Q3 2022 Maravai LifeSciences Holdings Inc Earnings Call

Okay.

Greetings and welcome to more of a life Sciences third quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Deborah Hart head of Investor Relations. Thank you you may begin.

Thanks, Doug Good afternoon, everyone and thanks for joining us for our third quarter 2022 earnings call I'm joined by Carl Huh.

Our executive Chairman and interim CEO , and Kevin Hardy, our executive Vice President and Chief Financial Officer.

Our press release and the slides that accompany today's call are posted on our website and are available at investors don't Manav I dot com under financial information quarterly results.

As you can see on slide two Carla will first provide you with a business update and then Kevin will review, our financial results and guidance we will.

Open the call for questions following the prepared remarks.

On slide three we remind you that if I went back and statements that we make during this call, including those regarding our business goals and expectations 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 today as well.

More fully described in our various filings with the SEC today's comments reflect our current year, which could change as a result of new information future events or other factors and that kept today does not obligate or commit itself to update these forward looking statements except as required by law.

During this call we will also be using non-GAAP measurements at certain of our certain of our results and providing guidance reconciliations of GAAP to non-GAAP financial measures are included in our press release the metrics, we will be discussing in todays call and create 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 measures.

<unk> tended to better enable investors to benchmark our current results against historical performance and the performance of our peers.

Now I will turn the call over to Carl.

Well, thank you Deb and good afternoon, everyone. We appreciate having you join us for our call today.

Let me now give you a quick recap of the quarter and provide a few business updates before turning the call over to Kevin starting on slide five today, we reported a $191 million in total revenue of $133 million in total adjusted EBITDA and 37 cents and adjusted fully.

Diluted EPS for the quarter. These.

These results were within the ranges of our expectations.

Furthermore, we are confirming our overall expectations for the full year of 2022 and tightening up our previously communicated ranges as we move to close out the year.

Kevin will go into more detail on the results and guidance later in this call.

In the nucleic acid production or in a P business, we saw a revenue decline in COVID-19 related clean cap revenue in the quarter of 4% versus Q3 of 2021.

In the base in AAP business revenue was down 6% year over year against a strong third quarter 2021 comparison in which we had a large non COVID-19 order from a customer in running a clinical trial.

Our biologic safety testing business continues to see headwinds from the business in China and was down 1% from quarter three last year.

Our adjusted free cash flow in the quarter was $119 million. This strong cash flow generation leaves us with an all time record cash balance of $617 million.

End of quarter three.

$67 million from quarter, two which puts us in a great position to fund our long term strategy via organic investments in our own capabilities.

While we continue to actively pursue external M&A.

We see multiple potential strategic opportunities in our space, where we are working to deploy some of this cash.

On slide six you'll see our results on a nine month basis.

Revenue for the first three quarters of the year was $678 million up 19% compared to the prior year similar period.

Excluding COVID-19 clean cap revenue our base nucleic acid production business was up 21% and our biologics safety testing business was up 4%.

Our top line growth resulted in adjusted EBITDA of $508 million for the nine month period, which represents a 75% adjusted EBITDA margin.

As we enter the final quarter of the year, we feel extremely well positioned to build on our strong commercial foundation expand our existing customer relationships and to amplify our product and services offerings to support our customers.

On that theme, let's turn to slide seven.

During the quarter, we announced the first commercially available GMP grade in one muffle pseudo you redeem five prime triphosphate, a critical raw material for mrna manufacturing.

New product extension Leverages, our existing quality systems, and GMP capabilities, including clean room manufacturing expanded analytical testing and process verification.

The demand for messenger RNA modified within one metal pseudo U as we call. It has risen significantly in the past several years due to its incorporation in both currently approved mrna vaccines against COVID-19.

And one muscle pseudo you as a key raw material for the majority of the mrna therapeutics in development today.

It is our most requested modified NTP in mrna manufacturing.

Our GMP grade in one muscle pseudo you allows us to address our customers' needs to domestically source critical materials and we were pleased to add this GMP grade molecule to our existing offering of chemical capping reagents and other mrna components. We see this is the first of many GMP grade reagents.

Come from our new product development pipeline.

This product is now available as both a GMP raw material and can also be incorporated into GMP mrna manufacturing campaigns.

These types of new products should continue to bring value to our customers and help improve the quality of manufactured mrna for years to come.

We remain focused on our base nucleic acid production business as the key driver of long term value creation as we continue to expect innovative mrna customer growth in both products and services.

To illustrate the traction we see from both a product and services standpoint, let me share some evidence of ongoing customer adoption on slide eight.

Demand for clean cap mrna continues to accelerate in all areas clean cap readjust themselves GMP manufacturing services and custom mrna construct.

One year ago in the third quarter of 2021, we had 170 clean cap reagent customers on a rolling 18 month basis as.

As we close the third quarter of this year that number is now 273 customers up 61%.

These are customers that were clean cap as a standalone reagent, we ship it to them or their preferred contract manufacturer and they use our capping analogs in their own mrna manufacturing process.

