Thank you for standing by and welcome to the Maravai LifeSciences Second Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I'd now like to turn the call over to Deborah Hart, Head of Investor Relations. You may begin.

Good afternoon, everyone. Thanks for joining us on our second quarter 2024 earnings call. Our press release and the slides accompanying today's call are posted on our website and available at investors.maravai.com. As you can see on our agenda for today on Slide 2, Trey will first provide you with a business update; and Kevin will review our financial results and guidance. Drew Burch, President of Nucleic Acid Production; and Becky Buzzeo, our Chief Commercial Officer, will join the call for the question-and-answer session following the prepared remarks. During today’s call, management will make forward-looking statements. 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. Also, during this call, we will be referring to certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release and also posted to the investor section of our website. Please also refer to Maravai SEC filings for additional information on the risks and uncertainties that may impact our operating results, performance and financial condition. Now, I'll turn the call over to Trey.

Thank you, Deb, and good afternoon, everyone. We appreciate you joining us for our call today. Let me briefly recap the quarter, share an update on our new Flanders facilities, highlight some innovative new products we introduced, and provide a few additional business updates before turning the call over to Kevin. Let's start with our second quarter results on Slide 5. Today, we reported $73 million in revenue for Q2, $17 million in total adjusted EBITDA, and $0 in adjusted fully diluted EPS for the quarter. Our nucleic acid production segment had revenue of $58 million in Q2, the Biologic Safety Testing revenue was $15 million in the second quarter. Kevin will go into more detail on the financial results later in the call. Slide 6 shows our cash on hand at the end of the quarter was 573 million, up about $11 million from Q1. Debt is $530 million gross. Thus, we maintain a $43 million net cash position. We remain in a great position to fund our long-term growth strategy through organic investments, while simultaneously pursuing external partnerships and/or M&A. Regarding organic investments, let me provide an update on our two Flanders facilities. I'm excited to share that our Flanders facilities are truly coming alive. Flanders 1 started initial engineering runs in April, and our team has continued to hit all key milestones to ensure we complete our commitments to BARDA and the U.S. government. On Slide 7, you'll see a photo of one of the four clean rooms at Flanders 1. This was taken during the recently completed engineering run to produce GMP CleanCap M6. Other milestones we've achieved for our Flanders 1 facility include our Environmental Monitoring Process Qualification or EMPQ and our ISO 9001 Certification. Flanders 1 adds significant scale and mitigates operational risk as…

Appreciate it, Trey. Certainly, it was a very busy quarter from Maravai. As we continue to broaden and deepen our overall capabilities and offerings, I want to recognize the efforts of our entire team for not only delivering over $73 million in revenues in the quarter, but also the numerous operational and R&D accomplishments in the quarter, which demonstrate the commitment and strength of our employees. Now let's dig into the Q2 financial results starting on Slide 18. Revenue for the quarter was $73 million. Our GAAP net loss before non-con controlling interests was $14 million for the second quarter of 2024. This compares to a net loss of $12 million for the second quarter of 2023. Adjusted EBITDA, a non-GAAP measure was $17 million for Q2 2024 compared to $9 million for Q2 2023. Our adjusted EBITDA margin was 23% in Q2, 2024, up from the 13% in Q2, 2023, and up from the first quarter of 2024 is adjusted EBITDA margin of 12%. Overall, while the EBITDA margin in our second quarter was solid, it trailed our expectations. As we have seen over the past six quarters. Both our revenues, which have ranged from $64 million to $79 million, and our adjusted EBITDA margins, which have ranged from 12% to 30%, have shown a fair amount of variability. For the trailing 12 months, our adjusted EBITDA margin stands 21% on revenues of $279 million. So, recommending of your questions will be focused on margins. Let me spend some time discussing this topic on Slide 19. As we look back when we last achieved revenues near this level, we only have to look back to Q4 2023 in which revenues were 74.1 million and our adjusted EBITDA was 28% -- 27.7% to be exact, which was 470 basis points…

