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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-39725
Maravai LifeSciences Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 8731 85-2786970
(State or other jurisdiction of incorporation or organization) (Primary Standard Industrial
Classification Code Number)		 (I.R.S. Employer Identification No.)
10770 Wateridge Circle, Suite 200
San Diego, California
 92121
(Address of principal executive offices)
 (Zip code)
______________________________
Registrant’s telephone number, including area code: (858) 546-0004
______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A common stock, $0.01 par value MRVI The Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ý Accelerated filer
o
Non-accelerated filer
o
 Smaller reporting company
o
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes ☐   No  x
As of July 29, 2022, 131,539,642 shares of the registrant’s Class A common stock were outstanding and 123,669,196 shares of the registrant’s Class B common stock were outstanding.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this report, including, without limitation, statements under the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements often may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning. These statements are based upon management’s current expectations, assumptions and estimates and are not guarantees of the timing or nature of our future operating or financial performance or other events. All forward-looking statements are subject to risks, uncertainties and other factors that may cause our actual results to differ materially from those that we expected, including:
•The extent and duration of our revenue associated with COVID-19 related products and services are uncertain and are dependent, in important respects, on factors outside our control.
•Certain of our products are used by customers in the production of vaccines and therapies, some of which represent relatively new and still-developing modes of treatment. Unforeseen adverse events, negative clinical outcomes, development of alternative therapies, or increased regulatory scrutiny of these and their financial cost may damage public perception of the safety, utility, or efficacy of these vaccines and therapies or other modes of treatment and may harm our customers’ ability to conduct their business. Such events may negatively impact our revenue and have an adverse effect on our performance.
•We are dependent on our customers’ spending on and demand for outsourced nucleic acid production and biologics safety testing products and services. A reduction in spending or demand could have a material adverse effect on our business, financial condition, results of operations, cash flows and prospects.
•We compete with life science, pharmaceutical and biotechnology companies who are substantially larger than we are and potentially capable of developing new approaches that could make our products, services and technology obsolete.
•If our products and services do not perform as expected or the reliability of the technology on which our products and services are based is questioned, we could experience lost revenue, delayed or reduced market acceptance of our products and services, increased costs and damage to our reputation.
•Our products are highly complex and are subject to quality control requirements.
•Our success depends on the market acceptance of our life science reagents. Our reagents may not achieve or maintain significant commercial market acceptance.
•Until the 2020 fiscal year, we had incurred losses for each fiscal year since inception, we may incur losses in the future and we may not be able to generate sufficient revenue to maintain profitability.
•Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.
•Product liability lawsuits against us could cause us to incur substantial liabilities, limit sales of our existing products and limit commercialization of any products that we may develop.
•Our acquisitions expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.
•We depend on a limited number of customers for a high percentage of our revenue. If we cannot maintain our current relationships with customers, fail to sustain recurring sources of revenue with our existing customers, or if we fail to enter into new relationships, our future operating results will be adversely affected.
•We rely on a limited number of suppliers or, in some cases, sole suppliers, for some of our raw materials and may not be able to find replacements or immediately transition to alternative suppliers.
•Our products could become subject to more onerous regulation by the FDA or other regulatory agencies in the future, which could increase our costs and delay or prevent commercialization of our products, thereby materially and adversely affecting our business, financial condition, results of operations, cash flows and prospects.
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•If we are unable to obtain, maintain and enforce intellectual property protection for our current or future products, or if the scope of our intellectual property protection is not sufficiently broad, our ability to commercialize our products successfully and to compete effectively may be materially adversely affected.
•If we fail to comply with our obligations under any license agreements, disagree over contract interpretation, or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are necessary to our business.
•Our existing indebtedness could adversely affect our business and growth prospects.
•Our principal asset is our interest in Maravai Topco Holdings, LLC (“Topco LLC”), and, accordingly, we depend on distributions from Topco LLC to pay our taxes and expenses, including payments under a tax receivable agreement with the former owners of Topco LLC (the “Tax Receivable Agreement” or “TRA”). Topco LLC’s ability to make such distributions may be subject to various limitations and restrictions.
•Conflicts of interest could arise between our shareholders and Maravai Life Sciences Holdings, LLC (“MLSH 1”), the only other member of Topco LLC, which may impede business decisions that could benefit our shareholders.
•The Tax Receivable Agreement requires us to make cash payments to MLSH 1 and Maravai Life Sciences Holdings 2, LLC (“MLSH 2”), an entity through which certain of our former owners hold their interests in the Company, in respect of certain tax benefits to which we may become entitled, and we expect that the payments we will be required to make will be substantial.
•Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon MLSH 1 and MLSH 2 that will not benefit the other common shareholders to the same extent as they will benefit MLSH 1 and MLSH 2.
•GTCR, LLC (“GTCR”) controls us, and its interests may conflict with ours or yours in the future.
•Provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause our actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 and in this Quarterly Report on Form 10-Q.
The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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Part I.
Item 1. Financial Statements and Supplementary Data
MARAVAI LIFESCIENCES HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(Unaudited)
June 30, 2022 December 31, 2021
Assets
Current assets:
Cash $ 550,676  $ 551,272 
Accounts receivable, net 120,354  117,512 
Inventory 60,113  51,557 
Prepaid expenses and other current assets 19,664  19,698 
Government funding receivable 8,575  — 
Total current assets 759,382  740,039 
Property and equipment, net 46,956  46,332 
Goodwill 283,535  152,766 
Intangible assets, net 229,153  117,571 
Deferred tax assets 780,354  808,117 
Other assets 72,419  53,451 
Total assets $ 2,171,799  $ 1,918,276 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 23,267  $ 8,154 
Accrued expenses and other current liabilities 43,641  34,574 
Deferred revenue 5,435  10,211 
Current portion of payable to related parties pursuant to a Tax Receivable Agreement 34,747  34,838 
Current portion of long-term debt 5,440  6,000 
Total current liabilities 112,530  93,777 
Long-term debt, less current portion 523,655  524,591 
Payable to related parties pursuant to a Tax Receivable Agreement, less current portion 711,232  713,481 
Other long-term liabilities 50,590  41,066 
Total liabilities 1,398,007  1,372,915 
Stockholders' equity:
Class A common stock, $0.01 par value - 500,000 shares authorized; 131,539 and 131,488 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
 1,315  1,315 
Class B common stock, $0.01 par value - 300,000 shares authorized; 123,669 shares issued and outstanding as of June 30, 2022 and December 31, 2021
 1,237  1,237 
Additional paid-in capital 131,373  128,386 
Retained earnings 322,663  184,561 
Total stockholders' equity attributable to Maravai LifeSciences Holdings, Inc. 456,588  315,499 
Non-controlling interest 317,204  229,862 
Total stockholders' equity 773,792  545,361 
Total liabilities and stockholders' equity $ 2,171,799  $ 1,918,276 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)

Three Months Ended
June 30,		 Six Months Ended
June 30,
2022 2021
(as adjusted)*		 2022 2021
(as adjusted)*
Revenue $ 242,732  $ 217,775  $ 487,025  $ 365,986 
Operating expenses:
Cost of revenue 37,496  37,811  77,528  69,202 
Selling, general and administrative 28,061  24,500  61,261  47,971 
Research and development 4,274  1,929  7,969  4,089 
Change in estimated fair value of contingent consideration (7,800) —  (7,800) — 
Total operating expenses 62,031  64,240  138,958  121,262 
Income from operations 180,701  153,535  348,067  244,724 
Other income (expense):
Interest expense (4,434) (7,649) (7,098) (15,553)
Loss on extinguishment of debt —  —  (208) — 
Change in payable to related parties pursuant to a Tax Receivable Agreement —  —  2,340  5,886 
Other expense (1,275) (3) (1,268) — 
Income before income taxes 174,992  145,883  341,833  235,057 
Income tax expense 18,271  11,386  38,252  25,095 
Net income 156,721  134,497  303,581  209,962 
Net income attributable to non-controlling interests 85,481  85,354  165,479  137,717 
Net income attributable to Maravai LifeSciences Holdings, Inc. $ 71,240  $ 49,143  $ 138,102  $ 72,245 
Net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc.:
Basic $ 0.54  $ 0.44  $ 1.05  $ 0.69 
Diluted $ 0.53  $ 0.44  $ 1.03  $ 0.69 
Weighted average number of Class A common shares outstanding:
Basic 131,524  112,203  131,506  104,468 
Diluted 255,361  112,280  255,324  257,686 
____________________
*As adjusted to reflect the impact of the adoption of Accounting Standards Codification 842 (“ASC 842”). See Note 1 to the condensed consolidated financial statements for a summary of the adjustments.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)

Three Months Ended
June 30,		 Six Months Ended
June 30,
2022 2021
(as adjusted)*		 2022 2021
(as adjusted)*
Net income $ 156,721  $ 134,497  $ 303,581  $ 209,962 
Other comprehensive income:
Foreign currency translation adjustments —  8  —  16 
Total other comprehensive income 156,721  134,505  303,581  209,978 
Comprehensive income attributable to non-controlling interests 85,481  85,359  165,479  137,728 
Total comprehensive income attributable to Maravai LifeSciences Holdings, Inc. $ 71,240  $ 49,146  $ 138,102  $ 72,250 
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements for a summary of the adjustments.
The accompanying notes are an integral part of the condensed consolidated financial statements.