This can be for research and discovery activities preclinical development and with our GMP offering clinical manufacturing of mrna.

We also track our clean cap mrna discovery customers. These are customers at the very earliest stages of their programs, who look to trialing to manufacture mrna on their behalf using clean cap as theyre capping method.

There are activities are mostly for early research and discovery, including assay development target identification and in vitro cell models.

This group of customers has grown from 464 last year to over 600 customers today, that's up 29%.

And among these early customers as they continue through their discovery work, we expect many will mature into the mrna GMP services business, where they would take several of their top candidates and upgrade them to our GMP manufacturing processes, which includes process development to larger scale manufacturing phase.

Appropriate method development and validation.

And collecting documentation that would support an IND filing.

These GMP messenger RNA customers have grown from 53 to 68 over the last year up 28%.

As these customers progress through our GMP services with their preclinical and early clinical phase work. We also want to support them through phase II and beyond which is why we are building the new Flanders facility.

Now, let's turn to slide nine for an update on those facility expansion plans.

As we announced in 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 facility here in San Diego. This is part of the government's goal of nationwide pandemic readiness for COVID-19.

And beyond.

We successfully passed the BARDA audit and have commenced billing for reimbursement under a grant for the Flanders construction, we expect to receive our first reimbursement check later this month.

Before I undersized construction is progressing and we expect to have partial occupancy for phase one of the project in early first quarter 2023, and phase two occupancy later in the first half of 2023.

As a reminder, the first phase will provide us with an additional GMP manufacturing suite with two clean rooms by moving some of our operations to the new Flanders site from water rich, we will be able to expand the rest of our small molecule platform and edge E&P API manufacturing capacity this will.

Allow us to support our customers through phase two and beyond.

Likewise, the biologic safety testing relocation to a new facility in Leland North Carolina is progressing nicely towards a move indeed over the holiday break at the end of this year.

This new facility more than doubles, our operational square footage to support current and future growth.

Amazingly rewarding and we're very proud of the role that we've continued to play in helping to address the pandemic.

With about two thirds of our revenue coming from the use of clean cap in COVID-19 vaccines in 2022.

A central issue in many of our discussions with investors has been the durability of our COVID-19 related clean cap revenues into 2023 and beyond.

The vaccine space clearly remains in substantial flux and there are still a number of uncertainties around end user demand for these vaccines.

The uptake for the new Bivalent booster vaccines has frankly not been great with only 19 million people in the U S receiving the new booster dose as of October 19th.

As we discussed last quarter, we were estimating then the COVID-19 related vaccine production would likely drop by one half to two thirds from 20 twenty-two levels.

That led us to anticipate the 20 twenty-three COVID-19 revenues would drop proportionally for us to a range of 200 million to $300 million in 2023.

Looking back to the end of last year as we were heading into 20 twenty-two we had excellent visibility into demand from our major customers with whom we had both binding commitments and long range forecasts in place today.

Today as we head into 2023, we're not in the same position since we do not have those commitments or long range forecasts from our major customers in hand. Additionally.

Additionally, based on the slow uptake of the new boosters. We believe it is likely that our customers have raw materials on hand, as they start the year, which will negatively impact our revenue in 2023, particularly early in the year as those customers work down any existing raw materials.

As a result, we now believe that clean cab COVID-19 revenue for <unk> for <unk> and 20 twenty-three could be half of what we most recently anticipated our current estimate for Covid related clean cap revenues is about $100 million in 2023 with a limited shipments in the first half.

Half of 2023.

Internally. We are also planning around that 100 million dollar annual run rate is a reasonable assumption for COVID-19 related clean cap revenue in 2024 and beyond and.

My closing remarks, I'll try to touch more on future guidance.

Now turning to slide 11, or biologic safety testing business.

Our products and services in this business support high growth markets, and sullen gene therapy vaccines, and biologics by providing process related and impurity analytics, along with offering innovative viral clearance predictions solutions that help our customers ensure the safety of their biopharmaceutical products.

We continue to innovate and scale, our offerings and B S. T to ensure superior technical support to offer the highest quality services and products and the most comprehensive catalog of products to meet customers needs. We anticipate launching are pivotal retrovirus mark fee kit later this year.

Further building on the breath of our product offerings, the Mark the technology addresses unmeant opportunity for growth and viral impurity to detection.

Now, let me finish with a topic that maybe on some of your mines and that concerns or disagreement with danner her regarding tray Martin joining <unk> as our CEO .

Following are hiring a tray tanner her filed the lawsuit against Trey <unk>, claiming a violation of a non competition agreement and sought a temporary restraining order, which was granted precluding tray from working for Morvai pending a preliminary injunction hearing expected to occur.

Within the next month or so.

We are mounting a complete and vigorous defense against the suit.

Public policy in California portray as resident and Moreover has its headquarters has recognize the unjust impact of similar contractual restrictions that are intended to limit the mobility of former employees.

We are disappointed the danaher has taken this action to try to limit tray and advancing his career.

We remain confident trait is the right choice to leave <unk> through our next phase of growth.

