Q2 2022 Maravai LifeSciences Holdings Inc Earnings Call
10% over the prior year.
And we reported a record 78% adjusted EBITDA margin for the quarter.
That adjusted EBITDA performance led to adjusted EPS of <unk> 54 per share for the quarter adjusted free cash flows in the quarter of $175 million.
On slide six you'll see our result on a six month basis revenue for the first half of the year was $487 million up 33% compared to the prior year, our base business, excluding COVID-19 clean cap revenue was 15% this topline growth resulted in.
Adjusted EBITDA of $375 million for the six month period, which represents a 77% EBITA margin.
As you can see 2022 is off to a very solid.
Turning to slide seven growth across the nucleic acid production segment is robust.
Moreover, as offerings today address multiple modalities within mrna therapies genomic medicines cell therapies, and other oligonucleotide therapies, where we see a strong pipeline and demand for our products.
Our nucleic acid production business had revenue of $225 million in the second quarter up 17% year over year exclude.
Excluding COVID-19 related clean cap revenue piece nucleic acid business grew a healthy 20% year over year, demonstrating some we are experiencing enabling the non COVID-19 pipeline.
We also have some good news to share on the intellectual property.
One of our U S patents, claiming our clean cap technology has been an ex parte reexamination proceedings at the U S patent and trademark office and we recently received notice that all reexamine claims are patentable.
We expect to receive the reexamination certificate by the end of the month.
We believe that this together with our other U S and global patents cleaning technology tenants are foundational intellectual property position in the field of five prime capping of messenger RNA.
We are focusing on our base nucleic acid production business as the key driver of long term value creation, as we see innovative messenger or customer growth.
<unk> products and our.
Services.
Turning to slide eight.
Thanks in large part to the success of COVID-19, vaccines and the preliminary validation of messenger RNA as a breakthrough therapeutic modality.
Small and large biopharma companies have made sizable investments into R&D for new your RNA therapeutic assets.
<unk> work, we have done with a top tier market consultant shows that the number of messenger RNA vaccine and therapeutic assets in development is expected to grow fourfold from 2022 to 2027.
This bodes quite well for us as we are uniquely positioned with the right toolkit to support an increasing number of these customers with our products and services.
We've seen nice traction as clean cap and our other small molecules, especially our modified nucleotide and nucleus sidetracked phosphates are incorporated into new programs by both pre existing and new customers.
We have a tremendous opportunity to drive clean cap inclusion across messenger RNA customer base, while providing other critical GNP raw materials, and our newest technology to improve in vitro transcription reactions.
These programs should continue to bring value to our customers and help improve the quality of manufactured earnings for years to come.
As interest in cell and gene therapy continues to rise and as the number of development programs advancing to later clinical stages accelerates, we expect the new commercial approvals will validate the high clinical efficacy and transformational impact of these modalities.
According to the alliance for regenerative medicine, the FDA expects more than 200 gene and cell therapy.
<unk> per year in the near term and between 10 and cell and gene therapy approvals per year, starting in 2025.
Separately. Moreover, third party consultant advises that the messenger RNA vaccines and therapeutics market.
See up to third rubles, which approximately 70% may be infectious disease vaccines by 2020.
While COVID-19 related revenue has represented a huge catalyst for the companys growth and operations since 2020.
It is these non COVID-19 programs that have us most excited about the long term growth opportunity ahead for marvell.
Turning to slide nine and recoup it out and look.
As you all know our part in putting COVID-19 vaccines has been amazingly rewarding and we are very role we have continued to play in helping to address the pandemic.
We believe that the vaccine market has moved beyond its initial peak demand phase driven by that mass vaccination programs and that we are now more dynamic and more difficult to forecast part of the Covid vaccine lifecycle.
When we updated you last after the first quarter, we saw the 2022 clean cap revenues directly attributable to our major COVID-19 vaccine tumors would be about $630 million for the year midpoint of our guidance of 12.
14% growth over 2021 levels since that time, our customers have advised that some governments have delayed or postponed previously contracted vaccine orders. So that they may accept new variant vaccines being prepared for the fall.
In particular, Pfizer one of our major customers recently indicated that their second half 2022 revenues from shipments of <unk> will be split unevenly with a shifted demand towards the fourth quarter of the year.
These types of changes in plans could of course create unexpected variability.
Our future shipments a clean cut.
We shipped $350 million in.
19 related clean cap products in the first half of 2022.
Given the difficult to predict market dynamics in regard to demand for vaccines and boosters and the delayed timelines for previously expected booster campaigns. We are revising our 2022 guidance to effectively derisked, our outlook, which will lower the full year COVID-19 related clean <unk>.
<unk> revenue range by about $20 million from the prior guidance.
Now assuming that this fully COVID-19 clean cap total will range between 600 and.
$620 million for 2022, leaving $260 million to go in the second half at the midpoint.
