Good afternoon and thank you for standing by. At this time, we would like to welcome everyone to the Q4 2023 Maravai LifeSciences Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Deb Hart, Head of Investor Relations. Please, go ahead.

Good afternoon, everyone. Thanks for joining us for our fourth quarter and year-end 2023 earnings call. Our press release and the slides that accompany today's call are posted on our website and are available at investors.maravai.com. As you can see on our agenda for today on Slide 2, Trey will first provide you with a business update and Kevin will review our financial results and guidance. Drew Burch, President of Nucleic Acid Production, will join the call for the question-and-answer session following our prepared remarks. We remind you that management will make forward-looking statements and refer to GAAP and non-GAAP financial measures during today's call. It is possible that actual results could differ from management's expectations. We refer you to Slide 3 for more detail on forward-looking statements and our use of non-GAAP financial measures. Our just issued press release provides reconciliations to the most directly comparable GAAP measures. Please also refer to Maravai's SEC filings for additional information on the risks and uncertainties that may impact our operating results, performance and financial condition. Now, I'll turn the call over to Trey.

Thank you, Deb and good afternoon, everyone. We appreciate having you join us for our call today. Let's start with our financial results on Slide 5. Today, we reported $289 million in revenue for the full year and adjusted EBITDA of $65 million. Our fourth quarter results of $74 million in revenue were stronger than anticipated due to outperformance in our base Nucleic Acid Production segment, specifically for CleanCap and custom chemistry. Turning to Slide 6. Our Nucleic Acid Production segment had revenue of $59 million in Q4. This includes an estimated $18 million of COVID CleanCap revenue. For the full year, total Nucleic Acid Production revenue was $225 million, with the base NAP revenue at $164 million. COVID CleanCap revenue was $61 million for the year. Our Biologics Safety Testing segment contributed $15 million in Q4 and $64 million for the full year. Our Q4 base non-COVID revenue company-wide was $56 million, up from our Q3 total of $52 million. As we exit the 2023 calendar year and begin 2024, we're entering a new era for Maravai which we are referring to as Maravai 3.0. Let me put some context for that on Slide 7. As many of you know, Maravai was originally founded nearly 10 years ago by Carl Hull and Eric Tardif, along with the support and backing of GTCR. This was Maravai 1.0, a private equity-backed company with a strategy to consolidate differentiated founder-based life science tools companies with industry-leading technologies and very strong brands. From 2016 through 2020, Maravai acquired 5 companies, including TriLink BioTechnologies and Cygnus Technologies in 2016, Glen Research in 2017. Each of these acquisitions serve unique niches in the industry and this rollout strategy was extremely successful. As the pandemic hit in 2020, we entered a new phase. Many of our…

Thanks, Trey and good afternoon, everyone. As Trey mentioned, we are pleased to have finished 2023 ahead of expectations and we are excited to move forward into 2024. I will briefly cover our financial results for the fourth quarter and full year of 2023 and then discuss financial guidance for 2024. Before I get started on our results of core operations, I want to address the 2 large GAAP-based non-operating line items on Slide 17 that likely drew some attention in our press release issued earlier today. As a result of shifting to a GAAP-based pre-tax loss in 2023 and assessing our forward-looking GAAP book income projections, we have recognized a valuation allowance against our deferred tax assets as of year-end. The recent history of our pre-tax loss is considered a significant piece of objective evidence that is difficult to overcome and limit the ability to consider other subjective evidence such as future growth projections. Thus, in consultation with our technical accounting and tax advisers, we believe it is appropriate to establish a full valuation allowance against our deferred tax assets. Given our Up-C structure and the nature of the deferred tax assets, predominantly recognized as a result of our IPO in 2020 and subsequent exchanges in 2021, generally no partial valuation allowance is available. Additionally, as our long-term tax receivable agreement, or TRA and the related liability is tied to the usage of our deferred tax assets created via the Up-C structure. We have also removed that liability from our GAAP-based financial statement. The net impact of these 2 items is a noncash, non-EBITDA, non-operating GAAP tax expense of $764 million to establish a full valuation allowance against our deferred tax assets and a corresponding $669 million noncash, non-EBITDA non-operating GAAP other income gain tied to the relief of…

