Hello, and good morning. I'm Christina Jones, Vice President of Investor Relations. I'm excited to be here today and to welcome you all to Avantor's 2023 Investor Day. Thank you to those of you joining us here in the room, and those of you joining virtually on the webcast. We appreciate you spending your morning with us. As many of you saw, we issued an 8-K last night, announcing a transformation of our operating model. This includes transitioning from our current regional structure to two new business segments: Laboratory Solutions and Bioscience Production. This transformation also includes a meaningful cost-out initiative. Today's agenda is largely centered around this transformation and introducing the two new business segments. Before we get started, a couple of quick disclaimers. We will be making some forward-looking statements. We do not assume any obligation to update these statements.
Today's discussion will also include some non-GAAP measures, and a reconciliation of these non-GAAP measures can be found on our investor relations website. Moving to the plan for today. First, we'll hear from our President and CEO, Michael Stubblefield. He'll provide an overview of the transformation and the path forward for Avantor. Then we'll hear from Randy Stone, who's leading Laboratory Solutions. He'll talk about our industry-leading position to serve customers in research and quality labs around the world. Next, we'll hear from Benoit Gourdier. He'll talk about Bioscience Production. Here again, we have a leading position as a materials provider in the high-growth bioprocessing market, as well as a unique high-purity silicones platform for medical implants. Then we'll hear from our CFO, Brent Jones. Brent will provide his financial perspectives on Avantor and the significant value creation opportunity in front of us.
Finally, we'll hear from Jim Bramwell, Executive Vice President of Sales. He'll provide an overview to some of the customer testimonials that we'll hear about all the different ways we support our customers and help them achieve their goals. After the presentation, we'll have time for Q&A and look forward to taking questions from those of you here in New York. Before I turn it over to Michael, I'd like to show a short video that highlights the ways that we're living our mission to set science in motion. Please enjoy the presentations.
In our rapidly changing world, the pace of innovation is greater than ever before. At Avantor, we work side by side with scientists around the world to enable breakthroughs in medicine, healthcare, and technology at scale. From early-stage research to development and delivery, we provide solutions and expertise that help our customers tackle the toughest scientific challenges. From breakthroughs that provide hope to people facing devastating diagnoses and medical implants that create new possibilities for a fuller life, to advanced materials that explore the limits of the atmosphere. Our teams stop at nothing to keep the gears of progress turning. We deliver reliable products and services for every twist and turn of the scientific journey, when and where needed. And digital solutions that power lab productivity and return time to scientists so they can unlock the next discovery.
At our innovation and manufacturing facilities, Avantor enables high science with high standards. As the universe of opportunities continues to expand, we continue to push ourselves further for the science of today and tomorrow, because together, we have the power to make life-changing possibilities a reality.
Good morning, and welcome to this iconic setting for our 2023 Investor Day. Really happy that you're here with us today. You know, in watching that video, I can't help but reflect on the past 10 years that I've been leading Avantor. The advancements in science have been truly inspiring, and as things have evolved, so have we. It's more evident today than ever before, how we are fulfilling our mission of setting science in motion to create a better world. We have a great story, and we're excited to share it with you today. I hope you leave our presentation today with five key takeaways. Firstly, Avantor is a leader in a really attractive space. The tool sector has historically outgrown the broader market, and despite the recent headwinds, the fundamental growth drivers are fully intact, and we are incredibly well positioned.
You saw our transformation announcement last night. We'll be moving to a new operating model that I'm confident will accelerate our growth and unlock productivity. The new operating model is a natural evolution of our strategy and will strengthen our performance, sharpen our focus on accelerating our customers' innovation, and unlock significant operating efficiencies. Thirdly, our organic growth strategy is focused on high-growth workflows and driving innovation. There are specific workflows within each of our two new segments that offer outsized growth opportunities, and we will leverage our innovation engine to accelerate our growth and expand our proprietary content. Fourth, Avantor is well-positioned for above-trend growth and margin expansion over the next couple of years.
While we'll get more specific on 2024 on our fourth quarter earnings call early next year, I do anticipate that over the next 12-24 months, that we will benefit from accelerated revenue recovery and above-trend margin expansion as the headwinds subside and our environment normalizes. Our financial profile exiting this period will serve as a good jumping-off point for our long-term targets. And lastly, and perhaps most importantly, we are confident that we have the right operating model, the right leadership team, and the right strategy to deliver on our long-term targets. Now, the secret sauce to our success is our more than 14,500 associates around the world, who passionately live our values and our mission each and every single day. We have a world-class team to lead our organization and has evolved as our business has grown.
I'm excited for you to hear today from Randy and Benoit and Brent and Jim, and we're joined in the audience today by a few other members of our team, including Kitty and Claudius and Ally. Ger, who's been instrumental in building our bioprocessing platform over the last five years, is also in the audience. As we announced earlier in the quarter, I'm excited that he'll be with us to support our business as the chair of our scientific advisory board and as a special advisor to me as he transitions from full-time service at the end of the first quarter. I think it's important to also acknowledge that although you'll be hearing from just a subset of the team today, putting on an event like this is a collective effort, and we'd like to thank the entire team for their support.
I'd like to give a special thanks to Kitty and Ally and their teams, and CJ, who have been especially instrumental in getting us ready to tell our story today. Our leadership team is supported by a refreshed and purpose-built board of directors. As you can see from the bios on this page, we benefit from the diverse set of experiences, backgrounds, and the more than 225 years of collective life science experience that is represented on our board. Our Chairman, Jonathan Peacock, is a great partner to me and our team, and I appreciate his support. I'm pleased that he's been able to join in the audience today as well. So let's get started. I'll begin by emphasizing there's never been a more exciting time to be part of the scientific community.
We're truly in the century of biotechnology and life sciences, as advances in genomics and genome and sequencing, including the mapping of the human genome, supported by developments in proteomics and cell biology, have improved scientists' understanding of disease mechanisms of action and enabled them to identify druggable targets. These insights are enabling development in immuno-oncology, neurology, cell and gene therapy, and are already improving patient lives. These breakthroughs in biology are being complemented by advances in AI, which promise to revolutionize healthcare through better diagnosis, treatments, and patient management. I think it's also important to note that the first monoclonal antibody drug was approved only a few decades ago, and today, the number of FDA-approved biologic therapies approach that of traditional small molecule drugs. New modalities, such as cell and gene therapy, mRNA vaccines, and synthetic peptide drugs, like GLP-1s, are revolutionizing treatment and disease prevention.
In recent days, we've also seen the first therapeutic approval for the powerful CRISPR gene editing technology platform. And I'd like you to take away from today's presentation that Avantor is a proven partner in supporting the actualization of discoveries across the biopharma, healthcare, and advanced technology spaces. In fact, if you look at all of the most significant scientific innovations of this in century that are depicted on this slide, you'll see that Avantor has played a role in nearly all of them. Within the broader scientific ecosystem, the tools sector is a compelling way to participate in the golden age of science, as over a typical cycle, tools outgrows the broader market by nearly 2x.
Despite the temporal headwinds we've all faced coming out of the pandemic, I remain bullish on this sector, and I'm confident that it provides a very attractive and durable growth opportunity. The space benefits from a pick-and-shovel model that gives us exposure to all the exciting scientific breakthroughs without forcing us to pick the winners and the losers. Given the pace of scientific advancements that I've just described, innovation is important, and it's also rewarded. It gives us an opportunity to create value and to differentiate ourselves from the competition. Lastly, one of the reasons I like the tool space so much is the degree of fragmentation that creates a significant organic and inorganic opportunity for a scale player like Avantor.
We are a leader, and you'll hear more from the team today to describe how that is, in most, if not all, of what we do. Yet, we have significant headroom for growth, and our scope and scale makes Avantor a natural integrator. In building our platform, we have created a company that is truly unique in the industry. As I mentioned, we are the leading provider of lab consumables, as well as materials for bioprocessing and biomaterials, and more than 60% of our revenue comes from the biopharma and healthcare end markets. Over a typical business cycle, consumables outgrow instrumentation and equipment platforms by approximately 200 basis points. And with more than 85% of our revenue in consumables and services, we benefit from the growth and recurring revenue that's enabled by our portfolio.
It's not only our revenue profile that's highly recurring, but it's also very sticky, as more than 90% of our content in production segment is specified in. Given the stringent regulatory environment that we operate in, these specifications drive revenue throughout the life cycle of our customer's platform. You're gonna hear from Jim at the end of our presentation today, but all of this is enabled by our unparalleled customer access and deep, enduring customer relationships, making Avantor a trusted partner for our customer's journey every step of the way. I'd like to expand on this discovery to delivery model over the next few slides. This model starts with our strategic position at research labs around the world. We serve over 300,000 customer locations with our comprehensive offering of products, services, and solutions, and are deeply embedded in our customers' lab workflows.
With this access, we position our deep technical expertise and our R&D capabilities to seed our proprietary GMP products in our customers' products and processes. Being able to provide GMP products at both lab and production scale enables us to create differentiated value for our customers, as it firstly eliminates variability as they progress to commercial production, as research products are produced on the same manufacturing lines as commercial products under the same global quality system. And it accelerates our customer time to market, and it ultimately enables them to innovate with our materials with confidence. This fully integrated end-to-end customer model and solutions-driven approach enables us to win specifications on commercial platforms, which, as you'll hear from Benoit, is a key growth driver of our production segment.
This model, which was greatly accelerated by the combination with VWR, yields significant recurring revenue, as more than 90% of our content is specified into our customers' products or process. And as the leading manufacturer of custom GMP materials, together with our global presence, our advanced quality system, our deep regulatory expertise, is our formula for creating significant value creation and positions us as a trusted partner to our customers. I think it's also important to understand that our value proposition for our customers goes above and beyond the quality and the breadth of our product and service offerings. Another important part of our customer value proposition is supporting their ESG goals, including the net zero commitments that many of them have made. In fact, they can't get there without us. And we're committed to embedding ESG practices into our business.
It's good for society, and it's great for my business, and we've made meaningful progress in each of the areas of focus. For example, we recently took a significant step forward with our environmental strategy by committing to new 2030 science-based climate targets, as you see here on the screen. Last week, we were given a perfect score and recognized as the Equality 100 Award winner for being a leader in LGBTQ+ workplace inclusion. As always, there's always more we can do, and we're certainly committed to continuous improvement to ensure that our long-term sustainability of our business. As I mentioned at the outset, I've been fortunate to be leading this business for over the past decade, and I'm proud of what we've built and the role that we play in setting science in motion.
During this time, we've completed a significant number of acquisitions. We've expanded our biopharma processing footprint. We've increased our proprietary content. We've strengthened our go-to-market model. We've deepened our customer access. We've built a world-class digital platform, and we've significantly expanded our innovation capabilities. Now, being at the exchange today reminds me of another important milestone that we achieved along our way: the largest-ever healthcare IPO back in 2019. On the back end of all this, we're extremely well-positioned to take the next step in our evolution. I'm excited to take you through our plans to capture this incredible opportunity that is in front of us. Now, the transformation that we'll take you through today, I'd like you to think about it as a natural evolution of our model that will strengthen our performance, both in the near term as well over the long term.
It builds on our strength and industry-leading positioning that we have established in our customers' lab and production segments. It sharpens our focus on our customers' needs and brings clear accountability for performance, and ultimately, it unlocks significant operating efficiencies. I think particularly for the audience here in the room as well as on the phone, I'm sure you'll agree that it provides a greater degree of transparency and enables a better understanding of our business and will position us for growth over the long term. As you saw in our announcement last night, we'll be reorganizing our business into two complementary segments: a Laboratory Solutions segment that will comprise roughly 2/3 of our revenue and a Bioscience Production segment that will comprise the remaining 1/3. In our lab segment, we're a trusted partner enabling scientific insights to support research, diagnostic, and QC workflows.
As I mentioned before, we're deeply embedded in our customers' labs across the globe. With our comprehensive offering of leading proprietary products, innovative third-party brands, and services and digital solutions, this segment is expected to grow low single digits to mid-single digits over the long term. Through this segment, we're anchored as a trusted partner to our customers in the biopharma and healthcare end markets, education and government, and advanced technologies. As you can see here on the slide, we serve the leaders in each of these end markets. For example, in the biopharma space, we serve 20 of the top 20 biopharma companies. Through our preferred relationship with the Bioconsortium, we have access to thousands of biotech startups in our space.
