Maravai LifeSciences Holdings, Inc.

Good afternoon, ladies and gentlemen, and welcome everyone to the Marabai Life Sciences Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw a question, press star one again. Thank you. I would now like to turn the call over to Deb Hart. Please go ahead.

Thank you. Good afternoon, everyone. Thanks for joining us on our third quarter 2024 earnings call. Our press release and the slides accompanying today's call are posted on our website and available at investors.maravai.com. As you can see from our agenda on slide two, Trey Martin, Chief Executive Officer, and Kevin Hrdy, Chief Financial Officer, are joining me today. Drew Burch, President of Nucleic Acid Production, and Becky Buzio, our Executive Vice President and Chief Commercial Officer, will join the call for the question and answer session following the prepared remarks. We remind you that management will make forward-looking statements and refer to GAAP and non-GAAP financial measures during today's call. It is possible that actual results could differ from management's expectations. We refer you to slide three for more information about those 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 Marvi's SEC filings 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 you joining our call today. I'll give a quick recap of the third quarter. and provide some commentary on the market dynamics we are experiencing. I'll then provide a few business updates and discuss our plans to acquire the DNA and RNA business of Oficina Bio. Let's start with our third quarter results on slide five. Today, we reported $65 million in revenue, $13 million in total adjusted EBITDA, and a loss of two cents in adjusted fully diluted earnings per share. Our nucleic acid production, or NAP segment, had revenue of $50 million. Biologic safety testing, or BST, had revenue of $15 million. Q3 results were slightly below our expectations, primarily due to a few customer-requested program timing shifts, muted demand in research and discovery products within our NAP businesses, and persistent softness in the global biologics market, which impacted our BST segment. In our NAP businesses, we recently achieved a key milestone, celebrating our largest service bill to date at our Water Ridge site, consisting of 26 grams of mRNA material for a preclinical cell and gene therapy customer. This program was initially slated for completion during Q3, but was delayed by one week into Q4 at the customer's request. Therefore, only a portion of the service revenue was recognized in Q3 versus the full amount we had assumed in our forecast. We will recognize the remainder of the revenue related to this program in Q4. This is an example of the way customers' clinical program timing can affect our service revenue realization. We also commenced our first customer build at Flanders II, meeting another major milestone in our NAP segment. You'll see some photos on slide six. This program is for a cell and gene therapy customer using mRNA as an ex vivo tool to create the therapy. The engineering run is complete and work is underway preparing for batch one of GMP during Q4. We remain committed to advancing the field by playing a key role in the development of mRNA-based in vivo gene editing, gene-edited cell therapies, protein replacement therapies, cancer vaccines, and infectious disease vaccines. Flanders II codifies this commitment to our customers through phase three and commercial production. The fact that this customer chose to be the very first in our new facility is a testament to their confidence in our team's capabilities, expertise, and commitment to high quality, and we are delivering on all fronts. We've built a robust funnel for GMP services for our Flanders II facility and are excited to be underway producing our first revenue in Q3. In the near term, I would expect the revenue contribution from Flanders to be a bit lumpy as we scale up. Similar to the customer requested delay at Water Ridge and Q3, a Flanders 2 customer with a Q4 scheduled service bill has requested to move the program to early 2025 due to clinical trial delays on their end. Our enhanced commercial team is working diligently with our customer funnel to fill capacity in the near term. We're encouraged by research that shows improved biotech financing and healthy new program starts in the industry related to our NAP businesses. However, we continue to transition through a period of contracting mRNA clinical trial starts led by the steady annual decreases of new COVID mRNA vaccine and therapeutic clinical trials. Let's turn to slide seven to understand what I mean by that. The chart on the left side of the slide shows mRNA clinical trials initiated each year. As you can see, 2021 saw the highest number of trials initiated but a very high percentage, 77% of those were related to COVID-19 vaccines or therapeutics. You can see those declined by about 20% each year for the past few years. The good news is that during this timeframe, the non-COVID mRNA trials represented by the orange portion of the