So to wrap up on Slide 26, we believe we have transitioned during a challenging 2023 to Maravai 3.0 and they're at a new normal. Poised for a solid and more diversified 2024. From new combo vaccines to cell and gene therapies battling cancer, we believe that the transformative impact that mRNA has on global human health will only accelerate. We believe we are playing in the right target markets with strong leadership positions. We are building our product and services portfolio and expanding our strong brands in strategically important high-value areas to support genomic medicine. We are committed to building a strong foundation for long-term, sustainable and profitable growth with a focus on innovation, scaling our commercial organization, leveraging our new manufacturing scale and inorganic growth opportunities. We have this incredible opportunity still ahead of us to participate in the next generation of medicines that are going to better treat and in some cases, literally cure disease. This is what fuels our team every single day. We, at Maravai, are proud of the key role that our customers, partners and employees are playing in making that happen. Then finally, thank you for your attention. To our investors, thank you for your trust and support and we look forward to continued collaboration around fulfilling our mission over the coming years. I would now like to turn the call back over to the operator and open the line for your questions.

[Operator Instructions] Your first question comes from the line of Matt Larew with William Blair.

I wanted to ask just about the guidance. The first would be sort of on the top line. You referenced, I think, $50 million of noncancelable orders. For the whole space, obviously, visibility has been an issue over the past year, 1.5 years. I'm just curious as you thought about constructing the guidance for the year, if there's any difference in the way you thought about approaching your communicated guidance relative to internal expectations or if you're just seeing more end market improvement or just some general thoughts on sort of the guidepost around the guide.

Yes. Sure, Matt. Thanks. This is Kevin. I'll take that. Look, I think we feel good about the guidance range. I think as we sit here today versus where we were, say, a year ago, the overall percentage of our revenue that we see either having been recognized throughout the course of the year, sitting in PO or sitting in some of these contractual commitments like you mentioned, is higher than it was and that puts us in a good spot. It's near 40% of our full year guidance and it was closer to 1/3 probably a year ago. So that gives us some conviction that we do have a good grasp for the full year and that's incorporated in our guidance.

Okay. And then just on the EBITDA guide, I think the midpoint of that sort of margin and revenue mix is around $66 million. You just reported about $20 million in the fourth quarter and recognizing that there are things like incentive comp reset in the first quarter. Just curious if I sort of look at this picture between the annualization of Q4, it was the full [ph] there but if I do that, relative to the midpoint of the guide, maybe just help us understand the other moving parts beyond top line here in 2024.

Yes. Well, I think if you take the 2.75x the midrange of the EBITDA, you get $66 million. And again, that's relatively consistent with where we ended the full year of 2023. We do see certainly a step down in revenue versus where we ended up '23 in the midpoint of our guidance. So that's a big component of it. I'll also tell you that we did put in, obviously, some cost actions. We did benefit, probably about the tune of around $4 million in the fourth quarter of '23 of that $30 million overall target. So the year-over-year benefit there is about $26 million. So about half of that is coming down due to lower revenue at the midpoint and the remainder are some of the things, one, you mentioned the normalization of compensation practices and then certainly, the continued investment in commercial and R&D. As we sit here today, we have about 40% more sales heads than we did at the end of 2022. That's been a concerted focus of us, particularly as we morph into Maravai 3.0 to have that strong sales force. So that's a reinvestment as we move forward. As it relates to the margin cadence, we're going to see some continued variability quarter-by-quarter as we did in 2023. I think if you see the second and third quarter of 2023, our EBITDA margins were in the mid-teens, were down in the low 60s of revenue. And certainly, given our implied guidance for the first quarter based on the first quarter carrying roughly 22% of the full year, that's about a $60 million number for Q1. You expect the EBITDA margin for the first quarter to be relatively consistent with that mid-teens sort of level and then increasing from there. As it has done historically, our key toggle for margin expansion is really the top line and we'll continue to see margin expansion as top line growth moving into that full year estimate of 23% to 25%.

Our next question comes from the line of Justin Bowers with Deutsche Bank.

