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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-03-01 · 251 added, 310 removed, 341 unchanged (62% of the section changed)

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The percentage of our total revenue derived from customers in North America was 38.4% and 39.7% for the years ended December 31, 2022 and 2021, 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.

We generated revenue of $883.0 million and $799.2 million for the years ended December 31, 2022 and 2021, respectively.

Total revenue by segment was $813.1 million in Nucleic Acid Production and $69.9 million in Biologics Safety Testing for the year ended December 31, 2022.

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.

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.

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.

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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

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.

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.

We incurred aggregate selling, general, and administrative expenses of $129.3 million and $100.1 million for the years ended December 31, 2022 and 2021 respectively.

Our research and development efforts are geared towards meeting our customers’ needs.

We incurred research and development expenses of $18.4 million and $15.2 million for the years ended December 31, 2022 and 2021, respectively.

We intend to continue to invest in research and development and new products and technologies to support our customers’ needs for the foreseeable future.

2022 and Recent Developments

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, for a total purchase consideration of $257.9 million, which includes an estimated fair value of contingent consideration of $7.8 million as of the acquisition date.

As a result of the acquisition, we own all the outstanding interest in MyChem.

Our consolidated results of operations for the year ended December 31, 2022 include the operating results of MyChem from the acquisition date.

See Note 2 to our consolidated financial statements for additional information.

In January 2023, we completed the acquisition of Alphazyme, LLC (“Alphazyme”), a privately-held original equipment manufacturer (“OEM”) provider of custom, scalable, molecular biology enzymes to customers in the genetic analysis and nucleic acid synthesis markets.

The total consideration to acquire Alphazyme consisted of a base cash purchase price of $70.0 million, subject to customary post-closing adjustments, and potential performance payments payable in cash of up to $75.0 million.

Government Assistance

In May 2022, TriLink entered into a cooperative agreement (“Cooperative Agreement”) with the U.S.

Department of Defense, as represented by the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense on behalf of the Biomedical Advanced Research and Development Authority (“BARDA”), within the U.S.

Department of Health and Human Services, to advance the development of domestic manufacturing capabilities and to expand TriLink’s domestic production capacity for products critical to the development and manufacture of mRNA vaccines and therapeutics, including nucleoside triphosphates and CleanCap ® , TriLink’s proprietary co-transcriptional mRNA capping reagents.

TriLink is expanding its San Diego manufacturing campus by making a significant investment in additional cleanroom and small molecule manufacturing space, implementing automation systems and adding support areas to augment production capacity (the “Flanders San Diego Facility”).

Pursuant to certain requirements, BARDA awarded TriLink an amount equal to 50% of the construction and validation costs currently budgeted for the Flanders San Diego Facility.

See Note 6 to our consolidated financial statements for additional information.

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.

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:

COVID-19 Related Revenue Trends and Uncertainties

Since the start of the COVID-19 pandemic in early 2020, our results of operations and cash flows have substantially benefited from the strong demand for COVID-19 related products and services, including our proprietary CleanCap® analogs and highly modified RNA products, particularly mRNA.

We estimate that revenue from COVID-19 related products and services represented approximately 67.9% and 69.7%, respectively, of our total revenues for the years ended December 31, 2022 and 2021, respectively.

However, we believe the second quarter of 2022 represented the highest revenue quarter for revenue attributable to our COVID-19 related products and services, with substantial declines in COVID-19 related revenue expected in the future.

In addition to the general market trend of reduced demand for COVID-19 related products and services as the pandemic subsides, our COVID-19 related revenue for 2023 may be negatively impacted by unused inventory of our products that our customers have on hand.

We are unable to estimate the impact of this unused inventory on future demand given both binding contractual commitments by our customers for additional purchases and our customers generally having not provided us with detailed inventory data.

Our longer-term revenue prospects for COVID-19 related products are highly uncertain but are expected to be substantially less than pandemic highs.

There are various political, social, economic and regulatory factors that could influence the ongoing manufacture and supply of COVID-19 vaccines, and in turn, our longer-term COVID-19 related revenue, including:

the emergence, duration and intensity of new virus variants;

lack of demand for COVID-19 vaccines;

emerging information concerning the severity and incidence of the virus and its variants;

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;

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.

the availability and administration of pediatric and booster vaccinations, vaccine supply constraints, vaccine hesitancy and the effectiveness of vaccines against new virus strains;

the lapsing of the public health emergency declaration made pursuant to Section 319 of the Public Health Service Act in January 2020;

political and social debate relating to the need for, efficacy of, or side effects related to one or more specific COVID-19 vaccines;

and global macroeconomic conditions, including impacts resulting from supply chain constraints, labor market shortages and inflationary pressures.

