Q4 2021 Maravai LifeSciences Holdings Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to my Life Sciences fourth quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need to.
Press Star one on your telephone keypad. Please be advised that today's conference is being recorded and if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to MS. Deborah Hart head of Investor Relations Ma'am. Please go ahead.
Thank you Rachel good afternoon, everyone. Thanks for joining us on our fourth quarter and year end 2021 earnings call. Many of you tuned in for Investor R&D Day last month, so we won't be repeating that information today for any of us missed it and materials, including video clips and replay are available on the IR site.
Our press release and the slides that accompany today's call are posted on our website and are available at investors don't modify dot com under financial information quarterly results on today's call will cover our financial results and business highlights and will provide updated financial guidance for 2012.
You too.
As you can see on slide two Karl will first provide you with a business update and Kevin will review our financial results and guidance. We will then open the call for questions Halloween the prepared remarks on slide three we remind you that forward looking statements that we make during this call, including those regarding our business goals and expectation.
For the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ.
Additional information concerning these risk factors is included in the press release, we issued earlier today as well as those that are more fully described in our various filings with the SEC.
Today's comments reflect our current views, which could change as a result of new information future events or other factors and the company does not obligate or commit itself to update these forward looking statements except as required by law.
During this call we will be using non-GAAP measurements of certain of our results and providing guidance reconciliations of GAAP to non-GAAP financial measures are included in the press release, which is posted tomorrow Vice website.
And b at the Edgar website.
The metrics, we will be discussing in today's call include net income adjusted EBITDA income tax expense and adjusted earnings per share. These adjusted financial measures should not be viewed as an alternative to GAAP.
Intended to better enable investors to benchmark, our current results against historical performance and the performance of peers.
Now I'll turn the call over to Carl.
Well, thank you Doug and good afternoon, everyone. We appreciate you having you join us for our call today.
Let's start with our fourth quarter results on slide five.
Moreover, we had a very strong fourth quarter in fact, the largest quarter in our history, even without revenue contribution from our former protein detection business, which can be deferred.
September of last year.
Today, we reported 228 with $4 million in revenue for the quarter.
132% compared to the prior year.
12% sequentially over the third quarter.
Our adjusted EBITDAR of $102.7 million grew 153% over the prior year.
Top line performance and outstanding adjusted EBITDA, resulting in adjusted EPS of 45 cents per share.
2021 was an incredible year for the entire business as you can see on slide six.
Full year revenue was $799.2 million net income was 463.
$3 million with adjusted EBITDA margins at 73%.
And most importantly, our 2021.
This revenue.
According to clean cap revenue from COVID-19 vaccines.
33% for full year.
Students continues to deliver well above market growth across the board, reflecting accelerated demand for our products on top of wallet published COVID-19 vaccine until ones we've.
We see momentum continuing to build across our global customer base.
Mrna research and cell and gene therapy development accelerates a little cheat.
Daily basis more on that in just a moment turning to slow growth with nucleic acid production in particular remains very robust.
Nucleic acid production business had record revenue of 212 $5 million in Q4.
173% year over year.
16% sequentially.
For the full year inclusion of some production revenue was 711 point million dollars.
Growing 245% over 2020.
Demand for clean cow similarity continues to accelerate in all areas clean Jeffrey agents themselves.
Nancy manufacturing services utilized clinker and custom Moroni club stores.
We have a unique opportunity to drive the inclusion of a clean job across our growing and more on a customer base, while providing critical GMP raw materials and our newest technology can improve in vitro transcription reactions.
These programs will continue to bring value to our customers and help to improve the quality of manufacture mrna for years to come.
To further illustrate our increasingly prominent market position, let me share with you the traction we're seeing customers wanting to enter into clean cap supply agreements.
On slide eight you'll see that at the start of last year, we have executed supply agreements for clean shop employees.
That's up by one from our earlier estimates and another handful of agreements under discussion.
When we held our second quarter earnings call back in August we have 13 supply routes.
12 warrant active late stage negotiations and twenty-five Moore with term sheets under review.
We have 21 supplier agreements on 12 borne out because of late stage negotiations.
27, more with term sheets under review.
And the actual pipeline, an increase of 176% and a one year period.
But many of these new relationships are expected to be more expensive and more involved in some of the straightforward supply arrangements that we might have seen in the past.
We believe this underscores the incredible enthusiasm that exists for them or are they generally and clean tech specifically.
Even more encouraging as the effects of this global customer Pos solution spans the spectrum from the largest pharma.
So, it's so new and potentially transformative nucleic acid manufacturing platforms.
From our perspective already include cap or clearly here is a steady.
Durable and meaningful way Moreover, as roadmaster could be action.
All pieces of the market for both infectious disease vaccines and mrna therapeutics.
Given this growth in the general enthusiasm the markets. We serve we are also committed to increasing our investment in innovation as we scale, our R&D operations facilities and all of these systems.
And partner more closely with our customers.
Turning now to slide nine.
We acquired Mike M on January 27th and the integration of the team is going extremely well.
Additional mark him extends our capabilities in the manufacturing of critical raw materials that are used in cell and gene therapy, molecular diagnostics and more than 80 vaccine manufacturer.
Like him specializes in ultra pure chemically synthesized nucleotides and there has been a critical supplier of key raw materials for Sogou trialing products over the past few years.