This may be somewhat back loaded into the fourth quarter.
Kevin will discuss the puts and takes to this revised COVID-19 related guidance and other inputs for our 'twenty two guidance later in <unk>.
A central issue in many of our do it with investors is obviously concerned the durability.
It related clean cap revenues into 2023 and beyond.
Main many uncertainties here in the vaccine space is definitely influx.
In addition to working with our largest customers to secure the updated rolling 12 month forecast that we have used in developing our previous guidance. We have engaged outside consultants to independently develop demand forecasts for next year.
Based on that work and using the latest forecast data. We have available. We now believe that the COVID-19 vaccine related clean cap demand will be between $200 million and $300 million.
In 2020.
This is an estimated baseline for the next year and there are numerous factors that could lead to changes up or down in this estimate once we actually enter 2023.
Let's move to slide 10.
Another issue of intense interest to investors concerns the appropriateness of our current market valuation as I have said before we believe that we are significantly undervalued because of the markets unwillingness to look beyond our massive success with COVID-19 and to appropriately assess the value of our underlying business.
Which by itself is among the more exciting companies in life science tools today.
One fact stands out just after our IPO in November of <unk>, We reported that <unk> generated $280 billion in revenues and $169 million and adjusted EBITDA for the full year of 2020.
Today less than two years later, our T revenues are $920 million and our adjusted EBITDA is $693 million.
More than four times, our IPO levels.
I, probably don't need to note for you that the stock has been trading recently.
Same levels as our IPO price.
Now turning to slide 11, and our biologics safety testing business.
Products and services in this business support high growth markets in cell and gene therapy vaccines, and biologics by providing process related impurity analytics, along with offering innovative viral clearance predictions solutions that help our customers ensure the safety of their biopharmaceutical.
Our second quarter revenue was $17 million of vital testing down 4% from last year.
The two main factors impacting the quarter were resumed weakness in China due to sporadic Tim Dimock Lockdowns.
In April and May.
And our decision to suspend sales term during marine invasion.
As we move through the rest of the year, we're keeping an eye out their COVID-19 outbreaks and regional Lockdowns, but we're currently seeing a return to more normalized business operations in China.
We continue to innovate and scale, our offerings and biologic safe thing.
Her superior technical support.
Quality services and products and the most comprehensive catalog of products to meet our customers' needs.
We have several new product launches planned this calendar year, including a PG 13 cell line assay a protein L ligand assay and several automated platform kits further building on the breadth of our product offerings.
Now moving to slide 12, and some recent leadership updates.
First we are happy to welcome Dr. Piet <unk> to our leadership team.
He joined US in July as executive Vice President and Chief administrative officer reporting to me.
In this newly crude oil has responsibility for leading our global shared services functions, including human resources environment, social and governance initiatives, our diversity equity and inclusion initiatives, our global facilities function and pretty.
He has.
His experience leading growth and change across a wide variety of businesses and specifically in scaling global life Sciences company I look forward to him playing an incredibly important role on our team is Moreover continues to differentiate us as a trusted supplier of components.
Lake assets, and biologic <unk> life science industry, and as we strive to be a good corporate citizen through our ESG and <unk>.
Initiatives.
Second we've extended the leadership team.
Production as well we are committed to increasing our investment in messenger RNA innovation as we scale, our R&D operations facilities and quality systems and as we partner more closely with our customers to this end we brought on Dr. Kate Brodrick Senior Vice President Research and development.
<unk>.
The vice president quality and regulatory.
Both are seasoned life Sciences executives and we were excited to see their contributions to innovation and best in class and our quality initiatives.
Third the integration of the <unk> acquisition is on track to be completed by the end of the year, we have merged their product development and commercial outreach activities with trailing solar and commercial teams. The addition of Mike and extends our capabilities in the manufacturing of critical raw materials that are used in cell and gene therapy molecular.
Agnostics and messenger RNA vaccine manufacturing.
Forward the team will be supporting innovation with the expected launch of new chemists.
Including the Devil clean cap variance and ski only treat processes for current call to GMP grade.
Dr Chang things out the CEO and cofounder Mike him is now the vice President of research and development, leading our chemistry initiatives.
Moving to slide 13, I'd like to update you on our facilities expansion plans during the second quarter, we signed a collaborative agreement with the department of Defense, where they will fund up to $39 million of our planned expansion of the Flanders nucleic acid production facilities are in San Diego.
This is part of the government's goal of nationwide pandemic readiness for COVID-19 and beyond.
We view this award is recognition of the significant role <unk> is playing.
And of our unique set of capabilities and their importance to future vaccine and therapeutic development.
The plan to site construction is on schedule and we expect to have occupancy for phase project here with phase two and see in the first half of 2023.
As the first phase will provide us with an additional G manufacturing suite with two clean rooms.
Moving some of our operations to the new Flanders site, we will further increase capacity for commercial cleaned.
