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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to _____________
Commission file number: 001-39725
Maravai LifeSciences Holdings, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Delaware | | | | 85-2786970 |
(State or other jurisdiction of incorporation or organization) | | | | (I.R.S. Employer Identification No.) |
| | | | |
10770 Wateridge Circle, Suite 200 San Diego, California | | | | 92121 |
(Address of principal executive offices) | | | | (Zip code) |
______________________________
Registrant’s telephone number, including area code: (858) 546-0004
______________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Class A common stock, $0.01 par value | | MRVI | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ý | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | o |
| | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
As of November 7, 2024, 141,843,505 shares of the registrant’s Class A common stock were outstanding and 110,684,080 shares of the registrant’s Class B common stock were outstanding.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including, without limitation, statements under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements often may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of the timing or nature of our future operating or financial performance or other events. All forward-looking statements are subject to risks, uncertainties and other factors that may cause our actual results to differ materially from those that we expected, including:
•The level of our customers’ spending on and demand for outsourced nucleic acid production and biologics safety testing products and services.
•Our dependency on a limited number of customers for a high percentage of our revenue and our ability to maintain our current relationships with such customers.
•Significant fluctuations and unpredictability in our quarterly and annual operating results, which make our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.
•The impact of ongoing macroeconomic challenges and changes in economic conditions, including adverse developments affecting banks and financial institutions, follow-on effects of those events and related systemic pressures, on our and our customers’ current and future business operations.
•The effects of our recent reduction in force, including on our ability to attract and/or retain qualified key personnel.
•Use of our products by customers in the production of vaccines and therapies, some of which represent relatively new and still-developing modes of treatment, and the impact of unforeseen adverse events, negative clinical outcomes, development of alternative therapies, or increased regulatory scrutiny of these modes of treatment and their financial cost on our customers’ use of our products and services.
•Competition with life science, pharmaceutical and biotechnology companies who are substantially larger than us and potentially capable of developing new approaches that could make our products, services and technology obsolete.
•The potential failure of our products and services to not perform as expected and the reliability of the technology on which our products and services are based.
•The risk that our products do not comply with required quality standards.
•Market acceptance of our life science reagents.
•Our ability to implement our strategic plan successfully.
•Natural disasters, geopolitical instability (including the ongoing military conflicts in Ukraine and the Gaza Strip) and other catastrophic events.
•Risks related to our acquisitions, including whether we achieve the anticipated benefits of acquisitions of businesses or technologies.
•Product liability lawsuits.
•Our reliance on a limited number of suppliers or, in some cases, sole suppliers, for some of our raw materials and the risk that we may not be able to find replacements or immediately transition to alternative suppliers.
•The risk that our products become subject to more onerous regulation by the FDA or other regulatory agencies in the future.
•Our ability to obtain, maintain and enforce sufficient intellectual property protection for our current or future products.
•The risk that a future cyber-attack or security breach cannot be prevented.
•Our ability to protect the confidentiality of our proprietary information.
•The risk that one of our products may be alleged (or found) to infringe on the intellectual property rights of third parties.
•Compliance with our obligations under intellectual property license agreements.
•Our or our licensors’ failure to maintain the patents or patent applications in-licensed from a third party.
•Our ability to adequately protect our intellectual property and proprietary rights throughout the world.
•Our existing level of indebtedness and our ability to raise additional capital on favorable terms.
•Our ability to generate sufficient cash flow to service all of our indebtedness.
•Our potential failure to meet our debt service obligations.
•Restrictions on our current and future operations under the terms applicable to the Credit Agreement.
•Our dependence, by virtue of our principal asset being our interest in Maravai Topco Holdings, LLC (“Topco LLC”), on distributions from Topco LLC to pay our taxes and expenses, including payments under a tax receivable agreement with the former owners of Topco LLC (the “Tax Receivable Agreement” or “TRA”) together with various limitations and restrictions that impact Topco LLC’s ability to make such distributions.
•The risk that conflicts of interest could arise between our shareholders and Maravai Life Sciences Holdings, LLC (“MLSH 1”), the only other member of Topco LLC, and impede business decisions that could benefit our shareholders.
•The substantial future cash payments we may be required to make under the Tax Receivable Agreement to MLSH 1 and Maravai Life Sciences Holdings 2, LLC (“MLSH 2”), an entity through which certain of our former owners hold their interests in the Company and the negative effect of such payments.
•The fact that our organizational structure, including the TRA, confers certain benefits upon MLSH 1 and MLSH 2 that will not benefit our other common shareholders to the same extent as they will benefit MLSH 1 and MLSH 2.
•Our ability to realize all or a portion of the tax benefits that are expected to result from the tax attributes covered by the Tax Receivable Agreement.
•The possibility that we will receive distributions from Topco LLC significantly in excess of our tax liabilities and obligations to make to make payments under the Tax Receivable Agreement.
•Factors that could lead to future impairment of our goodwill and other amortizable intangible assets.
•Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns.
•Risks related to our annual assessment of the effectiveness of our internal control over financial reporting, including the potential existence of any material weakness or significant deficiency.
•The fact that investment entities affiliated with GTCR, LLC (“GTCR”) currently control a majority of the voting power of our outstanding common stock, and it may have interests that conflict with ours or yours in the future.
•Risks related to our “controlled company” status within the meaning of the corporate governance standards of NASDAQ.
•The potential anti-takeover effects of certain provisions in our corporate organizational documents.
•Potential sales of a significant portion of our outstanding shares of Class A common stock.
•Potential preferred stock issuances and the anti-takeover impacts of any such issuances.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause our actual results to differ materially from our expectations or cautionary statements are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 and in this Quarterly Report on Form 10-Q.
The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Part I.
Item 1. Financial Statements and Supplementary Data
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 578,157 | | | $ | 574,962 | |
Accounts receivable, net | 28,873 | | | 54,605 | |
Inventory | 50,409 | | | 51,397 | |
Prepaid expenses and other current assets | 21,659 | | | 18,948 | |
| | | |
| | | |
Total current assets | 679,098 | | | 699,912 | |
Property and equipment, net | 164,555 | | | 162,900 | |
Goodwill | 171,790 | | | 326,029 | |
Intangible assets, net | 201,858 | | | 220,987 | |
| | | |
Other assets | 60,914 | | | 77,622 | |
Total assets | $ | 1,278,215 | | | $ | 1,487,450 | |
Liabilities and stockholders’ equity | | | |
Current liabilities: | | | |
Accounts payable | $ | 9,494 | | | $ | 10,729 | |
Accrued expenses and other current liabilities | 38,498 | | | 60,237 | |
Deferred revenue | 1,834 | | | 3,360 | |
Current portion of payable to related parties pursuant to the Tax Receivable Agreement | 7,225 | | | 7,069 | |
Current portion of long-term debt | 5,440 | | | 5,440 | |
Current portion of finance lease liabilities | 750 | | | 633 | |
Total current liabilities | 63,241 | | | 87,468 | |
Long-term debt, less current portion | 516,283 | | | 518,707 | |
Finance lease liabilities, less current portion | 31,327 | | | 31,897 | |
| | | |
| | | |
Other long-term liabilities | 54,237 | | | 59,494 | |
Total liabilities | 665,088 | | | 697,566 | |
Commitments and contingencies (Note 7) | | | |
Stockholders’ equity: | | | |
Class A common stock, $0.01 par value - 500,000 shares authorized; 141,589 and 132,228 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | 1,416 | | | 1,322 | |
Class B common stock, $0.01 par value - 300,000 shares authorized; 110,684 and 119,094 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively | 1,107 | | | 1,191 | |
Additional paid-in capital | 175,581 | | | 128,503 | |
| | | |
Retained earnings | 167,036 | | | 285,737 | |
Total stockholders’ equity attributable to Maravai LifeSciences Holdings, Inc. | 345,140 | | | 416,753 | |
Non-controlling interest | 267,987 | | | 373,131 | |
Total stockholders’ equity | 613,127 | | | 789,884 | |
Total liabilities and stockholders’ equity | $ | 1,278,215 | | | $ | 1,487,450 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Revenue | $ | 65,200 | | | $ | 66,865 | | | $ | 202,779 | | | $ | 214,804 | |
Operating expenses: | | | | | | | |
Cost of revenue | 36,826 | | | 36,686 | | | 113,432 | | | 113,635 | |
Selling, general and administrative | 39,087 | | | 38,864 | | | 120,528 | | | 112,912 | |
Research and development | 4,344 | | | 4,347 | | | 14,660 | | | 12,686 | |
Change in estimated fair value of contingent consideration | (178) | | | 2,385 | | | (1,373) | | | 69 | |