This contraction in COVID-19 related demand will significantly decrease our revenue and cash flow, which in turn could have a material adverse impact on our operating results and financial condition in the future.

Other Trends and Uncertainties

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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;

(i) pivot toward mRNA vaccines driven in part by the success of mRNA COVID-19 vaccines;

(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.

and (iv) rise in molecular diagnostics driven by COVID-19.

Our Biologics Safety Testing business continues to see headwinds from business in Asia, seeing impacts from the ongoing COVID-19 pandemic lockdowns in China and our ongoing decisions not to ship products into Russia.

See more information under Part I, Item 1.

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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 is a non-GAAP financial measure that we define as net income (loss) adjusted for interest, 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.

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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

$63.0 million in aggregate letters of credit obligations and outstanding borrowings under our revolving credit facility (the “Revolving Credit Facility”).

Adjusted EBITDA is also a component of the financial covenant under our credit agreement that governs our ability to access more than $63.0 million in aggregate letters of credit and available borrowings under our revolving credit facility.

In addition, if we borrow more than $63.0 million, we are required to maintain a specified net leverage ratio.

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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:

We generated total consolidated revenue of $883.0 million and $799.2 million for the years ended December 31, 2022 and 2021, respectively, through the following segments:

(i) Nucleic Acid Production, (ii) Biologics Safety Testing and (iii) Protein Detection.

We divested our Protein Detection segment in September 2021, and since then operate two business segments only, Nucleic Acid Production and Biologics Safety Testing.

Nucleic Acid Production Segment

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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.

Our Protein Detection segment products, which included a portfolio of labeling and visual detection reagents, were purchased by our scientific research customers for their tissue-based protein detection and characterization needs.

In September 2021, we completed the divestiture of Vector Laboratories, Inc.

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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.

We expect cost of revenue to increase in future periods as our revenue grows.

Costs of services were not material for the years ended December 31, 2022 and 2021.

Operating Expenses

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 long-term 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.

Research and Development

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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.

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.

We expect our research and development costs to fluctuate in future periods as we continue our research and development efforts, including meeting our customers’ needs.

These costs may fluctuate from period to period due to the timing and scope of our development activities.

Change in Estimated Fair Value of Contingent Consideration

In the first quarter of 2022, we completed the acquisition of MyChem and recorded a contingent consideration liability of $7.8 million.

In the second quarter of 2022, we recorded a fair value adjustment to the liability based on our assessment of the probability of achieving certain revenue thresholds and other probability factors.

This was due to a change in estimate associated with MyChem revenue projections reaching thresholds that would trigger a contingent payment per the MyChem Securities Purchase Agreement (the “MyChem SPA”).

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)

In the third quarter of 2021, we completed the sale of Vector, which represented our Protein Detection business, to Voyager Group Holdings, Inc.

(“Voyager”) and recorded a gain of $11.2 million.

Other Income (Expense)

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.

Interest expense also consists of changes in the fair value of our interest rate cap agreement.

Interest Income

Interest income consists of interest earned on our cash balances held at financial institutions.

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)

Change in Payable to Related Parties Pursuant to the 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 primarily due to changes in our estimated state apportionment and the corresponding change of our estimated state tax rate.

Income Tax Expense

As a result of our ownership of LLC Units in Topco LLC, we are subject to U.S.

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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,

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.

Non-controlling interests represent the portion of profit or loss, net assets and comprehensive income or 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 income.

As of December 31, 2022, we hold 51.6% of the outstanding LLC Units of Topco LLC and 48.4% of the outstanding LLC Units of Topco LLC are held by MLSH 1.

Results of Operations

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2022 2021 Change

(in thousands, except per share and per unit data)

(in thousands, except per share data)

Revenue $ 883,001 $ 799,240 10.5 %

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168,957 140,561 20.2 %

Research and development (1)

15,219 9,304 63.6 %

Selling, general and administrative (1)

129,259 100,064 29.2 %

Research and development (1)

18,369 15,219 20.7 %

Change in estimated fair value of contingent consideration (7,800) — *

Gain on sale of business — (11,249) *

Gain on sale and leaseback transaction — (19,002) *

Total operating expenses 308,785 244,595 26.2 %

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Net income $ 490,663 $ 469,250 4.6 %

Net income (loss) attributable to non-controlling interests 287,213 (10,156) *

Net income attributable to non-controlling interests 270,458 287,213 (5.8) %

Net income attributable to Maravai LifeSciences Holdings, Inc.