I am very pleased that they are no longer enough to strengthen our supply chain for chemistry products.
<unk> ability to address life sciences markets broadly inclusive of diagnostics and therapeutics provides nice synergies across chrome and customer segments.
In addition to this type of inorganic investment. We are also making organic investments that are people laboratory facilities and program management resources, while adding new external scientific collaborations.
We also remain active in pursuing additional inorganic growth opportunities and hope to be able to announce further acquisitions in 2022.
We're committed to expanding our reach is a key raw material supplier.
We're actively working to expand our international footprint, so that we improve our ability to serve our global customer base directly.
Now turning to slide 10 in our biologics safety testing business.
As you know our products and services and deals to support high growth markets. So when gene therapy vaccines and biologics drug manufacturer.
Here, we took the global gold standard in wholesale protein and process related impurity analytics.
Along with offering innovative viral.
Its prediction solutions that help our customers ensure the safety of their biopharmaceutical products.
Our fourth quarter revenue of $15 9 million in BFS team was up nearly 13% from last year.
For the full year, our biologic safety testing revenue of $68 $4 million grew 25% over 2020 levels.
It was notably strong revenue growth was driven by three main factors.
First continued hall.
User demand for our products through both direct and distributor channels as a result of rapidly expanding new vaccine.
<unk> had no associated virus based gene therapy programs and their attendant analytical needs.
Strong sales across the full breadth of our product line used to routinely and a number of already commercialized cell and gene therapies, immuno oncology vaccines and innovative biologics and Biosimilars and finally, the continuously expanding biopharma product development pipeline.
Strong demand for all categories of kits during the quarter from generic coastal protein assays to other Elisa purity detection kits to mass spectrometry based and a little services, but also promote the use of our HCP kits. Additionally, a number of our customers entered into.
With us to develop custom wholesale protein assays to support their proprietary biologics programs.
While our BSG business is often overlooked by some in the investment community simply due to the size and scale of the nucleic acid production business.
<unk> remains a key priority and a very attractive long term growth opportunity for marvell here.
We plan to continuously innovate and to scale our offerings to ensure superior technical support.
To offer the highest quality services and products and the most comprehensive catalog of products to meet our customers' needs now.
Now moving on to Slide 11, you.
You saw from our press release that we are increasing our 2022 revenue guidance to $920 million to $960 million, which represents total revenue growth over 2021.
18% at the midpoint.
We have a strong internal outlook for the year and we believe we're in a great position to deliver value to our shareholders this year and beyond.
I'll now ask Kevin to cover fourth quarter and full year performance, along with more details on our updated guidance and our long term model assumptions Kevin.
Great. Thank you Carl and good afternoon, everyone, our fourth quarter wrapped up an amazing year for Moreover, given the call presented the financial highlights already I will briefly cover some more details regarding our financial results for the fourth quarter and full year of 2021, and then dive into our detailed financial guidance for 2022, let's.
Let's start on slide 13, so beginning with our GAAP numbers, our net income before the amount attributable to Noncontrolling interests was $127 1 million for the fourth quarter of 2021 income from operations was $154 5 million in the quarter and operating margin of 68%.
Our R&D spend in the quarter of $9 2 million was an increase from previous quarters tied mainly to third party expenses incurred to assess and improve our clean cap manufacturing process net.
Net income for the year was $469 3 million.
Turning to slide 14.
Adjusted EBITDA, a non-GAAP measure was $162 7 million for the fourth quarter compared to $64 3 million for Q4 2020. This represents a 153% increase year over year.
Our adjusted EBITDA margin was 71% with a slight decline from recent quarters due mostly to the increased R&D spend in the quarter EBITDA for the year was $582 8 million and 244% increase over 2020.
Our EBITDA margin was 73% for the full year.
On slide 15.
Here, we present EPS fully diluted EPS and adjusted fully diluted EPS basis.
Basic EPS GAAP measure as net income attributable to our class a shares divided by the weighted average class a shares our fully diluted EPS also a GAAP measure as net income prior to Noncontrolling history interests divided by the weighted average for both class a and class B and other dilutive securities such as an equity awards to the extent that assumed.
Conversion would be diluted under the if converted method for GAAP for which it was not in Q4 2021.
Lastly, the simplest the most comparable metric of focus for us as adjusted fully diluted EPS, It's a non-GAAP measure, which equals adjusted net income divided by the weighted average shares of both class a and class B shares and other dilutive securities.
Our basic and fully diluted EPS for the fourth quarter were 42.
While adjusted diluted EPS was <unk> 45 per share.
For fiscal year 2021, our adjusted EPS was $1 60 per share based on the overall weighted average shares of $257 8 million.
Now as we detailed in our 8-K filed on January three 2022, our public company entity contributed $110 million of accumulated cash from tax distributions down to Topco to affectively retired $2 $6 million of the company's class B common stock and increasing the percent ownership of class a common shareholders about.
50 basis points, which will lead to lower overall combined share counts to start 2022 and will be reflected in our 2020 guidance that I'll discuss in a moment at.
At year end class a shareholders at 51, 5% to the voting power of <unk> and class B shoulders 48, 5%.
Let's move to slide 16.
We ended the year with $551 million in cash and $544 million in long term debt.
