Good morning. My name is Emily and I'll be your conference operator today. At this time, I would like to welcome everyone to Avantor's 2023 Second Quarter Earnings Results Conference call. After the prepared remarks, there will be the opportunity for any questions. [Operator Instructions] I will now 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, and good morning, everyone. I appreciate you joining us today. I'm starting on Slide 3. Our second quarter core organic revenue declined 6.5%. Relative to the first quarter market trends weakened sequentially particularly in biopharma where mid to large pharma customers moderated their spend and continued to reduce inventory and ongoing funding constraints for small biotech persisted. Sales in our Advanced Technology and Applied Materials end market were impacted by sharp declines in sales of formulated solutions to semiconductor customers. We also experienced sequential weakness in sales of equipment and instrumentation associated with tighter capital budgets across all end markets. The sustained momentum in our biomaterials and education end markets partially offset these declines and we are encouraged by the double-digit growth in our medical-grade silicone platform, as well as continued mid-single-digit growth in Education and Government. We continue to leverage the Avantor Business System to drive cost savings and enhance operational rigor and efficiency. These productivity efforts and cost containment measures helped mitigate the soft demand environment and enabled us to deliver solid bottom line results including 19.7% adjusted EBITDA margin and $0.28 of adjusted EPS. We also have strong free cash flow momentum and generated approximately 85% free cash flow conversion to adjusted net income in the first half and paid down over $400 million of debt in the same period. While current market conditions are negatively impacting the entire industry, we are confident in our platform market position and long-term growth outlook and the resilience of our end markets. We are doubling down on our actions to accelerate our growth strategy and control costs to help offset industry headwinds and ensure that we are positioned to capitalize when market conditions improve. First, we have taken steps to align our organization and key leadership roles…

Thank you, Michael, and good morning, everyone. Starting from the top of Slide 5. Reported revenue was $1.74 billion for the quarter. Revenue declined 6.5% on a core organic basis, reflecting high single-digit declines in biopharma and Advanced Technologies and Applied Materials, resulting from lower activity levels constrained spend and continued inventory destocking by our customers, partially offset by ongoing growth in our healthcare and education and government end markets. Adjusted gross profit for the quarter was 33.8% with the reduction from 2022 driven by lower overall volumes, negative mix impact of lower bioprocessing and semiconductor revenue and the roll-off of margin-rich COVID-19 revenues, partially offset by productivity efforts and lower distribution costs. Adjusted EBITDA was approximately $343 million. Q2 adjusted EBITDA margin of 19.7% was above our guidance with positive impact from cost containment, productivity and lower incentive compensation costs, offsetting the negative impact of lower gross profit margins. Adjusted earnings per share came in at $0.28 for the quarter, reflecting the flow-through of adjusted EBITDA performance, interest expense in line with expectations and a modestly higher tax rate. We also recorded a non-cash impairment expense of approximately $160 million in the second quarter, which reflect a reduction in the fair value of the Ritter assets driven by persistently high customer inventory in the end market served by Ritter and an overall slowdown in the research spending environment. The declines in actual and projected income for Ritter have also led to a reduction in current and future tax benefits leading to a tax rate of 24.2% for the quarter. We remain focused on realizing the long-term growth potential of this business by introducing new products and leveraging our channel to expand Ritter's customer base. Moving to cash flow. We generated $138.1 million in free cash flow in the quarter,…

