MARAVAI LIFESCIENCES HOLDINGS, INC. 10-Q

Item 2. 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 condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission. This discussion and analysis reflects our historical results of operations and financial position and contains 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” in our Annual Report on Form 10-K for the year ended December 31, 2022. Please also see the section titled “Special Note Regarding Forward-Looking Statements.” We were incorporated in August 2020 and, pursuant to the Organizational Transactions described in Note 1 to our condensed 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 Quarterly Report on Form 10-Q to “we,” “us” or “our” refer to Maravai LifeSciences Holdings, Inc. and its subsidiaries. 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 March 31, 2023, we employed a team of over 650 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 sold 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 51.3% and 35.6% for the three months ended March 31, 2023 and 2022, respectively. We generated revenue of $79.0 million and $244.3 million for the three months ended March 31, 2023 and 2022, respectively. Total revenue by segment was $61.5 million in Nucleic Acid Production and $17.6 million in Biologics Safety Testing for the three months ended March 31, 2023. Total revenue by segment was $223.7 million in Nucleic Acid Production and $20.6 million in Biologics Safety Testing for the three months ended March 31, 2022. 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 $38.7 million and $33.2 million for the three months ended March 31, 2023 and 2022, respectively. Our research and development efforts are geared towards supporting our customers’ needs. We incurred research and development expenses of $4.1 million and $3.7 million for the three months ended March 31, 2023 and 2022, respectively. We 33 Table of Contents intend to continue to invest in research and development and new products and technologies to support our customers’ needs for the foreseeable future. Recent Developments Acquisition 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, for a total purchase consideration of $75.4 million. As a result of the acquisition, we own all the outstanding interest in Alphazyme. Our consolidated results of operations for the three months ended March 31, 2023 include the operating results of Alphazyme from the acquisition date. See Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. 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 20.1% and 70.8% of our total revenues for the three months ended March 31, 2023 and 2022, respectively. However, we expect that 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 that our customers generally have 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. The factors that could influence longer-term COVID-19 related revenue include: the emergence, duration and intensity of new virus 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; and the U.S. economy and global economy, 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 lock-downs in China and our ongoing decisions not to ship into Russia. 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 (loss) income adjusted for interest expense, provision for income taxes, depreciation, amortization and stock-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 34 Table of Contents 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” below 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 $79.0 million and $244.3 million for the three months ended March 31, 2023 and 2022, respectively, through the following segments: (i) Nucleic Acid Production and (ii) 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. 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, stock-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, stock-based compensation expense, cost of materials and allocated costs, including facilities and information technology costs. Costs of services were not material for the three months ended March 31, 2023 and 2022. 35 Table of Contents Operating Expenses Selling, General and Administrative Our selling, general and administrative expenses primarily consist of salaries, benefits and stock-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 an 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, stock-based compensation expense, outside contracted services, cost of supplies, in-process research and development costs from asset acquisitions and allocated facilities costs for employees engaged in research and development of products and services. We expense all research and development costs in the period in which they are incurred. Payment made prior to the receipt of goods or services to be used in research and development are recognized as prepaid assets until the goods are received or services are rendered. We expect that our research and development costs 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. Other Income (Expense) Interest Expense Interest expense consists 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. 