Thanks, Kevin. So, to wrap up on Slide 25, we had a solid first half of the year and are tracking against the revenue guidance range we originally communicated to you in March. We are executing on our return to growth strategy and year-to-date have introduced significant new innovations to the market that further extend our leadership across the entire mRNA production workflow as well as increasing our manufacturing capacity at our TriLink, Flanders 1 and Flanders 2 facilities in these high value areas. Our Cygnus team continues to innovate with new product introductions and market expanding technologies. We have incredible and passionate teams across Maravai and the opportunity to do amazing things for human health. Our balance sheet remains strong and we are well positioned to execute on opportunities for both organic and inorganic investments to bolster our market position and provide our customers with innovative solutions. We remain confident in the fundamental strength of our end markets and the value we provide our customers for the life-changing development of drug therapies, diagnostics, and novel vaccines. We remain committed to building a strong foundation for long-term, diversified and sustainable growth for our businesses. I would now like to turn the call back over to the operator to open up the line for your questions. Thank you.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Catherine Schulte from Baird. Your line is open.

First, great to see NAP get back to double digit growth here in the quarter. Are there any one-timers or lumpy orders that you saw in the second quarter? And then, why should we expect to see a sequential decline in revenue in the third quarter? Is that primarily on the NAP side or BST?

Yes, I'm happy to take that, Catherine. Yes, I would say that as it relates to the sequential slight decline in NAP, it would be in that segment in the NAP segment. And we do see some of the orders that we had scheduled at the beginning of the year, gating that way. So, the second quarter contains some of those kind of high volume CleanCap orders, and that is going to step down a little bit sequentially the third quarter, and result in that being a little bit. We're hopeful that BST can recover certainly from that low water point that we saw there in the second quarter from [Technical Difficulty].

We've discussed that dynamic a little bit. One of the interesting things about having GMP services and GMP products is that while GMP services unfortunately will tend to move out, if there's movement. Sometimes GMP products can come in and go out within the quarter or in some cases within the month. So, we did, as you identified, Catherine, have a little bit of that here in Q2, the GMP products that slid in that were helpful.

And then maybe for BST, can you just remind us how much of your business is in China and how is that business performing outside of China?

You can explain over 80% of the BST results with a China drop specifically, that's really the only place where we have any China exposure. As you know, the growth in BST China came during the ’21, ‘22 COVID period. And then of course, we took that leg down in the second half of ‘22. Since then, honestly, we've had five very steady quarters. So, the drop that happened here in Q2 in BST China specifically was a surprise to us and our distribution partners actually. I don't think that we've specifically carved out exposure, but it is now, let's say in the teens for BST.

Your next question comes from a line of Matthew Sykes from Goldman Sachs. Your line is open.

This is [Evy] on from Matthew. Thanks for taking my questions. The first one, can you talk through what you're seeing from pharma customers within their discovery R&D spend versus some later stage projects? Have you seen a reprioritization of spend as companies looked at cut costs, but maintain investment in their later stage projects?

I think I'll hand that one to Drew.

Thanks Trey. I think that's a fair statement. We have seen and we follow the companies publicly. There's been some reprioritization across the sector. It's a little tough to tie to one company or another company, but there's a fair amount of portfolio moves. Overall, we've seen positive dynamics in terms of mRNA program starts. And so, we think the fundamental backdrop is positive, but each given company may be reprioritizing and move forward.

And then, this is more of a broad question on your strategy. So, understand the focus is on winning and discovery and then shifting customers to GMP as they move along their pipelines. But will you try to poach programs as they move from clinical to or from the discovery to clinical from like players doing it internally?

Yes, I think that's probably the biggest market opportunity because it's still early days in mRNA. I think everyone knows that. We're all excited because of how quickly we saw it go from a concept or the last mile to the billions of doses of vaccines. But really the ecosystem and the programs that are at play, many of them started in-house and many people still perform the mRNA production process in house. One of the things we've seen to your point is, you hear us talk about what we call our CleanScript workflow, which is the workflow that we've done hundreds and hundreds of times here. And very often we have people who make the choice having run programs internally. Do we go through the trouble of tech transferring our program or do we just bolt in to the well-traveled CleanScript process, which has already gone for so many programs at different phases? So, we actually see that conversion as probably one of the biggest opportunities we have as programs modernize and as we have the opportunity for uptake to bring efficiency to those programs.

Your next question comes from a line of Tejas Savant from Morgan Stanley. Your line is open.