Thanks Tom. Turning to slide 9, I'd like to take a moment to walk you through our updated 2023 guidance. As you recall, our prior guidance was predicated on a continuation of first quarter end market dynamics and a modest seasonality pickup in the second half of the year. Given the sequential deterioration experienced in the second quarter, we are updating our guidance to reflect the second quarter revenue miss, and the extension of current end market trends through the balance of the year. This results in organic revenue declines of 9% to 7% and core organic revenue declines of 6.5% to 4.5%. Applying current exchange rates, we estimate reported revenue of $6.89 billion to $7.04 billion. We expect adjusted EBITDA margin to contract between 200 basis points and 150 basis points, which incorporates our view of lower volume, offset by productivity and discretionary cost control. We expect interest expense of approximately $290 million and a full year tax rate of 23%, leading to adjusted EPS of $1.04 to $1.12. We're also updating our free cash flow range to $600 million to $675 million to reflect the adjusted EBITDA guidance and a continuation of our free cash flow performance from the first half of the year. Regarding phasing, we expect a relatively consistent performance between Q3 and Q4 for total reported revenue, adjusted EBITDA margin and adjusted EPS. The primarily short-cycle nature of our business model, coupled with a dynamic operating environment, makes forward visibility particularly challenging. We believe our updated guidance appropriately reflects the realities of the current macro environment and does not contemplate any material change in end market conditions. We recognize that our second quarter results fell short and that we have made a meaningful change to our full year guidance to reflect the current market conditions.…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from the line of Tejas Savant with Morgan Stanley. Please go ahead. Your line is now open.

Good morning, Michael and thanks for the time here. Perhaps to kick things off, can you just help us allocate that 600 bps haircut your core growth expectation across end markets and comment on linearity during the quarter and how July shaped up? And also, what exactly are you assuming in terms of a year-end budget flush in the new guide?

Hi. Good morning, Tejas and thanks for the question. Happy to give you some color on how we have framed our full year outlook. As you suggest, we've dropped at the midpoint our outlook by about 600 basis points. And if you unpack that about 100 basis points of that is just a reflection of the Q2 miss getting rolled in. And then that leaves you with roughly 500 basis points, which is probably the way I'd think about it is to have that split roughly in equal parts between our expectations for bioproduction as we move through the back half of the year as well as a continuation of current rate of sales into our Biopharma research environment. And I think that gets you to the 600 basis points that you referenced. If you think about the phasing of that as I suggested in my prepared remarks, we anticipate Q3 and Q4 having roughly equal levels of reported EBITDA, EPS, as well as reported revenue. And as we're working our way through July, I would just say the experience we're having up until now I think is consistent with how we're framing the outlook for the balance of the year. You had one more question as let me address that as well. So if we think about the full year what we've tried to do here is just recognize the current macro environment, the trends that we saw in Q2 and extend those through the balance of the year. So that would really not contemplate much if any of a budget flush this year.

Got it. That's helpful. And then on share loss Michael, any color there? I know in the past you've shared metrics like churn, web traffic, et cetera, all looking good. But just as you looked at those trends evolve are you still confident that sort of outgrowing your end markets here? And any updated color on how you're doing relative to the customer R&D spend that you track?

Yes. Thanks for the question on the opportunity to weigh in. Yes, I think as you would expect I think we continue to be rather bullish about our positioning within the end markets that we're serving. And one of the proof points I would point you to in this quarter is a validation of that is the strong growth that we delivered in the academic end market within the Americas. We grew in that space double-digits this quarter, which really is a reflection of the commercial intensity that we're driving across all of our end markets. And as end market health is recovering in certain pockets, we're certainly there to grab our share or in this case probably more than our share of the available opportunities. We do track a lot of different metrics. We hold ourselves to a high standard here and do expect to grow in line if not faster than our end markets. And whether it is our digital traffic, our win rates our share of our customers' R&D spend all these things that we do look at real time and we continue to be very confident that we're well positioned in each of the end markets that we serve.

Got it. Thanks for the time, Michael.

Our next question comes from the line of Michael Ryskin with Bank of America. Michael, please go ahead. Your line is now open.

Great. Thanks for taking my question, guys. First I kind of want to go back and do a little bit more comparison of your commentary after the 1Q call and in May at some of the conferences. And then today I think previously you kind of indicated that the majority of what you're seeing from Biopharma was destocking any underlying demand, robust underlying churn. You highlighted except the ends some of the specialty chemical that was a couple of months ago now it seems like you're having a little bit more color on demand weakening. So I was wondering if you could just elaborate on that. You mentioned R&D a little bit. Anything you can delineate between R&D and production, maybe you could give us a magnitude for the demand weakening from an end market perspective, how much has it slowed over the course of the quarter.