$ 220,205 $ 182,037 21.0 %

Net income per Class A common share/unit attributable to Maravai LifeSciences Holdings, Inc.

Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.:

Basic $ 1.67 $ 1.59

Diluted $ 1.67 $ 1.56

Weighted average number of Class A common shares/units outstanding (2) :

Weighted average number of Class A common shares outstanding:

Basic 131,545 114,791

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Cost of revenue $ 4,192 $ 1,915 118.9 %

Research and development 280 131 113.7 %

Selling, general and administrative 13,349 8,263 61.6 %

Research and development 1,129 280 303.2 %

Total equity-based compensation expense $ 18,670 $ 10,458 78.5 %

(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

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.

Consolidated revenue by segment was as follows for the periods presented (in thousands, except percentages):

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Total revenue $ 883,001 $ 799,240 10.5 % 100.0 % 100.0 %

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* Not meaningful

Total revenue was $883.0 million for the year ended December 31, 2022 compared to $799.2 million for the year ended December 31, 2021, representing an increase of $83.8 million, or 10.5%.

Nucleic Acid Production revenue increased from $711.9 million for the year ended December 31, 2021 to $813.1 million for the year ended December 31, 2022, representing an increase of $101.2 million, or 14.2%.

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.

The increase in Nucleic Acid Production was driven by demand for our proprietary CleanCap analogs as COVID-19 vaccine manufacturers scaled production earlier in the year, and for our highly modified RNA products as this technology becomes incorporated into more therapeutic and vaccine development programs.

For the year ended December 31, 2022, we estimate that approximately $599.8 million, or 90.8%, of our $660.5 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs.

For the year ended December 31, 2021, we estimate that approximately $557.4 million, or 93.0%, of our $599.1 million CleanCap revenue was a result of customer demand attributable to COVID-19 vaccines or other COVID-19 related commercial products or developmental programs.

Biologics Safety Testing revenue increased from $68.4 million for the year ended December 31, 2021 to $69.9 million for the year ended December 31, 2022, representing an increase of $1.5 million, or 2.2%.

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

The increase was driven by growth in the underlying markets supporting cell and gene therapies, biosimilar and other biologic programs and growing adoption of MockV ® technology for viral clearance prediction during biopharmaceutical manufacturing.

There was no Protein Detection revenue for the year ended December 31, 2022 due to the sale of our Protein Detection business segment, which was completed in early September 2021.

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 define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, certain non-cash items and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period.

Corporate costs, net of eliminations, are managed on a standalone basis and are not allocated to segments.

We do not allocate assets to our reportable segments as they are not included in the review performed by our Chief Operating Decision Maker for purposes of assessing segment performance and allocating resources.

As of December 31, 2022, 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

The following schedule includes revenue and adjusted EBITDA for each of our reportable operating segments (in thousands).

We have revised our presentation for the prior periods below to remove the presentation of Total Adjusted EBITDA and reconcile the total of our reportable segments’ measure of profit or loss to income before income taxes, in addition to net income, and removed corporate costs, net of eliminations from total reportable segments’ adjusted EBITDA and included such amounts in the reconciliation to income before income taxes.

Additionally, we have revised our presentation for the prior

periods below of our total reportable segments’ revenue, in which we removed intersegment eliminations from our total reportable segment’s revenue.

Year Ended December 31,

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

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.

Nucleic Acid Production $ 813,076 $ 712,520

Biologics Safety Testing 69,932 68,417

Protein Detection — 18,959

Total reportable segments’ revenue 883,008 799,896

Intersegment eliminations (7) (656)

Total $ 883,001 $ 799,240

Segment adjusted EBITDA:

Nucleic Acid Production $ 638,337 $ 565,254

Biologics Safety Testing 54,841 54,440

Protein Detection — 6,391

Total reportable segments’ adjusted EBITDA 693,178 626,085

Reconciliation of total reportable segments’ adjusted EBITDA to income before income taxes

Amortization (24,269) (18,339)

Depreciation (7,566) (6,413)

Interest expense (20,414) (30,260)

Interest income 2,338 —

Corporate costs, net of eliminations (55,378) (43,265)

Other adjustments:

Acquisition contingent consideration 7,800 —

Acquisition integration costs (13,362) (44)

Equity-based compensation (18,670) (10,458)

Gain on sale of business — 11,249

Merger and acquisition related expenses (2,416) (1,508)

Financing costs (1,078) (2,383)

Acquisition related tax adjustment (349) —

Tax Receivable Agreement liability adjustment (4,102) 6,101

Chief Executive Officer transition costs (2,426) —

Other (1,814) —

Income before income taxes 551,472 530,765

Income tax expense (60,809) (61,515)

Net income $ 490,663 $ 469,250

During the year ended December 31, 2022, intersegment revenue was immaterial between the Nucleic Acid Production and Biologics Safety Testing segments.