Our strong EBITDA performance led to robust adjusted free cash flow for the quarter of $154 $8 million that calculation of adjusted free cash flow a non-GAAP measure is based on our adjusted EBITDA of $162 7 million less capital expenditures in the quarter of $7 9 million.
As we have repeatedly discussed our strong financial performance balance sheet and cash flows provide us with tremendous financial flexibility.
Recently demonstrated this by repricing our existing debt at a meaningfully lower effective interest rate that will save us about $7 million per year in cash interest expense versus the previous rate structure with all other things being equal.
Additionally, this financial strength allows us to make both organic and inorganic investments to drive innovation and build capacity, while also addressing customer needs and contributing to long term growth.
This is demonstrated by our announcement on January 24th of this year by putting $240 million of upfront cash from our balance sheet to work to acquire <unk> and the fact that we are investing about $50 million into the expansion of our capacity with two new facilities coming online in 2022.
Now to provide some more insights into our segment performance for the quarter.
Moving to slide 17.
As Carl mentioned earlier, our nucleic acid production business continues to drive overall growth.
<unk> acid production represented 93% of the company's total revenue in the quarter and generated $164 million and adjusted EBITDA in the quarter to 77% adjusted EBITDA margin in this business continues to reflect the extraordinary value of our differentiated products and services.
Clean cap revenues from our primary COVID-19 vaccine customers are estimated at $179 8 million in the fourth quarter of 2021. This was stronger than anticipated for the quarter as request for additional clean cap product from our Pfizer biotech partnership came in likely to address the added demand for vaccines is relative to global booster vaccine programs really.
To the Omicron Serge.
In the third quarter of 2021, our nucleic acid production business saw strong orders from both of our top two customers outside of their joint commercial collaboration for COVID-19 vaccines. Those orders did not repeat to the same extent in Q4. This is not unusual demand and pre commercial stages of the ramp of mrna products can prove to be a bit.
Lumpy.
This is why we like to look at overall revenue performance for specific programs over a longer period of time in.
In 2021, our nucleic acid segment generated growth beyond the reported COVID-19 vaccine contributions of 49% and we see that overall annual growth rate continuing as you'll see when I dive into our detailed 2022 guidance.
Here on slide 18, we see that our biologic safety testing business contributed 7% of the company's revenue in the fourth quarter, our cigna branded products, which comprise all of this segment's business for $15 9 million in the quarter, our biologics safety testing business delivered $12 3 million of adjusted EBITDA in the quarter.
While year over year.
<unk> in the fourth quarter moderated a bit to roughly 13% the business has never been stronger and our full.
Full year growth of nearly 25% in 2021 strong market dynamics and expanded.
This offering as we articulated during our R&D day. This is a wonderful business.
Corporate expenses that are not included in this segment adjusted EBITDA totaled just spoke up or $13 1 million in the quarter up slightly from <unk>.
Previous quarter based on a $2 million contribution to kick start the marrow by life Sciences charitable foundation, as well as marketing spend and legal spend.
Spanned our IP around clean cap.
All in all it was a very strong 2021 from <unk>.
In 2022 is off to a great start with multiple strategic accomplishments and great momentum.
That being said, let's go to slide 20, and discuss our detailed 2022 guidance.
As Carl mentioned today, we're raising our 2022 full year revenue guidance to 920 million to $960 million up from our prior guidance of $840 million to $880 million and $80 million increase at the midpoint.
Included in our overall total revenue range is our revised estimate for 2022 clean cap revenues directly attributable to our COVID-19 vaccine customers, which we are now estimated to grow between 12% and 14% in 2022 up materially from our previous guidance of 5% to 10%.
This implies at the midpoint of our updated range that these COVID-19 specific revenue contributions would be about $630 million in 2022, well above the estimated $557 million in 2021.
Again, I say estimated here is the clean cut products. We sell today are neither indication specific nor customized to our customers' clean cap can be used interchangeably by our customers both commercial demand and future new product development, we work closely with our customers to try and understand their specific end uses and internally track those orders that we believe are COVID-19 specific in the case of the Pfizer.
Rentech collaboration which is the predominant share of the reported total that's a pretty straightforward exercise.
Now this total revenue guidance for the full year of 2022 reflects the expectation of around 15% annual growth for our biologic safety testing business. This is moderating a bit from recent years, but this business has also had a strong history of outperforming our expectations.
Now based on this these details all of this implies that can play asset production segment revenues will be around $860 million at the midpoint of our guidance for 2022.
When deducting for the midpoint of the disclosed COVID-19 vaccine demand for clean cap base nucleic acid production business is on track to grow to about $230 million in 2022 core growth of nearly 50%.
The law of large numbers causes most folks to focus primarily on a clean cap results the growth and profitability of our base nucleic acid production business should not be overlooked.
Now over the course of 2022, who currently see overall revenues gated relatively evenly we see Q1 2022 revenues being roughly equal to Q4, 2021, which will represent overall growth versus Q1 of 2021 of just north of 50% and closer to 60% when adjusted for the divestiture.
Of the protein detection segment.
Now based on those revenue expectations, we have updated our internal forecast and our guidance for other key financial metrics.
We expect EBITDA, a non-GAAP measure of adjusted EBITDA to be in the range of 630 million to $670 million, which at the midpoint of that range represents growth of about 12% and an implied adjusted EBITDA margin of 69% at the midpoint of our 2022 revenue range as we highlighted at R&D day, we continue to.
