Maravai LifeSciences Holdings, Inc. (MRVI) Q4 2022 Earnings Report, Transcript and Summary

Greetings, and welcome to the Fourth Quarter and Year-end 2022 Maravai LifeSciences Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to our host, Debra Hart, Head of Investor Relations. Thank you. You may begin.

Thank you, Diego. Good afternoon, everyone. Thanks for joining us for our fourth quarter and year-end 2022 earnings call. Our press release and the slides that accompany today's call are posted on our website and are available at investors.maravai.com. As you can see on our agenda for today on Slide 2, Carl will first provide you with a business update, and Kevin will review our financial results and guidance. Trey Martin, President of Biologic Safety Testing; and Becky Buzzeo, our Chief Commercial Officer, will join the call for the question-and-answer session following the prepared remarks. We remind you management will make forward-looking statements and refer to GAAP and non-GAAP financial measures during today's call. It is possible that actual results could differ from management's expectations. We refer you to Slide 3 for more detail on forward-looking statements and our use of non-GAAP financial measures. Our just issued press release provides reconciliations to the most directly comparable GAAP measures. Please also refer to Maravai's SEC filings for additional information on the risks and uncertainties that may impact our operating results, performance and financial condition. Now I'll turn the call over to Carl.

Well, thank you, Deb, and good afternoon, everyone. We appreciate having you join us for our call today. Let's start with our fourth quarter results on Slide 5. Today, we reported $205 million in revenue for the quarter, and our adjusted EBITDA of $130 million led to adjusted earnings per share of $0.35 per share. Our base business revenue of $81 million marks a record revenue quarter, up 67% over the fourth quarter of 2021, demonstrating the continued widespread uptake of messenger RNA platform technologies across multiple therapeutic infectious disease vaccine and immuno-oncology programs. Our adjusted EPS of $0.35 per share for the quarter and $1.80 per share for the full year put us at the top end of our guidance range provided during last quarter's earnings call. As Slide 6 indicates, 2022 was an incredible year for the entire business. Full year revenue was a record $883 million and net income was $491 million, with adjusted EBITDA margins coming in at 72%. Most importantly, our 2022 full year base business revenue when adjusted for the 2021 divestiture of our protein detection business grew 27%. You will be hearing from Kevin shortly that we expect our base business, excluding CleanCap sales related to COVID to continue to grow at around 20% this year as well. The reason this base business continues to deliver is simply the accelerating demand for our core products and services. We offer the market the exact technologies and advanced manufacturing services that enable cell and gene therapy development. More on that in just a moment. Turning now to Slide 7. Our Nucleic Acid Production business had revenue of $189 million in the fourth quarter. This includes an estimated $124 million of COVID CleanCap revenue. The remaining $66 million of base NAP revenue represents our largest quarter ever for the base business, up 101% over quarter four of last year. For the full year, total Nucleic Acid Production revenue was $813 million, growing 14% over 2021 with the base NAP revenue at $213 million, growing 38%. We are very encouraged by last year's base business growth and continue to see strong demand for both CleanCap reagents and our messenger RNA GMP manufacturing services and mRNA constructs. We have a unique opportunity to drive CleanCap inclusion across our early-stage messenger RNA customer base while providing critical GMP-grade raw materials and our newest technologies including modified nucleotide and nucleoside triphosphate to improve in vitro transcription reactions. Our commercial strategy under Becky Buzzeo’s leadership is to win in discovery with the right process, continue to support the unique needs of our mRNA and cell and gene therapy customers during their clinical development programs through to commercialization. The need for Maravai’s products and services for these early-stage programs is greater than ever as we look to 2023 and beyond. Let's move now to Slide 8. The science behind cell and gene therapies is progressing rapidly to the immense benefit of patients across diverse health challenges such as cancer and cystic fibrosis. The FDA recently indicated that there are now 1,300 active investigational new drug or IND applications for gene therapies alone and over 1,200 active IND applications for cell therapies. According to the Alliance for Regenerative Medicine and their latest cell and gene therapy industry report, the CGT space saw investment of over $12 billion in 2022, which is in line with pre-pandemic levels. They also anticipate greater than 250 new clinical trial starts in 2023. This is incredibly positive news for Maravai since we supply many of the key raw materials for this rapidly growing market. In gene therapy, DNA or RNA are delivered into a cell to introduce, remove or change the genetic profile of that particular type of cell. To facilitate this nucleic acid transfer manufacture the DNA plasmid or messenger RNA transcript required or supply CleanCap and modified dNTP reagents and now select enzymes to ensure the production of the most biologically effective RNA molecules. In cell therapy, mRNA is often used to directly engineer cells from either the patient or a donor, making them more effective at targeting patient-specific cancer cells. In the case of genetically modified cell therapies, mRNA is actually considered a critical raw material used in the manufacturing process. As is the case for gene therapy, Maravai is a world leader in GMP messenger RNA production and a top supplier of the necessary reagents, including CleanCap and dNTPs for the manufacture of best-in-class mRNA transcripts. In gene editing, the goal is to remove correct or disrupt sequences of DNA within a faulty gene, DNA is inserted, deleted, modified or replaced directly in the genome of the cell of interest. The key to successful gene editing is the combination of guide stranded RNA and messenger RNA that expresses the Cas nuclease. Maravai manufacturers and supplies both these critical components at GMP quality levels. We're also very encouraged that the FDA's Center for Biologics Evaluation and Research or CBER plans to pilot what they refer to as “The next generation of operation work speed aimed specifically at rare diseases.” The idea here is to move new drug applications as rapidly as possible through the regulatory process to expedite the approval of novel therapeutics for rare diseases where there are often