Good day and thank you for standing by. Welcome to Maravai LifeSciences First Quarter 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Ms. Debra Hart, head of investor relations. Debra, please go ahead.

Thank you, Patrick. Good afternoon, everyone. Thanks for joining us on our first quarter 2022 earnings call. I'm joined today by Carl Hull, our chairman and chief executive officer; and Kevin Herde, our executive vice president and chief financial officer. Our press release and the slides that accompany today's call are posted on our website and are available at investors.maravai.com under financial information, quarterly results. As you can see on slide two, Carl will first provide you with a business update, and Kevin will review our financial results and guidance. We will then open the call for questions following the prepared remarks. On slide three, we remind you that the forward-looking statements that we make during today's call, including those regarding our business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release we issued today as well as those that are more fully described in our various filings with the SEC. Today's comments reflect our current views, which could change as a result of new information, future events or other factors, and the company does not obligate or commit itself to update these forward-looking statements, except as required by law. During this call, we will be using non-GAAP measurements of certain of our results and in providing guidance. Reconciliation of GAAP to non-GAAP financial measures are included in the press release that we issued today. The metrics we will be discussing in today's call include net income, adjusted EBITDA, income tax expense and adjusted earnings per share. These adjusted financial measures should not be viewed as an alternative to GAAP measures but are intended to better enable investors to benchmark our current results against historical performance and the performance of our peers. I'll now turn the call over to Carl.

Well, thank you, Deb, and good afternoon, everyone. We appreciate having you join us for our call today. Let's start with our first quarter results on slide five, please. Maravai had a record quarter for the company as a whole and for each of our operating units. Today, we reported $244.3 million in revenue for the quarter, growing 65% compared to the prior year and up 7% sequentially over the fourth quarter. Our base business revenue, which excludes CleanCap revenue from COVID-19 vaccines, was up 25% over the prior year. Our adjusted EBITDA of $187 million was up 85% over the prior year, and we reported a record 77% adjusted EBITDA margin for the quarter. Our outstanding top line and adjusted EBITDA performance resulted in adjusted earnings per share of $0.54 per share for the quarter. We also have record adjusted free cash flows in the quarter of $182.5 million. So you can see that 2022 is off to an incredibly solid start. Our base business continues to deliver impressive growth across the board, reflecting strong demand for our products on top of the COVID vaccine tailwinds we have experienced over the last few years. We have seen, and expect to see, continued momentum across our global customer base as mRNA research and cell and gene therapy development accelerates. Turning to slide six. Growth across the nucleic acid production business was very robust and remains, I'd say, somewhat underappreciated by the broader market. Our nucleic acid production business had record revenue of $223.7 million in the first quarter, up 80% year-over-year and up 5% sequentially. Excluding those COVID-19-related CleanCap revenues, our base nucleic acid business grew a remarkable 55% year-over-year. We continue to focus on this base nucleic acid production business as a key driver of long-term value creation. Demand…

Thank you, Carl. Good afternoon, everyone. I'm happy to review our financial results for the first quarter and to discuss the components of our current guidance for the full year of 2022. Given that Carl's presented some of the financial highlights already, I'll briefly cover some more details regarding the first quarter results and then dive into our detailed financial guidance for 2022. Starting on slide 13. Beginning with the GAAP numbers, our net income before the amount attributable to noncontrolling interests was $146.9 million for the first quarter of 2022. This compares to $75.5 million for the first quarter of 2021. Income from operations was $167.4 million in the quarter for an operating margin of 69%. Our R&D spend in the quarter was $3.7 million, which compares to $2.2 million from Q1 2021 as we continued to increase our R&D spend. I'll remind you that the $9.2 million R&D from Q4 2021 was unusually high due to the onetime third-party expenses incurred to assess and improve our CleanCap manufacturing process. Moving to slide 14. Adjusted EBITDA, a non-GAAP measure, was $187 million for Q1 compared to $100.9 million for Q1 2021. This represents an 85% increase year-over-year. The net adjustments from GAAP EBITDA to adjusted EBITDA totaled about $10 million or only about 5% of our adjusted EBITDA for the quarter. Our adjusted EBITDA margin was a record 77%, up from the 68% reported in Q1 of last year and better than we had forecasted as a result of favorable gross margins in the quarter. The increase in adjusted EBITDA was primarily driven by overall sales volume increases and margin improvements from our nucleic acid production business. On to slide 15. Here we present Basic EPS, diluted EPS and adjusted fully diluted EPS. Basic EPS is a GAAP measure,…