Focus more on operating spend towards advancing our product offerings to meet our customers' needs.
Adjusted fully diluted EPS also a non-GAAP measure is expected to be in the range of a $1 70 to $1 84 per share.
The increased share directly tied to our revenue growth.
<unk> with how we see revenue gating, we see adjusted EPS to be about at Q4, 2000, 2012 2021 levels for Q1 2022.
Moving to slide 20.
Adjusted fully diluted EPS based on the assumption that all class B shares are converted to class a shares resulted in a fully diluted share count of about 255 million to $257 million for the full year of 2022, reflecting that lower class B shares as previously discussed partially offset by the impact of employee equity Awards plan for 2020.
Two.
Additionally, our adjusted fully diluted EPS includes certain adjustments that did not reflect cooperations and are tax affected at a range of 23% to 25%.
As it relates to the other adjustments needed to get to our non-GAAP adjusted EBITDA range, we see the following items in 2022.
Interest expense of between $22 million and $25 million depreciation and amortization between $22 million and $25 million equity based compensation, which we show as the reconciling items from GAAP to non-GAAP EBITDA to be 15 million to $20 million and for 2022, we expect to invest about 50 million to 60 million for capital.
<unk> the vast majority tied to the new facility expansions is our maintenance Capex continues to run below 2% of revenues.
A reconciliation of net income to GAAP EBITDA and from GAAP EBITDA to adjusted EBITDA is presented in our press release and at the end of the Slide presentation. In addition, our segment related information will be detailed in our Form 10-K , which we plan to file prior to the March 2022 deadline.
Thank you all for your time today, you can clearly see that 2020 to set up for another great year of overall growth and now I'll turn it back to Carl for some final remarks on slide 21 Carl.
Thanks, Kevin so to wrap up on slide 22, we had an incredible 2021 and are poised for future growth in 2022 and beyond.
We're playing in the right target markets with strong leadership positions, while building our product portfolio and other high value areas.
So it's hard to know that we will get the inevitable question, but what about 2023.
Let me try to address that proactively right now.
We don't yet have a final whorehouse from our biggest customers about their full year 2023 purchase orders for clean cap, which is the biggest single factor in how we develop specific financial guidance share with you.
But we are encouraged.
I'm sorry to be argued some preliminary discussions with them about their current volume expectations.
Coming year.
I can tell you that we've seen no current evidence of our biggest customers expecting a dramatic drop off in vaccine volumes on a go forward basis.
In fact, it appears that our customers expect volumes to reflect relatively full utilization and 23 of the COVID-19 vaccine manufacturing capacity.
Have either already built.
That will come and will come online in 2022.
Also keep in mind with the pause or beyond consortium hasnt sustained market share of the global Omar in a COVID-19 vaccine margin of greater than two thirds by all reports that I've seen.
This positive future view reflects a number of individual factors such as the need to initially vaccinate.
Billions of people globally, who have yet to receive a single vaccine I believe that some two 7 billion people have yet to receive a single vaccination Kevin yesterday.
The growing scientific understanding of the rule of single or multiple boosters and maintaining adequate immune responses to Sars COVID-19 two among different populations.
And the emergence of new variants with potential for immune escape.
The point here. This is would call puts virus and what the optimal public health response to it is neither static nor easily predictable.
Changes in any one of you. Both factors are all of them do not necessarily tell us anything about the overall need for or future utilization of vaccines.
And daily News reports about one off.
Studies are unlikely to be reliable predictors of long term steam volumes or clean tech demand.
So from COVID-19, vaccines vaccines for influenza malaria and shingles.
So on gene therapies battling cancer, the transformative impact within more and he is having on global human health.
At solar.
Moreover, we are proud of the key role, but our customers partners and employees are played in making that happen.
We are committed committed to building a strong foundation for long term sustainable growth and we will continue to focus on operational excellence innovation and people is our three strategic business pillars I would now like to turn the call back over to Rachel to open the line for your questions Rachel.
Thank you Karl and as a reminder to ask a question you will need to press star one on your telephone keypad and do we draw. Your question just press the pound key.
By while we compile the Q&A roster.
Your first question comes from the line of Brandon <unk> with Jefferies.
Sir Please proceed with your question.
Hey, Thanks, Good afternoon, Carl I appreciate all the detail.
Business development and future outlook into 'twenty, three just on the Covid or excuse me on the clean cap supply agreement funnel.
The expansion to 60, our relationships in varying degrees now are you able to quantify how many different drug programs are actually involved across those 60 customers or quantify that in terms of number of therapeutic programs in any way.
No, it's a little bit hard for us to do a brand and because our customers. When they saw our agreement maybe thinking always one program or they may have a whole portfolio of programs that they're going after and those are disclosed to us typically at the time of booths acquired agreement. So can't really give you a good estimate there.
Got you, Okay, and then Kevin in terms of the outlook.
Adjusted EBITDA guidance would suggest maybe 400 basis points step down in the margin I know you've talked about R&D stepping up closer to 5% over time.
Might suggest that kind of gross margin is the plug there I would gross margins necessarily step down next year other than kind of new capacity coming online can you just help us understand kind of the puts and takes behind that.