Thanks for the question, Michael. First, around destocking I think from our perspective, the headwinds that we face both in lab consumables as well as in our single-use solutions, I think we saw those destocking headwinds play out as anticipated. And consistent with previous reporting periods, we have done a tremendous amount of engagement with our customers and the data that we're getting from our customers would certainly, support significant improvement in inventory health and which gives us some encouragement going forward. But relative to what we saw as we move through the quarter, in addition to the destocking playing out as anticipated, we did see market slowdown in overall demand in the production environment, as our customers adopted a bit more cautionary approach as we move through the quarter. And part of that is certainly linked to them, managing their own working capital and their own end market -- or their own end product inventories, part of that also reflects our improvement in lead times. But we do see campaigns, and projects getting pushed out into the latter parts of the year into next year. And on the R&D side, similar type dynamics in that as we move through the quarter, we started to see constrained spending of the capital budgets reflected in our equipment and instrumentation category, which I think we highlighted at a number of the public remarks, we made in the quarter. And then we also saw, more constrained approach to how they were spending across consumables and other categories, as they implement their own productivity actions around site closures and head count reductions. And certainly, we did see an impact on overall activity level in the quarter, which was a little bit of a change from what we've seen in previous quarters. Encouraging though, as Tom mentioned, in his remarks, we did see a stabilization within the biotech space, which was off significantly in Q1 and we saw it stabilizing in Q2. So, those are a few of the things that we saw in the quarter Michael.

Any way to just put a number on that, let's say, that end market used to grow 5% as it down to 3%. Is it 0? Is it negative 5%? Just give us some sense of, how much demand slowed.

Well, we were in both research and production, Michael we were down high single digits in the quarter. And if you kind of compare with where we have been, for Bioproduction for example, in Q1, we grew low single digits. So that was roughly a 10-point deceleration that we saw there in the quarter. And then on the lab side of things, we also saw that deteriorate maybe 5, 6, 7 points something like that in the quarter as well. So both parts of our Biopharma exposure certainly, weakened as we move into the second quarter.

Got it. That's helpful. And then just real quick, on the margin guide. I appreciate some of your color on the puts and takes there. But if I'm doing the math right, it still looks like you're guiding to about 100 bps sequential decel in margins. You're guiding to about 18.7% 18.8% EBITDA margin in the second half versus 19.7% in the second quarter, it's about 100 bps drop off on revenues that are relatively consistent on a dollar basis. So, is there -- I mean just sort of what's driving that? Is it mix shift away from proprietary? Is it the less price? Is there some added cost coming in the second half, just walk us through margin bridge of 2H?

So, yes, there's two or three things there that I think are critical to understand is we're reflecting the step down in margins in the second half of the year as you referenced. I think if you look at what we said a quarter ago to what we're saying now it's about 125 basis points of decline on a full year basis. And the way I would think about that is it's roughly 200 basis points associated with lower volumes and a weakening mix to reflect the experience that we had in the second quarter and that is offset by roughly 75 basis points of productivity and cost controls.

Okay. Thanks.

Our next question comes from the line of Luke Sergott with Barclays. Luke, please go ahead. Your line is open.

Great. Thanks for the question. Just a couple of clarifications here Michael and Tom. Can you give us the update on the actual destock dollar in the 2Q and now what you guys are expecting for the second half? Because you guys saw before everybody else so we would thought that you would see it alleviate before everybody else. So just give us an update on that please?

Yes. Good morning, Luke. Good hear from you. As we have talked about in previous quarters we've been seeing somewhere in the order of 500 basis points to 600 basis points of destocking in our business. And I think that's consistent with our experience in the second quarter. We have a new variable a new dynamic though that is making the ability to give a precise number for destocking a little bit more challenging as we move into the second half of the year, because we're also now starting to see or we did see a deceleration in just overall demand within the bioproduction space linked to again a more cautionary approach and a push out of some of the projects and campaigns. And so at this stage it is difficult to kind of parse that between demand versus destocking since it's pretty widespread at this stage. But I would point you to the data that we have on our customers' overall inventory health. And this is something that we've been really close to for nearly a year now. And what we're seeing there is continued improvement. The survey data and the feedback from our customers continues to trend in the right direction. And I think when I look at where our customers' inventory is of these destocked categories or these overstock categories and how they're thinking about forward demand. It is encouraging. And when I look at within bioproduction the category that was most overstocked was in our single-use platform. And I referenced in my commentary one of the leading indicators that we look at in that particular business is overall engineering drawing activity. That's really the start of a customer's demand and kicks off the whole process. And we have seen a market uptick in engineering activity, as we got into the second quarter and that will take time to convert into orders and then there's a lead time on the back of that to get into revenue. But that is another signal that gives us some encouragement as we think about our current environment.

