Maravai LifeSciences(MRVI) - 2024 Q1 - Quarterly Report

Forward-Looking Statements This section highlights that the report contains forward-looking statements, which are not historical facts and involve risks and uncertainties Special Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements, which are not historical facts and involve risks and uncertainties - Forward-looking statements are based on management's current expectations, assumptions, and estimates, and are not guarantees of future performance[10] - Key risks include customer spending and demand, macroeconomic challenges, competition, product performance and quality, market acceptance, and the ability to implement strategic plans[11] - Other risks involve acquisitions, product liability, dependence on limited customers and suppliers, regulatory scrutiny, intellectual property protection, cyber-attacks, indebtedness, and the company's organizational structure including the Tax Receivable Agreement (TRA)[11][15] - The company undertakes no obligation to update or revise any forward-looking statement unless required by law[14] PART I - FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Maravai LifeSciences Holdings, Inc., including balance sheets, statements of operations, comprehensive loss, changes in stockholders' equity, and cash flows Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show a slight decrease in total assets and stockholders' equity from December 31, 2023, to March 31, 2024, while total liabilities also decreased Fair Value Measurements (March 31, 2024) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $561,691 | $574,962 | | Total current assets | $667,884 | $699,912 | | Total assets | $1,444,641 | $1,487,450 | | Total current liabilities | $59,022 | $87,468 | | Total liabilities | $667,252 | $697,566 | | Total stockholders' equity | $777,389 | $789,884 | Condensed Consolidated Statements of Operations The company reported a significant increase in net loss for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to a decrease in revenue and an increase in total operating expenses Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Revenue | $64,179 | $79,025 | | Total operating expenses | $83,040 | $76,492 | | (Loss) income from operations | $(18,861) | $2,533 | | Loss before income taxes | $(22,409) | $(4,523) | | Net loss | $(22,680) | $(1,348) | | Net loss attributable to Maravai LifeSciences Holdings, Inc. | $(12,078) | $(67) | | Net loss per Class A common share, basic and diluted | $(0.09) | $0.00 | Condensed Consolidated Statements of Comprehensive Loss The condensed consolidated statements of comprehensive loss show a total comprehensive loss attributable to Maravai LifeSciences Holdings, Inc. of $(12.1) million for the three months ended March 31, 2024, significantly higher than the $(0.1) million reported for the same period in 2023 Condensed Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net loss | $(22,680) | $(1,348) | | Comprehensive loss attributable to non-controlling interests | $(10,602) | $(1,281) | | Total comprehensive loss attributable to Maravai LifeSciences Holdings, Inc. | $(12,078) | $(67) | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $789.9 million at December 31, 2023, to $777.4 million at March 31, 2024, primarily due to the net loss for the period, partially offset by stock-based compensation Stockholders' Equity (in thousands) | Metric | December 31, 2023 (in thousands) | March 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Total Stockholders' Equity | $789,884 | $777,389 | | Net loss | N/A | $(22,680) | | Stock-based compensation | N/A | $12,057 | Condensed Consolidated Statements of Cash Flows The company experienced a net decrease in cash and cash equivalents of $13.3 million for the three months ended March 31, 2024, primarily driven by cash used in operating and investing activities, a significant shift from the prior year's positive operating cash flow Cash Flow Activity (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------- | :--------------------------------------------- | :--------------------------------------------- | | Operating activities | $(8,467) | $85,074 | | Investing activities | $(4,244) | $(69,730) | | Financing activities | $(560) | $(19,209) | | Net decrease in cash and cash equivalents | $(13,271) | $(3,865) | | Cash and cash equivalents, end of period | $561,691 | $628,273 | Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's business, accounting policies, and financial statement line items, covering revenue recognition, restructuring, fair value, inventory, debt, and segment reporting 1. Organization and Significant Accounting Policies Maravai LifeSciences Holdings, Inc. provides critical products for drug development, diagnostics, and vaccines, operating through two segments: Nucleic Acid