chart have steadily increased each year and are up 29% year to date through Q3. At some point, Indication diversity will overcome the impact of the COVID-driven decline in starts, and we believe the COVID program proportional impact is nearly behind us. We believe we are the innovation leader and well-positioned to service the growing segments of mRNA therapeutics discovery and development. The right chart shows clinical trials initiated for guide RNA-mediated gene editing, which is an exciting emerging opportunity for us. This market has been primarily car teased using lentiviral delivery approaches. However, developers are increasingly choosing mRNA as the preferred cast delivery vehicle. We can and do support this market from RUO to GMP inputs and with RUO to commercial scale production across Water Ridge and now Flanders too. As you can see, this market growth is far outpacing prior years of 75% year to date through Q3. Gene editing is a market we're excited about as a driver for our future growth potential. In both charts, this data reflects new program starts, not total active programs. Our research shows the total mRNA programs continue to increase, and we are now tracking close to 1,500 active programs. We will continue to focus on innovation to move the industry forward and build new revenue streams as a leading supplier mRNA producer and raw material supplier. In that regard, I'd like to highlight three areas on slide eight. Within our NAP business segment, we've introduced 21 new products here to date and continue to drive innovation as a critical KPI for our return to growth strategy. We've expanded our discovery mRNA synthesis services offerings with new custom sets of providing flexible options that customers need for screening and hit-to-lead optimization. This plate-based mRNA launch supports our efforts to enable and lead the field by launching sets of up to 96 mRNA constructs. These custom mRNA construct libraries enable the testing of multiple candidate sequences with different combinations of 5' caps, modified NTPs, and poly-A tails, all with industry-leading cost and turnaround times. This new service enables our customers to optimize the performance of their specific targets, accelerating their development, and improving the efficacy of life-changing mRNA-based therapeutics. Notably this quarter, AlphaZyme and TriLink collaborated to launch CleanScribe RNA polymerase. The CleanScribe RNA polymerase is a novel enzyme that catalyzes the in vitro transcription, or IVT, of a recombinant gene regulated by the T7 promoter. During the IVT reaction, DS RNA can be produced as a byproduct and trigger undesirable inflammatory responses in the cells. The CleanScribe enzyme dramatically reduces double-stranded RNA formation during the IVT compared to wild-type T7 RNA polymerase, which is the current industry standard. This new product reduces double-stranded RNA by up to 85%. It is positioned to help our customers develop safer, more potent mRNA therapeutics. Furthermore, we and our customers have found that this product is a very natural and easy substitution into existing IVP protocols and does not require extensive rework or further workflow optimization to achieve the exceptional performance. This product's robustness, reproducibility, and double-stranded RNA reduction make it ideal for mRNA synthesis, self-amplifying RNA synthesis, RNA probe preparation, and RNA construct development for additional studies. In addition to improving the final product, it further improves the economic and process advantages that already make co-transcriptional capping with CleanCap the preferred approach for producing mRNA. Initial feedback on CleanScribe has been very positive. In fact, a top pharma customer shared that they saw a 50% reduction in double-stranded RNA in their self-amplifying IVT process. This impressed them so much, they planned to switch over to CleanScribe as their default enzyme for self-amplifying RNA production. AlphaZyme continues to work closely with Trilink and external partners to collaborate on the next generation of enzymes. As with CleanScribe, next-generation enzymes have the potential to boost the efficiency yield and cost effectiveness of mRNA marketing, manufacturing, excuse me, and we are committed to being the innovation leader in this area. Finally, we expanded our TriLink-owned IP around co-transcriptional capping technology with the issuance of an additional patent in the US. We now hold over 20 US and international patents on our CleanCap capping technology. Let's turn to slide nine. We continue to foster key academic partnerships to enhance innovation and accelerate market adoption of the latest technologies. We currently have active research collaborations with nine top-tier academic institutions, some of which are listed here. The most recent is our collaboration with the University of California San Diego. We believe investing in new product innovation and partnering with leading academic and industry partners is a key driver for creating long-term value. Now let's turn to slide 10 