While we can't speculate on the full range of possible outcomes here. One possibility is the trade will be reinstated as our C. E O. Following the preliminary injunction hearing later this year.

Another possibility is that he may somehow be limited in roles that he could play with more of I for up to a year as he completes any remaining post employment obligations that the court may find he has to his former employer in the meantime, I'm quite happy to step back into the C E O.

<unk> as you can see.

I feel we've been as transparent as we can with you on this matter right now and I would ask for your understanding as we won't be taking any further questions on this legal matter unless we have something material to announce in the future.

Alright, now moving on to Slide 12, all now ask Kevin cover more details on our third quarter performance and update our guidance for the balance of the year Kevin.

Thank you call good afternoon, everyone and happy with you our financial results for the third quarter answers that slight updates to our current guidance for the full year of 2022 <unk>.

Starting on slide 13.

Be getting with the gap numbers are GAAP net income before Noncontrolling interests was 100 million for the third quarter of 2022. This compares to 132 million for the third quarter of 2021.

Note that certain prior amounts were adjusted for the lease accounting standards change required under S. S. C 842.

Income from operations was 117 million in the quarter for an operating margin of 61 per cent.

R&D spend in the quarter was over $5 million, which compared to about $2 million from Q3 2021, as we continue to increase our R&D spend and focus on both on work around our clean cat franchise as well as other novel innovations.

Moving to slide 14.

Adjusted EBITDA of non-GAAP measure was 133 million for two 320 22 compared to 155 million for Q3 2021 or.

Barnett adjustments from gap EBITDA to adjusted EBITDA continued to be small only adding less than 6% from our gap EBITDA for the quarter. The vast majority tied to the non-cash stock based compensation add back.

Our adjusted EBITDA margin was 69% in Q3, 2022, a little better than our expectations for the quarter based on slightly better gross margins and favorable SG&A expenses.

Not to slide 15.

Three per cent basic EPS diluted EPS and adjusted fully diluted EPS basically P. S. As a gap measure its net income attributed truck class a shares divided by the way did have a class a shares diluted EPS also a cap measure starts with basic a P S and to the extent that they assume conversion of class B shares another eck.

The awards dilutive then net income and waited epic shows outstanding using the calculation will be adjusted to reflect that due to the fact of the conversion.

The dilute it affects a class b shares in other equity awards were negligible in Q3 2022.

Lastly, the simplest and most compatible metric of focus for US is adjusted fully diluted EPS, a non-GAAP measure, which equals adjusted net income divided by the weighted average of both class and B shares in other does it a securities.

Our basic EPS for the third quarter was 34 cents diluted EPS was 34 cents and adjusted fully <unk>, yes. It was 37 cents per share.

Our bottom line for the quarter was a bit ahead of our expectations from the higher margins in the quarter as well as lower interest attacks expense with both benefited from some advanced interest rate in tax planning tactics.

Moving to slide 16.

And if your balance sheet items and other financial metric highlights.

As Karl noted we ended the quarter on a record gross cash position was $617 million in cash and $540 million. A longterm that are strong EBITDA performance led to robust adjusted free cash flow for the quarter of $119 million that calculation of adjusted free cash flow and non-GAAP measure is based on our adjusted EBITDA.

$133 million less capital expenditures and a quarter of $14 million.

We defined capital expenditures as purchases of property equipment, which are included in cash flows from best activities accounts payable adequate expenses offset by government funding recognized and to the extent construction cost determined to be lesser improvements recorded is prepaid payments, including portions include in accounts receivable Ana could expenses also.

So upset by government funding recognized.

Capital expenditures in the quarter was consistent with our expectations, reflecting are focused investment in our facilities capacity expansion that Carl had touched on earlier.

We continue to expect our net capex as I, just find it to be between $50 million $55 million for the full year of 2022, which reflects about $28 million or anticipated offsets from the department of defense pursuant to the collaboration agreement we have with that.

Now this total about two thirds will be classified as long term other assets and the remainder is traditional fixed assets.

The remainder of our 39 million dollar current grant will likely offset capex in early 2023, as we complete the Flanders facility.

Now sitting on over $600 million in cash is a great position for <unk>.

Furthermore, as I briefly touch on our advanced planning results.

Having an interest rate cap contract, which affects the caps are cash based interest rate at six and a half per cent.

Overall, we're in a very strong position to lean into the M&A space over the remainder of 2022 and into 2023. We're currently actively evaluating multiple potential deals lastly, as I mentioned last quarter, we have structured mara by in the vast majority of our contracts and treasury operations predominantly in the U S dollars and dust or not facing any material for.

In exchange impact in 2022.

Now to provide some more insights into the business segment financial performance for the quarter, let's turn to slide 17.

I don't know Claik acid production business represented 91% of our total revenue in the quarter and generated $134 million and adjusted EBITDA, a 77% adjusted EBITDA margin.

Clean cap revenues from our major COVID-19 vaccine customers, where approximately $127 million in the third quarter of 2022 <unk>.

This compares to $131 million in Q3 of 2021.

