MARAVAI LIFESCIENCES HOLDINGS, INC. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis reflects our historical consolidated results of operations and financial position, and contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors.” Please also see the section titled “Forward Looking Statements.” We were incorporated in August 2020 and, pursuant to the organizational transactions described in Note 10 to our consolidated financial statements, became a holding company whose principal asset is a controlling equity interest in Topco LLC. As the sole managing member of Topco LLC, we operate and control the business and affairs of Topco LLC and its subsidiaries. Accordingly, we consolidate Topco LLC in our consolidated financial statements and report a non-controlling interest related to the portion of Topco LLC not owned by us. Because the organizational transactions were considered transactions between entities under common control, the consolidated financial statements for periods prior to the organizational transactions and the initial public offering have been adjusted to combine the previously separate entities for presentation purposes. Unless otherwise noted or the context otherwise requires, references in this Annual Report on Form 10-K to “we,” “us” or “our” refer to Maravai LifeSciences Holdings, Inc. and its subsidiaries. This discussion and analysis generally addresses 2022 and 2021 items and year-over-year comparisons between 2022 and 2021. Discussions of 2020 items and year-over-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7 of our 2021 Annual Report on Form 10-K filed with the SEC on March 1, 2022. 61 Table of Contents Overview We are a leading life sciences company providing critical products to enable the development of drug therapies, diagnostics, novel vaccines and support research on human diseases. Our customers include the top global biopharmaceutical companies ranked by research and development expenditures according to industry consultants, and many other emerging biopharmaceutical and life sciences research companies, as well as leading academic research institutions and in vitro diagnostics companies. Our products address the key phases of biopharmaceutical development and include complex nucleic acids for diagnostic and therapeutic applications, antibody-based products to detect impurities during the production of biopharmaceutical products, and products to detect the expression of proteins in tissues of various species. We have and will continue to build a transformative life sciences products company by acquiring businesses and accelerating their growth through capital infusions and industry expertise. Biomedical innovation is dependent on a reliable supply of reagents in the fields of nucleic acid production, biologics safety testing and protein labeling. From inventive startups to the world’s leading biopharmaceutical, vaccine, diagnostics and gene and cell therapy companies, these customers turn to us to solve their complex discovery challenges and help them streamline and scale their supply chain needs beginning from research and development through clinical trials to commercialization. Our primary customers are biopharmaceutical companies who are pursuing novel research and product development programs. Our customers also include a range of government, academic and biotechnology institutions. As of December 31, 2022, we employed a team of over 610 full-time employees, approximately 18% of whom have advanced degrees. We primarily utilize a direct sales model for our sales to our customers in North America. Our international sales, primarily in Europe and Asia Pacific, are effected through a combination of third-party distributors as well as via a direct sales model. The percentage of our total revenue derived from customers in North America was 38.4% and 39.7% for the years ended December 31, 2022 and 2021, respectively. 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. We focus a substantial portion of our resources supporting our core business segments. We are actively pursuing opportunities to expand our customer base both domestically and internationally by fostering strong relationships with both existing and new customers and distributors. Our management team has experience working with biopharmaceutical, vaccine, diagnostics and gene and cell therapy companies as well as academic and research scientists. We also intend to continue making investments in our overall infrastructure and business segments to support our growth. We incurred aggregate selling, general, and administrative expenses of $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 Acquisitions 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. 62 Table of Contents 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 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; 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 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 the U.S. 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 Biopharmaceutical customers are increasingly relying on outside parties to provide important inputs and services for their clinical research and manufacturing, a development driving growth for suppliers with unique capabilities and the ability to manufacture at an appropriate scale to support customer programs. We believe that suppliers like ourselves, with this rare combination of capabilities, proprietary products and the required investment in manufacturing and quality systems, are benefiting from rapid growth as biopharmaceutical customers seek to partner with a small number of trusted suppliers. In addition to the continued trend toward outsourcing, several market developments are driving increased growth, in our addressable market segments, including: (i) pivot toward mRNA vaccines driven in part by 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; 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. Business. 