And here at the Wateridge site expand the rest of our small molecule platform and add G&P API manufacturing capacity, allowing us to customers through phase two and beyond.
Likewise.
Safety test and relocation from South Port to a new state of the art facility in Leland North Carolina investing nicely towards the move indeed over the holiday break at the end of this year.
Be more than doubles, our operational square footage to support current and future growth.
Customized design will provide room for a mass spectrometry for excellence and the sole culture facilities. It.
It will significantly increase our cold storage capacity, while providing other R&D laboratory in automation upgrades.
Since the process flow and all this is.
<unk> been incorporated in the design.
<unk> enhanced both our manufacturing and packaging operations.
We also recently secured 54000 square feet of office warehouse and light lab space in San Diego and plan to keep some of our corporate and G&A teams to this new site, which were lying Pacific Center.
Pacific Center is conveniently located midway between the water rich in Flanders locations here in San Diego and all reside within a five mile radius of each other.
Light renovations planned for the site and will occupy the space later this year.
These new facilities are an example of how we continue to make investments to further accelerate growth in our pes business.
We also remain active in pursuing inorganic opportunities and look forward to being able to announce additional acquisitions in the future.
We are committed to expanding our reach as a key specialized raw material supplier and we are actively working to expand our international footprint. So that we may improve our ability to directly for our global customer.
Lastly on slide 14, I wanted to give you a brief update on some of our corporate initiatives, we have launched to support our various stakeholders. We believe that getting our time money and talent can make a positive impact on our communities.
We have implement implemented both a company wide volunteer.
The unemployment charitable contributions to a wide range of nonprofit organizations. These programs are in addition to the Morrow Portable foundation, which we established really each year are giving supports charitable scientific and educational endeavors.
With a particular emphasis on advancing education and innovation supporting local communities in which we operate promoting public health and access to health care and advocated inclusion and diversity.
Slide shows some of the University programs and charitable organizations, we have supported including the University of San Diego, San Diego State University, and the University of California Sandy.
As Kevin more details on our second quarter performance and to update our guidance for the balance year Kevin.
Thank you Carl and good afternoon, everyone and happy to review our financial results for the second quarter and to discuss the components of our current guidance for the full year of 2022.
Given presented some of the financial highlights already I will briefly cover some more details regarding our second quarter results and then dive into our updated financial guidance 22, starting on slide 16.
Beginning with the GAAP numbers, our GAAP net income before the amount attributable to Noncontrolling interests are 100 million for the second quarter of 2022. This compares to $135 million for the second quarter income from operations was $101 million.
Trading margin.
Corporation.
R&D spend in the quarter was $4 million, which compares to $3 from Q2 2020, as we continue to increase our R&D spend as a percentage of revenue for the base business.
Moving to slide 17.
Adjusted EBITDA GAAP measure was 188 million for Q2 2022 compared to 164 million for Q2 2000.
This represents a 15% increase year over year, the net adjustments from GAAP EBITDA to adjusted EBITDA continue to be small with our adjusted EBITDA only $1 million less than 1% of our reported GAAP EBITDA for the quarter.
Adjusted EBITDA margin was a record 78% in Q2 2022.
The 75% reported in Q2, 2021, and slightly better than we had forecast there is still a favorable gross margins in the quarter.
Turning to slide 18.
We present here basic EPS diluted EPS and adjusted fully diluted EPS basic EPS are GAAP measures of net income attributable to our class a shares divided by the weighted average class a shares.
Diluted EPS also GAAP measure basic.
Basic EPS and to the extent the assumed conversion of class B shares and other equity was a dilutive than net income.
Shares outstanding used in the calculation of the diluted effect of this conversion.
Class B shares and other equity words were dilutive in Q2 2022, and that's included in the calculation lastly, the simplest most comparable metric of focus for US is it just a delay.
A non-GAAP measure, which equals adjusted net income divided by the Capex in both class a and B shares in either dilutive securities. Our basic EPS for the quarter was 54 per share diluted EPS was <unk> 53 per share and adjusted.
EPS was <unk> 54 per share.
Moving to slide 14.
Here, we present, a few balance sheet and other financial metric highlights we ended the quarter in a net cash position of $551 million in cash and $541 million in long term debt.
Our strong EBITDA and it's led to robust adjusted free cash flow for the quarter up $175 million that calculation of adjusted free cash flow and non-GAAP measure is basis, adjusted EBITDA was $188 million less in new Jersey in the quarter of $13 million.
Purchases in purchases of property and equipment and construction costs incurred for a <unk>.
A portion of which are considered improvements and will be reflected as prepaid and other assets in accordance with GAAP further offset by government funding recognized.
Capital expenditures in the quarter were consistent with our expectations, reflecting our focused investment in the facility capacity expansion. We have time on prior calls and that's highlighted or.
Yeah.
