UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20212022
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-39725
Maravai LifeSciences Holdings, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
| Delaware | | 8731 | | 85-2786970 |
| (State or other jurisdiction of incorporation or organization) | | (Primary Standard Industrial
Classification Code Number) | | (I.R.S. Employer Identification No.) |
| | | | |
10770 Wateridge Circle, Suite 200 San Diego, California | | | | 92121 |
| (Address of principal executive offices) | | | | (Zip code) |
Registrant’s telephone number, including area code: (858) 546-0004
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Class A common stock, $0.01 par value | | MRVI | | The Nasdaq Stock Market LLC |
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | |
| Large accelerated filer | oý | Accelerated filer | o |
| Non-accelerated filer | ýo | Smaller reporting company | o |
| | Emerging growth company | ýo |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
As of November 5, 2021, 131,458,704October 28, 2022, 131,539,642 shares of the registrant’s Class A common stock were outstanding and 126,239,611123,669,196 shares of the registrant’s Class B common stock were outstanding.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTFORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties.1995. All statements other than statements of historical fact included in this report, including, without limitation, statements under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements often may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussionmeaning. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of the timing or nature of our future operating or financial performance or other events. All forward-looking statements are subject to risks, uncertainties and uncertaintiesother factors that may cause our actual results to differ materially from those that we expected, including:
•The extent and duration of our historyrevenue associated with COVID-19 related products and services are uncertain and are dependent, in important respects, on factors outside of losses, the risk that we may continue to incur losses in the future and our ability to generate sufficient revenue to achieve or maintain profitability;control.
•the fluctuationCertain of our operating results, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide;
•our dependence on a limited number ofproducts are used by customers for a high percentage of our revenue;
•the use of certain of our products in the production of vaccines and therapies, thatsome of which represent relatively new and still-developing modes of treatment, which may experience unforeseentreatment. Unforeseen adverse events, negative clinical outcomes, development of alternative therapies, or increased regulatory scrutiny;scrutiny of these and their financial cost may damage public perception of the safety, utility, or efficacy of these vaccines and therapies or other modes of treatment and may harm our customers’ ability to conduct their business. Such events may negatively impact our revenue and have an adverse effect on our performance.
•the impact of COVID-19 and any pandemic, epidemic or outbreak of infectious disease;
•changes in economic conditions;
•We are dependent on our dependence on customers’ spending on and demand for outsourced nucleic acid production and biologics safety testing;testing products and services. A reduction in spending or demand could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
•competitionWe compete with life science, pharmaceutical and biotechnology companies who are substantially larger than we are and potentially capable of developing new approaches that could make our products, services and technologies obsolete;technology obsolete.
•the ability ofIf our products and services todo not perform as expected andor the reliability of the technology on which our products and services are based;
•the complexitybased is questioned, we could experience lost revenue, delayed or reduced market acceptance of our products and the fact that theyservices, increased costs and damage to our reputation.
•Our products are highly complex and are subject to quality control requirements;requirements.
•Our success depends on the market acceptance of our reliancelife science reagents. Our reagents may not achieve or maintain significant commercial market acceptance.
•Until the 2020 fiscal year, we had incurred losses for each fiscal year since inception. We may incur losses in the future, and we may not be able to generate sufficient revenue to maintain profitability.
•Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.
•Product liability lawsuits against us could cause us to incur substantial liabilities, limit sales of our existing products and limit commercialization of any products that we may develop.
•Our acquisitions expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.
•We depend on a limited number of customers for a high percentage of our revenue. If we cannot maintain our current relationships with customers, fail to sustain recurring sources of revenue with our existing customers, or if we fail to enter into new relationships, our future operating results will be adversely affected.
•We rely on a limited number of suppliers or, in some cases, sole suppliers, for some of our raw materials and our inabilitymay not be able to find replacements or immediately transition to alternative suppliers;suppliers.
•our dependence on a stable and adequate supply of quality raw materials from our suppliers, andOur products could become subject to more onerous regulation by the risk of adverse impacts from price increases or interruptions of such supply;
•disruptions at our sites;
•our ability to manufacture in specific quantities;
•natural disasters, geopolitical unrest, war, terrorism, public health issues such as COVID-19FDA or other catastrophic events thatregulatory agencies in the future, which could disrupt the supply, deliveryincrease our costs and delay or demand of products and services;
•our ability to secure additional financing for future strategic transactions;
•our reliance on third-party package delivery services and adverse impacts arising from significant disruptions of these services, damages or losses sustained during shipping or significant increases in prices;
•our ability to continue to hire and retain skilled personnel;
•our ability to successfully identify and implement distribution arrangements and marketing alliances;
•the market acceptanceprevent commercialization of our life science reagents;
•the market receptivity toproducts, thereby materially and adversely affecting our new productsbusiness, financial condition, results of operations, cash flows and services upon their introduction;
•our ability to implement our strategies for revenue growth;
•the accuracy of our estimates of market opportunity and forecasts of market growth;prospects.
•product liability lawsuits;
•the application of privacy laws, security laws, regulations, policies and contractual obligations related to data privacy and security;
•our ability to efficiently manage our growth;
•the success of any opportunistic acquisitions;
•the integrity of our internal computer systems;
•the impact of export and import control laws and regulations;
•risks related to Brexit;
•changes in political, economic or governmental regulations;
•financial, operating, legal and compliance risks associated with global operations;
•risks associated with our acquisitions and divestitures;
•impacts from foreign currency exchange rates;
•the risk that our products could become subject to more onerous regulation in the future;
•our ability to use net operating loss and tax credit carryforwards;
•the fact that our activitiesIf we are and will continue to be subject to extensive government regulation;
•the risk that we may be required to record a significant charge to earnings if our goodwill or other amortizable intangible assets become impaired;
•unfavorable accounting charges or effects driven by changes in accounting principles or guidance;
•impacts on our financial results from our revenue recognition and other factors;
•fluctuations in our effective tax rate;
•environmental risks;
•our abilityunable to obtain, maintain and enforce intellectual property protection for our current or future products, or if the scope of our intellectual property protection is not sufficiently broad, our ability to commercialize our products successfully and future products;to compete effectively may be materially adversely affected.
•our ability to protect the confidentiality of our proprietary information;
•our ability to protect our intellectual property throughout the world, including risks associated with lawsuits to protect our patents or with respect to the infringement, misappropriations or other violations of intellectual property rights of third parties;
•risks associated with failuresIf we fail to comply with our obligations under any license agreements;agreements, disagree over contract interpretation, or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are necessary to our business.
•potential changes in patent law in the United StatesOur existing indebtedness could adversely affect our business and other jurisdictions;growth prospects.
•Our principal asset is our interest in Maravai Topco Holdings, LLC (“Topco LLC”), and, accordingly, we depend on distributions from Topco LLC to pay our taxes and expenses, including payments under a tax receivable agreement with the former owners of Topco LLC (the “Tax Receivable Agreement” or “TRA”). Topco LLC’s ability to obtainmake such distributions may be subject to various limitations and maintain our patent protection;restrictions.
•impactConflicts of claims by third partiesinterest could arise between our shareholders and Maravai Life Sciences Holdings, LLC (“MLSH 1”), the only other member of Topco LLC, which may impede business decisions that we orcould benefit our employees, consultants or independent contractors have infringed, misappropriated or otherwise violated their intellectual property;shareholders.
•The Tax Receivable Agreement requires us to make cash payments to MLSH 1 and Maravai Life Sciences Holdings 2, LLC (“MLSH 2”), an entity through which certain of our reliance on confidentiality agreements;former owners hold their interests in the Company, in respect of certain tax benefits to which we may become entitled, and we expect that the payments we will be required to make will be substantial.
•threatsOur organizational structure, including the Tax Receivable Agreement, confers certain benefits upon MLSH 1 and MLSH 2 that will not relatedbenefit the other common shareholders to intellectual property;the same extent as they will benefit MLSH 1 and MLSH 2.
•other risks addressedGTCR, LLC (“GTCR”) controls us, and its interests may conflict with ours or yours in the future.
•Provisions of our Annual Report on Form 10-K for the year ended December 31, 2020, as well as othercorporate governance documents on file with the Securitiescould make an acquisition of us more difficult and Exchange Commission.may prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders.
We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause our actual results to differ materially from our expectations or cautionary statements are disclosed under the sectionsections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 and in this Quarterly Report on Form 10-Q.
The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Part I.
Item 1. Financial Statements and Supplementary Data
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| Assets | Assets | | | | Assets | | | |
| Current assets: | Current assets: | | Current assets: | |
| Cash | Cash | $ | 547,898 | | | $ | 236,184 | | Cash | $ | 617,446 | | | $ | 551,272 | |
| Accounts receivable, net | Accounts receivable, net | 65,939 | | | 51,018 | | Accounts receivable, net | 114,069 | | | 117,512 | |
| Inventory | Inventory | 56,246 | | | 33,301 | | Inventory | 62,424 | | | 51,557 | |
| Prepaid expenses and other current assets | Prepaid expenses and other current assets | 17,395 | | | 11,095 | | Prepaid expenses and other current assets | 23,432 | | | 19,698 | |
| Government funding receivable | | Government funding receivable | 18,155 | | | — | |
| | Total current assets | Total current assets | 687,478 | | | 331,598 | | Total current assets | 835,526 | | | 740,039 | |
| Property and equipment, net | Property and equipment, net | 108,322 | | | 101,305 | | Property and equipment, net | 48,420 | | | 46,332 | |
| Goodwill | Goodwill | 152,766 | | | 224,275 | | Goodwill | 283,535 | | | 152,766 | |
| Intangible assets, net | Intangible assets, net | 121,225 | | | 177,656 | | Intangible assets, net | 222,899 | | | 117,571 | |
| Deferred tax assets | Deferred tax assets | 820,786 | | | 431,699 | | Deferred tax assets | 771,120 | | | 808,117 | |
| Other assets | Other assets | 4,106 | | | 4,158 | | Other assets | 87,399 | | | 53,451 | |
| Total assets | Total assets | $ | 1,894,683 | | | $ | 1,270,691 | | Total assets | $ | 2,248,899 | | | $ | 1,918,276 | |
| Liabilities and stockholders' equity | | | | |
| Liabilities and stockholders’ equity | | Liabilities and stockholders’ equity | | | |
| Current liabilities: | Current liabilities: | | Current liabilities: | |
| Accounts payable | Accounts payable | $ | 8,917 | | | $ | 8,171 | | Accounts payable | $ | 9,459 | | | $ | 8,154 | |
| Accrued expenses and other current liabilities | Accrued expenses and other current liabilities | 31,422 | | | 38,546 | | Accrued expenses and other current liabilities | 60,187 | | | 34,574 | |
| Deferred revenue | Deferred revenue | 66,715 | | | 78,061 | | Deferred revenue | 5,822 | | | 10,211 | |
| Current portion of payable to related parties pursuant to a Tax Receivable Agreement | 1,298 | | | — | | |
| Current portion of payable to related parties pursuant to the Tax Receivable Agreement | | Current portion of payable to related parties pursuant to the Tax Receivable Agreement | 34,747 | | | 34,838 | |
| Current portion of long-term debt | Current portion of long-term debt | 6,000 | | | 6,000 | | Current portion of long-term debt | 5,440 | | | 6,000 | |
| | Total current liabilities | Total current liabilities | 114,352 | | | 130,778 | | Total current liabilities | 115,655 | | | 93,777 | |
| Long-term debt, less current portion | Long-term debt, less current portion | 525,584 | | | 528,614 | | Long-term debt, less current portion | 522,824 | | | 524,591 | |
| Deferred tax liabilities | — | | | 8,609 | | |
| Lease facility financing obligation, less current portion | 55,324 | | | 56,167 | | |
| Payable to related parties pursuant to a Tax Receivable Agreement | 744,254 | | | 389,546 | | |
| | Payable to related parties pursuant to the Tax Receivable Agreement, less current portion | | Payable to related parties pursuant to the Tax Receivable Agreement, less current portion | 711,232 | | | 713,481 | |
| Other long-term liabilities | Other long-term liabilities | 1,553 | | | 2,231 | | Other long-term liabilities | 57,519 | | | 41,066 | |
| Total liabilities | Total liabilities | 1,441,067 | | | 1,115,945 | | Total liabilities | 1,407,230 | | | 1,372,915 | |
| Lease commitments (Note 5) | 0 | | 0 | |
| Stockholders' equity: | | |
| Class A common stock, $0.01 par value - 500,000 shares authorized; 131,420 and 96,647 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 1,314 | | | 966 | | |
| Class B common stock, $0.01 par value - 300,000 shares authorized; 126,240 and 160,974 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively | 1,262 | | | 1,610 | | |
| | Stockholders’ equity: | | Stockholders’ equity: | | | |
| Class A common stock, $0.01 par value - 500,000 shares authorized; 131,540 and 131,488 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | | Class A common stock, $0.01 par value - 500,000 shares authorized; 131,540 and 131,488 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 1,315 | | | 1,315 | |
| Class B common stock, $0.01 par value - 300,000 shares authorized; 123,669 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | | Class B common stock, $0.01 par value - 300,000 shares authorized; 123,669 shares issued and outstanding as of September 30, 2022 and December 31, 2021 | 1,237 | | | 1,237 | |
| Additional paid-in capital | Additional paid-in capital | 172,611 | | | 85,125 | | Additional paid-in capital | 134,077 | | | 128,386 | |
| Accumulated other comprehensive loss | — | | | (44) | | |
| | Retained earnings | Retained earnings | 127,450 | | | 854 | | Retained earnings | 367,132 | | | 184,561 | |
| Total stockholders' equity attributable to Maravai LifeSciences Holdings, Inc. | 302,637 | | | 88,511 | | |
| Total stockholders’ equity attributable to Maravai LifeSciences Holdings, Inc. | | Total stockholders’ equity attributable to Maravai LifeSciences Holdings, Inc. | 503,761 | | | 315,499 | |
| Non-controlling interest | Non-controlling interest | 150,979 | | | 66,235 | | Non-controlling interest | 337,908 | | | 229,862 | |
| Total stockholders' equity | 453,616 | | | 154,746 | | |
| Total liabilities and stockholders' equity | $ | 1,894,683 | | | $ | 1,270,691 | | |
| Total stockholders’ equity | | Total stockholders’ equity | 841,669 | | | 545,361 | |
| Total liabilities and stockholders’ equity | | Total liabilities and stockholders’ equity | $ | 2,248,899 | | | $ | 1,918,276 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021
(as adjusted)* | | 2022 | | 2021
(as adjusted)* |
| Revenue | $ | 191,263 | | | $ | 204,810 | | | $ | 678,288 | | | $ | 570,796 | |
| Operating expenses: | | | | | | | |
| Cost of revenue | 38,176 | | | 32,221 | | | 115,704 | | | 101,423 | |
| Selling, general and administrative | 30,795 | | | 26,512 | | | 92,056 | | | 74,483 | |
| Research and development | 5,389 | | | 1,946 | | | 13,358 | | | 6,035 | |
| Change in estimated fair value of contingent consideration | — | | | — | | | (7,800) | | | — | |
| Gain on sale of business | — | | | (11,249) | | | — | | | (11,249) | |
| | | | | | | |
| Total operating expenses | 74,360 | | | 49,430 | | | 213,318 | | | 170,692 | |
| Income from operations | 116,903 | | | 155,380 | | | 464,970 | | | 400,104 | |
| Other income (expense): | | | | | | | |
| Interest expense | (3,136) | | | (7,685) | | | (10,234) | | | (23,238) | |
| Loss on extinguishment of debt | — | | | — | | | (208) | | | — | |
| Change in payable to related parties pursuant to the Tax Receivable Agreement | — | | | 3,246 | | | 2,340 | | | 9,132 | |
| Other (expense) income | (4) | | | 78 | | | (1,272) | | | 78 | |
| Income before income taxes | 113,763 | | | 151,019 | | | 455,596 | | | 386,076 | |
| Income tax expense | 14,110 | | | 18,842 | | | 52,362 | | | 43,937 | |
| Net income | 99,653 | | | 132,177 | | | 403,234 | | | 342,139 | |
| Net income attributable to non-controlling interests | 55,184 | | | 78,215 | | | 220,663 | | | 215,932 | |
| Net income attributable to Maravai LifeSciences Holdings, Inc. | $ | 44,469 | | | $ | 53,962 | | | $ | 182,571 | | | $ | 126,207 | |
| | | | | | | |
| Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.: | | | | | | | |
| Basic | $ | 0.34 | | | $ | 0.46 | | | $ | 1.39 | | | $ | 1.16 | |
| Diluted | $ | 0.34 | | | $ | 0.44 | | | $ | 1.37 | | | $ | 1.13 | |
| | | | | | | |
| Weighted average number of Class A common shares outstanding: | | | | | | | |
| Basic | 131,540 | | | 118,433 | | | 131,518 | | | 109,174 | |
| Diluted | 131,651 | | | 258,028 | | | 255,323 | | | 257,799 | |
____________________
*As adjusted to reflect the impact of the adoption of Accounting Standards Codification 842 (“ASC 842”). See Note 1 to the condensed consolidated financial statements for a summary of the adjustments.
The accompanying notes are an integral part of these condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share and per unit amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Revenue | $ | 204,810 | | | $ | 87,859 | | | $ | 570,796 | | | $ | 185,745 | |
| Operating expenses: | | | | | | | |
| Cost of revenue | 32,047 | | | 19,760 | | | 99,928 | | | 56,254 | |
| Research and development | 1,950 | | | 1,868 | | | 6,046 | | | 7,212 | |
| Selling, general and administrative | 25,189 | | | 20,510 | | | 72,511 | | | 52,624 | |
| | | | | | | |
| Gain on sale of business | (11,249) | | | — | | | (11,249) | | | — | |
| Gain on sale and leaseback transaction | — | | | — | | | — | | | (19,002) | |
| Total operating expenses | 47,937 | | | 42,138 | | | 167,236 | | | 97,088 | |
| Income from operations | 156,873 | | | 45,721 | | | 403,560 | | | 88,657 | |
| Other income (expense): | | | | | | | |
| Interest expense | (8,545) | | | (7,089) | | | (25,827) | | | (21,934) | |
| | | | | | | |
| Change in payable to related parties pursuant to a Tax Receivable Agreement | 3,246 | | | — | | | 9,132 | | | — | |
| Other income | 78 | | | 32 | | | 78 | | | 132 | |
| Income before income taxes | 151,652 | | | 38,664 | | | 386,943 | | | 66,855 | |
| Income tax expense (benefit) | 18,842 | | | (359) | | | 43,937 | | | 2,511 | |
| Net income | 132,810 | | | 39,023 | | | 343,006 | | | 64,344 | |
| Net income attributable to non-controlling interests | 78,536 | | | 73 | | | 216,410 | | | 582 | |
| Net income attributable to Maravai LifeSciences Holdings, Inc. | $ | 54,274 | | | $ | 38,950 | | | $ | 126,596 | | | $ | 63,762 | |
| | | | | | | |
| Net income per Class A common share/unit attributable to Maravai LifeSciences Holdings, Inc.: | | | | | | | |
| Basic | $ | 0.46 | | | $ | 0.12 | | | $ | 1.16 | | | $ | 0.21 | |
| Diluted | $ | 0.45 | | | $ | 0.12 | | | $ | 1.14 | | | $ | 0.21 | |
| | | | | | | |
| Weighted average number of Class A common shares/units outstanding: | | | | | | | |
| Basic | 118,433 | | | 253,917 | | | 109,174 | | | 253,917 | |
| Diluted | 258,028 | | | 253,917 | | | 257,799 | | | 253,917 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021
(as adjusted)* | | 2022 | | 2021
(as adjusted)* |
| Net income | Net income | $ | 132,810 | | | $ | 39,023 | | | $ | 343,006 | | | $ | 64,344 | | Net income | $ | 99,653 | | | $ | 132,177 | | | $ | 403,234 | | | $ | 342,139 | |
| Other comprehensive income: | Other comprehensive income: | | Other comprehensive income: | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 39 | | | 30 | | | 55 | | | (31) | | Foreign currency translation adjustments | — | | | 39 | | | — | | | 55 | |
| | Total other comprehensive income | Total other comprehensive income | 132,849 | | | 39,053 | | | 343,061 | | | 64,313 | | Total other comprehensive income | 99,653 | | | 132,216 | | | 403,234 | | | 342,194 | |
| Comprehensive income attributable to non-controlling interests | Comprehensive income attributable to non-controlling interests | 78,536 | | | 73 | | | 216,421 | | | 582 | | Comprehensive income attributable to non-controlling interests | 55,184 | | | 78,215 | | | 220,663 | | | 215,943 | |
| Total comprehensive income attributable to Maravai LifeSciences Holdings, Inc. | Total comprehensive income attributable to Maravai LifeSciences Holdings, Inc. | $ | 54,313 | | | $ | 38,980 | | | $ | 126,640 | | | $ | 63,731 | | Total comprehensive income attributable to Maravai LifeSciences Holdings, Inc. | $ | 44,469 | | | $ | 54,001 | | | $ | 182,571 | | | $ | 126,251 | |
____________________
The accompanying notes are an integral part of the condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’/MEMBER’S EQUITY
(in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Class A Common Stock | | Class B Common Stock | | | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders'/Member's Equity |
| June 30, 2021 | 114,352 | | $ | 1,143 | | | 143,308 | | $ | 1,433 | | | $ | 118,208 | | | $ | (39) | | | $ | 73,176 | | | $ | 139,220 | | | $ | 333,141 | |
| Effect of exchange of LLC Units | 17,068 | | | 171 | | | (17,068) | | | (171) | | | 18,669 | | | — | | | — | | | (18,669) | | | — | |
| Recognition of impact of Tax Receivable Agreement due to exchanges of LLC Units | — | | | — | | | — | | | — | | | 34,060 | | | — | | | — | | | — | | | 34,060 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | — | | | — | | | — | | | — | | | 1,614 | | | — | | | — | | | 1,953 | | | 3,567 | |
| Distribution for tax liabilities to non-controlling interest holder | — | | | — | | | — | | | — | | | 60 | | | — | | | — | | | (50,061) | | | (50,001) | |
| Net income | — | | | — | | | | | — | | | — | | | — | | | 54,274 | | | 78,536 | | | 132,810 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 39 | | | — | | | — | | | 39 | |
| September 30, 2021 | 131,420 | | $ | 1,314 | | | 126,240 | | $ | 1,262 | | | $ | 172,611 | | | $ | — | | | $ | 127,450 | | | $ | 150,979 | | | $ | 453,616 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Class A Common Stock | | Class B Common Stock | | | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders’ Equity |
| June 30, 2022 | 131,539 | | $ | 1,315 | | | 123,669 | | $ | 1,237 | | | $ | 131,373 | | | | | $ | 322,663 | | | $ | 317,204 | | | $ | 773,792 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes | 1 | | | — | | | — | | | — | | | 25 | | | | | — | | | — | | | 25 | |
| Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | — | | | — | | | — | | | — | | | (35) | | | | | — | | | 35 | | | — | |
| Stock-based compensation | — | | | — | | | — | | | — | | | 2,443 | | | | | — | | | 2,297 | | | 4,740 | |
| Distribution for tax liabilities to non-controlling interest holder | — | | | — | | | — | | | — | | | 271 | | | | | — | | | (36,812) | | | (36,541) | |
| | | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | — | | | | | 44,469 | | | 55,184 | | | 99,653 | |
| | | | | | | | | | | | | | | | | |
| September 30, 2022 | 131,540 | | $ | 1,315 | | | 123,669 | | $ | 1,237 | | | $ | 134,077 | | | | | $ | 367,132 | | | $ | 337,908 | | | $ | 841,669 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Class A Common Stock | | Class B Common Stock | | | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders’ Equity |
| December 31, 2021 | 131,488 | | $ | 1,315 | | | 123,669 | | $ | 1,237 | | | $ | 128,386 | | | | | $ | 184,561 | | | $ | 229,862 | | | $ | 545,361 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes | 52 | | | — | | | — | | | — | | | 1,173 | | | | | — | | | — | | | 1,173 | |
| Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | — | | | — | | | — | | | — | | | (529) | | | | | — | | | 529 | | | — | |
| Stock-based compensation | — | | | — | | | — | | | — | | | 6,532 | | | | | — | | | 6,143 | | | 12,675 | |
| Distribution for tax liabilities to non-controlling interest holder | — | | | — | | | — | | | — | | | 206 | | | | | — | | | (119,289) | | | (119,083) | |
| Impact of change to deferred tax asset associated with cash contribution to Topco LLC | — | | | — | | | — | | | — | | | (1,691) | | | | | — | | | — | | | (1,691) | |
| Net income | — | | | — | | | — | | | — | | | — | | | | | 182,571 | | | 220,663 | | | 403,234 | |
| | | | | | | | | | | | | | | | | |
| September 30, 2022 | 131,540 | | $ | 1,315 | | | 123,669 | | $ | 1,237 | | | $ | 134,077 | | | | | $ | 367,132 | | | $ | 337,908 | | | $ | 841,669 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Class A Common Stock | | Class B Common Stock | | | | | | | | | | |
| Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders’ Equity |
June 30, 2021
(as adjusted)* | 114,352 | | $ | 1,143 | | | 143,308 | | $ | 1,433 | | | $ | 118,486 | | | $ | (39) | | | $ | 74,769 | | | $ | 141,569 | | | $ | 337,361 | |
| | | | | | | | | | | | | | | | | |
| Effect of exchange of LLC Units | 17,068 | | | 171 | | | (17,068) | | | (171) | | | 18,874 | | | — | | | — | | | (18,874) | | | — | |
| Recognition of impact of the Tax Receivable Agreement due to exchanges of LLC Units | — | | | — | | | — | | | — | | | 34,060 | | | — | | | — | | | — | | | 34,060 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Stock-based compensation | — | | | — | | | — | | | — | | | 1,614 | | | — | | | — | | | 1,953 | | | 3,567 | |
| Distribution for tax liabilities to non-controlling interest holder | — | | | — | | | — | | | — | | | 60 | | | — | | | — | | | (50,061) | | | (50,001) | |
| Net income | — | | | — | | | — | | | — | | | — | | | — | | | 53,962 | | | 78,215 | | | 132,177 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 39 | | | — | | | — | | | 39 | |
September 30, 2021
(as adjusted)* | 131,420 | | $ | 1,314 | | | 126,240 | | $ | 1,262 | | | $ | 173,094 | | | $ | — | | | $ | 128,731 | | | $ | 152,802 | | | $ | 457,203 | |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements for a summary of the adjustments.
MARAVAI LIFESCIENCES HOLDINGS, INC.
| | | Nine Months Ended September 30, 2021 | | Nine Months Ended September 30, 2021 |
| | Class A Common Stock | | Class B Common Stock | | | Class A Common Stock | | Class B Common Stock | |
| | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders'/Member's Equity | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Non-Controlling Interest | | Total Stockholders’ Equity |
| December 31, 2020 | December 31, 2020 | 96,647 | | $ | 966 | | | 160,974 | | $ | 1,610 | | | $ | 85,125 | | | $ | (44) | | | $ | 854 | | | $ | 66,235 | | | $ | 154,746 | | December 31, 2020 | 96,647 | | $ | 966 | | | 160,974 | | $ | 1,610 | | | $ | 85,125 | | | $ | (44) | | | $ | 854 | | | $ | 66,235 | | | $ | 154,746 | |
| Effect of exchanges of LLC Units | 34,734 | | | 348 | | | (34,734) | | | (348) | | | 30,520 | | | — | | | — | | | (30,520) | | | — | | |
| Recognition of impact of Tax Receivable Agreement due to exchanges of LLC Units | — | | | — | | | — | | | — | | | 53,000 | | | — | | | — | | | — | | | 53,000 | | |
| Issuance of Class A common stock under employee equity plans | 39 | | | — | | | — | | | — | | | 785 | | | — | | | — | | | — | | | 785 | | |
| Cumulative effect of adoption of ASC 842, net of tax | | Cumulative effect of adoption of ASC 842, net of tax | — | | | — | | | — | | | — | | | — | | | — | | | 1,670 | | | 2,784 | | | 4,454 | |
| Effect of exchange of LLC Units | | Effect of exchange of LLC Units | 34,734 | | | 348 | | | (34,734) | | | (348) | | | 31,003 | | | — | | | — | | | (31,003) | | | — | |
| Recognition of impact of the Tax Receivable Agreement due to exchanges of LLC Units | | Recognition of impact of the Tax Receivable Agreement due to exchanges of LLC Units | — | | | — | | | — | | | — | | | 53,000 | | | — | | | — | | | — | | | 53,000 | |
| Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes | | Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes | 39 | | | — | | | — | | | — | | | 785 | | | — | | | — | | | — | | | 785 | |
| | Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | — | | | — | | | — | | | — | | | (420) | | | — | | | — | | | 420 | | | — | | Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC | — | | | — | | | — | | | — | | | (420) | | | — | | | — | | | 420 | | | — | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | — | | | — | | | 3,507 | | | — | | | — | | | 4,721 | | | 8,228 | | Stock-based compensation | — | | | — | | | — | | | — | | | 3,507 | | | — | | | — | | | 4,721 | | | 8,228 | |
| Distribution for tax liabilities to non-controlling interest holder | Distribution for tax liabilities to non-controlling interest holder | — | | | — | | | — | | | — | | | 94 | | | — | | | — | | | (106,298) | | | (106,204) | | Distribution for tax liabilities to non-controlling interest holder | — | | | — | | | — | | | — | | | 94 | | | — | | | — | | | (106,298) | | | (106,204) | |
| Net income | Net income | — | | | — | | | — | | | — | | | — | | | — | | | 126,596 | | | 216,410 | | | 343,006 | | Net income | — | | | — | | | — | | | — | | | — | | | — | | | 126,207 | | | 215,932 | | | 342,139 | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 44 | | | — | | | 11 | | | 55 | | Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 44 | | | — | | | 11 | | | 55 | |
| September 30, 2021 | 131,420 | | $ | 1,314 | | | 126,240 | | $ | 1,262 | | | $ | 172,611 | | | $ | — | | | $ | 127,450 | | | $ | 150,979 | | | $ | 453,616 | | |
September 30, 2021
(as adjusted)* | | September 30, 2021
(as adjusted)* | 131,420 | | $ | 1,314 | | | 126,240 | | $ | 1,262 | | | $ | 173,094 | | | $ | — | | | $ | 128,731 | | | $ | 152,802 | | | $ | 457,203 | |
____________________
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Units | | Amount | | Contributed Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Non-Controlling Interest | | Total Member's Equity |
| June 30, 2020 | 253,917 | | $ | — | | | $ | 184,628 | | | $ | (194) | | | $ | (17,569) | | | $ | 3,916 | | | $ | 170,781 | |
| Repurchase of incentive units | — | | — | | | (9,140) | | | — | | | — | | | — | | | (9,140) | |
| Unit-based compensation | — | | — | | | 542 | | | — | | | — | | | 1,307 | | | 1,849 | |
| Distributions to non-controlling interest holders | — | | — | | | (122) | | | — | | | — | | | — | | | (122) | |
| Net income | — | | — | | | — | | | — | | | 38,950 | | | 73 | | | 39,023 | |
| Recognition of repurchase liability for non-controlling interests | — | | — | | | (161,131) | | | — | | | — | | | (5,296) | | | (166,427) | |
| Foreign currency translation adjustment | — | | — | | | — | | | 30 | | | — | | | — | | | 30 | |
| September 30, 2020 | 253,917 | | $ | — | | | $ | 14,777 | | | $ | (164) | | | $ | 21,381 | | | $ | — | | | $ | 35,994 | |
MARAVAI LIFESCIENCES HOLDINGS, INC.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Units | | Amount | | Contributed Capital | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Non-Controlling Interest | | Total Member's Equity |
| December 31, 2019 | 253,917 | | $ | — | | | $ | 183,910 | | | $ | (133) | | | $ | (42,381) | | | $ | 3,231 | | | $ | 144,627 | |
| Repurchase of incentive units | — | | — | | | (9,140) | | | — | | | — | | | — | | | (9,140) | |
| Unit-based compensation | — | | — | | | 1,450 | | | — | | | — | | | 1,483 | | | 2,933 | |
| Distributions to non-controlling interests holders | — | | — | | | (312) | | | — | | | — | | | — | | | (312) | |
| Net income | — | | — | | | — | | | — | | | 63,762 | | | 582 | | | 64,344 | |
| Recognition of repurchase liability for non-controlling interests | — | | — | | | (161,131) | | | — | | | — | | | (5,296) | | | (166,427) | |
| Foreign currency translation adjustment | — | | — | | | — | | | (31) | | | — | | | — | | | (31) | |
| September 30, 2020 | 253,917 | | $ | — | | | $ | 14,777 | | | $ | (164) | | | $ | 21,381 | | | $ | — | | | $ | 35,994 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2021 | | 2020 |
| Operating activities: | | | |
| Net income | $ | 343,006 | | | $ | 64,344 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation | 6,623 | | | 4,756 | |
| Amortization of intangible assets | 14,685 | | | 15,156 | |
| | | |
| Amortization of deferred financing costs | 1,995 | | | 1,296 | |
| Equity-based compensation expense | 8,228 | | | 2,933 | |
| Deferred income taxes | 29,438 | | | (1,275) | |
| Gain on sale of business | (11,249) | | | — | |
| Gain on sale and leaseback transaction | — | | | (19,002) | |
| Acquired and in-process research and development costs | — | | | 2,881 | |
| | | |
| Revaluation of liabilities under Tax Receivable Agreement | (9,132) | | | — | |
| Other | (875) | | | 1,341 | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | (18,851) | | | (55,420) | |
| Inventory | (26,263) | | | (12,384) | |
| Prepaid expenses and other assets | (7,590) | | | (971) | |
| Accounts payable | 1,543 | | | 130 | |
| Accrued expenses and other current liabilities | (10,076) | | | 8,838 | |
| Other long-term liabilities | 267 | | | 300 | |
| Deferred revenue | (11,346) | | | 59,833 | |
| Net cash provided by operating activities | 310,403 | | | 72,756 | |
| Investing activities: | | | |
| Cash paid for asset acquisition, net of cash acquired | — | | | (3,024) | |
| Purchases of property and equipment | (9,188) | | | (16,559) | |
| Proceeds from sale of building | 548 | | | 34,500 | |
| Proceeds from sale of business, net of cash divested | 119,957 | | | — | |
| Net cash provided by investing activities | 111,317 | | | 14,917 | |
| Financing activities: | | | |
| Distributions for tax liabilities to non-controlling interests holders | (106,298) | | | (312) | |
| Proceeds from borrowings of long-term debt, net of discount | — | | | 15,000 | |
| Financing costs incurred for long-term debt | — | | | (250) | |
| Principal repayments of long-term debt | (4,500) | | | (1,875) | |
| Payments made on facility financing lease obligation and capital lease | (582) | | | (23) | |
| Proceeds from employee stock purchase plan | 1,329 | | | — | |
| Net cash (used in) provided by financing activities | (110,051) | | | 12,540 | |
| Effects of exchange rate changes on cash | 45 | | | (31) | |
| | | |
| | | |
| Net increase in cash | 311,714 | | | 100,182 | |
| Cash, beginning of period | 236,184 | | | 24,700 | |
| Cash, end of period | $ | 547,898 | | | $ | 124,882 | |
| | | |
| Supplemental cash flow information: | | | |
| Cash paid for interest | $ | 23,030 | | | $ | 19,407 | |
| Cash paid for income taxes | $ | 16,569 | | | $ | 3,506 | |
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2022 | | 2021
(as adjusted)* |
| Operating activities: | | | |
| Net income | $ | 403,234 | | | $ | 342,139 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation | 5,604 | | | 4,668 | |
| Amortization of intangible assets | 18,033 | | | 14,685 | |
| Amortization of right-of-use assets | 4,437 | | | 5,111 | |
| Amortization of deferred financing costs | 2,134 | | | 1,995 | |
| Stock-based compensation expense | 12,675 | | | 8,228 | |
| Loss on extinguishment of debt | 208 | | | — | |
| Deferred income taxes | 35,307 | | | 29,438 | |
| Change in estimated fair value of contingent consideration | (7,800) | | | — | |
| Gain on sale of business | — | | | (11,249) | |
| | | |
| | | |
| Revaluation of liabilities under the Tax Receivable Agreement | (2,340) | | | (9,132) | |
| Other | (5,529) | | | 177 | |
| Changes in operating assets and liabilities: | | | |
| Accounts receivable | 3,502 | | | (18,851) | |
| Inventory | (9,814) | | | (27,051) | |
| Prepaid expenses and other assets | (36,375) | | | (6,037) | |
| | | |
| Accounts payable | 1,890 | | | 1,543 | |
| Accrued expenses and other current liabilities | 14,114 | | | (10,927) | |
| Deferred revenue | (4,388) | | | (11,346) | |
| Other long-term liabilities | 1,750 | | | (3,564) | |
| Net cash provided by operating activities | 436,642 | | | 309,827 | |
| Investing activities: | | | |
| Cash paid for acquisition of a business, net of cash acquired | (238,836) | | | — | |
| | | |
| Purchases of property and equipment | (10,876) | | | (9,194) | |
| | | |
| Proceeds from sale of building | — | | | 548 | |
| Proceeds from sale of business, net of cash divested | 620 | | | 119,957 | |
| Net cash (used in) provided by investing activities | (249,092) | | | 111,311 | |
| Financing activities: | | | |
| Distributions for tax liabilities to non-controlling interests holders | (119,289) | | | (106,298) | |
| Proceeds from borrowings of long-term debt | 8,455 | | | — | |
| Principal repayments of long-term debt | (12,535) | | | (4,500) | |
| | | |
| Proceeds from employee stock purchase plan and exercise of stock options, net of shares withheld for employee taxes | 1,993 | | | 1,329 | |
| Net cash used in financing activities | (121,376) | | | (109,469) | |
| Effects of exchange rate changes on cash | — | | | 45 | |
| | | |
| | | |
| Net increase in cash | 66,174 | | | 311,714 | |
| Cash, beginning of period | 551,272 | | | 236,184 | |
| Cash, end of period | $ | 617,446 | | | $ | 547,898 | |
| | | |
| | | |
MARAVAI LIFESCIENCES HOLDINGS, INC.
