andrew, you're talking margin specifically on the acquisitions?

Correct, correct.

Okay. Yeah. Those continued, as you've seen this year. The gross margins on those proprietary products in both Ritter and Masterflex have far superior gross margins to Avantor. And they scale very, very nicely. If we can get the sales engine going in each of those, you'll see some nice accretion. So the growth rate there continues to be a nice driver for us. But, overall, the EBITDA margins on each of them, you can see the impact. They're in the mid-30s, if not approaching 40%. So, definitely, they're intact. Again, the volume and the scale on that is pretty important. Back to the COVID question and on the COVID revenues, you're right that the additional COVID exposure from the two deals that gets factored into our overall COVID headwinds at the point that each of those deals becomes organic. So for Ritter, it was June 12 of 2022 it reached its one year mark. And going forward from that point, you want to reflect the reduction in COVID related revenues for Ritter. Same thing for Masterflex. That happens on November 1. The additional impact is more so related to Masterflex than Ritter. But you're right, you got the numbers roughly right there.

And our last question today comes from Matt Sykes from Goldman Sachs.

Just one long-term question. Michael, as you think about 2022 with it sort of in line of sight and as a jumping off point, can you just talk about sort of how you feel about the progress towards the 2025 targets you set out last year at the Investor Day, the 22% margin, $2.40 EPS, $9 billion to $9.5 billion in revenue. And just you mentioned the growth algorithm is intact, but, obviously, there's going to be a lot of macro challenges you also outlined. Maybe can you just kind of talk through how you're thinking about this 2025 targets you had set out?

Thanks for the question, Matt. It's certainly an important one. As we think about our long term algorithm, mid-single digit organic growth, margin expansion of 50 to 100 basis points and kind of mid-teens EPS expansion coupled with really strong cash flow and high conversion, that's essentially the model that we're focused on and running. And as I've iterated a couple of times today, there's nothing that we've seen in the end markets, our experience of this year, that would cause us to change that. And clearly, our growth strategy and the investments that we're making would have us looking to find ways to even accelerate and move higher than [indiscernible] push those targets even higher. But as we're sitting here today, that's the algorithm that we're working. And you see it playing out even through the first three quarters [indiscernible] in line with that algorithm. So there's nothing around that that changes. Obviously, the jumping off point here as we work through the COVID takedowns and some of the macro pressures and such could influence the absolute targets that are out there and something we'll revisit it, probably is in line with another Investor Day at some point, perhaps later next year. But I think the key point here being mid-single digit growth, strong margin expansion and strong flow through to the EPS is clearly in sight here. And the model is, in fact, running on the high end of all those elements today.

Great. I'm afraid we have no more time for any further questions. I'd like to hand back to Michael Stubblefield for any closing remarks.

Yeah, thank you. Thank you all for participating in our call today. As I close, I just would be remiss if I didn't express my gratitude for the ongoing efforts of our nearly 15,000 associates around the world that inspire me every day with their commitment and their contributions to our business and to our customers. I'm confident in the strength and resilience of our business, and I look forward to updating when we meet next. Until then, take care and be well everyone.

This concludes Avantor's third quarter 2022 earnings results conference call. Thank you all for joining and you may now disconnect your lines.