Similarly, in the education space, through our relationship with the E&I Cooperative Services, this brings us access to more than 6,000 members, including leading academic and medical research institutions. We'll have Randy take you through this segment in more detail in a minute. In our bioscience production segment, we're a leading provider of mission-critical, high-purity materials and solutions that are used in our customers' production environments. While this segment only represents about a third of our revenue, it's important to understand that it generates roughly 45% of our EBITDA. In this segment, we're known for our ability to customize solutions that impart critical enabling functionality, and we're also known for our proprietary purification technology, global quality system, and deep regulatory expertise.
Leveraging both our proprietary products as well as content sourced from our third-party suppliers, we expect this segment to grow high single digits over the long term. Our Bioscience Production segment serves three specific areas: bioprocessing, healthcare, and advanced technologies. We've established a leading position in the high-growth biologic space. As you can see on the slide, we're integral to 85% of the top 20 biologic medicines that are on the market today. You've heard us talk a lot about how our technology is ubiquitous across the pipelines, and we're somewhat agnostic to modality or area of indication. We're the number one supplier of high-purity silicones for medical implants, which enable a range of life-changing applications from cardiac to prosthetic solutions. We're benefiting from the emergence of AI and big data in supplying more than eight out of the top 10 semiconductor companies.
You'll hear from Benoit in a bit here to take you through the details of this segment. Our platform benefits from an integrated set of capabilities and a shared ecosystem that is leveraged across both segments. We've tried to depict some of those shared capabilities here on the slide, and you can see that it includes a global network of innovation centers, a consistent global quality system and standards, the same e-commerce and digital platform, a global supply chain, including manufacturing and distribution infrastructure, as well as a robust supplier network. And at the center of it all, leading to, is our leading customer channel that gives us unparalleled customer access for both segments. The new operating model will enable Avantor to be more focused and agile, creating stronger value for our customers and shareholders.
This new segment structure sharpens our focus on driving growth and margin expansion in laboratory and production environments. As I said before, it also unlocks additional cost-saving opportunities. Further, it enables disciplined capital allocation to augment the segment organic growth strategies. I'm gonna use the next few slides to elaborate on these operating priorities. In the tool space and in serving science more broadly, driving growth is a key priority, and the new operating model will increase our focus and accountability and enable more effective execution of our growth strategy. Now, while each segment will have its own distinct growth strategy, they will share a common framework that's grounded in four pillars. Firstly, there's an attractive base business that's in each segment that we'll continue to nurture and support. Both segments will be focused on accelerating their positions on high-growth areas.
For example, in the lab, cell analysis, proteomics, and genomic workflows. In the production environment, we'll continue to double down on our focus on emerging modalities in the biologic space. I've highlighted that the pace of innovation and scientific breakthroughs requires a robust innovation engine, and both of our segments have a unique opportunity to enhance growth by bringing new solutions to the market. Each segment will drive growth by creating a world-class customer experience through the dedicated focus that this new structure will create. It's important to note that one of the core attributes of our culture is our ability to drive productivity through our business using our Avantor Business System. Of course, we'll continue to focus on executing on that foundational element of continuous improvement.
But as we announced last night, and Brent will take you through the details in more detail here in a moment, our new model will unlock significant operating efficiencies and savings. We've announced a new initiative here, targeting more than $300 million of run rate savings by the end of 2026. The savings will primarily come from four main areas. This new structure will unlock significant new organizational efficiencies enabled by the new structure. We'll have an opportunity to leverage the investments in our footprint to realize significant optimization. Through the investments that we've made in automation, robotics, and our digital platform, we've got a significant opportunity to reduce costs to serve our customers, and ultimately, we've got an opportunity to reset the cost base in the materials and the supplies that we buy.
In this environment, reducing debt is our top priority, and we're currently allocating all of our free cash flow for that purpose. As we've said over the last couple of quarters, we're targeting a leverage ratio of less than three times. That may take a few quarters, may even take, you know, throughout 2024 to get there. The business, as you know, generates a tremendous amount of cash, but we also need help from the EBITDA growth in order to achieve our goal here of less than three times. And when we do, we'll have flexibility to consider a more balanced capital allocation strategy, including M&A, perhaps a dividend or even a share buyback. I also want to give you a high-level overview today of how I'm thinking about the financial impact of our strategy and our operating priorities.
Over the next 12-24 months, we expect to drive higher than trend growth and margin expansion. Destocking will subside, our end market demand will normalize, our mix and our operating leverage will be restored, and we'll realize the benefits of the cost transformation that we've just discussed. We'll benefit from limited exposure to China. We'll benefit from having modest exposure to the equipment and instrument platforms that are seeing outsized headwinds today. As we work through this period, and unfortunately, our model doesn't give us the ability to be more precise around the timing, but we should exit this period with margins that would exceed 20%, which I think is a good way to think about the jumping-off point for our long-term algorithm.
Over the long term, I'm very confident that our business is geared to driving, you know, mid-single-digit growth, 50-100 basis points of margin expansion, double-digit adjusted EPS growth, and free cash flow conversion north of 90%. Brent will, of course, elaborate on this framework in his presentation. Before I turn it over to Randy, I'd like to reinforce my conviction in Avantor's next chapter. As I said before, I'm super proud of the platform that we've built and even more excited about the opportunity that lies ahead of us. We're in a terrific time for serving science, and our leading position in the life science tools space underpins our growth opportunity. Our new operating model will not only enable us to operate more efficiently, it will sharpen our focus on accelerating growth and expanding margins. We have the right structure.
We have the right leadership team, and if you get the chance to visit one of our locations, you'll get to see our associates working hard to support our customers' innovation. You'll get to feel their genuine energy and passion for our mission of studying science in motion to create a better world. I really appreciate your participation today and for your ongoing support. I'll now invite Randy to come to the stage to discuss our new Laboratory Solutions segment, and I look forward to taking your questions at the end of our presentation. Randy?
Thank you, Michael. Good morning, everyone. It is great to be with you today, and I'm so excited to have the opportunity to introduce Lab Solutions segment for the very first time. This is a great business, an industry-leading business, and we have plenty of runway for growth. I'm also excited to be back here today at the New York Stock Exchange. Earlier in my career, I spent three years working in investor relations, and that time with the sell side and the buy side shaped my management philosophy more than any role I've ever had. So for those of you in the audience today or those that might be following on the webcast, I can promise you this: I will run this business with a shareholder mindset.
That means not being just focused on the top line, but driving our EBITDA, our free cash flow, and our operating leverage. It's also important to note in that role, you need to be a great capital allocator, ensuring every resource we deploy, every dollar we invest, provides a return that exceeds the cost of capital. If we do those things, we'll increase the enterprise value of the segment, and we'll provide great returns for shareholders. And finally, I'm grateful, very grateful to have an opportunity to lead this new segment, a segment that's rooted deeply in science. Over my 30-year career, I've worked in a lot of different markets: advanced mobility, aerospace, and healthcare. But the one commonality amongst all those markets is that science and innovation has been at the heart of the value proposition, and that's what we have here today in this business.
We serve markets where science and innovation is recognized, it's rewarded, and in fact, it's required. We have so many levers inside the company to create value, and I know Lab Solutions business is gonna play a very important role in that. The agenda today will cover three simple topics. First, I want to introduce Lab Solutions segment to you, give you a sense of the financial scope of our business, how we're positioned globally in key markets, and give you a sense of the things that we're working on to drive that. We're gonna talk about ways we're accelerating profitable growth, focused on attractive markets and high-growth workflows.
And then finally, I want to invest a few minutes just talking about our emerging digital solutions, why that's important, not just to shape the customer experience, but the way we can use these tools to drive productivity inside of the business. The main takeaway that I hope you get today is that we are an industry leader. I think you'll see that in the data we share today, but we have plenty of room for growth. So let's jump into the introduction. When I think about Lab Solutions business, and I think about our customer identity, it's really rooted in three fundamental capabilities. Number one, our customer reach. You saw in Michael's chart that we service over 300,000 customers around the world. The second part of our brand identity, our breadth. We have millions of SKUs in our portfolio and in our offering.
Then the third thing I think about in terms of our identity is this depth, this ability to serve so many elements of the lab, from the early stage, research and discovery, all the way through to the production side. Think about that beaker-to-bulk capability. Those capabilities and traits that I described, that's the hallmark of an industry leader, and I think the financial data on this chart bears that out. As Michael noted, in 2023, we'll deliver $4.7 billion in revenue and an adjusted operating margin of 15%. I can promise you, we are squarely focused on that operating margin and how we drive that. Not just waiting for a recovery, but looking at our pricing, our sourcing, our innovation metrics to drive that.
There's a couple of data points on this chart that are really important that I want you to note. First, on the bottom left, you'll see that 80% of our revenue is recurring. When I pair that with the fact that our revenue retention rate is equally high or higher, that means each and every year we've got a steady stream of revenue and free cash flow that'll help us. That underpins our business each and every year. The other important thing to note is our addressable market. It is large. $55 billion is what we estimate, and it's growing at low single digits. That ties really nicely to Lab Solutions business. We're estimating and forecasting our long-term growth of low single digits to mid single digits.
That means we'll grow with market or potentially 100-200 basis points above that, depending on our mix and the pricing environment and the power of our pipeline. So there's a lot of data on this chart. What is the strategic takeaway? For me, as a leader, a couple things jump out. Number one, we already have sufficient scale at $4.7 billion. The other thing that jumps out to me is we have a large addressable market that's growing. What's the implication? The implication for me is we can be strategic and target, targeted in our investments. We can follow those markets that fit nicely with our capabilities. I'm very confident in our long-term growth algorithm. I know we've got the right tools to do that.
If I think about Lab Solutions business, I can say with high confidence as we launch, we are an industry leader today. But I'm also confident we've got a lot of room to improve the business in terms of our commercial and operational excellence. Before I cover kind of the portfolio and how we plan to run it, I do want to reinforce Michael's comments on the importance of the new segment structure. This is really a pivotal moment in the company, a seminal moment for us, as we complete this transition from a regional model to a segment-driven model. My experience and my career tells me that segment-driven models work well. They simplify, they standardize, they streamline, they allow you to aggregate, perhaps, to leverage best practices across an organization.
This transformation is the final step in the journey that we've been on to do that, and I'm so confident this change is going to unlock value. Let's get to how we're gonna organize the segment. We're gonna do it around three verticals. First, in the left-hand column, are proprietary products. So this is a very strong foundation. Think lab chemicals, reagents, consumables, equipment, and instruments, all critical to lab workflows. In the center column is our services business. Think about dedicated teams of industry experts who are leveraging critical capabilities in digital on-site. You need help with the lab setup? We can do that. Need help servicing equipment? We're there as well. Even in our clinical services business, we have a network of biorepositories across the U.S.
In the last 40 years, we have stored 100 million samples, and never once during that period have we failed to return it, and we don't intend to start now. Then in the final column is our third-party products. You can see we represent over 5,000 suppliers. We work with a diverse network, with some of the most leading brands out there. I love this market-back and customer-back approach that we have. So if a customer wants to buy an Avantor proprietary product, that's great. If there's a third-party product that will meet their need, we'll service that as well, too. Our goal is to meet the customer need. If we do that, we increase share of wallet, we preserve our reputation as their most important partner. I want to spend a moment talking about our leadership position around the world, and it's pretty impressive.
When you look at it, in Europe and the US, we are number one or number two, and as Michael noted, 100% of the top 20 pharma customers partner with us. If you look at those regional markets, the distance between one and two and the rest is pretty significant. We've built that competitive advantage through decades of investment in our resources and reach that I described earlier and the infrastructure that we've built. Simply put, this customer-centric model that we deploy is very difficult to replicate. In the center column, you see that figure I noted earlier. We literally have millions of SKUs in the portfolio. Our focus, though, is not on commodity-grade materials. Our focus is on GMP grade, high quality, high purity products serving the most demanding markets and in highly regulated markets.
