Q4 2022 Maravai LifeSciences Holdings Inc Earnings Call
Greetings and welcome to the fourth quarter and year end 2022, Morvai Life Sciences 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. Please note that this conference is being recorded I will now turn the conference over to our host Deborah Hart head of Investor Relations. Thank you you may begin.
Thank you Diego and good afternoon, everyone. Thanks for joining us for our fourth quarter and year end 2022 earnings call. Our press release and the slides that accompany today's call are posted on.
On our website and are available at investors got Mora by Dot com.
As you can see on our agenda for today on slide two Karl will first provide you with a business update and Kevin will review, our financial results and guidance trademark president of Biologics safety testing and Becky <unk>, our chief commercial officer will join the call I had a question and answer session. Following the prepared remarks.
We remind you management will make forward looking statements and refer to GAAP and non-GAAP financial measures. During today's call. It is possible that actual results could differ from management's expectations. We refer you to slide three for more detail on forward looking statements and our use of non-GAAP financial measures.
Our just issued press release provides reconciliations to the most directly comparable GAAP measures. Please also refer to Moralize SEC filings for additional information on the risks and uncertainties that may impact our operating results performance and financial condition.
Now I'll 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's start with our fourth quarter results on slide five.
Today, we reported $205 million in revenues for the quarter and our adjusted EBITDA of $130 million led to adjusted earnings per share of 35 cents per share.
Our base business revenue of $81 million marks a record revenue quarter up 67% over the fourth quarter of 2021, demonstrating the continued widespread uptake of messenger RNA platform technologies across multiple therapeutic infectious disease vaccine.
<unk> and immuno oncology programs.
Our adjusted EPS of <unk> 35 per share for the quarter and that's all.
<unk> 80 per share for the full year put us at the top end of our guidance range provided during last quarter's earnings call.
Slide six indicates 2022 was an incredible year for the entire business.
Full year revenue was a record $883 million.
And net income was $491 million with adjusted EBITDA margins coming in at 72%.
Most importantly, our 2022 full year base business revenue.
Adjusted for the 2021 divestiture of our protein detection business.
Grew 27%.
You'll be hearing from Kevin shortly we expect our base business, excluding clean cap sales related to Covid.
We continue to grow at around 20% this year as well.
The reason this base business continues to deliver its simply the accelerating demand for our core products and services.
We offer the market the exact technologies and advanced manufacturing services that enable so in gene therapy development.
More on that in just a moment.
Turning now to slide seven.
Our nucleic acid production business.
<unk> revenue of $189 million in the fourth quarter.
This includes an estimated $124 million of Covid clean cap revenue.
The remaining $66 million of piece and a P revenue represents our largest quarter ever for the base business up 101% over quarter four of last year.
For the full year total nucleic acid production revenue was $813 million growing 14% over 2021 with the piece and a P revenue at $213 million growing 38%.
We are very encouraged by last year's base business growth and continued to see strong demand for both clean cap reagents, and our messenger RNA GMP manufacturing services and mrna construct.
We have a unique opportunity to drive clean cap inclusion across our early stage messenger RNA customer base.
While providing critical GMP grade raw materials, and our newest technologies, including modified nucleotide and nucleoside tried phosphates to improve in vitro transcription reactions.
Our commercial strategy under Becky Buzzy, whose leadership is to win and discovery with the right price.
New to support the unique needs of our mrna and cell and gene therapy customers during their clinical development programs through to commercialization.
Yeah.
The need for more of those products and services for these early stage programs is greater than ever as we look to 2023 and beyond.
Let's move now to slide eight.
The science behind cell and gene therapies is progressing rapidly to the benefit of patients across diverse health challenges such as cancer and cystic fibrosis.
FTA recently indicated that there are now 1300 active investigational new drug or IND applications for gene therapies alone and over 200 active R&D applications for cell therapies.
According to the alliance for regenerative medicine, and their latest cell and gene therapy industry report.
The C. G T speeds saw investment of over $12 billion in 2022, which is in line with pre pandemic levels.
They also anticipate greater than 250, new clinical trial starts in 2023.
This is incredibly positive news for tomorrow.
Since we supply many of the key raw materials for this rapidly growing market.
And gene therapy, DNA or RNA are delivered into a cell to introduce remove or change the genetic profile of that particular type of cell.
To facilitate this nucleic acid transfer.
Manufactured the DNA plasmid or messenger RNA transcript required.
Or supply clean cap and modified D. N T P reagents and now select enzymes to ensure the production of the most biologically effective RNA molecules.
And cell therapy mrna is often used to directly engineer cells from either the patient or donor, making them more effective at targeting patient specific cancer cells.
In the case of genetically modified cell therapies.
<unk> is actually considered a critical raw material used in the manufacturing process.
As is the case for gene therapy. Moreover, as a world leader in GMP Messenger, R&D production and a top supplier of the necessary reagents, including clean cap and DMT piece for the manufacturer of best in class mrna transcripts.
And gene editing the goal is to remove correct or disrupt sequences of DNA within a faulty genes DNA is inserted deleted modify or replace directly in the genome of the cell of interest the key to successful gene editing is the combination of guide strand RNA.