During the year ended December 31, 2021, intersegment revenue was $0.7 million between the Nucleic Acid Production and Protein Detection segments.

The intersegment sales and the related gross margin on inventory recorded at the end of the period are eliminated for consolidation purposes.

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, 2022 and 2021.

A reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, is set forth below (in thousands):

Non-GAAP Financial Measures

Adjusted EBITDA

A reconciliation of net income to Adjusted EBITDA, which is a non-GAAP measure, is set forth below (in thousands):

Year Ended December 31,

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Interest expense 20,414 30,260

Interest income (2,338) —

Income tax expense 60,809 61,515

EBITDA 601,383 585,777

Acquisition contingent consideration (1)

Acquisition integration costs (2)

Acquired in-process research and development costs (2)

Equity-based compensation (3)

18,670 10,458

GTCR management fees (4)

Gain on sale of business (4)

Gain on sale and leaseback transaction (6)

Merger and acquisition related expenses (5)

Financing costs (6)

Acquisition related tax adjustment (7)

Tax receivable agreement liability adjustment (8)

Loss on extinguishment of debt (10)

4,102 (6,101)

Chief Executive Officer transition costs (9)

Adjusted EBITDA $ 637,800 $ 582,820

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(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.

(1) Refers to the change in the estimated fair value of performance payments related to the acquisition of MyChem, which was completed in January 2022.

(2) Refers to incremental costs incurred to execute and integrate completed acquisitions, and retention payments in connection with these acquisitions.

(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.

(4) 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.

(5) Refers to diligence, legal, accounting, tax and consulting fees incurred associated with acquisitions that were pursued but not consummated.

(6) Refers to transaction costs related to the refinancing of our long-term debt and costs from a secondary offering of our common stock that are not capitalizable or cannot be offset against proceeds from such transactions.

(7) Refers to non-cash expense associated with adjustments to the carrying value of the indemnification asset recorded in connection with the acquisition of MyChem.

(8) 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.

(9) Refers to legal fees and other costs associated with the previously announced Chief Executive Officer leadership transition planned for the middle of 2023.

(10) Refers to the loss recognized during the period associated with certain working capital and other adjustments related to the sale of Vector, which was completed in September 2021, and a loss incurred on extinguishment of debt.

Adjusted Free Cash Flow

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____________________

(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.

(1) We define capital expenditures as:

(i) purchases of property and equipment which are included in cash flows from investing activities, accounts payable and accrued expenses, offset by government funding recognized;

and (ii) construction costs determined to be lessor improvements recorded as prepaid lease payments and right-of-use assets, including portions included in accounts payable and accrued expenses, offset by government funding recognized.

Operating Expenses

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Cost of revenue $ 168,957 $ 140,561 20.2 % 19.1 % 17.6 %

Research and development 15,219 9,304 63.6 % 1.9 % 3.3 %

Selling, general and administrative 129,259 100,064 29.2 % 14.7 % 12.5 %

Research and development 18,369 15,219 20.7 % 2.1 % 1.9 %

Change in estimated fair value of contingent consideration (7,800) — * (0.9) % — %

Gain on sale of business — (11,249) * — % (1.4) %

Gain on sale and leaseback transaction — (19,002) * — % (6.7) %

Total operating expenses $ 308,785 $ 244,595 26.2 % 35.0 % 30.6 %

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Cost of revenue increased by $28.4 million from $140.6 million for the year ended December 31, 2021 to $169.0 million for the year ended December 31, 2022, or 20.2%.

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.

The increase in cost of revenue was primarily attributable to an increase in inventory reserve of $8.0 million as a result of lower projected manufacturing demand, and an increase in quality control costs of $6.6 million.

The increase was further driven by increases in amortization expense of $9.2 million for intangible assets recognized for the MyChem acquisition, an increase in personnel costs of $6.2 million driven by higher headcount to support Company growth, and an increase in facilities cost of $3.1 million due to additional facilities occupied.

These were partially offset by a $7.2 million decrease in labor and overhead costs driven by improved labor efficiencies.

Gross profit increased by $55.4 million from $658.7 million for the year ended December 31, 2021 to $714.0 million for the year ended December 31, 2022.

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.

The decrease in gross profit margin as a percentage of sales was primarily attributable to increases in inventory reserve, quality control costs, and amortization expense for newly acquired intangible assets.

