Maravai LifeSciences(US:MRVI)2023-11-07 16:00PART I - FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements, management's discussion and analysis, and disclosures on market risks and controls Financial Statements This section presents the unaudited condensed consolidated financial statements for Maravai LifeSciences Holdings, Inc. as of September 30, 2023, and for the three and nine-month periods then ended It includes the balance sheets, statements of operations, comprehensive income, changes in stockholders' equity, and cash flows, along with accompanying notes | | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $700,865 | $847,902 | | Total assets | $2,267,553 | $2,282,315 | | Total current liabilities | $78,253 | $110,144 | | Total liabilities | $1,375,272 | $1,377,072 | | Total stockholders' equity | $892,281 | $905,243 | | | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $66,865 | $191,263 | $214,804 | $678,288 | | (Loss) income from operations | $(15,417) | $116,903 | $(24,498) | $464,970 | | Net (loss) income | $(15,102) | $99,653 | $(28,393) | $403,234 | | Diluted EPS | $(0.05) | $0.34 | $(0.10) | $1.37 | | | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- |\ | Net cash provided by operating activities | $118,434 | $436,642 | | Net cash used in investing activities | $(109,407) | $(249,092) | | Net cash used in financing activities | $(61,560) | $(121,376) | | Net (decrease) increase in cash | $(52,533) | $66,174 | Organization and Significant Accounting Policies Maravai operates in two principal businesses: Nucleic Acid Production and Biologics Safety Testing The company generates revenue primarily from product sales, recognized when control is transferred to the customer There have been no material changes to significant accounting policies during the period The financial statements consolidate Maravai Topco Holdings, LLC, with a non-controlling interest allocated to MLSH 1 - The company's two main business segments are Nucleic Acid Production (manufacturing mRNA, CleanCap®, oligonucleotides) and Biologics Safety Testing (selling analytical products for biologic manufacturing)31 | Region | Q3 2023 Revenue (in thousands) | YTD 2023 Revenue (in thousands) | | :--- | :--- | :--- | | North America | $34,515 | $109,353 | | Europe, the Middle East and Africa | $7,622 | $33,763 | | Asia Pacific | $24,623 | $71,315 | | Latin and Central America | $105 | $373 | - For the three and nine months ended September 30, 2023, one customer, Nacalai USA, Inc., accounted for 22.9% and 18.5% of total revenue, respectively In the prior year periods, BioNTech SE and Pfizer Inc. were the significant customers, each exceeding 10% of revenue74 Acquisitions The company completed the acquisition of Alphazyme, LLC on January 18, 2023, for a total purchase consideration of $75.3 million to expand its enzyme product portfolio This section also provides final details on the January 2022 acquisition of MyChem, LLC, for a total consideration of $257.9 million, which vertically integrated the company's supply chain for ultra-pure nucleotides | Component | Amount (in thousands) | | :--- | :--- | | Cash paid | $70,037 | | Fair value of contingent consideration | $5,289 | | Total consideration transferred | $75,326 | - The Alphazyme acquisition resulted in $42.4 million of goodwill, allocated to the Nucleic Acid Production segment, and $31.7 million of identifiable intangible assets, primarily developed technology838599 - The MyChem acquisition, completed in January 2022, had a total purchase consideration of $257.9 million The contingent consideration period ended on December 31, 2022, with no payment made as revenue thresholds were not met888990 Goodwill and Intangible Assets As of September 30, 2023, goodwill increased to $326.0 million from $283.7 million at year-end 2022, primarily due to the Alphazyme acquisition Net intangible assets increased to $227.9 million No goodwill impairment was recognized | Segment | Balance as of Dec 31, 2022 | Acquisition | Balance as of Sep 30, 2023 | | :--- | :--- | :--- | :--- | | Nucleic Acid Production | $163,740 | $42,361 | $206,101 | | Biologics Safety Testing | $119,928 | $0 | $119,928 | | Total | $283,668 | $42,361 | $326,029 | - Net finite-lived intangible assets were $227.9 million as of September 30, 2023, with a weighted average remaining amortization period of 8.9 years The largest component is Patents and developed technology at $216.1 million101 Segment Information The company reports financial performance across two segments: Nucleic Acid Production and Biologics Safety Testing The chief operating decision maker evaluates segment performance based on Adjusted EBITDA Corporate costs are not allocated to the segments | | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue (in thousands) | | | | | | Nucleic Acid Production | $51,228 | $174,881 | $165,944 | $623,786 | | Biologics Safety Testing | $15,638 | $16,382 | $48,863 | $54,509 | | Segment Adjusted EBITDA (in thousands) | | | | | | Nucleic Acid Production | $16,591 | $133,816 | $58,656 | $502,906 | | Biologics Safety Testing | $11,246 | $12,997 | $35,307 | $43,631 | Subsequent Event In November 2023, after the reporting period, the company announced a cost realignment initiative This plan is expected to reduce the workforce by approximately 15% and result in one-time severance-related costs - The company initiated a cost realignment plan in November 2023, which includes terminating approximately 15% of its workforce and is expected to incur about $5.0 million in one-time cash severance expenses in Q4 2023159 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant decrease in revenue and profitability for the third quarter and first nine months of 2023 compared to 2022 The decline is primarily attributed to reduced demand for COVID-19 related products, particularly CleanCap® analogs The analysis also covers operating expense trends, liquidity, capital resources, and contractual obligations, noting headwinds from lower R&D investment in the biotech sector and economic weakness in Asia Trends and Uncertainties The company faces significant uncertainty due to a substantial decline in