Messenger RNA that expresses the cast nuclease Mara.
Moreover, manufacturers and suppliers both these critical components at GMP quality levels.
We're also very encouraged at the Fda's center for Biologics evaluation and research or seeber.
<unk> to pilot what they referred to as quote unquote. The next generation of operation work speed aimed specifically at rare diseases.
The idea here is to move new drug applications as rapidly as possible through the regulatory process to expedite the approval novel Therapeutics for rare diseases, where there are often no currently available therapies.
You might imagine many of these programs may well be based upon messenger RNA or other cell and gene therapies.
Turning now to slide nine.
Let me share with you an update from a third party analysis, we commissioned specific to our clean cap programs you.
You may recall that in our earnings call in May we told you that we'd identified 183 preclinical and clinical programs using clean cap containing messenger RNA.
A refresh of that work was recently completed and we have now identified over 250 programs that use clean cap, where more than 70, new programs and a short 10 month period that is a 37% increase.
These programs include preclinical through phase III trials for a variety of different human health conditions.
Now almost three out of four of those identified programs are in the preclinical phase, which is what we view to be the current sweet spot for many of our products and services.
About half of our programs include messenger RNA in vaccines or direct therapeutic applications.
And as the heat map on the right hand side here shows you the top disease target of these programs is cancer followed closely by infectious diseases.
Growth in the <unk> pipeline is seen across multiple modalities as you can see in the ring chart in the lower middle part of the slide and for multiple applications, including cancer vaccines infectious disease vaccines and cell therapies could use messenger RNA.
This reflects the widespread interest to big pharma in messenger RNA platform technologies and foreshadows, what we believe will be sustained future investments in the field.
We were able to gain both market share and share of wallet here through continuous innovation and new product development.
And keep in mind that we are in a truly unique commercial position in this market.
Because of the very large number of Biopharma innovators of all sizes come to US first at the earliest stages of their programs for one or the other of our products or services.
Therefore, our customer pipeline reflects the future contours of the industry.
As you can see from the numbers, we are sharing today that future looks quite bright and.
And there is certainly a good reason the 10 Bucks three is one of my favorite bands.
Now, let's turn to slide 10, and some further exciting developments for more alive.
I'm pleased to let you know that we have acquired alpha.
Our leader in specialty enzyme production as most of you know enzymes are critical to almost every phase of nucleic acid production.
The addition of Alpha times enzyme development and production expertise adds complementary capabilities tomorrow voice product portfolio and allows us to offer our customers even more complete messenger RNA process solutions.
History of successfully collaborating with manufacturers of nucleic acid therapies, and detection platforms and optimizing their products and production processes.
This unique history and position will undoubtedly strengthen our relationships with these customers and further position. Moreover to be their first choice across a wider range of products.
Additionally, alpha designs deep enzyme knowledge and processing intellectual property will extend our own innovation capabilities.
As has been the case with our past acquisitions Alpha zone is led by its co founders, Chris Benoit and Chad Decker and is composed of a well experienced team focus on cutting edge science.
They provide key enzymes for messenger RNA and oligonucleotide synthesis, and we believe this acquisition solidifies our customer experience as a one stop shop of critical inputs for mrna therapeutics.
Also the lines proprietary methods for developing custom enzymes provide a strong technical complement to our core chemistry expertise. We are pleased to welcome Chris and Chad's exceptionally talented team tomorrow volume to help drive our process and manufacturing innovation.
Now turning to slide 11, and our biologics safety testing business.
As you know our products and services and DST support the markets of cell and gene therapy vaccines and biologics drug manufacturing.
Here, we set the global gold standard and wholesale protein and process related impurity analytics.
Along with offering innovative viral clearance predictions solutions that help our customers ensure the safety of their biopharmaceutical products are.
Our fourth quarter revenue of $15 million in DST was down about 3% from last year for the full year, our DST revenue of $70 million grew just over 2% from 2021 levels.
As we have previously discussed the BST business has been negatively affected this year by the initial zero COVID-19 policies in China, as well as a roughly $1 million negative impact from the Russia, Ukraine and war some of that weakness persisted in the fourth quarter as COVID-19 spread.
Widely across China.
Our customers in this segment manufacture a broad range of biopharmaceutical products.
These include monoclonal antibodies and recombinant proteins, both as novel Biologics and Biosimilars and recombinant vaccines, including vaccines to prevent infection infectious disease and treat cancer. We also provide products in support of the development of cell and gene therapy.
And cells.
Turning to slide 12.
I'd like to share further detail on our BST traction and the growing cell and gene therapy market.
[noise] recombinant vaccines, and some cell and gene therapies rely on the manufacturer of various viral doctors produced using recombinant nucleic acid and cell culture technologies.
Darryl vector manufacturing processes require rigorous analytics, including test for process related impurities, such as host cell proteins wholesale DNA purification Leach AIDS growth media additives and enzymes.
Her regulatory requirement viral vectors used as a component of car T cell therapies.
As gene therapies must be produced in certain cell lines purified and then tested for the residual presence of known wholesale proteins.
