MARAVAI LIFESCIENCES HOLDINGS, INC. 10-K

Item 7. 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 audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis reflects our historical consolidated results of operations and financial position, and contain 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.” Please also see the section titled “Forward Looking Statements.” We were incorporated in August 2020 and, pursuant to the organizational transactions described in Note 8 to our 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 transactions were considered transactions between entities under common control, the consolidated financial statements for periods prior to the organizational 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 Annual Report on Form 10-K to “we,” “us” or “our” refer to Maravai LifeSciences Holdings, Inc. and its subsidiaries. This discussion and analysis generally addresses 2021 and 2020 items and year-over-year comparisons between 2021 and 2020. Discussions of 2019 items and year-over-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7 of our 2020 Annual Report on Form 10-K filed with the SEC on March 22, 2021. 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 December 31, 2021, we employed a team of over 470 full-time employees, approximately 19% 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 effected 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 39.7%, 52.9% and 58.7% for the years ended December 31, 2021, 2020 and 2019, respectively. We generated revenue of $799.2 million, $284.1 million and $143.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. Total revenue by segment was $711.9 million in Nucleic Acid Production, $68.4 million in Biologics Safety Testing and $19.0 million in Protein Detection for the year ended December 31, 2021, compared to $206.3 million, $54.9 million and $22.9 million, respectively, for the year ended December 31, 2020. Total revenue by segment was $72.6 million in Nucleic Acid Production, $44.4 million in Biologics Safety Testing and $26.1 million in Protein Detection for the year ended December 31, 2019. We divested our Protein Detection segment in September 2021, and since then operate two business segments only, Nucleic Acid Production and Biologics Safety Testing. Our research and development efforts are geared towards meeting our customers’ needs. We incurred research and development expenses of $15.2 million, $9.3 million and $3.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. 62 Table of Contents We intend to continue 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 $100.1 million, $94.2 million and $48.4 million for the years ended December 31, 2021, 2020 and 2019, respectively. Since our inception in 2016, we have incurred net losses in each year up to December 31, 2019. For the years ended December 31, 2021 and 2020, we reported net income of $469.3 million and $78.8 million, respectively. Our net loss was $5.2 million for the year ended December 31, 2019. Recent Developments Divestiture In August 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 us, for an all cash sale price of $124.0 million, subject to purchase price adjustments. The divestiture was completed in September 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 year ended December 31, 2021, we recognized a pre-tax gain on sale of $11.2 million, net of transactions costs of $0.9 million, in the consolidated statements of operations. Our Protein Detection segment was comprised of Vector. The sale of the Protein Detection segment represents a strategic shift as we 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 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 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 consolidated statements of operations and was not significant for the year ended December 31, 2021. In August 2020, we entered into an agreement with an executive of Vector whereby the executive received incentive units of MLSH 1. In connection with the divestiture, MLSH 1 amended the terms of these incentive units held by this executive 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 in the consolidated statements of operations for the year ended December 31, 2021. Acquisition In January 2022, we 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 consideration to acquire MyChem comprised of gross purchase price of $250.0 million, subject to purchase price adjustments, and potential earn out payments payable in cash of up to $60.0 million. Trends and Uncertainties COVID-19 Considerations and Business Update The global COVID-19 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. 63 Table of Contents 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 still have an adverse impact on our operating results, cash flows and financial condition in the future. The factors that could cause such adverse impact include: the emergence, duration and intensity of new virus variants; lack of demand for COVID-19 vaccines; competition faced by our customers from other COVID-19 vaccine manufacturers or developers of alternative treatments; the availability and administration of pediatric and booster vaccinations, vaccine supply constraints, vaccine hesitancy, and the effectiveness of vaccines against new strains; and the U.S. economy and global economy, including impacts resulting from supply chain constraints, labor market shortages, and inflationary pressures. 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. The full extent of the potential impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to predict. These factors may include the duration and intensity of new variants, the availability and administration of pediatric and booster vaccinations, vaccine supply constraints, vaccine hesitancy, and the effectiveness of vaccines against new strains. We will continue 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, in addition to the measures noted above, we have adopted significant protective measures for our employees on site, including conducting weekly COVID-19 testing, staggered shifts, and hygiene best practices recommended by the Centers for Disease Control and Prevention (the “CDC”) and local public health officials. Additionally, we implemented a new company policy concerning COVID-19 vaccinations effective during the fourth quarter of 2021, as well as a mandatory booster policy in our San Diego location effective January 2022. These include vaccine requirements for all employees, with certain limited exceptions. In addition, we have taken steps to monitor and strengthen our supply chain to maintain an uninterrupted supply of our critical products and services. 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 believe 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 partner with a small number of trusted suppliers. In addition to the continued trend toward outsourcing, several market developments are driving increased growth, in our addressable market segments, including: (i) pivot toward mRNA vaccines driven in part by COVID-19; (ii) rapid growth in development of cell and gene therapies; (iii) large and growing pipeline of protein-based therapeutics; (iv) rise in molecular diagnostics driven by COVID-19; and (v) COVID-19 providing both short-term and expected long-term growth. See more information under Part I, Item 1. Business. 