What's also unique is we have GMP grade in our lab, not just in the production, but lab all the way through to the end. And then finally, in the third column, when we say partnering with customers, in this case, we literally mean it. We have over 2,500 associates embedded in our customer sites to help them run their labs more efficiently. For us, it's a great standalone business, the service business, but it also gives us unique insights into the trends in the marketplace. It helps us tailor our value proposition to see the changes in the marketplace. This combination of advantage market positions, proprietary and third-party content, plus our world-class services platform, that's how we manage the business, and that's our formula for success.
I wanna take you now inside of a typical lab environment and move away from the macro and really try to zoom in. I'm gonna say this is my favorite chart in the deck, 'cause you can see we have the whole lab covered, and I would say including the parking lot, where I'm sure some of the cars there are Avantor associates embedded in the lab. But if you think about what's required in drug discovery and design, it's really significant. We supply high-purity chemicals and analytical tools to the chemistry research lab and the process development facility. In biology research and clinical testing, we provide reagents and equipment, and in procurement, we can partner closely with customers to help them run their labs and manage their inventory more efficiently.
Again, what's unique to Avantor is what I described at the beginning in our brand identity, this ability to service an entire lab from early research all the way to production. We tried to depict that relationship on the chart here, but I think we can probably do it a little bit better with a video to take you inside a customer lab. So I'm gonna show that video now.
Scientists around the world need the highest quality materials, support, and tools to answer critical questions, drive productivity, and accelerate research. Enter Avantor. Our extensive portfolio of products, materials, and services provide essential resources for research, diagnostics, and quality testing, where precision is paramount. Scientists have both choice and quality with our comprehensive offering of proprietary and reputable third-party brands. We continue to innovate to meet our customers' evolving needs, adding new Avantor products and solutions to our portfolio. Our e-commerce platform enables scientists to purchase all their lab needs, from consumables and instruments to reagents and enzymes, and our digital tools streamline lab procurement and operations. Our inventory manager simplifies lab management, and combined with new tools like smart shelves and electronic lab notebooks, automates supply replenishment. These tools give scientists more time to focus on what they do best, science.
At customer sites, expert Avantor teams perform lab work such as sample management and buffer preparation. When research needs to expand, our global logistics team provides each lab with the products and materials they need around the world. Every day, Avantor is a proven partner, helping our customers accelerate research and unlock lab productivity, all with one focus: to keep science moving forward.
I wanna pivot now, invest a few moments to talk about our growth strategy and the work that we're doing. Growth is so important to drive any business. As I mentioned, we do have high confidence we can achieve those growth rates, but I think as we learned in 2023, you can never take growth for granted, so we need to be targeted and focused, and I wanna share the work that we're doing. Three areas I wanna cover today. Number one, kinda deepening that focus on attractive end markets, take you inside the market and how we see things. I wanna talk about the work we're doing to build our portfolio in these high-growth workflows and what's involved in that. And finally, invest a minute to talk about our proprietary portfolio and what we wanna do in that space.
So let's start with the end markets and how attractive they are. We have a really good balance in our biopharm and healthcare business. It's about half of our total portfolio. Education and government, about 25%, and about the same in advanced technology, so really balanced. But inside those market segments, there's sectors that we really, really like, starting with advanced modalities segment. Benoit gonna highlight some of those as well too. But when we look at the number of approvals that we've seen in the last couple of years, coupled with the healthy dynamics in the pipeline, we know that creates a very strong environment for our reagents business. We also favor the personal medicine space. We know it's at the forefront of treating diseases.
This requires precision and accuracy for real-time decisions, and our portfolio addresses these needs by supplying equipment and instruments and chemicals as well. We also like some of the advanced technology spaces, adjacencies where we have an opportunity to create value. In PFAS testing, as an example, where we have HPLC columns that we've introduced, and the clean energy space, where we can take this fundamental knowledge of how to manage complex workflows and clean rooms and apply that as well. In that space alone, we can supply chemicals, consumables, instruments, and PPE. These are the types of markets that we wanna invest more resources in and more time in, and the methodology and the thought process behind it is really simple. On average, they grow faster than our segment average.
The margins are accretive, and once we get the business in these spaces, it's very sticky, which means it's recurring, and we can hold it for a long, long time... The same is true in high-growth workflows. There are specific workflows that we really want to target. Take LC-MS, for example. We know in some of the advanced modalities, the pipeline growth is 20% and higher. Think cell and gene therapy, for example. For LC-MS, we've got a number of materials, including our HPLC columns, for both large and small molecule. We also supply high-purity solvents and equipment. We are investing more time to strengthen our position in LC-MS. We also like the cell analysis space, which is growing double- digits, as you see on the chart. That typically involves sample collection, prep, and analysis, again, fitting very nicely with our capabilities.
We can supply sample collection kits, culture media, tips, plates, filters, and columns, so a really broad portfolio of offerings. We can also partner on the equipment side, which is really important for this workflow: microscopes, sequencers, and PCR equipment, just to name a few. I think the key takeaway on the chart is that we are investing to strengthen our capabilities and our portfolio in these high-growth workflows. So attractive markets, good workflows. And then our third critical priority is really about accelerating our proprietary products. If you wanna know why that's important, it's pretty simple. In proprietary, we have a higher margin, we have a higher growth rate, and maybe most importantly, we preserve our reputation as a customer's most important innovation partner, and I value all three.
So each year, we introduce new products through our NPI process, and we have a couple of them listed here. For example, in the last couple of years, we've launched the J.T. Baker line that you see. That's robotic tips for the Hamilton and Tecan fluid handling platform, HPLC columns that I referenced earlier for PFAS testing. It's also important to note that private label continues to be an important part of our strategy. It's a dual approach to diversify our portfolio, solidify our market position. This combination of proprietary, private label, and third party allows us to make sure that our strategy remains robust, that we can meet evolving market needs and maintain our competitive positioning. I'm gonna close to talk a little bit about digital.
If you think about our lab business, the data component has the potential to be the most important asset inside of our entire business. If you think about it, we have millions of SKUs. We have hundreds of thousands of customers. We have thousands of suppliers. All of that generates data, and you think about AI and large language models and what we can do with that data. Inside that data, there are preferences, market preferences, industry trends, buying trends. So how we leverage these tools is gonna be really important for us on a go-forward basis. Of course, we're working now short term to leverage the customer experience and improve that through data analytics and the like, but data has the potential to drive huge value inside of our business. This chart gives you just a couple of examples of what we're doing.
I mentioned we're trying to revolutionize the customer journey because we are the window for so many customers globally in the lab business. We've got a global multi-language e-commerce platform, and it's organized by apps and protocols. We're using AI to help people efficiently locate information, especially when they're on that choose journey, trying to decide if they wanna work with us. So if they wanna find information on chromatography or analytical chemistry or life sciences, it's readily available. We're also trying to create a B2B environment that mirrors our customer experience, right? That ability to manage our own accounts and to check our order status and track shipments and payments. We're making progress. We've seen a double-digit increase in our web traffic this year. On the right-hand side of the chart, you can see the work we're trying to do to embed digital solutions with our customers.
We know connected labs function more efficiently. We've got a couple of tools called Smart Science and Inventory Manager, just to name a few. Smart Science is an open architecture technology that really is easy to adapt to for customers. It helps them connect the lab. And in Inventory Manager, it's an automated replenishment system that allows customers to have their inventory automatically replenished when it gets low. And this year alone, we've generated about $300 million of product pull-through from Inventory Manager, so a really good example. And then I wanna close with one example on the digital side about Inventory Manager. You know, recently we had a large global pharma customer come to us with a common question: "You know, how do we run our labs more efficiently with more productivity?" And it was clear upon inspection that they were right.
They were investing too much time doing clerical work, managing supply chain issues, reconciling POs and invoices. They turned to us 'cause we're experts in running labs and can deploy lean process consultants. So what we saw through that process, through mapping of the foot traffic and assessments, is we could improve things. We implemented a couple of things. Probably the most important one was an inventory management program, really to ensure the scientists had the right products at the right time in the workstation. And you can see the data on the chart, it's pretty compelling. We freed up about 16,000 hours, so scientists and principal investigators could focus on innovation and what they do best. Inventory, unneeded inventory went down by almost 30%. The bottom line, better productivity, better visibility, visibility, more innovation, and lower costs. Finally, I just wanna close with a summary.
You know, for decades, we've been investing to be that trusted partner, enabling scientific insights, and that won't change. What has changed is this new segment structure and our commitment to run the lab business in an integrated and holistic way. We have so many capabilities and advantages embedded inside of our business. You can see them listed here: established leadership in attractive markets, deeply embedded in a process from the product and the service and the capability. We're gonna focus our investments this year on those key markets and high-growth workflows, but I'm very confident that we're gonna hit our growth rate. Finally, I'll just close with this. I, I'm so excited to get the business started.
I'm so excited to be a part of it, and I know we've got a great opportunity in front of us, and I can't wait to update the investment community further next year. With that, I'm so excited to turn it over to Benoit, who's going to introduce the Biosciences segment.
Thanks, Randy. Good morning, everybody. Very excited to be here and to introduce the BPS business that provides mission-critical, high-purity solutions for our customers operating in regulated markets. So my presentation will center on three key areas. The first one will be an introduction with the key characteristic of our BPS segment. Number two, how we are differentiated in this space, and how we intend to leverage our unique attributes to accelerate growth and profitability, and we will specific focus on the bioprocessing element and the healthcare market. So as an introduction about the business, BPS is a leader in supplying high-purity materials, including process component and excipient for bioprocessing and medical-grade silicone. Innovation, that was mentioned by Michael, Randy, is absolutely key in this business.
I will elaborate on that to illustrate how we develop new products, new form factors, and new integrated solution to drive growth and ensure relevance across all modalities and therapeutic areas. In terms of figures, Michael mentioned that this is about 1/3 in terms of revenue, and this is about BPS generates over 45% of the total company operating margin. One key element is really the importance that 95% of the revenue is generated from materials and consumable. And the vast majority of our self-manufactured product are specified into customer specification, and I will build on that later on. So very attractive business based on three markets, that's three industries that I will describe. The first one is bioprocessing. Here, bioprocessing, where the development and the production of biologics continue to benefit from rapid innovation.
Just to illustrate this, for the bioprocessing, right now, there are more than 260 phase II clinical trials in gene therapies, and more CGT therapies are expected to be approved in 2023 than in the past five years combined. So in this segment, and I see the slide is not really connected, but we are a leading provider here for high-quality production ingredients, excipient, and specialized single-use solutions. Moving to healthcare, second market, where technological advancement here are opening up completely with new medical implants, surgical implants, and diagnostic possibility. Here, we are the leader in high-purity, medical-grade silicone, combined with specialty diagnostic reagent. And the third industry, advanced material, where AI, big data, advanced material breakthrough are continuously unlocking new possibilities in defense, space, and semiconductor applications.
Here in this space, we offer high-performance coatings and formulated solution for semiconductor application. Now, this provides critical functionality for advanced technologies, applications in demanding environment. So three very attractive industries. And we are a recognized partner. That was mentioned for the lab. We supply in the same way for BPS, where we are top players in each space. And you see, we are number one and number two for bioprocessing, providing the material in this area as highlighted. We are the number one for healthcare, provider of high-purity silicone formulation for medical applications. And for advanced technologies, we are supplier to 80% of the top semiconductor. This has been diversified over the years, and you can see example with pacemakers, reconstructive implants, and intraocular lenses.
Many of these device have a profound impact on the quality of life for patients, including deep brain stimulation devices. And this to illustrate that. We have worked closely with a top five medical device company, and we have been in contact with them for 20 years. They were facing material challenges, put together the expert, and we created a custom material for this application. Not only this has deepened our relationship and opened up additional collaboration opportunities with this client, but this device is helping to change the lives of many patients suffering from diseases such as Parkinson and epilepsy. In terms of market, I mean, much as mAbs are the heart of bioprocessing, here you can see implantable medical devices is a foundation of this business.
And this space continues to experience healthy growth, bolstered by the aging population and continuous investment and advancement in this particular market. Now, as with the biologics, we not only limit our approach to this established market, but we focus strategically, and we position ourselves by deepening our focus on high-growth sub-segment. And to illustrate, you see some of them listed with surgical robots, 3D printed medical devices, and non-invasive diagnostic. And here again, we have specific NPIs in many of these areas that have been outperforming the market. For example, silicones for surgical or robotics growing at more than 100% year-over-year. So innovation is really key, and is largely application, similar way as for bioprocessing and customer specific.