I'm very pleased that 15 out of the 15 S. P. A and EMA approved car T cell and gene therapies use cygnus wholesale protein Elisa kits for H C. P testing for their commercial product lot release.
Five of these 15 therapies were approved during 2022.
While our BSD business, often fueled somewhat overshadowed simply due to the size and scale the nucleic acid production business.
S. T remains a key priority and a very attractive long term growth opportunity for <unk>.
We plan to scale, our offerings to ensure superior technical support.
I'll offer the highest quality services and products and the most comprehensive catalog of products to meet our customers' needs.
Our new facility in North Carolina will allow us to expand our analytical support and continue to innovate here.
Now moving to slide 13, and some organizational updates.
We will continue to report our revenue in two reporting segments nucleic acid production and biologic safety testing.
However, we have evolved our internal organization to support the different markets and customers. We now serve.
Our new structure will enable us to provide a better differentiated customer experience and help position us for sustainable growth.
Beginning in 2023 and with the acquisition of Alpha Zone, we have aligned our internal businesses as follows.
Within nucleic acid production, we are organized around these three units.
The first is nucleic acid products. The products team is focused on meeting the specific nucleic acid chemistry needs of customers with standalone products from both Glenn and try and link.
Nucleic acid services. The services team is focused on building partnerships with our customers in the market of cell and gene therapy to ensure that we are well positioned to be an extension of their own development teams and serve as an integrated drug product custom development and manufacturing organization.
<unk>.
And the third group is enzymes, which is the new design team their enzyme development and production expertise adds complementary capabilities to our nucleic acid production portfolio and provides a broader range of solutions for our shared customers.
Zane will continue to support and molecular biology innovators to develop and produce enzymes for DNA and RNA molecules genomic medicines and genetic test.
So these are the three groups that now make up the P segment for us are.
Our biologics safety testing segment is comprised of our Cygnus team that supports the quality and regulatory needs customers, developing and producing bio therapeutics, including detection and analytical solutions that improve bioprocess development.
Team is led by train Martin as President and Christine Bullen as Chief operating Officer.
I'm also pleased to let you know that we have launched a new office of science and innovation led by Dr. Kate Broderick, you May recall, Keith joined US last year to lead our nucleic acid production R&D efforts.
We've expanded her responsibilities as chief Innovation officer, and she and her team are tasked with driving the scientific culture throughout Moreover to expand our technological footprint.
In this new role Kate will develop and execute an overarching innovation roadmap and strategy for Marvel that maintains our scientific and technology leadership position.
We will partner closely with the army.
Port and drive new innovations establish development processes and ensure value for our customers.
We have repurposed to make him offices here in San Diego to be a new R&D center of excellence to support these efforts.
At the more of a high level, our shared services will continue to partner closely with each organization and to support their growth optimize processes and leverage resources in order for us to scale.
Turning now to slide 14.
Our path forward is focused on sustainable growth and I'm pleased to let you know that we will be sharing our progress and our second environmental social and governance report.
That will be published before the end of March.
Yes.
Environmental stewardship, social consciousness, and effective governance have been intrinsic to our business strategy and core values since Erik and I founded Morvai 2014.
Along with the safety and quality of our products. We are proud of our ESG advancements to date and are working meticulously to increase transparency and build the infrastructure necessary to improve our results.
A few highlights from the soon to be published report include our first step towards greater transparency and disclosure of environmental data.
We completed our first environmental footprint exercise by calculating our scope, one and scope two greenhouse gas emissions and measuring our waste and water usage at each of our facilities for 2022 and 2021.
To demonstrate our commitment to diversity equity and inclusion I sign the CEO action for diversity and inclusion pledge last summer and we've been taking action to ensure that we have the proper programs training and resources in place to advance D.
And foster a more inclusive culture for.
For example, we launched our first employee resource group women in leadership within it.
We believe gender parity in leadership is necessary for our growth as an organization and I'm very proud to have an executive leadership team that is 50% women.
In 2022, we also enhanced our onboarding process by implementing a new and improved employee orientation program to provide a comprehensive introduction to the many facets of our business, including more than 20 hours training for all new hires.
Our board also adopted a new committee structure and updated their respective charters to improve oversight for sustainable growth on our path forward.
We're committed to being a strong corporate citizen and look forward to keeping you apprised on our journey.
Now turning to slide 15, you saw from our press release that we are introducing our 2023 revenue guidance of $420 million to $460 million.
This includes the assumption of $100 million of COVID-19, clean cap revenue.
And in over 20% growth rate for the base business at the midpoint.
While we anticipate the 2022 was the peak revenue year for Covid clean cap demand, we do expect ongoing clean cap revenue contributions from multiple respiratory viruses for the foreseeable future.
This could include both Standalone COVID-19 vaccine demand or combination respiratory vaccines, given the foundational flexibility of our clean cap product to support multiple customer approaches.
As a final note here on January 26th the FTAA vaccine Advisory panel met and unanimously recommended the use of the latest updated b a four five bi valent COVID-19 shock for both primary and booster vaccines as it moves to.
