Item 7. Management’s Discussion and Analysis
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 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 Item 1A. “Risk Factors.” 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 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 2024 and 2023 items and year-over-year comparisons between 2024 and 2023. Discussions of 2022 items and year-over-year comparisons between 2023 and 2022 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7 of our 2023 Annual Report on Form 10-K filed with the SEC on February 29, 2024.
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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 and antibody-based products to detect impurities during the production of biopharmaceutical products.
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 and biologics safety testing. 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 end 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, 2024, we employed a team of ove r 570 fu ll-time employees, approximatel y 28% 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 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 49.0% and 48.8% for the years ended December 31, 2024 and 2023, respectively.
We generated revenue of $259.2 million and $288.9 million for the years ended December 31, 2024 and 2023, respectively.
Total revenue by segment was $196.3 million in Nucleic Acid Production and $62.8 million in Biologics Safety Testing for the year ended December 31, 2024. Total revenue by segment was $224.8 million in Nucleic Acid Production and $64.2 million in Biologics Safety Testing for the year ended December 31, 2023.
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 $161.8 million and $151.4 million for the years ended December 31, 2024 and 2023, respectively.
Our research and development efforts are geared towards meeting our customers’ needs. We incurred research and development expenses of $19.2 million and $17.3 million for the years ended December 31, 2024 and 2023, 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.
2024 and Recent Developments
Goodwill Impairment
In connection with preparing our financial statements for the third quarter of 2024, we tested our reporting units for potential goodwill impairment in response to impairment indicators identified during our forecasting process. We revised our long-term forecast to reflect lower projected near-term revenues due to lower demand in research and discovery products within our Nucleic Acid Production business. This revision also considered the slower than expected transition to new mRNA clinical trials as customers prioritize existing programs and more conservatively invest in new programs as the results of continued macroeconomic pressures. As such, we performed a quantitative goodwill impairment test on each of our four reporting units and as a result, we concluded that the TriLink reporting unit, which is contained in the Nucleic Acid Production segment, had a carrying value that exceeded its estimated fair value. As a result, we recorded goodwill impairment of $154.2 million on the consolidated statements of operations, which was the entire goodwill balance at the TriLink reporting unit. No impairment was recorded for any of our remaining three reporting units.
In connection with preparing our financial statements for the year ended December 31, 2024, we tested our reporting units for potential goodwill impairment in response to impairment indicators identified during our forecast process and the sustained
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decline in our stock price. As of December 31, 2024, we revised our long-term forecast to reflect lower projected near-term revenues due to lower demand in enzyme products within our Nucleic Acid Production business. As such, we performed a quantitative goodwill impairment test on each of our reporting units with goodwill as of December 31, 2024, and as a result, we concluded that the Alphazyme reporting unit, which is contained in the Nucleic Acid Production segment, had a carrying value that exceeded its estimated fair value. As a result, we recorded goodwill impairment of $11.9 million on the consolidated statements of operations. No impairment was recorded for any of our other reporting units at that time.
See Note 4 to our consolidated financial statements for additional information.
Voluntary Prepayments on Term Loan
In December 2024, we voluntarily pre-paid, using cash on hand, $228.0 million of aggregate principal amount of the $600.0 million term loan facility provided under our credit agreement (“Term Loan”). There were no prepayment penalties associated with this prepayment of principal. As a result of the prepayment, we wrote off a portion of pre-existing deferred financing costs associated with the Term Loan.
Acquisition of Assets and Intellectual Property from Molecular Assemblies
In January 2025, we acquired assets and intellectual property from Molecular Assemblies, expanding TriLink’s ability to enable customers to develop next-generation mRNA and clustered regularly interspaced short palindromic repeats nucleic acid-based therapies. The total consideration for this acquisition was a purchase price of $11.5 million, subject to customary post-closing adjustments.
Acquisition of Officinae Bio
In February 2025, we completed the acquisition of the DNA and RNA business of Officinae Bio (“Officinae”), a privately held technology company with a proprietary digital platform designed with artificial intelligence and machine learning capabilities to support the biological design of therapeutics. The total consideration to acquire Officinae consisted of a base cash provisional purchase price of $10.0 million, subject to customary post-closing adjustments, and potential contingent consideration payments of up to $35.0 million, with $5.0 million of such contingent consideration payable in cash upon the achievement of a certain milestone and up to an additional $30.0 million payable in a mix of cash and shares of our Class A common stock upon the achievement of certain milestones.
Trends and Uncertainties
Our results of operations and cash flows substantially benefit from high-volume sales of our proprietary CleanCap® analogs for commercial phase vaccine programs. We estimate that revenue from high-volume sales of CleanCap for commercial phase vaccine programs represented approximately 25.4% and 21.0% of our total revenues for the years ended December 31, 2024 and 2023, respectively. The amount, timing and durability of future high-volume CleanCap orders have become increasingly difficult to forecast because historical customers for such orders have been unable or unwilling to provide visibility into their anticipated future needs and plans to purchase CleanCap. If high-volume orders for CleanCap do not materialize in the future at similar or greater levels than they have in the past it 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.
While we believe that the long-term trend of biopharmaceutical customers relying on outside parties to provide important inputs and services for their clinical research and manufacturing remains a long-term growth driver for us, lower demand for research and discovery products within our Nucleic Acid Production business coupled with slower than expected mRNA clinical trial progressions negatively impacted our revenue and operating results in the year ended December 31, 2024, which trend may continue and result in slower growth and/or cause a further decline in our revenues in the future.
Our businesses also continue to see headwinds from a general contraction in economic activity in Asia, particularly in China, which may negatively impact our revenue derived from those markets. See more information under Part I, Item 1. Business.