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-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 credit agreement (the “Credit Agreement”) that governs our ability to access more than 64 Table of Contents $63.0 million in aggregate letters of credit obligations and outstanding borrowings under our revolving credit facility (the “Revolving Credit 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” 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. We generated total consolidated revenue of $799.2 million, $284.1 million and $143.1 million for the years ended December 31, 2021, 2020 and 2019, respectively, through the following segments: (i) Nucleic Acid Production, (ii) Biologics Safety Testing and (iii) Protein Detection. 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 sold to 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 our 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-based compensation 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-based compensation expense, cost of materials and allocated costs, including facilities and information technology costs. Costs of services were not material to the years ended December 31, 2021, 2020 and 2019. 65 Table of Contents We expect cost of revenue to increase in future periods as our revenue grows. Operating Expenses Research and development. Research and development costs primarily consist of salaries, benefits, equity-based compensation 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 expect that our research and development costs will continue to increase to support our research and development efforts, including meeting our customers’ needs. Selling, general and administrative. Our selling, general and administrative expenses primarily consist of salaries, benefits and equity-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 expanding facilities footprint to support anticipated growth 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 costs associated with operating as a public company. Gain on sale of business. In the third quarter of 2021, we completed the sale of Vector, which represented our Protein Detection business, to Voyager and recorded a gain of $11.2 million. Gain on sale and leaseback transaction. In the first quarter of 2020, we completed the sale of our Burlingame, California facility, which was immediately leased back to the Company, and recorded a gain of $19.0 million. Other Income (Expenses) Interest Expense Interest expense consist of interest costs and the related amortization of the debt discount and deferred issuance costs on our outstanding debt. Change in payable to related parties pursuant to a Tax Receivable Agreement The tax receivable agreement liability adjustment reflects changes in the tax receivable agreement liability recorded in our consolidated statements of financial condition as a result of change in the tax benefit obligation attributable to a change in the expected tax benefit. 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. Income Tax Expense (Benefit) 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 Non-controlling interests represent the portion of profit or loss, net assets and comprehensive loss of our consolidated subsidiaries that is not allocable to the Company based on our percentage of ownership of 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 consolidated statements of operations and consolidated statements of comprehensive income (loss). As of December 31, 2021, 66 Table of Contents we hold 51.5% of the outstanding LLC Units of Topco LLC and 48.5% of the outstanding LLC Units of Topco LLC are held by MLSH 1. Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2021 2020 Change (in thousands, except per share and per unit data) Revenue $ 799,240 $ 284,098 181.3 % Operating expenses: Cost of revenue (1) 140,561 79,649 76.5 % Research and development (1) 15,219 9,304 63.6 % Selling, general and administrative (1) 100,064 94,245 6.2 % Gain on sale of business (11,249) — * Gain on sale and leaseback transaction — (19,002) * Total operating expenses 244,595 164,196 49.0 % Income from operations 554,645 119,902 362.6 % Other income (expense), net (23,880) (38,206) (37.5) % Income before income taxes 530,765 81,696 549.7 % Income tax expense 61,515 2,880 * Net income $ 469,250 $ 78,816 495.4 % Net income (loss) attributable to non-controlling interests 287,213 (10,156) * Net income attributable to Maravai LifeSciences Holdings, Inc. $ 182,037 $ 88,972 104.6 % Net income per Class A common share/unit attributable to Maravai LifeSciences Holdings, Inc. (2) : Basic $ 1.59 $ 7.43 Diluted $ 1.56 $ 2.36 Weighted average number of Class A common shares/units outstanding (2) : Basic 114,791 10,351 Diluted 257,803 28,908 Non-GAAP measures: Adjusted EBITDA $ 582,820 $ 169,165 Adjusted Free Cash Flow $ 565,821 $ 141,767 ____________________ * Not meaningful (1) Includes equity-based compensation expense as follows (in thousands, except percentages): Year Ended December 31, 2021 2020 Change Cost of revenue $ 1,915 $ 282 579.1 % Research and development 280 131 113.7 % Selling, general and administrative 8,263 24,216 (65.9) % Total equity-based compensation expense $ 10,458 $ 24,629 (57.5) % (2) The period prior to our IPO has not been retrospectively adjusted to give effect to the Organizational Transactions described in Note 8 to our consolidated financial statements and the shares of Class A common stock sold in our IPO. Additionally, basic net income per Class 67 Table of Contents A common stock for the year ended December 31, 2020, has been calculated by dividing net income for the period, adjusted for preferred unit dividends attributable to MLSC Holdings, LLC (“MLSC”) non-controlling interests and net income (loss) attributable to non-controlling interests, by the weighted average Class A common stock outstanding during the period. See Note 9 to our consolidated financial statements for additional information. Revenue Consolidated revenue by segment was as follows for the periods presented (in thousands, except percentages): Year Ended December 31, Percentage of Revenue 2021 2020 Change 2021 2020 Nucleic Acid Production $ 711,864 $ 206,320 245.0 % 89.1 % 72.6 % Biologics Safety Testing 68,417 54,897 24.6 % 8.5 % 19.3 % Protein Detection 18,959 22,881 (17.1) % 2.4 % 8.1 % Total revenue $ 799,240 $ 284,098 181.3 % 100.0 % 100.0 % Total revenue was $799.2 million for the year ended December 31, 2021 compared to $284.1 million for the year ended December 31, 2020, representing an increase of $515.1 million, or 181.3%. Nucleic Acid Production revenue increased from $206.3 million for the year ended December 31, 2020 to $711.9 million for the year ended December 31, 2021, representing an increase of $505.5 million, or 245.0%. The increase in Nucleic Acid Production was the result of continued strong demand for our proprietary CleanCap analogs as mRNA based platform COVID-19 vaccine manufacturers scaled production and distribution as well as increased demand for mRNA products as this technology becomes incorporated into more therapeutic and vaccine programs. Biologics Safety Testing revenue increased from $54.9 million for the year ended December 31, 2020 to $68.4 million for the year ended December 31, 2021, representing an increase of $13.5 million, or 24.6%. 