Good day, ladies and gentlemen, and welcome to the First Quarter 2024 Maravai LifeSciences Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions] I would like to now turn the call over to Debbie Hart, Head of Investor Relations. You may begin.

Good afternoon, everyone. Thanks for joining us on our first quarter 2024 earnings call. Our press release and the slides that accompany today's call are posted on our website and 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; and Becky Buzzeo, our Chief Commercial Officer, will join the call for the question-and-answer session following the prepared remarks. During today's call, management will make forward-looking statements and refer to GAAP and non-GAAP financial measures. 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 conditions. 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 me briefly recap the quarter, highlight some innovative new products we are introducing and provide a few business updates before turning the call over to Kevin. Let's start with our first quarter results on Slide 5. Today, we reported $64 million in revenue for Q1, $8 million in total adjusted EBITDA and a loss of $0.02 in adjusted fully diluted EPS for the quarter. Q1 revenue results exceeded the range of expectations that we shared with you during our fourth quarter conference call. Our Nucleic Acid Production segment had revenue of $46 million in Q1. The Biologics Safety Testing revenue was $18 million in the first quarter, and this was our first quarter of growth for BST since Q1 of 2023. Kevin will go into more detail on these results later in the call. Slide 6 shows that our adjusted free cash flow in the quarter was $4 million. Cash on hand at the end of the quarter was $562 million, down $13 million from year-end as we continue to progress with the build-out and equipment installation for our 2 new Flanders GMP facilities. Debt is $532 million gross. Thus, we maintain a $30 million net cash position. This puts us in a great position to fund our long-term growth strategy through organic investments while simultaneously pursuing external partnerships and/or M&A. We continue to see multiple potential strategic opportunities in our space where we will endeavor to responsibly deploy our capital. As we sit here today, we remain focused on our return to growth strategy. To enable long-term sustainable growth for our business, we expect to continue to expand our product portfolio, advance our market leadership in the mRNA space and accelerate…

Thanks for the handoff, Trey. Echoing Trey's remarks, we are pleased with the top line performance in the quarter and excited about the business accomplishments that are laying a solid foundation for our future. Today, I will summarize our financial results for Q1 and then discuss our reaffirmed financial expectations for the full year. Let's start with the Q1 financial results on Slide 13. As Trey mentioned, our revenue for the quarter was $64 million. Our GAAP net loss before noncontrolling interests was $23 million for the first quarter of 2024. This compares to a net loss of $1 million for the comparable first quarter of 2023. Adjusted EBITDA, a non-GAAP measure, was $8 million for Q1 2024 compared to $24 million for Q1 2023. Our adjusted EBITDA margin was 12% in Q1 2024. This adjusted EBITDA margin was slightly lower internal forecast for the quarter by about $1 million, partially tied to the timing of some operational readiness period costs for our new Flanders facility, which we are incredibly excited about. For the trailing 12 months or last 4 quarters combined, our adjusted EBITDA margin was 18% on revenues of $274 million. Overall, our adjusted EBITDA margin in any given quarter will vary primarily based on revenues, given the high proportion of labor and facility-related costs and the relatively low revenue-based variable costs. As it relates to labor and our previously discussed cost reduction actions, you'll see on Slide 14 we ended the quarter with 575 full-time employees compared to 673 employees we had at the end of September 2023 prior to our restructuring initiatives. And we completed all of the related actions over the course of Q4 2023 and Q1 2024. As we look forward, we continue to evolve our organization with an eye to the future. This…