How We Assess Our Business
We consider a variety of financial and operating measures in assessing the performance of our business. The key measures we use to determine how our business is performing are revenue and Adjusted EBITDA.
Adjusted EBITDA is a non-GAAP financial performance measure that we define as net (loss) income adjusted for interest, 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 representative of our ongoing operating performance.
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Management uses Adjusted EBITDA to evaluate the financial performance of our business and the effectiveness of our business strategies. We present Adjusted EBITDA because we believe this performance measure is frequently used by analysts, investors and other interested parties to evaluate companies in our industry and they facilitate comparisons of performance on a consistent basis across reporting periods. Further, we believe this performance measure is helpful in highlighting trends in our operating results because it excludes 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 $58.5 million in aggregate letters of credit and available borrowings under the $167.0 million revolving credit facility provided under our credit agreement (the “Revolving Credit Facility”). In addition, if we borrow more than $58.5 million under the Revolving Credit Facility, we are required to maintain a specified net leverage ratio. See “Liquidity and Capital Resources—Credit Agreement” below for a discussion of this financial covenant.
Adjusted EBITDA is not a GAAP-based measure and therefore, may have limitations as an analytical tool and you should not consider it in isolation, or as a substitute 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 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 is not a measure of financial performance under GAAP and 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 $259.2 million and $288.9 million for the years ended December 31, 2024 and 2023, 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 also includes adjustments for excess, obsolete or expired inventory, and idle capacity. 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 years ended December 31, 2024 and 2023.
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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 gradually increase in future periods, primarily due to 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 our research and development costs will increase to support our research and development efforts, including meeting our customers’ needs.
Change in Estimated Fair Value of Contingent Consideration
Change in estimated fair value of contingent consideration consists of fair value adjustments to contingent consideration liabilities associated with completed acquisitions. These adjustments are based on our assessment of the probability of achieving certain revenue thresholds and other probability factors.
Goodwill Impairment
Goodwill impairment is recorded in connection with the impairment testing of our goodwill, and is performed at least annually and more frequently if changes in facts and circumstances indicate that the fair value of our reporting units may be less than their carrying amount. In connection with the preparation of our financial statements for the third and fourth quarters of 2024, we performed quantitative goodwill impairment tests which resulted in a total goodwill impairment of $166.2 million. See Note 4 to our consolidated financial statements for additional information.
Restructuring
Restructuring costs primarily consist of severance and other employee-related costs, facility and other exit costs, professional fees and other restructuring costs resulting from the Cost Realignment Plan, which was implemented in November 2023. See Note 3 to our consolidated financial statements for additional information.
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, changes in the fair value of our interest rate cap agreement, and interest costs on our finance lease liabilities.
Interest Income
Interest income consists of interest earned on our cash balances and short-term investments in money market funds held at financial institutions.
Loss on extinguishment of debt
Loss on extinguishment of debt represents the write-off of remaining unamortized debt issuance costs in connection with the voluntary partial prepayment of our Term Loan and the write-off of capitalized financing costs for the refinancing of our revolving credit facility.
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Change in Payable to Related Parties Pursuant to the Tax Receivable Agreement
During the years ended December 31, 2024 and 2023, we determined that making a payment under the Tax Receivable Agreement for subsequent years was not probable under Accounting Standards Codification 450 - Contingencies as a result of a valuation allowance having been recorded against our deferred tax assets, and therefore, that it is more likely than not that we will not generate sufficient future taxable income to utilize related tax benefits that would result in a payment under the Tax Receivable Agreement. As a result, we remeasured the non-current portion of the liability due under the Tax Receivable Agreement to zero as of December 31, 2023 and recorded a corresponding gain on Tax Receivable Agreement liability remeasurement. There have been no changes to our position as of December 31, 2024.
Other Income (Expense)
Other income (expense) primarily consists of adjustments to the indemnification asset recorded in connection with the acquisition of MyChem, LLC, which was completed in January 2022.
Income Tax Expense (Benefit)
As a result of our ownership of LLC Units in Topco LLC, we are subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of Topco LLC and will be taxed at the prevailing corporate tax rates. In addition, we evaluate the realizability of our deferred tax assets on a quarterly basis and establish valuation allowances when it is more likely than not that all or a portion of a deferred tax asset may not be realized. During the year ended December 31, 2023, we recognized a full valuation allowance against our deferred tax assets and recorded a corresponding income tax expense. There have been no changes to our position as of December 31, 2024.
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 operations. As of December 31, 2024, we held approximately 56.2% of the outstanding LLC Units of Topco LLC, and MLSH 1 held approximately 43.8% of the outstanding LLC Units of Topco LLC.
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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,
2024 2023 Year-Over-Year Change
(in thousands, except per share data)
Revenue $ 259,185 $ 288,945 (10.3) %
Operating expenses:
Cost of revenue (1)
150,876 148,743 1.4 %
Selling, general and administrative (1)
161,771 151,390 6.9 %
Research and development (1)
19,221 17,280 11.2 %
Change in estimated fair value of contingent consideration (2,003) (3,286) (39.0) %
Goodwill impairment
166,151 — *
Restructuring (1)
(1,214) 6,466 *
Total operating expenses 494,802 320,593 54.3 %
Loss from operations
(235,617) (31,648) 644.5 %
Other (expense) income, net
(25,865) 649,384 (104.0) %
(Loss) income before income taxes
(261,482) 617,736 (142.3) %
Income tax (benefit) expense
(1,860) 756,111 (100.2) %
Net loss
$ (259,622) $ (138,375) 87.6 %
Net loss attributable to non-controlling interests
(114,776) (19,346) 493.3 %
Net loss attributable to Maravai LifeSciences Holdings, Inc.