All right. Great. And then just two quick follow-ups. I guess on when you're talking about engineering drawing I live my life behind Excel, so I have no idea what that means. So can you help like justify or not justify help lay it out like before the time frame of when you're starting to see the engineers draw up plans? Like for what drugs are they doing? And then by the time they start placing orders and manufacturing drugs? And then the follow-up on that would be you talked about the inventory surveys looking better. Have you built any of that into the guide, or is this -- could this be a source of upside for the back half of the year?

Great question. Luke on the engineering activity so as we talked before, our single-use platform it's a custom platform where we're designing custom assemblies and manifolds and connectors and every opportunity that we have with our customers is going to be unique and requires custom engineering. So they'll come to us with a request for a design. Our engineers will go to work and turn around a design. We'll collaborate with them. And then ultimately that will translate into an order. That whole process can take a few months from when that is kicked off when it ultimately manifests itself in an order that they're ready to move forward with. And then depending on what it was we obviously have lead times that could be in the two to three month time frame for building those products. So I hope that gives you some color to what that would look like on a leading indicator basis. And then just in terms of what we've built in here in terms of some of these positive signals, I'll just take you back to what we've said about how we've guided. We're grounded in the conditions that we experienced in the second quarter and we've extended those through the back half of the year. So to the extent that there was a material improvement or I guess a material deterioration in either direction that wouldn't be contemplated in our current numbers.

Great. Thank you.

Our next question comes from the line of Vijay Kumar with Evercore ISI. Vijay, please go ahead. Your line is open.

Hi, guys. Michael and Tom, good morning. Thanks for taking the question. Just one on revenues here. What was China in the quarter? And you mentioned back half guidance is contemplating second quarter trends. I'm curious, July it looks like things were soon in second quarter right when you think about the phasing. When you look at the July exit rate -- are we at the -- are we seeing an improvement versus June, or are we at the levels seen in June?

Hey, good morning, Vijay. Thanks for the questions. On China, I think we've been clear that we don't have a significant exposure there in China. It's a few percent of our overall revenues. But I would say that the trends that we saw in the second quarter are consistent with what you've heard others report it is weak and not particularly constructive at the moment. And that gets reflected then in the overall performance that we delivered in the EMEA region. When I look at kind of China being a source of weakness, I combine that with the semiconductor headwinds that we have in the region as well. Those are the key drivers for the print that you see there for the EMEA region. And it does really unfortunately mask some pretty positive signals in our Bioproduction business in Korea and in Southeast Asia where we continue to see pretty strong core organic revenue growth. But certainly China is a drag at the moment. And then in terms of what we're seeing in July, you are correct that we did see kind of sequential weakness as we move through the second quarter. I think our experience in July does reflect what we were seeing there toward the end of the quarter and is certainly contemplated in our view that it's prudent at this stage to extend those second quarter trends through the back half of the year.

That's helpful Michael. And Tom, all the best to you as you transition maybe one on the margin question for you here. Revenue is simplistically cut by 6% EPS cut by 18%. When I look at second quarter margins, it was pretty impressive despite the revenue miss. I'm curious why it looks like no incremental cost actions are being contemplated despite the revenue cut. Just walk us through your thought process on cost actions.