Our team of scientists and technical experts work in different, and we have three innovation centers actively collaborating with the client. You can see we have more than 500 driven project in the pipeline. Just to illustrate some drug delivery, the first one, where we develop a high-strength silicone elastomer that is being developed, you know, to facilitate you know the wearable drug delivery devices. The second one is really about intraocular devices, and for this, we have developed a dozen of novel products. Finally, an exciting new development in diagnostic reagents. This is a great story of collaboration with a client to develop unique reagents for what has become a multi-generational diagnostic platform.
Here we understand their performance, we understand their purity requirements, and we are now in the process of validating our latest offering to their newest innovation. We are very excited about the future and our role in helping detect cancer early. So just to summarize, I mean, we have unique capabilities in this space that make us a leader, a market leader in supplying high-purity material for biologics, healthcare, and advanced technologies. We are committed to innovation, with a focus on customer-driven project and the development of new products. Most of our self-manufactured product are specified in and driving high quality and recurring revenue. And we have significant runway ahead of us to accelerate our growth by targeting our innovation to high-growth applications. I'm very excited to be here, and I'm confident that the unique attributes of our BPS segment position us well for long-term success.
Thank you very much. With this, I will hand it over to Brent, who will give us a financial overview. Thank you.
Thank you, Benoit. So good morning, everybody. I'm super excited to be here today. It's almost exactly four months since I've been in the role, and about five weeks since I last spoke with you. I'm here to give you a financial and operational overview of the company. So I'm gonna focus on three things today: how we're building off this strong foundation, and I can't overemphasize the strength of the foundation. The transformation we're undergoing, the segments, we'll get into more detail on that, so critical to where we're gonna take the company. Then finally, really focused on operating priorities and how these are gonna drive even better performance and better execution. So it's important to level set where we are today. You've heard from Michael, Randy, and Benoit.
We have really enviable market positions, and due to our customer access, our portfolio, our infrastructure, our technical expertise, the number one and number two positions around the globe. It's fantastic. It's also important to recognize this is a very significant enterprise, $7 billion of revenue expected for this year, $1.3 billion of adjusted EBITDA, $650 million of free cash flow, and then, even more importantly to me, $850 million of unlevered free cash flow, really going to what this company can do on a capital structure neutral basis. You're gonna hear that notion of cash flow again and again in my discussion. I was really drawn to the company by the strong foundation. I was the CFO of Pall Corporation. I know bioprocessing well.
I know the strengths of a consumables business, particularly with these end market entitlements. I actually had a lot of experience with our products in the lab in college, where, when I've walked in our innovation centers, brings back good memories, frankly, of doing that. But the foundation we have here really starts with the markets we serve. So as we go through the strong foundation, the attractive end markets, who would not like the end market exposures we have? They're fantastic. 85% consumables and services, durable throughout the cycle, not subject to the capital cycle. The proprietary strategy we have, not only was it a stated strategy, but we've executed against it, and it works, and it's good for our customers, and it's good for us.
The operating leverage we have, which we're in a difficult environment for that right now, but when we get the right top-level, level entitlement, that'll drive fantastic conversion. And then finally, again, the theme, the strong conversion to cash, driven both by the operating model as well as by how we execute against it. So here, let's stitch together the segment views you've seen from Randy and Benoit, and for what it means for the entire enterprise. So 60% exposure to biopharm and healthcare. We know the virtues of those markets. 15% in education and government. You can think about our performance this year. We're, we're gaining share, doing fantastically there, and as Randy says, that seeds many of the people who end up working with us throughout their careers as they go into the other parts of the pie. And then advanced technologies.
You know, this is the R&D, QA, and QC support, high-purity formulated materials. These are great businesses to be in and give us a really nice diversity as well. The consumables-focused portfolio, 85% consumables and services, driven by throughput, not capacity expansion. Really, really important. Not subject to the capital cycle. And throughout the cycle, as Michael said, consumables tend to outperform by 150-200 basis points better than equipment and instrumentation. A great place to be. And then finally, geographically, we're overweight the Americas. It's a good thing. We have a great position there. We have a very strong position in Europe and about 5% in what we call AMEA, where we've been executing very, very nicely and consistently, and very, very modest exposure to China.
So talking about proprietary, it's absolutely critical to our strategy, and it's worked really nicely. So let's level set on what proprietary is. It's for biopharma production, the high-purity process ingredients and excipients. It's the high-purity silicone for medical implants, and it's our branded consumables, equipment, and services for lab. These come at superior margins, 1.5x-2x versus our third-party content. And it, again, it's not just better on a margin basis. It gets us “better customer intimacy,” essentially specced into our customers' processes, and we become an even more trusted supplier to them. Now, you'll see over the last five years, our proprietary content has increased by about 1,000 basis points. Now, and frankly, if we hadn't had the recent headwinds, we might have done even better than that.
Now, during that time period, we increased our Adjusted EBITDA margin by 260 basis points. A very significant contributor to that was this increase in proprietary. Very important strategy for us. So the transformation to the segment model, it's really driving business simplicity. I think in concept, these things become a financial exercise, but this is really a fundamental operating change for the company that's gonna unlock so many things. I think everyone in the room, no matter the business they're in, knows that it's generally better to align your business to a market versus a geography. It has many virtues. It drives focus, clarity, simplicity, alignment, better execution, but most importantly, in our view, it drives better accountability.
That accountability, you know, music to your ears and very much to mine. It allows accountability on cost, which will drive our transformation, drives accountability on capital allocation to have us sharpen our instrument. Now, the one piece I haven't mentioned here is we will have a de minimis corporate segment. There's a page in the appendix you can see on that, but the majority of the cost is living in these two segments. So we've introduced the segments, we've given you the pies for 2023. When are we gonna give you more information? So these segments won't be in effect until the beginning of 2024. So under the accounting rules, when we file our Form 10-K at the beginning of February, that will be done on the historic geographic segments.
We will very promptly follow that with a Form 8-K, with the financial information recast in the new business segment structure. And then when we have our earnings call, we will address not just the geographic segments, but also the new segments, and as well, we'll give you additional information on trending otherwise, and we'll also provide our guidance on that basis, and all forward disclosure will be done on that basis. So Michael talked about our operating priorities, which are really driven and enabled by the new segments. Driving growth and margin expansion, check. Transform our cost base, check. Be very disciplined about capital allocation, check. But the additional focus area I have, and probably my most critical mandate, rigorous financial management, and I'll address that in a bit here. So driving the growth. Our recipe is really clear.
We have these very advantaged market positions that we can be very excited about. We just have to execute well against them. So when I think of these, what stands out to me? Our legacy position in lab, and our market presence and how we've executed. But the focus on the high-growth workflows, the focus on proprietary and driving strategic wins with the better focus of a full-aligned global segment structure versus a geographic structure. On the bioscience side, double down on our leadership in mAbs. That will drive the majority of the growth, but continue to go after the high-growth modalities, continue the customer intimacy with custom solutions to make us the continued leader for our customers as they look for strategic partners.
And then you consider the shared ecosystem, to use Michael's words, where customers buy from both sides, and it becomes a virtuous circle for us, where we have even better customer intimacy, and we continue to delight them. So it's not a mystery that it's been a challenging environment. We've been talking about that for the last 18 months. How are we navigating it? You know, and we all know visibility has been impaired. We've had unprecedented destocking, not just of our finished goods, but our customers' finished goods. Well, the only answer you have is self-help and focus on execution, and you have to do that positioning yourself for when the market turns. So it's been customer focus, the commercial intensity, winning everywhere we can.
It's our delivery and service levels, making sure we're delighting our customers, meeting the appropriate lead times, having what they need when they need it. It's price, making sure we get our entitlement against inflation, not just, not just on our third-party products, but also for our produced products. And then finally, cost out, which is part of our DNA and which is something we're going to accelerate. So the segment clarity really is driving clarity on our cost structure. It's not just gonna drive execution. It's shining a light on how we can be more efficient. When you're assessing how you can be more efficient, though, you really have to look at your addressable spend and where you're deploying your resources. You can see in the walk, $4.6 billion of cost of goods we have, $1.1 billion of SG&A.
The total addressable spend, we have over $5.5 billion. Now, it's still hard to get meaningful cost programs, and we have an ambitious and meaningful plan, but also has very achievable targets given how we operate and how we're gonna change how we operate. So as Michael announced, we're initiating the the structural cost-out initiative with $300 million of gross savings. We haven't just put a number on a page, we've done a very, very careful assessment and spent a lot of time thinking about this. Now, this is gonna consist of four buckets, broadly. Organizational efficiency, that'll be about a third of it. That's classic organizational streamlining, delayering, decentralizing, and right shoring. Footprint optimization, you know, there, that, that'll, that'll be about a fifth of it. We have a very complex network.
We've grown very rapidly, so that will be rooftop consolidation on the manufacturing side. Now, when you consolidate rooftops in manufacturing, you then have flow-through impacts to your distribution network, ensuring you have appropriate service levels, broadly taking that cost out. Cost to serve. You know, this is a broad array of items. This includes our service levels, process efficiency, shared service, reduced indirect spend, and then finally, procurement. We have really, really big third-party spend. Now, very minor wins in procurement can have a really important impact on our P&L. We expect a 25% impact of this in-year impact in 2024, and we expect the cash cost to achieve this will be probably in the 35%-40% range, and we expect the majority of these actions will be fully executed and in flight within the next 12-18 months.
The full run rate effect will not come in until the end of 2026. Capital allocation. One of the most important things you do as a management team is allocate capital. It's absolutely critical part of our strategy, and we're gonna add additional rigor to it. Now, just to be clear, we will continue investing organically in this business in the ordinary course. Absolutely. When there's capital investments in plants, otherwise, we will do those things. Those drive our best returns. You always do that when you invest in yourself. All of our available free cash flow or otherwise, consistent with what we told you after Q2, is gonna be allocated to debt paydown. Our Adjusted net leverage target of less than three times is absolutely sacrosanct, and we're going to drive to that.
When we've met that, everything's on the table, as Michael described, and we certainly have a bias for M&A, but frankly, we wanna be the best stewards of your capital, and we're gonna invest with the best returns in every instance. So I mentioned financial management earlier, and it's a really important point. Three main buckets there: forecast accuracy, cash conversion, and discipline with the capital structure. I'll start with forecast accuracy, and I'll say that with real humility as a firm. We recognize that we need to do better for you on that, and we absolutely are going to do that. We've already made changes in staff. We hired a new head of commercial FP&A, who's fantastic, and it's not just driving the forecasting.
That, that's from the standard work, as well as just having the right commercial instincts when you drive that, to things such as deeply partnering with the commercial leaders on: What business do you drive for? What are the right contribution margins? Just, just-... driving the business that way. And the really good news is, is the business has absolutely accepted it, and it loves the partnership already. I feel really good about what we're doing there. We have to prove it to you, but I feel really good about it. Cash conversion. This - we already had some really nice things in the pipeline working to reduce working capital. You've seen very nice sequential improvement, particularly since the first quarter of this year. We're gonna double down on those. Those are working. We're gonna show you continued improvement and continue to drive the cash generation that this enterprise can do.
And then finally, on the capital structure, the company's done a great job on the capital structure. 75% of the debt, net of swaps, is fixed. There's a weighted average cost of debt of 4.6%, and there aren't any maturities until 2025. We're in a really good shape there. We're gonna continue to be focused to ensure that we maintain that. So looking ahead, and Michael talked about the environment, and we had—we told you that we weren't gonna provide 2024 guidance, and when I've been asked about: What is your guidance philosophy back to the forecast accuracy? The answer is prudence, and we're gonna keep with our normal path there. But let me add some color there. We don't see obvious inflections, but we're being very prudent.
As we're building our 2024 plan, we're not assuming any leverage from the top line, so we're being very disciplined on cost. Now, when we have a recovery cycle, we believe in the outsized performance that Michael talked about here. We're upside down right now on mix, on fixed cost leverage in the manufacturing, and on leverage against our SG&A structure. We only need modest increases in revenue to bring us back to that 20% Adjusted EBITDA margin jumping-off point that Michael talked about. The other question is: How do the structural cost initiatives here connect with all of this? Well, these absolutely are critical. In the next 12-24 months, I anticipate at least $100 million of headwinds that we face just due to resetting of incentive comp, inflation. So these actions are gonna be really important to drive us.