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MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)

Three Months Ended June 30, 2022
Class A Common Stock Class B Common Stock
Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Non-Controlling Interest Total Stockholders' Equity
March 31, 2022 131,490 $ 1,315  123,669 $ 1,237  $ 128,584  $ 251,423  $ 271,743  $ 654,302 
Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes 49  —  —  —  1,114  —  —  1,114 
Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC —  —  —  —  (480) —  480  — 
Stock-based compensation —  —  —  —  2,220  —  2,088  4,308 
Distribution for tax liabilities to non-controlling interest holder —  —  —  —  (65) —  (42,588) (42,653)
Net income —  —  —  —  —  71,240  85,481  156,721 
June 30, 2022 131,539 $ 1,315  123,669 $ 1,237  $ 131,373  $ 322,663  $ 317,204  $ 773,792 

Six Months Ended June 30, 2022
Class A Common Stock Class B Common Stock
Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Non-Controlling Interest Total Stockholders' Equity
December 31, 2021 131,488 $ 1,315  123,669 $ 1,237  $ 128,386  $ 184,561  $ 229,862  $ 545,361 
Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes 51  —  —  —  1,148  —  —  1,148 
Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC —  —  —  —  (494) —  494  — 
Stock-based compensation —  —  —  —  4,089  —  3,846  7,935 
Distribution for tax liabilities to non-controlling interest holder —  —  —  —  (65) —  (82,477) (82,542)
Impact of change to deferred tax asset associated with cash contribution to Topco LLC
 —  —  —  —  (1,691) —  —  (1,691)
Net income —  —  —  —  —  138,102  165,479  303,581 
June 30, 2022 131,539 $ 1,315  123,669 $ 1,237  $ 131,373  $ 322,663  $ 317,204  $ 773,792 
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MARAVAI LIFESCIENCES HOLDINGS, INC.
Three Months Ended June 30, 2021
Class A Common Stock Class B Common Stock
Shares Amount Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Non-Controlling Interest Total Stockholders' Equity
March 31, 2021 96,647 $ 966  160,974 $ 1,610  $ 85,976  $ (42) $ 25,626  $ 99,687  $ 213,823 
Effect of exchange of LLC Units
 17,666  177  (17,666) (177) 12,129  —  —  (12,129) — 
Recognition of impact of Tax Receivable Agreement due to exchanges of LLC Units
 —  —  —  —  18,940  —  —  —  18,940 
Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes 39  —  —  —  785  —  —  —  785 
Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC —  —  —  —  (420) —  —  420  — 
Stock-based compensation —  —  —  —  1,039  —  —  1,344  2,383 
Distribution for tax liabilities to non-controlling interest holder —  —  —  —  37  —  —  (33,112) (33,075)
Net income —  —  —  —  —  —  49,143  85,354  134,497 
Foreign currency translation adjustment —  —  —  —  —  3  —  5  8 
June 30, 2021
(as adjusted)*		 114,352 $ 1,143  143,308 $ 1,433  $ 118,486  $ (39) $ 74,769  $ 141,569  $ 337,361 
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements for a summary of the adjustments.
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MARAVAI LIFESCIENCES HOLDINGS, INC.
Six Months Ended June 30, 2021
Class A Common Stock Class B Common Stock
Shares Amount Shares Amount Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Non-Controlling Interest Total Stockholders' Equity
December 31, 2020 96,647 $ 966  160,974 $ 1,610  $ 85,125  $ (44) $ 854  $ 66,235  $ 154,746 
Cumulative effect of adoption of ASC 842, net of tax —  —  —  —  —  —  1,670  2,784  4,454 
Effect of exchange of LLC Units
 17,666  177  (17,666) (177) 12,129  —  —  (12,129) — 
Recognition of impact of Tax Receivable Agreement due to exchanges of LLC Units
 —  —  —  —  18,940  —  —  —  18,940 
Issuance of Class A common stock under employee equity plans, net of shares withheld for employee taxes 39  —  —  —  785  —  —  —  785 
Non-controlling interest adjustment for changes in proportionate ownership in Topco LLC —  —  —  —  (420) —  —  420  — 
Stock-based compensation —  —  —  —  1,893  —  —  2,768  4,661 
Distribution for tax liabilities to non-controlling interest holder —  —  —  —  34  —  —  (56,237) (56,203)
Net income —  —  —  —  —  —  72,245  137,717  209,962 
Foreign currency translation adjustment —  —  —  —  —  5  —  11  16 
June 30, 2021
(as adjusted)*		 114,352 $ 1,143  143,308 $ 1,433  $ 118,486  $ (39) $ 74,769  $ 141,569  $ 337,361 
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements for a summary of the adjustments.
The accompanying notes are an integral part of the condensed consolidated financial statements.
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MARAVAI LIFESCIENCES HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
2022 2021
(as adjusted)*
Operating activities:
Net income $ 303,581  $ 209,962 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 3,747  2,871 
Amortization of intangible assets 11,779  10,081 
Amortization of right-of-use assets 2,639  3,510 
Amortization of deferred financing costs 1,410  1,319 
Stock-based compensation expense 7,935  4,661 
Loss on extinguishment of debt 208  — 
Deferred income taxes 26,073  18,211 
Change in estimated fair value of contingent consideration (7,800) — 
Revaluation of liabilities under the Tax Receivable Agreement (2,340) (5,886)
Other (1,283) (101)
Changes in operating assets and liabilities:
Accounts receivable (2,332) (36,471)
Inventory (7,502) (18,494)
Prepaid expenses and other assets (10,052) (5,070)
Accounts payable 6,310  4,161 
Accrued expenses and other current liabilities (1,773) (12,544)
Deferred revenue (4,776) 31,430 
Other long-term liabilities 759  (3,375)
Net cash provided by operating activities 326,583  204,265 
Investing activities:
Cash paid for acquisition of a business, net of cash acquired (238,836) — 
Purchases of property and equipment (4,409) (7,865)
Proceeds from sale of building —  548 
Net cash used in investing activities (243,245) (7,317)
Financing activities:
Distributions for tax liabilities to non-controlling interests holders (82,477) (56,203)
Proceeds from borrowings of long-term debt 8,455  — 
Principal repayments of long-term debt (11,175) (3,000)
Proceeds from employee stock purchase plan and exercise of stock options, net of shares withheld for employee taxes
 1,263  1,018 
Net cash used in financing activities (83,934) (58,185)
Effects of exchange rate changes on cash —  13 
Net (decrease) increase in cash including cash classified within current assets held for sale (596) 138,776 
Less: Net increase in cash classified within current assets held for sale —  (250)
Net (decrease) increase in cash (596) 138,526 
Cash, beginning of period 551,272  236,184 
Cash, end of period $ 550,676  $ 374,710 
Supplemental cash flow information:
Cash paid for interest $ 6,132  $ 13,972 
Cash paid for income taxes $ 13,856  $ 9,087 
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MARAVAI LIFESCIENCES HOLDINGS, INC.
Six Months Ended
June 30,
2022 2021
(as adjusted)*
Supplemental disclosures of non-cash investing and financing activities:
Property and equipment included in accounts payable and accrued expenses $ 2,145  $ 1,035 
Right-of-use assets obtained in exchange for new operating lease liabilities $ 773  $ — 
Fair value of contingent consideration liability recorded in connection with acquisition of a business $ 7,800  $ — 
Accrued consideration payable
 $ 10,000  $ — 
Recognition of liabilities under the Tax Receivable Agreement $ —  $ 137,706 
Recognition of deferred tax assets as a result of exchange of LLC Units $ —  $ 156,647 
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 to the condensed consolidated financial statements for a summary of the adjustments.
The accompanying notes are an integral part of the condensed consolidated financial statements.
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MARAVAI LIFESCIENCES HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Organization and Significant Accounting Policies
Description of Business
Maravai LifeSciences Holdings, Inc. (the “Company”, and together with its consolidated subsidiaries, “Maravai”, “we”, “us”, and “our”) provides critical products to enable the development of drugs, therapeutics, diagnostics and vaccines and to support research on human diseases. 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.
The Company is headquartered in San Diego, California and has historically operated in three principal businesses: Nucleic Acid Production, Biologics Safety Testing and Protein Detection. In September 2021, the Company completed the divestiture of its Protein Detection business. Our Nucleic Acid Production business manufactures and sells products used in the fields of gene therapy, vaccines, nucleoside chemistry, oligonucleotide therapy and molecular diagnostics, including reagents used in the chemical synthesis, modification, labelling and purification of deoxyribonucleic acid (“DNA”) and ribonucleic acid (“RNA”). Our core Nucleic Acid Production offerings include messenger ribonucleic acid (“mRNA”), long and short oligonucleotides, our proprietary CleanCap® capping technology and oligonucleotide building blocks. Our Biologics Safety Testing business sells highly specialized analytical products for use in biologic manufacturing process development, including custom product-specific development antibody and assay development services.
Organization
We were incorporated as a Delaware corporation in August 2020 for the purpose of facilitating an initial public offering (“IPO”). Immediately prior to the IPO, we effected a series of organizational transactions (the “Organizational Transactions”), which, together with the IPO, were completed in November 2020, that resulted in the Company operating, controlling all of the business affairs and becoming the ultimate parent company of Maravai Topco Holdings, LLC (“Topco LLC”) and its consolidated subsidiaries. Maravai Life Sciences Holdings, LLC (“MLSH 1”), which is controlled by investment entities affiliated with GTCR, is the only other member of Topco LLC.
The Company is the sole managing member of Topco LLC, which operates and controls TriLink Biotechnologies, LLC (“TriLink”), Glen Research, LLC, MockV Solutions, LLC and Cygnus Technologies, LLC (“Cygnus”) and their respective subsidiaries. Prior to the Company’s divestiture of its Protein Detection business in September 2021, Topco LLC also operated and controlled Vector Laboratories, Inc. and its subsidiaries (“Vector”).
Basis of Presentation
The Company operates and controls all of the business and affairs of Topco LLC, and through Topco LLC and its subsidiaries, conducts its business. Because we manage and operate the business and control the strategic decisions and day-to-day operations of Topco LLC and also have a substantial financial interest in Topco LLC, we consolidate the financial results of Topco LLC, and a portion of our net income is allocated to the non-controlling interests in Topco LLC held by MLSH 1.
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and accounts between the businesses comprising the Company have been eliminated in the accompanying consolidated financial statements.
Unaudited Interim Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to Form 10-Q of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements include all adjustments necessary to fairly state the financial position and the results of our operations and cash flows for interim periods in accordance with GAAP. All such adjustments are of a normal, recurring nature. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any future period.
The condensed consolidated balance sheet presented as of December 31, 2021, has been derived from the audited consolidated financial statements as of that date. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain all information that is included in the annual financial statements and notes thereto of the Company. The condensed consolidated financial statements and notes included in this report should be read in conjunction with
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the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”) filed with the SEC.