I was on mute, sorry about that. So I just wanted to take a step back. At a high level, can you just talk about the demand environment and how that's evolved, let's say, over the last 3 to 6 months. It looks like you're sort of calling for an inflection and a bit of a return to growth when we strip out some of the COVID CleanCap. So just wanted to get a sense of sort of the drivers behind that as a starting point.

Yes. Thanks. This is Trey. We are seeing, I'd say, first and foremost, a willingness to make binding commitments again which is something that is obviously a welcome change. As you identified and as we discussed in the material, we're coming off of a period, well, the pandemic period really was intensely weighted toward heavy customers with large orders were coming into a very nice diversification, growing the number of customers significantly and so on, seeing demand. But of course, these are smaller POs and smaller checks. Ultimately, it will lead to a much more diversified and, I would say, stable and predictable business. But the -- in this transition, we are, I would say, for demand, seeing more customers come in. We are -- they're unfortunately not massive customers of the pandemic era. But we've also seen, again, this recommitment to binding forecasts. And maybe I'll hand it to Drew for a little more color.

Yes. Thanks, Trey. I think Trey described it well. We've annualized some of the pandemic era commitments. So we'll move past that. We have seen a greater diversity of customers. And I think the chart that Trey showed on the number of clinical trials using CleanCap speaks to some of those dynamics as you see those numbers continuing to go up at a pretty significant rate. So we'll replace some of those larger commitments with the broader diversity of customers. And I think that augurs well for the future.

And then just maybe just a quick follow-up. What sort of the shelf life where the process to validate the efficacy on CleanCap? There's been a question that we get a lot and there's been, I guess, a wide range of estimates out there. So we'd just like to get your perspective on that.

Yes, sure. It's Drew. I'll take that. The -- it's a customer-driven decision how they will choose to use their inventory. And we support customers with retest dates and also with retesting services. We're pleased that CleanCap has held up well from a stability standpoint and our customers work to make decisions about how they want to manage their own inventories.

Our next question comes from the line of Catherine Schulte from Baird.

In your prepared remarks, you mentioned that a larger portion of programs entering Phase I last year, used CleanCap versus that's set [ph] a few years ago. I guess, what was that number in terms of the portion of programs entering Phase I last year that utilize CleanCap just to try to get a sense for our market share?

Catherine, we're looking at that stat...

We've got a table with all of them. So you're asking the number of Phase I programs at the end of last year versus this year?

Yes.

Total in Phase I at the end of '22 was 69, in total of Phase 1 at the end of '23 was 86.

Okay. I was more referencing you mentioned that a larger CleanCap was used more frequently in programs entering Phase I, if you have like what percent of the Phase I utilized CleanCap? But if you don't have that, that's okay.

Yes. Yes. It's about 40%.

Okay, great. That's very helpful. And then maybe for the first quarter guide implies a decent sequential step down in revenue. How should we think about the outlook for Biologic Safety Testing versus Nucleic Acid Production in that first quarter number?

Yes. So most of that anticipated decline versus the fourth quarter sequentially, Catherine, is going to be in the NAP segment. Again, a lot of that is tied to the high-volume GMP CleanCap. We actually see Biologic Safety Testing stepping up in the first quarter as it has done a lot historically having strong first quarter performance. So I think you see a step-up in BST over Q4 and then offset by NAP coming down, again, predominantly due to the high-volume GMP CleanCap pattern that we're seeing for 2024.

Our next question comes from the line of Michael Ryskin with Bank of America.

Got a couple of quick questions here. I appreciate the Q&A. One was on the $50 million in contractual in 2024. I know you also just said you really don't want to talk about it but still I just want to make sure we're thinking about it correctly. You had about $60 million or $65 million, I believe, that was -- $60 million to $65 million that was contractual in 2023. You got $50 million in 2024. Anything you can say in terms of when that ends? I just want to make sure we're modeling it correctly when that rolls off, just because that could be a pretty meaningful headwind in 2025 if that all comes to an end. And I've got a follow-up.