At the back end of the structural cost initiative, we believe that takes us to the 20% entitlement, and then the long-term targets kick in, and that's the jumping-off point. To reiterate them, organic revenue growth in the mid-single digits, at least 50 basis points of margin expansion, double-digit EPS growth, and in excess of 90% free cash flow conversion, and I'll walk the components of that here shortly. Organic revenue growth. Let's unpack the targets. The segment reporting, frankly, not only is better for us managing the business, I know will be better for all of you understanding the business. With this segment structure, it gives you much better clarity on how to walk to what the growth rate should be. We understand the end market dynamics and the history of Lab Solutions business.
That wants to be at least a low single-digit business. And with the initiatives that Randy discussed, definitely can be a mid-single-digit business. That's 2/3 of our revenue. Bioscience Production, we all know that has a high growth entitlement. It's very easy to be comfortable with that being a high single-digit growth throughout the cycle. That's a third of our business. When you add them together, the math very directly takes you to a mid-single-digit entitlement. So margin, how do we expand margin? Really four buckets: price, mix, volume leverage, and productivity. So we historically talked to you a lot about price over COGS. That's something we absolutely continue to get, and pricing on the revenue side will continue to be approximately 1/3 of the equation when we think about our revenue growth. We also need to get price to offset inflation.
There obviously have been huge swings in inflation recently, and that we'll continue to be able to drive that. We may not get the same levels that we have historically. Mix. You just do the math and the differential segment growth, you add to that the increase in proprietary content, that can drive tens of basis points of margin alone. Volume leverage. Every percent of growth in production volume can increase the enterprise's margin very substantially. And then finally, productivity, where we've always outpaced inflation, and I believe we can continue to do so, that's just icing on the cake. But you add those together, you very easily can take yourself to a margin entitlement of at least 50%. Now, we need to execute, and we need the markets working with us.
We absolutely can do that, and the structural cost initiative is just gonna wind the spring, so we're even better positioned to do that. Adjusted EPS growth. So our entitlement absolutely is double-digit, and from where I sit, this is largely a matter of arithmetic. And, and the good news is we have a lot of levers to get there. If you're just in a world of mid-single-digit revenue growth and you add 50 basis points of margin, you're almost all the way there. Now, cash generation is the other weapon that I think it's easy to ignore. If we generate free cash flow at exactly the same level that we expect in 2023, that'll... and use it for debt paydown, even with how low cost our debt is-... that contributes $0.04 to EPS or 4%.
So you're a huge part of the way there just with that. And we're very focused on the tax rate. We're gonna do what we can to drive upside there, but really, I view this as a matter of arithmetic, and we have a very clear path to double-digit EPS growth. So free cash flow. This is a capital-light model, and, but I think it's important when you say it's a capital-light model, it's not an underinvested model. We've invested very appropriately in this business, and we're gonna continue to invest appropriately, but back to the capital allocation on a very returns-driven basis. Now, you can see we historically have had very robust cash generation, and the proof's in the pudding. In the last 18 months, we've paid down $1.2 billion of debt with all the cash we've generated.
And as I've said, this business converts to cash amazingly. We are early in our journey to optimize working capital, but we're making very strong strides. There's a clear path, in my view, both on an execution side and just due to the nature of the business, for a 90% free cash flow conversion. And the great virtue there is that will allow us to delever more rapidly and open other alternatives for capital allocation. So I want to reiterate, we really have the right foundation here, and something I want to say personally, it's exciting being in a business like this. We have tough actions we have to do, and we have org changes, and we're gonna do those with respect and humility.
But to participate in end markets like this and to have customers like ours, it's just-- it, it's a great place to be. This move to the segments is gonna inflect this place on the clarity of how we execute and how we manage the business. And you add to that the cost transformation we're gonna bring to this great platform, adding that to execution, I just... I, I couldn't be more excited. Now, the environment's really, really dynamic, but putting this plan in place, driving this clarity, I believe this is gonna allow us to meet these targets and drive this business. So Michael mentioned earlier that Jim Bramwell, our EVP of Sales, is here with us today. Jim really embodies Avantor's culture and our focus on the customer.
His leadership over three decades with the company has become a big part of building our market position, as well as embedding our solutions with our customers and our teams, and in their innovation. Jim?
Thank you, Brent. I wasn't expecting that, by the way, so appreciate that. Lots of changes here today. Very excited about this, and as we enter a new chapter, I wanna just take a moment and share with you some things that, I've learned, and as well, most importantly, let you hear from some of our customers. You heard Michael talk about our commitment to the customer experience. This is top of our priority list. In my more than 30 years with the company, I've learned a few things, and one of them, the first one here, is that our customers have always been, and will continue to come first. Customer centricity is one of our core values here at Avantor. They are at the center of everything that we do.
I'm very proud of the relationships that our commercial teams and our service teams have built over the years. You know, these teams, they are leaders in this space. The relationships that they build with these customers are second to no one. It all starts with just one associate and one customer at a site, and it builds to now in many of our customer locations, we have over 150-200 associates, all supporting our customers. We are so embedded in their workflows. Second is the network of science. Our embedded positions means that we play a key role in advancing life-changing science. Scientists get to know Avantor at an early age in their career.
It is our goal that as they move on in their careers, that they stay with us in their journey, and they weave all the Avantor brands throughout their scientific careers. And last, our commercial teams and our service teams, they're problem solvers. It's in their DNA. We work so closely with these customers. We work closely with our supplier partners, and together with our supplier partners and our associates within Avantor, we're able to work and solve problems collaboratively, identify practical solutions and innovative solutions for our customers. Now, it is my pleasure to let you hear personally from a few of our customers, and we are so grateful for all of their contributions.
Incyte is a publicly traded biotechnology company. We make natural killer cells, engineered with targets to enhance their efficacy, either to shrink tumors or to work in conditions like systemic lupus, an autoimmune disease. My relationship with Avantor goes back almost 15 years. When I first started in January 2018, we were seven people at JLABS. In February 2019, we moved into our new facility, which was a 14,000 sq ft facility with about 30 people in it, and Avantor was with me the whole way there in terms of setting up the labs. Because we're a cell therapy company, the labs are special labs. The needs for those labs are special.
We then expanded with a clinical GMP manufacturing facility in that same building, which was another almost 15,000 sq ft, but that GMP clinical facility was 5,000 sq ft, and Avantor helped us to equip that and to have supplies for that facility, which has now been operational for over five years. We then moved from that facility, although we're still in that clinical GMP facility, to a new facility where we built 30,000 sq ft of labs and 30,000 sq ft of commercial GMP manufacturing. Huge undertaking. It's been a seamless relationship, and it's gone on, like I said, for almost 15 years.
So Sangamo Therapeutics is a company that's part of the biotechnology industry, it is a genomic medicine company. Today, it's very focused on the neurology and using its novel technology, the zinc finger technology. At least for my time at Sangamo, it's been an important partner because we've leaned on you to change the way that we're operating and the way that we're approaching, you know, really the end-to-end process of procuring goods and services. Simple terms is that you provide the right product that the scientists need, and scientists can be very particular about what product they need. And the more that we can take off the scientists from having to go and ensure that they have the goods and the goods are at hand, the more they can concentrate on the science.
We have over 6,000 academic and medical research institutions that make up our membership. Some of those are really the top and most prestigious medical and academic research institutions in the world. We truly value the partnership that we have with Avantor. Our agreement has really enabled Avantor and E&I to onboard hundreds of medical and academic institutions onto that agreement. This is now the go-to source for them for medical and scientific supplies for their labs. You know, at the end of the day, I think for E&I, we're looking to enable our members to take whatever budget they have and optimize that budget. We're looking for them to take whatever limited time they have and focus that time on their core work, which in this case is scientific research.
Their work is helping people and change people's lives one life at a time. I think we all want to impact the world that we live in, and this partnership that we have with Avantor allows us to do exactly that.
Thank you all again for spending the time with us and for listening to these presentations. We are gonna be transitioning to Q&A now. Just try to make enough room. Yeah, no worries. Similar to our earnings call, we will take questions from the sell side who's in the room today. So please raise your hand if you have a question. We have mic runners throughout the room. They'll bring you the mic. If you could state your name and where you're from so that the people on the webcast can hear you, that would be great. And we will try to get to as many questions as possible, so please do limit to one question and one follow-up question. All right, we have a couple more minutes probably while these chairs get sorted. Are the mic runners in place? Do you guys have mics?
All right, we'll come grab them. Mic runners, yeah. All right, let's welcome the group onto the stage. Awesome. Great. Okay, so we're ready for questions here. Go ahead, Vijay.
Vijay Kumar from Evercore. Michael, thanks for hosting this analyst day. Just to clarify some of those LRP and recovery phase commentary, is both revenue and margin expansion during the recovery phase expected to be above LRP targets? And just to clarify, you're not calling for 2024 as being a recovery phase, right? And maybe what is the length of this recovery phase? Is that, like, 12 months, 18 months?
Thanks for the question, Vijay, and thanks for being here today. I think it's a great place to start. Here's how I think about 2024. We have, you know, structural limitations that prevent us from, you know, being really precise around, you know, when we anticipate, you know, the recovery to begin. We'll see it in our order books first, and then, you know, it'll translate into revenue pretty quickly. And so we'll take the benefit of the next couple of months before we come forward with guidance to see how that order book does develop. So to be clear, you know, we're not giving guidance.
We've talked a lot about, particularly on the last couple of earnings calls, the significance of, you know, the inputs we're getting from our customers, how they're feeling about their inventory health, how they're feeling about their plans for next year. We've had the benefit since the third quarter call of obviously having a lot of interactions with our customers, and that, you know, continues to be very, very positive and would point to, you know, a recovery sooner rather than later. But we'll, we'll come forward with the details on 2024, as we, as we get a little bit closer to that. Now, thinking about this recovery cycle that we've teed up here today, I, you know, I do think it's gonna happen sooner than later.
And, you know, I anticipate that once it starts, you know, we'll benefit from the end of destocking, we'll benefit from restoration of mix and operating leverage, normalization of end market demand. I think it's important to recognize as well that, you know, we don't have, you know, some of the headwinds facing our business today that are starting to make their way into our space: China, equipment, and instrumentation. So, you know, I do think we're poised for, you know, pretty strong recovery, both on the top line as well as on the margin line. We talked about it today, you know, probably taking 12, 18 months, something like that, to work its way through the system. And so is that finished in 2024?
I'd sooner think that it probably, you know, bleeds into 2025 at some level. But somewhere in that 12-18, 24-month period, we think we'll be back to a profile that looks a lot like where we're at in 2021, and we think that serves as a great jumping-off point for our long-term algorithm.
Understood. Brent, maybe one for you on... I think you called out some cost headwinds for our fiscal 2024, $100 million.
Yeah.
And you also called out the cost savings, right? So what is like the net number? Are we expecting margins to be flat, to be up, or how should we be thinking about 2024 and the phasing of that $300 million? It looks like it's a gross number. It's not a—I think the net savings could be perhaps something below that $300 million cost savings plans you laid out.
Okay, so I'll unpack that a little bit. So we do have headwinds next year. You know, we have a very low accrual on incentive comp. We have significant wage inflation coming in that. I mean, we could have nine-figure cost headwinds next year. When you think of margins next year and you think of the business performance environment we're dealing with, you know, if you're in a lower growth environment or lower or no growth environment, I would say thinking margins like the back half of 2023, as we've estimated. If you know, if we get more acceleration on cost actions, we could do, you know, 25-50 basis points better than that, but that's probably the right jumping-off point. Your broader question on the cost point, yes, it's gross savings.
In my experience, that's how you always do a cost program and savings. One of the reasons you do is when you're facing headwinds or, in our instance, a combination of when you know you have headwinds, as well as when you have that opportunity to restructure the business. So it is absolutely not because of headwinds we're doing it, but it helps position us better. You know, to Michael's point, look, we know that's coming, so our view right now, just like the commercial intensity, is double down on all the self-help actions we can, and then it's all the better when the top line really cooperates.
Okay.
We'll take one from Dan.