COVID-19 related revenue, which is expected to continue Other headwinds include reduced R&D spending by early-stage biotechnology companies due to capital market constraints and a general economic contraction in Asia, particularly China, which may further impact revenue - Revenue from COVID-19 related products and services has dropped significantly, representing approximately 22.3% of total revenue in Q3 2023, down from 66.1% in Q3 2022 The company expects further declines due to reduced demand and existing customer inventory173 - The company is experiencing negative impacts from lower R&D funding for early-stage biotech companies and economic slowdowns in Asia, which are causing customers to conserve capital and reduce spending175176 Results of Operations The company experienced a significant downturn in financial performance For Q3 2023, total revenue fell 65.0% to $66.9 million, resulting in a net loss of $15.1 million compared to a net income of $99.7 million in Q3 2022 The decline was driven by a 70.7% drop in Nucleic Acid Production revenue due to lower demand for COVID-19 vaccine components Operating expenses increased as a percentage of revenue due to lower sales volume and fixed costs | | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $66,865 | $191,263 | $214,804 | $678,288 | | Net (Loss) Income | $(15,102) | $99,653 | $(28,393) | $403,234 | - Nucleic Acid Production revenue decreased by 70.7% in Q3 2023, primarily due to a sharp decline in demand for CleanCap® analogs from COVID-19 vaccine manufacturers COVID-related CleanCap® revenue was estimated at $14.9 million in Q3 2023, down from $126.5 million in Q3 2022204 - Gross profit margin decreased significantly due to lower sales volume, an unfavorable product mix, higher fixed costs as a percentage of sales (labor, facilities, depreciation), and lower manufacturing throughput and absorption218220 Liquidity and Capital Resources As of September 30, 2023, the company had $579.6 million in cash and cash equivalents Despite a net loss, cash flow from operations was positive at $118.4 million for the first nine months of 2023 Principal uses of cash include funding operations, acquisitions, capital expenditures, and significant payments under the Tax Receivable Agreement (TRA) and tax distributions to non-controlling interests The company believes existing cash and operational cash flow are sufficient to meet needs for the next 12 months - The company held $579.6 million in cash and cash equivalents as of September 30, 2023 Net cash provided by operating activities was $118.4 million for the nine months ended September 30, 2023, a significant decrease from $436.6 million in the prior year period236253 - The company has a substantial liability of $678.4 million under the Tax Receivable Agreement (TRA) as of September 30, 2023 Payments of $42.6 million were made under the TRA during the first nine months of 2023234251 | Obligation | Total (in thousands) | Due within 1 year | Due in 2-3 years | Due in 4-5 years | Due after 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $69,311 | $10,701 | $21,585 | $17,172 | $19,853 | | Finance leases | $35,341 | $3,302 | $6,905 | $7,326 | $17,808 | | Debt obligations | $534,480 | $5,440 | $10,880 | $518,160 | $0 | | TRA payments | $678,399 | $4,198 | $14,724 | $37,559 | $621,918 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate fluctuations on its $534.5 million of variable-rate long-term debt This risk is partially mitigated by a $500.0 million notional interest rate cap agreement Foreign currency risk is currently minimal as all revenue is denominated in U.S. dollars - The company is exposed to interest rate risk on its $534.5 million Tranche B Term Loan A hypothetical 100 basis point change in interest rates would have impacted interest expense by approximately $1.4 million for Q3 2023280 - An interest rate cap agreement with a notional amount of $500.0 million is in place to hedge a portion of the variable interest rate risk The contract expires in January 2025279 - Foreign currency risk is not significant as all revenue is denominated in U.S. dollars, although approximately 48.4% of revenue in Q3 2023 was from international sales282 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023 There were no material changes in internal control over financial reporting during the third quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023284 - No changes in internal control over financial reporting occurred during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, internal controls285 PART II - OTHER INFORMATION This section covers legal proceedings, key risk factors, equity sales, defaults on senior securities, other information, and exhibits Legal Proceedings The company reports that it is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations - As of the filing date, the company is not involved in any material legal proceedings288 Risk Factors This section highlights that the company's performance is highly dependent on customer spending, which is being negatively impacted by macroeconomic challenges Specifically, declines and uncertainty in capital markets are limiting access to capital for early-stage biotechnology and pharmaceutical companies, causing them to reduce R&D spending and conserve capital, thereby reducing demand for Maravai's products and services - A key business risk is the dependency on customer spending, which is currently being reduced due to macroeconomic challenges, rising interest rates, and volatile credit markets limiting customers' access to capital290293 - Funding for early-stage biotech companies has contracted significantly in 2023, leading these customers to implement stringent budgetary policies, reduce R&D spending, and decrease purchases of the company's products293 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period Other Information The company states that none of its directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fiscal quarter ended September 30, 2023 Exhibits This section lists the exhibits filed with the Form 10-Q, including the Certificate of Incorporation, Bylaws, CEO and CFO certifications, and XBRL data files