Yes. Well, I think as you know, with under most of our license and supply agreements, we work with our customers for kind of rolling annual -- rolling 12-month forward-looking forecasts, right? So certainly, as we sit here today, we're very comfortable with our guidance and what we're speaking of related to those commitments. And as we go through the year, we'll be working with our customers as that rolls forward into 2025 and certainly better after, I mean that's sort of the mechanisms on how that works. But right now, we're sticking sort of that clear view that we have right now today.

Beautiful. And then...

Sorry, I had to say the last year number that we -- what we were publicly sharing was the carve-out for COVID-specific large committed programs and that number was 61 as we had forecast before.

Okay. Yes. And then my follow-up question, I was going to ask on this FUJIFILM partnership. We've gotten a bunch of questions over that in the last couple of weeks. Any additional comments you can make beyond what you had in the prepared remarks? And any way to possibly size that because that seems like it could be pretty meaningful sort of how much of that is assumed in 2024?

Yes, the key -- that will depend on FUJI's customer signings as a CDMO; so that's sort of a 2 degrees of separation for us. It would be difficult to forecast but really key partnership in country in Japan and notable because it includes the entire portfolio of CleanCap. But we have several CDMOs that have been enabled giving, hopefully, as customers -- they have the opportunity to work with us, particularly in later phases as Flanders 2 opens later this year. But if they need more scale or they need a geographic choice, that's the reason for the -- in multiple jurisdictions like that. And this is -- as you say, this could be very meaningful but it does depend on the programs that they are able to book in Japan.

Our next question comes from the line of Conor McNamara with RBC Capital Markets.

Congrats on a solid quarter. Just if you do look at Q4 results, you came in about $5 million ahead of what you were expecting, if my math is correct. And just was there anything in there as far as bulk purchases or anything pulled forward from 2024 that's worth calling out? Or is that just execution?

Yes, I would say, thanks, Conor. I would say, one, nothing pulled forward. I think it was a pretty normal quarter for us in that regard. We did have what we kind of call some drop in orders, meaning things that weren't really in our funnel that our customers came and that really provided the upside to what we are thinking for the quarter. And that happens occasionally, again, as our -- and most mostly for CleanCap certainly as -- maybe enter a new phase or start a new program. They're going to order in bulk and there was a larger order that came in, again, not in our funnel that we see and that happens periodically and it leads to some of that quarterly volatility. But it was just a strong quarter versus our internal estimates and we're happy about that.

And it's true. I would add on, I think the efforts that have been undertaken in the past few quarters on our commercial execution for fruit. So we saw some good traction with the commercial team and really just getting that CleanCap opportunity and other offerings in front of the customer base in a more forward-leaning way.

I think we talked last year about how there was some reticence for these committed orders, the take-or-pay type arrangements which may also largely dissipate with the pandemic but this is sort of an upside positive consequence of people not necessarily committing to take or pay but still needing the material. And that's the reason, as Kevin said, that it was not in funnel but we are able to take it and execute within the quarter.

Got it. Great. And then as it relates to guidance, looking at what you said about the first half versus second half on revenue, that implies the second half, we'll do roughly $70 million to $75 million a quarter in the second half. Should we expect that EBITDA margins would be roughly in line in the second half of 2024 to what you guys did this year? Or is there any headwinds or tailwinds that would make that much different? And then just as a follow-on, I mean, is that a good place to start for as we think of beyond 2024?

Yes, I think you got exactly right, Conor. Obviously, as we move up into the type of revenue performance that we saw in the fourth quarter of '23. We had a strong EBITDA margin exiting the year, 28%. And I think as we're in and around that revenue level, that's certainly what you can expect and that will pull up the slightly lower margin than we see here in the first half and average out to our guidance for the year.

Our next question comes from the line of Matt Sykes with Goldman Sachs.

This is Koslosky [ph] on for Matt. The first one, how are customer conversations trending in terms of bioprocessing recovery within the different modalities that you called out on the slide? So basically, is there one modality where you're seeing more positive commentary relative to the others?

Well, yes, that's an interesting question. The distribution of -- that you would be getting into the cell platforms that people are using for production. And I would say we are returning back to normal for BST, where there was some distortion, for example, in, I mean, this gets into the technical weeds but in CHO versus E. coli and so on, where we had some platform slow down, they have recovered, I would say, back to the normal proportion of sales but there are multiple modalities that can be expressed in the different cell lines. And so that's really a couple of clicks further than we get, in particular, since many of the Cygnus customers are also CDMOs or distributors. So there's -- we -- unfortunately, we don't have that level of visibility into which specific program they're in or the -- how many kits they're using for a certain cell line for a certain expression of a map or things like that, if that's what you're asking.