Thanks, Kevin. So to wrap up on Slide 20, we had a solid start to the year and are tracking against the revenue guidance range that we've communicated to you in March. We are executing on our return to growth strategy and year-to-date have introduced significant new innovations to the market that further extend our leadership across the entire mRNA production workflow as well as increasing our manufacturing capacity at our TriLink Flanders 1 and Flanders 2 facilities in these high-value areas. We have also strengthened our commercial team and continue to bolster our market leadership in the mRNA space through key industry and academic partnerships. Our TriLink, Glen Research, Alphazyme and Cygnus brands all continue to lead their fields while pushing the boundaries of innovation to offer unique and even better solutions to solve customer problems and advance discoveries. Our balance sheet remains strong, and we are well positioned to execute on opportunities for inorganic investments to bolster our market position and provide our customers with additional solutions. We remain confident in the fundamental strength of our end markets and the value we provide our customers for the life-changing development of drug therapies, diagnostics and novel vaccines. We remain committed to building a strong foundation for the long-term sustainable growth of our businesses. I would now like to turn the call back over to the operator to open the line for your questions. Thank you.

[Operator Instructions] Your first question comes from the line of Matt Hewitt with Craig-Hallum.

Congratulations on the strong start to the year. Maybe first up, congratulations on the Lonza contract. How should we be thinking about the ramp of that relationship? Is it something that will kind of build over time? Or is there an initial kind of an order flow that you would expect and then kind of stabling from there? Just help us walk through that relationship a little bit.

Sure. Thanks for the question. The arrangement with Lonza is similar to others we've announced where we just want to make sure that we open all avenues for customers' development programs to CleanCap and our other technologies. As you might guess, it's not an instant moment where things start up. It's an enablement that will take time to build, particularly you see in GMP services and particularly at the high level Lonza operates that these are contracts that are negotiated several quarters ahead of time typically. So we would expect a ramp in the consumption. But again, the idea is to make sure that there are many avenues toward incorporating our technologies, whether we are producing or others are.

That's great. And then maybe a separate follow-up question. I've been getting a lot of questions from investors asking about the Biosecure Act and impact that, that may or may not have on respective businesses. And I'm just curious as it sounds like there's a markup meeting next week with the House. How would that impact your business if, in fact, that becomes law?

Well, there's definitely a lot of conversation about this. And like you say, it's not law yet. As we've looked at things, we have a significant proportion of our business in the U.S. and Europe. And from the perspective of CDMO services, if something like that were to go into effect, we think it would essentially lead to a new equilibrium across geographies. And as we are a majority U.S. and Europe, we would be able to participate in that.

Your next question comes from the line of Tejas Savant with Morgan Stanley.

I just want to follow up on that Lonza question from earlier, Trey. Can you just give us some color on how the deal came about? Was this an unsolicited inbound? Did Lonza consider alternatives as they chose Maravai? And has this contract win sparked further discussions with either pharma customers or other CDMOs? And does it come with any minimum volume commitments at all?

Great questions, Tejas. Let me hand that over to Becky, who is actually directly involved in those discussions. Becky, are you with us?

Yes. So look, I think this is really a broader strategy that we have. We see CDMOs as a very good channel for our GMP biomanufacturing materials. And to enable the adoption of CleanCap, we realized that there are customers that have many choices and there are many choices to [Audio Gap] and certainly, capacity, expertise and desire and different partnership structures that [Audio Gap] have with different CDMOs are all part of the driver of selection. So what we're looking to do is build enablement structures to partner with Tier 1 CDMOs that have a desire to partner with us. And yes, we have a contract with them. And so there's typically a mutual agreement around wanting to bring CleanCap in as a platform technology and then have a glide path for customers to have the ease of use with that CDMO and really streamline activities between the 2 companies and make it easier.

Got it. That's super helpful color. And then, Trey, one for you on the opening of the San Diego facility here. Is there a backlog of work that's already in place there or building up the book of business is still ahead of you? Just help us think through sort of the capacity utilization ramp at the site. And what's the max sort of potential revenue that we can expect to see there over time?

Sure. There is definitely a buildup to be had because -- in no small part because we did not have the late-phase clinical capabilities from an infrastructure point of view until the opening of the facility. But I will hand it to Drew, who has been living this life and give you some more color there.

Sure. We do have -- we have taken our first committed orders for that facility. It is -- as you would expect, it's a funnel we expect to continue to grow over time. But we have already contracted late-phase mRNA builds for the facility.