Goodwill impairment | 154,239 | | | — | | | 154,239 | | | — | |
Restructuring | (4) | | | — | | | (1,220) | | | — | |
Total operating expenses | 234,314 | | | 82,282 | | | 400,266 | | | 239,302 | |
Loss from operations | (169,114) | | | (15,417) | | | (197,487) | | | (24,498) | |
Other income (expense): | | | | | | | |
Interest expense | (13,634) | | | (11,637) | | | (36,437) | | | (30,492) | |
Interest income | 7,071 | | | 7,432 | | | 21,367 | | | 20,268 | |
| | | | | | | |
Change in payable to related parties pursuant to the Tax Receivable Agreement | (39) | | | (1,007) | | | (39) | | | (2,342) | |
Other income (expense) | 72 | | | 66 | | | (2,384) | | | (1,386) | |
Loss before income taxes | (175,644) | | | (20,563) | | | (214,980) | | | (38,450) | |
Income tax expense (benefit) | 311 | | | (5,461) | | | (1,853) | | | (10,057) | |
Net loss | (175,955) | | | (15,102) | | | (213,127) | | | (28,393) | |
Net loss attributable to non-controlling interests | (76,917) | | | (8,640) | | | (94,426) | | | (15,323) | |
Net loss attributable to Maravai LifeSciences Holdings, Inc. | $ | (99,038) | | | $ | (6,462) | | | $ | (118,701) | | | $ | (13,070) | |
| | | | | | | |
| | | | | | | |
Net loss per Class A common share attributable to Maravai LifeSciences Holdings, Inc., basic and diluted | $ | (0.70) | | | $ | (0.05) | | | $ | (0.87) | | | $ | (0.10) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted average number of Class A common shares outstanding, basic and diluted | 141,555 | | | 131,930 | | | 136,595 | | | 131,845 | |
| | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Net loss | $ | (175,955) | | | $ | (15,102) | | | $ | (213,127) | | | $ | (28,393) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Comprehensive loss attributable to non-controlling interests | (76,917) | | | (8,640) | | | (94,426) | | | (15,323) | |
Total comprehensive loss attributable to Maravai LifeSciences Holdings, Inc. | $ | (99,038) | | | $ | (6,462) | | | $ | (118,701) | | | $ | (13,070) | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 |
| Class A Common Stock | | Class B Common Stock | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders’ Equity |
June 30, 2024 | 141,489 | | $ | 1,415 | | | 110,684 | | $ | 1,107 | | | $ | 168,337 | | | $ | 266,074 | | | $ | 339,481 | | | $ | 776,414 | |
| | | | | | | | | | | | | | | |
Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes | 100 | | | 1 | | | — | | | — | | | (383) | | | — | | | — | | | (382) | |
Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | — | | | — | | | — | | | — | | | 303 | | | — | | | (303) | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 7,324 | | | — | | | 5,726 | | | 13,050 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (99,038) | | | (76,917) | | | (175,955) | |
| | | | | | | | | | | | | | | |
September 30, 2024 | 141,589 | | $ | 1,416 | | | 110,684 | | $ | 1,107 | | | $ | 175,581 | | | $ | 167,036 | | | $ | 267,987 | | | $ | 613,127 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2024 |
| Class A Common Stock | | Class B Common Stock | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders’ Equity |
December 31, 2023 | 132,228 | | $ | 1,322 | | | 119,094 | | $ | 1,191 | | | $ | 128,503 | | | $ | 285,737 | | | $ | 373,131 | | | $ | 789,884 | |
Effect of exchange of LLC Units | 8,410 | | | 84 | | | (8,410) | | | (84) | | | 26,004 | | | — | | | (26,004) | | | — | |
Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes | 951 | | | 10 | | | — | | | — | | | (1,938) | | | — | | | — | | | (1,928) | |
Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | — | | | — | | | — | | | — | | | 1,928 | | | — | | | (1,928) | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 21,084 | | | — | | | 17,786 | | | 38,870 | |
Distribution for tax liabilities to non-controlling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | (572) | | | (572) | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (118,701) | | | (94,426) | | | (213,127) | |
| | | | | | | | | | | | | | | |
September 30, 2024 | 141,589 | | $ | 1,416 | | | 110,684 | | $ | 1,107 | | | $ | 175,581 | | | $ | 167,036 | | | $ | 267,987 | | | $ | 613,127 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Class A Common Stock | | Class B Common Stock | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders’ Equity |
June 30, 2023 | 131,901 | | $ | 1,319 | | | 119,094 | | $ | 1,191 | | | $ | 119,903 | | | $ | 398,158 | | | $ | 377,067 | | | $ | 897,638 | |
| | | | | | | | | | | | | | | |
Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes | 44 | | | — | | | — | | | — | | | (242) | | | — | | | — | | | (242) | |
Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | — | | | — | | | — | | | — | | | 178 | | | — | | | (178) | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 5,249 | | | — | | | 4,738 | | | 9,987 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (6,462) | | | (8,640) | | | (15,102) | |
| | | | | | | | | | | | | | | |
September 30, 2023 | 131,945 | | $ | 1,319 | | | 119,094 | | $ | 1,191 | | | $ | 125,088 | | | $ | 391,696 | | | $ | 372,987 | | | $ | 892,281 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Class A Common Stock | | Class B Common Stock | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders’ Equity |
December 31, 2022 | 131,692 | | $ | 1,317 | | | 123,669 | | $ | 1,237 | | | $ | 137,898 | | | $ | 404,766 | | | $ | 360,025 | | | $ | 905,243 | |
Effects of Structuring Transactions | — | | | — | | | (4,575) | | | (46) | | | (26,348) | | | — | | | 26,392 | | | (2) | |
Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes | 253 | | | 2 | | | — | | | — | | | (208) | | | — | | | — | | | (206) | |
Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | — | | | — | | | — | | | — | | | 493 | | | — | | | (493) | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 13,253 | | | — | | | 11,993 | | | 25,246 | |
Distribution for tax liabilities to non-controlling interest holder | — | | | — | | | — | | | — | | | — | | | — | | | (9,607) | | | (9,607) | |
| | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (13,070) | | | (15,323) | | | (28,393) | |
| | | | | | | | | | | | | | | |
September 30, 2023 | 131,945 | | $ | 1,319 | | | 119,094 | | $ | 1,191 | | | $ | 125,088 | | | $ | 391,696 | | | $ | 372,987 | | | $ | 892,281 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
Operating activities: | | | |
Net loss | $ | (213,127) | | | $ | (28,393) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation | 15,386 | | | 8,966 | |
Amortization of intangible assets | 20,629 | | | 20,487 | |
Amortization of operating lease right-of-use assets | 6,324 | | | 6,348 | |
Amortization of deferred financing costs | 2,238 | | | 2,186 | |
Stock-based compensation expense | 38,870 | | | 25,246 | |
| | | |
Deferred income taxes | — | | | (9,808) | |
Change in estimated fair value of contingent consideration | (1,373) | | | 69 | |
Goodwill impairment | 154,239 | | | — | |
Revaluation of liabilities under the Tax Receivable Agreement | 39 | | | 2,342 | |
| | | |
Other | 1,478 | | | (4,474) | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
Accounts receivable | 25,704 | | | 93,180 | |
Inventory | 50 | | | 2,833 | |
Prepaid expenses and other current and noncurrent assets | 970 | | | 1,761 | |
| | | |
Accounts payable | (1,531) | | | 3,625 | |
Accrued expenses and other current liabilities | (21,118) | | | 8,962 | |
Deferred revenue | (1,526) | | | (558) | |
Other long-term liabilities | (5,149) | | | (14,338) | |
Net cash provided by operating activities | 22,103 | | | 118,434 | |
Investing activities: | | | |
Cash paid for acquisition of a business, net of cash acquired | — | | | (69,622) | |
Purchases of property and equipment | (23,809) | | | (48,754) | |
Proceeds from government assistance allocated to property and equipment | 5,424 | | | 8,969 | |
Purchase of technology | (1,000) | | | — | |
| | | |
| | | |
Net cash used in investing activities | (19,385) | | | (109,407) | |
Financing activities: | | | |
Distributions for tax liabilities to non-controlling interest holder | (572) | | | (9,607) | |
| | | |
Principal repayments of long-term debt | (4,080) | | | (4,080) | |
Payments of finance lease liabilities | (453) | | | (190) | |
Proceeds from interest rate cap agreement | 7,062 | | | 3,845 | |
Payment of acquisition consideration holdback | — | | | (9,706) | |
Payments to MLSH 1 pursuant to the Tax Receivable Agreement | — | | | (35,661) | |
Payments to MLSH 2 pursuant to the Tax Receivable Agreement | — | | | (6,492) | |
(Taxes paid for shares withheld) proceeds from issuance of Class A common stock under employee equity plans, net | (1,480) | | | 331 | |
Net cash provided by (used in) financing activities | 477 | | | (61,560) | |
| | | |
Net increase (decrease) in cash and cash equivalents | 3,195 | | | (52,533) | |
Cash and cash equivalents, beginning of period | 574,962 | | | 632,138 | |
Cash and cash equivalents, end of period | $ | 578,157 | | | $ | 579,605 | |
| | | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
| | | |
Supplemental cash flow information: | | | |
Cash paid for interest | $ | 35,866 | | | $ | 32,188 | |
Cash paid (refunded) for income taxes, net | $ | 644 | | | $ | (3,077) | |
| | | |
Supplemental disclosures of non-cash activities: | | | |
Property and equipment included in accounts payable and accrued expenses | $ | 1,805 | | | $ | 3,703 | |
Purchase of technology included in accrued expenses | $ | 500 | | | $ | — | |
| | | |
Accrued receivable for capital expenditures to be reimbursed under a government contract | $ | 1,410 | | | $ | 3,528 | |
Right-of-use assets obtained in exchange for finance lease liabilities | $ | — | | | $ | 32,862 | |
Right-of-use assets obtained in exchange for operating lease liabilities | $ | 1,287 | | | $ | 3,931 | |
Fair value of contingent consideration liability recorded in connection with acquisition of a business | $ | — | | | $ | 5,289 | |
| | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and Significant Accounting Policies
Description of Business
Maravai LifeSciences Holdings, Inc. (the “Company”, and together with its consolidated subsidiaries, “Maravai”, “we”, “us”, and “our”) provides critical products to enable the development of drugs, therapeutics, diagnostics, vaccines and support research on human diseases. Our products address the key phases of biopharmaceutical development and include complex nucleic acids for diagnostic and therapeutic applications and antibody-based products to detect impurities during the production of biopharmaceutical products.