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires the Company to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenue and expenses, and related disclosures. These estimates form the basis for judgments the Company makes about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company bases its estimates and judgments on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. These estimates are based on management’s knowledge about current events and expectations about actions the Company may undertake in the future. Significant estimates include, but are not limited to the payable to related parties pursuant to the Tax Receivable Agreement (as defined in Note 10), the realizability of our net deferred tax assets, and valuation of goodwill and intangible assets acquired in business combinations. Actual results could differ materially from those estimates.
Significant Accounting Policies
A description of the Company’s significant accounting policies is included in Note 1 of the Notes to the Consolidated Financial Statements included in its 2021 Form 10-K. Except as noted below, there have been no material changes in the Company’s significant accounting policies during the three and six months ended June 30, 2022.
Revenue Recognition
The Company generates revenue primarily from the sale of products, and to a much lesser extent, services in the fields of nucleic acid production, biologics safety testing and protein detection. Revenue is recognized when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements with customers, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The majority of the Company’s contracts include only one performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is defined as the unit of account for revenue recognition. The Company also recognizes revenue from other contracts that may include a combination of products and services, the provision of solely services, or from license fee arrangements which may be associated with the delivery of product. Where there is a combination of products and services, the Company accounts for the promises as individual performance obligations if they are concluded to be distinct. Performance obligations are considered distinct if they are both capable of being distinct and distinct within the context of the contract. In determining whether performance obligations meet the criteria for being distinct, the Company considers a number of factors, such as the degree of interrelation and interdependence between obligations, and whether or not the good or service significantly modifies or transforms another good or service in the contract. As a practical expedient, we do not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less. Contracts with customers are evaluated on a contract-by-contract basis as contracts may include multiple types of goods and services as described below.
Nucleic Acid Production
Nucleic Acid Production revenue is generated from the manufacture and sale of highly modified, complex nucleic acids products to support the needs of our of customers’ research, therapeutic and vaccine programs. The primary offering of products includes CleanCap®, mRNA and specialized oligonucleotides. Contracts typically consist of a single performance obligation. We also sell nucleic acid products for labeling and detecting proteins in cells and tissue samples research. The Company recognizes revenue from these products in the period in which the performance obligation is satisfied by transferring control to the customer. Revenue for nucleic acid catalog products is recognized at a single point in time, generally upon shipment to the customer. Revenue for contracts for certain custom nucleic acid products, with an enforceable right to payment and a reasonable margin for work performed to date, is recognized over time, based on a cost-to-cost input method over the manufacturing period. Payments received from customers in advance of manufacturing their products is recorded as deferred revenue until the products were delivered.
Biologics Safety Testing
The Company’s Biologics Safety Testing revenue is associated with the sale of bioprocess impurity detection kit products. We also enter into contracts that include custom antibody development, assay development and antibody affinity extraction services. These products and services enable the detection of impurities that occur in the
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manufacturing of biologic drugs and other therapeutics. The Company recognizes revenue from the sale of bioprocess impurity detection kits in the period in which the performance obligation is satisfied by transferring control to the customer. Custom antibody development contracts consist of a single performance obligation, typically with an enforceable right to payment and a reasonable margin for work performed to date. Revenue is recognized over time based on a cost-to-cost input method over the contract term. Where an enforceable right to payment does not exist, revenue is recognized at a point in time when control is transferred to the customer. Assay development service contracts consist of a single performance obligation, revenue is recognized at a point in time when a successful antigen test and report is provided to the customer. Affinity extraction services, which generally occur over a short period of time, consist of a single performance obligation to perform the extraction service and provide a summary report to the customer. Revenue is recognized either over time or at a point in time depending on contractual payment terms with the customer.
Protein Detection
Prior to the divestiture of its Protein Detection business in September 2021, the Company also manufactured and sold protein labeling and detection reagents to customers that were used for basic research and development. The contracts to sell these catalog products consisted of a single performance obligation to deliver the reagent products. Revenue from these contracts was recognized at a point in time, generally upon shipment of the final product to the customer.
The Company elected the practical expedient to not disclose the unfulfilled performance obligations for contracts with an original length of one year or less. The Company had no material unfulfilled performance obligations for contracts with an original length greater than one year for any period presented.
The Company accepts returns only if the products do not meet customer specifications and historically, the Company’s volume of product returns has not been significant. Further, no warranties are provided for promised goods and services other than assurance type warranties.
Revenue for an individual contract is recognized at the related transaction price, which is the amount the Company expects to be entitled to in exchange for transferring the products and/or services. The transaction price for product sales is calculated at the contracted product selling price. The transaction price for a contract with multiple performance obligations is allocated to the separate performance obligations on a relative standalone selling price basis. Standalone selling prices for products are determined based on the prices charged to customers, which are directly observable. Standalone selling price of services are mostly based on time and materials. Generally, payments from customers are due when goods and services are transferred. As most contracts contain a single performance obligation, the transaction price is representative of the standalone selling price charged to customers. Revenue is recognized only to the extent that it is probable that a significant reversal of the cumulative amount recognized will not occur in future periods. Variable consideration has not been material to our consolidated financial statements.
Sales taxes
Sales taxes collected by the Company are not included in the transaction price as revenue as they are ultimately remitted to a governmental authority.
Shipping and handling costs
The Company has elected to account for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Accordingly, revenue for shipping and handling is recognized at the same time that the related product revenue is recognized.
Contract costs
The Company recognizes the incremental costs of obtaining contracts as an expense when incurred when the amortization period of the assets that otherwise would have been recognized is one year or less. These costs are included in sales and marketing and general and administrative expenses. The costs to fulfill the contracts are determined to be immaterial and are recognized as an expense when incurred.
Contract balances
Contract assets are generated when contractual billing schedules differ from revenue recognition timing and the Company records a contract receivable when it has an unconditional right to consideration. There were no contract asset balances as of June 30, 2022 and December 31, 2021.
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Contract liabilities include billings in excess of revenue recognized, such as customer deposits and deferred revenue. Customer deposits, which are included in accrued expenses, are recorded when cash payments are received or due in advance of performance. Deferred revenue is recorded when the Company has unsatisfied performance obligations. Total contract liabilities were $7.5 million and $12.6 million as of June 30, 2022 and December 31, 2021, respectively. Contract liabilities are expected to be recognized into revenue within the next twelve months.
Disaggregation of Revenue
The following tables summarize the revenue by segment and region for the periods presented (in thousands):
Three Months Ended June 30, 2022
Nucleic Acid Production Biologics Safety Testing Total
North America $ 82,015 $ 7,172 $ 89,187
Europe, the Middle East and Africa 113,461 4,578 118,039
Asia Pacific 29,737 5,605 35,342
Latin and Central America 35 129 164
Total revenue $ 225,248 $ 17,484 $ 242,732
Six Months Ended June 30, 2022
Nucleic Acid Production Biologics Safety Testing Total
North America $ 161,433 $ 14,691 $ 176,124
Europe, the Middle East and Africa 244,811 9,275 254,086
Asia Pacific 42,604 13,933 56,537
Latin and Central America 50 228 278
Total revenue $ 448,898 $ 38,127 $ 487,025
Three Months Ended June 30, 2021
Nucleic Acid Production Biologics Safety Testing Protein Detection Total
North America $ 65,715 $ 6,437 $ 4,197 $ 76,349
Europe, the Middle East and Africa 106,046 3,899 1,892 111,837
Asia Pacific 20,760 7,668 913 29,341
Latin and Central America — 204 44 248
Total revenue $ 192,521 $ 18,208 $ 7,046 $ 217,775
Six Months Ended June 30, 2021
Nucleic Acid Production Biologics Safety Testing Protein Detection Total
North America $ 133,847 $ 12,849 $ 7,949 $ 154,645
Europe, the Middle East and Africa 153,944 8,248 3,360 165,552
Asia Pacific 28,645 14,403 2,273 45,321
Latin and Central America 17 357 94 468
Total revenue $ 316,453 $ 35,857 $ 13,676 $ 365,986
Total revenue is attributed to geographic regions based on the bill-to location of the transaction. For all periods presented, the majority of our revenue was recognized at a point in time.
Non-Controlling Interests
Non-controlling interests represent the portion of profit or loss, net assets and comprehensive income of our consolidated subsidiaries that is not allocable to the Company based on our percentage of ownership of such entities.
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In November 2020, following the completion of the Organizational Transactions, we became the sole managing member of Topco LLC. As of June 30, 2022, we held approximately 51.5% of the outstanding LLC Units of Topco LLC, and MLSH 1 held approximately 48.5% of the outstanding LLC Units of Topco LLC. Therefore, we report non-controlling interests based on the percentage of LLC Units of Topco LLC held by MLSH 1 on the condensed consolidated balance sheet as of June 30, 2022. Income or loss attributed to the non-controlling interest in Topco LLC is based on the LLC Units outstanding during the period for which the income or loss is generated and is presented on the condensed consolidated statements of income and condensed consolidated statements of comprehensive income.
MLSH 1 is entitled to exchange its LLC Units of Topco LLC, together with an equal number of shares of our Class B common stock (together referred to as “Paired Interests”), for shares of Class A common stock on a one-for-one basis or, at our election, for cash, from a substantially concurrent public offering or private sale (based on the price of our Class A common stock in such public offering or private sale). As such, future exchanges of Paired Interests by MLSH 1 will result in a change in ownership and reduce or increase the amount recorded as non-controlling interests and increase or decrease additional paid-in-capital when Topco LLC has positive or negative net assets, respectively. In April 2021, MLSH 1 executed an exchange of Paired Interests prior to the April 2021 Secondary Offering. For the six months ended June 30, 2022, MLSH 1 did not exchange any Paired Interests.
