Maravai LifeSciences Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results are compared with the corresponding 2021 periods; 2021 figures were adjusted for adoption of lease accounting guidance. Dollar amounts below are in millions unless stated otherwise.
Business context
Maravai supplies products used in biopharmaceutical development, including nucleic acids and biologics safety-testing products. It operated two segments in 2022: Nucleic Acid Production and Biologics Safety Testing. The Protein Detection business was sold in September 2021. Maravai acquired ultra-pure nucleotide supplier MyChem in January 2022 for total consideration of $257.8 million.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $191.3 | $204.8 | $678.3 | $570.8 |
| Gross profit | $153.1 | $172.6 | $562.6 | $469.4 |
| Gross margin | 80.0% | 84.3% | 82.9% | 82.3% |
| Operating income | $116.9 | $155.4 | $465.0 | $400.1 |
| Net income | $99.7 | $132.2 | $403.2 | $342.1 |
| Net income attributable to Maravai | $44.5 | $54.0 | $182.6 | $126.2 |
| Basic / diluted EPS attributable to Maravai | $0.34 / $0.34 | $0.46 / $0.44 | $1.39 / $1.37 | $1.16 / $1.13 |
| Adjusted EBITDA (non-GAAP) | $132.5 | $154.9 | $508.0 | $420.1 |
| Adjusted Free Cash Flow (non-GAAP) | $118.8 | $152.7 | $484.6 | $410.1 |
Q3 revenue fell 6.6%; nine-month revenue rose 18.8%. Q3 Nucleic Acid Production revenue declined 4.4% to $174.9 million, while Biologics Safety Testing revenue declined 1.5% to $16.4 million. For nine months, those segments grew 24.9% to $623.8 million and 3.9% to $54.5 million, respectively.
Q3 operating cash flow was not separately presented in the supplied filing text. For the nine months, operating cash flow was $436.6 million, up from $309.8 million. Investing cash outflow was $249.1 million, including $238.8 million net cash paid for MyChem; financing cash outflow was $121.4 million, primarily tax distributions and debt principal repayments. Cash increased $66.2 million to $617.4 million.
At September 30, 2022, total debt carrying value was $528.3 million, including $539.9 million principal before unamortized debt costs; no revolver borrowings were outstanding. Cash exceeded debt carrying value by approximately $89.2 million. The company reported $835.5 million of current assets and $115.7 million of current liabilities. It also reported a $746.0 million liability under its Tax Receivable Agreement (TRA), largely payable over time.
Material changes and unusual items
- Q3 revenue and adjusted EBITDA declined as demand for COVID-19-related CleanCap products moderated. Management estimated COVID-19-related products and services represented 66.1% of Q3 revenue and 70.2% of nine-month revenue.
- Q3 cost of revenue rose 18.5%, faster than sales; management cited higher inventory scrap and excess/obsolete inventory reserves, lower volume and unfavorable mix, and higher acquired-intangible amortization. Gross margin fell year over year.
- Nine-month results benefited from higher Nucleic Acid Production sales and a $7.8 million gain from remeasuring MyChem contingent consideration. MyChem-related integration and retention costs contributed to higher operating expenses.
- Q3 2021 included an $11.2 million gain on the Vector sale, which makes year-over-year comparisons of operating income and profit less comparable.
- In January 2022, Maravai refinanced its term loan and reduced stated interest margins; the term loan carried a 5.55% rate at quarter-end. A $500 million interest-rate cap runs through January 2025.
Outlook, risks and contingencies
- Management expected Q2 2022 to be the peak quarter for COVID-19-related revenue and anticipated substantial declines thereafter, potentially continuing into 2023. Customer inventory levels and purchase commitments make the timing and scale uncertain.
- Capital expenditures for 2022 were projected at $50–55 million, net of anticipated government funding of $28 million. BARDA agreed to fund 50% of budgeted construction and validation costs, up to $38.8 million, for the San Diego facility. Funding is subject to requirements and potential recapture; a 10-year conditional priority-access and pricing obligation applies after project completion.
- Management stated existing cash, operating cash generation and credit availability should meet cash needs over the next 12 months and beyond. It also cited investment needs, working-capital requirements, and substantial future TRA payments as uses of liquidity. The TRA could require accelerated payments in certain change-of-control, breach or early-termination circumstances.
- Revenue is highly concentrated: BioNTech and Pfizer represented 38.7% and 29.1% of Q3 revenue, respectively. The filing identifies customer concentration and COVID-19 demand as significant risks. Biologics Safety Testing faced China lockdown-related headwinds and the company’s decision not to ship to Russia.
- On October 18, 2022, CEO William “Trey” Martin was placed on paid leave following a lawsuit by his former employer alleging breach of a noncompetition agreement. Executive Chairman Carl Hull was appointed interim CEO. The company said it believes the claims are without merit; the case was early-stage and potential loss or expense could not be estimated.
Important facts for investors to verify
- Subsequent quarterly results and customer purchasing patterns to assess the pace of COVID-19-related revenue decline and customer inventory effects.
- Revenue and margin trends excluding the prior-year Vector sale gain, and the effect of scrap, inventory reserves and product mix.
- MyChem performance, including any revenue-target contingent payments, retention obligations and final purchase-accounting valuations.
- Cash requirements and timing for the $746.0 million TRA liability, tax distributions, facility investment and debt repayment.
- Developments in the CEO-related lawsuit and interim leadership arrangements, as well as BARDA reimbursement milestones and related facility commitments.