63 Table of Contents How We Assess Our Business We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use to determine how our business is performing are revenue and Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) adjusted for interest, provision for income taxes, depreciation, amortization and equity-based compensation expenses. Adjusted EBITDA reflects further adjustments to eliminate the impact of certain items, including certain non-cash and other items, that we do not consider representative of our ongoing operating performance. We also present Adjusted Free Cash Flow, which is a non-GAAP measure that we define as Adjusted EBITDA less capital expenditures. Management uses Adjusted EBITDA to evaluate the financial performance of our business and the effectiveness of our business strategies. We present Adjusted EBITDA and Adjusted Free Cash Flow because we believe they are frequently used by analysts, investors and other interested parties to evaluate companies in our industry, and they facilitate comparisons on a consistent basis across reporting periods. Further, we believe they are helpful in highlighting trends in our operating results because they exclude items that are not indicative of our core operating performance. Adjusted EBITDA is also a component of the financial covenant under our credit agreement 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. See “Liquidity and Capital Resources—Sources of Liquidity—Debt Covenants” for a discussion of this financial covenant. Adjusted EBITDA and Adjusted Free Cash Flow have limitations as analytical tools and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. We may in the future incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. In particular, we expect to incur meaningful share-based compensation expense in the future. Other limitations include that Adjusted EBITDA and Adjusted Free Cash Flow do not reflect: • all expenditures or future requirements for capital expenditures or contractual commitments; • changes in our working capital needs; • provision for income taxes, which may be a necessary element of our costs and ability to operate; • the costs of replacing the assets being depreciated, which will often have to be replaced in the future; • the non-cash component of employee compensation expense; and • the impact of earnings or charges resulting from matters we consider not to be reflective, on a recurring basis, of our ongoing operations. In addition, Adjusted EBITDA and Adjusted Free Cash Flow may not be comparable to similarly titled measures used by other companies in our industry or across different industries. Components of Results of Operations Revenue Our revenue consists primarily of product revenue and, to a much lesser extent, service revenue. We generated total consolidated revenue of $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 Our Nucleic Acid Production segment focuses on the manufacturing and sale of highly modified nucleic acids products to support the needs of customers’ research, therapeutic and vaccine programs. This segment also provides research products for labeling and detecting proteins in cells and tissue samples. Biologics Safety Testing Segment Our Biologics Safety Testing segment focuses on manufacturing and selling biologics safety and impurity tests and assay development services that are utilized by our customers in their biologic drug manufacturing activities. 64 Table of Contents Protein Detection Segment Our Protein Detection segment products, which included a portfolio of labeling and visual detection reagents, were purchased by our scientific research customers for their tissue-based protein detection and characterization needs. In September 2021, we completed the divestiture of Vector Laboratories, Inc. and subsidiaries (“Vector”), which made up our Protein Detection segment. Cost of Revenue Cost of revenue associated with our products primarily consists of manufacturing related costs incurred in the production process, including personnel and related costs, equity-based compensation expense, inventory write-downs, costs of materials, labor and overhead, packaging and delivery costs and allocated costs, including facilities, information technology, depreciation, and amortization of intangibles. Cost of revenue associated with our services primarily consists of personnel and related costs, equity-based compensation expense, cost of materials and allocated costs, including facilities and information technology costs. Costs of services were not material 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 Research and development costs primarily consist of salaries, benefits, equity-based compensation expense, outside contracted services, cost of supplies, in-process research and development costs from asset acquisitions and allocated facilities costs for employees engaged in research and development of products and services. We expense all research and development costs in the period in which they are incurred. Payment made prior to the receipt of goods or services to be used in research and development are recognized as prepaid assets until the goods are received or services are rendered. We expect 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 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. Interest expense also consists of changes in the fair value of our interest rate cap agreement. 