Your next question comes from the line of Dan Leonard with UBS.

So I know it's gotten harder to unscramble the egg between what's COVID and what's non-COVID nowadays. But as best you can tell, did the base business, the non-COVID business with the Nucleic Acid Production, did that grow sequentially versus the fourth quarter?

Versus the fourth quarter?

Yes.

Well, and you're saying base non-COVID Q1 -- Q4, Q1 sequential?

Yes, best efforts because I know it's hard to unscramble that.

It is.

I mean, Dan, I mean, obviously, we're not breaking that out now, so I can't directly answer the question. What I would say to that, generally speaking, certainly, the Nucleic Acid Production business obviously was down versus the fourth quarter sequentially as expected. And one component of that were these GMP orders for CleanCap, which we had scheduled coming into this year. And that took a step down from the run rate we had been seeing throughout the course of 2023. And that was the largest contributor to that sequential decline. I think that's the best way for me to answer that question.

Got it. No, I appreciate that. And my follow-up, I could use a bit of help on the gross margin line. I know you said that margins came in near your plan, but I think perhaps our model wasn't dialed in appropriately. And cost of goods were higher than we expected, and they were up year-over-year despite lesser revenue. So how can we think about -- better think about the gross margin progression from here?

Yes, certainly, Dan. Certainly, gross margin as well as our EBITDA margin will fluctuate predominantly based on revenues. And when you really take that down to the next layer, it's within the Nucleic Acid Production segment and even a layer lower tied to our manufacturing facilities here in San Diego, where we have the most substantial amount of fixed costs and overall labor. I think another component of that, that we saw here in the first quarter, which was relatively as anticipated, was just the mix. I mean we did have a lower overall CleanCap quarter versus some of the previous quarters we had seen. And that's certainly a higher-margin product, particularly when we're doing it at higher volumes and in sort of bulk to some of our larger pharma customers for their needs. So you'll see that margin ebb and flow a little bit with the overall volume of CleanCap. When you look back at, say, the fourth quarter of '23 or the first quarter of '23, we had those larger CleanCap quarters, you see those gross margins higher. And then I think as we go into the second quarter, we do see a substantial [Audio Gap] and CleanCap based upon those contracted shipments that we have visibility to today. So lower revenue margin predominantly. And then I mentioned a little bit start-up costs related to Flanders. We do have some period costs to go through and revalidating new equipment and putting in disposable things, kits and gloves and chemicals and other things you'd need. So that was another part of it. So you'll see the margin bounce around a little bit, and that really flows down overall to the EBITDA margin as well. But as we look forward, particularly here in the second quarter, we see that bouncing back and likely to be very consistent with some of what we saw in the fourth quarter of '23.

Your next question comes from the line of Catherine Schulte with Baird.

This is Tom Peterson on for Catherine. Just to start, I guess, we've heard from peers that there's perhaps a slower-than-normal budget release from pharma this year. I guess did you see any of these dynamics in the quarter, particularly just any atypical phasing that you saw in the first quarter?

Sure. The -- with our 2 different segments, there are different dynamics. Typically, in BST, we see our high point in Q1. And that has to do, I think, mostly with calendar budget, pharma program planning and really consequentially CDMO program planning. In NAP, we did see a little bit of that. I'll hand that over to Drew specifically.

Yes. I would say we saw a couple of different dynamics. It's a little tough to disentangle. I think we're seeing some rationalization, both among big pharma and small pharma. That said, we also saw some situations where people are continuing to push pipelines ahead. And we saw a stronger funding environment in the public and the venture capital markets. So a little bit cross currents. I don't think in our business, we see any discernible trends from that. We assume it's probably going to take a bit of time before that -- those funding dynamics, the strengthening in funding shows up in orders. But I guess that's how I would characterize the environment.