no currently available therapies. As you might imagine, many of these programs may well be based upon messenger RNA or other cell and gene therapies. Turning now to Slide 9. Let me share with you an update from a third-party analysis we commissioned specific to our CleanCap programs. You may recall that in our earnings call in May, we told you that we've identified 183 preclinical and clinical programs using CleanCap containing messenger RNA. A refresh of that work was recently completed and we have now identified over 250 programs that use CleanCap or more than 70 new programs in a short 10-month period. That is a 37% increase. These programs include preclinical through Phase III trials for a variety of different human health conditions. Now almost 3 out of 4 of those identified programs are in the preclinical phase which is what we view to be the current sweet spot for many of our products and services. About half of our programs include messenger RNA and vaccines or direct therapeutic applications. And as the heat map on the right-hand side here shows you the top disease target of these programs is cancer, followed closely by infectious diseases. Growth in the mRNA pipeline is seen across multiple modalities, as you can see in the ring chart in the lower middle part of this slide and for multiple applications, including cancer vaccines, infectious disease vaccines and cell therapies that use messenger RNA. This reflects the widespread interest of big pharma in messenger RNA platform technologies and foreshadows what we believe will be sustained future investments in the field. We were able to gain both market share and share of wallet here through continuous innovation and new product development. And keep in mind that we are in a truly unique commercial position in this market because a very large number of biopharma innovators of all sizes come to us first at the earliest stages of their programs for one or the other of our products or services. Therefore, our customer pipeline reflects the future contours of the industry. As you can see from the numbers we are sharing today, that future looks quite bright, and there's certainly a good reason that Timbuk 3 is one of my favorite bands. Now let's turn to Slide 10 and some further exciting developments for Maravai. I'm pleased to let you know that we have acquired Alphazyme, a leader in specialty enzyme production. As most of you know, enzymes are critical to almost every phase of Nucleic Acid Production. The addition of Alphazyme's enzyme development and production expertise adds complementary capabilities to marrow's product portfolio and allows us to offer our customers even more complete messenger RNA process solutions. History of successfully collaborating with manufacturers of nucleic acid therapies and detection platforms in optimizing their products and production processes. This unique history and position will undoubtedly strengthen our relationship with these customers and further position Maravai to be their first choice across a lighter range of products. Additionally, Alphazyme's deep enzyme knowledge and process intellectual property will extend our own innovation capabilities. As has been the case with our past acquisitions, Alphazyme is led by its Co-Founders, Chris Benoit and Chad Decker and is composed of a well-experienced team focused on cutting-edge science. They provide key enzymes for messenger RNA and oligonucleotide synthesis. And we believe this acquisition solidifies our customer experience as a one-stop shop of critical inputs for mRNA therapeutics. Alphazyme’s proprietary methods for developing custom enzymes provide a strong technical complement to our core chemistry expertise. We are pleased to welcome Chris and Chad's exceptionally talented team tomorrow to help drive our process and manufacturing innovation. Now turning to Slide 11 and our Biologics Safety Testing business. As you know, our products and services in BST support the markets of cell and gene therapy, vaccines and biologics drug manufacturing. Here, we set the global gold standard in wholesale protein and process-related impurity analytics, along with offering innovative viral clearance prediction solutions that help our customers ensure the safety of their biopharmaceutical products. Our fourth quarter revenue of $15 million in BST was down about 3% from last year. For the full year, our BST revenue of $70 million grew just over 2% from 2021 levels. As we have previously discussed, the BST business has been negatively affected this year by the initial Zero COVID policies in China as well as a roughly $1 million negative impact from the Russia-Ukraine war. Some of that weakness persisted in the fourth quarter as coded spread widely across China. Our customers in this segment manufacture a broad range of biopharmaceutical products. These include monoclonal antibodies and recombinant proteins both as novel biologics and biosimilars and recombinant vaccines, including vaccines to prevent infectious disease and treatment cancer. We also provide products in support of the development of cell and gene therapies in cells. Turning to Slide 12. I'd like to share further detail on our BST traction in the growing cell and gene therapy market. Recombinant vaccines and some cell and gene therapies rely on the manufacture of various viral vectors produced using recombinant nucleic acid and cell culturing technologies. Viral vector manufacturing processes require rigorous analytics, including tests for process-related impurities such as host cell proteins, host cell DNA, purification leachate, growth media additives and enzymes. Per regulatory requirement, viral vectors used as a component of CAR-T cellular therapies or as gene therapies must be produced in certain cell lines, purified and then tested for the residual presence of known host cell proteins. I'm very pleased that 15 out of the 15 FDA and EMA approved CAR T cell and gene therapies use Cygnus host-cell protein ELISA kits for HCP testing for the commercial product lot release. 