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 condensed consolidated balance sheets 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 condensed consolidated statements of operations. As of March 31, 2023, we held approximately 52.5% of the outstanding LLC Units of Topco LLC, and MLSH 1 held approximately 47.5% of the outstanding LLC Units of Topco LLC. 36 Table of Contents Results of Operations The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q. For information with respect to recent accounting pronouncements that are of significance or potential significance to us, see Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. Three Months Ended March 31, 2023 2022 Change (in thousands, except per share amounts) Revenue $ 79,025 $ 244,293 (67.7) % Operating expenses: Cost of revenue (1) 33,676 40,032 (15.9) % Selling, general and administrative (1) 38,671 33,200 16.5 % Research and development (1) 4,145 3,695 12.2 % Total operating expenses 76,492 76,927 (0.6) % Income from operations 2,533 167,366 (98.5) % Other income (expense), net (7,056) (525) * (Loss) income before income taxes (4,523) 166,841 (102.7) % Income tax (benefit) expense (3,175) 19,981 (115.9) % Net (loss) income $ (1,348) $ 146,860 (100.9) % Net (loss) income attributable to non-controlling interests (1,281) 79,998 (101.6) % Net (loss) income attributable to Maravai LifeSciences Holdings, Inc. $ (67) $ 66,862 (100.1) % Net (loss) income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.: Basic $ 0.00 $ 0.51 Diluted $ 0.00 $ 0.50 Weighted average number of Class A common shares outstanding: Basic 131,739 131,489 Diluted 131,739 255,287 Non-GAAP measures: Adjusted EBITDA $ 23,798 $ 186,992 Adjusted Free Cash Flow $ 22,653 $ 184,244 ____________________ * Not meaningful (1) Includes stock-based compensation expense as follows (in thousands, except percentages): Three Months Ended March 31, 2023 2022 Change Cost of revenue $ 1,339 $ 823 62.7 % Selling, general and administrative 4,202 2,633 59.6 % Research and development 446 171 160.8 % Total stock-based compensation expense $ 5,987 $ 3,627 65.1 % 37 Table of Contents Revenue Consolidated revenue by segment was as follows for the periods presented (in thousands, except percentages): Three Months Ended March 31, Percentage of Revenue 2023 2022 Change 2023 2022 Nucleic Acid Production $ 61,451 $ 223,650 (72.5) % 77.8 % 91.5 % Biologics Safety Testing 17,574 20,643 (14.9) % 22.2 % 8.5 % Total revenue $ 79,025 $ 244,293 (67.7) % 100.0 % 100.0 % Total revenue was $79.0 million for the three months ended March 31, 2023 compared to $244.3 million for the three months ended March 31, 2022, representing a decrease of $165.3 million, or 67.7%. Nucleic Acid Production revenue decreased from $223.7 million for the three months ended March 31, 2022 to $61.5 million for the three months ended March 31, 2023, representing a decrease of $162.2 million, or 72.5%. The decrease in Nucleic Acid Production revenue was primarily driven by decreased revenue from our proprietary CleanCap analogs as demand decreased from COVID-19 vaccine manufacturers. For the three months ended March 31, 2023, we estimate that approximately $15.9 million, or 55.1%, of our $28.9 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 three months ended March 31, 2022, we estimate that approximately $172.9 million, or 94.1%, of our $183.8 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 decreased from $20.6 million for the three months ended March 31, 2022 to $17.6 million for the three months ended March 31, 2023, representing a decrease of $3.1 million, or 14.9%. The decrease from the prior period was primarily due post-COVID inventory normalization by some customers and an ongoing slow return to work in China, which continued to impact demand for our HCP ELISA kits. 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 (loss) 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 March 31, 2023, 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 period below to remove the presentation of Total Adjusted EBITDA and reconcile the total of our reportable segments’ measure of profit or loss to (loss) income before income taxes, in addition to net (loss) income, and removed corporate costs, net of eliminations from total reportable segments’ adjusted EBITDA and included such amounts in the reconciliation to (loss) income before income taxes. Additionally, we have revised our prior year’s 38 Table of Contents presentation of our total reportable segments’ revenue, in which we removed intersegment eliminations from our total reportable segment’s revenue. Three Months Ended March 31, 2023 2022 Revenue: Nucleic Acid Production $ 61,451 $ 223,650 