Exchange and Secondary Offering
In April 2021, MLSH 1 executed an exchange of 17,665,959 LLC Units (paired with the corresponding shares of Class B common stock) in return for 17,665,959 shares of the Company’s Class A common stock. The corresponding shares of Class B common stock were subsequently cancelled and retired. The Company immediately completed a secondary offering (“April 2021 Secondary Offering”) of 20,700,000 shares of its Class A common stock by MLSH 1 and MLSH 2, which included 3,034,041 shares of Class A common stock previously held by MLSH 2, which included the full exercise of the underwriters’ option to purchase up to 2,700,000 additional shares of Class A common stock, at a price of $31.25 per share.
The selling stockholders were responsible for the underwriting discounts and commissions of the April 2021 Secondary Offering and received all of the net proceeds of $624.2 million from the sale of shares of Class A common stock. The Company was responsible for the offering costs associated with the April 2021 Secondary Offering of $1.0 million which were recorded within selling, general and administrative in the condensed consolidated statements of income.
Distributions of $42.6 million and $82.5 million for tax liabilities were made to MLSH 1 during the three and six months ended June 30, 2022, respectively. Distributions of $33.1 million and $56.2 million for tax liabilities were made to MLSH 1 during the three and six months ended June 30, 2021, respectively.
Segment Information
The Company has historically operated in three reportable segments. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Company’s chief operating decision maker (“CODM”), its Chief Executive Officer, allocates resources and assesses performance based upon discrete financial information at the segment level. All of our long-lived assets are located in the United States. After the divestiture of Vector in September 2021, the Company no longer has the Protein Detection segment. The Company has reported the historical results of the Protein Detection business as such discrete financial information evaluated by the CODM for the periods presented included the information for this legacy segment. As of June 30, 2022, the Company operated in two reportable segments: Nucleic Acid Production and Biologics Safety Testing.
Net Income per Class A Common Share Attributable to Maravai LifeSciences Holdings, Inc.
Basic net income per Class A common share attributable to Maravai LifeSciences Holdings, Inc. is computed by dividing net income attributable to us by the weighted average number of Class A common shares outstanding during the period. Diluted net income per Class A common share is calculated by giving effect to all potential weighted average dilutive stock options, restricted stock units, and Topco LLC Units, that together with an equal number of shares of our Class B common stock , are convertible into shares of our Class A common stock. The dilutive effect of outstanding awards, if any, is reflected in diluted earnings per share by application of the treasury stock method or if-converted method, as applicable. The Company reported net income attributable to Maravai LifeSciences Holdings, Inc. for the three and six months ended June 30, 2022 and 2021.
Government Assistance
The consideration awarded to the Company by the U.S. Department of Defense is outside the scope of the contracts with customers, income tax, funded research and development, and contribution guidance. This is because the awarding entity is not considered to be a customer, the receipt of the funding is not predicated on the Company’s income tax position, there are no
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refund provisions, and the entity is not receiving reciprocal value for their support provided to the Company. The Company’s elected policy is to recognize such assistance as a reduction to the carrying amount of the assets associated with the award when it is reasonably assured that the funding will be received as evidenced through the existence of an arrangement, amounts eligible for reimbursement are determinable and have been incurred or paid, the applicable conditions under the arrangement have been met, and collectability of amounts due is reasonably assured.
Contingent Consideration
Contingent consideration represents additional consideration that may be transferred to former owners of an acquired entity in the future if certain future events occur or conditions are met. Contingent consideration resulting from the acquisition of a business is recorded at fair value on the acquisition date. Such contingent consideration is re-measured to its estimated fair value at each reporting date with the change in fair value recognized within operating expenses in the Company’s condensed consolidated statements of income. Subsequent changes in the fair value of the contingent consideration are classified as an adjustment to cash flows from operating activities in the condensed consolidated statements of cash flows because the change in fair value is an input in determining net income. Cash paid in settlement of contingent consideration liabilities are classified as cash flows from financing activities up to the acquisition date fair value with any excess classified as cash flows from operating activities.
Changes in the fair value of contingent consideration liabilities associated with the acquisition of a business can result from updates to assumptions such as the expected timing or probability of achieving customer related performance targets, specified sales milestones, changes in projected revenue or changes in discount rates. Judgment is used in determining those assumptions as of the acquisition date and for each subsequent reporting period. Therefore, any changes in the fair value will impact the Company’s results of operations in such reporting period thereby resulting in potential variability in the Company’s operating results until such contingencies are resolved.
Fair Value of Financial Instruments
The Company defines fair value as the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company follows accounting guidance that has a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of the asset or liability as of the measurement date. Instruments with readily available actively quoted prices, or for which fair value can be measured from actively quoted prices in an orderly market, will generally have a higher degree of market price transparency and a lesser degree of judgment used in measuring fair value. The three levels of the hierarchy are defined as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2—Include other inputs that are directly or indirectly observable in the marketplace; and
Level 3—Unobservable inputs which are supported by little or no market activity.
As of June 30, 2022 and December 31, 2021, the carrying value of the Company’s current assets and liabilities approximated fair value due to the short maturities of these instruments. The fair values of the Company’s long-term debt approximated carrying value, excluding the effect of unamortized debt discount, as it is based on borrowing rates currently available to the Company for debt with similar terms and maturities (Level 2 inputs).
Acquisitions
The Company evaluates mergers, acquisitions and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or an acquisition of assets. The Company first identifies who is the acquiring entity by determining if the target is a legal entity or a group of assets or liabilities. If control over a legal entity is being evaluated, the Company also evaluates if the target is a variable interest or voting interest entity. For acquisitions of voting interest entities, the Company applies a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen test is met, the transaction is accounted for as an acquisition of assets. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the definition of a business.
The Company accounts for its 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 purchase price may also include contingent consideration. The Company assesses whether such contingent consideration is subject to liability classification and fair value measurement or meets the definition of a derivative. Contingent consideration liabilities are recognized at their estimated fair value on the acquisition date. Contingent consideration
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arrangements that are determined to be compensatory in nature are recognized as post combination expense in our condensed consolidated statements of income ratably over the implied service period beginning in the period it becomes probable such amounts will become payable. 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. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed twelve months from the acquisition date. The results of acquired businesses are included in the Company’s consolidated financial statements from the date of acquisition. Transaction costs directly attributable to acquired businesses are expensed as incurred.
Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies and 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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains substantially all of its cash balances at a financial institution that management believes is of high credit-quality and is financially stable. Cash is deposited with major financial institutions in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company believes it is not exposed to significant credit risk due to the financial strength of the depository institutions in which the cash is held. The Company provides credit, in the normal course of business, to international and domestic distributors and customers, which are geographically dispersed. The Company attempts to limit its credit risk by performing ongoing credit evaluations of its customers and maintaining adequate allowances for potential credit losses.
The following table summarizes revenue from each of our customers who individually accounted for 10% or more of our total revenue or accounts receivable for the periods presented:
Revenue Accounts Receivable, net
Three Months Ended June 30, Six Months Ended June 30, June 30, 2022 December 31, 2021
2022 2021 2022 2021
BioNTech SE 32.7  % 44.8  % 36.7  % 35.6  % * *
Pfizer Inc. 32.1  % 18.1  % 30.9  % 22.6  % 64.2  % 23.6  %
CureVac N.V. * * * * * 46.5  %
Nacalai USA, Inc. * * * * * 11.6  %
____________________
*Less than 10%
For the three and six months ended June 30, 2022 and 2021, substantially all of the revenue recorded for BioNTech SE and Pfizer Inc. was generated by the Nucleic Acid Production segment.
Retrospective Application of a Change in Accounting Principle
The Company adopted Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”), which supersedes the guidance in ASC 840, Leases (“ASC 840”), effective January 1, 2021. As the Company elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Jumpstart Our Business Startups Act of 2012, ASC 842 was not adopted until the fourth quarter of 2021. The comparative information for the three and six months ended June 30, 2021 has been adjusted to reflect the impact of the adoption of ASC 842 as of January 1, 2021.
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Select line items from the condensed consolidated statements of income reflecting the adoption of ASC 842 are as follows (in thousands):
Three Months Ended June 30, 2021
As Previously Reported Adjustments As Adjusted
Operating expenses:
Cost of revenue $ 37,513  $ 298  $ 37,811 
Selling, general and administrative 24,085  415  24,500 
Research and development 1,932  (3) 1,929 
Total operating expenses 63,530  710  64,240 
Income from operations 154,245  (710) 153,535 
Other income (expense):
Interest expense (8,512) 863  (7,649)
Income before income taxes 145,730  153  145,883 
Net income 134,344  153  134,497 
Net income attributable to non-controlling interests 85,269  85  85,354 
Net income attributable to Maravai LifeSciences Holdings, Inc. 49,075  68  49,143 
Six Months Ended June 30, 2021
As Previously Reported Adjustments As Adjusted
Operating expenses:
Cost of revenue $ 67,881  $ 1,321  $ 69,202 
Selling, general and administrative 47,322  649  47,971 
Research and development 4,096  (7) 4,089 
Total operating expenses 119,299  1,963  121,262 
Income from operations 246,687  (1,963) 244,724 
Other income (expense):
Interest expense (17,282) 1,729  (15,553)
Income before income taxes 235,291  (234) 235,057 
Net income 210,196  (234) 209,962 
Net income attributable to non-controlling interests 137,874  (157) 137,717 
Net income attributable to Maravai LifeSciences Holdings, Inc. 72,322  (77) 72,245 
The adoption of ASC 842 had no impact on the Company’s basic and diluted earnings per share for the three and six months ended June 30, 2021.