Yes. So, just a couple of things to unpack there Vijay. First of all on the sales versus the EPS revision in the total year guidance, at the midpoint, it's roughly $0.20 or $0.24. I'd say that 60% of that is just from the top line. I mean at the midpoint, there's probably $400 million or so sales coming out. And if you take that out at the margin rate that gets you about 60% of that. The balance is the combination of lower gross margin rate because as Michael talked about, fair amount of the sales reduction for the second half is in proprietary products which are margin rich for us. So you got -- you have maybe 100 basis point pressure on the gross margin in the second half. And what you see then is between two of those, that's most of the EPS impact a little bit of favorability on the TOE side like the SG&A probably $0.06 or so and the balance is noise between tax and interest. So it's primarily top line driven, a little bit of gross margin rate and offset by productivity. So we do have productivity, additional productivity coming through. When you look at the first -- or the second quarter, we were down on the margin rate, probably had 350 basis points of pressure from the top line, just volume as well as margin rate from the higher proprietary products coming out. But you did see some nice offsets on the SG&A side, as well as some other productivity initiatives in the supply chain that helped us to offset that and deliver the 19.7% I would say those same factors are in play for the full year guide. So while we still expect that adverse mix impact that I talked about, we will continue to get productivity offsets. And we've -- in my commentary is the words doubled down. We already had coming into the year a number of different specific productivity projects on top of what we normally do around productivity site closures and delayering and so forth. We've identified additional opportunities. In addition, as you would expect, Michael's got the team going after discretionary spend and some other productivity things. So, I'm pretty confident that the margin rate we're able to offset some of that top line.

Understood. Thanks, guys.

Our next question comes from Rachel Vatnsdal with JPMorgan. Rachel, please go ahead. Your line is open.

Great. Good morning. Thanks for taking the questions. I wanted to follow up to an earlier question around bucketing the guidance cut. So I believe you had said 100 basis point miss and then the rest of the guide cut was split between Bioproduction and Biopharma. So could you just walk us through your updated expectations for Instrumentation and Equipment? Are you seeing any incremental weakness in that Instrumentation business especially within distribution channel? And then on semiconductors are you expecting any incremental weakness there just given the prior guidance and then the 75% decline this quarter in that market?

Yes. Good morning, Rachel. Thanks for the question. A couple of things to unpack for you there. On equipment and instrumentation, if you recall, in the first quarter we were down low single-digits and as we showed in our materials we were down mid single-digits in the quarter. And that was pretty pervasive. That was across really all of our end markets. We certainly saw it in our Biopharma R&D, but it was also in our other end markets as well as we just do see customers taking a more cautionary approach to capital spending. When you think about your question around semiconductors it played out as roughly in line with our expectations for the second quarter. It was a little bit weaker perhaps, but more on the margin. What we've baked in for semiconductors in Q3 and Q4 consistent with our overall approach to our guide is that those conditions would persist, which hopefully proves in this case to be a bit conservative if you listen to some of the commentary from our customers as they're in the middle of their earnings seasons you do sense a pickup in sentiment and outlook and we're hopeful that translates into better performance in the second half of the year. But what we've assumed for semiconductors is similar levels that as we saw in the second quarter persisting through the balance of the year.

Great. Thank you for that color. And then maybe just shifting over to more bioproduction biopharma. Can you talk about how many months of visibility you have in bioproduction right now given the destocking and demand dynamics. And then regarding your comment of weakening demand large to mid-sized biopharma. Can you talk about your conversations with those customers? How likely is it that we could see a catch-up in spending later this year, or are budgets really getting cut for 2023 based on your conversations? And then lastly how are those customers thinking about project level activity heading in to 2024? Thank you.