Thanks, Kevin. And so to wrap up on that slide 21, we are playing in the right target markets with strong leadership positions and exceptional growth in our base business as we build our product portfolio in other high-value areas. . We are putting our strong cash flow to work with organic investments in our facilities, human capital and product innovation. We will also look for opportunities for inorganic investment to bolster our market positions and provide our customers with additional solutions. We're committed to building a strong foundation for long-term sustainable growth of our base business, and we'll continue to focus on operational excellence, innovation and people as our three strategic pillars. I would now like to turn the call back over to Patrick to open the line for your questions. Patrick?

First question is from Matt Larew from William Blair. Please go ahead.

This is actually Max on for Matt. I appreciate the commentary around the COVID revenue here in the first quarter and what we expect in the second quarter. But just wondering if you can provide any commentary around how to think about the back half of the year, particularly into 2023. It sounds like relative to the prior quarter, I think you mentioned that your customers indicated that they weren't expecting any massive drop-off in volume in 2023. It sounds like maybe the outlook is a little bit more uncertain next year. So just trying to get your thoughts on how to think about 2023 and the back half of this year.

Yes. Look, Max, I think that our ability to offer any kind of final or firm commentary on '23 is limited by the factors that I mentioned during my remarks. I would just say that we feel pretty good about the 2022 numbers that we have in front of us. The guidance is based on what we see coming down the pike. And I think some of the noise in the marketplace is just what I said, a little bit of variability and different people may see variability in this market at different points in time depending on where they are in the supply chain. But beyond that, Kevin, do you want to make any comments about sort of relative size of the back half of '22?

Yes, certainly. I mean we've had a big quarter in the last quarter in Q4 and this quarter in Q1 with regards to our COVID-19 vaccine revenues. As per my remarks, we see the nucleic acid business roughly in line in the second quarter as it is in the first quarter. So I think if you -- I know you all can do math pretty well. So if you add those numbers up, and you look at our guidance and you will see the second half of the year a little bit below the first half, and that is attributable to some COVID revenues related to the vaccines being less than the current forecast in the first half of the year. But certainly, what we're really happy on and focused on there well is the core base business growth throughout the year, and that's looking really solid for the full year.

Got it. I appreciate the color there. And then for my follow-up, I wanted to follow up on something that you talked about at the Analyst Day, which is actually your customer funnel. And I know at the Analyst Day, you mentioned about 85% of your mRNA service customers are using CleanCap today. You indicated earlier that, that number has actually stepped up to about 90%. But I was wondering if we could talk about how many of the 60 CleanCap supply agreements that you have in the pipeline include services outside of CleanCap? I know you mentioned last quarter that the customers you're bringing on in signing new CleanCap supply agreements, those relationships are looking more expansive than some of the initial CleanCap supply agreements. So any insight you can provide around how many of those agreements expand just beyond providing CleanCap?

Yes, Max. I don't think we're going to go through, on a quarter-by-quarter basis, those metrics necessarily each time just because they get a little involved and timing at the end of the quarter may be different from one quarter to the other. I think you can expect us to periodically update those numbers and give it to you overall. But I would say we're seeing more customers come to us looking for, I would say, all-inclusive services. So they do really want to go from plasmids up front all the way through the mRNA manufacturing process. So the jobs that we're being asked to "not only can be more expansive in that sense, but then they also can extend further downstream into later-stage development." And that's a growing focus for some of our customers who are pretty optimistic about how their development programs will turn out.

Got it. Thank you.

You bet.