Yes, it's actually gross margin is relatively consistent there's a few areas, where we're seeing increased spend as it relates to 2022, certainly the bringing on of the additional facilities in the second half of the year I mean, those those expenses come a little bit ahead of the overall capacity. So that's going to weigh a little bit on our margin also.
We have the impact.
The additional spend in R&D that we're looking to do and sell a little bit there in the fourth quarter. We're certainly also building out continue to build our commercial footprint, our marketing team and our support of our infrastructure, particularly the quality side as well as the legal side and the focus in and around the IP and clean cap. So we feel real good about gross.
And each of the segments that pricing is very very steady I think as you've seen over the last few years, it's really the reinvestment for some organic growth via facilities commercial channel R&D and protection and continued expansion of our IP around clean cap.
Great. Thank you.
You bet.
Thank you. Your next question comes from the line of pages Zavon with Morgan Stanley . Please proceed with your question.
Hi, This is Hugo on the call. Thank you for taking our question.
The past four quarters visibility of Pfizer contract as it improved significantly.
Fair to assume that on a go forward basis magnitude of upside will be much more modest than driven by non COVID-19 factors.
What do you think about the southern Yugo.
<unk>.
We don't think we're getting to a point, where we have better visibility as you suggest.
What our customers needs or some of the is a closer relationship with those customers and some of those customers improving their own views of what theyre going to need and what their capacity and demand will be as a result, so I think both factors are in play here and quite honestly.
<unk>.
Fees are.
Numbers that we're very comfortable with.
On cost history as well as current expectations does that answer your question.
Yes. Thank you.
And then I'll follow.
By our math, we were getting to roughly a 100 million upside to prior provided 22 revenue guide of 840 to 80 from Mike him and the modified Vod contract for an additional 300 million doses of the Pfizer vaccines announced earlier. This year are there offsets that math that you could point us to or is this.
Just an element of conservatism baked in given it's still early in the year.
Yes, Im happy to say, yes, I'm happy to take that look I mean, we don't.
Guide or tweak our revenues based on our customers' direct.
Output or contracts that they signed again, we're grounding our our guidance our forecast and the forecast that are providing us and they are providing us and those arent.
Necessarily directly correlate it to additional changes in the demographics of contracts or other things. So that's where we stay grounded and typically that's been relatively conservative we've talked about the contribution of the <unk> acquisition being roughly equal to that of our previously divested protein detection.
<unk> very true for the size of the business I'd say the one caveat there is some of that revenue what's to US historically, so that obviously gets eliminated and will show up as <unk>.
Movements in EBITDA and in margins in those sort of things, but not necessarily contributing fully 12 of the top line growth that we're seeing in the clinic asset production. So now we look at all those different factors and we use that to kind of triangulate on the roughly $80 million midpoint increase that youre seeing right here and that's just kind of it through our normal forecast and that's where we've come out.
Great. Thank you so much for that color.
Okay.
Thank you.
Your next question comes from the line of Matt <unk> with Goldman Sachs. Please proceed with your question.
Hey, this is Nick on for Matt.
Just two from me. The first question. So so a portion of that 2022 revenue guidance raise is coming from higher base business expectations could you just kind of talk a little bit more on the drivers of those those better expectations.
Yes, so obviously I'm happy to go ahead, Carl can provide Karl to provide some color. Yes look I think the biologic safety testing business, starting there I think is continuing to perform well and about 15% growth there and a little little moderated from where it has been historically, but it should be no surprises given where the market is and kind of of that.
Business has been performing.
Within nucleic acid production again same sort of percentage growth when you kind of strip out the mid points of our guidance for roughly 50%.
So you look at that and you see various things and that is really clean cap demand.
We're seeing as these contracts buildup that Carl mentioned four things outside of Covid and that certainly kind of the next biggest bucket. After the COVID-19 bucket, we have to clean capped for all other indications and demand that we're seeing and then the rest of the business continues to.
For me as a sort of we always planned it several years ago and that is just just on dental.
Maturation of our customers' investments in mrna products therapeutic products and the building blocks for those products and that's really where we see it so.
As we progress and as has happened over the last several quarters. There continues to be additional flow of funding into our customers more and more people interested in getting meaningfully involved in mrna and those things are just slowly increasing our outlook as we as we look forward to 2022 and frankly beyond.
Yes, the only color I would add there is that a lot of this new interest is coming from new entrants into the market.
I don't have the capabilities to do a lot of the early.
Synthesis and development work themselves and they're looking for partners to help them get up to speed quickly.
Very well positioned.
Got it. Thank you that's helpful.
And then another.
One quarter of cash generation is there continued appetite for M&A and any color into specific areas of focus if that's the case.
Yes.
Yes, I mean, there is certainly clear appetite on our part.
We continue to end the day I think my time most classic.
I'll pull up the deals that we pursued as we were first building more of them have been worked through the little close formula for us in the future. So we're always interested in looking.
Launching.
And to some degree on shoring amount to the extent that we can we're also interested in very adjacent products and services that would go to the same customers that we're serving.
I think those are the two main avenues focus Kevin maybe you want to call them, a little bit about Qualcomm and kind of how you feel about the structure.
Yeah, obviously, we ended the year in a real strong position with cash being just just north of the debt load and then threw out about $240 million of upfront cash consideration for the acquisition of my camera as Carl mentioned.