Simplify the country's vaccination strategy.
Additionally, future plans for annual vaccine composition updates and autumn Winder booster programs were discussed and broadly supported.
We believe that similar to what happens with flu vaccines. The U S will move to a seasonal COVID-19 vaccine campaign, where experts gathered periodically to review data about which COVID-19 virus strains are circulating around the world and propose the stream composition for any updated.
Our vaccines that may be necessary the.
The advantage of mrna here is the public health officials can narrow the window between strain selection and delivery of the newly specified vaccine to approximately 100 days I.
Meanwhile, vaccine manufacturers continue to innovate to create improved vaccines offering better variance coverage that are more durable or can prevent further transmission of the virus. We are involved in many of these development programs.
I'll now ask Kevin to cover our fourth quarter and full year performance, along with more details on our guidance and our model assumptions Kevin.
Thank you Paul and good afternoon.
Our fourth quarter wrapped up an amazing year from <unk> given that Carl has presented the financial highlights already I will briefly cover some more details regarding our financial results for the fourth quarter and full year of 2022.
Before we dive into the details I want to underscore our strong 22 performance in.
In early November of 2021, we've provided our initial views for 2022 revenue expectations setting that range at $840 million to $880 million, our strong fourth quarter resulted in a full year revenue total of $883 million performing in excess of that initial guidance for 2022 on a call about a year ago.
We also provided initial 2022 adjusted fully diluted EPS guidance for $2022.
Okay.
Dollars 80 per share solidly within that narrow range.
Not only in 2020 to deliver against the initial expectations.
We also continue to deliver on our strategy for the business.
Key strategic investments and strengthening our foundation for long term growth, we believe that as we sit here today, we're squarely headed towards our vision of being a meaningful part of that future products technologies and services that our customers will develop and commercialize to power. The next generation of health care solutions.
So let's discuss some of the recent results in more detail.
Here on slide 17, we begin with our GAAP numbers, our GAAP net income before Noncontrolling interests was 87 million for the fourth quarter of 2022. This compares to 127 million for the fourth quarter of 2021, GAAP net income for the year was $491 million compared to $469 million for 2021.
Note that certain prior year amounts were adjusted for the lease accounting standards change required under ASC 842.
Income from operations was $109 million in the quarter operating margin was 53%.
Moving to slide 18.
Adjusted EBITDA, a non-GAAP measure was 130 million for Q4 2022 compared to 163 million for Q4 2020, our adjusted EBITDA margin was 63% in the quarter slightly below our expectations for the quarter. The primary reason for this was at the fourth quarter had about a $12 million in <unk>.
Specific noncash related inventory write ups and reserves, mostly tied to excess or expiring clean cap materials and unfavorable manufacturing charges associated with lower expectations for COVID-19 related demand in the near term as well as customers conversion from <unk> to GMP grade materials.
Adjusted EBITDA for the year was $638 million compared with $583 million in 2021.
Moving to slide 19 and EPS.
I believe everyone understands the capital structure of Mara buying our presentation of the various EPS metrics I will move forward with our numbers.
Yes.
EPS was <unk> 28, and fully adjusted diluted EPS was <unk> 35 per share slightly ahead of our stated expectation from last quarter's call 33 per share.
For the year, our EPS metrics for basic EPS of $1 67 per share.
Diluted EPS of $1 67 per share and adjusted fully diluted EPS of $1 80 per share.
That's real onto slide 20, and some balance sheet and other financial metrics.
We ended the year in a very strong cash and net cash position with $632 million in cash and $538 million in long term debt, resulting in nearly $100 million net cash position more to come on that in a bit.
Adjusted free cash flow for the quarter was 100 million for the three months and $591 million for the full year of 2020 to that calculation of adjusted free cash flow a non-GAAP measure is based on our adjusted EBITDA, less capex, which were $130 million and $30 million in the quarter, respectively, and $638 million and 47 million for the full year respectively.
We have used our strong cash flow to make more via a more valuable company.
This has been evidenced by the two highest strategic value acquisition that we have made over the last 12 months as well as the investment in our infrastructure to both the increase long term capacity and uniquely broaden our capabilities.
<unk> further complemented by investing in our organic innovation and commercial teams internally.
Even though our financial performance will face a headwind in 2023, the a comparison to the phenomenal years of 2021 and 2022, we remain fully committed to building more of that this year for growth and the opportunity we see ahead.
Capital expenditures in the quarter or a little less than our forecast and ended the year at $47 million. We saw some capex shift from Q4 into the first part of 2023, primarily tied to some longer lead times for certain expansion items and a slight shift in timing of installation and outfitting of argument new facilities I'll touch more on the 2023.
<unk> for these facilities and our guidance commentary.
Returning to our strong cash position in the first quarter of 2023, we used $70 million of cash for the upfront consideration to acquire Alfa Zhang.
However, since the end of the year, we also collected over half of the $139 million and euro in accounts receivable that reflected the strong fourth quarter revenues. Thus we have added another great asset tomorrow by family, while still remaining a strong net cash position as I speak here today.