The Company was incorporated as a Delaware corporation in August 2020 and is headquartered in San Diego, California. We have two principal businesses: Nucleic Acid Production and Biologics Safety Testing. Our Nucleic Acid Production business manufactures and sells products used in the fields of gene therapy, vaccines, nucleoside chemistry, oligonucleotide therapy and molecular diagnostics, including reagents used in the chemical synthesis, modification, labelling and purification of deoxyribonucleic acid (“DNA”) and ribonucleic acid (“RNA”). Our core Nucleic Acid Production offerings include messenger ribonucleic acid (“mRNA”), long and short oligonucleotides, our proprietary CleanCap® capping technology and oligonucleotide building blocks, and custom enzyme development and manufacturing. Our Biologics Safety Testing business sells highly specialized analytical products for use in biologic manufacturing process development, including custom product-specific development antibody and assay development services.
Basis of Presentation
The Company operates and controls all of the business and affairs of Topco LLC, and, through Topco LLC and its subsidiaries, conducts its business. Because we manage and operate the business and control the strategic decisions and day-to-day operations of Topco LLC and also have a substantial financial interest in Topco LLC, we consolidate the financial results of Topco LLC, and a portion of our net loss is allocated to the non-controlling interests in Topco LLC held by MLSH 1.
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and accounts between the businesses comprising the Company have been eliminated in the accompanying consolidated financial statements.
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to Form 10-Q of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are of a normal, recurring nature. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024 or for any future period.
The condensed consolidated balance sheet presented as of December 31, 2023 has been derived from the audited consolidated financial statements as of that date. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all information that is included in the annual financial statements and notes thereto of the Company. The condensed consolidated financial statements and notes included in this report should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”) filed with the SEC.
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires the Company to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue and expenses, and related disclosures. These estimates form the basis for judgments the Company makes about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company bases its estimates and judgments on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions the Company may undertake in the future. Significant estimates include, but are not limited to, the measurement of right-of-use assets and lease liabilities and related
incremental borrowing rate, the payable to related parties pursuant to the Tax Receivable Agreement (as defined in Note 11), the realizability of our net deferred tax assets, and the valuation of goodwill and intangible assets. Actual results could differ materially from those estimates.
Significant Accounting Policies
A description of the Company’s significant accounting policies is included in Note 1 of the Notes to the Consolidated Financial Statements included in the 2023 Form 10-K. There have been no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2024.
Revenue Recognition
The Company generates revenue primarily from the sale of products, and to a much lesser extent, services in the fields of nucleic acid production and biologics safety testing. Products are sold primarily through a direct sales force and through distributors in certain international markets where the Company does not have a direct commercial presence.
Revenue is recognized when control of promised goods or services is transferred to a customer or distributor in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Distributors are the principal in all sales transactions with our customers. To determine revenue recognition for its arrangements with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The majority of the Company’s contracts include only one performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account for revenue recognition. The Company also recognizes revenue from other contracts that may include a combination of products and services, the provision of solely services, or from license fee arrangements which may be associated with the delivery of product. Where there is a combination of products and services, the Company accounts for the promises as individual performance obligations if they are concluded to be distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. As a practical expedient, we do not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less. Contracts with customers are evaluated on a contract-by-contract basis as contracts may include multiple types of goods and services as described below.
The Company recognizes revenue from sales to customers through distributors consistently with the policies and practices for direct sales to customers, as described above.
Nucleic Acid Production
Nucleic Acid Production revenue is generated from the manufacture and sale of highly modified, complex nucleic acid products to support the needs of our customers’ research, therapeutic and vaccine programs. The primary offering of products includes CleanCap®, mRNA, specialized oligonucleotides, and enzymes. Contracts typically consist of a single performance obligation. We also sell nucleic acid products for labeling and detecting proteins in cells and tissue samples research. The Company recognizes revenue from these products in the period in which the performance obligation is satisfied by transferring control to the customer or distributor. Revenue for nucleic acid catalog products is recognized at a single point in time, generally upon shipment to the customer or distributor. Revenue for contracts for certain custom nucleic acid products, with an enforceable right to payment and a reasonable margin for work performed to date, is recognized over time, based on a cost-to-cost input method over the manufacturing period. Payments received from customers in advance of manufacturing their products is recorded as deferred revenue until the products are delivered.
Biologics Safety Testing
The Company’s Biologics Safety Testing revenue is associated with the sale of host cell protein, bioprocess impurity detection, viral clearance prediction kits, and associated products. We also enter into contracts that include custom antibody development, assay development, antibody affinity extraction and mass spectrometry services. These products and services enable the detection of impurities that occur in the manufacturing of biologic drugs and other therapeutics including cell and gene therapies. The Company recognizes revenue from the sale of kits and products in the period in which the performance obligation is satisfied by transferring control to the customer or distributor.
Custom antibody development contracts consist of a single performance obligation, typically with an enforceable right to payment and a reasonable margin for work performed to date. Revenue is recognized over time based on a cost-to-cost input method over the contract term. Where an enforceable right to payment does not exist, revenue is recognized at a point in time when control is transferred to the customer. Assay development service contracts consist of a single performance obligation. Revenue is recognized at a point in time when a successful antigen test and report is provided to the customer. Affinity extraction, mass spectrometry and other analytical services, which generally occur over a short period of time, consist of a single performance obligation to perform the service and provide a summary report to the customer. Revenue is recognized upon delivery of the report to the customer.
The Company elected the practical expedient to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less. The Company had no material unfulfilled performance obligations for contracts with an original length greater than one year for any period presented.
The Company accepts returns only if the products do not meet specifications, and historically, the Company’s volume of product returns has not been significant. Further, no warranties are provided for promised goods and services other than assurance type warranties.
Revenue for an individual contract is recognized at the related transaction price, which is the amount the Company expects to be entitled to in exchange for transferring the products and/or services. The transaction price for product sales is calculated at the contracted product selling price. The transaction price for a contract with multiple performance obligations is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices for products are determined based on the prices charged to customers, which are directly observable. Standalone selling price of services are mostly based on time and materials. Generally, payments from customers are due when goods and services are transferred. As most contracts contain a single performance obligation, the transaction price is representative of the standalone selling price charged to customers. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods. Variable consideration has not been material to our consolidated financial statements.
Sales taxes
Sales taxes collected by the Company are not included in the transaction price as revenue as they are ultimately remitted to a governmental authority.
Shipping and handling costs
The Company has elected to account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Accordingly, revenue for shipping and handling is recognized at the same time that the related product revenue is recognized.
Contract costs
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred when the amortization period of the assets that otherwise would have been recognized is one year or less. These costs are included in sales and marketing and general and administrative expenses. The costs to fulfill the contracts are determined to be immaterial and are recognized as an expense when incurred.
Contract balances
Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract receivable when it has an unconditional right to consideration. There were no contract asset balances as of September 30, 2024 or December 31, 2023.
Contract liabilities include billings in excess of revenue recognized, such as customer deposits and deferred revenue. Customer deposits, which are included in accrued expenses and other current liabilities, are recorded when cash payments are received or due in advance of performance. Deferred revenue is recorded when the Company has unsatisfied performance obligations. Total contract liabilities were $2.9 million and $5.5 million as of September 30, 2024 and December 31, 2023, respectively. Contract liabilities are expected to be recognized as revenue within the next twelve months.