We expect our net capital expenditures as I, just defined to be $65 million to $75 million for fiscal year 'twenty, two which includes roughly 20 million stated offsets from the department of defense pursuant to the collaboration we have with them.
A total of two thirds of these will actually be classified as long term other assets and the remainder in fixed assets under some of the GAAP accounting that I mentioned.
The remainder of the $39 million grant will likely offset to capex in early 'twenty three as we complete that's finders facility.
With $541 million in long term debt $550 million in cash and trailing 12 month adjusted EBITDA of 692.
We have a.
Eight times gross debt to adjusted EBITDA ratio.
And no leverage on a net basis.
As we look at capital allocation from our free cash flows and strong back and debt capacity, we really just on strategic investments for growth and increasing our capabilities and supported and customers we serve.
Involves organic investments in the people processes systems innovation and facilities to further our offering and solidify the foundation for long term growth base business. In addition, we continue to evaluate and potentially acquire businesses or technologies that can further offerings. This combination of organic and along with inorganic M&A strategy.
Continues to be our near term focus for capital option as we believe strongly in growth investments the breadth of offerings commitment to quality and dependability that come available and increase capacity.
As it relates to financial market risks, Sweden.
The timely repricing of our debt earlier this year combined the interest rate hedging strategy has allowed to maintain our forecasted interest expense range for the year.
Furthermore, we have structured Mara and the vast majority of our contracts and treasury operations predominantly in the U S dollar and.
Not facing any material impact for 2022.
As we have repeatedly discussed our strong financial performance balance sheet and cash flows provide us tremendous financial flexibility.
To make both organic and inorganic investments that will drive it and build capacity.
Now to provide.
Turn to slide 20.
Production business fuel domestic portion of the revenue growth for the second quarter.
Like asset production represented 19% of the company's total revenue in the quarter and generated $186 million and adjusted EBITDA.
The 83% adjusted EBITDA margin in this business is a record for nucleic acid production and reflects the value of our unique products as well as the productivity gains and efficiencies from our state of the outstanding a manufacturing facility and the margin contribution from our <unk> acquisition.
Our base nucleic acid production business ex non-GAAP revenue for our major COVID-19 vaccine customers grew 27% year over year as clean cap.
Product portfolio is the increasing number of programs our customer list continues to grow.
Clean cap revenues from our major COVID-19 vaccine customers of approximately $178 million in the second quarter 22, compared to $155 million in the second quarter of 2021.
Our biologic safety testing business contributed 7% of the company's second quarter slightly below our internal S.
Mostly attributable to the ongoing pandemic lockdowns.
Our ongoing decision not to ship into Russia, as Cigna branded products, which compares virtually all of the business were down less than $1 million in the quarter or 4% 2021.
While the Asia Pacific and less impacted by Lockdowns, North America, and Europe , but were up 11% and 17% respectively versus the prior year second quarter.
Our biology safety testing business, a $14 million of adjusted EBITDA in the quarter, that's an 81% EBITDA margin.
Corporate expenses that were not included in the segment adjusted EBITDA for $12 million in the quarter up from the Q2 2021 levels of $10 million, mainly due to investments in key personnel and systems to drive and support growth.
We continue to engage with our ability to attract key talent at all levels from our Atlas at the end of June we had a record 555 full time regular in place up from 521 at the end of Q1 continue to add key talent to support our business in a very competitive labor market.
Now, let's move to slide 21, and our updated financial guidance.
We now expect revenue of $880 million to $900 million.
Current year this is down from $40 million or just less than 5% at the midpoint from our previous guidance, including that range is our estimate for 2022 revenues attributable.
Attributable to our major COVID-19 vaccine customers to be about $610 million at the midpoint, we're down about 20% from our previous expectation.
As our customers reduced Q4 demand down to their contracted minimums.
The Covid demand is roughly half of the lower 2022 revenue guidance. The remaining reduction is attributable to the weakness in the APAC region specific.
When you are forecasting to impact both the Knapp and BST segments.
In addition, we have removed from our forecast a large order for certain raw materials from a customer the updated their requirements to GMP grade capability that we expect to have in the near future with a new Flanders facility, but for which we cannot provide in line with our updated requirements take.
Taking into consideration these adjustments to 2022 guidance, we expect overall revenue growth of 12% over 2021 levels at the midpoint, including just over 30% in our business, including revenue from COVID-19 related clean cap and about 10%.
In our <unk> segment.
Okay.
Our strong first half margin profile, our adjusted EBITDA guidance, a non-GAAP measure is narrowed to a range of $240 to $660 million a change of approximately 23% at the midpoint compared to our previous guidance range to $6 90.
Based on this updated adjusted EBITDA guidance adjusts.
Adjusted fully diluted.
On a non-GAAP measure is expected to be in the range of $1 70 to $1 a share compared to our prior $1 74 to $1 90 per share.