5 of these 15 therapies were approved during 2022. While our BST business often feels somewhat overshadowed simply due to the size and scale of the Nucleic Acid Production business, BST remains a key priority and a very attractive long-term growth opportunity for Maravai. We plan to scale our offerings to ensure superior technical support to offer the highest quality services and products and the most comprehensive catalog of products to meet our customers' needs. Our new facility in Leland, North Carolina will allow us to expand our analytical support and continue to innovate here. Now moving to Slide 13 and some organizational updates. We will continue to report our revenue in two reporting segments, Nucleic Acid Production and Biologics Safety Testing. However, we have evolved our internal organization to support different markets and customers we now serve. Our new structure will enable us to provide a better differentiated customer experience and help position us for sustainable growth. Beginning in 2023 and with the acquisition of Alphazyme, we have aligned our internal businesses as follows. Within the clinic acid production, we are organized around these three units. The first is nucleic acid products. The products team is focused on meeting the specific nucleic acid chemistry needs of customers with standalone products from both Glen and TriLink. Nucleic acid services. The services team is focused on building partnerships with our customers in the market of cell and gene therapy to ensure that we are well positioned to be an extension of their own development teams and serve as an integrated drug product custom development and manufacturing organization. And the third group is enzymes, which is the new Alphazyme team. Their enzyme development and production expertise adds complementary capabilities to our Nucleic Acid Production portfolio and provides a broader range of solutions for our shared customers. Alphazyme will continue to support molecular biology innovators to develop and produce enzymes for DNA and RNA molecules, genomic medicines and genetic test. So these are the three groups that now make up the NAP segment for us. Our Biologics Safety Testing segment is comprised of our Cygnus team and supports the quality and regulatory needs of customers developing and producing biotherapeutics, including detection and analytical solutions that improved bioprocess development. This team is led by Trey Martin as President; and Christine Dolan as Chief Operating Officer. I'm also pleased to let you know that we have launched a new Office of Science and Innovation led by Dr. Kate Broderick. You may recall, Kate joined us last year to lead our Nucleic Acid Production R&D efforts. We have expanded her responsibilities as Chief Innovation Officer, and she and her team are tasked with driving the scientific culture throughout Maravai to expand our technological footprint. In this new role, Kate will develop and execute an overarching innovation roadmap and strategy for Maravai that maintains our scientific and technology leadership position. She will partner closely with the R&D, report and drive new innovations, establish development processes and ensure value for our customers. We have repurposed the MyChem offices here in San Diego to be a new R&D center of excellence to support these efforts. At the Maravai level, our shared services will continue to partner closely with each organization and to support their growth, optimize processes and leverage resources in order for us to scale. Turning now to Slide 14. Our path forward is focused on sustainable growth, and I'm pleased to let you know that we will be sharing our progress in our second environmental, social and governance report that will be published before the end of March. The report will cover the 2022 fiscal year and provide an expansive and honest look into our ESG program with tangible examples of how we are positioning ourselves for sustainable growth. Without question, our commitment to ESG goes hand in hand with achieving our company's long-term strategic objectives. Environmental stewardship, social consciousness and effective governance have been intrinsic to our business strategy and core values since Eric and I founded Maravai in 2014. Along with the safety and quality of our products, we are proud of our ESG advancements to date and are working meticulously to increased transparency and build the infrastructure necessary to improve our results. A few highlights from the soon-to-be published report include our first step towards greater transparency and disclosure of environmental data. We completed our first environmental footprint exercise by calculating our Scope 1, Scope 2 greenhouse gas emissions and measuring our waste and water usage at each of our facilities for 2022 and 2021. To demonstrate our commitment to diversity, equity and inclusion, I signed the CEO Action for Diversity and Inclusion Pledge last summer, and we have been taking action to ensure that we have the proper programs, training and resources in place to advance DI and foster a more inclusive culture. For example, we launched our first employee resource group, women in leadership with [technical difficulty] We believe gender parity and leadership is necessary for our growth as an organization, and I am very proud to have an executive leadership team that is 50% women. In 2022, we also enhanced our onboarding process by implementing a new and improved employee orientation program to provide a comprehensive introduction to the many facets of our business including more than 20 hours of training for all new hires. Our Board also adopted a new committee structure and updated their respective charters to improve oversight for sustainable growth on our path forward. We are committed to being a strong corporate citizen and look forward to keeping you apprised on our journey. Now turning to Slide 15. You saw from our press release that we are introducing our 2023 revenue guidance of $420 million to $460 million. This includes the assumption of $100 million of COVID-19 CleanCap GAAP revenue and an over 20% growth rate for the base business at the midpoint. While we anticipate that 2022 was the peak revenue year for COVID CleanCap demand, we do expect ongoing CleanCap revenue contributions from multiple respiratory viruses for the foreseeable future. This could include both stand-alone coved vaccine demand or combination respiratory vaccines, given the foundational flexibility of our CleanCap product to support multiple customer approaches. As a final note here, on January 26, the FDA vaccine advisory panel met and unanimously recommended the use of the latest updated BA.4/5-bivalent COVID-19 shot for both primary and booster vaccines as it moves to simplify the country's vaccination strategy. Additionally, future plans for annual vaccine composition updates and autumn/winter booster programs were discussed and broadly supported. We believe that similar to what happens with flu vaccines, the U.S. will move to a seasonal COVID vaccine campaign, where experts gather periodically to review data about which COVID virus strains is circulating around the world and propose the straining composition for any updated vaccines that may be necessary. The advantage of mRNA here is the public health officials can narrow the window between strain selection and delivery of a newly specified vaccine to approximately 100 days. Meanwhile, vaccine manufacturers continue to innovate to create improved vaccines, offering better variant coverage that are more durable or can prevent further transmission of the virus. We are involved in many of these development programs. I'll now ask Kevin to cover our fourth quarter and full year performance, along with more details on our guidance and our model assumptions. Kevin?