$ (144,846) $ (119,029) 21.7 %
Net loss per Class A common share attributable to Maravai LifeSciences Holdings, Inc., basic and diluted $ (1.05) $ (0.90)
Weighted average number of Class A common shares outstanding, basic and diluted 137,906 131,919
Adjusted EBITDA (Non-GAAP financial measure) $ 35,922 $ 65,309
____________________
* Not meaningful
(1) Includes stock-based compensation expense as follows (in thousands, except percentages):
Year Ended December 31,
2024 2023 Year-Over-Year Change
Cost of revenue $ 9,649 $ 7,324 31.7 %
Selling, general and administrative 36,023 24,650 46.1 %
Research and development 4,968 2,715 83.0 %
Restructuring
(1,225) (101) 1112.9 %
Total stock-based compensation expense
$ 49,415 $ 34,588 42.9 %
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Revenue
Consolidated revenue by segment was as follows for the periods presented (in thousands, except percentages):
Year Ended December 31, Percentage of Revenue
2024 2023 Year-Over-Year Change 2024 2023
Nucleic Acid Production $ 196,345 $ 224,769 (12.6) % 75.8 % 77.8 %
Biologics Safety Testing 62,840 64,176 (2.1) % 24.2 % 22.2 %
Total revenue $ 259,185 $ 288,945 (10.3) % 100.0 % 100.0 %
Total revenue was $259.2 million for the year ended December 31, 2024 compared to $288.9 million for the year ended December 31, 2023, representing a decrease of $29.8 million, or 10.3%.
Nucleic Acid Production revenue decreased from $224.8 million for the year ended December 31, 2023 to $196.3 million for the year ended December 31, 2024, representing a decrease of $28.4 million, or 12.6%. The decrease in Nucleic Acid Production was primarily driven by lower demand for research and discovery products.
Biologics Safety Testing revenue decreased from $64.2 million for the year ended December 31, 2023 to $62.8 million for the year ended December 31, 2024, representing a decrease of $1.3 million, or 2.1%. The decrease was primarily driven by lower demand in the bioprocessing market, particularly in China.
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 our 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 December 31, 2024, all of our long-lived assets were located within the United States.
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The following schedules include revenue, expenses, and adjusted EBITDA for each of the Company’s reportable segments for the periods presented (in thousands):
Year Ended December 31, 2024
Nucleic Acid Production Biologics Safety Testing Total
Revenue
$ 196,345 $ 62,840 $ 259,185
Less:
Cost of revenue (1)
94,694 9,918
Selling and marketing (1)
20,722 2,921
General and administrative (1)
20,370 4,197
Research and development (1)
9,713 1,960
Other segment items (2)
33 3
Adjusted EBITDA
50,813 43,841 $ 94,654
Reconciliation of total reportable segments’ adjusted EBITDA to loss before income taxes
Amortization (27,531)
Depreciation (20,852)
Interest expense (47,700)
Interest income 27,403
Corporate costs, net of eliminations (58,732)
Other adjustments:
Acquisition contingent consideration 2,003
Acquisition integration costs (5,559)
Stock-based compensation
(49,415)
Merger and acquisition related expenses (1,728)
Loss on extinguishment of debt (3,187)
Acquisition related tax adjustment (2,306)
Tax Receivable Agreement liability adjustment (40)
Goodwill impairment
(166,151)
Restructuring costs (3)
(11)
Other (2,330)
Loss before income taxes
(261,482)
Income tax benefit
1,860
Net loss
$ (259,622)
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Year Ended December 31, 2023
Nucleic Acid Production Biologics Safety Testing Total
Revenue $ 224,769 $ 64,176 $ 288,945
Intersegment revenues — 3 3
224,769 64,179 288,948
Elimination of intersegment revenues
(3)
Total consolidated revenues $ 288,945
Less:
Cost of revenue (1)
94,040 9,620
Selling and marketing (1)
18,580 2,295
General and administrative (1)
22,474 4,242
Research and development (1)
7,010 1,077
Other segment items (2)
7 37
Adjusted EBITDA 82,658 46,908 $ 129,566
Reconciliation of total reportable segments’ adjusted EBITDA to income before income taxes
Amortization (27,356)
Depreciation (12,898)
Interest expense (45,892)
Interest income 27,727
Corporate costs, net of eliminations (64,257)
Other adjustments:
Acquisition contingent consideration 3,286
Acquisition integration costs (12,695)
Stock-based compensation (34,588)
Merger and acquisition related expenses (4,392)
Acquisition related tax adjustment (1,293)
Tax Receivable Agreement liability adjustment 668,886
Restructuring costs (3)
(6,567)
Other (1,791)
Income before income taxes
617,736
Income tax expense
(756,111)
Net loss $ (138,375)
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(1) Expenses are adjusted to remove the impact of certain items that management believes do not directly reflect our core operations, and, therefore, are not included in measuring segment performance.
(2) Other segment items for each reportable segment include realized and unrealized loss (gain) on foreign exchange transactions.
(3) For the years ended December 31, 2024 and 2023, stock-based compensation benefit of $1.2 million and $0.1 million, respectively, related to forfeited stock awards in connection with the Cost Realignment Plan is included on the stock-based compensation line item.
There was no intersegment revenue during the year ended December 31, 2024. During the year ended December 31, 2023, intersegment revenue was immaterial between the Nucleic Acid Production and Biologics Safety Testing 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, 2024 and 2023.