Our base nucleic acid production business, excluding clean pappa revenue from a major COVID-19 vaccine customers was down from Q3 2021 as our prior year had a large non COVID-19 relate to order to one of our customers to support numerous up there nonpublic related programs.

Our biologic safety testing business contributed nine per cent of the company's revenue in the third quarter and continues to be impacted by the ongoing pandemic lockdowns in China, and our ongoing decision not to ship into Russia.

Or sickness branded products, which comprise virtually all of the segments business, we're down $1 million in the quarter or biologic safety testing business and delivered 13 million of adjusted EBITDA in the quarter, a 79 per cent EBITDA margin.

Corporate expenses that are not included in the segment, just EBITDA totals or 14 million in the quarter up from the Q3 2021 levels of $10 million, mainly due to investments in key personnel and systems to drive and support growth as well as the additional investments in key leadership positions for both R&D and our commercial areas.

We continue to be pleased with our ability to track Quito for all levels of <unk> and at the end of September we had a record 600 for fulltime employees up 50 employees from June .

We continued at key talent to support our customers and our long term plans.

Now moving to slide 18 [noise].

Our site updates and tightening of our 2022 financial guidance ranges. We now expect revenues of 880 million to $890 million for the current year, including are updated estimate for around 600 million $605 million revenues associate with clean calculated COVID-19 vaccine demand.

Small movement in the mid point of the revenue range of $10 million or about 1% is tied to the combination of lower COVID-19 related revenues in 2022, and the lower expectations for a biologic safety testing business with a year.

This update and guidance implies a mid point for our base non COVID-19 clean cat business of about $282 million or growth of approximately 70, 217% from comparable 2021 levels. This space based growth includes about three to five per cent growth for a biologic safety testing segment.

And about 35 per cent to 40 per cent growth in the base nucleic acid production segment.

We are tightening our full year 2022, EBITDA guidance and non-GAAP measure to the range of 650 million to $660 million compared to our previous guidance range of $640 million to $660 million, increasing the mid point by $5 million.

Based on this.

Updated adjusted EBITDA guidance adjusted fully diluted EPS of non-GAAP measure is now updated to arrange $1.76 to $1.80 per share compared to our prior guidance of $1.70 $2 per share increasing the mid point by three cents per share.

Now obviously with nine months completes our updated for your 20 twenty-two guidance less are reported nine months results provides basically our expectations for the current fourthquarter.

To save analysts on the call the stress of making rapid calculations, probably got Q&A, let me lay that mess out free all of the approximate mid points.

For the fourth quarter, we expect total revenues of approximately $207 million COVID-19 related clean cap revenue of about $127 million based business revenue of about $80 million, which would represent growth of 65% over Q4 of 2021, adjusted EBITDA of around $147 million.

Which would be a margin of 71% and adjusted EPS of about 33 cents.

Now on slide 19, you'll see other guidance assumptions for the full year of 2022.

[noise] adjusted fully diluted EPS is based on the assumption that all class fees are converted to class a shares which results in a fully forecasted diluted checkout estimate of 255 million to 256 million for the full year of 2022. Additionally.

Additionally are adjusted fully diluted EPS include certain adjustments that do not reflect our cooperation and they're based on I adjusted effective tax rate of around 24%.

As it relates to the other adjustments needed to get to our non-GAAP adjusted EBITDA range Rx expectations for 2022 include interest expense between $21 million and $23 million depreciation and amortization of 30 million to $32 million equity based compensation, which we chose the reconciling item to be about 17 million to $19 million.

And as stated earlier, we expect our net capital expenditures to be about $50 million 55 million. The vast majority tied to our new facility expansion.

A reconciliation of net income to gape EBITDA in from gap EBITDA to adjusted EBITDA is presented in our press release and at the end of this slide presentation. In addition, our segment related information will be detailed in our Form 10-Q, which he planned to file in the next couple of days.

So to conclude we continue to execute financially in line with our expectations and against the 2022 guidance that way initially set for 2022 revenues of 840 million to $880 million back in November of 2021.

There's certainly been a lot made of the pre COVID-19 COVID-19 pandemic phase and <unk> <unk>.

Covid pandemic face for companies like marble.

Although the future impact of Covid related demand is still unclear to all remain in a great position for the long term.

I recently look back to some of our financial models from two 2018, and we sit here with the biologic safety testing business that is right about where we projected it to be and the nucleic acid base business, well ahead of where we projected it to be.

Additionally, we are $700 million ahead of our cash projections and have substantially more capabilities and infrastructure today for a longterm growth and success.

Not only is more of a much larger more profitable and stronger businessman anticipated years ago, but the success of mrna has to attract at a level of market wide interest and investment much larger and broader than we believed it could be at the end of 22 of them.

Global conflicts and uncertainties and rising inflation and interest rates are all macro factors that impact all of us all and life Sciences.

We recognize these factors that make decisions understanding the broader markets. However, we also keep a steadfast conviction and our vision or strategy and remained focused on the long game. We are in a great position to move meaningfully forward and will continue to lean in and invest in those people processes facilities and systems as well as as.

That's the best position us for our long term success.