65 Table of Contents 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. 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. federal, state and local income taxes with respect to our allocable share of any taxable income of Topco LLC and will be taxed at the prevailing corporate tax rates. Non-Controlling Interests Non-controlling interests represent the portion of profit or loss, net assets and comprehensive 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. 66 Table of Contents Results of Operations The results of operations presented below should be reviewed in conjunction with the consolidated financial statements and notes included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2022 2021 Change (in thousands, except per share data) Revenue $ 883,001 $ 799,240 10.5 % Operating expenses: Cost of revenue (1) 168,957 140,561 20.2 % 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) * Total operating expenses 308,785 244,595 26.2 % Income from operations 574,216 554,645 3.5 % Other income (expense), net (22,744) (23,880) (4.8) % Income before income taxes 551,472 530,765 3.9 % Income tax expense 60,809 61,515 (1.1) % Net income $ 490,663 $ 469,250 4.6 % 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 attributable to Maravai LifeSciences Holdings, Inc.: Basic $ 1.67 $ 1.59 Diluted $ 1.67 $ 1.56 Weighted average number of Class A common shares outstanding: Basic 131,545 114,791 Diluted 255,323 257,803 Non-GAAP measures: Adjusted EBITDA $ 637,800 $ 582,820 Adjusted Free Cash Flow $ 590,897 $ 565,821 ____________________ * Not meaningful (1) Includes equity-based compensation expense as follows (in thousands, except percentages): Year Ended December 31, 2022 2021 Change Cost of revenue $ 4,192 $ 1,915 118.9 % 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 % 67 Table of Contents Revenue Consolidated revenue by segment was as follows for the periods presented (in thousands, except percentages): Year Ended December 31, Percentage of Revenue 2022 2021 Change 2022 2021 Nucleic Acid Production $ 813,069 $ 711,864 14.2 % 92.1 % 89.1 % Biologics Safety Testing 69,932 68,417 2.2 % 7.9 % 8.5 % Protein Detection — 18,959 * — % 2.4 % Total revenue $ 883,001 $ 799,240 10.5 % 100.0 % 100.0 % ____________________ * 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 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 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. 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 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 68 Table of Contents 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, 2022 2021 Revenue: 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. 69 Table of Contents 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, 2022 2021 Net income $ 490,663 $ 469,250 Add: Amortization 24,269 18,339 Depreciation 7,566 6,413 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) (7,800) — Acquisition integration costs (2) 13,362 44 Equity-based compensation (3) 18,670 10,458 Gain on sale of business (4) — (11,249) Merger and acquisition related expenses (5) 2,416 1,508 Financing costs (6) 1,078 2,383 Acquisition related tax adjustment (7) 349 — Tax receivable agreement liability adjustment (8) 4,102 (6,101) Chief Executive Officer transition costs (9) 2,426 — Other (10) 1,814 — Adjusted EBITDA $ 637,800 $ 582,820 ____________________ (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 the gain on the sale of Vector, which was completed in September 2021. (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. (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. 70 Table of Contents Adjusted Free Cash Flow A reconciliation of Adjusted Free Cash Flow, which is a non-GAAP measure that we define as Adjusted EBITDA less capital expenditures, is set forth below (in thousands): Year Ended December 31, 2022 2021 Adjusted EBITDA $ 637,800 $ 582,820 Capital expenditures (1) (46,903) (16,999) Adjusted Free Cash Flow $ 590,897 $ 565,821 ____________________ (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 Operating expenses include the following for the periods presented (in thousands, except percentages): Year Ended December 31, Percentage of Revenue 2022 2021 Change 2022 2021 Cost of revenue $ 168,957 $ 140,561 20.2 % 19.1 % 17.6 % 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) % Total operating expenses $ 308,785 $ 244,595 26.2 % 35.0 % 30.6 % ____________________ * Not meaningful Cost of Revenue 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 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 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 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. 71 Table of Contents 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. Other Income (Expense) Other income (expense) includes the following for the periods presented (in thousands, except percentages): Year Ended December 31, Percentage of Revenue 2022 2021 Change 2022 2021 Interest expense $ (20,414) $ (30,260) (32.5) % (2.3) % (3.8) % 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 % Total other income (expense), net $ (22,744) $ (23,880) (4.8) % (2.6) % (3.0) % ____________________ * Not meaningful 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 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 (“IPO”), we utilized GTCR for certain services pursuant to an advisory services agreement. Under this agreement, GTCR provided us with financial and management consulting services in the areas of corporate strategy, budgeting for future corporate investments, acquisition and divestiture strategies, and debt and equity financings. The advisory services agreement provided that we pay a $0.1 million quarterly management fee to GTCR for these services. We also reimbursed GTCR for out-of-pocket expenses incurred while providing these services. The advisory services agreement also provided that certain of our subsidiaries pay placement fees to GTCR of 1.0% of the gross amount of debt or equity financings. In connection with our IPO, this advisory services agreement was terminated. 