and discuss the pending acquisition of Oficina Bio. We have signed a definitive agreement to acquire the DNA and RNA businesses of Oficina Bio. Oficina is a provider of precision DNA and RNA services through an AI-driven digital platform that automates and iteratively improves large and complex DNA assembly from oligos to gene fragments, mRNA synthesis, and downstream cell-based screening. The team includes bioinformatics and data scientists, developing end-to-end software and synthesis automation solutions, enabling the design-build test cycles for mRNA therapeutics candidate discovery. During the discovery phase, customers need to be able to experiment and develop multiple constructs as they test to find the most promising candidate to advance to the next phase. Today, there are many barriers to efficiently and effectively moving through these phases. and Efficina has created a solution set that enables this process. Just as our AlphaZyme acquisition expanded our offering for mRNA transcription tools and key enzymes, Efficina will enhance our mRNA offering for early phase discovery work. The addition of Efficina's front-end development and production expertise is expected to add complementary capabilities to Maravai's NAP product portfolio and allow us to offer our customers even more complete and timelier mRNA solutions. As has been the case with our past acquisitions, Avicenna is a founder-led and comprised of an experienced team focused on cutting-edge science, bioinformatics, and software services. We expect this acquisition will accelerate and de-risk our e-commerce roadmap. enable mRNA discovery offerings and portfolio attachment, and access differentiated mRNA design and bioprocess optimization capabilities to enhance our customer experience using AI and machine learning. As many of you are aware, our TriLink Discovery business unit is focused on working with customers at the front end of the drug development funnel. TriLink Discovery includes all research-use-only products and services, including all reagents, our custom chemistry business, and MR&E manufacturing for screening and target discovery. This is where the majority of our trialing customers are today, in the discovery and preclinical stage, and why this acquisition fits so well. The Efficina front-end ordering platform is expected to provide trialing customers with a home for construct design and integrates a full catalog of cap and novel chemistries. We believe the addition of this e-commerce and AI offering will help our TriLink Discovery customers get to the next stage of development faster and more effectively with the best possible candidates. We know our ability to provide end-to-end service from sequence to drug product is a resounding value proposition for customer's choice. With the acquisition of a BCNA, our enzyme portfolio expansion through AlphaZyme, our TriLink Discovery products, and TriLink GMP capabilities, we can incorporate raw materials and production expertise into our end-to-end service and supply offering, which is totally unique in the industry. Now let's turn to slide 11 and highlight innovation within the biologic safety testing segment. In collaboration with the TriLink team, Cygnus launched the first kit in their new generation of DNA quantification products, the CHO AccuRES kit. This residual host cell DNA quantification kit and all future kits in this portfolio include a probe-based master mix that contains Trilinx Clean Amp DNTPs and a Hot Start TAC DNA polymerase. The assay has higher sensitivity and specificity than the industry standards, and the kits will help biopharma manufacturers ensure drug safety and stability for their patients. The Cygnus DNA extraction kit, which is sold separately, be used to isolate the residual DNA from any cell line. The resulting purified DNA can be quantified in its corresponding DNA amplification and quantification kit. The CHO AccuRES kit is the first of many products we have in development to grow our host cell DNA portfolio, and we expect to launch two more products in this portfolio by the end of the year. Like the AlphaZyme and TriLink launch of the CleanScribe RNA polymerase, this new product demonstrates collaboration between our brands as the Cygnus DNA extraction kits use TriLink's CleanAmp technology. Now turning to slide 12. We've continued to evolve through what we knew would be a transition year in 2024. As we prepare for 2025, we believe we have innovative technologies, have built the right capabilities and infrastructure, and are in the right markets to position us to achieve long-term growth. We've expanded our market position throughout the year with the industry and academic partnerships and look forward to welcoming the Officine team when the acquisition closes. I remain excited about our future, our capabilities, and what we can achieve together with the mission to make a meaningful impact in improving human health through the next generation of medicines. I'll now ask Kevin to provide details on our third quarter performance and our updated guidance. Kevin.

