Maravai LifeSciences Holdings, Inc.

Good day ladies and gentlemen and welcome to the first quarter 2024 Marabai Life Sciences Earnings Conference Call. As a reminder, this call is being recorded. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session where participants are requested to limit themselves to one question and one follow-up. If you want to ask a question during this time, press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. 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 .marabai.com. As you can see on our agenda for today on slide 2, Craig will first provide you with a business update and Kevin will review our financial results and guidance. Drew Birch, President of Nucleic Acid Production and Becky Bazio, 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 Marabai's SEC filing for additional information on the risks and uncertainties that may impact our operating results, performance, and financial condition. 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 2 cents 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 biologic safety testing revenue was $18 million in the first quarter, and this was our first quarter of growth for VST 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 two new Flanders G&P 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 MR&A space, and accelerate the introduction of scientific innovations in ways that support our customers' rapidly evolving needs. To the first point on product portfolio expansion and our focus on innovation, let's turn to slide 7 and some updates in our nucleic acid production segment. In our enzyme product portfolio, I'm happy to announce that our toolkit now consists of the majority of enzymes used in the MR&A IVT process. Incorporating alpha-zyme enzymes into the TriLink MR&A workflow, which we trademark as CleanScript, provides our customers with industry-leading high-purity MR&As with increased activity and reduced toxicity. We recently launched over 20 new catalog MR&A products from our TriLink Discovery Group. This project leverages our decades of RNA experience through the incorporation of our industry-leading capabilities in capping, base modifications, and MR&A manufacturing workflows in addition to the enzymes manufactured at alpha-zyme. As many of our Discovery customers look to advance their programs from MR&A design to L&P or other delivery system optimization, they need to catalog MR&As to rapidly advance their projects. With that in mind, we've launched these new catalog MR&A offerings with CleanCap M6 and M1 methyl pseudo-uridine. This enables customers to use the best chemistry from the outset of their programs. In addition, we've refreshed the entire catalog using the latest version of our CleanScript IVT production process. CleanScript allows us to deliver the highest purity products that have reduced double-stranded levels and can enhance in vivo protein expression. The innovation doesn't stop with these newly announced catalog Discovery products. We intend to launch many additional MR&A products as we move forward, and we are engaging more deeply with customers as we support their research

programs with custom constructs. Turning to slide 8, we continue to bolster our market leadership