These are partially offset by a favorable product mix shift compared to prior period.

Selling, General and Administrative

Selling, general and administrative expenses increased by $29.2 million from $100.1 million for the year ended December 31, 2021 to $129.3 million for the year ended December 31, 2022, or 29.2%.

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

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.

The increase was primarily driven by an increase in personnel costs of $10.6 million, an increase in marketing costs of $7.5 million attributable to market studies conducted and increased advertising efforts to help elevate market presence, an increase in services and other costs of $4.5 million which includes increased legal fees and transaction costs associated with the acquisition of MyChem, and an increase in provision for credit losses of $2.6 million driven by increases in outstanding receivables.

Research and Development

Research and development expenses increased by $3.2 million from $15.2 million for the year ended December 31, 2021 to $18.4 million for the year ended December 31, 2022, or 20.7%.

The increase was primarily driven by an increase in personnel costs of $11.7 million, including $9.3 million relating to retention payment accruals associated with the acquisition of MyChem.

This is partially offset by a decrease in supplies, materials and services of $8.6 million primarily driven by contracted studies in the prior year aimed at improvements for manufacturing processes.

Change in Estimated Fair Value of Contingent Consideration

The change in estimated fair value of contingent consideration of $7.8 million for the year ended December 31, 2022 was due to the decrease in estimated fair value of the liability during the second quarter of 2022 for the contingent payments associated with the acquisition of MyChem.

This was due to a change in estimate associated with MyChem revenue projections reaching thresholds that would trigger a contingent payment per the MyChem SPA.

Gain on 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)

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Interest expense $ (20,414) $ (30,260) (32.5) % (2.3) % (3.8) %

Change in payable to related parties pursuant to a Tax Receivable Agreement 6,101 — * 0.8 % — %

Interest income 2,338 — * 0.2 % — %

Loss on extinguishment of debt (208) — * 0.0 % — %

Change in payable to related parties pursuant to the Tax Receivable Agreement (4,102) 6,101 * (0.5) % 0.8 %

Other income (358) 279 * 0.0 % 0.0 %

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Other expense was $23.9 million for the year ended December 31, 2021 compared to $22.7 million for the year ended December 31, 2022, representing a decrease of $1.1 million, or 4.8%.

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.

The decrease in expense was attributable to a $9.8 million decrease in interest expense primarily due to a $10.3 million change in fair value of the interest rate cap.

The decrease was further driven by a $2.3 million increase in interest income for interest earned on our new demand deposits held at financial institutions.

These were partially offset by a $10.2 million change in gain (loss) related to the payable to related parties pursuant to the Tax Receivable Agreement 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.

Prior to our initial public offering (“IPO”), we utilized GTCR for certain services pursuant to an advisory services agreement.

Under this agreement, GTCR provided us with financial and management consulting services in the areas of corporate strategy, budgeting for future corporate investments, acquisition and divestiture strategies, and debt and equity financings.

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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

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.

During the years ended December 31, 2022 and 2021, the Company made distributions of $150.2 million and $153.5 million for tax liabilities to MLSH 1.

We are also a party to a Tax Receivable Agreement, or TRA, with MLSH 1, who is primarily owned by GTCR, and MLSH 2 (see Note 14 to our consolidated financial statements).

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, Topco LLC and subsidiaries of Topco LLC that existed prior to the IPO, 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”).

Payment obligations under the TRA are not conditioned upon any Topco LLC unitholders maintaining a continued ownership interest in us or Topco LLC, and the rights of MLSH 1 and MLSH 2 under the TRA are assignable.

There is no stated term for the TRA, and the TRA will continue until all tax benefits have been utilized or expired unless we exercise our right to terminate the TRA for an agreed-upon amount.

We made payments of $35.3 million to MLSH 1 and MLSH 2 pursuant to the TRA during the year ended December 31, 2022, of which $1.1 million is related to interest.

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, 2022, our liability under the TRA was $718.2 million.

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We also had positive cash flow from operations of $536.0 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 have relied on revenue derived from product and services sales, and equity and debt financings to fund our operations to date.

Our principal uses of cash have been to fund operations, acquisitions and capital expenditures, as well as make tax distributions to MLSH 1, make TRA payments to MLSH 1 and MLSH 2 and make interest payments and mandatory principal payments on our long-term debt.

We plan to utilize our existing cash on hand, together with cash generated from operations, primarily to fund our commercial and marketing activities associated with our products and services, continued research and development initiatives, 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.

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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.

Assuming no changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we expect that future payments under the TRA relating to the purchase by the Company of LLC Units from MLSH 1 and the tax attributes to be approximately $718.2 million and to range over the next 14 years from approximately $42.3 million to $63.3 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.