Disaggregation of revenue
The following tables summarize the revenue by segment and region for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 |
| Nucleic Acid Production | | Biologics Safety Testing | | Total |
North America | $ | 27,703 | | $ | 6,988 | | $ | 34,691 |
Europe, the Middle East and Africa | 3,987 | | 3,477 | | 7,464 |
Asia Pacific | 18,210 | | 4,710 | | 22,920 |
Latin and Central America | 47 | | 78 | | 125 |
Total revenue | $ | 49,947 | | $ | 15,253 | | $ | 65,200 |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2024 |
| Nucleic Acid Production | | Biologics Safety Testing | | Total |
North America | $ | 79,417 | | $ | 20,962 | | $ | 100,379 |
Europe, the Middle East and Africa | 22,325 | | 12,050 | | 34,375 |
Asia Pacific | 52,536 | | 14,937 | | 67,473 |
Latin and Central America | 168 | | 384 | | 552 |
Total revenue | $ | 154,446 | | $ | 48,333 | | $ | 202,779 |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Nucleic Acid Production | | Biologics Safety Testing | | Total |
North America | $ | 27,893 | | $ | 6,622 | | $ | 34,515 |
Europe, the Middle East and Africa | 3,703 | | 3,919 | | 7,622 |
Asia Pacific | 19,601 | | 5,022 | | 24,623 |
Latin and Central America | 31 | | 74 | | 105 |
Total revenue | $ | 51,228 | | $ | 15,637 | | $ | 66,865 |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2023 |
| Nucleic Acid Production | | Biologics Safety Testing | | Total |
North America | $ | 88,961 | | $ | 20,392 | | $ | 109,353 |
Europe, the Middle East and Africa | 21,345 | | 12,418 | | 33,763 |
Asia Pacific | 55,495 | | 15,820 | | 71,315 |
Latin and Central America | 143 | | 230 | | 373 |
Total revenue | $ | 165,944 | | $ | 48,860 | | $ | 214,804 |
Total revenue is attributed to geographic regions based on the bill-to location of the transaction. For all periods presented, the majority of our revenue was recognized at a point in time.
Non-Controlling Interests
Non-controlling interests represent the portion of profit or loss, net assets and comprehensive income or loss of our consolidated subsidiaries that is not allocable to the Company based on our percentage of ownership of such entities.
In November 2020, following the completion of a series of organizational transactions (the “Organizational Transactions”), we became the sole managing member of Topco LLC. As of September 30, 2024, we held approximately 56.1% of the outstanding LLC Units of Topco LLC, and MLSH 1 held approximately 43.9% of the outstanding LLC Units of Topco LLC. Therefore, we report non-controlling interests based on the percentage of LLC Units of Topco LLC held by MLSH 1 on the condensed consolidated balance sheet as of September 30, 2024. Income or loss attributed to the non-controlling interest in Topco LLC is based on the LLC Units outstanding during the period for which the income or loss is generated and is presented on the condensed consolidated statements of operations and condensed consolidated statements of comprehensive income (loss).
MLSH 1 is entitled to exchange its LLC Units of Topco LLC, together with an equal number of shares of our Class B common stock (together referred to as “Paired Interests”), for shares of our Class A common stock on a one-for-one basis or, at our election, for cash, from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). As such, future exchanges of Paired Interests by MLSH 1 will result in a change in ownership and reduce or increase the amount recorded as non-controlling interests and increase or decrease additional paid-in-capital when Topco LLC has positive or negative net assets, respectively.
Exchange of Topco LLC Units and Block Trade
In May 2024, MLSH 1 exchanged 8,409,946 LLC Units of Topco LLC (paired with an equal number of shares of our Class B common stock) for 8,409,946 shares of the Company’s Class A common stock. Upon receipt by the Company, the shares of our Class B common stock were subsequently cancelled and retired. Following the exchange, MLSH 1 and MLSH 2 sold an aggregate of 9,940,974 shares of our Class A common stock in a block trade (“May 2024 Block Trade”).
The Company did not receive any of the proceeds from the sale of shares of our Class A common stock by either MLSH 1 or MLSH 2, but did incur costs associated with the May 2024 Block Trade, which were not significant.
During the three months ended September 30, 2024 and three and nine months ended September 30, 2023, MLSH 1 did not exchange any Paired Interests.
Payments pursuant to Topco LLC Operating Agreement
The Topco LLC Operating Agreement entered into at the time of the Organizational Transactions includes a provision requiring cash distributions enabling its owners, including MLSH 1, to pay their taxes on income passing through from Topco LLC. Cash distributions of $0.6 million and $9.6 million for tax liabilities were made to MLSH 1 during the nine months ended September 30, 2024 and 2023, respectively. No such cash distributions were made during the three months ended September 30, 2024 and 2023.
Segment Information
The Company operates in two reportable segments. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to allocate resources and assessing performance. The CODM allocates resources and assesses performance based upon discrete financial information at the segment level. All of our long-lived assets are located in the United States.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable primarily consist of amounts due from customers for product sales and services. The Company’s expected credit losses are developed using an estimated loss rate method that considers historical collection experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The estimated loss rates are applied to trade receivables with similar risk characteristics such as the length of time the balance has been outstanding, liquidity and financial position of the customer, and the geographic location of the customer. In certain instances, the Company may identify individual accounts receivable assets that do not share risk characteristics with other accounts receivable, in which case the Company records its expected credit losses on an individual asset basis.
The allowance for credit losses was approximately $0.8 million and $1.4 million as of September 30, 2024 and December 31, 2023, respectively. There were $0.7 million of write-offs of accounts receivable during the nine months ended September 30, 2024. Write-offs of accounts receivable were not significant during the three months ended September 30, 2024 or the three and nine months ended September 30, 2023. Recoveries were not significant during both the three and nine months ended September 30, 2024. There were no recoveries during the three months ended September 30, 2023 and $0.5 million of recoveries during the nine months ended September 30, 2023.
Goodwill
Goodwill represents the excess of consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. Goodwill is not amortized but is reviewed for impairment. Goodwill is allocated to the Company’s reporting units, which are components of its business for which discrete cash flow information is available one level below its operating segment. The Company conducts a goodwill impairment analysis at least annually and more frequently if changes in facts and circumstances indicate that the fair value of the Company’s reporting units may be less than their respective carrying amount. In performing each annual impairment assessment and any interim impairment assessment, the Company determines if it should qualitatively assess whether it is more likely than not that the fair value of goodwill is less than its carrying amount (the qualitative impairment test). If it is more likely than not that the fair value of the reporting unit is
less than its carrying amount, or if the Company elects not to perform the qualitative impairment test, the Company then performs a quantitative impairment test.
The quantitative impairment test is performed using a one-step process. The process is to compare the fair value of the reporting unit with its carrying amount. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of the reporting unit exceeds its fair value, goodwill of the reporting unit is impaired and an impairment loss is recognized in an amount equal to that excess up to the total amount of goodwill included in the reporting unit. During the three months ended September 30, 2024, the Company performed a quantitative impairment test and recognized goodwill impairment of $154.2 million (see Note 3).
Intangible Assets
The Company’s finite-lived intangible assets represent purchased intangible assets and primarily consist of trade names, customer relationships, patents, and developed technology. Certain criteria are used in determining whether finite-lived intangible assets acquired in a business combination must be recognized and reported separately. Finite-lived intangible assets are initially recognized at fair value, are subject to amortization and are subsequently recorded at amortized cost. The Company’s finite-lived intangible assets are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are intended to be consumed or otherwise used. If that pattern cannot be reliably determined, the respective finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives and are tested for impairment along with other long-lived assets. Amortization related to patents and developed technology is allocated to cost of revenue whereas amortization associated with trade names and customer relationships is allocated to selling, general and administrative expenses.
Impairment of Long-Lived and Intangible Assets
The Company periodically reviews long-lived assets, including property and equipment, right-of-use lease assets and finite-lived intangible assets, to determine whether current events or circumstances may indicate that such carrying amounts may not be recoverable. If such facts or circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets is compared to the carrying value of the assets to determine whether impairment exists. If the assets are determined to be impaired, the loss is measured based on the difference between the fair value and carrying value of the respective assets. For the purposes of identifying and measuring impairment, long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. No impairment loss was recognized by the Company for any long-lived or intangible assets for any period presented in this report.
If the Company determines that events and circumstances warrant a revision to the remaining period of amortization or depreciation for a specific long-lived asset, its remaining estimated useful life will be revised, and the remaining carrying amount of the long-lived asset will be depreciated or amortized prospectively over the revised remaining estimated useful life.
Fair Value of Financial Instruments
The Company defines fair value as the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company follows accounting guidance that has a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset or liability as of the measurement date. Instruments with readily available actively quoted prices, or for which fair value can be measured from actively quoted prices in an orderly market, will generally have a higher degree of market price transparency and a lesser degree of judgment used in measuring fair value. The three levels of the hierarchy are defined as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2—Include other inputs that are directly or indirectly observable in the marketplace; and
Level 3—Unobservable inputs which are supported by little or no market activity.