Production and Biologics Safety Testing - Maravai LifeSciences Holdings, Inc. provides critical products for drug, therapeutic, diagnostic, and vaccine development, and human disease research[31] - The company operates two principal businesses: Nucleic Acid Production (mRNA, oligonucleotides, CleanCap® technology, enzymes) and Biologics Safety Testing (host cell protein, bioprocess impurity detection, viral clearance kits, custom antibody/assay development)[32] - Revenue is recognized when control of promised goods or services is transferred to a customer or distributor, with most contracts having a single performance obligation[42][43] Revenue by Segment and Region (Three Months Ended March 31, 2024 vs. 2023) | Region / Segment | 2024 Nucleic Acid Production (in thousands) | 2024 Biologics Safety Testing (in thousands) | 2024 Total Revenue (in thousands) | 2023 Nucleic Acid Production (in thousands) | 2023 Biologics Safety Testing (in thousands) | 2023 Total Revenue (in thousands) | | :----------------- | :---------------------------------------- | :----------------------------------------- | :-------------------------------- | :---------------------------------------- | :----------------------------------------- | :-------------------------------- | | North America | $26,278 | $7,093 | $33,371 | $33,415 | $7,093 | $40,508 | | Europe, Middle East, Africa | $4,740 | $4,625 | $9,365 | $4,421 | $4,571 | $8,992 | | Asia Pacific | $14,911 | $6,225 | $21,136 | $23,551 | $5,821 | $29,372 | | Latin and Central America | $87 | $220 | $307 | $64 | $89 | $153 | | Total Revenue | $46,016 | $18,163 | $64,179 | $61,451 | $17,574 | $79,025 | 2. Restructuring In November 2023, the company initiated a Cost Realignment Plan, including a 15% workforce reduction and lease terminations, largely completed in Q1 2024, resulting in a restructuring benefit of $(1.2) million - A Cost Realignment Plan was implemented in November 2023, involving a 15% workforce reduction and lease terminations, substantially completed in Q1 2024[79] Restructuring Charges (Benefit) by Segment (Three Months Ended March 31, 2024) | Category | Nucleic Acid Production (in thousands) | Corporate (in thousands) | Total (in thousands) | | :-------------------------- | :----------------------------------- | :----------------------- | :------------------- | | Severance and Other Employee Costs (Reversals) | $(15) | $68 | $53 | | Stock-Based Compensation Benefit | $(815) | $(416) | $(1,231) | | Professional Fee Reversals and Other | $(20) | $(14) | $(34) | | Total | $(850) | $(362) | $(1,212) | Accrued Restructuring Costs Activity (Three Months Ended March 31, 2024) | Metric | Balance as of December 31, 2023 (in thousands) | Charges (benefit) (in thousands) | Non-cash benefit (in thousands) | Cash payments (in thousands) | Balance as of March 31, 2024 (in thousands) | | :-------------------------- | :------------------------------------------- | :------------------------------- | :------------------------------ | :--------------------------- | :------------------------------------------ | | Severance and Other Employee Costs | $2,543 | $53 | — | $(2,106) | $490 | | Stock-Based Compensation Expense (Benefit) | — | $(1,231) | $1,231 | — | — | | Professional Fees and Other | $271 | $(34) | — | $(226) | $11 | | Total | $2,814 | $(1,212) | $1,231 | $(2,332) | $501 | 3. Fair Value Measurements The company measures certain financial assets and liabilities at fair value, primarily money market funds (Level 1) and an interest rate cap (Level 2), with contingent consideration from the Alphazyme acquisition as a Level 3 liability Fair Value Measurements (March 31, 2024) | Asset/Liability | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :------------------------ | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Money market funds | $404,202 | — | — | $404,202 | | Interest rate cap | — | $8,100 | — | $8,100 | | Current portion of contingent consideration | — | — | $131 | $131 | | Contingent consideration, non-current | — | — | $1,872 | $1,872 | | Total Assets | $404,202 | $8,100 | — | $412,302 | | Total Liabilities | — | — | $2,003 | $2,003 | - Contingent consideration from the Alphazyme acquisition (January 2023) is a Level 3 liability, valued at $2.0 million as of March 31, 2024, with no change in fair value during the quarter[82][83] 4. Balance Sheet Components Inventory decreased slightly to $49.8 million as of March 31, 2024, while accrued expenses significantly decreased to $35.4 million from $60.2 million, primarily due to reduced MyChem Retention Payments and restructuring costs Inventory (in thousands) | Category | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------- | :------------- | :---------------- | | Raw materials | $17,070 | $19,338 | | Work-in-process | $12,525 | $12,680 | | Finished goods | $20,251 | $19,379 | | Total inventory | $49,846 | $51,397 | Accrued Expenses and Other Current Liabilities (in thousands) | Category | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :---------------------------------------- | :------------- | :---------------- | | Employee related | $9,855 | $12,905 | | Accrued interest payable | $8,960 | $9,202 | | Operating lease liabilities, current portion | $6,970 | $6,780 | | Professional services | $2,879 | $2,277 | | Customer deposits | $1,974 | $2,156 | | Accrued property and equipment | $1,602 | $632 | | Sales and use tax liability | $852 | $1,001 | | Accrued restructuring costs | $501 | $2,814 | | Accrued MyChem Retention Payments, current portion | — | $19,446 | | Other | $1,812 | $3,024 | | Total | $35,405 | $60,237 | 5. Government Assistance TriLink Biotechnologies, LLC received $1.4 million in Q1 2024 reimbursements under a Cooperative Agreement with the U.S. Department of Defense (now HHS) to expand mRNA vaccine manufacturing capacity, with a $2.8 million receivable as of March 31, 2024 - TriLink Biotechnologies, LLC has a Cooperative Agreement with the U.S. Department of Defense (now HHS/BARDA) to advance domestic manufacturing capabilities for mRNA vaccines and therapeutics[86] - The agreement provides $38.8 million or 50% of construction and validation costs for the Flanders San Diego Facility, with a 10-year conditional priority access for the U.S. Government[88] Government Assistance Reimbursements (in thousands) | Period | Reimbursements Received (in thousands) | | :----- | :---------------------- | | Q1 2024 | $1,421 | | Q1 2023 | $8,028 | - As of March 31, 2024, a receivable of $2.8 million was recorded for government assistance[90] 6. Commitments and Contingencies The company has unconditional purchase obligations totaling $3.6 million for the remaining nine months of 2024, with $1.9 million purchased under these obligations during Q1 2024 - Unconditional purchase obligations totaled $1.9 million for the three months ended March 31, 2024[92] - Future minimum commitments under these obligations are $3.6 million for the nine months ending December 31, 2024[92] 7. Long-Term Debt The company's long-term debt primarily consists of a $600.0 million Term Loan facility maturing in October 2027, with an interest rate of 8.31% per annum as of March 31, 2024, and an interest rate cap agreement in place - The Credit Agreement includes a $600.0 million Term Loan facility (maturing October 2027) and a $180.0 million Revolving Credit Facility[94] - As of March 31, 2024, the Term Loan interest rate was 8.31% per annum[94] - An interest rate cap agreement with a notional amount of $500.0 million is in place, expiring January 19, 2025, to manage variable interest rate risk[102][103] Long-Term Debt (in thousands) | Metric | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :-------------------------- | :------------- | :---------------- | | Term Loan | $531,760 | $533,120 | | Unamortized debt issuance costs | $(8,427) | $(8,973) | | Total long-term debt | $523,333 | $524,147 | | Less: current portion | $(5,440) | $(5,440) | | Total long-term debt, less current portion | $517,893 | $518,707 | Aggregate Future Principal Maturities of Debt Obligations (in thousands) | Year | Amount (in thousands) | | :--- | :----- | | 2024 (remaining nine months) | $4,080 | | 2025 | $5,440 | | 2026 | $5,440 | | 2027 | $516,800 | | Total | $531,760 | 8. Net Loss Per Class A Common Share Attributable to Maravai LifeSciences Holdings, Inc. The company reported a basic and diluted net loss per Class A common share of $(0.09) for the three months ended March 31, 2024, compared to $0.00 for the same period in 2023, with dilutive equity instruments excluded due to the net loss Net Loss Per Class A Common Share (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to Maravai LifeSciences Holdings, Inc. | $(12,078) | $(67) | | Weighted average Class A common shares outstanding | 132,333 | 131,739 | | Net loss per Class A common share, basic and diluted | $(0.09) | $0.00 | Potentially Dilutive Securities Excluded from EPS Calculation (in thousands) | Security | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Restricted stock units | 2,343 | 3,195 | | Stock options | 4,142 | 4,528 | | Shares estimated to be purchased under the employee stock purchase plan | 7 | 26 | | Shares of Class B common stock | 119,094 | 131,789 | | Total | 125,586 | 139,538 | 9. Income Taxes The company's income tax expense was $271 thousand for Q1 2024, resulting in an effective tax rate of (1.2)%, primarily due to a valuation allowance against deferred tax assets, contrasting with a tax benefit in Q1 2023 Income Tax Expense (Benefit) and Effective Tax Rate (in thousands, except percentages) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Loss before income taxes | $(22,409) | $(4,523) | | Income tax expense (benefit) | $271 | $(3,175) | | Effective tax rate | (1.2)% | 70.2% | - The effective tax rate of (1.2)% for Q1 2024 was primarily due to a valuation allowance against deferred tax assets[111] - Topco LLC's operating agreement requires cash distributions to owners for tax liabilities, computed based on an assumed income tax rate of 46.7% (potentially 54.1%)[113] - No tax distributions were paid to owners during Q1 2024, compared to $17.4 million in Q1 2023 (including $9.1 million to the Company)[115] 10. Related Party Transactions The company is party to a Tax Receivable Agreement (TRA) with MLSH 1 and MLSH 2, requiring payment of 85% of certain tax benefits, with a current TRA liability of $7.1 million as of March 31, 2024 - The company has a Tax Receivable Agreement (TRA) with MLSH 1 and MLSH 2, obligating it to pay 85% of certain realized tax benefits[117] - As of March 31, 2024, the current TRA liability was $7.1 million, based on estimated taxable income for 2023[118][121] - The non-current TRA liability of $665.3 million was derecognized as of December 31, 2023, as it was not probable that the company would realize the remaining tax benefits[119] - No payments were made under the TRA during the three months ended March 31, 2024 or 2023[121] 11. Segments The company operates in two reportable segments: Nucleic Acid Production and Biologics Safety Testing, with Adjusted EBITDA as the key performance measure, which decreased substantially year-over-year for Q1 2024 - The company operates in two reportable segments: Nucleic Acid Production and Biologics Safety Testing[124] - Adjusted EBITDA is the primary profit or loss measure used by the Chief Operating Decision Maker (CODM) to allocate resources and assess segment performance[123] Revenue and Adjusted EBITDA by Segment (in thousands) | Segment | Three Months Ended March 31, 2024 Revenue (in thousands) | Three Months Ended March 31, 2023 Revenue (in thousands) | Three Months Ended March 31, 2024 Adjusted EBITDA (in thousands) | Three Months Ended March 31, 2023 Adjusted EBITDA (in thousands) | | :------------------------ | :---------------------------------------- | :---------------------------------------- | :------------------------------------------------ | :------------------------------------------------ | | Nucleic Acid Production | $46,016 | $61,451 | $10,088 | $27,873 | | Biologics Safety Testing | $18,163 | $17,574 | $13,926 | $13,746 | | Total Reportable Segments | $64,179 | $79,025 | $24,014 | $41,619 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2024, compared to the same period in 2023 Overview Maravai LifeSciences is a leading life sciences company providing critical products for drug therapies, diagnostics, vaccines, and research, operating through Nucleic Acid Production and Biologics Safety Testing segments - Maravai LifeSciences provides critical products for biopharmaceutical development, including complex nucleic acids and antibody-based products[129] - The company's strategy involves acquiring businesses and accelerating their growth through capital infusions and industry expertise[130] - Revenue for Q1 2024 was $64.2 million, with Nucleic Acid Production at $46.0 million and Biologics Safety Testing at $18.2 million[133] - Selling, general and administrative expenses were $40.9 million, and research and development expenses were $5.0 million for Q1 2024[134][135] Trends and Uncertainties The company faces headwinds from lower investment in early-stage biotechnology and declines in capital markets, leading to reduced R&D spending, alongside economic contraction in Asia impacting revenue - Recent industry trends, including lower investment in early-stage biotechnology and capital market declines, are causing a reduction in R&D spending[136] - Economic contraction in Asia, especially China, is negatively impacting revenue from those markets[137] How We Assess Our Business The company assesses its business performance using revenue and non-GAAP measures like Adjusted EBITDA and Adjusted Free Cash Flow, which exclude certain non-cash and non-recurring items for a clearer view of core operating performance - Key measures for assessing business performance are revenue and Adjusted EBITDA[138] - Adjusted EBITDA is defined as net loss adjusted for interest, taxes, depreciation, amortization, and stock-based compensation, plus other non-cash and non-recurring items[139] - Adjusted Free Cash Flow is defined as Adjusted EBITDA less capital expenditures[139] - Adjusted EBITDA and Adjusted Free Cash Flow are non-GAAP measures and have limitations, not reflecting all expenditures, working capital changes, or income taxes[141][142] Components of Results of Operations This section details the components of the company's results of operations, including revenue from Nucleic