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2021 | | 2020 |
| Supplemental disclosures of non-cash investing and financing activities: | | | |
| Property and equipment included in accounts payable and accrued expenses | $ | 826 | | | $ | 5,163 | |
| Building and improvements capitalized under lease financing transaction | $ | 4,793 | | | $ | — | |
| Recognition of liabilities under Tax Receivable Agreement | $ | 365,139 | | | $ | — | |
| Recognition of deferred tax assets as a result of exchange of LLC Units | $ | 418,140 | | | $ | — | |
| Deferred financing costs included in accounts payable and accrued expenses | $ | — | | | $ | 2,574 | |
| Repurchase liability for incentive units | $ | — | | | $ | 9,140 | |
| Repurchase liability for noncontrolling interests | $ | — | | | $ | 166,427 | |
| Receivable from lessor funded financing | $ | — | | | $ | 2,686 | |
| | | | | | | | | | | |
| Nine Months Ended
September 30, |
| 2022 | | 2021
(as adjusted)* |
| Supplemental cash flow information: | | | |
| Cash paid for interest | $ | 11,416 | | | $ | 20,612 | |
| Cash paid for income taxes | $ | 19,581 | | | $ | 16,569 | |
| | | |
| Supplemental disclosures of non-cash activities: | | | |
| Property and equipment included in accounts payable and accrued expenses | $ | 1,799 | | | $ | 866 | |
| Accrued receivable for capital expenditures to be reimbursed under a government contract | $ | 1,105 | | | $ | — | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 7,872 | | | $ | — | |
| | | |
| Fair value of contingent consideration liability recorded in connection with acquisition of a business | $ | 7,800 | | | $ | — | |
| Accrued consideration payable | $ | 10,000 | | | $ | — | |
| Recognition of liabilities under the Tax Receivable Agreement | $ | — | | | $ | 365,139 | |
| Recognition of deferred tax assets as a result of exchange of LLC Units | $ | — | | | $ | 418,140 | |
| | | |
| | | |
| | | |
| | | |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements for a summary of the adjustments.
The accompanying notes are an integral part of the condensed consolidated financial statements.
MARAVAI LIFESCIENCES HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and Significant Accounting Policies
Description of Business
Maravai LifeSciences Holdings, Inc. (the “Company”, and together with its consolidated subsidiaries, “Maravai”, “we”, “us”, and “our”) was formed as a Delaware corporation in August 2020 for the purpose of facilitating an initial public offering (“IPO”) of its Class A common stock, facilitating certain organizational transactions and to operate the business of Maravai Topco Holdings, LLC (“Topco LLC”) and its consolidated subsidiaries.
We are a leading life sciences company providingprovides critical products to enable the development of drug therapies,drugs, therapeutics, diagnostics noveland vaccines and to support research on human diseases. Our products address the key phases of biopharmaceutical development and include complex nucleic acids for diagnostic and therapeutic applications and antibody-based products to detect impurities during the production of biopharmaceutical products.
The Company is headquartered in San Diego, California, and has historically operated in 3three principal businesses: Nucleic Acid Production, Biologics Safety Testing and Protein Detection. In September 2021, the Company completed the divestiture of its Protein Detection business (see Note 2).business. Our Nucleic Acid Production business manufactures and sells products used in the fields of gene therapy, vaccines, nucleoside chemistry, oligonucleotide therapy and molecular diagnostics, including reagents used in the chemical synthesis, modification, labelling and purification of deoxyribonucleic acid (“DNA”) and ribonucleic acid (“RNA”). Our core Nucleic Acid Production offerings include messenger ribonucleic acid (“mRNA”), long and short oligonucleotides, our proprietary CleanCap® capping technology and oligonucleotide building blocks. Our Biologics Safety Testing business sells highly specialized analytical products for use in biologic manufacturing process development, including custom product-specific development antibody and assay development services. Our Protein Detection business sold innovative labeling and detection reagents
Organization
We were incorporated as a Delaware corporation in August 2020 for researchers in immunohistochemistry.
Organizational Transactions and Initial Public Offering
In November 2020, the Company completed its IPO and sold 69,000,000 sharespurpose of Class A common stock at afacilitating an initial public offering price of $27.00 per share and received proceeds of $1.8 billion, net of underwriting discounts and commissions, which the Company used to purchase previously-issued and newly-issued LLC units in Topco LLC, to pay Maravai Life Sciences Holdings 2, LLC (“MLSH 2”IPO”) as consideration for certain organizational transactions that occurred before the IPO, and to purchase outstanding shares of Class A common stock from MLSH 2.
. Immediately prior to and in connection with, the completion of our IPO, the Company completedwe effected a series of organizational transactions (“Organizational(the “Organizational Transactions”), including:
•The amendmentwhich, together with the IPO, were completed in November 2020, that resulted in the Company operating, controlling all of the business affairs and restatementbecoming the ultimate parent company of Maravai Topco LLC’s operating agreement (the “NewHoldings, LLC Operating Agreement”) to, among other things, (i) modify (“Topco LLC’s capital structure by replacing the membership interests held by Topco LLC’s existing owners with a new class of Topco LLC units (the “LLC Units”LLC”) and (ii) appoint the Company as the sole managing member of Topco LLC;
•Amend and restate the Company’s certificate of incorporation to among other things, authorize the Company to issue two classes of common stock: Class A common stock and Class B common stock;
•The issuance of shares of the Company’s Class B common stock toits consolidated subsidiaries. Maravai Life Sciences Holdings, LLC (“MLSH 1”), which was Topco LLC’s pre-IPO owner on a one-to-one basisis controlled by investment entities affiliated with GTCR, is the number of LLC Units owned; and
•The acquisition, by merger, of two membersonly other member of Topco LLC (“the Blocker Entities”), for which we issued shares of Class A common stock and paid cash as consideration (“the Blocker Mergers”).LLC.
The Company is the sole managing member of Topco LLC, which operates and controls TriLink Biotechnologies, LLC (“TriLink”), Glen Research, LLC, MockV Solutions, LLC and Cygnus Technologies, LLC (“Cygnus”) and their respective subsidiaries. Prior to the Company’s divestiture of its Protein Detection business in September 2021, Topco LLC also operated and controlled Vector Laboratories, Inc. and its subsidiaries. MLSH 1 is the only other member of Topco LLC.
The Organizational Transactions were considered transactions between entities under common control. As a result, the consolidated financial statements for periods prior to the IPO and the Organizational Transactions have been adjusted to combine the previously separate entities for presentation purposes.
Exchanges and Secondary Offerings
April 2021 Exchange and Secondary Offering
In April 2021, MLSH 1 executed an exchange of 17,665,959 LLC Units (paired with the corresponding shares of Class B common stock) in return for 17,665,959 shares of the Company’s Class A common stock. The corresponding shares of Class B common stock were subsequently cancelled and retired. The Company immediately completed a secondary offeringsubsidiaries (“April 2021 Secondary Offering”Vector”) of 20,700,000 shares of its Class A common stock by MLSH 1 and MLSH 2, which included 3,034,041 shares of Class A common stock previously held by MLSH 2, which included the full exercise of the underwriters’ option to purchase up to 2,700,000 additional shares of Class A common stock, at a price of $31.25 per share.
The selling stockholders were responsible for the underwriting discounts and commissions of the April 2021 Secondary Offering and received all of the net proceeds of $624.2 million from the sale of shares of Class A common stock. The Company was responsible for the offering costs associated with the April 2021 Secondary Offering of $1.0 million which were recorded within selling, general and administrative in the condensed consolidated statements of income.
September 2021 Exchange and Secondary Offering
In September 2021, MLSH 1 executed an exchange of 17,068,559 LLC Units (paired with the corresponding shares of Class B common stock) in return for 17,068,559 shares of the Company’s Class A common stock. The corresponding shares of Class B common stock were subsequently cancelled and retired. Shortly after the exchange, the Company completed a secondary offering (“September 2021 Secondary Offering”) of 20,000,000 shares of its Class A common stock by MLSH 1 and MLSH 2, which included 2,931,441 shares of Class A common stock previously held by MLSH 2 at a price of $50.00 per share.
The selling stockholders were responsible for the underwriting discounts and commissions of the September 2021 Secondary Offering and received all of the net proceeds of $977.5 million from the sale of shares of Class A common stock. The Company was responsible for the offering costs associated with the September 2021 Secondary Offering of $0.9 million which were recorded within selling, general and administrative in the condensed consolidated statements of income..
Basis of Presentation
The Company operates and controls all of the business and affairs of Topco LLC, and, through Topco LLC and its subsidiaries, conducts its business. Because we manage and operate the business and control the strategic decisions and day-to-day operations of Topco LLC and also have a substantial financial interest in Topco LLC, we consolidate the financial results of Topco LLC, and a portion of our net income is allocated to the non-controlling interests in Topco LLC held by MLSH 1.
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and accounts between the businesses comprising the Company have been eliminated in the accompanying consolidated financial statements.
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to Form 10-Q of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are of a normal, recurring nature. Operating results for the three and nine months ended September 30, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 20212022 or for any future period.
The condensed consolidated balance sheet presented as of December 31, 2020,2021 has been derived from the audited consolidated financial statements as of that date. The condensed consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain all information that is included in the annual financial statements and notes thereto of the Company. The condensed consolidated financial statements and notes included in this report should be read in conjunction with the 2020consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”) filed with the SEC.
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires the Company to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue and expenses, and related disclosures. These estimates form the basis for judgments the Company makes about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company bases its estimates and judgments on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. These estimates are based on
management’s knowledge about current events and expectations about actions the Company may undertake in the future. Significant estimates include, but are not limited to, revenue recognition, the net realizable value of inventory, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets, estimated fair values of intangible assets and goodwill, the payable to related parties pursuant to the Tax Receivable Agreement (“TRA”)(as defined in Note 10), amortization methods and periods, the fair value of leased buildings and other assumptions associated with lease financing transactions, the estimated fair valuerealizability of our long-term debt, equity-based compensation, thenet deferred tax assets, and valuation of incentive units, allowance for doubtful accounts,goodwill and accounting for income taxes and assessment of valuation allowances.intangible assets acquired in business combinations. Actual results could differ materially from those estimates.
Significant Accounting Policies
A description of the Company’s significant accounting policies is included in Note 1 of the audited financial statements withinNotes to the Consolidated Financial Statements included in its Annual Report on2021 Form 10-K for the year ended December 31, 2020.10-K. Except as noted below, there have been no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2021.2022.
Revenue Recognition
The Company generates revenue primarily from the sale of products and, services and the performance ofto a much lesser extent, services in the fields of nucleic acid production, biologics safety testing and protein detection. Revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The majority of the Company’s contracts include only one performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account for revenue recognition. The Company also recognizes revenue from other contracts that may include a combination of products and services, the provision of solely services, or from license fee arrangements which may be associated with the delivery of product. Where there is a combination of products and services, the Company accounts for the promises as individual performance obligations if they are concluded to be distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. As a practical expedient, we do not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less. Contracts with customers are evaluated on a contract-by-contract basis as contracts may include multiple types of goods and services as described below.
Nucleic Acid Production
Nucleic Acid Production revenue is generated from the manufacture and sale of highly modified, complex nucleic acids products to support the needs of our customers’ research, therapeutic and vaccine programs. The primary offering of products includes CleanCap®, mRNA and specialized oligonucleotides. Contracts typically consist of a single performance obligation. We also sell nucleic acid products for labeling and detecting proteins in cells and tissue samples research. The Company recognizes revenue from these products in the period in which the performance obligation is satisfied by transferring control to the customer. Revenue for nucleic acid catalog products is recognized at a single point in time, generally upon shipment to the customer. Revenue for contracts for certain custom nucleic acid products, with an enforceable right to payment and a reasonable margin for work performed to date, is recognized over time, based on a cost-to-cost input method over the manufacturing period. Payments received from customers in advance of manufacturing their products is recorded as deferred revenue until the products are delivered.
Biologics Safety Testing
The Company’s Biologics Safety Testing revenue is associated with the sale of bioprocess impurity detection kit products. We also enter into contracts that include custom antibody development, assay development and antibody affinity extraction services. These products and services enable the detection of impurities that occur in the manufacturing of biologic drugs and other therapeutics. The Company recognizes revenue from the sale of bioprocess impurity detection kits in the period in which the performance obligation is satisfied by transferring control to the customer. Custom antibody development contracts consist of a single performance obligation, typically with an enforceable right to payment and a reasonable margin for work performed to date. Revenue is recognized over time based on a cost-to-cost input method over the contract term. Where an enforceable right to payment does not exist, revenue is recognized at a point in time when control is transferred to the customer. Assay development service contracts consist of a single performance obligation. Revenue is recognized at a point in time when a successful antigen test and report is provided to the customer. Affinity extraction services, which generally occur over a short period of time, consist of a single performance obligation to perform the extraction service and provide a summary report to the customer. Revenue is recognized either over time or at a point in time depending on contractual payment terms with the customer.
Protein Detection
Prior to the divestiture of its Protein Detection business in September 2021, the Company also manufactured and sold protein labeling and detection reagents to customers that were used for basic research and development. The contracts to sell these catalog products consisted of a single performance obligation to deliver the reagent products. Revenue from these contracts was recognized at a point in time, generally upon shipment of the final product to the customer.
The Company elected the practical expedient to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less. The Company had no material unfulfilled performance obligations for contracts with an original length greater than one year for any period presented.
The Company accepts returns only if the products do not meet customer specifications, and historically, the Company’s volume of product returns has not been significant. Further, no warranties are provided for promised goods and services other than assurance type warranties.
Revenue for an individual contract is recognized at the related transaction price, which is the amount the Company expects to be entitled to in exchange for transferring the products and/or services. The transaction price for product sales is calculated at the contracted product selling price. The transaction price for a contract with multiple performance obligations is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices for products are determined based on the prices charged to customers, which are directly observable. Standalone selling price of services are mostly based on time and materials. Generally, payments from customers are due when goods and services are transferred. As most contracts contain a single performance obligation, the transaction price is representative of the standalone selling price charged to customers. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods. Variable consideration has not been material to our consolidated financial statements.
The Company accepts returns only if the products do not meet customer specifications and historically, the Company’s volume of product returns has not been significant. Further, no warranties are provided for promised goods and services other than assurance type warranties.
The Company has elected the practical exemption to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less. The Company had no material unfulfilled performance obligations for contracts with an original length greater than one year for any period presented.
Nucleic Acid Production
Nucleic Acid Production revenue is generated from the manufacture and sale of highly modified, complex nucleic acids products to support the needs of our of customers’ research, therapeutic and vaccine programs. The primary offering of products include; CleanCap®, mRNA, and specialized oligonucleotides. Contracts typically consist of a single performance
obligation. The Company recognizes revenue from these products in the period in which the performance obligation is satisfied by transferring control to the customer. Revenue for nucleic acid catalog products is recognized at a single point in time, generally upon shipment to the customer. Revenue for contracts for certain custom nucleic acid products, with an enforceable right to payment and a reasonable margin for work performed to date, is recognized over time, based on a cost-to-cost input method over the manufacturing period.
Biologics Safety Testing
The Company’s Biologics Safety Testing revenue is associated with the sale of bioprocess impurity detection kit products. We also enter into contracts that include custom antibody development, assay development, antibody affinity extraction, and mass spectrometry services. These products and services enable the detection of impurities that occur in the manufacturing of biologic drugs and other therapeutics. The Company recognizes revenue from the sale of bioprocess impurity detection kits in the period in which the performance obligation is satisfied by transferring control to the customer. Custom antibody development contracts consist of a single performance obligation, typically with an enforceable right to payment and a reasonable margin for work performed to date. Revenue is recognized over time based on a cost-to-cost input method over the contract term. Where an enforceable right to payment does not exist, revenue is recognized at a point in time when control is transferred to the customer. Assay development service contracts consist of a single performance obligation, revenue is recognized at a point in time when a successful antigen test and report is provided to the customer. Affinity extraction services, which generally occur over a short period of time, consist of a single performance obligation to perform the extraction service and provide a summary report to the customer. Revenue is recognized either over time or at a point in time depending on contractual payment terms with the customer.
Protein Detection
Prior to the divestiture of its Protein Detection business in September 2021 (see Note 2), the Company also manufactured and sold protein labeling and detection reagents to customers that were used for basic research and development. The contracts to sell these catalog products consisted of a single performance obligation to deliver the reagent products. Revenue from these contracts was recognized at a point in time, generally upon shipment of the final product to the customer.
Sales taxes
Sales taxes collected by the Company are not included in the transaction price as revenue as they are ultimately remitted to a governmental authority.
Shipping and handling costs
ShippingThe Company has elected to account for shipping and handling activities related to contracts with customers as costs which are charged to customers, are included infulfill the promise to transfer the associated products. Accordingly, revenue for shipping and handling is recognized at the same time that the related product revenue is recognized.
Contract costs
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred when the amortization period of the assets that otherwise would have been recognized is one year or less. These costs are included in sales and marketing and general and administrative expenses. The costs to fulfill the contracts are determined to be immaterial and are recognized as an expense when incurred.
Contract balances
Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract receivable when it has an unconditional right to consideration. Contract assets balances, which are included in prepaid and other current assets, was not material as of December 31, 2020. There were no contract asset balances as of September 30, 2022 and December 31, 2021.
Contract liabilities include billings in excess of revenue recognized, such as customer deposits and deferred revenue. Customer deposits, which are included in accrued expenses, are recorded when cash payments are received or due in advance of performance. Deferred revenue is recorded when the Company has unsatisfied performance obligations. Total contract liabilities were $69.9$7.4 million and $79.2$12.6 million as of September 30, 20212022 and December 31, 2020,2021, respectively. Contract liabilities are expected to be recognized intoas revenue within the next twelve months.
Disaggregation of Revenuerevenue
The following tables summarize the revenue by segment and region for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Nucleic Acid Production | | Biologics Safety Testing | | Total |
| North America | $ | 91,130 | | $ | 6,583 | | $ | 97,713 |
| Europe, the Middle East and Africa | 77,755 | | 4,069 | | 81,824 |
| Asia Pacific | 5,931 | | 5,541 | | 11,472 |
| Latin and Central America | 65 | | 189 | | 254 |
| Total revenue | $ | 174,881 | | $ | 16,382 | | $ | 191,263 |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| Nucleic Acid Production | | Biologics Safety Testing | | Total |
| North America | $ | 252,563 | | $ | 21,274 | | $ | 273,837 |
| Europe, the Middle East and Africa | 322,566 | | 13,344 | | 335,910 |
| Asia Pacific | 48,535 | | 19,474 | | 68,009 |
| Latin and Central America | 115 | | 417 | | 532 |
| Total revenue | $ | 623,779 | | $ | 54,509 | | $ | 678,288 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Total |
| North America | $ | 73,622 | | $ | 7,203 | | $ | 3,067 | | $ | 83,892 |
| Europe, the Middle East and Africa | 103,929 | | 3,811 | | 1,392 | | 109,132 |
| Asia Pacific | 5,332 | | 5,441 | | 795 | | 11,568 |
| Latin and Central America | 18 | | 171 | | 29 | | 218 |
| Total revenue | $ | 182,901 | | $ | 16,626 | | $ | 5,283 | | $ | 204,810 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Total |
| North America | $ | 207,469 | | $ | 20,052 | | $ | 11,016 | | $ | 238,537 |
| Europe, the Middle East and Africa | 257,873 | | 12,059 | | 4,752 | | 274,684 |
| Asia Pacific | 33,977 | | 19,844 | | 3,068 | | 56,889 |
| Latin and Central America | 35 | | 528 | | 123 | | 686 |
| Total revenue | $ | 499,354 | | $ | 52,483 | | $ | 18,959 | | $ | 570,796 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Total |
| North America | $ | 36,814 | | $ | 6,035 | | $ | 3,735 | | $ | 46,584 |
| Europe, the Middle East and Africa | 27,083 | | 3,830 | | 1,423 | | 32,336 |
| Asia Pacific | 3,759 | | 4,204 | | 901 | | 8,864 |
| Latin and Central America | — | | 45 | | 30 | | 75 |
| Total revenue | $ | 67,656 | | $ | 14,114 | | $ | 6,089 | | $ | 87,859 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Total |
| North America | $ | 82,523 | | $ | 16,217 | | $ | 9,577 | | $ | 108,317 |
| Europe, the Middle East and Africa | 32,731 | | 10,974 | | 4,002 | | 47,707 |
| Asia Pacific | 13,296 | | 13,356 | | 2,730 | | 29,382 |
| Latin and Central America | 19 | | 225 | | 95 | | 339 |
| Total revenue | $ | 128,569 | | $ | 40,772 | | $ | 16,404 | | $ | 185,745 |
The following table provides a disaggregation ofTotal revenue is attributed to geographic regions based on the patternbill-to location of revenue recognition for the transaction. For all periods presented, (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Revenue recognized at a point in time | $ | 194,946 | | | $ | 86,437 | | | $ | 539,661 | | | $ | 181,041 | |
| Revenue recognized over time | 9,864 | | | 1,422 | | | 31,135 | | | 4,704 | |
| Total revenue | $ | 204,810 | | | $ | 87,859 | | | $ | 570,796 | | | $ | 185,745 | |
Non-Controlling Interests
Non-controlling interests represent the portion of profit or loss, net assets and comprehensive income of our consolidated subsidiaries that is not allocable to the Company based on our percentage of ownership of such entities. Non-controlling interests consist of the following:
•Until November 2020, Topco LLC held a 70% ownership interest in MLSC Holdings, LLC (“MLSC”) through its consolidated subsidiaries with the remaining 30% being recorded as non-controlling interests in our consolidated financial statements. MLSC net income or loss was attributed to the non-controlling interests using an attribution method, similar to the hypothetical liquidation at book value method, based on the distribution provisions of the MLSC Amended and Restated Limited Liability Company Agreement (“MLSC LLC Agreement”). In November 2020, and beforefollowing the closingcompletion of the IPO, Topco LLC repurchased all of the outstanding non-controlling interests in MLSC for $166.4 million.
•In November 2020, based on the Organizational Transactions, described above, we became the sole managing member of Topco LLC. Until the April 2021 Secondary Offering, we held approximately 38% of the outstanding LLC Units of Topco LLC, and approximately 62% of the outstanding LLC Units of Topco LLC were held by MLSH 1. After the April 2021 Secondary Offering and until the September 2021 Secondary Offering, we held approximately 44% of the outstanding LLC Units of Topco LLC, and approximately 56% of the outstanding LLC Units of Topco LLC were held by MLSH 1. As of September 30, 2021, as a result of the September 2021 Secondary Offering,2022, we holdheld approximately 51%51.5% of the outstanding LLC Units of Topco LLC, and MLSH 1 holdsheld approximately 49%48.5% of the outstanding LLC Units of Topco LLC. Therefore, we report non-controlling interests based on the percentage of LLC Units of Topco LLC held by MLSH 1 on ourthe condensed consolidated balance sheet as of September 30, 2021.2022. Income or loss attributed to the non-controlling interest in Topco LLC is based on the LLC Units outstanding during the period for which the income or loss is generated and is presented on the condensed consolidated statements of income and condensed consolidated statements of comprehensive income.
MLSH 1 is entitled to exchange its LLC Units of Topco LLC, together with an equal number of shares of our Class B common stock (together referred to as “Paired Interests”), for shares of Class A common stock on a one-for-one basis or, at our election, for cash, from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). As such, future exchanges of Paired Interests by MLSH 1 will result in a change in ownership and reduce or increase the amount recorded as non-controlling interests and increase or decrease additional paid-in-capital when Topco LLC has positive or negative net assets, respectively. In April 2021 and September 2021, MLSH 1 executed an exchange of Paired Interests prior to the April 2021 Secondary Offering and September 2021 Secondary Offering, respectively. For the nine months ended September 30, 2022, MLSH 1 did not exchange any Paired Interests.
DistributionsExchanges and Secondary Offerings
April 2021 Exchange and Secondary Offering
In April 2021, MLSH 1 executed an exchange of 17,665,959 LLC Units (paired with the corresponding shares of Class B common stock) in return for 17,665,959 shares of the Company’s Class A common stock. The corresponding shares of Class B common stock were subsequently cancelled and retired. The Company immediately completed a secondary offering (“April 2021 Secondary Offering”) of 20,700,000 shares of its Class A common stock by MLSH 1 and MLSH 2, which included 3,034,041 shares of Class A common stock previously held by MLSH 2, which included the full exercise of the underwriters’ option to purchase up to 2,700,000 additional shares of Class A common stock, at a price of $31.25 per share.
The selling stockholders were responsible for the underwriting discounts and commissions of the April 2021 Secondary Offering and received all of the net proceeds of $624.2 million from the sale of shares of Class A common stock. The Company was responsible for the offering costs associated with the April 2021 Secondary Offering of $1.0 million which were recorded within selling, general and administrative expenses in the condensed consolidated statements of income.
September 2021 Exchange and Secondary Offering
In September 2021, MLSH 1 executed an exchange of 17,068,559 LLC Units (paired with the corresponding shares of Class B common stock) in return for 17,068,559 shares of the Company’s Class A common stock. The corresponding shares of Class B common stock were subsequently cancelled and retired. Shortly after the exchange, the Company completed a secondary offering (“September 2021 Secondary Offering”) of 20,000,000 shares of its Class A common stock by MLSH 1 and MLSH 2, which included 2,931,441 shares of Class A common stock previously held by MLSH 2 at a price of $50.00 per share.
The selling stockholders were responsible for the underwriting discounts and commissions of the September 2021 Secondary Offering and received all of the net proceeds of $977.5 million from the sale of shares of Class A common stock. The Company was responsible for the offering costs associated with the September 2021 Secondary Offering of $0.9 million which were recorded within selling, general and administrative expenses in the condensed consolidated statements of income.
Distributions of $36.8 million and $119.3 million for tax liabilities were made to MLSH 1 during the three and nine months ended September 30, 2022, respectively. Distributions of $50.1 million and $106.3 million for tax liabilities were made to MLSH 1 during the three and nine months ended September 30, 2021, respectively. Distributions of $0.1 million and $0.3 million for tax liabilities were made to the non-controlling interest holders of MLSC during the three and nine months ended September 30, 2020.
Segment Information
The Company has historically operated in 3three reportable segments. Operating segments are defined as components of an enterprise aboutfor which separate financial information is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker (“CODM”),CODM, its Chief Executive Officer, allocates resources and assesses performance based upon discrete financial information at the segment level. Substantially allAll of our long-lived assets are located in the United States. The Company divested its Protein Detection businessAfter the divestiture of Vector in September 2021, (see Note 2).the Company no longer has the Protein Detection segment. The Company has reported the historical results of the Protein Detection business as such discrete financial
information evaluated by the CODM for the periods presented included the information for this legacy segment. As of September 30, 2022, the Company operated in two reportable segments: Nucleic Acid Production and Biologics Safety Testing.
Net Income per Class A Common Share/UnitShare Attributable to Maravai LifeSciences Holdings, Inc.
Basic net income per Class A Common share/unitcommon share attributable to Maravai LifeSciences Holdings, Inc. is computed by dividing net income attributable to us by the weighted average number of Class A Common shares/unitscommon shares outstanding during the period. The non-controlling interest, for historical periods prior to the IPO, is calculated pursuant to the terms of the MLSC LLC Agreement on a fully-distributed basis, taking into account the various classes of equity of MLSC, including the cumulative yields on MLSC’s preferred units. Diluted net income per Class A Common share/unitcommon share is calculated by giving effect to all potential weighted average dilutive LLC incentive units for historical periods prior to the IPO and stock options, restricted stock units, and Topco LLC Units, that together with an equal number of shares of our Class B common stock, (together referred to as “Paired Interests”) are convertible into shares of our Class A Common stock, for the periods after the IPO. For historical periods prior to the IPO, the weighted average number of common units outstanding during the period and the potential dilutive common unit equivalents is determined under the two-class method.stock. The dilutive effect of outstanding awards, if any, is
reflected in diluted earnings per share/unitshare by application of the treasury stock method or if-converted method, as applicable. The Company reported net income attributable to Maravai LifeSciences Holdings, Inc. for the three and nine months ended September 30, 20212022 and 2020.2021.
Property and EquipmentGovernment Assistance
Property and equipment are stated at cost, less accumulated depreciation. DepreciationThe consideration awarded to the Company by the U.S. Department of Defense is computed usingoutside the straight-line method over the following estimated useful lives:
| | | | | | | | |
Assets | | Useful Lives |
Buildings | | 20 - 35 years |
Building improvements | | 5 - 15 years |
Furniture, fixtures, equipment and software | | 3 - 11 years |
Leasehold improvements are amortized over the shorterscope of the related lease term or useful life.
Maintenancecontracts with customers, income tax, funded research and repairs are charged to operations when incurred, while betterments or renewals are capitalized. When propertydevelopment, and equipment are sold or otherwise disposed of,contribution guidance. This is because the asset account and related accumulated depreciation account are relieved, and any gain or lossawarding entity is included in the results of operations.
The Company isnot considered to be an owner lessee of certain buildings (Note 5). The leased buildings are being depreciated overa customer, the lease term to a residual value that will approximate the remaining lease financing obligation at the endreceipt of the lease.
Propertyfunding is not predicated on the Company’s income tax position, there are no refund provisions, and equipment also includesthe entity is not receiving reciprocal value for their support provided to the Company. The Company’s elected policy is to recognize such assistance as a leased building which is recorded as construction in process during the period of construction at its fair value plus the cost of improvements incurred during the construction period (Note 5).
Impairment of Long-Lived and Intangible Assets
The Company periodically reviews long-lived assets, including property and equipment and finite-lived intangible assets, to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable. If such facts or circumstances are determined to exist, an estimate of the undiscounted future cash flows of these assets is comparedreduction to the carrying valueamount of the assets associated with the award when it is reasonably assured that the funding will be received as evidenced through the existence of an arrangement, amounts eligible for reimbursement are determinable and have been incurred or paid, the applicable conditions under the arrangement have been met, and collectability of amounts due is reasonably assured.