Further as you have seen from our statement of income we generated over $2 million in interest income in the quarter as a result of rising interest rates that restructure our treasury operations to consolidate and sweep excess cash into interest yielding accounts with our banking partners. This activity combined with our interest rate cap contract that is generating cash flows when are affected.
Exceeds six 5% should help control our net interest costs in 2023, we are anticipating our interest expense on our debt to be netted down by both our interest rate cap contract and interest income to get us to an estimated range at 20 million to 22 million of net interest expense, which would be an effective.
And that rate of about 4%. We believe this is an effective and five extra for us that mitigates rate risk and keeps up with the ability to use our balance sheet to pursue further acquisitions in 2023.
Let's transition to slide 21 in the discussion at the segment performance in the quarter.
Our nucleic acid production, our napp segment, which includes products from our trailing and research Mike Hammond cellular assets and starting in January 2023 will include the contributions from Mount design had revenues in the fourth quarter of $189 million and adjusted EBITDA of $135 million a margin of 71%.
For the year for net revenue was $813 million adjusted EBITDA was 638 million for a margin of 79%.
Now slide 22 in biologics safety testing, which includes products from our sickness and monthly assets. He's had revenues of $15 million in the fourth quarter and adjusted EBITDA of $11 million and margin of 73% for the year revenue was $70 million adjusted EBITDA was $55 million a full year margin of 78%.
Corporate expenses, which support both our segments and marrow by corporate efforts, including the shared service functions.
<unk> leadership, human resources, finance, and accounting facilities legal compliance quality and Corp, Dev and strategic marketing totaled $17 million, a quarter and $55 million for the year.
Turning to slide 23.
2023 is a very challenging year to forecast given the inherent uncertainties tied to COVID-19 demand continued variability in the China market inventory rebalancing dynamics and an ever increasing breadth of underlying customers.
We have seen a fair amount of both quarterly and annual overall fluctuations with our business are a reflection of a unique period of time, we have been in for mrna technologies as we sit here at the end of another year, we look back over the course of the last four years from our VI and underlying all the highs and lows as a very solid base business one that has grown steadily.
$124 million in total revenues in 2000 $18 million to $283 million in 2022, a base business CAGR of 23%.
From those early years as a private company acquiring integrating unique founder based companies through the last three years building out our capacity and helping our customers with critical materials to address the recent viral pandemic. We now enter yet another phase from Ara by here in 2023, our goals for 2023 are to continue to invest in our business to have that breadth and depth.
Bob brings to support our customers for the wave of growth over the next decade over the next year, our historically high margins will be pressured by the costs associated with our increased infrastructure. However, we believe that we're making the right decisions for our customers and our shareholders.
We are seeing an increasing focus by the market on evaluating long term partners that can support them to the many phases of development and up to and even through commercialization.
Additionally, we believe that we need to offer as many of the unique products to support our end markets combined with the value of our experience and service levels and the full spectrum of quality levels from Oreo to GMP and needs all will serve as key differentiators in the markets we serve.
While it would be financially ideal to offload or defer some of the costs that allowed us to reach the levels of financial success over the last two years to future years and those revenue levels can be achieved again that is just not a reality the customer decision points and technology platform decisions for products that we'll launch over the next decade are happening today and Thats, we need to maintain her in and.
Increase our expenditures in support of that long term opportunity.
Now getting to our detailed financial expectations for 2023 on slide 24.
We currently anticipate 2023 revenues to be in the range of 420 million to $460 million with an assumption of around $100 million in clean cap revenues for COVID-19 related vaccine demand.
Our current estimate for clean cap revenues has approximately $16 million in firm commitments already in hand for 2023.
We see the roughly $60 million in hand to be relatively evenly spread over 2023, and the remaining $40 million likely to occur in the second half to late 2023, certainly there's a large range of outcomes for COVID-19 related demand in 2023.
Overall, we see the base business revenues in the range of 320 $360 million, which would reflect base, but that just over 20% at the midpoint over the comparable 2022 base business revenues of $283 million included in the space business total for 2023 is around a couple points of estimated revenue growth contribution in 'twenty.
Like asset production segment from the <unk> acquisition.
Breaking the revenue contribution down to a level, we see that nucleic acid production segment base business growing in the low 20% range, while we see the biologic safety testing business is growing in the low teens.
We see adjusted fully diluted EPS in the range of 32 to 38, and adjusted EBITDA between 170 and $190 million.
The range is based on the following additional expectations as listed on Slide 25 interest expense as access discussed net of interest income between $20 million and $22 million depreciation and amortization between 36 million and $40 million equity based compensation, which we show as a reconciling item between GAAP and non-GAAP EBITDA to be between 30.
$4 million and $38 million. This is all based on an agile fully converted share count of 252 million shares for 2023, and an adjusted effective tax rate of 24%.
Turning to slide 26.
We also continue to complete our facility expansion.
The move of our biologics safety testing business to its new purpose built facility in Lima in North Carolina, which is already housing key personnel and for which the full transition will be completed here in the first part of 2023.
Additionally, the Flanders facility continues in full swing with Flanders, when construction wrapping up and anticipated occupancy near the end.