As of September 30, 2024 and December 31, 2023, the fair values of cash and cash equivalents, which consisted primarily of money market funds, time and demand deposits, trade accounts receivable, net, and trade accounts payable, approximated their carrying amounts due to the short maturities of these instruments. As of September 30, 2024 and December 31, 2023, the fair value of the Company’s long-term debt approximated its carrying value, excluding the effect of unamortized debt discount, as it is based on borrowing rates currently available to the Company for debt with similar terms and maturities (Level 2 inputs).
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains the majority of its cash balances at multiple financial institutions that
management believes are of high-credit-quality and financially stable. Cash is deposited with major financial institutions in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held. The Company provides credit, in the normal course of business, to international and domestic distributors as well as certain customers, which are geographically dispersed. The Company attempts to limit its credit risk by performing ongoing credit evaluations of its customers and maintaining adequate allowances for potential credit losses.
The following table summarizes revenue from each of our customers who individually accounted for 10% or more of our total revenue or accounts receivable for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | Accounts Receivable, net |
| Three Months Ended September 30, | | Nine Months Ended September 30, | | September 30, 2024 | | December 31, 2023 |
| 2024 | | 2023 | | 2024 | | 2023 | | |
Nacalai USA, Inc. | 22.5 | % | | 22.9 | % | | 19.5 | % | | 18.5 | % | | * | | 27.3 | % |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
CureVac N.V. | * | | * | | * | | * | | * | | 13.0 | % |
____________________
*Less than 10%
For the three and nine months ended September 30, 2024 and 2023, all of the revenue recorded for Nacalai USA, Inc. was generated by the Nucleic Acid Production segment.
Recently Issued Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which improves segment disclosure requirements, primarily through enhanced disclosures about significant expenses. ASU 2023-07 requires disclosures to include significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss, an amount for other segment items by reportable segment and a description of its composition, any additional measures of a segment’s profit or loss used by the CODM when deciding how to allocate resources, and the title and position of the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. ASU 2023-07 is effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in this ASU should be applied retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the impact of ASU 2023-07 and expects the adoption of this standard will impact its segment disclosures only with no material impact to its financial position or results of operations.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures (“ASU 2023-09”). The amendments in this ASU address investor requests for more transparency about income tax information through improvements to tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU also includes certain other amendments to improve the effectiveness of income tax disclosures. ASU 2023-09 is effective for the Company for annual periods beginning after December 15, 2024, with early adoption permitted. The amendments in this ASU should be applied on a prospective basis, with retrospective application permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.
2.Restructuring
In November 2023, the Company implemented a cost realignment plan (the “Cost Realignment Plan”) that included the termination of approximately 15% of the Company’s workforce, the termination of certain leases, and other actions to reduce expenses, all as part of a plan to optimize business operations and match them to current market conditions. The reduction in force was completed on January 5, 2024, following the end of the sixty-day notification period required by the Worker Adjustment and Retraining Notification Act. The Cost Realignment Plan was substantially completed during the first quarter of 2024, with most of the cash payments having been disbursed prior to the end of such quarter, with the remainder expected to be disbursed by the end of the fiscal year 2024. The Company does not expect to incur additional restructuring costs relating to the Cost Realignment Plan.
For the three months ended September 30, 2024, restructuring charges were not significant. For the nine months ended September 30, 2024, restructuring charges primarily consist of the stock-based compensation benefit recognized for the
forfeiture of stock awards upon the termination of certain impacted employees resulting from the Cost Realignment Plan. The Company’s restructuring charges by segment and unallocated corporate costs, which are recorded as restructuring expenses on the condensed consolidated statements of operations, were as follows for the period presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2024 |
| Severance and Other Employee Costs (Reversals) | | Stock-Based Compensation Benefit | | | | Professional Fee Reversals and Other | | Total |
Nucleic Acid Production | $ | (17) | | | $ | (812) | | | | | $ | (20) | | | $ | (849) | |
| | | | | | | | | |
Corporate | 52 | | | (409) | | | | | (14) | | | (371) | |
Total | $ | 35 | | | $ | (1,221) | | | | | $ | (34) | | | $ | (1,220) | |
The following table summarizes the activity for accrued restructuring costs, which is recorded within accrued expenses and other current liabilities on the condensed consolidated balance sheets, for the period presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Severance and Other Employee Costs | | Stock-Based Compensation Benefit | | | | Professional Fee Reversals and Other | | Total |
Balance as of December 31, 2023 | $ | 2,543 | | | $ | — | | | | | $ | 271 | | | $ | 2,814 | |
Charges (benefit) | 35 | | | (1,221) | | | | | (34) | | | (1,220) | |
Non-cash benefit | — | | | 1,221 | | | | | — | | | 1,221 | |
Cash payments | (2,542) | | | — | | | | | (237) | | | (2,779) | |
| | | | | | | | | |
Balance as of September 30, 2024 | $ | 36 | | | $ | — | | | | | $ | — | | | $ | 36 | |
3.Goodwill and Intangible Assets
Goodwill
The following table summarizes the activity in the Company’s goodwill by segment for the nine months ended September 30, 2024 (in thousands):
| | | | | | | | | | | | | | | | | |
| Nucleic Acid Production (1) | | Biologics Safety Testing (2) | | Total |
Balance as of December 31, 2023 | $ | 206,101 | | | $ | 119,928 | | | $ | 326,029 | |
Impairment | (154,239) | | | — | | | (154,239) | |
Balance as of September 30, 2024 | $ | 51,862 | | | $ | 119,928 | | | $ | 171,790 | |
____________________
(1)The Nucleic Acid Production segment had accumulated goodwill impairment of $154.2 million as of September 30, 2024. There had been no accumulated goodwill impairment as of December 31, 2023.
(2)The Biologics Safety Testing segment had no accumulated goodwill impairment as of September 30, 2024 or December 31, 2023.
As of September 30, 2024 and December 31, 2023, the Company had four reporting units, three of which are contained in the Nucleic Acid Production segment. During the three and nine months ended September 30, 2024, the Company recorded goodwill impairment of $154.2 million related to the TriLink reporting unit, which is contained in the Nucleic Acid Production segment.
In connection with preparing its financial statements for the quarter ended September 30, 2024, the Company tested its reporting units for potential goodwill impairment in response to impairment indicators identified during the Company’s forecasting process. During the quarter ended September 30, 2024, the Company revised its long-term forecast to reflect lower projected near term revenues due to lower demand in research and discovery products within our Nucleic Acid Production business. This revision also considered the slower than expected transition to new mRNA clinical trials as customers prioritize existing programs and more conservatively invest in new programs as the results of continued macroeconomic pressures. The Company performed a quantitative goodwill impairment test on each of its four reporting units.
The Company performed the impairment test using a combination of the income and the market approach to determine whether the fair value of each reporting unit was less than its carrying value. The income approach utilizes a discounted cash flow model with inputs developed using both internal and market-based data, while the market approach utilizes comparable company information. The significant assumptions in the discounted cash flow models vary amongst, and are specific to, each reporting
unit and include, but are not limited to, discount rates, revenue growth rate assumptions (including terminal growth rates) and operating margin percentages. Discount rates were determined using a weighted average cost of capital specific to each reporting unit and other market and industry data. For TriLink, the selected discount rate was 10.5%. These assumptions were developed in light of current market conditions and future expectations which include, but were not limited to, new product and service developments, impact of competition and future economic conditions. These estimates and assumptions represent a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value. Based on its interim quantitative assessment, the Company concluded that the TriLink reporting unit had a carrying value that exceeded its estimated fair value. As a result, the Company recorded goodwill impairment of $154.2 million on the condensed consolidated statements of operations, which was the entire goodwill balance at the reporting unit. No impairment was recorded for the Company’s remaining three reporting units, as each of their fair values exceeded their respective carrying values.
Intangible Assets
In conjunction with the goodwill impairment test, the Company also evaluated the recoverability of its long-lived assets (including finite-lived intangible assets). The Company performed the impairment test by comparing the respective carrying value of the assets to the current and expected future cash flows, on an undiscounted basis, to be generated from such assets. Based on the interim impairment test, it was determined that the carrying value of the assets did not exceed their respective current and expected future cash flows, on an undiscounted basis. As a result, no impairment for long-lived assets (including finite-lived intangible assets) was recorded.
Intangible assets are being amortized on a straight-line basis, which reflects the expected pattern in which the economic benefits of the intangible assets are being obtained, over an estimated useful life ranging from 3 to 14 years.