Contingent Consideration
Contingent consideration represents additional consideration that may be transferred to determine whether impairment exists. Ifformer owners of an acquired entity in the assetsfuture if certain future events occur or conditions are determined to be impaired,met. Contingent consideration resulting from the lossacquisition of a business is measured basedrecorded at fair value on the difference betweenacquisition date. Such contingent consideration is re-measured to its estimated fair value at each reporting date with the change in fair value recognized within operating expenses in the Company’s condensed consolidated statements of income. Subsequent changes in the fair value and carryingof the contingent consideration are classified as an adjustment to cash flows from operating activities in the condensed consolidated statements of cash flows because the change in fair value is an input in determining net income. Cash paid in settlement of contingent consideration liabilities are classified as cash flows from financing activities up to the acquisition date fair value with any excess classified as cash flows from operating activities.
Changes in the fair value of contingent consideration liabilities associated with the assets. No impairment loss was recognizedacquisition of a business can result from updates to assumptions such as the expected timing or probability of achieving customer-related performance targets, specified sales milestones, changes in projected revenue or changes in discount rates. Judgment is used in determining those assumptions as of the acquisition date and for long-lived or finite-lived intangible assets duringeach subsequent reporting period. Therefore, any changes in the three and nine months ended September 30, 2021 and 2020.fair value will impact the Company’s results of operations in such reporting period, thereby resulting in potential variability in the Company’s operating results until such contingencies are resolved.
Fair Value of Financial Instruments
The Company defines fair value as the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company follows accounting guidance that has a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset or liability as of the measurement date. Instruments with readily available actively quoted prices, or for which fair value can be measured from actively quoted prices in an orderly market, will generally have a higher degree of market price transparency and a lesser degree of judgment used in measuring fair value. The three levels of the hierarchy are defined as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2—Include other inputs that are directly or indirectly observable in the marketplace; and
Level 3—Unobservable inputs which are supported by little or no market activity.
As of September 30, 20212022 and December 31, 2020,2021, the carrying value of the Company’s current assets and liabilities approximatesapproximated fair value due to the short maturities of these instruments. The fair values of the Company’s long-term debt approximateapproximated carrying value, excluding the effect of unamortized debt discount, as it is based on borrowing rates currently available to the Company for debt with similar terms and maturities (Level 2 inputs).
Acquisitions
The Company evaluates mergers, acquisitions and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or an acquisition of assets. The Company first identifies the acquiring entity by determining if the target is a legal entity or a group of assets or liabilities. If control over a legal entity is being evaluated, the Company also evaluates if the target is a variable interest or voting interest entity. For acquisitions of voting interest entities, the Company applies a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen test is met, the transaction is accounted for as an acquisition of assets. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the definition of a business.
The Company accounts for its business combinations using the acquisition method of accounting which requires that the assets acquired and liabilities assumed of acquired businesses be recorded at their respective fair values at the date of acquisition. The purchase price, which includes the fair value of consideration transferred, is attributed to the fair value of the assets acquired and liabilities assumed. The purchase price may also include contingent consideration. The Company assesses whether such contingent consideration is subject to liability classification and fair value measurement or meets the definition of a derivative. Contingent consideration liabilities are recognized at their estimated fair value on the acquisition date. Contingent consideration arrangements that are determined to be compensatory in nature are recognized as post combination expense in our condensed consolidated statements of income ratably over the implied service period beginning in the period it becomes probable such amounts will become payable. The excess of the purchase price of the acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed twelve months from the acquisition date. The results of acquired businesses are included in the Company’s consolidated financial statements from the date of acquisition. Transaction costs directly attributable to acquired businesses are expensed as incurred.
Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies and assumptions about future net cash flows, discount rates and market participants. Each of these factors can significantly affect the value attributed to the identifiable intangible asset acquired in a business combination.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains substantially all of its cash balances at a financial institution that management believes is of high credit-quality and is financially stable. Cash is deposited with major financial institutions in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held. The Company provides credit, in the
normal course of business, to international and domestic distributors and customers, which are geographically dispersed. The Company attempts to limit its credit risk by performing ongoing credit evaluations of its customers and maintaining adequate allowances for potential credit losses.
The following table summarizes revenue from each of our customers who individually accounted for 10% or more of our total revenue or accounts receivable for the periods presented:
| | | Revenue | | Accounts Receivable, net | | Revenue | | Accounts Receivable, net |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | September 30, 2021 | | December 31, 2020 | | Three Months Ended September 30, | | Nine Months Ended September 30, | | September 30, 2022 | | December 31, 2021 |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 | |
| BioNTech SE | BioNTech SE | 26.2 | % | | 21.9 | % | | 32.2 | % | | 10.4 | % | | 36.0 | % | | * | BioNTech SE | 38.7 | % | | 26.2 | % | | 37.2 | % | | 32.2 | % | | 21.6 | % | | * |
| Pfizer, Inc. | 23.4 | % | | 24.0 | % | | 22.9 | % | | 13.5 | % | | 11.3 | % | | 45.1 | % | |
| Pfizer Inc. | | Pfizer Inc. | 29.1 | % | | 23.4 | % | | 30.4 | % | | 22.9 | % | | 43.9 | % | | 23.6 | % |
| CureVac N.V. | CureVac N.V. | 23.0 | % | | * | | 11.3 | % | | * | | 18.2 | % | | 12.8 | % | CureVac N.V. | * | | 23.0 | % | | * | | 11.3 | % | | * | | 46.5 | % |
| Sanofi S.A. | * | | * | | * | | 10.3 | % | | * | | * | |
| Nacalai USA, Inc. | | Nacalai USA, Inc. | * | | * | | * | | * | | * | | 11.6 | % |
____________________
*Less than 10%
For the three and nine months ended September 30, 20212022 and 2020,2021, substantially all of the revenue recorded for BioNTech SE and Pfizer Inc. was generated by our Nucleic Acid Production segment. For the three and nine months ended September 30, 2021, substantially all of the Company’s revenue from CureVac N.V. was generated by our Nucleic Acid Production segment. For the nine months ended September 30, 2020, substantially all of the Company’s revenue from Sanofi S.A. was generated by our Nucleic Acid Production segment.
Emerging Growth Company Status
Retrospective Application of a Change in Accounting Principle
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act, until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. As the aggregate market value of the Company’s voting and non-voting common stock that was held by non-affiliates exceeded $700.0 million as of June 30, 2021, the Company will be classified as a large accelerated filer, and therefore will cease being an emerging growth company, as of December 31, 2021.
Recently Adopted Accounting Pronouncements
In March 2020, the Financialadopted Accounting Standards BoardCodification (“FASB”ASC”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued, if certain criteria are met. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), the FASB issued additional clarification related to reference rate reform, permitting entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The standards are effective for all entities upon issuance and we will apply the amendments prospectively through December 31, 2022. There was no impact to the Company’s consolidated financial statements for the nine months ended September 30, 2021 as a result of the adoption of these standards.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02,842, Leases (“TopicASC 842”), which supersedes the guidance in ASC 840, Leases. The new standard, as amended by subsequent ASUs on Topic 842 and recent extensions issued by the FASB in response to COVID-19, requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an(“ASC 840”), effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless
of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The Company plans to adopt this standard using the modified retrospective approach with a cumulative effect adjustment to retained earnings at the beginning of the period of adoption. The Company will also adopt certain practical expedients provided by Topic 842.January 1, 2021. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBSJumpstart Our Business Startups Act Topicof 2012, ASC 842 haswas not yet been adopted. However, the Company will lose its “emerging growth company” status on December 31, 2021, and will instead be considered a large accelerated filer. The Company will adopt Topic 842 in the fourth quarter of 2021, with an effective date of January 1, 2021. The Company is currently assessing its inventory of leases but has not yet determined the full effects of Topic 842 on its consolidated financial statements but does expect the adoption of Topic 842 will have a material impact on the Company’s consolidated financial statements and related notes to the recognition of right of use (“ROU”) assets and lease liabilities on the Company’s consolidated balance sheets, but it will not have a material impact on the Company’s consolidated statements of income. The adoption of Topic 842 will also result in enhanced disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which has been subsequently amended (“ASU 2016-13”). ASU 2016-13 revises the measurement of credit losses for most financial instruments measured at amortized cost, including trade receivables, from an incurred loss methodology to an expected loss methodology which results in earlier recognition of credit losses. Under the incurred loss model, a loss is not recognizedadopted until it is probable that the loss-causing event has already occurred. The new standard introduces a forward-looking expected credit loss model that requires an estimate of the expected credit losses over the life of the instrument by considering all relevant information including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. In addition, this standard also modifies the impairment model for available-for-sale debt securities, which are measured at fair value, by eliminating the consideration for the length of time fair value has been less than amortized cost when assessing credit loss for a debt security and provides for reversals of credit losses through income upon credit improvement. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-13 has not yet been adopted. However, on June 30,2021, the Company’s aggregate market value of its voting and non-voting common stock that was held by non-affiliates exceeded $700.0 million, and therefore the Company will lose its “emerging growth company” status on December 31, 2021, and will instead be considered a large accelerated filer. The Company will adopt ASU 2016-13 in the fourth quarter of 2021. The Company is currently assessingcomparative information for the three and nine months ended September 30, 2021 has been adjusted to reflect the impact of adopting this standardthe adoption of ASC 842 as of January 1, 2021.
Select line items from the condensed consolidated statements of income reflecting the adoption of ASC 842 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| As Previously Reported | | Adjustments | | As Adjusted |
| Operating expenses: | | | | | |
| Cost of revenue | $ | 32,047 | | | $ | 174 | | | $ | 32,221 | |
| Selling, general and administrative | 25,189 | | | 1,323 | | | 26,512 | |
| Research and development | 1,950 | | | (4) | | | 1,946 | |
| Total operating expenses | 47,937 | | | 1,493 | | | 49,430 | |
| Income from operations | 156,873 | | | (1,493) | | | 155,380 | |
| Other income (expense): | | | | | |
| Interest expense | (8,545) | | | 860 | | | (7,685) | |
| Income before income taxes | 151,652 | | | (633) | | | 151,019 | |
| Net income | 132,810 | | | (633) | | | 132,177 | |
| Net income attributable to non-controlling interests | 78,536 | | | (321) | | | 78,215 | |
| Net income attributable to Maravai LifeSciences Holdings, Inc. | 54,274 | | | (312) | | | 53,962 | |
| | | | | |
| Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.: | | | | | |
| Diluted | $ | 0.45 | | | $ | (0.01) | | | $ | 0.44 | |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| As Previously Reported | | Adjustments | | As Adjusted |
| Operating expenses: | | | | | |
| Cost of revenue | $ | 99,928 | | | $ | 1,495 | | | $ | 101,423 | |
| Selling, general and administrative | 72,511 | | | 1,972 | | | 74,483 | |
| Research and development | 6,046 | | | (11) | | | 6,035 | |
| Total operating expenses | 167,236 | | | 3,456 | | | 170,692 | |
| Income from operations | 403,560 | | | (3,456) | | | 400,104 | |
| Other income (expense): | | | | | |
| Interest expense | (25,827) | | | 2,589 | | | (23,238) | |
| Income before income taxes | 386,943 | | | (867) | | | 386,076 | |
| Net income | 343,006 | | | (867) | | | 342,139 | |
| Net income attributable to non-controlling interests | 216,410 | | | (478) | | | 215,932 | |
| Net income attributable to Maravai LifeSciences Holdings, Inc. | 126,596 | | | (389) | | | 126,207 | |
| | | | | |
| Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.: | | | | | |
| Diluted | $ | 1.14 | | | $ | (0.01) | | | $ | 1.13 | |
The adoption of ASC 842 had no impact on itsthe Company’s basic earnings per share for the three and nine months ended September 30, 2021.
Select line items from the condensed consolidated statements of comprehensive income reflecting the adoption of ASC 842 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| As Previously Reported | | Adjustments | | As Adjusted |
| Net income | $ | 132,810 | | | $ | (633) | | | $ | 132,177 | |
| Total other comprehensive income | 132,849 | | | (633) | | | 132,216 | |
| Comprehensive income attributable to non-controlling interests | 78,536 | | | (321) | | | 78,215 | |
| Total comprehensive income attributable to Maravai LifeSciences Holdings, Inc. | 54,313 | | | (312) | | | 54,001 | |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| As Previously Reported | | Adjustments | | As Adjusted |
| Net income | $ | 343,006 | | | $ | (867) | | | $ | 342,139 | |
| Total other comprehensive income | 343,061 | | | (867) | | | 342,194 | |
| Comprehensive income attributable to non-controlling interests | 216,421 | | | (478) | | | 215,943 | |
| Total comprehensive income attributable to Maravai LifeSciences Holdings, Inc. | 126,640 | | | (389) | | | 126,251 | |
Select line items from the condensed consolidated statements of changes in stockholders’ equity reflecting the adoption of ASC 842 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| As of September 30, 2021 |
| As Previously Reported | | Adjustments | | As Adjusted |
| Additional paid-in capital | $ | 172,611 | | | $ | 483 | | | $ | 173,094 | |
| Retained earnings | 127,450 | | | 1,281 | | | 128,731 | |
| Non-controlling interest | 150,979 | | | 1,823 | | | 152,802 | |
| Total stockholders’ equity | 453,616 | | | 3,587 | | | 457,203 | |
Select line items from the condensed consolidated statements of cash flows reflecting the adoption of ASC 842 are as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| As Previously Reported | | Adjustments | | As Adjusted |
| Operating activities: | | | | | |
| Net income | $ | 343,006 | | | $ | (867) | | | $ | 342,139 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation | 6,623 | | | (1,955) | | | 4,668 | |
| Amortization of right-of-use assets | — | | | 5,111 | | | 5,111 | |
| | | | | |
| Other | (875) | | | 1,052 | | | 177 | |
| Changes in operating assets and liabilities: | | | | | |
| Inventory | (26,263) | | | (788) | | | (27,051) | |
| Prepaid expenses and other assets | (7,590) | | | 1,553 | | | (6,037) | |
| | | | | |
| Accrued expenses and other current liabilities | (10,076) | | | (851) | | | (10,927) | |
| Other long-term liabilities | 267 | | | (3,831) | | | (3,564) | |
| Net cash provided by operating activities | 310,403 | | | (576) | | | 309,827 | |
| Investing activities: | | | | | |
| Purchases of property and equipment | (9,188) | | | (6) | | | (9,194) | |
| Net cash provided by investing activities | 111,317 | | | (6) | | | 111,311 | |
| Financing activities: | | | | | |
| Payments made on facility financing lease obligation and capital lease | (582) | | | 582 | | | — | |
| Net cash used in financing activities | (110,051) | | | 582 | | | (109,469) | |
Recently Adopted Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). ASU 2021-10 provides guidance to increase the transparency of government assistance including the disclosure of: (i) the types of assistance, (ii) an entity’s accounting for the assistance, and (iii) the effect of the assistance on an entity’s financial statements. Under the new guidance, an entity is required to provide the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (i) information about the nature of the transactions and the related accounting policy used to account for the transactions, (ii) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The new guidance is required to be adopted either: (i) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and disclosures, but does not expectnew transactions that it will have a material impactare entered into after the date of initial application, or (ii) retrospectively to those transactions. The Company adopted ASU 2021-10 on its consolidated financial statementsJanuary 1, 2022 using the prospective method and disclosures.is complying with the related disclosure requirements (see Note 6).
In August 2018,October 2021, the FASB issued ASU 2018-15,2021-08, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’sBusiness Combinations (Topic 805) - Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2018-15”2021-08”). The ASU aligns the requirements for capitalizing implementation costs incurred, which requires an acquirer in a hosting arrangement that isbusiness combination to recognize and measure contract assets and contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. Thisbusiness combination at fair value. ASU 2021-08 is effective for years beginning after December 15, 2020, and interim period within annual periods beginning after December 15, 2021, with early adoption permitted. The Company is currently assessing its inventory of cloud computing arrangements but has not yet determined the full effects of ASU 2018-15 on its consolidated financial statements. The Company does not expect the adoption of ASU 2018-15 to have a material impact on its consolidated financial statements and disclosures.
In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportional basis, rather than in their entirety. This guidance is effective for fiscal years, beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021, with early adoption permitted. All entities are required to apply the amendments in this ASU retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. The Company is currently evaluating the impact of this standard, but does not expect that it will have a material impact on its consolidated financial statements and disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity’s own equity, and modifies the guidance on diluted earnings per share calculation as a result of these changes. The standard is effective for the Company for annual reporting periods beginning after December 15, 2021,31, 2022, including interim periods within those fiscal years, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of its adoption. The Company is currently evaluatingearly adopted ASU 2021-08, and there was no impact to the impactCompany’s condensed consolidated financial statements as a result of the adoption of this standard may have on its consolidated financial statements.ASU.
2.Acquisition and Divestiture
Acquisition
MyChem, LLC
On January 27, 2022, the Company completed the acquisition of MyChem, LLC (“MyChem”), a privately-held San Diego, California-based provider of ultra-pure nucleotides to customers in the diagnostics, pharma, genomics and research markets. The acquisition will vertically integrate the Company’s supply chain and expand its product offerings for inputs used in the development of therapeutics and vaccines.
The Company acquired MyChem for a total purchase consideration of $257.8 million, subject to customary post-closing adjustments, including a working capital settlement. The total cash consideration paid at closing was $240.0 million using existing cash on hand. The transaction was accounted for as an acquisition of a business as MyChem consisted of inputs and processes applied to those inputs that had the ability to contribute to the creation of outputs.
For the nine months ended September 30, 2022, the Company incurred $3.4 million in transaction costs associated with the acquisition of MyChem, which were recorded within selling, general and administrative expenses in the condensed consolidated statements of income. For the three months ended September 30, 2022, the Company incurred an insignificant amount of such transaction costs.
The acquisition date fair value of consideration transferred to acquire MyChem consisted of the following (in thousands):
| | | | | |
| Cash paid | $ | 240,012 | |
| Consideration payable | 10,000 | |
| Fair value of contingent consideration | 7,800 | |
| Total consideration transferred | $ | 257,812 | |
Pursuant to the Securities Purchase Agreement (the “MyChem SPA”) between the Company and sellers of MyChem, additional payments to the sellers of MyChem are dependent upon meeting or exceeding defined revenue targets during fiscal 2022 (the “Performance Payment”). The MyChem SPA provides for a total maximum Performance Payment of $40.0 million. The MyChem SPA also provides that the Company will pay to the sellers of MyChem an additional $20.0 million (the “Retention Payment”) as of the second anniversary of the closing of the acquisition date as long as two senior employees who are also the sellers of MyChem continue to be employed by TriLink. The Company considers the payment of the Retention Payment as probable and is recognizing compensation expense related to this payment in the post-acquisition period ratably over the expected service period of two years. The MyChem SPA further provides that the Company will pay to the sellers of MyChem an additional amount of up to $10.0 million subject to the completion of certain calculations associated with acquired inventory, which has been recorded within accrued expenses and other current liabilities on the condensed consolidated balance sheet as of September 30, 2022. The Performance Payment was recorded as contingent consideration and was included as part of the purchase consideration. For the three and nine months ended September 30, 2022, the Company recorded $2.5 million and $6.8 million, respectively, of compensation expense related to the Retention Payment within research and development in the condensed consolidated statements of income.
The Company estimated the fair value of the Performance Payment contingent consideration based on a Monte-Carlo simulation model which utilized an income approach. The estimated fair value was based on MyChem revenue projections, expected payout term, volatility and risk adjusted discount rates which are Level 3 inputs (see Note 4).
As the Company is in the process of finalizing the evaluation of certain liabilities and assets, the allocation of purchase consideration is preliminary, and provisional measurements of certain liabilities and goodwill are subject to change. The
following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
| | | | | |
| Cash | $ | 1,176 | |
| Current assets | 2,741 | |
| Intangible assets, net | 123,360 | |
| Other assets | 9,288 | |
| Total identifiable assets acquired | 136,565 | |
| Current liabilities | (1,123) | |
| Other long-term liabilities | (8,399) | |
| Total liabilities assumed | (9,522) | |
| Net identifiable assets acquired | 127,043 | |
| Goodwill | 130,769 | |
| Net assets acquired | $ | 257,812 | |
The acquisition was accounted for under the acquisition method of accounting, and therefore, the total purchase price was allocated to the identifiable tangible and intangible assets acquired and the liabilities assumed based on their respective fair values as of the acquisition date. Purchase consideration in excess of the amounts recognized for the net assets acquired was recognized as goodwill. Goodwill is primarily attributable to expanded synergies expected from the acquisition associated with a vertical supply integration. There were no tax impacts associated with the acquisition due to the pass-through income tax treatment of MyChem. All of the goodwill acquired in connection with the acquisition of MyChem was allocated to the Company’s Nucleic Acid Production segment and is deductible to Topco LLC for income tax purposes.
Upon closing of the acquisition, approximately $1.0 million was placed into escrow to cover potential working capital adjustments and approximately $12.5 million was placed into escrow to secure certain representations and warranties pursuant to the terms of the MyChem SPA. These amounts are included in the total purchase consideration of $257.8 million. Because these amounts held in escrow are not controlled by the Company, they are not included in the accompanying condensed consolidated balance sheet as of September 30, 2022.
The following table summarizes the estimated fair values of MyChem’s identifiable intangible assets as of the date of acquisition and their estimated useful lives:
| | | | | | | | | | | |
| Estimated Fair Value
(in thousands) | | Estimated Useful Life
(in years) |
| Trade names | $ | 460 | | | 3 |
| Developed technology | 121,000 | | | 12 |
| Customer relationships | 1,900 | | | 12 |
| Total | $ | 123,360 | | | |
The trade name and customer relationship intangible assets are related to MyChem’s name, customer loyalty and customer relationships. The developed technology intangible asset is related to processes and techniques for synthesizing and developing ultra-pure nucleotides. The fair value of these intangible assets was based on MyChem’s projected revenues and was estimated using an income approach, specifically the multi-period excess earnings method. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. The estimated fair value was developed by discounting future net cash flows to their present value at market-based rates of return utilizing Level 3 inputs. The useful lives for these intangible assets were determined based upon the remaining period for which the assets were expected to contribute directly or indirectly to future cash flows. Key quantitative assumptions used in the determination of fair value of the developed technology intangible included revenue growth rates ranging from 3.0% to 30.6%, a discount rate of 16.5% and an assumed technical obsolescent curve range of 5.0% to 7.5%.
Pursuant to the terms of the MyChem SPA, the Company recognized an indemnification asset of $8.0 million within other assets, which represented the seller’s obligation to reimburse pre-acquisition income tax liabilities assumed in the acquisition and was recorded within other long-term liabilities. During the second quarter of 2022, the Company recorded an adjustment of $1.3 million to the indemnification asset within other expense in the condensed consolidated statements of income. As of
September 30, 2022, the carrying value of the indemnification asset was $6.8 million recorded within other assets in the condensed consolidated balance sheet.
The carrying value of the remaining assets acquired or liabilities assumed was estimated to equal their fair values based on their short-term nature. These estimates were based on the assumption that the Company believes to be reasonable; however, actual results may differ from these estimates.
Revenue and earnings from MyChem included in the Company’s condensed consolidated statements of income since the date of acquisition were immaterial.
No proforma revenue or earnings information for the three and nine months ended September 30, 2022 and 2021 have been presented as the impact was not determined to be material to the Company’s condensed consolidated revenues and net income for the respective periods.
Divestiture
Vector Laboratories, Inc.
In August 5, 2021, the Company entered into a definitive agreement to sell Vector Laboratories, Inc. and its subsidiaries (“Vector”) to Voyager Group Holdings, Inc. (“Voyager”), a third-party unrelated to the Company, for an all cash sale price of $124.0 million, subject to purchase price adjustments. The Company determined that the fair value of Vector, less estimated costs to sell, exceeded the book value of the Vector Disposal Group and there were no other indicators of asset impairment prior to the sale. The divestiture was completed onin September 2, 2021, and the Company received total considerations of $121.9final net proceeds were $120.7 million, which included $120.3 million in cash and $1.6 million in receivables expected to be collected based on the finalizationwere inclusive of working capital adjustments. The sale price is also subject to adjustment based on the finalization of working capital.
As a result of the divestiture, during the three and nine months ended September 30, 2021, the Company recognized a pre-tax gain on sale of $11.2 million, net of transactions costs of $0.9 million, in the condensed consolidated statements of income. Income tax expense of $0.4 million relating to the gain on sale was recognized during the three and nine months ended September 30, 2021 (see Note 9).
The Company’s Protein Detection segment was comprised of Vector. The sale of Vector represents a strategic shift as the Company will no longer be in the protein detection business after the sale. However, the sale did not qualify for presentation as discontinued operations since the sale of the Protein Detection segment did not have a major effect on the Company’s operations or financial results.
In connection with the divestiture, the Company entered into a Transition Services Agreement (“TSA”) with Voyager to help support its ongoing operations. Under the TSA, the Company will provide certain transition services to Voyager, including information technology, finance and ERP, marketing and commercial, human resources, employee benefits, and other limited services. Depending on the service, the initial period ranges from one month to five months and the extension period ranges from one month to eight months. Income from performing services under the TSA was recorded within other income in the condensed consolidated statements of income and was not significant for the three and nine months ended September 30, 2021.
In August 2020, the Company entered into an agreement with an executive of Vector whereby the Company granted the executive received incentive units of MLSH 1. In connection with the divestiture, the CompanyMLSH 1 amended the terms of the MLSH 1this executive’s incentive units resulting in the recognition of incremental unit-based compensation expense in the Company’s consolidated financial statements of $2.4 million. This unit-based compensation expense was recorded within selling, general and administrative expenses in the condensed consolidated statements of income for the three and nine months ended September 30, 2021.
3.Goodwill and Intangible Assets
The Company’s goodwill of $152.8$283.5 million and $224.3$152.8 million as of September 30, 20212022 and December 31, 2020,2021, respectively, represents the excess of purchase consideration over the fair value of assets acquired and liabilities assumed. As of September 30, 2022 and December 31, 2021, the Company had 3three reporting units, 2two of which are contained in the Nucleic Acid Production segment. AsDuring the first quarter of December 31, 2020,2022, the Company had 4 reporting units, 2recorded goodwill of which were contained$130.8 million in connection with the Nucleic Acid Production segment.acquisition of MyChem that was completed in January 2022 (see Note 2). The Company has not recognized any goodwill impairment in any of the periods presented.
The following table summarizes the activity in the Company’s goodwill by segment for the periodsperiod presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Total |
| Balance as of December 31, 2020 | $ | 32,838 | | | $ | 119,928 | | | $ | 71,509 | | | $ | 224,275 | |
| Divestiture | — | | | — | | | (71,509) | | | (71,509) | |
| Balance as of September 30, 2021 | $ | 32,838 | | | $ | 119,928 | | | $ | — | | | $ | 152,766 | |
| | | | | | | | | | | | | | | | | |
| Nucleic Acid Production | | Biologics Safety Testing | | Total |
| Balance as of December 31, 2021 | $ | 32,838 | | | $ | 119,928 | | | $ | 152,766 | |
| Acquisition | 130,769 | | | — | | | 130,769 | |
| Balance as of September 30, 2022 | $ | 163,607 | | | $ | 119,928 | | | $ | 283,535 | |
Intangible assets are being amortized on a straight-line basis, which reflects the expected pattern in which the economic benefits of the intangible assets are being obtained, over an estimated useful life ranging from 53 to 1514 years.
The following are components of finite-lived intangible assets and accumulated amortization as of the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Estimated Useful Life | | Weighted Average Remaining Amortization Period |
| | | (in thousands) | | | | (in years) | | (in years) |
| Trade Names | $ | 7,120 | | | $ | 4,821 | | | $ | 2,299 | | | 5 - 10 | | 3.2 |
| Patents and Developed Technology | 167,648 | | | 60,452 | | | 107,196 | | | 5 - 14 | | 8.8 |
| Customer Relationships | 19,953 | | | 8,223 | | | 11,730 | | | 10 - 12 | | 6.7 |
| Total | $ | 194,721 | | | $ | 73,496 | | | $ | 121,225 | | | | | 8.4 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Estimated Useful Life | | Weighted Average Remaining Amortization Period |
| | | (in thousands) | | | | (in years) | | (in years) |
| Trade names | $ | 7,580 | | | $ | 5,572 | | | $ | 2,008 | | | 3 - 10 | | 3.7 |
| Patents and developed technology | 288,649 | | | 79,484 | | | 209,165 | | | 10 - 14 | | 9.7 |
| Customer relationships | 21,853 | | | 10,127 | | | 11,726 | | | 10 - 12 | | 6.7 |
| Total | $ | 318,082 | | | $ | 95,183 | | | $ | 222,899 | | | | | 9.5 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Estimated Useful Life | | Weighted Average Remaining Amortization Period |
| | | (in thousands) | | | | (in years) | | (in years) |
| Trade Names | $ | 11,490 | | | $ | 5,384 | | | $ | 6,106 | | | 5 - 15 | | 6.3 |
| Patents and Developed Technology | 169,404 | | | 52,809 | | | 116,595 | | | 5 - 14 | | 9.5 |
| Customer Relationships | 83,323 | | | 28,368 | | | 54,955 | | | 10 - 14 | | 8.8 |
| Total | $ | 264,217 | | | $ | 86,561 | | | $ | 177,656 | | | | | 9.1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Estimated Useful Life | | Weighted Average Remaining Amortization Period |
| | | (in thousands) | | | | (in years) | | (in years) |
| Trade names | $ | 7,120 | | | $ | 5,012 | | | $ | 2,108 | | | 5 - 10 | | 2.9 |
| Patents and developed technology | 167,648 | | | 63,465 | | | 104,183 | | | 5 - 14 | | 8.5 |
| Customer relationships | 19,953 | | | 8,673 | | | 11,280 | | | 10 - 12 | | 6.4 |
| Total | $ | 194,721 | | | $ | 77,150 | | | $ | 117,571 | | | | | 8.1 |
During the first quarter of 2022, the Company recorded intangible assets of $123.4 million in connection with the acquisition of MyChem that was completed in January 2022 (see Note 2).
The Company recognized $3.1$5.6 million and $15.9 million of amortization expense from intangible assets directly linked with revenue generatingrevenue-generating activities within cost of revenue in the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020.2022, respectively. The Company recognized $9.4$3.1 million and $9.5$9.4 million of amortization expense from intangible assets directly linked with revenue generatingrevenue-generating activities within cost of revenue in the condensed consolidated statements of income for the three and nine months ended September 30, 2021, respectively.
Amortization expense for intangible assets that are not directly related to sales-generating activities of $0.7 million and 2020,$2.2 million was recorded as selling, general and administrative expenses for the three and nine months ended September 30, 2022, respectively. Amortization expense for intangible assets that are not directly related to sales generatingsales-generating activities of $1.5 million and $1.9$5.3 million was recorded as selling, general and administrative expenses for the three months ended September 30, 2021 and 2020, respectively. Amortization expense for intangible assets that are not directly related to sales generating activities of $5.3 million and $5.7 million was recorded as selling, general and administrative expenses for the nine months ended September 30, 2021, and 2020, respectively.
In September 2021, the Company completed its divestiture of the Protein Detection segment (see Note 2). This resulted in the derecognition of $41.7 million in net intangible assets associated with the divested segment.
As of September 30, 2021,2022, the estimated future amortization expense for finite-lived intangible assets were as follows (in thousands):
| | 2021 (remaining three months) | $ | 3,654 | | |
| 2022 | 14,600 | | |
| 2022 (remaining three months) | | 2022 (remaining three months) | $ | 6,236 | |
| 2023 | 2023 | 14,417 | | 2023 | 24,812 | |
| 2024 | 2024 | 14,417 | | 2024 | 24,812 | |
| 2025 | 2025 | 14,417 | | 2025 | 24,669 | |
| 2026 | | 2026 | 24,432 | |
| Thereafter | Thereafter | 59,720 | | Thereafter | 117,938 | |
| Total estimated amortization expense | Total estimated amortization expense | $ | 121,225 | | Total estimated amortization expense | $ | 222,899 | |
4.Fair Value Measurements
The following table summarizes the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
| Interest rate cap | $ | — | | | $ | 10,370 | | | $ | — | | | $ | 10,370 | |
| | | | | | | |
| | | | | | | |
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 were insignificant.
Contingent Consideration
In connection with the acquisition of MyChem (see Note 2), the Company is required to make contingent payments to the sellers of up to $40.0 million, subject to achieving certain revenue thresholds. The preliminary fair value of the liability for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled $7.8 million. The preliminary fair value of the contingent consideration was determined using a Monte-Carlo simulation-based model discounted to present value. Assumptions used in this calculation are expected revenue, a discount rate of 16.9% and various probability factors. The ultimate settlement of the contingent consideration could deviate from current estimates based on the actual results of these financial measures. The contingent consideration projected year of payment is 2023. This liability is considered to be a Level 3 financial liability that is remeasured each reporting period. Changes in fair value of contingent consideration are recognized as a gain or loss and recorded within change in estimated fair value of contingent consideration in the condensed consolidated statements of income. During the second quarter of 2022, the Company recorded a $7.8 million decrease in the estimated fair value of contingent consideration. This was due to a change in the estimate associated with MyChem revenue projections reaching thresholds that would trigger a contingent payment per the MyChem SPA.
The following table provides a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period presented (in thousands):
| | | | | |
| Contingent Consideration |
| Balance as of December 31, 2021 | $ | — | |
| Contingent consideration related to the acquisition of MyChem | 7,800 | |
| Change in estimated fair value of contingent consideration | (7,800) | |
| Balance as of September 30, 2022 | $ | — | |
5.Balance Sheet Components
Inventory
Inventory consisted of the following as of the periods presented (in thousands):
| | | | | | | | | | | |
| September 30, 2021 | | December 31, 2020 |
| Raw materials | $ | 19,344 | | | $ | 11,112 | |
| Work in process | 25,430 | | | 18,333 | |
| Finished goods | 11,472 | | | 3,856 | |
| Total inventory | $ | 56,246 | | | $ | 33,301 | |
5.Lease Commitments
The Company leases 5 facilities, including office, laboratory and manufacturing space under long-term non-cancelable operating leases. The leased facilities have initial terms of two to twelve years, 2 of which have multiple five-year renewal terms with the remaining leases having either three-year or five-year renewal terms.
