Maravai LifeSciences Holdings, Inc.

Greetings, and welcome to Maravai Life Sciences' third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Hart, Head of Investor Relations. Thank you. You may begin.

Thanks, Doug. Good afternoon, everyone, and thanks for joining us for our third quarter 2022 earnings call. I'm joined by Carl Hull, our Executive Chairman and Interim CEO, and Kevin Hardy, our Executive Vice President and Chief Financial Officer. Our press release and the slides that accompany today's call are posted on our website and are available at investors.maravai.com under Financial Information, Quarterly Results. As you can see on slide two, Carl will first provide you with a business update, and then Kevin will review our financial results and guidance. We will open the call for questions following the prepared remarks. On slide three, we remind you that the forward-looking statements that we make during this call, including those regarding our business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release we issued today, as well as those that are more fully described in our various filings with the SEC. Today's comments reflect our current views, which could change as a result of new information, future events, or other factors, and the company does not obligate or commit itself to update these forward-looking statements, except as required by law. During this call, We will also be using non-GAAP measurements of certain of our results and in providing guidance. Reconciliations of GAAP to non-GAAP financial measures are included in our press release. The metrics we will be discussing in today's call include net income, adjusted EBITDA, income tax expense, and adjusted earnings per share. These adjusted financial measures should not be viewed as an alternative to GAAP measures but are intended to better enable investors to benchmark our current results against historical performance and to the performance of our peers. Now I'll turn the call over to Carl.

