Maravai LifeSciences Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Maravai supplies life-sciences products and services through Nucleic Acid Production, Biologics Safety Testing, and Protein Detection. Amounts below are in U.S. dollars; financial statement figures are unaudited.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $217.8 million | $46.9 million | $366.0 million | $97.9 million |
| Gross profit / gross margin | $180.3 million / 82.8% | $25.7 million / 54.8% | $298.1 million / 81.5% | $61.4 million / 62.7% |
| Operating income / margin | $154.2 million / 70.8% | $8.1 million / 17.3% | $246.7 million / 67.4% | $42.9 million / 43.9% |
| Net income | $134.3 million | $1.4 million | $210.2 million | $25.3 million |
| Net income attributable to Maravai / diluted EPS | $49.1 million / $0.44 | $1.4 million / $0.00 | $72.3 million / $0.69 | $24.8 million / $0.09 |
| Adjusted EBITDA (non-GAAP) | $164.7 million | $17.5 million | $266.7 million | $47.1 million |
| Cash from operating activities | Not presented separately for the quarter | Not presented separately for the quarter | $204.5 million | $21.3 million |
Q2 revenue rose 364.3% year over year; first-half revenue rose 273.9%. Nucleic Acid Production drove the increase, generating $192.5 million in Q2 and $316.5 million in the first half. Q2 revenue by segment was $18.2 million in Biologics Safety Testing and $7.0 million in Protein Detection. Management attributed growth chiefly to CleanCap product demand and increased demand for mRNA products, including demand associated with COVID-19 vaccine production. Gross margin improved substantially, which management attributed primarily to favorable product mix.
First-half operating cash flow was $204.5 million. Investing activities used $7.2 million, including $7.8 million of capital expenditures; financing activities used $58.6 million, principally reflecting $56.2 million of tax-liability distributions to non-controlling owners and $3.0 million of debt repayments. Adjusted Free Cash Flow, a non-GAAP measure defined by the company as Adjusted EBITDA less capital expenditures, was $159.2 million for Q2 and $257.5 million for the first half.
Balance sheet and liquidity
At June 30, 2021, cash was $374.7 million, total assets were $1.60 billion, and total stockholders’ equity was $333.1 million. Long-term debt had $547.0 million principal outstanding ($532.6 million net of unamortized issuance costs), including $6.0 million current and $526.6 million long-term. The term loan’s stated interest rate was 4.75%; the revolving credit facility had no borrowings. Approximate net debt, calculated as principal debt less cash, was $172.3 million. The company reported compliance with its credit covenants.
The Tax Receivable Agreement (TRA) liability was $521.4 million at June 30, including $1.3 million classified as current. The TRA requires payments to former owners equal to 85% of specified realized or deemed tax benefits; management expects payments to be substantial and to reduce cash otherwise available. Cash increased from $236.2 million at year-end 2020. Working-capital items included accounts receivable of $83.5 million, inventory of $47.8 million, and deferred revenue of $109.5 million.
Material changes, outlook, and risks
- Q2 revenue growth was concentrated: Nucleic Acid Production represented 88.4% of revenue. BioNTech accounted for 44.8% and Pfizer for 18.1% of Q2 revenue; together they represented 62.9%. The filing identifies customer concentration as a risk.
- Q2 net income attributable to Maravai was $49.1 million, while consolidated net income was $134.3 million; $85.3 million was attributable to non-controlling interests. The company held approximately 44% of Topco LLC at quarter-end, with the remaining approximately 56% held by MLSH 1.
- On August 5, 2021, after quarter-end, the company signed a definitive agreement to sell Vector for $124.0 million cash, subject to customary adjustments, indemnification obligations, and closing conditions. Vector was classified as held for sale at June 30, with $125.0 million of assets and $11.5 million of liabilities. The transaction was expected to close in Q3 2021; Protein Detection is comprised of Vector. No impairment charge was recorded. The filing says the disposal did not qualify as discontinued operations.
- First-half comparison includes an unusual $19.0 million sale-leaseback gain in 2020 that did not recur in 2021. First-half 2021 results also included a $5.9 million gain from remeasurement of the TRA liability and a provisional $2.8 million tax benefit associated with Vector’s held-for-sale classification.
- Management provided no numerical revenue or earnings guidance. It expects expenses to increase with hiring, infrastructure and manufacturing investment, R&D, sales and marketing, acquisitions, and public-company costs. Management plans to use cash and operating cash generation for growth investment and operations.
- Management cautioned that strong results benefited from CleanCap and RNA demand tied in part to COVID-19 programs. Future performance could be affected by vaccine demand, competition among vaccine makers, virus variants, customer pipeline outcomes, and broader pandemic and economic developments. Other disclosed risks include customer concentration, supply constraints, product quality and regulation, intellectual-property protection, and variable-rate debt. A $415 million notional interest-rate cap runs through March 2023; management estimated that a 100-basis-point rate movement would change first-half interest expense by approximately $2.5 million.
- The company expected to lose emerging-growth-company status and become a large accelerated filer on December 31, 2021, bringing auditor attestation requirements for internal controls. It expected adoption of the new lease standard in Q4 2021, with a material balance-sheet impact but no material income-statement impact; the full effect had not yet been determined.
Most important facts for investors to verify
- Whether the sharp CleanCap- and mRNA-led growth is sustainable, and how much depends on COVID-19 vaccine programs and a small number of customers.
- Completion terms and proceeds from the Vector sale, including purchase-price adjustments and the effects of exiting Protein Detection.
- Cash requirements and timing under the $521.4 million TRA liability, alongside tax distributions to non-controlling owners.
- Debt repayment, floating-rate exposure, covenant headroom, and the expected transfer of Vector’s loan portion after its sale.
- Underlying profitability and cash generation relative to non-GAAP Adjusted EBITDA and Adjusted Free Cash Flow, including the effects of exclusions and working-capital movements.