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. Protein Detection revenue decreased from $22.9 million for the year ended December 31, 2020 to $19.0 million for the year ended December 31, 2021, representing a decrease of $3.9 million, or 17.1%. The decrease was driven by the divestiture of Vector, our Protein Detection segment, 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. Corporate costs are managed on a standalone basis and 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. As of December 31, 2021, all of our long-lived assets were located within the United States. The following tables include financial information relating to the operating segments (in thousands): Year Ended December 31, 2021 Nucleic Acid Production Biologics Safety Testing Protein Detection Corporate Eliminations Total Revenue $ 712,520 $ 68,417 $ 18,959 $ — $ (656) $ 799,240 Adjusted EBITDA $ 565,254 $ 54,440 $ 6,391 $ (43,270) $ 5 $ 582,820 Year Ended December 31, 2020 Nucleic Acid Production Biologics Safety Testing Protein Detection Corporate Eliminations Total Revenue $ 207,597 $ 54,897 $ 22,881 $ — $ (1,277) $ 284,098 Adjusted EBITDA $ 133,822 $ 44,516 $ 9,225 $ (18,189) $ (209) $ 169,165 68 Table of Contents Inter-segment revenue was $0.7 million and $1.3 million for the years ended December 31, 2021 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 end of the period are eliminated for consolidation purposes in the Eliminations column. 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 years ended December 31, 2021 and 2020. A reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, is set forth below (in thousands): Year Ended December 31, 2021 2020 Net income $ 469,250 $ 78,816 Add: Amortization 18,339 20,320 Depreciation 6,413 5,593 Interest expense 30,260 30,740 Income tax expense 61,515 2,880 EBITDA 585,777 138,349 Acquisition integration costs (1) 44 3,857 Acquired in-process research and development costs (2) — 2,881 Equity-based compensation (3) 10,458 24,629 GTCR management fees (4) — 680 Gain on sale of business (5) (11,249) — Gain on sale and leaseback transaction (6) — (19,002) Merger and acquisition related expenses (7) 1,508 395 Financing costs (8) 2,383 9,784 Tax receivable agreement liability adjustment (9) (6,101) — Loss on extinguishment of debt (10) — 7,592 Adjusted EBITDA $ 582,820 $ 169,165 ____________________ (1) Refers to incremental costs incurred to execute and integrate completed acquisitions. (2) Refers to in-process research and development charge associated with the acquisition of MockV Solutions, Inc. (3) Refers to non-cash expense associated with equity-based compensation. (4) Refers to cash fees paid to GTCR, pursuant to the advisory services agreement that was terminated in connection with our IPO. (5) Refers to the gain on the sale of Vector, which was completed in September 2021. (6) Refers to the gain on the sale of our Burlingame, California facility, which was leased back to the Company in 2020. (7) Refers to diligence, legal, accounting, tax and consulting fees incurred associated with acquisitions that were not consummated. (8) Refers to transaction costs related to our IPO and the refinancing of our long-term debt that are not capitalizable or cannot be offset against proceeds from such transactions. (9) Refers to the adjustment of our tax receivable agreement liability primarily due to changes in our estimated state apportionment and the corresponding change of our estimated state tax rate. (10) Refers to non-operating cash expense incurred on extinguishment of debt. 69 Table of Contents Adjusted Free Cash Flow A reconciliation of Adjusted Free Cash Flow, which is a non-GAAP measure that we define as Adjusted EBITDA less capital expenditures, is set forth below (in thousands): Year Ended December 31, 2021 2020 Adjusted EBITDA $ 582,820 $ 169,165 Capital expenditures (1) (16,999) (27,398) Adjusted Free Cash Flow $ 565,821 $ 141,767 ____________________ (1) We define capital expenditures as purchases of property and equipment, which are included in cash flows from investing activities, and accounts payable and accrued expenses and other current liabilities. Operating Expenses Operating expenses include the following for the periods presented (in thousands, except percentages): Year Ended December 31, Percentage of Revenue 2021 2020 Change 2021 2020 Cost of revenue $ 140,561 $ 79,649 76.5 % 17.6 % 28.0 % Research and development 15,219 9,304 63.6 % 1.9 % 3.3 % Selling, general and administrative 100,064 94,245 6.2 % 12.5 % 33.2 % Gain on sale of business (11,249) — * (1.4) % — % Gain on sale and leaseback transaction — (19,002) * — % (6.7) % Total operating expenses $ 244,595 $ 164,196 49.0 % 30.6 % 57.8 % ____________________ * Not meaningful Cost of Revenue Cost of revenue increased by $60.9 million from $79.6 million for the year ended December 31, 2020 to $140.6 million for the year ended December 31, 2021, or 76.5%. The increase in cost of revenue was primarily attributable to an increase in direct product costs resulting from increased business and increases in personnel costs driven by the Company’s growth and expansion. Gross profit increased by $454.2 million from $204.4 million for the year ended December 31, 2020 to $658.7 million for the year ended December 31, 2021. The increase in gross profit margin as a percentage of sales was primarily attributable to favorable product mix shift. Research and Development Research and development expenses increased by $5.9 million from $9.3 million for the year ended December 31, 2020 to $15.2 million for the year ended December 31, 2021, or 63.6%. The increase was primarily attributable to an increase in supplies and materials costs of $3.9 million driven by outside contracted services. The increase was also driven by a $1.3 million increase in personnel costs to support our expanding research and development activities during 2021. Selling, General and Administrative Selling, general and administrative expenses increased by $5.8 million from $94.2 million for the year ended December 31, 2020 to $100.1 million for the year ended December 31, 2021, or 6.2%. The increase was primarily due to a $11.9 million increase in professional service fees primarily driven by increased consulting and accounting/audit fees, tax services, and corporate insurance. The increase was also driven by a $3.0 million increase in facilities costs primarily due to the Company’s adoption of the new leasing standard effective January 1, 2021, which changed the classification of certain facility leases and increased the amount of lease payments classified as rent expense. These increases are partially offset by a net decrease in personnel costs of $7.6 million due to a decrease in equity-based compensation expense relating to modifications that occurred 70 Table of Contents in the prior year, offset by increases related to headcount in the current year. There was also a decrease in amortization expense of $1.7 million primarily driven by the