Rent expense for the three and nine months ended September 30, 2021 was approximately $0.1 million and $2.1 million, respectively. For the three and nine months ended September 30, 2021, reported rent expense is net of approximately $1.1 million and $1.7 million, respectively, of deferred gain being recognized over the life of the lease associated with the Company’s sale leaseback arrangement for its Burlingame, California facility, of which $0.9 million was accelerated as part of the Company’s divestiture of the Protein Detection segment in September 2021 (see Note 2).
Rent expense for the three and nine months ended September 30, 2020, was approximately $0.8 million and $2.3 million, respectively. For the three and nine months ended September 30, 2020, reported rent expense is net of approximately $0.3 million and $1.1 million, respectively, of deferred gain being recognized over the life of the lease associated with the Company’s sale leaseback arrangement for the Burlingame, California facility.
In January 2020, the Company completed the sale of land, building and related building improvements specific to its Burlingame facility for approximately $34.5 million in cash. Simultaneously, with the close of the transaction, the Company leased the property for a two-and-a-half-year period, resulting in a total of $3.3 million in new lease obligations through December 31, 2021. The Company’s sale of the building and immediate leaseback of the facility qualified for sale-leaseback accounting. The lease was evaluated and classified as an operating lease. Given the Company was considered to retain more than a minor part but less than substantially all of the use of the property, the present value of the minimum lease payment over the lease term of $3.1 million was deferred and recognized as a reduction of rent expense over the life of the lease. Net of the $3.1 million in deferred gain, the Company recognized a net gain on the sale of the asset of $19.0 million during the first fiscal quarter of 2020. In August 2020, the Company executed a six-month extension for the leased property, including escalating rent payments, with total incremental lease payments associated with the extension of $1.8 million. The unamortized deferred gain at the time of the modification, approximating $2.0 million, was being amortized on a prospective basis over the extended lease term. As of September 30, 2021, the Company no longer leased the Burlingame, California facility.
In July 2018, the Company entered into a lease for a new manufacturing facility (the “Wateridge San Diego Facility Lease”). The lease included tenant improvement provisions for construction prior to occupancy. Construction on this new manufacturing facility began in 2018 and the Company evaluated the extent of its financial and operational involvement in the tenant improvements to the Wateridge San Diego Facility Lease to determine whether it was considered the owner of the construction project. The Company concluded that it was deemed to be the owner of the facility for accounting purposes (even though it did not meet the definition for legal purposes) during the construction period, which began in 2018 and was completed in 2019. In 2019, upon completion of the construction, the Company evaluated the lease and concluded that the completed construction project failed to qualify for sale and leaseback accounting and has accounted for the lease as a financing lease transaction. The leased building and related improvements remain on the Company’s balance sheet as of September 30, 2021 and December 31, 2020 and rental payments associated with the Wateridge San Diego Facility Lease have been allocated to operating lease expense for the ground underlying the leased building and principal and interest payments on the lease facility financing obligation. The Company recorded the fair value of the building asset and improvements, which was estimated to be $59.0 million, and the related lease facility financing obligation of $51.2 million. The difference between the gross asset value and the lease facility financing obligation represents the approximate $8.0 million of building improvement costs reimbursed by the Company.
In September 2020, the Company amended its Wateridge San Diego Facility lease agreement to provide for additional manufacturing and office space. The amended lease agreement provides for tenant improvements for construction prior to | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Raw materials | $ | 21,385 | | | $ | 19,726 | |
| Work-in-process | 30,568 | | | 21,382 | |
| Finished goods | 10,471 | | | 10,449 | |
| Total inventory | $ | 62,424 | | | $ | 51,557 | |
occupancy of $2.7 million, rent concessions, and escalating rent payments over the lifeOther assets
Other assets consisted of the lease, which now expires in May 2030. The total future minimum lease payments under the amended lease agreement are $57.1 million, with an option to renew subject to certain conditions. As of December 31, 2020, the anticipated tenant improvement allowance was recordedfollowing as a component of the lease facility financing obligation, a $2.0 million receivable for lessor-funded financing within prepaidperiods presented (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Right-of-use assets | $ | 54,118 | | | $ | 49,095 | |
| Prepaid lease payments | 10,731 | | | — | |
| Interest rate cap | 10,370 | | | 541 | |
| Indemnification asset (see Note 2) | 6,766 | | | — | |
| Other | 5,414 | | | 3,815 | |
| Total other assets | $ | 87,399 | | | $ | 53,451 | |
Accrued expenses and other current assets,liabilities
Accrued expenses and $0.7 million in construction in progress for costs incurred to date as the Company has earned the right to this portionother current liabilities consisted of the tenant allowancefollowing as of December 31, 2020. As of December 31, 2020, the Company had recognized $20.4 million and $1.7 million in construction in progress and accrued expenses, respectively. During the first fiscal quarter of 2021, the Company earned the right to the remaining $2.0 millionperiods presented (in thousands):
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Employee related | $ | 16,325 | | | $ | 18,894 | |
| Consideration payable (see Note 2) | 10,000 | | | — | |
| Accrued construction costs | 9,023 | | | — | |
| Lease liabilities, current portion | 5,833 | | | 3,722 | |
| Professional services | 3,143 | | | 2,897 | |
| Sales and use tax liability | 2,268 | | | 1,296 | |
| Customer deposits | 1,589 | | | 2,429 | |
| | | |
| Other | 12,006 | | | 5,336 | |
| Total accrued expenses and other current liabilities | $ | 60,187 | | | $ | 34,574 | |
Other long-term liabilities
Other long-term liabilities consisted of the tenant allowance and recognized the amountfollowing as a component of the expanded space. Construction associated with the expansion was completed and placed into service during the first fiscal quarter of 2021. As a result, approximately $21.0 million of cost was reclassified from construction in progress into building, leasehold improvements, and equipment.periods presented (in thousands):
The Company recognizes payments under the lease agreement as a reduction of the lease facility financing obligation using the effective interest method and the ground rent as operating lease expense as reflected in the schedule below. Payments on the Wateridge San Diego Facility Lease obligation for the three and nine months ended September 30, 2021 were approximately $1.2 million and $3.5 million, respectively. For the three and nine months ended September 30, 2021, the Company recognized rent expense associated with the ground lease for the Wateridge San Diego Facility Lease of approximately $0.2 million and $0.6 million, respectively, in the consolidated statements of income. | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Non-current lease liabilities | $ | 43,790 | | | $ | 40,906 | |
| Accrued Retention Payments (see Note 2) | 6,794 | | | — | |
| Acquisition related tax liability (see Note 2) | 6,766 | | | — | |
| Other | 169 | | | 160 | |
| Total other long-term liabilities | $ | 57,519 | | | $ | 41,066 | |
Payments on the Wateridge San Diego Facility Lease obligation for the three and nine months ended September 30, 2020 were approximately $0.6 million and $1.7 million, respectively. For the three and nine months ended September 30, 2020, the Company recognized rent expense associated with the ground lease for the Wateridge San Diego Facility Lease of approximately $0.2 million and $0.6 million, respectively, in the consolidated statements of income.
6.Government Assistance
Cooperative Agreement
In August 2021, the CompanyMay 2022, TriLink entered into a leasecooperative agreement (the “Cooperative Agreement”) with the U.S. Department of Defense, as represented by the Joint Program Executive Office for a newChemical, Biological, Radiological and Nuclear Defense on behalf of the Biomedical Advanced Research and Development Authority (“BARDA”), within the U.S. Department of Health and Human Services, to advance the development of domestic manufacturing facilitycapabilities and to expand TriLink’s domestic production capacity in its San Diego manufacturing campus (the “Flanders San Diego Facility Lease”Facility”). The lease included tenant improvement provisions for construction priorproducts critical to occupancythe development and manufacture of up to $11.5 million, rent abatement clauses,mRNA vaccines and escalating rent payments over the life of the lease, which expires in 2032. The total future minimum lease payments under the lease agreement are $37.2 million, with optional term extensions subjecttherapeutics.
Pursuant to certain requirements. The Company evaluated the extent of its financial and operational involvement in the tenant improvementsrequirements, BARDA awarded TriLink an amount equal to the Flanders San Diego Facility Lease to determine whether it was considered the owner$38.8 million or 50% of the construction project. The Company concluded that it was deemed to be the owner of the facility for accounting purposes (even though it did not meet the definition for legal purposes) during the construction period. The facility includes 2 existing buildings. As of September 30, 2021, construction for tenant improvements associated with the leased buildings has not begun. As of September 30, 2021,the Company had taken possession of 1 of the 2 buildings, and thus recognized the fair value of the building of $4.8 million as property and equipment with a related liability within accrued expenses. The fair value of the building was estimated using a market approach that utilized observable sales within the last year for this specific asset (Level 2 inputs). Upon completion of construction, which is expected to occur during the second quarter of 2022, the Company will evaluate the lease under the sale and leaseback accounting guidance of Topic 842 to determine if the arrangement will qualify for sale-lease back accounting. For the three and nine months ended September 30, 2021, there were no material amounts recognized in rent expense in the consolidated statements of income associated with the ground leasevalidation costs currently budgeted for the Flanders San Diego Facility Lease.
Facility. The Companycontract period of performance is also considered to beMay 2022 through December 2023, which is the accounting owner of its Southport, North Carolina leased facility (the “Southport Facility”).
In 2017, the Company amended its initial lease with the former related party landlord to include the lease of additional space as well as an adjustmenteffective date of the base rent forCooperative Agreement through the existing space. The Company continues to recognize payments under the amended lease agreement as a reductionanticipated date of the facility financing obligation using the effective interest methodcompletion of construction and the ground rent as operating lease expense as noted in the schedule below. As a resultvalidation of the amendment, the Company anticipates the repayment of the financing obligation by September 2024. The fair value of the leased property established at acquisition continues to be depreciated over the building’s estimated useful life of thirty-five years. For the three and nine months ended September 30, 2021 and 2020, payments on these lease obligations and the rent associated with the ground lease for the Southport Facility were not significant.
In June 2021, the Company entered into a lease for a new manufacturing facility (the “Leland Facility Lease”) to relocate the Company’s Biologics Safety Testing to a larger facility to support long-term growth. The lease included tenant improvement provisions for construction prior to occupancy of $3.6 million, a free rent period, and escalating rent payments over the life of the lease which expires in 2032. The total future minimum lease payments under the lease agreementcapacity. Amounts reimbursed are $12.7 million, with an option to extend subject to audit and may be recaptured by the U.S. Department of Defense in certain conditions. The Company evaluated the extent of its financial and operational involvement in the tenant improvements to the Leland Facility Lease to determine whether it was considered the owner of the construction project. The Company concluded that it was deemed to be the owner of the facility for accounting purposes (even though it did not meet the definition for legal purposes) during the construction period. Construction of the leased building has not begun ascircumstances.
of September 30, 2021. UponThe Cooperative Agreement requires the Company to provide the U.S. Government with conditional priority access and certain preferred pricing obligations for a 10-year period from the completion of the construction which is expected to occur duringproject for the third quarterproduction of 2022,a medical countermeasure (or a component thereof) that the Company will evaluate the lease under the sale and leaseback accounting guidance of Topic 842 to determine if the arrangement will qualify for sale-lease back accounting. For the three and nine months ended September 30, 2021, there were no material amounts recognized in rent expensemanufactures in the consolidated statements of income associated with the ground lease for the LelandFlanders San Diego Facility Lease.during a declared public health emergency.
As of September 30, 2021, minimum annual payments2022, the Company had not yet received any reimbursements under the Company’s non-cancelable lease agreements and lease financing obligations were as follows (in thousands):
| | | | | | | | | | | |
| Lease Facility Financing Obligations | | Operating Leases |
| 2021 (remaining three months) | $ | 1,070 | | | $ | 117 | |
| 2022 | 4,648 | | | 1,273 | |
| 2023 | 5,014 | | | 1,336 | |
| 2024 | 5,109 | | | 1,371 | |
| 2025 | 5,071 | | | 1,104 | |
| Thereafter | 24,272 | | | 5,286 | |
| Total minimum payments | 45,184 | | | $ | 10,487 | |
| Less: amount representing interest | (25,249) | | | |
| Present value of future minimum lease payments | 19,935 | | | |
| Residual value of lease facility financing obligation | 36,563 | | | |
| Less: short-term lease facility financing obligations | (1,174) | | | |
| Long-term lease facility financing obligations | $ | 55,324 | | | |
Operating leases in the table above include future minimumCooperative Agreement but has recorded a receivable of $18.2 million, with offsets recorded to: (i) prepaid lease payments for the ground lease for the Southport Facility and Wateridge San Diego Facility. The table excludes future minimum lease payments for the Leland Facility Lease andassociated with our Flanders San Diego Facility Lease as the fair value of the ground underlying the leased buildings were not deemed to be material.
As of September 30, 2021, payments due related to the financing component of the Leland Facility Leasewithin other assets for $17.1 million; and Flanders San Diego Facility Lease were as follows (in thousands):
| | | | | |
| 2021 (remaining three months) | $ | — | |
| 2022 | 1,176 | |
| 2023 | 4,408 | |
| 2024 | 4,535 | |
| 2025 | 4,665 | |
| Thereafter | 35,080 | |
| Total minimum payments | $ | 49,864 | |
6.7.Long-Term Debt
2020 Credit AgreementsAgreement
In October 2020, Maravai Intermediate Holdings, LLC (“Intermediate”), a wholly-owned subsidiary of Topco LLC, along with its subsidiaries (the “New Borrowers”Vector, TriLink and Cygnus (together with Intermediate, the “Borrowers”), entered into a credit agreement (the “New Credit(as amended, the “Credit Agreement”) to refinance existing $400.0 million long-term debt with a new $780.0 million facility. The New Credit Agreement, which provides for a First$600.0 million term loan facility, maturing October 2027 (the “Term Loan”), and a $180.0 million revolving credit facility (the “Revolving Credit Facility”).
In August 2021, in conjunction with the Company’s divestiture of the Protein Detection segment, the Company transferred, per the existing terms of the Credit Agreement, the portion of the Term Loan held by Vector of $118.4 million to Intermediate in its entirety. This amount was not assumed by Voyager, the entity that acquired Vector, as part of the divestiture. Total outstanding debt and loan covenant requirements remained unchanged as a result of the divestiture.
In January 2022, the Company entered into an amendment (the “Amendment”) to the Credit Agreement to: (i) refinance $544.0 million in aggregate principal amount of first lien term loans initially issued thereunder (the “First Lien Term Loan”) and to replace it with a Tranche B Term Loan (the “New First Lien“Tranche B Term Loan”) of $600.0 million, maturing October 2027,; (ii) replace the London Interbank Offered Rate (“LIBOR”) based interest rate with a Term Secured Overnight Financing Rate (“SOFR”) based rate; and a(iii) reduce the interest rate margins applicable to the Term Loan and Revolving Credit Facility (the New Revolvingunder the Credit Facility”)Agreement. The previous interest rate margin on the facilities was, with respect to each LIBOR-based loan, 3.75% to 4.25% and, with respect to each base rate-based loan, 2.75% to 3.25% (depending, in each case, on consolidated first lien leverage). Following the Amendment, the interest rate margin on the facilities is 3.00%, with respect to each Term SOFR-based loan, and 2.00%, with respect to each base rate-based loan. Further, the Amendment reduces the base rate floor for upthe term loans from 2.00% to $180.0 million in funding. The New1.50%, sets the floor for Term SOFR-based term loans at 0.50% and sets the floor for Term SOFR-based revolving loans at 0.00%. No other significant terms under the Credit Agreement amended and restatedwere changed in connection with the Company’s prior credit agreement as of August 2018 (the “First and Second Lien Credit Agreements”). In November 2020, the Company repaid $50.0 million of principal balance of the New First Lien Term Loan using proceeds from the IPO. The New First Lien Term Loan bears interest at an annual rate equal to the Eurocurrency rate (i.e. the LIBOR rate) plus an applicable rate. The interest rate was 4.75% per annum asAmendment.
As of September 30, 2021.
2022, the interest rate on the Tranche B Term Loan was 5.55% per annum. The New Credit Agreement also provides for a $20.0 million limit for letters of credit, which remained unused as of September 30, 2021 and December 31, 2020.2022.
Borrowings under the New Credit Agreement are unconditionally guaranteed by Topco LLC, together with the existing and future material domestic subsidiaries of Topco LLC (subject to certain exceptions), as specified in the respective guaranty agreements. Borrowings under the New Credit Agreement are also secured by a first-priority lien and security interest in substantially all of the assets (subject to certain exceptions) of existing and future material domestic subsidiaries of Topco LLC that are loan parties.
In conjunctionThe accounting related to entering into the Amendment was evaluated on a creditor-by-creditor basis to determine whether each transaction should be accounted for as a modification or extinguishment. Certain creditors under the First Lien Term Loan did not participate in this refinancing transaction, were repaid their principal and interest of $8.5 million and ceased being creditors of the Company and the repayment of their related outstanding debt balances has been accounted for as an extinguishment of debt. Proceeds of borrowings from new lenders of $8.5 million were accounted for as a new debt financing. The Company recorded a loss on extinguishment of debt of $0.2 million in the accompanying condensed consolidated statements of income during the first quarter of 2022. For the remainder of the creditors, this transaction was accounted for as a modification because the change in present value of cash flows between the two term loans before and after the transaction was less than 10% on a creditor-by-creditor basis. As part of the refinancing, the Company incurred $0.9 million of various costs, of which an insignificant amount was related to an original issuance discount, and were all capitalized in the accompanying balance sheet within long-term debt and are subject to amortization over the term of the refinanced debt as an adjustment to interest expense using the effective interest method.
We also incurred $0.3 million of financing-related fees related to the Revolving Credit Facility. As of September 30, 2022, unamortized debt issuance costs totaled $2.4 million and are recorded as assets within other assets on the accompanying condensed consolidated balance sheet as there is no balance outstanding related to the Revolving Credit Facility.
Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires that we make mandatory prepayments on the Term Loan principal upon certain excess cash flow, subject to certain step-downs based on the Company’s divestiturefirst lien net leverage ratio. The mandatory prepayment shall be reduced to 25% or 0% of the Protein Detection segment,calculated excess cash flow if the first lien net leverage ratio was equal to or less than 4.75:1.00 or 4.25:1.00, respectively, however, no prepayment shall be required to the extent excess cash flow calculated for the respective period is equal to or less than $10.0 million. As of September 30, 2022, the Company’s first lien net leverage ratio was less than 4.25:1.00. Thus, a prepayment was not required.
The Tranche B Term Loan became repayable in quarterly payments of $1.4 million beginning in March 2022, with all remaining outstanding principal due in October 2027. The Tranche B Term Loan includes prepayment provisions that allow the Company, transferred, per the existing terms of the New Credit Agreement, theat our option, to repay all or a portion of the Newprincipal amount at any time. The Revolving Credit Facility allows the Company to repay and borrow from time to time until October 2025, at which time all amounts borrowed must be repaid. Subject to certain exceptions and limitations, we are required to repay borrowings under the Tranche B Term Loan heldand Revolving Credit Facility with the proceeds of certain occurrences, such as the incurrence of debt, certain equity contributions and certain asset sales or dispositions.
Accrued interest under the Credit Agreement is payable by Vectorus (a) quarterly in arrears with respect to Base Rate loans, (b) at the end of $118.4 millioneach interest rate period (or at each three-month interval in the case of loans with interest periods greater than three months) with respect to Intermediate in its entirety. ThisTerm SOFR Rate loans, (c) on the date of any repayment or prepayment and (d) at maturity (whether by acceleration or otherwise). An annual commitment fee is applied to the daily unutilized amount was not assumed by Voyager as part ofunder the divestiture. Total outstanding debt and loan covenant requirements remained unchanged as a result of the divestiture.Revolving Credit Facility at 0.375% per annum, with one stepdown to 0.25% per annum based on Intermediate’s first lien net leverage ratio.
The New Credit Agreement contains certain covenants, including, among other things, covenants limiting our ability to incur or prepay certain indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments and make changes into the nature of the business. Additionally, the New Credit Agreement also requires us to maintain a certain net leverage ratio. The Company was in compliance with these covenants as of September 30, 2021.2022.
Interest Rate Cap
In the first fiscal quarter of 2021, the Company entered into a newan interest rate cap agreement to manage a portion of its variable interest rate risk on its outstanding long-term debt. The contract, which was effective March 31, 2021, entitles the Company to receive from the counterparty at each calendar quarter end the amount, if any, by which a specified defined floating market rate exceeds the cap strike interest rate, applied to the contract’s notional amount of $415.0 millionmillion. The floating rate of interest is reset at the end of each three monththree-month period. The contract expireswas set to expire on March 31, 2023.
In May 2022, the Company amended the interest rate cap agreement, effective June 30, 2022, to increase the contract’s notional amount to $500.0 million and to extend the maturity date to January 19, 2025. Additionally, the floating rate option changed from a LIBOR-based rate to a SOFR-based rate. Other provisions remained unchanged as a result of the amendment. Premiums paid to amend the interest rate cap agreement were immaterial.
The interest rate cap agreement has not been designated as a hedging relationship and has been recognized on the condensed consolidated balance sheet at fair value of $0.1$10.4 million within non-currentother assets with changes in fair value recognized within interest expense in the condensed consolidated statements of income.
The Company’s long-term debt consisted of the following as of the periods presented (in thousands):
| | | September 30, 2021 | | December 31, 2020 | | September 30, 2022 | | December 31, 2021 |
| New First Lien Term Loan | $ | 545,500 | | | $ | 550,000 | | |
| Tranche B Term Loan | | Tranche B Term Loan | $ | 539,920 | | | $ | — | |
| First Lien Term Loan | | First Lien Term Loan | — | | | 544,000 | |
| Unamortized debt issuance costs | Unamortized debt issuance costs | (13,916) | | | (15,386) | | Unamortized debt issuance costs | (11,656) | | | (13,409) | |
| Total long-term debt | Total long-term debt | 531,584 | | | 534,614 | | Total long-term debt | 528,264 | | | 530,591 | |
| Less: current portion | Less: current portion | (6,000) | | | (6,000) | | Less: current portion | (5,440) | | | (6,000) | |
| Total long-term debt, less current portion | Total long-term debt, less current portion | $ | 525,584 | | | $ | 528,614 | | Total long-term debt, less current portion | $ | 522,824 | | | $ | 524,591 | |
There were no balances outstanding on the Company’s New Revolving Credit Facility as of September 30, 20212022 and December 31, 2020.2021.
As of September 30, 2021,2022, the aggregate future principal maturities of the Company’s debt obligations for each of the next five years, based on contractual due dates, were as follows (in thousands):
| | | | | |
| 2021 (remaining three months) | $ | 1,500 | |
| 2022 | 6,000 | |
| 2023 | 6,000 | |
| 2024 | 6,000 | |
| 2025 | 6,000 | |
| Thereafter | 520,000 | |
| Total long-term debt | $ | 545,500 | |
7.Equity-Based Compensation
In November 2020, in connection with the IPO, the Company’s board of directors adopted the 2020 Omnibus Incentive Plan (the “2020 Plan”). All awards granted under the 2020 Plan are intended to be treated as (i) stock options, including incentive
stock options (“ISOs”), (ii) stock appreciation rights (“SARs”), (iii) restricted share awards (“RSAs”), (iv) restricted stock units (“RSUs”), (v) dividend equivalents, or (vi) other stock or cash awards as may be determined by the plan’s administrator from time to time. The Company uses the Black-Scholes option pricing model to estimate the fair value of each option grant on the date of grant or any other measurement date.
Prior to the IPO, the Company’s parent, MLSH 1, granted unit-based awards to certain executives of the Company in the form of non-vested units. Our controlled subsidiary, MLSC, also granted unit-based awards to certain employees (collectively the “Incentive Units”). All awards of Incentive Units were measured based on the fair value of the award on the date of grant. Compensation expense for the Incentive Units is recognized over their requisite service period. The incentive units were subject to a combination of market, service or performance vesting conditions. For Incentive Units subject to performance conditions, the Company evaluated the probability of achieving each performance condition at each reporting date and recognized expense over the requisite service period when it was deemed probable that a performance condition will be met using the accelerated attribution method over the requisite service period. Upon completion of the IPO, all of the Incentive Units subject to a performance and market condition became vested.
The following table summarizes the total equity-based compensation expense included in the Company’s consolidated statements of income for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Cost of sales | $ | 364 | | | $ | 4 | | | $ | 1,383 | | | $ | 11 | |
| Research and development | 5 | | | 574 | | | 198 | | | 732 | |
Selling, general and administrative (1) | 3,198 | | | 1,271 | | | 6,647 | | | 2,190 | |
| Total equity-based compensation | $ | 3,567 | | | $ | 1,849 | | | $ | 8,228 | | | $ | 2,933 | |
____________________
(1)Amounts for the three and nine months ended September 30, 2021 include $2.4 million of incremental expense for a modification related to the Company’s divestiture of the Protein Detection segment (see Note 2).
No stock options were exercised or exercisable during the three and nine months ended September 30, 2021.
As of September 30, 2021, the total unrecognized equity-based compensation related to stock options, Incentive Units, and RSUs were $18.4 million, $1.5 million, and $1.4 million, respectively, which is expected to be recognized over a weighted-average period of approximately 3.3, 2.2, and 2.1 years, respectively. | | | | | |
| 2022 (remaining three months) | $ | 1,360 | |
| 2023 | 5,440 | |
| 2024 | 5,440 | |
| 2025 | 5,440 | |
| 2026 | 5,440 | |
| Thereafter | 516,800 | |
| Total long-term debt | $ | 539,920 | |
8.Net Income Per Class A Common Share/UnitShare Attributable to Maravai LifeSciences Holdings, Inc.
Net income per unit for periods prior to our IPO have not been retrospectively adjusted to give effect to the Organizational Transactions described in Note 1 and the 69,000,000 shares of Class A common stock sold in our IPO. Additionally, basicBasic net income per Class A common stock for the three and nine months ended September 30, 2021,share has been calculated by dividing net income for the period, adjusted for net income attributable to non-controlling interests, by the weighted average number of Class A common stockshares outstanding during the period. Diluted net income per Class A common share gives effect to potentially dilutive securities by application of the treasury stock method or if-converted method, as applicable. Diluted net income per share of Class A common stockshare attributable to the Company is computed by adjusting the net income and the weighted-averageweighted average number of shares of Class A common stockshares outstanding to give effect to potentially diluted securities.
Prior to the Organizational Transactions, the members’ equity of MLSC was comprised of Class A and Class B preferred units, unit-based awards granted only to certain employees of its subsidiaries (“MLSC Incentive Units”) and MLSC common units, each with participation rights. The MLSC preferred units were entitled to cumulative dividends of 8.0% compounded annually, up to an additional 4.0%, also compounded annually, to the extent of remaining unallocated earnings. The preferred unitholders of MLSC were required, however, to share a portion of the additional 4.0% in dividends with the holders of MLSC Incentive Units based on a formula defined in the MLSC LLC Agreement. The Company determined that vested MLSC Incentive Units and MLSC Class A and B preferred units were participating securities under the two-class method at the MLSC subsidiary level, however, they do not have a contractual obligation to share in losses, and therefore no undistributed losses have been allocated to them. MLSH 1 Incentive Units are granted by the parent of the Company, and as a result, do not represent potential common units of the Company.
Prior to the Organizational Transactions and IPO, basic net income per common unit attributable to our member for the three and nine months ended September 30, 2020 was based on the weighted average number of common units outstanding during
the period. Diluted net income per common unit is computed by adjusting the net income and the weighted-average number of common units outstanding to give effect to potentially dilutive securities.
The following table presents the computation of basic and diluted net income per Class A common share/unitshare attributable to the Company for the periods presented (in thousands, except per share and per unit amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net income per Class A common share/unit: | | | | | | | |
| Numerator—basic: | | | | | | | |
| Net income | $ | 132,810 | | | $ | 39,023 | | | $ | 343,006 | | | $ | 64,344 | |
| Less: preferred unit dividends attributable to the MLSC non-controlling interests | — | | | (11,745) | | | — | | | (14,805) | |
| Less: (income) loss attributable to common non-controlling interests | (78,536) | | | 3,942 | | | (216,410) | | | 3,993 | |
| Net income attributable to Maravai LifeSciences Holdings, Inc.—basic | $ | 54,274 | | | $ | 31,220 | | | $ | 126,596 | | | $ | 53,532 | |
| Numerator—diluted: | | | | | | | |
| Net income attributable to Maravai LifeSciences Holdings, Inc.—basic | $ | 54,274 | | | $ | 31,220 | | | $ | 126,596 | | | $ | 53,532 | |
| Net income effect of dilutive securities: | | | | | | | |
| Effect of dilutive employee stock purchase plan ("ESPP"), RSUs and options | $ | 87 | | | $ | — | | | $ | 102 | | | $ | — | |
| Effect of the assumed conversion of Class B common stock | 60,787 | | | — | | | 166,016 | | | — | |
| Net income attributable to Maravai LifeSciences Holdings, Inc.—diluted | $ | 115,148 | | | $ | 31,220 | | | $ | 292,714 | | | $ | 53,532 | |
| Denominator—basic: | | | | | | | |
Weighted average Class A common shares/units outstanding—basic (1) | 118,433 | | | 253,917 | | | 109,174 | | | 253,917 | |
| Net income per Class A common share/unit—basic | $ | 0.46 | | | $ | 0.12 | | | $ | 1.16 | | | $ | 0.21 | |
| Denominator—diluted: | | | | | | | |
Weighted average Class A common shares/units outstanding—basic (1) | 118,433 | | | 253,917 | | | 109,174 | | | 253,917 | |
| Weighted average effect of dilutive securities: | | | | | | | |
| Effect of dilutive RSUs | 41 | | | — | | | 29 | | | — | |
| | | | | | | |
| Effect of dilutive ESPP and options | 327 | | | — | | | 128 | | | — | |
| Effect of the assumed conversion of Class B common stock | 139,227 | | | — | | | 148,468 | | | — | |
Weighted average Class A common shares/units outstanding—diluted (1) | 258,028 | | | 253,917 | | | 257,799 | | | 253,917 | |
| Net income per Class A common share/unit—diluted | $ | 0.45 | | | $ | 0.12 | | | $ | 1.14 | | | $ | 0.21 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021
(as adjusted)* | | 2022 | | 2021
(as adjusted)* |
| Numerator: | | | | | | | |
| Net income | $ | 99,653 | | | $ | 132,177 | | | $ | 403,234 | | | $ | 342,139 | |
| Less: income attributable to common non-controlling interests | (55,184) | | | (78,215) | | | (220,663) | | | (215,932) | |
| Net income attributable to Maravai LifeSciences Holdings, Inc.—basic | 44,469 | | | 53,962 | | | 182,571 | | | 126,207 | |
| Net income effect of dilutive securities: | | | | | | | |
| Effect of dilutive employee stock purchase plan (“ESPP”), restricted stock units (“RSUs”) and stock options | 18 | | | 87 | | | 90 | | | 102 | |
| Effect of the assumed conversion of Class B common stock | — | | | 60,425 | | | 168,454 | | | 165,473 | |
| Net income attributable to Maravai LifeSciences Holdings, Inc.—diluted | $ | 44,487 | | | $ | 114,474 | | | $ | 351,115 | | | $ | 291,782 | |
| | | | | | | |
| Denominator: | | | | | | | |
| Weighted average Class A common shares outstanding—basic | 131,540 | | | 118,433 | | | 131,518 | | | 109,174 | |
| Weighted average effect of dilutive securities: | | | | | | | |
| Effect of dilutive ESPP, RSUs and stock options | 111 | | | 368 | | | 136 | | | 157 | |
| Effect of the assumed conversion of Class B common stock | — | | | 139,227 | | | 123,669 | | | 148,468 | |
| Weighted average Class A common shares outstanding—diluted | 131,651 | | | 258,028 | | | 255,323 | | | 257,799 | |
| | | | | | | |
| Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.: | | | | | | | |
| Basic | $ | 0.34 | | | $ | 0.46 | | | $ | 1.39 | | | $ | 1.16 | |
| Diluted | $ | 0.34 | | | $ | 0.44 | | | $ | 1.37 | | | $ | 1.13 | |
____________________
(1)*AmountsAs adjusted to reflect the impact of the adoption of ASC 842. See Note 1 for a summary of the three and nine months ended September 30, 2021 represent shares of Class A common stock outstanding. Amounts for the three and nine months ended September 30, 2020 represent Topco LLC Units outstanding.adjustments.
Shares of Class B common stock do not share in the earnings or losses of the Company and are therefore not participating securities. As such, a separate presentation of basic and diluted net income per share for Class B common stock under the two-class method has not been presented.
The following table presents potentially dilutive securities excluded from the computation of diluted net income per share/unitshare for the periods presented because their effect would have been anti-dilutive for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Time-based incentive units | — | | 11,396 | | — | | 11,396 |
| Performance-based incentive units | — | | 2,849 | | — | | 2,849 |
| Options to purchase Class A common stock | 283 | | — | | 289 | | — |
| Shares to be purchased under the ESPP | — | | — | | 3 | | — |
| | | | | | | |
| 283 | | 14,245 | | 292 | | 14,245 |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
| | | | | | | |
| Stock options | 2,338 | | 283 | | 2,338 | | 289 |
| Shares estimated to be purchased under the ESPP | 93 | | — | | 21 | | 3 |
| Shares of Class B common stock | 131,540 | | — | | — | | — |
| Total | 133,971 | | 283 | | 2,359 | | 292 |
9.Income Taxes
We are subject to U.S. federal and state income taxes with respect to our allocable share of any taxable income or loss of Topco LLC, generated after the IPO, as well as any stand-alone income or loss we generate. Topco LLC is organized as a limited liability company and treated
as a partnership for federal tax purposes with the exception of Maravai Life Sciences, Inc., the parent entity of Vector, and its subsidiaries who are taxpaying entities in the U.S., Canada, and the U.K. Topco LLC generally does not pay income taxes on its taxable income in most jurisdictions. Instead, Topco LLC’s taxable income or loss is passed through to its members, including us. Maravai Life Sciences, Inc. files and pays corporate income taxes for U.S. federal and state income tax purposes and internationally, primarily within the U.K. and Canada. As of September 30, 2021, we closed on the sale of the Protein Detection segment (see Note 2) and converted Maravai Life Sciences, Inc. to a limited liability company which is treated as a disregarded entity for income tax purposes.