Thank you, Carl, and good afternoon. Our fourth quarter wrapped up an amazing year for Maravai. Given that Karl has presented the financial highlights already, I will briefly cover some more details regarding our financial results for the fourth quarter and full year of 2022. Before we dive into the details, I want to underscore our strong '22 performance. In early November of 2021, we provided our initial views for 2022 revenue expectations setting that range at $840 million to $880 million. Our strong fourth quarter resulted in a full year revenue total of $883 million, performing in excess of that initial guidance for 2022. On our call about a year ago, we also provided initial 2022 adjusted fully diluted EPS guidance for 2022 of [$1.70] [technical difficulty] $1.80 per share, solidly within that narrow range. Not only did 2022 deliver against these initial expectations, but we also continue to deliver on our strategy for the business via key strategic investments and strengthening our foundation for long-term growth. We believe that as we sit here today, we are squarely headed towards our vision of being a meaningful part of the future products, technologies and services that our customers will develop and commercialize to power the next generation of health care solutions. So let's discuss some of the recent results in more detail. Here on Slide 17, we begin with our GAAP numbers. Our GAAP net income before non-controlling interests was $87 million for the fourth quarter of 2022. This compares to $127 million for the fourth quarter of 2021. GAAP net income for the year was $491 million compared to $469 million for 2021. Note that certain prior year amounts were adjusted for the lease accounting standards change required under ASC 842. Income from operations was $109 million in the quarter and operating margin of 53%. Moving to Slide 18. Adjusted EBITDA, a non-GAAP measure was $130 million for Q4 2022 compared to $163 million for Q4 2021. Our adjusted EBITDA margin was 63% in the quarter, slightly below our expectations for the quarter. The primary reason for this was that the fourth quarter had about a $12 million in specific noncash related inventory write-offs and reserves, mostly tied to excess or expiring CleanCap materials and unfavourable manufacturing charges associated with lower expectations for COVID-related demand in the near term as well as customers' conversion from RUO to GMP grade materials. Adjusted EBITDA for the year was $638 million compared to $583 million in 2021. Moving to Slide 19 and EPS. Given I believe everyone understands the capital structure of Maravai and our presentation of the various EPS metrics, I will move forward with our numbers. Diluted EPS was $0.28 and fully adjusted diluted EPS was $0.35 per share, slightly ahead of our stated expectation from last quarter's call of $0.33 per share. For the year, our EPS metrics were basic EPS of $1.67 per share, diluted EPS of $1.67 per share and adjusted fully diluted EPS of $1.80 per share. Let's roll on to Slide 20 and some balance sheet and other financial metrics. We ended the year in a very strong cash and net cash position with $632 million in cash and $538 million in long-term debt, resulting in nearly $100 million net cash position. More to come on that in a bit. Adjusted free cash flow for the quarter was $100 million for the three months and $591 million for the full year of 2022. That calculation of adjusted free cash flow, a non-GAAP measure, is based on our adjusted EBITDA less CapEx which were $130 million and $30 million in the quarter, respectively, and $638 million and $47 million for the full year, respectively. We have used our strong cash flow to make Maravai a more valuable company. This has been evidenced by the two high strategic value acquisitions that we have made over the last 12 months as well as the investment in our infrastructure to both increase long-term capacity and uniquely broaden our capabilities. These have further been complemented by investing in our organic innovation and commercial teams internally. Even though our financial performance will face a headwind in 2023 via comparison to the phenomenal years of 2021 and 2022, we remain fully committed to building Maravai this year for growth and the opportunity we see ahead. Capital expenditures in the quarter were a little less than our forecast and ended the year at $47 million. We saw some CapEx step from Q4 into the first part of 2023, primarily tied to some longer lead times for certain expansion items and a slight shift in timing of installation and outfitting of our new facilities. I'll touch more on the 2023 expectations for these facilities in our guidance commentary. Returning to our strong cash position. In the first quarter of 2023, we used $70 million of cash for the upfront consideration to acquire Alphazyme. However, since the end of the year, we've also collected over half of the $139 million in year-end accounts receivable that reflected the strong fourth quarter revenues. Thus, we have added another great asset to the Maravai family while still remaining in a strong net cash position as I speak to you here today. Further, as you've seen from our statement of income, we generated over $2 million in interest income in the quarter. As a result of rising interest rates, we have restructured our treasury operations to consolidate and sweep excess cash into interest-yielding accounts with our banking partners. This activity combined with our interest rate cap contract that is generating cash flows when our effective rate exceed 6.5%, should help control our net interest cost in 2023. We are anticipating our interest expense on our debt to be netted down by both our interest rate cap contract and interest income to get us to an estimated range of $20 million to $22 million of net interest expense, which would be an effective net rate of about 4%. We believe this is an effective structure for us that mitigates rate risk, and keeps up with the ability to use our balance sheet to pursue further acquisitions in 2023. Let's transition to Slide 21 and the discussion of the segment performance in the quarter. Our Nucleic Acid Production or NAP segment, which includes products from our trialing and research MyChem and Solulink assets and starting in January of 2023 will include the contributions from Alphazyme, had revenues in the fourth quarter of $189 million and adjusted EBITDA of $135 million, a margin of 71%. For the year, for NAP, revenue was $813 million, adjusted EBITDA was $638 million or a margin of 79%. Now Slide 22 in Biologics Safety Testing, which includes products from our Cygnus and MockV assets. These had revenues of $15 million in the fourth quarter and adjusted EBITDA of $11 million, a margin of 73%. For the year, revenue was $70 million. Adjusted EBITDA was $55 million, a full year margin of 78%. Corporate expenses, which support both our segments and Maravai corporate efforts, including the shared service functions of executive leadership in resources, finance and accounting facilities, legal compliance, IT, quality and Corp Dev and strategic marketing, totaled $17 million in the quarter and $55 million for the year. Turning to Slide 23. 