Acid Production and Biologics Safety Testing, cost of revenue, and operating expenses such as SG&A and R&D - Revenue is generated from two segments: Nucleic Acid Production (highly modified nucleic acids) and Biologics Safety Testing (biologics safety and impurity tests, assay development services)[144][145] - Cost of revenue includes manufacturing costs, personnel, materials, labor, overhead, packaging, delivery, and allocated facilities/IT costs[146] - Selling, general and administrative expenses cover commercial sales, marketing, executive, finance, legal, HR functions, professional services, and allocated costs[147] - Research and development costs include salaries, benefits, contracted services, supplies, and allocated facilities costs[149] - Restructuring costs for Q1 2024 primarily reflect a stock-based compensation benefit from forfeited awards due to the Cost Realignment Plan[151] Results of Operations For Q1 2024, total revenue decreased by 18.8% to $64.2 million, primarily due to a 25.1% decrease in Nucleic Acid Production revenue, leading to a net loss of $22.7 million, a significant increase from the prior year Consolidated Results of Operations (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change (%) | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Revenue | $64,179 | $79,025 | (18.8)% | | Total operating expenses | $83,040 | $76,492 | 8.6% | | (Loss) income from operations | $(18,861) | $2,533 | (844.6)% | | Loss before income taxes | $(22,409) | $(4,523) | 395.4% | | Net loss | $(22,680) | $(1,348) | 1582.5% | | Net loss attributable to Maravai LifeSciences Holdings, Inc. | $(12,078) | $(67) | * | | Net loss per Class A common share, basic and diluted | $(0.09) | $0.00 | | Revenue by Segment (in thousands, except percentages) | Segment | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (%) | 2024 % of Revenue | 2023 % of Revenue | | :------------------------ | :-------------------------------- | :-------------------------------- | :--------- | :---------------- | :---------------- | | Nucleic Acid Production | $46,016 | $61,451 | (25.1)% | 71.7% | 77.8% | | Biologics Safety Testing | $18,163 | $17,574 | 3.4% | 28.3% | 22.2% | | Total revenue | $64,179 | $79,025 | (18.8)%| 100.0% | 100.0% | - The decrease in Nucleic Acid Production revenue was primarily due to lower demand for CleanCap analogs from COVID-19 vaccine manufacturers and non-recurring large GMP services projects[162] Non-GAAP Financial Measures Adjusted EBITDA for Q1 2024 was $7.8 million, a significant decrease from $23.8 million in the prior year, and Adjusted Free Cash Flow also decreased substantially to $3.6 million from $22.7 million Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(22,680) | $(1,348) | | Add: Amortization | 6,869 | 6,765 | | Depreciation | 4,786 | 2,080 | | Interest expense | 10,864 | 11,833 | | Interest income | $(7,210) | $(6,045) | | Income tax expense (benefit) | 271 | $(3,175) | | EBITDA | $(7,100) | $10,110 | | Acquisition integration costs | 2,498 | 2,464 | | Stock-based compensation | 12,057 | 5,987 | | Merger and acquisition related expenses | 30 | 3,291 | | Acquisition related tax adjustment | $(113) | $(173) | | Tax Receivable Agreement liability adjustment | — | 1,436 | | Restructuring costs | 19 | — | | Other | 404 | 683 | | Adjusted EBITDA | $7,795 | $23,798 | Adjusted Free Cash Flow (in thousands) | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------ | :-------------------------------- | :-------------------------------- | | Adjusted EBITDA | $7,795 | $23,798 | | Capital expenditures | $(4,244) | $(1,145) | | Adjusted Free Cash Flow | $3,551 | $22,653 | Operating Expenses Total operating expenses increased by 8.6% to $83.0 million for Q1 2024, driven by a 13.8% increase in cost of revenue and higher SG&A and R&D expenses Operating Expenses (in thousands, except percentages) | Expense Category | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (%) | 2024 % of Revenue | 2023 % of Revenue | | :------------------------ | :-------------------------------- | :-------------------------------- | :--------- | :---------------- | :---------------- | | Cost of revenue | $38,335 | $33,676 | 13.8% | 59.7% | 42.6% | | Selling, general and administrative | $40,885 | $38,671 | 5.7% | 63.7% | 48.9% | | Research and development | $5,032 | $4,145 | 21.4% | 7.9% | 5.3% | | Restructuring | $(1,212) | — | * | (1.9)% | —% | | Total operating expenses | $83,040 | $76,492 | 8.6% | 129.4% | 96.8% | - Cost of revenue increased by $4.7 million, or 13.8%, primarily due to lower direct labor and overhead expense absorption, increased supplies and materials, and higher facilities costs[175] - Selling, general and administrative expenses increased by $2.2 million, or 5.7%, driven by higher stock-based compensation ($4.4 million) and depreciation ($2.5 