In March 2021, the President signed the American Rescue Plan Act of 2021 (“ARPA”) into law. ARPA includes several provisions, such as measures that extend and expand the employee retention credit, previously enacted under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), through December 31, 2021. ARPA also contains other provisions that do not have a material impact on our income tax expense and effective tax rate.
The following table summarizes the Company’s income tax expense and effective tax rate for the periods presented (in thousands, except percentages):
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021
(as adjusted)* | | 2022 | | 2021
(as adjusted)* |
| Income before income taxes | Income before income taxes | $ | 151,652 | | | $ | 38,664 | | | $ | 386,943 | | | $ | 66,855 | | Income before income taxes | $ | 113,763 | | | $ | 151,019 | | | $ | 455,596 | | | $ | 386,076 | |
| Income tax expense (benefit) | $ | 18,842 | | | $ | (359) | | | $ | 43,937 | | | $ | 2,511 | | |
| Income tax expense | | Income tax expense | $ | 14,110 | | | $ | 18,842 | | | $ | 52,362 | | | $ | 43,937 | |
| Effective tax rate | Effective tax rate | 12.4 | % | | (0.9) | % | | 11.4 | % | | 3.8 | % | Effective tax rate | 12.4 | % | | 12.5 | % | | 11.5 | % | | 11.4 | % |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 for a summary of the adjustments.
The Company’s effective tax ratesrate of 12.4% and 11.5% for the three and nine months ended September 30, 2022, respectively, differed from the U.S. federal statutory rate of 21.0%, primarily due to income associated with the non-controlling interest.
The Company’s effective tax rate of 12.5% and 11.4% for the three and nine months ended September 30, 2021, respectively, differed from the U.S. federal statutory rate of 21.0%, primarily due to income associated with the non-controlling interest, nondeductible expense related to the tax receivable agreement,Tax Receivable Agreement, and changes to our deferred tax assets due to changes in the estimates associated with our state income tax rate.
The provision for income taxes for the three and nine months ended September 30, 2020 relate to the corporate operating companies under Maravai LifeSciences Holdings, Inc. as we did not own units in Topco LLC. The Company’s effective tax rates of (0.9)% and 3.8% for the three and nine months ended September 30, 2020 differed from the U.S. federal statutory rate of 21.0%, primarily due to income associated with the non-controlling interest and a discrete tax charge associated with a building sale, offset with a release of valuation allowance on our excess interest expense carryforward due to the enactment of the CARES Act, which modified the calculation of interest deductions for 2019 and 2020.
As a result of the Organizational Transactions and our IPO occurring during the year ended December 31, 2020, we acquired LLC Units and recognized a deferred tax asset for the difference between the financial reporting and tax basis of our investment in Topco LLC which included net deferred tax assets of $445.5 million less a $13.3 million valuation allowance as of December 31, 2020 associated with: (i) $364.4 million related to temporary differences in the book basis as compared to the tax basis of our Company’s investment in Topco LLC and (ii) $81.1 million related to tax benefits from future deductions attributable to payments under the TRA.
As a result of the April 2021 Secondary Offering, the Company recognized additional tax basis in our investment in Topco LLC resulting in an increase in deferred tax assets and additional paid-in capital of $128.2 million. The April 2021 Secondary Offering also resulted in an increase to the payable to related parties pursuant to the Tax Receivable Agreement of $137.7 million, which resulted in an increase to the associated deferred tax asset and additional paid-in capital of approximately $28.4 million.
As a result of the September 2021 Secondary Offering, the Company recognized additional tax basis in our investment in Topco LLC resulting in an increase in deferred tax assets and additional paid-in capital of $215.4 million. The September 2021 Secondary Offering also resulted in an increase to the payable to related parties pursuant to the Tax Receivable Agreement of $227.4 million, which resulted in an increase to the associated deferred tax asset and additional paid-in capital of approximately $46.0 million.
The realizability of the Company’s deferred tax asset related to its investment in Topco LLC depends on the Company receiving allocations of tax deductions for its tax basis in the investment and on the Company generating sufficient taxable income to fully offset such deductions. We believe it is more likely than not that the Company will generate sufficient taxable income in the future to fully realize any deductions allocated to it from Topco LLC associated with the reversal of its tax basis as of September 30, 2021.
Tax Distributions to Topco LLC’s Owners
Topco LLC is subject to an operating agreement put in place at the date of the Organizational Transactions.Transactions (“LLC Operating Agreement”). The agreementLLC Operating Agreement has numerous provisions related to allocations of income and loss, as well as timing and amounts of distributions to its owners. This agreement also includes a provision requiring cash distributions enabling its owners to pay their taxes on income passing through from Topco LLC. These tax distributions are computed based on an assumed income tax rate equal to the sum of (i) the maximum combined marginal federal and state income tax rate applicable to an individual and (ii) the net investment income tax. The assumed income tax rate currently totals 46.7%, which may increase to 54.1% in certain cases where the qualified business income deduction is unavailable.
In addition, under the tax rules, Topco LLC is required to allocate taxable income disproportionately to its unit holders. Because tax distributions are determined based on the holder of LLC Units who is allocated the largest amount of taxable income on a per unit basis, but are made pro rata based on ownership, Topco LLC is required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes Topco LLC would have otherwise paid if it were taxed on its taxable income at the assumed income tax rate. Topco LLC is subject to entity level taxation in certain states and certain of its subsidiaries are subject to entity level U.S. and foreign income taxes. As a result, the accompanying condensed consolidated statements of income include income tax expense related to those states and to U.S. and foreign jurisdictions where Topco LLC or any of our subsidiaries are subject to income tax.
During the three months ended September 30, 2022, Topco LLC paid tax distributions of $75.7 million to its owners, including $38.9 million to us. During the nine months ended September 30, 2022, Topco LLC paid tax distributions of $246.1 million to its owners, including $126.8 million to us.
During the three months ended September 30, 2021, Topco LLC paid tax distributions of $90.0 million to its owners, including $39.9 million to us. During the nine months ended September 30, 2021, Topco LLC paid tax distributions of $186.5 million to its owners, including $80.2 million to us.
As of September 30, 2021,2022, no amounts for tax distributions havehad been accrued as such payments were made during the periods.period.
10.Related Party Transactions
GTCR, LLC and MLSH 1
Prior to the IPO,1’s majority owner is GTCR, LLC (“GTCR”), MLSH 1’s majority owner, provided subsidiaries. The Company’s Executive Chairman of the Company with financialBoard, Chief Financial Officer (“CFO”) and management consulting services through an advisory services agreement. The advisory services agreement provided that the Company pay a $0.1 million quarterly management fee to GTCR. The advisory services agreement was terminated in connection with the IPO. The Company incurred approximately $0.1 millionGeneral Counsel are executives of MLSH 1 and $0.4 million in management fees to GTCR for the three and nine months ended September 30, 2020, respectively.
The Company also reimbursed GTCR for out-of-pocket expenses incurred while providing the above professional services. The Company incurred approximately $0.2 million in out-of-pocket expenses to GTCR during the nine months ended September 30, 2020. The Company did not incur any out-of-pocket expenses to GTCR during the three and nine months ended September 30, 2021 or during the three months ended September 30, 2020.
During the three and nine months ended September 30, 2021, the Company made distributions of $50.1 million and $106.3 million, respectively, for tax liabilities to MLSH 1.2.
Legacy Owners of Cygnus
The non-controlling interests in MLSC represent equity interest that was retained by the shareholders of the MLSC entity prior to its acquisition by the Company. The President of Cygnus and his affiliated entity were the owners of the non-controlling interests. In September 2020, Topco LLC and MLSH 1 entered into a Sale and Rollover Agreement with the President of Cygnus and his affiliated entity to purchase certain MLSC Class B preferred units and common units as well as exchange the remaining MLSC Class B preferred units and common units for a variable number of MLSH 1 common units. As a result of this transaction, the President of Cygnus and his affiliated entity no longer held a non-controlling interest in MLSC upon the exchange of MLSH 1 common units for the remaining MLSC Class B preferred and common units which occurred in November 2020.
The Company leases the Southport Facility, which through the date of the Organizational Transactions was owned by an entity controlled by a close relative of the President of one of its subsidiaries. The President of this subsidiary also personally financed a loan to this entity, which was used to acquire the property leased by the Company. For the three and nine months ended September 30, 2020, the Company paid less than $0.1 million and approximately $0.2 million, respectively, in lease payments for the lease facility.
Payable to Related Parties Pursuant to athe Tax Receivable Agreement
We are a party to the TRAa Tax Receivable Agreement (“TRA”) with MLSH 1 and MLSH 2. The TRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of certain tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of the Organizational Transactions, IPO and any subsequent purchases or exchanges of LLC Units.Units of Topco LLC. Based on our current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipate having enough taxable income to utilize most of these tax benefits.
As of September 30, 2021,2022, our liability under the TRA is $745.6$746.0 million, payable to MLSH 1 and MLSH 2, representing approximately 85% of the calculated tax savings we anticipate being able to utilize in future years. This represents increases of $137.7 million and $227.4 million to the liability during the nine months ended September 30, 2021 as a result of the April 2021 Secondary Offering and September 2021 Secondary Offering, respectively.During the nine months ended September 30, 2021,2022, the Company recognized a gain of $9.1$2.3 million on TRA liability adjustment reflecting a change in the tax benefit obligation attributable to a change in the expected tax benefit. The remeasurement was primarily due to changes in our estimated state apportionment and the corresponding reduction of our estimated state tax rate.
During the three and nine months ended September 30, 2021,2022, no payments were made to MLSH 1 or MLSH 2 pursuant to the TRA and $1.3 millionTRA.
Topco LLC Operating Agreement
MLSH 1 is party to the LLC Operating Agreement put in place at the date of the liabilityOrganizational Transactions. This agreement includes a provision requiring cash distributions enabling its owners to pay their taxes on income passing through from Topco LLC. During the three and nine months ended September 30, 2022, the Company made distributions of $36.8 million and $119.3 million, respectively, for tax liabilities to MLSH 1 under this agreement. During the three and nine months ended September 30, 2021, the Company made distributions of $50.1 million and $106.3 million, respectively, for tax liabilities to MLSH 1 under this agreement.
Contract Development and Manufacturing Agreement with Curia Global
GTCR has been reclassified as a short-term liability.significant influence over Curia Global (“Curia”). During the three and nine months ended September 30, 2022, the Company paid insignificant amounts to Curia for contract manufacturing and development services. During the three and nine months ended September 30, 2021, the Company paid $0.4 million and $7.1 million to Curia, respectively. Such amounts were included in research and development expense on the condensed consolidated statements of income.
11.Segments
The Company’s financial performance is reported in 3three segments. A description of each segment follows:
•Nucleic Acid Production: focuses on the manufacturing and sale of highly modified nucleic acids products to support the needs of customers’ research, therapeutic and vaccine programs. This segment also provides research products for labeling and detecting proteins in cells and tissue samples.
•Biologics Safety Testing: focuses on manufacturing and selling biologics safety and impurity tests and assay development services that are utilized by our customers in their biologic drug manufacturing spectrum.
•Protein Detection: focused on manufacturing and selling labeling and visual detection reagents to scientific research customers for their tissue-based protein detection and characterization needs. The Company completed the divestiture of its Protein Detection business in September 2021 (see Note 2).2021.
The Company has determined that adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance. Adjusted EBITDA assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. The Company defines Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, certain non-cash items and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period. Corporate costs, net of eliminations, are managed on a standalone basis and are not allocated to segments.
The following schedule includes revenue and adjusted EBITDA for each of the Company’s reportable operating segments (in thousands). We have revised our presentation for the prior periods below to remove the presentation of Total Adjusted EBITDA and reconcile the total of our reportable segments’ measure of profit or loss to income before income taxes in addition to net income, and removed corporate costs, net of eliminations from total reportable segments’ adjusted EBITDA and included such amounts in the reconciliation to income before income taxes. Additionally, we have revised our prior years’ presentation of our
The following tables include financial information relatingtotal reportable segments’ revenue, in which we removed intersegment eliminations from our total reportable segment’s revenue.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021
(as adjusted)* | | 2022 | | 2021
(as adjusted)* |
| Revenue: | | | | | | | |
| Nucleic Acid Production | $ | 174,881 | | | $ | 183,055 | | | $ | 623,786 | | | $ | 499,962 | |
| Biologics Safety Testing | 16,382 | | | 16,626 | | | 54,509 | | | 52,483 | |
| Protein Detection | — | | | 5,283 | | | — | | | 18,959 | |
| Total reportable segments’ revenue | 191,263 | | | 204,964 | | | 678,295 | | | 571,404 | |
| Intersegment eliminations | — | | | (154) | | | (7) | | | (608) | |
| Total | $ | 191,263 | | | $ | 204,810 | | | $ | 678,288 | | | $ | 570,796 | |
| | | | | | | |
| Segment adjusted EBITDA: | | | | | | | |
| Nucleic Acid Production | $ | 133,816 | | | $ | 150,347 | | | $ | 502,906 | | | $ | 401,699 | |
| Biologics Safety Testing | 12,997 | | | 13,602 | | | 43,631 | | | 42,182 | |
| Protein Detection | — | | | 1,057 | | | — | | | 6,391 | |
| Total reportable segments’ adjusted EBITDA | 146,813 | | | 165,006 | | | 546,537 | | | 450,272 | |
| Reconciliation of total reportable segments’ adjusted EBITDA to income before income taxes | | | | | | | |
| Amortization | (6,254) | | | (4,604) | | | (18,033) | | | (14,685) | |
| Depreciation | (1,857) | | | (1,797) | | | (5,604) | | | (4,668) | |
| Interest expense | (3,136) | | | (7,685) | | | (10,234) | | | (23,238) | |
| Corporate costs, net of eliminations | (14,296) | | | (10,140) | | | (38,549) | | | (30,132) | |
| Other adjustments: | | | | | | | |
| Acquisition contingent consideration | — | | | — | | | 7,800 | | | — | |
| Acquisition integration costs | (2,760) | | | (21) | | | (10,642) | | | (38) | |
| | | | | | | |
| Stock-based compensation | (4,740) | | | (3,567) | | | (12,675) | | | (8,228) | |
| Gain on sale of business | — | | | 11,249 | | | — | | | 11,249 | |
| | | | | | | |
| Merger and acquisition related expenses | — | | | 366 | | | (1,195) | | | (1,496) | |
| Financing costs | (7) | | | (1,034) | | | (1,071) | | | (2,092) | |
| Acquisition related tax adjustment | — | | | — | | | (1,264) | | | — | |
| Tax Receivable Agreement liability adjustment | — | | | 3,246 | | | 2,340 | | | 9,132 | |
| Other | — | | | — | | | (1,814) | | | — | |
| Income before income taxes | 113,763 | | | 151,019 | | | 455,596 | | | 386,076 | |
| Income tax expense | (14,110) | | | (18,842) | | | (52,362) | | | (43,937) | |
| Net income | $ | 99,653 | | | $ | 132,177 | | | $ | 403,234 | | | $ | 342,139 | |
____________________
*As adjusted to reflect the operating segmentsimpact of the adoption of ASC 842. See Note 1 for a summary of the periods presented (in thousands):adjustments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Corporate | | Eliminations | | Total |
| Revenue | $ | 183,055 | | | $ | 16,626 | | | $ | 5,283 | | | $ | — | | | $ | (154) | | | $ | 204,810 | |
| Adjusted EBITDA | $ | 150,620 | | | $ | 13,556 | | | $ | 1,942 | | | $ | (10,217) | | | $ | 102 | | | $ | 156,003 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Corporate | | Eliminations | | Total |
| Revenue | $ | 499,962 | | | $ | 52,483 | | | $ | 18,959 | | | $ | — | | | $ | (608) | | | $ | 570,796 | |
| Adjusted EBITDA | $ | 402,855 | | | $ | 42,217 | | | $ | 7,511 | | | $ | (30,136) | | | $ | 209 | | | $ | 422,656 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Corporate | | Eliminations | | Total |
| Revenue | $ | 68,019 | | | $ | 14,114 | | | $ | 6,089 | | | $ | — | | | $ | (363) | | | $ | 87,859 | |
| Adjusted EBITDA | $ | 46,704 | | | $ | 12,000 | | | $ | 2,839 | | | $ | (3,721) | | | $ | (47) | | | $ | 57,775 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Corporate | | Eliminations | | Total |
| Revenue | $ | 129,645 | | | $ | 40,772 | | | $ | 16,404 | | | $ | — | | | $ | (1,076) | | | $ | 185,745 | |
| Adjusted EBITDA | $ | 76,130 | | | $ | 33,571 | | | $ | 6,960 | | | $ | (11,597) | | | $ | (224) | | | $ | 104,840 | |
During the nine months ended September 30, 2022, intersegment revenue was immaterial between the Nucleic Acid Production and Biologics Safety Testing segments. There was no intersegment revenue during the three months ended September 30, 2022. During the three and nine months ended September 30, 2021, intersegment revenue was $0.2 million and $0.6 million, respectively. Duringrespectively, between the threeNucleic Acid Production and nine months ended September 30, 2020, intersegment revenue was $0.4 million and $1.1 million, respectively.Protein Detection segments. The intersegment sales and the related gross margin on inventory recorded at the end of the period are eliminated for consolidation purposes in the Eliminations column.purposes. Internal selling prices for intersegment sales are consistent with the segment’s normal retail price offered to external parties. There was no commission expense recognized for intersegment sales for the three and nine months ended September 30, 20212022 and 2020. Intersegment revenue represents intersegment revenue between the Nucleic Acid Production and Protein Detection segments.2021.
The Company does not allocate assets to its reportable segments as they are not included in the review performed by the CODM for purposes of assessing segment performance and allocating resources.
A reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, is set forth below for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net income | $ | 132,810 | | | $ | 39,023 | | | $ | 343,006 | | | $ | 64,344 | |
| Add: | | | | | | | |
| Amortization | 4,604 | | | 5,040 | | | 14,685 | | | 15,156 | |
| Depreciation | 2,472 | | | 1,631 | | | 6,623 | | | 4,756 | |
| Interest expense | 8,545 | | | 7,089 | | | 25,827 | | | 21,934 | |
| Income tax expense (benefit) | 18,842 | | | (359) | | | 43,937 | | | 2,511 | |
| EBITDA | 167,273 | | | 52,424 | | | 434,078 | | | 108,701 | |
| Acquisition integration costs | 21 | | | (14) | | | (777) | | | 3,588 | |
| Amortization of lease facility financing obligation | (1,031) | | | — | | | (2,080) | | | — | |
| Acquired in-process research and development costs | — | | | — | | | — | | | 2,881 | |
| Equity-based compensation | 3,567 | | | 1,849 | | | 8,228 | | | 2,933 | |
| GTCR management fees | — | | | 126 | | | — | | | 555 | |
| Gain on sale of business | (11,249) | | | — | | | (11,249) | | | — | |
| Gain on sale and leaseback transaction | — | | | — | | | — | | | (19,002) | |
| Merger and acquisition related expenses (income) | (366) | | | 124 | | | 1,550 | | | 218 | |
| Financing costs | 1,034 | | | 3,266 | | | 2,038 | | | 4,966 | |
| Tax receivable agreement liability adjustment | (3,246) | | | — | | | (9,132) | | | — | |
| Adjusted EBITDA | $ | 156,003 | | | $ | 57,775 | | | $ | 422,656 | | | $ | 104,840 | |
12.Subsequent Event
On October 18, 2022, the Company placed William “Trey” Martin, III, Chief Executive Officer (“CEO”), on a paid leave of absence following a lawsuit filed against him and the Company by his previous employer alleging violation of a noncompetition agreement. The duration of Mr. Martin’s leave of absence has not yet been determined. During his leave of absence, Mr. Martin is not expected to perform any of the responsibilities of CEO of the Company.
As a result of Mr. Martin’s leave of absence, the Board of Directors (the “Board”) of the Company has appointed Carl Hull, Executive Chairman of the Board, to serve as interim CEO to maintain continuity of the day-to-day operations and draw upon his extensive knowledge of the management of the Company due to his prior service as the Company’s CEO.
The Company believes the allegations in this lawsuit are without merit and intends to defend itself vigorously against all claims asserted. The lawsuit is still in early stages and the Company cannot reasonably estimate a range of potential loss and expense at this time.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, as filed with the Securities and Exchange Commission. This discussion and analysis reflects our historical results of operations and financial position and containcontains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. Please also see the section titled “Forward Looking“Special Note Regarding Forward-Looking Statements.” We were incorporated in August 2020 and, pursuant to the organizational transactionsOrganizational Transactions described in Note 1 to our condensed consolidated financial statements, became a holding company whose principal asset is a controlling equity interest in Topco LLC. As the sole managing member of Topco LLC, we operate and control the business and affairs of Topco LLC and its subsidiaries. Accordingly, we consolidate Topco LLC in our consolidated financial statements and report a non-controlling interest related to the portion of Topco LLC not owned by us. Because the organizational transactionsOrganizational Transactions were considered transactions between entities under common control, the consolidated financial statements for periods prior to the organizational transactionsOrganizational Transactions and the initial public offering have been adjusted to combine the previously separate entities for presentation purposes. Unless otherwise noted or the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we,” “us” or “our” refer to Maravai LifeSciences Holdings, Inc. and its subsidiaries.
Overview
We are a leading life sciences company providing critical products to enable the development of drug therapies, diagnostics, novel vaccines and support research on human diseases. Our customers include the top global biopharmaceutical companies ranked by research and development expenditures according to industry consultants, and many other emerging biopharmaceutical and life sciences research companies, as well as leading academic research institutions and in vitro diagnostics companies. Our products address the key phases of biopharmaceutical development and include complex nucleic acids for diagnostic and therapeutic applications, antibody-based products to detect impurities during the production of biopharmaceutical products, and products to detect the expression of proteins in tissues of various species.
We have and will continue to build a transformative life sciences products company by acquiring businesses and accelerating their growth through capital infusions and industry expertise. Biomedical innovation is dependent on a reliable supply of reagents in the fields of nucleic acid production, biologics safety testing and protein labeling. From inventive startups to the world’s leading biopharmaceutical, vaccine, diagnostics and gene and cell therapy companies, these customers turn to us to solve their complex discovery challenges and help them streamline and scale their supply chain needs beginning from research and development through clinical trials to commercialization.
Our primary customers are biopharmaceutical companies who are pursuing novel research and product development programs. Our customers also include a range of government, academic and biotechnology institutions.
As of September 30, 2021,2022, we employed a team of over 460600 employees, approximately 18% of whom have advanced degrees. We primarily utilize a direct sales model for our sales to our customers in North America. Our international sales, primarily in Europe and Asia Pacific, are sold through a combination of third-party distributors as well as via a direct sales model. The percentage of our total revenue derived from customers in North America was 41.0%51.1% and 41.8%40.4% for the three and nine months ended September 30, 2021,2022, respectively. The percentage of our total revenue derived from customers in North America was 53.0%41.0% and 58.3%41.8% for the three and nine months ended September 30, 2020,2021, respectively.
We generated revenue of $191.3 million and $678.3 million for the three and nine months ended September 30, 2022, respectively, and $204.8 million and $570.8 million for the three and nine months ended September 30, 2021, respectively,respectively.
Total revenue by segment was $174.9 million in Nucleic Acid Production and $87.9$16.4 million and $185.7 millionin Biologics Safety Testing for the three and nine months ended September 30, 2020, respectively.
2022. Total revenue by segment was $182.9 million in Nucleic Acid Production, $16.6 million in Biologics Safety Testing and $5.3 million in Protein Detection for the three months ended September 30, 2021. We divested our Protein Detection segment in September 2021, compared to $67.7and since then operate two business segments only, Nucleic Acid Production and Biologics Safety Testing.
Total revenue by segment was $623.8 million $14.1in Nucleic Acid Production and $54.5 million and $6.1 million, respectively,in Biologics Safety Testing for the threenine months ended September 30, 2020.
2022. Total revenue by segment was $499.4 million in Nucleic Acid Production, $52.5 million in Biologics Safety Testing and $19.0 million in Protein Detection for the nine months ended September 30, 2021, compared to $128.6 million, $40.8 million, and $16.4 million, respectively, for the nine months ended September 30, 2020.
Our research and development efforts are geared towards supporting our customers’ needs. We incurred research and development expenses of $2.0 million and $6.0 million for the three and nine months ended September 30, 2021, respectively, and $1.9 million and $7.2 million for the three and nine months ended September 30, 2020, respectively. We intend to continue2021.
to invest in research and development and new products and technologies to support our customers’ needs for the foreseeable future.
We focus a substantial portion of our resources supporting our core business segments. We are actively pursuing opportunities to expand our customer base both domestically and internationally by fostering strong relationships with both existing and new customers and distributors. Our management team has experience working with biopharmaceutical, vaccine, diagnostics and gene and cell therapy companies as well as academic and research scientists. We also intend to continue making investments in our overall infrastructure and business segments to support our growth. We incurred aggregate selling, general and administrative expenses of $25.2$30.8 million and $72.5$92.1 million for the three and nine months ended September 30, 2022, respectively, and $26.5 million and $74.5 million for the three and nine months ended September 30, 2021, respectively,respectively.
Our research and $20.5development efforts are geared towards supporting our customers’ needs. We incurred research and development expenses of $5.4 million and $52.6$13.4 million for the three and nine months ended September 30, 2020, respectively.
We expect our expenses will increase in connection with our ongoing activities, as we:
•attract, hire2022, respectively, and retain qualified personnel;
•invest in processes$1.9 million and infrastructure to enable manufacturing automation;
•support research and development to introduce new products and services;
•market and sell new and existing products and services;
•protect and defend our intellectual property;
•acquire businesses or technologies to support the growth of our business; and
•operate as a public company.
Recent Developments
Exchanges and Secondary Offerings
April 2021 Exchange and Secondary Offering
In April 2021, MLSH 1 executed an exchange of 17,665,959 LLC Units (paired with the corresponding shares of Class B common stock) in return$6.0 million for 17,665,959 shares of the Company’s Class A common stock. The corresponding shares of Class B common stock were subsequently cancelled and retired. The Company immediately completed a secondary offering (“April 2021 Secondary Offering”) of 20,700,000 shares of its Class A common stock by MLSH 1 and MLSH 2, which included 3,034,041 shares of Class A common stock previously held by MLSH 2, which included the full exercise of the underwriters’ option to purchase up to 2,700,000 additional shares of Class A common stock, at a price of $31.25 per share.
The selling stockholders were responsible for the underwriting discounts and commissions of the April 2021 Secondary Offering and received all of the net proceeds of $624.2 million from the sale of shares of Class A common stock. The Company was responsible for the offering costs associated with the April 2021 Secondary Offering of $1.0 million which were recorded within selling, general and administrative in the condensed consolidated statements of income.
September 2021 Exchange and Secondary Offering
In September 2021, MLSH 1 executed an exchange of 17,068,559 LLC Units (paired with the corresponding shares of Class B common stock) in return for 17,068,559 shares of the Company’s Class A common stock. The corresponding shares of Class B common stock were subsequently cancelled and retired. Shortly after the exchange, the Company completed a secondary offering (“September 2021 Secondary Offering”) of 20,000,000 shares of its Class A common stock by MLSH 1 and MLSH 2, which included 2,931,441 shares of Class A common stock previously held by MLSH 2 at a price of $50.00 per share.
The selling stockholders were responsible for the underwriting discounts and commissions of the September 2021 Secondary Offering and received all of the net proceeds of $977.5 million from the sale of shares of Class A common stock. The Company was responsible for the offering costs associated with the September 2021 Secondary Offering of $0.9 million which were recorded within selling, general and administrative in the condensed consolidated statements of income.
Divestiture
On August 5, 2021, we entered into a definitive agreement to sell Vector Laboratories, Inc. and its subsidiaries (“Vector”) to Voyager Group Holdings, Inc. (“Voyager”), a third-party unrelated to the us, for an all cash sale price of $124.0 million, subject to purchase price adjustments. The divestiture was completed on September 2, 2021, and we received total considerations of $121.9 million, which included $120.3 million in cash and $1.6 million in receivables expected to be collected based on the finalization of working capital adjustments. The sale price is also subject to adjustment based on the finalization of working capital.
As a result of the divestiture, during the three and nine months ended September 30, 2021, respectively. We intend to continue to invest in research and development and new products and technologies to support our customers’ needs for the foreseeable future.
Recent Developments
Acquisition
In January 2022, we recognizedcompleted the acquisition of MyChem, LLC (“MyChem”), a pre-tax gain on saleprivately-held San Diego, California-based provider of $11.2 million, net of transactions costs of $0.9 million,ultra-pure nucleotides to customers in the condensed consolidated statementsdiagnostics, pharma, genomics and research markets, for a total purchase consideration of income. Income tax expense of $0.4 million relating to the gain on sale was recognized during the three and nine months ended September 30, 2021 (see Note 9 to our condensed consolidated financial statements).
Our Protein Detection segment was comprised of Vector. The sale$257.8 million. As a result of the Protein Detection segment represents a strategic shift asacquisition, we will no longer beown all the outstanding interest in the protein detection business after the sale. However, the sale did not qualify for presentation as discontinuedMyChem. Our consolidated results of operations since the sale of the Protein Detection segment did not have a major effect on the our operations or financial results.
In connection with the divestiture, we entered into a Transition Services Agreement (“TSA”) with Voyager to help support its ongoing operations. Under the TSA, we will provide certain transition services to Voyager, including information technology, finance and ERP, marketing and commercial, human resources, employee benefits, and other limited services. Depending on the service, the initial period ranges from one month to five months and the extension period ranges from one month to eight months. Income from performing services under the TSA was recorded within other income in the condensed consolidated statements of income and was not significant for the three and nine months ended September 30, 2021.
In August 2020, we entered into an agreement with an executive2022 include the operating results of Vector wherebyMyChem from the Company granted the executive incentive units of MLSH 1. In connection with the divestiture, we amended the terms of the MLSH 1 incentive units resulting in the recognition of incremental unit-based compensation expense of $2.4 million. This unit-based compensation expense was recorded within selling, general and administrative inacquisition date. See Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of incomethis Quarterly Report on Form 10-Q.
Government Assistance
In May 2022, TriLink entered into a cooperative agreement (“Cooperative Agreement”) with the U.S. Department of Defense, as represented by the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense on behalf of the Biomedical Advanced Research and Development Authority (“BARDA”), within the U.S. Department of Health and Human Services, to advance the development of domestic manufacturing capabilities and to expand TriLink’s domestic production capacity for products critical to the development and manufacture of mRNA vaccines and therapeutics, including nucleoside triphosphates and CleanCap®, TriLink’s proprietary co-transcriptional mRNA capping reagents.
TriLink is expanding its San Diego manufacturing campus by making a significant investment in additional cleanroom and small molecule manufacturing space, implementing automation systems and adding support areas to augment production capacity (the “Flanders San Diego Facility”). Pursuant to certain requirements, BARDA awarded TriLink an amount equal to 50% of the construction and validation costs currently budgeted for the Flanders San Diego Facility. See Note 6 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Trends and Uncertainties
COVID-19 Related Revenue Trends and Uncertainties
Since the start of the COVID-19 pandemic in early 2020, our results of operations and cash flows have substantially benefited from the strong demand for COVID-19 related products and services, including our proprietary CleanCap® analogs and highly modified RNA products, particularly mRNA. We estimate that revenue from COVID-19 related products and services represented approximately 66.1% and 70.2%, respectively, of our total revenues for the three and nine months ended September 30, 2021.
Key Factors Affecting Our Results2022. However, we expect the second quarter of Operations2022 to represent the highest revenue quarter for revenue attributable to our COVID-19 related products and Future Performance
We believe that our financial performance has been, andservices, with substantial declines in COVID-19 related revenue expected in the foreseeable future will continuefuture. In addition to be, primarily driven by a numberthe general market trend of factorsreduced demand for COVID-19 related products and services as described below, each of which presents growth opportunities forthe pandemic subsides, our business. These factors also pose important challenges that we must successfully address in order to sustain our growth and improve our results of operations. Our ability to successfully address these challenges is subject to various risks and uncertainties, including those described under the heading “Risk Factors” in our Annual Report on Form 10-KCOVID-19 related revenue for the year ended December 31, 2020.
Drug Development Pipelines
Our financial performance has largely been drivenremainder of 2022 and continuing into 2023 may be negatively impacted by our customers accelerating their drug development pipelines for cell, gene and RNA therapies. A key factor to our future success will be our ability to provide good manufacturing practices (“GMP”) grade nucleic acids and associated pre-clinical and non-GMP compounds to these customers. Our GMP-grade nucleic acids are manufactured following certain voluntary GMP quality standards and customer specific requirements. We believe these products, including “GMP-grade” materials, are exempt from compliance with the current GMP regulations of the U.S. Food and Drug Administration (“FDA”). The mRNA and gene editing therapeutics that manyunused inventory of our customers are developing are early in their lifecycle. We expect an increase in demand for our GMP-grade nucleic acids to the extentproducts that our customers have success in their early-phase clinical trialson hand. We are unable to estimate the impact of these therapeutics. New FDA policies, and plans for maximizing the use of expedited programs, may advance the development of cell and gene therapies. Additionally, the COVID-19 pandemic hasthis unused inventory on future demand given both fostered increased interest in mRNA as a therapeutic modality for this virus and directed significant resources to developing a base of knowledge for mRNA.
Demand for Outsourced GMP-grade RNA
We believe that growing numbers of RNA therapeutics companies expect to outsource production of pre-clinical and GMP-grade RNA to trusted business partners. Companies are often driven to outsource due to the complex nature of the manufacturing process, faster speeds to market, recent availability of high-quality contract development and manufacturing organizations (“CDMO”) partners, an influx of inexperienced and virtual biopharmaceutical companies, the need for redundancy of clinical and commercial supply and recent moves to onshore critical supply chains. We offer a number of products and services to meet this demand for outsourced pre-clinical and GMP-grade RNA.