Great, thank you. Dan Brennan from TD Cowen. Thanks for doing the day. Great day. Maybe just going back to that question, 'cause I think that'll be, like, such a key focal point for investors just to really understand this. So again, when we think about the $300 million, can you give just maybe a little more color on the cushion around that number? And then, B, you guys talked about, like, a 20% EBITDA margin. You gave the 50-100 basis points of expansion. How does that $300 million fit in? Like, is that in the 20% and the 50, or could that add to the 20% and the 50-100?
Yeah. So, you know, as we've talked about, the $300 million is a gross number. You know, we have line of sight to that, and, you know, we'll look to obviously outperform that, as we do with any metric that we would put forward. But I think a good way to model it is the $300 million. I think probably, you know, 2/3 of that will flow through to the bottom line. We'll realize a significant portion of that over the next two to three years, and so, you know, certainly a part of that is helping us offset the inflation we anticipate over the next couple of years and is part of that greater than 20% that we would expect over the next couple of years.
There'll be some wrap effect or carryover effect that, you know, probably, you know, bleeds a bit beyond that as you move beyond that recovery period. But it's not a bad jumping-off point to think about applying the 50-100 basis points algorithm to over the longer term.
And then, and then you guys also talked about growth acceleration. Obviously, it's a difficult environment, so maybe, maybe from an end market basis, a lot of your peers who have different mix talk about, like, end markets being down next year. Any thoughts about your addressable market, where that is? And then this acceleration that you could see, it seems like it's on both sides of the equation, right? You talked about lab maybe getting to mid-single digits. In bioprocess, you talked about a mAb investment. So I'm just wondering, how do we think about that growth acceleration as well? Thanks.
And it's clearly a dynamic time that we're operating in, and the next, you know, couple of years, you know, the comparables are gonna be, you know, weak. We're gonna benefit from, you know, the end of destocking, which has, you know, been rather punitive in our model. It's masking, you know, stronger underlying demand for our business. We actually don't need any change in the end market fundamentals for us to see, you know, an acceleration from growth from where we're currently at. And, you know, when we think about the cautionary posture that a lot of our customers are in at the moment, you know, that'll unwind here, you know, sometime in, you know, 2024, 2025. That will, you know, also result in higher underlying demand levels.
Look, I think for me, it all goes back to the fundamental drivers of our end markets. You know, I spent a lot of time today talking about just the, you know, the golden age of science and all of the terrific innovations, that there are, you know, for our customers to drive pipelines in biopharma as full as it's ever been. We've got new modalities that will provide, you know, ongoing waves of growth opportunity, and we're at the heart of all of that. We benefit in the lab segment from, you know, accelerated research and focus on these new modalities, particularly, you know, cell and gene therapy is an important driver for us, especially this year.
And then as these platforms are approved, and it's important to recognize we're at above or, you know, number of approvals this year, whether it's mAbs, you know, gene therapy approvals, we're running well ahead of, you know, I would say, historical levels of approvals, and that's an important growth driver for our production segment. So we're, you know, gonna benefit from the macro tailwinds that that drive the space. And then, you know, we've got some unique opportunities, just given how closely and deeply embedded we are with our customers, with the rich portfolio that we have... to drive accelerated growth on, you know, some of these high growth workflows.
We outlined a number of those today, including these emerging modalities, and we have a really strong innovation engine with, you know, deep pipelines, both on the lab side of our business as well as on the production side, that will enable us to accelerate growth over the longer term. You know, look, it's a little bit hard to unpack performance during this time of, you know, COVID revenues and destocking and, you know, the unwind coming out of the pandemic. But I do think it's clear this business has run at the high end of our algorithm, you know, historically. I don't see any reason why we won't get back to that. It's gonna be a little bit, you know, noisy. We'll probably outgrow that for a bit of time.
And, you know, we'll see where it, where it all lands, but, you know, I think we're really confident in being able to deliver these long-term targets, Dan.
Great. Next question. Tejas, go ahead.
Tejas Savant, Morgan Stanley. Thanks for the time, guys, and great presentation. Michael, can you just clarify a little bit around... I think it was Vijay's question around, what trend means when you said that you'll grow above trend in terms of top line and margins at some point over the next 12-24 months? Getting a few inbounds on that. And then, as a somewhat related question, when you, when you talk about those very meaningful costs, cost outs over the next, you know, few years here, what are you doing internally to ensure that there's no disruption to your growth algorithm as you, you know, strip out those costs?
Yeah, great questions, Tejas. So, you know, maybe take them in reverse order there. Just in terms of, you know, how I think about, you know, stabilizing the business and ensuring that, you know, that customer interface is uninterrupted, you know, through the execution of our strategy. You heard from Jim Bramwell. He has been, you know, driving our customer channel and the key face to our customers for now, you know, three-plus decades. And, you know, we preserve that structure and, you know, we'll continue to serve the customers in much the same way as we do today. Our innovation, you know, centers, this will actually help accelerate some of that.
We probably tend to overweight the focus on our production platforms, but I know Randy's anxious to lean in a lot harder on the lab side of this to build out, you know, a deeper portfolio of activities, innovation activities to drive our lab. And that is an example, I think, of what we're talking about here around the focus that this brings by organizing and moving away from a geographic structure where you're now, you know, focused specifically on these two segments, provides transparency and clear ability and accountability for, you know, what we're doing here. So that's how I would, you know, think about the, you know, that part of the question. Your first part was?
It was more around just what you meant by trend.
Oh, above, yeah. What we meant by this notion of above trend, you know, growth and margin performance during this recovery cycle. So when I think about the trend for us, you know, you would expect us in a normal environment to grow mid-single digits, expand margins at least 50-100 basis points, and, you know, we've done that historically. You know, we've got some really weak comparables. You know, our growth this year is gonna be down, you know, mid-single digits. You know, margins have been, you know, pretty punitively punished. You know, as we have... You know, we're not. It's not unique that we have, you know, destocking headwinds, but given the overweight consumables portfolio that we've talked about today, it's disproportionately, you know, penalized our P&L.
And, you know, as destocking ends, as the demand normalizes, there will be, you know, a structural snapback of the mix and a restoration of the operating leverage that we've, you know, enjoyed over, over time, that will drive, you know, an outsized recovery. And, you know, the way I think about it is, you know, probably gets us back to something that looks a lot like 2021 during this period, which when you look at those numbers, what that means, all I'm trying to point out is it's, it's greater than our mid-single digit or 50-100 basis point algorithm.
Fair enough.
Yeah.
And then one quick follow-up on just, you know, double-clicking on the GLP-1 opportunity, topic du jour. You know, you guys have talked about it in the past about higher input intensity due to the eventual switch to orals, possibly, and some pretty meaningful numbers around, you know, how much higher resins and amino acid usage could be with that switch. Could you just share some color on across those offerings, where you think you're particularly differentiated? I mean, obviously, there's a lot of amino acid manufacturers out there. And then how much could that sort of translate into in terms of the revenue uplift for you, you know, as the dose forms evolve? Thank you.
So one of the examples that we gave today of, you know, these, you know, workflows that offer or could offer, you know, outsized growth for us, right, and accelerate our growth algorithm, would be these emerging modalities within the biologic space. You know, we're really focused on cell and gene therapy. mRNA has been an exciting space for us. And, you know, GLP-1s, as you referenced, is just another example of an area where there's a lot of attention, there's certainly a lot of potential.
We've got, you know, some commercialized products on the market today, and our chemistries and technologies are relevant, you know, whether it's a, you know, synthetically produced peptide or it's a, you know, fermentation-based peptide, given, you know, our, you know, deep, you know, capabilities in, in things like process ingredients, buffers, excipients, and their use in, in both, you know, routes to market, as you mentioned. In the types of materials that we supply into that workflow, we are the leader. You mentioned, you know, amino acids. You know, we have a really terrific position there. Actually, that was one of the areas during the pandemic. You know, this is a product that's or these are clas ses of products that are used in, you know, some of the other modalities.
You know, we took the opportunity during the pandemic to actually double down and expand our capabilities. And, you know, we have some new production sites that, you know, we'll be able to leverage as we move into, you know, this new trend. You know, look, I know there's a lot of excitement about it. I think there's still a lot that we don't know about, you know, how this is gonna evolve. You know, what are the dosings? What are the indications that it ultimately gets, you know, extended into? And, you know, of course, we can model all these scenarios, and some of these get to be some pretty big numbers.
But, you know, I think we'll probably, you know, continue to be a little bit prudent here about, you know, how we position this, just given the number of variables that are still in play there. But one of the attributes of our platform is we're not really, you know, ever overindexed anything, whether it's an individual customer or an individual platform. And, you know, I mentioned the picks and shovels model that we have in the tool space, and we benefit from, in that, you know, given the ubiquity of our technology base, it's good assumption we're gonna be lined up behind just about every platform that's out there. And you know, we like, you know, all of these to be successful.
We know that they're not all successful ultimately, and, you know, we like the impacts it has on patients. But we don't get too overindexed to any particular platform, and just given the number of shots on goal that we have here, given our positioning, you know, that's one of the important growth drivers of our business stages.
Thanks so much. Rachel, go ahead.
Perfect. Thank you for putting this on today, you guys. Rachel Vatnsdal with JP Morgan. So I want to follow up on Dan Brennan's question around margins, just to get some more color, given all the moving pieces here. So you mentioned the $300 million in cost savings, and that 25% of that really falls in 2024. So how much of that $30 million in cost savings is contemplated in that over 20% jumping off point for EBITDA margins? Or really maybe said another way, within the 50-100 basis points in margin expansion, how much of that is due to the cost savings you announced, and really, what's the implied underlying margin expansion-
Yeah.
Except those cost savings?
So we're really, with our commentary on that program and the acceleration will bring us to above 20%. We come to a normalized environment, you go to the financial model, then is the point we were trying to make on the head.
Okay. Helpful. Then, a follow-up question on capital deployment. If we look back at the time of the IPO, there was really a large focus on M&A. Avantor's being positioned as a roll-up strategy, acquiring companies with high margin and proprietary content, and really driving that through the channel business. So, I appreciate that working down leverage is the priority in the near term, but it seems like today you've really de-emphasized that focus on M&A over the long term, now that you're mentioning buybacks, potential dividends as well. So, is there structurally anything different in terms of how you're approaching M&A? And then, how do we think about the probability of success for doing future deals? And then, as a follow-up, how should we think about the types of assets that you're really looking to target when you come back to M&A being on the table?
All right. You might have to keep me honest by answering or unpacking all that. But let's start with your question around, you know, M&A. One of the things I mentioned about our platform, and specifically when I was talking about just, you know, the attractive space that we're in, highly fragmented. Not only does that give us a lot of opportunity for organic growth, but for players at scale like Avantor, it also positions us well for M&A. And, you know, that's been an important part of our history, and this platform, you know, has benefited from, you know, more than 50, you know, acquisitions, probably over the last decade. And it's been an important accelerator of our growth.
When I think, you know, about the path forward here, clearly, you know, the environment here is influencing us, you know, in our thinking around how we're, you know, prioritizing capital in the near term. We are committed, as Brent said, to get under three times. Once we get there, I, you know, would fully expect M&A to be an important part of our playbook, and certainly wouldn't want you to take away a message today that, you know, we're de-emphasizing it or that we don't see that as an important, you know, driver of our long-term, you know, growth opportunities, because I think it is.
All we're really trying to articulate today by showing dividends and buybacks is that I really wanna position our our capital allocation you know you know structure in a way that we have flexibility. I don't constantly wanna be on the ceiling of our of our leverage range if I'm trying to do a deal. You know if you know there's not a great deal to be done certainly we wanna be disciplined about how we how we use your capital and if you know we can add more value by you know through a dividend or a buyback we would consider it is is really all we're trying to to do here.
I guess this less than three times kind of puts us in a, I would say, in a normal environment or, you know, an envelope where we're allowed to—we'd be allowed to, you know, have a more flexible, you know, strategy. But I think Brent mentioned in his comments, and I'd fully endorse that, you know, I think we would have a bias for M&A in that environment, just given our platform.
Okay, we'll take one from the back. Luke?
Thanks again. Luke Sergott from Barclays. Just to dig in here a little bit more on margins, then we'll go kind of more longer term here. So on that, on that cost out, you know, you're, you're expecting we got the pacing there, but is that coming off of the 2023 guide or the 4Q exit rate that you guys are exiting at this year? Just so we can kinda level set where how that kind of paces out. And then, you know, as you think about that coming in, what would the underlying organic margin expansion look like, just from your mix? The pro, you know, the typical stuff that you usually do outside of that, that cost out?