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, 72 Table of Contents 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. As of December 31, 2022, our liability under the TRA was $718.2 million. Liquidity and Capital Resources Overview We have financed our operations primarily from cash flow from operations, borrowings under long-term debt agreements and, to a lesser extent, the sale of our Class A common stock. As of December 31, 2022, we had cash of $632.1 million, retained earnings of $404.8 million, and net income of $490.7 million for the fiscal year ended December 31, 2022. 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. 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. As a result of our ownership of LLC Units in Topco LLC, the Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of Topco LLC and is taxed at the prevailing corporate tax rates. In addition to tax expenses, we also will incur expenses related to our operations and we will be required to make payments under the TRA with MLSH 1 and MLSH 2. Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of LLC Unit exchanges and the resulting amounts we are likely to pay out to LLC Unitholders of Topco LLC pursuant to the TRA; however, we estimate that such payments may be substantial. Assuming no changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we expect that future payments under the TRA relating to the purchase by the Company of LLC Units from MLSH 1 and the tax attributes to be approximately $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. The foregoing numbers are estimates and the actual payments could differ materially. We expect to fund these payments using cash on hand and cash generated from operations. As a result of a change of control, material breach, or our election to terminate the TRA early, (1) we could be required to make cash payments to MLSH 1 and MLSH 2 that are greater than the specified percentage of the actual benefits we ultimately realize in respect of the tax benefits that are subject to the TRA, and (2) we will be required to make an immediate cash payment equal to the present value of the anticipated future tax benefits that are the subject of the TRA, which payment may be made significantly in advance of the actual realization, if any, of such future tax benefits. In these situations, our obligations under the TRA could have a material adverse effect on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combination, or other changes of control. There can be no assurance that we will be able to finance our obligations under the TRA. 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 73 Table of Contents 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 The Credit Agreement among Intermediate, Cygnus and TriLink, as the borrowers, Topco LLC, as holdings, the lenders from time-to-time party thereto and Morgan Stanley Senior Funding, Inc., as administrative and collateral agent (as amended, supplemented or otherwise modified, the “Credit Agreement”), provides us with a term-loan facility (the “Term Loan”) totaling $600.0 million and a revolving credit facility (the “Revolving Credit Facility”) of $180.0 million for letters of credit and loans to be used for working capital and other general corporate financing purposes. Borrowings under the Credit Agreement are unconditionally guaranteed by Topco LLC, along with the existing and future material domestic subsidiaries of Topco LLC (subject to certain exceptions) as specified in the respective guaranty agreements and are secured by a lien and security interest in substantially all of the assets of existing and future material domestic subsidiaries of Topco LLC that are loan parties. In January 2022, the Company entered into an amendment (the “Amendment”) to the Credit Agreement to: (i) refinance the existing $544.0 million aggregate principal balance on the First Lien Term Loan and to replace it with a new Tranche B Term Loan (“Tranche B Term Loan”), (ii) replace the LIBOR-based interest rate with a Term Secured Overnight Financing Rate (“SOFR”) based rate, and (iii) reduce the interest rate margins applicable to the Term Loan and Revolving Credit Facilities under the Credit Agreement. The previous interest rate margin on the facilities was, with respect to each LIBOR-based loan, 3.75% to 4.25% and, with respect to each base rate-based loan, 2.75% to 3.25% (depending, in each case, on consolidated first lien leverage). Following the Amendment, the interest rate margin on the facilities is 3.00%, with respect to each Term SOFR-based loan, and 2.00%, with respect to each base rate-based loan. Further, the Amendment reduced the base rate floor for the term loans from 2.00% to 1.50%, sets the floor for Term SOFR-based term loans at 0.50% and sets the floor for Term SOFR-based revolving loans at 0.00%. No other significant terms under the Credit Agreement were changed in connection with the Amendment. The Base Rate is defined in the Credit Agreement as the greatest of (i) the rate last quoted by The Wall Street Journal as the “Prime Rate” in the United States, (ii) the NYFRB Rate plus 0.50% per annum, (iii) the Term SOFR Rate for a one month interest period plus 1.00% per annum, (iv) solely with respect to