As it relates to timing, we continue to see some choppiness in August and looking at the short three months quarterly periods as implied by your guidance and our first half actual results. The second half 'twenty two is forecasted to be between $393 million and $423 million with the third quarter expected to be between 190.
And $200 million in revenues in the fourth quarter slightly higher.
This will also likely result in the third quarter EPS likely being in the low <unk> 30 per share in the fourth quarter is higher than that.
Based on a lower second half revenues as compared to the first half and in the product mix and with initiative investments, we expect our EBITDA margin in the second year to be about 70%.
Resulting in an approximate full year range, representing our updated GAAP of.
Of about 73%.
Slide 22, you'll see our other guidance for 2002.
Adjusted fully diluted EPS assumption for class B shares are converted to class a shares which results in a forecasted fully diluted share count estimated at $256 million for the full year of 2022.
Additionally, our adjusted fully diluted EPS, including adjustments that do not reflect our core operations are based on an adjusted tax rate of approximately 24%.
As it relates to the other adjustments needed to get to our non-GAAP adjusted EBITDA range. Our expectations for 2022 include interest expense between $22 million and $25 million.
The Asian amortization of 30 to 35.
Equity based comp, which we show as a reconciling items from GAAP to non-GAAP EBITDA can be $18 million and $20 million and as stated earlier for 2020, we expect to invest in at $65 $75 million for capital expenditures the vast majority of them to our facility expansion.
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 patients. In addition, our segment related information will be detailed in our Form 10-Q, which we plan to file next day.
So thank you for your time today I'll now turn it back to Carl for some final remarks.
Thanks, Kevin.
Wrap up on slide 24, we are playing in the right target markets with strong leadership positions and exceptional growth in our base business as we build our product portfolio probably volume wise.
As Kevin said, our disciplined business.
Our strong cash position allow us to continue to invest in operations facilities and people to support the many exciting growth opportunities in our pes nucleic acid and biologics safety testing businesses.
In ways that support our messenger, RNA and cell and gene therapy, because the rapidly evolving needs.
Now I'd like to turn the call back over to Vikram to open the line for your questions.
Thank you very much.
Ladies and gentlemen, we will now begin the question and answer session.
At this time, if you'd like to ask a question star one on your telephone keypad.
Quantum tone will indicate your line is in the question queue.
<unk>, if you would like to remove yourself from the question queue.
For participants using speaker.
It may be necessary to pick up your handset before pressing the staci.
One just wanted to be thoughtful questions.
First question from the lineup, Matt Larew with William.
William Blair. Please go ahead.
Hi, This is Max on for Matt taking my questions I. Appreciate the color on the 2020 Covid business I was hoping you could go into a little bit more detail around how much exactly of that is already booked how that cadence to China and then any detail you can provide around the nature of those contracts whether or not their style.
Okay.
Well Max food, our model and our relations haven't changed with our customers. The issue for all of US now is just theres very little visibility into 2023 volumes when it comes to the vaccines themselves and that Cascades.
Through the supply chain, so I can't really comment on how much of that is booked right now but.
Just to say that it's the focus of all of our discussions with our customer.
Got it thank you Carl.
I hate to go out even further in the future here, but you.
You had mentioned that you expected COVID-19 demand and they get settled out in 2020.
And curious to hear your take on whether or not you still think that's the case and then.
Recognize that it's going to be difficult to say, but is there anything you can do around how youre thinking about what the demand looks like lumpy ash 2023, and what that run rate kind of looks like as we move past next year.
Yes.
If you look at this this guidance Youll see that we are saying roughly we think next year will be a third to half.
Half of what the volume was at its peak here in 2022, My personal view is I believe that the longer term prospects are going to look similar to that I really don't see this kind of monotonically declining and I think most people with a vaccine.
Reach that same conclusion that there is a certain baseline and it's probably going to be somewhere around 423 ends up.
But you just don't know based on the number of around seven the number of vaccines that actually have to be made and always remember that we focus on how many vaccines needed to be manufactured not necessarily how many immunizations are actually deliver great.
Into People's Arms, there is a delta between those two.
Got it thank you for taking my questions.
Got it.
Yes.
Thank you.
We have a next question from the line of Matt <unk> with Goldman Sachs discard.
Hi, Karl and Kevin Thanks for taking my questions sure.
Maybe just to kind of shift gears, a little bit just the commentary you made about the.
Customer in China.
<unk> kept the contracted they're switching to.
<unk> from our you all I mean, we've heard similar things.
And the channels that people are using GMP earlier and earlier in the process.
Obviously with your planners facility you are going to be able to serve that capacity, but where do you feel you are today in terms of serving the potential GMP capacity that you're forecasting.
And do you assume that people are going to start using GNP earlier in the process and therefore, maybe.
It'd be additional capex requirements as you sort of transition not away from RTL, but just focus more on JMP going forward.
No it's super Super Good question.
I would say that first of all just to clarify.
The customer was in China, I think Kevin was also talking about China.