Okay. That's helpful. And then maybe just one for Kevin on some of the cost actions and restructuring. How rightsized do you feel that the incorporating cost structure is today, given some of the comments around some of the commercial focus on today's call. Should we be thinking about any kind of incremental actions in '24 in either direction? And should we still be thinking about kind of $26 million of net benefit from the cost action here in '24?

Yes. I think absolutely. I think that the cost actions about -- which we're targeting about $30 million with about 2/3 of those tied to labor. Those have all happened. So with that flex in the headcount and some of the metrics that I spoke of. And we will continue to, as we spoke of, make targeted investments in commercial. So we'll continue to see, I think, that line in our R&D line, particularly continue to see incremental investments throughout the course of the year. And again, I think the right way to sort of look at this as we tried to frame in last call is if you have 200 units of cost, we weren't necessarily going from 200 units to -- down to 170 units. It was more like as opposed to going from 200 units to where it would naturally have been something at 240 or closer to 210. We sort of took some of that out of our run rate, but we also want to make sure we were still investing in R&D for innovation's sake. And we talked a lot about that progress in commercial. We talked a lot about that progress as well as in Alphazyme and in Cygnus, which continue to show good momentum and good growth. So our focus was really in taking those costs specifically out of G&A and specifically about rightsizing the operations at TriLink here in the San Diego facility and then kind of also converting some of that labor and making them punch -- move over and take care of some of the increasing demand we'll be seeing that will be driven by Flanders 2. So again, it was a very focused effort. We're very happy with how we've executed that, and we're on track to realize all those savings that we articulated.

Your next question comes from the line of Matthew Sykes with Goldman Sachs.

This is Evie on for Matt. Could you walk through the current GMP to RUO split and how you see that trending throughout this year with the new facilities coming online?

Yes, I can take that. And it's not something necessarily broken out. But I would say that when we look down through our business, particularly Nucleic Acid Production, we see -- we look at it in different ways. We obviously have our business units that we look at. Those represent both our Alphazyme business, which continues to grow and perform well. Our Glen Research business unit, which is part of the structure but tied more predominantly to diagnostic sequencing and some of those applications, which continues to perform extremely well. And then we have within what we brand as our TriLink products, really the bifurcation between discovery and that kind of RUO business, if you will, on the research side. And then we have GMP. And certainly, throughout the course of the year, I would say the discovery has been fairly steady and that it will ebb and flow a little bit. But it won't have sort of some of the volatility that we see in GMP, meaning you have ongoing purchases, lower ticket items, more recurring purchases and a longer tail of customers there. So that's a unique dynamic and why we're managing it slightly differently. But with GMP, that's where we will see sort of the spikiness in our business as we have large bulk orders for CleanCap or as we do those GMP mRNA jobs. And certainly, those are the areas as we go throughout the course of the year with the Flanders capabilities and moving into next year, we see the opportunity to grow the business. So I would say we're focused on discovery, a little less dynamic historically. And then GMP's the one that could be a lot more dynamic. And right now, when we look at the quarter, the 2 within TriLink, we're relatively evenly split this quarter. I think that dynamic will change next quarter even as we grow because we're aware of some of the GMP jobs and commitments that we have there as well as the uplift in the GMP CleanCap orders that we already have booked for the second quarter.

I think that's well said. We expect the discovery business to be much broader, diversified and like Kevin said, lower ticket item, which means probably less lumpy, which is a term you're hearing thrown around a lot this season. GMP will, of course, be more of the late-phase pharma lumpiness. So we tend not to look at the business that way necessarily. As Kevin said, we have -- we operate TriLink Discovery and TriLink GMP differently. But because GMP is so subject to those large order swings, the proportion can ebb and flow quite a bit. It's something that has to be tracked over probably longer periods.

Okay. Definitely, that makes sense. And then second, on the EBITDA margin, could you talk about what an exit rate might look like compared to last year? I know there's a lot of puts and takes with less COVID volume but also taking into consideration some of the cost savings. So I guess just thinking about like cadence, especially as we get into like Q4 and then into 2025?