Select line items from the condensed consolidated statements of comprehensive income reflecting the adoption of ASC 842 are as follows (in thousands):
Three Months Ended June 30, 2021
As Previously Reported Adjustments As Adjusted
Net income $ 134,344  $ 153  $ 134,497 
Total other comprehensive income 134,352  153  134,505 
Comprehensive income attributable to non-controlling interests 85,274  85  85,359 
Total comprehensive income attributable to Maravai LifeSciences Holdings, Inc. 49,078  68  49,146 
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Six Months Ended June 30, 2021
As Previously Reported Adjustments As Adjusted
Net income $ 210,196  $ (234) $ 209,962 
Total other comprehensive income 210,212  (234) 209,978 
Comprehensive income attributable to non-controlling interests 137,885  (157) 137,728 
Total comprehensive income attributable to Maravai LifeSciences Holdings, Inc. 72,327  (77) 72,250 
Select line items from the condensed consolidated statements of changes in stockholders’ equity reflecting the adoption of ASC 842 are as follows (in thousands):
As of June 30, 2021
As Previously Reported Adjustments As Adjusted
Additional paid-in capital $ 118,208  $ 278  $ 118,486 
Retained earnings 73,176  1,593  74,769 
Non-controlling interest 139,220  2,349  141,569 
Total stockholders' equity 333,141  4,220  337,361 
Select line items from the condensed consolidated statements of cash flows reflecting the adoption of ASC 842 are as follows (in thousands):
Six Months Ended June 30, 2021
As Previously Reported Adjustments As Adjusted
Operating activities
Net income $ 210,196  $ (234) $ 209,962 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 4,151  (1,280) 2,871 
Amortization of right-of-use assets —  3,510  3,510 
Non-cash interest expense recognized on lease facility financing obligation 162  (162) — 
Other (389) 288  (101)
Changes in operating assets and liabilities:
Inventory (18,073) (421) (18,494)
Prepaid expenses and other assets (5,013) (57) (5,070)
Accounts payable 4,085  76  4,161 
Accrued expenses and other current liabilities (13,916) 1,372  (12,544)
Other long-term liabilities (1) (3,374) (3,375)
Net cash provided by operating activities 204,547  (282) 204,265 
Investing activities
Purchases of property and equipment (7,782) (83) (7,865)
Net cash used in investing activities (7,234) (83) (7,317)
Financing activities
Payments made on facility financing lease obligation and capital lease (365) 365  — 
Net cash used in financing activities (58,550) 365  (58,185)
Recently Adopted Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance (“ASU 2021-10”). ASU 2021-10 provides guidance to increase the transparency of government assistance including the disclosure of:
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(i) the types of assistance, (ii) an entity’s accounting for the assistance, and (iii) the effect of the assistance on an entity’s financial statements. Under the new guidance, an entity is required to provide the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy: (i) information about the nature of the transactions and the related accounting policy used to account for the transactions, (ii) the line items on the balance sheet and income statement that are affected by the transactions, and the amounts applicable to each financial statement line item, and (iii) significant terms and conditions of the transactions, including commitments and contingencies. The new guidance is required to be adopted either: (i) prospectively to all transactions within the scope of the amendments that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application, or (ii) retrospectively to those transactions. The Company adopted ASU 2021-10 on January 1, 2022 using the prospective method and is complying with the related disclosure requirements (see Note 6).
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 is effective for years beginning after December 31, 2022, including interim periods within those fiscal years, with early adoption permitted. The ASU is to be applied prospectively to business combinations occurring on or after the effective date of its adoption. The Company early adopted ASU 2021-08 and there was no impact to the Company’s condensed consolidated financial statements as a result of the adoption of this ASU.
2.Acquisition
MyChem, LLC
On January 27, 2022, the Company completed the acquisition of MyChem, LLC (“MyChem”), a privately-held San Diego, California-based provider of ultra-pure nucleotides to customers in the diagnostics, pharma, genomics and research markets. The acquisition will vertically integrate the Company’s supply chain and expand its product offerings for inputs used in the development of therapeutics and vaccines.
The Company acquired MyChem for a total purchase consideration of $257.8 million, subject to customary post-closing adjustments, including a working capital settlement. The total cash consideration paid at closing was $240.0 million using existing cash on hand. The transaction was accounted for as an acquisition of a business as MyChem consisted of inputs and processes applied to those inputs that had the ability to contribute to the creation of outputs.
For the three and six months ended June 30, 2022, the Company incurred $0.4 million and $3.4 million, respectively, in transaction costs associated with the acquisition of MyChem, which were recorded within selling, general and administrative in the condensed consolidated statements of income.
The acquisition date fair value of consideration transferred to acquire MyChem consisted of the following (in thousands):
Cash paid $ 240,012 
Consideration payable 10,000 
Fair value of contingent consideration 7,800 
Total consideration transferred $ 257,812 
Pursuant to the Securities Purchase Agreement (the “MyChem SPA”) between the Company and sellers of MyChem, additional payments to the sellers of MyChem are dependent upon meeting or exceeding defined revenue targets during fiscal 2022 (the “Performance Payment”). The MyChem SPA provides for a total maximum Performance Payment of $40.0 million. The MyChem SPA also provides that the Company will pay to the sellers of MyChem an additional $20.0 million (the “Retention Payment”) as of the second anniversary of the closing of the acquisition date as long as two senior employees who are also the sellers of MyChem continue to be employed by TriLink. The Company considers the payment of the Retention Payment as probable and is recognizing compensation expense related to this payment in the post-acquisition period ratably over the expected service period of two years. The MyChem SPA further provides that the Company will pay to the sellers of MyChem an additional amount of up to $10.0 million subject to the completion of certain calculations associated with acquired inventory, which has been recorded within accrued expenses and other current liabilities on the condensed consolidated balance sheet as of June 30, 2022. The Performance Payment was recorded as contingent consideration and was included as part of the purchase consideration. For the three and six months ended June 30, 2022, the Company recorded $2.5 million and $4.3 million of
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compensation expense related to the Retention Payment within research and development in the condensed consolidated statements of income.
The Company estimated the fair value of the Performance Payment contingent consideration based on a Monte-Carlo simulation model which utilized an income approach. The estimated fair value was based on MyChem revenue projections, expected payout term, volatility and risk adjusted discount rates which are Level 3 inputs (see Note 4).
As the Company is in the process of finalizing the evaluation of certain liabilities and assets, the allocation of purchase consideration is preliminary and provisional measurements of certain liabilities and goodwill are subject to change. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):
Cash $ 1,176 
Current assets 2,741 
Intangible assets, net 123,360 
Other assets 9,288 
Total identifiable assets acquired 136,565 
Current liabilities (1,123)
Other long-term liabilities (8,399)
Total liabilities assumed (9,522)
Net identifiable assets acquired 127,043 
Goodwill 130,769 
Net assets acquired $ 257,812 
The acquisition was accounted for under the acquisition method of accounting, and therefore, the total purchase price was allocated to the identifiable tangible and intangible assets acquired and the liabilities assumed based on their respective fair values as of the acquisition date. Purchase consideration in excess of the amounts recognized for the net assets acquired was recognized as goodwill. Goodwill is primarily attributable to expanded synergies expected from the acquisition associated with a vertical supply integration. There were no tax impacts associated with the acquisition due to the pass-through income tax treatment of MyChem. All of the goodwill acquired in connection with the acquisition of MyChem was allocated to the Company’s Nucleic Acid Production segment and is deductible to Topco LLC for income tax purposes.
Upon closing of the acquisition, approximately $1.0 million was placed into escrow to cover potential working capital adjustments and approximately $12.5 million was placed into escrow to secure certain representations and warranties pursuant to the terms of the purchase agreement. These amounts are included in the total purchase consideration of $257.8 million. Because these amounts held in escrow are not controlled by the Company, they are not included in the accompanying condensed consolidated balance sheet as of June 30, 2022.
The following table summarizes the estimated fair values of MyChem’s identifiable intangible assets as of the date of acquisition and their estimated useful lives:
Estimated Fair Value
(in thousands)		 Estimated Useful Life
(in years)
Trade Names $ 460  3
Developed Technology 121,000  12
Customer Relationships 1,900  12
Total $ 123,360 
The trade name and customer relationship intangible assets are related to MyChem’s name, customer loyalty and customer relationships. The developed technology intangible asset is related to processes and techniques for synthesizing and developing ultra-pure nucleotides. The fair value of these intangible assets was based on MyChem’s projected revenues and were estimated using an income approach, specifically the multi-period excess earnings method. Under the income approach, an intangible asset’s fair value is equal to the present value of future economic benefits to be derived from ownership of the asset. The estimated fair value was developed by discounting future net cash flows to their present value at market-based rates of return utilizing Level 3 inputs. The useful lives for these intangible assets was determined based upon the remaining period for which the assets that are expected to contribute directly or indirectly to future cash flows. Key quantitative assumptions used in the
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determination of fair value of the developed technology intangible included revenue growth rates ranging from 3.0% to 30.6%, a discount rate of 16.5% and an assumed technical obsolescent curve range of 5.0% to 7.5%.
Pursuant to the terms of the MyChem SPA, the Company recognized an indemnification asset of $8.0 million within other assets, which represented the seller’s obligation to reimburse pre-acquisition income tax liabilities assumed in the acquisition and was recorded within other long-term liabilities. During the three months ended June 30, 2022, the Company recorded an adjustment of $1.3 million to the indemnification asset within other expense in the condensed consolidated statements of income. As of June 30, 2022, the carrying value of the indemnification asset was $6.8 million recorded within other assets in the condensed consolidated balance sheet.
The carrying value of the remaining assets acquired or liabilities assumed was estimated to equal their fair values based on their short-term nature. These estimates were based on the assumption that the Company believes to be reasonable; however, actual results may differ from these estimates.
Revenue and earnings from MyChem included in the Company’s condensed consolidated statements of income since the date of acquisition were immaterial.
No proforma revenue or earnings information for the three and six months ended June 30, 2022 and 2021 have been presented as the impact was not determined to be material to the Company’s condensed consolidated revenues and net income for the respective periods.
3.Goodwill and Intangible Assets
The Company’s goodwill of $283.5 million and $152.8 million as of June 30, 2022 and December 31, 2021, respectively, represents the excess of purchase consideration over the fair value of assets acquired and liabilities assumed. As of June 30, 2022 and December 31, 2021, the Company had three reporting units, two of which are contained in the Nucleic Acid Production segment. During the first quarter of 2022, the Company recorded goodwill of $130.8 million in connection with the acquisition of MyChem that was completed in January 2022 (see Note 2). The Company has not recognized any goodwill impairment in any of the periods presented.