Thank you for your time today now I'm Gonna turn the call back over to Carl for some final remarks on July 20th.

Alright, well, thanks, Kevin and short summary, we have delivered a solid 20th 22, thus far and look forward to ending the year in line with our stated expectations and quite possibly detailing more about our M&A activities for Ya.

Before we wrap up our prepared remarks I want a further discuss our current outlook with.

With a lowered expectations for Covid revenues in 2023, and our discussions around the level of Covid related revenues that we now estimate for our own business planning purposes, we felt it important to provide some additional details around how we see things moving forward.

Our basement clear gossip business continues to perform well as you would expect in this environment. We see continued strong growth in that business based on our capabilities customer interest and market momentum.

We also see our biologic safety testing business resuming broader market growth levels in 2023.

Based on this and the work we are doing for our annual budget and long term planning process. We believe are based business will deliver revenue growth of at least 20% for the company in 2023.

We see the bat in combination with our estimated 100 million in Covid related clean cap revenues, resulting in an adjusted EBITDA margin range of 40% to 50% next year.

We will be completing our planning activities in the coming months and we'll look forward to providing our detailed 2023 guidance as well as our longterm growth and profitability targets as part of our <unk> 2022 earnings call in February .

Until that time, we risk focuses ever on execution and our business for customers, providing our employees would be great work environment and career development opportunities.

And making decisions that we wholeheartedly believe will create longterm shareholder value I'd now like to turn the call back over to <unk> to open the line for your questions Doug.

Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad.

A confirmation tunnel indicate your line is any question Q.

You May press Star two if you would like to remove your question from the Q.

Four participants using speaker equipment, it may be necessary to pick up your handset before pressing the Starr king.

Our first question comes from the line of Chaos Savant with Morgan Stanley . Please proceed with your question.

Hey, guys I'm. Good evening, so maybe just two K click softball can you just elaborate on how much of the 120 $530 million and <unk> and the third and fourth quarter was related to take or pay revenue is that a dynamic that we should be keeping in mind as we think about.

You know the margin headwinds Uhm, you know, particularly in in twenty-three I know, you'll need out that 40% to 50% <unk> an estimate out there, but just trying to make sense of the of the moving pieces here the regular decline in COVID-19 versus any take or pay dynamics that we should be keeping in mind.

Yeah <unk> good to hear from you I think the the right way to answer the question as to tell you that in general. Unlike some of the other sort of people who are participants and the C. D. M O market place, we don't subtle contracts without shipping products. So I would say in general what you see.

See in our margin numbers or our forecast is largely product being shipped.

Got it Okay. That's helpful. And then you know we heard from a couple of C. D. M O as earlier this week just round elevated cancellations uhm not <unk> no cancellations, but a slowdown in drug pipeline progressed uhm. So just curious as to whether you're seeing any of this.

I make start to play out in your customer base at all.

No we really haven't seen it in the memo or in a services side of the business day or just.

Got it okay right now.

And then on the on the new product launch your what the G. M. P grade N. One <unk> P. U I believe you call said cough made of a tongue twister [laughter].

I said pseudo you I wouldn't I'm not sure <unk>.

[laughter] okay.

[laughter] so it it it sounds like a pretty interesting product here and pretty differentiated in terms of the context, I'll say I'm already a manufacturing would you sort of like be in a position to put any dollar amounts in terms of the Samuel or a few well and how you'll see that opportunity ramping in the near term or does it just really sore.

Another you know arrow and you are equivalent.

<unk> I don't think we should give you Sam data right now we're certainly not in a position to give you got in specific.

Specific guidance on 2023, just yet, but I would tell you that we think this is representative of the trend in the industry, which is more and more big pharma become involved I think we've discussed with some previous calls we become involved in the M. R and a few of their expectations and demands and turn.

The quality of the inputs with a utilized are increasing and in some cases, increasing increasing rapidly. So we think this was a good exemplar of what might happen in the future and being first to be able to offer those in various products is going to be important to us.

Very helpful. Thank you guys.

Thank you.

Our next question comes from the line of John Salvia with UBS. Please proceed with your question.

Alright, thanks for taking the question. So if you had mentioned in your prepared remarks, some increased raw materials on hand, with Covid customers, maybe somebody stuck in there I guess.

Do you see that also on your your base and a T and is that a factor going into the the lower growth trajectory next year.

No <unk> I don't really think it is you know this would be specific to the COVID-19 vaccine area, where there was a high premium put by our customers on being prepared for the worst case. It certainly doesn't apply generally to other room already therapeutics.

And remember those are much earlier in their development. So it's all like any of these products are you being commercialized and people are approaching it from a cost savings point of view, they're trying to just go as fast as they can.

Got it and I guess, it's been on that that growth trajectory next year I guess too. Many you know elaborate on some of the drivers. There you know if you are over here and then you know that the company does have meaningful capacity coming online maybe just any color on it you know how some of these projects are maturing and how you can fill.

Some of that capacity.

Okay do you want to take a shot.