Thank you. The next question is from Matt Sykes from Goldman Sachs. Please go ahead.

This is Nick on for Matt. I appreciate the questions. The first question is, so it sounded like a lot of the CapEx spend increase is going toward quality-focused investment in your facilities. So I was wondering if you could broadly talk about trends you're seeing in GMP-grade demand and specifically the GMP-grade demand versus RUO demand?

Yes, I think that's a great question, Nick. We're seeing more and more concern from our customers about the conditions and the grade of the product that they are purchasing. I think that reflects the conservatism of big pharma, frankly, as they've come into an area that's relatively less mature than, say, small molecules or even monoclonal antibodies. And I think there's an expectation that whether it's them as the customer or it's ultimately the regulators such as the EMA or the FDA who are going to require greater scrutiny of the raw materials and the inputs that go into these novel technologies. So I say it's becoming a much more significant issue or consideration, and that is the primary reason that we've decided to invest a little bit more in this facility in order to be sort of turnkey ready in the event that that's where the market heads.

Got it. Appreciate that. Really helpful. And then if I'm doing the math correct, the midpoint of the guide implies a 2% increase in EBITDA margins for the full year versus the previous expectation. Is that increase coming from pricing? Is it from -- coming from cost savings? And if it's coming from cost savings, does MyChem have anything to do with that?

Yes. Thanks for the question, Nick. Yes, certainly, it really has to do with us having a real big output quarter here in the first quarter. I think we're not seeing here all that differently. I think some of the things with regards to timing I mentioned, but we did see, again, some positive manufacturing variances here for us in the first quarter. We're kind of banking those and passing those through. The rest of the year is pretty in line, but that pull up from the strong first quarter is what's being reflected in the full year.

Got it. And then maybe if I could just sneak one more in. When we look at the data in terms of IPO funding, number of IPOs and the dollar spend on IPO so far this year, it's down significantly from last year. Have you guys been seeing any slowdown in demand in preclinical or one product, biotech or new modality start-ups? Or are you not really seeing that so far?

No, we're definitely not seeing that. We're seeing kind of the opposite, which is a continuous increase in activity. And I think it is probably attributable to the fact that a lot of the companies in our space, our customers got their funding in that 2020, '21 window and secured the funding and then began their development programs already. So that's still fueling this leg of growth for us.

Appreciate it. Thanks.

Thank you. The next question is from Tejas Savant from Morgan Stanley. Please go ahead.

Hey, this is Neel on for Tejas. So just wanted to start on the biologics safety testing business. It seems to be trending just ahead of your previous expectations for around 15% growth. As of today, how would you characterize the opportunity for upside or downside to the previous expectations you provided during the guide?

Kevin, do you want to take that?

Yes. thanks, Neil. Again, we see the business relatively the same as we did a few months ago. Look, I'd say the first quarter was a little bit higher than we were guiding for the year. We had a good quarter with regards to our distributor relationships. Those are mostly in Asia. We also had a really strong quarter, and this continues to be a nice trend for us with some of our other contaminant testing kits, particularly Protein A, in this case. It was a very strong quarter for us. So a little bit ahead of our expectations for the year. Full year, we see that moderating a little bit, again, closer to that 15%-ish growth area. There is some direct impact with regards to some business we did lose in the Eastern European region or won't be shipping into as well as a little bit of uncertainty, certainly with our Chinese distributor and the timing of some of that revenue. So I think we're continuing to watch that very carefully as of now. It hasn't impacted us on a year-to-date basis in China, but that's certainly something we're keeping a sense to. Those are the main areas right now, but we're pretty comfortable right in around that mid-teens growth for the year.

Got it. And then a quick two-parter. So in light of the ongoing funding concerns for biopharma customers, can you give us any color of what you're seeing here as far as near or medium-term spending trends for these customers? And would you be able to also quantify your exposure to pre-commercial or early stage biotech customers, ex COVID?