Real real deal right in our sweet spot founder based company Great technology.
Real sticky customer base and a great threatened with nucleic acid production. That's certainly the segment, we see the most opportunity to continue to buy up to apply our capital Mike.
<unk> has done with just cash off the balance sheet and when we did the debt repricing, we kept our total debt loads exactly the same.
So we still continue to have tremendous flexibility great relationships with our lenders and if we see something larger we would certainly take a look at it but we know where our sweet spot is and we you know we like what we acquire and the ability to integrate it we do have some flexibility to go up in size from what we just did.
But that has to.
Would be the right assets and has to be the right fix and then again I think we're always looking to make organic and inorganic growth that support our customers and still hold the thesis student.
Gonna be consolidation in this industry, particularly for the suppliers of the customers.
That are providing the new programs and products.
Just to help them.
<unk> really drive their products home and we hope to be you know certainly the accumulator of those assets to make it easier for our customers to move their programs quicker and with the highest quality possible.
Got it thank you.
Thank you. The next question comes from the line of Paul Knight with Keybanc. Please proceed with your question.
Carl on the X.
A vaccine or playing a part of the business it was.
Ran down sequentially from three Q flux.
Fluctuations I think you mentioned one in.
Clinical trial activity, yet I think youre guiding 50% growth. This year could you give color on how visible you see that portion of the business and you know the history and then visibility on on this guide of 20.
Two.
Yes sure Paul.
And too much into those quarter to quarter fluctuations as Kevin alluded to.
His comments, we see the lumpiness.
Both parts of the business both in terms of the Covid vaccines as well as in the base business and those are project to program specific.
Almost impossible to predict.
Really just depends on the Soc scientifically and clinically in some cases of those programs. So don't really read much into that right now and we certainly don't see that being a trend.
And then on the on the outlook.
Or do your customers what looking at are they having to order out of a year six months what portion of the businesses.
Please review 122.
Paul.
Yes look I think we told you all that last time, we spoke that we had coverage of COVID-19 related.
Over 75% of the appeals for 'twenty two.
We improved since then.
And so we feel very comfortable with that chunk of the business for the rest of the businesses. It truly is customer specific as to how critical these programs offered to customers future plans and how much they need the reward or their outside vendors versus.
How much they can bring in house themselves.
We see very different protocols from individual customers, who are some of them are quite interested in securing manufacturing small and guaranteed supply of raw materials.
Year to 18 months out and others are more transactional in nature. So it varies.
Okay. Thanks.
You bet.
Your next question comes from the line of Matt Larew with William Blair. Please proceed with your question.
Hey, Good afternoon, Kevin you mentioned think about gross margins flat year over year, but clearly youre, bringing capacity online at your Investor Day recently, you outlined some new streamline manufacturing processes and how that's going to lead to higher yield. So I guess, just maybe I'll just think about what gross margins could look like once this new capacity.
He has built up and are starting to get soaked up.
Yes, I think that's a good question, Matt I think there's a couple of things that we've done extremely well certainly automation, it's been one of them and that's been a big contributor to our ability to manufacture the volume scale and still have capacity to meet increases I'd tell you. When we look forward here in 2022, you know we don't need these new facility.
As for the existing book of business. It's more about looking forward is we're always trying to do so and putting in putting in place the building blocks for 'twenty three 'twenty four 'twenty five.
I think from our perspective.
To the extent again, we're seeing solid growth there when you're looking at 18% overall growth that absorbs certainly a lot of overhead, particularly given our variable contribution margin of the products that we have which is extremely high and that's been the driver.
Over and above a lot of the other investments we've made in our infrastructure. So we stay very very consistent margins and the nice thing is we're seeing that really from both sides a little bit too we were able to kind of cushion.
The impact of additional facilities and investments there as well as additional labor costs is thats continuing to increase by steady pricing overall growth and then great control of our of our own supply chain. So our own commodities that we bring in house as we buy at scale as we negotiate longer term master contracts with price.
Nice declines from our vendors or and or acquire them as the case of <unk>, we picked up some points. There. So that's kind of the give and takes and the puts and takes that we see in the margin line, but looks like a real steady gross margin line for this year with a few investments in the Opex as I talked about previously.
Okay and then.
Our on the plasma side just curious.
How youre thinking about the long term opportunity there I know it started with sort of your current customer or is it integrated sum up there.
You're offering there, but long term do you intend to remain to focus specifically on plasma will be used as templates for IV TFR mrna are or is that opportunity to be able to leverage your new capabilities to create plasmids used as raw materials for viral vectors or other kind of markets.
Yeah look I think that is certainly a potential in the future, but right now we're still.
Capacity shortage in the industry significantly.
Our costumers, particularly smaller customers.
Squares are kind of at the back of a wide with the severely providers.
Think there's ample opportunity for us concentrated in that area that enable will sogou.
Home viable.
Viable and warranty customers with us and I think that's going to be our focus at least through 2022.
Okay I appreciate the question.
Thank you appreciate it.
Your next question comes from the line of Catherine Schulte with Baird. Please proceed with your question.
Hey, guys. Thanks for the questions I guess first for the $80 million raised your 'twenty two guide last quarter. Thank you talked about expecting about 550 to $5 $75 million of Covid related clean cap in 'twenty. Two so it seems like about $70 million of that range is from Covid and then for Mike.