Demand for Outsourced Biologics Safety Testing Products and Assay Development Services
We believe that many biopharmaceutical companies rely on outsourced providers for their biologics safety testing products and assay development needs. Once process development has been completed, biopharmaceutical companies avoid changing biologics safety testing products or providers for fear of affecting the regulatory approval pathway of their therapeutic products. This supports revenue growth for the biologics safety testing products that have been adoptedbinding contractual commitments by these companies. We also have long-standing relationships with many of our customers whichfor additional purchases and our customers generally having not provided us with detailed inventory data. Our longer-term revenue prospects for COVID-19 related products are bolstered by the regulatory demands on our customers
and the “designed-in” nature of our products and services. A successful partnership with a customer relatedhighly uncertain but are expected to the development of their drug leads to repeat business as customers become comfortable with our products. The drug approval process risk is reduced when regulatory bodies are familiar with an impurity detection product vendor and most biopharmaceutical customers are not willing to risk a regulatory issue related to biologics safety testing for their drug program on an unproven vendor. It is therefore critical to our success that our products and services be “designed-in” at the outset, especially to the most promising product candidates.
COVID-19 Considerations
The global COVID-19substantially less than pandemic has created significant uncertainty, volatility, and economic disruption in the markets we operate. We have responded to the pandemic by leveraging our deep product portfolio and general scientific expertise to develop robust COVID-19-related product and service offerings providing critical support for the development of therapeutics, vaccines and diagnostics.
While our results of operations and cash flows have been positively impacted by the continued strong demand for our proprietary CleanCap® analogs and ongoing demand for highly modified RNA products, particularly mRNA, the COVID-19 pandemic could have an adverse impact on our operating results, cash flows and financial condition in the future.highs. The factors that could cause such adverse impactinfluence longer-term COVID-19 related revenue include: the severityemergence, duration and duration of the pandemic; the emergenceintensity of new virus variants; lack of demand for COVID-19 vaccines; competition faced by our customers from other COVID-19 vaccine manufacturers; the U.S. economy and global economy, including impacts resulting from supply chain constraints and inflationary pressures; and the timing, scope and effectivenessmanufacturers or developers of U.S. and international governmental, regulatory, fiscal, monetary and public health responses to the COVID-19 pandemic and associated economic disruptions.
In response to the spread of COVID-19, we have been and continue to restrict access to our facilities mostly to personnel and third parties who must perform critical activities that are required to be completed on-site, limit the number of such personnel that can be present at our facilities at any one time, and continue to provide flexibility to some of our personnel to work remotely.
In the event that government authorities were to further modify current restrictions, our employees conducting research and development, or manufacturing activities may not be able to access our laboratory or manufacturing space, and our core activities may be significantly limited or curtailed, possibly for an extended period of time. Although there are currently positive signs with vaccine availability and reductions in infection rates, the full extent of the potential impact on our business is still uncertain. There are various factors that may affect this including the emergence of new variants,alternative treatments; the availability and administration of pediatric and booster vaccinations, vaccine supply constraints, vaccine hesitancy and vaccine hesitancy.the effectiveness of vaccines against new virus strains; and the U.S. economy and global economy, including impacts resulting
from supply chain constraints, labor market shortages and inflationary pressures. This contraction in COVID-19 related demand will significantly decrease our revenue and cash flow, which in turn could have a material adverse impact on our operating results and financial condition in the future.
Other Trends and Uncertainties
Biopharmaceutical customers are increasingly relying on outside parties to provide important inputs and services for their clinical research and manufacturing, a development driving growth for suppliers with unique capabilities and the ability to manufacture at an appropriate scale to support customer programs. We will continuebelieve that suppliers like ourselves, with this rare combination of capabilities, proprietary products and the required investment in manufacturing and quality systems, are benefiting from rapid growth as biopharmaceutical customers seek to closely monitor and evaluate our business operations.
We remain fully operational as we abide by local COVID-19 safety regulations across the world. To achieve this, inpartner with a small number of trusted suppliers. In addition to the measures noted above, we have adopted significant protective measures forcontinued trend toward outsourcing, several market developments are driving increased growth, in our employees on site, including conducting weekly COVID-19 testing, staggered shifts, and hygiene best practices recommendedaddressable market segments, including: (i) pivot toward mRNA vaccines driven in part by the Centers for Disease Controlsuccess of mRNA COVID-19 vaccines; (ii) rapid growth in development of cell and Prevention (the “CDC”)gene therapies; (iii) large and local public health officials. Additionally, we implemented a new company policy concerninggrowing pipeline of protein-based therapeutics; and (iv) rise in molecular diagnostics driven by COVID-19.
Our Biologics Safety Testing business continues to see headwinds from business in Asia, seeing impacts from the ongoing COVID-19 vaccinations effective during the fourth quarter of 2021. This includes vaccine requirements for all employees, with certain limited exceptions. In addition, we have taken stepspandemic lock-downs in China and our ongoing decisions not to monitor and strengthen our supply chain to maintain an uninterrupted supply of our critical products and services.ship into Russia.
How We Assess Our Business
We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use to determine how our business is performing are revenue and Adjusted EBITDA.
Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) adjusted for interest expense, provision for income taxes, depreciation, amortization and equity-basedstock-based compensation expenses. Adjusted EBITDA reflects further adjustments to eliminate the impact of certain items, including certain non-cash and other items, that we do not consider representative of our ongoing operating performance. We also present Adjusted Free Cash Flow, which is a non-GAAP measure that we define as Adjusted EBITDA less capital expenditures.
Management uses Adjusted EBITDA to evaluate the financial performance of our business and the effectiveness of our business strategies. We present Adjusted EBITDA and Adjusted Free Cash Flow because we believe they are frequently used by analysts, investors and other interested parties to evaluate companies in our industry and they facilitate comparisons on a consistent basis across reporting periods. Further, we believe they are helpful in highlighting trends in our operating results because they exclude items that are not indicative of our core operating performance. Adjusted EBITDA is also a component of the financial covenant under our new credit agreement (the “New Credit Agreement”) that governs our ability to access more than $63.0 million in aggregate letters of credit and available borrowings under our new revolving credit facility (the “New
Revolving Credit Facility”).facility. In addition, if we borrow more than $63.0 million, we are required to maintain a specified net leverage ratio. See “—Liquidity and Capital Resources—Sources of Liquidity—Debt Covenants” below for a discussion of this financial covenant.
Adjusted EBITDA and Adjusted Free Cash Flow have limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. In particular, we expect to incur meaningful share-based compensation expense in the future. Other limitations include that Adjusted EBITDA and Adjusted Free Cash Flow do not reflect:
•all expenditures or future requirements for capital expenditures or contractual commitments;
•changes in our working capital needs;
•provision for income taxes, which may be a necessary element of our costs and ability to operate;
•the costs of replacing the assets being depreciated, which will often have to be replaced in the future;
•the non-cash component of employee compensation expense; and
•the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations.
In addition, Adjusted EBITDA and Adjusted Free Cash Flow may not be comparable to similarly titled measures used by other companies in our industry or across different industries.
Components of Results of Operations
Revenue
Our revenue consists primarily of product revenue and, to a much lesser extent, service revenue from royalties attributable to the out-licensing of our proprietary biological assets intellectual property that we may develop.revenue. We generated total consolidated revenue of $191.3 million and $678.3 million for the three and nine months ended September 30, 2022, respectively, and $204.8 million and $570.8 million for the three and nine months ended September 30, 2021, respectively, and $87.9 million and $185.7 million for the three and nine months ended September 30, 2020, respectively, through the following segments: (i) Nucleic Acid Production, (ii) Biologics Safety Testing and (iii) Protein Detection. We divested our Protein Detection segment in September 2021, and since then operate two business segments only, Nucleic Acid Production and Biologics Safety Testing.
Nucleic Acid Production Segment
Our Nucleic Acid Production segment focuses on the manufacturing and sale of highly modified nucleic acids products to support the needs of customers’ research, therapeutic and vaccine programs. This segment also provides research products for labeling and detecting proteins in cells and tissue samples.
Biologics Safety Testing Segment
Our Biologics Safety Testing segment focuses on manufacturing and selling biologics safety and impurity tests and assay development services that are utilized by our customers in their biologic drug manufacturing activities.
Protein Detection Segment
Our Protein Detection segment products, which included a portfolio of labeling and visual detection reagents, were purchased by our scientific research customers for their tissue-based protein detection and characterization needs. In September 2021, we completed the divestiture of Vector Laboratories, Inc. and subsidiaries (“Vector”), which made up itsour Protein Detection segment.
Cost of Revenue
Cost of revenue associated with our products primarily consists of manufacturing related costs incurred in the production process, including personnel and related costs, equity-basedstock-based compensation from awards issued by both MLSH 1 and one of our subsidiaries, and stock options and restricted stock units (“RSUs”) we have issued,expense, inventory write-downs, costs of materials, labor and overhead, packaging and delivery costs and allocated costs, including facilities, information technology, depreciation and amortization of intangibles. Cost of revenue associated with our services primarily consists of personnel and related costs, equity-basedstock-based compensation awards,expense, cost of materials and allocated costs, including facilities and information technology costs. Costs of services were not material tofor the three and nine months ended September 30, 20212022 and 2020.2021.
We expect cost of revenue to increase in future periods as our revenue grows.
Operating Expenses
Selling, General and Administrative
Our selling, general and administrative expenses primarily consist of salaries, benefits and stock-based compensation expense for our employees in our commercial sales functions, marketing, executive, accounting and finance, legal and human resource functions as well as travel expenses, professional services fees, such as consulting, audit, tax and legal fees, general corporate costs and allocated costs, including facilities, information technology and amortization of intangibles.
We expect that our selling, general and administrative expenses will continue to increase, primarily due to increased headcount and an expanding facilities footprint to support anticipated growth in the business, costs incurred in increasing our presence globally, increases in marketing activities to drive awareness and adoption of our products and services, and incremental costs associated with operating as a public company.
Research and development.Development
Research and development costs primarily consist of salaries, benefits, incentivestock-based compensation equity-based compensation from awards issued by both MLSH 1 and one of our subsidiaries as well as equity-based compensation from stock options and RSUs issued by us,expense, outside contracted services, cost of supplies, in-process research and development costs from asset acquisitions and allocated facilities costs for employees engaged in research and development of products and services. We expense all research and development costs in the period in which they are incurred. Payment made prior to the receipt of goods or services to be used in research and development are recognized as prepaid assets until the goods are received or services are rendered.
We planexpect that our research and development costs will continue to continueincrease to support our research and development efforts, including supportingmeeting our customers’ needs.
Selling, generalChange in Estimated Fair Value of Contingent Consideration
In the first quarter of 2022, we completed the acquisition of MyChem and administrative. Our selling, generalrecorded a contingent consideration liability of $7.8 million. In the second quarter of 2022, we recorded a fair value adjustment to the liability based on our assessment of the probability of achieving certain revenue thresholds and administrative expenses primarily consist of salaries, benefits and equity-based compensation from awards issued by both MLSH 1 and one of our subsidiaries as well as stock-based compensation from stock options and RSUs issued by us to employees in our commercial sales functions, marketing, executive, accounting and finance, legal and human resource functions as well as travel expenses, professional services fees, such as consulting, audit, tax and legal fees, general corporate costs and allocated costs, including facilities, information technology and amortization of intangibles.
We expect that our selling, general and administrative expenses will continue to increase, primarilyother probability factors. This was due to increased headcount to support anticipated growtha change in the business, costs incurred in increasing our presence globally and increases in marketing activities to drive awareness and adoption of our products and services, and due to incremental costsestimate associated with operating asMyChem revenue projections reaching thresholds that would trigger a public company.contingent payment per the MyChem Securities Purchase Agreement (the “MyChem SPA”).
Gain on saleSale of business. Business
In the third quarter of 2021, we completed the sale of Vector, which represented our Protein Detection business, to Voyager Group Holdings, Inc. (“Voyager”) and recorded a gain of $11.2 million. For additional information pertaining to the disposition, please refer to Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report.
Other Income (Expense)
Interest Expense
Interest expense consists of interest costs and the related amortization of the debt discount and deferred issuance costs on our outstanding debt. Interest expense also consists of changes in the fair value of our interest rate cap agreement.
Loss on Extinguishment of Debt
Loss on extinguishment of debt represent the write-off of remaining unamortized debt discount and deferred issuance costs on previously outstanding debt when we engage in refinancing activities.
Change in payablePayable to related parties pursuantRelated Parties Pursuant to athe Tax Receivable Agreement
The tax receivable agreementTax Receivable Agreement liability adjustment reflects changes in the tax receivable agreementTax Receivable Agreement liability recorded in our condensed consolidated statements of financial conditionbalance sheets as a result of change in the tax benefit obligation attributable to a change in the expected tax benefit.
Income Tax Expense
As a result of our ownership of LLC Units in Topco LLC, we are subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of Topco LLC and will be taxed at the prevailing corporate tax rates.
Non-Controlling Interests
Until November, 2020, Topco LLC held a majority ownership interest in MLSC through its consolidated subsidiaries withNon-controlling interests represent the remaining ownership being recorded as non-controlling interest in our consolidated financial statements. MLSCportion of profit or loss, net assets and comprehensive income or loss was attributedof our consolidated subsidiaries that is not allocable to the non-controlling interests using an attribution method, similar to the hypothetical liquidation at book value method,Company based on the distribution provisionsour percentage of the MLSC Amended and Restated Limited Liability Company Agreement (“MLSC LLC Agreement”).
As the sole managerownership of Topco LLC, we operate the business and control the strategic decisions and day-to-day operations of Topco LLC and also have a substantial financial interest in Topco LLC. Accordingly, we consolidate the financial results of Topco LLC, and report a non-controlling interest based on LLC Units of Topco LLC held by MLSH 1 on our consolidated balance sheets as of September 30, 2021. such entities. Income or loss attributed to the non-controlling interests is based on the LLC Units outstanding during the period and is presented on the condensed consolidated statements of incomeincome. As of September 30, 2022, we held 51.5% of the outstanding LLC Units of Topco LLC and consolidated statements48.5% of comprehensive income.the outstanding LLC Units of Topco LLC were held by MLSH 1.
Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. For information with respect to recent
accounting pronouncementpronouncements that are of significance or potential significance to us, see “NoteNote 1 Organization and Significant Accounting Policies” into the “Notes to Condensed Consolidated Financial Statements”condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2021 | | 2020 | | Change |
| (in thousands, except per share and per unit amounts) | | |
| Revenue | $ | 204,810 | | | $ | 87,859 | | | 133.1 | % |
| Operating expenses: | | | | | |
Cost of revenue (1) | 32,047 | | | 19,760 | | | 62.2 | % |
Research and development (1) | 1,950 | | | 1,868 | | | 4.4 | % |
Selling, general and administrative (1) | 25,189 | | | 20,510 | | | 22.8 | % |
| Gain on sale of business | (11,249) | | | — | | | * |
| | | | | |
| Total operating expenses | 47,937 | | | 42,138 | | | 13.8 | % |
| Income from operations | 156,873 | | | 45,721 | | | 243.1 | % |
| Other expense | (5,221) | | | (7,057) | | | (26.0) | % |
| Income before income taxes | 151,652 | | | 38,664 | | | 292.2 | % |
| Income tax expense (benefit) | 18,842 | | | (359) | | | * |
| Net income | $ | 132,810 | | | $ | 39,023 | | | 240.3 | % |
| Net income attributable to non-controlling interests | 78,536 | | | 73 | | | * |
| Net income attributable to Maravai LifeSciences Holdings, Inc. | $ | 54,274 | | | $ | 38,950 | | | 39.3 | % |
| | | | | |
Net income per Class A common share/unit attributable to Maravai LifeSciences Holdings, Inc. (2): | | | | | |
| Basic | $ | 0.46 | | | $ | 0.12 | | | |
| Diluted | $ | 0.45 | | | $ | 0.12 | | | |
Weighted average number of Class A common shares/units outstanding (2): | | | | | |
| Basic | 118,433 | | | 253,917 | | | |
| Diluted | 258,028 | | | 253,917 | | | |
| Non-GAAP measures: | | | | | |
| Adjusted EBITDA | $ | 156,003 | | | $ | 57,775 | | | |
| Adjusted Free Cash Flow | $ | 153,771 | | | $ | 42,521 | | | |
____________________
*Not meaningful | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| 2022 | | 2021
(as adjusted)* | | Change |
| (in thousands, except per share amounts) | | |
| Revenue | $ | 191,263 | | | $ | 204,810 | | | (6.6) | % |
| Operating expenses: | | | | | |
Cost of revenue (1) | 38,176 | | | 32,221 | | | 18.5 | % |
Selling, general and administrative (1) | 30,795 | | | 26,512 | | | 16.2 | % |
Research and development (1) | 5,389 | | | 1,946 | | | 176.9 | % |
| | | | | |
| Gain on sale of business | — | | | (11,249) | | | # |
| | | | | |
| Total operating expenses | 74,360 | | | 49,430 | | | 50.4 | % |
| Income from operations | 116,903 | | | 155,380 | | | (24.8) | % |
| Other income (expense), net | (3,140) | | | (4,361) | | | (28.0) | % |
| Income before income taxes | 113,763 | | | 151,019 | | | (24.7) | % |
| Income tax expense | 14,110 | | | 18,842 | | | (25.1) | % |
| Net income | $ | 99,653 | | | $ | 132,177 | | | (24.6) | % |
| Net income attributable to non-controlling interests | 55,184 | | | 78,215 | | | (29.4) | % |
| Net income attributable to Maravai LifeSciences Holdings, Inc. | $ | 44,469 | | | $ | 53,962 | | | (17.6) | % |
| | | | | |
| Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.: | | | | | |
| Basic | $ | 0.34 | | | $ | 0.46 | | | |
| Diluted | $ | 0.34 | | | $ | 0.44 | | | |
| Weighted average number of Class A common shares outstanding: | | | | | |
| Basic | 131,540 | | | 118,433 | | | |
| Diluted | 131,651 | | | 258,028 | | | |
| Non-GAAP measures: | | | | | |
| Adjusted EBITDA | $ | 132,517 | | | $ | 154,866 | | | |
| Adjusted Free Cash Flow | $ | 118,754 | | | $ | 152,671 | | | |
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | Change | | 2022 | | 2021
(as adjusted)* | | Change |
| | (in thousands, except per share and per unit amounts) | | | | (in thousands, except per share amounts) | | |
| Revenue | Revenue | $ | 570,796 | | | $ | 185,745 | | | 207.3 | % | Revenue | $ | 678,288 | | | $ | 570,796 | | | 18.8 | % |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Cost of revenue (3)(1) | Cost of revenue (3)(1) | 99,928 | | | 56,254 | | | 77.6 | % | Cost of revenue (3)(1) | 115,704 | | | 101,423 | | | 14.1 | % |
Research and development (3) | 6,046 | | | 7,212 | | | (16.2) | % | |
Selling, general and administrative (3) | 72,511 | | | 52,624 | | | 37.8 | % | |
Selling, general and administrative (1) | | Selling, general and administrative (1) | 92,056 | | | 74,483 | | | 23.6 | % |
Research and development (1) | | Research and development (1) | 13,358 | | | 6,035 | | | 121.3 | % |
| Change in estimated fair value of contingent consideration | | Change in estimated fair value of contingent consideration | (7,800) | | | — | | | # |
| Gain on sale of business | Gain on sale of business | (11,249) | | | — | | | * | Gain on sale of business | — | | | (11,249) | | | # |
| Gain on sale and leaseback transaction | — | | | (19,002) | | | * | |
| | Total operating expenses | Total operating expenses | 167,236 | | | 97,088 | | | 72.3 | % | Total operating expenses | 213,318 | | | 170,692 | | | 25.0 | % |
| Income from operations | Income from operations | 403,560 | | | 88,657 | | | 355.2 | % | Income from operations | 464,970 | | | 400,104 | | | 16.2 | % |
| Other expense | (16,617) | | | (21,802) | | | (23.8) | % | |
| Other income (expense), net | | Other income (expense), net | (9,374) | | | (14,028) | | | (33.2) | % |
| Income before income taxes | Income before income taxes | 386,943 | | | 66,855 | | | 478.8 | % | Income before income taxes | 455,596 | | | 386,076 | | | 18.0 | % |
| Income tax expense | Income tax expense | 43,937 | | | 2,511 | | | 1649.8 | % | Income tax expense | 52,362 | | | 43,937 | | | 19.2 | % |
| Net income | Net income | $ | 343,006 | | | $ | 64,344 | | | 433.1 | % | Net income | $ | 403,234 | | | $ | 342,139 | | | 17.9 | % |
| Net income attributable to non-controlling interests | Net income attributable to non-controlling interests | 216,410 | | | 582 | | | * | Net income attributable to non-controlling interests | 220,663 | | | 215,932 | | | 2.2 | % |
| Net income attributable to Maravai LifeSciences Holdings, Inc. | Net income attributable to Maravai LifeSciences Holdings, Inc. | $ | 126,596 | | | $ | 63,762 | | | 98.5 | % | Net income attributable to Maravai LifeSciences Holdings, Inc. | $ | 182,571 | | | $ | 126,207 | | | 44.7 | % |
| Net income per Class A common share/unit attributable to Maravai LifeSciences Holdings, Inc. (2): | | |
| Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.: | | Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.: | |
| Basic | Basic | $ | 1.16 | | | $ | 0.21 | | | Basic | $ | 1.39 | | | $ | 1.16 | | |
| Diluted | Diluted | $ | 1.14 | | | $ | 0.21 | | | Diluted | $ | 1.37 | | | $ | 1.13 | | |
Weighted average number of Class A common shares/units outstanding (2): | | |
| Weighted average number of Class A common shares outstanding: | | Weighted average number of Class A common shares outstanding: | |
| Basic | Basic | 109,174 | | | 253,917 | | | Basic | 131,518 | | | 109,174 | | |
| Diluted | Diluted | 257,799 | | | 253,917 | | | Diluted | 255,323 | | | 257,799 | | |
| Non-GAAP measures: | Non-GAAP measures: | | Non-GAAP measures: | |
| Adjusted EBITDA | Adjusted EBITDA | $ | 422,656 | | | $ | 104,840 | | | Adjusted EBITDA | $ | 507,988 | | | $ | 420,140 | | |
| Adjusted Free Cash Flow | Adjusted Free Cash Flow | $ | 412,642 | | | $ | 83,118 | | | Adjusted Free Cash Flow | $ | 484,582 | | | $ | 410,080 | | |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments.
# Not meaningful
(1)Includes equity-basedstock-based compensation expense as follows (in thousands, except percentages):
| | | Three Months Ended September 30, | | Three Months Ended September 30, |
| | 2021 | | 2020 | | Change | | 2022 | | 2021 | | Change |
| Cost of revenue | Cost of revenue | $ | 364 | | | $ | 4 | | | * | Cost of revenue | $ | 1,129 | | | $ | 364 | | | 210.2 | % |
| Selling, general and administrative | | Selling, general and administrative | 3,288 | | | 3,198 | | | 2.8 | % |
| Research and development | Research and development | 5 | | | 574 | | | (99.1) | % | Research and development | 323 | | | 5 | | | 6360.0 | % |
| Selling, general and administrative | 3,198 | | | 1,271 | | | 151.6 | % | |
| Total equity-based compensation expense | $ | 3,567 | | | $ | 1,849 | | | 92.9 | % | |
| Total stock-based compensation expense | | Total stock-based compensation expense | $ | 4,740 | | | $ | 3,567 | | | 32.9 | % |
____________________
*Not meaningful
(2)These periods have not been retrospectively adjusted to give effect to the Organizational Transactions described in Note 1 to our condensed consolidated financial statements and the shares of Class A common stock sold in our IPO. Additionally, basic net income per Class A common stock for the three and nine months ended September 30, 2021, has been calculated by dividing net income for the period, and adjusted for net income attributable to non-controlling interests, by the weighted average Class A common stock outstanding | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 | | Change |
| Cost of revenue | $ | 2,956 | | | $ | 1,383 | | | 113.7 | % |
| Selling, general and administrative | 8,984 | | | 6,647 | | | 35.2 | % |
| Research and development | 735 | | | 198 | | | 271.2 | % |
| Total stock-based compensation expense | $ | 12,675 | | | $ | 8,228 | | | 54.0 | % |
during the period. Diluted net income per Class A common share/LLC unit gives effect to the potentially dilutive securities by application of the treasury stock method or if-converted method, as applicable.
(3)Includes equity-based compensation expense as follows (in thousands, except percentages):
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 | | Change |
| Cost of revenue | $ | 1,383 | | | $ | 11 | | | * |
| Research and development | 198 | | | 732 | | | (73.0) | % |
| Selling, general and administrative | 6,647 | | | 2,190 | | | 203.5 | % |
| Total equity-based compensation expense | $ | 8,228 | | | $ | 2,933 | | | 180.5 | % |
____________________
*Not meaningful
Revenue
Consolidated revenue by segment was as follows for the periods presented (in thousands, except percentages):
| | | Three Months Ended September 30, | | Percentage of Revenue | | Three Months Ended September 30, | | Percentage of Revenue |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | 2022 | | 2021 | | Change | | 2022 | | 2021 |
| Nucleic Acid Production | Nucleic Acid Production | $ | 182,901 | | | $ | 67,656 | | | 170.3 | % | | 89.3 | % | | 77.0 | % | Nucleic Acid Production | $ | 174,881 | | | $ | 182,901 | | | (4.4) | % | | 91.4 | % | | 89.3 | % |
| Biologics Safety Testing | Biologics Safety Testing | 16,626 | | | 14,114 | | | 17.8 | % | | 8.1 | % | | 16.1 | % | Biologics Safety Testing | 16,382 | | | 16,626 | | | (1.5) | % | | 8.6 | % | | 8.1 | % |
| Protein Detection | Protein Detection | 5,283 | | | 6,089 | | | (13.2) | % | | 2.6 | % | | 6.9 | % | Protein Detection | — | | | 5,283 | | | # | | — | % | | 2.6 | % |
| Total revenue | Total revenue | $ | 204,810 | | | $ | 87,859 | | | 133.1 | % | | 100.0 | % | | 100.0 | % | Total revenue | $ | 191,263 | | | $ | 204,810 | | | (6.6) | % | | 100.0 | % | | 100.0 | % |
| | | Nine Months Ended September 30, | | Percentage of Revenue | | Nine Months Ended September 30, | | Percentage of Revenue |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | 2022 | | 2021 | | Change | | 2022 | | 2021 |
| Nucleic Acid Production | Nucleic Acid Production | $ | 499,354 | | | $ | 128,569 | | | 288.4 | % | | 87.5 | % | | 69.2 | % | Nucleic Acid Production | $ | 623,779 | | | $ | 499,354 | | | 24.9 | % | | 92.0 | % | | 87.5 | % |
| Biologics Safety Testing | Biologics Safety Testing | 52,483 | | | 40,772 | | | 28.7 | % | | 9.2 | % | | 22.0 | % | Biologics Safety Testing | 54,509 | | | 52,483 | | | 3.9 | % | | 8.0 | % | | 9.2 | % |
| Protein Detection | Protein Detection | 18,959 | | | 16,404 | | | 15.6 | % | | 3.3 | % | | 8.8 | % | Protein Detection | — | | | 18,959 | | | # | | — | % | | 3.3 | % |
| Total revenue | Total revenue | $ | 570,796 | | | $ | 185,745 | | | 207.3 | % | | 100.0 | % | | 100.0 | % | Total revenue | $ | 678,288 | | | $ | 570,796 | | | 18.8 | % | | 100.0 | % | | 100.0 | % |
____________________
# Not meaningful
Comparison of Three Months Ended September 30, 20212022 and 20202021
Total revenue was $204.8$191.3 million for the three months ended September 30, 20212022 compared to $87.9 million for the three months ended September 30, 2020, representing an increase of $117.0 million, or 133.1%.
Nucleic Acid Production revenue increased from $67.7 million for the three months ended September 30, 2020 to $182.9 million for the three months ended September 30, 2021, representing an increase of $115.2 million, or 170.3%. The increase in Nucleic Acid Production revenue was the result of continued strong demand for our proprietary CleanCap® analogs as COVID-19 vaccine manufacturers scaled production and increased demand for mRNA products as this technology becomes incorporated into more therapeutic and vaccine programs.
Biologics Safety Testing revenue increased from $14.1 million for the three months ended September 30, 2020 to $16.6 million for the three months ended September 30, 2021, representing an increase of $2.5 million, or 17.8%. The increase was driven by continued high demand and strong sales due to the breadth of our global product offerings supporting cell and gene therapies, biosimilars, and biologic development programs.
Protein Detection revenue decreased from $6.1 million for the three months ended September 30, 2020 to $5.3$204.8 million for the three months ended September 30, 2021, representing a decrease of $0.8$13.5 million, or 13.2%6.6%.
Nucleic Acid Production revenue decreased from $182.9 million for the three months ended September 30, 2021 to $174.9 million for the three months ended September 30, 2022, representing a decrease of $8.0 million, or 4.4%. The decrease in Nucleic Acid Production revenue was primarily driven by decreased revenue from our proprietary CleanCap analogs as demand decreased from COVID-19 vaccine manufacturers. For the divestiturethree months ended September 30, 2022, we estimate that approximately $126.5 million, or 92.7%, of Vector,our $136.5 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs. For the three months ended September 30, 2021, we estimate that approximately $131.3 million, or 85.5%, of our $153.6 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs.
Biologics Safety Testing revenue decreased from $16.6 million for the three months ended September 30, 2021 to $16.4 million for the three months ended September 30, 2022, representing a decrease of $0.2 million, or 1.5%. The decrease from the prior period was not significant.
There was no Protein Detection revenue for the three months ended September 30, 2022 due to the sale of our Protein Detection business segment, which was completed in early September 2021.
Comparison of Nine Months Ended September 30, 20212022 and 20202021
Total revenue was $570.8$678.3 million for the nine months ended September 30, 20212022 compared to $185.7 million for the nine months ended September 30, 2020, representing an increase of $385.1 million, or 207.3%.
Nucleic Acid Production revenue increased from $128.6 million for the nine months ended September 30, 2020 to $499.4$570.8 million for the nine months ended September 30, 2021, representing an increase of $370.8$107.5 million, or 288.4%18.8%.
Nucleic Acid Production revenue increased from $499.4 million for the nine months ended September 30, 2021 to $623.8 million for the nine months ended September 30, 2022, representing an increase of $124.4 million, or 24.9%. The increase in Nucleic Acid Production revenue was driven by continued strong demand for our proprietary CleanCap® analogs as COVID-19 vaccine manufacturers scaled production earlier in the year, and ongoing demand for highly modified RNA products particularly mRNA.as this technology becomes incorporated into more therapeutic and vaccine development programs for a variety of indications. For the nine months ended September 30, 2022, we estimate that approximately $476.2 million, or 93.2%, of our $511.0 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs. For the nine months ended September 30, 2021, we estimate that approximately $377.6 million, or 91.7%, of our $411.8 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs.
Biologics Safety Testing revenue increased from $40.8 million for the nine months ended September 30, 2020 to $52.5 million for the nine months ended September 30, 2021 to $54.5 million for the nine months ended September 30, 2022, representing an increase of $11.7$2.0 million, or 28.7%3.9%. The increase was driven by higher demand as the result of growth in the underlying markets supporting cell and gene therapies, biosimilar and other biologic programs, coupled with higher revenue generated from contract services.programs.
There was no Protein Detection revenue increased from $16.4 million for the nine months ended September 30, 2020 to $19.0 million for the nine months ended September 30, 2021, representing an increase of $2.6 million, or 15.6%. The increase was primarily2022 due to resumptionthe sale of research laboratory work from prior year shutdowns as a result of the COVID-19 pandemic, coupled with increased demand for Vector’s products. This increaseour Protein Detection business segment, which was partially offset by our divestiture of Vectorcompleted in early September 2021.
Adjusted EBITDA and Segment Information
Management has determined that adjusted earnings before interest, tax, depreciation and amortization is the profit or loss measure used to make resource allocation decisions and evaluate segment performance. Adjusted EBITDA assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. We define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, certain non-cash items and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period. Corporate costs, net of eliminations, are managed on a standalone basis and are not allocated to segments.
We do not allocate assets to our reportable segments as they are not included in the review performed by our Chief Operating Decision Maker for purposes of assessing segment performance and allocating resources.
Prior to February 2021 when the sale of a building in the United Kingdom was completed, we had approximately $0.3 million of long-lived assets associated with that building. As of September 30, 2021,2022, all of our long-lived assets were located within the United States.