the Tranche B Term Loans, 1.50% per annum and (v) for any loans that are not Tranche B Term Loans, 1.00% per annum. The “Term SOFR Rate,” as defined in the Credit Agreement, means with respect to any Term SOFR Rate Borrowing and for any other tenor comparable to the applicable interest period, the Term SOFR Reference Rate at approximately 5:00 a.m., Chicago time, two U.S. Government Securities Business Days prior to the commencement of such tenor comparable to the applicable interest period, as such rate is published by the CME Term SOFR Administrator; provided that in no event shall the Term SOFR Rate for any interest period (i) for Tranche B Term Loans be less than 0.50% or (ii) for any other Loans, be less than 0.00%. The Tranche B Term Loan became repayable in quarterly payments of $1.4 million beginning in March 2022, with all remaining outstanding principal due in October 2027. The Tranche B Term Loan includes prepayment provisions that allow us, at our option, to repay all or a portion of the principal amount at any time. The Revolving Credit Facility allows us to repay and borrow from time to time until October 2025, at which time all amounts borrowed must be repaid. Subject to certain exceptions and limitations, we are required to repay borrowings under the Tranche B Term Loan and Revolving Credit Facility with the proceeds of certain occurrences, such as the incurrence of debt, certain equity contributions and certain asset sales or dispositions. Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires that we make mandatory prepayments on the Term Loan principal out of certain excess cash flow, subject to certain step-downs based on the Company’s first lien net leverage ratio. The mandatory prepayment shall be reduced to 25% or 0% of the calculated excess cash flow if the first lien net leverage ratio was equal to or less than 4.75:1.00 or 4.25:1.00, respectively; however, no prepayment is required to the extent excess cash flow calculated for the respective period is equal to or less than $10.0 million. As of 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). An annual commitment fee is applied to the daily unutilized amount under the Revolving Credit Facility at 0.375% per annum, with one stepdown to 0.25% per annum based on Intermediate’s first lien net leverage ratio. Debt Covenants The Credit Agreement includes financial covenants. One financial covenant is a consolidated first lien coverage ratio measured as of the last day of each fiscal quarter. Another requires that, if as of the end of any fiscal quarter the aggregate amount of 74 Table of Contents 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. The Credit Agreement also contains negative and affirmative covenants in addition to the financial covenant, including covenants that restrict our ability to, among other things, incur or prepay certain indebtedness, pay dividends or distributions, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, and make changes in the nature of the business. The Credit Agreement contains certain events of default, including, without limitation, nonpayment of principal, interest or other obligations, violation of the covenants, insolvency, court ordered judgments and certain changes of control. The Credit Agreement also requires the Company to provide audited consolidated financial statements to the lenders no later than 120 days after year-end. As of December 31, 2022, we were in compliance with these covenants. As of December 31, 2022, interest rate on the Term Loan was 6.96%. Tax Receivable Agreement We are a party to the TRA with MLSH 1 and MLSH 2. The TRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of certain tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, as a result of the Organizational Transactions, IPO and any subsequent purchases or exchanges of LLC Units of Topco LLC. Based on our current projections of taxable income, and before deduction of any specially allocated depreciation and amortization, we anticipate having enough taxable income to utilize most of these tax benefits. As of 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. 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. Generally. 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. and not of Topco LLC. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the aggregate payments that we will be required to make to MLSH 1 and MLSH 2 will be substantial. Any payments made by us under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Topco LLC and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us. We anticipate funding ordinary course payments under the TRA from cash flow from operations of Topco LLC and its subsidiaries, available cash and/or available borrowings under the Credit Agreement. Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2022 2021 Net cash provided by (used in): Operating activities $ 535,977 $ 368,570 Investing activities (267,612) 105,655 Financing activities (187,499) (159,049) Effects of exchange rate changes on cash — (88) Net increase in cash $ 80,866 $ 315,088 75 Table of Contents Operating Activities 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. 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. Capital Expenditures 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. 