Protein detection business was running at $25 million to $30 million run rate when you divested. It. So I guess I'm just trying to get a better sense for how much of <unk> revenue was.
And as getting canceled out versus thinking that the non COVID-19 .
Business has lower expectations in the updated guide.
Yes, sure I mean look I think the protein detection business, the $22 9 million in 'twenty.
It was like you said running closer to $25 million in 2021. So you look at that that low 20% to $25 million range I think thats a fair proxy we were a reasonable sized customer we're not going to get into all the specifics there, but it takes it takes a bite off of that number.
So thats part of it.
Certainly the strength, we're seeing in Covid is a big part of that overall guidance increase that's coming directly from our firm purchase orders and the base nucleic acid.
<unk> business grew roughly little but low $40 in 2020, 49% in 2021 regarding to.
Guiding to roughly 50% growth in 2022, I think we were really happy with those percentages.
And again, we see this as early days.
The run rate.
The contracts, which is a real leading indicator of where that business is going to go because the vast majority of those are working on non COVID-19 related programs and multiple programs within each customer and that's what we're really excited about so we think these are good base fundamentals for guidance to start the year and we're excited about where it goes from there.
Okay, and then maybe on the step up in R&D in the fourth quarter is this the new level, we should be thinking about or what was the work with a third party and more of a onetime project and then on that topic can you just talk a little more about that project and what kind of manufacturing process improvement Youre looking at.
Correct.
Now I'll talk a little bit.
Financial component real quick and Karl can talk a little bit more about the I think the project, but yes look it was a discrete project related to working on clean cap and some valley.
Evaluating how we make the product and looking for improvements as we always are I think we learned a lot from it.
I'd say, its probably not be at that level necessarily every quarter going forward, but it is an area as we talked about where we want to start moving up over time meaningfully I think our R&D day really kind of shows you where some of the areas that we can really expand on so we're looking to move that up a few a few hundred basis points here over the course of the next year or two.
On the right products organically, but it won't be at that same fourth quarter level repeatedly throughout the throughout 2022 that was a bit of a spike related to a discrete project.
They give you a little inside as to what we're looking at we're trying some innovative technologies that have applauded the space before but may have been used in other areas and chemical manufacturing for.
Everything is very helpful.
Process, driven some cases, where youre not doing things in batches and instead youre doing them in a continuous process.
Adapt patients of known technologies.
To this particular application that we think is pretty exciting and may give us some leverage in the future.
Alright, great. Thank you.
You bet.
Thank you and once again, if you have a question just press star and then the number one on your telephone keypad.
Next question comes from the line of Michael <unk> with Bank of America. Please proceed with your question.
Thanks for thanks for taking the questions squeezing me in.
I wanted to follow up on on the last question there on sort of the reinvestment in the business and priorities in R&D and SG&A going forward and you touched on the gross margins for next year, a little bit earlier.
But I'm just trying to get a sense of as you go out the next couple of years.
And some.
Some of the contribution, especially from the Covid business starts to fade, a little bit or maybe just become a smaller part of the overall business.
How do you think about the margin profile normalizing I think we had talked to in the past more of a maybe mid single digit 5%.
Revenues to R&D I think we're looking at something close to maybe 20% on SG&A and then maybe.
High Seventy's or <unk> for gross margins I'm, just wondering if you could sort of walk us through the moving pieces, there and what I'm getting at is just sort of the how we should think about normalized EBITDA margin profile.
In the out years as again, if that Covid based normalizes a little bit.
Yes look I think from us.
We are really focused on the overall demand for clean cap from other sources, because again, it's not differentiated product for indications so.
When we look at all of the various demands I think if you continue to see that overall line for Covid staying strong that's going to continue to provide very strong margins going forward and that's what we're that's really what we're looking at I think you're right moving that R&D spend up from one or two.
One or two full points up to four 5% is going to be a little bit in line with market that will take probably some time.
Unless we do some collaborations with third parties as we did in the fourth quarter I think your estimates on SG&A, maybe maybe a little bit high we will get a little leverage there, but I think thats, certainly something thats, not unreachable, and we see margins being very very steady.
A lot of what we do particularly here when you start getting into customization of our products working with our customers very specifically, we've talked about in the past a lot of our sort of almost development like the resources are embedded in our Cogs line, just because they are working closely with our customers, but we're getting paid for it so they become cost of goods sold or cost of services provided.
<unk>, we are seeing that in biologics safety testing, where we're seeing a lot more service work mass spec work and are working with our customers and other <unk> as well so.
It's a very good business model, certainly certainly a very profitable one.
Outside of the investments inorganic investment for R&D I think the rest of the model is going to stay relatively consistent over time I think that we are seeing our cost structure, maybe catch up a little bit to the big Spike in revenues you saw the last couple of years, but as we go from 2022 forward given the cumulative buildup of clean cap.
All demand as well as the continued customization of our products for mrna as well as in biologics safety testing those allow us to be.
<unk> had very strong margins.
And offer very unique products that really help our customers get to market faster and also help them with the most cost effective manufacturing for Capex. So those combinations work out really well and that's why we're really really looking at fairly consistent margins over time.
Okay and going back to the R&D day.
Also just last month.
You can talk about in terms of what the expectation is for contribution from some of those new products.