in the MR&A space through strategic partnerships. TriLink entered into a non-exclusive license and supply agreement with Lanza for CleanCap analogs for use in Lanza's global MR&A development and manufacturing services from pre-clinical through Phase III programs. Lanza is one of the world leaders for producing biologic drugs. They've elected to bring CleanCap into their portfolio to enable many more customers to benefit from the advantages of CleanCap, and we see this as an important partnership for us to seed the market with our technologies. We believe Lanza's decision to incorporate our solutions in their highly regarded development and manufacturing services is a strong endorsement that CleanCap is the optimal way to produce MR&A, and we are excited for this partnership to unfold. AlphaZyme announced a collaboration with Applied DNA for scale-up manufacturing, enabling the linear RNA polymerase. Under the terms of the agreement, AlphaZyme will perform manufacturing process development, enabling the scaling of their RNA polymerase manufacturing from its current research scale to the commercial scale necessary to empower the growing demand for the company's linear IVT platform. We developed a full enzyme production process and have made breakthroughs in the manufacturing workflow for Applied DNA. We're fully able to support their forecasted demand and help enable their growth. We also continue to foster key academic partnerships to enhance innovation and accelerate market adoption of the latest technology. We currently have active research collaborations with five top-tier academic institutions to address a wide range of disease indications and custom nucleic acid applications, demonstrating our desire to be a technology partner to scientists developing the next generation of medicines. We believe that investing in new product innovation and partnering with leading academic and industry partners is a key driver for creating long-term value. We are in an exceptional position to win customers early for product and technology adoption. Turning to slide nine and tying innovation to our commercial strategy, which is a critical part of our return to growth. Again, we're in a unique position producing the process inputs used in the IVT reaction as well as the full clinical scale production of mRNA. As we work to improve mRNA production, we see several opportunities to drive new product and process innovations to improve the overall manufacturing workflow. This is a luxury in that it helps us move the mRNA field forward in a unique and differentiated way. By winning early in the discovery process with our CleanCap and our CleanScript technologies, our commercial team can cross-sell NTPs, enzymes, and other raw materials at earlier stages of the clinical pipeline, putting us in a position to grow with our customers to support them with their later stage development. This can include providing either RUO or GMP materials depending on their needs. This year has started with exciting positive momentum thanks to the efforts from our commercial operations and business teams. We have made great progress in evolving and building our commercial team and building the flywheel between our products and services activities. As we continue to expand our customer funnel for RUO and GMP offerings, it is important that we offer an unmatched customer experience from day one and for as long as the customer is with us. Our enhanced commercial team has the talent, tools, and processes to help build MARVI 3.0 in support of our Return to Growth strategy. Let's turn to slide 10 in our Biologic Safety Testing segment updates under the Cygnus Technology Spring. As with the Nucleic Acid segment, we continue to innovate to bring improved products to market to support our customers. Cell and gene therapy development has experienced tremendous growth as the FDA and other regulatory agencies worldwide continue their efforts to enable innovators in this new class of medicines. The FDA and other global regulatory agencies have approved several cell and gene therapy products and we are very proud that Cygnus kits now support all 21 of the 21 FDA approved CAR T cell and gene therapies. We are also pleased that MARVI was recognized as among FAST companies most innovative companies in biotech in 2024 for our Cygnus Mach-V or BLP kit which detects retrovirus like particles that can be produced during the manufacturing of biologic drug products. The kit which uses a surrogate non-infectious virus like particle can be run without extra safety and containment measures. This enables faster, easier, and more cost effective optimization of viral clearance to assure biopharmaceutical safety prior to human clinical trials, regulatory approval, and commercialization. This award adds to the many recognitions the Mach-V or BLP kit has received since its introduction in 2022. We remain very optimistic about the Mach-V product line and our ability to disrupt the viral clearance market. As in the NAP segment, we plan to continuously improve our offerings in BST to ensure superior technical support, the highest quality services and offerings, and the most comprehensive catalog of products to meet our customers' needs. Cygnus consistently supports and advances the technology to improve biotherapeutic safety and accelerate the movement of new therapeutic monoclonal antibodies, biosimilars, and cell and gene therapies through the development and regulatory approval process. Now, moving to slide 11 and our facilities update. As many of you are aware, Flanders One is our new GMP manufacturing site for small molecules. I am pleased to report that we have produced our first engineering batch of GMP small molecule products in the new facility and are quickly migrating our CleanCap M6 to GMP quality. As we approach the one year anniversary of the M6 launch, customers have lined up for the M6 GMP batches and are eager to move CleanCap M6 into the clinic. Flanders One adds scale and mitigates operational risk as we now have redundant capacity to manufacture small molecules. This includes the CleanCap analogs as well as other NTPs such as N1 methyl pseudouridine, which are needed as GMP grade inputs for mRNA production. This will not only bolster our supply chain resilience. Flanders One is a designated facility to aid the U.S. government in future pandemic preparedness. We hosted our Flanders Two grand opening in April and are now officially in the market for late phase CGMP mRNA production. Flanders Two was designed to meet the manufacturing requirements of mRNA-based medicines through all drug development phases. We have enabled mRNA clinical programs for over 10 years, from discovery through investigational new drug or IND filings. Our new CGMP facility will serve our partners with late phase clinical and commercial mRNA drug substance manufacturing. The 32,000 foot facility includes three grade C manufacturing clean rooms, a dedicated fill suite and an independent buffer prep and staging area. We have on-site quality control, EM monitoring and release testing supporting 1 gram to 100 gram batch sizes. We couldn't be more excited to open our doors and help enable the life saving medicines our customers are developing. Many of our customers have been asking to stay with our talented team as their clinical programs advance into phase two, phase three and beyond. And I'm so pleased that we can now support them. In fact, we have already signed statements of work to support a phase two clinical trial and our first phase three batches. We believe this is a capability extension that will make it easier for drug developers to select us for phase one or even preclinical batches at the beginning stages of their development. As they know, they will have a partner who can support them through commercialization. We have a long history of innovation in mRNA. Our significant investment in these two facilities underlines our commitment to innovate the process for producing the next generation of genomic medicines and the raw materials that enable their production. This expands our capabilities to help our customers unlock the potential of mRNA and develop life changing vaccines and therapies. The Waterridge facility will continue to support the important work underway in tri-link discovery and act as a key partner providing development expertise to our customers. Moving to slide 12, I'll now ask Kevin to provide more details on our first quarter performance and our expectation for the balance