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There can be no assurance that we will be able to finance our obligations under the TRA.

In addition to payments to be made under the TRA, we are also required to make tax distributions to MLSH 1 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.

In addition to payments to be made under the TRA, we are also required to make tax distributions to MLSH 1 pursuant to the LLC Operating Agreement for the portion of income passing through to them from Topco LLC.

During the years ended

December 31, 2022 and 2021, the Company made distributions of $150.2 million and $153.5 million for tax liabilities to MLSH 1 under this agreement, respectively.

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

“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.

The Credit Agreement among Intermediate, Cygnus and TriLink, as the borrowers, Topco LLC, as holdings, the lenders from time-to-time party thereto and Morgan Stanley Senior Funding, Inc., as administrative and collateral agent (as amended, supplemented or otherwise modified, the “Credit Agreement”), provides us with a term-loan facility (the “Term Loan”) totaling $600.0 million and a revolving credit facility (the “Revolving Credit Facility”) of $180.0 million for letters of credit and loans to be used for working capital and other general corporate financing purposes.

Borrowings under the Credit Agreement are unconditionally guaranteed by Topco LLC, along with the existing and future material domestic subsidiaries of Topco LLC (subject to certain exceptions) as specified in the respective guaranty agreements and are secured by a lien and security interest in substantially all of the assets of existing and future material domestic subsidiaries of Topco LLC that are loan parties.

In January 2022, the Company entered into an amendment (the “Amendment”) to the Credit Agreement to:

(i) refinance the existing $544.0 million aggregate principal balance on the First Lien Term Loan and to replace it with a new Tranche B Term Loan (“Tranche B Term Loan”), (ii) replace the LIBOR-based interest rate with a Term Secured Overnight Financing Rate (“SOFR”) based rate, and (iii) reduce the interest rate margins applicable to the Term Loan and Revolving Credit Facilities under the Credit Agreement.

The previous interest rate margin on the facilities was, with respect to each LIBOR-based loan, 3.75% to 4.25% and, with respect to each base rate-based loan, 2.75% to 3.25% (depending, in each case, on consolidated first lien leverage).

Following the Amendment, the interest rate margin on the facilities is 3.00%, with respect to each Term SOFR-based loan, and 2.00%, with respect to each base rate-based loan.

Further, the Amendment reduced the base rate floor for the term loans from 2.00% to 1.50%, sets the floor for Term SOFR-based term loans at 0.50% and sets the floor for Term SOFR-based revolving loans at 0.00%.

No other significant terms under the Credit Agreement were changed in connection with the Amendment.

The Base Rate is defined in the Credit Agreement as the greatest of (i) the rate last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (ii) the NYFRB Rate plus 0.50% per annum, (iii) the Term SOFR Rate for a one month interest period plus 1.00% per annum, (iv) solely with respect to the Tranche B Term Loans, 1.50% per annum and (v) for any loans that are not Tranche B Term Loans, 1.00% per annum.

The “Term SOFR Rate,” as defined in the Credit Agreement, means with respect to any Term SOFR Rate Borrowing and for any other tenor comparable to the applicable interest period, the Term SOFR Reference Rate at approximately 5:00 a.m., Chicago time, two U.S.

Government Securities Business Days prior to the commencement of such tenor comparable to the applicable interest period, as such rate is published by the CME Term SOFR Administrator;

provided that in no event shall the Term SOFR Rate for any interest period (i) for Term B Loans be less than 0.50% or (ii) for any other Loans, be less than 0.00%.

provided that in no event shall the Term SOFR Rate for any interest period (i) for Tranche B Term Loans be less than 0.50% or (ii) for any other Loans, be less than 0.00%.

The Tranche B Term Loan became repayable in quarterly payments of $1.4 million beginning in March 2022, with all remaining outstanding principal due in October 2027.

The Tranche B Term Loan includes prepayment provisions that allow us, at our option, to repay all or a portion of the principal amount at any time.

The Revolving Credit Facility allows us to repay and borrow from time to time until October 2025, at which time all amounts borrowed must be repaid.

Subject to certain exceptions and limitations, we are required to repay borrowings under the Tranche B Term Loan and Revolving Credit Facility with the proceeds of certain occurrences, such as the incurrence of debt, certain equity contributions and certain asset sales or dispositions.

Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires that we make mandatory prepayments on the Term Loan principal out of certain excess cash flow, subject to certain step-downs based on the Company’s first lien net leverage ratio.