2023 is a very challenging year to forecast given the inherent uncertainties tied to COVID demand, continued variability in the China market, inventory rebalancing dynamics and an ever-increasing breadth of underlying customers. We have seen a fair amount of both quarterly and annual overall fluctuations with our business, a reflection of the unique period of time we have been in for mRNA technologies. As we sit here at the end of another year, we look back over the course of the last four years for Maravai and underlying all the highs and lows is a very solid base business, one that has grown steadily from $124 million in total revenues in 2018 to $283 million in 2022, a base business CAGR of 23%. From those early years as a private company acquiring, integrating unique founder-based companies through the last three years, building out our capacity and helping our customers with critical materials to address the recent viral pandemic we now enter yet another phase for Maravai here in 2023. Our goals for 2023 are to continue to invest in our business that the breadth and depth of offerings to support our customers for the wave of growth over the next decade. Over the next year, our historically high margins will be pressured by the costs associated with our increased infrastructure. However, we believe that we are making the right decisions for our customers and our shareholders. We are seeing an increasing focus by the market on evaluating long-term partners that can support them through the many phases of development and up to and even through commercialization. Additionally, we believe that we need to offer as many of unique products to support our end markets, combined with the value of our experience and service levels and the full spectrum of quality levels from RUO to GMP and these all will serve as key differentiators in the markets we serve. While it would be financially ideal to offload or defer some of the costs that have allowed us to reach the levels of financial success over the last two years to future users when those revenue levels can be achieved again. That is just not our reality. The customer decision points and technology platform decisions for products that will launch over the next decade are happening today. And thus, we need to maintain or even increase our expenditures in support of that long-term opportunity. Now getting to our detailed financial expectations for 2023 on Slide 24. We currently anticipate 2023 revenues to be in the range of $420 million to $460 million, with an assumption of around $100 million in CleanCap revenues for COVID-related vaccine demand. The current estimate for CleanCap revenues has approximately $60 million in firm commitments already in hand for 2023. We see the roughly $60 million in hand to be relatively evenly spread over 2023 and the remaining $40 million likely to occur in the second half to late 2023. Certainly, there is a large range of outcomes for COVID related demand in 2023. Overall, we see the base business revenues in the range of $320 million to $360 million which would reflect base growth of just over 20% at the midpoint over the comparable 2022 base business revenues of $283 million. Included in this base business total for 2023 is around a couple points of estimated revenue growth contribution into our Nucleic Acid Production segment from the Alphazyme acquisition. Breaking the revenue contribution down to a level, we see the Nucleic Acid Production segment based business growing in the low 20% range, while we see the Biologics Safety Testing business growing in the low teens. We see adjusted fully diluted EPS in the range of $0.32 to $0.38 and adjusted EBITDA of between $170 million and $190 million. The range is based on the following additional expectations as listed on Slide 25: Interest expense, as I discussed; net of interest income between $20 million and $22 million; depreciation and amortization between $36 million and $40 million equity-based compensation, which we show as a reconciling item between GAAP and non-GAAP EBITDA to be between $34 million and $38 million. This is all based on an as of fully converted share count of 252 million shares for 2023 and an adjusted effective tax rate of 24%. Turning to Slide 26. We also continue to complete our facility expansion [technical difficulty] the move of our Biologics Safety Testing business to its new purpose-built facility in Leland, North Carolina, which is already housing key personnel in which the full transition will be completed during the first part of 2023. Additionally, the Flanders facility continues in full swing with Flanders 1 construction wrapping up and anticipated occupancy near the end [technical difficulty] Flanders 2 is on track for completion and occupancy in the second quarter. As we have previously discussed, Flanders brings key building redundancy, increased capacity and unique quality capabilities to Maravai. Lastly, our Pacific Center facility is on target for completion in the first half of 2023 and will house our corporate functions as [technical difficulty] Overall, the completion of these facilities in 2023 provides us with key foundational facilities to support long-term growth and can support revenue volumes of $2 billion plus at full utilization. To support the completion of these strategic capital investments, we anticipate capital expenditures in 2023 and we had a net range of $55 million to $65 million, with roughly $40 million of that tied to the Pacific facility build-outs that I mentioned. As for the cadence of estimated financial performance for 2023, we see revenues starting lightly in Q1 in a total range of around $75 million to $80 million and increasing thereafter. We look forward to a successful 2023, and setting the stage for a return to overall growth with an increasingly valuable Maravai heading into 2024. I'll now turn the call back over to Carl.