76 Table of Contents Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of December 31, 2022 (in thousands): Payments due by period Total 1 year 2 - 3 years 4 - 5 years 5+ years Operating leases (1) $ 71,370 $ 9,886 $ 20,690 $ 17,414 $ 23,380 Debt obligations (2) 538,560 5,440 10,880 522,240 — TRA payments (3) 718,210 42,254 86,143 88,831 500,982 Unconditional purchase obligations (4) 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 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. (2) Represents long-term debt principal maturities, excluding interest. See Note 9 to our consolidated financial statements for additional information. (3) Reflects the estimated timing of TRA payments as of December 31, 2022. Such payments could be due later than estimated depending on the timing of our use of the underlying tax attributes. See "Risk Factors-Risks Related to Our Organizational Structure" and Note 14 to our consolidated financial statements for additional information regarding our liability under the TRA. (4) Represents firm purchase commitments to our suppliers. (5) Represents an additional amount we may be required to pay to the sellers of MyChem subject to the completion of certain calculations associated with acquired inventory. See Note 2 to 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. As of December 31, 2022, we have made tax distributions equal to the estimated obligation due for 2022. See Note 14 to our consolidated financial statements for additional information regarding tax distributions. 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 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. Our preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures in the consolidated financial statements. Our estimates are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions or conditions and any such difference may be material. 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. 77 Table of Contents Income Taxes We are subject to U.S. federal and state income taxes. We are the controlling member of Topco, LLC, which has been, and will continue to be, treated as a partnership for U.S. federal and state income tax purposes. Topco LLC’s subsidiaries are treated as pass-through entities for federal and state income tax purposes. The income or loss generated by these entities is not taxed at the LLC level. As required by U.S. tax law, income or loss generated by these LLCs passes through to their owners. As such, our tax provision consists solely of the activities of Maravai Inc. and its subsidiaries prior to their disposal, as well as our share of income generated by Topco LLC. We anticipate this structure to remain in existence for the foreseeable future. We account for income taxes under the asset and liability method of accounting. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We reduce the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax asset. The realizability of the Company’s deferred tax asset related to its investment in Topco LLC depends on the Company receiving allocations of tax deductions for its tax basis in the investment and on the Company generating sufficient taxable income to fully offset such deductions. We believe it is more likely than not that the Company will generate sufficient taxable income in the future to fully realize any deductions allocated to it from Topco LLC associated with the reversal of its tax basis as of December 31, 2022. However, a portion of the deferred tax asset may only be realizable through the sale or liquidation of the investment and our ability to generate sufficient capital gains. As such, a valuation allowance of $23.8 million has been recorded as of December 31, 2022 to reflect the deferred tax asset that is more likely than not to not be realized. We account for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon technical merits, it is more likely than not that the position will be sustained upon examination. Significant judgment is required in determining the accounting for income taxes. In the ordinary course of business, many transactions and calculations arise where the ultimate tax outcome is uncertain. Our judgments, assumptions and estimates relative to the accounting for income taxes take into account current tax laws, our interpretation of current tax laws, and possible outcomes of future audits conducted by foreign and domestic tax authorities. Although we believe that our estimates are reasonable, the final tax outcome of matters could be different from our assumptions and estimates used when determining the accounting for income taxes. Such differences, if identified in future periods, could have a material effect on the amounts recorded in our consolidated financial statements. Payable to Related Parties Pursuant to the Tax Receivable Agreement In November 2020, we entered into a TRA with MLSH 1 and MLSH 2. The TRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize from exchanges of LLC Units (together with the corresponding share of Class B Common stock), as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) increase in the tax basis of assets of Topco LLC received form LLC Units held by entities acquired from MLSH 1 and MLSH 2 in connection with the Organizational Transactions (“the Blocker Entities”), Topco LLC and subsidiaries of Topco LLC that existed prior to this offering and (iii) certain other tax benefits related to our entering into the TRA, including tax benefits attributable to payments that we make under the TRA (collectively, the “Tax Attributes”). The payment obligations under the TRA are not conditioned upon any LLC Unitholder maintaining a continued ownership interest in us or Topco LLC and the rights of MLSH 1 and MLSH 2 under the TRA are assignable. We expect to benefit from the remaining 15% of the tax benefits, if any, that we may actually realize. We accrue a liability for the payable to related parties for the TRA and a reduction to stockholders’ equity, when it is deemed probable that the Tax Attributes will be used to reduce