Yes. I think more in terms of like cell therapy versus mRNA vaccines in those types of modalities and how customer comment -- like comments are trending within each of those modalities.

Yes, it's Drew. Maybe I'll jump in on that. I think the -- I can't say we've seen a marked difference between cell therapy and mRNA. I think we've got engaged customer dialogues on both fronts, the data, you saw the data in terms of growth of clinical trials. There's kind of 1,000 -- near 1,000 clinical trials underway, clinical and preclinical trials underway for mRNA, smaller number for gene editing but both those numbers have grown quite a bit over the past year and both are forecasted to grow by 30% or more over the upcoming few years. In our dialogues, I would say, are consistent with that. We're excited about the customer traction. We're excited to have a customer signed out to initiate production with us in Flanders 2. So overall, I would say it's kind of a balanced optimism across the portfolio.

Okay, great. That's super helpful. And then with your 2028 revenue target of $700 million and taking into consideration the new 2024 guide, how confident are you in the step-up of growth necessary in the 2025 through 2028 in order to reach this target?

Yes, sure. I think that if you just look at the math there, I think you're looking at a CAGR that would be -- certainly, we're building this business out, making investments with those targets in mind and that's why we continue to be focused on things like Flanders 2 expansion of commercial, R&D, innovation, etcetera. And I think that is not a growth target that we're unfamiliar with. If you look back to our core business growth from '18 to '22, we grew at 23%. So and I think as we sit here today, as we look forward under Maravai 3.0 versus those previous years. You have a lot more programs, a lot more dollars flowing into the space, a lot more excitement in and around it and we have a lot more, as Trey alluded to, capabilities, products and opportunities and customers involved. So I think it's something that we continue to be focused on, certainly, as we build out our footprint strategically. But that having been said, our goal right now is really focused on delivering what we just put out there for 2024 and starting to get the business returning to growth.

And for our last question, this comes from the line of Paul Knight with KeyBanc.

Yes, thanks for the time. As we look at various biotechnology firms, are they dedicated to one capping technology? Or are they agnostic? And do they really look at alternatives?

Yes. I think when anyone. That's insightful question, by the way. When anyone is starting a new program or ideally in discovery, they should be looking for the best technology at that time. So the -- I think to that extent, you're, as a given customer, may be agnostic at a moment in time. They certainly have their favorites and then it depends on whether they are producing themselves or have a partner. If we are the partner, as I mentioned in my comments, we have a standard workflow that really efficiently incorporates the co-transcriptional caps. Sorry. We're sorry about that. Planes going overhead. And that also is quite efficient and quick. But I would say, though, we have people who are dedicated CleanCap customers, partly the reason that we're so excited to continue innovating and adding new options to the menu is that we think at a given stage of their clinical development, they should always try to incorporate all of the best technologies with M6 being the most recent example.

What's the last stage can they -- are they limited -- they really have to commit what, Phase I, I'm guessing they committed Phase II, right?

I think that's usually the case that people are going to commit as they go into clinical trials, maybe switch a little bit later. We see the greatest degree of switching as products and programs are entering the clinic. The -- but I think to Trey's point, we continue to work hard to bring new options that are going to help customers optimize their programs. And so we're excited that CleanCap AG, CleanCap 3' OMe methyl [ph] and CleanCap SA are all in -- CleanCap AU are all in products that have been approved at this point. M6 is moving along nicely and we have quite a bit of interest there to move that into GMP production. And so there's not one size fits all. We continue to try to bring innovation to customers to help their programs achieve as much as they can possibly achieve.

Thank you.

Great. Well, with that, we would just like to thank everyone for joining us today. We'll be at several conferences over the coming months. So I hope to catch up with some of you in person there. And feel free to contact us with any follow-up questions. Hope you have a great night.

This concludes today's conference call. You may now disconnect.