of the year. Kevin? 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 gap net loss before non-controlling interest 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-gap measure, was $8 million for Q1 2024 compared to $24 million for Q1 2023. Our adjusted EBITDA margin was 12% in Q1 2024. Fifth 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 four 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 includes continued investment in innovation, commercial infrastructure, and GMP operations that are at least partially funded by the targeted reductions in our GNA structure and balancing our NAP operations team to the current demand profile. We continue to be focused on funding future growth opportunities while maintaining a cost-effective structure. With 575 employees, our revenue per employee metric for 2024 is just under half a million dollars in revenue per employee, which is amongst the best in life science tools. This coupled with the broad and expanding capabilities of Marabai positions us well for operating efficiency moving forward. I will discuss Ipata by segment in a few slides. Moving to slide 15 and EPS. Basic and diluted EPS for the first quarter was a loss of 9 cents per share compared to break-even EPS in the first quarter of 2023. Adjusted EPS was a loss of 2 cents per share for Q1. Moving forward to the year-end balance sheet, cash flow, and other financial metrics on slide 16. We ended the quarter with 562 million in cash and 532 million in long-term debt, resulting in a $30 million net cash position. Adjusted free cash flow was $4 million for the quarter. That calculation of adjusted free cash flow, a non-GAAP measure, is based on our adjusted EBITDA less capital expenditures, which were $8 million and $4 million in the quarter respectively. For Q1, 2024, cash used in operations was $8 million, primarily associated with the $20 million in planned retention payments associated with the two-year anniversary of the MyChem acquisition. Capital expenditures net of BARDA reimbursements were $4 million in the quarter. We anticipate our quarterly 2024 capital expenditures to peak in Q2 of this year, corresponding with the final outfitting stage of our Flanders buildings. Depreciation and amortization was $12 million in the quarter, which is in line with our expectations and previous guidance. Interest expense net of interest income was $4 million in the quarter, slightly better than our expectations as our interest rate cap contract maintained higher values and excess cash yields stayed high based on the evolving expectation that rates will not shift downward in 2024 as quickly as previously expected. Stock-based compensation, a non-cash charge, was $12 million for the quarter, also in line with our expectations. We ended Q1 with $133 million Class A shares outstanding and $119 million Class B shares outstanding for a total of $252 million shares outstanding at the end of March on an adjusted fully converted basis, in line with our expectations for Q1 and flat versus the same time a year ago. Next to slide 17 and the discussion of segment performance in the quarter. Our nucleic acid production segment, which includes both our discovery and GMP products and services, market under our Tri-Link, Glenn Research, and AlphaZine brands, had revenues in the first quarter of $46 million and adjusted even to have $10 million, a margin of 22%. A lower margin than previous quarters as anticipated based on the lower revenue level over our cost base. Our biologic safety testing segment, which includes products from our Cygnus brand, had revenues of $18 million in the first quarter and adjusted EBITDA of $14 million, a strong and consistent adjusted EBITDA margin of 77%. As detailed in these segment results, the combined adjusted EBITDA of our operating segments prior to the corporate shared service expenses was $24 million for Q1 2024, a combined margin of 37%. Corporate shared service expenses, including the impacted adjusted EBITDA, which includes centralized functions such as human resources, finance and accounting, legal, IT, and the incremental expenses associated with being a public company, totaled $16 million in the first quarter, down almost $2 million from the comparable first quarter of 2023. Let's move on to our current thinking around the full year of 2024 on slide 18. Based on a solid start to the year and our current assessment of the likely range of revenue outcomes, we are comfortable with the existing 2024 total revenue guidance range of $265 million to $285 million in revenues. Looking at the segments, our biologic safety testing business printed a strong $18 million first quarter, which we see as the high quarterly mark this year, consistent with previous years, and achieving an overall load of -single-digit growth over 2023 for this segment. After taking this estimated range for the BST business of around $65 million to $70 million for the year, we expect the next segment will be roughly $200 million to $215 million for the year 2024. As for the cadence of estimated revenues, we estimate the first half of the year now carrying close to 50% of the year, up from our previous expectation of 47%, which, based on the midpoint of our full year range and the Q1 result, would result in a second quarter revenue estimate at about $73 million or so. So we see the top line firming up after a solid start and balancing the first and second half of the year. We anticipate that margin will expand from Q1 with the sequential increase in revenues as we have seen in the past. We see the range of our profitability metrics within the same range as our initial guidance, adjusted EBITDA margin expectations of 23% to 25%, and our full year adjusted EPS in the range of 0 cents per share to a 6 cents per share loss. Guidance also holds the following expectations in 2024. Interest expense net of interest income to be between $25 million and $30 million. Depreciation and amortization between $40 million and $50 million. Equity-based compensation, which we saw as the reconciling item from GAAP to non-GAAP EBITDA to be between $45 million and $50 million. As the fully converted share count of 254 million shares and an adjusted effective tax rate of 24%. Finally, net capital expenditures of $30 million to $35 million in 2024. Overall,

a solid start to the year. I'll now turn the call back over to Trey.