The following table summarizes the activity in the Company’s goodwill by segment for the period presented (in thousands):
Nucleic Acid Production Biologics Safety Testing Total
Balance as of December 31, 2021 $ 32,838  $ 119,928  $ 152,766 
Acquisition 130,769  —  130,769 
Balance as of June 30, 2022 $ 163,607  $ 119,928  $ 283,535 
Intangible assets are being amortized on a straight-line basis, which reflects the expected pattern in which the economic benefits of the intangible assets are being obtained, over an estimated useful life ranging from 3 to 14 years.
The following are components of finite-lived intangible assets and accumulated amortization as of the periods presented:
June 30, 2022
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Estimated Useful Life Weighted Average Remaining Amortization Period
(in thousands) (in years) (in years)
Trade Names $ 7,580  $ 5,382  $ 2,198 
3 - 10
 3.9
Patents and Developed Technology 288,649  73,908  214,741 
10 - 14
 10.0
Customer Relationships 21,853  9,639  12,214 
10 - 12
 6.9
Total $ 318,082  $ 88,929  $ 229,153  9.8
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December 31, 2021
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
Estimated Useful Life
Weighted Average Remaining Amortization Period
(in thousands) (in years) (in years)
Trade Names $ 7,120  $ 5,012  $ 2,108 
5 - 10
 2.9
Patents and Developed Technology 167,648  63,465  104,183 
5 - 14
 8.5
Customer Relationships 19,953  8,673  11,280 
10 - 12
 6.4
Total $ 194,721  $ 77,150  $ 117,571  8.1
During the first quarter of 2022, the Company recorded intangible assets of $123.4 million in connection with the acquisition of MyChem that was completed in January 2022 (see Note 2).
The Company recognized $5.6 million and $10.3 million of amortization expense from intangible assets directly linked with revenue generating activities within cost of revenue in the condensed consolidated statements of income for the three and six months ended June 30, 2022, respectively. The Company recognized $3.1 million and $6.2 million of amortization expense from intangible assets directly linked with revenue generating activities within cost of revenue in the condensed consolidated statements of income for the three and six months ended June 30, 2021, respectively.
Amortization expense for intangible assets that are not directly related to sales generating activities of $0.7 million and $1.5 million was recorded as selling, general and administrative expenses for the three and six months ended June 30, 2022, respectively. Amortization expense for intangible assets that are not directly related to sales generating activities of $1.9 million and $3.8 million was recorded as selling, general and administrative expenses for the three and six months ended June 30, 2021, respectively.
As of June 30, 2022, the estimated future amortization expense for finite-lived intangible assets were as follows (in thousands):
2022 (remaining six months)
 $ 12,490 
2023 24,812 
2024 24,812 
2025 24,669 
2026 24,432 
Thereafter 117,938 
Total estimated amortization expense $ 229,153 
4.Fair Value Measurements
The following table summarizes the Company’s financial assets and liabilities that are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
Fair Value Measurements as of June 30, 2022
Level 1 Level 2 Level 3 Total
Assets
Interest rate cap $ —  $ 5,406  $ —  $ 5,406 
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 were insignificant.
Contingent Consideration
In connection with the acquisition of MyChem (see Note 2), the Company is required to make contingent payments to the sellers of up to $40.0 million subject to achieving certain revenue thresholds. The preliminary fair value of the liability for the contingent payments recognized upon the acquisition as part of the purchase accounting opening balance sheet totaled $7.8 million. The preliminary fair value of the contingent consideration was determined using a Monte-Carlo simulation-based model discounted to present value. Assumptions used in this calculation are expected revenue, a discount rate of 16.9% and various probability factors. The ultimate settlement of the contingent consideration could deviate from current estimates based on the actual results of these financial measures. The contingent consideration projected year of payment is 2023. This liability
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is considered to be a Level 3 financial liability that is remeasured each reporting period. Changes in fair value of contingent consideration are recognized as a gain or loss and recorded within change in estimated fair value of contingent consideration in the condensed consolidated statements of income. During the three months ended June 30, 2022, the Company recorded a $7.8 million decrease in the estimated fair value of contingent consideration. This was due to a change in estimate associated with MyChem revenue projections reaching thresholds that would trigger a contingent payment per the MyChem SPA.
The following table provides a reconciliation of liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period presented (in thousands):
Contingent Consideration
Balance as of December 31, 2021 $ — 
Contingent consideration related to the acquisition of MyChem 7,800 
Change in estimated fair value of contingent consideration (7,800)
Balance as of June 30, 2022 $ — 
5.Balance Sheet Components
Inventory
Inventory consisted of the following as of the periods presented (in thousands):
June 30, 2022 December 31, 2021
Raw materials $ 20,311  $ 19,726 
Work-in-process 30,067  21,382 
Finished goods 9,735  10,449 
Total inventory $ 60,113  $ 51,557 
Other assets
Other assets consisted of the following as of the periods presented (in thousands):
June 30, 2022 December 31, 2021
Right-of-use assets $ 47,229  $ 49,095 
Prepaid lease payments 9,563  — 
Indemnification asset (see Note 2)
 6,766  — 
Interest rate cap 5,406  541 
Other 3,455  3,815 
Total other assets $ 72,419  $ 53,451 
Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consisted of the following as of the periods presented (in thousands):
June 30, 2022 December 31, 2021
Employee related $ 13,186  $ 18,894 
Consideration payable (see Note 2)
 10,000  — 
Lease liabilities, current portion 4,311  3,722 
Professional services 3,324  2,897 
Customer deposits 2,090  2,429 
Sales and use tax liability 1,670  1,296 
Other 9,060  5,336 
Total accrued expenses and other current liabilities $ 43,641  $ 34,574 
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6.Government Assistance
Cooperative Agreement
In May 2022, TriLink entered into a cooperative agreement (the “Cooperative Agreement”) with the U.S. Department of Defense, as represented by the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense on behalf of the Biomedical Advanced Research and Development Authority (“BARDA”), within the U.S. Department of Health and Human Services, to advance the development of domestic manufacturing capabilities and to expand TriLink’s domestic production capacity in its San Diego manufacturing campus (the “Flanders San Diego Facility”) for products critical to the development and manufacture of mRNA vaccines and therapeutics.
Pursuant to certain requirements, BARDA awarded TriLink an amount equal to $38.8 million or 50% of the construction and validation costs currently budgeted for the Flanders San Diego Facility. The contract period of performance is May 2022 through December 2023, which is the effective date of the Cooperative Agreement through the anticipated date of completion of construction and validation of manufacturing capacity. Amounts reimbursed are subject to audit and may be recaptured by the U.S. Department of Defense in certain circumstances.
The Cooperative Agreement requires the Company to provide the U.S. Government with conditional priority access and certain preferred pricing obligations, for a 10-year period from the completion of the construction project, for the production of a medical countermeasure (or a component thereof) that the Company manufactures in the Flanders San Diego Facility during a declared public health emergency.
As of June 30, 2022, the Company had not yet received any reimbursements under the Cooperative Agreement, but has recorded a receivable of $8.6 million with an offset recorded to prepaid lease payments associated with our Flanders San Diego Facility within other assets on the condensed consolidated balance sheet.
7.Long-Term Debt
Credit Agreement
In October 2020, Maravai Intermediate Holdings, LLC (“Intermediate”), a wholly-owned subsidiary of Topco LLC, along with its subsidiaries Vector, TriLink and Cygnus (together with Intermediate, the “Borrowers”), entered into 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 $180.0 million revolving credit facility (the “Revolving Credit Facility”).
In August 2021, in conjunction with the Company’s divestiture of the Protein Detection segment, the Company transferred, per the existing terms of the Credit Agreement, the portion of the Term Loan held by Vector of $118.4 million to Intermediate in its entirety. This amount was not assumed by Voyager Group Holdings, Inc., the entity that acquired Vector, as part of the divestiture. Total outstanding debt and loan covenant requirements remained unchanged as a result of the divestiture.
In January 2022, the Company entered into an amendment (the “Amendment”) to the Credit Agreement to: (i) refinance $544.0 million in aggregate principal amount of first lien term loans initially issued thereunder (the “First Lien Term Loan”) and replace it with a Tranche B Term Loan (the “Tranche B Term Loan”); (ii) replace the London Interbank Offered Rate (“LIBOR”) based interest rate with a Term Secured Overnight Financing Rate (“SOFR”) based rate; and (iii) reduce the interest rate margins applicable to the Term Loan and Revolving Credit Facility under the Credit Agreement. The previous interest rate margin on the facilities was, with respect to each LIBOR-based loan, 3.75% to 4.25% and, with respect to each base rate-based loan, 2.75% to 3.25% (depending, in each case, on consolidated first lien leverage). Following the Amendment, the interest rate margin on the facilities is 3.00%, with respect to each Term SOFR-based loan, and 2.00%, with respect to each base rate-based loan. Further, the Amendment reduces the base rate floor for the term loans from 2.00% to 1.50%, sets the floor for Term SOFR-based term loans at 0.50% and sets the floor for Term SOFR-based revolving loans at 0.00%. No other significant terms under the Credit Agreement were changed in connection with the Amendment.
As of June 30, 2022, the interest rate on the Tranche B Term Loan was 3.85% per annum.
The Credit Agreement also provides for a $20.0 million limit for letters of credit, which remained unused as of June 30, 2022.
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.
The accounting related to entering into the Amendment was evaluated on a creditor-by-creditor basis to determine whether each transaction should be accounted for as a modification or extinguishment. Certain creditors under the First Lien Term Loan did
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not participate in this refinancing transaction, were repaid their principal and interest of $8.5 million and ceased being creditors of the Company and the repayment of their related outstanding debt balances has been accounted for as an extinguishment of debt. Proceeds of borrowings from new lenders of $8.5 million were accounted for as a new debt financing. The Company recorded a loss on extinguishment of debt of $0.2 million in the accompanying condensed consolidated statements of income during the first quarter of 2022. For the remainder of the creditors, this transaction was accounted for as a modification because the change in present value of cash flows between the two term loans before and after the transaction was less than 10% on a creditor-by-creditor basis. As part of the refinancing, the Company incurred $0.9 million of various costs, of which an insignificant amount was related to an original issuance discount, and were all capitalized in the accompanying balance sheet within long-term debt, and are subject to amortization over the term of the refinanced debt as an adjustment to interest expense using the effective interest method.