A couple of quick ones, for you, Trey to kick things off. Sort of following up on that earlier question on just SMID cap biotech, right. I mean, we had a large preclinical CRO this morning, take down numbers pretty dramatically in the back half citing, weakness on the global biopharma side as well as on the biotech side. And so, what are you assuming in your back half guide in terms of the early-stage sort of biotech contributions? And then, can you comment a little bit on the pricing environment that you're seeing broadly across the space? It's just tougher negotiations. Are you needing to do more discounting here? Just any color on that would be helpful.

Sure, thank you. We did have, as we discussed a large, a few large orders come in for G&P products that were for big top pharma. And so, within the quarter that lowered our typical SMID as you like to say have from the high teens to the low teens. And I think, we expect that to moderate out a little bit. It was a rather extreme move in this quarter, but we are not expecting it to grow substantially in the rest of this year's guidance, if that's what you're [Technical Difficulty].

And then, Trey, on the pricing.

Pricing, as a function of each individual program. So, it's not quite as simple as where a catalog type company would throw 2% to 3% price in every year. But we see the opportunities to take, we take price opportunities when we can, I'll put it that way, but they are also not -- there's not a target number specifically that we're needing to achieve that would be in jeopardy for the rest of the model this year.

Kevin, I want to dig in a little bit on EBITDA margin cadence in the back half. A couple of moving pieces here. You've got the step down and high-volume pin cap that you called out, and then potentially a little bit of a step up in BST as well. Do those two dynamics essentially sort of offset each other as we think about the 3Q versus 4Q? And then is that 4Q number a good jumping off point-off of which we can see sort of steady sequential increases next year?

Yes, thanks. That the latter part of your question, and certainly that's going to be ultimately revenue dependent more than anything else. So, we'll see that margin tie very directly to where our revenue hits versus the cost structure. That'll be pretty stable going into next year given all of the work we've done to complete our facilities footprint, as it relates to the quarterly sequential migration of our EBITDA margin from here. I would say, as I mentioned the prepared remarks really, it's sort of a normalization of NAP, kind of seeing NAP relatively, the same as always in the first half of the year. BST hopefully improving, and picking up some more and then a lot of the costs that were drag on the margin the first time starts to tail off. So, the [Technical Difficulty] the other items that I mentioned, as well as some of the things related slightly higher margin in the second half.

Your next question comes from a line of Matt Hewitt from Craig-Hallum. Your line is open.

And just a heads up, you guys are cutting out pretty bad. I don't know if it's just on our end, but there's quite a bit of pauses in between words. I guess first up, you noted during your prepared remarks that NTPs manufactured obviously here in the U.S., how important is that to your customers? Are you seeing some of this repatriation kind of really starting to bear-fruit and what are you hearing from customers regarding that?

First of all, I think the sound was a couple of F35 flying over us here in San Diego. So hopefully, you can hear us clearly now, and thank you for the question. I'm smiling because I would not necessarily have thought it would become such an advantage to have RUO and GMP chemistry manufacturing in San Diego, California, and similarly enzyme manufacturing in Jupiter, Florida. But we're seeing a tremendous amount of interest come from those facts. It just happens to be the result of where our businesses started and grew up. But it looks like it could become a significant strategic advantage and we have people not only asking one level deep in the supply chain, but being interested, I think for the first time that I've noted in how deep in the supply chain they can find out the origin story. So, I think it's going to actually become a pretty appreciable advantage for us moving forward here.

Your next question comes from a line of Justin Bowers from Deutsche Bank. Your line is open.

Can you give us a sense of well number one with Flanders 2, do you have that capacity built out now where you want it or are you still building out additional clean room capacity? And then, can you give us a sense of what the timeline is like for that from when you just initially start adding equipment versus engineering runs versus when you're actually in revenue generation phase?

I think as Kevin mentioned, we are really at the tail end here of the capital cycle. And as we mentioned in the comments about the EBITDA bridge, really have had some one-time startup costs, professional fees and other things to get the facility truly rolling. We are at the same time, however, so the whole rooftop has to open obviously but we are, let's say, scaling in from a labor perspective and a total overhead perspective as we fill that factory. But there's no more substantial CapEx to do to turn on the multiple suites at this. I think we've shared this previously, but we have three parallel manufacturing suites and they're our job right now to fill them up.

And then quick follow-up, any change in the committed orders that you have for some of the larger commercial programs?

For the bulk orders. No changes.

Your next question comes from the line of Conor McNamara from RBC Capital Markets. Your line is open.