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Adjusted EBITDA (Non-GAAP Financial Measure)
A reconciliation of net loss to Adjusted EBITDA, which is a non-GAAP measure, is set forth below (in thousands):
Year Ended December 31,
2024 2023
Net loss
$ (259,622) $ (138,375)
Add:
Amortization 27,531 27,356
Depreciation 20,852 12,898
Interest expense 47,700 45,892
Interest income (27,403) (27,727)
Income tax (benefit) expense
(1,860) 756,111
EBITDA (192,802) 676,155
Acquisition contingent consideration (1)
(2,003) (3,286)
Acquisition integration costs (2)
5,559 12,695
Stock-based compensation (3)
49,415 34,588
Merger and acquisition related expenses (4)
1,728 4,392
Loss on extinguishment of debt (5)
3,187 —
Acquisition related tax adjustment (6)
2,306 1,293
Tax Receivable Agreement liability adjustment (7)
40 (668,886)
Goodwill impairment (8)
166,151 —
Restructuring costs (9)
11 6,567
Other (10)
2,330 1,791
Adjusted EBITDA $ 35,922 $ 65,309
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(1) Refers to the change in the estimated fair value of contingent consideration related to completed acquisitions.
(2) Refers to incremental costs incurred to execute and integrate completed acquisitions, including retention payments related to integration that were negotiated specifically at the time of, the Company’s acquisition of MyChem, LLC (“MyChem”) and Alphazyme, LLC (“Alphazyme”), which were completed in January 2022 and January 2023, respectively. These retention payments arise from the Company’s agreements executed in connection with its acquisitions of MyChem and Alphazyme and provide incremental financial incentives, over and above recurring compensation, to ensure the employees of these companies remain present and participate in integration of the acquired businesses during the integration and knowledge transfer periods. The Company agreed to pay certain employees of Alphazyme retention payments totaling $9.3 million as of various dates but primarily through December 31, 2025, as long as these individuals continue to be employed by the Company. The Company agreed to pay the sellers of MyChem retention payments totaling $20.0 million as of the second anniversary of the closing of the acquisition date as long as two senior employees (who were also the sellers of MyChem) continue to be employed by TriLink. The Company considers the payment of these retention payments as probable and is recognizing compensation expense related to these payments in the post-acquisition period ratably over the service period. Retention payment expenses were $5.2 million (MyChem $1.8 million; Alphazyme $3.4 million) and $11.9 million (MyChem $9.3 million; Alphazyme $2.6 million) for the years ended December 31, 2024 and 2023, respectively. Retention expenses for MyChem concluded in the first quarter of 2024, and following the payments in the first quarter of 2024, there are no further retention expenses payable for MyChem. The remaining retention accrual for Alphazyme is $3.4 million, expected to be accrued ratably each quarter through December 31, 2025, with payments expected to be made in the first quarter of 2026. There are no further cash-based retention payments planned, other than those disclosed above, for acquisitions completed as of December 31, 2024.
(3) Refers to non-cash expense associated with stock-based compensation.
(4) Refers to diligence, legal, accounting, tax and consulting fees incurred associated with acquisitions that were pursued but not consummated.
(5) Refers to the non-cash loss incurred on partial extinguishment of debt primarily associated with the voluntary prepayment on the Term Loan.
(6) Refers to non-cash expense associated with adjustments to the carrying value of the indemnification asset recorded in connection with the acquisition of MyChem.
(7) For the year ended December 31, 2024, 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. For the year ended December 31, 2023, refers to the adjustment of our Tax Receivable Agreement liability primarily due to remeasuring the non-current portion of the liability to zero as we no longer consider the payments under the agreement to be probable.
(8) Refers to the goodwill impairment recorded for our Nucleic Acid Production segment.
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(9) Refers to restructuring costs associated with the Cost Realignment Plan, which was implemented in November 2023. For the years ended December 31, 2024 and 2023, stock-based compensation benefit of $1.2 million and $0.1 million, respectively, related to forfeited equity awards in connection with the restructuring is included in the stock-based compensation line item.
(10) For the year ended December 31, 2024, refers to the loss on abandoned projects, severance payments, inventory step-up charges and certain other adjustments in connection with the acquisition of Alphazyme, and other non-recurring costs. For the year ended December 31, 2023, refers to severance payments, legal settlement amounts, inventory step-up charges in connection with the acquisition of Alphazyme, certain working capital and other adjustments related to the acquisition of MyChem, and other non-recurring costs.
Operating Expenses
Operating expenses include the following for the periods presented (in thousands, except percentages):
Year Ended December 31, Percentage of Revenue
2024 2023 Year-Over-Year Change 2024 2023
Cost of revenue $ 150,876 $ 148,743 1.4 % 58.2 % 51.5 %
Selling, general and administrative 161,771 151,390 6.9 % 62.5 % 52.4 %
Research and development 19,221 17,280 11.2 % 7.4 % 6.0 %
Change in estimated fair value of contingent consideration (2,003) (3,286) (39.0) % (0.8) % (1.1) %
Goodwill impairment 166,151 — * 64.1 % — %
Restructuring (1,214) 6,466 * (0.5) % 2.2 %
Total operating expenses $ 494,802 $ 320,593 54.3 % 190.9 % 111.0 %
____________________
* Not meaningful
Cost of Revenue
Cost of revenue increased by $2.2 million from $148.7 million for the year ended December 31, 2023 to $150.9 million for the year ended December 31, 2024, or 1.4%. The increase in cost of revenue was primarily driven by increases of $3.0 million in facility costs, $2.3 million in stock-based compensation, $1.8 million in supplies and materials, $1.6 million in depreciation expense driven by new facilities and an increase in assets placed in service during the current year, and $0.7 million related to the loss on abandoned projects. These increases were partially offset by a decrease of $7.7 million due to lower personnel costs driven by the Cost Realignment Plan and a decrease in retention payment accruals associated with the acquisition of MyChem, which was completed and paid for during the first quarter of 2024.