Biologics Safety Testing 17,574 20,643 Total reportable segments’ revenue $ 79,025 $ 244,293 Segment adjusted EBITDA: Nucleic Acid Production $ 27,873 $ 182,799 Biologics Safety Testing 13,746 16,532 Total reportable segments’ adjusted EBITDA 41,619 199,331 Reconciliation of total reportable segments’ adjusted EBITDA to (loss) income before income taxes Amortization (6,765) (5,527) Depreciation (2,080) (1,855) Interest expense (11,833) (2,664) Interest income 6,045 — Corporate costs, net of eliminations (17,821) (12,339) Other adjustments: Acquisition integration costs (2,464) (4,779) Stock-based compensation (5,987) (3,627) Merger and acquisition related expenses (3,291) (1,188) Financing costs — (1,037) Tax Receivable Agreement liability adjustment (1,436) 2,340 Other (510) (1,814) (Loss) income before income taxes (4,523) 166,841 Income tax (benefit) expense 3,175 (19,981) Net (loss) income $ (1,348) $ 146,860 There was no intersegment revenue during each of the three months ended March 31, 2023 and 2022. Any 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 each of the three months ended March 31, 2023 and 2022. 39 Table of Contents Non-GAAP Financial Measures Adjusted EBITDA A reconciliation of net (loss) income to adjusted EBITDA, which is a non-GAAP measure, is set forth below (in thousands): Three Months Ended March 31, 2023 2022 Net (loss) income $ (1,348) $ 146,860 Add: Amortization 6,765 5,527 Depreciation 2,080 1,855 Interest expense 11,833 2,664 Interest income (6,045) — Income tax (benefit) expense (3,175) 19,981 EBITDA 10,110 176,887 Acquisition integration costs (1) 2,464 4,779 Stock-based compensation (2) 5,987 3,627 Merger and acquisition related expenses (3) 3,291 1,188 Financing costs (4) — 1,037 Tax Receivable Agreement liability adjustment (5) 1,436 (2,340) Other (6) 510 1,814 Adjusted EBITDA $ 23,798 $ 186,992 ____________________ (1) Refers to incremental costs incurred to execute and integrate completed acquisitions, and retention payments in connection with these acquisitions. (2) Refers to non-cash expense associated with stock-based compensation. (3) Refers to diligence, legal, accounting, tax and consulting fees incurred associated with acquisitions that were pursued but not consummated. (4) Refers to transaction costs related to the refinancing of our long-term debt that are not capitalizable. (5) Refers to the adjustment of the Tax Receivable Agreement liability primarily due to changes in our estimated state apportionment and the corresponding change of our estimated state tax rate. (6) For the three months ended March 31, 2023, refers to severance payments, legal settlement amounts, inventory step-up charges in connection with the acquisition of Alphazyme, LLC, and other non-recurring costs. For the three months ended March 31, 2022, refers to the loss recognized during the period associated with certain working capital and other adjustments for the sale of Vector Laboratories, Inc., which was completed in September 2021, and the loss incurred on extinguishment of debt. Adjusted Free Cash Flow Adjusted Free Cash Flow, which is a non-GAAP measure that we define as Adjusted EBITDA less capital expenditures, is set forth below for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 Adjusted EBITDA $ 23,798 $ 186,992 Capital expenditures (1) (1,145) (2,748) Adjusted Free Cash Flow $ 22,653 $ 184,244 ____________________ (1) We define capital expenditures as: (i) purchases of property and equipment which are included in cash flows from investing activities, offset by government funding received; and (ii) construction costs determined to be lessor improvements recorded as prepaid lease payments and right-of-use assets, offset by government funding received. We revised our capital expenditures definition in the quarter ended March 31, 2023 to exclude the portions in accounts payable and accrued expenses. 40 Table of Contents Operating Expenses Operating expenses included the following for the periods presented (in thousands, except percentages): Three Months Ended March 31, Percentage of Revenue 2023 2022 Change 2023 2022 Cost of revenue $ 33,676 $ 40,032 (15.9) % 42.6 % 16.4 % Selling, general and administrative 38,671 33,200 16.5 % 48.9 % 13.6 % Research and development 4,145 3,695 12.2 % 5.3 % 1.5 % Total operating expenses $ 76,492 $ 76,927 (0.6) % 96.8 % 31.5 % ____________________ * Not meaningful Cost of Revenue Cost of revenue decreased by $6.4 million from $40.0 million for the three months ended March 31, 2022 to $33.7 million for the three months ended March 31, 2023, or 15.9%. The decrease in cost of revenue was primarily attributable to a decrease in direct product costs of $10.3 million driven by decreased revenues. This was partially offset by an increase in inventory reserve of $2.2 million as a result of lower projected manufacturing demand, and an increase in amortization expense of $1.2 million