Just as a follow up on the Flanders 2, have you incorporated any Phase 2 or Phase 3 program starts into your guidance this year? We'll start there.

One of our first commitments was a Phase 2/3 pivotal, so yes.

And then just, could you tell us, I know you guys have showed this in the past, but something, a trial that goes, when a trial advances from preclinical to the clinic, you see a pretty big step up. Is there any way you can kind of quantify how big of an opportunity each of these programs are or how we should think about, as you add in new programs, what's the potential benefit for new programs?

I understand where you're going with that, Conor, and it would be good if we could, but what we're seeing that we're actually excited about is, the broadening significantly of the use of mRNA from infectious disease vaccine to part of, well, tools for cell and gene therapy for protein replacement programs, as the message to be expressed for CRISPR gene editing and so on and so forth. And all of those have different delivery sizes and use cases. So, the historically the results we've shared have been what happens to a bulk G&P CleanCap. An RUO CleanCap customer that's preclinical, that goes bulk G&P CleanCap in Phase 1 and 2 and so on. When you blend in the service and now again, we're happy to see these different uses for mRNA and these different therapeutic targets. It unfortunately makes it more difficult to predict what the step up will be. We just know that it's a good progress at each stage.

Let me just sneak one in for Kevin, if that's okay. Kevin, can you quantify that the OpEx change from Q2 to the second half of the year? It sounds like there's a couple million of costs in there that won't repeat. So, should we assume that that OpEx on an absolute basis goes down from current levels?

Yes, I think on an adjusted EBITDA impacting basis, that's correct.

Your next question comes from a line of Michael Ryskin from Bank of America. Your line is open.

Earlier the audio was a little bit in and out, so if you've answered this, I apologize that I must have missed it, but just on the margin guide revision for the year, that bridge you provided was a little --was helpful. And you called out the product mix in BST, which makes a lot of sense. The Flanders startup costs and all the initiatives. What I want to dig into is just sort of how transient are some of those factors, the product mix that should be relatively transient. The Flanders cost, again, if you could provide a little more color on if that's just startup cost or actual operating cost that's coming out a little higher. And then same thing on the initiatives, the Johns Hopkins and some of those other collaborations. I imagine that's relatively one-time in nature in terms of starting up that facility, starting up the collaboration. Or is that something that's going to have a run rate in the model going forward? Just seems a change we dive into it.

Happy to. Certainly, on the Flanders cost, we've incurred a year to date close to, gosh, almost $3 million now of I would say, really incremental costs to bring up our quality systems, have the documentation, have the validation stock the facility with things that are not inventory able items that are therefore used over the manufacturing periods going forward. So, we've gone ahead and just included those in our expense burdens and know some companies choose to exclude those as pre-revenue startup costs, but we've just flushed those through our P&L. So, most of that will be period and isolated to the first half of the year, and then we'll be starting to generate revenue and not see those as an incremental drag on margins prospectively. As it relates to a couple of the other things that we mentioned specifically, certainly our startup expenses with the collaboration with Johns Hopkins, as well as some of our smaller license deals that we haven't talked about publicly in our enzyme division, all were basically drags on the first half and we'll kind of come in and out of some of the quarters as we look at it prospectively. But overall, when you think about all those different costs, they will predominantly be behind us as we go forward for the rest of the year.

And then, as far as some of the new product productions your highlighting, my belief is they're relatively small contributor to revenues now and will only gradually ramp over time. So, correct me if that's wrong. But then, I also want to ask about the incremental EBITDA contribution from those. We know your historical CleanCap and BST margins. How should we think about these new products relative to that? Are they incremental to margins essentially, or should we just think about them as more in line with existing?

I think, predominantly, our incremental products, again, this is for us, continues to be more of a revenue game than a lot of varying margins within NAP. We do see a little bit based on the customer channel and some of the different business units that we have, but overall, I mean, especially as it relates to the discovery products. I mean, this for us is an infrastructure that we have in place. The incremental variable costs aren't much different. We're trying to put together really solutions that are best for our customers that drive revenues and those overall revenues drive margin expansion for us. So, for us, again, it's strategic and overall, financially beneficial. Just to drive the total revenue numbers, all these products have high variable margins and again, mostly generated by our already established facilities and workforce.

Your next question comes from a line of Matt Larew from William Blair. Your line is open.