The following are components of finite-lived intangible assets and accumulated amortization as of the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Estimated Useful Life | | Weighted Average Remaining Amortization Period |
| (in thousands) | | (in years) | | (in years) |
Trade Names | $ | 7,800 | | | $ | (6,729) | | | $ | 1,071 | | | 3 - 10 | | 2.2 |
Patents and Developed Technology | 321,149 | | | (128,575) | | | 192,574 | | | 10- 14 | | 8.3 |
Customer Relationships | 22,313 | | | (14,100) | | | 8,213 | | | 10 - 12 | | 5.3 |
Total | $ | 351,262 | | | $ | (149,404) | | | $ | 201,858 | | | | | 8.1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Estimated Useful Life | | Weighted Average Remaining Amortization Period |
| | | (in thousands) | | | | (in years) | | (in years) |
Trade Names | $ | 7,800 | | | $ | (6,369) | | | $ | 1,431 | | | 3 - 10 | | 2.8 |
Patents and Developed Technology | 319,649 | | | (109,800) | | | 209,849 | | | 10- 14 | | 8.9 |
Customer Relationships | 22,313 | | | (12,606) | | | 9,707 | | | 10 - 12 | | 5.9 |
Total | $ | 349,762 | | | $ | (128,775) | | | $ | 220,987 | | | | | 8.7 |
The Company recognized $6.2 million and $18.7 million of amortization expense from intangible assets directly linked with revenue-generating activities within cost of revenue in the condensed consolidated statements of operations for the three and nine months ended September 30, 2024, respectively. The Company recognized $6.2 million and $18.5 million of amortization expense from intangible assets directly linked with revenue-generating activities within cost of revenue in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023, respectively.
Amortization expense for intangible assets that are not directly related to revenue-generating activities of $0.7 million and $2.0 million was recorded as selling, general and administrative expenses for the three and nine months ended September 30, 2024, respectively. Amortization expense for intangible assets that are not directly related to revenue-generating activities of $0.7
million and $2.0 million was recorded as selling, general and administrative expenses for the three and nine months ended September 30, 2023, respectively.
As of September 30, 2024, the estimated future amortization expense for finite-lived intangible assets was as follows (in thousands):
| | | | | |
2024 (remaining three months) | $ | 6,901 | |
2025 | 27,460 | |
2026 | 27,223 | |
2027 | 26,207 | |
2028 | 25,987 | |
Thereafter | 88,080 | |
Total estimated amortization expense | $ | 201,858 | |
4.Fair Value Measurements
The following tables summarize the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy as of the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2024 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Money market funds | $ | 415,689 | | | $ | — | | | $ | — | | | $ | 415,689 | |
Interest rate cap, current | — | | | 3,518 | | | — | | | 3,518 | |
Total assets | $ | 415,689 | | | $ | 3,518 | | | $ | — | | | $ | 419,207 | |
| | | | | | | |
Liabilities | | | | | | | |
| | | | | | | |
Contingent consideration, non-current | $ | — | | | $ | — | | | $ | 630 | | | $ | 630 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of December 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets | | | | | | | |
Money market funds | $ | 418,685 | | | $ | — | | | $ | — | | | $ | 418,685 | |
Interest rate cap, non-current | — | | | 8,559 | | | — | | | 8,559 | |
Total assets | $ | 418,685 | | | $ | 8,559 | | | $ | — | | | $ | 427,244 | |
| | | | | | | |
Liabilities | | | | | | | |
Current portion of contingent consideration | $ | — | | | $ | — | | | $ | 131 | | | $ | 131 | |
Contingent consideration, non-current | — | | | — | | | 1,872 | | | 1,872 | |
Total liabilities | $ | — | | | $ | — | | | $ | 2,003 | | | $ | 2,003 | |
| | | | | | | |
| | | | | | | |
Contingent Consideration
In connection with the acquisition of Alphazyme, LLC (“Alphazyme”), which was completed in January 2023, the Company was initially required to make contingent payments to the sellers of Alphazyme of up to $75.0 million (the “Performance Payments”), subject to Alphazyme achieving certain revenue thresholds during each of the fiscal years 2023 through 2025. The preliminary fair value of the liability for the contingent consideration recognized upon the completion of the acquisition as part of the purchase accounting opening balance sheet was $5.3 million. The preliminary fair value of the contingent consideration was determined using a Monte-Carlo simulation-based model discounted to present value. Assumptions used to determine the fair value were expected revenue, a discount rate of 17.8% and various probability factors. The ultimate settlement of the contingent consideration could deviate from current estimates based on actual revenues. The contingent consideration consists of three Performance Payments for each of the performance periods, with the first payment (to the extent earned) due in 2024. For the first performance period which ended on December 31, 2023, it was determined that the defined revenue target was not achieved. Consequently, no payment for contingent consideration was made to the sellers of Alphazyme in 2024. As of
September 30, 2024, the Company may be required to make contingent payments to the sellers of Alphazyme of up to $45.0 million for the remaining two performance periods.
This contingent consideration liability is considered to be a Level 3 financial liability that is remeasured each reporting period. Changes in fair value of contingent consideration are recognized as a gain or loss and recorded within change in estimated fair value of contingent consideration in the condensed consolidated statements of operations. During the three and nine months ended September 30, 2024, the Company recorded decreases of $0.2 million and $1.4 million, respectively, in the estimated fair value of contingent consideration. These decreases were due to changes in estimates associated with the expected achievement of the Alphazyme revenue thresholds that would require the Company to make a contingent consideration payment under the Alphazyme Securities Purchase Agreement.
The following table provides a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period presented (in thousands):
| | | | | |
| Contingent Consideration |
| |
| |
| |
Balance as of December 31, 2023 | $ | 2,003 | |
Change in estimated fair value of contingent consideration | (1,373) | |
Balance as of September 30, 2024 | $ | 630 | |
5.Balance Sheet Components
Inventory
Inventory consisted of the following as of the periods presented (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Raw materials | $ | 16,665 | | | $ | 19,338 | |
Work-in-process | 10,748 | | | 12,680 | |
Finished goods | 22,996 | | | 19,379 | |
Total inventory | $ | 50,409 | | | $ | 51,397 | |
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following as of the periods presented (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Employee related | $ | 14,828 | | | $ | 12,905 | |
Accrued interest payable | 9,004 | | | 9,202 | |
Operating lease liabilities, current portion | 7,275 | | | 6,780 | |
Professional services | 2,269 | | | 2,277 | |
Accrued property and equipment | 1,124 | | | 632 | |
Customer deposits | 1,038 | | | 2,156 | |
Sales and use tax liability | 779 | | | 1,001 | |
Accrued restructuring costs | 36 | | | 2,814 | |
Accrued MyChem Retention Payments, current portion | — | | | 19,446 | |
| | | |
| | | |
Other | 2,145 | | | 3,024 | |
Total accrued expenses and other current liabilities | $ | 38,498 | | | $ | 60,237 | |
6.Government Assistance
Cooperative Agreement
In May 2022, TriLink Biotechnologies, LLC (“TriLink”) entered into a cooperative agreement (the “Cooperative Agreement”) with the U.S. Department of Defense, as represented by the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense on behalf of the Biomedical Advanced Research and Development Authority (“BARDA”), within the U.S. Department of Health and Human Services (“HHS”), to advance the development of domestic manufacturing
capabilities and to expand TriLink’s domestic production capacity in its San Diego manufacturing campus (the “Flanders San Diego Facility”) for products critical to the development and manufacture of mRNA vaccines and therapeutics. The Cooperative Agreement has since transitioned from the U.S. Department of Defense to the HHS as of January 2023. The Flanders San Diego Facility consists of two buildings (“Flanders I” and “Flanders II”), however, the Cooperative Agreement is exclusively involved in Flanders I.
The Cooperative Agreement requires the Company to provide the U.S. Government with conditional priority access and certain preferred pricing obligations for a 10-year period from the completion of the construction project for the production of a medical countermeasure (or a component thereof) that the Company manufactures in the Flanders San Diego Facility during a declared public health emergency.
Pursuant to certain requirements, BARDA awarded TriLink an amount equal to $38.8 million or 50% of the construction and validation costs currently budgeted for the Flanders San Diego Facility. The contract period of performance is May 2022 through January 2034, which is the effective date of the Cooperative Agreement through the anticipated expiration of the 10-year conditional priority access period. Amounts reimbursed are subject to audit and may be recaptured by the HHS in certain circumstances.
During the three and nine months ended September 30, 2024, the Company received $0.6 million and $5.4 million, respectively, of reimbursements under the Cooperative Agreement, with equal offsets recorded to property and equipment on the condensed consolidated balance sheets. During the three and nine months ended September 30, 2023, the Company received $0.3 million and $9.0 million, respectively, of reimbursements under the Cooperative Agreement, with equal offsets recorded to property and equipment on the condensed consolidated balance sheets. As of September 30, 2024, the Company has recorded a receivable of $1.4 million within prepaid expenses and other current assets, with an equal offset to property and equipment.
7.Commitments and Contingencies
Unconditional Purchase Obligations
In the ordinary course of business, we enter into certain unconditional purchase obligations with our suppliers. These are agreements to purchase products and services that are enforceable, legally binding, and specify terms that include provisions with respect to quantities, pricing and timing of purchases.
Amounts purchased under these obligations totaled $1.5 million and $5.0 million for the three and nine months ended September 30, 2024, respectively. Amounts purchased under these obligations totaled $0.3 million and $2.7 million for the three and nine months ended September 30, 2023, respectively.