Well, thanks, Kevin, and we apologize for those of you on the line, it sounds like there were technical problems on Kevin's line, where some of the things cut out, and I assure you it wasn't a strategy to have our CFO’s line blank out just as he was saying important numbers. So if you missed any of that feel free to ask, and we'll be happy to recap any of it for you. So to wrap up on Slide 28, we had an incredible '22 and are poised for future growth in our base non-COVID business in 2023 and beyond. We believe we are playing in the right target markets with strong leadership positions while building our product portfolio and expanding our services offerings in strategically important and high-value areas. From new and improved COVID-19 vaccines to vaccines for influenza and shingles to cell and gene therapies, battling cancer, the transformative impact that messenger RNA is having on global human health will only accelerate. We at Maravai are proud of the key role that our customers, partners and employees are playing and making that happen. We're committed to building a strong foundation for long-term sustainable growth, and we'll continue to focus on operational excellence, innovation and people as our three strategic pillars as we work to catalyze the customers' journey with us. I would now like to turn the call back over to Diego to open along for your questions. Diego?

[Operator Instructions] Our first question comes from Dan Leonard with Credit Suisse.

My first question is on the guidance phasing for 2023. Kevin, I heard your comments on COVID revenue. Is there anything else we should keep in mind as we're thinking about first half versus second half phasing or otherwise?

Yes, Dan. In addition to the COVID phasing that I mentioned, obviously, with the $60 million or so that's firm and in hand being relatively evenly spread and then the remainder likely in the second half or back half. I think the base business will start at the low end and ramp from there as well. So I think you'll see a combination of those two items leading to the lower revenues here in the first quarter and then ramping up kind of progressively on the base business as we see things continue to evolve over the course of 2023.

Understood. That's a helpful flag. And then my follow-up. Carl, thank you for all the high-level commentary on the cell and gene therapy pipeline. I'm curious if you're seeing any change in velocity of customer activity, though, whether driven by the biotech capital drought or anything else? I mean Lonza, for example, is a company who has flagged softening trends.

Sure, Dan. I think that we had -- we commented previously and would say that it's still the case that there is some reprioritization of pipelines, especially among smaller companies. for cash conservation may be important. So if somebody was working three to five programs before they may be emphasizing two to three or two to four of them now. So there is some stuff going on at the margin there for sure. But in terms of the major players in the industry and the big customers, we really haven't seen that phenomenon. .

Our next question comes from Matt Sykes with Goldman Sachs.

Maybe first, Kevin, just for you on just the margins. I understand the sort of the one-offs that occurred in the fourth quarter that related to that. But as we kind of look towards '23, it looks like the kind of the math that I did on the implied EBITDA margin for '23 is around 41%, which sort of the low end of the range you talked about in Q3. But as we go from sort of the high 60s like 40, 41 over the course of '23, can you help us with the cadence of that margin? Obviously, it will be coming down, but just kind of maybe help us bridge sort of from a quarter-to-quarter basis, what margins could look like?

Yes. Look, I'm not going to go into every exact quarter here. But yes, certainly, with the revenue starting out where it is the revenues are a big driver of our margin, as you know. I mean, obviously, as the business scales, we have tremendous leverage and that reverses itself as we're sitting here today. So I think those margins for the first quarter will start south of that midpoint and then progress over the course of the year to the highest margins probably in the back half of the year, assuming the COVID revenue comes in as we've explained it, and I think that's just a natural progression. Again, we're adding the infrastructure we've talked about here and here and now. And for us, that certainly pressures margins, doesn't concern us because we think it's the right thing to do, but it will be most apparent here in the first quarter. And then I think we see that, again, much like revenues kind of leveling out as we go up throughout the course of the year.