Flanders too is on track for completion in occupancy in the second quarter. As we have previously discussed Flanders brings key building redundancy increase capacity and unique quality capabilities tomorrow that.
Lastly, our specific center facilities on target for completion in the first half of 2023 and will house, our corporate functions as well.
Overall, the completion of these facilities in 2023 provides us with key foundational facilities to support long term growth and can support revenue volumes of $2 billion plus at full utilization.
To support the completion of these strategic capital investments, we anticipate capital expenditures in 2023, we had a net range of $55 million to $65 million with roughly $40 million of that tied to the specifics facility build outs that I mentioned.
As for the cadence of estimated financial performance for 2023, we see revenue stream lightly in Q1, and a total range of around $75 million to $80 million and increasing thereafter.
We look forward to a successful 2023 and setting the stage for a return to overall growth with an increasingly valuable marla heading into 2024, I'll now turn the call back over to Carl.
Well, thanks, Kevin and we apologize to those of you on the line and it sounded like there were technical problems on Kevin's line, where some of the things cut out and I assure you what wasn't a strategy to have our CFO line point, just because he was saying important numbers. So if you missed any of that please feel free to ask and be happy to.
A recap any of it for you so to wrap up on slide 28, we had an incredible 22 and are poised for future growth in our base non COVID-19 business in 2023 and beyond.
We believe we are playing in the right target markets with strong leadership positions, while building, our product portfolio and expanding our services offerings and strategically important and high value areas.
From new and improved COVID-19 vaccines to vaccines for influenza and shingles to cell and gene therapies battling cancer. The transformative impact of messenger RNA is having on global human health will only accelerate.
And Moreover are proud of the key role that our customers partners and employees are playing in making that happen.
We're committed to building a strong foundation for long term sustainable growth and will continue to focus on operational excellence innovation and people as our three strategic pillars as we work to catalyze the customer's journey with us.
I'd now like to turn the call back over to Diego to open the line for your questions.
Thank you and ladies and gentlemen at this time well conduct a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Dan Leonard with Credit Suisse. Please state your question.
Thank you for taking the questions. My first question is on the guidance phasing for 2023.
Kevin I heard your comments on Covid revenue is there anything else we should keep in mind is we're thinking about first half versus second half phasing or otherwise.
Yes, Dan and in addition to the Covid the phasing that I mentioned, obviously with the $60 million or so that's permanent hand being relatively evenly spread and then the remainder likely in the second half or back half I think you know the base business well will start at the low end and ramp from there as well so I think youll see.
A combination of those two items leading to.
The lower revenue share in the first quarter.
And then ramping up kind of progressively on the base business as we see things continue to evolve over the course of 2023.
Understood. That's helpful Flag and then my follow up.
Carl Thank you for all the high level commentary on the cell and gene therapy pipeline Im curious if youre seeing any change in velocity of customer activity, though weather driven by the biotech capital a drought or anything else I mean lines of for example is a company who has flagged softening trends. Thank you.
Sure Dan.
I think that we had commented previously and would say that it's still the case that there is some re prioritization of pipelines, especially among smaller companies for whom cash conservation may be important. So if somebody was work in three to five programs before they may be emphasizing two to three or two to four.
Two of them now so there is some stuff going on at the margin there for sure but in terms of the major players in the industry of the big customers, we really haven't seen that phenomenon.
I appreciate the perspective, Thank you you bet.
Our next question comes from Mac Sykes with Goldman Sachs. Please state your question.
Hi, good afternoon. Thanks for taking my questions, maybe first Kevin just for you on Hey, Karl and Kevin.
Margins.
Your stand the sort of the one offs that occurred in the fourth quarter.
Related to that but as we kind of look towards 'twenty three it looks like kind of math that I did on the implied EBITDA margin for 'twenty three is around 41%, which sort of low end of the range you talked about in Q3, but as we go from sort of the.
The high Sixty's to like 40 41 over the course of 'twenty three can you help us with the cadence of that margin, obviously, it will be coming down, but just kind of maybe help us bridge sort of from a quarter to quarter basis, what margins could look like.
Yeah look I'm not going to go into every exact quarter here, but yes, certainly with the revenue starting out where it is.
The revenues.
A big driver of our margin as you know I mean, obviously as the business scales, we have tremendous leverage and then that reverses itself as we're sitting here today. So I think those margins. After the first quarter will start south of that that midpoint and then progressed over the course of the year to the highest margins probably in the back half of the year, assuming the Covid revenue comes in as we can explore.
That I mean, I think that's just a natural progression again, we're adding the.
The infrastructure, we've talked about here in here now.
<unk>, that's certainly pressures margins.
Doesn't concern us because we think it's the right thing to do but it'll be most apparent here in the first quarter and then I think we see that again much like revenues.
Leveling out as we go up throughout the course of the year.
Got it.
And then just as you think about the are you what is it can be conversion I know there was something last year about the China contract you kind of mentioned something in the fourth quarter I believe but how do you feel your position with Flanders coming online.
The first half of this year to deal with that are you a GMP conversion do you think you have been a better position for 'twenty three to deal with that change as you were saying 'twenty one 'twenty two.