So firstly, on bioproduction. You know, consistent with what we've said before, we do have a historically high order book and backlog. We're still probably more than 2x of orders in hand at what we had on kind of a pre-COVID level. Now that has been normalizing as we've moved through the year, consistent with improving lead times and consistent with some of the destocking dynamics that we've seen play out as we've moved through the year. But we're also seeing just an overall reduction in overall demand as well at the moment. But pretty strong order book. Now as that gets phased into a particular reporting period or a particular month, we would generally have maybe half of the demand that we might expect to service in a given month in an order and then we would take orders throughout the month on some of the portfolio that has shorter lead time. So we typically think about visibility there in terms of 2 months to 3 months on a forward basis, but that would only probably cover maybe 50% or 60% of the demand that we would expect to serve in that particular period. In terms of the research space, structurally, it's a little bit difficult to look ahead at just given the short order cycle nature of that business, where we have more than 6 million SKUs. We're serving more than 300,000 customer locations -- and so the -- you get more macro level commentary from your customers as opposed to specific forecast that can translate into demand planning. So as we said before, limited visibility on a forward basis there. But as you see, our customers roll through their earnings seasons and ongoing announcements of reductions and reprioritization of pipelines and more constrained spend and a focus on productivity, that is certainly being reflected in the high single-digit decline that we saw in the second quarter, and it's our expectation, at least based on the way we've modeled that we would continue to see that as we move through the balance of the year.

Our next question comes from the line of Matt Sykes with Goldman Sachs. Matt, please go ahead. Your line is open.

Hi, good morning. Thanks for taking my questions. Maybe just following up on your comments about biotech seeing some level of stabilization. I understand that there are pretty large differences in the funding dynamics for small biotech and large biopharma. But does that stabilization give you kind of any sort of phasing information in terms of how large biopharma might recover? Is this sort of a first-in first-out dynamic, or do you think those two customer cohorts are different enough due to the funding dynamics and other things that that's not the case?

Yeah. Thanks, Matt. I'm not sure I would necessarily try to link those two segments, what we're seeing there. The funding dynamics are quite different in both cases. It is encouraging to the trends that we are seeing on biotech. I mean I think there was a bit of an uptick in funding in the quarter. And certainly, when we look at our sales to that segment, it was quite similar to what we saw in Q1. So we're hopeful that, that trend continues and that maybe we're on the way to recovery there. But I would say that the drivers and the priorities of the two segments are different enough, but I probably wouldn't try to correlate those two Matt.

Great. Thank you. And then, Tom, just on pricing, can you just kind of talk about what you achieved in terms of pricing in the second quarter and what your expectations are for the back half of this year?

Yeah, it's largely played out as we would have expected in terms of the guide that we gave. It's pretty -- continues to be a fairly healthy pricing environment for us, not as robust maybe as 2022 as we talked about initially, but it's held up reasonably well. I think the frequency of price increases is probably going to normalize here. I mean, given the inflation that was coming through in 2021 and more so in 2022, there were more robust cadence of increase. I think we're more returning to normal on that front. But the overall quantum of it has been similar, a little bit high by historic standards, but largely in line with plan.

Thanks.

Our next question comes from Patrick Donnelly with Citi. Patrick, please go ahead. Your line is open.

Great. Thank you, guys. Maybe just another one, kind of following-up, I think it was Mike's question earlier on the second half margin implication. Obviously, the exit rate is going to be quite a bit lower than expected. I think the Street is somewhere around 21% EBITDA for next year. You guys have these cost containment measures in place. I guess how quickly can you see those take hold and then drive some expansion over protection to the bottom line? Just trying to figure out, I guess, how many -- how much of the headwinds linger into 2024, particularly on the margin side, given that second half guide versus kind of inflecting back? You kind of mentioned things like pricing. And it would be good to just get a handle on the moving pieces and the dynamics as we look ahead.

Yes. Thanks, Patrick, for the question. Probably not surprising. As you think about where we sit here in the calendar and the dynamic environment that we're in, it's pretty difficult to provide a whole lot of color as to what we might anticipate in 2024. Given what's driving our business at the moment is the macro economy and not something so specific that we can isolate for our own business. So that certainly challenges the visibility. And so we'll work through the balance of the year here and do our normal cycle here, we should be able to give you some transparency and call on how we see next year shaping up as we get a little bit closer to that. But I would point you to the second quarter as kind of the proof point of our focus on productivity and how that is getting reflected. We are getting significant contributions from our cost controls and our ongoing investments in efficiency and continuous improvement. And the thing to keep in mind about our business is we've got a long-standing track record of this, going back to the IPO. Every year, we've expanded margins by over 100 basis points. And so in an environment like this, that culture of continuous improvement, certainly does serve us well. We've doubled down on that given the environment and driven incremental actions, that is flowing through as you see in the second quarter. And we're able to offset as we move through the balance of the year, more than 200 basis points of volume and mix headwinds through the productivity actions that we're taking, and we would anticipate these things to carry into next year.