Well, thank you, Deb, and good afternoon, everyone. We appreciate having you join us for our call today. Let me now give you a quick recap of the quarter and provide a few business updates before turning the call over to Kevin. Starting on slide five, Today, we reported $191 million in total revenue, $133 million in total adjusted EBITDA, and 37 cents in adjusted fully diluted EPS for the quarter. These results were within the ranges of our expectations. Furthermore, we are confirming our overall expectations for the full year of 2022 and tightening up our previously communicated ranges as we move to close out the year. Kevin will go into more detail on the results and guidance later in this call. In the nucleic acid production or NAP business, we saw a revenue decline in COVID-related clean cap revenue in the quarter of 4% versus Q3 of 2021. In the base NAP business, revenue was down 6% year over year against a strong third quarter 2021 comparison in which we had a large non-COVID order from a customer entering a clinical trial. Our biologic safety testing business continues to see intermittent headwinds from the business in China and was down 1% from quarter three last year. Our adjusted free cash flow in the quarter was $119 million. The strong cash flow generation leaves us with an all-time record cash balance of $617 million as of the end of quarter three, up $67 million from quarter two. This puts us in a great position to fund our long-term strategy via organic investments in our own capabilities while we continue to actively pursue external M&A. We see multiple potential strategic opportunities in our space where we are working to deploy some of this cash. On slide six, you'll see our results on a nine-month basis. Revenue for the first three quarters of the year was $678 million, up 19% compared to the prior year, similar period. Excluding COVID clean cap revenue, our base nucleic acid production business was up 21% and our biologic safety testing business was up 4%. Our top line growth resulted in adjusted EBITDA of $508 million for the nine month period, which represents a 75% adjusted EBITDA margin. As we enter the final quarter of the year, we feel extremely well positioned to build on our strong commercial foundation, expand our existing customer relationships, and amplify our product and services offerings to support our customers. On that theme, let's turn to slide seven. During the quarter, we announced the first commercially available GMP-grade N1 methyl pseudouridine 5' triphosphate, a critical raw material for mRNA manufacturing. This new product extension leverages our existing quality systems and GMP capabilities, including clean room manufacturing, expanded analytical testing, and process verification. The demand for messenger RNA, modified with N1 methyl pseudouridine, as we call it, has risen significantly in the past several years due to its incorporation in both currently approved mRNA vaccines against COVID-19. N1 methyl pseudou is a key raw material for the majority of mRNA therapeutics in development today. In fact, it is our most requested modified NTP in mRNA manufacturing. Our GMP-grade N1-methyl Pseudou allows us to address our customers' needs to domestically source critical materials, and we are pleased to add this GMP-grade molecule to our existing offering of chemical capping reagents and other mRNA components. We see this as the first of many GMP-grade reagents to come from our new product development pipeline. This product is now available as both a GMP raw material and can also be incorporated into GMP mRNA manufacturing campaigns. These types of new products should continue to bring value to our customers and help improve the quality of manufactured mRNA for years to come. We remain focused on our base nucleic acid production business as the key driver of long-term value creation, as we continue to expect innovative mRNA customer growth in both products and services. To illustrate the traction we see from both a product and services standpoint, let me share some evidence of ongoing customer adoption on slide eight. Demand for CleanCap mRNA continues to accelerate in all areas. CleanCap reagents themselves, GMP manufacturing services, and custom mRNA constructs. One year ago, in the third quarter of 2021, we had 170 CleanCap reagent customers on a rolling 18-month basis. As we close the third quarter of this year, that number is now 273 customers, up 61%. These are customers that order CleanCap as a standalone reagent. We ship it to them or their preferred contract manufacturer, and they use our capping analogs in their own mRNA manufacturing process. This could be for research and discovery activities, preclinical development, and with our GMP offering, clinical manufacturing of mRNA. We also track our clean cap mRNA discovery customers. These are customers at the very earliest stages of their programs who look to TriLink to manufacture mRNA on their behalf using clean cap as their capping method. Their activities are mostly for early research and discovery, including assay development, target identification, and in vitro cell models. This group of customers has grown from 464 last year to over 600 customers today. That's up 29%. And among these early customers, as they continue through their discovery work, we expect many will mature into the mRNA GMP services business where they would take several of their top candidates and upgrade them to our GMP manufacturing processes, which includes process development to larger-scale manufacturing, phase-appropriate methods development and validation, and collecting documentation that would support an IND filing. These GMP messenger RNA customers have grown from 53 to 68 over the last year, up 28%. As these customers progress through our GMP services with their preclinical and early clinical phase work, we also want to support them through phase two and beyond, which is why we were building the new Flanders facility. Now let's turn to slide nine for an update on those facility expansion plans. As we announced in the second quarter, we signed a collaborative agreement with the Department of Defense where they will fund up to $39 million of our planned expansion of the Flanders nucleic acid production facility here in San Diego. This is part of the government's goal of nationwide pandemic readiness for COVID-19 and beyond. We successfully passed the BARDA audit and have commenced billing for reimbursement under our grant for the Flanders construction. We expect to receive our first reimbursement check later this month. The Flanders site construction is progressing, and we expect to have partial occupancy for Phase 1 of the project in early first quarter 2023, and Phase 2 occupancy later in the first half of 2023. As a reminder, the first phase will provide us with an additional GMP manufacturing suite with two clean rooms. By moving some of our operations to the new Flanders site from Water Ridge, we will be able to expand the rest of our small molecule platform and add GMP API manufacturing capacity. This will allow us to support our customers through phase two and beyond. Likewise, the biologic safety testing relocation to a new facility in Leland, North Carolina is progressing nicely towards a move-in date over the holiday break at the end of this year. This new facility more than doubles our operational square footage to support current and future growth. The fully customized design will provide room for a mass spectrometry center of excellence and specialized cell culture facilities. It will significantly increase our cold storage capacity while providing other R&D, laboratory, and automation upgrades. Extensive process flow analysis has been incorporated in the design to optimize and enhance both our manufacturing and kit packaging operations. Our Pacific Center expansion, which will provide additional warehouse space, light lab, and SG&A space is also progressing nicely with the number of employees and teams already making the move. And that expansion is on track to be fully completed in the early second quarter of 2023. These new facilities are an example of how we continue to make investments to support the long-term growth that we anticipate in our base business. Now, turning to slide 10 and our COVID outlook. As you all know, our part in supporting COVID-19 vaccines has been amazingly rewarding, and we are very proud of the role that we've continued to play in helping to address the pandemic. With about two-thirds of our revenue coming from the use of clean cap and COVID-19 vaccines in 2022, a central issue in many of our discussions with investors has been the durability of our COVID-related clean cap revenues into 2023 and beyond. The vaccine space clearly remains in substantial flux, and there are still a number of uncertainties around end-user demand for these vaccines. The uptake for the new bivalent booster vaccines has, frankly, not been great, with only 19 million people in the US receiving the new booster dose as of October 19th. As we discussed last quarter, we were estimating then that COVID-related vaccine production would likely drop by one-half to two-thirds from 2022 levels. That led us to anticipate that 2023 COVID revenues would drop proportionally for us to a range of $200 million to $300 million in 2023. Looking back to the end of last year, as we were heading into 2022, we had excellent visibility into demand from our major customers with whom we had both binding commitments and long range forecasts in place. Today, as we head into 2023, We are not in the same position, since we do not have those commitments or long-range forecasts from our major customers in hand. Additionally, based on the slow uptake of the new boosters, we believe it is likely that our customers have raw materials on hand as they start the year, which will negatively impact our revenue in 2023, particularly early in the year, as those customers work down any existing raw materials. As a result, we now believe that CleanCap COVID revenue for Maravai in 2023 could be half of what we most recently anticipated. Our current estimate for COVID-related CleanCap revenues is about $100 million in 2023, with limited shipments in the first half of 2023. Internally, we are also planning around that $100 million annual run rate as a reasonable assumption for COVID-related clean cap revenue in 2024 and beyond. In my closing remarks, I'll try to touch more on future guidance. Now, turning to slide 11, our biologic safety testing business. Our products and services in this business support high-growth markets in cell and gene therapy, vaccines, and biologics by providing process-related impurity analytics, along with offering innovative viral clearance prediction solutions that help our customers ensure the safety of their biopharmaceutical products. We continue to innovate and scale our offerings in BST to ensure superior technical support to offer the highest quality services and products and the most comprehensive catalog of products to meet our customers' needs. We anticipate launching our Pivotal Retrovirus Mock V Kit later this year, further building on the breadth of our product offerings. The Mach-V technology addresses an unmet opportunity for growth in viral impurity detection. Now, let me finish with a topic that may be on some of your minds, and that concerns our disagreement with Danaher regarding Trey Martin joining Maravai as our CEO. Following our hiring of Trey, Danaher filed a lawsuit against Trey and Maravai claiming a violation of a non-competition agreement and sought a temporary restraining order, which was granted, precluding Trey from working for Maravai pending a preliminary injunction hearing expected to occur within the next month or so. We are mounting a complete and vigorous defense against the suit. Public policy in California, where Trey is resident and Maravai has its headquarters, has recognized the unjust impact of similar contractual restrictions that are intended to limit the mobility of former employees. We are disappointed that Danaher has taken this action to try to limit Trey in advancing his career. We remain confident Trey is the right choice to lead Maravai through our next phase of growth. While we can't speculate on the full range of possible outcomes here, one possibility is that Trey will be reinstated as our CEO following the preliminary injunction hearing later this year. Another possibility is that he may somehow be limited in roles that he could play with Maravai for up to a year as he completes any remaining post-employment obligations that the court may find he has to his former employer. In the meantime, I'm quite happy to step back into the CEO role, as you can see. I feel we've been as transparent as we can with you on this matter right now, and I would ask for your understanding as we won't be taking any further questions on this legal matter unless we have something material to announce in the future. All right, now moving on to slide 12, I'll now ask Kevin to cover more details on our third quarter performance and update our guidance for the balance of the year. Kevin?