The following tables include financial information relating to theschedule includes revenue and adjusted EBITDA for each of our reportable operating segments (in thousands). We have revised our presentation for the prior periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2021 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Corporate | | Eliminations | | Total |
| Revenue | $ | 183,055 | | | $ | 16,626 | | | $ | 5,283 | | | $ | — | | | $ | (154) | | | $ | 204,810 | |
| Adjusted EBITDA | $ | 150,620 | | | $ | 13,556 | | | $ | 1,942 | | | $ | (10,217) | | | $ | 102 | | | $ | 156,003 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2021 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Corporate | | Eliminations | | Total |
| Revenue | $ | 499,962 | | | $ | 52,483 | | | $ | 18,959 | | | $ | — | | | $ | (608) | | | $ | 570,796 | |
| Adjusted EBITDA | $ | 402,855 | | | $ | 42,217 | | | $ | 7,511 | | | $ | (30,136) | | | $ | 209 | | | $ | 422,656 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Corporate | | Eliminations | | Total |
| Revenue | $ | 68,019 | | | $ | 14,114 | | | $ | 6,089 | | | $ | — | | | $ | (363) | | | $ | 87,859 | |
| Adjusted EBITDA | $ | 46,704 | | | $ | 12,000 | | | $ | 2,839 | | | $ | (3,721) | | | $ | (47) | | | $ | 57,775 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Nucleic Acid Production | | Biologics Safety Testing | | Protein Detection | | Corporate | | Eliminations | | Total |
| Revenue | $ | 129,645 | | | $ | 40,772 | | | $ | 16,404 | | | $ | — | | | $ | (1,076) | | | $ | 185,745 | |
| Adjusted EBITDA | $ | 76,130 | | | $ | 33,571 | | | $ | 6,960 | | | $ | (11,597) | | | $ | (224) | | | $ | 104,840 | |
Comparisonperiods below of Three Months Endedour total reportable segments’ revenue, in which we removed intersegment eliminations from our total reportable segment’s revenue.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021
(as adjusted)* | | 2022 | | 2021
(as adjusted)* |
| Revenue: | | | | | | | |
| Nucleic Acid Production | $ | 174,881 | | | $ | 183,055 | | | $ | 623,786 | | | $ | 499,962 | |
| Biologics Safety Testing | 16,382 | | | 16,626 | | | 54,509 | | | 52,483 | |
| Protein Detection | — | | | 5,283 | | | — | | | 18,959 | |
| Total reportable segments’ revenue | 191,263 | | | 204,964 | | | 678,295 | | | 571,404 | |
| Intersegment eliminations | — | | | (154) | | | (7) | | | (608) | |
| Total | $ | 191,263 | | | $ | 204,810 | | | $ | 678,288 | | | $ | 570,796 | |
| | | | | | | |
| Segment adjusted EBITDA: | | | | | | | |
| Nucleic Acid Production | $ | 133,816 | | | $ | 150,347 | | | $ | 502,906 | | | $ | 401,699 | |
| Biologics Safety Testing | 12,997 | | | 13,602 | | | 43,631 | | | 42,182 | |
| Protein Detection | — | | | 1,057 | | | — | | | 6,391 | |
| Total reportable segments’ adjusted EBITDA | 146,813 | | | 165,006 | | | 546,537 | | | 450,272 | |
| Reconciliation of total reportable segments’ adjusted EBITDA to income before income taxes | | | | | | | |
| Amortization | (6,254) | | | (4,604) | | | (18,033) | | | (14,685) | |
| Depreciation | (1,857) | | | (1,797) | | | (5,604) | | | (4,668) | |
| Interest expense | (3,136) | | | (7,685) | | | (10,234) | | | (23,238) | |
| Corporate costs, net of eliminations | (14,296) | | | (10,140) | | | (38,549) | | | (30,132) | |
| Other adjustments: | | | | | | | |
| Acquisition contingent consideration | — | | | — | | | 7,800 | | | — | |
| Acquisition integration costs | (2,760) | | | (21) | | | (10,642) | | | (38) | |
| | | | | | | |
| Stock-based compensation | (4,740) | | | (3,567) | | | (12,675) | | | (8,228) | |
| Gain on sale of business | — | | | 11,249 | | | — | | | 11,249 | |
| | | | | | | |
| Merger and acquisition related expenses | — | | | 366 | | | (1,195) | | | (1,496) | |
| Financing costs | (7) | | | (1,034) | | | (1,071) | | | (2,092) | |
| Acquisition related tax adjustment | — | | | — | | | (1,264) | | | — | |
| Tax Receivable Agreement liability adjustment | — | | | 3,246 | | | 2,340 | | | 9,132 | |
| Other | — | | | — | | | (1,814) | | | — | |
| Income before income taxes | 113,763 | | | 151,019 | | | 455,596 | | | 386,076 | |
| Income tax expense | (14,110) | | | (18,842) | | | (52,362) | | | (43,937) | |
| Net income | $ | 99,653 | | | $ | 132,177 | | | $ | 403,234 | | | $ | 342,139 | |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 for a summary of the adjustments.
During the nine months ended September 30, 2021 and 2020
Inter-segment2022, intersegment revenue was $0.2 millionimmaterial between the Nucleic Acid Production and $0.4 million forBiologics Safety Testing segments. There was no intersegment revenue during the three months ended September 30, 20212022. During the three and 2020, respectively, and representsnine months ended September 30, 2021, intersegment revenue was $0.2 million and $0.6 million, respectively, between the Nucleic Acid Production and Protein Detection segments. The inter-segmentintersegment sales and the related gross margin on inventory recorded at the end of the period are eliminated for consolidation purposes in the Eliminations column.purposes. Internal selling prices for intersegment sales are consistent with the segment’s normal retail price offered to external parties. There was no commission expense recognized for intersegment sales for the three months ended September 30, 2021 and 2020.
Comparison of Nine Months Ended September 30, 2021 and 2020
Inter-segment revenue was $0.6 million and $1.1 million for the nine months ended September 30, 20212022 and 2020, respectively, and represents intersegment revenue between Nucleic Acid Production and Protein Detection segments. The inter-segment sales and related gross margin on inventory recorded at the end2021.
Non-GAAP Financial Measures
Adjusted EBITDA
A reconciliation of Adjusted EBITDA to net income the most directly comparable GAAPto adjusted EBITDA, which is a non-GAAP measure, is set forth below for the periods presented (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| Net income | $ | 132,810 | | | $ | 39,023 | | | $ | 343,006 | | | $ | 64,344 | |
| Add: | | | | | | | |
| Amortization | 4,604 | | | 5,040 | | | 14,685 | | | 15,156 | |
| Depreciation | 2,472 | | | 1,631 | | | 6,623 | | | 4,756 | |
| Interest expense | 8,545 | | | 7,089 | | | 25,827 | | | 21,934 | |
| Income tax expense (benefit) | 18,842 | | | (359) | | | 43,937 | | | 2,511 | |
| EBITDA | 167,273 | | | 52,424 | | | 434,078 | | | 108,701 | |
| | | | | | | |
Acquisition integration costs (1) | 21 | | | (14) | | | (777) | | | 3,588 | |
Amortization of lease facility finance obligation (2) | (1,031) | | | — | | | (2,080) | | | — | |
Acquired in-process research and development costs (3) | — | | | — | | | — | | | 2,881 | |
Equity-based compensation (4) | 3,567 | | | 1,849 | | | 8,228 | | | 2,933 | |
GTCR management fees (5) | — | | | 126 | | | — | | | 555 | |
Gain on sale of business (6) | (11,249) | | | — | | | (11,249) | | | — | |
Gain on sale and leaseback transaction (7) | — | | | — | | | — | | | (19,002) | |
Merger and acquisition related expenses (income) (8) | (366) | | | 124 | | | 1,550 | | | 218 | |
Financing costs (9) | 1,034 | | | 3,266 | | | 2,038 | | | 4,966 | |
| | | | | | | |
Tax receivable agreement liability adjustment (10) | (3,246) | | | — | | | (9,132) | | | — | |
| Adjusted EBITDA | $ | 156,003 | | | $ | 57,775 | | | $ | 422,656 | | | $ | 104,840 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021
(as adjusted)* | | 2022 | | 2021
(as adjusted)* |
| Net income | $ | 99,653 | | | $ | 132,177 | | | $ | 403,234 | | | $ | 342,139 | |
| Add: | | | | | | | |
| Amortization | 6,254 | | | 4,604 | | | 18,033 | | | 14,685 | |
| Depreciation | 1,857 | | | 1,797 | | | 5,604 | | | 4,668 | |
| Interest expense | 3,136 | | | 7,685 | | | 10,234 | | | 23,238 | |
| Income tax expense | 14,110 | | | 18,842 | | | 52,362 | | | 43,937 | |
| EBITDA | 125,010 | | | 165,105 | | | 489,467 | | | 428,667 | |
Acquisition contingent consideration (1) | — | | | — | | | (7,800) | | | — | |
Acquisition integration costs (2) | 2,760 | | | 21 | | | 10,642 | | | 38 | |
| | | | | | | |
Stock-based compensation (3) | 4,740 | | | 3,567 | | | 12,675 | | | 8,228 | |
Gain on sale of business (4) | — | | | (11,249) | | | — | | | (11,249) | |
| | | | | | | |
Merger and acquisition related expenses (5) | — | | | (366) | | | 1,195 | | | 1,496 | |
Financing costs (6) | 7 | | | 1,034 | | | 1,071 | | | 2,092 | |
Acquisition related tax adjustment (7) | — | | | — | | | 1,264 | | | — | |
Tax Receivable Agreement liability adjustment (8) | — | | | (3,246) | | | (2,340) | | | (9,132) | |
Other (9) | — | | | — | | | 1,814 | | | — | |
| Adjusted EBITDA | $ | 132,517 | | | $ | 154,866 | | | $ | 507,988 | | | $ | 420,140 | |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments.
(1)Refers to the change in fair value of performance payments related to the acquisition of MyChem, which was completed in January 2022.
(2)Refers to incremental costs incurred to execute and integrate completed acquisitions, and retention payments in connection with these acquisitions.
(2)Refers to cash rent paid for our Wateridge San Diego, CA facility, which is recorded as a reduction to the financing lease obligation on the condensed consolidated balance sheet.
(3)Refers to in-process research and development charge associated with the acquisition of MockV Solutions, Inc.
(4)Refers to non-cash expense associated with equity-basedstock-based compensation.
(5)Refers to cash fees paid to GTCR, LLC (“GTCR”), pursuant to the advisory services agreement that was terminated in connection with our IPO.
(6)(4)Refers to the gain on the sale of Vector, which was completed in September 2021.
(7)Refers to the gain on the sale of our Burlingame, California facility, which was leased back to the Company in 2020.
(8)(5)Refers to diligence, legal, accounting, tax and consulting fees incurred associated with acquisitions that were not consummated. This also includes $0.9 million of deferred gain associated with our sale leaseback arrangement for our Burlingame, California facility, which was accelerated as part of our divestiture of the Protein Detection segment in September 2021.
(9)(6)Refers to transaction costs related to our IPO and the refinancing of our long-term debt and costs from our secondary offering that are not capitalizable or cannot be offset against proceeds from such transactions.
(10)(7)Refers to non-cash expense associated with adjustments to the indemnification asset recorded in connection with the acquisition of MyChem.
(8)Refers to the loss (gain)gain related to the adjustment of our tax receivable agreementthe Tax Receivable Agreement liability primarily due to changes in our estimated state apportionment and the corresponding reduction of our estimated state tax rate.
(9)Refers to the loss recognized during the period associated with certain working capital and other adjustments for the sale of Vector, which was completed in September 2021, and the loss incurred on extinguishment of debt.
Adjusted Free Cash Flow
Adjusted Free Cash Flow, which is a non-GAAP measure that we define as Adjusted EBITDA less capital expenditures, is set forth below for the periods presented (in thousands):
| | | Three Months Ended
September 30, | | Nine Months Ended
September 30, | | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021
(as adjusted)* | | 2022 | | 2021
(as adjusted)* |
| Adjusted EBITDA | Adjusted EBITDA | $ | 156,003 | | | $ | 57,775 | | | $ | 422,656 | | | $ | 104,840 | | Adjusted EBITDA | $ | 132,517 | | | $ | 154,866 | | | $ | 507,988 | | | $ | 420,140 | |
Capital expenditures (1) | Capital expenditures (1) | (2,232) | | | (15,254) | | | (10,014) | | | (21,722) | | Capital expenditures (1) | (13,763) | | | (2,195) | | | (23,406) | | | (10,060) | |
| Adjusted Free Cash Flow | Adjusted Free Cash Flow | $ | 153,771 | | | $ | 42,521 | | | $ | 412,642 | | | $ | 83,118 | | Adjusted Free Cash Flow | $ | 118,754 | | | $ | 152,671 | | | $ | 484,582 | | | $ | 410,080 | |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments.
(1)We define capital expenditures asas: (i) purchases of property and equipment which are included in cash flows from investing activities, and accounts payable and accrued expenses, offset by government funding recognized; and other current liabilities.(ii) construction costs determined to be lessor improvements recorded as prepaid lease payments, including portions included in accounts payable and accrued expenses, offset by government funding recognized.
Operating Expenses
Operating expenses includeincluded the following for the periods presented (in thousands, except percentages):
| | | Three Months Ended September 30, | | Percentage of Revenue | | Three Months Ended September 30, | | Percentage of Revenue |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | 2022 | | 2021
(as adjusted)* | | Change | | 2022 | | 2021
(as adjusted)* |
| Cost of revenue | Cost of revenue | $ | 32,047 | | | $ | 19,760 | | | 62.2 | % | | 15.6 | % | | 22.6 | % | Cost of revenue | $ | 38,176 | | | $ | 32,221 | | | 18.5 | % | | 20.0 | % | | 15.7 | % |
| Selling, general and administrative | | Selling, general and administrative | 30,795 | | | 26,512 | | | 16.2 | % | | 16.1 | % | | 12.9 | % |
| Research and development | Research and development | 1,950 | | | 1,868 | | | 4.4 | % | | 1.0 | % | | 2.1 | % | Research and development | 5,389 | | | 1,946 | | | 176.9 | % | | 2.8 | % | | 1.0 | % |
| Selling, general and administrative | 25,189 | | | 20,510 | | | 22.8 | % | | 12.3 | % | | 23.3 | % | |
| | Gain on sale of business | Gain on sale of business | (11,249) | | | — | | | * | | (5.5) | % | | — | % | Gain on sale of business | — | | | (11,249) | | | # | | — | % | | (5.5) | % |
| | Total operating expenses | Total operating expenses | $ | 47,937 | | | $ | 42,138 | | | 13.8 | % | | 23.4 | % | | 48.0 | % | Total operating expenses | $ | 74,360 | | | $ | 49,430 | | | 50.4 | % | | 38.9 | % | | 24.1 | % |
| | | Nine Months Ended September 30, | | Percentage of Revenue | | Nine Months Ended September 30, | | Percentage of Revenue |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | 2022 | | 2021
(as adjusted)* | | Change | | 2022 | | 2021
(as adjusted)* |
| Cost of revenue | Cost of revenue | $ | 99,928 | | | $ | 56,254 | | | 77.6 | % | | 17.5 | % | | 30.3 | % | Cost of revenue | $ | 115,704 | | | $ | 101,423 | | | 14.1 | % | | 17.1 | % | | 17.8 | % |
| Selling, general and administrative | | Selling, general and administrative | 92,056 | | | 74,483 | | | 23.6 | % | | 13.6 | % | | 13.0 | % |
| Research and development | Research and development | 6,046 | | | 7,212 | | | (16.2) | % | | 1.1 | % | | 3.9 | % | Research and development | 13,358 | | | 6,035 | | | 121.3 | % | | 2.0 | % | | 1.1 | % |
| Selling, general and administrative | 72,511 | | | 52,624 | | | 37.8 | % | | 12.7 | % | | 28.3 | % | |
| Change in estimated fair value of contingent consideration | | Change in estimated fair value of contingent consideration | (7,800) | | | — | | | # | | (1.2) | % | | — | % |
| Gain on sale of business | Gain on sale of business | (11,249) | | | — | | | * | | (2.0) | % | | — | % | Gain on sale of business | — | | | (11,249) | | | # | | — | % | | (2.0) | % |
| Gain on sale and leaseback transaction | — | | | (19,002) | | | * | | — | % | | (10.2) | % | |
| | Total operating expenses | Total operating expenses | $ | 167,236 | | | $ | 97,088 | | | 72.3 | % | | 29.3 | % | | 52.3 | % | Total operating expenses | $ | 213,318 | | | $ | 170,692 | | | 25.0 | % | | 31.5 | % | | 29.9 | % |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments.
# Not meaningful
CostsCost of Revenue
Comparison of Three Months Ended September 30, 20212022 and 20202021
Cost of revenue increased by $12.3$6.0 million from $19.8 million for the three months ended September 30, 2020 to $32.0$32.2 million for the three months ended September 30, 2021 to $38.2 million for the three months ended September 30, 2022, or 62.2%18.5%. The increase in cost of revenue was primarily attributable to higher inventory scrap charges of $4.1 million compared to the prior period and a $1.1 million increase in reserve for excess and obsolete inventory. Gross profit decreased by $19.5 million from $172.6 million for the three months ended September 30,
2021 to $153.1 million for the three months ended September 30, 2022. The decrease in the gross profit margin as a percentage of sales was primarily attributable to a decrease in volume and unfavorable product mix shift, higher inventory scrap charges, increase in reserve for excess and obsolete inventory, and increase in amortization expense for intangible assets.
Comparison of Nine Months Ended September 30, 2022 and 2021
Cost of revenue increased by $14.3 million from $101.4 million for the nine months ended September 30, 2021 to $115.7 million for the nine months ended September 30, 2022, or 14.1%. The increase in cost of revenue was primarily attributable to an increase in direct product costs, suppliesamortization expense for intangible assets of $6.5 million, higher inventory scrap charges of $5.4 million compared to the prior period, and materials resulting from higher revenue, as well as increasesa $1.8 million increase in personnel costs
associated with overall growthreserve for excess and expansion of the Company.obsolete inventory. Gross profit increased by $104.7$93.2 million from $68.1$469.4 million for the threenine months ended September 30, 20202021 to $172.8$562.6 million for the threenine months ended September 30, 2021.2022. The increase in the gross profit margin as a percentage of sales was primarily attributable to a favorable product mix shift.
Comparisonshift, partially offset by inventory period costs incurred as a result of Nine Months Ended September 30, 2021 and 2020
Cost of revenue increased by $43.7 million from $56.3 million fordeficiencies in quality control during the nine months ended September 30, 2020 to $99.9 million for the nine months ended September 30, 2021, or 77.6%. The increase in cost of revenue was primarily attributable toperiod, an increase in direct product costs resulting from increased business, increases in personnel costs driven by the Company’s growthreserve for excess and expansion, higher overall suppliesobsolete inventory, and materials costs, and higher consulting and professional service fees to support the Company growth. Gross profit increased by $341.4 million from $129.5 million for the nine months ended September 30, 2020 to $470.9 million for the nine months ended September 30, 2021. Thean increase in the gross profit margin as a percentage of sales was primarily attributable to favorable product mix shift.
Research and Development
Comparison of Three Months Ended September 30, 2021 and 2020
Research and development expenses increased by $0.1 million from $1.9 millionamortization expense for the three months ended September 30, 2020 to $2.0 million for the three months ended September 30, 2021, or 4.4%. The increase in expenses from the prior period was not significant.
Comparison of Nine Months Ended September 30, 2021 and 2020
Research and development expenses decreased by $1.2 million from $7.2 million for the nine months ended September 30, 2020 to $6.0 million for the nine months ended September 30, 2021, or 16.2%. The decrease in expenses from the prior period is primarily attributable to the $2.9 million of in-process research development costs related to an asset acquisition incurred during the first quarter of 2020, partially offset by an increase of $1.0 million in supplies and materials and $0.6 million in personnel costs to support our expanding research and development activities during 2021.intangible assets.
Selling, General and Administrative
Comparison of Three Months Ended September 30, 20212022 and 20202021
Selling, general and administrative expenses increased by $4.7$4.3 million from $20.5 million for the three months ended September 30, 2020 to $25.2$26.5 million for the three months ended September 30, 2021 to $30.8 million for the three months ended September 30, 2022, or 22.8%16.2%. The increase was primarily due todriven by a $3.1$1.9 million increase in professional servicepersonnel costs, predominantly due toa $0.5 million increase in marketing and consulting services, a $0.4 million increase in advertising and accounting/audit fees, tax services,promotion expenses, a $0.3 million increase in software and licenses expenses, a $0.3 million increase in corporate insurance costs, and $2.4a $0.3 million of incremental unit-based compensation expense for a modification related to our divestiture of Vector.increase in bad debt expense.
Comparison of Nine Months Ended September 30, 20212022 and 20202021
Selling, general and administrative expenses increased by $19.9$17.6 million from $52.6 million for the nine months ended September 30, 2020 to $72.5$74.5 million for the nine months ended September 30, 2021 to $92.1 million for the nine months ended September 30, 2022, or 37.8%23.6%. The increase was primarily due todriven by a $9.8$5.9 million increase in personnel costs, $3.4 million of transaction costs associated with the acquisition of MyChem, a $2.2 million increase in marketing and consulting services, $1.6 million from working capital adjustments related to the sale of Vector in September 2021, a $1.1 million increase in software and licenses expenses, a $1.1 million increase in advertising and promotion expenses, a $0.9 million increase in bad debt expense, $0.9 million of fees relating to the debt refinancing transaction, and a $0.6 million increase in corporate insurance costs.
Research and Development
Comparison of Three Months Ended September 30, 2022 and 2021
Research and development expenses increased by $3.4 million from $1.9 million for the three months ended September 30, 2021 to $5.4 million for the three months ended September 30, 2022, or 176.9%. The increase was primarily driven by an$2.5 million in personnel costs relating to retention payment accruals associated with the acquisition of MyChem and $1.0 million in personnel costs relating to overall company growth, promotions and merit increases.
Comparison of Nine Months Ended September 30, 2022 and 2021
Research and development expenses increased by $7.3 million from $6.0 million for the nine months ended September 30, 2021 to $13.4 million for the nine months ended September 30, 2022, or 121.3%. The increase in employee headcount, related stock-based compensation, and bonuses and a $8.2 million increase in professional service feeswas primarily driven by increased consulting$6.8 million in personnel costs relating to retention payment accruals associated with the acquisition of MyChem.
Change in Estimated Fair Value of Contingent Consideration
Comparison of Nine Months Ended September 30, 2022 and accounting/audit fees, tax services, and corporate insurance.2021
The change in estimated fair value of contingent consideration of $7.8 million for the nine months ended September 30, 2022 was due to the decrease in estimated fair value of the liability during the second quarter of 2022 for the contingent payments associated with the acquisition of MyChem. This was due to a change in estimate associated with MyChem revenue projections reaching thresholds that would trigger a contingent payment per the MyChem SPA.
Gain on saleSale of businessBusiness
Comparison of Three and Nine Months Ended September 30, 20212022 and 20202021
The gain on sale of business of $11.2 million for the three and nine months ended September 30, 2021was from the sale of Vector in September 2021. There was no gain on sale of business for the three and nine months ended September 30, 2020.
Gain on sale and leaseback transaction
Comparison of Nine Months Ended September 30, 2021 and 2020
The gain on sale and leaseback transaction of $19.0 million for the nine months ended September 30, 2020 was from the sale of our Burlingame, California facility, which was leased back to the Company in 2020. There was no gain on sale and leaseback transaction for the nine months ended September 30, 2021.
Other Income (Expense)
Other income (expense) includesincluded the following for the periods presented (in thousands, except percentages):
| | | Three Months Ended September 30, | | Percentage of Revenue | | Three Months Ended September 30, | | Percentage of Revenue |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | 2022 | | 2021
(as adjusted)* | | Change | | 2022 | | 2021
(as adjusted)* |
| Interest expense | Interest expense | $ | (8,545) | | | $ | (7,089) | | | 20.5 | % | | (4.1) | % | | (8.0) | % | Interest expense | $ | (3,136) | | | $ | (7,685) | | | (59.2) | % | | (1.6) | % | | (3.7) | % |
| Change in payable to related parties pursuant to a Tax Receivable Agreement | 3,246 | | | — | | | * | | 1.6 | % | | — | % | |
| Other income | 78 | | | 32 | | | 143.8 | % | | 0.0 | % | | 0.0 | % | |
| | Change in payable to related parties pursuant to the Tax Receivable Agreement | | Change in payable to related parties pursuant to the Tax Receivable Agreement | — | | | 3,246 | | | # | | — | % | | 1.6 | % |
| Other expense | | Other expense | (4) | | | 78 | | | # | | 0.0 | % | | 0.0 | % |
| Total other expense | Total other expense | $ | (5,221) | | | $ | (7,057) | | | (26.0) | % | | (2.5) | % | | (8.0) | % | Total other expense | $ | (3,140) | | | $ | (4,361) | | | (28.0) | % | | (1.6) | % | | (2.1) | % |
| | | Nine Months Ended September 30, | | Percentage of Revenue | | Nine Months Ended September 30, | | Percentage of Revenue |
| | 2021 | | 2020 | | Change | | 2021 | | 2020 | | 2022 | | 2021
(as adjusted)* | | Change | | 2022 | | 2021
(as adjusted)* |
| Interest expense | Interest expense | $ | (25,827) | | | $ | (21,934) | | | 17.7 | % | | (4.5) | % | | (11.8) | % | Interest expense | $ | (10,234) | | | $ | (23,238) | | | (56.0) | % | | (1.5) | % | | (4.1) | % |
| Change in payable to related parties pursuant to a Tax Receivable Agreement | 9,132 | | | — | | | * | | 1.6 | % | | — | % | |
| Other income | 78 | | | 132 | | | (40.9) | % | | 0.0 | % | | 0.1 | % | |
| Loss on extinguishment of debt | | Loss on extinguishment of debt | (208) | | | — | | | # | | 0.0 | % | | — | % |
| Change in payable to related parties pursuant to the Tax Receivable Agreement | | Change in payable to related parties pursuant to the Tax Receivable Agreement | 2,340 | | | 9,132 | | | (74.4) | % | | 0.3 | % | | 1.6 | % |
| Other expense | | Other expense | (1,272) | | | 78 | | | # | | (0.2) | % | | 0.0 | % |
| Total other expense | Total other expense | $ | (16,617) | | | $ | (21,802) | | | (23.8) | % | | (2.9) | % | | (11.7) | % | Total other expense | $ | (9,374) | | | $ | (14,028) | | | (33.2) | % | | (1.4) | % | | (2.5) | % |
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments.
# Not meaningful
Comparison of Three Months Ended September 30, 20212022 and 20202021
Other expense was $7.1 million for the three months ended September 30, 2020 compared to $5.2$4.4 million for the three months ended September 30, 2021 compared to $3.1 million for the three months ended September 30, 2022, representing a decrease of $1.8$1.2 million, or 26.0%28.0%. The decrease in expense was primarily attributable to a $4.5 million decrease in interest expense primarily due to a $5.1 million change in fair value of the interest rate cap. The decrease was partially offset by a $3.2 million decrease in gain related to the payable to related parties pursuant to a Tax Receivable Agreement that was recorded during the three months ended September 30, 2021 as a result of changes in our estimated state income tax apportionment and the corresponding reduction of our estimated state income tax rate. This was partially offset by higher interest expense as a result of a larger outstanding debt balance for the period.
Comparison of Nine Months Ended September 30, 20212022 and 20202021
Other expense was $21.8 million for the nine months ended September 30, 2020 compared to $16.6$14.0 million for the nine months ended September 30, 2021 compared to $9.4 million for the nine months ended September 30, 2022, representing a decrease of $5.2$4.7 million, or 23.8%33.2%. The decrease in expense was primarily attributable to a $9.1$13.0 million decrease in interest expense due to a $9.7 million change in fair value of the interest rate cap and $3.3 million decrease in interest expense driven by the lower interest rates from the debt refinancing transaction. This was partially offset by a $6.8 million decrease in gain related to the payable to related parties pursuant to a Tax Receivable Agreement that was recorded for the nine months ended September 30, 2021 as a result of changes in our estimated state income tax apportionment and the corresponding reduction of our estimated state income tax rate. This was partially offset by higher interestrate, and an increase of $1.3 million in other expense as a resultrelating to adjustments to the indemnification asset recorded in connection with the acquisition of a larger outstanding debt balance for the period.MyChem.
Relationship with GTCR, LLC (“GTCR”)
Prior to our initial public offering (“IPO”), we utilized GTCR for certain services pursuant to an advisory services agreement. Under this agreement, GTCR provided us with financial and management consulting services in the areas of corporate strategy,
budgeting for future corporate investments, acquisition and divestiture strategies, and debt and equity financings. The advisory services agreement provided that we pay a $0.1 million quarterly management fee to GTCR for these services. We also reimbursed GTCR for out-of-pocket expenses incurred while providing these services. The advisory services agreement also provided that certain of our subsidiaries pay placement fees to GTCR of 1.0% of the gross amount of debt or equity financings. In connection with our IPO, this advisory services agreement was terminated.
As GTCR continues to have representation on our Board of Directors, we will continue to pay GTCR for any direct reimbursable expenses related to their Board activities. We paid GTCR insignificant amounts during the activities of Board members affiliated with GTCR.three and nine months ended September 30, 2022 and 2021. We may continue to engage GTCR from time to time, subject to compliance with our related party transactions policy.
We incurred approximately $0.1made distributions of $36.8 million and $0.4$119.3 million in management fees to GTCR forduring the three and nine months ended September 30, 2020, respectively. We incurred approximately $0.22022, respectively, and $50.1 million in out-of-pocket expenses to GTCR for the nine months ended September 30, 2020. We did not incur any out-of-pocket expenses to GTCRand $106.3 million during the three and nine months ended September 30, 2021, or during the three months ended September 30, 2020.
During the three and nine months ended September 30, 2021, we paid distributions of $50.1 million and $106.3 million, respectively, for tax liabilities to MLSH 1.
Concurrent with our IPO, we entered into a tax receivable agreement with MLSH 1, and MLSH 2, who arewhich is primarily owned by GTCR. The Tax Receivable Agreement (“TRA”) provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85.0% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of the Organizational Transactions, IPO, and any subsequent exchanges of LLC Units. Payment obligations under the TRA are not conditioned upon any Topco LLC unitholders maintaining a continued ownership interest in us or Topco LLC and the rights of MLSH 1 and MLSH 2 under the TRA are assignable. There is no maximum term for the TRA and the TRA will continue until all tax benefits have been utilized or expired unless we exercise our right to terminate the TRA for an agreed-upon amount.
No payments were made to MLSH 1 or MLSH 2 pursuant to the TRA during the nine months ended September 30, 2021. As of September 30, 2021, our liability under the TRA was $745.6 million. This represents increases of $137.7 million and $227.4 million to the liability during the nine months ended September 30, 2021 as a result of the April 2021 Secondary Offering and September 2021 Secondary Offering, respectively.During the nine months ended September 30, 2021, we recognized a gain of $9.1 million on TRA liability adjustment reflecting a change in the tax benefit obligation attributable to a change in the expected tax benefit. The remeasurement was primarily due to changes in our estimated state apportionment and the corresponding reduction of our estimated state tax rate.
Liquidity and Capital Resources
Overview
As of September 30, 2021, we had cash of $547.9 million and retained earnings of $127.5 million. We had net income of $132.8 million and $343.0 million for the three and nine months ended September 30, 2021. We also had positive cash flows from operations of $310.4 million for the nine months ended September 30, 2021.
We have relied on equity and debt financings, and to a lesser extent, revenue derived from product and services sales to fund our operations to date. Our principal uses of cash have been to fund operations, acquisitions and capital expenditures, interest payments and mandatory principal payments on our long-term debt, as well as make distributions to MLSH 1.
We plan to utilize our existing cash on hand, together with cash generated from operations, primarily to fund our commercial and marketing activities associated with our products and services, continued research and development initiatives, and ongoing investments into our manufacturing facilities to create efficiencies and build capacity.
In addition, with the completion of the IPO and subsequent exchanges of LLC Units, we are obligated to make payments under the TRA we entered into with MLSH 1 and MLSH 2. Although the actual amount and timing of any payments that we make under the TRA will vary, we expect that those payments will be significant. Any payments we make under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amount generally will be deferred and will accrue interest until paid by us.
In addition to payments to be made under the TRA, we are also requireda party to make distributions for tax liabilities to the non-controlling interest holders of Topco LLC for the portion of income passing through to them from Topco LLC.
Sources of Liquidity
Since our inception, we have financed our operations primarily from the issuance of equity, borrowings under long-term debt agreements and, to a lesser extent, cash flow from operations.
Our total debt outstanding of $545.5 million as of September 30, 2021, was comprised of our First Lien Term Loan. We had no outstanding borrowings under our New Revolving Credit Facility as of September 30, 2021.
New Credit Agreement
On October 19, 2020, Maravai Intermediate Holdings, LLC (“Intermediate”), a wholly-owned subsidiary of ours, along with its subsidiaries Vector Laboratories (“Vector”), TriLink BioTechnologies and Cygnus Technologies (together with Intermediate, the “Borrowers”) entered into the New Credit Agreement with lending institutions, for term-loan borrowings (the “New First Lien Term Loan”) totaling $600.0 million to refinance our outstanding senior secured credit facilities and to allow for a distribution to our members. The New Credit Agreement also provided for a revolving credit facility (the “New Revolving Credit Facility”) of $180.0 million for letters of credit and loans to be used for working capital and other general corporate financing purposes. Borrowings under the New Credit Agreement are unconditionally guaranteed by Topco LLC, along with the existing and future material domestic subsidiaries of Topco LLC (subject to certain exceptions) as specified in the respective guaranty agreements, and are secured by a lien and security interest in substantially all of the assets of existing and
future material domestic subsidiaries of Topco LLC that are loan parties. The New First Lien Term Loan bears interest at an annual rate equal to the Eurocurrency rate (i.e. the LIBOR rate) plus an applicable rate. The interest rate was 4.75% per annum as of September 30, 2021.
In conjunction with our divestiture of the Protein Detection segment, the Company transferred, per the existing terms of the New Credit Agreement, the portion of the New Term Loan held by Vector of $118.4 million to Intermediate in its entirety. This amount was not assumed by Voyager as part of the divestiture. Total outstanding debt and loan covenant requirements remained unchanged as a result of the divestiture.
The New Term Loan became repayable in quarterly payments of $1.5 million beginning on March 31, 2021, with all remaining outstanding principal due on October 19, 2027. The New Term Loan includes prepayment provisions that allow the us, at their option, to repay all or a portion of the principal amount at any time. The New Revolving Credit Facility allows the us to repay and borrow from time to time until October 19, 2025, at which time all amounts borrowed must be repaid. Subject to certain exceptions and limitations, we are required to repay borrowings under the New Term Loan and New Revolving Credit Facility with the proceeds of certain occurrences, such as the incurrence of debt, certain equity contributions, and certain asset sales or dispositions.
Accrued interest under the New Credit Agreement is payable by us (a) quarterly in arrears with respect to Base Rate loans, (b) at the end of each interest rate period (or at each three-month interval in the case of loans with interest periods greater than three months) with respect to Eurocurrency Rate loans, (c) on the date of any repayment or prepayment and (d) at maturity (whether by acceleration or otherwise). An annual commitment fee is applied to the daily unutilized amount under the New Revolving Credit Facility at 0.375% per annum, with one stepdown to 0.25% per annum based on Intermediate’s first lien net leverage ratio.
Debt Covenants
The New Credit Agreement includes a financial covenant that requires that, if as of the end of any fiscal quarter the aggregate amount of letters of credit obligations and borrowings under the New Revolving Credit Facility outstanding as of the end of such fiscal quarter (excluding cash collateralized letters of credit obligations and letter of credit obligations in an aggregate amount not in excess of $5.0 million at any time outstanding and for the first four fiscal quarters ending after October 19, 2020, borrowings of revolving credit loans made on October 19, 2020) exceed 35% of the aggregate amount of all Revolving Credit Commitments in effect as of such date, or $63.0 million, then the consolidated first lien net leverage ratio of Intermediate shall not be greater than 8.00 to 1.00. For purposes of this covenant, the net leverage ratio is calculated by dividing outstanding first lien indebtedness (net of cash) by Adjusted EBITDA over the preceding four fiscal quarters.