[noise] Yeah, certainly you know you know look I think that we're we're really pleased with the what we're seeing the feedback we're getting from our customers and we certainly <unk> tough dot touched on the G. M P and one metal C. D. U just to give you. Some context I mean, we've had over 150 customers ordering that product over the past three years on and are you a <unk>.

<unk> so part of it is going to be conversion and the related pricing increase that comes with that conversion I'm already seeing P. As in supply green signing up for the G. M. P version. So that's just a great example is kroll said earlier of how our new capabilities and the increase in quality and the focus on quality is helps drive some of that growth when you're kind of breakdown as we've talked about in the past you know a very.

Various things going on with the nucleic acid production you have that that.

All of the synthesis inputs like M. T P. As we talked about yet the plasmid market you have clean cap as a standalone product you had the mrna services with clean cap is a C. D. M O and then other all it goes and kind of base things like we have with our Glenn research, they're all have different growth rates, but we continue to be very excited sort about each of those lines, but as you break it down really.

Those all of those synthesis and puts as well is that M. R and a C. D. M. O business is really we're seeing a lot of the interest today and those are the higher to growth both lines within that portfolio.

Okay.

That's what's on my hand apologize if I missed it did you say how much of the $100 billion in 2000 twenty-three COVID-19 clean cap is already booked for next year.

We do not know.

Would you comment on that.

We're not gonna get into that right at this stage I mean, right now we have a lot of conversations with our customers just because of a lot of different demand and we have a lot of different customers within that group and they all have different dynamics, that's a little bit hard to generalize at this point.

Withdrawn I would I would say that our experience is probably not very much different from a number of other peers and the space where the prior visibility that we all had going into 22.

Related to Covid demand as much reduced this you're going into twenty-three.

Got it thanks for taking the questions Yeah, you bet.

Our next question comes from the line of Paul Night with Keybanc. Please proceed with your question.

Hi, Carl D Q for guidance on a non Coleman implies.

A pretty significant year over year jump on Q4 could you talk about the dynamics behind that and then.

The other is when you talk to 2023, you're mentioning low 20th Grove I think you were in kind of in the 30% area last call could you talk to that as well.

Well, let me ask Kevin to comment on those and all all for one.

Yeah sure Yeah pause I've talked about before specifically to queue for.

Throw a couple of dynamics there some of that as a standalone clean cap or non COVID-19 related programs and we've seen that spike up and down you know last year, we saw it at a high number in Q3 of 21 it'll be at a hired on the queue for just based upon our customers demand for uhm clean cap or non COVID-19 specific programs. We also have a nice pipeline.

A C D M O type of mrna services in the fourth quarter, and that's really Gonna drive drive that number.

You know as it relates to looking forward you know I know, we've talked about some general market trends and what we've seen historically not getting into specific twenty-three guidance, but just looking kind of how we see a longterm growth rates in sort of a baseline for next year again, I think we feel real good about the business, we feel real good the growth rates when you look.

At the base business and I think we're just entering it with what we think is going to be something we can achieve across the business lines. You know we have some components. When you look at some of the some of some of the lines of the business that you know are just certainly lower grower components of the business, but when you really look at the the key drivers what we're building into.

Two and what we see as long term demand drivers and I'll go synthesis inputs and mrna clean cap services for highly modify that <unk>. Those are at those higher growth rates, which are consistent with the market trends and then you'll layer on top of that some of the conversions for quality and other things. That's the part that's growing at that 30% to 35% some of the rest of the businesses as.

Growling at lower rates and that blended average is getting closer to a 20 per cent baseline that we'd like to throw out there for next year.

Okay. Thanks.

Our next question comes from the line of sight with Goldman Sachs. Please proceed with your question.

Hi, This is <unk>. Thanks for taking our questions first on your capital allocation strategy are there any specific areas of interest or a potential gotcha looking to fail and also could you give us an update on what the landscape looks like at this point.

Well generally I think our our view here is that there are other pieces to the puzzle of the our customers are looking for and we try as much as we can to focus in on those areas whether they'd be other components are used to manufacturer mrna or <unk>.

Perhaps other nucleic acid based products and other ways of delivering those those products. So reasonably I think you'd like us to be hanging around the vertical we've always been interested in that physicians around the biologic safety testing business, but unfortunately, there are not many of those.

But her logical strategic because it was special always made sure of those products and then I think in terms of current environment, It's getting better I would say that it has been for the last six months. So I think people are coming to grips with current valuations, maybe not fully but more so than they were at least initially.

Use the word approaching occurred and I think we do see a large number of opportunities.

That are relevant off and based on what address that we're pursuing so improving but not there yet.

Great. Thank you that's helpful and then recognizing biologic safety testing list negatively impacted by China.

Thousand that also Russia are there any updates and you can provide for the dogs are yeah I just see these dynamics specialist.

No because I think there are there are kind of spotty you as it concerns China and it's just the luck of the draw. So you'll have large customers through a distribution channel there who happened to be in cities that <unk> <unk>.

Effective multiple times the suffer the the difficulties of it so I would say that there's not much else. There we continue to maintain but our decision on the exiting the Russian market was appropriate and feel comfortable with that.