Well, certainly, on the funding concerns, as I mentioned a little bit earlier, we're not seeing that. And I do think it's maybe because when people are talking about biotech funding concerns, they're using a pretty broad brush when they do that. But if you look at the specific area of RNA therapeutics, especially messenger RNA and its related delivery systems, the opposite is occurring. So we can't say that we have seen any kind of slowdown or pass-through of those trends that perhaps have been highlighted in other parts of the life sciences market. On the precommercial side. Kevin, I don't know that we have a breakout purely precommercial. But the majority of our historical business outside of COVID-related revenues has always been pre-commercial, mainly because up until very recently, nobody was even in phase one testing with a number of these therapeutics. So my guess is that would still pertain. But Kevin, I don't know if you have something better.

Yes. No, that's absolutely right, Carl. I mean when we talked about all those programs, again, that we're involved in, I would – two-thirds of those are sitting in the preclinical stage. So and that's historically been the case for a lot of these revenues. Not many things have advanced even into the clinic and certainly only one product for us into the commercial space.

Thank you. That's helpful color. And then one last one for me. So following MyChem, any updates on the M&A deal pipeline? And with the pullback to public valuations, are you starting to see a similar dynamic on the private side as well? Has opened up any new or interesting opportunities?

Yes. Well, certainly, the price sensitivity of founders and owners of private companies is a little bit sticky downwards. So I'm not sure how fully priced through that may be in people's expectations. Obviously, there's been so much turmoil in the market. I think a lot of people have stayed on the sidelines in terms of transacting. We're trying to figure out where the equilibrium point is going to be. But we're certainly seeing a number of different opportunities in our pipeline. We're actively pursuing those. And we think we'll keep Deb and her team quite busy over the next six to nine months as we run some of those to ground.

Thank you. The next question is from John Sourbeer from UBS.

This is calling for John. I got a quick question on the MyChem. Can you share a little bit more about the revenue -- Q1 revenue of MyChem and the performance in general in Q1? And what is the outlook for MyChem for the fiscal year, please? Thank you.

Yes. Thanks for your question there. We did not give the exact number of MyChem. It's pretty small and immaterial in the quarter. What we did say was the Nucleic Acid Production business growth year-over-year was over 90% organic, so you can certainly look back and do the numbers there to figure out what it was at least below for the quarter. And we previously said that we expect that business to look a lot like our divested Protein Detection business. That was roughly a $20 million business before. But we were a big customer of MyChem, so you're not going to see all that run through the top line. With regards to performance thus far. We again acquired them there and closed in January. We've been very happy with the integration with our team and really taking their expertise and really looking to apply it to some of our other manufacturing processes, also get some of their top scientists focused and back onto the bench. And then looking at the customer overlap and where they had incremental customers that we didn't have a relationship when exploring that further for the betterment of the overall nucleic acid business segment. So very happy with how things have been going thus far.

If I can just have one quick follow-up. So your 77% EBITDA margin looks pretty great. So any thoughts on the outlook for the margin? And also, can you provide more color into the margin differential from COVID and non-COVID CleanCap, please?

Yes, certainly. We don't exactly look at it that way. We look at total CleanCap on that certainly a product line, and it's not a COVID-specific product per se. So any CleanCap that's manufactured and sold at volume has a strong margin, it's one of our strongest incremental gross margin businesses that we have. Overall, we're guiding, I think, at our midpoint to EBITDA margins roughly around 71% to 72%, between the middle and the top end of our guidance range. we continue to have a very strong margin. Certainly, the first quarter was extremely strong based on the growth of the business and that we have a lot of fixed costs that we can leverage there and that loads some expansion. As I talked about the back half of the year, it looks to be a little bit down just due to -- tied to what we're seeing with the vaccine numbers, and that's a high incremental product for us. You'll see a little bit of temperament in margins and continued need to invest in both the commercial and the R&D infrastructure. So we're continuing to see nice margins, certainly, but we're bringing -- kind of tempering the back half of the year a little bit to bring that overall estimate for the year, around that 71% to 72% exiting at 77% first quarter.

Thank you very much. This is very helpful. Congratulations on the quarter.

Thank you very much.