China Lockdowns and the same couple of sentences there but.
This large customer.
Committed to in order of priority of material and as they evaluated it with some changed partnerships on their side. They made the decision to immediately needed GMP, which they thought would later in the program. So it's exactly. The example that you cited and we think thats occurring more often I would say that.
Driver of that is you are getting more big pharma involved in earlier programs you've.
<unk> seen of course, some of the announcements about partnerships.
And relationships around our candidate therapeutic so as that happens I think the big pharma.
<unk> is very much one of eliminating any potential clients early on and that will drive them to GMP sure. I think we are well positioned the Flanders site is designed exactly to allow us to do this.
And I think the capital investment that we have anticipated there and the support that we've got from the government will allow us to meet those demands just unfortunately, not as quick as this past quarter.
Okay got it thanks for that and then just on M&A.
M&A.
Kevin discuss a little bit in terms of balancing organic with organic.
But just given your balance sheet currently given some of the valuations that are likely come down in certain areas.
I guess outside of my can.
They would have been more activity on the M&A side is there something in terms of valuation and our ability to find the right companies or a timing aspect that that.
It might have held you back from M&A and should we accelerate or is this just simply.
Case by case basis waiting for the right opportunity, which is probably what you're going to say so.
Thank you for afterwards.
A little color here, it's just that.
We are picky about what we look for and we have certain expectations aren't always nut and while you're right valuations have clearly come down and the market management acceptance of those valuations may not be as quickly adjusting how's that.
No.
Thank you and then one last question just on.
Previously disclosed and I apologies, if I missed it earlier in the call as it relate to discuss non tobi.
That you're involved with or is there any update to that and I apologize again, if you had disclosed the sterling in the call.
No.
I don't think there is any update similar to what we've said before Kevin 183 Tau program.
I'm looking for the split.
Bear with me.
I'll tell you what we'll come back to you on that I have in here, but I just can't seem to look at it right now.
I'll follow up with you later, thanks very much. Thank you for your questions Alright.
We had previously talked about 188 programs that was based on an in depth market analysis that we did earlier in the year. It really hasnt changed and we haven't revisited that market analysis. So that's not something we're necessarily keeping an absolute rolling tally on we'll revisit it periodically as.
As we see changes the 183 on a car that is but we're not again that's done internally derived metric that we're tracking.
Work with our third parties on accumulating that at a point in time, they are using that information to inform their decisions.
Thanks, everyone.
Yeah.
Yeah.
Thank you we have next question from the line of Jay just salad with Morgan Stanley . Please.
Hey, guys.
Good evening.
Got it I appreciate the visibility on 2023.
When we think about that 200 to 300 million Covid assumption, which by the way at the midpoint and sort of plans right on top of that we where.
Is it fair to assume that we should we think that's sort of one booths are those sport individual.
Some of the other assumptions embedded in the low versus high end of that range in terms of perhaps vaccine uptake applicable geographies and market share.
Yes.
We're pretty thoughtful about the way that we've looked at it. So we didn't just consider the number of vaccines potentially being made we also looked at the rate of change from.
What we understood 2022 to be in the first half and what like what that trajectory and projections by the various participants has been.
Of course, we've got an offset because while we're in the largest market share program that's out there already.
We're exposed to that trajectory downward. We're also in a number of smaller programs that are still in clinical trials and coming up so theres a little bit of an offset in there as well. So we feel that this is kind of a triangulated number that we will be able to run following.
Well, it's communicated as soon as we had completed the external work to generate.
Got it that's helpful.
And then just.
Continuing.
Lyons I mean with Covid revenue expected to normalize and you've also got plans to move to these new facilities at Leland and standards.
How should we think about sort of margin headwinds in 2003, perhaps as occupancy of those utilization of those facilities takes time to ramp.
Yes look we're not going to necessarily get into any more guidance on 'twenty three other than the COVID-19 number at this stage.
But from our perspective, the overall facilities burden. We have here is not a huge cost I mean, it is a very reasonable. We've got these are good times, they're long term leases are long term investments. So they are spread out for a very long period of time, and we think certainly having the capability and the flexibility with our with our.
Investments in these facilities is extremely important so and these are small molecule manufacturing line. So if you're talking specifically about COVID-19. They can do and likely will do some other things.
The market changes in our mix of revenue.
Away from some of the Covid related clean cap demand to some other items. So we're putting in place the things we think we need to support this business over the mid to long term.
That's certainly going to be something that is very important to us and we're not overly concerned necessarily today about the fixed cost structure, we think it's necessary to have the capability and to be able to respond to the demand that we see shaping up over the next several years.
Got it and then one follow up.
For me.
The cost of capital rising concerns around the recession et cetera are you thinking of any sort of opex reduction efforts, perhaps cash conservation efforts here.
And how do you think about your cell and gene therapy customer base at this point any elongation in purchase decisions project delays or cancellations that you guys are beginning to see out there.