Okay. Thank you.

Thank you.

Our next question comes from the line of Matelot room with William Blair. Please proceed with your question.

Hi, This is Madeleine moment <unk> click on the raw materials I know you mentioned that you thought it would impact the first half of the year have you heard anything of Covid customers about how much inventory they have like how much higher it might be above normal levels anything like that.

No <unk> I guess the reason, there's nobody knows what normal was right [laughter] just been going on for two years. So that's a hard one to depend on but no. We don't have real good visibility onto the customers individual inventory situation and how they view, we're just reflecting the fact that absence specific seals fork.

We don't want to kind of stick our finger up in the wind and make it <unk>.

Got it that makes sense.

And then looking at the nine Covid mrna.

Therapeutic pipeline is are there any candidates at U C E becoming tireless in the next couple of years and can you talk a little bit about how the dynamics.

Change is therapeutic moves through the clinic.

Well you know that's an interesting thing I mean.

Think people always focus on who are the winters are gonna be which was sort of a natural thing super hard to tell with or if he's like this particularly for those that are directed at rare diseases. Because it's just so difficult to anticipate or run pilot clinical trials until you get to your pivotal trial. So I don't think.

Reconsider our business to be picking the winners we believe widely serving the largest number of participants in the early stages is the best way.

To maximize the probability that we're working with those folks who ultimately do have a game changing application and so we're doing that the the dynamic about what changes over time is there's a greater focus obviously on quality standards and compliance and moving more.

Into a consultative role as we're developing the procedures and effectively you made factory processes that would be used for later stages. So I think the customer expectations of closer collaboration versus a little bit more hands.

Here's my sequence make this for me, which was how I would characterize the early stage later stage becomes more consultative.

Great. Thank you you're.

You're welcome.

Our next question comes from the line of Michael Rice with Bank of America. Please proceed with your question.

Great. Thanks, I'm gonna try to squeeze in a couple really quick ones for them at all.

Your commentary on call within 2023 and beyond.

You're still going to about 100 million per year in 2024, and 2025 and so forth. You know your last diet was mauled to order the 300 million so give anything else likely that's changing and given that you're seeing from other C. D amount by a process players where the essentially sending zero coca by processing pretty quickly.

The rationale to keep it out in the mall isn't that just for the rest of the downsides, So why not skip it out now.

Well, Michael because we don't think Covid demand just kind of go away. That's the bottom line. So we're partnered with the team that has roughly two thirds market sure depending on where you look at it over the Covid market.

Neither they nor we think that market is gonna go to zero, but if you think about it almost 30 state basis, what we're doing is reducing it down to about you know.

Roughly 15%, 18% of what it was at its peak this year. So I think that that's a reasonable assumption if you back into some of Pfizer statements about what they're expected volumes might be an animal as projections, there I think it triangulates pretty nicely on that or.

Not aware that any body how's that going to zero.

Okay, and then on the EBITDA margins for next year 40 to 50 per cent again I appreciate your comment on investing in a business.

Setting the company I'll provide for for the long term, but that's still on the lower end instead of our assumptions, even if you adjust for the lower.

<unk> contribution, especially if you'll be about the business of doing a 2019 and four years later I just got a lot more bang. There. So can you walk us through the bridge there from your EBITDA margin. This year coming in 70 per cent range. The 40 to 50 next door has a pretty big.

<unk> sat down.

Kevin would you like to pick up yeah, I mean look I think certainly you know the the Covid related clean cap is a is a big driver of that certainly I mean that is a high margin products for us. So you know you you complement that with a handful of things and again you know.

Our investments that we're making are are really looking out multiple years here. We're just happened to be seeing 23 is it you know a transitional year, where you have that that decline of high margin clean cap revenue contribution in the same period as you're bringing online three new facilities and continuing to ask.

Spanned your internal organic R&D engine as well as your commercial engine for the longterm. So.

So those things just come together all in the same year and lead you at the lower end of that EBITDA range, but again.

Again, we're not managing the business for next quarter's EBITDA read the next year's EBITDA, specifically Uhm you know, we're putting in the things that we feel need to be in place that need to be in place as soon as possible you know take advantage of the opportunity we see over the next three 510 years Uhm with where we're playing so you know I'm I'm very happy with the investments, we're making and how it.

Setting us up for the long term success, certainly because of those confluence of influence of factors that I. Just spoke of you know the margins are gonna be lower next year, and we hope to bring that up as we drove and as we grew up with the transitional ear. The 2023 is going to represent.

Yeah, Michael I've got out on that one too.

If you step back and look at it and you're thinking about a pure life Sciences company and sort of cutting edge <unk> part of a field that's growing the base business 20 per cent of our brand or as we indicated and delivering margins above 40% on the EBITDA line is a pretty compelling.

<unk>, both investment opportunity in a pretty compelling business for us to run so admittedly.

Admittedly this year is really severe next your what's pretty darn good.

Okay, and if I can squeeze in one one last of one on one with a non.

Non COVID-19 nucleic acid piece, you know you touched on three G 21 had that 12 compare.