I maybe just stick on the new product side, Trey, you highlighted what now is quite a number of new products filling out for the mRNA production suite. You reference, part of that obviously is the workflow and I ability to access more wallet. Perhaps relative to CleanCap, could you characterize the size of some of the markets that you're able to access with the new products, and if there are any of these new products in particular where you view your approach, your technology, the service offering, the product offering would be particularly differentiated and one that you might see drive more growth?

Yes, absolutely. Within the framework of the mRNA IVT workflow there are certainly bulk commodity chemicals. There are obviously enzymes and there are differentiated chemicals, or excuse me, differentiated technologies, which are workflow technologies that manifest themselves in our service business or products materials and methods that manifest themselves like CleanCap. We are definitely looking for both internally organic innovation around differentiated solutions to bring the next generation of workflows to market. But a big part of this lift, I think that you've identified is just to make sure we cover all the fundamental elements of the IVT workflow. Thanks to the acquisition of Alphazyme, we now have access to very high quality, high purity enzymes for our customers to blend with the already stellar position that TriLink and MyChem had within the nucleic acid chemistry space. So, what you're hearing and commenting on here is, the aggregation of all of the inputs to the IVT workflow and what our innovation is focused on is finding more differentiated ways to bring about the next generation of mRNA through solutions like CleanCap. I can't flash those that of course we haven't released yet, but I'm pretty excited that there are so many different places within the workflow and within the inputs to improve performance overall. Overall, I think we're going to bring mRNA purity up, yield up and cost down for our customers, and we can bring that -- we can make that possible, as you've said, from a wallet share perspective with a one stop shop. But our intent is to continue driving the industry forward with innovation within that framework.

Okay. Thank you. And then just on Flanders 2, and you mentioned, winning RFPs for build starting in the second half. Could you maybe speak to how the funnel behind some of those initial wins is building, what you're seeing from a phase or customer mix perspective? How many of those potential RFPs relate to customers who are existing CleanCap customers, and then maybe just sort of what the size or activity level is kind of on a quarter-to-quarter basis?

Thank you for that question. It's well timed because I think Becky was getting a little lonely. Becky, do you want to talk about customer progression bookings, GMP phasing, all that?

Sure. We have had a strong interest in our GMP services to manufacture CleanCap mRNA drug substance, and that has -- it's continued to be quite strong for us this year in building our funnel. We've made additions to our commercial team, both on the technical side and then on the seller side. And we have seen a really nice doubling of our funnel from Q1 to Q2. And it's across different indications. So, cell and gene therapy, protein replacement, those are the places that we've seen the most activity.

Rob, I think we have time for one last question here.

Thank you. Your final question comes from a line of Kyle Crews from UBS. Your line is open.

Could you please describe if your recently announced supply agreements with large CMOs or agreements you have with third-party distributors are influencing how you think about adjusted EBITDA margins going forward? And on a similar note, with Flanders 2 opening up, how do you view some of the CDMOs you're supplying CleanCap as competitors and partners for work going forward?

I'll take the latter part first and then hand the first part to Kevin. Look, we want to make sure that our technology is in every molecule. So, we realize that's unlikely if we try to hold to type to the idea that you have to do everything with us and we have not specked Flanders 2 to satisfy the need of every customer, obviously in every continent. That's why we have these key partnerships with the leading CDMOs like Fuji, like Lonza that we've announced. It's a key part of our program. And of course, we would love the service business, but we want to make sure that we have differentiated products. We help bring about the next generation of mRNA and that we help with that, whether it's just with product or whether it's product and service. And Kevin, I'll hand the front side to you.

I mean, these relationships are really strategic and about a symbiotic relationship here to help these large CDMOs help their customers with getting access to the best technologies to give them the best end product. And certainly, throwing CleanCap into that portfolio is incredibly important. As far as economic considerations it's really still boils down to volume, this is really -- there's not standalone distributor type pricing or anything of that nature embedded here. This is really about the underlying program or the volume of that program is, and we stay pretty disciplined to volume-based pricing. So, economically, as we drive volumes through these incremental channels, I would not see the underlying margins differ much from historical margins.

And that concludes our question-and-answer session. I will now turn the call over to Deborah Hart for closing remarks.

We just want to thank you for joining us today. We'll be attending several financial conferences in the coming weeks, so we can try to connect with you at one of those events. Feel free to reach out with any further questions, and we hope you have a great evening.

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