driven by newly acquired intangible assets. Gross profit decreased by $158.9 million from $204.3 million for the three months ended March 31, 2022 to $45.3 million for the three months ended March 31, 2023. The decrease in the gross profit margin as a percentage of sales was primarily attributable to a decrease in volume and unfavorable product mix shift, an increase in personnel costs, an increase in reserve for excess and obsolete inventory, and an increase in amortization expense for newly acquired intangible assets. Selling, General and Administrative Selling, general and administrative expenses increased by $5.5 million from $33.2 million for the three months ended March 31, 2022 to $38.7 million for the three months ended March 31, 2023, or 16.5%. The increase was primarily driven by an $8.8 million increase in personnel costs driven by additional headcount to support the Company’s anticipated long-term growth. This was partially offset by a decrease of $1.7 million in corporate expenses primarily driven by lower insurance costs and allowance for credit losses, and a $1.3 million decrease in professional service fees including audit fees and non-employee stock-based compensation expense. Research and Development Research and development expenses increased by $0.5 million from $3.7 million for the three months ended March 31, 2022 to $4.1 million for the three months ended March 31, 2023, or 12.2%. The increase was primarily driven by a $0.3 million increase in personnel costs relating to the Company’s increased research and development efforts, and a $0.3 million increase in supplies and materials driven by increased headcount. These were partially offset by a decrease of $0.2 million in services fees primarily driven by contracted studies done in the prior year period. 41 Table of Contents Other Income (Expense) Other income (expense) included the following for the periods presented (in thousands, except percentages): Three Months Ended March 31, Percentage of Revenue 2023 2022 Change 2023 2022 Interest expense $ (11,833) $ (2,664) 344.2 % (15.0) % (1.1) % Interest income 6,045 — * 7.7 % — % Loss on extinguishment of debt — (208) * — % (0.1) % Change in payable to related parties pursuant to the Tax Receivable Agreement (1,436) 2,340 (161.4) % (1.8) % 1.0 % Other expense 168 7 * 0.2 % 0.0 % Total other expense $ (7,056) $ (525) * (8.9) % (0.2) % ____________________ * Not meaningful Other expense was $0.5 million for the three months ended March 31, 2022 compared to $7.1 million for the three months ended March 31, 2023, representing an increase of $6.5 million. The increase in expense was primarily attributable to a $9.2 million increase in interest expense driven by higher interest rates in the current year, including a $4.1 million change in fair value of the interest rate cap agreement. The increase was further driven by a $3.8 million change in gain (loss) recognized 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. These increases were partially offset by a $6.0 million increase in interest income for interest earned on our new demand deposits held at financial institutions. Relationship with GTCR, LLC (“GTCR”) As of March 31, 2023, investment entities affiliated with GTCR collectively controlled approximately 56% of the voting power of our common stock, which enables GTCR to control the vote of all matters submitted to a vote of our shareholders and to control the election of members of the Board and all other corporate decisions. We made distributions of $8.3 million and $39.9 million during the three months ended March 31, 2023 and 2022, respectively, for tax liabilities to MLSH 1, which is controlled by GTCR and is the only holder of LLC Units other than us and our wholly-owned subsidiaries. We are also a party to the Tax Receivable Agreement, or TRA, with MLSH 1, which is primarily owned by GTCR, and MLSH 2 (see Note 11 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q). 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. No payments were made to MLSH 1 or MLSH 2 pursuant to the TRA during the three months ended March 31, 2023. As of March 31, 2023, our liability under the TRA was $719.6 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. 42 Table of Contents As of March 31, 2023, we had cash of $628.3 million and retained earnings of $404.7 million. We had a net loss of $1.3 million for the three months ended March 31, 2023. We also had positive cash flows from operations of $85.1 million for the three months ended March 31, 2023. 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 to 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 $719.6 million and to range over the next 14 years from approximately $42.3 million to $63.3 million per year and to 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 combinations, or other changes of control. There can be no assurance that we will be able to adequately finance our payment 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. We made distributions of $8.3 million and $39.9 million during the three months ended March 31, 2023 and 2022, respectively, for tax liabilities to MLSH 1 under this agreement. 