Well I'll deal with the latter part and I'll, let Kevin talk about the first part agents.
Thank you.
Are not seeing any pullback or diminution of the number of <unk> that we have.
We're working on those.
As we've said before we are well funded into 2000, 22021 time frame and quite well funded in some cases as you all know, but I think that what we may be seeing is examples where a company that was trying to move programs forward in time maybe.
So for three programs and tries to move them forward to show some progress in their own conservativism and cash conservation.
Not a banding fueled by any stretch of the nation and Theres still more and more entrants coming in so that's how I would characterize what's cool burn Kevin about cash conservation.
Yeah, nothing specific tasks.
We're always trying to make the best business decision for everything we look at certainly as a revenue profile might change a little bit we can manage that we run into various shifts we can manage the mix of our products through our attrition and hiring how we backfill and other things so.
Tight on how we manage labor, how we tightly manage our expenses, obviously, given our historical margins and sort of the profitability of the company, but there's no conservative effort right now to make any any changes with that.
Estimates were making and again on game here and we feel comfortable with our cost structure and the investments, we're making to address that as well.
Got it.
Free cash flow of $175 million in the quarter.
We've got a little bit of cushion so.
Got it I appreciate the time guys. Thank you.
My pleasure.
Thank you we have next question from the line of Paul Knight with Keybanc. Please go ahead.
Hi, Yes, Carl you had mentioned in the past of growth rate ex Covid Pfizer of kind of in the forties.
Do you feel about that growth rate today.
I think youre, referring to if you look at our core Napa business I think we were you know.
Ups up closer to that number prior the revisions to our guidance this year, which I think brings that number of around 30%.
Yes.
This year I think what we're seeing both this year with this updated guidance and seeing that base business grow 30% at the midpoint right here with some sensitivities on each side of that number.
Is it sort of the opportunity and I think that that is what we're seeing now and I think with the capacity and capabilities, we're increasing albeit from a slightly different mix of business going into the future. So that's why we're continuing to support an investment business because the market work that we're doing and in the long term growth and some of the statistics there.
Carl cited earlier in the prepared remarks underscore the need to support that type of growth rate.
But I would say Paul so.
This is more choppy now as we're getting bigger because we're getting some very jobs.
Slight slippage is from quarter to quarter can and do occur. So I think we'll be a little bit tempered.
We look at that and we would just say it.
It's probably going to make more sense to look at six to nine months trends necessarily can be to compare three months to three months.
Right and then last the $47 million approximately of ex Covid that would include.
Some of the mine Kim.
Transaction right.
Yes that would include some of that we're not we're not separately breaking it out but that would roll into the non coffee totals okay.
Thank you.
Yeah.
Thank you we have next question from the line.
Michael Riskin with Bank of America. Please go ahead.
Great. Thanks for taking the question guys.
I'm going to follow up a little bit on.
On Paul's last question I think I think we're at the beginning of the same point.
Could you talk a little bit about more about the non COVID-19 nucleic acid production components youre guiding to 30% now in the guide was.
More than 50% year over year in the first quarter, so a little bit more detail on <unk> in the fiscal year, you mentioned a little bit on China.
You hinted a little bit of Russia.
If you could go into more detail on.
What's going on in that.
And then non called the components nucleic acid.
Yes, that's a major the major component.
And those changes in estimates has to do with <unk>.
For example, not.
Not having a GMP capability online right now at a time when we have to have.
A rather large contribution from the raw.
Materials, so that's more.
The second is the China.
Other Asia Pacific effects have really been primarily in our biologics safety testing business.
So it is kind of when we talk about base business, because we talk about base business as a whole and we also talk about base business from nucleic acid production.
You have to kind of just.
Distinguish two to Kevin I want to clarify that any better.
And I think Thats right as we've talked about the lowering of the midpoint was half of it was with Covid related which I think we all under.
The remainder of roughly $20 million or so the biggest part of it as Colin alluded to was the raw material purchase.
They're in the biologic safety testing building, bringing that growth expect.
Down in a little further the euro for the reasons, we've decided and then and then just again, just a growing and there's a little bit of uncertainty from APAC region.
There's a lot of other smaller things out there that we just didn't have the certainty to keeping our guidance for this year certainly a potential upside.
Things come through but I would say, there's probably just a little uncertainty out of that region and given the relatively small number and the fact that some of our orders.
Can be pretty big and pretty choppy as Carl alluded to we wanted to make sure that we were adjusting guidance based on what we see today and the confidence in delivering on that yet.
Okay, Alright, and then a follow up on that and this is for the second half I guess, a little bit for 2003.
You already discussed a little bit your COVID-19 outlook for the second half of the profit outlook for next year and then also.
Hey, guys.
On Covid.
Second half you're getting to about 20% year over year. So I guess my question is given what changed from when we last spoke in May two.