She called out at the time, but so if you just look at this year on a dollar basis wants you to do for you.

The revenues for non <unk> and did I should down sequentially. If it wasn't for that cancelled ordering two Q. So it's been sort of what we should be expecting from from just progression over the course of the year cause I think we would have anticipated some sequential lambeth a year when forward so anything to touch on me in terms of timing during the course of the.

A year uhm, how they should try and.

Yeah, no. It's it's really one of those things that doesn't just step nicely every quarter for.

For various reasons like I settled sometimes you get bulk orders just for clean caps, sometimes we have multiple jobs getting wrapped up in getting billed out as they relate to our C. D. M. O business. So we just haven't got to the point, where we have a quarterly rhythm just because of the you know we're just haven't got enough customers progressing into those later phases.

That it smooths it out so you know we had at a.

Very strong two three last year it stepped down in queue for this year, it's going to step up in queue for it and just the nature of the business Yeah, I think I was having.

<unk> smoothed out a little bit, but that's just the nature of what we're seeing right now.

Yeah, it's a little bit noisy and that's a law of the smaller numbers, probably as much as anything else.

Alright, I appreciate that thanks a lot.

Alright, thank you.

Do we have anyone else in queue.

Yes, we do our next one comes from the line of Dan Harris What Stifel. Please proceed with your question.

<unk>.

Take our off just I wanted to ask a couple of quick ones here just thinking about some of the the out your drivers that you have working for you to your point prior one of the things that came out of that analysts say that you did or the R&D day.

What is that there are things in the pipeline that you use a lot more clean cap actually substantially more in some cases.

Do you think the twenty-three the year would that might start to matter.

Or do we need to just get further down the development pipeline process in order to really kind of move the needle there.

Yeah, that's that's a thoughtful question.

I would say I agree with Kevin I'm, a characterization of 23 is a transitional year I don't think you're gonna see many if any of those therapeutic compounds, which is what you're alluding to their get clearance and commercial traction right away. So I think those are.

More longer term drivers of demand, but certainly there's a lot of people doing it as you can see from our customer account numbers and each of the various segments. If you will they're all increasing robustly.

Okay helpful. And then just maybe the last quick one when it when it comes to Pfizer and the vaccine forecast do you get that forecast ahead of the guidance for the year or do you find out about it basically when we do when they get on their call for investors I'm just generally.

[laughter] Yeah. It was requested let's just say that we do pay very close with coach when Pfizer So something two days before our earnings call was a clear enough yeah.

Yeah fair enough.

Alright, Thanks for all your <unk>.

Our next question comes from the line of Dan Leonard with Credit Suisse. Please proceed with your question.

Hey, there thanks.

Carl.

I have two so previously Carl you gave a 2 billion dose number is the backbone for your 2023.

Clean cat forecast.

What's the new dose number you're assuming behind the 100 million dollar for a debit COVID-19.

I basically divided by two since we're talking about moving from 200 million or no low end down to $100 million. So I think it's it's that degree there may be some inefficiencies the mood cause it can be a little bit higher but I think that's overall generally a good us.

Okay. Thank you and then my follow up just can you comment at all on margins in one in one age versus two H in 2023.

No. We we haven't got into the appointment with our guidance yet. So I think that's a stay tuned for the end of the vehicle.

Okay. Thank you.

Thank you alright.

They'll give you anything else.

We have one last one from Brandon Collier whichever easily.

[noise] hey, thanks for a great many answers that housekeeping one from Kevin.

The large customer orders it didn't work her and then App segment from three two last year could you just side that.

Is there another similar headwind on are.

Giving your basis in the fourth quarter.

No actually I had been about a downpour in Q4 of 2021 sequentially. There from the run rates, we've been seeing in that business.

You know in the in the fourth quarter. So you know it was it was in more than $10 million specific order that came through from our customer again related to non COVID-19 demand. We see we don't we saw that in the third quarter of 2021 and will have some like even though slightly different custer.

This time around in the fourth quarter driving some clean cap stand alone demand in the fourth quarter of this year, that's already locked in in the fourth quarter 2022, and some continue to get momentum on our mrna services business that will result in that that strong Q4 finished 2022 and the non COVID-19 business.

Okay, Thanks, and the last one Carl.

Carl is it safe to say based on your comments that the C. E O transition being influx won't diminish your appetite or willingness to act when it comes to target assets and you'd like to proceed.

Oh, absolutely not we're we're fully engaged in the same things that we were looking at a month ago and our appetite for those deals remains as robust as oppose it was the first time around but another way of saying, we're not gonna let ourselves get distracted.

Thank you.

Alright, Thank you and Doug I think we can turn it back over to them now.

Yes, I'd like to hand, it back to Deborah heart for closing remarks.

Thanks, Bye again, we Wanna. Thank you all for joining a call today I will be participating in a couple of financial conflict with this quarter. So you can find out more details about that from our website.

Feel free to call me with any additional questions and we hope you all have a great evening. Thank you.

Alright, Alright, you can <unk>.

Today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.