The New Credit Agreement also contains negative and affirmative covenants in addition to the financial covenant, including covenants that restrict our ability to, among other things, incur or prepay certain indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, and make changes in the nature of the business. The New Credit Agreement contains certain events of default, including, without limitation, nonpayment of principal, interest or other obligations, violation of the covenants, insolvency, court ordered judgments, and certain changes of control. The New Credit Agreement also requires the Company to provide audited consolidated financial statements to the lenders no later than 120 days after year-end.
As of September 30, 2021, we were in compliance with the covenants under the New Credit Agreement.
The New Credit Agreement also requires mandatory prepayments upon certain excess cash flow, subject to certain step-downs and threshold levels as defined and set forth in the terms of the New Credit Agreement, to commence with the fiscal year ending December 31, 2021.
Tax Receivable Agreement
In connection with the completion of our IPO we also entered into a Tax Receivable Agreement, or TRA, with MLSH 1, who is primarily owned by GTCR, and MLSH 2.2 (see Note 10 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q). The Tax Receivable AgreementTRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, from exchanges of LLC Units (together with the corresponding shares of Class B common stock) for Class A common stock, as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) certain tax attributes of the entities acquired from MLSH 1 and MLSH 2 in connection with the Organizational Transactions, (“the Blocker Entities”), Topco LLC and subsidiaries of Topco LLC that existed prior to this offeringthe IPO, and (iii) certain other tax benefits related to our entering into the Tax Receivable Agreement,TRA, including tax benefits attributable to payments that we make under the Tax Receivable AgreementTRA (collectively, the “Tax Attributes”). Payment obligations under the TRA are not conditioned upon any Topco LLC unitholders maintaining a continued ownership interest in us or Topco LLC, and the rights of MLSH 1 and MLSH 2 under the TRA are assignable. There is no stated term for the TRA, and the TRA will continue until all tax benefits have been utilized or expired unless we exercise our right to terminate the TRA for an agreed-upon amount.
No payments were made to MLSH 1 or MLSH 2 pursuant to the TRA during the three and nine months ended September 30, 2022. As of September 30, 2021,2022, our liability under the TRA was $745.6$746.0 million.
Liquidity and Capital Resources
Overview
We have financed our operations primarily from cash flow from operations, borrowings under long-term debt agreements and, to a lesser extent, the sale of our Class A common stock.
As of September 30, 2022, we had cash of $617.4 million and retained earnings of $367.1 million. We had net income of $99.7 million and $403.2 million for the three and nine months ended September 30, 2022, respectively. We also had positive cash flows from operations of $436.6 million for the nine months ended September 30, 2022.
We have relied on revenue derived from product and services sales, and equity and debt financings to fund our operations to date.
Our principal uses of cash have been to fund operations, acquisitions and capital expenditures, as well as to make tax distributions to MLSH 1, make TRA payments to MLSH 1 and MLSH 2 and make interest payments and mandatory principal payments on our long-term debt.
We plan to utilize our existing cash on hand, together with cash generated from operations, primarily to fund our commercial and marketing activities associated with our products and services, continued research and development initiatives, investments in or acquisitions of complementary or enhancing technologies or businesses, and ongoing investments into our manufacturing facilities to create efficiencies and build capacity. We believe our cash on hand, cash generated from operations and continued access to our credit facilities, will be sufficient to satisfy our cash requirements over the next 12 months and beyond.
To the extent revenue from sales in our two remaining business segments continues to grow, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements. Moreover, we have and will continue to incur additional costs associated with operating as a public company, including expenses related to legal, accounting, regulatory, exchange listing and regulatory compliance matters.
As a result of our ownership of LLC Units in Topco LLC, the Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of Topco LLC and is taxed at the prevailing corporate tax rates. In addition to tax expenses, we also will incur expenses related to our operations and we will be required to make payments under the TRA with MLSH 1 and MLSH 2. Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of LLC Unit exchanges and the resulting amounts we are likely to pay out to LLC Unitholders of Topco LLC pursuant to the TRA; however, we estimate that such payments may be substantial. Assuming no changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we expect that future payments under the TRA relating to the purchase by the Company of LLC Units from MLSH 1 and the tax attributes to be approximately $746.0 million and to range over the next 15 years from approximately $34.7 million to $63.0 million per year and to decline thereafter. Future payments in respect of subsequent exchanges or financings would be in addition to these amounts and are expected to be substantial. The foregoing numbers are estimates and the actual payments could differ materially. We expect to fund these payments using cash on hand and cash generated from operations.
As a result of a change of control, material breach, or our election to terminate the TRA early, (1) we could be required to make cash payments to MLSH 1 and MLSH 2 that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the TRA, and (2) we will be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the TRA, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the TRA could have a material adverse effect on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations, or other changes of control. There can be no assurance that we will be able to adequately finance our payment obligations under the TRA.
In addition to payments to be made under the TRA, we are also required to make tax distributions to MLSH 1 pursuant to the LLC Operating Agreement for the portion of income passing through to them from Topco LLC.
Credit Agreement
The Credit Agreement among Intermediate, Cygnus and TriLink, as the borrowers, Topco LLC, as holdings, the lenders from time-to-time party thereto and Morgan Stanley Senior Funding, Inc., as administrative and collateral agent (as amended, supplemented or otherwise modified, the “Credit Agreement”), provides us with a term-loan facility (the “Term Loan”) totaling $600.0 million and a revolving credit facility (the “Revolving Credit Facility”) of $180.0 million for letters of credit and loans to be used for working capital and other general corporate financing purposes. Borrowings under the Credit Agreement are unconditionally guaranteed by Topco LLC, along with the existing and future material domestic subsidiaries of Topco LLC (subject to certain exceptions) as specified in the respective guaranty agreements, and are secured by a lien and security interest in substantially all of the assets of existing and future material domestic subsidiaries of Topco LLC that are loan parties.
In January 2022, the Company entered into an amendment (the “Amendment”) to the Credit Agreement to: (i) refinance the existing $544.0 million aggregate principal balance on the First Lien Term Loan and to replace it with a new Tranche B Term Loan (“Tranche B Term Loan”), (ii) replace the LIBOR-based interest rate with a Term Secured Overnight Financing Rate (“SOFR”) based rate, and (iii) reduce the interest rate margins applicable to the Term Loan and Revolving Credit Facilities under the Credit Agreement. The previous interest rate margin on the facilities was, with respect to each LIBOR-based loan, 3.75% to 4.25% and, with respect to each base rate-based loan, 2.75% to 3.25% (depending, in each case, on consolidated first lien leverage). Following the Amendment, the interest rate margin on the facilities is 3.00%, with respect to each Term SOFR-based loan, and 2.00%, with respect to each base rate-based loan. Further, the Amendment reduced the base rate floor for the term loans from 2.00% to 1.50%, sets the floor for Term SOFR-based term loans at 0.50% and sets the floor for Term SOFR-based revolving loans at 0.00%. No other significant terms under the Credit Agreement were changed in connection with the Amendment.
The Base Rate is defined in the Credit Agreement as the greatest of (i) the rate last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (ii) the NYFRB Rate plus 0.50% per annum, (iii) the Term SOFR Rate for a one month interest period plus 1.00% per annum, (iv) solely with respect to the Tranche B Term Loans, 1.50% per annum and (v) for any loans that are not Tranche B Term Loans, 1.00% per annum. The “Term SOFR Rate,” as defined in the Credit Agreement, means with respect to any Term SOFR Rate Borrowing and for any other tenor comparable to the applicable interest period, the Term SOFR Reference Rate at approximately 5:00 a.m., Chicago time, two U.S. Government Securities Business Days prior to the commencement of such tenor comparable to the applicable interest period, as such rate is published by the CME Term SOFR Administrator; provided that in no event shall the Term SOFR Rate for any interest period (i) for Tranche B Term Loans be less than 0.50% or (ii) for any other Loans, be less than 0.00%.
The Tranche B Term Loan became repayable in quarterly payments of $1.4 million beginning in March 2022, with all remaining outstanding principal due in October 2027. The Tranche B Term Loan includes prepayment provisions that allow us, at our option, to repay all or a portion of the principal amount at any time. The Revolving Credit Facility allows us to repay and
borrow from time to time until October 2025, at which time all amounts borrowed must be repaid. Subject to certain exceptions and limitations, we are required to repay borrowings under the Tranche B Term Loan and Revolving Credit Facility with the proceeds of certain occurrences, such as the incurrence of debt, certain equity contributions and certain asset sales or dispositions.
Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires that we make mandatory prepayments on the Term Loan principal out of certain excess cash flow, subject to certain step-downs based on the Company’s first lien net leverage ratio. The mandatory prepayment shall be reduced to 25% or 0% of the calculated excess cash flow if the first lien net leverage ratio was equal to or less than 4.75:1.00 or 4.25:1.00, respectively; however, no prepayment is required to the extent excess cash flow calculated for the respective period is equal to or less than $10.0 million. As of September 30, 2022, our first lien net leverage ratio was less than 4.25:1.00. Thus, a prepayment was not required.
Accrued interest under the Credit Agreement is payable by us (a) quarterly in arrears with respect to Base Rate loans, (b) at the end of each interest rate period (or at each three-month interval in the case of loans with interest periods greater than three months) with respect to Term SOFR Rate loans, (c) on the date of any repayment or prepayment and (d) at maturity (whether by acceleration or otherwise). An annual commitment fee is applied to the daily unutilized amount under the Revolving Credit Facility at 0.375% per annum, with one stepdown to 0.25% per annum based on Intermediate’s first lien net leverage ratio.
Debt Covenants
The Credit Agreement includes financial covenants. One financial covenant is a consolidated first lien coverage ratio measured as of the last day of each fiscal quarter. Another requires that, if as of the end of any fiscal quarter the aggregate amount of letters of credit obligations and borrowings under the Revolving Credit Facility outstanding as of the end of such fiscal quarter (excluding cash collateralized letters of credit obligations and letter of credit obligations in an aggregate amount not in excess of $5.0 million at any time outstanding and for the first four fiscal quarters ending after October 2020, borrowings of revolving credit loans made before October 2020) exceeds 35% of the aggregate amount of all Revolving Credit Commitments in effect as of such date, then the net leverage ratio of Intermediate may not be greater than 8.00 to 1.00. For purposes of this covenant, the net leverage ratio is calculated by dividing outstanding first lien indebtedness (net of cash) by Adjusted EBITDA over the preceding four fiscal quarters. As of September 30, 2022, we were in compliance with these covenants.
The Credit Agreement also contains negative and affirmative covenants in addition to the financial covenant, including covenants that restrict our ability to, among other things, incur or prepay certain indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, and make changes in the nature of the business. The Credit Agreement contains certain events of default, including, without limitation, nonpayment of principal, interest or other obligations, violation of the covenants, insolvency, court ordered judgments and certain changes of control. The Credit Agreement also requires the Company to provide audited consolidated financial statements to the lenders no later than 120 days after year-end.
As of September 30, 2022, interest rate on the Tranche B Term Loan was 5.55%.
Tax Receivable Agreement
We are a party to the TRA with MLSH 1 and MLSH 2. The TRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of certain tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of the Organizational Transactions, IPO and any subsequent purchases or exchanges of LLC Units of Topco LLC. Based on our current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipate having enough taxable income to utilize most of these tax benefits.
As of September 30, 2022, our liability under the TRA was $746.0 million, representing 85% of the calculated tax savings we anticipated being able to utilize in future years. We may record additional liabilities under the TRA when LLC Units are
exchanged in the future and as our estimates of the future utilization of the tax attributes, NOLsTax Attributes, net operating losses and other tax benefits change. We expect to make payments under the TRA, to the extent they are required, within 125 days after the extended due date of our U.S. federal income tax return for such taxable year. Interest on such payment will begin to accrue from the due date (without extensions) of such tax return at a rate of LIBOR plus 100 basis points. Any late payments will continue to accrue interest at LIBOR plus 500 basis points until such payments are made.
The payment obligations under the TRA are obligations of Maravai LifeSciences Holdings, Inc. and not of Topco LLC. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the aggregate payments that we will be required to make to MLSH 1 and MLSH 2 will be substantial. Any payments made by us under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Topco LLC and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts will be deferred
and will accrue interest until paid by us. We anticipate funding ordinary course payments under the Tax Receivable AgreementTRA from cash flow from operations of Topco LLC and its subsidiaries, available cash and/or available borrowings under the New Credit Agreement.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| | 2021 | | 2020 | | 2022 | | 2021
(as adjusted)* |
| Net cash provided by (used in): | Net cash provided by (used in): | | | | Net cash provided by (used in): | | | |
| Operating activities | Operating activities | $ | 310,403 | | | $ | 72,756 | | Operating activities | $ | 436,642 | | | $ | 309,827 | |
| Investing activities | Investing activities | 111,317 | | | 14,917 | | Investing activities | (249,092) | | | 111,311 | |
| Financing activities | Financing activities | (110,051) | | | 12,540 | | Financing activities | (121,376) | | | (109,469) | |
| Effects of exchange rate changes on cash | Effects of exchange rate changes on cash | 45 | | | (31) | | Effects of exchange rate changes on cash | — | | | 45 | |
| | Net increase in cash | Net increase in cash | $ | 311,714 | | | $ | 100,182 | | Net increase in cash | $ | 66,174 | | | $ | 311,714 | |
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*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary of the adjustments.
Operating Activities
Net cash provided by operating activities for the nine months ended September 30, 20212022 was $310.4$436.6 million, which was primarily attributable to a net income of $343.0$403.2 million, non-cash depreciation and amortization of $21.3$23.6 million, non-cash amortization of right-of-use assets of $4.4 million, non-cash amortization of deferred financing costs of $2.1 million, non-cash stock-based compensation of $12.7 million and non-cash decrease in deferred income taxes of $35.3 million. These were partially offset by a non-cash gain on the change in estimated fair value of contingent consideration of $7.8 million, non-cash gain on the revaluation of liabilities under the TRA of $2.3 million and a net cash outflow from the change in our operating assets and liabilities of $29.3 million, of which $10.7 million was driven by an increase in prepaid lease payments for our leased Flanders San Diego Facility and our Leland, North Carolina facility (the “Leland Facility”).
Net cash provided by operating activities for the nine months ended September 30, 2021 was $309.8 million, which was primarily attributable to a net income of $342.1 million, non-cash depreciation and amortization of $19.4 million, non-cash amortization of right-of-use assets of $5.1 million, non-cash amortization of deferred financing costs of $2.0 million, non-cash equity-basedstock-based compensation of $8.2 million and a non-cash decrease in deferred income taxes of $29.4 million. These arewere partially offset by a non-cash gain on sale of business of $11.2 million, a non-cash gain on the revaluation of liabilities under the TRATax Receivable Agreement of $9.1 million and a net cash outflow from the change in our operating assets and liabilities of $72.3$76.2 million.
Investing Activities
Net cash provided by operatingused in investing activities for the nine months ended September 30, 20202022 was $72.8$249.1 million, which was primarily attributable to a net incomecomprised of $64.3$238.8 million non-cash depreciation and amortization of $19.9 million, non-cash amortization of deferred financing costs of $1.3 million, non-cash equity-based compensation of $2.9 million, acquired in-process research and development costs of $2.9 million, and afor the net cash outflow fromconsideration paid for the change in our operating assetsacquisition of MyChem and liabilitiesnet cash outflows of $0.3 million. These are partially offset by an increase in non-cash deferred income taxes of $1.3$10.9 million for property and a gain on sale of leaseback transaction of $19.0 million.
Investing Activitiesequipment purchases.
Net cash provided by investing activities for the nine months ended September 30, 2021 was $111.3 million, which was primarily comprised of net cash receipts of $120.0 million from the sale of Vector and cash receipts of $0.5 million from the sale of our United Kingdom facility. These arewere partially offset by net cash outflows of $9.2 million for property and equipment purchases.
Net cash provided by investing activities for the nine months ended September 30, 2020 was $14.9 million, which was primarily attributable to the sale and leaseback of our Burlingame, California facility for $34.5 million, partially offset by net cash outflows of $16.6 million for property and equipment purchases and $3.0 million for an asset acquisition, net of cash acquired.
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2022 was $121.4 million, which was primarily attributable to $119.3 million of distributions for tax liabilities to non-controlling interest holders, required pursuant to the terms of the LLC Operating Agreement, and $12.5 million of principal repayments of long-term debt. This was partially offset by proceeds from borrowings of long-term debt of $8.5 million.
Net cash used in financing activities for the nine months ended September 30, 2021 was $110.1$109.5 million, which was primarily attributable to $106.3 million of distributions for tax liabilities to non-controlling interest holders, required pursuant to the terms of the LLC Operating Agreement, and $4.5 million of principal repayments of long-term debt.
Net cash provided by financing activities
Capital Expenditures
Capital expenditures for the nine months ended September 30, 2020 was $12.52022 totaled $23.4 million. Capital expenditures, including costs incurred for lessor improvements, for the year ending December 31, 2022 are projected to be in the range of $50.0 million to $55.0 million, which wasis net of anticipated government funding of $28.0 million. This primarily attributable to $15.0 million of proceeds from borrowings of long-term debt, partially offset by $1.9 million of principal repayments of long-term debt.includes new facility construction costs recorded as prepaid lease payments, and equipment for our leased Flanders San Diego, California and Leland, North Carolina locations.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of September 30, 20212022 (in thousands):
| | | Payments due by period | | Payments due by period |
| | Total | | 1 year | | 2 - 3 years | | 4 - 5 years | | 5+ years | | Total | | 1 year | | 2 - 3 years | | 4 - 5 years | | 5+ years |
Lease facility financing obligations (1) | $ | 95,048 | | | $ | 5,438 | | | $ | 18,111 | | | $ | 56,661 | | | $ | 14,838 | | |
Operating leases (2) | 10,487 | | | 1,072 | | | 2,683 | | | 5,411 | | | 1,321 | | |
Operating leases (1) | | Operating leases (1) | $ | 109,563 | | | $ | 11,058 | | | $ | 26,715 | | | $ | 25,028 | | | $ | 46,762 | |
| Debt obligations (3)(2) | Debt obligations (3)(2) | 545,500 | | | 6,000 | | | 12,000 | | | 12,000 | | | 515,500 | | Debt obligations (3)(2) | 539,920 | | | 5,440 | | | 10,880 | | | 10,880 | | | 512,720 | |
TRA payments (4)(3) | TRA payments (4)(3) | 745,552 | | | 1,298 | | | 75,940 | | | 85,088 | | | 583,226 | | TRA payments (4)(3) | 745,979 | | | 34,747 | | | 84,377 | | | 86,745 | | | 540,110 | |
Unconditional purchase obligations (4) | | Unconditional purchase obligations (4) | 4,128 | | | 1,128 | | | 3,000 | | | — | | | — | |
Consideration payable (5) | | Consideration payable (5) | 10,000 | | | 10,000 | | | — | | | — | | | — | |
| Total | Total | $ | 1,396,587 | | | $ | 13,808 | | | $ | 108,734 | | | $ | 159,160 | | | $ | 1,114,885 | | Total | $ | 1,409,590 | | | $ | 62,373 | | | $ | 124,972 | | | $ | 122,653 | | | $ | 1,099,592 | |
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(1)Represents operating lease facility financing obligations. See Note 5payments including for our Leland Facility, which is expected to commence in December 2022. These also include operating lease payments for our condensed consolidated financial statements for additional information.Flanders San Diego Facility. At the request of the landlord, rent payments began in September 2022. However, the lease is not expected to commence until the first half of 2023.
(2)Represents operating leases including the ground lease for our Wateridge San Diego Facility and Southport Facility. See Note 5 to our condensed consolidated financial statements for additional information.
(3)Represents long-term debt principal maturities, excluding interest. See Note 67 to ourthe condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
(4)(3)Reflects the estimated timing of TRA payments as of September 30, 2021.2022. Such payments could be due later than estimated depending on the timing of our use of the underlying tax attributes. See Note 10 to ourthe condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our liability under the TRA.
(4)Represents firm purchase commitments to our suppliers.
(5)Represents an additional amount we may be required to pay to the sellers of MyChem subject to the completion of certain calculations associated with acquired inventory. See Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.
Tax distributions are required under the terms of the Topco LLC Agreement. See Note 9 to ourthe condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding tax distributions.
The NewCommencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires that we make mandatory prepayments of the Term Loan principal upon certain excess cash flow, subject to certain step-downs and threshold levels as defined and set forth in the termsbased on our first lien net leverage ratio. The mandatory prepayment shall be reduced to 25% or 0% of the New Credit Agreement,calculated excess cash flow if the first lien net leverage ratio was equal to commence withor less than 4.75:1.00 or 4.25:1.00, respectively; however, no prepayment shall be required to the fiscal year ending December 31, 2021.
Off-Balance Sheet Arrangements
extent excess cash flow calculated for the respective period is equal to or less than $10.0 million. As of September 30, 2021,2022, our first lien net leverage ratio was less than 4.25:1.00.
In connection with our acquisition of MyChem, we didmay be required to make certain payments to its sellers. We may be required to make additional payments of up to $40.0 million to the sellers of MyChem dependent upon meeting or exceeding defined revenue targets during fiscal 2022. We may also be required to make certain payments of $20.0 million to them as of the second anniversary of the closing of the acquisition date as long as the sellers of MyChem continue to be employed by TriLink. We cannot, at this time, determine when or if the related targets will be achieved or whether the events triggering the commencement of payment obligations will occur. Therefore, such payments were not have any relationships with unconsolidated entities orincluded in the table above. See Notes 2 and 4 to the condensed consolidated financial partnerships, such as entities often referred to as structured finance or special purpose entities establishedstatements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for the purposeadditional details.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our interim condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures in the consolidated financial statements. Our estimates are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions, and any such difference may be material. For a discussion of how these and other factors may affect our business, financial condition or results of operations, see “Risk“Item 1A. Risk Factors” described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this report are described in Management’s Discussion and
Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for fiscal year ended December 31, 2020. There2021. Except as noted below, there have been no material changes to our critical accounting policies or estimates from those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
Recognition of Intangible Assets as Part of a Business Combination
We account for our business combinations using the acquisition method of accounting which requires that the assets acquired and liabilities assumed of acquired businesses be recorded at their respective fair values at the date of acquisition. The purchase price, which includes the fair value of consideration transferred, is attributed to the fair value of the assets acquired and liabilities assumed. The excess of the purchase price of the acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill.
Determining the fair value of intangible assets acquired requires management to use significant judgment and estimates, including the selection of valuation methodologies, assumptions about future net cash flows, discount rates and market participants. Each of these factors can significantly affect the value attributed to the identifiable intangible asset acquired in a business combination.
We generally utilize a discounted cash flow method under the income approach to estimate the fair value of identifiable intangible assets acquired in a business combination. For the acquisition of MyChem, LLC, the estimated fair value of the developed technology intangible asset was based on the multi-period excess earnings method. The estimated fair value was developed by discounting future net cash flows to their present value at market-based rates of return. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated revenue growth rates, management’s plans, and guideline companies. Some of the more significant assumptions inherent in estimating the fair value of this intangible asset included revenue growth rates ranging from 3.0% to 30.6%, technical obsolescent curves ranging from 5.0% to 7.5%, and a discount rate of 16.5%.
The use of alternative estimates and assumptions could increase or decrease the estimated fair value and amounts allocated to identifiable intangible assets acquired and future amortization expense as well as goodwill.
Recent Accounting Pronouncements
For a description of the expected impact of recent accounting pronouncements, see “NoteNote 1 Organization and Significant Accounting Policies” into the “Notes to Condensed Consolidated Financial Statements”condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.
JOBS Act Accounting Election
We are an “emerging growth company” within the meaning of the JOBS Act. The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are electing to use this extended transition period and we will therefore comply with new or revised accounting standards on the earlier of (i) when they apply to private companies; or (ii) when we lose our emerging growth company status. As a result, our financial statements may not be comparable with companies that comply with public company effective dates for accounting standards. We also rely on other exemptions provided by the JOBS Act, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act unless we cease to be an emerging growth company.
As the global aggregate market value of our voting and non-voting common stock that was held by non-affiliates exceeded $700.0 million as of June 30, 2021, we expect to be classified as a large accelerated filer, and therefore will cease being an emerging growth company, as of December 31, 2021. As a result, our independent registered public accounting firm will be required to provide an attestation report on our system of internal control over financial reporting required by Section 404(b) of the Sarbanes-Oxley Act in such Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
As of September 30, 2021,2022, our primary exposure to interest rate risk was associated with our variable rate long-term debt. The NewBorrowings under our Credit Agreement bear interest subjectat a rate equal to the Base Rate plus a margin of 2.00%, with respect to each Base Rate-based loan, or the Adjusted Eurocurrency Rate.Term SOFR (Secured Overnight Financing Rate) plus a margin of 3.00% with respect to each Term SOFR-based loan, subject in each case to an applicable Base Rate or Term SOFR floor (see Note 7 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q). Interest rates can fluctuate for a number of reasons, including changes in the fiscal and monetary policies or geopolitical events or changes in general economic conditions. This could adversely affect our cash flows.
As of September 30, 2021,2022, we have an interest rate cap agreement in place to hedge a portion of our variable interest rate risk on our outstanding long-term debt. The agreement has a contract notional amount of $415.0$500.0 million and entitles us to receive from the counterparty at each calendar quarter end the amount, if any, by which a specified floating market rate exceeds the cap strike interest rate. The floating interest rate is reset at the end of each calendar quarter end.three-month period. The contract expires on March 31, 2023.January 19, 2025.
We had $545.5$539.9 million of outstanding borrowings under our New First LienTranche B Term Loan and no outstanding borrowings under our Revolving Credit Facility as of September 30, 2021.2022. For the three and nine months ended September 30, 2021,2022, the effect of a hypothetical 100 basis point increase or decrease in overall interest rates would have changed our interest expense by approximately $1.4 million and $3.9$4.1 million, respectively.
We had cash of $547.9$617.4 million as of September 30, 2021.2022. Our cash is held in demand deposits and is not subject to market risk.
Foreign Currency Risk
The majorityAll of our revenue is denominated in U.S. dollars; however,dollars. Although approximately 59.0%48.9% and 58.2%59.6% of our revenue was derived from international sales for the three and nine months ended September 30, 2021,2022, respectively, was derived from international sales, primarily in Europe and Asia Pacific. However, only ourPacific, none of these sales in the United Kingdom are denominated in local currency. Our remaining international sales are denominated in the U.S. dollar. OurThe majority of our expenses are generally denominated in the currencies in which they are incurred, which is primarily in the United States and, to a lesser extent, the United Kingdom.States. As we expand our presence in international markets, to the extent we are required to enter into agreements denominated in a currency other than the U.S. dollar, results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign currency exchange rates. To date, we have not entered into any hedging arrangements with respect to foreign currency risk. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021.2022.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during the three months ended September 30, 20212022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II.
Item 1. Legal Proceedings
From time to time, we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of litigation and claims are inherently unpredictable and uncertain, we are not currently a party to any legal proceedings the outcome of which, if determined adversely to us, are believed to, either individually or taken together, have a material adverse effect on our business, operating results, cash flows or financial condition. Regardless of the outcome, litigation has the potential to have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.
Item 1A. Risk Factors
Other than the addition of the risk factorsfactor set forth below to “Risk Factors—Risks Related to our Intellectual PropertyBusiness and Technology” and “Risk Factors—Risks Related to Being a Public Company”,Strategy,” there have been no material changes to the risk factors disclosed under the heading “Risk Factors” in our most recent Annual Report on Form 10-K.
Risks Related to Our Intellectual PropertyBusiness and TechnologyStrategy
If weThe extent and duration of our revenue associated with COVID-19 related products and services are prevented from enforcinguncertain and are dependent, in important respects, on factors outside our intellectual property rights becausecontrol.
Certain of governmental regulatory policies or political pressure or action, our sales and profitability may be materially adversely affected.
Our ability to maintain and growproducts, including our product sales and profitability depends,proprietary CleanCap® analogs, are used by our customers in part, on our ability to maintain and enforce our patents and other intellectual property rights. Proposed actions to waive intellectual property protections for COVID-19 vaccines and associated technology, such as those under discussion at the World Trade Organization, which are supported by the U.S. government, may impact our ability to fully assert our intellectual property rights related to our CleanCap product in connection with the production of COVID-19 vaccines. Further, these policy actions may complicateThe evolving nature of the COVID-19 pandemic and the resulting global public health response will affect the continued demand for our analysisCOVID-19 related products and decision-making with respectservices, which have comprised the majority of our revenue in recent periods. More specifically, the ongoing manufacture and supply of COVID-19 vaccines (including potential booster doses) by our customers is uncertain and subject to both researchvarious political, social, economic, and regulatory factors that are outside of our control, including the duration of the pandemic; emerging information concerning the severity and incidence of the virus and its variants; the emergence of additional virus variants; regional resurgences of the virus globally; the rate at which the population globally becomes vaccinated against COVID-19; the development and capital investment, givenavailability of antiviral therapeutic alternatives; and political and social debate relating to the potentialneed for, lower returns on those investmentsefficacy of, or side effects related to one or more specific COVID-19 vaccines. To the extent that could result fromthe supply and manufacture of COVID-19 vaccines by our inability to fully protectcustomers slows or becomes no longer necessary, demand for our intellectual property. If we are unable to successfully navigate these considerations, the future revenuesCOVID-19 related products and profitability of our business could be negatively impacted. We are unable to estimate the impact of these potential policies given that they remain undefined and their adoption is uncertain.
Risks Related to Beingservices would significantly decrease, which would have a Public Company
We currently qualify as an “emerging growth company”; however, we will cease to qualify as such as of December 31, 2021, and will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.
We currently qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act, as amended, and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards and certain other exemptions and reduced reporting requirements provided by the JOBS Act. Accordingly, we have not been required to provide an auditor’s attestation reportmaterial adverse effect on our systemrevenue, results of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. Based on the Company’s aggregate worldwide market value of voting and non-voting common equity held by non-affiliates as of June 30, 2021, the Company will become a “large accelerated filer” and lose emerging growth company status as of December 31, 2021. Therefore, our independent registered public accounting firm will be required to provide the attestation report on our system of internal control over financial reporting in our Annual Report for the year ending December 31, 2021. If we are unable to assert that our internal control over financial reporting is effective or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, or expresses an adverse opinion, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets or other sources of funds and our stock price may be adversely affected.
In addition, the additional expenses to evaluate our internal control over financial reporting and enable our independent registered public accounting firm to provide the attestation report will increase legaloperations and financial compliance costs. These increased costs will require us to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives.
Item 2. Unregistered Sales of Equity Securities
On April 12, 2021, pursuant to the terms of the Exchange Agreement entered into in connection with our IPO, MLSH 1 exchanged 17,665,959 LLC Units (paired with the corresponding shares of Class B common stock) for an equal number of shares of Class A common stock to be sold in the April 2021 Secondary Offering. The shares issued to MLSH 1 in the exchange were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.
On September 9, 2021, pursuant to the terms of the Exchange Agreement entered into in connection with our IPO, MLSH 1 exchanged 17,068,559 LLC Units (paired with the corresponding shares of Class B common stock) for an equal number of shares of Class A common stock to be sold in the September 2021 Secondary Offering, which closed on September 13, 2021. The shares issued to MLSH 1 in the exchange were issued in reliance on an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.None.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
None.
Item 6. Exhibits
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| Exhibit Number | | Description |
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2.1# | | Agreement and Plan of Merger, dated as of August 5, 2021, among Maravai Life Sciences, Inc., Voyager Group Holdings, Inc., Maravai LifeSciences Holdings, Inc., and Maravai Intermediate Holdings, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 10, 2021) |
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2.2# | | Amendment No. 1,2, dated as of September 2, 2021,August 30, 2022, to the Agreement and Plan of Merger, dated as of August 5, 2021, among Maravai Life Sciences, LLC (f/k/a Maravai Life Sciences, Inc.), Voyager Group Holdings, Inc., Vector Laboratories, Inc., Maravai LifeSciences Holdings, Inc., and Maravai Intermediate Holdings, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 3, 2021) |
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10.1#‡3.1 | | |
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| 3.2 | | |
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| 10.1* | | Employment Agreement of William “Trey” Martin, III, effective as of June 6, 2021, to the Supply Agreement, dated as of October 9, 2020,September 30, 2022, among TriLink Biotechnologies,Maravai LifeSciences Holdings, Inc., Maravai Intermediate Holdings, LLC Pfizer Inc. and BioNTech SEWilliam “Trey” Martin, III (incorporated by reference to Exhibit 10.1 to the Company’s Current Report onMaravai LifeSciences Holdings, Inc.’s Form 8-K filed on October 3, 2022). |
| | |
| 10.2 | | Amendment No.1, effective as of September 30, 2022, to the Employment Agreement of Carl W. Hull, dated November 24, 2020, among Maravai LifeSciences Holdings, Inc., Maravai Intermediate Holdings, LLC and Carl W. Hull (incorporated by reference to Exhibit 10.6 to Maravai LifeSciences Holdings, Inc.’s Form 8-K filed on October 3, 2021)2022). |
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| 31.1 | | |
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| 31.2 | | |
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| 32.1** | | |
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| 32.2** | | |
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| 101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
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| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 101.DEF | | XBRL Extension Definition Linkbase Document. |
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| 101.LAB | | XBRL Taxonomy Label Linkbase Document. |
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| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
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| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in exhibit 101) |
_______________
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#* | SchedulesExhibits and schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted scheduleS-K and will be furnishedprovided on a supplemental basis to the SECSecurities and Exchange Commission upon request; provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any document so furnished.
request. |
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‡ | Certain portions of this Exhibit that constitute confidential information have been redacted in accordance with Item 601(b)(10) of Regulation S-K. |
| ** | The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Maravai LifeSciences Holdings, Inc. |
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| By: | | /s/ Kevin Herde |
| Name: | | Kevin Herde |
| Title: | | Chief Financial Officer |
Date: November 12, 20213, 2022