divestiture of Vector, our Protein Detection segment, in early September 2021. Gain on sale of business The gain on sale of business of $11.2 million for the year ended December 31, 2021 was from the sale of Vector in September 2021. Gain on sale and leaseback transaction The gain on sale and leaseback transaction of $19.0 million for the year ended December 31, 2020 was from the sale of our Burlingame, California facility, which was leased back to the Company in 2020. Other Income (Expense) Other income (expense) includes the following for the periods presented (in thousands, except percentages): Year Ended December 31, Percentage of Revenue 2021 2020 Change 2021 2020 Interest expense $ (30,260) $ (30,740) (1.6) % (3.8) % (10.8) % Change in payable to related parties pursuant to a Tax Receivable Agreement 6,101 — * 0.8 % — % Loss on extinguishment of debt — (7,592) * — % (2.6) % Other income 279 126 121.4 % 0.0 % 0.0 % Total other income (expense), net $ (23,880) $ (38,206) (37.5) % (3.0) % (13.4) % ____________________ * Not meaningful Other expense was $38.2 million for the year ended December 31, 2020 compared to $23.9 million for the year ended December 31, 2021, representing a decrease of $14.3 million, or 37.5%. The decrease in expense was primarily attributable to the loss on extinguishment of debt of $7.6 million recognized during the year ended December 31, 2020. The decrease was also driven by a $6.1 million gain related to the payable to related parties pursuant to a Tax Receivable Agreement that was recorded for the year ended December 31, 2021 primarily as a result of changes in our estimated state income tax apportionment and the corresponding change of our estimated state income tax rate. Relationship with GTCR, LLC (“GTCR”) Prior to our initial public offering, 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 $4.4 million and $0.6 million during the years ended December 31, 2020 and 2019, respectively, for services in connection with the advisory services agreement and for out-of-pocket expenses incurred. We may continue to engage GTCR from time to time, subject to compliance with our related party transactions policy. The higher fees paid to GTCR in 2020 was driven by the $3.7 million placement fee paid in connection with our debt refinancing in October 2020. During the year ended December 31, 2021, the Company made distributions of $153.5 million for tax liabilities to MLSH 1. During the year ended December 31, 2020, we made distributions of $96.7 million to MLSH 1. Pursuant to our IPO, we entered into a Tax Receivable Agreement (“TRA”) with MLSH 1, who is primarily owned by GTCR, and MLSH 2. The 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 subsequent exchanges. 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 71 Table of Contents 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. We made payments of $1.3 million to MLSH 1 and MLSH 2 pursuant to the TRA during the year ended December 31, 2021. No payments were made to MLSH 1 or MLSH 2 pursuant to the TRA during 2020. As of December 31, 2021, our liability under the TRA was $748.3 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 December 31, 2021, we had cash of $551.3 million, retained earnings of $184.6 million, and net income of $469.3 million for the fiscal year ended December 31, 2021. We also had positive cash flow from operations of $368.6 million. We have relied on revenue derived from product and services sales, and equity and debt financings to fund our operations to date, including the 2020 refinance of our $400.0 million debt facilities with a new $780.0 million facility (see Note 7 to the audited consolidated financial statements), which provided for the full repayment of $363.0 million of pre-existing debt and accrued interest under the previous outstanding senior secured credit facilities, the repurchase of MLSC incentive units and MLSC non-controlling interests of $9.1 million and $120.0 million, respectively, and to allow for an $88.6 million distribution to MLSH 1 for various incentive unit holders of MLSH 1, which represented a return of capital in Topco LLC. Our principal uses of cash have been to fund operations, acquisitions and capital expenditures, as well as make tax distributions to MLSH 1, make TRA payments to MLSH 1 and MLSH 2 as well as 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, 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 received from MLSH 2 in connection with the IPO and subsequent exchanges and financing to be approximately $748.3 million and to range over the next 15 years from approximately $34.8 million to $63.0 million per year and 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 combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the TRA. 72 Table of Contents In addition to payments to be made under the TRA, we are also required to make tax distributions to MLSH 1 for the portion of income passing through to them from Topco LLC. Initial Public Offering In November 2020, the Company completed its IPO and sold 69,000,000 shares of Class A common stock at a public offering price of $27.00 per share, inclusive of the 9,000,000 shares of Class A common stock purchased by underwriters pursuant to the underwriters’ option to purchase additional shares at the initial public offering price, less underwriting discounts and commissions. The Company received net proceeds from the IPO of approximately $1.8 billion after deducting underwriting discounts and commissions, which was used to purchase 55,823,011 of previously-issued and 3,703,704 of newly-issued Topco LLC Units for approximately $94.5 million. 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 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, and 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 consolidated statements of operations. 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 consolidated statements of operations. Cash Contribution, Exchange and Forfeiture Agreement In December 2021, the Company entered into a Cash Contribution, Exchange and Forfeiture Agreement (the “Contribution Agreement”), with Topco LLC and MLSH 1, a related party. Pursuant to the Contribution Agreement, the Company contributed $110.0 million of cash to Topco LLC in exchange for 2,732,919 newly-issued LLC units of Topco LLC (the “LLC Units”) at a price per unit of $40.25, which was equal to the 50-day volume-weighted average price of the Company’s Class A common stock calculated on December 31, 2021. Immediately following the contribution the Company and MLSH 1 agreed to forfeit 2.036% of their respective LLC Units of Topco LLC and an equal number of shares of the Company’s Class B common stock for no consideration. The purpose of the Contribution Agreement was to reduce the excess cash that has accumulated at the Company as a result of its “Up-C” structure and the quarterly tax distributions it has received from Topco LLC since its IPO, making that cash accessible to our operating companies while retaining the one-to-one ratio of the Company’s Class A Common Stock to LLC Units held by the Company. Credit Agreement In October 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 Credit Agreement with lending institutions, including