As of September 30, 2024, future minimum commitments under these obligations were as follows (in thousands):
| | | | | |
2024 (remaining three months) | $ | 1,234 | |
2025 | 590 | |
2026 | 390 | |
2027 | 8 | |
| |
| |
Total | $ | 2,222 | |
8.Long-Term Debt
Credit Agreement
In October 2020, Maravai Intermediate Holdings, LLC (“Intermediate”), a wholly-owned subsidiary of Topco LLC, along with certain of its subsidiaries (together with Intermediate, the “Borrowers”), entered into a credit agreement (as amended, the “Credit Agreement”), which provides for a term loan facility and a revolving credit facility. In January 2022, the Company entered into an amendment (the “Amendment”) to refinance the term loan and to replace London Interbank Offered Rate (“LIBOR”) with a Term Secured Overnight Financing Rate (“SOFR”) based rate.
As amended, the Credit Agreement provides for a $600.0 million term loan facility, maturing October 2027 (the “Term Loan”), and a $180.0 million revolving credit facility, maturing October 2025 (the “Revolving Credit Facility”).
As of September 30, 2024, the effective interest rate on the Term Loan was 8.28% per annum.
The Credit Agreement also provides availability under the Revolving Credit Facility for the issuance of letters of credit up to an aggregate limit of $20.0 million. As of September 30, 2024, the Company had a $0.5 million outstanding letter of credit as
security for a lease agreement, which reduced the availability for the issuance of letters of credit under the Revolving Credit Facility to $19.5 million.
Borrowings under the Credit Agreement are unconditionally guaranteed by Topco LLC, together with the existing and future material domestic subsidiaries of Topco LLC (subject to certain exceptions), as specified in the respective guaranty agreements. Borrowings under the Credit Agreement are also secured by a first-priority lien and security interest in substantially all of the assets (subject to certain exceptions) of existing and future material domestic subsidiaries of Topco LLC that are loan parties.
The Term Loan requires mandatory quarterly principal payments of $1.4 million which began in March 2022, with all remaining outstanding principal due on maturity in October 2027.
As of September 30, 2024, unamortized debt issuance costs totaled $0.8 million and are recorded within other assets on the accompanying condensed consolidated balance sheet as there is no borrowing balance outstanding related to the Revolving Credit Facility.
Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires that we make mandatory prepayments on the Term Loan principal upon certain excess cash flow, subject to certain step-downs based on the Company’s first lien net leverage ratio. The excess cash flow shall be reduced to 25% or 0% of the calculated excess cash flow if the Company’s first lien net leverage ratio was equal to or less than 4.75:1.00 or 4.25:1.00, respectively, however, no prepayment shall be required to the extent excess cash flow calculated for the respective period is equal to or less than $10.0 million. As of September 30, 2024, the Company’s first lien net leverage ratio was less than 4.25:1.00. Thus, a mandatory prepayment on the Term Loan out of our excess cash flow was not required.
The Credit Agreement contains certain covenants, including, among other things, covenants limiting our ability to incur or prepay certain indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes to the nature of the business. Additionally, the Credit Agreement requires us to maintain a certain net leverage ratio if the outstanding debt balance on the Revolving Credit Facility exceeds 35.0% of the aggregate amount of available credit of $180.0 million, or $63.0 million. The Company was in compliance with these covenants as of September 30, 2024.
Interest Rate Cap
In the first quarter of 2021, the Company entered into an interest rate cap agreement to manage a portion of its variable interest rate risk on its outstanding long-term debt. The contract, which was effective March 31, 2021, entitles the Company to receive from the counterparty at each calendar quarter end the amount, if any, by which a specified defined floating market rate exceeds the cap strike interest rate, applied to the contract’s notional amount of $415.0 million. The floating rate of interest is reset at the end of each three-month period. The contract was set to expire on March 31, 2023.
In May 2022, the Company amended the interest rate cap agreement, effective June 30, 2022, to increase the contract’s notional amount to $500.0 million and to extend the maturity date to January 19, 2025. Additionally, the floating rate option changed from a LIBOR-based rate to a SOFR-based rate. Other provisions remained unchanged as a result of the amendment. Premiums paid to amend the interest rate cap agreement were immaterial.
The interest rate cap agreement has not been designated as a hedging relationship and has been recognized on the condensed consolidated balance sheet at fair value of $3.5 million within prepaid expenses and other current assets with changes in fair value recognized within interest expense in the condensed consolidated statements of operations. Proceeds from the interest rate cap agreement are reflected in cash flows used in financing activities in the condensed consolidated statements of cash flows.
The Company’s long-term debt consisted of the following as of the periods presented (in thousands):
| | | | | | | | | | | |
| September 30, 2024 | | December 31, 2023 |
Term Loan | $ | 529,040 | | | $ | 533,120 | |
| | | |
Unamortized debt issuance costs | (7,317) | | | (8,973) | |
Total long-term debt | 521,723 | | | 524,147 | |
Less: current portion | (5,440) | | | (5,440) | |
Total long-term debt, less current portion | $ | 516,283 | | | $ | 518,707 | |
There were no borrowing balances outstanding on the Company’s Revolving Credit Facility as of September 30, 2024 and December 31, 2023.
As of September 30, 2024, the aggregate future principal maturities of the Company’s debt obligations based on contractual due dates, were as follows (in thousands):
| | | | | |
2024 (remaining three months) | $ | 1,360 | |
2025 | 5,440 | |
2026 | 5,440 | |
2027 | 516,800 | |
| |
| |
Total long-term debt | $ | 529,040 | |
9.Net Loss Per Class A Common Share Attributable to Maravai LifeSciences Holdings, Inc.
Basic net loss per Class A common share has been calculated by dividing net loss for the period, adjusted for net loss attributable to non-controlling interests, by the weighted average number of Class A common shares outstanding during the period. In periods in which the Company reports a net loss attributable to Maravai LifeSciences Holdings, Inc., diluted net loss per Class A common share attributable to the Company is the same as basic net loss per Class A common share attributable to the Company, since dilutive equity instruments are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to Maravai LifeSciences Holdings, Inc. during each of the three and nine months ended September 30, 2024 and 2023.
The following table presents the computation of basic and diluted net loss per Class A common share attributable to the Company for the periods presented (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| | | | | | | |
Net loss | $ | (175,955) | | | $ | (15,102) | | | $ | (213,127) | | | $ | (28,393) | |
Less: loss attributable to common non-controlling interests | 76,917 | | | 8,640 | | | 94,426 | | | 15,323 | |
Net loss attributable to Maravai LifeSciences Holdings, Inc. | $ | (99,038) | | | $ | (6,462) | | | $ | (118,701) | | | $ | (13,070) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted average Class A common shares outstanding | 141,555 | | | 131,930 | | | 136,595 | | | 131,845 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net loss per Class A common share attributable to Maravai LifeSciences Holdings, Inc., basic and diluted | $ | (0.70) | | | $ | (0.05) | | | $ | (0.87) | | | $ | (0.10) | |
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Shares of Class B common stock do not share in the earnings or losses of the Company and are therefore not participating securities. As such, a separate presentation of basic and diluted net loss per share for Class B common stock under the two-class method has not been presented.
The following table presents potentially dilutive securities excluded from the computation of diluted net loss per share for the periods presented because their effect would have been anti-dilutive for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Restricted stock units | 1,870 | | 3,768 | | 2,233 | | 3,209 |
| | | | | | | |
Stock options | 4,008 | | 4,524 | | 4,008 | | 4,524 |
Shares estimated to be purchased under the employee stock purchase plan | 286 | | 9 | | 197 | | 8 |
Shares of Class B common stock | 110,684 | | 119,094 | | 110,684 | | 119,094 |
Total | 116,848 | | 127,395 | | 117,122 | | 126,835 |
Shares underlying contingently issuable awards that have not met the necessary conditions as of the end of a reporting period are not included in the calculation of diluted net loss per Class A common share attributable to the Company for that period. The Company had contingently issuable performance stock units (“PSUs”) outstanding that did not meet the market and performance conditions as of September 30, 2024 and 2023 and, therefore, were excluded from the calculation of diluted net loss per Class A common share attributable to the Company. The maximum number of potentially dilutive shares that could be
issued upon vesting for such awards was insignificant as of September 30, 2024 and 2023. These share amounts were also excluded from the potentially dilutive securities in the table above.
10.Income Taxes
We are subject to U.S. federal and state income taxes with respect to our allocable share of any taxable income or loss of Topco LLC, as well as any stand-alone income or loss we generate. Topco LLC is organized as a limited liability company and treated as a partnership for U.S. federal tax purposes and generally does not pay income taxes on its taxable income in most jurisdictions. Instead, Topco LLC’s taxable income or loss is passed through to its members, including us.