Thank you, Trey, and good afternoon, everyone. Starting on slide 15, as you saw in our press release this afternoon, our Q3 2024 revenues were $65 million, slightly below our expectations for the quarter. Both business segments lagged our expectations with the NAP segment impacted by softer clean cap demand in both RUO and GMP businesses, as well as a custom-requested delay of a preclinical program bill. Our BST performance continues to be pressured by a soft bioprocessing market backdrop. In the third quarter, we took a GAAP non-cash goodwill impairment charge of $154 million as we revisited our long-term model assumptions for all of our business units. The write-down is related to our tri-link business unit within our NAP segment. specifically the write-down of goodwill associated with the acquisitions of TriLink and MyCamp. Our GAAP-based net loss before the amount attributable to non-controlling interests was $176 million for the third quarter of 2024, with $154 million of that associated with the non-cash goodwill impairment charge. As for earnings per share, both our GAAP-basic and diluted EPS brought a $0.70 per share loss, while adjusted fully diluted EPS was a $0.02 per share loss for the quarter. Adjusted EBITDA, a non-GAAP measure, was $13 million for Q3 2024, up from $12 million in Q3 2023. Our adjusted EBITDA margin was 20% in Q3 2024. That brings our year-to-date adjusted EBITDA, a non-GAAP measure, to $37.5 million, adjusted EBITDA margin of 18%. Turning to slide 16. We ended Q3 with $570 million in cash, up $5 million from the end of the second quarter. based on $13 million cash flow provided by operations in the quarter, and our CapEx was $8 million in the quarter. Gross debt, which has a term until late 2027, is at $529 million, resulting in a net cash position of nearly $50 million. As you may have seen via our 8 filed in October, We mended and extended the revolving credit facility component of our overall debt position, increased maturity by up to five years, and we slightly lowered the overall revolver from $180 million to $167 million. Based on the changing interest rate environment, the pending expiry of our interest rate cap in Q1 2025, and our view of the M&A landscape, we are actively reviewing our current debt structure, which has maturity on the term loan in about three years. As you are aware, we have managed to gross up structure to be opportunistic with M&A, and also have the ability to voluntarily pay down a term loan. Thus, we have tremendous flexibility here. For the first nine months of 2024, our net interest expense sits at $15 million on an average balance of around $530 million in debt, or an annualized effective rate of under 4%. Now turning to slide 16, I'll provide some more insights into our business segment financial performance for the quarter. The nucleic acid production business revenues were $50 million in the quarter, representing 77% of the company's total revenue. NAP generated $15 million in adjusted EBITDA on the quarter for a segment margin of 31%. Our biologic safety testing business revenues were $15 million in the quarter, contributing 23% of our total revenues. Our BST contributed $11 million of adjusted EBITDA, a margin of 72% in the quarter. Corporate expenses that are not included in the segment adjusted EBITDA totals I just spoke to were $14 million in the quarter, continuing to trend downward from recent quarters. Now turning to slide 17, an updated financial guidance for 2024. Overall, I'd say it's been a frustrating year as it relates to our overall financial performance, particularly on the revenue line. I say it's frustrating as we've accomplished many of our key goals and initiatives from both an operational and strategic perspective, but have yet to see that reflected in our financial results. For example, for 2024, we're surpassing our targets related to new product introduction launches, customer MRA turnaround time, on-time delivery, while strengthening our position in the key academic market and adding more unique capabilities with the Oficina acquisition. We believe our core product market share remains strong, but we have been impacted by the continued market weakness globally in bioprocessing, as well as the challenging NAP market based on the void of large orders we have historically seen from pipeline progression. We've also been impacted by the repriorization and timeline shifts of customers' programs. I think for most of our space, 2024 continues to be impacted by global macro pressures that have impacted buying decisions and created a challenge to return to growth. That said, we remain committed to making the best decisions to set Mara by for long-term success. We believe strongly that we are positioning our business to be a critical part of the broader ecosystem in which we participate and will continue to lead forward into the great opportunity that we believe our addressable markets present. We are lowering our expected range of revenues for 2024 to between $255 and $265 million. At the midpoint, this is a $15 million or 5% reduction in anticipated revenues for the year. This reduction results from a $5 million shortfall to our internal expectations for Q3 and about a $10 million lower outlook for the most likely outcome for Q4. The lowered Q4 estimate is due to the shift of some customers' GMP programs initially slated for 2024 being pushed to 2025. Additionally, the large clean cap orders we have historically seen dropping into our results have not occurred at the anticipated rate, and our current order book entering Q4 leads us to a lower and more cautious outlook for the quarter in our NAP segment. In our BST segment, revenue for China was up nearly 30% from Q2 2024, but still not back to historical levels. We anticipate the lower level of BST revenues we saw in Q3 to also be impacted, as usual, by end-of-the-year manufacturing slowdowns. To break down the updated foliar revenue guide, we expect the nucleic acid production segment to be around $193 million to $202 million. We expect to see our biology safety testing revenues this year to be about $62 million to $63 million, shifting to a foliar that will be now down in the low single digits versus 2023. Based on this updated foliar guidance and the $203 million that are in the books thus far, the resulting expectations for the fourth quarter are for total revenues between $52 and $62 million. with the NAP segment at around $43 million at the midpoint and the BST segment to be around $14 million or so at the midpoint of our range for Q4. As a result of the lower revenue expectations, the high variable contribution margins of our business, and a forecast for slightly higher cost of sales expense based on less favorable manufacturing variances, for 2024 we have updated our estimated earnings metrics. We now anticipate adjusted EBITDA margin to be 16% to 18% on this updated revenue guidance. The 400 basis point decline from our previous midpoint of 21% is mostly due to lower revenue projections in our higher margin products, including GMP products and NAP, and lower revenues for our high margin BST sector. Additionally, expect the following additional financial expectations as listed on slide 17. Interest expense, net of interest income between $20 million and $25 million. Depreciation and amortization between $45 million and $50 million. Stock-based compensation, which we show as a reconciling item from GAAP to non-GAAP EBITDA, to be approximately $50 million. This also includes an as-if fully converted share count of about 254 million shares, an adjusted effective tax rate of 24%, and we see our net capital expenditures to be around $30 million for the year. Before I turn it back to Trey, I want to mention that we plan to close the acquisition of Opus Cine around the beginning of 2025. and thus do not see it impacting our financial results for 2024. As it relates to fiscal year 2025, we believe it's prudent to focus on closing out our current year, working with our customers and leadership teams to best assess 2025, and then provide financial guidance with our first quarter in 2025. And I'll turn it back over to Trey.