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 refinance the term loan and to address the planned phase out of London Interbank Offered Rate (“LIBOR”), which is replaced with a Term Secured Overnight Financing Rate (“SOFR”) based rate. 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 Tranche B 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 Company’s first lien net leverage ratio was equal to or less than 4.75:1.00 or 4.25:1.00, 43 Table of Contents 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 March 31, 2023, our first lien net leverage ratio was less than 4.25:1.00. Thus, a mandatory prepayment on the Tranche B Term Loan out of excess cash flow was not required. 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 financial covenant 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 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 covenants, 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 March 31, 2023, we were in compliance with these covenants. As of March 31, 2023, the interest rate on the Tranche B Term Loan was 7.63%. 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 March 31, 2023, our liability under the TRA was $719.6 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 payment will begin to accrue from the due date (without extensions) of such tax return at a rate of LIBOR plus 100 basis points. Any late payments will continue to accrue interest at LIBOR 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. 44 Table of Contents Cash Flows The following table summarizes our cash flows for the periods presented (in thousands): Three Months Ended March 31, 2023 2022 Net cash provided by (used in): Operating activities $ 85,074 $ 162,304 Investing activities (69,730) (241,584) Financing activities (19,209) (40,523) Net decrease in cash $ (3,865) $ (119,803) Operating Activities Net cash provided by operating activities for the three months ended March 31, 2023 was $85.1 million, which was primarily attributable to a net cash inflow from the change in our operating assets and liabilities of $68.3 million, non-cash depreciation and amortization of $8.8 million, non-cash amortization of right-of-use assets of $2.1 million, non-cash amortization of deferred financing costs of $0.7 million, non-cash stock-based compensation of $6.0 million, and non-cash loss on the revaluation of liabilities under the TRA of $1.4 million. These were partially offset by a net loss of $1.3 million and non-cash deferred income taxes of $1.5 million. Net cash provided by operating activities for the three months ended March 31, 2022 was $162.3 million, which was primarily attributable to a net income of $146.9 million, non-cash depreciation and amortization of $7.4 million, non-cash amortization of right-of-use assets of $1.9 million, non-cash amortization of deferred financing costs of $0.7 million, non-cash stock-based compensation of $3.6 million and non-cash deferred income taxes of $13.2 million. These were partially offset by a non-cash gain on the revaluation of liabilities under the TRA of $2.3 million and a net cash outflow from the change in our operating assets and liabilities of $8.2 million. Investing Activities Net cash used in investing activities for the three months ended March 31, 2023 was $69.7 million, which was primarily comprised of the net cash consideration paid for the acquisition of Alphazyme and net cash outflows of $7.9 million for property and equipment purchases, offset by government funding of $8.0 million. Net cash used in investing activities for the three months ended March 31, 2022 was $241.6 million, which was primarily comprised of $238.8 million for the net cash consideration paid for the acquisition of MyChem and net cash outflows of $2.7 million for property and equipment purchases. Financing Activities Net cash used in financing activities for the three months ended March 31, 2023 was $19.2 million, which was primarily attributable to a $9.7 million payment of acquisition consideration holdback relating to the acquisition of MyChem, $8.3 million of distributions for tax liabilities to non-controlling interest holders, required pursuant to the terms of the LLC Operating Agreement, and $1.4 million of principal repayments of long-term debt. Net cash used in financing activities for the three months ended March 31, 2022 was $40.5 million, which was primarily attributable to $39.9 million of distributions for tax liabilities to non-controlling interest holders, required pursuant to the terms of the LLC Operating Agreement. Capital Expenditures Capital expenditures for the three months ended March 31, 2023 totaled $1.1 million, which is net of government funding of $8.0 million. Capital expenditures, including costs incurred for lessor improvements, for the year ending December 31, 2023 are projected to be in the range of $57.0 million to $67.0 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. 