We also incurred $0.3 million of financing-related fees related to the Revolving Credit Facility. As of June 30, 2022, unamortized debt issuance costs totaled $2.6 million and are recorded as assets within other assets on the accompanying condensed consolidated balance sheet as there is no balance outstanding related to the Revolving Credit Facility.
Commencing with the fiscal year ended December 31, 2021, and each fiscal year thereafter, the Credit Agreement requires that we make mandatory prepayments on the Term Loan principal upon certain excess cash flow, subject to certain step-downs based on the Company’s first lien net leverage ratio. The mandatory prepayment shall be reduced to 25% or 0% of the calculated excess cash flow if the first lien net leverage ratio was equal to or less than 4.75:1.00 or 4.25:1.00, respectively, however, no prepayment 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 June 30, 2022, the Company’s first lien net leverage ratio was less than 4.25:1.00, thus a prepayment was not required.
The Tranche B Term Loan became repayable in quarterly payments of $1.4 million beginning in March 2022, with all remaining outstanding principal due in October 2027. The Tranche B Term Loan includes prepayment provisions that allow the Company, at our option, to repay all or a portion of the principal amount at any time. The Revolving Credit Facility allows the Company to repay and borrow from time to time until October 2025, at which time all amounts borrowed must be repaid. Subject to certain exceptions and limitations, we are required to repay borrowings under the Tranche B Term Loan and Revolving Credit Facility with the proceeds of certain occurrences, such as the incurrence of debt, certain equity contributions and certain asset sales or dispositions.
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.
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 in the nature of the business. Additionally, the Credit Agreement also requires us to maintain a certain net leverage ratio. The Company was in compliance with these covenants as of June 30, 2022.
Interest Rate Cap
In the first quarter of 2021, the Company entered into an interest rate cap agreement to manage a portion of its variable interest rate risk on its outstanding long-term debt. The contract, which was effective March 31, 2021, entitles the Company to receive from the counterparty at each calendar quarter end the amount, if any, by which a specified defined floating market rate exceeds the cap strike interest rate, applied to the contract’s notional amount of $415.0 million The floating rate of interest is reset at the end of each three-month period. The contract was set to expire on March 31, 2023.
In May 2022, the Company amended the interest rate cap agreement, effective June 30, 2022, to increase the contract’s notional amount to $500.0 million and to extend the maturity date to January 19, 2025. Additionally, the floating rate option changed from a LIBOR-based rate to a SOFR-based rate. Other provisions remained unchanged as a result of the amendment. Premiums paid to amend the interest rate cap agreement were immaterial.
The interest rate cap agreement has not been designated as a hedging relationship and has been recognized on the condensed consolidated balance sheet at fair value of $5.4 million within other assets with changes in fair value recognized within interest expense in the condensed consolidated statements of income.
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The Company’s long-term debt consisted of the following as of (in thousands):
June 30, 2022 December 31, 2021
Tranche B Term Loan $ 541,280  $ — 
First Lien Term Loan —  544,000 
Unamortized debt issuance costs (12,185) (13,409)
Total long-term debt 529,095  530,591 
Less: current portion (5,440) (6,000)
Total long-term debt, less current portion $ 523,655  $ 524,591 
There were no balances outstanding on the Company’s Revolving Credit Facility as of June 30, 2022 and December 31, 2021.
As of June 30, 2022, the aggregate future principal maturities of the Company’s debt obligations for each of the next five years, based on contractual due dates, were as follows (in thousands):
2022 (remaining six months)
 $ 2,720 
2023 5,440 
2024 5,440 
2025 5,440 
2026 5,440 
Thereafter 516,800 
Total long-term debt $ 541,280 
8.Net Income Per Class A Common Share Attributable to Maravai LifeSciences Holdings, Inc.
Basic net income per Class A common stock has been calculated by dividing net income for the period, adjusted for net income attributable to non-controlling interests, by the weighted average Class A common stock outstanding during the period. Diluted net income per Class A common share gives effect to potentially dilutive securities by application of the treasury stock method or if-converted method, as applicable. Diluted net income per share of Class A common stock attributable to the Company is computed by adjusting the net income and the weighted-average number of shares of Class A common stock outstanding to give effect to potentially diluted securities.
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The following table presents the computation of basic and diluted net income per common share attributable to the Company for the periods presented (in thousands, except per share amounts):
Three Months Ended
June 30,		 Six Months Ended
June 30,
2022 2021
(as adjusted)*		 2022 2021
(as adjusted)*
Net income per Class A common share:
Numerator—basic:
Net income $ 156,721  $ 134,497  $ 303,581  $ 209,962 
Less: income attributable to common non-controlling interests (85,481) (85,354) (165,479) (137,717)
Net income attributable to Maravai LifeSciences Holdings, Inc.—basic $ 71,240  $ 49,143  $ 138,102  $ 72,245 
Numerator—diluted:
Net income attributable to Maravai LifeSciences Holdings, Inc.—basic $ 71,240  $ 49,143  $ 138,102  $ 72,245 
Net income effect of dilutive securities:
Effect of dilutive employee stock purchase plan ("ESPP"), restricted stock units (“RSUs”) and stock options $ 43  $ 19  $ 74  $ 21 
Effect of the assumed conversion of Class B common stock 65,256  —  126,327  104,665 
Net income attributable to Maravai LifeSciences Holdings, Inc.—diluted $ 136,539  $ 49,162  $ 264,503  $ 176,931 
Denominator—basic:
Weighted average Class A common shares outstanding—basic 131,524  112,203  131,506  104,468 
Net income per Class A common share—basic $ 0.54  $ 0.44  $ 1.05  $ 0.69 
Denominator—diluted:
Weighted average Class A common shares outstanding—basic 131,524  112,203  131,506  104,468 
Weighted average effect of dilutive securities:
Effect of dilutive ESPP, RSUs and stock options 168  77  149  52 
Effect of the assumed conversion of Class B common stock 123,669  —  123,669  153,166 
Weighted average Class A common shares outstanding—diluted 255,361  112,280  255,324  257,686 
Net income per Class A common share—diluted $ 0.53  $ 0.44  $ 1.03  $ 0.69 
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 for a summary of the adjustments.
Shares of Class B common stock do not share in the earnings or losses of the Company and are therefore not participating securities. As such, a separate presentation of basic and diluted net income per share for Class B common stock under the two-class method has not been presented.
The following table presents potentially dilutive securities excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive for the periods presented (in thousands):
Three Months Ended
June 30,		 Six Months Ended
June 30,
2022 2021 2022 2021
Stock options 2,063 1,619 2,064 1,631
Shares estimated to be purchased under the ESPP 55 25 52 17
Shares of Class B common stock — 143,308 — —
2,118 144,952 2,116 1,648
9.Income Taxes
We are subject to U.S. federal and state income taxes with respect to our allocable share of any taxable income or loss of Topco LLC, as well as any stand-alone income or loss we generate. Topco LLC is organized as a limited liability company and treated
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as a partnership for federal tax purposes and generally does not pay income taxes on its taxable income in most jurisdictions. Instead, Topco LLC’s taxable income or loss is passed through to its members, including us.
The following table summarizes the Company’s income tax expense and effective tax rate for the periods presented (in thousands, except percentages):
Three Months Ended
June 30,		 Six Months Ended
June 30,
2022 2021
(as adjusted)*		 2022 2021
(as adjusted)*
Income before income taxes $ 174,992  $ 145,883  $ 341,833  $ 235,057 
Income tax expense $ 18,271  $ 11,386  $ 38,252  $ 25,095 
Effective tax rate 10.4  % 7.8  % 11.2  % 10.7  %
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 for a summary of the adjustments.
The Company’s effective tax rate of 10.4% and 11.2% for the three and six months ended June 30, 2022, respectively, differed from the U.S. federal statutory rate of 21.0%, primarily due to income associated with the non-controlling interest.
The Company’s effective tax rate of 7.8% and 10.7% for the three and six months ended June 30, 2021, respectively, differed from the U.S. federal statutory rate of 21.0%, primarily due to income associated with the non-controlling interest, nondeductible expense related to the Tax Receivable Agreement, and a provisional tax benefit of $2.8 million recorded for the book-tax outside basis difference on Vector due to it meeting the held-for-sale criteria at June 30, 2021.
Tax Distributions to Topco LLC’s Owners
Topco LLC is subject to an operating agreement put in place at the date of the Organizational Transactions (“LLC Operating Agreement”). The LLC Operating Agreement has numerous provisions related to allocations of income and loss, as well as timing and amounts of distributions to its owners. This agreement also includes a provision requiring cash distributions enabling its owners to pay their taxes on income passing through from Topco LLC. These tax distributions are computed based on an assumed income tax rate equal to the sum of (i) the maximum combined marginal federal and state income tax rate applicable to an individual and (ii) the net investment income tax. The assumed income tax rate currently totals 46.7%, which may increase to 54.1% in certain cases where the qualified business income deduction is unavailable.
In addition, under the tax rules, Topco LLC is required to allocate taxable income disproportionately to its unit holders. Because tax distributions are determined based on the holder of LLC Units who is allocated the largest amount of taxable income on a per unit basis, but are made pro rata based on ownership, Topco LLC is required to make tax distributions that, in the aggregate, will likely exceed the amount of taxes Topco LLC would have otherwise paid if it were taxed on its taxable income at the assumed income tax rate. Topco LLC is subject to entity level taxation in certain states and certain of its subsidiaries are subject to entity level U.S. and foreign income taxes. As a result, the accompanying condensed consolidated statements of income include income tax expense related to those states and to U.S. and foreign jurisdictions where Topco LLC or any of our subsidiaries are subject to income tax.