affiliates of certain of the underwriters, for term-loan borrowings (the “Term Loan”) totaling $600.0 million to refinance our outstanding senior secured credit facilities and to allow for a distribution to our members. The Credit Agreement also provided for a revolving credit facility (the 73 Table of Contents “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, a wholly owned subsidiary of ours, 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 Term Loan became repayable in quarterly payments of $1.5 million beginning in March 2021, with all remaining outstanding principal due in October 2027. The 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 Revolving Credit Facility allows the 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 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. Borrowings under the Credit Agreement bear interest at 3.00 % per annum for Term Secured Overnight Financing Rate (“SOFR”) Rate Loans and 2.00 % per annum for Base Rate Loans. The Base Rate is defined 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” 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 Term B Loans be less than 0.50% or (ii) for any other Loans, be less than 0.00%. 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 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 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) exceed 35% of the aggregate amount of all Revolving Credit Commitments in effect as of such date, then the 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 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. The Credit Agreement contained one financial covenant (consolidated first lien leverage ratio) measured as of the last day of each fiscal quarter. As of December 31, 2021, we were in compliance with these covenants. Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires mandatory prepayments of the Term Loan principal upon certain excess cash flow, subject to certain step-downs based on our first lien net leverage ratio. The excess cash flow shall be reduced to 25 % or 0 % 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 such period is equal to or less than $ 10.0 million. As of December 31, 2021, our first lien net leverage ratio was less than 4.25 :1.00 thus the prepayment provision was not triggered. As of December 31, 2021, interest rate on the Term Loan was 4.75%. 74 Table of Contents Tax Receivable Agreement The purchase of LLC Units by us in connection with our IPO resulted in the acquisition by us of a proportionate share of the existing tax basis of the assets of Topco LLC and its flow-through subsidiaries. Topco LLC (and each of its subsidiaries classified as a partnership for U.S. federal income tax purposes) had in place for the IPO transaction an election under Section 754 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, such purchase of LLC Units by us resulted in an adjustment in the tax basis of the assets of Topco LLC and its flow-through subsidiaries reflected in the proportionate share of such assets treated as acquired by us. In addition, MLSH 1 may from time to time (subject to the terms of the Exchange Agreement) exercise a right to exchange LLC Units for shares of our 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). We intend to treat such acquisitions of LLC Units as direct purchases of LLC Units from MLSH 1 for U.S. federal income and other applicable tax purposes, regardless of whether such LLC Units are surrendered by MLSH 1 to Topco LLC for redemption or sold to us upon the exercise of our election to acquire such LLC Units directly. Topco LLC (and each of its subsidiaries classified as a partnership for U.S. federal income tax purposes) intends to have in place an election under Section 754 of the Code effective for each taxable year in which an exchange of LLC Units for Class A common stock or cash occurs. As a result, an exchange of LLC Units is expected to result in (1) an increase in our proportionate share of the existing tax basis of the assets of Topco LLC and its flow-through subsidiaries and (2) an adjustment in the tax basis of the assets of Topco LLC and its flow-through subsidiaries reflected in that proportionate share. Any increases in our share of tax basis as a result of the purchase of LLC Units or LLC Unit exchanges will generally have the effect of reducing the amounts that we would otherwise be obligated to pay thereafter to various tax authorities. Such basis increases may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets. In connection with the completion of our IPO, we also entered into a 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 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 offering and (iii) certain other tax benefits related to our entering into the TRA, including tax benefits attributable to payments that we make under the TRA (collectively, the “Tax Attributes”). The payment obligations under the TRA are not conditioned upon any LLC Unitholder maintaining a continued ownership interest in us or Topco LLC and the rights of MLSH 1 and MLSH 2 under the TRA are assignable. We expect to benefit from the remaining 15% of the tax benefits, if any, that we may actually realize. Under the TRA, we are required to provide MLSH 1 and MLSH 2 with a schedule setting forth the calculation of payments that are due under the TRA with respect to each taxable year in which a payment obligation arises within ninety (90) days after the extended due date of our U.S. federal income tax return for such taxable year. This calculation will be based upon the advice of our tax advisors. The calculation will become final thirty (30) days after it is provided assuming that no objections are made. Payments under the TRA will generally be made within five (5) business days after this schedule becomes final pursuant to the procedures set forth in the TRA, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return. Any late payments that may be made under the TRA will continue to accrue interest at LIBOR plus 500 basis points until such payments are made, generally including any late payments that we may subsequently make because we did not have enough available cash to satisfy our payment obligations at the time at which they originally arose. 