45 Table of Contents Contractual Obligations and Commitments The following table summarizes our contractual obligations and commitments as of March 31, 2023 (in thousands): Payments due by period Total 1 year 2 - 3 years 4 - 5 years 5+ years Operating leases (1) $ 74,545 $ 10,559 $ 21,680 $ 18,136 $ 24,170 Finance leases (2) 18,323 1,614 3,374 3,580 9,755 Debt obligations (3) 537,200 5,440 10,880 520,880 — TRA payments (4) 719,646 42,254 86,482 89,160 501,750 Unconditional purchase obligations (5) 4,377 1,077 3,300 — — Other commitments (6) 18,625 1,640 3,430 3,639 9,916 Total $ 1,372,716 $ 62,584 $ 129,146 $ 635,395 $ 545,591 ____________________ (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 the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. (2) Represents finance lease payment obligations excluding any renewal options we are reasonably certain to execute and have recognized as lease liabilities. See Note 7 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. (3) Represents long-term debt principal maturities, excluding interest. See Note 8 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information. (4) Reflects the estimated timing of TRA payments as of March 31, 2023. Such payments could be due later than estimated depending on the timing of our use of the underlying tax attributes. See Note 11 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our liability under the TRA. (5) Represents firm purchase commitments to our suppliers. (6) Represents the estimated timing and amounts of lease payments for Flanders II that is under construction. Tax distributions are required under the terms of the Topco LLC Agreement. See Note 10 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding tax distributions. Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires that we make 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 March 31, 2023, 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 of $20.0 million to its sellers 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 Note 2 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details. In connection with our acquisition of Alphazyme, we may be required to make certain payments to its sellers and certain employees. We may be required to make additional payments of up to $75.0 million to the sellers of Alphazyme dependent upon meeting or exceeding defined revenue targets during fiscal years 2023 through 2025. We may also be required to make certain payments of $9.3 million to its sellers and certain employees as of various dates but primarily through December 31, 2025 as long as these individuals continue to be employed by the Company. 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 the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details. 46 Table of Contents Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our interim condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments 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. For a discussion of how these and other factors may affect our business, financial condition or results of operations, see “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The critical accounting estimates that we believe affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements presented in this report are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for fiscal year ended December 31, 2022. Except as noted below, there have been no material changes to our critical accounting policies or estimates from those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Recognition of Intangible Assets as Part of a Business Combination We account for our business combinations using the acquisition method of accounting which requires that the assets acquired and liabilities assumed of acquired businesses be recorded 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 requires management to use significant judgment and estimates, including the selection of valuation methodologies, assumptions about future net cash flows, discount rates and market participants. Each of these factors can significantly affect the value attributed to the identifiable intangible asset acquired in a business combination. We generally utilize a 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 Alphazyme, 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 55.0%, a discount rate of 17.8% and an assumed technical obsolescent curve of 5.0%. 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 For a description of the expected impact of recent accounting pronouncements, if any, see Note 1 to the condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q.