During the three months ended June 30, 2022, Topco LLC paid tax distributions of $88.2 million to its owners, including $45.5 million to us. During the six months ended June 30, 2022, Topco LLC paid tax distributions of $170.5 million to its owners, including $87.9 million to us.
During the three months ended June 30, 2021, Topco LLC paid tax distributions of $59.5 million to its owners, including $26.4 million to us. During the six months ended June 30, 2021, Topco LLC paid tax distributions of $96.5 million to its owners, including $40.3 million to us.
As of June 30, 2022, no amounts for tax distributions had been accrued as such payments were made during the period.
10.Related Party Transactions
MLSH 1’s majority owner is GTCR, LLC (“GTCR”). The Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and General Counsel are executives of MLSH 1 and MLSH 2.
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Payable to Related Parties Pursuant to the Tax Receivable Agreement
We are a party to a Tax Receivable Agreement (“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 June 30, 2022, our liability under the TRA is $746.0 million payable to MLSH 1 and MLSH 2, representing approximately 85% of the calculated tax savings we anticipate being able to utilize in future years. During the six months ended June 30, 2022, the Company recognized a gain of $2.3 million on TRA liability adjustment reflecting a change in the tax benefit obligation attributable to a change in the expected tax benefit. The remeasurement was primarily due to changes in our estimated state apportionment and the corresponding reduction of our estimated state tax rate.
During the three and six months ended June 30, 2022, no payments were made to MLSH 1 or MLSH 2 pursuant to the TRA.
Topco LLC Operating Agreement
MLSH 1 is party to the LLC Operating Agreement put in place at the date of the Organizational Transactions. This agreement includes a provision requiring cash distributions enabling its owners to pay their taxes on income passing through from Topco LLC. During the three and six months ended June 30, 2022 the Company made distributions of $42.6 million and $82.5 million, respectively, for tax liabilities to MLSH 1 under this agreement. During the three and six months ended June 30, 2021, the Company made distributions of $33.1 million and $56.2 million, respectively, for tax liabilities to MLSH 1 under this agreement.
Contract Development and Manufacturing Agreement with Curia Global
GTCR has significant influence over Curia Global (“Curia”). During the three and six months ended June 30, 2022, the Company paid insignificant amounts to Curia for contract manufacturing and development services. During the three and six months ended June 30, 2021, the Company paid $6.1 million and $6.6 million to Curia, respectively. Such amounts were included in research and development expense on the condensed consolidated statements of income.
11.Segments
The Company’s financial performance is reported in three segments. A description of each segment follows:
•Nucleic Acid Production: 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: 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 spectrum.
•Protein Detection: focused on manufacturing and selling labeling and visual detection reagents to scientific research customers for their tissue-based protein detection and characterization needs. The Company completed the divestiture of its Protein Detection business in September 2021.
The Company has determined that adjusted earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses 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. The Company defines Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, certain non-cash items and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period. Corporate costs, net of eliminations are managed on a standalone basis and are not allocated to segments.
The following schedule includes revenue and adjusted EBITDA for each of the Company’s reportable operating segments (in thousands). We have revised our presentation for the prior periods below to remove the presentation of Total Adjusted EBITDA and reconcile the total of our reportable segments’ measure of profit or loss to income before income taxes in addition to net income, and removed corporate costs, net of eliminations from total reportable segments’ adjusted EBITDA and included such amounts in the reconciliation to income before income taxes. Additionally, we have revised our prior years’ presentation of our
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total reportable segments’ revenue, in which we removed intersegment eliminations from our total reportable segment’s revenue.
Three Months Ended
June 30,		 Six Months Ended
June 30,
2022 2021
(as adjusted)*		 2022 2021
(as adjusted)*
Revenue:
Nucleic Acid Production $ 225,255  $ 192,738  $ 448,905  $ 316,907 
Biologics Safety Testing 17,484  18,208  38,127  35,857 
Protein Detection —  7,046  —  13,676 
Total reportable segments’ revenue 242,739  217,992  487,032  366,440 
Intersegment eliminations (7) (217) (7) (454)
Total $ 242,732  $ 217,775  $ 487,025  $ 365,986 
Segment adjusted EBITDA:
Nucleic Acid Production $ 186,291  $ 156,320  $ 369,090  $ 251,352 
Biologics Safety Testing 14,102  14,293  30,634  28,580 
Protein Detection —  3,375  —  5,334 
Total reportable segments’ adjusted EBITDA 200,393  173,988  399,724  285,266 
Reconciliation of total reportable segments’ adjusted EBITDA to income before income taxes
Amortization (6,252) (5,040) (11,779) (10,081)
Depreciation (1,892) (1,615) (3,747) (2,871)
Interest expense (4,434) (7,649) (7,098) (15,553)
Corporate costs, net of eliminations (11,914) (9,610) (24,253) (19,992)
Other adjustments:
Acquisition contingent consideration 7,800  —  7,800  — 
Acquisition integration costs (3,103) (13) (7,882) (17)
Stock-based compensation (4,308) (2,383) (7,935) (4,661)
Merger and acquisition related expenses (7) (943) (1,195) (1,862)
Financing costs (27) (852) (1,064) (1,058)
Acquisition related tax adjustment (1,264) —  (1,264) — 
Tax Receivable Agreement liability adjustment —  —  2,340  5,886 
Other —  —  (1,814) — 
Income before income taxes 174,992  145,883  341,833  235,057 
Income tax expense (18,271) (11,386) (38,252) (25,095)
Net income $ 156,721  $ 134,497  $ 303,581  $ 209,962 
____________________
*As adjusted to reflect the impact of the adoption of ASC 842. See Note 1 for a summary of the adjustments.
During the three and six months ended June 30, 2022, intersegment revenue was immaterial between the Nucleic Acid Production and Biologics Safety Testing segments. During the three and six months ended June 30, 2021, intersegment revenue was $0.2 million and $0.5 million, respectively, between the Nucleic Acid Production and Protein Detection segments. The intersegment sales and the related gross margin on inventory recorded at the end of the period are eliminated for consolidation purposes. Internal selling prices for intersegment sales are consistent with the segment’s normal retail price offered to external parties. There was no commission expense recognized for intersegment sales for the three and six months ended June 30, 2022 and 2021.
The Company does not allocate assets to its reportable segments as they are not included in the review performed by the CODM for purposes of assessing segment performance and allocating resources.
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12.Subsequent Event
In July 2022, the Company entered into a facility lease agreement for additional office, warehouse and light lab space in San Diego, California. The lease term began in July 2022 and will end in September 2026. The lease includes annual base rent payable between $1.9 million and $2.2 million.
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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, 2021, as filed with the Securities and Exchange Commission. This discussion and analysis reflects our historical results of operations and financial position, and contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. 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 June 30, 2022, we employed a team of over 550 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 36.7% and 36.2% for the three and six months ended June 30, 2022, respectively. The percentage of our total revenue derived from customers in North America was 35.1% and 42.3% for the three and six months ended June 30, 2021, respectively.
We generated revenue of $242.7 million and $487.0 million for the three and six months ended June 30, 2022, respectively, and $217.8 million and $366.0 million for the three and six months ended June 30, 2021, respectively.
Total revenue by segment was $225.2 million in Nucleic Acid Production and $17.5 million in Biologics Safety Testing for the three months ended June 30, 2022. Total revenue by segment was $192.5 million in Nucleic Acid Production, $18.2 million in Biologics Safety Testing and $7.0 million in Protein Detection for the three months ended June 30, 2021. We divested our Protein Detection segment in September 2021, and since then operate two business segments only, Nucleic Acid Production and Biologics Safety Testing.
Total revenue by segment was $448.9 million in Nucleic Acid Production and $38.1 million in Biologics Safety Testing for the six months ended June 30, 2022. Total revenue by segment was $316.5 million in Nucleic Acid Production, $35.9 million in Biologics Safety Testing and $13.7 million in Protein Detection for the six months ended June 30, 2021.
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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 $28.1 million and $61.3 million for the three and six months ended June 30, 2022, respectively, and $24.5 million and $48.0 million for the three and six months ended June 30, 2021, respectively.
Our research and development efforts are geared towards supporting our customers’ needs. We incurred research and development expenses of $4.3 million and $8.0 million for the three and six months ended June 30, 2022, respectively, and $1.9 million and $4.1 million for the three and six months ended June 30, 2021, respectively. We intend to continue to invest in research and development and new products and technologies to support our customers’ needs for the foreseeable future.
Recent Developments
Acquisition
In January 2022, we completed the acquisition of MyChem, LLC (“MyChem”), a privately-held San Diego, California-based provider of ultra-pure nucleotides to customers in the diagnostics, pharma, genomics and research markets, for a total purchase consideration of $257.8 million. As a result of the acquisition, we own all the outstanding interest in MyChem. Our consolidated results of operations for the three and six months ended June 30, 2022 include the operating results of MyChem 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.
Government Assistance
In May 2022, TriLink entered into a cooperative agreement (“Cooperative Agreement”) with the U.S. Department of Defense, as represented by the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense on behalf of the Biomedical Advanced Research and Development Authority (“BARDA”), within the U.S. Department of Health and Human Services, to advance the development of domestic manufacturing capabilities and to expand TriLink’s domestic production capacity for products critical to the development and manufacture of mRNA vaccines and therapeutics, including nucleoside triphosphates and CleanCap®, TriLink’s proprietary co-transcriptional mRNA capping reagents.
TriLink is expanding its San Diego manufacturing campus by making a significant investment in additional cleanroom and small molecule manufacturing space, implementing automation systems and adding support areas to augment production capacity (the “Flanders San Diego Facility”). Pursuant to certain requirements, BARDA awarded TriLink an amount equal to 50% of the construction and validation costs currently budgeted for the Flanders San Diego Facility. See Note 6 to 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 73.2% and 71.8%, respectively, of our total revenues for the three and six months ended June 30, 2022. However, we expect the second quarter of 2022 to represent 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 the remainder of 2022 and continuing into 2023 may be negatively impacted by unused inventory of our products that our customers have on hand. We are unable to estimate the impact of this unused inventory on future demand given both binding contractual commitments by our customers for additional purchases and 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-