Okay. That's helpful. And then maybe just a couple of clean-up questions on the guide. Can you just refresh us on kind of the full year biopropane guide, and then the semi’s guide as well? I think you said it was down 80, where is the bottom there and visibility would be helpful? Thank you, guys.

So on bioproduction, Patrick, probably the best way to think about that on a core organic basis for us, we had modeled that at kind of down mid to high-single-digits is what I'd point you to there, and the COVID headwinds are playing out as anticipated there to get to an organic number. And then on the semiconductor space, we have modeled Q3 and Q4 similar to Q2. But as I said earlier, we are encouraged by what we're hearing from our customers here as they work through their earnings season and disclose their results and certainly, you see a more positive turn in there sentiment, and we are starting to see some of that getting reflected in the outlook, the midterm outlook that they're giving us. So there could be some upside there. But the way we've modeled within our guide would be continuation of Q2 trends.

Helpful. Thanks, Michael.

Our next question comes from Justin Bowers with Deutsche Bank. Please go ahead Justin. Your line is now open.

Hi, good morning, everyone. I just wanted to understand some of the customer inventory surveys you were referring to. And it sounds like it was in biopharma, and any thoughts on when the destocking element trough, it sounds like it was stable and in line with expects Q-over-Q. So does that point to some green shoots with respect to 2024 in that part of the business? And then just a refresher on trends in that business, or the performance of the business in 1Q and 2Q, because I think you said it was a 10-point swing between the quarters.

Yeah. Thanks for the question, Justin. On the customer surveys and the engagement that we have with our customers, I do view that as one of the bright spots in rather challenging market environment. And there's probably two things I would point you to there, one of the things that we're testing for in those interactions is just how much inventory do you have relative to your target. And, of course, we can then track that as we've been consistent in our surveying over the last number of quarters. And as we did that again here over the last several weeks, that inventory health has definitely improved, meaning the amount of overstock that's in the channel that's being reported by our customers has definitely come down pretty meaningfully. And certainly, it does reflect the dynamics that we were hoping to see there. The second piece that we also test for there is just a little around sentiment in terms of -- as you think about where you sit here today, which direction do you see your demand going and the percentage of customers that are I would say, responding to that favorably, meaning that they would see demand to pick up also is moving in the right direction. Now those are encouraging signs. I'd be hesitant to call the bottom -- we have not yet seen to be clear, an inflection in order books or certainly in daily rates of sales, and that's what ultimately we need to see to have the proof that things have turned. But there are a number of leading indicators across a lot of our end markets here that do give us some optimism. And where markets are healthy, whether that be in our medical implants business or whether that be in academia, you see that we are very well positioned. We grow strongly where the markets are conducive to that. And that's another thing that feeds our optimism in our business.

Appreciate it. And just one quick follow-up on the order book, the large order book. Is there -- are you seeing any sort of timing issues there with customers in terms of maybe pushing back when they want to take those deliveries or any change in sort of cancellation levels, thought that would be a little more stable for demand throughout the rest of the year. But any comments there would be helpful. A – Michael Stubblefield: As you would expect, we end up working quite closely with all of our customers to help them manage their production plans and their inventory levels. And consistent with what I said earlier, we do see an increasing trend of project delays and campaigns that are getting either reduced in size or pushed out Order cancellations aren't a big part of our business that it ends up being more of a collaboration with our customers in terms of how we schedule and manage the deliveries to best meet their needs. But as we move through the quarter, we definitely saw our customers in production start to more actively manage their campaigns and take a more cautionary approach to spend which keeps reflected in the second quarter numbers as well as the roll through into our full year guidance.

Understood. Appreciate it.

Those are all the questions we have time for today. So I'll turn the call back to Michael Stubblefield for any closing remarks.

Yes. Thank you all for participating in the call today. I certainly look forward to updating you when we get a chance to meet next. Until then, be well, everyone.

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