Luke, I think, part of the way I think about it is, you know, we've talked about, you know, Q3 margins, you know, probably had a few tailwinds that we haven't contemplated, you know, repeating in Q4. We've taken, you know, a bit conservative approach to Q4. So probably the right way to think about our exit... Our margin rates exiting the year is probably, you know, the average of our margins in the second half of the year as the jumping off point. I think Brent did a nice job articulating the headwinds that, you know, will hit the P&L next year, you know, just normal inflation, merit increases.
It is important for you to understand we have a pretty sizable, you know, headwind coming from a reset of our incentive comp, you know, systems, which wouldn't be important for us to do. You know, which if that's, you know, all we did as a business, you know, your margins would move south of where we're exiting the year. Between just our normal productivity activities that we would do in any event, together with the impact that we'll have from this new initiative that we've launched today, you know, we see a path to getting back to, you know, this kind of margin levels that we've exited the year at, without any help from the top line.
Obviously, as we come forward with a guide, we'll have to contemplate what, if any, help we would expect to get from the top line. And, you know, if we can, you know, accelerate some of that productivity, you know, can you do 25-50 basis points higher than that? You know, perhaps. But that's how I would think about the margin set up for 2024, absent any contribution from revenue, which, you know, we'll spend some more time on that before we come forward with the guidance.
Perfect. And then, I guess, on the guidance and just the strategy here, you know, it's a pretty resilient market. You guys have a lot of visibility, 85% recurring revenue. But, you know, after the last couple of years of disruption and the visibility has really shrunk, you have all the destocking, and you're still kind of working through orders, you know, still not at a normal level. So I'm just kind of curious why, as you think about guidance and other... your peers have kind of set a market growth is much lower than that. Why, why come out with, you know, the LRP, you know, a guide in line with your LRP or even above it, according to the above trend comments that you're making, giving yourself, you know, just from a set-up into the year perspective?
Yeah, I think there's a couple elements of visibility that I'd draw your attention to, Luke. You know, firstly, there's just the visibility that you get, you know, structurally from your order book, and, you know, that's not changed. And, you know, Randy's lab segment order book is measured in days and weeks, literally. So, you know, we've never had a lot of forward visibility there. In Benoit's production segment, visibility is measured in weeks and maybe a few months at best, and so it's moderately better, but still, you know, not that insightful. And that hasn't changed either, you know, particularly as the supply chains have normalized and our lead times are back to normal.
The issue around visibility that we've run into, you know, perhaps disproportionately to our peers, you know, over the last 18 months or so, has been, you know, the order patterns of our customers and this mismatch between the underlying demand and what they were actually needing to buy from us, given their inventory positions. You know, it's been difficult for us to call that and see that, and, you know, it's masking stronger underlying demand. And we won't be able to, you know, I think, validate that that has, you know, you've been taken out of the business, and then we're back to a normalized demand pattern until we see a turn in the order book.
And you know, just given the structural visibility that we have, you know, that'll happen kind of real time. So, nothing wrong with the model. Certainly nothing that's changed about that.
Luke, a couple of things I'd add on that. So the above trend comments are when we see the order book turn, it's not a comment that he's saying 2024 is an above trend year, just when you're thinking of the jumping off point comments. And then you also made the comment about the long-term financial model. We didn't just repeat that. We went, you know, I'm new in seat, dug into that, have a very clear view. You saw how we laid all those pieces out. You know, the revenue growth, I think we can all agree in a normalized market, wants to be mid-single digit, given our portfolio. You then think of the margin part, 'cause I think EPS flows from the others, and free cash flow obviously is mainly our execution part of it.
But the price will be a contributor, particularly when you have lower inflation, we can pass through price in, in the third-party business, and we get price in the bioprocessing business. You then add just the differential mix due to the growth rates. That gets you well on your way. That, as well as proprietary, gets you a very significant way to the bottom end of it. You add to that productivity, I mean, we have so much negative absorption now versus what this business wants to be with any reasonable growth. So that wasn't a rinse and repeat. That was a fundamental re-dig on what it wants to be. In a normalized market, I absolutely believe that's what it wants to be.
Patrick?
Yeah, thanks, guys. Patrick Donnelly from Citi. Brent, I know you mentioned on the pricing side, I wanna pick up right where you left off there.
Yeah.
You know, you talked about lab, you know, maybe that could be one of the drivers of 100+ basis points above the market on the pricing side. And then curious on the bioproduction side as well, just how you think about pricing as this market comes out? You know, I think there's a worry that all this capacity got built up, and as you have a gradual recovery on demand, you know, how to think about that pricing piece, not only into 2024, but into that recovery piece. Maybe on both sides of the business, how you think about pricing.
I don't know if you wanna add also, like, the- Look, the comments on price there were really, you know, over the past several years and in the inflationary environment, significant price came through, particularly as you had shortages of things. And I think the messaging there is we're gonna be very cautious about what we're gonna achieve there in the near term. I think just the end market growth, we should probably expect a third of it from price, 2/3 from volume, but certainly not walking away from price there. You know, we'll have to see those other demand things. I don't know that we'd make a call on that future price, and I don't know if you want to add to that, Michael, on the bioprocessing side.
There's probably a couple different drivers for pricing in each of the two segments. Within the lab segment, you know, the input cost is an important driver of what we ultimately will be able to take into the market. We're right in the middle of trying to get clarity as to what that's gonna look like for next year, and we're pushing hard to keep that at a minimum. And you know, that will inform, you know, what we ultimately take into the market. And from what we can see today, I have no reason to doubt that we'll be able to offset the COGS inflation with an appropriate price increase.
You know, it's too early to tell whether it's gonna be, you know, closer to what we've had to do the last couple of years, or it'll revert back to, you know, more of the modest 1%-2% that we've seen historically, but it'll probably be somewhere in there, I guess. On the Bioprocessing side, it's a little bit different, you know, equation. You know, that's gonna be driven more by, you know, the value proposition and the value that you're creating. Got a long-standing track record of being able to, you know, drive margin expansion with, you know, prudent increases there, and I think we're set up for another, you know, year of that.
In our space, you know, overcapacity of the types of materials that we produce really isn't, you know, driving the, you know, the pricing environment. You know, there may be other categories that you're thinking about, but, in our space, you know, you've got a lot of opportunities, both within our manufacturing footprint as well as at our competitor sites, to kind of manage capacity by, you know, how you staff the facilities, number of shifts that you run, and so you, you've got a lot of flex up and down. And you saw that during the pandemic when we were able to flex to meet some of the outsized demand that came our way, and you can also pretty efficiently flex down, you know, to get out of some of the costs if the...
You know, in an environment where the demand might be a bit softer. But wouldn't see that driving price this year.
Okay, that's helpful. And a quick follow-up to Tejas' GLP question. You know, I think you guys said in the slides it's about 8% of the market. Is it 8% for you guys as well in terms of your bioprocessing revenue? And then just in terms of thinking about the growth potential there, is it the right way to just look at GLP volume growth and think about you guys? I know you said over 20%, but, but is that something we can track and, and think about you guys as a decent proxy there? Thank you.
Yeah. When you look at the, you know, our exposure, as I mentioned before, one of the things I really like about it is, you know, we're gonna be lined up behind, you know, virtually every pro, you know, program. So our revenues at a, at the highest levels are gonna approximate the split that you see in the, in the end markets. You know, there's a, a portion of the pie that we showed today that's, you know, maybe other proteins. You know, we might be a little bit underrepresented in something like that, and so, you know, we might cut the pie a little bit differently. Maybe we put more in, in cell and gene therapy than, than what shows up at the at an end market level.
But it's not a bad, you know, approximation to look at it on that basis. You know, when I think about, you know, being able to have it show up and, you know, report it, it is showing up today. You know, we're gonna deliver, you know, mid-single to high single-digit declines on our bioprocessing platform, which, you know, I wouldn't normally be, you know, all that excited about, you know, given what you would expect from that platform. But it is in fact best in industry, which isn't, you know, that, you know, unusual for us. We typically outpace the broader industry by 300-400 basis points. I don't think you'll find a, you know, a stronger platform in our space.
You know, even if you say, well, you may not have as much China exposure than others, and that accounts for the difference. Even if you normalize for our more limited exposure to China, you know, we're still seeing, you know, better performance off of our bioprocessing platform than anybody out there.
Jack, mics are far from you.
... Thank you. For the LSS-
Yeah
segment, the low- to mid-single-digit target that you laid out, can you talk about what that assumes in terms of competitive activity between yourselves, Fisher, and sort of the rest of the market?
Yeah. I think when I think about the baseline for next year, because we are so fragmented in terms of the number of customers that we serve, over 300,000, I think the best proxy for us is to say, "Hey, we're gonna grow with market." Now, do we have the prescience to know exactly what's gonna happen vis-a-vis all the competitors out there? We'll see how that plays out. And I think the one thing that I'm really encouraged by is just the incredible transformation that we've seen in this move to the segment structure that we outlined today, both for Benoit on the production side, as well as on the lab side. This is the first time we've tried to have an integrated, holistic lab model.
Just think about the progress that we've seen, you know, since the VWR days, how we've taken part of that legacy, but we've combined it with legacy of Avantor pieces as well. We've combined it with M&A work that we've done, the digital work, and the, the structural things. We'll see how the market plays out vis-a-vis the competitors, but, you know, we'll, we'll grow with market. We're confident of that, and if we have things like pricing and mix that can benefit us, you know, we got the potential to outgrow the market. But we'll see how the competitive intensity plays out next year.
Great. And then for Brent, the over 20% exit-adjusted EBITDA margin-
Yeah.
I just wanted to clarify: is that a target for 2026, or is there a specific year that's referring to?
We didn't put a specific year there, but that's after the outpaced recovery. That should be our exit rate.... Thanks.
We'll go over to Matt.
Thanks. Matt Sykes from Goldman Sachs, and thanks for hosting the day today. It's very helpful. Maybe just, given the resegmentation that you did, I'm sure you took a deeper look at all the operating businesses. With advanced materials now within bioscience production, you outlined some medical applications for some of those products, but obviously, there's semis and some other areas, aerospace and defense. How do you see that—those portions of advanced materials fitting into the overall group of Avantor as you've pivoted much more towards life sciences overall?
Yeah, it's a great, great question, and I think there's a, you know, couple of ways I think about it. You know, firstly, we do view ourselves as a life sciences company, you know, first and foremost, and, you know, we're constantly challenging ourselves, you know, around the portfolio and, you know, there's probably, you know, opportunities to, you know, adjust that from time to time. But we do have a really strong platform that benefits from a really integrated infrastructure. You know, some of the exposure we would have in, you know, life science or in an industrial setting, likely leverages the same products, the same, you know, distribution assets, the same manufacturing assets. So trying to unpack that can be, you know, somewhat, you know, dilutive to the business.
But when I think about the logic of having it on the platform, I think in Benoit's, you know, this, one of his favorite slides that he mentioned, where, you know, the business model starts in seeding content in a discovery activity, whether that's in research for biopharma or it's on a next-generation semiconductor chip, it starts in the same place, with a custom solution that we'll collaboratively develop in connection with the customer's platform. We ultimately earn a specification on that platform, and then we would follow that platform as it scales from, you know, research discovery up through, you know, process, product development, and then ultimately, you know, with the commercial launch, and would benefit from, you know, serving that platform, you know, throughout its life cycle. So the business model is the same.
You know, some of the underlying, you know, products, operating units are also the same. So we like the business model. It's you know, recurring revenue, it's proprietary content, and so it does make a lot of sense. And, you know, I think we like and benefit from, you know, what we see as a pretty frothy growth opportunity there, long term. But at the end of the day, we, you know, we view ourselves as a life sciences company, and over the last 10 years that I've been, you know, running the platform, you know, I think we've strongly pivoted the focus towards, you know, life sciences, and we continue to increase our exposure there each and every year.
Got it. And then just with the prioritization on debt paydown in the near term, just wanted to ask about the proprietary mix shift. How much of the proprietary mix shift is dependent upon you acquiring new proprietary content versus being more efficient in the content that you have today? Meaning, do we need to see, M&A come back to get that proprietary content up to see an acceleration in that mix shift, or can it be done with the existing portfolio?