Gross profit decreased by $31.9 million from $140.2 million for the year ended December 31, 2023 to $108.3 million for the year ended December 31, 2024. The decrease in gross profit margin as a percentage of sales was primarily attributable to higher facility costs, stock-based compensation expense, supplies and materials, and depreciation expense as a percentage of sales.
Selling, General and Administrative
Selling, general and administrative expenses increased by $10.4 million from $151.4 million for the year ended December 31, 2023 to $161.8 million for the year ended December 31, 2024, or 6.9%. The increase was primarily driven by increases of $11.4 million in stock-based compensation expense and $5.9 million in depreciation expense driven by new facilities and an increase in assets placed in service during the current year. These were partially offset by a decrease of $6.4 million in professional service fees primarily driven by lower expenses related to merger and acquisitions and contract services, and a decrease of $1.1 million in marketing expenses.
Research and Development
Research and development expenses increased by $1.9 million from $17.3 million for the year ended December 31, 2023 to $19.2 million for the year ended December 31, 2024, or 11.2%. The increase in expenses compared to the prior year was primarily driven by increases of $2.3 million in stock-based compensation expense, $1.3 million in professional service fees for contract services related to research and development studies, $1.0 million in supplies and materials, and $0.5 million in depreciation expense. These were partially offset by a decrease of $3.1 million in personnel expenses primarily relating to a decrease in retention payment accruals associated with the acquisition of MyChem, which was completed and paid for during the first quarter of 2024.
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Change in Estimated Fair Value of Contingent Consideration
The decrease in change in estimated fair value of contingent consideration of $2.0 million and $3.3 million for the years ended December 31, 2024 and 2023, respectively, were due to decreases in estimated fair value of the liability for the contingent payments associated with the acquisition of Alphazyme.
Goodwill Impairment
In connection with preparing our financial statements for the third quarter of 2024, we tested our reporting units for potential goodwill impairment in response to impairment indicators identified during our forecasting process and the sustained decline in our stock price. As of December 31, 2024, we revised our long-term forecast to reflect lower projected near-term revenues due to lower demand in research and discovery products within our Nucleic Acid Production business. As such, we performed a quantitative goodwill impairment test on each of our four reporting units and as a result, we concluded that the TriLink reporting unit, which is contained in the Nucleic Acid Production segment, had a carrying value that exceeded its estimated fair value. As a result, we recorded goodwill impairment of $154.2 million during the year ended December 31, 2024, which was the entire goodwill balance at the TriLink reporting unit.
In connection with preparing our financial statements for the year ended December 31, 2024, we tested our remaining reporting units for potential goodwill impairment in response to impairment indicators identified during our forecasting process. These indicators included a downward revision of our long-term forecast to reflect lower projected near-term revenues due to lower demand in enzyme products within our Nucleic Acid Production business, as well as the sustained decline in stock price. As such, we performed a quantitative goodwill impairment test on each of our reporting units with goodwill as of December 31, 2024, and as a result, we concluded that the Alphazyme reporting unit, which is contained in the Nucleic Acid Production segment, had a carrying value that exceeded its estimated fair value. As a result, we recorded goodwill impairment of $11.9 million during the year ended December 31, 2024.
See Note 4 to our consolidated financial statements for additional information.
Restructuring
Restructuring costs (benefit) for the years ended December 31, 2024 and 2023 relate to the Cost Realignment Plan, which was implemented in November 2023. For the year ended December 31, 2024, restructuring costs (benefit) primarily consists of the stock-based compensation benefit recognized for the forfeiture of stock awards upon the termination of certain impacted employees. For the year ended December 31, 2023, restructuring costs include severance and other employee-related costs of $4.3 million, offset by a $0.1 million stock-based compensation benefit, facility and other exit costs of $2.0 million, and professional fees and other associated costs of $0.3 million.
Other Income (Expense)
Other income (expense) includes the following for the periods presented (in thousands, except percentages):
Year Ended December 31, Percentage of Revenue
2024 2023 Year-Over-Year Change 2024 2023
Interest expense $ (47,700) $ (45,892) 3.9 % (18.4) % (15.9) %
Interest income 27,403 27,727 (1.2) % 10.5 % 9.6 %
Loss on extinguishment of debt (3,187) — * (1.2) % — %
Change in payable to related parties pursuant to the Tax Receivable Agreement (40) 668,886 * 0.0 % 231.5 %
Other expense
(2,341) (1,337) 75.1 % (0.9) % (0.5) %
Total other (expense) income, net
$ (25,865) $ 649,384 * (10.0) % 224.7 %
____________________
* Not meaningful
Other income was $649.4 million for the year ended December 31, 2023 compared to Other expense of $25.9 million for the year ended December 31, 2024, representing a change of $675.2 million. The overall change in Other (expense) income was primarily attributable to the prior year $668.9 million gain related to the payable to related parties pursuant to the Tax Receivable Agreement as we concluded that it was not probable that we will be able to realize the remaining tax benefits based on estimates of future taxable income. The change is also driven by a loss on extinguishment of debt of $3.2 million primarily
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driven by the write-off of pre-existing deferred financing costs as a result of the voluntary prepayment on the Term Loan, a $1.8 million increase in interest expense, and a $1.0 million increase in Other expense relating to the indemnification asset recorded in connection with the acquisition of MyChem.