The following table summarizes the Company’s income tax expense (benefit) and effective tax rate for the periods presented (in thousands, except percentages):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Loss before income taxes | $ | (175,644) | | | $ | (20,563) | | | $ | (214,980) | | | $ | (38,450) | |
Income tax expense (benefit) | $ | 311 | | | $ | (5,461) | | | $ | (1,853) | | | $ | (10,057) | |
Effective tax rate | (0.2) | % | | 26.6 | % | | 0.9 | % | | 26.2 | % |
The Company’s effective tax rate of (0.2)% and 0.9% for the three and nine months ended September 30, 2024 differed from the U.S. federal statutory income tax rate of 21.0%, primarily due to the valuation allowance recorded against the Company’s deferred tax assets, and the release of a previous uncertain tax position due to statute expiration.
The Company’s effective tax rate of 26.6% and 26.2% for the three and nine months ended September 30, 2023 differed from the U.S. federal statutory income tax rate of 21.0%, primarily due to the loss associated with the non-controlling interest, changes to the Company’s deferred tax assets due to changes in estimates associated with its state income tax rate, and the release of a previous uncertain tax position due to statute expiration.
As of September 30, 2024 and December 31, 2023, the Company had $3.4 million and $5.2 million, respectively, of unrecognized tax benefits, all of which would affect the effective tax rate if recognized. During the nine months ended September 30, 2024, the Company recognized $(1.8) million, as a component of income tax expense (benefit), primarily due to statute expiration. The Company recognizes interest related to uncertain tax benefits as a component of income tax expense, including $0.2 million recognized during the nine months ended September 30, 2024.
Tax Distributions to Topco LLC’s Owners
Topco LLC is subject to an operating agreement put in place at the date of the Organizational Transactions (“LLC Operating Agreement”). The LLC Operating Agreement has numerous provisions related to allocations of income and loss, as well as timing and amounts of distributions to its owners. This agreement also includes a provision requiring cash distributions enabling its owners to pay their taxes on income passing through from Topco LLC. These tax distributions are computed based on an assumed income tax rate equal to the sum of (i) the maximum combined marginal U.S. federal and state income tax rate applicable to an individual and (ii) the net investment income tax. The assumed income tax rate currently totals 46.7%, which may increase to 54.1% in certain cases where the qualified business income deduction is unavailable.
In addition, under the tax rules, Topco LLC is required to allocate taxable income disproportionately to its unit holders. Because tax distributions are determined based on the holder of LLC Units who is allocated the largest amount of taxable income on a per unit basis, but are made pro rata based on ownership, Topco LLC is required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes Topco LLC would have otherwise paid if it were taxed on its taxable income at the assumed income tax rate. Topco LLC is subject to entity level taxation in certain states and certain of its subsidiaries are subject to entity level U.S. and foreign income taxes. As a result, the accompanying condensed consolidated statements of operations include income tax expense related to those states and to U.S. and foreign jurisdictions where Topco LLC or any of our subsidiaries are subject to income tax.
During the three months ended September 30, 2024, Topco LLC did not pay tax distributions to its owners. During the nine months ended September 30, 2024, Topco LLC paid tax distributions of $1.3 million to its owners, including $0.7 million to the Company.
During the three months ended September 30, 2023, Topco LLC did not pay tax distributions to its owners. During the nine months ended September 30, 2023, Topco LLC paid tax distributions of $20.3 million to its owners, including $10.7 million to the Company.
As of September 30, 2024, no amounts for tax distributions had been accrued as such payments, if any, are made during the period.
11.Related Party Transactions
MLSH 1’s majority owner is GTCR, LLC (“GTCR”). The Company’s Executive Chairman of the Board, Chief Financial Officer (“CFO”) and General Counsel are also executives of MLSH 1 and MLSH 2.
Payable to Related Parties Pursuant to the Tax Receivable Agreement
We are a party to a Tax Receivable Agreement (“TRA”) with MLSH 1 and MLSH 2. The TRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of certain tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of the Organizational Transactions, our initial public offering (“IPO”) and any subsequent purchases or exchanges of LLC Units of Topco LLC. The Company expects to benefit from the remaining 15% of any cash tax savings that it realizes.
We recognize the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current. This determination is based on our taxable income for the year ended December 31, 2023. As of September 30, 2024, the current liability under the TRA was $7.2 million.
As of December 31, 2023, the Company had derecognized the remaining $665.3 million non-current liability under the TRA after concluding it was not probable that the Company will be able to realize the remaining tax benefits based on estimates of future taxable income. The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount, character, and timing of the taxable income in the future. If the Company concludes in a future period that the tax benefits are more likely than not to be realized and releases its valuation allowance, the corresponding TRA liability amounts may be considered probable at that time and recorded on the consolidated balance sheet and within earnings. There have been no changes to our position from those set forth in the 2023 Form 10-K. The impact of any activity for the fiscal year ending December 31, 2024, including any exchanges or changes to our estimated state tax rate, will be included in the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2024 when amounts are determinable.
As of December 31, 2023, our liability under the TRA was $7.1 million, payable to MLSH 1 and MLSH 2, representing approximately 85% of the calculated tax savings based on our estimate of taxable income for the year ended December 31, 2023. As of September 30, 2024, our liability under the TRA was $7.2 million.
We made payments of $42.6 million in the aggregate to MLSH 1 and MLSH 2 pursuant to the TRA during the nine months ended September 30, 2023, of which $0.4 million was related to interest. No such payments were made during the three months ended September 30, 2023 or the three and nine months ended September 30, 2024.
Contribution, Exchange and Forfeiture Agreement with MLSH 1
In connection with the Company’s acquisition of Alphazyme, which was completed in January 2023, the Company undertook a series of structuring transactions (the “Structuring Transactions”), including:
•On January 18, 2023, the Company acquired all of the outstanding membership interests in Alphazyme.
•On January 19, 2023, the Company entered into a contribution agreement (the “Contribution Agreement”) with Alphazyme Holdings, Inc. (“Alphazyme Holdings”), a wholly owned subsidiary of the Company, pursuant to which the Company contributed all such membership interests in Alphazyme (the “Alphazyme Membership Interest”) to Alphazyme Holdings.
•On January 22, 2023, Alphazyme Holdings entered into a contribution and exchange agreement (the “Contribution and Exchange Agreement”) with Topco LLC, pursuant to which it contributed all of the Alphazyme Membership Interests to TopCo LLC in exchange for 5,059,134 newly-issued LLC Units of Topco LLC at a price per unit of $13.87, which was equal to the 50-day volume-weighted average price of the Company’s Class A common stock as calculated on January 18, 2023 (the “Contribution and Exchange”).
•Immediately following the Contribution and Exchange, the Company entered into a forfeiture agreement (the “Forfeiture Agreement”) with Alphazyme Holdings, TopCo LLC and MLSH 1, a related party, pursuant to which each of the Company (together with Alphazyme Holdings) and MLSH 1 agreed to forfeit 5,059,134 and 4,871,970 LLC Units, respectively, representing 3.7% of the Company’s (together with Alphazyme Holdings) and MLSH 1’s respective LLC Units of Topco LLC, and an equal number of shares of the Company’s Class B common stock, par value $0.01 per share, were forfeited by MLSH 1, in each case for no consideration.
Topco LLC Operating Agreement
MLSH 1 is party to the LLC Operating Agreement put in place at the date of the Organizational Transactions. This agreement includes a provision requiring cash distributions enabling its owners to pay their taxes on income passing through from Topco LLC. During the nine months ended September 30, 2024 and 2023, the Company made cash distributions of $0.6 million and $9.6 million, respectively, for tax liabilities to MLSH 1 under this agreement. No such cash distributions were made during the three months ended September 30, 2024 and 2023.
12.Segments
The Company’s financial performance is reported in two segments. A description of each segment follows:
•Nucleic Acid Production: focuses on the manufacturing and sale of highly modified nucleic acids products to support the needs of customers’ research, therapeutic and vaccine programs. This segment also provides research products for labeling and detecting proteins in cells and tissue samples.
•Biologics Safety Testing: focuses on the manufacturing and sale of host cell protein, bioprocess impurity detection, viral clearance prediction kits and associated products. This segment also provides services for custom antibody development, assay development, antibody affinity extraction and mass spectrometry that are utilized by our customers in their biologic drug manufacturing spectrum.
The Company has determined that adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance. Adjusted EBITDA assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. The Company defines Adjusted EBITDA as net loss before interest, taxes, depreciation and amortization, certain non-cash items and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period. Corporate costs, net of eliminations, are managed on a standalone basis and are not allocated to segments.
The following schedule includes revenue and adjusted EBITDA for each of the Company’s reportable operating segments (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
Revenue: | | | | | | | |
Nucleic Acid Production | $ | 49,947 | | | $ | 51,228 | | | $ | 154,446 | | | $ | 165,944 | |
Biologics Safety Testing | 15,253 | | | 15,638 | | | 48,333 | | | 48,863 | |
Total reportable segments’ revenue | $ | |