million), partially offset by lower professional service fees and personnel costs[177] - Research and development expenses increased by $0.9 million, or 21.4%, mainly due to higher professional service fees for external analytic studies and increased personnel costs[178][180] Other Income (Expense) Total other expense decreased by 49.7% to $3.5 million for Q1 2024, primarily due to the absence of a Tax Receivable Agreement liability adjustment, a $1.2 million increase in interest income, and a $1.0 million decrease in interest expense Other Income (Expense) (in thousands, except percentages) | Category | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (%) | 2024 % of Revenue | 2023 % of Revenue | | :------------------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :---------------- | :---------------- | | Interest expense | $(10,864) | $(11,833) | (8.2)% | (16.9)% | (15.0)% | | Interest income | $7,210 | $6,045 | 19.3% | 11.2% | 7.7% | | Change in payable to related parties pursuant to the Tax Receivable Agreement | — | $(1,436) | * | —% | (1.8)% | | Other income | $106 | $168 | (36.9)% | 0.2% | 0.2% | | Total other expense | $(3,548) | $(7,056) | (49.7)%| (5.5)% | (8.9)% | - The decrease in other expense was primarily due to the absence of a $1.4 million Tax Receivable Agreement liability adjustment in the prior year, a $1.2 million increase in interest income, and a $1.0 million decrease in interest expense[182] Relationship with GTCR, LLC ("GTCR") Investment entities affiliated with GTCR, LLC control approximately 56% of the company's voting power and are party to a Tax Receivable Agreement (TRA) with a current liability of $7.1 million - GTCR-affiliated entities control approximately 56% of the company's common stock voting power[183] - The company is party to a Tax Receivable Agreement (TRA) with MLSH 1 and MLSH 2, requiring payment of 85% of certain tax benefits[185] - As of March 31, 2024, the current TRA liability was $7.1 million[186] - The non-current TRA liability of $665.3 million was derecognized as of December 31, 2023, as it was not probable that the company would realize the remaining tax benefits[187] Liquidity and Capital Resources As of March 31, 2024, the company had $561.7 million in cash and cash equivalents but reported a net loss of $22.7 million and negative cash flow from operations of $8.5 million, though existing resources are expected to be sufficient for future needs - As of March 31, 2024, cash and cash equivalents were $561.7 million, with retained earnings of $273.7 million[189] - The company reported a net loss of $22.7 million and negative cash flow from operations of $8.5 million for Q1 2024[189] - Existing cash, operational cash flow, and credit facilities are expected to be sufficient to satisfy cash requirements over the next 12 months and beyond[191] - The company's Credit Agreement includes a $600.0 million Term Loan and a $180.0 million Revolving Credit Facility, with an interest rate of 8.31% on the Term Loan as of March 31, 2024[197] - The current liability under the TRA was $7.1 million as of March 31, 2024, with the non-current portion of $665.3 million derecognized due to the improbability of realizing future tax benefits[192][206] Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :----------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $(8,467) | $85,074 | | Investing activities | $(4,244) | $(69,730) | | Financing activities | $(560) | $(19,209) | | Net decrease in cash and cash equivalents | $(13,271) | $(3,865) | Contractual Obligations and Commitments As of March 31, 2024, the company's total contractual obligations and commitments amounted to $639.1 million, primarily debt obligations ($531.8 million), operating leases ($63.0 million), and finance leases ($33.7 million), with a current TRA payment of $7.1 million due within one year Contractual Obligations and Commitments as of March 31, 2024 (in thousands) | Obligation | Total (in thousands) | 1 year (in thousands) | 2 - 3 years (in thousands) | 4 - 5 years (in thousands) | 5+ years (in thousands) | | :------------------------ | :------ | :----- | :---------- | :---------- | :------- | | Operating leases | $62,996 | $10,313 | $19,962 | $17,311 | $15,410 | | Finance leases | $33,693 | $3,352 | $7,008 | $7,435 | $15,898 | | Debt obligations | $531,760| $5,440 | $10,880 | $515,440 | — | | TRA payments | $7,069 | $7,069 | — | — | — | | Unconditional purchase obligations | $3,585 | $3,585 | — | — | — | | Total | $639,103| $29,759| $37,850 | $540,186| $31,308| - Contingent consideration of up to $75.0 million for the Alphazyme acquisition is not included in the table due to uncertainty regarding target achievement and payment timing[220] Critical Accounting Policies and Estimates The company's financial statements rely on significant estimates for