Relationship with GTCR, LLC (“GTCR”)
As of December 31, 2024, investment entities affiliated with GTCR collectively controlled approximately 52% 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 our Board of Directors and all other corporate decisions.
During the years ended December 31, 2024 and 2023, we made cash distributions of $0.5 million and $9.6 million, respectively, for tax liabilities to MLSH 1, which is controlled by investment entities affiliates with GTCR and is the only holder of LLC Units other than us and our wholly owned subsidiaries.
We are also a party to a Tax Receivable Agreement, or TRA, with MLSH 1, which is primarily owned by GTCR, and MLSH 2 (see Note 14 to our consolidated financial statements). The TRA provides for the payment by us to MLSH 1 and MLSH 2, collectively, of 85% of the amount of tax benefits, if any, that we actually realize, or in some circumstances are deemed to realize, from exchanges of LLC Units (together with the corresponding shares of Class B common stock) for Class A common stock, as a result of (i) certain increases in the tax basis of assets of Topco LLC and its subsidiaries resulting from purchases or exchanges of LLC Units, (ii) certain tax attributes of the entities acquired from MLSH 1 and MLSH 2 in connection with the Organizational Transactions, Topco LLC and subsidiaries of Topco LLC that existed prior to the IPO, and (iii) certain other tax benefits related to our entering into the TRA, including tax benefits attributable to payments that we make under the TRA (collectively, the “Tax Attributes”). Payment obligations under the TRA are not conditioned upon any Topco LLC unitholders maintaining a continued ownership interest in us or Topco LLC, and the rights of MLSH 1 and MLSH 2 under the TRA are assignable. There is no stated term for the TRA, and the TRA will continue until all tax benefits have been utilized or expired unless we exercise our right to terminate the TRA for an agreed-upon amount.
We recognize the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current. This determination was based on our estimate of taxable income for the year ended December 31, 2024. As of December 31, 2024, we did not have a current liability under the TRA. As of December 31, 2023, our current liability under the TRA was $7.1 million.
As of December 31, 2023, the Company has derecognized the remaining non-current liability under the TRA after concluding it was not probable that the Company will be able to realize the remaining tax benefits based on estimates of future taxable income. There have been no changes to our position as of December 31, 2024. The estimation of liability under the TRA is by its nature imprecise and subject to significant assumptions regarding the amount, character, and timing of the taxable income in the future. If the valuation allowance recorded against the deferred tax assets applicable to the tax attributes referenced above is released in a future period, the remaining TRA liability may be considered probable at that time and recorded on the consolidated balance sheet and within earnings.
We made payments of $7.3 million to MLSH 1 and MLSH 2 pursuant to the TRA during the year ended December 31, 2024, of which $0.2 million is related to interest. This determination was based on our taxable income for the year ended December 31, 2023. We made payments of $42.6 million to MLSH 1 and MLSH 2 pursuant to the TRA during the year ended December 31, 2023, of which $0.4 million is related to interest. This determination was based on our taxable income for the year ended December 31, 2022.
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, 2024, we had cash and cash equivalents of $322.4 million and retained earnings of $140.9 million. We had positive cash flow from operations of $7.5 million.
We have historically relied on revenue derived from product and services sales, and proceeds from 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.
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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 may 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. 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. We do not expect any probable future payments under the TRA relating to the purchase by the Company of LLC Units from MLSH 1 and the corresponding tax attributes. This determination is based on our taxable income for the year ended December 31, 2024.
During the years ended December 31, 2024 and 2023, we determined that making a payment under the non-current portion of the TRA was not probable under Accounting Standards Codification 450 - Contingencies since a valuation allowance has been recorded against our deferred tax assets and we do not believe we will generate sufficient future taxable income to utilize related tax benefits and result in a payment under the TRA. If we had determined that making a payment under the TRA and generating sufficient future taxable income was probable, we would have also recorded a liability pursuant to the TRA, net of current portion, of approximately $683.8 million in the consolidated balance sheet. Future payments in respect of subsequent exchanges or financings and tax attributes relating to the purchase by the Company of LLC Units from MLSH 1 would be in addition to this amount and may 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 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 December 31, 2024 and 2023, we made cash distributions of $0.5 million and $9.6 million, respectively, for tax liabilities to MLSH 1 under this agreement.
Credit Agreement
Maravai Intermediate Holdings, LLC (“Intermediate”), a wholly-owned subsidiary of Topco LLC, along with certain of its subsidiaries (together with Intermediate, the “Borrowers”) are parties to a credit agreement (as amended, the “Credit Agreement”), which provides for a $600.0 million term loan facility, maturing October 2027 (the “Term Loan”) and a $167.0 million revolving credit facility, maturing October 2029 (subject to springing maturity provisions based on the maturity of the Term Loan) (the “Revolving Credit Facility”). Borrowings under the Credit Agreement bear interest at a variable rate based on Term Secured Overnight Financing Rate (“SOFR”) plus an applicable interest rate margin.
As of December 31, 2024, the interest rate on the Term Loan was 7.62% per annum. There were no outstanding borrowings under the Revolving Credit Facility as of December 31, 2024.
The Revolving Credit Facility also provides availability for the issuance of letters of credit up to an aggregate limit of $20.0 million. As of December 31, 2024, the Company had a $0.5 million outstanding letter of credit as security for a lease agreement, which reduced the availability for the future issuance of letters of credit under the Revolving Credit Facility to $19.5 million.