our taxable income, as the contractual percentage of the benefit of Tax Attributes that we expected to receive over a period of time. The current portion, if any, of the liability is the amount estimated to be paid within one year of the balance sheet date. For purposes of estimating the value of the payable to related parties for the TRA, the tax benefit deemed realized by us and payable to MLSH 1 and MLSH 2 is computed by taking 85% of the difference between undiscounted forecasted cash income tax liability over the term of benefit of the Tax Attributes and the forecasted amount of such taxes that we would have been required to pay had there been no Tax Attributes (i.e. a with-and-without analysis); provided that, for purposes of determining the tax benefit with respect to state and local income taxes, use simplifying assumptions. The TRA will generally apply to each of our taxable years, beginning with the taxable year that the TRA is entered into. There is no maximum term for the TRA and the TRA will continue until all such tax benefits have been utilized or expired unless we exercise our right to terminate the TRA for an agreed-upon amount equal to the estimated present value of the remaining payments to be made under the agreement (calculated with certain assumptions, including as to utilization of the 78 Table of Contents 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 statements of income. 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 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: • the timing of any future exchanges—for instance, the increase in any tax deductions will vary depending on the fair value, which may fluctuate over time, of the depreciable or amortizable assets of Topco LLC and its flow-through subsidiaries at the time of each exchange; • the price of shares of our Class A common stock at the time of any future exchanges—the increases and adjustments in our proportionate share of the existing tax basis of the assets of Topco LLC and its flow-through subsidiaries that are directly related to the price of shares of our Class A common stock at the time of future exchanges; • the extent to which such exchanges are taxable—if an exchange is not taxable for any reason, increased tax deductions as a result of legacy IRC Section 754 election in place at Topco LLC will not be available to generate payments under the TRA; • the amount and timing of our income—the TRA generally will require us to pay 85% of the tax benefits as and when those benefits are treated as realized by us under the terms of the TRA. If we do not have taxable income in a particular taxable year, we generally will not be required (absent a change of control or other circumstances requiring an early termination payment) to make payments under the TRA for that taxable year because no tax benefits will have been actually realized. Nevertheless, any tax benefits that do not result in realized tax benefits in a given taxable year will likely generate tax attributes that may be utilized to generate tax benefits in future (and possibly previous) taxable years. The utilization of any such tax attributes will result in payments under the TRA; and • applicable tax rates—the tax rates in effect at the time a tax benefit is recognized. The payment obligations under the TRA are obligations of Maravai LifeSciences Holdings, Inc. and not of Topco LLC. Although the actual timing and amount of any payments that may be made under the TRA will vary, we expect that the aggregate payments that we will be required to make to MLSH 1 and MLSH 2 will be substantial. Any payments made by us under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Topco LLC and, to the extent that we are unable to make payments under the TRA for any reason, the unpaid amounts will be deferred and will accrue interest until paid by us. We anticipate funding ordinary course payments under the TRA from cash flow from operations of Topco LLC and its subsidiaries, available cash and/or available borrowings under the Credit Agreement. Assuming no material changes in the relevant tax law, and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we expect that future payments under the Tax Receivable Agreement relating to the purchase by us of LLC Units from MLSH 1 in connection with our prior offering and subsequent exchanges and financing, to be approximately $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 financing would be in addition to these amounts and are expected to be substantial. The foregoing numbers are estimates and actual payments could differ materially. It is possible that future transactions or events could increase or decrease the actual tax benefits realized and the corresponding TRA payments. There may be a material negative effect on our liquidity if, as a result of timing discrepancies or otherwise, the payments under the TRA exceed the actual benefits we realize in respect of the tax attributes subject to the TRA and/or distributions to us by Topco LLC are not sufficient to permit us to make payments under the TRA after we have paid taxes. The term of the TRA commenced upon the completion of our IPO and will continue until all such tax benefits have been utilized or expire, unless we exercise our rights to terminate the agreements or payments under the agreements are accelerated in the event we materially breach any of our material obligations under the agreements. 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. 79 Table of Contents 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 See Note 1 to our consolidated financial statements for a discussion of recent accounting standards and pronouncements.