So, so two things. The mix shift happens organically, and we've talked about that a lot historically, that, when you look at where, you know, our proprietary content is spec-ed in, you know, there's a disproportionate amount of that that's on our production platforms, which grow faster than lab workflows. And so with that differential growth rate between, you know, production and research or in the labs, as we've outlined today, we naturally, you know, without doing anything incremental from an M&A standpoint, that mix shift, you know, moves incrementally each and every year. And, you know, we can get to north of, you know, we're roughly 55% today. We can, you know, get north of, you know, 60% over the next few years, just organically.
You can drive step change when you, you know, invest, you know, via M&A and bring proprietary technologies into the platform. And, you know, that's why, you know, going back to Rachel's question, why I still think that M&A is an important part of our playbook, not just to bring, you know, relevant technologies that, you know, help us solve customer problems, but it's also an important driver of growth and margin expansion over time. So incrementally, you know, via just organic mechanisms, we can drive a step change, with M&A.
Dan, in the back.
Thank you. Dan Leonard with UBS. You didn't talk about... I'd like to talk about the market share dynamic. You didn't talk about market share at all in the presentation, but you did talk a lot about greater accountability. Is that a concession that maybe you've lost a little bit of share, and will share recapture be part of that go-forward growth algorithm?
Yeah. So we've talked, you know, a lot throughout the year about our views on, on share, and market, and, you know, admittedly, you know, it's not a very transparent market, so it's, you know, challenging to kind of triangulate, you know, what, you know, market shares are. And of course, you know, nobody in our space has the identical portfolio, and, you know, so you really have to get down to a, to a category level.
Mm-hmm.
I think we've shared a lot of the data points that we would look at, you know, to try to infer, you know, how we're trending relative to the competitive offerings that are out there, and whether that's contract wins, customer renewal rates, you know, whether that's, you know, share of web traffic, you know, coming to our sites, you know, new contract wins. You know, there's a kind of a dashboard of things that we look at to validate that. You know, we can.
You know, at a category level, I can look at, say, you know, lab chemicals, you know, and I can look at some public, you know, available, you know, research that might allow me to triangulate, "Hey, how's my lab chemicals, you know, trending versus something else?" Without exception and across the board, you know, we've either maintained or grown share, you know, throughout 2023, and we would expect that to continue. This reference to accountability that you bring up, I think is a really important point. And, you know, for us, it's, you know, being able to drive accountability at this business segment level. You know, we've, you know, had such a shared ecosystem here of how we thought about the lab. There was, you know, part of it was in different parts of the organization.
For the very first time now, you know, everything that touches the lab will now be under Randy. So when we think about meeting our customers' needs in the lab, you know, it's now under one roof. You know, Randy and his team will be able to, you know, to have clarity around strategy, around, you know, portfolio, you know, and around execution of that. And, you know, we can hold them accountable for growing the, the business and expanding our, our margins, to accelerate performance over, over time. But certainly wasn't meant to indicate that, you know, maybe we lost our way here on, on share gains, because I think the data is actually quite compelling.
And even, you know, my reference on, you know, bioproduction growth this year relative to our peers, you know, whether it's in the lab or whether it's in the production, I think we've had another year of good share gains in 2023.
I appreciate that clarification. And I was hoping to ask a follow-up on proprietary products. What proportion of your proprietary products are self-manufactured? Where does that go over time, and is that an important part of your growth algorithm?
So the way we think about, you know, proprietary, you know, products in, in our system is, you know, technologies that we control the specification on,
I guess they want us out.
That was a tell.
Yeah. You know, but the Yeah, that'll interrupt the train of thought, won't it? But when we think about proprietary, you know, technologies, we've got a terrific network of manufacturing sites of over 30, you know, sites as GMP or ISO certified, as Benoit mentioned. And we have a network of manufacturers that also produce on our behalf, you know, where we control the quality specification, you know, we own the specification, you know, it's our brand. And the margin profile of that, you know, would be almost identical, if not identical to, you know, if it was manufactured in one of our facilities.
So, you know, it's a mixture of both with probably an overweight on, you know, our own manufacturing, you know, sites, but, you know, we view them and run it, you know, exactly the same way. You know, as we were talking about, you know, the question over here a second ago, about 55% of our revenues come from, you know, from that area, and, you know, it'll expand, you know, organically. I would anticipate we'll approach 60% over the next few years. You know, absent any M&A, you know, long term, I, you know, I wouldn't put a ceiling on it. You know, it depends on how much capital you can deploy for, for M&A over what period, to influence that more aggressively.
Okay, we'll take our last two. Can we get one from Eve, and then one in the back from Justin? Eve's up here, right in the middle. Yep, and then Justin's on the back.
Hi there, Eve Burstein with Bernstein Research. Thanks for the question. Just one clarification on the new op model. So, in the past, you've talked about selling your proprietary products like J.T. Baker, bottle to barrel, so both into labs and into production. So just to make sure, does that revenue roll up now into both of those segments?
Yeah, I think it's beaker to bulk, I think is the...
Okay
... the reference or the analogy you're looking for.
Still a good one.
I'll have to reflect on-
You should consider my title.
Yeah, I'll reflect on that. But the answer is both. So, you know, when we're putting, you know, proprietary content or even third-party content, you know, in a customer's research activity, you know, if that's going into a lab, you know, Randy and his team will be, you know, driving that revenue. As it scales and is ultimately commercialized in production, then, you know, those commercial quantities and the revenues associated with that would be referenced or reflected in Benoit's, you know, business.
Okay, thanks for clarifying that. And then just given this reorg away from geographies, how do you think about Asia going forward? Right now, low exposure is a positive, but you've also talked about investing in it, in China for China strategy, and going forward, you don't have one person over that region. So how do you think about the role that geography plays for you in the future, and who's driving that?
Yeah, really good question, Eve. I actually just came back from China a couple of weeks ago, and, you know, we're absolutely committed to growing our presence in the region. And in fact, you know, it's a little bit misleading when we show the pie chart that shows 5% of Asia is, you know, or 5% of our revenue is coming from Asia. It actually doesn't tell the whole story. When I look at Benoit's segment, for example, you know, we're as positioned as, you know, or, or at least as good, if not better positioned in Asia as anybody out there, you know, whether that's in Southeast Asia, or in Korea, or in India with our production capabilities.
So, a really terrific exposure in the production platforms. I think it's being masked, though, by, you know, underrepresentation in the labs, you know, in that region. And in fact, you know, a lot of the research work to support production in Southeast Asia or, you know, Korea, is actually done in Europe or the U.S. and then, you know, transferred out to the CDMOs in that region. So as you would expect, you know, we're actually really well-positioned there. Given the kind of underweight exposure we have in the region overall, together with kind of the... I would say, where we're at from a maturity standpoint in building out that business, we actually have, you know, Christophe Coutier, you know, sitting in Singapore today.
He reports directly into me, that will continue to run that region. He has organized the region in alignment with these two segments, and so the lab revenue that he generates will flow into Randy's P&L, and his production revenue will flow into Benoit's P&L. But you know, to try to keep you know these gentlemen focused on the biggest part of their businesses, at least out of the gate here, we'll go with that structure for now.
All right, Justin, last one here.
All right. Thank you, and thanks for having us here. Justin Bowers from Deutsche Bank. So, maybe one for Michael and Randy Lab Solutions. can you help us understand sort of the drivers for the range of that 4-6 growth target? And I think what I'm trying to understand is, you know, what's how much of that is end market versus share versus maybe mix shift, and what the underlying end market-
Mm-hmm.
How you would characterize that for that outlook?
Yeah, when we think about that, we said low single digit to mid single digit was going to be our long-term growth rate. So we want to grow at market. That's a good proxy. We've got, as I mentioned, a really broad and diverse set of coverage at the account, so we'll grow with market. We wanna see what happens in a mixed environment. We wanna see what happens in a pricing environment. You know, if you could learn one thing about your business and have perfect clarity, it'd be understanding the price over COGS or the pricing market. So that is a big factor, not only on the growth side, but certainly price drops to the bottom line as well too.
So, you know, we're not gonna call it share gain at this point, but, you know, suffices to say, you know, growth is a big part of our, our algorithm as we go forward, too. So we'll see how it plays out. I've only been in the job, I guess about 16 hours, something like that, too. We'll pressure test that a little bit, but we, we certainly wanna grow, and if we can gain share and do it, you know, in a way that is accretive to both the top line and on the bottom line, we'll do that.
Just a quick follow-up for Brent on the margin, I think it would be helpful. You talked about... I think it was of the $300 million gross, 25%, like, recognizing 25% of that in 2024, but then there was some comments around a 30%-40%. So just to clarify, you're saying of the $300 million, $75 million-
Cost to achieve.
There was $75 million goodwill in 2024, and then obviously-
Yeah, there are some-
There are some other headwinds, but what was the 30%-40% you were referring to?
Yeah, 35%-40% was the cash cost to achieve. You know, so that, that, you know, be it for, you know, cost of organizational enhancements, cost of closing sites, shifting sites, all of that, that, that was the 35%-40%.
Okay, got it. Thank you.
Yep.
All right. Thank you again so much for being here. I'm gonna turn it over to Michael for a couple of closing comments.
Yeah. Thanks, CJ. You know, firstly, thank you all for being here. You know, I hope that we met your expectations for what you were hoping to hear from us. You know, I think at the outset, you know, I tried to tee up at least the four or five, you know, critical takeaways that I hoped that you would have today. You know, firstly, you know, hopefully a better understanding of our leading position in some super attractive spaces, and, you know, hopefully, that's come through in our presentation.
You've heard, you know, operating model a lot today, and, you know, I'm absolutely convinced that this new operating model, you know, will allow us to, you know, enhance our performance by, you know, giving us, you know, better line of sight, better focus, and better accountability for, you know, our positioning and activities in each of these two, you know, very distinctive segments. We do have a terrific organic growth opportunity that's ahead of us. Within each of these segments, they'll drive their own strategies, but, you know, I think you'll hear some common themes.
There are some attractive high-growth workflows in each of these segments that will deliver above, you know, kind of market growth rates, whether that's some of these newer emerging modalities in Benoit's segment or, you know, whether it's some of the, you know, the cell analysis or, you know, LC-MS workflows in Randy's segment, that we're leaning in hard on to help, you know, tilt the scale of growth in our favor over time. You know, it will unlock significant value going forward and just further enhance our positioning. This fourth point that I hope that you took away today is really important, and by the intensity of your questions on it today, you know, it seems you agree.
You're all anxious, we're anxious to understand how our financial profile is going to, you know, evolve 2024 and beyond. I wanna be very, you know, clear about, you know, our position on that today. You know, we don't have guidance out there. We're not giving guidance on 2024, and, you know, didn't want that to be your expectation today. However, we are encouraged by what we are seeing from our... Our customers' activity level continues to be strong. Numbers of customers that, you know, are reporting they're returning to normal order patterns, you know, gives me confidence that the, you know, recovery is, you know, coming sooner rather than later.
We can't be precise on the timing, but that when it does start, you know, we think over a 12 to 18-month period, you know, we'll benefit from outsized growth and margin that will restore our, you know, top line and EBITDA profile back to something that looked like, you know, where we were at in 2021, which is to say, you know, whether that's exiting 2024, whether that's exiting 2025, depending on when it starts, how long it takes, you know, our margins are gonna be north of, you know, 20% as a jumping-off point. You know, I think it's at that point, whenever that happens to be, you know, that I think that we're confident in, you know, our long-term algorithm.
And then last, and maybe most importantly, I hope, that our confidence in the model, in our, in our positioning, in the team, you know, in our business, and in our strategy, you know, came through today. We're super excited about the opportunity that lies ahead of us, and we couldn't be more confident about being able to deliver on the, the long-term, you know, strategy and targets that we laid out, today. It's a great time of year.
You know, I hope that as things, you know, kinda coast into the back half of the month here, that each of you are able to, you know, enjoy a happy and healthy, you know, holiday season, and certainly look forward to meeting with you again, you know, in the new year as we kick things off with conferences and earnings and back at it. So thanks again for coming today. Really appreciate your support here in the room, as well as those that have hung with us on the webcast. Have a great day. Thank you.