Oh, absolutely there is no question about that and that's the reason for making those investments.
It's just going to individually on the customers as to which direction. They go and I think as we've commented before.
The larger pharma companies, becoming involved with more and more of the programs probably accelerate that.
Got it if I can squeeze one more in just on the Pie chart, you had on modalities for clean cap.
Understanding some of the comments you made previously about the difference in terms of quantity of materials for mrna therapies versus vaccines is there a sort of a mix shift of modalities that you're aiming for in order to shoot for that either a higher quantity of materials or faster growing modality or is it just sort of attaching yourself to as many programs as you can as you move through 'twenty three.
And then kind of build from there I just wanted to get sort of a high level strategy as you think about modalities.
Yes, I wish we were able to target with that specifically, but no I think we welcome all comers, we will enable whatever program, but whatever ultimate scale it may be.
Remember in the early stages all of the customers need the same kind of services at roughly the same skills. So they all start reasonably similar and then they diverge it could become more successful in their indications of improvement.
Thank you.
Mhm.
Our next question comes from Dan Arias with Stifel. Please state your question.
Good afternoon, guys. Thanks for the questions I wanted to just ask a little bit about maybe new business wins, Karl the 70, new programs that you guys identified in that follow up study, what's the rough mix of new customers, where contributions are sort of all incremental versus existing ones and then on the Flanders site.
Can we think about that driving new account wins. This year as you sort of open up your capabilities beyond phase one.
Served this GMP market or is that sort of to Matt's point is that just more of it being ready for a transition that takes place inside the existing accounts.
Yes, let me answer the first part of the question then I'll ask <unk> to comment on your second question about what Flanders enables her team to do.
I think that as we look at the.
Well first of all let me let me go ahead and turn it over to back to you and ask her to comment first and then I'll also let after that Becky.
Sure Carl Hi.
So to answer your first question we had.
Just shy of about 2000, new customers last year suite calculated out to Paul almost 800, new customers last year. So we do see the.
The contribution of new customers being being quite rapid we are making investments in our commercial team to also address penetration in the markets. So specifically in Europe , and Asia, where we think there is.
Sure for us.
As it relates to Flanders, enabling our business, we see that says all really great opportunity. One Flanders, one is going to give us redundancy in manufacturing that's been a big concern with our customers because we are single source structuring cap.
So that gives us some very nice ability to share.
Sure Paul how we have that redundancy and then maintain control.
Right.
Of that critical raw material.
Flanders too is going to bring on later stage manufacturing for GMP and that will be up and running and we believe we have a great value proposition to really trim.
Physician customers from our U all material into phase one and then continue that journey.
Continue their cleanup call.
<unk>.
And the reason I was fumbling around for my answer I was looking for the numbers in detail on those Incrementals 70, I don't have that in front of me. So I can't answer the first part of your question in detail.
Yes, no problem.
Okay.
Recall on your fingertips.
Maybe if I could just ask a follow up Kevin on the BST outlook low teens for the year you guys have historically been pretty positive on your ability to grow above market, there, which was kind of in that low double digit range I think for for viral contamination for wholesale.
Alright, <unk>. So do you think the market growth has just come in a little bit for reasons like China or is this more of a reversion back to market growth rate that presumably accelerates down the road.
Yes, I think Theres, a couple of factors, there and I'll touch on the guidance and perhaps trade combined some color as well.
You know from our perspective, we do see that kind of when you add those two market segments together youre in that 12% to 14% range look we think that's still a good range to target and that's what our market Intel is showing us.
No, we can complement and exceed that to services and through uptick uptake of our marquee.
Asset looks really doesn't have a market. So we're kind of creating that there, but as we guide to 2023, we're still seeing some softness in China.
How how that's going to impact the overall industry. We got those legacy kind of growth rates that we think are the correct ones, but it's certainly starting.
Are you off a little slow so we're trying to be on the conservative end of that range and I think that we again in that low teens range, then up to market range and then I talked about the factors that historically allowed us to outperform and those are kind of sensitivities around that business.
Any color from your end.
Oh, that's good stuff Kevin in the as Karl highlighted the 15 out of 15 figure, we're particularly proud of it.
And participating in car T and gene therapy.
So we also have a.
Diverse geographic business, so China is material to that.
As you've already touched on and Karl also recently referred to the prioritization of some programs. So there is a general activity.
Call there, but we are not concerned about our competitive position.
And we do have the exciting growth vectors of the new segment of Murphy and and growth in services that we expect to continue.
Okay very good thanks, so much guys.
You bet.
Our next question comes from Catherine Schulte with Baird. Please state your question.
Hey, guys. Thanks for the questions I guess first you know we had a large mrna player readouts in next flu vaccine data last week and while not a customer of yours I guess, what's your take on that data and.
And do you think it has a broader read through to the potential mrna as well.
Catherine.
I haven't studied in detail, so probably not the best Guy to ask the question, but I would say that.
Each one of these trials and flu can.
Can be done at a different time and a different place with a different design of the targets sequences that youre going after so I think one one heads up comparison is probably not enough to draw a conclusion about the class and when you see a little bit more data from <unk>.