right-of-use assets, lease liabilities, TRA payable, deferred tax assets, and valuation of goodwill and intangible assets, with no material changes since the 2023 Annual Report - Significant estimates include the measurement of right-of-use assets and lease liabilities, the payable to related parties pursuant to the Tax Receivable Agreement, the realizability of net deferred tax assets, and the valuation of goodwill and intangible assets[39] - No material changes to critical accounting policies or estimates have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[223] Recent Accounting Pronouncements The company is evaluating the impact of recently issued accounting pronouncements, ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), on its consolidated financial statements and disclosures - ASU 2023-07 (Segment Reporting) improves segment disclosure requirements, effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024[75][77] - ASU 2023-09 (Income Taxes) improves income tax disclosures, effective for annual periods beginning after December 15, 2024[78] - The company is currently evaluating the impact of adopting these new standards[77][78] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk on its variable rate long-term debt and foreign currency risk, with an interest rate cap agreement hedging a portion of the interest rate risk Interest Rate Risk The company is exposed to interest rate risk from its variable rate long-term debt, with $531.8 million outstanding as of March 31, 2024, partially mitigated by an interest rate cap agreement - Primary exposure to interest rate risk is from variable rate long-term debt, with $531.8 million outstanding as of March 31, 2024[225][227] - An interest rate cap agreement with a $500.0 million notional amount is in place to hedge a portion of this risk, expiring January 19, 2025[226] - A hypothetical 100 basis point increase or decrease in interest rates would change interest expense by approximately $1.3 million for the three months ended March 31, 2024[227] Foreign Currency Risk All of the company's revenue and most expenses are denominated in U.S. dollars, limiting current foreign currency risk, despite 48% of Q1 2024 revenue being international - All revenue is denominated in U.S. dollars, even though approximately 48.0% of Q1 2024 revenue was from international sales[229] - The majority of expenses are denominated in U.S. dollars, limiting current foreign currency exchange rate fluctuations[229] - The company has not entered into any hedging arrangements for foreign currency risk but will reassess as international operations expand[229] Item 4. Controls and Procedures Management evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2024, concluding they were effective, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of March 31, 2024[230] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2024[231] PART II - OTHER INFORMATION This part contains other information including legal proceedings, risk factors, sales of equity securities, defaults, other information, exhibits, and signatures Item 1. Legal Proceedings The company is not currently a party to any legal proceedings expected to have a material adverse effect on its business, operating results, cash flows, or financial condition - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition[234] - Litigation can have an adverse impact due to defense and settlement costs, and diversion of management resources[234] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[235] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - No unregistered sales of equity securities[236] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - No defaults upon senior securities[237] Item 5. Other Information Kurt Oreshack, Executive Vice President, General Counsel and Secretary, adopted a Rule 10b5-1 trading plan on March 1, 2024, for the sale of up to 25,000 shares of Class A common stock by February 28, 2025 - Kurt Oreshack adopted a Rule 10b5-1 trading plan on March 1, 2024, to sell up to 25,000 shares of Class A common stock by February 28, 2025[238] - No other directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024[239] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, equity grant notices, employment agreements, CEO/CFO certifications, and XBRL interactive data files - Exhibits include organizational documents (Amended and Restated Certificate of Incorporation, Bylaws), equity grant notices, employment agreements, CEO/CFO certifications (Sarbanes-Oxley Act Section 302 and 18 U.S.C. Section 1350), and XBRL interactive data files[241] Signatures The Quarterly Report on Form 10-Q was duly signed on behalf of Maravai LifeSciences Holdings, Inc. by Kevin Herde, Chief Financial Officer, on May 9, 2024 - The report was signed by Kevin Herde, Chief Financial Officer, on