Borrowings under the Credit Agreement are unconditionally guaranteed by Topco LLC, together with the existing and future material domestic subsidiaries of Topco LLC (subject to certain exceptions), as specified in the respective guaranty agreements. Borrowings under the Credit Agreement are also secured by a first-priority lien and security interest in substantially all of the assets (subject to certain exceptions) of existing and future material domestic subsidiaries of Topco LLC that are loan parties.
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The Term Loan requires mandatory quarterly principal payments of $1.4 million, which began in March 2022, and all remaining outstanding principal is due on maturity in October 2027. The Term Loan includes prepayment provisions that allow the Company, at our option, to repay all or a portion of the outstanding principal at any time. In December 2024, the Company voluntarily pre-paid, using cash on hand, $228.0 million of aggregate principal amount of the Term Loan. There were no prepayment penalties associated with this prepayment of principal. As a result of the prepayment, the Company recorded a loss on partial extinguishment of debt of $3.0 million related to the write-off of pre-existing deferred financing costs.
The Revolving Credit Facility allows the Company to repay and borrow from time to time until its maturity date, at which time all amounts borrowed must be repaid. Subject to certain exceptions and limitations, we are required to repay borrowings under the Term Loan and Revolving Credit Facility with the proceeds of certain occurrences, such as the incurrence of debt, certain equity contributions and certain asset sales or dispositions.
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 calculation.
The Credit Agreement requires that we make mandatory prepayments on the Term Loan principal upon certain excess cash flow, subject to certain step-downs based on the Company’s first lien net leverage ratio. The excess cash flow 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, 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, 2024, the Company’s first lien net leverage ratio was less than 4.25:1.00. Thus, a mandatory prepayment on the Term Loan out of our excess cash flow was not required.
The Credit Agreement contains certain covenants, including, among other things, covenants limiting our ability to 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 to the nature of the business. Additionally, the Credit Agreement requires us to maintain a certain net leverage ratio if the outstanding debt balance on the Revolving Credit Facility exceeds 35.0% of the aggregate amount of available credit of $167.0 million, or $58.5 million. The Company was in compliance with these covenants as of December 31, 2024.
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.
We recognize the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current. This determination was based on our estimate of taxable income for the year ended December 31, 2024. As of December 31, 2024, we did not have a current liability under the TRA. 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. Given the cessation of LIBOR, we transitioned to SOFR as the applicable Replacement Rate as allowable under the TRA.
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, the aggregate payments that we will be required to make to MLSH 1 and MLSH 2 may 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.
During the year ended December 31, 2023, we determined that making a payment under the non-current portion of the TRA was not probable under Accounting Standards Codification 450 - Contingencies as a result of a valuation allowance having been recorded against our deferred tax assets, and therefore, that it is more likely than not that we will not generate sufficient
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future taxable income to utilize related tax benefits that would result in a payment under the TRA. There have been no changes to our position as of December 31, 2024. If we had determined that making a payment under the TRA and generating sufficient future taxable income was probable, we would have also recorded a liability pursuant to the TRA, net of current portion, of approximately $683.8 million in the consolidated balance sheet.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Year Ended December 31,
2024 2023
Net cash provided by (used in):
Operating activities $ 7,465 $ 126,224
Investing activities (24,316) (122,310)
Financing activities (235,712) (61,090)
Net decrease in cash and cash equivalents
$ (252,563) $ (57,176)
Operating Activities
Net cash provided by operating activities for the year ended December 31, 2024 was $7.5 million, which was primarily attributable to non-cash depreciation and amortization of $48.4 million, non-cash amortization of operating lease right-of-use assets of $8.5 million, non-cash amortization of deferred financing costs of $2.9 million, non-cash stock-based compensation of $49.4 million, non-cash loss on extinguishment of debt of $3.2 million, non-cash goodwill impairment of $166.2 million, and non-cash acquisition related tax adjustment of $2.3 million. These were partially offset by a net loss of $259.6 million, net cash outflow from the change in our operating assets and liabilities of $12.6 million, and non-cash gain on the change in estimated fair value of contingent consideration of $2.0 million.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2024 was $24.3 million, which was primarily comprised of cash outflows of $29.7 million for property and equipment purchases, offset by proceeds from government assistance allocated to property and equipment of $7.1 million, and cash outflows of $1.5 million for the purchase of technology.
Financing Activities
Net cash used in financing activities for the year ended December 31, 2024 was $235.7 million, which was primarily attributable to $234.4 million of principal repayments of long-term debt, which included the voluntary principal prepayment on the Term Loan. This was also driven by $7.1 million of payments to MLSH 1 and MLSH 2 pursuant to the TRA, $2.1 million of tax payments for shares withheld under employee equity plans, net of proceeds from the issuance of shares of our Class A common stock, $1.2 million of payments for financing costs incurred for long-term debt, $0.6 million of payments of finance lease liabilities, and $0.5 million of cash distributions for tax liabilities to MLSH 1, as required pursuant to the terms of the LLC Operating Agreement. These were partially offset by proceeds from interest rate cap agreement of $9.3 million.
Capital Expenditures
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. Capital expenditures for the year ended December 31, 2024 totaled $22.5 million, which is net of government funding of $7.1 million. Capital expenditures for the year ending December 31, 2025 are projected to be in the range of $15.0 million to $20.0 million, of which $10.0 million relates to the expansion of our enzyme manufacturing capabilities.