The mandatory prepayment shall be reduced to 25% or 0% of the calculated excess cash flow if the first lien net leverage ratio was equal to or less than 4.75:1.00 or 4.25:1.00, respectively;

however, no prepayment is required to the extent excess cash flow calculated for the respective period is equal to or less than $10.0 million.

As of December 31, 2022, our first lien net leverage ratio was less than 4.25:1.00.

Thus, a prepayment was not required.

Accrued interest under the Credit Agreement is payable by us (a) quarterly in arrears with respect to Base Rate loans, (b) at the end of each interest rate period (or at each three-month interval in the case of loans with interest periods greater than three months) with respect to Term SOFR Rate loans, (c) on the date of any repayment or prepayment and (d) at maturity (whether by acceleration or otherwise).

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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.

The Credit Agreement includes financial covenants.

One financial covenant is a consolidated first lien coverage ratio measured as of the last day of each fiscal quarter.

Another requires that, if as of the end of any fiscal quarter the aggregate amount of

letters of credit obligations and borrowings under the Revolving Credit Facility outstanding as of the end of such fiscal quarter (excluding cash collateralized letters of credit obligations and letter of credit obligations in an aggregate amount not in excess of $5.0 million at any time outstanding and for the first four fiscal quarters ending after October 2020, borrowings of revolving credit loans made before October 2020) exceeds 35% of the aggregate amount of all Revolving Credit Commitments in effect as of such date, then the net leverage ratio of Intermediate may not be greater than 8.00 to 1.00.

For purposes of this covenant, the net leverage ratio is calculated by dividing outstanding first lien indebtedness (net of cash) by Adjusted EBITDA over the preceding four fiscal quarters.

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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, 2022, 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, 2022, interest rate on the Term Loan was 6.96%.

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.

We are a party to the TRA with MLSH 1 and MLSH 2.

The TRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of certain tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of the Organizational Transactions, IPO and any subsequent purchases or exchanges of LLC Units of Topco LLC.

Based on our current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipate having enough taxable income to utilize most of these tax benefits.

As of December 31, 2022, our liability under the TRA was $718.2 million, representing 85% of the calculated tax savings we anticipated being able to utilize in future years.

We may record additional liabilities under the TRA when LLC Units are exchanged in the future and as our estimates of the future utilization of the Tax Attributes, net operating losses and other tax benefits change.

We expect to make payments under the TRA, to the extent they are required, within 125 days after the extended due date of our U.S.

federal income tax return for such taxable year.

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.

Interest on such payments will begin to accrue from the due date (without extensions) of such tax return at a rate of LIBOR (or, if LIBOR ceases to be published, a replacement rate) plus 100 basis points.

any late payments will continue to accrue interest at LIBOR (or a replacement rate, as applicable) plus 500 basis points until such payments are made.

The payment obligations under the TRA are obligations of Maravai LifeSciences Holdings, Inc.

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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

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.

The following table summarizes our cash flows for the periods presented (in thousands):

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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.

Net cash provided by operating activities for the year ended December 31, 2022 was $536.0 million, which was primarily attributable to a net income of $490.7 million, non-cash depreciation and amortization of $31.8 million, amortization of right-of-use assets of $6.3 million, non-cash amortization of deferred financing costs of $2.8 million, non-cash equity-based compensation of $18.7 million, non-cash deferred income taxes of $42.3 million, and non-cash loss on the revaluation of liabilities under the TRA of $4.1 million.

These were partially offset by a non-cash gain on the change in estimated fair value of contingent consideration of $7.8 million, and a net cash outflow from the change in our operating assets and liabilities of $45.1 million, which is net of government funding of $17.0 million.

The net cash outflow from the change in our operating assets includes $13.4 million relating to an increase in prepaid lease payments for Flanders I (as defined in Note 7 to our consolidated financial statements).

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 amortization of right-of-use assets 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 non-cash deferred income taxes of $46.9 million, partially offset by a non-cash gain on sale of business of $11.2 million, 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.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2022 was $267.6 million, which was primarily comprised of $239.0 million for the net cash consideration paid for the acquisition of MyChem, net cash outflows of $17.1 million for property and equipment purchases, and $13.3 million of prepaid lease payments for Flanders II (as defined in Note 7 to our consolidated financial statements).

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.

Financing Activities

Net cash used in financing activities for the year ended December 31, 2022 was $187.5 million, which was primarily attributable to $150.2 million of distributions for tax liabilities to non-controlling interest holders, required pursuant to the terms of the LLC Operating Agreement, $34.2 million of payments to MLSH 1 and MLSH 2 pursuant to the TRA, and $13.9 million of principal repayments of long-term debt.