Those arent beyond took and others, who are working on these kind of programs like <unk> I think you'll be able to draw that conclusion.
Okay got it and then basically with acid production increased over 35% sequentially and more than doubled year over year any one time orders in the fourth quarter that we should be aware of and how should we think about the cadence of that business.
Three.
Kevin do you want to handle that.
Yeah sure Catherine Yeah, again, we had I mean, it was a really strong quarter, obviously, but.
You are saying looking at the numbers.
We did have some standup standalone clean cap orders for some non COVID-19 vaccine programs in there.
<unk> seen that spike in every now and then and that was a bit of a driver there as well and that will.
Lead to a little bit of softer numbers coming out of the gate for 2023, just based on a timing perspective.
So I think you'll see that as we progress throughout the course of 'twenty three starting low on the base business in Nap, and then and then kind of trending sequentially each quarter based on how we see it today as you know, we'll see we'll see those type of.
Standalone clean cap orders for non Covid indications.
Pretty light here in the first part of the year as people use that for their current phases, and then pick up again in the second half.
Alright, great. Thank you.
Got it.
Thank you and the next question comes from Taz <unk> with Morgan Stanley . Please state your question.
Hey, guys good evening and thanks for the time here.
Paul maybe maybe one for you on <unk>.
Any any updates on that in terms of your recent conversations with your marquee customer you are.
And as you sort of thought about this philosophically in terms of framing the guide why not move towards only including firm commitments. It sounded like you know about 60% of that 100 at least in 'twenty. Three was formed commitment. So just just any color around that given the variables at play right, including inventory levels and the transition to a commercial mark.
In the U S and then you've got the combo box potentially in 'twenty five.
That would be super helpful.
Sure happy to do that Oh look in your Crystal ball is probably as good as mine, so I'm not going to claim any promising here and knowing exactly what's going to happen, but we tend to consult the best available data sources that are out there that have a track record of having been corrected.
And I would say viewpoint generally towards Ericsson if he has the best commercial do source.
Billable and pretty thoughtful in the way that they do it and knowing what we know from their estimates of the number of vaccines and sort of the utilization.
I'll call. It the wastage rate that goes into the manufacturing of vaccines, and then wait or distribution, we still feel pretty comfortable in that $600 million range and I think there was 590 million that it ties very nicely with our 100 million dollar estimate as to why we do.
Don't just show you the $60 million because honestly, we believe there is upside there we don't know today exactly where that upside will come from but that's based on our on both our past experience center and stinker here. So if I only gave you the forecast.
If I only guided you to all of the orders I have in hand, you'll probably wouldn't be terribly satisfied with that so this is a reasonable compromise, but if you look at the delta between the two years going from sort of $600 million. This past year down to a $100 million that puts us at 15, 16%.
Of utilization, we think Thats, a fair reflection of the realistic.
Downturn in vault and vaccine volumes.
Got it that's super helpful.
And then one follow up on the the Org update that you highlighted here guys. I mean, it sounds like you're really focused on this one stop shop value proposition versus the standalone sort of operating company structure underpinned by the amount of life services you know.
That you outlined on that slide so can you help us dimension, how many of your customers today by more than one solution from you.
The analysis, you've done on opportunities to increase account penetration and cross selling and then just just examples of Assam.
Significant bundling potential in the portfolio.
Yes look let me start and then again I'll phone bullet over to Becky to finish up but I think that as we look at it right now with our existing products and services coast customers. There is a significant overlap between those two that was put out.
Academic and smaller customers aside and just focus on the biotherapeutic market. So a lot of those customers will buy components from our will initially come to us to get there mrna construct and potential targets made.
In a rapid fashion and then made by products and services from US later as they develop these programs, whereas they make choices to in source things and then buy components like clean cap for their own usage. So that does occur a lot there will definitely be a significant overlap with.
The enzyme customer base with Alpha design, we haven't bottom that out so I don't have any numbers for you right now.
Would you like to talk a little bit about your thoughts on cross sells.
Yeah.
Yeah.
It's a very good question.
We're highly focused on.
Obviously, our objective is to continue to focus on high quality high purity mrna and all the components.
Matt.
And so we some of the things that we have done this year.
Separate out our sales team. So we have a very focused team on products.
Focus keenly on services.
Perhaps an oversight and how they go to market.
Communicate and partner with customers. So we are very focused on.
Selling more to our existing clients as well as.
Taking taking share.
The market is growing organically.
Got it Super helpful.
Thank you yeah. So.
So do you think we're at the top of the hour now so with that perhaps you could turn it back over to Deb. Thank you Sir and correctly you have now reached the end of our question and answer session and I will turn the call over to Debra Hart for closing remarks.
Well, thank you and thank you everyone for joining us today apologies if anyone's in the queue that we didn't have time to get to we will be answering questions wrapped this afternoon and evening to hope to catch up with you. There were also attending several financial conferences in March and hope to meet with some of you that thanks, so much for your time.
Thank you. This concludes today's conference all parties may disconnect have a great evening.