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 TRA from cash flow from operations of Topco LLC and its subsidiaries, available cash and/or available borrowings under the Credit Agreement. The TRA provides that if (1) certain mergers, asset sales, other forms of business combination, or other changes of control were to occur, (2) we materially breach any of our material obligations under the TRA or (3) we elect an early termination of the TRA, then the TRA will terminate and our obligations, or our successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that we would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and, to the extent applicable, that any LLC Units that 75 Table of Contents have not been exchanged are deemed exchanged for the fair market value of our Class A common stock at the time of termination. Payments under the TRA will be based on the tax reporting positions that we determine. Although we are not aware of any issue that would cause the IRS to challenge a tax basis increase or the availability of Blocker Entities’ NOLs, if any, we will not be reimbursed for any cash payments previously made to MLSH 1 and MLSH 2 pursuant to the TRA if any tax benefits initially claimed by us are subsequently disallowed, in whole or in part, by the IRS or other applicable taxing authority. For example, if the IRS later asserts that we did not obtain a tax basis increase or disallows (in whole or in part) the availability of NOLs due to a potential ownership change under Section 382 of the Code, among other potential challenges, then we would not be reimbursed for any cash payments previously made to MLSH 1 and MLSH 2 pursuant to the TRA with respect to such tax benefits that we had initially claimed. Instead, any excess cash payments made by us pursuant to the TRA will be netted against any future cash payments that we might otherwise be required to make under the terms of the TRA. Nevertheless, any tax benefits initially claimed by us may not be disallowed for a number of years following the initial time of such payment or, even if challenged early, such excess cash payment may be greater than the amount of future cash payments that we might otherwise be required to make under the terms of the TRA. Accordingly, there may not be sufficient future cash payments against which to net. The applicable U.S. federal income tax rules are complex, and there can be no assurance that the IRS or a court will not disagree with our tax reporting positions. As a result, it is possible that we could make cash payments under the TRA that are substantially greater than our actual cash tax savings. As of December 31, 2021, our liability under the TRA was $748.3 million. Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2021 2020 Net cash provided by (used in): Operating activities $ 368,570 $ 152,187 Investing activities 105,655 6,068 Financing activities (159,049) 53,212 Effects of exchange rate changes on cash (88) 17 Net increase in cash $ 315,088 $ 211,484 Operating Activities Net cash provided by operating activities for the year ended December 31, 2021 was $368.6 million, which was primarily attributable to a net income of $469.3 million, non-cash depreciation and amortization of $24.8 million, non-cash operating lease expense of $8.8 million, non-cash amortization of deferred financing costs of $2.7 million, non-cash equity-based compensation of $10.5 million, and a non-cash increase in deferred income taxes of $46.9 million, 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 TRA of $6.1 million, and a net cash outflow from the change in our operating assets and liabilities of $176.6 million. Net cash provided by operating activities for the year ended December 31, 2020 was $152.2 million, which was primarily attributable to a net income of $78.8 million, non-cash depreciation and amortization of $25.8 million, non-cash amortization of deferred financing costs of $1.8 million, non-cash equity-based compensation of $24.6 million, loss on debt financing of $7.6 million, and $2.9 million of acquired in-process research and development, partially offset by a decrease in deferred income taxes of $5.5 million, the gain on a sale and leaseback transaction of $19.0 million, costs incurred for line of credit refinancing of $3.2 million, and the net cash inflow from the change in our operating assets and liabilities of $35.9 million. Investing Activities Net cash provided by investing activities for the year ended December 31, 2021 was $105.7 million, which was primarily comprised of net cash receipts of $120.0 million from the sale of Vector. This was partially offset by net cash outflows of $14.9 million for property and equipment purchases. Net cash provided by investing activities for the year ended December 31, 2020 was $6.1 million, which was primarily attributable to the proceeds from the sale and leaseback of our Burlingame, California facility of $34.5 million, net of cash outflows of $25.4 million for property and equipment and a cash outflow of $3.0 million associated with the purchase of MockV Solutions, Inc. of which $2.9 million was considered in-process research and development. 76 Table of Contents Financing Activities Net cash used in financing activities for the year ended December 31, 2021 was $159.0 million, which was primarily attributable to $153.5 million of distributions for tax liabilities to non-controlling interest holders and $6.0 million of principal repayments of long-term debt. Net cash provided by financing activities for the year ended December 31, 2020 was $53.2 million, which was primarily attributable to a $1.8 billion of proceeds from the issuance of common stock sold in the Company’s initial public offering, net of offering costs, the sale of Class B common stock to MLSH 1 of $1.7 million, and $609.0 million from the proceeds of borrowing long-term debt, net of discount. Specifically, the proceeds from the initial public offering of $1.8 billion were offset by the following cash outflows related to the Organizational Transactions: • the purchase of Topco LLC units from MLSH 1 of $1.4 billion, • the repurchase of Class A common stock from MLSH 2 of $33.7 million, • the purchase of Blocker Entities from MLSH 2 of $208.1 million, • principal repayment of longer-term debt of $50.0 million, and • tax distribution by Topco LLC to MLSH 1 of $8.2 million. The proceeds from the new borrowings of long-term debt of $609.0 million were offset by principal repayment of long-term debt of $360.0 million, payment to purchase the non-controlling interest in MLSC of $120.0 million, payment of financing costs of $9.3 million, and a distribution to MLSH 1 prior to the IPO of $88.6 million, and the repurchase of vested MLSC incentive units of $9.1 million. Net cash used also included a portion of a $2.0 million payment of contingent consideration of $1.4 million. Capital Expenditures Capital expenditures for the year ended December 31, 2021 totaled $17.0 million. We expect that the capital expenditures for the year ending December 31, 2022 will primarily be related to new facility construction for our Flanders San Diego, California and Leland, North Carolina locations. We estimate this to total approximately $39.2 million and $5.1 million, respectively, for the year ending December 31, 2022. Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2021 (in thousands): Payments due by period Total 1 year 2 - 3 years 4 - 5 years 5+ years Operating leases (1) $ 105,257 $ 6,547 $ 21,085 $ 22,504 $ 55,121 Debt obligations (2) 544,000 6,000 12,000 12,000 514,000 TRA payments (3) 748,319 34,838 84,597 86,978 541,906 Unconditional purchase obligations (4) 7,200 4,200 3,000 — — Total $ 1,404,776 $ 51,585 $ 120,682 $ 121,482 $ 1,111,027 _______________ (1) Represents operating leases including our Flanders San Diego Facility and Leland Facility, which are expected to commence in September 2022. See Note 5 to our consolidated financial statements for additional information. (2) Represents long-term debt principal maturities, excluding interest. See Note 7 to our consolidated financial statements for additional information. These amounts do not reflect the terms under Amendment No. 2 to the Credit Agreement entered into in January 2022. (3) Reflects the estimated timing of TRA payments as of December 31, 2021. Such payments could be due later than estimated depending on the timing of our use of the underlying tax attributes. See "Risk Factors-Risks Related to Our Organizational Structure" and Note 12 to our consolidated financial statements for additional information regarding our liability under the TRA. (4) Represents firm purchase commitments to our suppliers. Tax distributions are required under the terms of the Topco LLC Agreement. As of December 31, 2021, we have made tax distributions equal to the estimated obligation due for 2021. See Note 12 to our consolidated financial statements for additional information regarding tax distributions. 