Some of these orders going away some of the more uncertain. How do you is your outlook for the second half of the year is there.
Downside is this sort of a little bit of conservatism built in because I'll use <unk> as an example, but you can apply this across the board, there's a scenario where COVID-19 for more and where maybe some of those.
Actually you don't come back in the fourth quarter.
Is this something where both the COVID-19 and non Covid you feel like this is sort of debate and there's there's only upside from here or.
Or is there a situation where three months from now we're having a little bit of a repeat conversation with us.
Yes.
Yes, I think from my from my perspective, certainly in the number I think that's relatively derisked just.
Of how our contracts work there and you know these things are.
Levered and already.
A lot of power and manufactured or on pose in those sort of things. So I don't see that tricking downward.
Within the calendar or fiscal 2022.
Certainly nucleic acid production doesn't have that.
Larger percentage as the Covid number as far as being guaranteed are locked in so there's certainly still some some variability in there, but I think that.
We go through our forecasting process every month every month tail with our commercial team we have sensitivities on both sides of our base forecast.
Basically reflects our our base assets, we have today as we always have and giving guidance and we run with one set of numbers and that's what we're looking at so there's inherent business risk of course, there's some been inherent opportunity as well, but I think certainly on the Covid number that's pretty solid on there's probably a little bit more to get.
On the nature of our business, but it certainly brought that down to a level that we feel comfortable in delivering at this stage.
Put it this way Michael you threw a couple of years now.
You know, we're pretty conservative in how we go.
Okay, alright, thanks, so much.
Yes.
Thank you we have next question from the line of Brandon Kodiak.
Jefferies. Please go ahead.
Hey, Thanks, good afternoon.
Kevin not sure you're willing to comment, but I'll I'll take a flyer on this.
What would the run rate EBITDA margins looks like under a scenario, where the cobot clean cap revenues do drop down to a baseline of that let's say $200 million.
Run rate.
Yes, I would say about the first part of your question.
We're not going to go there for 2023 look I think if you look back at what Carl presented him. When he was talking about valuation and you look at that point in time, you know that.
2020 year year that we had there.
$280 million revenues of $100 million in Kobe clean cap and at 60% EBITDA margin.
Bigger than that so I think when you look at that as just an example of where we were with them.
A lower level of clean cap.
On Covid and non Covid environment would be going into 2023.
So I think that just gives you a little bit of sense of.
Well business prior to the Spike in Covid, and we will continue to be a very profitable and high margin business prospectively.
Gotcha.
And the second question just you could put a dollar number around.
Customer order that was that was canceled.
Just can you quantify that.
High single millions.
Great. Thank you.
Alright.
Thank you.
We have next question from the line of John Bair with.
UBS.
Great.
And this will be our last question.
John go ahead.
Hi, Thanks for taking the question maybe.
One just following up on what.
Cell and gene therapy.
Slow down, but I guess when you look at some of the non COVID-19 mrna programs and just the funding environment have you noticed any slowdown there and are you willing to comment on the base nucleic acid business, how much is exposed to biotech.
Yeah.
Well look I think that.
We.
We are not seeing a reduction in the number of customers or the outright cancellation of programs as I think Ive mentioned there.
There may be prioritization of what's going on within the smaller companies.
But it's also fair to say that our business ex Covid consists of everybody from the largest pharma companies all the way to virtual mrna startups. So we've got a little bit of everything in there, but the bulk business in the group.
Who's really comes from programs that are advancing.
For which they need greater and greater quantities of either mrna or clean cap or other owners. So I would just from a revenue point of view the weeding.
We tilt towards larger biopharma mid to large and the number of funds with tobi.
Or.
More customers I'm sorry more.
Customers.
Looks like they are smaller that would be my intuitive cancer.
Thanks, and then I guess another one on the base business.
Think about the customer order patterns outside of the shifting to the GMT, but have you noticed any changes there and maybe if there was any stocking at all when you look through the second half.
So the first part of the question somewhat.
I guess when you think about the business of nucleic acids. Just can you talk about customer order patterns, there and have you noticed any any stocking within customers.
No not not on the base side of the business. So all that stuff was consumed.
Pretty Ralph programs.
Things sensitive so.
That's not the kind of stuff even Stockholm.
Thanks for taking the questions.
You bet.
Okay, well, thank you everyone.
Okay.
Yes. Thank you ladies and gentlemen, do we have reached to the end of the session and I'd like to hand, the call back over to Deb Hajj for closing remarks.
Thank you.
Thanks, everyone for joining us today I will be at a couple of conferences. This quarter. So please check out alright, that's pads.
If anyone in the queue that we didn't yeah, I feel free to call me ever having questions definitely hope you have a great night. Thank you.
Thank you very much ladies and gentlemen.
That concludes today's conference today.
Disconnect your lines at this time, thank you for your participation.
Yeah.
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Thank you.
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Sure.