Thanks, Kevin. So to wrap up our prepared remarks on slide 19, Though market conditions remain challenging in the near term, we are confident in the long-term growth rates of our target markets and believe we offer differentiated technology, products, and services. We expect to close a FCNA acquisition early next year and will continue looking for inorganic investments and additional partnerships to bolster our market position and provide our customers with additional solutions to accelerate our growth. We are encouraged by the pipeline progression we see for MRNA gene editing, and cell and gene therapies, and we believe the new clinical trial starts bode well for long-term growth in our markets. Our strong balance sheet, strong cash position, and manageable debt position gives us strategic flexibility, and we will remain diligent in our cost control and operational efficiency. We are committed to building a strong foundation for long-term profitable and sustainable growth of our base businesses. Kevin, Becky, Drew, and I are happy to answer your questions. So now I'll turn the call back to the operator for instructions.

Thank you. We will now begin the question and answer session. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Please limit yourself to one question and one follow-up only. Thank you. Your first question comes from the line of Dan Leonard with UBS. Please go ahead.

Thank you. You've talked about a firm commitment number throughout the year. How much of that firm commitment is now left by Q4?

Yes, so Dan, it's been coming in as anticipated. Here in the third quarter and then the fourth quarter, we have roughly another $14 million to ship in the fourth quarter, tied to fulfilling that original expectation there.

Okay, thank you. And then just my follow-up, Kevin, the sequential decline in NAP from about, I think it was 49 million in Q3, 50 million rounding, to 43 million at the midpoint for Q4. How much of that is the project push you mentioned into 2025 versus a weaker market?

Yeah, it's probably, you know, the project was probably a couple million dollars. We could mark it being the remainder.

Thank you.

Your next question comes from the line of Justin Bowers with Deutsche Bank. Please go ahead.

Justin, are you there?

Hi, good afternoon. Pardon, I was on mute. What are, can you talk about some of the swing factors for 4Q as it relates to the NAPCS business? Realistically, there's probably six or seven weeks in the quarter left in the Western world. And then just a quick follow-up would be, is there any revenue associated with the acquisition for 2025 or is that just a technology acquisition?

Yeah, sure. I'll start. I'll take the second question first. Yeah, OverseenA is predominantly a software acquisition for us and putting their front end onto our tri-link discovery platform. And that's really what we want to do there, the sort of buy versus build decision both from the exceptional platform they have as well as the timing to get that plugged in into market. They do have a business. They do have revenues. It'll be We're talking low single-digit millions and a business, again, that is self-funding, meaning it's not going to be dilutive to our overall business. So a small group, but I think they've formed something that's really unique, and it fits perfectly into our acquisition model of finding good, unique, founder-based companies with great technology that participate in this space, and we believe it will provide a lot of value. And we'll get a little bit more information, obviously, as we close that deal and get closer to integrating them into Marvi in the first quarter of 2025. As it relates to, you know, the range of potential sensitivities, you know, I think the one thing that throughout the course of the year, frankly, we continue to monitor are, you know, sort of the rates of, of our discovery business. I think there's probably a million on each side of that business as far as flexibility there on how those orders come in. Again, that's a long tail of lower volume orders. What we haven't seen this year, both on the RU and GMT side, are these larger drop-ins that we periodically get as companies move from one phase to another or just meet frankly, clean cap to cover a variety of programs that might be in their stable. Typically, those have been half a million up to $5 million type of drop-in orders. They don't get a lot of visibility to them. They just haven't been occurring. So we're not counting on those prospectively. That having been said, we do have a range of outcomes for some of our GMP builds as we get through that work this year. That's probably another couple million either way as we go through that. And then the rest of our businesses just have their normal volatility in and around those ranges. But certainly with the high volume clean cap number that Dan mentioned on his question, that is certainly locked in. So we do still have a little bit of variability in the rest of the NAP business. And again, it's just getting back to the fact that we haven't seen those larger POs come in. And so a lot of this is a little bit based on smaller orders, which are just more volatiles. And then there's a little bit of work in and around getting things done on the GMP services side, certain revenue recognition aspects, et cetera. And then we're going to see a little bit of volatility as we've been seeing throughout the course of the year as it relates to the BST segment as well, even though that's a much tighter range.