77 Table of Contents Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires mandatory prepayments of the Term Loan principal upon certain excess cash flow, subject to certain step-downs based on our first lien net leverage ratio. The excess cash flow shall be reduced to 25% or 0% 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 such period is equal to or less than $10.0 million. As of December 31, 2021, our first lien net leverage ratio is less than 4.25:1.00. Critical Accounting Policies and Estimates We have prepared our consolidated financial statements in accordance with GAAP. Our preparation of these consolidated financial statements requires us to make estimates and assumptions 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. While our significant accounting policies are described in more detail in Note 1 to our consolidated financial statements, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our consolidated financial condition and results of operations and require our subjective and complex judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition We recognize revenue primarily from the sale of manufactured products, including products that can be purchased out of a catalogue and custom manufactured products, and the performance of services, including custom antibody and assay development contracts, antibody affinity extraction and stability and feasibility studies, which often result in the generation of report deliverables. Our customers are primarily life science research pharmaceutical and biotechnology companies. We also sell to global and regional distribution partners and original equipment manufacturer (“OEM”) customers who incorporate our products into their products under their own brands. 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 our arrangements with customers, we perform 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 our 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. We also recognize 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, we account 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, we consider 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 include: CleanCap, mRNA and oligonucleotide 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. We recognize 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 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 78 Table of Contents 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 were delivered. Biologics Safety Testing Our 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 and contaminants that occur in the manufacturing of biologic drugs and other therapeutics. We recognize 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 utilizing a cost-based input method over the term of the contract. Where an enforceable right to payment does not exist, revenue is recognized at a point in time when control is transferred to the customer. Revenue associated with assay development service contracts, which generally occur over a short period of time and consist of a single performance obligation, is recognized at a point in time when a successful antigen test and report is provided to the customer. Affinity extraction services 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. We have elected the practical expedient to not disclose the unfulfilled performance obligations for contracts with an original term of one year or less. We had no material unfulfilled performance obligations for contracts with an original term greater than one year as of December 31, 2021 or 2020. We accept returns only if the products do not meet customer specifications and historically, our 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 we expect to be entitled to in exchange for transferring the products and/or services. The transaction price for product sales, which excludes sales taxes we collect, 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. For the years ended December 31, 2021 and 2020, variable consideration has not been material. For arrangements where the anticipated period between timing of transfer of goods and services and the timing of payment is one year or less, we have elected to not assess whether a significant financing component exists. We have elected to account for shipping and handling activities related to contracts with customers as costs to fulfill 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 assets are generated when contractual billing schedules differ from revenue recognition timing and we record contract receivable when we have an unconditional right to consideration. Contract liabilities are recorded when cash payments are received or due in advance of performance. Applying the practical expedient, we recognize 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. Income Taxes We are subject to U.S. federal and state income taxes. We are the controlling member of Topco, LLC, which has been, and will continue to be, treated as a partnership for U.S. federal and state income tax purposes. Topco LLC’s subsidiaries are treated as pass-through entities for federal and state income tax purposes. The income or loss generated by these entities is not taxed at the LLC level. As required by U.S. tax law, income or loss generated by these LLCs passes through to their owners. As such, our tax provision consists solely of the activities of Maravai Inc. and its subsidiaries prior to their disposal, as well as our share of income generated by Topco LLC. We anticipate this structure to remain in existence for the foreseeable future. 79 Table of Contents We account for income taxes under the asset and liability method of accounting. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We reduce the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax asset. 