Got it. And then just as you think about the RUO to GMP conversion, I know there was something last year about the China contract. You kind of mentioned something in the fourth quarter, I believe. But how do you feel you're positioned with Flanders coming online in the first half of this year to deal with that RUO to GMP conversion? Do you think you're in a better position for '23 to deal with that change as you were, say, in '21, '22?

Absolutely. There's no question about that, and that's the reason for making those investments. It's just going to depend individually on the customers as to which direction they go. And I think as we've commented before, the larger pharma companies becoming involved with more and more of the programs, probably accelerate that.

Got it. If I could squeeze 1 more in. Just on the pie chart you had on modalities for CleanCap, understanding some of the comments you made previously about the difference in terms of quantity of materials for RNA therapies versus vaccines. Is there sort of a mix shift of modalities that you're aiming for in order to shoot for that either higher quantity of materials or faster-growing modality? Or is it just sort of attaching yourself to as many programs as you can as you move through '23 and then kind of build from there? I just wanted to get sort of a high-level strategy as you think about modalities.

Yes, I wish we were able to target it that specifically. But no, I think we welcome all comers, we will enable whatever program or whatever ultimate scale it may be. And remember, in the early stages, all the customers need the same kind of services at roughly the same scales. So they all start reasonably similar and then they diverge as they become more successful and their indications are proven.

Our next question comes from Dan Arias with Stifel.

I wanted to just ask a little bit about maybe new business wins. Carl, the 70 new programs that you guys identified in that follow-up study what's the rough mix of new customers where contributions are sort of all incremental versus existing ones? And then on the Flanders side, can we think about that driving new account wins this year as you sort of open up your capabilities beyond Phase 1 and serve this GMP market, or is that -- sort of to Matt's point, is that just more of being ready for a transition that takes place inside the existing accounts?

Yes. Let me answer the first part of the question, then I'll ask Becky Buzzeo to comment on your second question about what Flanders enables her team to do. I think that as we look at the -- well, first, let me go ahead and turn it over to Becky and ask her to comment first, and then I'll fill in after that. Becky?

Sure, Carl. So to answer your first question, we had just shy of about 2,000 new customers last year. So we calculated out to be almost 1,900 new customers last year. So we do see the contribution of new customers being quite rapid. We are making investments in our commercial team to also address penetration in the markets. So specifically in Europe and Asia, where we think there is more share for us to gain. As it relates to Flanders enabling our business, we see this as a really great opportunity. One, Flanders 1 is going to give us redundancy in manufacturing. That's been a big concern with our customers because we are single source for CleanCap. So that gives us a very nice ability to showcase how we have that redundancy and then maintain control of that critical raw material. Flanders 2 is going to bring on later stage manufacturing for GMP, and that will be up and running, and we believe we have a great value proposition to really transition customers from RUO material into Phase I and then continue that journey as they continue their clinical endpoints.

And the reason I was bundling around from my answer, I was looking for the numbers in detail on those incremental 70, and I don't have that in front of me. So I can't answer the first part of your question in detail.

Yes, no problem. One to recall on your fingertips. Maybe if I could just ask a follow-up, Kevin, on the BST outlook, low teens for the year. You guys have historically been pretty positive on your ability to grow above market there which was kind of in that low double-digit range, I think, for viral contamination and for host cell detection. So do you think the market growth has just come in a little bit for reasons like China? Or is this more of a reversion back to market growth rate that presumably accelerates down the road?

There's a couple of factors there, and I'll touch on the guidance and perhaps Trey can provide some color as well. From our perspective, we do see that kind of -- when you add those two market growth segments together, you're in that 12% to 14% range. Look, we think that's still a good range to target, and that's what we can complement and exceed that through services and through uptake of our MockV asset, which really doesn't have a market. So we're kind of creating that there. But as we guide to 2023, we're still seeing some softness in China. I don't know how that's going to impact the overall industry regard those legacy kind of growth rates that we think are the correct ones, but it's certainly starting our year off a little slow, so we're trying to be on the conservative end of that range. And I think that we, again, that low teens range then up to market range. And then I talked about the factors that historically allowed us to outperform, and those are kind of the sensitivities around that business. Trey, any color from your end?

That's good stuff, Kevin. The -- as Carl highlighted, the 15 out of 15 figure, we're particularly proud of in participating in CAR-T and gene therapy. So we also have diverse geographic business. So China is material to that, as you've already touched on. And Carl also recently referred to the prioritization of some programs. So there's a general activity call there, but we're not concerned about our competitive position, and we do have the exciting growth vectors of the new segment of MockV and growth in services that we expect to continue

Our next question comes from Catherine Schulte with Baird.

I guess first, we had a large mRNA player readout some mixed flu vaccine data last week and while not a customer of yours, I guess, what's your take on that data? And do you think it has a broader read-through to the potential of mRNA in flu?