Thanks, Kevin.

Your next question comes from the line of Tejas Devan with Morgan Stanley. Please go ahead.

Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. While you know that you'll be providing a formal guidance at a later date, in light of your business being largely skewed towards non-discretionary cost items, how should we think about guardrails for margin expansion next year?

Well, I'll speak generally. Look, again, we continue to be a company that is predominantly going to go up and down from a margin expansion perspective. based on our revenue base. As you look at us today, we have, as you look at our midpoint and roughly our adjusted EBITDA, we have a midpoint $260 million revenue company with roughly a $235, $40 million cost basis there. And of that cost basis, a big chunk of it, roughly half is labor-related, so that's sort of semi-fixed, if you will, or more variable in the long term. Then the facility costs on top of that are another big component. We operate across about six, seven different facilities, depending on if you count Flanders as one or two buildings. And that's a big fixed cost for us. The nice thing about that fixed cost is it supports our business model prospectively. We don't need to add any more buildings. We have all the capabilities we need to grow into what we have and expand our margins. And then the last is just the variable piece of our COGS, which is very, very small. As you know, we have a very high variable margin. And sort of everything else, So the largest being some of the G&A costs that we need to be a standalone public company and some of the legal costs we have as we pursue protecting CleanCap and our IP. So I think for our perspective, it's a matter of filling the factory and leveraging that cost base that I said. I think that I want to say there was a report out earlier in the year that put us in a very nice light as far as revenues per employee. We do not have a big cost base. We're very efficient at what we do. and to the extent we're able to profitably grow on the top line, that flow-through is going to be very evident, as it has been historically, and none of those dynamics have changed.

Got it.

Yeah, I think I'll just add that, to Kevin's point, the process of stepping into the new capabilities of Flanders 1 and 2 obviously added to our cost base But we've been bearing those costs largely for the last four quarters. And so some of the dynamics we see here on the low and high bounds of each quarter are the reason that we put lumpiness in the comments because, again, the cost base for all of these capabilities is largely fixed. And the incremental flow through on margin is significant as we go above them. The dynamic range, of course, looks extreme as we have a quarter that gets close to that cost basis versus even, say, the prior quarter.

Okay. Thank you for that color. Do you expect any changes to government contracts, including the one with BARDA, based on the recent election outcome?

I don't think so. In fact, BARDA was recently here celebrating the opening of Flanders One and the pandemic preparedness capacity that comes from that and reiterated that that's a 10-year arrangement. So I think that should not be subject to any political changes.

Thank you.

Your next question comes from the line of Matt Hewitt with Craig Howell Capital Group. Please go ahead.

Good afternoon. Thank you for taking the questions. Maybe first of all, I was hoping to dig in a little bit on your commentary regarding the soft bioprocessing backdrop. Obviously, there's been some mixed reports so far this earnings season. Some, I guess, more on the consumable side outside of China have commented that the market is showing signs of improvement. Others, where it's more equipment-heavy or more Asia-Pacific, China-related, are still seeing headwinds. What are you seeing? And when you were saying the soft bioprocessing backdrop, I guess kind of what exactly are you referring to?