<unk> 22, or 2023, I mean, some of it I think youre already.
Commercializing this sort of using your processes. Some of it is a little bit of work in progress that could be down. The line. So just sort of how meaningful is that in terms of 2022 contribution.
Yes, I wouldn't say that it's going to be a significant driver of revenues in 2022. Some of what we're talking about sort of what we're seeing is following on.
Improving the.
We'll manufacturing greed of the materials.
Moving from our research group that we already offer.
Technically already on market.
Switching to GMP or higher quality grades in the meantime, so little bit hard to tease those things apart.
We see the growing trend.
Industry towards better quality standards for products that we may have been supplying at research group for a number of peers.
Okay, and then one last one for me if I could squeeze it in.
Sure anything you can say in terms of.
Sure Vac, and where where that plays in terms of the contribution to COVID-19 clean cap, obviously, they've been in the news a lot recently.
So I know you talked about touched on <unk>, just some of that variability in the capped COVID-19 numbers, but I'm just wondering if insecure after vac played a role there or not.
Look I mean, <unk> has been a very long standing and some.
Florida customer and partner for Us and.
It hasn't been a significant factor in our world.
New members in past quarters. So no question about that.
I think they made the decision strategically to pulse tradeoffs.
Generation vaccine.
There are new partners of GSK are moving forward very aggressively with our program. So I think what you could expect to see is that they may not be today at the same level purchases. They were historically as they are moving forward with their first generation vaccine candidate <unk>.
You would expect with success has been moved through the development process, but it will follow very soon that will occur and we've seen nothing with their.
Their commitment.
To those programs.
Because these vaccines.
The way waning.
Okay, alright, thanks, so much.
Rachel I think we have COVID-19 for one more question.
And our last question will be coming from John <unk> with UBS. Please proceed with your question.
Thanks for taking my question here is again, just maybe if I could sneak in two.
One any way to think on just pricing and the company's ability to maybe pass on any increases that youre seeing this supplier cost deflation.
Customers.
Yes, I think John I think sorry go ahead.
Sure.
Okay.
Hey.
It's Kevin.
So it happens or not in the same room, sometimes right.
Anyway, yes.
I would say on the commodity side look we're not we're not seeing increases on the commodity side. So that's good I think there's anything as I talked about we're seeing economies of scale from our volumes and the maturation of our supply chain group and they do a great job. There. So I think we're very happy with the inputs.
Where we see cost increases as everyone's seeing cost increases in the manufacturing of Av.
The facilities and bringing those online and then the people certainly there's inflationary pressures there with labor and those sort of things.
But overall those are being mitigated by the overall growth we're seeing in some of the savings I have sat on the raw materials side. So I think we feel real good about that so that's not putting pressure on us at this at this point in time.
And certainly logistically, we're not overly challenged I mean, our products are extremely small in nature, certainly going out in some of our contracts have a lot of our customers picking up the tab on that so.
Pricing being stable I think is very comfortable position with us and our customers and they certainly see the value at the price points. We're at again a lot of our business is also custom quoted so it just depends a lot on scale and complexity and the total inputs and what theyre looking to get whether it's just modified mrna or with us MRI Rnase with.
Clean cap and at what scale and those sort of cost price calculators margin calculators drive most of our coding and most of our business decisions.
Thanks, and then just.
You can get the color on the supply agreement funnel and the additional question about how the I guess on cell and gene therapy earlier, just maybe just kind of building on that any way to kind of think about how many programs on cell and gene therapy you serve today in any way to quantify what you see for this opportunity in 2022.
Yes, John on cell and gene therapy, it's a little bit hard because obviously with very big member program.
Changing quite rapidly. So we think that for us to give you a reliable number on soldier therapy is probably a little bit premature.
Certainly we feel as though within the world of it.
It clearly commercial and there's no more new products focusing on the large screens, we have a significant share not only of the.
The supply market when it comes to capping but also.
The number of vaccines as a percentage of vaccines with are there, but as I mentioned sort.
Sort of greater than two thirds market share that Pfizer beyond <unk>.
Yeah, Marty Covid.
<unk>.
Yes.
Actually it would be as high as 75%, we feel very comfortable with.
Sustainable.
Kind of a reliable estimate of the corridor.
Is that the market is.
Got it I appreciate the color thanks for taking the questions.
Thank you John .
Rachel without I think we'll conclude and turn it back over to Dale <unk> for closing remarks.
Thanks, Karl Thanks, Kevin and Rachel Thanks for your help today. Thank you all for joining us I just want to remind you we'll be at the Barclays Healthcare conference on March 15th and will also be participating in the Keybanc capital markets like Finance Forum on March 23rd So both presentations will be with you about that live and on replay.
From our website.
And we look forward to updating you throughout the year feel free to reach out to me with any questions. Thanks for your time.
This concludes today's conference call. Thank you all for participating you may now disconnect.
[music].
Yes.
Yes.
Yes.
Yes.
No.
[music].
Thank you.
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
[music].
Okay.
[music].
Yes.
Okay.
[music].
Yes.
Yes.
Yes.
Okay.
Okay.
Yes.
Okay.
[music].
Right.
[music].
Yes.
Okay.
Yes.
Okay.
[music].
Okay.
Right.
Okay.
Okay.
Okay.
Yes.
Yes.
Okay.
Okay.
[music].