Catherine, I haven't studied it in detail. So probably I am not the best guy to ask the question, but I would say that each one of these trials in flu can be done at a different time in a different place with a different design of the target sequences that you're going after. So I think one heads-up comparison is probably not enough to draw a conclusion about the class. And when you see a little bit more data from Pfizer and BioNTech and others who are working on these kind of programs like CureVac, I think you'll be able to draw a better conclusion.

Okay. Got it. And then base nucleic acid production increased over 35% sequentially and more than doubled year-over-year. Any onetime orders in the fourth quarter that we should be aware of? And how should we think about the cadence of that business in '23?

Kevin, do you want to handle that?

Yes, sure, Catherine. Yes. Again, we had -- I mean, it was a really strong quarter, obviously or just saying looking at the numbers. We did have some stand-up stand-alone CleanCap orders for some non-COVID vaccine programs in there. I think we've seen that spike in every when then and that was a bit of a driver there as well, and that will lead to a little bit of softer numbers coming out of the gate for 2023, just based on a timing perspective. So I think you'll see that as we progress throughout the course of '23, starting low on the base business in NAP and then kind of trending sequentially each quarter based on how we see it today is, we'll see those type of standalone CleanCap orders for non-COVID indications, pretty light here in the first part of the year as people use that for their current phases and then pick up again in the second half.

And the next question comes from Tejas Savant with Morgan Stanley.

Carl, maybe one for you on just your sort of long-term COVID CleanCap sort of forecast of roughly about $100 million. You've talked in the past of 600 million to 700 million doses or so embedded in there. Any updates on that in terms of your recent conversations with your marquee customer here? And as you sort of thought about this philosophically in terms of framing the guide, why not move towards only including firm commitments. It sounded like 2% of that 100, at least in '23 was firm commitments. So just any color around that, given the variables at play, right, including inventory levels and the transition to a commercial market in the U.S. and then you've got the combo vaccs potentially in '25, that would be super helpful.

Sure, happy to do that. Look, your crystal ball is probably as good as mine. So I'm not going to claim any premise here in knowing exactly what's going to happen. But we tend to consult the best available data sources that are out there that have a track record of having been correct in the past. And I would say we point generally towards Airfinity, as the best commercial data source that's available and pretty thoughtful in the way that they do it. And knowing what we know from their estimates of the number of vaccines and sort of the utilization I'll call it the wastage rate that goes into the manufacturing of vaccines and then their later distribution. We still feel pretty comfortable that in that 600 million range, and I think there was 590 million that it ties very nicely with that 100 million estimate. As to why we don't just show you the 60 million because honestly, we believe there's upside there. We don't know today exactly where that upside will come from, but that's based on our -- both our past experience and our instincts here. So if I only gave you the forecast, if I only guided you to all the orders I have in hand, you probably wouldn't be terribly satisfied with that. So this is a reasonable compromise. But if you look at the delta between the two years going from sort of 600 million this past year, down to 100 million. That puts us at 15%, 16% of utilization. We think that's a fair reflection of the realistic downturn in banking volume.

Got it. That's super helpful. And then one follow-up on the org update that you highlighted here, guys. I mean -- it sounds like you're really focused on this one-stop shop value proposition versus the stand-alone sort of operating company structure underpinned by the Maravai services that you outlined on that slide. So can you help us dimension how many of your customers today buy more than one solution from you, any analysis you've done on opportunities to increase account penetration and cross-selling? And then just examples of significant bundling potential in the portfolio?

Yes. Look, let me start, and then again, I'll tumble it over to Becky to finish up. But I think that as we look at it right now, with our existing products and services customers, there is a significant overlap between those two. Now let's put academic and smaller customers aside and just focus on the biotherapeutic market. So a lot of those customers will buy components from -- or will initially come to us to get their mRNA construct and potential targets made in a rapid fashion and then may buy products and services from us later as they develop these programs or as they make choices to in-source things and then buy components like CleanCap for their own usage. So that does occur a lot. There will definitely be a significant overlap with the enzyme customer base with Alphazyme. We haven't bottomed that out. So I don't have any numbers for you right now. And Becky, would you like to talk a little bit about your thoughts on cross-sells?

Yes. It's a very good question and one that we're highly focused on. Obviously, our objective is to continue to focus on high-quality, high-purity mRNA and all the components that go into making that. And so we -- some of the things that we have done this year is separate out our sales team. So we have a very focused team on products and a very focused team on services, but then have some overlay in how they go to market and communicate and partner with customers. So we are very focused on kind of selling more to our existing clients as well as taking share in how the market is growing organically.

So Diego, I think we're at the top of the hour now. So with that, perhaps we can turn it back over to Deb.

Thank you, sir. And correct, we have now reached the end of our question-and-answer session. And now I'll turn the call over to Debra Hart for closing remarks.

Well, thank you, and thank you, everyone, for joining us today. Apologies if anyone's in the queue that we didn't have time to get to. We will be answering questions throughout this afternoon and evening. So I hope to catch up with you there. We're also attending several financial conferences in March and hope to meet with some of you at those events. Thanks so much for your time.

Thank you. This concludes today's conference. All parties may disconnect. Have a great evening.