Yes, sure. Certainly, with the revenue being at a low mark here in the first quarter versus what we've seen, and that translates into the lower EBITDA margin that we've seen and the lowest we've seen looking back certainly at the last 5 quarters. And we certainly see that growing. I think if you just look -- I'll just refer to the midpoints of our guidance for simplicity. That will see us printing revenue numbers on average of around $71 million for the next few quarters and EBITDA probably around average $19 million or so to get to the middle of that range. That would be 27-ish percent on average EBITDA margins for the next 3 quarters. There'll be some ebb and flow there, certainly, again, tied to some of these spikes and quarterly sequential moves on CleanCap and some of our higher-margin products. But I think you'll see, again, those sort of on average numbers and kind of moving again with revenue. Again, as we see it right now, you see we're saying that the second quarter here will likely be up in that, in the low 70s. That will probably carry a much higher margin, and then we'll kind of revisit the rest of the year as we get into it. But I think as we're looking at the business right now getting back into the type of margins we saw exiting Q4, certainly up in the 25 to 30 range is what we're looking to do. And certainly, that will be tied to the revenue profile of the business, particularly with the NAP segment.

Your next question comes from the line of Matt Larew with William Blair.

First question, Trey, you talked about a litany of new product and service offerings, which sort of has been the theme over the last year. But obviously, the top line impact maybe hasn't been apparent just because of the broader headwinds your business is facing. Could you maybe help us point to one or multiple of those products you see as the -- or service offerings you see as the most potentially needle moving in terms of helping to inflect the top line, be it from traction you're seeing with customers, most promising funnel building, maybe where you have the most apparent right to win just because there's so much sort of new that's going on maybe just help us focus in what you see as most meaningful.

Yes, absolutely. That's a good way to look at it actually, and it sort of dovetails into the previous question about the business dynamics that are different between the discovery business, which is where those mRNA catalog products we announced here. They sit in discovery/RUO versus, of course, GMP services, where we do contract mRNA production for people but also where GMP CleanCap and other process input sit. I would say probably the most needle moving and most exciting over the past year, we are, I guess, about to hit the 1 year anniversary of the launch of CleanCap M6, which was an RUO product. I would say that, that product exceeded our initial expectations pretty significantly. And as we just announced taking that to GMP where we've already run an engineering batch, we're going to hit GMP M6 within a year of the launch of the RUO product, and that's pretty exceptional. And of course, the historical participation of this company in pandemic vaccines and other things comes from the GMP reagents space. So those are definitely needle movers. So I would say that probably the most exciting and needle moving of the NPIs is a great example because it was an RUO from almost exactly a year ago and now will be a GMP going forward shortly here.

Okay. And then one for Kevin, just sort of on the cadence of G&A. You had referenced on the last call G&A being down about 5% for the full year, and we certainly modeled it down sequentially. You may have referenced some one-timers, but I think just to start hitting that upper 20s EBITDA margin range, particularly the gross margins you outlined, there would seem to be -- that require like a significant step down sequentially in G&A in the second quarter and then beyond that. Is that still right? And just maybe remind us again on the moving pieces from Q4 to Q1 and Q1 to Q2.

Yes. I think that one of the things you have to obviously carve out of there are the non-EBITDA impacting items. That's certainly part of that view. So when you look at that, you have the, I guess, I would say, the stock, which is going up fairly materially this year versus last year's [Audio Gap] with what we're seeing in the G&A line as far as the trends there. And so I think that, that's -- when you peel back that, we are seeing that decline and that added to contribution to the overall EBITDA margins. When I look at our adjusted just G&A expense for the first quarter here versus where we were a year ago, that is down -- gosh, let me just look at this real quickly before move on. It's down just under 20% year-over-year on the expenses to hit the EBITDA line. So I think we're very happy with the progress we're making there and have made and see that as a steady run rate to achieve that full year savings.

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

This is [ Bob Chen ] on for Mike. So I wanted to take back up on the kind of biotech funding line of questioning. Understandably, an uptick in biotech funding isn't going to immediately become revenues for Maravai, but I'm interested in your thinking around are you seeing this reflected in your conversations? Or how should we kind of think about the lag between an improvement in the end market and then that translating into your order book and eventually revenues?

Yes. I think we touched the idea that the -- let's call it, the thawing of that environment will be beneficial going forward, definitely not an immediate thing. But maybe, Drew, if you have some color or anonymized examples.

Yes, sure. Look, I think every customer has their own journey and kind of translating through their new funding where they have achieved such into new clinical plans, putting those to work, purchasing raw material inputs or purchasing mRNA. It's going to be a variety of time. I think, look, we landed where we expected to land for Q1 or maybe a little bit stronger. We haven't seen any kind of dramatic change as a result of the funding in aggregate, but every customer journey is maybe a little bit exposed.

Got it. Appreciate the color there. And then kind of pivoting a bit. I noticed through the presentation you mentioned your openness to M&A a couple of times. Wondering if there are any areas of the portfolio that you see as particularly suited to inorganic additions. Then are you -- what are you seeing in terms of seller expectations in terms of -- regarding valuation now that the broader sector has started to catch a bit?

Very insightful question. We have definitely been active. And one of the tricks with all of this is that we can't really talk about it until it's official. But one of the things I would say is we have seen a tremendous number of things that are strategically aligned. And obviously, that's what we look for first. The challenge to date has been finding strategically aligned opportunities that are also financially aligned. At the -- our specialty at Maravai has been a scientific founder-driven category-leading companies. We think that's a very good niche that we fill, and there's certainly plenty of opportunities to do that. But your comment is correct about expectations. This has been such a dynamic environment with the pandemic, with the pandemic falloff, with interest rates, with funding. It has been head-spinning, to be sure. The challenge, I would say, for us has not been a challenge of finding strategically aligned opportunities more so financially aligned. But we continue to look for that right fit, and we're definitely still very active in that area.

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

This is [ David Carter ] on for Conor. I just wanted to touch on what the step-up in volume and revenue is for customers as they move up in clinical trials?

Okay.

For your Flanders 2 as it come up.

Okay. Yes. I mean this comes back a little bit to the prior theme where in RUO, you have PO sizes in the 5 to 6 figures, sometimes in the 7 figures. In GMP, you typically start in the 6 figures and go into the 7 or even 8 figures, but it's completely program dependent. When you sell a GMP reagent, for example, it's simply a function of scale. But when you do a contract mRNA service under GMP, each and every program is unique, bespoke. And it completely depends on yield, purity, analytical services, all sort of the litany of things. They're all custom quoted. So there's not -- unfortunately, if I understand your question correctly, there's not necessarily a standard expectation there. Those are big line items, and they're big projects, but they're all very different.

Could you also provide some color on the impact of the Thermo CleanCap partnership that you announced in relation to the [ M ] message?

What was the last part of that, sorry? Thermo partnership.

The Thermo including your [ MCAP ] in there in vitro [ transcription ] kits?

Yes. Okay. So that's another example, I would say, of our wanting to make sure that we are seeding the market with our technology, whether the discovery market or the GMP market. So we -- that's another public license where Thermo is licensed to incorporate chemistries in their in vitro transcription kits. This is one of the many ways that developers will get mRNA in their own hands. In that case, they might have to template themselves and run the IVT process on the bench. That's an RUO-only application. But that's, I think, just another of the broad examples of our trying to make sure that we have broad accessibility for all of our technical solutions in the market.

That concludes our Q&A session. I will now turn the conference over to Debbie Hart.

Great. Well, thank you, everyone, for joining us today. We'll be attending several conferences in the coming months. So I encourage you to look at our Events section of our website. And hopefully, we can catch up with you in person at one of those events. Feel free to connect with us with any further questions, and we hope you have a great evening. Good night.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.