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 December 31, 2021. However, a portion of the deferred tax asset may only be realizable through the sale or liquidation of the investment and our ability to generate sufficient capital gains. As such, a valuation allowance of $23.1 million has been recorded as of December 31, 2021 to reflect the deferred tax asset that is more likely than not to not be realized. We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. Significant judgment is required in determining the accounting for income taxes. In the ordinary course of business, many transactions and calculations arise where the ultimate tax outcome is uncertain. Our judgments, assumptions and estimates relative to the accounting for income taxes take into account current tax laws, our interpretation of current tax laws, and possible outcomes of future audits conducted by foreign and domestic tax authorities. Although we believe that our estimates are reasonable, the final tax outcome of matters could be different from our assumptions and estimates used when determining the accounting for income taxes. Such differences, if identified in future periods, could have a material effect on the amounts recorded in our consolidated financial statements. Payable to Related Parties Pursuant to Tax Receivable Agreement In November 2020, we entered into a 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 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 share of Class B 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) increase in the tax basis of assets of Topco LLC received form LLC Units held by 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 offering and (iii) certain other tax benefits related to our entering into the TRA, including tax benefits attributable to payments that we make under the TRA (collectively, the “Tax Attributes”). The payment obligations under the TRA are not conditioned upon any LLC Unitholder maintaining a continued ownership interest in us or Topco LLC and the rights of MLSH 1 and MLSH 2 under the TRA are assignable. We expect to benefit from the remaining 15% of the tax benefits, if any, that we may actually realize. We accrue a liability for the payable to related parties for the TRA and a reduction to stockholders’ equity, when it is deemed probable that the Tax Attributes will be used to reduce our taxable income, as the contractual percentage of the benefit of Tax Attributes that we expected to receive over a period of time. The current portion, if any, of the liability is the amount estimated to be paid within one year of the balance sheet date. For purposes of estimating the value of the payable to related parties for the TRA, the tax benefit deemed realized by us and payable to MLSH 1 and MLSH 2 is computed by taking 85% of the difference between undiscounted forecasted cash income tax liability over the term of benefit of the Tax Attributes and the forecasted amount of such taxes that we would have been required to pay had there been no Tax Attributes (i.e. a with-and-without analysis); provided that, for purposes of determining the tax benefit with respect to state and local income taxes, use simplifying assumptions. The TRA will generally apply to each of our taxable years, beginning with the taxable year that the TRA is entered into. There is no maximum term for the TRA and the TRA will continue until all such tax benefits have been utilized or expired unless we exercise our right to terminate the TRA for an agreed-upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated with certain assumptions, including as to utilization of the Tax Attributes). We may record additional liabilities under the TRA when LLC Units of Topco LLC are exchanged in the future and as our estimates of the future utilization of the tax benefits change. If, due to a change in facts, these tax attributes are not utilized in future years, it is reasonably possible no amounts would be paid under the TRA. In this scenario, the reduction of the liability under the TRA would result in a benefit to our consolidated statement of operations. Subsequent adjustments to the payable to related parties for the TRA based on changes in anticipated future taxable income, which could include changes in estimated income allocated to the partners of Topco LLC or apportionment of state income taxes, are recorded in our consolidated statement of operations. 80 Table of Contents The actual Tax Attributes, as well as any amounts paid to MLSH 1 and MLSH 2 under the TRA, will vary depending on a number of factors, including: • the timing of any future exchanges—for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of Topco LLC and its flow-through subsidiaries at the time of each exchange; • the price of shares of our Class A common stock at the time of any future exchanges—the increases and adjustments in our proportionate share of the existing tax basis of the assets of Topco LLC and its flow-through subsidiaries that are directly related to the price of shares of our Class A common stock at the time of future exchanges; • the extent to which such exchanges are taxable—if an exchange is not taxable for any reason, increased tax deductions as a result of legacy IRC Section 754 election in place at Topco LLC will not be available to generate payments under the TRA; • the amount and timing of our income—the TRA generally will require us to pay 85% of the tax benefits as and when those benefits are treated as realized by us under the terms of the TRA. If we do not have taxable income in a particular taxable year, we generally will not be required (absent a change of control or other circumstances requiring an early termination payment) to make payments under the TRA for that taxable year because no tax benefits will have been actually realized. Nevertheless, any tax benefits that do not result in realized tax benefits in a given taxable year will likely generate tax attributes that may be utilized to generate tax benefits in future (and possibly previous) taxable years. The utilization of any such tax attributes will result in payments under the TRA; and • applicable tax rates—the tax rates in effect at the time a tax benefit is recognized. 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 TRA from cash flow from operations of Topco LLC and its subsidiaries, available cash and/or available borrowings under the Credit Agreement. Assuming no material 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 Tax Receivable Agreement relating to the purchase by us of LLC Units from MLSH 1 in connection with our prior offering and subsequent exchanges and financing, to be approximately $748.3 million and to range over the next 15 years from approximately $34.8 million to $63.0 million per year and decline thereafter. Future payments in respect of subsequent exchanges or financing would be in addition to these amounts and are expected to be substantial. The foregoing numbers are estimates and actual payments could differ materially. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding TRA payments. There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, the payments under the TRA exceed the actual benefits we realize in respect of the tax attributes subject to the TRA and/or distributions to us by Topco LLC are not sufficient to permit us to make payments under the TRA after we have paid taxes. The term of the TRA commenced upon the completion of our IPO and will continue until all such tax benefits have been utilized or expire, unless we exercise our rights to terminate the agreements or payments under the agreements are accelerated in the event we materially breach any of our material obligations under the agreements. Recent Accounting Pronouncements See Note 1 to our consolidated financial statements for a discussion of recent accounting standards and pronouncements.