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 -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 I and Flanders II 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, Glenn 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 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.

We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We ask that you limit yourself to one question and one follow-up. Again, press star 1 to join the queue. And your first question comes from the line of Matt Hewitt with Grey Calum. Please go ahead.

Good afternoon and congratulations on the strong start to the year. Maybe first up, congratulations on the Lanza 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 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 Lanza 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. Lanza 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, you know, 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 US 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 US and Europe, we would be able to participate in that.

Understood.

Thank

you very much. Thanks, Matt.

Question comes from the line of Stages Savant with Morgan Stanley.

Hey, guys. Good evening and thanks for the time here. 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 unsolicited inbound? Did Lonza consider alternatives as they chose Maravay? And has this contract win sparked further discussions with, you know, either pharma customers or other CDMOs? And does it come with any minimum volume commitments at all?

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

Yeah. Hey, Tejas, how are you doing? Yeah, so look, I think this is really a broader strategy that we have. We see CDMOs as a very good channel for our GMP bio manufacturing materials and to enable the adoption of CleanCap. We realize that there are customers that have many choices and there are many choices to make. And certainly capacity, expertise and desire. You know, different partnership structures that 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 one CDMOs that have a desire to partner with us. And yes, we have a contract with them. And so, you know, there's typically mutual agreement around wanting to bring CleanCap in as a platform technology and then have a wide path for customers to have the ease of use with that CDMO and really streamline activities between the two companies and make it easier.

Got it. That's super helpful, Kalar. And that's great. 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, you know, in no small part because we did not have the late phase clinical capabilities, you know, from an infrastructure point of view and 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. Good afternoon. 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 to continue to grow over time. But but we have already contracted late phase MR&A builds for the facility.

Got

it. Thanks, guys. Appreciate the time.

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

Thank you all. So I know it's gotten harder to unscramble the egg between what's covered 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? Yeah. Well,

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

best off first, because I know it's hard to unscramble. 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, you know, the clay gas production business obviously was down versus the fourth quarter sequentially, as expected. And, you know, one component of that were these GMP orders for clean cap, which we had scheduled coming into this year. And that took, you know, a step down from the run rate we had been seeing throughout the course of 2023, and that was the largest contributor, you know, to that sequential decline. I think that's the best way for me to answer that question. Got it.

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

Yes, certainly, Dan. Certainly, gross margin, as well as our EBITDA margin, will fluctuate predominantly based upon revenues. And when you really take that down a next layer, you know, it's within the nucleic acid production segment and even a layer lower, you know, 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 is relatively as anticipated, was just the mix. I mean, we did have a lower overall clean cap 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 clean cap. When you look back at, say, the fourth quarter of 23 or the first quarter of 23, we had those larger clean cap quarters. You see those gross margins higher. And then, you know, I think as we go into the second quarter, we do see a substantial step in clean cap based upon those contracted shipments that we have visibility to today. So lower revenue margin predominantly. And then I mentioned a little bit startup costs related to Flanders. We do have some period costs that go through that for validating new equipment and putting in disposable things, tips and gloves and chemicals and other things you 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, you know, we see that bouncing back and likely to be very consistent

with some of what we saw in the fourth quarter of 23.

Question comes from the line of Katherine Schulte with Barrett.

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

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

Yeah, I would say we saw a couple of different dynamics. It's a little tough to disentangle. I think we've seen some, you know, 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, you know, we saw a stronger funding environment in the public and the venture capital markets. So, you know, a little bit across current, 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 and funding shows up in in orders. But I guess that's how it characterizes the environment.

Okay, that's helpful. And then maybe just one for Kevin on some of the cost actions and restructuring. You know, how right-sides do you feel that the corporate and cost structure is today, given some of the comments around some of the commercial focus on today's call? You know, should we be thinking about any kind of incremental actions in 2024, you know, in either direction? And should we still be thinking about kind of 26 million in net benefit from the cost actions here in 2024?