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2024 (in thousands):
Payments due by period
Total 1 year 2 - 3 years 4 - 5 years 5+ years
Operating leases (1)
$ 56,959 $ 10,599 $ 19,244 $ 18,363 $ 8,753
Finance leases (2)
31,191 3,427 7,166 7,602 12,996
Debt obligations (3)
299,680 5,440 294,240 — —
Unconditional purchase obligations (4)
989 619 370 — —
Total $ 388,819 $ 20,085 $ 321,020 $ 25,965 $ 21,749
_______________
(1) Represents operating lease payment obligations, excluding any renewal options we are reasonably certain to execute and have recognized as lease liabilities. See Note 8 to our consolidated financial statements 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 8 to our consolidated financial statements for additional information.
(3) Represents long-term debt principal maturities, excluding interest and unamortized debt issuance costs. See Note 10 to our consolidated financial statements for additional information.
(4) Represents firm purchase commitments to our suppliers. See Note 9 to our consolidated financial statements for additional information.
Cash distributions for owner tax liabilities are required under the terms of the Topco LLC Agreement. As of December 31, 2024, we have made tax distributions equal to the estimated obligation due for 2024. 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 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 December 31, 2024, our first lien net leverage ratio was less than 4.25:1.00.
In connection with our acquisition of Alphazyme, which was completed in January 2023, we were initially required to make contingent payments of up to $75.0 million to the sellers of Alphazyme dependent upon Alphazyme meeting or exceeding defined revenue targets during each of the fiscal years 2023 through 2025. For the first and second performance periods which ended on December 31, 2023 and 2024, respectively, it was determined that the defined revenue targets were not achieved. Consequently, no payments for contingent consideration were made to the sellers of Alphazyme in 2024 and 2025, respectively. As of December 31, 2024, we may be required to make contingent payments to the sellers of Alphazyme of up to $25.0 million for the remaining performance period. We may also be required to make certain retention payments of $9.3 million, of which $6.6 million is accrued as of December 31, 2024, 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 5 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.
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Goodwill
We evaluate goodwill at the reporting unit level on an annual basis and on an interim basis if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Such indicators could include, but are not limited to, current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate, operational performance of the business or loss of key personnel. We perform our annual impairment test in the fourth quarter.
We first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, management performs a quantitative goodwill impairment test. If the carrying value of a reporting unit exceeds its estimated fair value, an impairment loss will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.
In connection with preparing our financial statements for the third quarter of 2024, we tested our reporting units for potential goodwill impairment in response to impairment indicators identified during our forecasting process. We revised our long-term forecast to reflect lower projected near-term revenues due to lower demand in research and discovery products within our Nucleic Acid Production business. This revision also considered the slower than expected transition to new mRNA clinical trials as customers prioritize existing programs and more conservatively invest in new programs as the results of continued macroeconomic pressures. As such, we performed a quantitative goodwill impairment test and compared our reporting units’ fair values to their respective carrying values to determine whether goodwill was impaired. We performed the impairment test using a combination of the income and the market approach to evaluate whether the fair value of each reporting unit was less than its carrying value. The income approach utilizes a discounted cash flow model, incorporating both internal estimates and market-based data, while the market approach utilizes comparable company information. The significant assumptions in the discounted cash flow models vary amongst, and are specific to, each reporting unit and include, but are not limited to, discount rates, projected revenue, revenue growth rates (including terminal growth rates) and EBITDA margins. Discount rates were determined using a weighted average cost of capital specific to each reporting unit and other market and industry data. These assumptions were formulated with consideration of prevailing market conditions and anticipated developments, including new product and service initiatives, competitive dynamics, and broader economic factors. The result of the quantitative analysis indicated that the fair value of the TriLink reporting unit did not exceed its carrying value and consequently resulted in a $154.2 million impairment charge, which was the entire goodwill balance at the TriLink reporting unit.
In connection with preparing our financial statements for the year ended December 31, 2024, we tested our reporting units for potential goodwill impairment in response to impairment indicators identified during our forecasting process and the sustained decline in our stock price. As of December 31, 2024, we revised our long-term forecast to reflect lower projected near-term revenues due to lower demand in enzyme products within our Nucleic Acid Production business. As a result, the Company conducted a quantitative goodwill impairment test for the Alphazyme reporting unit using the same methodology described above for TriLink, including the use of the following significant assumptions: discount rates, projected revenue, revenue growth rates (including terminal growth rates) and EBITDA margins. The selected discount rate was 28.5%, which was determined using a weighted average cost of capital specific to the Alphazyme reporting unit and other market and industry data. These assumptions were developed in light of current market conditions and future expectations which include, but were not limited to, new product and service developments, the impact of competition and future economic conditions. The result of the quantitative analysis indicated that the fair value of the Alphazyme reporting unit did not exceed its carrying value, and as a result, we recorded goodwill impairment of $11.9 million during the year ended December 31, 2024.
The excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting unit) for the two reporting units not impaired, ranged from approximately 88% to approximately 275%. In order to evaluate the sensitivity of the fair value calculations used in the goodwill impairment test, we applied a hypothetical 10% decrease to the fair values of each reporting unit and compared those hypothetical values to the reporting unit carrying values. Based on this hypothetical 10% decrease, the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value for the respective reporting unit) for the two reporting units not impaired, ranged from approximately 69% to approximately 238%. However, to the extent that we continue to experience declines in financial performance or experience other impairment indicators, such as industry and market considerations, or that the fair values of our reporting units are less than their carrying values, there could be a risk of goodwill impairment of our reporting units in future periods.
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
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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 acquisitions of Alphazyme, LLC and MyChem, LLC, the estimated fair values of the developed technology intangible assets were based on the multi-period excess earnings method. The estimated fair values were 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 these intangible assets included revenue growth rates, discount rates and assumed technical obsolescent curves.
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.