Thank you. The next question is from Michael Ryskin from Bank of America. Please go ahead.

Hi. Good afternoon. This is Peter on for Mike. Could you comment on how your contracts are structured, particularly with larger customers? Are they take-or-pay? Or kind of what extent of flexibility do you offer in terms of ability to cancel?

Kevin, do you want to do that? Or do you want me to?

I'm certainly happy to, Carl. So our LSAs, which are our license and supply agreements for our large customers for CleanCap, the one that we talked about before. We locked people in and those are take-or-pay. That hasn't certainly been an issue for us given the NIM we've seen thus far. And those are basically staggered. They're not all identical. But in general, we have POs supporting certainly the next three months. Generally, the next six months and then some parameters inside the contracts for the seven, eight to nine months. And then we always look for our customers to try and give us as much forward-looking information as they can and like to see a year's worth of forecast knowing that those last -- that last quarter would not be binding contractually or via POs unless they've already submitted them. So as we look at the current year business, I think as was the case that we've talked about last quarter, nothing's changed there. We continue to have that high degree of coverage with either firm support commitments or POs in-house, and those are our take-or-pay contracts. Again, not all of our large customers or not all of our customers are , they're using different product lines of ours or fall under that exact structure. Certainly, on the mRNA services side, those are all constructed a little bit different. And a lot of times are kind of master agreements that have specific statements of work related to what they need in a given time frame. So those are going to be booking in GMP clean rooms, doing specific runs, doing highly modified mRNAs with CleanCap and completing that sort of statement work on a custom order within a given period of time. So because of that, we don't have sort of some of those take-or-pay structures. They are by the very definition sort of take-or-pay on a custom level, as you would see with a lot of the services businesses that run CDMOs.

Okay. And then can you -- I guess, can you discuss the extent of maybe any incremental traction you've seen recently in China given some of the vaccine updates there in the past month or so? If there's maybe anything you could spike out in terms of customers or point to anything quantitatively, that would be great.

Yes. We've seen some activity out of China over the course of the last, I'd say, two quarters. As you know, our original relationship is with BioNTech. And BioNTech/Fosun collaboration falls under their remits. So that's a little bit indirect for us. We don't directly serve the Fosun customer base. And then there are two other collaborations that we've been involved in that are targeting the China market. But I would say that as has been commented on before, the Chinese government has not approved a foreign mRNA vaccine yet for distribution. And I really don't -- I'm not close enough though what the prospects are for that changing anytime soon.

Okay. And just one last one. The 183 mRNA programs leveraging CleanCap, could you give maybe a bit more precision on maybe the distribution of programs using CleanCap across each stage?

Okay. Thank you, guys so much. Appreciate it.

Thanks. And Patrick, we have time, I believe, for one more question, if you have one.

Certainly. The last question will be from Paul Knight from KeyBanc. Please go ahead.

On the non-Pfizer nucleic acid business, should we assume that to be fairly lumpy because it's likely what linked to clinical trial activity?

Yes. Certainly, it will behave differently than what you see in full production, and that lumpiness is related to when you need the clinical materials or, in some cases, the preclinical tox materials, and it goes campaign by campaign. So yes, that's a fair assumption.

And what should we think about growth in that business -- product line rather?

That's a little bit harder to tell because we have to parse out what is COVID and what's not COVID, if that's a vaccine customer. And they're a little bit -- I don't want to say coy about that, but there's just so much happening right now that it is sometimes hard to get that with any precision. I wouldn't feel comfortable laying a number on you right now. But I think it's something that we have a couple of more quarters under our belt we're going to feel better about projecting that.

Okay. Thanks, Paul, and thanks, everyone, for joining us today. We will be having our Annual Meeting of Shareholders next week on May 12. We're also going to be participating at several financial conferences this quarter, so please check out our events calendar on our website, and we look forward to catching up with you there. Feel free to contact me with any questions, and I hope you all have a great night. Thanks so much.

Thank you. The conference has now ended. Please disconnect your lines at this time and thank you for your participation.