Yeah, I think absolutely. I think that, you know, the cost actions about, you know, what's we're talking about, $30 million, with about two-thirds of those tied to labor, you know, those have all happened. You know, so with that flex in the headcount and some of the metrics that I spoke of, you know, and we will continue to, as we spoke of, make targeted investments in commercials. We'll continue to see, I think that line in our R&D line particularly, we'll 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 like 240 or closer to 210. You know, we sort of took some of that out of our run rate, but we also wanted to make sure we were still investing in R&D for innovation sake. And we talked a lot about that progress in commercial. We talked a lot about that progress as well as in Alpha Xi Man and Cygnus, which continue to show, you know, good momentum and good growth. So our focus was really in taking those costs specifically out of GNA and specifically about right sizing, you know, the operations at TriLink here in the San Diego facility and then kind of also converting some of that labor and making them plungeable to move over and take care of some of the increasing demand we'll be seeing that will be driven by planters too. 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 articulate.

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

Hi, this is Evianne from ATT. Thanks for taking my questions. 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?

We haven't.

Yeah,

I could

take that. You know, it's not something that's necessarily broken out, but I would say that when we look down into our business, particularly nucleic acid production, we look at it in different ways. We obviously have our business units that we look at those represent both our alpha design business, which continues to grow and perform well, our Glenn 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 trialing 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, as the course of the year, I would say the Discovery has been fairly steady in that it'll ebb and flow a little bit, but it won't have 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 is the one that could be a lot more dynamic. And right now, when we look at the quarter, the two within TriLink were 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 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. Thank you. 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 cadence, especially as we get into Q4 and then into 2025.

Yeah,

sure. Certainly with the revenue being at a low mark here in the first quarter versus what we've seen, that translates into the lower EBITDA margin that we've seen, and the lowest we've seen looking back certainly over the last five 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 on average $19 million or so to get to the middle of that range. That would be 27-inch percent on average EBITDA margins for the next three 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-marketing 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 the low 70s. That'll probably carry a much higher margin, and then we'll kind of revisit the rest of the years to 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 25-30 range is what we're looking to do. And certainly that will be tied to the revenue profile of

the business, particularly the NAP segment.

Your next question comes from the line of Matt Laro with William Blear.

Hey, good afternoon. First question, Trey,

you talked about a litany of new products and service offerings, which sort of has been the theme of 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 more 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 on what you see as most meaningful.

Yeah, 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 be announced here. They sit in discovery slash RUO versus, of course, GMP services where we do contract mRNA production for people, but also where GMP CleanCap and other process inputs sit. I would say probably the most needle-moving and most exciting over the past year. We are, I guess, about to hit the one-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 reagent 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 shortly here.

Okay, thank you. And then one for Kevin, just sort of on the cadence of

GNA, you'd referenced on the last call, GNA being down about 5% for the full year. And so we modeled it down sequentially. You may have referenced some one-timers, but I think just to start hitting that upper 20s, even the margin range, particularly with the gross margins you outlined, there would seem to require a significant step down sequentially in GNA 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.

Yeah, I think that one of the things you have to obviously carve out of there are the non-epidemic 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. So you see what we're seeing in the GNA 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 contribution to the overall EBITDA margins. When I look at our adjusted just GNA 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. It's down just under 20% year over year on the expense 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 Riskin with Bank of America Securities.

Hi, this is both Jan off on for Mike. Thanks for taking the questions. So I want to pick 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 Meribuy, 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 that translating into your order book and eventually revenues?

Yeah, I think we touched on 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. Yeah,

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. I think it's going to be a variety of time. I think 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 bespoke.

Got it. Appreciate the color there. And then kind of opening a bit, I noticed through the presentation you mentioned your openness to M&A a couple of times. I'm wondering if there are any areas of the portfolio that you see as particularly suited to inorganic additions, then 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. You know, our specialty at Marvai has been scientific founder driven category leading companies. We think that's a very good niche that we fill. And there are 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 fall off, with interest rates, with funding. It has been headspinning 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 Connor McNamara with RBC Capital Markets.

Hi, this is Dave Riccardo on for Connor. Thanks for taking the call. 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 too as it will come up.

Okay. Yeah, I mean this comes back a little bit to the prior theme where in RUO you have PO sizes, you know, in the five to six figures, sometimes in the seven figures. In GMP you typically start in the six figures and go into the seven or even eight 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 sorts of 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.

Cool. Thank you. 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. The

Thermo including your M cap in there, in VTGIN kits.

Yeah, 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 that's another public license where Thermo is licensed to incorporate CleanCap 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 the 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 back 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.