This was partially offset by proceeds from borrowings of long-term debt of $8.5 million.

Net cash used in financing activities for the 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.

Capital expenditures for the year ended December 31, 2022 totaled $46.9 million, which is net of government funding of $18.1 million.

Capital expenditures, including costs incurred for lessor improvements, for the year ending December 31, 2023 are projected to be in the range of $55.0 million to $65.0 million, which is net of anticipated government funding of $4.3 million.

This primarily includes new facility construction costs recorded as prepaid lease payments and equipment purchases for the Flanders San Diego Facility.

Contractual Obligations and Commitments

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3,000 3,000 — — —

Consideration payable (5)

10,000 10,000 — — —

Other commitments (6)

37,082 2,564 6,754 7,166 20,598

Total $ 1,378,222 $ 73,144 $ 124,467 $ 635,651 $ 544,960

_______________

(1) Represents operating leases including our Flanders San Diego Facility and Leland Facility, which are expected to commence in September 2022.

(1) Represents operating lease payment obligations, excluding any renewal options we are reasonably certain to execute and have recognized as lease liabilities.

See Note 7 to our consolidated financial statements for additional information.

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See Note 9 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, 2022.

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(4) Represents firm purchase commitments to our suppliers.

(5) Represents an additional amount we may be required to pay to the sellers of MyChem subject to the completion of certain calculations associated with acquired inventory.

See Note 2 to our consolidated financial statements for additional information.

(6) Represents the estimated timing and amounts of lease payments for the Flanders San Diego Facility that is under construction.

Tax distributions are required under the terms of the Topco LLC Agreement.

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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

The mandatory prepayment shall be reduced to 25% or 0% of the calculated excess cash flow if the first lien net leverage ratio was equal to or less than 4.75:1.00 or 4.25:1.00, respectively;

however, no prepayment shall be required to the extent excess cash flow calculated for the respective period is equal to or less than $10.0 million..

As of December 31, 2022, our first lien net leverage ratio was less than 4.25:1.00.

In connection with our acquisition of MyChem, we may be required to make certain payments to its sellers.

We may be required to make additional payments of up to $40.0 million to the sellers of MyChem dependent upon meeting or exceeding defined revenue targets during fiscal 2022.

We may also be required to make certain payments of $20.0 million to them as of the second anniversary of the closing of the acquisition date as long as the sellers of MyChem continue to be employed by TriLink.

We cannot, at this time, determine when or if the related targets will be achieved or whether the events triggering the commencement of payment obligations will occur.

Therefore, such payments were not included in the table above.

See Notes 2 and 4 to our consolidated financial statements for additional details.

Critical Accounting Estimates

We have prepared our consolidated financial statements in accordance with GAAP.

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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

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.

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 estimates used in the preparation of our consolidated financial statements, which require subjective and complex judgments.

We are subject to U.S.

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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

Payable to Related Parties Pursuant to the Tax Receivable Agreement

In November 2020, we entered into a TRA with MLSH 1 and MLSH 2.

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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).

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.

In this scenario, the reduction of the liability under the TRA would result in a benefit to our consolidated statements of income.

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:

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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.

Recognition of Intangible Assets as Part of a Business Combination

For acquisitions of businesses, we are required to record the assets acquired and liabilities assumed of acquired businesses at their respective fair values at the date of acquisition.

The purchase price, which includes the fair value of consideration transferred, is attributed to the fair value of the assets acquired and liabilities assumed.

The excess of the purchase price of the acquisition over the fair value of the identifiable net assets of the acquiree is recorded as goodwill.

Determining the fair value of intangible assets acquired, defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants, requires management to use significant judgment, including the selection of valuation methodologies, assumptions about future net cash flows, and discount rates.

Each of these factors can significantly affect the value attributed to the identifiable intangible asset acquired in a business combination.

We typically use the discounted cash flow method under the income approach to estimate the fair value of identifiable intangible assets acquired in a business combination.

For the acquisition of MyChem, LLC, the estimated fair value of the developed technology intangible asset was based on the multi-period excess earnings method.

The estimated fair value was developed by discounting future net cash flows to their present value at market-based rates of return.

We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated revenue growth rates, management’s plans, and guideline companies.

Some of the more significant assumptions inherent in estimating the fair value of this intangible asset included revenue growth rates ranging from 3.0% to 30.6%, technical obsolescent curves ranging from 5.0% to 7.5%, and a discount rate of 16.5%.

The use of alternative estimates and assumptions could increase or decrease the estimated fair value and amounts allocated to identifiable intangible assets acquired and future amortization expense as well as goodwill.

Recent Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis