Maravai LifeSciences Holdings, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts below are in millions of dollars unless noted. Comparative 2021 figures were adjusted for adoption of ASC 842.
Business context
Maravai supplies products used in nucleic acid production and biologics safety testing. It divested its Protein Detection business in September 2021. In January 2022, it acquired MyChem, a supplier of ultra-pure nucleotides, for total consideration of $257.8 million.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $242.7 | $217.8 | $487.0 | $366.0 |
| Income from operations | $180.7 | $153.5 | $348.1 | $244.7 |
| Net income | $156.7 | $134.5 | $303.6 | $210.0 |
| Net income attributable to Maravai | $71.2 | $49.1 | $138.1 | $72.2 |
| Diluted EPS attributable to Maravai | $0.53 | $0.44 | $1.03 | $0.69 |
| Adjusted EBITDA (non-GAAP) | $188.5 | $164.4 | $375.5 | $265.3 |
Revenue increased 11.5% in Q2 and 33.1% for the first half. Approximate gross margin was 84.6% in Q2 and 84.1% for the first half; operating margin was 74.5% and 71.5%, respectively. Adjusted EBITDA margin was approximately 77.7% in Q2 and 77.1% year to date.
- Revenue mix: Nucleic Acid Production revenue was $225.2 million in Q2 (+17.0%) and $448.9 million for the first half (+41.9%). Biologics Safety Testing revenue was $17.5 million in Q2 (-4.0%) and $38.1 million year to date (+6.3%). The prior-year periods included Protein Detection revenue.
- Cash flow: Operating cash flow was $326.6 million for the first half, versus $204.3 million in 2021. Investing cash outflow was $243.2 million, mainly the $238.8 million net cash paid for MyChem. Financing cash outflow was $83.9 million, including $82.5 million of tax distributions to non-controlling owners.
- Liquidity and debt: Cash was $550.7 million, current assets $759.4 million and current liabilities $112.5 million at June 30. Debt carrying value was $529.1 million; principal outstanding was $541.3 million, with no revolver borrowings. The term-loan rate was 3.85%. The company reported compliance with debt covenants.
- Other obligations: The Tax Receivable Agreement liability was $746.0 million. It represents expected payments to former owners tied to specified tax benefits and is separate from borrowings.
Material changes and unusual items
- Growth was concentrated in nucleic acid products and COVID-19-related demand. Management estimated COVID-19-related products and services contributed 73.2% of Q2 revenue and 71.8% of first-half revenue.
- Maravai recorded a $7.8 million gain from reducing the estimated MyChem contingent-consideration liability to zero, based on revised revenue projections. Potential performance payments to sellers can reach $40 million; a separate $20 million retention payment is tied to continued employment.
- First-half expenses included $3.4 million of MyChem transaction costs and $4.3 million of retention-payment expense. MyChem contributed immaterial revenue and earnings in the period, according to the filing.
- In January, the company refinanced its term loan, moved from LIBOR-based to SOFR-based pricing and lowered stated margins. The filing reports lower interest expense versus the prior-year periods.
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 inventories and future demand were uncertain; management said longer-term COVID-19 product revenue was expected to be substantially below pandemic highs.
- Management projected 2022 capital expenditures of $65–$75 million, net of anticipated government funding of $20 million. A BARDA cooperative agreement provides up to $38.8 million, or 50% of budgeted construction and validation costs, subject to requirements and possible recapture. Maravai had recorded an $8.6 million receivable but had not yet received reimbursement at quarter-end. The agreement includes priority-access and pricing commitments during certain public-health emergencies.
- Management stated that cash, operating cash generation and credit-facility access should cover requirements for the next 12 months and beyond. It also noted that growth may increase working-capital needs and that TRA payments are expected to be substantial. The filing estimates existing TRA payments could range from approximately $34.7 million to $63.0 million annually over the next 15 years, subject to assumptions and actual tax-benefit realization.
- Key disclosed risks include uncertain COVID-19 demand, heavy customer concentration, reliance on customer spending and limited suppliers, product quality and regulatory exposure, acquisition integration, and variable-rate debt. BioNTech and Pfizer together represented 64.8% of Q2 revenue; Pfizer accounted for 64.2% of accounts receivable at June 30.
- No material legal proceedings were reported. Management said disclosure controls and procedures were effective at a reasonable assurance level.
Important facts for investors to verify
- Whether COVID-19-related demand and customer inventory levels fall as management anticipated, and how much revenue growth is diversified beyond those products and customers.
- MyChem’s revenue performance, purchase-accounting estimates, and any performance, retention or inventory-related payments to sellers.
- Actual construction spending, timing and receipt of BARDA reimbursements, and compliance with the agreement’s conditions.
- Cash available after tax distributions, capital expenditures, debt service and potentially substantial TRA payments; confirm the TRA estimates against future taxable income and tax-benefit utilization.
- Debt exposure to changing interest rates and the effectiveness and duration of the $500 million interest-rate cap.