Yeah, that's an insightful question because I like how you've divided that up. We, of course, look at all of our peers in bioprocessing, both the peers who sell the equipment and appears in CDMO. A significant proportion of the Cygnus customer base is CDMO related. And what we are sensitive to is program starts, specifically and actually heavier weighted on the early side of the funnel, so phase preclinical and phase one. phase two and so on use proportionately more of the Cygnus host cell protein detection kits than the late phase do. So as people focus on their downstream or their late phase projects and deprioritize their early phase projects, it actually has an outsize impact on the number of kits that Cygnus sells. That said, Overall, the peer set we look at has centered around flat year over year to minus mid to high single digits. And Cygnus is performing basically in the middle of that range this year with the new guidance. So we think they're essentially at the bioprocessing industry norm. And that's across the whole peer set, whether it be primarily capital equipment-based, consumable-based, or the CDMOs.

That's really helpful. Thank you. And then maybe separately regarding the officinated bioacquisition, obviously software, but I'm just curious, when you look at that, is there some customer overlap? Is, you know, what drove you to start those conversations? Was it a customer asking for it? Was this you looking at your portfolio saying, boy, we could really use some help in, you know, in this area? Just any more color on the why there.

Yeah. you're exactly right with your latter comment, which was we needed help. We have the capability from the perspective of input chemistry, the variety of chemistry, and now with our new 96-well plate-based mRNA screening product, we have the capability to let people do combinatorial optimization that they've never been able to do before. What we lacked for TriLink was a front-end design environment, one that was informed by bioinformatics, and in particular, one that could accelerate and improve the efficacy of designs using AI and machine learning. And if UCNA was a startup that really started there, software as a service and a design environment, that we're going to bolt right onto the front end that leads to e-commerce, that links directly to our limbs, to create not only a seamless design experience for the customer, but a really rapid high throughput experience for mRNA construct experiments and optimization. So it was really primarily driven there. I would say there was no customer overlap. They had a different go to market for their DNA and RNA construct services that will be expansionary for us and reach a slightly different target market than we do with our pure place service business.

Got it. All right. Thank you.

Your next question comes from the line of Dan Arians with Stifel. Please go ahead.

Hi, guys. Thanks for the questions. Trey, in rough terms, what percentage of the GRNA trial starts that you have on that bar chart there are being sponsored by companies that are customers or that you think have a good chance of being customers? And do you see that activity as needle moving for NAP next year?

I think we do see it as needle moving for NAP. We have reported, as you know, many times the overall active mRNA program percentage of CleanCap, which, by the way, remains 30%. We haven't disclosed, and frankly, it's rather new data for the guide RNA portion of that. So keep in mind those trials include two shots on goal for us. the existing mRNA that would express the cast endonuclease in vivo, and the newer area, which is for GMP guide RNA. I'll pass that to Drew for a few more comments.

Yeah, sure. Look, I would say we don't see any sign that the percentage participation of clean cap is any different. You know, not all of those programs use mRNA, but I think participation, best we can tell, is likely the same. Anecdotally, we see a lot of activity there, Dan. The participation of mRNA in that universe appears to us to be growing versus other modalities, but we only see what we see. I think percentage-wise, we don't see any difference.

Yeah, okay. And then just to follow up, Kevin, on the EBITDA guidance, how de-risk do you think the 4Q outlook there is? And then, you know, performance has been pretty tied to the hip with revenues, which you've talked about. Do you think as you come off of some of these things that are going on in 2024, that can maybe decouple a bit? Do you see yourself having some additional flexibility that just sort of gives you some wiggle room to top line that's materialized? the way that you forecast? Or is the P&L relationship pretty much what it is to trade point? There is a lot of fixed costs there.

Yeah, I think following our restructuring in the fourth quarter of last year, I think we've got the cost structure to a place that we find appropriate. It's lean. It allows us to best care for our customers and do what we want to do while not only staying lean, but also continue to make some incremental investments in commercial. I think that's It continues to be the one area that we never really came out of the box very strong most of our acquisitions. And as we formed this company, it's been very science-based, very operational. And I think in a much more competitive landscape today, I think having those feet on the street and getting customer intimacy will continue to be important. So we're going to continue to invest there as we have been over the last couple of years. I don't see the business model changing such that we'll have more discretionary spend to offset changes in revenue. I think the model is a good one, frankly. It's about filling up the factory and driving the top line, and I think that's going to be our continued focus here for the fourth quarter and as we move into 2025. Okay. Thank you.

Okay, well, everyone, it appears we're having some technical difficulties. I apologize to anyone still in the queue. We will try to follow up with you individually. Thank you for your time. Again, apologies for this technical issue, and we hope we can connect with you. We'll be at a couple of conferences during the month of November and hope to see you there.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.